Mitsui & Co Ltd Ord

Good afternoon. I'm Tetsuya Shigeta, CFO. Thank you for joining us today. I will begin with an overview of operating results for the first nine months 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 results in more detail. I will provide a summary of operating results for the first nine months. During the first nine months, we were able to take advantage of earnings opportunities by improving the quality of our business portfolio, which globally spans a wide range of industries. As a result, cooperating cash flow, or COCF, was 769.1 billion yen and profit was 726.4 billion yen. generating earnings outpacing the previous forecast announced at the first half financial results, which were revised up from the forecast announced at the start of the fiscal year. In light of the strong progress, we have revised up our full-year forecast again. Compared to the previous forecast, we have revised up our forecast for COCF that forms a basis for shareholder returns by 40 billion yen to 1 trillion yen. Furthermore, although the timing of a large-scale asset sale is expected to be shifted to next fiscal year, we have revised up the forecast for profit by 10 billion yen to 950 billion yen due to the good performance of the mineral and metal resources, energy and mobility businesses. I will now explain a progress against a previous forecast. COCF progressed at a high rate due to the upside of the iron ore prices in the mineral and metal resources segment and an increase in dividends from associated companies in the machinery and infrastructure segment. Furthermore, in the energy segment, our assessment is that progress is now steady due to LNG-related business contributing to earnings in the second half. Meanwhile, segments impacted by demand decrease, lower commodity prices, and other factors associated with the slowing of the global economy had a relatively slower rate of progress against the previous forecast. We have revised up our full-year forecast for COCF in FY March 2024 to 1 trillion yen. In the mineral and metal resources segment, we made an upward revision of 50 billion yen mainly due to the rising iron ore prices and an increase in dividend income from Vale. In the energy segment, we made an upward revision of 10 billion yen, mainly due to LNG trading and one-time profit. In the machinery and infrastructure segment, we made an upward revision of 20 billion yen, mainly due to an increase in dividend income from associated companies and a decrease in tax payments due to an anticipated shift in timing for the sale of the Python Power Generation business to next fiscal year. We have also revised up our full-year profit forecast to ¥950 billion. In the minimum retail resources segment, we made an upward revision of ¥35 billion, mainly due to the rise in the IONO prices and an increase in dividend income from Vale. In the energy segment, we made an upward revision of 20 billion yen mainly due to LNG trading and one-time profit. In the machinery and infrastructure segment, we anticipate the sale of the Python power generation business being shifted to next fiscal year and we record it. impairment losses in the power generation and railway businesses. However, automotive, industrial and construction machinery and the ships' businesses drove performance, limiting the downward revision to 15 billion yen. In this section, I will discuss cash flow allocation for the first nine months. Cash in for the period was 1,211 billion yen, comprising COCF of 769 billion yen and asset recycling of 442 billion yen. There were numerous asset sales made in Q3, including the sale of shares of International Power Australia Holdings, which operates a power generation business and a power and gas retail business in Australia, the sale of shares in Thorn Health Tech, which operates a high-functionality supplement and testing kit business, and the sale of our interest in the U.S. Kikias oil field. Cash out was ¥1.3 billion, comprising investments and loans of ¥769 billion and returns to shareholders of ¥234 billion. We will continue to execute carefully selected gross investments in line with the key strategic initiatives specified in the Medium-Term Management Plan, or MTMP, and the start of contribution to profit from new projects is progressing as planned. In Q3, partial operation of the large-scale renewable energy project in India started. and Nutrinova, which manufactures and sells functional food ingredients, also started to contribute to profit. Furthermore, we acquired 60% of shares in Komatsu Mining Corporation Peru, which sells and services machinery for open pit and underground mining, and this has started contributing to earnings. This year, it will merge with KMMP, which we have invested in since 1996, and will provide an even wider range of products and services to customers to support the stable operation of mining machinery and contribute to global copper production.

Investment decisions and pipeline expansion have progressed smoothly in the past four months, and I will introduce a few major projects. In industrial business solutions, in January, we invested in Continuum, which is a leading global quantum computing company, and signed a distributorship agreement. We have already started studying specific joint projects. As a technology with the potential to have a significant impact on a wide range of industrial sectors, We will consider its utilization in each business in the context of digital transformation and accelerate value offerings to customers and society. Furthermore, in wellness ecosystem creation, in November, we decided to invest in Wadi Potri, which operates an integrated business in Egypt, encompassing broiler production and processing and processed food manufacturing, sales, and the procurement of feed grain. Demand for chicken is expected to continuously rise with increasing population and economic growth. It is also positioned as our focus area because it has the highest feed efficiency of all animal proteins has a short breeding period and can be provided at a relatively low cost. We will continue to expand our pipeline and execute carefully selected growth investments in line with the key strategic initiatives established in the MTMP. I will explain about our shareholder returns policy. There are no changes to our previous explanation of the shareholder returns policy. We will maintain shareholder returns at around 37% of the 3-year cumulative total of COCF and a minimum 4-year dividend of 170 yen for the duration of the MTMP. Furthermore, The repurchase of up to 50 billion yen of shares announced last October was completed on January 31st, and all shares acquired will be cancelled on February 15th. We will continue to consider the enhancement of shareholder returns, offering both stability and flexibility, with a view to increasing RROE. Now I will explain the impact of Arctic LNG2 project on our financial results. Last November, the operating company of Arctic LNG2 project was sanctioned by the US. After having reassessed the investment, loans and guarantee obligations taking into consideration this sanction, we have booked an additional provision of 13.6 billion yen. This includes 12.3 billion yen that impacts the income statement. As shown in the table on the page 12, Balance after deducting the provision includes Mitsui's guarantees of specific J-ARC liabilities undertaken for 100% share of J-ARC in excess of Mitsui's equity share and its gross amount before deducting potential insurance claims. We are taking appropriate measures to protect our interests, observing the rights and obligations of Mitsui, under relevant agreements, will comply with laws and regulations, including sanctions imposed by the international community, and will take appropriate measures in cooperation with stakeholders, including the Japanese government. As recently announced, Mitsui has revised the positioning of the BOD and the Executive Committee. Regarding the Board of Directors, following the ordinary general meeting of shareholders scheduled in June 2024, the number of directors will be reduced from 15 to 12. The aim of this change is to establish a personnel composition that will enable the Board to engage in deeper and more effective deliberations while the board's primary focus will remain on management oversight by the directors. The number of external directors will remain unchanged at 6. This will raise the percentage of external directors to 50%. We have also reviewed our executive structure with the purpose of allowing a more agile response to an increasingly complex business environment and surrounding risks, and to ensure the steady realization of our management strategies. We have reaffirmed the role of Executive Committee as a management leadership team. In addition, we will newly establish the position of General Counsel, who will serve as a member of the Executive Committee from April 2024 and execute management from a legal perspective. That completes my part of the presentation today. I will now hand over to Masao Kurihara, Global Controller, for details of performance in the first nine months.

I am Masao Kurihara, General Manager of the Global Controller Division. I will now provide details of our operating results for the first nine months. First, I will explain the main changes in COCF by segment compared to the previous period. COCF for the period was similar in 69.1 billion yen a year-on-year decrease of 192.1 billion yen. In mineral and metal resources, COCF decreased by 44.2 billion yen to 311.3 billion yen, mainly due to the decline in metallurgical coal prices and the fall in dividend income from associated companies. In energy, although we recorded a gain in LNG trading and a gain on asset recycling, COCF decreased by 107.8 billion yen to 168.1 billion yen, mainly due to a decrease in oil and gas prices, as well as the impact of oil production facility maintenance, a decrease in dividends from associated companies, and recording of provisions related to Arctic LNG, too. In machinery and infrastructure, COCF decreased by 11.6 billion yen to 147.1 billion yen, mainly due to lower dividend income from associated companies and an increase in taxes associated with asset recycling. In chemicals, COCF decreased by 26.6 billion yen to 45.9 billion yen, mainly due to a fall in prices of fertilizers, fertilizer raw materials and feed additives, and lower dividend income from associated companies. In iron and steel products, COCF decreased by 11.6 billion yen to 3.8 billion yen, mainly due to lower dividend income from associated companies. In lifestyle, COCF increased by 18.4 billion yen to 49.6 billion yen, mainly due to higher dividend income from associated companies and the swingback of the loss in coffee trading recorded in the same period of the previous fiscal year. In innovation and corporate development, COCF decreased by 9.2 billion yen to 25.2 billion yen, mainly due to a decline in profit from commodity derivatives trading compared to the strong performance recorded in the same period of the previous fiscal year. Other factors such as expenses, interest, taxes, etc., which were not allocated to business segments, totaled 18.1 billion yen. I will now explain the main changes in profit by segment compared to the first nine months of the previous fiscal year. Profit for the period decreased by 114.4 billion yen to 726.4 billion yen. In mineral and metal resources, profit decreased by 113.3 billion yen to 242.1 billion yen, due to decrease in profit contribution following the sale of S&C, a metallurgical coal business in Australia, in the third quarter of the previous fiscal year and the falling prices of metallurgical coal. In energy, although we recorded a gain in LNG trading and a gain on an asset sale, Profit decreased by 95 billion yen to 95.8 billion yen, mainly due to a decrease in oil and gas prices as well as the impact of old production facility maintenance and a recording of provisions related to Arctic LNG-2. In machinery and infrastructure, although there was an impairment loss from mainstream, profit increased by 79.1 billion yen to 210.2 billion yen, mainly due to the gain on sale of a European electric locomotive leasing business and multiple IPP businesses and good performance of multiple businesses such as VLI, ships and industrial and construction machinery. In chemicals, although a gain on asset sales was recorded, profit decreased by 17.6 billion yen to 37.1 billion yen, mainly due to a fall in prices of fertilizers, fertilizer raw materials, and feed additives. In iron and steel products, profits decreased by 12 billion yen to 7.5 billion yen, mainly due to impairment loss at an associated company and a lower demand. In lifestyle, although there was a swing back of the valuation gain on our farm, put options recorded in the same period of the previous fiscal year, profit increased by 43.2 billion yen to 85.5 billion yen, mainly due to valuation gain on the fair value of AIM services and good performance of the processed oil food business in North America. In innovation and corporate development, although a valuation gain on the fair values for Altius Link was recorded, profits decreased by 12.7 billion yen to 37 billion yen, mainly due to a year-on-year decrease in profit from asset sales and a decline in profit from commodity derivatives trading compared to the strong performance recorded in the same period of the previous fiscal year. Other factors such as expenses, interest, excesses, etc., which are not allocated to business segments, totaled 11.2 billion yen.

This page shows the main factors influencing year-on-year changes in profit. Base profit decreased by approximately 53 billion yen. Although there were performance improvements mainly in the U.S. automotive business and LNG training, there was an increase in interest expenses, a decrease in profit contribution following the sale of SMC in the previous fiscal year, and lower profit from trading investments. mainly in chemicals. Resources cost volume resulted in a decrease of approximately 40 billion yen, mainly due to a decrease in production volume resulting from maintenance of a production facility in energy upstream businesses, an increase in fuel and labor costs in the mineral and metal resources businesses. Asset recycling resulted in an increase of approximately 52 billion yen, mainly due to gains on the sale of MRCE, which is a European electric locomotive leasing business, and U.S. Kikes oil field and real estate. Commodity prices and forex resulted in a decrease of approximately 68 billion yen. For commodity prices, profit decreased by approximately 78 billion yen due to lower oil and gas prices and 25 billion yen due to a fall in metallurgical coal prices, which resulted in a decrease of approximately 103 billion yen in total. For forex, profit increased by 35 billion yen mainly due to weaker yen. Finally, for valuation gain loss and special factors, profit decreased by approximately 5 billion yen mainly due to the impairment of mainstream and additional provision for Arctic LNG2. Here we have a comparison of four-year forecast and the previous forecast with a summary of the factors involved. Base profit is expected to increase by 28 billion yen, Although we made a downward revision relating to chemicals due to the influence of a slowing of the economy, the automotive, industrial and construction machinery and ships businesses as well as the LNG trading has been conservatively estimated in the previous forecast. and the additional dividend income from Vale in Q3 should lead to higher profits. For resources cost volume, we expect profit to decrease by about 6 billion yen mainly due to the decrease in production volume in iron ore operations in Australia. Thank you very much. Finally, for valuation, gain, loss, and special factors, mainly owing to impairments in the first nine months, we expect a decrease of about 14 billion yen. Now let's take a look at the balance sheet as of the end of the first nine months of current fiscal year. Compared to the end of March 2023, net interest-bearing debt increased by about 0.1 trillion yen to 3.33 trillion yen. Meanwhile, shareholder equity increased by about 0.73 yuan to 7.1 yuan. As a result, net DER was 0.47 times. That concludes my presentation.