MITSUI & CO.,LTD. Q2 FY2026 earnings call

Overall First Half Progress

• Both basis operating cash flow and net profit reached 55% of the full-year business plan, which is considered on track. Direct impact from US tariffs was limited, consistent with conservative assumptions built into the original plan.
• The "Middle Game" initiative to strengthen existing businesses has steadily expanded underlying earning power, and carefully selected growth investments for long-term revenue base expansion (including Rhodes Ridge iron ore, Ruwais LNG, Blue Point low-carbon ammonia) are progressing as planned.
• Impairment was recorded on the continuously loss-making Mainstream renewable energy project, reducing the carrying value of the investment.

Underlying Earning Power Expansion Progress (Current Mid-Term Management Plan Target: +170 billion yen over 3 years)

• Existing business strengthening: On track to exceed the 70 billion yen cumulative target, with ~75 billion yen of expansion expected, driven by Middle Game initiatives in mobility, chemicals, and next-generation functional businesses.
• Efficiency and turnaround: On track to meet the 40 billion yen target, with ongoing turnarounds including coffee trading, plus withdrawals from multiple unprofitable subsidiaries and performance improvements.
• New businesses: On track to reach ~55 billion yen of expansion against the 60 billion yen cumulative target, with multiple new projects including Taiwan offshore wind and Indian broiler operations starting to contribute to profit this term.

Cash Flow Allocation

• Total expected cash-in during the current mid-term period was increased from 4.37 trillion yen to 4.43 trillion yen. Total management allocation increased from 400 billion yen to 460 billion yen, fully allocated to 260 billion yen for growth investment and 200 billion yen for shareholder returns.
• First half cash-in totaled 562.0 billion yen (449.0 billion yen from basis operating cash flow, 113.0 billion yen from asset recycling). First half cash-out totaled 498.0 billion yen (339.0 billion yen for investment/lending, 159.0 billion yen for shareholder returns).

Key New Project Progress

• Near-term revenue contribution: Australia's Waitsia gas project will start commercial production shortly; Taiwan offshore wind is progressing on schedule for full commercial operation in 2026 and has started contributing profit; India's Sneha broiler business has started contributing profit.
• Long-term projects: Partial capital contribution for the 40% equity acquisition of Rhodes Ridge iron ore was initiated in October 2025, with acquisition completion expected shortly and production targeted by 2030; US Tatonka shale gas project will start production by end-2025, with revenue contribution starting from FY2027 March term.

Shareholder Return Policy

• A new 200 billion yen share repurchase program was announced, expiring March 19, 2026, with all repurchased shares to be canceled by end-March 2026 to boost per-share value.
• This brings the expected total shareholder return ratio against cumulative basis operating cash flow for the current mid-term period to over 54%, exceeding the original 37% target.
• Going forward, Mitsui will maintain progressive dividends, with steady dividend increases from recurring sustainable earnings, and opportunistic share repurchases and cancellations from extra cash flow from commodity market cycles and asset recycling.

Balance Sheet

• Net interest-bearing debt remained unchanged at 3.3 trillion yen from end-March 2025; shareholders' equity increased by 0.5 trillion yen to 8.0 trillion yen, resulting in a net DER ratio of 0.42x.

Basis Operating Cash Flow (First Half Results):

• Metal Resources: 162.2 billion yen, a decrease of 29.9 billion yen year-over-year, 36.2% contribution to total basis operating cash flow
• Energy: 100.8 billion yen, a decrease of 83.7 billion yen year-over-year, 22.5% contribution
• Machinery & Infrastructure: 95.6 billion yen, an increase of 21.8 billion yen year-over-year, 21.3% contribution
• Chemicals: 55.2 billion yen, an increase of 12.7 billion yen year-over-year, 12.3% contribution
• Steel Products: 6.5 billion yen, an increase of 5.0 billion yen year-over-year, 1.4% contribution
• Lifestyle Industry: Negative 5.0 billion yen (net outflow), a decrease of 19.4 billion yen year-over-year, -1.1% contribution
• Next-Generation & Functional Promotion: 19.5 billion yen, a decrease of 0.8 billion yen year-over-year, 4.3% contribution
• Other Adjustments: 13.7 billion yen, an increase of 4.7 billion yen year-over-year, 3.1% contribution Total: 448.5 billion yen, a decrease of 89.6 billion yen year-over-year.

First Half Net Profit (Results):

• Metal Resources: 114.3 billion yen, a decrease of 47.2 billion yen year-over-year, 27.0% contribution to total first half profit
• Energy: 102.9 billion yen, an increase of 37.6 billion yen year-over-year, 24.3% contribution
• Machinery & Infrastructure: 102.0 billion yen, a decrease of 46.2 billion yen year-over-year, 24.1% contribution
• Chemicals: 43.5 billion yen, an increase of 21.4 billion yen year-over-year, 10.3% contribution
• Steel Products: 11.3 billion yen, an increase of 4.0 billion yen year-over-year, 2.7% contribution
• Lifestyle Industry: 20.8 billion yen, an increase of 0.8 billion yen year-over-year, 4.9% contribution
• Next-Generation & Functional Promotion: 25.3 billion yen, an increase of 7.3 billion yen year-over-year, 6.0% contribution
• Other Adjustments: 3.6 billion yen, an increase of 34.2 billion yen year-over-year, 0.8% contribution Total: 423.7 billion yen, an increase of 11.9 billion yen year-over-year.

• Full-year basis operating cash flow guidance was upwardly revised by 80 billion yen to 900.0 billion yen, driven by stronger than expected performance across metal resources, energy, and machinery & infrastructure segments.
• Full-year net profit guidance was upwardly revised by 50 billion yen to 820.0 billion yen.
• The company targets additional upside potential beyond the revised full-year guidance, and aims to deliver a strong finish to the current mid-term management plan.
• Total planned growth investment for the current mid-term period remains 2.5 trillion yen, and total planned shareholder return remains 1.6 trillion yen. A 3.0 billion yen negative impact from the JA Mitsui Leasing group collection risk issue has been factored into the full-year guidance.
• For the next mid-term management plan, the company expects to expand scale based on the 170 billion yen of underlying earning power accumulated in the current plan plus organic growth, with current projects already in progress contributing to underlying earnings in the next plan period. Discussions on the next plan are ongoing, with no final targets announced yet.

• Geopolitical risks and volatile global financial/macro conditions require enhanced integrated risk management across the company.
• Inflation and higher interest rates have created higher-than-expected upfront costs for long-term projects, acting as a near-term drag on earnings that will be absorbed over time through the company's business model.
• Coffee trading is facing ongoing headwinds: high short-term prices from speculative factors and US tariff impacts have generated higher hedging rebalancing costs and increased profit volatility, though the company is actively managing positions.
• Asset recycling markets have become more cautious, with buyers slower to transact and less likely to meet Mitsui's target valuations, creating uncertainty for near-term asset rotation plans.
• The Mainstream renewable energy project exposed weaknesses in original project structuring, including insufficient inflation protection and challenges with host country regulation and profit sharing; the company has narrowed development plans, completed impairment, and reduced remaining exposure to ~5.0 billion yen.
• US tariff policy uncertainty remains, though direct impact on first half results was limited.

Q: The original mid-term plan targeted 1.0 trillion yen in basis operating cash flow and 920.0 billion yen in net profit for FY2026, but the new guidance is 900.0 billion yen and 820.0 billion yen. How do you view this gap, and how does this set up the next mid-term plan? / A: The core goal of the current mid-term plan is to increase underlying earning power by 170.0 billion yen, and this target is almost certain to be achieved. The gap to the original headline profit target comes from higher-than-expected inflation and interest rate costs, larger upfront investment costs for long-term growth projects, and unplanned asset sales that pressured underlying earnings. These negative factors are not permanent and will be recovered over time. For the next mid-term plan, Mitsui expects to expand its earning base on top of the 170.0 billion yen gain from the current plan, with ongoing new projects contributing to further growth. The company will continue to focus on expanding underlying earning power through the Middle Game initiative to build a sustainable growth trajectory.

Q: Would portfolio concentration toward resources and infrastructure increase under a greater focus on ROIC, or will you maintain a balanced diversified portfolio for the next mid-term plan? / A: Mitsui does not plan to shift toward an unbalanced portfolio strategy. The company will continue to build a balanced, geographically diversified portfolio across its 7 business segments aligned with its three core growth pillars. While Rhodes Ridge is a high-profile large resource project, it is the result of 20 years of negotiation and represents a temporary, timing-driven concentration, not a strategic shift. Core competitive resource and energy assets will remain central to the business, but the company will maintain balance across all segments. Multi-segment collaboration on growth areas with expanding profit pools will become more common, with Mitsui leveraging its general trading company model to adjust portfolio balance through cross-sector collaboration.

Q: After the Mainstream impairment, how has your approach to net zero and renewable energy investments changed? / A: The Mainstream experience taught Mitsui that early renewable energy project templates did not adequately account for market volatility, including insufficient inflation contract protection and regulatory/host country negotiation risks. The company is now prioritizing projects where host country alignment and improved project structuring can deliver profits, and has paused projects that do not meet this standard to optimize the balance sheet. Remaining exposure to Mainstream is only ~5.0 billion yen, and the company does not plan to exit renewable energy entirely: properly structured projects can still deliver attractive returns, and ongoing projects like Taiwan offshore wind and Brazilian Jirau hydroelectric are progressing on schedule. Mitsui's net zero target is unchanged, and the company will continue to pursue profitable opportunities including combining carbon capture with low-carbon ammonia and hydrogen, with profit as a core prerequisite for all investments.

Q: The 200 billion yen share repurchase brings the current mid-term return ratio to over 54%, which is far above the original target. How are you thinking about shareholder return and capital efficiency for the next mid-term plan, especially given the low current net DER? / A: Mitsui is currently discussing the appropriate ROE target and leverage level for the next mid-term plan, and will announce details closer to the plan's launch. The company remains strongly focused on ROE improvement, and is actively considering how share repurchases, per-share value growth, and appropriate leverage balance will support this goal. The current 54% return ratio far exceeds the original 37% target, reflecting flexible adaptation to changing market conditions, which the company views as a core management strength. Discussions on next term's return policy are ongoing, and the company will maintain a focus on balancing strong shareholder returns with disciplined investment in high-quality growth projects to sustain a positive cycle of growth and returns.