Itochu Corp

Good morning, ladies and gentlemen. I am Michi, President of Hitachi Corporation. Thank you for joining us today. I would like to give you an overview of the business results for the first half of our fiscal year ending 2024. Please refer to the business results summary, FIE 2024 first half document published on 6th of November. First, please turn to page 2, which gives you the summary of the financial results for the first half of financial year 24. Consolidated net profit for the first half was 412.9 billion yen, a steady progress of more than 50% against the initial forecast of 780 billion yen at the beginning of the term. There were no significant extraordinary gains in the second quarter, and as a result of a steady accumulation of profits, core profit amounted to approximately 383.5 billion yen, second only to the record high of the previous year. Despite the impact of lower market prices and higher interest rates, the eighth, machinery, food, and ICT and financial business companies all posted year-on-year increases in profits, and the steadily grew core profit. As shown in the right-hand column, based on the solid performance of the first half of the year, we have now revised our annual forecast for the current financial year, the final year of our medium-term management plan, Brand New Deal 2023, upwards to 800 billion yen. By achieving 800 billion yen in consolidated net profit level for the third consecutive year, we hope to demonstrate that we have established a stage where our profit can reach 800 billion yen. Next, please turn to page 3. This shows the first half results by segment. By segment, four companies, ICT and financial business, the eighth, food and energy and chemicals recorded YOY increases in profit. Firstly, in ICT and financial business, CTC performed well thanks to the resolution of delivery delays caused by the shortage of semiconductors, and continued firm digitalization needs. In addition, the Hoken no Madoguchi group improved its ability to attract customers thanks to recovery in footfall, careful follow-up with customers, and the start of new TV commercials. In addition, there was an improvement in valuation gains and losses from funds, which had performed poorly in the previous year. and the extraordinary gain on the sale of overseas retail finance business resulting in higher profits. Looking at the eighth, despite an increase in various costs due to changes in the external environment at Family Mart and the implementation of digital measures to strengthen business space growing forward, income increased due to an improvement in the daily sales and the marginal profit ratio through enhanced product quality and sales promotion, including sales expansion of private brand Famimaru and improved shop impairments. Foods recorded an increase in profit despite the loss on withdrawal from the U.S. business at HiLife. Thanks to footfall recovery and increased transactions due to higher sales prices in food distribution-related businesses, such as Nippon Access, as well as solid growth in food trade and the grain-related businesses in North America. Dole performed well in line with our initial expectations. Energy and chemicals posted an increase in profit. Despite an absence of the strong energy trade and chemical trade of the previous year, thanks to strong operating company earnings and solid domestic electricity trading, as well as extraordinary gain from the revaluation of the lithium-ion battery company. The YOY decline in the machinery business was due to the absence of the large one-off gains recorded in the previous year, but core profit was higher. In addition to the overall good performance of automotive-related businesses, as the effects of the semiconductor shortage were largely resolved, the North American construction machinery business, including multi-equip, also recorded an increase in profit. And the Hitachi construction machinery, which started to be consolidated from the third quarter of the previous year, also performed strongly, and the profit is steadily increasing. Textiles remained largely flat despite the withdrawal from the Chinese apparel business due to asset recycling as retail market conditions rebounded from the COVID-19 pandemic and many of the brands we handle also saw an increase in sales due to inbound tourism demand. On the other hand, the metals and minerals, general products and realty and other segments reported lower profits mainly due to the impact of lower commodity prices. In metals and minerals, profit declined year on year due to lower market prices for coal and iron ore, which had a trended high in the previous year, despite positive overseas profit due to the weak yen.

In general products and realty, the European power manufacturing business was sluggish,

due to FAB market prices and weak sales. Although real estate transactions in Japan were solid, the segment saw a decline in profits due to lower profits in the domestic and North American construction material-related businesses, which had performed well in the previous year, and an absence of the previous year's extraordinary gains including the sales of overseas real estate properties. In the other segments, CITIC performed well, particularly in the comprehensive financial services segment, but profit declined due to the absence of one large-off gain on the revaluation of the securities business in the previous year and the higher interest expenses due to rising U.S. dollar interest rates and a slump in CPP due to the decline in the pork market. Next, please turn to page 4. First half FY24 results for co-profit is shown on this page. Co-profit, the actual value of earnings excluding one of gains and losses were approximately 383.5 billion, a decrease of 46.5 billion from the previous year when they were at a record high. Excluding the effects of lower commodity prices, higher interest rates and weaker yen, the net change in profit was a decrease of 12 billion yen. But the trend differed by sector, with a decrease of 12.5 billion in the resource sector and an increase in 4.5 billion in the non-resource sector. In the non-resource sector, The general products and realty, which was affected by the decline in pop market, and energy and chemicals, which was affected by the absence of the stronger trade business in the previous year, recorded decline in profit, while the rest of the segments recorded an increase. As explained in the first half result by segment, we have been able to steadily increase profits in the non-resource sectors, which are more resilient to economic fluctuations even in an uncertain business environment, mainly in food, the eighth, ICT and financial business, and machinery. Next, please skip to page eight. Please look at the cash flow on this page. Operating cash flow was 469.2 billion yen, the second highest in our history due to strong operating revenues in the eighth general products and realty and food companies, as well as dividend income from equity method investments in metals and minerals. Co-operating cash flow amounted to 375 billion yen, including higher interest payments due to higher interest rates and tax payments. Net investments cash flow was an outflow of 341 billion yen, mainly due to the recently announced tender offer to CTC. Please turn to page 9 for our financial position. Shareholders' equity reached record high of 5.2 trillion yen thanks to steady accumulation of profits and weaker yen, with a net DER of 0.5 times, which is more or less flat from end of last fiscal year. The increase in shareholders' equity exceeded the increase of interest-bearing debt due to the additional acquisition of CTC and other factors, and we continue to maintain a solid financial base. Now I will turn to the outlook for the full year and please turn back to page 5. We have revised our consolidated net profit forecast upward by 20 billion yen to 800 billion yen compared to our initial forecast of 780. The forecast by segment is shown on this page. We have revised upward a forecast by 10 billion and 9 billion yen respectively for machinery where automotive-related construction machinery and power generation in North America are performing well, and for family-related, the eighth, which has already achieved the initial full-year forecast in the first half of the year. We revised general products and realty down by 8 billion, because of its weak performance during first half due to the slump in the pork market. In the other segment, which includes CPP, we have made a ¥9 billion upward revision, factoring in the negative impact of the decline in the pork market in CPP and adding ¥20 billion increase from the reduction of the buffer And outside of the segments that I've just mentioned, there is no change from the initial forecast. Next, I would like to explain about the overall outlook of the full year. Please turn to page 6. The initial forecast of 780 billion yen includes loss buffer of 50 billion yen. And the initial forecast excluding the buffer was 830 billion yen. The revised forecast, which takes into account the negative impact of lower market prices, positive impact of yen depreciation, and an increase in core profit in non-resource sectors, remains unchanged at 830 billion yen before the buffer. As seven months have already passed for FY24, The situation of each business has been reviewed in detail and conservatively. And there are no specific loss concerns at present. And the loss buffer of 50 billion yen set at the beginning of the period has been reduced by 20 billion yen. And the full year forecast has been revised upwards from 780 billion to 800 billion yen. Please turn to page 10 for the assumptions behind this upward revision. The yen has weakened against the US dollar more than expected, and the assumption for the average rate of the period has been changed from 130 yen to 140 yen. And the US interest rate was increased by 0.5 percentage points to 5.5%, taking into account the situation of persistent monetary tightening in the US and Europe. The crude oil price has remained firm, supported by supply restraint in major oil producing countries, and we revised our initial assumption of $75 upwards to $84. Although we cannot disclose the iron ore price due to the collaboration agreement, we are taking a conservative view of the main assumptions based on the current market conditions, with an eye on changes in the business environment in the second half. Finally, I would like to talk about shareholder returns. In the short-term management plan for FY24 announced on 9 May, we stated that additional shareholder returns would be made targeting a 40% total return ratio in the event of an upward revision during the year. Based on the upper division of consolidated net profit forecast of 800 billion yen, the company has decided to buy back an additional 75 billion yen of its own shares. Combined with the 25 billion yen already executed in the first half, this brings the total amount to 100 billion yen, one of the highest on record. And the dividend will be 160 yen, an increase of 20 yen, YOY, as planned. Future returns will continue to be looked at as needed based on the status of a profit and cash. The current year is the final year of the medium-term management plan brand new deal 2023. The company has been steadily building up profit in several stages and we believe that by achieving consolidated net profit of 800 billion yen in the third consecutive year following a 820.3 billion in FY22, 800.5 billion in FY23, we have established the 800 billion in profit stage. The company is also working to ensure that it does not suffer from unexpected large losses. In order to avoid such losses, we will manage in the second half with eye to minimizing losses by detecting signs of deterioration and hidden factors at an early stage, so we can respond proactively. At the same time, we will steadily implement measures to further growth for the next fiscal year and beyond, including major investments that have been announced. That is all from me.

Thank you very much for your kind attention.