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

Good morning. I'm Kenichi Hori, CEO. Thank you for joining us today. I will begin with an overview of the first half operating results and the full year forecast. I will then hand over to Masao Kurihara, General Manager of the Global Controller Division, who will speak on the financials in more detail. First, I would like to provide a summary of the first half of this fiscal year and the forecast for the second half. Progress was steady against the full year business plan, but core operating cash flow, or COCF, exceeding 50% for the first half. Progress was almost also made in asset reconfiguration through the sale of large-scale assets, and listed stocks and cash inflows expanded from both operations and asset sales. We are encouraged by the progress made in strengthening existing businesses as well as efficiency improvements and turnarounds, which contributed to enhancing base profit. We also worked on strengthening our long-term earnings base through competitive investments for growth such as the Ruwais LNG project, and in addition, we decided to flexibly make additional share repurchases of certain cash inflows and share price levels, being cautious of balancing investments for growth and flexible shareholder returns. Based on the progress made in the first half and the latest forecast for the second half, we have revised up our full year profit forecast. We will continue in the second half with initiatives that are enhancing base profit and continuous growth. In particular, we will further strengthen existing and new businesses, focusing on LNG, mobility, healthcare and protein, which will be the main growth drivers during the current MTMP. In addition, we will actively continue asset reconfiguration, focusing on improving ROIC. With these measures, we will continue to work on improving our business portfolio and strengthening our earnings base in order to achieve our plan, not only in the second half of the fiscal year but throughout the rest of the MTMP and targeting further growth beyond. We aim to take advantage of our global business portfolio to seize new business opportunities while reinforcing our risk management in light of heightened geopolitical risks and changes in major economies. We will continue to focus on maintaining and further enhancing ROE while continuously being conscious of the balance between investments for growth and shareholder returns. I will now summarize our operating results for the first half of this fiscal year. COCF increased by JPY 63 billion year-on-year to JPY 538.1 billion, and profit decreased by JPY 44.5 billion to JPY 411.8 billion, both showing good progress against the business plan. Taking into account the progress made in the first half of the fiscal year and the upside expected in the second half, we have revised up our full year profit forecast by JPY 20 billion to JPY 920 billion. As announced on September 11, we increased the share repurchase by JPY 200 billion up to JPY 400 billion and extended the repurchase period to the end of February 2025. I will now speak on the full year forecast for COCF. Although we expect the Mineral & Metal Resources segment to be affected by commodity prices, we expect the company as a whole to achieve the business plan of JPY 1 trillion as planned, mainly due to good performances in the Energy segment. Next, I will speak on the full year forecast for profit. Although here, too, we expect the Mineral & Metal Resources segment to be affected by commodity prices due to the upside in Energy, Machinery & Infrastructure and Innovation & Corporate Development segments, we have revised our full year forecast upward by JPY 20 billion from our business plan to JPY 920 billion. Now I will discuss the results of cash flow allocation. In the first half, we steadily made investments for growth in line with the 3 key strategic initiatives set out in the MTMP and also executed large-scale asset recycling. Cash inflows for the period were JPY 884 billion, comprising COCF of JPY 538 billion and asset recycling of JPY 346 billion. Cash outflows were JPY 720 billion, comprising investments of JPY 372 billion and shareholder returns of JPY 348 billion. We are implementing carefully selected investments for growth in line with the key strategic initiatives set out in the MTMP. The projects shown on this slide in bold have already started to contribute to profit. We are balancing near-term profitability and building a long-term earnings base in our investments for growth, and the enhancement of base profit through new projects is on track. Thai gas-fired power generation #2, Unit 4 was completed on October 1 this year and has begun commercial operation and contribution to earnings. With the start of operations at all 4 units of #2, the total installed capacity, including #1, is now 5 gigawatts. Mitsui has been working on this large-scale project, which will meet approximately 2% of Thailand's power demand, for 6 years since the start of construction of #1 in 2018. We have been deploying our project management expertise that we have refined over time and reached the completion within budget and on schedule. Contribution to earnings from the Thai gas-fired power generation #1 and #2 from fiscal year March 2026 onwards is expected to be similar to -- similar in scale as the Paiton coal-fired power plant project, which was sold in May this year. Over the 3 years of MTMP, we plan to increase our base profit by JPY 170 billion, excluding the impact of onetime factors, commodity prices and foreign exchange. Next, I'll explain the progress in enhancement of base profit. In the full year forecast for fiscal March 2025, the second year of MTMP, we expect to achieve an enhancement of up to JPY 120 billion against the JPY 170 billion target. For strengthening existing businesses, we're seeing steady progress in our middle game initiatives in areas such as mobility, chemicals, Japanese domestic businesses in food and retail, and Innovation & Corporate Development, and healthcare. We expect to see a cumulative increase of JPY 45 billion by the end of fiscal March 2025. For the efficiency improvements and turnarounds, although the scale of impact for each individual item is not large, we expect to see an enhancement of JPY 35 billion through existing loss-making businesses and accumulation of improvements in business performance. For new businesses, we expect to see an increase of JPY 40 billion as a result of the commencement of earnings contribution from multiple new projects during the current fiscal year in addition to the full year profit contribution from businesses invested during the previous fiscal year. Cash inflows are expected to increase by JPY 170 billion from JPY 4.2 trillion to JPY 4.4 trillion during the current MTMP period due to the increase in asset recycling. As a result, the management allocation would increase from JPY 560 billion at the time of the business plan announced in May to JPY 730 billion. From this increased management allocation, JPY 90 billion has been allocated to investments and JPY 190 billion to shareholder returns, meaning the management allocation is expected to be maintained at the sizable level of JPY 450 billion. In addition, given our strong financial base, there is a potential for us to add to the management allocation. We will continue to allocate capital in a balanced manner between investments for growth and shareholder returns, bearing in mind our solid balance sheet. Next, our shareholder returns policy. As I mentioned earlier, we decided to increase our share repurchase amount by JPY 200 billion this September. As a result, shareholder returns as a percentage of COCF during this current MTMP period is expected to exceed 45%. We will continue to work to achieve sustained ROE growth by increasing profit with cash through investments for growth and middle game initiatives as well as enhancing shareholder returns along the way. That concludes my presentation today. I will now hand over to the General Manager of the Global Controller Division, Masao Kurihara, for details of our financials.

I am Masao Kurihara, General Manager of the Global Controller Division. I will now provide details of our operating results for the first half. First, I will explain the main changes in COCF by segment compared to the previous period. COCF for the first half was JPY 538.1 billion, a year-on-year increase of JPY 63 billion. In Mineral & Metal Resources, COCF increased by JPY 14.3 billion to JPY 192.1 billion, mainly due to a decrease in tax burden. In energy, COCF increased by JPY 107 billion to JPY 184.5 billion, mainly due to an increase in LNG-related earnings such as dividends and trading. In Machinery & Infrastructure, COCF decreased by JPY 41.9 billion to JPY 73.8 billion, mainly due to a consolidated subsidiary becoming an equity method investee and an increase in taxes associated with asset sales. In Chemicals, COCF increased by JPY 18.2 billion to JPY 42.5 billion, mainly due to improvement in performance in consolidated subsidiaries and trading. In Iron & Steel Products, COCF increased by JPY 0.3 billion to JPY 1.5 billion. In Lifestyle, COCF decreased by JPY 15.3 billion to JPY 14.4 billion, mainly due to lower dividends from equity method investees. In Innovation & Corporate Development, COCF increased by JPY 1.1 billion to JPY 20.3 billion. Other factors such as expenses, interest, taxes, et cetera, which are not allocated to business segments, totaled a gain of JPY 9 billion. I will now explain the main changes in profit by segment compared to the first half of the previous fiscal year. Profit for the first half decreased by JPY 44.5 billion to JPY 411.8 billion. In Mineral & Metal Resources, there was a decline in metallurgical coal and iron ore prices, but profit increased by JPY 26.9 billion to JPY 161.5 billion, mainly due to the absence of impairment loss in the Chilean copper business recorded in the previous period. In Energy, profit increased by JPY 39.3 billion to JPY 65.3 billion, mainly due to an increase in LNG-related profits such as foreign exchange related to dividends and good performance in trading. In Machinery & Infrastructure, although there was an increase in asset sale gains, profit decrease by JPY 16.2 billion to JPY 148.2 billion, mainly due to a decrease in profit in the IPP and the automotive businesses. In Chemicals, profit increased by JPY 7.8 billion to JPY 22.1 billion, mainly due to improved performance in multiple affiliated companies and trading. In Iron & Steel Products, profit increased by JPY 4.3 billion to JPY 7.3 billion, mainly due to the absence of impairment loss in Gestamp in the previous period. In Lifestyle, profit decreased by JPY 49.4 billion to JPY 20 billion, mainly due to the absence of the valuation gain on Aim Services recorded in the previous period and a decrease in profit in coffee trading. In Innovation & Corporate Development, profit decreased by JPY 8.1 billion to JPY 18 billion, mainly due to the absence of Altius Link valuation gain recorded in the previous period. Other losses amounted to JPY 30.6 billion, mainly due to the burden of the amendment to the retirement benefit system. This page shows the main factors that impacted year-on-year changes in profit. For base profit, in addition to higher profit from LNG-related business and chemicals, there are earnings contributions from new businesses. However, there was lower profit in IPP, PTL, and lower profit resulting from the sale of Paiton this fiscal year, leading to an overall decrease in profit by JPY 16 billion. In resources cost/volume, there was an increase of JPY 4 billion, mainly due to an increase in sales volume of iron ore, crude oil and gas. In asset recycling, there was an increase of JPY 2 billion, mainly due to gains from the sale of Paiton and partial sale of VLI. In commodity prices and forex, due to a decrease in commodity prices, profit fell in total by JPY 20 billion, consisting of JPY 11 billion for iron ore, JPY 5 billion for metallurgical coal and JPY 5 billion for crude oil and gas. Forex profit increased by JPY 30 billion, mainly due to the weaker yen. In valuations gains and losses, onetime factors, there was a decrease of JPY 45 billion, mainly due to an amendment to the retirement benefit system. Here, we have a comparison of full year forecast against the business plan with a summary of the factors involved. Base profit is expected to decrease by JPY 13 billion, mainly due to lower FVTPL-related profit and decrease in profit in aquaculture, coffee trading and Iron & Steel Products, while we expect to see increase in large range of businesses, including LNG ships, industrial and construction machinery, and chemicals. Resources cost/volume is expected to result in an increase of JPY 7 billion, mainly due to cost improvements in the upstream energy business, including exploration. Asset recycling is expected to result in an increase of JPY 55 billion due to upside from gain on sale of Paiton and partial sale of VLI in the first half as well as sale of multiple assets expected the second half. Commodity prices forex is expected to result in a decrease of JPY 19 billion, mainly as a result of the impact of weaker yen, partially offsetting the fall in iron ore and metallurgical coal prices. Valuation gains, losses and onetime factors are expected to result in a decrease of JPY 10 billion, mainly due to a higher burden due to amendment of the retirement benefit system. Looking at the balance sheet as of the end of the first half of the current fiscal year compared to the end of March 2024, net interest-bearing debt decreased by JPY 0.3 trillion to JPY 3.1 trillion. Meanwhile, there was no change to shareholder equity, which was JPY 7.5 trillion. As a result, net DER is 0.42x. That concludes my presentation. Now we'd like to start the Q&A session.

I'd like to ask 2 questions. The first question, about the thoughts behind the performance results this time. From the market, because of the asset recycling, it is more than JPY 100 billion, so that is quite sizable. And maybe to the next year, there may be some decreases in the profit going forward. So towards the next fiscal year, what are your thoughts behind the financial results? And of course, there may be some opinions from the frontline that you may be receiving. And Mr. Hori, you may have a wider network with managers globally, so how are they taking on the economic progress going forward? And that is some external factors that I'd like to know. And as for internal factors, of course, are you feeling that there will be good responses from asset recycling going forward? So when it comes to increasing the profit next fiscal year, are you convinced of how you'll be advancing forward? That would be my first question. And the second question, about cash flow allocation. So you said that there is a background of very strong branch profit and you'll be making profit going forward. But with asset allocation, but 45% was the occasion of shareholders' returns for COCF. And of course, this is something that we were able to calculate easily. However, you have JPY 450 billion remaining. And with a flexible market communication, you said that you'll be making flexible responses going forward. But however, the benchmark itself is very unclear. So you said that you exceeded 45%, but how would you be improving the capital efficiency going forward, which is an annual factor from outside? Therefore, can you give us a hint about how you progress going forward? And you have JPY 1.2 trillion. And are you having deep discussions as to how you'll be utilizing that JPY 1.2 trillion? That is my second question.

Yes, thank you very much for your question. About your first question about the economic responses, the external or internal outlook going forward, that is something that I'd like to talk about first. When we look at the external factors, of course, I go around the world, and I do talk to managers globally. And I feel that by country or when it comes to geopolitical risks, yes they are heightened. Volatility is heightened, I feel. However, in North America, the economy, I think, is quite resilient, and that's how I feel. And in China, there are some general risks. However, on the other hand, when it comes to economic management, there is a strong commitment towards financial management from China. So we are looking and monitoring very closely what is happening in China. And as for G20 nations or regions, of course, the countries in G20, they are exploring how to do economic management and G20 countries have links which are changing. Therefore, global regional strategy. Of course, we work in Southern and Northern Hemisphere, but I think those links are very, very important and they need to be maintained. Of course, here in Japan, there are many issues. But with the industrial reconfiguration, there are growth areas that we can focus on. So speaking to managers here in Japan, I think there are opportunities in Japan and also opportunities to link Japan to the world. And looking at the EBITDA trends, each managers and us included, of course, we need to have wider options ready in our hands. I think that is very essential. Therefore, we need to have secure management options to go forward. And I think that is a key going forward. And with that being monitored, of course, looking at the internal factors, of course, asset recycling, as was mentioned, has been done significantly. But when it comes to asset recycling, there are 2 things I want to say. First, of course, business model-wise, there are a number of divisions that are selling the businesses to gain profit. And they may be transient, but this is one part of the business model, so that will be continued. So Infrastructure division, they have development sale model. And in our company, we have Corporate Development division. This kind of business model is very strong in that division. And the other one is when we look at the global picture, of course, we need to have a wide range of options to enhance our portfolio. So asset recycling needs to be done in an agile manner and in a strategic manner as well. So we need to have a decisive product to make decisions, and I believe that is important. In the past few years, I think we are seeing good results coming from this perspective. And we would like to have a certain level of those results in every fiscal year. And we are making significant investment, especially in the past 7, 8 years. Therefore, with that, we'd like to continue with the asset recycling. And for the third year of the MTMP, from the 2 perspectives that I mentioned, we would like to continue with the asset recycling, and we need to see good results throughout that move. And I think that is included. The pace of asset recycling may vary every year because it's a transaction-based activity, but I think it's built into business. And in the third MTMP, if you look at the original plan, asset recycling is not included that much. Therefore, we'd like to accumulate such assets going forward so that we have a higher perspective and we have this market conditions being included in that plan. So from the middle game, we would like to make sure that you will be able to enhance base profit and that is including the action items that we'll be conducting. So with that, we would like to accumulate the current activities or businesses that we have so that we can adjust against the market conditions and hope that we'll be able to achieve the plan that we have set for ourselves. That is the answer to the first half -- first question. As for the next fiscal year, of course, I think we are too early to talk about the next fiscal year, but we will continue to work with the results that we have received in the first half. And as with the cash allocation question, the -- having options from the external factors from the previous MTMP, we have enhanced the balance sheet. And I think this is a very important option that we have in our hands. And of course, when there is changes in the management impairment, of course, we need to endure. Therefore, we need to have a certain results of preparation that we need. And when it comes to the pipeline projects, of course, the number of projects is increasing, but we need to be more disciplined. There are things that we want to do. However, some have not come to a stage in which we can expect the returns that we have set for ourselves. But as they are poised, I think we will come closer to that state. So depending on the scale of the projects, of course, with the agility needed in share repurchases, I think we need to make sure that we will utilize some of the spares that we have in the balance sheet. So I think that is something that we need to work on. So when it comes to cash, I think we're looking at the flow of the cash. But from the balance sheet as a whole, we need to make sure that we look at it so that we can come with a proactive activities going forward. Of course, looking at the global picture, I think we need to make sure that as you see the numbers in the material provided, that this is something that we will base activities and decisions going forward. And about the rate of shareholder returns that was asked, maybe you can ask additional questions later. But anyway, as a result -- looking at the result, in the 3 years of the MTMP, 45% or more of COCF, that was our plan. But it started with 37% or so. But in the previous MTMP, in the third year of that MTMP, that was when the shareholder return rate went up. So we looked at the 3 years' results. And in the current MTMP, we decided that 37% will be a starting point as a benchmark. And it's been a year now since we started the MTMP, and the shareholders' return, we were able to improve. That's how we see results. So engagement with investors will be continued. We do not know when and if they will be following MTMP. But when we announce an investor business plan, we would like to share the benchmark that we set for ourselves. But looking at the movements in the current MTMP, we will decide on what we will do next fiscal year. But that is too far into the future. Therefore, I think it's too early to have a deep discussion on that point. However, capital efficiency and return on capital, the benchmarks will be shared going forward. But it's only been 1.5 years of this current MTMP. But this benchmark that we have set for ourselves originally is something that we will continue to target. And we are only are showing the upside to that plan. So we hope to make continued effort. Thank you very much.

There are 2 questions. The first question, on Page 10 in the current MTMP, this profit enhancement progress is now -- is showing -- shown. But as in the previous period, the waterfall chart in Page 16, the JPY 16 billion in base profit minus and JPY 87 billion minus. And here, there's JPY 120 billion positive. So there is a big difference between those numbers. After the pandemic, things have been working well in some areas, but there were some response -- reverse response. And what was the reason behind this negative numbers? Can you explain more on those? And then on the base profit enhancement on Page 10, maybe from next year there will be no rebound and then there will be a gross return that will be driving the performance. When are we going to see that? At this moment, even though there are positive factors, but they are sizable negative numbers as well. So what are the biggest -- bigger factors in negative data? Can you explain on that? And on the second point, the way the investments are being made and reflected, so after halfway along in the MTMP, JPY 1 trillion investment for growth has been spent. So what has been the performance? Maybe some investments may have worked well and may have not -- and others may have not, so from your perspective [ percent ], what -- how are you looking at the performance so far of the investments made and also the convenience store being reported? But are you going to accelerate your investments in the second half of MTMP or are you going to maintain the current pace? So what is your read on the performance so far and prospect for the future investments?

Thank you for your question. First, the base profit enhancement progress, let me explain more about this. So on Page 10, you're looking at this end, but as you said, on a year-on-year basis comparison, there is some rebound from the level performance in the past. So it may be difficult to see the enhancement, but the turnaround and existing business strengthening. Of course, there are positive factors on a full year basis. The first half effect has been reflected in these numbers. But for example, in the strengthening existing businesses, in external environment are negative factors. And for this, for example, steel market has been the headwind for us. So we have not been able to produce results as we had expected for strengthening existing businesses and in agriculture business. In the existing business, there was some impact from the market. And also, crop harvesting more recently has been something that we have been struggling with, but we are expecting a recovery in the second half. But -- so those are some of the factors, for example. So the external environment has been proving negative in those areas, even though there has been an offset by positive factors. But as for coffee trading, compared to the previous benchmarking in the turnaround, it has been regarded as positive, but actually, they are short of the budget still. So there are some issues to be addressed. And the inventory position reduction has been made and the market prices are against us, but we are trying to mitigate that impact with our efforts as much as possible. So for the positive factors, I'm not going to repeat myself, but there are some homework that has still yet to address. So that has not changed. But JPY 170 billion is a target on the third year of MTMP, and against that, we have progress to JPY 120 billion. So as a reaction, we have been quite positive. But for new businesses, there has been buildup. And in the second half of the question, I'll answer this part. But probably in year 3 of MTMP, if you include the budget until that, then the JPY 60 billion, which is the target, can be well in our sight. So that is how I look at the performance. But of course, we are all out efforts on a company-wide basis for middle game initiatives. So we have to connect all these efforts, which is important. And that's all loss-making businesses will exit from those businesses. About JPY 17 billion worth of effect has been seen, but the individual sizes were not that large, so we have been accumulating individual items. But the way we see the effect is quite clear. Sometimes onetime loss could be charged, but we are absorbing the loss from the exit so that we can enhance the base profit for the mid- to long term, which is important. So we are focusing on that as well. And as for the second question, on investments, well, it is a bit of a repetition of what I said in the previous question. For the near-term pipeline projects, I think that number has been increasing. So what solar projects have more probability to implement. Well, the areas that were more familiar or in adjacent areas to those areas, and if we have insight to extend the existing business to the adjacent businesses if we are well aware of that, and as the projects where we can be a main operator are some of those projects that are being finished. But there is still discipline that is working. So if there is no return target to be achieved, then we are not going to do that, but there will be some returns from those pipelines. So this is a positive surprise. But if we are to implement the projects, we'd like to look at the status of the company and carefully proceed with them. There are immediate effect projects and also projects that will enhance the long-term stability of our financial position or earnings. There are 2 different types, and we have to do both in able to have a good balance. We're not sure if we end up with that. But that is how we are enhancing our projects in terms of how we navigate the business management.

I have 2 questions. I'd like to ask my first question. As you have just explained on Page 10, I'd like to ask some additional questions. So of course, strengthening existing businesses, efficiency improvements turnaround, for the 3-year period, it looks as if it is going very smoothly. You talked about the negative factors, but when it comes to strengthening existing business or efficiency improvements and turnaround, what are the targets. And these are the results we are seeing? There may be things that are doing well and not doing well, so what is going well? And what are the things that are not doing well against the plan? What is the middle game that you're playing in order to improve the areas which are not going well? That is my first question. And my second question is on Page 11 about capital allocation. I have an additional question I'd like to ask following on from the previous question. So you talked about strong base profit. And in the past 3 years, you were able to strengthen the financial base. And in the MTMP, the cash flow after shareholders' returns, you don't have to make it positive. And I think you think that you are satisfied with the progress that you are seeing at the moment. But what are the indicators that you're looking at, for example, net DER or ROE, I think the target is 12% at the moment. And in MTMP, I'm sure that will be the basis. But consciously, as you are seeing progress against the plan, the ROE, do you have a higher perspective when it comes to the next period or for the cash flow, how you utilize our debt or how you understand the ROE going forward? And this is what I'd like to know.

Yes. Thank you very much for your question. The areas that are going well and not going well, of course, this is really the overview. But anyway, what is going well? For example, the vessels in mobility, and automotive businesses, especially the Americas automotive business, these are the areas in which are doing well. And of course, Chemicals, I think, is doing well as well. And as for food, Mitsui Seito sugar, and of course, the [ feeds ] and the brand businesses, I think they are doing well according to the plan. And I may be repeating myself, but coffee trading, this is something that we are monitoring very closely, but the market environment is continuing to be very difficult. There are many headwinds. So we are making initiatives so that we can see good results. But I think this is an area we need to continue to respond to, and especially drug discovery support fund that you see here. Within our portfolio, there are a number of weaknesses, so we need to recover in those areas. So investment model may need to be adjusted. And of course, this is the big picture. But what is important is that management-wise, this is what we look at in order to improve our portfolio. So we do make hands-on responses, and people working in the front line are conscious of that. So we are glad that we were able to take the same for this kind of MTMP. But we'd like to realize our target in the third year of MTMP. So maybe this is following on from the previous question, but in order to see the results, I think maybe we can see it by year and maybe in the final year, the third year of the MTMP. So comparatively, I think we are seeing good results in new businesses, domestic outsourcing, and these are doing well against the plan. And food sides and the Thai gas high-power generation, I think they are doing well as well. So we are getting good responses in those businesses. Of course, the protein portfolio, including the prawns and shrimps, I think this is something that we are responding to the market changes, but we are -- we have high expectations towards the next year. So the current situation and the market condition, that is something that we need to differentiate separate in thinking about what we do as a response against the plan. And as for your question on Page 11. Net DER or ROE was your question. And what are the options that we need to secure and how do we utilize the potential -- the spare power that we have in the balance sheet, that is something that I have touched on in the previous question. But how the market will change is something that we need to look at. When we think about the net DER, do we need to have target against net DER? At the moment, we do not have net DER as a target because the world is changing so fast. And with the set net DER, I think we'll be limiting the sales when it comes to options. But I don't think there's a high necessity to maintain the current net DER. I think we can relax net DER a little bit, and we do have the U.S. presidential election coming up. But as the world changes, the management environment is changing accordingly as well. So there are things that we can do. However, I think there will be too much risk in having net DER as a target, but I think we can be flexible. And when it comes to ROE, we are targeting 12% or over as ROE, but 2 digits of ROE, looking at the potential of our portfolio, I think that is something that is expected from our investors. That is what we are conscious of. So we need to have leverage and ROE as well. There is ROE that we want to maintain on the long run and also on a short run as well. So this is something that we are targeting. So we will think about the 2 in tandem. So the level of ROE that we have at the moment, this is something that we place importance on. I hope that answers your question.

First question is, again, base profit enhancement. As you explained, for example, the business environment in the U.S. seems to be solid. That's what you said at the outset. But for one single project in base profit enhancement, whether you can show visibly that can be done, that will be important. For example, in the U.S. business, truck leasing related business, so compared to the conventional outperforming year, there's some shadow overhanging. And in Machine & Infrastructure, likewise, the mainstream that you have been explaining, well, we're seeing some reduction in negative factors, but as you start up on the full scale, what is your view? For the business sentiment, the economic sentiment, well, interest is going to be prevalent in the U.S. So the tailwind -- the headwind could be converted to tailwind. So in the middle game, what you're working on may have some areas where you see some -- you don't see much results or you see a headwind. What are you going to foresee on this? That's the first question. And then on Page 9, the time scale information that is quite easy to see, but year-by-year, the more visibility will be seen. That would be ideal. But from the long-term project, March 2027 onwards, that is how you show us for the long-term projects. But as we predict your performance, what is going to materialize in March 2027 or those that will be materializing after that, that should be clearly distinguished. So if those projects that have more probability or more certainty in terms of time frame, if you can summarize, what can be realized in the shorter term and longer term with the time frame added?

Thank you for your question. First of all, for your first part of your question, the enhancement of base profit and how are we going to make it visible in North America and the renewable energy, I'd like to explain about that. As for North America truck leasing business, the Penske Group joint venture, trade venture with Penske Group has been performed. But after the pandemic, the supply chain was disrupted significantly. If we consider that as a base, then we would be misguided. So after the normalization of supply chain, whether the base profit can be grown or not, that is the question. And we are having positive reaction. So on a year-on-year basis comparison, you may think that we are down, but the product lineup and handling of the product, we are growing. And for North American economy, if there's more potential growth, then we can capture some of that, but we'd like to closely monitor that. But there is also adjacent investments. For example, used car auction or used truck auction business has been acquired. We're quite familiar with this area. And North American mobility business will -- there is a complementary nature with a quick return that we can expect to North American mobility business. And you said that mainstream investments, you've been following the initial investments. And we, of course, would like to produce more results. And -- but we are working on turnaround to some extent, and we have to be honest with that. But in Chile, the portfolio has to be sorted out, and that's what we are doing right now. And in other areas like South Africa and Australia, there are promising projects. So globally, we have to -- we are changing the geographical balance. As for renewable energy investments, the power market, inclusive of power market or local governments initiatives, there are various regulations. But in terms of template, some of our long-term IDP contract structure is a bit different from what we were doing. There is still less refinement. And those who are taking risks have to have -- have to be able to see the past order return so that the template -- in order to do the template is being reformed. And so we are trying to reform our structure by ourselves. So we have to be half step ahead. And taking advantage of lessons learned, we'd like to turn into a profitable business. And as for construction machineries and ships, base profit enhancement, in terms of that perspective, we are seeing results near term. So Machinery & Infrastructure, I have touched upon main areas in this segment. So new earnings drivers, you can see them as a new earnings driver for us. And for the second part of your question, Page 9, March '27, which one will actually come out in March 2027, that's what you asked. Well, so it's a bit too early to say for sure, honestly speaking, but in Mineral & Metal Resources and gas businesses, in those businesses, we are taking a lot of measures, including the shale gas in North America and gas in Australia. And as for LNG, the project period is longer, and it takes -- it is still there's time until the wrap-up. So we'd like to talk about each one of those individually. But in terms of itemization, Minerals & Metal Resources and natural gas E&P development, every year, we are going to see a certain level of results. And as for renewable energies on a turnaround basis, we'd like to realize there's clean ethanol and clean ammonia that we'd like to do [ to three ] progress. So initially, we're modest in terms of size. But in terms of profit in -- from March 2027 onwards, we can expect some. And as for CT Corp at the bottom, in the future, capital events is something that we are aiming for. And also the preparations can be done is what we are trying to figure out. And in terms of -- because of capital events, we cannot say the timing, but we are trying to infer that.

I have 2 questions I'd like to ask. I'd like to confirm the numbers first. First, LNG, which is the dividends are [ now also ] trading, What is the change from the plan that led to increase? And will it be sustained going forward? That is my first question. And my second question, the progress in the first half, chemicals and also steel and also infrastructure was not very good. Lifestyle was not very good. So what are the factors that will lead to progress enhancement? That is my question.

Thank you very much for your question. Actual LNG dividends and trading. In our case, the profit realization will be balanced in the second half, and that is design-wise, so we will be seeing the profit realization in the second half more. And as for the dividend and also trading, from the original plan, we are seeing proactive activity. In trading, for example, we are able to have demand and supply adjustment mechanism that is provided to our customers. And we have seen an increase in the business opportunity, and we have seen upside in the trading and that is included in the second half. And when it comes to dividend, it is doing very well. And we were able to lead it to revision in the numbers in the second half. And will be accumulating them, and we are conducting it with high probability. Therefore, in energy related to LNG, we are seeing upside being more visible. And as for the first half, the net profit have appeared. Well, every quarter, we do not announce the budget. However, this fiscal year, we are seeing more tendency for it to appear in the second half. So we are progressing in line with the plan. But there are a number of areas that we need to catch up on. For example, in iron ore and steel, of course, the demand for steel was quite weak. However, with the interest rate cut in the U.S., we believe that we can expect a recovery going forward. And the volume of trade and production volume, we are looking for recovery, and that is included in the second half. And we are conducting cost reduction measures as well which will be effected. But when it comes to iron ore and steel products, I think there is a catch-up needed. However, of course, when it comes to Chemicals, we are seeing good cash generation. And of course, there was some impairment and that is something that we need to catch up on. In Chemicals, of course, in the downstream areas, we had an asset recycling which are planned in the second half. So included and those included, we will be realizing the business plan, and that is the progress we're seeing in Chemicals. And when it comes to Lifestyle, of course, especially food-related businesses, I mentioned this earlier, but the coffee trading turnaround to a degree is expected, and this is something that we need to realize. When it comes to food trading, of course, we are going to see increase towards the end of the year. And this is something that we're expecting in the second half. So Lifestyle FVTPL improvement is also seen. Therefore, in the second half, I believe there is a certain catch-up that we need to make. However, currently, with this accumulation of factors, we were able to come to the result that we are seeing currently. As for the probability as a whole, from the original plan, it is in line with some upside. So I think there are some upward revisions that we have made. I think that will be the summary of what we are seeing. When it comes to the next generation, of course, there are things that we are not seeing. Especially with innovation, there are some [ FTVs ] that were not included in the plan. But we are seeing accumulation so we believe probability is high. Therefore, that is how we look at the second half going forward. I hope that answered your question.

The fourth question, as for LMT, for the past few years compared to the initial forecast, you have been producing profits more than that. And as present said, so the business opportunities are increasing more than you had expected. So as a base profit, the profit level as a basis, has it been enhanced compared to the initial term of the MTMP, or you just have seen that it's profit more than you had expected? What is your gut feeling?

So Cameron production volume has been performing well. If that's the case, then the LNG volume that we handle will increase. So in that sense, a production plan has been quite standard at the beginning of the period. But if things go well in production and extra volume has been produced, if that happens, then obviously, the trading business and supply/demand adjustment we've done, and we will have more opportunities for businesses, and that is obvious, but that is not something that has to be included in the business plan in terms of nature. So I hope you can understand that.

There is one question for Page 7. This is related to the previous question. But upward revision was done in some segments and recycling was the factor behind that, Machinery & Infrastructure and Innovation & Corporate Development. And as for machine -- Innovation & Corporate Development, I think the things have come out which was not part of your guidance. That's what you said. But for example, some things that you expected in the next fiscal year has been moved forward in terms of asset recycling. If there is anything that you have seen that, can you share that with us? And as for downward revision, the Mineral & Metal Resources and Iron & Steel Products, of course, steel demand has been weak, that must have been the main factor. But in the second half, as you look ahead, market conditions, prices and your assumed steel products situation, if you can share that with us, I would appreciate it.

Well, in the full year forecast upward in our division, so if something that we have expected in March '26 have not been moved up in terms of assumption, there's no such thing. So in business as usual, normal business activities, some opportunistic opportunities have been captured. So there's no moving up of the projects from next fiscal year down to this fiscal year. As for Machinery & Infrastructure, Mineral & Metal Resources and Iron & Steel Products, of course, the factors from China -- in China is something that we have to monitor to some extent. And as I said at the outset, the real estate market in China, there are measures taken having issued one at a time a bit, but whether that will be accelerated, we have to closely monitor it, and steel is exported from China, and that would push down the steel market globally, and we are affected by that. We are one of those that are affected by that. So we are closely monitoring that. What we can see in the near term is that for steel products, in the Mineral & Metal Resources, the market situation has been taken into account. But if there is more deterioration, then we have to take action. But what we can see for now has already been discounted in this forecast. But as for seaborne steel products or iron ore product, in China, if you look at the competitiveness of local players, there's a certain level of downside resilience. But in the midterm, the iron ore demand is largest in China now, but inclusive of India, the steelmaking sites could be more diversified globally. So you have to closely look at the macroeconomic movement so that we can be more agile in responding to that.

I'd like to ask one question. The growth drivers during the MTMP includes healthcare and protein businesses. I think it's a new area for your company. How do you evaluate it currently? And what is going to happen in the future? Is there some points that you'd like us to have expectations for? If you do, please let us know.

Thank you very much for your question. As for protein, in the recent investment, India, Egypt, we have invested in poultry, the broiler our business. And there are vertical integration that is ongoing in Egypt, in the Mediterranean area in Africa, these are the areas that are covered, in India, India as a nation, these are areas in which consumption and of course population will increase. And we were able to accomplish investment in this area which was significant. I think there is growth opportunities. And salmon and shrimp, I think these are very good protein contributors. So we'd like to expand the area, but the market condition is weak, especially in the U.S., especially the salmon and shrimp that our market is weak. Therefore, these are areas that we'd like to continue to focus on. With the current operation and also capturing upside into the future, we are seeing very good progress in those areas, especially protein-related businesses. For poultry, we are seeing different types, and of course, in shrimps and salmon, we believe that the original genetics and also the feed is very important. And also animal health and genetics, these are all related areas, and we will selectively work on these businesses, and we'd like to complete the ecosystem going forward. And it's -- when it comes to healthcare, in the first half, IHH is about [ JPY 50 million ] worth in the first half. And the hospital M&A with IHH, it is progressing well. And the integration of the acquisition, I think it is progressing very well. Therefore, we will acquire hospitals, and that is a part of the business model. So organic growth can be expected in this business. So hospital business, centered healthcare business, and one step before, new healthcare services and in preventative medicine. And also in food science, we like to work in these areas so that people will not get sick. That is what we will be working on as a disease prevention. And that is being done. Eu Yan Sang is a Chinese traditional medicine investment that we are working on, and we will -- can see a synergistic effect. And we are seeing this growth in Asia. We have worked on it with Rohto, so this is something that we can have high expectations for going forward. So from hospital business, disease prevention to nutrition and essential food chemical business, for example, Nutrinova has artificial sweeteners that they're working on. So this is very important. So wellness ecosystem, it's something that we want to establish going forward. This will be a long-term strategy, and we would like to enhance this further. So healthcare, is it accelerating as a business? Yes, we want to accelerate this further. However, just in M&A in the existing business, the multiple is too high, so we want to use our discipline. So we want to enter early and we want to enter from the function side and grow our platform further. That is a model that we want to take. So there's projects that we would like to be more selective so that we'll be able to accelerate this business. And as for the healthcare data that we are talking about, there are no projects that we can announce. However, we want to increase our know-how insight so that AI calculation logic can be adopted to healthcare. NVIDIA have provided computing time and different efforts, and drug discovery support is what we are offering at the moment. There are so many insights that we can gain from that business. So the frontline of drug discovery, in the hospital, how they operate it, and the knowledge related to those is changing very rapidly. And there will be new business attract will come out from those. But there are no project that we can share. But at the moment -- but once it is completed, we would like to share them with you. But in the mid- to long term, these are the areas that we want to be involved in further.

There are 2 questions. On Page 10, the exit from loss-making businesses. So in associated companies of profit, there are some large loss-making companies that are seeing. But with the exit from loss-making businesses, what is improvement leeway that you have? And what will be the gross losses that you're experiencing for now? That is my first question. And the second question is pipeline, Page 9, in March 2026, Waitsia is profit an increased factor. But in April, there was a Beach Energy release and there was a delay that was expected. But then Beach -- there was IR that the forecast or guidance will be maintained. But what is the probability of a profit increase in Waitsia? And what will be the size that you expect? So you may not be able to say more than Beach here, but what is the view on that?

Well, as for loss-making businesses, in our company's case, for example, Mineral & Metal Resources and energy E&P, those are development stage. There are some businesses that are making losses. This is part of our business model. So in most of the companies, the upfront investments are leading to losses. So those are not categorized in those groups. And as a going concern, if businesses are making losses, that is the worst case scenario. And for those companies, we have to look at each one of those and pick them up one at a time to make improvements. So that's how we come up with the list of loss-making businesses or exit. And most of them are more smaller, and management resources are spending -- spent on that is very a waste. So we have to be as efficient as possible in management resources allocation in those. So those companies that are old and well-known and are under our group, but we are not making any exceptions. So for some structural reasons, if loss is continued, if there is something else that can be done than just resolving those issues, then we would put this on this list and exit from that. There is no macro list, but that's how we are addressing this issue. And as for Waitsia, so as an operator, this is an E&P business in Australia conducting and Beach here is making an announcement. So we're not disclosing our performance. But Waitsia profit contribution timing and progress in our projects, we have been a bit delayed. But by the end of this fiscal year or next fiscal year, a certain milestone can be achieved, in my view. So there are -- if there are opportunities that we can update this, we will. There are some progress being made. That's how I can answer.

So with that, we'd like to end the Q&A session. As has been announced through e-mail, Thursday, December 5, from 3 p.m., we will have the Investor Day 2024. We will have our CEO, CFO, and also Matsui, who is a Representative Director, to give presentation. It will be a hybrid session. So we ask for your cooperation and participate in the Investor Day session. Thank you very much for your participation today despite your busy schedule. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]