U.S. Markets closed

Edited Transcript of 8015.T earnings conference call or presentation 1-May-20 10:59am GMT

Full Year 2020 Toyota Tsusho Corp Earnings Presentation

Tokyo May 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Toyota Tsusho Corp earnings conference call or presentation Friday, May 1, 2020 at 10:59:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Hideyuki Iwamoto

Toyota Tsusho Corporation - CFO

* Ichiro Kashitani

Toyota Tsusho Corporation - President, CEO & Representative Director

================================================================================

Presentation

--------------------------------------------------------------------------------

Ichiro Kashitani, Toyota Tsusho Corporation - President, CEO & Representative Director [1]

--------------------------------------------------------------------------------

Hello, everyone. I am Kashitani, President of Toyota Tsusho Corporation.

Before I start my presentation, I want to express my deepest condolences over the death of those who lost their lives due to the novel coronavirus that caused devastating effect throughout the world and express my deepest sympathy to those who are suffering from infection. Also, I want to express my appreciation and pay tribute to those who are making efforts to prevent spread of infection.

To prevent spread of infection, we are holding this event by live streaming, and we are sorry for causing inconveniences to you. I would like to express my appreciation to you for participating in spite of this extraordinary situation. Thank you very much.

--------------------------------------------------------------------------------

Hideyuki Iwamoto, Toyota Tsusho Corporation - CFO [2]

--------------------------------------------------------------------------------

Hello, everyone. I am Iwamoto, CFO of Toyota Tsusho Corporation. I will explain the outline of consolidated results for fiscal year 2019.

Please look at Page 4 of our PowerPoint presentation.

Regarding the foreign exchange rate, on the upper left, at the end of FY 2019, U.S. dollar was JPY 109, down JPY 2 from the previous year. Euro was JPY 121, down JPY 7 from the previous year.

It is not written here, but the revenue in terms of IFRS decreased by JPY 68.7 billion. Sales of Africa division increased by around JPY 260 billion. However, Machinery, Energy & Project decreased by JPY 150 billion, partially due to shrinkage of oil-related business. Also, there was JPY 80 billion decrease from Metals, JPY 40 billion decrease for Automotive, JPY 30 billion decrease for chemicals, JPY 20 billion decrease for global parts and logistics. In almost all divisions, except for Africa, revenue has decreased.

In a situation like this, gross profit increased JPY 1.4 billion to JPY 639.8 billion. In this number, there was an impact of addition to consolidated results of a new dealer we acquired in South Africa by JPY 13.5 billion. If we exclude that, gross profit has decreased by JPY 12 billion. Due to the reduction of revenue of divisions, which I explained earlier, gross profit also decreased.

Operating profit decreased JPY 4.8 billion to JPY 210.3 billion. Profit before income taxes was JPY 224.8 billion. Profit attributable to owners of the parent increased JPY 2.9 billion to JPY 135.5 billion. Our target was JPY 150 billion, but we failed to achieve it by 9.7%.

Please look at the waterfall chart on Page 5. At the upper left, there is an explanation about the changes in profit such as finance income, equity gain and tax expense, which are not included in operating profit. Here, I want to explain the reason why operating profit decreased by JPY 4.8 billion. Actually, there was increase of onetime profit of JPY 5 billion. However, demand and trading volume was negative JPY 8.8 billion, and ForEx effect caused negative impact of JPY 5.5 billion. Because of the coronavirus, we had negative impact in February and March. We estimate that it caused negative impact of JPY 4.6 billion to the operating profit.

In terms of division profits, negative impact for Metals was JPY 1.8 billion, likewise JPY 1.2 billion for global parts and logistics, JPY 800 million for Automotive, JPY 500 million for Chemicals & Electronics and JPY 300 million for Food & Consumer Services.

If you look at region by region, there was JPY 2 billion negative impact in China, likewise JPY 1.2 billion in North America, JPY 700 million in Southeast Asia, JPY 600 million in Europe, JPY 100 million in other emerging countries. We consider that the impact of coronavirus in emerging countries still has not appeared much in this consolidated results.

This is summary of division profits. Profit of Metals Division has decreased by JPY 16.4 billion year-on-year. It is mainly caused by decrease in trading volume of automobile production, especially in North America, Thailand and India. There was also negative impact from the decrease of the market prices of lithium and aluminum. Also, there was some impairment of lithium recognized in this term.

As for global parts and logistics, the result decreased JPY 1.4 billion year-on-year to JPY 22.3 billion. It became negative due to the impact of foreign exchange rate, mainly in Indonesia. However, we consider that there was firm growth in the actual business.

As for Automotive, there was an impact of reduction of sales in countries such as Russia, South Korea for Lexus, Caribbean countries and Papua New Guinea.

As for Machinery, Energy & Project, profit increased JPY 16.4 billion to JPY 35.1 billion. There was a special profit from the divestment of shares of Canadian electric power company. Also, there was no onetime loss like we had in the preceding year. These are the reasons for the large positive numbers.

As for Chemicals & Electronics, profit increased JPY 4.3 billion to JPY 22.7 billion. The electronics business such as car electronics and smartphone businesses in China did not perform well and profit ratio decreased. However, due to the impact of onetime loss in the preceding year, net profit was positive in this year.

As for Food & Consumer Services, profit increased JPY 4.1 billion to JPY 5.8 billion. The reason for this good result was because the result of the preceding year was not good and also because it's a stable business at a time like this.

As for Africa, the profit increased JPY 3.9 billion to JPY 14 billion due to a good result of automotive sales. In spite of a negative impact of foreign exchange, Automotive business performed well in all regions.

This page shows one-off gains and losses. From the last third quarter, we started showing one-off gains and losses in an easy to understand manner. There was approximately JPY 5 billion one-off loss this year.

This is the balance sheet. As of the end of March this year, total assets was JPY 4.5452 trillion. It is an increase of JPY 103.8 billion year-on-year. Net interest-bearing debt was JPY 1.0324 trillion. This number includes around JPY 105.7 billion impact caused by the change of lease accounting of IFRS 16. If you make a comparison, excluding these liabilities, we were able to reduce debt by JPY 61.7 billion. Net DER was 0.77 excluding lease liabilities.

This is our cash flows. Cash flows from operating activities considerably increased year-on-year to JPY 267.8 billion at the end of this term. As for the investment, the estimate of the actual investment amount was JPY 281.5 billion, which means that we were able to make more investment than the previous year.

From this term, we started to show the free cash flow after dividend payment, and the amount was JPY 55.2 billion.

This is our shareholder returns policy. There is no change in this policy. We will endeavor to maintain a stable dividend and increase dividend per share with a consolidated dividend payout ratio of 25% or more as a basic policy. We decided to pay the dividend of JPY 110 per share for this term. We had previously announced that if we achieve JPY 150 billion profit, we would pay JPY 120 with a dividend payout ratio of 28.2%. Unfortunately, we could not achieve that target and decided to pay JPY 110. However, the dividend payout ratio is 28.6%, and this is the tenth consecutive dividend increase since FY 2010.

Forecast for FY 2020 is not fixed yet, and likewise, the dividend is not decided yet. In this very difficult situation, we intend to analyze the number by the time we report the result of the first quarter at the latest and announce it. Currently, it is difficult to make a reasonable assumption, and because we cannot release irresponsible forecast at this point, we want to spend some time for analysis.

The following pages are supplementary materials. From this term, in order to meet the requests from investors, we started to separately report the result of 3 businesses, namely electric power business, electronics business and CFAO business. So please refer to them as needed.

That's all for me. Thank you very much.

--------------------------------------------------------------------------------

Ichiro Kashitani, Toyota Tsusho Corporation - President, CEO & Representative Director [3]

--------------------------------------------------------------------------------

Once again, I am Kashitani, President of Toyota Tsusho Corporation. I will explain 3 years management plan. Before I explain the 3 years management plan, let me explain the status of achievement of the 3 years management plan we announced 3 years ago.

First, let me explain the quantitative aspect. As for the various targets we released in May 2017, we were able to achieve all the terms, including profit, ROE, net DER and shareholder return.

Next, this is review of ESG. Regarding E for environment, we identified key issues in 2018. In the following year, we added renewable energy businesses to our priority areas in addition to mobility and Africa. Regarding S for society, we are implementing various measures to address diversification of manpower and work style. Regarding G for governance, from April 2019, we separated management and execution clearly.

Also by increasing the ratio of outside directors, we believe that we could strengthen the system to audit and oversee the proper management.

This is our focus areas. As for Africa business, we made CFAO as the pillar of our businesses.

And in April 2017, we established Africa division, which is our first regional division. Currently 21,000 employees, 1/3 of our total group workforce, are working for African businesses.

As for the next mobility area, we launched a dedicated unit and increased the number of workers to around 260. Also utilizing a fund, we put our effort into the development of next-generation technology. We implemented investment centering on our focus areas and achieved good results, substantially exceeding the targets. Because we have long-term activities such as renewable energy business and CFAO-related retail business, we want to follow them up properly so that we can achieve good results.

From now on, I want to talk about 3 years management plan which covers up to March 2023. Currently, there is global impact of coronavirus. However, we made this plan assuming that the impact will not last for 3 years. For the time being, the market downturn is expected to continue. However, we believe that our activity during this hard time will make a big difference to achieve big growth after that.

The coronavirus is causing big impact on our automotive operations and automobile sales in Africa. However, we think its impact on other businesses is relatively limited. We believe that now is the time that we should fully carry out our defensive and offensive actions suitable for each country and region to overcome these difficulties united as one company.

Our group has newly added circular economy strategy to our existing 3 priority areas. By strengthening these 4 areas, we will endeavor to realize our company vision, Be the Right ONE. Be the Right ONE means that we aim to become an irreplaceable and one and only presence for customers and partners.

In order to achieve this vision, we identified 6 key issues for resolving social issues. Among these 6 issues, there are 2 top priority issues that will become foundations for company growth and 4 top priority issues for both solving social problem and achieving corporate growth. With the addition of the circular economy strategy, our priority areas are now corresponding to each of the 4 material issues.

Let me explain one by one.

This is our Next Mobility strategy. In this business area, it is necessary to respond promptly to changes in the automobile environment to achieve sustainable growth. We are responding to new changes in the life cycle of vehicles by creating businesses in the areas of replacement of vehicles, next-generation service and energy management. Regarding the replacement of vehicles, we will proceed with rate reduction, utilizing new materials such as aluminum and resin. We will also try to internalize new technologies such as electrification, centering on batteries and motors.

Regarding the next-generation services, in order to further promote technology and services related to automobiles, we will make effort to acquire knowledge in new areas and develop new sales contacts. As for the energy management, we will take initiative in addressing the areas which create new demand such as fuel cell stack and hydrogen. To acquire knowledge in the new areas, we thought that flexible actions for innovative technology patents and new services are necessary, and therefore, the Next Technology Fund has made approximately JPY 4 billion investment. Furthermore, by utilizing Mobility 54 S.A.S., we want to invest approximately JPY 5 billion to accelerate creation of new businesses. For the creation of new businesses, next mobility development department will play the central role and create working group for each activity topic as a company-wide project which goes beyond the products divisions under the authority of a director.

This is our activity policy in the renewable energy area. In this area, we are accelerating global deployment and working on various new business areas such as wind power, solar power, small-scale hydro power and biomass. Together with Toyota and Chubu Electric Power, we have agreed to jointly establish Toyota Green Energy. I will explain this in detail later.

This is the current status of our renewable energy businesses. Centering on wind power generation, we are operating renewable energy businesses generating approximately 3,300 megawatt, which is equivalent to 3 units of nuclear power plant.

This is our recent activities in the new regions. In Egypt, we started the first African wind power generation IPP business. It started commercial operation at the end of October 2019. Its current capacity is 262.5 megawatt, and we will further increase its capacity in the future. We are aiming to further expand business scale in Africa, where electric power supply is an urgent social issue.

Next, let me talk about Toyota Green Energy. Aiming to acquire and operate renewable energy sources in Japan and provide energy to Toyota Group, we agreed with Toyota and Chubu Electric Power to jointly establish this company in July 2020. In addition to purchasing energy, Toyota is also aiming to enter into off-site area or generation of power in the future. We want to provide our unique comprehensive renewable energy management function to Toyota and want to help achieve that objective as a part of Toyota Group.

This is our activity policy for Africa. Last year, I explained that we will strengthen our Toyota and Suzuki business through 6 pillars as our mobility strategy. In addition to that, this year, we intend to strengthen our South African business and challenge new business areas. The 6 pillars of the Toyota business are the same as we explained last year. We will continue to strengthen handling Suzuki OEM model and promote KD business and expand value chain from the viewpoint to promote "local production for local consumption" model for vehicles.

This page explains the strengthening of South African business, which is our second mobility strategy. As a result of transfer of Toyota operations and acquisition of Unitrans in November 2019, we were able to lay the foundations for growing business in Southern Africa, where our business volume had been small. In the future, we aim to increase market share in Southern Africa.

Our third strategy is challenging new business. Because we were able to acquire only 10% of the automotive value chain business in the past such as sales of new cars and after service, we want to accelerate our business deployment, considering the remaining 90% as our new frontier. To be specific, we will establish new business model like Automark and AutoFast and also promote mobility eco-circle activities throughout Africa with our partners utilizing an investment company such as Mobility 54 S.A.S. We are aiming to expand automotive businesses throughout Africa and make omni directional approach, centering on the 3 strategies and aiming to achieve growth more than double of GDP growth rate of Africa.

As for the business other than automotive, we will try to develop new business area and strengthen partnership with brands targeted at middle-income customers. As for the pharmaceutical business, because of the recent coronavirus issues, we have renewed our recognition of the importance of this business and solution of social issues. Just as we did when we faced Ebola virus disease, we are trying to arrange medical and hygiene supplies to address this infectious disease. With our businesses, including consumer material business and plant business, we want to contribute to further enrich people's lives.

Next, let me talk about our newly added strategy of circular economy business. This is an economy system -- or an ecosystem in which products or raw materials that used to be thrown away are regarded as new resources and are recycled. We position such a business as circular economy business, and we regard our automotive production-related activities as arterial logistics. On the other hand, we regard the activities related to scrap and waste after production and scrapped cars as venous logistics.

This is the detail of venous logistics. It covers wide range of activities, including mobility, living material and waste. Next, I will explain our activity in the areas of mobility and living materials. In the mobility area, in addition to scrap materials, we are also trying to recycle scrapped cars after crushing and sorting. This business is mainly conducted by our affiliated companies listed on this page. For example, the Green Metals Japan is conducting business at 23 locations in the world.

We also started new business in an attempt to reuse the batteries and mixed plastics obtained through recycling activities. This is our activity for the reuse of batteries. Based on the remaining battery capacity, we will try to promote the reuse of batteries for their suitable purposes. We will work on the 3Rs for batteries, namely rebuild, reuse and recycle.

In the area of living materials, we established Planic Co., Ltd., which is the largest recycled plastic production company in Japan, jointly with Veolia Japan and Kojima Sangyo in 2018. We are aiming to start its operation from 2021 and planning to recycle plastic, effectively utilizing 40,000 tons of waste plastic a year generated from automobiles, home appliances and packing materials in Japan. As for the recycle of waste PET bottle, we are preparing to establish a new company in May 2020. By these 2 companies, we want to contribute to a recycling-based society.

Now I want to talk about safety and compliance and respect for human rights, which are the 2 top priority issues that will become foundations for company growth.

After the General Meeting of Shareholders in June, we will have 4 inside directors and 4 outside directors, total 8 directors. In a new structure of the Board of Directors, Mr. Murata will be replaced by Mr. Kondo as a Vice President. Also, Ms. Kawaguchi will be replaced by Ms. Inoue as an outside director. Ms. Inoue is the President of Kellogg Japan. She is expected to give us guidance from the perspective of a manager of a falling affiliated company with a knowledge in the retail industry.

In an attempt to accelerate decision-making process and promote delegation of authority, we have been trying to streamline our management structure and increase transparency during the past several years. The next page shows the changes in the structure of our Board of Directors.

Regarding human resource development, we are aiming to develop our employees to create strong individuals and form a strong organization which can demonstrate its team power. By this, we are aiming to achieve an ideal image, Be the Right ONE.

Lastly, this is a progress of globalization and digital transformation, which accelerate the 6 key issues I have explained so far. As for globalization, by allocating 12 offices overseas, we will accelerate creation of businesses from overseas and shift to regional management structure to achieve speedy management. As for digital transformation, in this April, we designated a chief digital and technology officer and established a digital transformation promotion department. With this cross-company organization, we will further promote high-quality projects.

This concludes my presentation. Thank you very much for your attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]