Mitsubishi Corp Ord

Ladies and gentlemen, thank you very much for coming to the fiscal 23 Q2 results press conference and briefing. Despite your busy schedule, I'll be your emcee today. I'm Okamoto from Corporate Communications at Mitsubishi Corporation. At 1 p.m. today, on November the 2nd, Thursday, we disclosed our results for Q2 fiscal 23. We will first have an explanation from our president as well as the CFO to present about the results. Then after, we will have a Q&A session with the press. After a 15-minute break from 2.15 p.m., we will have a Q&A session with investors and analysts. We have People from the press, investors, and analysts are participating in this meeting in person, in the room, as well as from online. First, let me introduce who's here today. The second person from the right is our representative director, president, CEO, Katsuya Nakanishi. To Mr. Nakanishi's left, we have our representative director, executive vice president and CFO, Yuzo Nouchi. To the right of Mr. Nakanishi is our Executive Officer and CSEO, Kenji Kobayashi. And at the very left is our Senior Vice President and GM of Corporate Accounting, Yoshihiro Shimazu. And I am Okamoto from Corporate Communications. So talking about the flow for today, we will first have Mr. Nakanishi, our CEO, talk about the outline of Q2 fiscal 23 results and also an update on our mid-term corporate strategy 2024. Then after, details will be presented by Mr. Noichi, our CFO. Then we will get questions from the press. For investors and analysts, we will have a Q&A session from 2.15 p.m. Just to give out some instructions out to the media, If you would like to film, please use the podiums for cameras at the back from the left and the right. And if you would like to film in the front, please ensure that you stay within the lines. We will explain the deck entitled result for the first six months of fiscal year 2023 presentation material. We have distributed the material for those who are in the room. And if you are online, we have sent you it through email. And we will also project it on the screen through Zoom. Mr. Nakanoshi, over to you. I am Nakanishi, President and CEO. Thank you very much for taking time out of your busy schedule today to join our company's fiscal 23 Q2 results meeting. First, I'll give an overview of the financial results and also an update on Midterm Corporate Strategy 2024. then our CFO, Mr. Onouchi, will explain the detailed FY23 Q2 results and the outlook for fiscal year 2023. Now, please refer to presentation material, page 3. First, consolidated net income for FY23 Q2 was 466.1 billion yen, the second highest ever first half results following the previous fiscal year. Although net income decreased by 253.9 billion yen year-on-year, mainly due to the drop-off of soaring resource prices, etc., each business steadily accumulated profits, maintaining high levels. Next, I will explain the full year forecast for fiscal year 23. We have revised up the full year forecast from 920 billion yen announced in May to 950 billion yen. We are revising up our forecast now because segments such as natural gas, automotive and mobility, industrial materials and consumer industry are trending steadily, and we have been able to confirm the firmness of profit levels going forward. Moreover, the revised full-year forecast includes additional losses from items of concern which were not anticipated at the beginning of the fiscal year. in light of changes in the business environment. The 900 billion yen forecast accounts for this item. I will also talk about shareholder return later, but the full-year dividend forecast has been increased by 10 yen per share to 210 yen. I would like to talk about the progress of Midterm Corporate Strategy 2024. Please turn to page 4 shown on the bottom right. Here is an update on the cash flow allocation plan raised in Midterm Plan 2024 as of Q2 fiscal 23. Cash inflows during the period amounted to ¥608.2 billion in underlying operating cash flow and 467.9 billion yen in divestments. Cash outflows included 434 billion yen in investments, resulting in adjusted free cash flow of 642.1 billion yen. As for the cumulative results under Mid-Term Plan 2024, underlying operating cash flow was 1.9 trillion yen, and cash flow from divestments was 1.2 trillion yen, showing steady progress against the forecast. The cumulative total of investments amounted to 1.3 trillion yen, which has been building up steadily, including committed projects. We expect a cumulative total of 1.1 trillion yen worth of shareholder return based on what has already been announced.

Please turn to page 5. We created this new page for your better understanding of the progress of a value-added cyclical growth model. The current mid-term corporate strategy aims to optimize the business portfolio by implementing the value-added cyclical growth model, and investments for future growth are made by redeploying the management resources. As announced, we have divested a real estate management company last fiscal year and a company in the food industry group this fiscal year. Through such strategic rebalancing of the business portfolio, we are promoting to reallocate the management resources. To promote this model, we have established a policy of either divesting or keeping the business, screening the list of businesses where ROIC is underperforming the industry average, or those achieving only low growth using our business management systems. The aim is to improve capital efficiency by reducing losses through independent asset replacement and improving the profitability of companies we continue to hold. The profit improvement through these asset replacements and efforts to turn around the EVA of companies we kept to positive was approximately 30 billion yen in FY22 compared to FY21, and we will continue the asset replacement and value enhancement of the businesses we keep to increase this amount to roughly 100 billion yen by FY24, the final year of the mid-term corporate strategy. We will redeploy the management resources generated from executing the value-added cyclical growth model for growth investment to nurture the seeds and pillars for further growth. Next, on page six, I will provide the breakdown of the investment plan and the progress. We are steadily investing in a variety of opportunities in each of the areas outlined in the mid-term plan. We are expanding the investment pipeline as well, and the current mid-term corporate strategy calls for an investment of over 3 trillion yen, including the investments already made. Having said that, the goal is not just about achieving this number. We'll continue to closely monitor the market to carefully select opportunities while maintaining the investment discipline. Please turn to page 7. Past investments are starting to make steady earnings contributions, and the investment pipeline expected to contribute to earnings during the next midterm corporate strategy is also building up. With our eyes on further growth, we will invest in businesses to create future core businesses. Page 8 summarizes the shareholders' returns. In light of the upward revision of the full-year guidance, expectations for sustainable profit growth to the future, and stock market expectations, we are raising our annual dividend guidance by ¥10 per share to ¥210 per share. In addition to the dividend hike, we will also implement the stock split as announced today. Mitsubishi Corporation stock has been trading at around 700,000 yen for the past few months, above the 500,000 yen mark, which is the level suggested as a desirable investment unit by Tokyo Stock Exchange. With the Japanese government advocating Japan to stand as an asset management nation and setting a policy goal to grow the retail investor base, we believe that we should also play our part in creating a more market-friendly environment. Drawing a conclusion to conduct a 3-for-1 stock split effective January 1, 2024. As a result, the annual dividend of 210 yen per share will be 78 yen per share after adjusting for the stock split. This fiscal year is positioned as the year to execute the mid-term corporate strategy. We will steadily carry out our growth strategy and implement the value-added cyclical growth model to further enhance our corporate value. The progress against the quantitative target under the mid-term strategy is summarized on page 9, so please refer to the slide at your convenient time. We are now halfway through the mid-term corporate strategy 2024 and are now at the stage of accelerating the execution of investment plans and other measures to achieve our goals. At the same time, we must be fully cognizant of the rising uncertainties in the external environment and will brace ourselves in the remaining period under the mid-term strategy to strive for our goals. With that, I will end my explanation and hand over to Mr. Nauchi, the CFO, to cover the details of the FY23 second quarter results and the guidance for the full year. Thank you for your attention.

I am Nochi, the CFO. I would like to add some comments. I will start with Q2 results by segment, so please turn to page 11, shown on the bottom right of the page. I will talk about segments that exhibited significant changes on a year-over-year basis. Starting from the top left, regarding The top, natural gas, due to the absence of trading losses in the LNG sales business in a previous year, net income increased by 35 billion yen from 46.4 billion yen to 81.4 billion yen. As for mineral resources, the fourth from the top, mainly due to lower prices in the Australian metallurgical coal business, Mainly due to lower prices in Australia metallurgical coal business, net income decreased by $187.4 billion from $321.5 billion to $134.1 billion year over year. Next, on the right side of this slide, the first segment on the top right, automotive and mobility, decreased by 23.8 billion yen from 89.4 billion to 65.6 billion yen Iran-year, mainly due to decreased equity and earnings of Russia-related and ASEAN automobile businesses. The next segment below, food industry, was up by 21.5 billion yen to 63.6 billion from 42.1 billion year-over-year, mainly due to gains on sales of shares in an affiliated company. In urban development, at the very bottom, net income decreased by 102.5 billion yen from 114.6 billion for the same period of the previous year to 12.1 billion, mainly due to the absence of gains on sales of a property management company recorded in the same period of the previous year and lower equity and earnings in a property business in North America. I'll now explain fiscal year 23 full year forecast by segment. Please turn to page 12 at the bottom right.

As explained by Mr. Nakanishi earlier, we have revised up the initial four-year guidance announced in May by ¥30 billion to ¥950 billion. Six out of the ten segments were revised up. I will focus on the three segments with the largest revisions. Starting with natural gas at top left, Thanks to the trading profit in the LNG sales business and higher earnings from the LNG-related businesses, we revised up the initial forecast by 24 billion yen to 170 billion yen. Below that, in the industrial materials segment, earnings from the plastic building material business in North America increased, leading to an upward revision of 11 billion yen to 57 billion yen from the initial forecast. Moving to the top right on the slide, in Automotive and Mobility, higher earnings from Mitsubishi Motors, among others, led to an upward revision of 18 billion yen from the initial guidance to 128 billion yen. Page 13 illustrates reference information summarizing the assumptions for market conditions. Please have a look at your convenient time. This will conclude my explanation. So this will conclude the explanation from the company. We will now move into a Q&A session with the media. As I explained earlier, the question and answer session with the investors and analysts will start later at 2.15. You may continue to be connected. Thank you. you So, Thank you. Thank you. you you so Thank you. you So, . . . . . Thank you. Thank you. Thank you. Thank you. you Thank you for watching. you you . . Thank you for watching. you Thank you. Thank you. Thank you. Thank you. Thank you. you Thank you. . . So, you . . Thank you for watching. Thank you for watching. . . Thank you. you you Thank you for watching. Thank you for watching. Thank you. Thank you. Thank you. you

Ladies and gentlemen, as time has come, we would like to now start the Q&A session for investors and analysts. The emcee for this session will be myself, the GM of IRNSR. My name is Akamatsu. Like always, We will like to ask you to keep your questions up to two each per turn and please ask both of your questions at once, and please use the raise hand button on zoom zoom if you're on zoom. And I will appoint you so. When your status has changed to panelists please turn your camera on and go ahead with your question, please state your affiliation, as well as your name, followed by a question. We plan to end at 3 p.m. our time. Thank you. Now, we'd like to get started from Nomura Securities. Mr. Narita, over to you. Please turn your mic and camera on and go ahead with your questions. Hello, this is Narita. Thank you for taking my question. I have two questions. The first one is regarding the first half results in the second quarter, I presume the numbers were weak, especially for BMA and the MDP part in Q2, profits declined. I think it's because of volume. but can you walk us through the factors why you saw a decline in Q2 relative to Q1? And for this segment, mineral resources, you kept your forecast as is, but regarding your assumptions around prices and volumes, can you comment on that as well? So that's my first question. Second question is, On page five this time around, you talked about the update on the value-added cyclical growth model, and it was a new chart that you've added in. raising capital efficiency due to replacement and so forth, you were saying that it was 30 billion yen last fiscal year as an impact, and it will move up to 100 billion yen. But what is the source of this? Are you going to withdraw from the loss-making businesses? Is that the prime part? Or for the challenging businesses, are you going to improve its profitability? Can you give us a detailed explanation? Because it states here $30 billion. So I was wondering what area has been contributing and how it's going to expand. So if you have any specific examples, please share that with us. That's the second question. Thank you. This is Nakanishi speaking. Regarding MDP, the first question, it's about volume. Originally, first-half numbers, metallurgical coal prices were relatively low. Due to scheduled inspections during the maintenance period, volume dropped off. And towards the latter half of the year, we were assuming that prices will increase. And in reality, prices are increasing. So that's our assumption. And Mr. Nouchi will give a detailed explanation for number one as well as your second question. Narita-san, I will then take this question. For Q2 relative to Q1, as you rightly said, originally for the second quarter compared to the past relative to Q1, earnings-wise, it is a quarter where earnings tends to drop off. First, regarding MDP, regular inspections usually takes place during this period. So like mentioned earlier, the impact was mainly from volume. So the volume factor was the reason why. But we have assumed this from the beginning of the fiscal year. And also from the beginning of the year, there were some items that we did not anticipate, such as suspension of operations for a short period of time, as well as greater costs. So that's the reason why Q2 was lower than Q1. But overall, we saw operations in line with our expectations. although there were some items that were not anticipated. So up until the second quarter, including Q1, overall, I can say that we are on track. Furthermore, for replacements and details, Track record-wise, we have been able to show some results. And regarding what we've been doing lately, we've been looking at EVA, meaning for negative added value of businesses, we've been striving to replace them or improve its earnings. So we've been working on both parts. Right now, at this point in time, it is hard to raise a specific company name, but there are some loss-making businesses. There were some loss-making businesses. So the reduction of negative EVA was one positive impact, as well as improvement in earnings or profits, which led to replacing and reducing losses had a greater impact. So regarding asset replacement and a review on value-added cyclical growth, since last year, since we started this plan, we've been doing these reviews. And as we show on this material as well, starting from this year, we have a dedicated monitoring team in place. And they monitor on a monthly basis to see whether the boost in earnings can be in line with our expectations. That concludes my remark. Thank you very much. Just to confirm, so it says 80 companies and the progress is 40 for replacement. For the remaining 40, is the loss amount together quite substantial or not really? So $100 billion of a single-year profit improvement is quite significant. So which is greater, profit improvement or reducing losses? So it's not just accounting losses or negative EVA. It's something that we would like to turn positive as well. And regarding improving profitability, we are accounting for a considerable amount of improvement. So going forward, We're improving profits for items that we will continue to hold. I think we believe that it's going to be greater than what we have now. So every year, We review the plans we have formulated so that we could come up with measures to turn EVA positive. So we update the plan accordingly. And each of the divisions have been touching base with us, and we track the progress on a monthly basis. So we do believe a considerable impact will come from improving profitability from holding assets as well.

Thank you.

Thank you, Mr. Narita. So the next question is from Morimoto-san from SMBC Unico. This is Mr. Morimoto from SMBC. Please turn on your camera and unmute yourself. This is Morimoto from SMBC Unico. Thank you for your explanation today. I have two questions. On page three, Regarding the upward revision of 30 billion yen, you show the waterfall chart. Earlier in the media Q&A session, this was asked, but I would like to graph the overall situation. So that's where my question is coming from. The FX impact is how much? I think when you said, when you answered that question, you mentioned 50 billion yen was the FX impact. And I think this is impacted by the cross rate of Australian dollar. Because overall, the mineral resources did not really change. But if you look at the details, I think there was some positive impact. So including the cross rate of currency. What was the impact of the effects from 920 billion to 950 billion yen? What was the impact of the effects, including close rate? And you also mentioned that you have dealt with some uncertainties of potential losses in the second half when you came up with the budget revision. So can you elaborate on those moving parts? And when you mentioned the provisioning of the concerns in the second half, is that a proactive allowance? so that you can have a positive implementation of the value-added cyclical growth model, or is it something that is deteriorating in existing business that you need to deal with? So can you elaborate on this? on how you're dealing with the potential loss for the second half. So that's my first question. So I put a lot of things in one question, but that's my first question. And the second question is regarding the widely added cyclical growth model on page five. So I think this is the way for us to judge your business performance, which will not be relying on the business cycles. So I think you also did the review last year, and I think you have also done the annual rebate for this fiscal year. So after doing the two reviews of the asset replacement, what kind of learning did you have, Ms. Nakanishi? Are you seeing better progress than planned? Or can you share with us some of your findings after doing two reviews of this value-added cyclical growth model? And also on page five at the bottom right, NFI 23, the quantitative improvement does not have any figure. So I am interested in how much improvement you are going to make from FY23 to FY24. So what is going to be the accretive impact from this fiscal year to the next with the value-added cyclical growth model? Yes. So first on the quantitative impact, let me first try to respond to that question. So first, regarding the FX, This is inclusive of the impact on the Australian dollar, and that is roughly 50 billion yen. I see that's very clear. Thank you for clarifying that. And overall, dealing with the potential concerns going forward, This is something we did for multiple businesses in consideration with the changes we're observing in the external environment. Of course, as we implement the value-added cyclical growth model, We are happy to book laws by reserving for the potential laws in the future because that's something that will be essential to carry out the value-added cyclical growth model. So in question of that, overall, for last year or the year before that, we have done this. And for any businesses with concerns, we have maintained our strategy to deal with those concerns proactively. So that is our behavior toward dealing with the potential loss in the future. I would like to add from Nakanishi. So on your second point, Mr. Morimoto, last fiscal year, around October, In our small meeting, I mentioned about the numerical target, since it was a small meeting. So this year, we decided to disclose the numerical target at this large meeting, and it's something that's really important. I mentioned this in the previous Q&A session with the media, but We have 160 companies, and I do realize that we are making good progress. Of course, I cannot mention any specific name, but there are three factors that I can note. One is that the loss-making EVA, in terms of P&L, we may be generating profit, but expected return is not achieved. For those companies, our effort is to streamline the business so that we reduce the OPEX for individual companies. So that's the first point that we do. And the second point is that for the loss-making businesses, we have to be wise in using or managing resources. So we want to divest from the loss-making business. If there is growth, it's okay, but we don't want to continue to invest in loss-making businesses where there is no growth. Even if with the P&L segment there is a profit and if there is no growth, we do not want to stick to that business for a long time. So we want to be confident and make a bold decision to divest if there is no potential future for the business. We would like to rather take a capital gain for those businesses. In combining those factors, In FY22, we had an impact of 30 billion yen. And by carrying out those initiatives in FY24, we expect this figure on the slide to be achieved. So FY22 was roughly 30 billion yen. And I think your question was how this is going to progress in FY23 and FY24. So we are still in the middle of FY23. In terms of the projection, this target is not back and loaded in the mid-term business plan. So for FY23, on top of what we have already achieved in FY22, we will have a positive impact. So that is stipulated in our business plan as we review the value-added cyclical growth model and discuss with the group companies. A projection is that for FY23, there will be a decent improvement. So the target for FY24 is 100 billion yen, and track record in FY22 was 30 billion. So in FY23, there will be a positive impact accordingly. So that's how we see the impact for FY23. I see. So it will be close to 30 billion yen. NFY22 plus the incremental impact you will be achieving for NFY23. I see. So the capital gain is not included in this figure. Is that right? Well, the capital gain after the asset replacement is included in this figure. So if that is the case, in Q1 of next fiscal year, you will be closing the sales of the two mines, and that's not included. Oh, that's right. So that is not included in this number. So sorry for the complication because some of the numbers are not included and some are included. So apologies for that confusion. But for the two mines, that is not included in this targeted number.

Thank you, Ms. Morimoto.

Thank you, Morimoto-san. Next person is from Daiwa Securities, Mr. Nagano. Please turn your camera and mic on and go ahead with your question. This is Nagano from Daiwa Securities. Can you hear me? Yes, we can hear you. Thank you for the opportunity. I have two questions. First one is about investments. Update on investments is what I'm interested in. On page seven, as well as on page six, you raised some information here. For trading companies overall, including yourselves, investments have been increasing, and I think you're relatively on the cautious side. But for the investment projects, when it comes to its ROI, Do you feel that you have been able to secure good ROI? Because in the area of EX, there are some projects that have low ROI because it's a red ocean. Do you have to tolerate that as you make investments lately? Can you give me some flavor on that? That's my first question. And my second question is about full-year forecast. You raised it up to $950 billion from $920 billion. And when you look at this by segment, there are two areas where I would like additional commentary on. One is regarding mineral resources. If you think about FX impact, I think the outlook should be rising, but it hasn't. So can you break it down into detail? The other one? adjustments on a consolidated basis and other items. You were talking about $30-something billion. I presume that provisions are included in here. Apart from that, is there nothing else? Regarding investments, I will take that question. And for the second question, for numbers, Mr. Nauchi will take that question. For the first question, on page 6, On the right-hand side, on the very right of this page, we have the squares that are in white as well as in black. So this is our pipeline in order to, in EX, DX, as well as the other areas. For EX-related, as well as maintain expanded earning space. So the EX-related are shown in this pipeline, and for the white areas, there are some areas where we have made investments or we're close to making investments. Because we're disclosing this information, it means that it's probably going to happen presumably during this year or next year, some are beyond next year. But we have gained visibility, and that is why we have decided to disclose this information. Of course, Because I'm originally from the energy business, in the press, even yesterday, there has been some news around withdrawing from the offshore wind business in the US. We don't want to sacrifice our profitability to go ahead with projects because we are extremely conservative, as you think we are conservative. So we try to have that mentality when we make decisions. So we think about contingencies when we are thinking about generating our OE. So we are asking our people to be creative, and that's a prerequisite. As a result, there may be some dips along the way, but compared to when we made the investment decision and compared to when we are actually operating the project, there may be some disparities, but we would like to continue to make efforts so that we can pursue our value-added cyclical growth model So we don't want to just leave the projects as they are. After we make the investments, we will continue to well monitor the progress. That's the system we have. Whenever we make an investment and when we make a final investment decision, we will continue to look at it in detail. And even after we start operating, we will continue to scrutinize. So now regarding your second question, I will take it. This is Noji speaking. So for mineral resources. We haven't changed the outlook from the beginning of the year, and for met coal prices, prices have been increasing lately, and the weekend will impact us positively, and we are aware of that. On the other end, in Q2, there were scheduled maintenances that was assumed it was accounted for, but there were some factors that were unexpected, and also production efficiency worsened, as well as cost increases hit us partially. And we have accounted for that in formulating the outlook, and as a result, the forecast is as is. Moreover, for the others segment, at the beginning of the year, for the others segment, we were stating negative 20 billion as a buffer. Now, as six months have passed for the fiscal year, we have taken out 10 billion of the 20, and in the second half, we have reversed 10 billion, and currently we are anticipating minus 10 billion for the year. And also, like we've been explaining, due to lost concerns of multiple projects, we have accounted for that in our updated forecast. And also, there are some corporate overall adjustments that have been accounted for, but the prime reasons are what I've just mentioned. And the details are provided by segment. That's it from me, thank you. Thank you. For Mineral Resources, If you can elaborate a little more, earlier for this segment, the profit plan did change because of the coal business. So for the coal business, for scheduled maintenances, it was originally planned for, but there were also factors that were unexpected, as well as cost increases occurred, and that was revised and updated. So that's probably going to offset the positive benefit from currency rates. But even so, when you think about the assumptions of coal prices in the second half of the year, compared to your beginning of year assumptions, it seems that you haven't really raised your assumptions. So can you give us a sense of what you're actually doing here? Well, for met coal price outlook, like we've always been saying, due to various constraints, we are not able to clearly estimate explicitly tell you how much but like I mentioned at the beginning recent prices have been increasing which we have accounted for by a certain degree so I hope you can understand where we're coming from thank you got it thank you thank you Mr. Nagano

So next question is Ohata-san from Nomura Asset Management. Please turn on your camera and unmute yourself to ask your question. This is Ohata from Nomura Asset. Can you hear me? Yes, we can. I have one question. How is the recent rate hike impacting your P&L? Looking at the financial report, the interest cost is changing from negative 42.9 to negative 91.8 billion. So I think that is a substantial impact from the rate hike. sorry, the financial profit is improving, and I think with the trade businesses, you'll be able to regain that negative impact from the rate hike. So with the U.S. rate going up, and also potentially the yen rate can also go up. So what is the impact of the rate hike to your business? Thank you, Ohata-san. So I am not sure I will be responding to your question. So the U.S. rate is increasing, and the yen rate is also moving with the BOJ nearly abolishing the YCC. It is going up gradually. So in terms of the interest payment, it is increasing as a cost. But like you said, Ohata-san, on the asset side, we also get incremental profit accordingly. So that is also quite substantial. So with the rate hike, the servicing cost would go up, but the impact on a profit is very limited in that sense. Going forward, If FRB continues to tighten the monetary policy and continue to increase their rate, I know that FRB is still maintaining their tightening stance, and this is probably because the U.S. economy is still very strong. And if the rate stays at a high level for a longer time, it may be impacting the businesses, and that could lead to a deterioration in the economic sentiment in the U.S., And that's something that we will continue to close monetarily, and that may have an impact on our business. So that's your question. Yes, thank you very much. That's all my question.

Thank you very much, Ohara-san. Next person is from UBS Securities, Mr. Goro. Please turn your mic and camera on and go ahead with your question. This is from UBS. Thank you for taking my question. My first question is about cash flow allocation on page four, where you talk about progress on investments. I just wanted to check your perspective. As a long list, you were saying you have an extensive pipeline. And that was easy to understand. But you were also explaining that you're going to proceed with recycling. So as a result, for free cash flow or net investments, or the two quarters that have just passed for this fiscal year, I think divestments have exceeded investments. So in your long list, during this period, If you're going to invest more, how should we look at free cash flow generation? Of course, I'm sure you have your original plan, but the yen has been weakening even more, and the numbers may become inflated. And also, there might be some surplus cash, and you might have to take action against that. So can you talk about the deviance against your plan and the actuals? And also, on page 5, in your original business model, you had several tens of billions of yen as a result of the recycling model. But this time around, you gave us specific numbers, and you were saying that you would like to bring this single-year profit improvement worth 100 billion. But what is its sustainability for capital gain if you're going to – Is $100 billion going to be a peak, and then is it going to be a trough or a cliff? Or are you trying to say that the single-year profit improvement is going to be lasting, and we should expect this level going forward? Nakanishi, I will take the question first, and then after, Mr. Noichi may add some comments. For your first question, I talked about this on page six when we talked about our pipeline. It's not just what's mentioned on this page. For the items that are shown here, they're actually moving right now in reality, but other than what has been listed, after a year and a half in my position, I am now in a position where the EXDX strategy compared to when we set that forth, new areas in order to create a joint value are areas where we've been able to gain more insight into after an year and a half. So finally, we have been able to identify certain opportunities. So we have another year and a half during the current midterm plan. We may be able to execute on some of our ideas and the seeds of growth. As president, I am finally starting to feel what kind of seeds of growth we are facing. So in free cash flow, it's a matter of how we manage free cash flow with that in mind. And of course, divestments are making more progress at this moment. and by promoting. It's because we're promoting the value-added cyclical growth model. But, of course, we need to do the investments in a balanced manner. And, of course, we don't want to stretch ourselves to make investments forcefully just for the sake of making investments so that we could hit our numbers. We may allocate some for shareholder return. and that stance is unchanged as well. So that's the answer to your first question. And for the second question, I explained this to Morimoto-san as well, and it may have been a little bit misleading, but regarding capital gains, as you can see on page five, we state strategic rebalancing of business portfolios, and we have two cases here, examples here, where we were able to recognize the capital gain. And of course, sometimes we could treat it as one-off, or develop to sell may be a business model that's sustainable, not necessarily a one-off business. So capital gains may fall under this category, and it might be hard to understand, but when I was answering Morimoto-san's question, I was saying three, but one out of the three is for businesses where we can't expect growth, for businesses that may slow down, that do generate profit, but, however, are not expected to grow, or maybe as Mitsubishi Corporation, we may have completed our role. In that case, we may think about recognizing capital gain by recycling the business. So for this 100 billion number, are we constantly going to be able to generate 100 billion or not? Under the Value Added Cycle Group growth model, like you've been pointing out from before, You were pointing out that we have a lot of loss-making businesses. What are you going to do about transparency? Because of that track record and because of your feedback, well, it's not necessarily just because of your feedback. We were aware about these challenges. Therefore, in any case, when we do FIDs, we look at EVAs. So we try to check and ensure that the EVA is in place and verify the EVA. so that it definitely exceeds the internal return targets we have. So we basically want to operate in a lean manner. So the single-year profit improvement is probably not going to continue to go up in a linear way, but we would like to create an optimal business portfolio. Just one more thing I would like to add from my side. As Mr. Nakanishi explained, Originally, last year, when we set forth a midterm plan or when we were formulating the midterm plan that was issued last year, we wanted to improve asset efficiency increasingly. So, the Valuated Cycle Growth Model, in a sense, Where we talk about, under number two, increasing capital efficiency through asset replacement and earnings improvement, this goes back to the start of last fiscal year. We thought that asset efficiency was insufficient, and this was one tool in order to enable us to improve asset efficiency. So apart from whether this number is going to continue to improve, we would like to continue to. work on improving the profits of our business. And I believe it's my job to look over this. So we would like to continue our efforts. That's my point. Thank you very much.

Thank you, Mr. Goro. Our next question is from Shiraka Watson from Morgan Stanley MUFG. Please turn on your camera and unmute yourself. Hi, this is from Morgan Stanley. Can you hear me? Yes, go ahead. I have two questions. The first one is regarding the investment of future in yen. That is in your plan. I think there's an increasing of the business environment and the yen is weakening. So it's becoming more challenging to make investments. Also, as you have made your approach revision regarding risk, you are actively dealing with the potential risk. But regarding your behavior on investment, whether short-term or medium-term, would you be less willing to take risk in your investment activities? So it's been a year and a half, and against your plan of a $3 trillion investment, the progress is a little less than 50%. So it just stands for investment change with the rising uncertainties. And then my second point is regarding the medical business. So you mentioned that there were some things that were not anticipated in September with BHP. I think there was an issue and the operation was suspended. Is this impact already fully reflected in the first half, or is the impact of volume decline or the cost increase reflected in your outlook for the second half? Those are my questions. Regarding the first question, I, Nakanishi, will take that. And our investment plan is 3 trillion yen, as you can see on page 6. And This was the plan we set at the outset of the year, and in the May result meeting, I mentioned that we have been able to enhance our earnings capability. The yen is becoming weaker than expected, and so for the overseas opportunities, it's more challenging, and the capex is increasing. So there are some things that were not expected, but not just for the 3 trillion yen of the investment plan. If we see a good opportunity, we believe that we can invest above this plan, looking at the free cash flow from FY22 and the free cash flow from this year and the cumulative free cash flow as you can see on the slide. We will be proactive in risk-taking because we want to grow. So we have to have an offensive and defensive plan to grow. We will be active, but achieving the figure is not the sole intention. And on your second point regarding the medical business, I know you will respond to that question. And regarding the outlook and the specific figures including volume, I will not be able to share that. But going back to your question, the impact is already fully reflected in the first half numbers. So that's all from me. Thank you.

Thank you very much. Thank you, Mr. Shirakawa. So we're drawing near the end of this session. So the next question will be the final question from Tokai Tokyo Research Center. Mr. Kuribayata, please turn your mic and camera on and go ahead with your question. This is Kuribara from Tokai Tokyo Research Center. I have one question. For DX and growth investments, 0.8 trillion is the budget, and so far you've made progress of 0.1 trillion. So how do you view this? And for EXDX investments, are there any areas where you're already seeing any effect or impact coming from your investments? Thank you. For growth investments for DX, there are two categories, 0.8 and 0.1. 0.8 is the budget, and 0.1 is the progress made for DX and growth-related. And I think you were trying to say that we've only made this amount of investments so far. So for DX, I think it can be broken down into two. One is digitalization in order to reduce costs and leveraging data in order to provide new services. And during COVID, under main items, the data center business is key. It says here domestic, but we're not just looking at domestic, but we are also interested in overseas businesses as well and running a data center business. we basically are we have a building and it's kind of urban development like but we build a data center and the power sources and because it becomes hot when processing is done it's a matter of how you offer cooling so we're not a cloud business operator But in various parts of the market, data centers are being built. We need to source land as well as have good capabilities to develop the data centers. And due to generative AI with more processing in place, we believe that the demand for data centers are going to be ever increasing. And therefore, we are seeing significant growth rates right now. So that's why we are starting to see some projects appear overseas as well, not just in Japan. And because we have strength in urban development originally, the data center business is an extension of that. So during this medium term plan in the remaining period. We do have a good pipeline in place, so we'd like to go after good returns and be proactive in developing this business. Apart from that, by leveraging digital, we have MC Digital and Industry One, our subsidiaries, and we would like to work through them in order to operate more efficiently so that we could aim for better returns and yields. So we're not seeing as much of a cash out, but we will be working on this so that for urban development, the cash out is not that substantial, but we are working on these projects, as I've mentioned, and also in the area of urban development, smart cities, smart towns, which is leveraging digital to develop neighborhoods. We are starting to get a considerable number of projects of that nature, It only says urban management here, but we are starting to see two of these projects specifically occur overseas. So these numbers are likely to, the budget or the investments are likely to rise going forward. That's all for me. Thank you. Thank you, Mr. Kuribara. So this concludes our company's fiscal year 2023 Q2 press conference and briefing. Thank you very much for participating despite your busy schedule. Thank you.