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Executives

Ryoichi Ueda – Senior Executive Vice President and Chief Financial Officer

Mitsubishi Corporation (OTCPK:MSBHY) F1Q13 Earnings Call August 2, 2012 12:00 PM ET

Ryoichi Ueda

Hello, I’m Ryoichi Ueda, Mitsubishi Corporation’s Chief Financial Officer. Thank you for taking the time to attend our presentation of operating results for the first three months of the year-ending March 2013.

Let me discuss our operating results, with reference to the presentation in the centre of the screen entitled Results For The Three Months Ended June 2012. Please refer to the documents on the left later.

Now, please look at page two. Please look at the part titled consolidated income in the top of the handout. From the left of the handout, you will see our results for the first three months of the previous fiscal year, followed by our results for the three months ended June 2012. And then our full year forecast for the year ending March 2013. On the far right of the hand out, our brief comments about the reasons for changes in major line items compared with the same period of the previous fiscal year.

Results for the three months ended June 2011 have been restated in accordance with the accounting standards to reflect the impact of applying equity method accounting to new entities in the third quarter of the previous fiscal year. As a result of this restatement consolidated net income was revised from 115 billion yen to 115.7 billion yen for the three months ended June 2011.

In the middle of the handout, you will find net income attributable to Mitsubishi Corporation. Net income attributable to Mitsubishi Corporation was 98.1 billion yen, for the first three months of the current fiscal year. This represented 17.6 billion yen or 15% year-on-year decline. This result mainly reflected much lower earnings in the Metal segment, because of the impact of protracted strike action at an Australian coking coal business and lower dividend income from the copper business.

While earnings rose year-on-year in the Energy business segment due to higher dividend income and in the Machinery segment were Automobile operations performed strongly, these increases were unable to fully offset the drop in Metal segment earnings. The consolidated net income result represented in achievement rate of 20% against our 500 billion yen full year forecast.

Please now look at page three. This slide shows a year-on-year comparison of consolidated net income by operating segment. Let me start by explaining the year-on-year changes in the resource related segments namely Energy Business, and Metals.

Second from the top of the bar graphs you will see Energy Business in red. This segment recorded consolidated net income of 54.3 billion yen, which represented a large jump of 24.2 billion yen or 80% from 30.1 billion yen, in the first three months of the previous fiscal year. This increase was mainly due to higher dividend income from overseas resource related business investees and higher equity-method earnings from overseas resource-related companies in line with higher crude oil prices.

Under this segment is the Metal segment shown in mustard. The Metal segment recorded consolidated net income of 6 billion yen, a sharp decline of 52.4 billion yen or 90%, from 58.4 billion yen. The large drop was attributable to the impact of strike action at MDP and lower dividend income from copper related business investees. As a result of the above total consolidated net income from resource segments declined 28.2 billion yen from 88.5 billion yen to 60.3 billion yen.

Next in non-resource segments, the Industrial Finance, Logistics & Development segment, which is shown at the very top of the bar graphs in green, so consolidated net income rise 2.4 billion yen from 0.5 billion yen to 2.9 billion yen. This reflected improved earnings from leasing related and overseas real estate businesses.

Fourth from the top, shown in purple is the Machinery segment. Consolidated net income rose 3.1 billion yen or 22% from 14 billion yen to 17.1 billion yen. This increase was due mainly to a strong performance in Asian automobile related operations.

The Chemical segment shown under Machinery in yellow, recorded consolidated net income of 7.2 billion yen, which was down 4.3 billion yen or 37% from 11.5 billion yen in the same period of the previous fiscal year. This decline reflected the strong transactions at the parent and a petrochemical related company in the first three months ended 2011.

Finally, the Living Essentials segment shown in pink saw earnings decline 1.4 billion yen or 13% from 10.7 billion yen to 9.3 billion yen. Despite the absence of disaster related losses at affiliated companies in Japan that were recorded in the same period a year earlier. The decrease mainly reflects lower earnings on transactions at food related subsidiaries. As a result of the above, total consolidated net income from non-resource segments was 36.5 billion yen, which was almost the same as the 36.7 billion yen recorded in the three months ended June 2011.

Overall therefore the drop in resource segments was covered somewhat by strong performances in non-resource segments. The ratio of net income from resource and non-resource fields was 6 to 4 compared with 7 to 3 in the same period a year earlier. This means of course that non-resource segments accounted for a greater share of earnings.

Please look at page four. This graph shows trends in shareholders’ equity and net interest bearing liabilities. Total shareholders’ equity at June 30, 2012, which is shown by the bar on the far right in green was 3,446 billion yen. This represented 63.3 billion yen decline from 3,509.3 billion yen at March 31, 2012. The reasons for the decrease are explained in the box on the right. The main reasons for the decrease were the payment of dividends during the period and the decline in shareholders’ equity due to following share prices and the yen’s appreciation. That interest bearing liabilities at June 30, 2012 which is shown by the bar on the far right in blue increased 166.8 billion yen to 3,814.2 billion yen.

As I’ll explain when I talk about cash flows later, this was due to increased borrowings for executing new investments. As a result of the above, the net debt-to-equity ratio, at June 30, 2012, was 1.1; 0.1 of a point higher than 1.0 at March 31, 2012.

Our policy, during the course of mid-term corporate strategy 2012, is to maintain financial soundness, by keeping the net debt-to-equity ratio in the range of 1.0 to 1.5. With the ratio standing at 1.1, at June 30, 2012, we are managing to keep within this range.

Next please look at page five. The graph on this slide shows the trend in cash flows. The blue bars show operating cash flows, representing net-cash provided by operating activities. While the green bars show investing cash flows, representing net cash used in investing activities. Free cash flows, operating cash flows minus investing cash flows are shown by the red line on the graph.

Please look at the far right of the graph. Free cash flows were negative 136.7 billion yen in the three months ended June 2012. This was a change of approximately 200 billion yen from the positive free cash flows in the same period of the previous fiscal year. Operating activities only provided net cash of 34.4 billion yen due to lower cash flows from operating transactions at our Australian coking coal business, MDP. As well as a delay in the receipt of some dividends until the next quarter, and one-off factors such as an increase in working capital requirements. In contrast investing activities used net cash of 171.1 billion yen, due to the execution of new investments, as originally planned.

Please look at page six. This shows the status of investments. As I’ve already explained, we made investments of approximately 210 billion yen in the three months ended June 2012. That means that during the course of mid-term corporate strategy, 2012 thus far, we have made total investments of 1.92 trillion yen. Among actual investments in resource fields in the first quarter we continue to invest in our Australian coking coal operations. Made a new investment in a Canadian PGM business and continue to invest in shale gas assets.

In non-resource fields, investments centered on ongoing projects, namely real estate businesses in Japan and overseas, the aircraft leasing business and the ship owning and chartering business. We continue to execute our investment plans, while be in mindful of concentrating risk and carefully choosing prime investment projects.

Please look at page seven. The top table shows the assumptions for our full year forecasts and trends in the three month period ended June, 2012. In respect of the foreign exchange rate, interest rates, and commodity prices, which can impact net income attribute to Mitsubishi Corporation.

Looking at financial markets, the Yen, U.S. dollar was in line with our assumed rate for our full year forecasts. U.S. dollar and the Yen interest rates were lower than we assumed at the beginning of the fiscal year. In terms of commodity prices crude oil, copper, and aluminum were all lower than our full year assumptions. We’ve recognized therefore that we must watch trends going forward, because not only commodity prices, but also the exchange rate are now creating a bit of a headwind as we work toward our full-year forecasts.

The table at the bottom of the page shows write-downs of available for sale marketable securities. In our full-year forecast we have projected total write-downs of listed shareholdings of 10 billion yen after-tax, assuming a Nikkei average of 9,000 yen. Write-downs of listed shareholdings were 1.6 billion yen, in the first three months ended June 2012. Given that then Nikkei average has been drifting downwards, since the end of June. We must continue to closely follow share price trends.

Finally, a word on our full-year forecasts for the year ending March 2013, as touched on earlier our consolidated net income achievement rate for the three months ended June 2012, was 20% against our full-year forecast of 500 billion yen. The impact of strike action at our Australian coking coal operations was factored into our initial projection to a certain extent, however the industrial action is dragged on longer than expected, meaning that time is still required until things are completely back to normal. The Energy Business group in non-resource fields are generally performing in line with initial expectations, although some segments are outpacing our initial forecasts, it is uncertain, how they will perform over the full year.

In addition, there is growing uncertainty surrounding the outlook for the global economy, and markets due to the European debt crisis and China's economic slowdown. We must keep a watching eye on the impact of these dynamics on our results. At this stage, we have left our 500 billion yen initial forecast unchanged. We will decide whether to revise our forecasts after we have confirmed the first half performance, including the degree of progress and returning operations to normal at our Australian coking coal business.

That concludes my presentation. Thank you for your attention.

Question-and-Answer Session

[No Q&A session for this event].

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