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Executives

Ken Kobayashi – President and CEO

Ryoichi Ueda – CFO

Mitsubishi Corporation (OTCPK:MSBHY) F4Q12 Earnings Call May 14, 2012 3:15 AM ET

Ken Kobayashi

Hello. I am Ken Kobayashi, President of Mitsubishi Corporation. Thank you for attending today's operating results presentation. I would like to kick off the presentation by summarizing our results for the year ended March 2012 and discussing our forecast for the year ending March 2013.

For the year ended March 2012 we posted net income of 453.8 billion yen. This result was in line with our initial forecast of 450 billion yen. We began the past fiscal year still facing uncertainties about the future and the aftermath of the great east Japan earthquake that occurred in March 2011. However should having positioned the year, the second of our midterm corporate strategy 2012 as a year for action we made steady progress executing projects that we planned when we formulated our management plan.

Our CFO, Mr. Ueda will explain our results in more detail later but for now I'd like to summarize them. In a word amid an extremely uncertain operating environment we delivered a more balanced performance by capitalizing on our strengths in each of our business groups.

Firstly in resource related fields the energy business group posted record net income in excess of 100 billion yen for the first time. This segment got a major boost from higher-than-expected crude oil prices. However in the metals group our Australian coking coal business, which accounts for more than half of this segment's earnings saw earnings fall short of projections.

In the first half of the fiscal year this business faced recovery efforts from damage caused by heavy rains from two years ago. In the second half of the fiscal year an industrial dispute affected operations. Turning to non-resource fields, the Machinery Group recorded earnings that far exceeded the initial forecasts as it worked to tap into growth and growing markets including automobile related operations in Southeast Asia.

Chemicals group posted net income of 37.1 billion yen for the year ended March 2012, a record performance for this segment. The segment saw higher earnings from investments to expand operations at business investees over the past several years. The Living Essentials Group and the Industrial Finance Logistics & Development Group both posted higher earnings year-on-year as they steadily grew earnings.

As a result earnings from the two resource related business groups was 292.7 billion yen accounting for two thirds of our total net income. The Ford resource related business groups will collectively returned net income of 163.1 billion yen. So despite the many difficulties we faced in Japan and overseas we were able to compensate for the fluctuation in resource related earnings and still post net income in excess of 450 billion yen.

When we formulated our midterm corporate strategy 2012 1.5 years ago we set the goal of shoring up our profit base to grow earnings while being mindful of asset efficiency and financial soundness. I believe we are making steady progress on this front.

Next I would like to discuss progress with our investment plans. Under our medium-term management plan we plan to invest between 2 trillion yen and 2.5 trillion yen over the three-year period ending March 2013. As you can see from the handout we have invested 1.7 trillion yen over the two years to March 31, 2012 in new projects. Of this 1.3 trillion yen was invested in the year ended March 2012.

The second half of the past fiscal year in particular saw us make some large investments. At the investor meeting last fall for the interim period we spoke about having investments in the pipeline. We steadily made these planned investments. Let me be more specific. In resource related fields we made investments with the aim of ensuring an even more stable supply of LNG and invested in Shell Gas earning diversification in supply sources and in order to strengthen the operating basin metal resources we made new and additional investments in copper, thermal coal and other resources as well as coking coal.

We make investments in non-resource fields too. For instance in the Living Essentials Group we began working with partners in China to develop the meat processing business model that we have built in the Japanese market over many years. Furthermore in the chemicals and industrial finance Logistics & development groups we executed planned investments as can see here.

In the year ending March 2013 and during the course of our next medium-term management plan and beyond, we are determined to reap the benefits of the new investments we made in the year ended March 2012 to boost earnings.

The handout shows an outline of midterm corporate strategy 2012, which I launched when I took over as President the year before last. The plan was announced in July 2010 so we are close to two years into this plan. Last year Japan faced many challenges such as the damage caused by the unprecedented natural disaster in the spring and ensuing energy shortages. Trends in energy resources is an area requiring even greater vigilance in light of political unrest in the Middle East and development of shale gas resources in the U.S. for example.

In Europe the sovereign debt crisis continues to smolder and there are noticeable concerns about an economic slowdown in China. I've mentioned this in various places up to now but this year will see many countries hold elections. As a host of countries around the world concentrate more on their internal affairs we could well see a topsy-turvy political and economic environment for some time to come. These are the dynamics under which we have been reviewing the second-year of the strategy.

That said we don't foresee any major upheavals that might alter the assumptions we made when we formulated mid-term corporate strategy 2012. The year ending March 2013 will be the final year of our Medium-Term Management Plan as planned.

For the year ending March 2013 the final year of Mid-Term Corporate Strategy 2012 as I said we are projecting record net income of 500 billion yen. This would be 46.2 billion yen higher than the results in the year ended March 2012 and a record.

In our Australian coking coal operations which is a major business of the metals group and accounts for a large share of earnings uncertainty persists regarding underlying conditions. However the Energy Business group and non-resource business groups, Machinery, Chemicals, Living Essentials and Industrial Finance Logistics & Development are expected to continue delivering strong earnings performances. We will thus work as a company to achieve our net income target.

Finally let me talk about dividends for shareholders. Because we achieved our full-year net income forecast of 450 billion yen by posting net income of 453.8 eight million yen we have decided to pay an annual dividend of 65 yen per share for the year ended March 2012 as promised at the start of the fiscal year.

For the year ending March 2013 we will target investment opportunities for driving growth and creating corporate value while being mindful of our financial soundness. At the same time I believe that it is important to reward shareholders with a stable dividend where possible.

For this reason we plan to pay a dividend of 70 yen per share for the year ending March 2013 provided we achieve our net income forecast of 500 billion yen. This would be 5 yen higher than the dividend applicable to the year ended March 2012 and would also be a record dividend per share.

That's all from me. I will now hand over to our CFO Mr. Ueda who will discuss the results for the year ended March 2012 and forecasts for the year ending March 2013 in more detail.

Ryoichi Ueda

Hello, I am Ryoichi Ueda, Mitsubishi Corporation's Chief Financial Officer. Today I will talk about our operating results for the year ended March 2012 and forecasts for the year ending March 2013 focusing on our segments.

Please look at page eight. I'd like you to look at the bar graph on the lower-right showing net income on a quarterly basis over the past three years. As you can see from the graph net income in the fourth quarter of the year ended March 2012 dropped from the quarterly performances for the first three quarters of the same year.

This mainly reflected a drop in earnings in resource fields. One reason was lower sales volumes and higher costs at the Australian coking coal operation, Mitsubishi Development Proprietary Ltd. or MDP due to the effects of bad weather and strike action.

Another reason was lower dividend income from overseas resource related businesses in the Energy Business Group. On the other hand non-resource fields such as the Machinery and Living Essentials Groups posted generally solid performances in the fourth quarter as they did in the first three quarters.

Please look now at the cut out for the bar graph for the year ended March 2012 under the graph. This cut out shows how net income trended in each quarter of fiscal year by resource and non-resource field. Net income was roughly the same in terms of share in the resource and non-resource segments in the fourth quarter of the year ended March 2012. The drop in net income in the resource segments was thus supported by net income from non-resource segments.

Next please look at page nine. I'd like to compare net income for each segment with the previous fiscal year. Looking at results for the year ended March 2012 as a whole metals saw a large drop in net income. However all other segments with the exception of machinery recorded robust increases which made up for the earnings drop in Metals. This enabled us to exceed our full year earnings forecast of 450 billion yen.

Now let's look more closely at each segment beginning with the resource segments, energy business and metals. Looking at the graph, you will see the energy business segment in red, second from the top. This segment recorded a 28% year-on-year increase in net income to 120.6 billion yen. This was a record result for the segment. As you can see in the box on the lower right of this slide the main reason was a 30% increase in crude oil prices from the previous fiscal year.

The next segment down on the graph is metals, shown in mustard. Metals recorded net income of 172.1 billion yen, down 59.4 billion yen or 26% from the $231.5 billion yen recorded in the previous fiscal year. This large drop reflected mainly the absence of gains on a share transfer at a (inaudible) iron ore related subsidiary recorded in the previous fiscal year. The post-tax decrease was approximately 20 billion yen and also reflected lower sales volume at the Australian coking coal business.

As a result of the above net income from resource segments totaled 292.7 billion yen which represented a 32.8 billion yen or 10% drop from the 325.5 billion yen in net income recorded in the year ended March 2011.

Next let's look at non resource segments. Industrial Finance and Logistics & Development shown in green, Chemicals shown in yellow and Living Essentials shown in pink, all performed strongly. Each of these segments posted net income increases of more than 20% year-on-year due to the strong performances as well as increases resulting from one off factors that affected earnings in the previous fiscal year.

Incidentally, earnings in both the Chemicals and the Living Essentials segments were records. The Machinery Group shown in purple saw net income decline 11% year-on-year mainly because of the impact of the flooding in Thailand. Nevertheless non-resource segments as a whole little posted net income of 163. 1 billion yen up 14.7 billion yen or 10% from the 148.4 billion yen posted in the year ended March 2011. So the underlying strength of non-resource fields was the noteworthy feature of our operating results.

Now let's look at our forecasts for year ending March 2013. Please look at page 10. Our forecast for the year ending March 2013 for our main income statement line items and core earnings are shown in the part shaded in light blue in the table in the top half of this page. We are projecting a 10% year-on-year increase in net income to 500 billion yen for the year ending in March 2013.

At the bottom of the slide you can see a bar graph showing net income forecast for each segment. We are projecting higher earnings in all business groups for the year ending March 2013. Let me talk first about the resource segments, energy business and metals. In the Energy Business segment shown in red we are projecting an 8% year-on-year increase to 130 billion yen. This projection is premised on crude oil prices remaining high and higher dividend income from overseas resource related businesses

The metal segment shown in mustard is projecting a 7% year-on-year increase to 185 billion yen although there are uncertainties such as the impact of strike action from the previous fiscal year and bad weather in our Australian coking coal operations. The projection assumes a contribution to earnings from Chilean company Anglo-American sort, higher equity in earnings from Australian Company Coal & Allied Industries Ltd. and higher earnings from Metal One Corporation.

Now let's look at non-resource segments. Industrial Finance Logistics & Development shown in green is projecting a 55% year-on-year increase in net income to 22 billion yen. This forecast assumes higher earnings from both the lease business and the logistics related business.

The Machinery Segment shown in purple is also forecasting a net income increase. This forecast assumes a recovery from the impact of the Thai floods in overseas automobile operations. Likewise the Chemicals Segment shown in yellow is projecting higher net income on continued strong transactions especially in the petrochemicals field.

The Living Essentials segment shown in pink is projecting a 17% year-over-year rise in net income to 66 billion yen. This forecast is based on an increase following the recording listed share write downs in the year ended March 2012 and higher earnings on transactions at food related subsidiaries.

Overall therefore we are projecting higher total net income from both the resource and non-resource segments in the year ending March 2013. As a whole we are projecting net income of 500 billion yen which would be 46.2 billion yen or 10% higher than the results in the year ended March 2012.

Page 13 shows the impact of commodity prices foreign exchange rates and interest rates on net income as well as the impact of listed share prices on net income. Please look at these later.

Now please look at page 11. This bar graph shows shareholders equity, net interest-bearing liabilities and net debt-to-equity ratio. The green bar graph shows shareholders equity. Please look at the bar from March 31, 2012 which is second from the right. Shareholders' equity was 3,509.3 trillion yen, 276 billion yen higher than the 3,233.3 billion yen at March 31, 2011. The reasons for the increase are explained in the box on the right.

Basically net income substantially outweighed the payment of dividends and deterioration in foreign currency translation adjustments. Net interest-bearing liabilities is shown by the blue bar graph on the left. The balance at March 31, 2012 was 3,647.4 billion yen, 700.1 billion yen higher than at March 31, 2011.

In the second half of the year ended March 2012 we made some major investments including acquiring an interest in a Chilean copper mine. The funds for these investments came from increased borrowings, mainly long-term debt which was the main reason for the increase in net interest-bearing liabilities.

As a result the net debt to equity ratio at March 31, 2012 was 1.0, 0.1 point higher 0.9 at March 31, 2011. Our policy is to maintain financial soundness by keeping the net debt to equity ratio in the range of 1.0:1.5. We are thus maintaining financial soundness in conformity with this policy. Furthermore we are projecting a net debt-to-equity ratio of 1.0 at March 31, 2013.

Finally please look at page 12. The graph shows the trend in cash flows with the bars at the far right showing cash flows in the year ended March 2012. Pre-cash flows shown by the red line on the graph were negative 550.2 billion yen in the year ended March 2012.

Operating activities provided net cash of 550.7 billion yen due to strong cash flows from operating transactions and firm growth in dividend income from resource related business investees. On a gross basis we made investments of approximately 1,340 trillion yen which was the main reason for investing activities using net cash of 1,100.9 trillion billion yen. While we continued to make relatively large investments in the year ended March 2012 we intend to manage cash flows while keeping a close eye on financial soundness indicator of the net debt to equity ratio.

That concludes my presentation. Thank you for your attention.

Question-and-Answer Session

[No Q&A session for this event]

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