Mitsubishi Corporation (OTCPK:MSBHY) F3Q2011 Earnings Call February 2, 2011 8:00 AM ET
Ryoichi Ueda – CFO
Shuma Uchino – GM of Corporate Accounting Department
Makoto Okawara – GM of IR Department
Hello. I am Ryoichi Ueda, Mitsubishi Corporation’s Chief Financial Officer. Thank you for taking the time today to attend our presentation of operating results for the first nine months of the year ending March 2011.
Let me discuss our operating results with reference to the one-page document on the left side of the screen titled, “Consolidated Results for the Nine Months Ended December 31st, 2010 (US GAAP)” and the PowerPoint on the right side titled, “Results for the Nine Months Ended December 2010.”
I will begin by giving you an overview of our results. Later, Mr. Shuma Uchino, the General Manager of the Corporate Accounting Department; and Mr. Makoto Okawara, General Manager of our Investor Relations Department, will explain our performance in a little more detail.
Please look at the part titled, “Consolidated Income” in the top of the document entitled, “Consolidated Results for the Nine Months Ended December 31st, 2010 (US GAAP)”. From the left of the handout, you will see our results for the first nine months of the current fiscal year, followed by results for the corresponding period of the previous fiscal year, and then our full-year forecasts. On the far right of the handout, our brief comments about the reasons for changes in major line items compared with the same period of the year ended March 2010. In the middle of the handout, you will find net income attributable to Mitsubishi Corporation.
Net income attributable to Mitsubishi Corporation was 359.7 billion Yen for the first nine months of the current fiscal year. This represented a 174.1 billion Yen or 94% year-on-year increase. It also represented an achievement rate of 90% against our 400 billion Yen full-year forecasts. This was attributable to two major trends, as was the case for the first six months of the current fiscal year.
One was the continuation of rising resource prices year on year. The other was strong performances in non-resource fields, including our Asian automobile operations. By segments; all segment recorded higher earnings year on year, with the exception of the Chemical segment, because of special factors in the previous fiscal year.
Next, please look at the columns, showing net income by quarter. Overall, earnings growth slowed in the third quarter, due to the impact of heavy rains in Australia from October 2010, as we assumed in our forecast announced with our interim results. The other reason was one-off factors such as large gains on share exchanges and the sale of listed shares recorded in the first half of the fiscal year. However, net income in non-resource segments grew at a faster pace in the third quarter, then through the first six months of the current fiscal year.
Turning to the assets and liability section, slightly below the middle of the handout; total shareholders’ equity at December 31st, 2010 was 3,149.3 trillion Yen. This was 187.9 billion Yen higher than at March 31st, 2010. Despite deterioration in foreign currency translation adjustments, because of the Yen’s appreciation, total shareholders’ equity rose on account of the net income result. The net debt-to-equity ratio which is an indicator of financial soundness was 0.9, representing an improvement of 0.1.
That completes my overview of our results. Mr. Uchino will now explain our results in more detail.
Good afternoon. I am Shuma Uchino, General Manager of the Corporate Accounting Department at Mitsubishi Corporation. I will explain the highlights of the financial results for the nine months ended December 2010 in a bit more detail.
Please look at the PowerPoint presentation titled, “Results for the Nine Months Ended December 2010” on the right side of the screen. We explained consolidated net income by segment for the first nine months of the current fiscal year in terms of year-on-year comparisons in reference materials issued when we announced our results. Today, I will focus on our quarter-by-quarter performance in the current fiscal year.
First, please turn to page two. In October, we upwardly revised our net income forecast for the current fiscal year from 370 billion Yen to 400 billion Yen. As you can see on this slide, on an accumulated basis, the first quarter saw 140.4 billion Yen, an achievement rate of 35%; the second quarter saw 267.8 billion Yen, an achievement rate of 67%; and as just explained by our CFO, Mr. Ueda, the third quarter saw 359.7 billion Yen, a high achievement rate of 90%. But the perspective changes a bit when you look at net income by quarter. Please look at page 3.
Here, you will see segment net income on a quarterly basis. To begin with, please look at non-resource fields enclosed in “blue”. First quarter net income was 33.9 billion Yen, followed by 31.4 billion Yen in the second quarter, and 46.4 billion Yen in the third quarter.
Industrial, Finance, Logistics and Development in “green”, progressed from 1 billion Yen to 3.6 billion Yen and to 5.4 billion Yen. Living Essentials in “pink”, saw earnings rise from 8.8 billion Yen to 12.5 billion Yen to 15.6 billion Yen over the past three quarters.
Machinery in “purple” saw a slight drop in second quarter earnings, reflecting the absence of positive one-off factors in the first quarter. Third quarter earnings, however, surpassed the first quarter, supported by robust Asian economies. Chemicals in “yellow” posted higher third quarter earnings than the first quarter on strong performances across the board.
Next, please look at resource fields enclosed in “red”. First quarter earnings were 108.4 billion Yen, followed by 94.8 billion Yen in the second quarter, and a noticeable drop-off to 58.3 billion Yen in the third quarter. The Energy Business Group in “red” saw earnings drop 12.1 billion Yen in the third quarter from the second quarter. However, most of this decline was attributable to dividend income timing differences. The oil prices underline our earnings assumptions remain robust. Based on this, the business environment has not deteriorated.
The Metals Group in “olive green” recorded a large decline in earnings of 24.4 billion Yen in the third quarter from the second quarter. Most of this was because of the impact of heavy rains in Australia on MDP. Third quarter earnings at MDP of 23.5 billion Yen were around half the second quarter result of 47.3 billion Yen, in addition to lower unit sales prices. This decline reflected a drop in sales volumes as a result of the rain from 8.3 million tons to 7.1 million tons and higher costs for mitigating the impact of heavy rains.
The Metals Group decline in net income of 24.4 billion Yen from the second quarter to the third quarter can mostly be attributed to the 23.8 billion Yen decline in earnings at MDP. When we upwardly revised our full-year net income forecast of 400 billion Yen at the end of October 2010, we factored in the impact of unseasonable weather in Australia on MDP as a risk factor. In addition to the impact of rains up to now, with Australia entering cyclone season as evidenced by the massive cyclone currently bearing down on Australia’s coast, we must remain watchful of conditions in the fourth quarter.
Excluding MDP, dividend income from copper and other business industries was steady, resulting in earnings mostly on a par with the previous quarter. Although, there is a possibility that MDP will show lower results in the fourth quarter, in terms of the general business environment, underlying conditions remain strong. In light of this, we expect consolidated net income to continue growing robustly in resource and non-resource fields. Consequently we believe that we can achieve our full-year 400 billion Yen forecast, even if Australian cooperation suffer a relatively large negative impact.
Continuing on, please turn to page four. The top table shows the impact of commodity prices. Foreign exchange rates and interest rates are net income attributable to Mitsubishi Corporation. The figures in the far left column are assumptions for the second half of the fiscal year used for our full-year forecast issued in October 2010. To the right of these in “blue” are the actual figures for the third quarter.
As you can see, foreign exchange rates and commodity prices have both moved positively from those assumed when we projected full-year earnings. Commodity prices, in particular, have been stronger, since the beginning of January. Incidentally, as of February 2nd, 2011 the Dubai spot price for crude oil was around $90 per barrel, while copper was nearly $10,000 per metric ton, and aluminum was around $2,500 per metric ton.
The table at the bottom of the page shows the amounts for write-downs of available for sale marketable securities for the first nine months of the current fiscal year, as well as the amount factored into full-year forecasts. We factored in 9 billion Yen for write-downs assuming a Nikkei average of 9,000 Yen. But at the end of December, the Nikkei average was 10,229 Yen, over 1,000 Yen above our assumption. Incidentally, the write-down figure in the third quarter was 0.1 billion Yen, because of the strong stock market. On an accumulated basis, that means we had 8 billion Yen in write-downs through the end of December 2010, 1 billion Yen less than the 9 billion Yen we forecasted.
Please look now at page 5. This graph shows trends in shareholders’ equity and net interest bearing liabilities. In our Midterm Corporate Strategy 2012, which we announced in July last year, we outlined a policy of making constant investments going forward. We constantly monitor the balance between shareholders’ equity and net interest bearing liabilities from the perspective of the soundness of our financial base, which supports this policy.
First, the “green bar” in the second set of bars from the left on this graph, shows the total shareholders’ equity at the end of March 2010, which was 2.961 trillion Yen. The balance at September 30th, 2010 was 3.067 trillion Yen. And at the end of this past December, total shareholders’ equity increased to 3.149 trillion Yen. So there has been a steady increase.
Shareholders’ equity at December 31st, 2010 was 82.1 billion Yen, higher than at September 30th, 2010 despite the payment of dividends and deterioration in foreign currency translation adjustments due to the Yen’s appreciation against the US dollar. These negative factors were outweighed by an improvement in net unrealized gains on securities available for sale and the net income results.
Net interest bearing liabilities stood at 2.930 trillion Yen at September 30th, 2010 and 2.905 trillion Yen at December 31st, 2010. So the figure was almost the same as the 2.955 trillion Yen at March 31st, 2010. As a result, the net debt-to-equity ratio was 0.9 at December 31st, 2010, slightly lower than the 1.0 at March 31st, 2010. So the ratio has been maintained at roughly the same level as March 31st, 2010. This shows that we have maintained strong financial soundness.
I would now like to ask Makoto Okawara to talk about progress with investments.
I am Makoto Okawara, General Manager of the Investor Relations Department. Please look at page six. We plan to invest 2 trillion Yen to 2.5 trillion Yen during the period covered by Midterm Corporate Strategy 2012. We made gross investments of 70 billion Yen in the third quarter. For the first nine months of the current fiscal year, investments on the same basis were 270 billion Yen.
Looking first at strategic domains, which are overseen directly by our President, total third quarter investments were 15 billion Yen. This included an investment for the acquisition of Australian water utility, United Utilities Australia. Investments for the nine-month period were 27 billion Yen.
Next, investments in mineral resources and oil and gas resources were 20 billion Yen in the third quarter. This included investments for maintaining and expanding coking and thermocol operations in Australia. Investments for the nine-month period were 125 billion Yen.
Finally, third quarter investments in non-resource fields including industrial finance totaled 35 billion Yen. This amount included investments in aircraft for leasing and ship related operations. Investments during the nine-month period in non-resource fields were 118 billion Yen.
Within our planned investments, there are some that we now won’t make until the next fiscal year. Even if we don’t achieve our initial target of 700 billion Yen to 800 billion Yen for the current fiscal year, we have not changed our plan to invest 2 trillion Yen to 2.5 trillion Yen during the course of Midterm Corporate Strategy 2012.
This year is the second year of our Midterm Corporate Strategy 2012. We view this year as one of action and execution. We will, therefore, launch and push through specific initiatives to achieve our midterm targets and strengthen and expand our earnings drivers.
With that, I would like to conclude our presentation.
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