Mitsubishi Materials : Explanation and Q&A on Progress and Outlook of the Medium-term Management Strategy FY2031

Mitsubishi Materials Corporation

Progress and Outlook of the Medium-term Management Strategy FY2031 May 21, 2024

[Speakers]
Naoki Ono	Director, CEO (Representative Executive Officer)
Nobuhiro Takayanagi	Director, Managing Executive Officer, CFO

Ono: We have listed four major management policies for the current fiscal year ending March 2025.

One is to strengthen our response to SCQ issues. SCQ is the order of priority of our business decisions in the execution of our operations, which is defined as SCQDE. S stands for safety and health, C for compliance, Q for quality, D for delivery, and E for earnings. The first three of these, the SCQ issues, include prevention of industrial accidents, strict adherence to compliance, and strengthening information security, and we will continue to focus on these issues this year as well.

On the right is the achievement of FY2031 Strategy goals. We are now entering the second year, and in the first year, we did not reach the plan. Regarding the implementation of PDCA for the FY2031 Strategy, the business environment is changing at a dizzying pace, so we will follow the changes and quickly implement the PDCA cycle. In addition, we are working to improve profitability, which is an urgent issue, by focusing on target- based business management, and improvement of the break-even point. Then, in response to the current global labor shortage, we will focus on strengthening our recruiting capabilities, improving the working environment, reducing unnecessary work and increasing efficiency.

Moving to the bottom left. In order to optimize our management structure, we will promote matrix management of business and functional axes, and at the same time, in addition to these two axes, we will establish a new European company as a regional axis. In addition, as for optimization of the business structure, we have been working on optimization in a larger sense as a business domain, but there are still points to be improved within each business. We are trying to improve these.

The bottom right is our response to sustainability issues, and as you can see below, we have listed a number of sustainability issues. We have identified the promotion of resource circulation, response to global environmental issues, and enhancing human capital management as the three main themes and issues. We will share these three themes with the Sustainability Committee, which has been established under the Board of Directors, and we are trying to address these as common themes.

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I would like to give you an overview of our Medium-term Management Strategy. This slide was shown last year, and in a large sense, we have drawn a picture of a circle in the middle. The Company will collect used or discarded products recovered from the market, separate and decompose them, and extract useful metal resources through smelting and other processes. A portion of these resources are processed as materials or are used as raw materials to manufacture products and supply them to the market again. We are designing a large cycle.

The main focus is on expanding resource recycling and enhancing the supply of high-performance materials and products, which may be divided into veins and arteries. The three companies are going to carry out such activities.

On the other hand, the Renewable Energy business supports them in terms of energy. As you can see at the bottom of the slide, we are also aiming for decarbonization by supplying renewable electricity generated from renewable energy sources to our business.

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Trends in the external environment were mentioned in last week's earnings announcement, but I would like to briefly mention again that although the growth in demand for copper has slowed down recently, we believe that demand will remain firm in the medium to long term.

On the other hand, copper prices seem to be soaring at the moment, but we expect them to remain firm, supported by current demand trends, if we look at the long-term trend.

TC/RC is determined by the supply-demand balance in the relationship between the supply of copper concentrates and smelting capacity, and while smelting capacity is expanding, spot TC/RCs are still very low. And there is concern that this will continue to remain low in the face of increasing smelting capacity.

The automobile and semiconductor industries were extremely difficult in the fiscal year ended March 2024, but we expect both to recover in the fiscal year ending March 2025. In particular, we expect a full-fledged recovery in the semiconductor industry in H2 of this fiscal year and beyond.

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This is a review of the fiscal year ended March 2024 and a forecast for the fiscal year ending March 2025.

Although operating profit decreased significantly, ordinary profit was almost in line with the forecast due to an increase in dividends from the copper mines and an improvement in equity in earnings of affiliates. As a result, ROIC also increased significantly from the previous year but fell slightly short of the forecast. The same is true for ROE.

On the other hand, in terms of financial discipline, the net D/E ratio is maintained at 0.7 times.

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From here, we have listed the figures for each Company.

First of all, in the Resources business, as I mentioned earlier, the dividends from mines and the addition of earnings in this fiscal year from mines in which we are investing will result in double-digit or higher ROIC figures for the fiscal year ended March 2024 and the fiscal year ending March 2025. However, as we move into the fiscal year ending March 2026, we are planning to invest in some mines, and we expect ROIC to temporarily decrease as a result.

In the Smelting&Resource Recycling business, the smelting business was very sluggish in the fiscal year ended March 2024 due to the trouble in some smelters and a drop in the price of by-products, but we expect the business to recover to a certain degree in the fiscal year ending March 2025 and the trouble will be resolved. We would like to gradually raise it toward the 7.1% we are aiming for in the Medium-term Management Strategy for the fiscal year ending March 2026.

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As for Advanced Products Company, in the fiscal year ended March 2024, we have taken various measures to raise the ROIC of the Copper & Copper Alloy business to 3.2% as shown in the forecast for the fiscal year ending March 2025, but unfortunately, due to the sluggish market, this will be pushed back by one year. In any case, we hope to reap the benefits of the recovery in demand in the current fiscal year and lead it to a ROIC of 4% in the fiscal year ending March 2026.

In the Electronic Materials & Components business as well, the numbers were severe during the fiscal year ended March 2024, and we expect a recovery from H2 of the fiscal year ending March 2025. We hope that a full-fledged recovery will lead to a ROIC of 7.8%, which we expect from H2 of the fiscal year ending March 2025 to the fiscal year ending March 2026 in the Medium-term Management Strategy.

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Regarding Metalworking Solutions Company, although the business also weakened slightly in the fiscal year ended March 2024, it is expected to recover to a certain degree in the fiscal year ending March 2025. As announced recently, including the effect of M&A in the tungsten business, we are aiming for a ROIC of 8.6%, as part of our Medium-term Management Strategy for the fiscal year ending March 2026.

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As for Renewable Energy business, in the fiscal year ending March 2025, with the addition of Appi Geothermal Power Plant one month ahead of schedule, the profit level for the fiscal year ending March 2025 will be reasonable, and ROIC will be almost at the level slightly above the plan.

In the fiscal year ending March 2026, the cost of research and other expenses for new sites will be incurred again, so it will be slightly lower, but we expect that it will be mostly in line with the plan.

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Capital allocation is shown here.

In this graph, the left side is cash-in and the right side is cash-out. There are two bars with different heights.

The higher graph shows the cumulative plan for the three-year period from the fiscal year ended March 2024 to the fiscal year ending March 2026, which we call Phase I. The shorter graph on the right shows the sum of the fiscal year ended March 2024 results and the fiscal year ending March 2025 forecasts. This difference indicates the rate of progress. Overall, we have made just under 60% progress, and now it is a matter of the percentage of distribution among them.

Looking at cash-in, although we have planned for two-thirds of total cash-in to come from operating cash flow, due in part to the low growth in operating cash flow in the first year, the fiscal year ended March 2024, the overall percentage of operating cash flow has decreased, and interest-bearing debt has increased to compensate for the decrease. We are hoping to bring this into the form we are planning for the fiscal year ending March 2026.

On the other hand, regarding cash-out, the figures are slightly different, but as a percentage of the total, growth investment and maintenance and upgrading investment are progressing in line with the plan.

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