Mitsui & Co., Ltd. (8031) Earnings Call Transcript & Summary

Good morning. I'm Kenichi Hori, CEO. Thank you for joining us today. I will explain our progress in the second year of the medium-term management plan 2023 as well as initiatives looking ahead and give an overview of results for the fiscal year March 2022 and our business plan for the fiscal year March 2023. Then I will hand over to Masao Kurihara, Global Controller, who will speak on the results and business plan in more detail. In the fiscal year March 2022, business conditions in the global economy were put under pressure by factors such as COVID-19, shortage of semiconductors and supply chain disruption, and the situation in Russia and Ukraine led to more uncertainty in the global business environment. Geopolitical risk is becoming increasingly evident, and we harbor deep concerns about the current situation in Ukraine and take it with utmost seriousness. We hope for a peaceful resolution to the conflict as quickly as possible. Regarding financial performance, we achieved high performance in all of our business segments, and so historically, high records for core operating cash flow and net profit for the period in fiscal year March 2022. We aim to further expand the earnings base in fiscal year March 2023, the final year of the MTMP. Firstly, I will provide an overview of the results for fiscal year March 2022, and the plan for fiscal year March 2023. COCF was JPY 1,158.7 billion, and net profit was JPY 914.7 billion, as mentioned earlier, but significantly exceeding historical high records. And ROE was 18% for the fiscal year March 2022 due to high progress in all segments. As we announced in February, we plan to increase the annual dividend by JPY 20 to JPY 105 per share, and total shareholder returns for fiscal year March 2022 are expected to be approximately JPY 340 billion, that is 30% of COCF. In fiscal year March 2023, we aim to maintain high levels of profitability. Our yearly plan is JPY 950 billion for COCF and JPY 800 billion for net profit. In fiscal year March 2023, we plan to raise the minimum target of the annual dividend further to JPY 120 per share, an increase of JPY 15 from fiscal year March 2022. We have decided to initiate a new round of share buybacks of up to JPY 100 billion, as we can anticipate robust levels of cash generating ability to be maintained going forward. I will now explain about the progress during fiscal year March 2022, the second year of the MTMP. In this particular year, the key drivers behind the achievement of historical high record for earning were strengthened earning base, initiatives aimed at stable supply and steady implementation of measures for growth strategy, including in the areas of Strategic Focus. I will now explain about our strengthened earnings base. Regarding the expansion of base profit, we solely captured the opportunities and the changes in the business environment by capitalizing on our trading functions for LNG, chemicals and other products. In existing group companies, we continuously worked hard to lower the breakeven point through the cost reduction initiatives, et cetera, which led to an increase in profitability on many fronts. There was also a profit contribution from commencement of operations in multiple projects, primarily in Machinery & Infrastructure. In addition, we promoted reorganization of our business portfolio, primarily in Machinery & Infrastructure, Energy and Mineral & Metal resources. We also restructured some of our existing businesses, thereby successfully strengthening our earnings base. Page 7, I will now explain our business plan for the fiscal year March 2023. There will be no change to our primary policy of working uninterruptedly on Transform and Grow. We will further strengthen our cash-generating ability while striking a balance between investments out of the high-quality pipeline and shareholder returns. I will now explain the quantitative targets in the business plan for the fiscal year March 2023. Why do we expect normalization in some commodity markets such as iron ore, we aim to maintain the robust levels of profitability as in fiscal year March 2022, by enhancing our earnings base in business areas which are less sensitive to market volatility. As I mentioned, there was a significant increase in COCF for the fiscal year March 2022. Reflecting the strong cash generating ability, we are updating the cash flow allocation for the current 3-year period of MTMP. We are expecting upturn in cash inflow and upwardly revising COCF to JPY 2,750 billion. As for shareholder returns, we allocated JPY 500 billion, reflecting increase in dividend to make it JPY 120 per share and JPY 340 billion for share buybacks, including JPY 100 billion, which we announced earlier this week. We will continue to make growth investments in those selected from our high-quality pipelines, such as new opportunities emerging adjacent to existing core business areas through [ growth on ] investments or otherwise, in addition to areas of Strategic Focus, while continuing additional shareholder returns. On the other hand, it is possible that we will continue to face highly uncertain conditions. To enable another response to drastic changes in business environment and capture emerging opportunities, we will also continue taking a more flexible and strategic cash management. I will now discuss shareholder returns policy. In fiscal year March '23, we will raise a minimum target of the annual dividend to JPY 120 per share and implement share buybacks of up to JPY 100 billion, starting from May to September of this year. While paying close attention to improved capital efficiency, we will continue to consider a flexible approach to shareholder returns in order to achieve our target for total shareholder returns based on COCF.

Please take a look at page 12. I will now explain our assessment business environment, its impact on business plan and our response policies. In our case, there are both positive and negative impacts by issues such as escalating geopolitical risk, supply chain disruption and surging inflation. Under this kind of environment, we will be much more conscious in risk management and prepared for multiple scenarios. Additionally, we will be committed to working hard to fulfill our supply responsibilities by constantly optimizing timeframes and priorities in an agile manner. In respect of our Energy business in Russia, as announced in our release on March 4, we are continuously discussing with relevant stakeholders including the Japanese government and the business partners for possible future courses of action. While taking into account the energy supply needs and ensuring that we comply with related international sanctions. A loss of JPY 20.9 billion as well as a decrease of JPY 80.6 billion in net assets were recorded in LNG business, mainly due to downgrade of the Russian government credit rating. Please refer to Page 35 of our presentation for more details. I will now explain the key initiatives in our business plan for fiscal year March 2023. As reflecting on this slide, we will further promote disciplined and well prioritize resource allocation, strengthen the competitiveness of each business, implement reorganization of the business portfolio and accelerate the formation of robust business clusters. Since the time of the previous MTMP, we have been continuously strengthening our trading functions through diversification of sales channels and supply sources based on customer needs. Further, we have been working to assist management in the group companies, such as Penske, IHH and Novus, which has led to the lower breakeven points. As a result of such efforts, our earnings base has significantly increased by solidly capturing COVID-19 recovery demand in fiscal year March 2022. From now onward, we will accelerate these kinds of initiatives by continuously working to form a robust portfolio that is resilient to downward pressure while still being able to capture upside in rising markets. Here, I will discuss progress in the areas of strategic focus under MTMP. In Energy Solutions, we have made progress, particularly for promoting clean ammonia manufacturing projects at CF Industries in U.S., ADNOC in Abu Dhabi and Waitsia in Australia. In particular, we have been discussing with CF Industries in the U.S., the world's largest ammonia producer, about building new blue ammonia production plants. We will soon start a front-end engineering design and looking to make a final investment decision in 2023 and start operating in 2027. In addition, we're jointly working to produce blue ammonia in CF Industries existing facilities and expecting to start supplying to regions centering on Asia from around 2024, leveraging our global network. Our intention is to contribute to global decarbonization through supply of fuel ammonia as well as clean ammonia for chemical fertilizer use. We have also accumulated power generation assets to raise our renewable energy ratio above 30% by 2030 through acquiring stakes in renewable energy developer mainstream and in a large renewable energy project in India. We have also made progress in strengthening our alliance with Forsee Power to promote electric mobility value chain and participating in the Carbon Credit project in Australian Forestry. I will now explain progress in Healthcare/Nutrition. We seek to promote creation of wellness business cluster along with growth of IHH business, data business centered around IHH and establishment of well-being business cluster that offers services for preventive care, testing and diagnosis, et cetera. In fiscal year March 2022, IHH achieved record high earnings as a result of enhanced management capabilities. We also made progress in establishing a wellness business cluster by acquiring Human Associates Holdings to bolster services pertaining to corporate HR and Health Insurance Association and established Thorne Asian operating preventing care business. I will explain our progress in market Asia. There is progress in new initiatives such as Healthcare/Nutrition and infrastructure, et cetera, to capture growth of growing and changing consumer market in Asia. We completed subscription to convertible bonds of CT Corp's holding company in the first quarter of fiscal year March 2022. We're working to develop joint businesses in a wide range of areas, leveraging their unwavering business platform as well as institutionalizing its management structure by dispatching a director and secondees. Next, I'll explain our response to climate change. Based on the roadmap to having our GHG impact by 2030 that we explained in ESG Day held last year, we are reconfiguring our business portfolio and promoting projects that contribute to reducing emissions. Moreover, in fiscal year March 2022, as I just mentioned, we made progress in such areas as acquiring a stake in major renewable energy businesses and started demonstration projects in the existing businesses toward commercialization of CCS, CCUS. I will now explain our HR strategies. In order to empower human resources in the global arena, we're promoting initiatives such as development of competent individuals for their professional growth, Diversity & Inclusion, talent management to support right person to the right positions to boost Transform and Grow. Page 20. Finally, I will explain our "D"s & "I"s initiatives which urge us to respond to uncertain business environment and not only to continue growing amidst uncertainty, but also to allow us to ride the next waves. The word starting from "D"s & "I"s have many important key messages. So we have lined these up and made them into a model so that each and every one of us has a sense of emergency and think thoroughly about what we should be doing now. I'm convinced that this approach will lead to sustainable growth as it becomes part of our corporate culture. That concludes my part of the presentation. I will now hand over to Masao Kurihara, our Global Controller, to explain the details of our operating results for fiscal year March 2022, and our business plan for fiscal year March 2023.

This is Kurihara, the Global Controller. First, I will explain the main changes in COCF by segment compared to the previous year. COCF for the full year increased by JPY 500.6 billion to JPY 1,158.7 billion. In Mineral & Metal Resources, COCF increased by JPY 244.7 billion to JPY 552.8 billion, mainly due to higher sales prices at iron ore and coal operations in Australia, higher sales prices at copper operations and an increase in dividends from Vale and Erdos. In Energy, COCF increased by JPY 157 billion to JPY 280.2 billion, mainly due to an increase in oil and gas prices and LNG trading profit. In Machinery & Infrastructure, COCF increased by JPY 65.3 billion to JPY 144 billion, mainly due to good performance of group companies centered on automotive and an increase in the dividends from equity method affiliates. In Chemicals, COCF increased by JPY 31.3 billion to JPY 93.8 billion, mainly due to good performance of the trading businesses and the methanol business as well as strength in overseas crop protection and agriculture-related businesses. In Iron & Steel Products, COCF increased by JPY 10.4 billion to JPY 12.4 billion, mainly due to the good trading performance. In Lifestyle, COCF increased by JPY 15.4 billion to JPY 35.2 billion, mainly due to good performance of grain trading, recovery of fashion business, strengthened healthcare business. In Innovation & Corporate Development, COCF decreased by JPY 8.5 billion to JPY 46.6 billion, mainly due to absence of FVTPL profit recorded in the previous year. Other factors such as expenses, interest, taxes, et cetera, which are not allocated to business segments totaled negative JPY 6.3 billion. Next, I will explain the main changes in profit by segment compared to the previous year. Profit for the year increased by JPY 579.2 billion to JPY 914.7 billion. In Mineral & Metal Resources, profits increased by JPY 317.7 billion to JPY 497.6 billion due to factors such as higher sales price of iron ore and coal operations in Australia, higher sales price of copper operations and increasing dividend from Vale. In Energy, profits increased by JPY 86.8 billion to JPY 114 billion mainly due to increase in oil and gas prices and in LNG trading profit, although there was absence of deferred tax assets resulting from reorganization of U.S. energy subsidiaries recorded in the same period of the previous year. In Machinery & Infrastructure, profit increased by JPY 74.9 billion to JPY 120.8 billion, mainly due to good performance of the automotive business, primarily in North America in addition to the absence of the impairment of the rolling stock leasing group company incurred in the previous year. In Chemicals, profits increased by JPY 25.4 billion to JPY 68.9 billion, mainly due to good performance of the trading businesses and the methanol business as well as strengthened overseas crop protection and agriculture-related businesses. In Iron & Steel Products, profits increased by JPY 24.8 billion to JPY 26.9 billion due to the good performance of Numit, resulting from strong steel market conditions and the recovery of the U.S. automotive market and good trading performance. In Lifestyle, profit increased by JPY 48.8 billion to JPY 61.5 billion, mainly due to valuation gain in the fashion business, good trading performance of grain, an increase in profits in the healthcare business and sale and valuation gain in PHC shares. In Innovation & Corporate Development, profits increased by JPY 7.4 billion to JPY 57.6 billion, mainly due to sale of Multi-family Housing Property and land in the U.S. Other factors such as expenses, interest taxes, et cetera, which were not allocated to business segments totaled negative JPY 32.6 billion.

The table below shows the main factors influencing year-on-year changes in profit. Base profit increased by approximately JPY 281 billion. This was mainly due to steady trading performance of LNG, chemicals and steel products, increasing dividends received from iron ore businesses and strong profitability in all segments. Looking at the resource-related cost/volume, profit decreased by approximately JPY 25 billion due to the impact of rising labor costs in the Mineral & Metal Resources business and also a decrease in volume due to the production decline in MOECO/Thai offshore project. Asset recycling resulted in an increase of approximately JPY 3 billion in profits, mainly due to the partial sale of shares in PHC Holdings and the sale of Multi-family Housing Property in the U.S. In commodity prices/ForEx, profit increased by approximately JPY 235 billion. Commodity prices increased approximately JPY 62 billion due to steady iron ore prices, approximately JPY 61 billion due to coal prices and approximately JPY 62 billion due to oil and gas prices. In ForEx, the weaker yen resulted into an increase in profit of approximately JPY 29 billion. Finally, valuation gain/loss, et cetera, resulted in an increase of JPY 85 billion, mainly due to the absence of impairment loss in the Moatize Coal and infrastructure projects incurred in the same period of the previous year, while a decrease of JPY 20.9 billion was recorded in Arctic LNG 2 project, mainly due to accounting loss halved by downgrade of the Russian government credit rating, et cetera. In this section, I will discuss cash flow allocations for the current year. Cash-in for the period was [ JPY 1,416 billion ] comprising COCF of JPY 1,159 billion and asset recycling of JPY 257 billion. Principal asset recycling included loan collection in the copper business and sale of the contract manufacturing business of MicroBiopharm Japan Company Limited. On the other hand, cash out was JPY 856 billion, comprising investment and loans of JPY 511 billion and shareholders' return of JPY 345 billion. i.e., share buybacks of JPY 175 billion and dividend of JPY 170 billion. Main Investment and Loan included subsection to convertible bonds of the holding company of Indonesia's CT Corp; acquisition of shares in Mitsui Oil Exploration Company Limited; investment in European agrochemical company, Belchim, maintenance CAPEX in existing projects such as oil and gas projects and Australian iron ore and coal businesses; LNG and power generation projects under development and real estate business. We will continue strategic allocation of funds to grow the investments and shareholder returns corresponding to the increases in COCF comprehensively considering the investment opportunities and business environment. Now let us take a look at the balance sheet as of the end of the current year. The net interest-bearing debt was approximately JPY 3,300 billion, which was almost the same level as start of the previous year. Also, shareholders' equity was increased by about JPY 1 trillion to JPY 5,600 billion, mainly due to the increase in profit for the period. Foreign currency translation adjustments due to weak yen and fair value on the financial assets measured at FVTOCI, while a decrease of JPY 80.6 billion was recorded in to LNG projects as reduction in other comprehensive income, mainly due to downgrade of the Russian government credit rating, et cetera. As a result, net DER has fallen to 0.60x. We will continue to maintain and strengthen our financial base through our cash flow allocation framework. I will now describe the business plan for COCF and profit for fiscal year March 2023. COCF is forecasted to decrease by JPY 208.7 billion to JPY 950 billion, and profit for the period is forecasted to fall JPY 114.7 billion to JPY 800 billion in year-on-year due to normalization of conditions in some of the commodity markets, mainly in Mineral & Metal Resources, et cetera. On the other hand, profitability of those businesses, which are less sensitive to market volatility, are expected to be almost at the same level as in the previous year. The following table compares the plan for fiscal year March 2023 with the actual results for the previous year and shows the main factors expected to influence year-on-year changes. Base profit is forecasted to decrease by about JPY 160 billion due to decrease in dividend from iron ore business operations, less profit from LNG business as well as due to the absence of FVTPL gains recorded in the fiscal year March 2022. Resource-related costs/volume factor is expected to decrease by about JPY 23 billion, mainly due to expected decrease in production and increase in costs, while prices of crude oil and LNG remains steady. Looking at asset recycling, an increase of about JPY 34 billion is currently expected for the fiscal year March 2023, forecasting sales of multiple assets. Commodity prices/FOREX will contribute to an increase of about JPY 32 billion, mainly due to increase in oil and gas prices and weaker yen. That concludes my presentation. Thank you.

Now we would like to start the Q&A session.

I would like to ask 2 questions. My first question is about the Russian LNG project, Sakhalin 2 and Arctic 2. What is the situation of the operation, the current situation of the 2 projects? And on Page 35 of the presentation material, you have disclosed the guarantees balance, JPY 182.2 billion. So with what kind of incidents -- what kind of impact on the P&L is expected going forward is what I'd like to know. So please talk about the risks. And if there's going to be provisions, is it going to impact the shareholders' returns and your cash situation? So that is my first question on the Russian LNG projects. And about the cash flow allocation of MTMP, so this is on Page 10 of the presentation material. As for the management allocation, growth investments and shareholders' returns, which will come to JPY 740 billion, which does not include [ parts on ] asset recycling. If the market condition continues, we believe that market condition is going to make it go up. So there are many selections, options that is available going forward when it comes to management allocation. So when it comes to additional returns, what are the options? And in order to elevate the corporate value, how will the cash be used going forward? That is my second question.

Thank you very much for your question. As for your first question about the Russian operations, Sakhalin 2, the sanctions are going to be more strict going forward. The delivery and also settlement has been done and operation is continuing at the moment. So we are in negotiation with the stakeholders all the time to make decisions, but a stable supply is something that is in our mind. And with Sakhalin 2, it is a continued operation from that standpoint. And as for Arctic 2, this is a project in construction at the moment. And with the [ excess ] of Russian country risk, we believe that the risk is elevating, as you all know. And we have made the analysis, and at the end of the year, we had looked at provisions, and this is a provision that we have announced for this occasion. And going forward, depending on how the situation of Ukraine changes, of course, it is very difficult to foresee. But for example, if the sanctions become stricter going forward and materials and equipments, if the procurement of those become difficult and the development project need to be changed substantially, if that kind of situation arises, then what kind of additional measures we need to take is something that we need to consider. But at the moment -- development plan at the moment is continuing as planned. And as for your question, I think the intent of your question is that these are guarantees -- the position of guarantees that we have disclosed. If because of certain scenarios, if we need to make provisions further and if that is going to impact your cash flow, how is it going to impact the shareholder returns going forward. I think that is the intent of your question. Currently, we have taken all the measures that is necessary and if we need additional measures, accounting treatments. And also, we are going to consider the continuance of the project, and the risk management of the projects will be maintained in a substantial manner going forward. So at this moment, the impact on the returns that we have talked about in our engagement, I believe that has not changed. But I may be repeating myself, but the cash flow position for the 3 years is very, very strong. Maybe this is an answer to your second question now. But fortunately, the options for Mitsui is increasing. And in order to increase corporate value, we may put it into new investments or may consider new returns. And as you say, we do have a number of options available. Well, we are almost seeing the subsidence of COVID-19, and globally, we are looking at different projects that we can go into. And we do have a very, very strong pipeline in front of us. So I think that is how we can take it. Especially, we are seeing transitions in energy fields. And for decarbonized or low-carbon society going forward, there are a number of solutions. And globally, there are many projects that is available in front of us. So whether we're going to do them all, but in LNG, we would like to aim for returns that we have been seeing. And we want to take it to the next stage, in the new energy stage, so that we'll be able to take it in. So we'd like to make it into projects that we will be able to realize with confidence. For such projects, of course, some may require M&A or some also may need developments. So we are increasing the cash on hand, and we are going to put that cash into such projects and pipelines going forward. And this and also shareholders' returns, they need to be considered in balance, and this policy is unchanged. So going back to the first part of your question about the shareholders' returns. Of course, within management allocation, long-term investment and shareholders' returns, they are both considered. So how management allocation is going to appear going forward is something that we will monitor. We want to consider returns that is going to lead to substantial engagement. And we hope that it will continue to maintain shareholders' returns that is going to realize a policy. What we can say for sure is, all incorporated in the presentation material, situation changes and new information to be gained, all these will be considered to make decisions on the investments and shareholders' returns going forward.

There are 2 questions. First one is the level of your real earning part as a company. Originally, in the initial part of MPT, JPY 400 billion for profit for the year, but now it's JPY 800 billion, which is double. And for March 2023, as you develop the business plan, the MTMP and the base profit is going to be dropped from the previous fiscal year, and items include the dividend decline in iron ore and LNG and FVTPL. So any other -- the factors other than iron ore and LNG will probably have the increased level of profit base from the previous fiscal year. And you are making plans for that, and so you have the strong base? And how are you going to catch up and see your profit base catching up in the next fiscal year as well? And the second one is LNG question. The environment is now seeing increased demand in terms of transition. You talked about Arctic LNG 2, but Mozambique LNG is another one. The level of demand is heightened. So you have to build the project as soon as possible, sooner than you had expected. And what sort of negotiations are you having with your stakeholders? And do you see any further progress going forward? Can you update us on that?

With regard to the first part of your question, the real earning part of our company, there are 2 factors. First of all, the strong recovery, the degree of strength of the recovery since the COVID-19, how long would it last, and I believe that there is a some tangible response, and in the global extension. And also, there are increased basis for earnings increasing steadily. And for each of the business units, in order to respond to COVID-19, the breakeven point has been lowered, and that is a fact. And the extension of the scope and level of real earning power elevated, so the breakeven point is lowered. And the machinery and chemicals and materials and steel and lifestyle, including healthcare and food, and next, the innovation and corporate development. In those, the base profit translated into cash compared to the previous management term -- medium-term management plan, JPY 100 billion increase has been seen. And also in March 2023, the demand from the recovery from COVID-19 will be -- has continued. And in the inflationary economy, there could be some business opportunities, but I don't know how long that would last, but a certain level of forecast with some sort of conservatism is made. And also business foundation has been expanded. So those are the 2 factors that have been incorporated in the budget that we have come with this -- for the next fiscal year or this fiscal year. And for the budget accumulation from each of the business units have shown some sort of strength expected. And as for LNG, as you said, in transition, the low-carbon study and energy transition in these environments, LNG role has been heightened. And from the geopolitical point of view, that importance has been further heightened. And globally speaking, the -- you have to secure the total amount of LNG projects, and that is the responsibility that we have to fulfill in North America and Mozambique, as you mentioned, and Middle East and Australia. And Russia Arctic project, which I believe is very important in that sense. So we would like to proceed with the development. As for Mozambique, last year around Spain, there was attack incident in the peripheral area of the site. And then the security has deteriorated and became instable and construction work has been suspended. But in the neighboring countries of -- to Mozambique, had multilateral collaboration since then, and the attackers have been now sweeped and the citizens that had once evacuated have been returned now. And that situation has been continuing. And in our perspective, the stability of the livelihood of the local community has to be maintained. And if that happens, then we can resume the construction work. And Total is the operator of this project, and Total is also watching that. And if you look at the message from them, by the end of 2022, there is a possibility that they can make that decision at some point in time. So we would like to work with them so that we can ensure the early resumption of Mozambique project. So this project has to be completed properly. Otherwise, if you look at the long-term demand supply and various technological progress in -- ahead of the low carbon energy society, there is some gap that you have to fulfill. So you have to do that.

So in the global foundation extension is the follow-up question. The supply shortage in the previous fiscal year, there were more opportunities to make profits. And there is Ukraine invasion and there are [ sanctions ] that are gradually increasing. So for example, coal made -- produced in Australia could face supply shortage. And so in your global network, there are many things that you can do. In other words, there is an environment that will allow you to do that. Is that correct?

Well, there are many supply chain issues and disruptions. And as a trading firm, especially for our company, there is a global network that we emphasize. And the cross country and cross-sector ideas are being provided so that we can provide integrated solutions to stabilize the supply chain. And there are many opportunities for that, and there are chemicals, food, including grains, energy trading and also automotive retail. And in the big issues of supply chain, we are providing rental and lease services in automotive retail business. So by straightening supply chain, we are also strengthening our functions as well, and that could be further -- for further development going forward.

I'd like to ask 2 questions. My first question, going back to Russia once again. It's very difficult to ask this question, but you have disclosed the balance. What is the maximum loss that we can expect? I mean this is a general question, but for trading companies, they're investing countries with risks and they do take coverage from NEXI, the insurance company. And I'm sure you talk with different countries when you go into that country. But if there is a loss, will it be covered by insurance? I do not know the actual conditions that is applied, but do we need to consider such risks when making investments? I just want to know that you are not going to lose JPY 400 billion as a whole, but what is the maximum loss that we can expect from that point of view? And the second question is, as you mentioned, there is a division of the world, starting with the invasion of Ukraine. And you talked about decarbonization and energy transition going forward, and you said that they are higher in priority. But with those external environment, I believe that the priority is going to change, including decarbonization. Arctic 2 may be terminated, and that is going to change your growth stories going forward. Then you will need to look at other areas for LNG projects. So there are a number of cases that we can consider. So we need to take into consideration country risks. There will be new country risks emerging going forward if the world divides further. So how to take risks and how to make priorities when it makes the investments? Are they going to change? And if so, please explain. That is my second question.

Thank you very much for your questions. As for your first question about Russia, the maximum exposure, that was the question. And the question you asked is a provisional hypothesis or speculation, so it's very difficult to answer your question. But NEXI Insurance, as you mentioned, is -- this project is a target of that insurance, but I will refrain from talking about the mechanism of the insurance of NEXI. So please refer to NEXI's announcements because we take it as they make the information available. So I will refrain from answering your question from myself. Of course, there are scenarios or hypotheses of what is going to happen in Russia, but our development plan at the moment in the Arctic, the premise is that it is going to continue. And if there are unexpected situation that is going to arise going forward, and if they need additional measures, then we will consider the situation appropriately and make announcements as to what the measures we'll be taking. And this is a project under construction, and if there are some guarantee of the customers and if there are unexpected incidents, how the risks will be covered and what kind of measures need to be taken. I think there are a number of options. So we will negotiate with the stakeholders as to which options we will take. And we will also look at how the stakeholders are involved. There are many scenarios available and we follow them to be involved in such projects. So we will minimize the exposure as possible, and we will look for and explore the best way forward in completing the projects. And as for your question on the priorities, as you mentioned, I agree that for low-carbon society, there are a number of opportunities, and we are looking at effective very high-value projects. CF Industries, we are working with at the moment, and they -- these become the candidates for the future for our projects. Of course, low-carbon society and also for energy transition, I believe these are projects that are going to bring in good prospects and turnaround. There are many expansion projects that is ongoing, so these are also big projects under consideration as well. And there are no substantial projects I could talk about at the moment. But with LNG, we may look at projects in the future looking at geopolitical situation and regional competitiveness. And if there are appropriate projects to consider, we will do so. With COVID-19, what has become apparent is that healthcare projects, the growth potential is very big. And as I mentioned before, with Asia, there are connections between Asia and U.S. and in the future, may be connecting Japan as well. They are healthy projects that we can focus on going forward. And whether there are changes in the priorities, of course, we need to take consideration of the country risks. If we look back on the trend of the country risks and looking at the actual results, the U.S. has been up in the priority. We have a large U.S.-based profits. And there are many cases that grow with the U.S. in the center. There are many pipelines in the U.S. at the moment. So we would like to respond accordingly, and we need to look globally and make a balanced participation, but the focus area will be U.S. And as I mentioned, healthcare and consumer businesses, I believe, Asia will be our focus. So in comparison, I believe these areas, their priority is increasing.

I have 2 questions as well. As you explained, especially the strategic focus from long-term perspective, the investment in platform is probably a significant part of that. And what you have done so far and how you can give more specifics as action plans, that is what I'm focusing on. And going forward, what sort of pipeline are you going to have? And what are the internal incentives to promote those, in what timeframe, so that people from outside can see that? So if you can just give us your idea about -- more specific ideas about going forward. And the second question, the high-quality pipeline is something that you're going to look at. That's what you said. But in large-scale investments, probably the timeframe would be like 2030. So long term, investment will be the focus area. However, on the other hand, more steady, short-term tangible results should be made in order to have a balance in terms of profit growth. So how are you going to hit the balance in terms of areas and timeframes? So what are your thoughts? If you can give us that, that will be appreciated.

Thank you for your questions. You have asked 2 questions, but I'd like to answer both in one response. The timeframe and the business area, how are we going to build new projects in terms of strategic focus is your question. So what we earn from, or the projects are generating profits or assets and areas are generating profits currently, if you look at them, we extend that timeframe and then strengthen those areas. And in the low-carbon new projects, there is -- we are going to have projects with profit profile. That will be the same as the gas projects. So in the development projects -- the new development projects, you have to make sure that, that will generate profit. And there are infrastructure available in the world, in society. So because we have to have our infrastructure in place in order to have tangible results in the carbon credit. And so we have to complete projects and that will give us the profit. And you have to have a bridging projects to lead us to that. So we will continue with existing projects investments and also new project investments. We have to combine these to have a proper formula. And you talked about the internal incentives. So we have to share all these with everybody inside the company so that people can understand better. And so if you just pursue EBITDA -- high EBITDA projects, then that formula could lose balance. So you have to have more precise analysis on that. Sometimes you may pursue that, but you have to also look at the effect of -- in terms of timeframe. And if you are quite sure, then you may go for that. And the same goes for health care. In Asian hospitals, the highest ever profit was made in the previous fiscal year. And testing and diagnosis and data, inventory collection, those are still there in [ hospitals ], but in the future, these will be all spun off into separate entities. And then in that environment, in the sub segments, the proper profitability ratio should be ensured. That is the area that we are looking at. And so you look at the current status, and you have to make sure that the profit is generated currently. And then in some specific areas, we would have more business. And if you have the platform in place, then you can do that. And so that is the line of thought that we have. Therefore, this is just an example, but in each of the areas -- the growth stories in each of the areas should be considered and discussed internally. And probably what is -- remains unchanged will be the following. The trading functions have to be made more sophisticated, and that remains the same. If you look at the LNG trading, the trading is becoming even more complicated and complex. And if you look at the carbon credit trading and derivative trading, all of these are getting sophisticated and spreading around the world, and risk management has to be done by professionals. And so we -- as a company, we look at this as one of the business access to focus on. Does that answer your question?

I would like to ask 2 questions, please. My first question about Machinery & Infrastructure, JPY 40 billion growth is expected. So what are the factors behind that growth? And JPY 160 billion is a plan for this year. Potentially, what is the profitability base that you have? This is about the Machinery & Infrastructure. And as for Chemicals, Nutrition & Agriculture products, what are the growth potentials for Nutrition & Agriculture? So these are the 2 questions I'd like to ask.

Thank you. When it comes to Machinery & Infrastructure, for March '23, we have shown a very strong substantial budget. We have considered the content, and we believe this is appropriate. So North American automotive-related businesses, I will not go into details here. And also South America and Asia, these are very close to consumers, dealership businesses and also financial services associated, they are established business models for these businesses. So organic growth is something that we can foresee. So these are the pillars for these businesses. And when it comes to infrastructure, there are a number of projects that is going to show profits starting from March 2023. So we believe that this has led to -- and forms basis for a strong budget for March '23. So sales, American gas and supply and also shipping businesses, we believe that Machinery & Infrastructure, they can expect very strong businesses going forward. And as for your second question about Nutrition & Agriculture, we want to really have a wider scope, especially in the agricultural sector. We want something that is environmentally friendly, including fertilizers and agricultural products that is easy for the environment and the materials and tools as well. And we need to think about geopolitical situation as well, but we believe that the market is going up. So agricultural production, how we can provide a stable agricultural operations in this situation and how we can contribute to that is something that we need to think about. And cheaper and secure protein and grains to be provided as feed. We call them micro-ingredient, but how they can be combined is going to be more important going forward. So this is same as a low carbon. We need to have an integrated approach to protect the global natural capital. Otherwise, we are going to provide a negative impact. Therefore, there are turnaround that we have completed for the businesses we're involved in, and we are forecasting growth in profits. So we would like to explore and acquire new business opportunities in those areas going forward. Any other questions?

There are 2 questions. The first question is about Arctic LNG again. Total in the earlier announcement recorded JPY 4.1 billion in losses and their equity is 10%. And you have Japan Arctic LNG, 10% in total and 50% in voting rights and 25% in terms of monetary amount. So even if you adjust the equity -- your equity interest, the losses recognized by Total and losses recognized by you are quite wide apart. So you may ask us to ask Total for reasons, but if you can give us some information, that will be appreciated. That's the first question. And secondly, you have revisited the bonuses and compensation for the Directors, and this has been more sophisticated, and you also introduced that toward the end of your presentation. And if you have any additional information, for example, ROE and ESG has been part of the evaluation for compensation. So from the ROE, which is quite high already, how are you going to incentivize this? And in terms of ESG, which part are you going to focus on? Maybe we should look at more materials for more details, but if you can give us more information at present, then that will be appreciated.

For the first question, you have to ask Total. But if you look at the information that has been announced by Total and our accounting provision, is it going to be changed? No. So when you look at our own situation and risk profile, and we have made thorough discussion with our auditors. And we believe that this is a healthy, sound, and this is as much as we can do. And we don't know how much -- what was the thought on the part of Total. As with regard to the compensation for Directors, in the basic principle, the performance-based bonuses will be increased and also basic compensation for short-term and long-term. And -- well, this really is -- what is important is alignment with shareholders, but share price-linked or share value-linked part will be also increased. So those are 2 basic principles, and we have had discussions with Board of Directors, and then we came up with this evaluation system. And as for ROE and ESG, the performance link is something that we have yet to work out, so we cannot give you details. But for those very important indices, the Board of Directors would look at the performance of directors from various objective indices, and they have discussions and look at what is appropriate and what is not appropriate. And this is quite important in terms of governance, and that's the basic thought that we have as we proceed with this.

There seems to be no other questions so we'd like to end the Q&A session. We have an announcement at the end of the PowerPoint slides, you can see that we will have a business briefing, June 16. And also December 2, we are going to hold the Investor Day. We will e-mail the details to you. We hope to have your participation in these 2 events going forward. With that, we'd like to end this session for today. Thank you so much for your participation despite your busy schedule. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]