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Trading company financial results, the decisive battle for the first “over 1 trillion yen” due to the weak yen. Mitsubishi Corporation is at the top, followed by Mitsui & Co., and Itochu earns a lot of money | Business Insider Japan

MITSUBISHI-RESULTS

REUTERS/Kim Kyung-Hoon

The five major trading companies (Mitsubishi Corporation, Mitsui & Co., Itochu Corporation (hereafter referred to as Itochu), Sumitomo Corporation, and Marubeni Corporation) have completed their interim financial results. There is a rush to revise the full-year forecasts for the fiscal year ending March 2023 upward, driven by the weaker yen, higher resource prices, and inflation.

Except for Itochu, which has slightly decreased, four companies expect the highest profits in full-year forecasts.Mitsubishi Corporation is the first in the trading company industry.“Over 1 trillion yen in annual profits”I put it on the big platform. Mitsui & Co. may also exceed 1 trillion yen, and Itochu will follow the two companies.

Analyze the performance of a trading company that is booming like never before.

Profit of 250 billion yen from one coal subsidiary

table

Created by Business Insider Japan editorial department based on company materials

On November 8, Mitsubishi CorporationThe final profit forecast for the fiscal year ending March 2023 has been revised upward from 850 billion yen to 1.3 trillion yen. It is expected to surpass the company’s record of 937.5 billion yen in the history of the trading company industry and reach the 1 trillion yen level for the first time.

The final profit for the April-September 2022 period announced on the same day was 720 billion yen, up 99.7% year-on-year.

What was astonishing was that Mitsubishi Development Pty Ltd (MDP), a wholly owned subsidiary in Australia that produces coking coal (coal for steelmaking), recorded a profit of 249.4 billion yen, an increase of 203.9 billion yen year-on-year. The profit from entering the main body of the trading company from the company / business in which it has invested has increased accordingly.

Favorable yen depreciation

Photo when 1 dollar = 150 yen

REUTERS/Kim Kyung-Hoon

The main source of profit for a trading company is to invest in a business or company and take in the profits generated from it according to the shareholding ratio. Trading companies that mainly handle dollar-denominated business tend to outperform yen-denominated profits during periods of yen depreciation.

In the case of Mitsubishi Corporation, a 1-yen depreciation of the yen against the dollar will have an impact of increasing profits by 5 billion yen on the final profit. According to a company official, the impact of the weak yen on the final profit for the April-September 2022 period will be about 60 billion yen compared to the same period last year.

The depreciation of the yen had a positive effect on the performance of other trading companies as well, albeit in varying amounts.

table

Created by the Business Insider Japan editorial department based on company materials and author interviews.

In addition, resource businesses like MDP will also benefit from higher resource prices that will continue from 2021 onwards. Coking coal prices jumped in April and May following Russia’s invasion of Ukraine, leading to MDP’s strong performance. Although the company benefited from both high resource prices and the weak yen, it was one of the first trading companies to participate in coal production in Australia in the 1960s.

High resource prices and positive inflation

Mitsubishi Corporation has broadly benefited from high resource prices and inflation in its resource and non-resource businesses. The LNG (liquefied natural gas) business increased ¥25.4 billion year-on-year to ¥65.2 billion due to soaring natural gas prices and an increase in its stake (production volume according to investment ratio). It was booming, and it was 10.2 billion yen, an increase of 3.4 billion yen from the same period last year.

The depreciation of the yen and the high cost of raw materials are also having an adverse effect. Itoham Yonekyu Holdings decreased by 300 million yen year-on-year, and the profit from Indiana Packers Corporation, which handles pork processing, processing and sales in the United States, decreased by 3.5 billion yen year-on-year. Overall, however, the positive effects of the weaker yen, higher raw material prices, and inflation offset the negative effects.

Katsuya Nakanishi, President

“The full-year earnings forecast is 1.3 trillion yen, but the actual value excluding market conditions and the weak yen is 650 billion yen. The challenge going forward is how to raise this actual value.”

said.

Mitsui also expects 1 trillion yen due to rising gas and crude oil prices

Signboard of Mitsui & Co.

Photo: Sho Inoue

Along with Mitsubishi Corporation, Mitsui & Co. is expected to achieve a full-year financial result of ¥1 trillion.The company alsoThe final profit forecast for the fiscal year ending March 2023 has been revised upward from 800 billion yen to 980 billion yen.

The final profit for the April-September period of 2022 is 539.1 billion yen, up 33.2% year-on-year. Due to the rise in crude oil and gas prices, profits from consolidated subsidiaries MODEC (construction of facilities for offshore crude oil and gas production) and Mitsui E&P USA (development and sales of crude oil and gas in the United States) declined year on year. 20.0 billion yen. In the crude oil and gas business as a whole, the impact of rising prices had a positive effect of 60 billion yen.

Like Mitsubishi Corporation, it was one of the first trading companies to participate in oil and gas production in the late 1960s.

For Mitsui & Co., Ltd., where resources accounted for around 70% of profits, non-resource sectors such as food and retail were a weak point. When resource prices fell, the company said it would “strengthen non-resource businesses,” but when resource prices rose again, the resources and energy division would say, “After all, resource businesses should be the core business.”

However, this vicious cycle began to disappear about five years ago, when former president Tatsuo Yasunaga (now chairman) was in office. In particular, sales and leasing of automobiles and trucks in North America, such as the Penske business, have steadily increased profits.

The upward revision to the profit forecast for the fiscal year ending March 31, 2023 did not reach 1 trillion yen, but President Kenichi Hori

“I feel that each department is conservatively reporting their plans for the January-March period of 2023. I understand that the fluctuations in the global economy are high, so I can understand that they will be conservative, but I feel that the performance is out of breath. do not have”

and there are high expectations for the increase to 980 billion yen.

ITOCHU Thoroughly Manages Small Earnings

ITOCHU signboard

REUTERS/Toru Hanai

Itochu is chasing Mitsubishi Corporation and Mitsui & Co. In October, prior to the announcement of first-half financial results,The final profit forecast for the fiscal year ending March 2023 was revised upward from 700 billion yen to 800 billion yen.

The final profit for the period from April to September 2022 was 483 billion yen, down 3.5% from the same period last year.

Although the company claims to be the “No. 1 trading company in the non-resource sector,” it has benefited from soaring prices of coking coal and crude oil in the same way as Mitsubishi Corporation and Mitsui & Co. For example, profits from ITOCHU Minerals & Energy of Australia (IMEA), which produces coking coal and iron ore in Australia, amounted to 98.4 billion yen, a slight year-on-year increase.

However, the ratio of resource business is lower than that of Mitsubishi Corporation/Mitsui & Co., Ltd., and profits are steadily increasing in non-resource business. Income from the automobile sales business “Yanase” (increased by 9% year-on-year to 5.8 billion yen) and the manufacturing, wholesale and sales business of building materials in North America (increased by 15% from the same period of the previous year to 157 billion yen) performed well.

Itochu thoroughly manages the earnings of individual group companies, and its business is to accumulate small earnings.

that is,80% of the group companies are profitable in the April-September period of 2022, and profit from profitable companies is 454.6 billion yen, while loss from unprofitable companies is only 13.8 billion yen.It can be seen from the numbers.

table

Created by Business Insider Japan editorial department based on company materials


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