Mitsubishi Corp Ord

Hello, everyone. I'm Torada, the GM of the Investor Relations Department. Thank you for joining us despite your busy schedule today. We'd like to start the call now on Mitsubishi Corporation's FY21 results and Midterm Corporate Plan 2024. There are four people joining the call from our company. They are Katsuya Nakanishi, President and CEO. Yuzo Noji, Chief Financial Officer. Yoshihiro Shimazu, GM of Corporate Accounting. And finally myself, Tatsuhiko Terada, GM of IR. Thank you for joining. And without further ado, I'd like to hand over to Mr. Nakanishi. Hello, everyone. Thank you very much for taking time out of your busy schedule to join us today. I am the president, Mr. Nakanishi. This is the first time I am in this kind of meeting, so I'm a little nervous, but thank you for your support. The other day, we announced the results for the year ended March 22 and midterm corporate strategy 2024. In fiscal 21, the final year of midterm corporate strategy 2021, we achieved record high profits by steadily turning profitable opportunities into profits in each of our businesses amid a tailwind from a rapid recovery in demand following COVID-19 and firm resource prices. We believe that we have made progress in strengthening our business portfolio through a review of asset valuations and other measures and have prepared ourselves for Mid-Term Corporate Management Strategy 2024. First, Mr. Nobuti, our CFO, will explain the financial results for fiscal year 21, and then I will present Mid-Term Corporate Strategy 2024. Thank you very much, Mr. Nakanishi. Next, Mr. Nouchi will present. I am Yuzo Nouchi, the CFO. Thank you very much for taking time out of your busy schedules to join us today. From this call, Mr. Shimazu, General Manager of the Corporate Accounting Division, will be present as well. I'd like to highlight four points regarding the financial results. First, consolidated net income for FY21 was 937.5 billion yen, a record high. Secondly, the annual dividend for FY21 will be 150 yen per share, revised up by 8 yen from the 142 yen per share announced in November. Third, we decided to do a share repurchase of up to 70 billion yen as additional shareholder return. Lastly, we are forecasting consolidated net income of 850 billion yen for fiscal year 22. Now I would like to explain the presentation entitled Results for the Year Ended March 2022 and Forecast for the Year Ending March 2023. Please refer to page 1. First, I'd like to explain about changes from the previous fiscal year. Please refer to the box on the lower left. Consolidated net income for fiscal year 21 was 937.5 billion yen, up 764.9 billion yen from the previous year, reaching a record high. As shown in the box, 7 out of 10 segments posted record high profits. In addition to strong resource prices, the recovery phase of the economy provided opportunities for earnings in various businesses, including the automobile-related and salmon farming businesses, which led to steady growth in profits throughout the fiscal year. In addition, to prepare for the uncertain business environment ahead, we are taking in losses of concern as much as possible by conducting asset valuation reviews and other measures. Next, I'd like to explain our shareholder return policy, please refer to the box at the bottom right of the page. At the time of Q3 results announcements on February 3, we explained that additional shareholder returns would be announced at the time of year-end financial results. Based on FY21 results, we have decided to increase dividends and repurchase shares. First, with regard to the dividend increase, we raised the annual dividend to 150 yen per share for fiscal 21, taking into account the sustainable growth of profits in the future. In addition, we have decided to repurchase up to 70 billion yen of our own shares. The company plans to cancel all of repurchased shares except for those used for stock option grants.

Next, I'd like to explain our earnings forecast and shareholder return policy for FY22. Please refer to the bottom right section of this slide. The business environment for the current fiscal year is becoming increasingly uncertain due to the Russia and Ukraine situation, as well as monetary tightening cycle mainly in developed countries. In light of these circumstances and reflecting downside risks, we have set our FY22 earnings forecast at 850 million yen, a profit decline of 87.5 million yen from the previous year. Regarding shareholder return policy, we will continue a progressive dividend policy under the Metem Corporate Strategy 2024, which starts from this fiscal year. We aim to achieve a total payout ratio of 30 to 40% and share buybacks will be conducted flexibly with financial discipline. Based on what I have explained, the L422 dividend is projected at 150 yen per share unchanged from L421. Please refer to page 2 for performance buy segments. Next, I'll explain the status of cash flow on page 3. The bar graph on the left illustrates the cash flow for FY21. Underlying operating cash flow, which is operating cash flow adjusted for working capital, was positive 1 trillion 236.5 billion yen, topping the 1 trillion yen mark for the first time. Investing cash flow was a net outflow of 167.6 billion yen. As a result, as shown in the dark blue box of the table on the right, adjusted free cash flows, the sum of underlying operating cash flows and investing cash flows marked 1 trillion and 68.9 billion yen. Next, let me add some comments on the three-year cumulative cash flow generated during the Midterm Corporate Strategy 2021, using the lower part of the table on the right. The three-year underlying operating cash flow shown by the green column totaled to 2 trillion and 533.8 billion yen. Despite the negative impact of COVID-19 on our business last fiscal year, cash flow was generally firm compared to the swing in earnings. Investing cash flow is shown by the light blue column. While we saw progress in the sales of business-related stockholdings and asset reshuffle like the interest in metallurgical coal mines, we also made acquisitions such as Eneco, European energy company, LNG-related business, and made investments such as in casual vehicle copper mine. Net outflow was 1 trillion and 25.6 billion yen. As shown in the darker blue box, the three-year cumulative adjusted free cash flow, the sum of underlying operating cash flows and investing cash flows stood at 1 trillion and 508.2 billion yen. Please refer to the segment forecast on page 4 and the market conditions on page 5 at your convenient time. FY21 was somewhat supported by the market tailwind, but we also made steady progress in strengthening and improving our balance sheet by dealing with unprofitable businesses and making provisions for losses. FY21 was a good year serving as a steady base as we begin to implement the Mid-Term Corporate Strategy 2024. FY22 will be the first year under the new medium-term corporate strategy, and we will renew our efforts in light of the current business environment with increasing uncertainties. This concludes my part on the financial results.

Thank you, Mr. Nochi. Next, I'd like to hand over once again to Mr. Nakanishi. Now, the first thing I'd like to do now is to explain my thoughts regarding how we have formulated Midterm Corporate Strategy 2024, which was announced today. First of all, please refer to the first page of the presentation, which is about our view on the external environment. The international community is becoming increasingly polarized and divided, as seen in the deepening turmoil in Russia and Ukraine, in addition to the struggle for hegemony between the U.S. and China. In this context, we are living in an era of unprecedented uncertainty, including changes in global supply chains, decarbonization, digitalization, and the transformation of lifestyles with COVID-19. In this era of rapid change, we believe it's our mission to continue to meet the needs of society by being more farsighted and enhancing our industrial knowledge and global intelligence even more than before. That is why we are calling for creating MC shared value in the new midterm plan. Please refer to page 1. MC shared value refers to the continuous creation of significant shared value by elevating MC groups' collective capabilities in order to address societal challenges. In the midst of various social issues such as a decarbonized society, sustainable society and lifestyles, innovation and coexistence with local communities, we will leverage our unique strengths to create MC shared value through solutions to these issues. Please turn to page two. Here are five specific measures for achieving creating MC shared value which are growth strategies, business management, management mechanisms, HR policies, and sustainability policies. Today, I will mainly talk about the quantitative targets, shareholder return policies, and our growth strategies. Please see page three for quantitative targets. The outlook for consolidated net income for fiscal year 2022 is 850 billion yen and 800 billion yen for fiscal year 2024. As there is significant impact from market fluctuations, we have formulated our forecast for fiscal year 24 based on a certain level of assumptions for resource prices. If we apply the same resource price assumptions for fiscal year 24 to fiscal year 22, the profit outlook would be about 650 billion yen. We aim to achieve steady growth of profits excluding price factors through growth of existing projects, asset reshuffling based on the value-added cyclical growth model, and new investments. In addition to further strengthening our earnings base, we will pursue upside potential when resource prices rise. We will continue to pay a progressive dividend policy in this mid-term management plan. we will implement a return policy that balances financial soundness, stable dividend growth, and market expectations for shareholder returns. We will maintain and improve double-digit ROE through steady profit growth and shareholder returns. Please turn to page 4. Regarding cash flow and capital allocation, The key is to maintain financial discipline by approximately allocating the approximately 4.5 trillion yen of cash generated over the next three years to investments and shareholder returns. Please turn to page 5. We expect to invest 3 trillion yen over the three-year period of the mid-term plan. While maintaining and expanding our earnings base, we will allocate cash flow generated to EX-related, DX-related, and growth areas as well. In particular, regarding EX-related investments, we plan to accelerate the pace of investments from the 2 trillion yen level by 2030 announced in October last year to 1.2 trillion by fiscal year 2024. We plan to increase the percentage of EX investments in our business portfolio from the current 30% to about 40% by the end of fiscal year 24 and to about 50% in the future around fiscal year 23.

Please refer to page 7 and 8 for the growth strategy. We have outlined the details for EX index strategy on page 7 and 8. And these are specific initiatives for growth, so please refer to them later. The third pillar of strategy is creating a new future, and I'd like to give you more details on this concept. Please turn to page 9. First, I would like to share my thoughts on why we included this concept in the growth strategy. Maintaining competitive strength while contributing to low-carbon society and decarbonization is a challenge faced by all industries. Turning our eyes on Japan, the nation's GDP has hardly grown in the past 30 years, and low self-sufficiency rate in energy and food forces Japan to rely on imports from other countries. The GDP growth in the past three decades has been muted at almost 0.7 percent. As such, national security issues have become more serious. I strongly feel that we need to tackle these urgent and fundamental issues head on. The ideas behind creating a new future are based on the concept of renewable energy, an EX, where we can exert strength. Renewable energy is a type of energy source that exists in the local region. Using this local energy source, we'd like to raise the self-sufficiency rate of energy and create a new carbon neutral industry and help us solve local issues such as job creation and depopulation. In a nutshell, we want to work toward creating a new future by promoting regional revitalization. The left side of the slide shows green electricity and green hydrogen, both of which are the basis of renewable energy initiative. Our aim is not limited to electricity consumption, but we also strive in creating a new local industry by using hydrogen for manufacturing, building a new business space on the supply side. Each of the demand may be small, but when combined, we should be able to create a certain business scale. This will lead to needs-based solution that will be unique to company like us with far-reaching engagement in various industries. We'd like to create decarbonization solution with these initiatives. The right illustrates the regional society. Renewable energy is a very essential regional infrastructure development, and we can expect to create employment in the region by training personnel for the projects and attracting suppliers. With the theme of collaborative communities and creating vibrant communities, these initiatives will help enhance the quality of life of local residents. For instance, we can help in brand building of tourism resources and agri-embrane products and contribute to the regional economy. Enhancing the lifestyle service such as education and medical services will also help to revitalize the community life. We can lead the way to create a vibrant community by capitalizing on our diverse network and DX capabilities. And this concept cannot be achieved by us alone. It is a grand plan with a long time horizon. We would like to promote this regional development in cooperation with the government, municipalities and local companies, as well as with partners who share the same vision. We will use our comprehensive strengths, EX and DX, to tackle social and industrial issues such as the creation of new industries and regional revitalization. This is what we are embracing in our strategy of creating a new future. In order to accelerate our DX strategy, we will establish an industrial DX group effective July 1st. The remaining full measures are explained in the presentation pack. So lastly, this will conclude my presentation on the midterm plan. I am convinced that now is the time for us to unleash the potential of our comprehensive corporate strength and our total capability, which has created firmer diversity and interconnections. All of us at Mitsubishi Corp will strive in order to realize our vision of creating MC shared value and to pioneer into the new era. Thank you very much for your kind attention.

Mr. Nakanishi, thank you very much. This concludes the presentations from our company. Now, we would like to start the Q&A session. For questions, like we always do, We will take one question at a time and one person can ask as much as two questions each. If you have a question, please tap on the raise hand button on Zoom. We will call on you. So when your name is called, please turn your mic on and state your affiliation and your name followed by your question. If you would like to cancel your question, please tap on the lower hand button Regarding questions around the supplementary presentation data section, the IR department will deal with them later on. So please refrain from asking specific questions around it. We plan to end by 2.30 p.m. Japan time. So we'd like to ask you for your support. So now we would like to take any questions that you may have. First, the top batter is going to be from Daiwa Securities, Mr. Nagano. Please go ahead with your question. Mr. Nagano, can you hear us? Mr. Nagano? Okay, it seems that Mr. Nagano cannot connect, so we'd like to appoint a different person now. So, Mr. Nagano will take your question later. From Nomura, Mr. Narita. Mr. Narita from Nomura Securities, I hope you can hear us.

Oh, it's not working. I can hear you.

Okay. Mr. Narita, okay. Please go ahead with your question and please ask one question at a time. This is Narita from Nomura Securities. I have two questions. My first question is the following. So this time in your midterm plan, You talked about focus on EX and changing your portfolio centered around this. On page five in the presentation, seems that the changes are going to be quite bold, apparently. And in the earnings environment, the environment is favorable for your company, and you are able to generate a lot of cash flow, and adjusted cash flow has reached 1.5 trillion. So for this fiscal year, I think it's going to be in a year where you're going to get a lot of cash inflow, but has your stance on investments changed in any way? That's what I would like to confirm, because you're going to be changing your portfolio in a bold manner, and you're going to get a lot of cash inflow. And before, you used to have minority stakes in energy, but with ammonia or hydrogen and areas of such, and recently there were some... trends where you were getting a majority stake in LNG. So are you going to get a larger stake in ammonia, for example, because you're getting good cash inflow as you strive to change the business portfolio? Are you going to be adopting any different approaches compared to the past? So just wanted to confirm your way of thinking. That's my first question. This is Nakanishi, and I will take your question. Well, in light of the results for fiscal 21, we have been able to generate quite a lot of cash. So by using the cash, we would like to make investments towards the future. And obviously, we need to start now. Therefore, as I've explained, last year, Compared to what we announced last year in October, we would like to accelerate our efforts to make the investments, especially related to EX. For the investments that we make this year, it's not going to immediately contribute to earnings because infrastructure needs to be developed. It requires a certain degree of time. Therefore, As we can expect good cash-in flow right now, we would like to accelerate our efforts to prepare for the future. In engaging in this kind of effort, are we going to acquire more majorities? It really depends on the project as well as the partners that are engaged. It basically does not mean we're going to be the majority stakeholder in all the projects. It will really depend on the nature of the project at hand. but for EX as well as renewable energies. We have the capability now to take initiative in these types of projects, and we are confident about that. So we would like to pursue opportunities when we can take initiative. It's not synonymous to acquiring a majority stake, but we would like to take initiative so that our engagements towards carbon neutrality can be accelerated an additional question I have for that is for the breakdown or the details you have copper and nat gas and Canada LNG are projects that are already running but is it going to be ammonia as well as fuel that are going to be the main components of your portfolio well copper in the presentation that we show is mentioned. So copper, because of electrification trends that are expected to develop, copper will be one key commodity. And from this year's summer onwards, for Kejaveco that we have made investments into which is a copper mine will start operating which we hope will contribute to earning steadily going forward other than that for ammonia or rather things that contribute to carbon neutrality and engagements around that area and also over the long term ultimately we think that it's going to be a hydrogen-based society Of course, ammonia may be used in the transition phase, but we are most strong in the renewables field, and that's the very area that we would like to promote and focus on. And one more thing I would like to add to this point is for ammonia, we need to procure it, so there is a cost competitiveness issue. And I touched upon this in my presentation, but in order to raise self-sufficiency, which is related to the national power of Japan, raising self-sufficiency, and by leveraging renewable energy, that would be one way to raise self-sufficiency. Thank you. So now for my second question. It's about shareholder return. You mentioned that you will listen to what the market is saying as well. You were talking about a total return of 30% to 40%, including share buybacks. But I think this was a little bit below my expectations. So my question is, the way this was decided, originally your company, when it comes to dividends, you were talking about around 35% payout, and over the medium term you're going to strive for 40%. And I think result-wise, the payout ratio was about 31%. So I think market participants were thinking that it could have been greater. And for the new fiscal year, the range is quite wide, from 30% to 40%. So I was wondering, the base should be 35%, and if there's an add-on, it may be 40%. I was wondering how the swing is going to be, because the total payout ratio is declining when our profits are relatively higher. So the way you are setting the range and the way you are setting the base is what I would like to learn from you. That's my second question. So this is Nakanishi speaking once again. I'll take your question first. So we had record high profits of 937.5 billion yen. And due to COVID-related rebounds in demand that helped us, the commodities market also was a tailwind that contributed. But as you know, we are working off the assumption that uncertainty is going to heighten even more and that volatility will heighten too, which means that there may be volatility in our earnings trend as well. Therefore, for fiscal 22 earnings and fiscal 24 profit outlooks, if you can project the slide that specifies it. As you can see in this slide, for the outlook for this fiscal year, it's $850 billion, and for fiscal 24, it's $800 billion. And of course, for fiscal 2022 and price assumptions and for fiscal 24 price assumptions well actually we believe that prices are going to settle down somewhat in fiscal 24 and the price assumptions when compared to 2022 is obviously different so one of the benchmarks that we are looking or not benchmarks but the underlying capabilities we have we believe is around 650 billion Of course, there may be a possibility that this is going to be greater, but because things are uncertain, we decided to have a range of 30 to 40%. And underneath, we talk about shareholder return. And at the bottom right, in the bar chart, in accordance with profit growth, we would like to increase dividends based off our progressive dividend policy. So based off these assumptions, we would like to strike a good balance in paying dividends as well as conducting share repurchases. And we would like to conduct these efforts in a flexible manner. Does the CFO have anything to say? Yes. As Mr. Nakanishi, our president, replied, in the previous midterm plan, dividends were centric. And for last fiscal year, we experienced a very challenging result. And for this fiscal year, or for fiscal 21, we were able to get good results. But there is volatility in the environment. Therefore, for midterm plan fiscal 24, we will be upholding the progressive dividend policy, but for total shareholder return, we have raised the range of 30 to 40%. So that is a change in policy. So in fiscal 21, the total return ratio has exceeded 30%. But one thing I would like to note is in midterm plan 2021, on a three-year basis, the total payout ratio was approximately 38%, which was close to 40%. Actually, the dividend payout was 38%, and total payout ratio was over 40% as a result. That's all from me. That was Noichi speaking. I'd just like to confirm one thing. Up until now, The investment leverage ratio that you were using, are you not going to be conscious about it anymore? With at this performance, I think it will go below 40%, which you regarded as appropriate. So is this going to be done away with, or are you still mindful about this KPI? This is Nochi. I will take your question. For investment leverage ratios, from a physical discipline point of view, we will continue to look at the range of 40% to 50%. In addition to increased dividends, we will be conducting a 70 billion yen share buyback, and we will be falling within this range up until now. In the previous midterm plan, when cash was in excess of the range, We were saying that we will comprehensively consider conducting share buybacks, but this time around, even when we are within 40% to 50%, as long as we are sufficient in capital, we will continue to comprehensively consider share repurchase opportunities regardless. So that was one change in our way of thinking. Thank you.

Thank you, Narita-sama.

Thank you, Mr. Narita, for your questions. Next. We'd like to call on Mr. Nagano from Daiwa. I think we are reconnected. Can you hear us, Mr. Nagano? Yes, this is Nagano from Daiwa. Can you hear me? Yes, we can hear you clearly. So go ahead with your questions. Thank you for the presentation today. I have two questions. My first question is regarding the shareholder return policy. I have some follow-up questions. What you just said regarding the total payout ratio of 30 to 40 percent, so that will be the priority in terms of the policy. And then you will also look at things like investment leverage ratio, because I think before you were looking at the range under the investment leverage ratio, but you are now looking at the cash flow or payout flow of 30% to 40%. So there is more priority on the payout ratio. So I think the hurdle is lower compared to before. So looking at the total payout ratio of 30% to 40%, I would like to get a deeper understanding. So for this fiscal year, you're looking for an income of 850 billion yen, and you're seeing dividend of 150 yen, and that will be a payout ratio of 26%. So to reach your range target of 30% to 40%, and if we take the midpoint, 35%, the remaining 9% if the net income is 850 billion yen, then within the next 12 months you will be calculating the amount of share buyback. Is that the right understanding of this target? And also another point on the share buyback plan is that, for example, You try to maintain discipline with this range of 30% to 40% over the next three years. And we also have a double-digit target for ROE. And for March 25, you're looking at a net income projection of 800 billion yen. So if we go up to March 25, then your capital will be over 9 trillion, and then share buyback has to go over 30% to 40% in order for you to reach the double-digit ROE. So are you also considering to make some additional share buyback? And under that idea, you're still going to implement your financial discipline. Is that the right understanding? Yes, I will take that question. This is Nochi speaking. So looking at the investment leverage ratio and the total payout ratio target of 30% to 40%, I think your question is which one we are prioritizing. But we're looking at the financial discipline of 30 to 40 percent, and that will be in place so that we can maintain the financial discipline, and we still put focus on that KPI. And in the previous question from Mr. Narita, as we answered, And also, as Mr. Nagano mentioned now, in the past we said that unless this ratio is below 40%, we will not conduct share buyback. So that was one threshold that we were communicating in the previous share buyback program. With the investment leverage ratio, we decided that our capital was in excess of what we were expecting, so that was used for share buyback in the previous time. But this time, we have slightly changed our thinking. So as Mr. Nagano mentioned, 40% to 50% range. So even if the investment leverage ratio is not below 40%, we will consider share buyback opportunities with agility. So that is the change in our thought process. And previously you mentioned about the 850-billion-yen net income projection and 150-yen DPS. And with that, the calculation will give us a dividend payout ratio below 30%. So what are we going to do to reach the total payout ratio? Of course, we are considerate of that level, and based on that, we have communicated our total payout target of 30% to 40%. And when we look at the conviction of the H&J 50 billion yen of earnings here for 2022, we will look at the conviction and the confidence to decide about the share buyback. And I also mentioned that we will continue the progressive dividend policy. So we believe that when we have been able to elevate our sustainable earnings capability, and then we will take a comprehensive consideration to decide on the dividend hike. And the reason why we have switched from a progressive dividend-centric policy to incorporate more concept of share buybacks, the reason for that is because as our intention under the new midterm plan, we want to look at the earnings capability and elevate that without lying on the commodity prices. Because when we look at the volatility of the resource businesses, we will be impacted by the market conditions. So regarding the earnings capability, we want to elevate the base by stripping out the impact of the resource prices. And based on that thought process, we have changed our dividend and the shareholder return policy. And as we aim for the voltage ROE, For FY24, we will look at the capital base and the return, and we will take a good balance between the two to decide on a capital allocation. And as I mentioned in the presentation, the next three years, we will be facing and increasing the uncertainty business environment. So we will have to refresh our conviction and resolve to face those challenges so that we can quickly adapt to the changes in the environment and to meet the shareholders' expectations. So that's what we aim to do going forward. Thank you very much for that answer. And my second question is on page five. You mentioned about your thinking regarding investment and how you're going to invest in EX. And if I can dig further. Also, you mentioned about – sorry, I think I got that disconnected a little bit. Can you repeat your question again? Sure. So on page five, you talk about the investment strategy, and as Mr. Nakanishi presented earlier, I want to get more clarity on this. We have a higher resource prices, inflation, rate hike cycle, and the division in the world. That's what we are seeing in the environment. And compared to the era under Mr. Kakiuchi and under your new leadership with Mr. Nakanishi, the environment has really changed. So compared to the previous CEO's term, what are the changes that you are going to make in the strategy? What are the new focuses that you would like to stress? Yes, in sum, or in a simple word, in October last year, we showed the roadmap And we are going to accelerate the initiatives under the roadmap we showed you in October. So it's not about what the changes are making from the previous President's leadership, but under Mr. Kakiochi's leadership. In the past, the EX strategy has already been communicated, and we are going to accelerate the initiatives, as you can see on this slide. So by year 2030, we're saying 2 trillion yen, but we are going to accelerate that to spend 1.2 trillion by 2024. And for the XMS month, it's going to be 2 trillion yen. So the original target was 2 trillion for year 2030 and the 1.2 trillion for year 2024. And I will be repeating my previous comment, but with the resource market in favor for us, we would like to use that benefit to accelerate your initiatives in EX investment. Thank you. So in regards to the EX investment that you just mentioned, I think this is a little bit related to Mr. Narita's previous questions, but I think we are going to be quite active in investment like the carbon mines or natural gas projects. But for your casual vehicle project that's going to be up and running this year, so you may be considering to invest into Phase 2 or not. And for LNG, I think we will be deciding to go into Phase 2 during the current midterm plan or not. So in that sense, I think there are going to be many decisions that you will have to make. So with LNG Canada, Are you already starting to talk about phase two opportunities or for other projects like ammonia or hydrogen? I don't know which energy, but do you have some specific discussions that's already in the pipeline? Well, I will not be able to share the details with you today, but for this 1.2 trillion of investment, we have a long list of projects that is reflected in this budget. for the next generation energy, which is included in the investment opportunities. It includes hydrogen and ammonia. And for those kind of projects, we are making some specific discussions, and we are starting to prepare for some tender offers, not in Japan but elsewhere. But given the situation in Russia, What I can share with you today is that there is a trend, particularly in Europe, to move away from reliance on the Russian energy, so that trend is being accelerated. I have the utility business background, so I can really sense that myself. And as we stand here today, the gas alliance kind of energy trend will have to be broken off, and I think many countries, including Japan, is going to try to accelerate to move away from energies like gas. And so we want to be prepared for those opportunities. We want to be ahead of the curve so that we can participate in that kind of new projects in overseas markets and then bring that opportunity back into Japan. Thank you very much. Thank you, Mr. Nagano.

Next, we'd like to take a question from Nomura Asset Management. Mr. Ohata, can you hear us? Yes, I can. Can you hear me? Yes, we can, loud and clear. Please ask one question at a time, please. Thank you. I'm from Nomura Asset Management. It's in association with Mr. Narita's question, but you were talking about investments that contribute to carbon neutrality, investments to raise the self-sufficiency of Japan as you invest into renewables. For the offshore wind power bid, you were able to win three of the projects. In order to avert concentration risk, I believe there was a review of the screening standards for offshore wind power generation projects. So for offshore wind power generation going forward, for your company, is it going to be a more challenging environment to win the bids? I believe that renewable-wise, offshore wind power is going to be the largest renewable energy source. So what kind of renewable energy scheme do you have in mind in order to raise self-sufficiency? Of course, hydrogen is promising, but it's hard to see hydrogen lead the way when you think about cheap renewable energy sources. So can you share with us your thoughts around renewable energy? developments for offshore winning the three projects as well as concentration risk of operators and the review process around it actually they're considering to do a review and it has not been decided yet apparently but in any case based off of the specified rules in association with future bids we will consider the opportunities Having said that, we don't think we're going to be facing problems. For renewable energy, often people think about it as being wind power generation. And of course, for wind power generation, there is high output. But in principle, for renewables, it is an energy source that is local and distributed. So of course, offshore wind power is one, but it's a distributed energy source, and solar power generation is another option, as well as hydro power, as well as onshore wind power generation is also a distributed power source. So we basically need to have a collection of these types of energy sources overall. And because it's distributed, it's not a large-scale way of generating energy. Those opportunities are actually scarce. We were able to win the three projects last year, but we would like to continue to pursue opportunities where we could build up the renewable energies base. For hydrogen, in Europe, for example, like I mentioned earlier, price competitiveness has become better and better. And also for hydrogen, in probably several years' time, it will probably become quite cheap. That's what we expect. And that is why our company made a press release around this, but Breakthrough Energy Catalyst, or BEC, for the projects that have went into the POC stage beyond R&D, we have decided to pursue opportunities and look into opportunities by investing in tobacco. And we would like to capture these types of technological opportunities at an early stage. And by engaging in them, we don't think that hydrogen is not going to happen or ammonia is not going to happen, but we believe that we already need to take steps from now. I understood your answer very well. Thank you very much. So here's my second question. It's about LNG. Considering your pipeline, we have Tangu expansion as a pipeline item. But towards 2031, the contract for Sakhalin 2 is going to reach its deadline, and I believe that is one item you need to consider as well. For pipeline-related investments going forward, what are your thoughts? And, of course, for Stock Lane 2, what are your considerations around it, including Russia risk? That's it for me. Thank you. For LNG and the next pipeline item, as you rightly said, the item that you mentioned is, of course, in our long list, but we will move forward and scrutinize this item going forward. So, We can't really pinpoint that as the next item yet. For Sakhalin, too, we have a responsibility to offer steady supply. And based off this commitment, we have been continuing and fulfilling our social responsibility. And together with our partners, together with the government of Japan, we will continue on with our discussions. Whatever the case may be, for LNG as a transition, this is something we definitely need. As I have been saying from earlier, for renewable energies, we won't be able to cover everything, so nuclear power generation as well as LNG LNG as a complementary energy source is also critical. Therefore, we would like to ensure that we fulfill our responsibility. That's all from me.

Thank you very much. That's all from me. Thank you, Mr. Obata. Our next question is from Mr. Guru from UBS. Can you hear our voice? Please go ahead and raise your questions. Yes, this is from UBS. Can you hear me? Yes, we can. Also on page five. Regarding the investment plan and business portfolio, I have a question around this slide. So basically, we have three colors in this table, and that's the allocation of the investment budget, in my understanding. At the same time, you have the pie charts at the bottom. which shows the business portfolio and already in FY21 the EX related allocation is about 30% and I think going forward it's going to increase to 50% or even over 40% is what I guess mentioned on the slide but can you clarify the definition because I'm a little bit confused. And may I check the consistency between the table and the pie chart? And also regarding your thought process behind this, you have roughly 3 trillion yen for investment budget for EX and DX. Especially for EX, I think you have a long time horizon in terms of the project opportunity. In terms of profitability of the investment and also how you're going to build up the profits over the next two years, how are these investment plans going to be reflected? So your investment plan for EX and DX and how you want to lead to further growth. So I think you have a time frame under this mid-term corporate strategy and then beyond. And what is the timing of the profit contribution? Because I think there is going to be some discrepancies. So regarding recouping of investment, how are you going to be thinking about the return to be generated and the timing of that profit? Thank you for the question. Let's see if we can go back to slide five. The green part is the investment related to EX. And regarding the definition of EX is, I think, what your question was about. And if I may try to answer that, it includes LNG and the rare metal, including copper. So base metal, rare metal is also included in this green part, and also renewable energy. and then the new generation energy like hydrogen. So those are categorized under EX. So LNG also emits CO2, and you may say so. But in the context of transition, LNG is indispensable. And compared to coal, the CO2 emission from LNG is much lower. So we want to use LNG as a transition energy so that we can fulfill a responsibility for steady supply and also contribute to decarbonization. These are two things that are in conflict, but we want to fulfill both responsibilities because they are very important for the society. So we are putting those initiatives on our shoulders. So LNG and the rare metals and the renewable and new generation energies are included in the EX investment. Also, it was about 30 percent at fiscal 21, and we thought that we will be reshuffling the asset portfolio. And as for the profit contribution and how the profit is going to be growing going forward, as you said, for the new generation energy project, we cannot expect profit contribution immediately from next year. But unless we start preparing now, the infrastructure business will take a long time to contribute to numbers. So that's why we need to prepare for the infrastructure business, including the next generation energy, so that we can have a good circulation of the business. So now we have a very good favorable environment with the metallurgical coal business, which is in favor in terms of market. We are also strong in the automotive and the food business. So we want to capitalize on those trends now so that we can prepare ourselves for the future to start investing into EX. Thank you very much for that answer. So if that is the case, Going forward during the new midterm plan, the profit growth is coming from maintaining the existing profit capabilities. Is that going to be the main profit source? And for DX and EX, the return will be realized over a longer term. Would that be the right understanding of your plan? Yes, let's put the slide five again on the screen. So as you can see here, the yellow part and the green part, in between the two there is this white space which says copper and natural gas. So EX is not just for future because LNG, as I said, is included here. So some of the existing businesses are included in the EX, which is a part of maintaining the existing competitive business, and that's included in 1.2 trillion. On top of that, we have the additional 1.2 trillion yen for further investment. Mr. Ogoro, do you have any other questions? No, that's all. Thank you very much.

Thank you.

Next, we would like to move on to Tokai Tokyo Research Center, Mr. Kuribara. Can you hear us? Please go ahead with your question. This is Kuribara. Thank you very much for taking my question. My first question is regarding this fiscal year's results and how it came about. So the outlook is $850 billion from $930 billion. And for the one-off gains and losses, there was about $1 trillion, and that's going to go down to $850 billion. And I believe it accounts for one-off gains, which means that it's expected to deteriorate by approximately $200 billion specifically. What items are starting to deteriorate? And depending on your market assumptions, you may be applying a very conservative assumption. So can you give me an update around that? That's my first question. Thank you very much. So when you say deterioration, that's a little scary. So let's talk about changes in the market. because we don't want to make you think that something bad is going to come about. So for fiscal 21, we basically saw the results of the market. And when you compare that to our fiscal 22 outlook that we have presented in our materials, it's basically an assumption that we're applying. And based off that, we are expecting the profit outlook to be 850 billion yen. In addition to what I've just said, inside the $850 billion, there are, of course, some one-offs that are included and accounted for. And if I may speak about that a little, the other day there were some capital gains around property and the management business, and that has contributed quite a lot. And there are also some uncertainties. Therefore, we are accounting for a certain degree of buffers. So putting as well as commodity prices going forward, we have accounted for that in making the adjusted profit outlook of $650 billion. which we believe is our underlying capability when we go back to normal times. So this goes back to the earlier questions, but that's the way we have put together this outlook. Do you have anything to add? Well, for fiscal 21 and fiscal 22 and the changes we are anticipating, Mr. Shimazu, the GM of corporate accounting, would like to follow up on that. This is Shimazu speaking. The starting point. which is fiscal 21. It was $937.5 billion and against that, and for fiscal 22, one positive is MCUBSR and the divestment gains, which is worth $84 billion. Secondly, is commodity price impact. Overall, we are expecting minus $30 billion. Thirdly, in fiscal 22, in our profit outlook. As a downside risk, we are accounting for $40 billion downside risk. And finally, as other items, we are expecting a decline in profits by $100 billion. For this decline of profits worth $100 billion, the main items are in fiscal 21, the salmon farming business did very well, and also for energy solutions, as well as there were some divestments made that led to gains in the urban development group. So a total of 85 billion yen is the decline of profits that we are anticipating. Does that answer your question, Mr. Kuribara? Yes, it does. So may I ask the second question? Yes, please go ahead. Regarding DX, during Mr. President Kakiwitsi's times, you were aggressively engaging in DX, but are there any examples of profit contribution in your efforts around digital transformation? Thank you very much for the question. For DX, In midterm corporate plan 2024, we were talking about establishing, we will be establishing a new division from July the 1st, and this will be one feature of what we're going to be doing. With regards to substantial contributions, we are not yet at that point in time, but MC Digital has been established three years ago, and We have a lot of real contact points with a variety of industries, so through MC Digital as well as with NTT, we have been developing algorithms and we have been developing new systems so that they can be used in an efficient manner. Not only does this apply to our group, but eventually we would like to go beyond our group so that we could offer these efforts as services. And that is why we will be setting up a new group, and we will be assigning certain people to it. Also, various pieces of data will be generated. Earlier we were talking about local production and local consumption when we were discussing renewable energy, and it will be associated to that. with the Central Electric Power Company, we have Mirai's Connect underway. For the users of energy, we are able to track and see how they are using energy and accumulate the data in considering new services that can be developed. Of course, the numbers will not appear overnight, but these are some efforts we're engaging in. But we are basically striving to achieve distributed energy sources that are produced locally and consumed locally. And in these cities, in developing these types of communities, we believe that DX can play a role. Thank you.

Thank you for your questions, Mr. Kuribayashi. Next question is for Mr. Morimoto from SMBC-NICO. Can you hear us? Yes, can you hear me? Yes, we can. So this is Morimoto from SMBC-NICO. Thank you for your presentation today. I have two questions. listening to what you have been saying, I have not been able to fully understand the concept. One is on page three regarding the ROE and your thinking behind ROE. Of course, In FY21, we had a high ROE. And in the October plan, I think the ROE is approximately 12%. The metallurgical core price is high. So I think, in hindsight, Depending on the environment, I think you can attain a double-digit ROE and maintain that. But as a base case scenario, what is your thinking behind this? When you say double-digit ROE, I think it's 10%. So does this mean that you're committed at least to 10% ROE? So let me check on that point. And also in a previous question from Nagano-san, in the current corporate plan with the dividend of 150 yen per share, the shareholder equity will be building up even after paying the dividend. And if I do a very rough calculation, I think you will have a shareholder equity base of 8.6 trillion yen. This will be the equity base for FY24 in our simple calculation. So if you are committed to a minimum of 10% ROE, then I think you will have to increase the profit by $600 billion, or you will have to do a shelf with the return to reduce the equity base. I think those are the two options available for you. So based on that, on page 4, when you talk about the cash flow for investment, And if you look at the free cash flow of 800 billion yen, I think you have to take what I have just said into account as to consider the investment opportunities. So my question is, are you committed to at least 10 percent ROE? And how are you thinking about the capital strategy vis-à-vis the ROE target? So that's my first question. Yes, so this is Nauchi, and I will be answering your question regarding ROE from previously. We have been saying that this is a very important KPI for our business management, so enhancing ROE and also maintaining double-digit ROE and elevating that is important for us. So in that sense, regarding your question of are we committed to double-digit ROE, our aim is to grow this as much as possible. So minimum 10% is a threshold that we would like to meet. But looking at the results from two years ago, in an uncertain business environment, we'll have to also take that into consideration when we think about these targets. So the capital risk and capital soundness is something that we have to consider to decide on the capital allocation. We will not be able to say we're committed to this double-digit ROE, but as we have shown on the MITREM plan, this shows that we are quite committed. we'll be focusing on trying to maintain this double-digit ROE. And regarding how we are going to make use of the capital that we'll be building up and how we are going to allocate this capital going forward, on that, regarding shareholder return, we will have options such as share buyback and also total payout ratio. Those are the things that we are focusing on. In order to enhance ROE, as you just mentioned, it's either increasing the numerator or reducing or controlling the denominator. So by enhancing our base earnings capability, I think we can also ensure some upside on the profit side. So for FY24, we will not be able to share the details on the commodity price assumptions, but we are not looking at a high commodity price for FY24. So based on all that, we are still aiming for double-digit ROE. So our focus is to grow the numerator, which is the profit. So that's my answer to your question. Thank you very much. This is Nakanishi. I would like to make some additional comments. For FY24. The $800 billion for FY24, and sorry for repeating once again, but the $650 billion for FY22, which is the fundamental earnings base, we are going to enhance the fundamental earnings base from $650 billion to $800 billion. And for FY24, with the market price assumptions, which we expect the price set to go back to the normal level, then if we use that price assumption in FY22, it's going to be 650 billion yen. And then we would like to increase that to 800 billion with the prospective projects and also with the existing businesses, which was the yellow category in the other slide. And I think by focusing on those initiatives, we will be able to grow the profit accordingly. So we want to enhance the base earnings capabilities. And on top of that, if the resource prices have not come down to normal level, and if they are still at a high level, then we may be able to enjoy some upside in 2024. Thank you. So one follow-up question on that point. Our interpretation is that this is 250 billion for FY22 and going to 800 billion yen. So there's a path for the profit growth. is something that we should check to monitor your earnings capability. And I think in that sense, we can say that the source of fund that can be used is the progressive dividend that will be enhanced. So is that what we need to follow in order to understand your earnings capability? Yes, that will be the correct interpretation. Thank you. Also going forward in the presentation, in the future. I think there are a lot of uncertainties now. There will be more uncertainties going forward. So it will be difficult for us to check the base earnings capability in the data that you may present in the future. So if you can periodically update how you are making progress in enhancing this fundamental earnings base, which you're projecting at $650 billion for 2022. So if you can help us provide the number, that will be very helpful for us to understand. your capabilities. And my second question may sound a little bit strange, but Since this is the first time for us to have this kind of conversation with Mr. Nakanishi, frankly speaking, when you look at Mitsubishi Corp, what do you think are the issues that's faced by Mitsubishi Corp? And I guess you will be leading the company for the next six years, and what is the vision of you? And what kind of a company would you like to see in six years? And if you can touch upon what kind of business portfolio you'd like to envision in six years, that would be very interesting to understand. Thank you. Also, I took the current position as the CEO from April, and I see two issues that need to be addressed. One issue is that As was indicated in the presentation pack, promoting the value-added cyclical business model is something that we have to really implement, and we need to make a steady progress for that. Earlier we talked about the real estate business. and our role as a parent company has changed, and if we cannot add value to the existing project, we will exit. That was what we were communicating previously, and a good example of that was the divestiture of the real estate business. But on the flip side, As you may be assuming, we do have a low-yield asset, and those have to be dealt with, and we need to improve the efficiency of these businesses so that we can have a very robust base. And that's what I would like to focus. So monitoring the value-added cyclical business model is something that we would like to monitor very closely. And secondly, as it is related to your previous question, Well, the first point that I want to focus is to enhancing the fundamental earnings capability. And as we shift to decarbonization, we have to closely monitor how we are going to transform and transition our business portfolio. And so that's a major issue that we would like to address. And one part of that is investing and focusing on AX investment. So pursuing both EX and DX investment is something that we are going to focus on. When I was involved in making a roadmap last year, which was announced in October, in the next six years, I want to make sure that we walk the talk and implement those roadmaps so that we can build a business portfolio that can be handed over to the next generation of managers. So on that point, I would like to seek your understanding and the market understanding to promote portfolio transformation. Thank you very much. I have a very clear picture now. Thank you very much. Thank you.

The next person is from JAP Morgan Asset Management, Mr. Hirokawa. Can you hear us? Yes, I can. But can you hear me? Yes, we can. Loud and clear. Please go ahead. I have two questions. The first one is about shareholder return. For the basis of your return, which is total shareholder return of 30 to 40 percent, for Base earnings. Why have you placed net income as a base to apply this policy? Because sometimes other companies are using operating cash flow and it's less volatile. So I think it's easier to manage if you use other types of items, but why are you using net income? So I'd like to hear the reason why. The other question is, as you strive for growth going forward, you will be focusing on reshuffling your portfolio, and you will be mainly investing into EX-related items, and I fully understood that. But it seems that earnings contribution is going to be a little bit further out. So in setting hurdle rates for making investments as well as the criteria you have in place towards your future plans, what kind of criteria do you have? So I would like to take your first question. As you rightly said, Mr. Hirokawa, other general trading companies are using underlying operating cash flow and considering their total shareholder return payout ratio. We are aware, and I think that's one way of doing it. But we wanted to have continuity, and because we are continuing to uphold a progressive dividend policy, As a base of our dividend policies, from a continuity standpoint, we thought that it's better to set the total shareholder return payout ratio based off net income. So that's my reply to your first question. For the second question, for EX-related hurdle rates, because it's EX, it doesn't mean that we're going to set a lower return target. we will ensure that we make the investment-based stuff good investment discipline. Last year for the offshore three projects that we won, people were talking about not being able to secure good returns at that level, but we do believe it's fully profitable and I can say that with confidence because I've been in the business for the last 10 years. And one more thing I can say is for EX and its contribution as well as when we can start to see returns and so forth, This was asked earlier as well about the definition of EX as well as the rule of energy as well as copper and metal. Those types of resources being included as a part of EX is what I explained. So you have a good image numbers-wise for those areas, and people tend to think that renewable energies have lower returns. But what I would like to say on that is Generally speaking, I'm not being conscious about the Japanese market or the overseas market, but in Europe, based off my experience, predominantly when it comes to renewable energy, it is very rare because electricity had no color, no smell, But now we're talking about green energy, and that's why it is considered as rare. For all industries, decarbonization is a challenge that everybody needs to tackle and engage in. It's not just specific to one single industry. All industries need to engage in the challenge of decarbonization and having strength in this field. which we've been engaging in 12 years ago or 13 years ago, has turned into our strength, and we believe that we are able to generate good returns around these engagements, and we hope to raise our competitiveness even further going forward. Thank you very much for that bold comment. It was very encouraging, and I felt assured. I look forward in continuing to watch your business. Thank you very much.

We have received a lot of questions, but time is passing by very quickly. We just have a few more minutes. We still have a few more minutes, so if anyone has any questions, we can still entertain your question. Are there any further questions? So I guess we have been able to respond to all of your questions. So with that, we would like to conclude the result meeting and also conclude the Q&A session. Thank you very much for your attendance as part of your busy schedule to join our result meeting for FY21 results and the corporate strategy 2024. With that, we would like to conclude this conference. Thank you very much for your participation today.