Mitsubishi Sees 3 Years Needed for Shift From Commodities (1)

(Bloomberg) -- Japan’s biggest-trading house has had its fill of commodities.

After posting the first annual loss in its post-World War II history amid the collapse in commodity prices, Mitsubishi Corp. is shifting away from raw materials to make sure it never happens again. That process is going to take at least three years, according to Chief Financial Officer Kazuyuki Masu.

“We can’t post a second net loss,” Masu said in an interview in Tokyo. “We are balancing our portfolio so that if the price of resources fall again, we won’t be seeing red. To put it simply, we aren’t going to boost our current balance of resources assets” over the next three years.

Tokyo-based Mitsubishi reported a net loss in the year ended March 31, after racking up 426 billion yen ($4.24 billion) in impairment charges and other losses primarily on its commodity assets. The company is aiming to shore up its profits by moving away from resources and into areas such as real estate procurement and automobile sales.

The company aims to invest 1.5 trillion yen in its non-resources businesses, which is already worth 4.4 trillion yen, according to Masu. The company will invest 500 billion yen in resources over the next three years, and ensure that energy and commodities assets remain at the current 3 trillion yen level during that period, he said.

Invest, Sell

“If we invest in something, we have to sell something” from the resources business, he said.

In April, Mitsubishi agreed to sell its 30 percent ownership of an Indonesian nickel mine for about 100 million euros ($113 million) to Eramet SA. Meanwhile, the Japanese trading house earlier this month said it acquired a minority stake in U.S. solar energy firm Nexamp Inc.

Mitsubishi posted net income of 100.8 billion yen in the three months ended June 30, a 35 percent jump from a year earlier. The Bloomberg Commodity Index, a measure of returns from 22 raw materials, has increased 16 percent since tumbling earlier this year to a 25-year low. The gauge is down more than 30 percent in the last two years.

Mitsubishi added 2.9 percent to 2,161.5 yen at 12:34 p.m. in Tokyo trading, compared with the benchmark Topix index which rose 2.1 percent.

Mitsubishi expects Dubai crude to trade between $40 and $45 this fiscal year, Masu said. A recovery in oil prices won’t boost profit until at least the end of the current fiscal year or next year, he said.

Cautious Outlook

Mitsubishi’s previous quarterly results “were a positive surprise, and in terms of fundamentals, the company turned a profit in its Australian coal business for the first time in five quarters, which we view as a major turning point,” Kazuhisa Mori, an analyst at JPMorgan Chase & Co. in Tokyo, said in a research note dated Aug. 23.

The company shored up its Australian coal business by lowering costs by about 10 percent compared with a year earlier, according to Mitsubishi’s Masu.

JPMorgan expects Mitsubishi to raise its profit forecast by a “wide margin” due to an increase in the price of coal, and estimates profits will reach 333 billion yen this fiscal year.

Mitsubishi’s Masu is cautious. He doesn’t have the confidence yet to increase the company’s annual profit forecast of 250 billion yen, he said.

(Updates with share price in ninth paragraph.)

To contact the reporters on this story: Stephen Stapczynski in Tokyo at sstapczynsk1@bloomberg.net, Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net. To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Iain Wilson

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