Aug 24, 2023

5-day change Today at 02:03 am Briefing on Consolidated Results for the Q1 of the Fiscal Year Ending March 31, 2024 Date: Hideyoshi Iwane, Disclaimer Regarding Forward Looking Statements and Original Language This material contains forward-looking statements about the future performance, events or management plans of Marubeni Corporation and its Group companies (the Company) based on the available information, certain assumptions and expectations at the point of disclosure, of which many are beyond the Company's control. These are subject to a number of risks, uncertainties and factors, including, but not limited to, economic and financial conditions, factors that may affect the level of demand and financial performances of the major industries and customers we serve, interest rates and currency fluctuations, availability and cost of funding, fluctuations in commodity and materials prices, political turmoil in certain countries and regions, litigation claims, changes in laws, regulations and tax rules, and other factors. Actual results, performances and achievements may differ materially from those described explicitly or implicitly in the relevant forward-looking statements. The Company has no responsibility for any possible damages arising from the use of information on this material, nor does the Company have any obligation to update these statements, information, future events or otherwise. This material is an English language translation of the materials originally written in Japanese. In case of discrepancies, the Japanese version is authoritative and universally valid. <1st questioner> Helena's profit declined from the strong performance of the previous year. Should the ¥26 billion in net profit for Q1 of FYE 3/2024 be understood to be the base level of profit? If not, is underlying profit level higher than in the past due to an increasing sales share of more profitable revenue sources such as Helena Products? CFO Furuya: Helena's performance surged significantly last year, and yes, the profit for this period fell by about ¥10 billion year-on-year, but it was still around the ¥26 billion mark. Helena has been strengthening the Helena Products strategic lineup in recent years and making acquisitions to support that, so sales and profit from Helena Products are both increasing. In the absence of any special factors, Helena is steadily strengthening its earnings base. While we still need to be watchful in Q2 and after, we want to steadily build up the base level of profit. The rate of progress in the Power segment in Q1 was quite high, but was it also good in comparison to the forecast? CFO Furuya: SmartestEnergy in the UK, which has performed well since last year, showed positive year-on-year growth in Q1. In addition, among IPP projects, merchant-type projects in particular were able to benefit from tighter electricity supply and demand, which contributed to the bottom line. Even if profit settles back to more typical levels from Q2 onward, our view of the Power segment is that it is likely to exceed the annual forecast for the segment, since it has already secured certain profit in Q1. Strength of Agri Business in Q1 compared to the forecast CFO Furuya: In the Agri Business, MacroSource did not turn a profit because it posted an inventory loss on fertilizer prices at the end of June. Overall, performance was roughly in line with expectations. It is hard to predict how MacroSource will perform for the rest of FYE 3/2024, but we think Helena will earn profit at a normal pace in line with typical years. In addition, we want to build up profit in whatever small ways we can. <2nd questioner> It seems that results in the Energy segment have not decreased year-on-year to the extent of the market decline. Could you provide more detail on the good performance from oil and LNG trading and the future outlook for trading? CFO Furuya: In Energy, profit fell in the oil and gas E&P, which was directly impacted by the drop in oil prices. LNG trading was strong. Although the repeatability of trading profit is difficult to judge, our customer base and market presence are steadily growing. We have already secured procurement for certain portions, and even though the profit level is affected by the market conditions, Q1 was good. In Q2 and after, we do not see signs of concern, so we will look to exceed the annual forecast. New investment in Q1 totaled ¥62.8 billion, roughly a quarter of the annual plan (¥250 billion). Given the current pipeline, does it look like new investments will exceed the plan? Have there been any changes in mindset regarding investment? CFO Furuya: Progress in new investments was 25%. As stated before, our policy is to carefully select high-quality investments that align with our strategy. It is not that investment opportunities suddenly emerged-we have built a full pipeline of investments in line with the strategies of each segment, which resulted in a certain level of progress in Q1. We plan to carefully screen and make decisions on investments at a similar pace going forward, so we feel the annual plan of ¥250 billion for the year is on course. <3rd questioner> Q1 assessment and future outlook of Construction, Industrial Machinery & Mobility segment CEO Furuya: In the construction machinery business, profit has been growing in the last few years as service and sales functions have been strengthened at each operating company. I see this as a steadily growing business, rather than one in which we actively take positions in commodities to buy and sell. In the automotive and mobility sector, one of the pillars is the U.S. after-market parts distribution business, where we have a solid foundation. The business has leveled off somewhat as expenses have increased due to recent price increases. The business area in the United States is expanding, and we made an acquisition* in Q1 to strengthen the business. We will continue to focus on this business. Acquisition of Online Parts Distribution and Mobile Inspection Business for Vehicle Service Contracts Market in the United States Concerns about a hard landing in the U.S. economy are receding, but what is your view of conditions in each of the soft commodities markets? CFO Furuya: Commodity prices fluctuate with economic conditions and demand trends. Demand is currently good in the United States and other areas, but interest rates remain high, and we will keep a close watch on the market going forward. Conditions in the grain market were weak with low prices several years ago, but the COVID-19 pandemic and the conflict in Ukraine caused prices to rise, and now the market has stabilized somewhat. Since a base level of demand will continue, we do not think prices will drop sharply. The oil and gas market is hard to predict because it partly depends on the intentions of producing countries, but we might see high volatility in LNG and other markets from summer through winter in the northern hemisphere. <4th questioner> According to the annual forecast for the Agri Business, adjusted net profit for FYE 3/2024 is expected to increase by ¥5.0 billion year-on-year, but it decreased by ¥18 billion in Q1 on a single-quarter basis. Is the forecast on track? CFO Furuya: In results for FYE 3/2023, MacroSource was in the red from the middle of the period. Considering the current market price levels, we think it will recover, and are expecting to record a better result for the full fiscal year. Helena posted record profit in FYE 3/2023, so we set its target somewhat lower, but given good performance in Q1, we think the target of Agri Business is certainly achievable. The progress rate of Q1 adjusted net profit is 55%, and we are aiming for ¥44.0 billion for the year. Factors behind strong profit in the IPP business and outlook for Q2 and beyond CFO Furuya: Net profit in the IPP business increased by more than ¥4.0 billion. This was mainly because of the strong performance of the merchant-typed IPP business. We think profit in Q2 and beyond will be around the level of last year or a little better. The IPP business is basically a consistent, stable earnings-type business, so the Q1 merchant profit of about ¥4.0 billion is in addition to what we would normally expect. Other factors include how much profit SmartestEnergy in the U.K. and Marubeni Power Retail Generation in Japan can contribute. The key for SmartestEnergy this year is how close it can catch up with last year's strong performance level. The full-year target is based on the expectation that SmartestEnergy will slow down in the normalized business environment. At present, progress is over 50%, so we would like to come in higher than the target. As for merchant typed IPP business, we do not expect an upside from our forecast in Q2 or the rest of FYE 3/2024. <5th questioner> Scale and future earnings contribution of new investments made in Q1 CFO Furuya: Regarding the scale of new investments, most were around ¥10 billion, and the overall total was more than ¥60 billion for Q1 of FYE 3/2024. We also have fairly sizable investments in the pipeline, nevertheless this was the scale of our investments in Q1. They are investments related to aircraft parts*, automotive after-market and agriculture, which are our existing businesses, and we believe they will make a solid contribution to profit. We aim for ROIC of 10% or more when making investments, so we expect them to add about that amount of profit contribution for the amount invested. Expansion of Aircraft Aftermarket Business through Acquisition of Shares in DASI of the United States Factors behind the strong performance of the Brazilian instant coffee business, and whether it will continue. Also, the status of the instant coffee business in Vietnam. CFO Furuya: Cia Iguaçu de Café Solúvel (Iguaçu Brazil) had a good Q1 as a result of improved market conditions, and we expect that to continue. The sales volume that had been lost since last year due to a falloff in sales to Russia was sold according to capacity, including to new customers. We do not think market conditions are bad. We also built a plant in Vietnam with the idea of selling to meet global demand for instant coffee. The plant has started production, and we expect production to reach full capacity next year, which will further expand the scale of the business. Iguaçu Brazil is becoming a business that can reliably secure margins, so our view at this time is that it can generate profit at this level without any large swings. Along with Vietnam, we are expecting a few billions of yen per year from this business. <6th questioner> In the Metals & Mineral Resources business, profit declined in the resources field, but the Roy Hill iron ore business and Marubeni-Itochu Steel seem to be doing well. Please explain further. CFO Furuya: Coking coal accounted for more than 60% of the ¥46.0 billion decline in adjusted net profit in resource segments, and the profit decline in coking coal was mainly caused by a drop in prices. In other parts of the Metals & Mineral Resources business, copper and aluminum saw a decline in profit. For copper and aluminum, although there were cost increases and a drop in production volume in a certain business, the decline was basically the result of the substantial impact of lower market prices. Despite the deterioration of market conditions, Roy Hill posted a profit due to the reversal of deferred tax liabilities for accounting purposes. Operations at Roy Hill are running smoothly. As for Marubeni-Itochu Steel, the steel pipe market in North America remained firm, and construction-related demand in the U.S. has not fallen significantly, so the market environment has not deteriorated as much as we had feared. While there are risk factors going forward, the year started off well and we do not see anything that would have a major impact on the forecast for FYE 3/2024. Nowlake continues to maintain a high level of profit. Faced with rising interest rates, how will its profit trend? Also, what is the situation at Aircastle? CFO Furuya: Nowlake posted very strong results, and profit was on par with the same period of the previous year. Interest rates on financing are rising, but with a relatively short asset cycle, the business is doing well with interest rate pass-through. Nowlake is also good at carefully selecting and screening assets, and is steadily accumulating assets with good margins. In Q1, there was a time lag in interest rate pass-through and an uptick in the bad debt ratio, but profit was steady as a result of the increase in assets. Attachments