Mitsui & Co Ltd Ord

Simultaneous interpretation is provided by third-party interpreters for the convenience of non-Japanese speakers. While reasonable efforts are made to provide accurate interpretation, portions may be incorrect. In case of any discrepancy, the original Japanese shall prevail. We will upload the summary of this session shortly in Mitsui's homepage in English for your review. It is time, so we'd like to commence Mitsui & Company's financial results briefing for the second quarter of the fiscal year ending March 2026. Thank you very much for joining us today despite your busy schedules. Today's session is being held as hybrid event for institutional investors and analysts accessible via the venue, Zoom webinar, and online streaming. President Hori and General Manager of Global Controller Division Kuihara will provide approximately 15 minutes of explanation. Afterwards, we will take questions from the audience. Additionally, to enable individual investors to view the earnings briefing in real time, we are providing a live stream. Please refrain from unauthorized reproduction or use of images or audio from today's presentation. Please note that today's presentation is being recorded and will be available on demand on the Mitsui & Co. website at a later date. Now, allow me to introduce today's presenters. President and Chief Executive Officer Kenichi Hori, Executive Vice President and CFO Tetsuya Shigeta, Global Manager of Global Control Division, Masao Kurihara. I am Konishi from IR department, serving as a moderator. Thank you for your cooperation. We will now begin the briefing. Present Hori, please.

Hello, I'm Kei Chahori, President and Chief Executive Officer. Thank you for joining us today. First, I will speak on the progress of the Medium-Term Management Plan, MTMP. I will then hand over to Masao Kurihara, General Manager of the Global Control Division, who will speak on the details of the financial performance. Let me start with an overview of the first half of this fiscal year and our initiatives for the second half. For the first half, both cooperating cash flow, COCF, and profit progress steadily at 55% against the business plan. When we formulated the plan, we incorporated a certain level of conservatism regarding uncertainties over U.S. tariffs and associated macroeconomic conditions. However, the direct impact of U.S. tariff in the first half was limited. We're seeing solid growth in base profits through our middle game initiatives. We have also made progress in bolstering our long-term earning space, steadily proceeding with carefully selected investments for growth, such as Rose Ridge Iron Ore, Ruiz LNG, and Blue Point Low Carbon Ammonia. Additionally, for mainstream, which has continued to make losses, we have made impairments in accordance with the narrowing down of the development plan, thereby reducing the book value of investments and loans on an accounting basis. Based on this progress in the first half and the latest outlook of the second half, we have made an upward revision for our full-year forecast for COCF by 80 billion yen and profit by 50 billion yen. We will, however, target achieving further upside exceeding these new targets. We have also decided to allocate the entire remaining management allocation to investments for growth and shareholder returns and have decided to make 200 billion yen of share repurchases. During the current MTMP period, we expect investments for growth to have a total 2.5 trillion yen and total shareholder returns to have total 1.6 trillion yen. In the second half of this fiscal year, we'll continue to put emphasis on our integrated risk management, considering geopolitical risks and the financial landscape. We'll continue to work on improvement measures for our remaining challenges and further expansion of base profit to enhance ROE. Next, I will give an overview of our financial performance for the first half of the fiscal year. COCF decreased by 89.6 billion yen year-on-year to 448.5 billion yen, while first-half profit increased by 11.9 billion yen year-on-year to 428.5 billion yen. The main reason for the year-on-year decrease in COCF was the absence of large LNG dividends recorded in the previous period, which are from FY March 2024, but the timing of receipt was delayed into the following fiscal year. Excluding this impact, COCF is at a similar level compared to the previous fiscal year. Given the solid progress in the first half and the outlook for continued solid performance in the second half, we decided to make an upward revision. Compared to the business plan, the four-year forecast will be revised up to 900 billion yen for CoCF, an increase of 80 billion yen and 820 billion yen for profit. an increase of 50 billion yen. As mentioned earlier, we will target achieving further upside and intend to finish strong through to the end of the MTMP. Based on solid cash flows and review of the cash flow allocation, we have decided to make share repurchases of 200 billion yen, which is to be completed by March 19, 2026, in order to continuously improve our value per share will cancel all shares acquired in this repurchase by the end of March 2026. Next, I will give an overview of the four-year forecast for COCF. Based on strong progress and outlook in each segment, such as capitalization of interest expenses associated with the acquisition of Rose Ridge and increase in dividends from equity method investees in mineral and metal resources, LNG-related items in energy, and dividends from equity method investees in machinery and infrastructure, we have made an upward revision to the four-year forecast by 80 billion yen to 900 billion yen.

The full-year forecast for profit has been revised upward by 50 billion yen to 820 billion yen, reflecting strong progress and outlook in mineral and metal resources, energy and machinery and infrastructure. I would like to provide an update on the impact of U.S. tariffs and policy changes. Profit from our business in the Americas in the first half was around 170 billion yen, of which profit from the U.S. was around 110 billion yen. When divided into three business types, domestic operations, exports, and imports and sales, the share of profit from domestic operations remained the largest, and the direct impact of tariffs was limited. In the second half, we will continue to enhance our awareness to changes in the business environment and take agile measures as needed. Cash inflows during the current MTMP period are expected to increase by 60 billion yen from 4.37 trillion yen announced this May to 4.43 trillion yen. Since our last update in May, the management allocation expanded from 400 billion yen to 460 billion yen. Taking into consideration our current investment pipeline, and enhancement of capital efficiency, ¥260 billion of this has now been allocated to investments for growth and ¥200 billion to shareholder returns, meaning the entire management allocation for the current MTMP has now been allocated. However, we will continue to manage this in a flexible manner. Next, I will speak on the cash flow allocation results for the first half. In the first half, we executed investments for growth aligned with the key strategic initiatives, including LNG, European Tank Terminal Business, ITC Antwerp, which was made 100% subsidiary, and phase investment in the low-carbon ammonia business, Blue Point. We also made steady progress in asset sales, including our stakes in several listed companies. Although not included in the first half results, in October we began to deploy capital for the acquisition of interest in the Rose Ridge Iron Ore Project. Cash inflows totaled 562 billion yen, comprising COCF of 449 billion yen and asset recycling of 113 billion yen. Cash outflows totaled 498 billion yen, comprising investments and loans of 339 billion yen and shareholder returns of 159 billion yen. Many projects executed during the current MTMP that started contributing to near-term earnings have further strengthened profitability, elevating base profit. There are several projects that have undergone concrete progress this fiscal year. The Waitsea Natural Gas Project in Australia is scheduled to start commercial production soon. The Taiwan Offshore Wind Power Project has begun operations in stages and started contributing to earnings, progressing within budget and on schedule towards full commercial operation in 2026. The Sneha Boraila business in India has also started contributing to earnings. Investments or growth that fortify the long-term earnings base are also progressing steadily. In October, we started deploying capital for the world's rich iron ore project and expect to complete the acquisition of our 40% interest soon and are on track for first ore by 2030. The Tatonka Shell Gas Upstream Project in Texas is scheduled to start production this calendar year. We expect a good productivity and earnings contribution from fiscal year March 2027. The $2.5 trillion in investments for growth during the current MTMP will significantly bolster the depths of our earnings base. Steady progress in these projects will significantly enhance our earnings ability, enable us to absorb market fluctuations, and provide us the edge to compete at a higher level. For FI March 2027 and beyond, we will continue to enhance our earnings base by executing new investments for growth, carefully selected from our abundant investment pipeline while maintaining our strict investment discipline. We will significantly enhance our cash generation capability based on a variety of competitive high-quality assets.

Next, I will speak on our progress in enhancement of base profit. We calculate base profit by excluding items such as one-time factors from profit, based on assumptions for commodity prices and exchange rates at the FY March 2026 levels we have set when we announced the current MTMP in May 2023. The target was to enhance base profit by 170 billion yen over the three years of the MTMP period, and although There has been some variation within the breakdown of this total. We have made steady progress toward achieving this target. For strengthening existing businesses, we are steadily pushing ahead with middle-game initiatives in mobility, chemicals, and innovation and corporate development. We expect a cumulative base profit enhancement of around 75 billion yen, which exceeds the target of 70 billion yen. For efficiency improvements and turnarounds, while efforts continue in businesses such as coffee trading, we have progressed with withdrawals from loss-making businesses and performance improvements in multiple affiliate companies and expect a cumulative base profit enhancement of around 40 billion yen in line with our target. For new businesses, in addition to those that we invested in the previous fiscal year that will contribute to earnings throughout the year, such as the truck auction business in the US and shrimp farming in Ecuador, multiple projects such as the Taiwan offshore wind power project and the broiler business in India have started contributing to earnings this fiscal year. We expect a cumulative base profit enhancement of around 55 billion yen against a target of 60 billion yen. Next, I will go over our shareholder returns policy. As mentioned earlier, based on solid cash flows, we have decided on making a 200 billion yen share repurchases to be completed by March 19, 2026. As a result, the ratio of shareholder returns as a percentage of COCF during the current MTMP is expected to exceed 54%. Beyond current MTMP, we will maintain our progressive dividend policy and will continue to make dividend increases from the highly recurring portion of COCF, which we will continue to enhance. Together with this, we intend to make share repurchases flexibly using additional cash flows from community price upsides and asset recycling as sources of funds. In addition, we intend to continue to cancel treasury stock associated with repurchases. Through these measures, we will continuously enhance our value per share. That concludes my explanation. I will now hand over to Mr. Kurihara for some more details on the operating results. I am Masao Kuriha, General Manager of the Global Control Division. I'll speak on details of operating results. COCF for the first half decreased by 89.6 billion yen year-on-year to 448.5 billion yen. In the mineral and metal resources segment, there was a decrease of 29.9 billion yen to 162.2 billion yen, mainly due to lower metallurgical coal and iron ore prices. In the energy segment, there was a decrease of 83.7 billion yen to 100.8 billion yen, mainly due to the absence of LNG dividends received in the previous period. These dividends were from FI March 2024, but the payments were delayed into the following fiscal year. In the machinery and infrastructure segment, there was an increase of 21.8 billion yen to 95.6 billion yen, mainly due to the absence of taxes paid in the previous period due to asset sales. In the chemical segment, there was an increase of 12.7 billion yen to 55.2 billion yen. mainly due to the reversal of provision and higher demand in Europe for crop protection. In the iron and steel products segment, there was an increase of 5 billion yen to 6.5 billion yen, mainly due to trading and dividends from equity method investees. In the lifestyle segment, there was a decrease of 19.4 billion yen to minus 5 billion yen, mainly due to inter-segment transactions and lower profit in coffee trading. In the innovation and corporate development segment, there was a decrease of 0.8 billion yen to 19.5 billion yen. Other adjustment eliminations recorded an increase of 4.7 billion yen to 13.7 billion yen, mainly due to an intersegment transaction with the lifestyle segment. Thank you.

First-half profit increased by 11.9 billion yen year-on-year to 423.7 billion yen. In the mineral and metal resources segment, there was a decrease of 47.2 billion yen to 114.3 billion yen mainly due to lower metallurgical coal and iron ore prices. In the energy segment, there was an increase of 37.6 billion yen to 102.9 billion yen, mainly due to LNG-related profit and higher gas prices, despite weaker oil trading. In the machinery and infrastructure segment, there was a decrease of 46.2 billion yen to 102 billion yen, mainly due to the absence of asset recycling gains recorded in the previous period and one-time losses at mainstream, despite FPTPL valuation gains from an IPO of Firefly and higher profit in the automotives and IPP businesses. In the chemical segment, there was an increase of 21.4 billion yen to 43.5 billion yen, mainly due to a valuation gain on ITC Antwerp and the absence of impairment losses recorded in the previous period. In the iron and steel product segment, there was an increase of 4 billion yen to 11.3 billion yen, mainly due to trading despite the absence of asset sale gains recorded in the previous period. In the lifestyle segment, there was an increase of 0.8 billion yen to 20.8 billion yen, mainly due to asset sale gains despite lower profit in coffee trading. In the innovative and corporate development segment, there was an increase of 7.3 billion yen to 25.3 billion yen, mainly due to FBTPO valuation gains. In others, adjustment and eliminations, there was an increase of 34.2 billion yen to 3.6 billion yen, mainly due to the absence of an amendment to the retirement benefit system which occurred in the previous period. This page provides a summary of union factor comparisons for the first half. Base profit increased by 88 billion yen, mainly due to higher earnings related to LNG, IPP, automotives, and iron and steel products, despite lower profits in oil trading and coffee trading. In particular, large LNG dividends being recorded in the second quarter for the fiscal year was a major factor. Resources cost volume decreased by 12 billion yen, mainly due to higher costs and lower volumes in the copper business. And commodity prices increased by 4 billion yen in oil and gas, but decreased by 20 billion yen in mineral and metal resources due to lower metallurgical coal and iron ore prices, resulting in net decrease of 16 billion yen. Forex decreased by 17 billion yen due to yen appreciation. Overall, commodity prices and exchange rates decreased by 33 billion yen. Asset recycling decreased by 55 billion yen due to the absence of large asset sales recorded in the previous period. Valuation gains losses and one-time factors increased by 24 billion yen, mainly due to the absence of losses recorded in the previous period and valuation gains on ITC Antwerp despite one-time losses at mainstream. Here we compare the full-year forecast with the business plan by factor. Base profit is forecast to be 10 billion yen higher than previous expectations, mainly due to higher profit related to LNG, capitalization of interest related to the investments in loads rich, automotives, as well as FDTPL gains, and other factors despite lower earnings in coffee trading, chemicals, and oil trading. Resources cost volume are expected to improve by 12 billion yen, mainly due to lower depreciation in upstream energy and higher volumes in iron ore. Commodity prices and forex are expected to improve by 38 billion yen, mainly due to higher iron ore, copper and metallurgical coal prices and depreciation of the yen. For asset recycling, there were sales of a portion of the overseas retail business and fixed assets in the retail business in Japan, recorded in the first half. In the second half, we are expecting to make several asset sales and so there is no change to the business plan. Valuation gains losses and one-time factors are expected to do decrease by 10 billion yen, mainly due to one-time losses at mainstream. Also, in relation to a recent announcement by J.A. Mitsui Leasing regarding the risk of collection of certain account receivables at one of their group companies, we have included a negative impact of around 3 billion yen into this full-year forecast. Factor comparison is that we compare the FI March 2025 results and the FI March 2026 full-year forecast by factor. I will not go over the details now, but please refer to this information as needed. Finally, I will speak on the balance sheet as of the end of the first half. Net interest bearing debt was 3.3 trillion yen, the same as at the end of March 2025. Shareholder equity increased by 0.5 trillion yen to 8 trillion yen compared to March 2025. As a result, net DER was 0.42 times. That concludes my