Earnings Transcript for 8031.T - Q4 Fiscal Year 2024

Kenichi Hori: Good morning. I’m Kenichi Hori, CEO. Thank you for joining us today. As we enter the second year of the Medium-term Management Plan 2026, I want to touch on the results of the first year as our management policy and the progress of our business plan. Then I will hand over to Masao Kurihara, General Manager of the Global Controller division, who will speak on the results of fiscal year March 2024 and the business plan for fiscal year March 2025 in more detail. In the current Medium-term Management Plan, or MTMP, we’ll continue to provide value through global and cross-industry business development, leveraging our strengths. Our track record in terms of business performance is as follows

Masao Kurihara: I am Masao Kurihara, General Manager of the Global Controller division. I will now provide details of our operating results of FY March 2024 and the business plan for FY March 5. First, I'll explain the main changes in COCF by segment compared to the previous fiscal year. In FY March 2024, COCF decreased by JPY 209.7 billion to JPY 995.8 billion. In Mineral & Metal Resources, COCF decreased by JPY 27.6 billion to JPY 409.1 billion, mainly due to the decline in metallurgical coal prices and a decrease in dividend income from associated companies. In Energy, COCF decreased by JPY 171.8 billion to JPY 247.8 billion, mainly due to lower crude oil and gas prices, lower earnings in LNG trading and production decrease in some LNG and crude oil upstream projects. In Machinery & Infrastructure, COCF decreased by JPY 6 billion to JPY 176.9 billion, mainly due to an increase in taxes associated with asset recycling. In Chemicals, COCF decreased by JPY 26.1 billion to JPY 63.4 billion, mainly due to a fall in the prices of fertilizers, fertilizer raw materials and feed additives. In Iron & Steel products, COCF decreased by JPY 9.5 billion to JPY 8.5 billion, mainly due to a decrease in dividend from associated companies. In Lifestyle, COCF increased by JPY 9.1 billion to JPY 40.2 billion, mainly due to increase in dividends from associated companies and the swing back of the losses in coffee trading recorded in the same period of the previous fiscal year. In Innovation & Corporate Development, COCF decreased by JPY 1.2 billion to JPY 45.4 billion. Other factors such as expenses, interest, taxes, et cetera, which are not allocated to business segments; totaled JPY 4.5 billion. Next, I'll explain the FY -- March 2024 main changes in profit by segment compared to the previous fiscal year. Profit decreased by JPY 66.9 billion to JPY 1,063.7 billion. In Mineral & Metal Resources profit decreased by JPY 103.7 billion to JPY 335.1 billion due to decrease in profit contribution following the sale of SMC and metallurgical coal business in Australia in the third quarter of the previous fiscal year and the fall in prices of metallurgical coal. In Energy, while a onetime profit was recorded, profit decreased by JPY 27.7 billion to JPY 281.7 billion, mainly due to lower crude oil and gas prices, a decrease in LNG trading and production decrease in some LNG and crude oil upstream projects. In Machinery & Infrastructure, although there were impairment losses for the renewable energy business and the Brazilian railway business, profit increased by JPY 76.8 billion to JPY 248.7 billion, mainly due to the gain on sale of a European locomotive leasing business and multiple power generation businesses and good performance of multiple businesses, [Fitel] ships, VLI and industrial and construction Machinery. In Chemicals, profit decreased by JPY 31.7 billion to JPY 39.2 billion, mainly due to a decrease in profit from trading and a fall in prices of fertilizers, fertilizer raw materials and feed additives. In Iron & Steel Products, profits decreased by JPY 11.3 billion to JPY 11.2 billion, mainly due to an impairment loss in an associated company and lower demand. In Lifestyle, although there was a valuation loss on put options, profits decreased by -- profits increased by JPY 39.3 billion to JPY 94.1 billion, mainly due to fair value gain of AIM Services and profit recorded due to asset recycling. In Innovation & Corporate Development, although a fair value gain associated with the integration of Altius Link was recorded, profits decreased by JPY 12.9 billion to JPY 53.8 billion, mainly due to a year-on-year decrease in profit from asset sales and the decline in profit from commodity derivatives trading due to the good performance recorded in the previous fiscal year. Other factors such as expenses, interest, taxes, et cetera, which are not allocated to business segments; totaled minus JPY 0.1 billion. This page shows the main factors influencing changes in FY March 2024 profit against the previous fiscal year. Base profit decreased by approximately JPY 87 billion. Although there was an increase in LNG dividends and there were performance improvements mainly in the power generation business and the automotive business in the Americas, there was a decrease in trading profit, mainly in LNG, chemicals and grain and increase in interest expenses and a decrease in profit contribution following the sale of SMC in the previous fiscal year. Resources cost/volume resulted in a decrease of approximately JPY 76 billion, mainly due to a production decrease in some LNG and crude oil upstream projects, increasing depreciation and exploration cost in energy upstream projects, an increase in fuel and labor costs in the Mineral & Metal Resources projects. Asset recycling resulted in an increase of approximately JPY 100 billion, mainly due to MRCE a European locomotive leasing business, the realization of energy-related foreign exchange and gains on the sale of real estate and the U.S. Kaikias oil field. In commodity prices and ForEx, profit decreased by approximately JPY 46 billion. For commodity prices, profit decreased by approximately JPY 83 billion due to lower crude oil and gas prices and JPY 24 billion due to a fall in metallurgical coal prices in Mineral & Metal Resources, which resulted in a decrease of approximately JPY 107 billion in total. For ForEx, profit increased by JPY 61 billion, mainly due to the weaker yen. Valuation gain or loss increased approximately JPY 42 billion, mainly due to gains on the reversal of asset retirement obligations in the Energy segment and a fair value gain from the revaluation of AIM Services despite impairment losses on several projects. Now let's look at the balance sheet as of the end of FY March 2024. Compared to the end of FY March 2023, net interest-bearing debt increased by approximately JPY 0.2 trillion to JPY 3.4 trillion. Meanwhile, shareholder equity increased by approximately JPY 1.1 trillion to JPY 7.5 trillion. As a result, net DER fell to 0.45x. The business plan for FY March 2025 for COCF is shown for each segment. Although COCF is expected to decrease from the previous year in the Mineral & Metal Resources and Machinery & Infrastructure segments, we plan to achieve JPY 1 trillion, the same amount as the previous year, due to steady accumulation in other segments, mainly in the Energy segment. This is a business plan for profit by segment for FY March 2025. Our plan shows a decrease in profit by JPY 163.7 billion from the previous year to JPY 900 billion, mainly due to the absence of the onetime gain recorded in the Energy segment in the previous year. Page 24 shows a comparison of plan for FY March 2025 and the results for FY March 2024 with a summary of the factors involved. For base profit, in addition to strengthening and turnarounds of existing businesses, mainly in affiliated companies of Lifestyle, Chemicals and Iron & Steel products segments, we expect new businesses, including those in protein, mobility and functional food ingredients; to start contributing to profit. However, we expect a profit increase of about JPY 11 billion, mainly due to decreased profits in LNG trading and mobility businesses. For resources cost volume, we plan on a decrease of approximately JPY 19 billion due to increase in operating costs, mainly in Energy upstream businesses. As for asset recycling for FY March 2025, while we expect approximately JPY 78 billion from asset sales, including the sale of the Paiton power generation business and the partial sale of VLI, we plan for a depreciation of approximately JPY 85 billion due to the absence of asset recycling gain recorded in FY March 2024. Commodity prices, ForEx is planned to result in a profit decrease of approximately JPY 31 billion, mainly due to a decrease in iron on prices. Finally, for valuation gain loss and onetime factors, we expect a decrease of approximately JPY 9 billion, mainly due to the effect of a JPY 20 billion burden increase related to the amendment to the retirement benefit system. That concludes my presentation. Thank you.

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