Earnings Transcript for 8058.T - Q3 Fiscal Year 2022

Tatsuhiko Terada: Hello, everyone. This is Terada from IR. I'm the GM. Thank you for your valuable time today, despite your busy schedules. As it's time now, we will like to start Mitsubishi Corporation's Fiscal 2022 Q3 Results Briefing. First, let me introduce who is here with us from our side. We have Representative Director, EVP and CFO, Yuzo Nouchi; also the GM of Corporate Accounting, Yoshihiro Shimazu; and myself, the GM of IR, Tatsuhiko Terada. We have three of us here. We would like to now start. Over to you, Mr. Nouchi.

Yuzo Nouchi: This is Nouchi, the CFO. Thank you very much for taking time out of your busy schedule today to participate in our fiscal year 2022 Q3 results call. First, I will explain the progress of the mid-term corporate strategy 2024, including the highlights of the financial results for fiscal 2022 Q3. My part will be followed by Mr. Shimazu, GM of Corporate Accounting, who will explain the details. Please refer to the page on the material entitled results for the first nine months of fiscal year 2022, presentation materials. From this quarter, we have enhanced and improved the content of our results materials and also integrated supplementary information materials with the results materials, which used to be separately posted on our website. The contents corresponding to the conventional supplementary information materials are under supplementary information for consolidated financial statements and supplementary information by segment, but I will not be explaining them at this time. Now please turn to Page 3, which is numbered at the bottom right. First, I'll explain the summary of this quarter's financial results. Consolidated net income for fiscal 2022 Q3 increased by ¥311 billion from ¥644.8 billion in the same period last year to ¥955.8 billion. We were able to exceed last fiscal year's full-year record high profit of ¥937.5 billion as of Q3. Additional commentary by segment will be provided later by Mr. Shimazu. In addition to the steady progress leading up to Q3, we have also felt good response in Q4. Therefore, we have revised our full-year forecast upward from ¥1,030 billion announced in November to ¥1,150 billion, a ¥120 billion increase from the previous forecast. Despite headwinds such as inflationary cost increases, we recognize that profitability is steadily improving. Regarding shareholder return, we have raised our dividend forecast by ¥25 to ¥180 per share from the November forecast, and we will implement an additional share buyback of up to ¥100 billion. Next, on Page 4, which is numbered at the bottom right, I'll provide a supplementary explanation of the progress toward the profit targets in the Midterm Corporate Strategy 2024. Please refer to the dark blue portion of the bar graph on the bottom half of the slide under Midterm Corporate Strategy 2024 for this fiscal year's target of profit excluding price factors. We have revised the target to ¥730 billion, an increase of ¥80 billion from ¥650 billion, which was the outlook at the beginning of the year. We expect profit growth in automotive and mobility, industrial materials and other segments, and we have reversed our risk buffer of ¥40 billion by ¥30 billion taking into account, the reduced uncertainty and the remaining period of the fiscal year. Toward achieving our goal of ¥800 billion in fiscal year 2024, the final year of the medium-term management plan, we will continue to maintain and expand our earnings base and we will also accelerate investment in EX, DX-related and growth areas. Please refer to Page 5 on the bottom right. Now, I would like to explain our progress as of fiscal 2022 Q3 toward the cash flow allocation plan set forth in a Midterm Corporate Strategy 2024. Cash inflow for the period was ¥1.5 trillion, consisting of ¥1 trillion in cash flow from underlying operating cash flows and ¥0.5 trillion in cash flow from divestments. On the other hand, cash outflows included investments of ¥0.6 trillion resulting in an adjusted free cash flow of ¥0.9 trillion. Shareholder return that has been announced up until today a free cash flow of ¥0.9 trillion will be appropriately allocated to investments in growth to enhance corporate value and additional shareholder returns while maintaining financial discipline. Page 6, please. We plan to invest approximately for the medium-term under Midterm Corporate Strategy 2024. We plan to invest approximately ¥3 trillion over the next three-year period of which approximately ¥0.6 trillion has been already executed. Major investments include in the area of maintenance and expansion of earnings base, approximately ¥0.4 trillion invested in Australia metallurgical coal and Lawson-related businesses, and in the EX-related area, approximately ¥0.2 trillion invested in the Quellaveco copper mine and in the Eneco-related power generation business. Page 7, please. I will explain progress on the growth strategy defined as part of the Midterm Corporate Strategy 2024. In the past nine months, in addition to the maintenance and expansion of the earnings base, we had progress in the areas of EX-related, DX-related and the Regional Community Revitalization. A major progress was an acquisition of a new offshore wind power generation business in Northwestern Netherlands through Eneco during Q3. Lastly, I will explain about shareholder returns on Page 8. In line with the targeted total payout ratio of 30% to 40% defined under the Midterm Corporate Strategy 2024, we set the total return to shareholders at approximately ¥430 billion, taking into account financial soundness and market expectations for shareholder returns. We are increasing annual dividend to ¥180 per share, reflecting the steady growth of earnings. In addition, we have also decided to buyback shares worth up to ¥100 billion, which explains the difference between the dividend and the ¥70 billion share buyback announced in November. Progress on quantitative target is summarized on next page, Page 9. Please refer to it later. This concludes my brief explanation. Next, the business conditions are still unclear because of the slowdown in the world economy. We would like to accelerate our initiatives and increase the efficiency of the asset and increase the corporate value of the mid- to long-term. This concludes my brief explanation. Next, Mr. Shimazu, General Manager of the Corporate Accounting will go through the details.

Yoshihiro Shimazu: Hello. This is Shimazu, GM of the Corporate Accounting Department. I'd like to make a few supplementary comments on the detailed result for the first nine months of fiscal 2022. First, I'll explain Q3 results by segment. Please refer to Page 11 shown at the bottom right of the document. In Q3 of this fiscal year, seven out of 10 segments reported year-on-year increases in operating income or net income. I will now explain the segments with the largest increase in profit. First, Natural Gas. The first item from the top on the left side of the slide showed an increase of ¥30.5 billion from the same period of the previous year, mainly due to a decrease in dividend income in the LNG-related business and an increase in equity and earnings of LNG-related businesses, despite the impact of losses on transactions in the marketing business. Mineral Resources, net income increased ¥137.1 billion year-on-year, mainly due to higher market prices in the Australian coking coal business. Now moving on to the right half of the document. Automotive and Mobility recorded an increase of ¥33 billion from the same period of the previous year, mainly due to increased equity in earnings of the ASEAN automobile business and Mitsubishi Motors Corporation. Finally, urban development, which recorded gains on a sale of a real estate management company in the first quarter, reported an increase of ¥86 billion from the same period of the previous year. Next, I'd like to explain the outlook by segment. Please refer to Page 12 on the lower right. Please move on to Page 12. We have revised our full-year forecast upward by ¥120 trillion from ¥1.03 trillion announced in November to ¥1.15 trillion. By segment, out of 10 segments, eight segments had upward revisions. Let me now explain about three with larger revisions. First, on the left hand side of the material, the first item is Natural Gas. That revised up ¥38 billion to ¥170 billion due to increased earnings and dividend income from the LNG-related business. Next is Integrated Materials, due to increased earnings from the North American plastic building materials as well as in the steel business, the business revised up ¥10 billion to ¥62 billion. Next is Mineral Resources. Due to higher earnings from the Australian metallurgical coal business, the business revised up by ¥43 billion to ¥442 billion. Finally, please see Page 13. This is a reference material or market assumptions. From this time on, in addition to actual prices of metallurgical coal, we are listing actual and forecast prices of iron ore and impact vis-à-vis the full-year earnings forecast. Please refer to the details later. This concludes the presentation from the company side. With this, we would like to conclude the company's presentation.

A - Tatsuhiko Terada: We will now move on to the Q&A session. As usual, we would like to receive one question at a time and a maximum of two questions per person. [Operator Instructions] So at this point in time, you are ready to speak and please identify yourself by the name and affiliation. Please refrain from asking questions on specific items of the financial statements. Our IR team would like to answer those questions offline. This meeting is until 6

Akira Morimoto: This is Morimoto from SMBC Nikko.

Tatsuhiko Terada: Yes, we can see. Thank you.

Akira Morimoto: Thank you for your explanation today and also regarding disclosure and your efforts to enhance and improve it. Thank you very much. I'd like to extend my gratitude. So – because you're taking one question at a time, here's my first question. So regarding dividends, you increased it to ¥180 a share, but can you talk about the reasons why and the backdrop leading to this? For example, excluding market factors, you were able to see an ¥80 billion increase when you referred to the materials for profits, but what about its sustainability? Are you confident about – what sustainability and therefore you set it at ¥180? So that's my first question. Why is it ¥180?

Yuzo Nouchi: Yes, I would like to take that question then. Thank you very much for your question. In the middle of the fiscal year, we raised our dividend by ¥5 to ¥155 and at that point in time, regarding further earnings growth, we wanted to make sure where it was headed. And basically, we are following the concept of 30% to 40% of the payout ratio raised in the Midterm Corporate Strategy. And during this midterm plan period, we wanted to continue on with our progressive dividend policy. So that is the reason why. So to answer your question Morimoto, as you rightly pointed out, in a sustainable way, we thought that our earnings can grow by a certain degree. So profit independent of market factors. Rather than looking at that, it's more about resource prices and FX, it's profit after making some adjustments, which we look at one piece of reference. Of course, it's not just about resource prices. There are other types of market factors that we are susceptible to, but the market volatility is the greatest impact we receive. So we made some adjustments and we look at how much of a magnitude it is. Of course, there are one-off factors, market factors that we are impacted by, but the degree of the dividend increase is one where we have confidence in; two, continue on with our progressive dividend policy. So it was a comprehensive decision made in making decisions on a dividend hike. So we believe this level is one where we can continue on with our progressive dividend policy. So that's what we looked at. For total return, the range is 30% to 40% that we've committed to. And like we said at the interim period, what we commit to is something we would need to protect. Based off that, whether upon deciding on the total shareholder return, the rest has been allocated to share buybacks. I hope that answers your question.

Akira Morimoto: Yes, it does. Thank you. Here's my second question. For this fiscal year and the way you look at your performance in Q4, when you do the math up until Q3, after the upward revision and the progress made by segment, it seems that if you just do the math, it's going to be a sudden drop off or in other areas in segments you have already achieved your full-year plan. There's many of them. You were saying you had reversed a buffer, you reversed 30, which was 40 and you still have 10 left. So when you think about that, in what way are we going to see the fourth quarter unfold? What are your assumptions and what is the probability? And if you were to exceed and beat your expectations, is the total return ratio of 38% going to be the base off, which, we should apply in trying to determine your policies? You were saying the buyback is going to be until April 30, so it really makes us feel that there's going to be some more coming, but what are your thoughts?

Yuzo Nouchi: Well, for the fourth quarter towards ¥1,150 billion for the year, we have made 83% progress as of Q3. So three quarters is 75%, but we've already exceeded that level progress rate wise. And the three-month outlook is going to be about ¥195 billion. And you were saying that that maybe conservative. As a risk buffer, we still have about ¥10 billion in place, but of course, the remaining period is less than three months now. So uncertainty, you never know what's going to happen until the end of the year. So that buffer will be able to handle what may happen. And also in Q4, we would like to ensure that we will take care of any uncertainties if there is a need. So when you think about all of these aspects, it's not as if we are super conservative in guiding Q4, and we're also not expecting profits to drop off substantially either in the revised outlook of ¥1,150 billion. That is something that we would like to achieve, but of course, you never know what's going to happen in the balance of the year, but we would like to make efforts so that we can achieve the guidance. And of course, depending on the circumstances, we might be able to beat our expectations. For return, are you committing to 38%? Was pretty much what you were trying to get at in your question. But our basic way of thinking is like explained progressive dividend policy, total return ratio, and we look at the range of 30% to 40% that we raise in the Midterm Corporate Strategy, and it should be in that range. So we're not committing to that single number of 38%. And of course, going forward for dividend hikes, returns and what we're going to do in Q4. At this point in time, we are not going to rule out any options, but we will like to think about the future. Thank you.

Akira Morimoto: Thank you very much. I understood you very well.

Tatsuhiko Terada: The next question is from Nomura Asset Management [indiscernible], please. If you don't mind, please turn on your camera and ask the question.

Unidentified Analyst: Thank you very much. From Nomura Asset, my name is [indiscernible]. I'm sorry, my video is not functioning, so I can't turn it on.

Tatsuhiko Terada: That’s okay.

Unidentified Analyst: The first question, this maybe minor detail, but Eneco until Q2 there was a huge loss, but from Q3, it turned out to – the profit. This year – this fiscal year, it seems that the Eneco as a company is going through tremendous volatility for Q2, ¥3 million, 16.2 in Q3, it's positive ¥14.9 billion. So why is the volatility, and do you accept such kind of volatility? Or are you thinking about anything to do in order to stabilize the profitability towards next year?

Yuzo Nouchi: Thank you very much for your question. Regarding Eneco. It's true. In the Q2 and Q3, there was a significant volatility. Especially, for this fiscal year, the energy prices during the fiscal year compared with normal years, the volatility is much higher. That is one reason. And in the case of Eneco, renewable energy power generation is a large part of their business. So the wind conditions also was another factor. That's why we had a negative profit number for Q2. On the other hand, for Q3, and also going forward coming Q4, well normally – relatively Q1 and Q2 are low and the Q3, Q4 profit will be higher. That is the normal seasonality pattern. And that itself has not changed so significantly. But as you pointed out the volatility maybe high. Last year there was a Russian/Ukraine issue and also energy prices in Europe compared with normal years, the volatility is higher. So this is one factor that is impacting the performances of energy companies in Europe. Not only Eneco and Eneco is also affected by those situations. In total, Eneco’s profitability, earnings power has been improving steadily. That is the perception that we have. Therefore, as the core company, core business in EX, we would like to position Eneco continuously.

Unidentified Analyst: Thank you. My second question is about food industry and consumer industry? For these businesses, there are lots of downstream businesses and what is the inflation impact? The electricity prices are going up, especially from the next year. So from next year, how do you anticipate the increase in cost? Or is it from next year or when you make the plans? Is it something that you are paying attention to? When you are budgeting for these businesses?

Yuzo Nouchi: Regarding food and consumer businesses. For both of them, as you pointed out, the cost increase impact from inflation is relatively negative compared with other areas. That is true. In fact, for the third quarter – up until the third quarter, this fiscal year, if you look at the performance in the food and industry group, until Q3 we had a ¥68.5 billion. In other segments, up to Q3, they have seen increases in profits. But to a certain extent there was a decline year-over-year, exactly ¥2.8 billion except for Cermaq and others, which is still performing well or performing strongly than – more strongly than other eight years. The grain cost price is affecting the feed business, especially Nosan Co in Japan and IPC. Nosan Co is a livestock business in Japan. Well, the question I think is related to whether the situation continues until next year and whether the electricity prices are going up. I think when it comes to electricity prices, well, on the other hand, retail power price going up is happening from now. However, for business-to-business, enterprise electricity prices has gone up to a certain extent already. Of course, electricity prices and other cost, which are staying at a high level, should continue going forward. But weather that is affecting our business significantly or not, I don't think so. We don't think that way. So in these areas, how we can pass on the cost increase to – on the pricing is one question or another question is how much we can drive down the cost. So on a day-to-day basis, these are the things that we are working on in an operation, therefore, so that we can absorb some of the increasing costs. So we believe that we can observe those cost increases to a certain extent towards next year. Thank you very much.

Unidentified Analyst: Thank you very much. I understood. That's all the questions for myself. Thank you very much.

Tatsuhiko Terada: The next person is from Daiwa Securities, Nagano. Please turn your camera on, if you don't mind before you ask your question. Thank you.

Masayuki Nagano: This is Nagano from Daiwa. Thank you for taking my question. Yes, we can see you very well. Thank you. I also have two questions. Well, both of them are regarding segments. The first one, in Queensland and the impact of the coal because of the heavy rains seems that there is some impact on volume as well as at the ports as well as at the mines. But in your operations for ports as well as the mines, what is the impact like? And towards next fiscal year, what is the image of production volume? That's my first question.

Yuzo Nouchi: I'd like to take that question. Exactly, as you rightly pointed out, the heavy rain impact has been impacting MDP as well because of the torrential rains in Queensland. Of course, it really is specific to certain areas as well as a certain ports, but as we speak, coking coal prices are still going up. So – because supply overall is currently limited, prices are going up. So for volume it has been impacted by a certain degree. But on the other hand, fortunately, regarding ports facilities, there are some ports that are affected greatly, but relative to that, the ports that we are using, although they are being impacted, the impact is not that great, which was fortunate. So the outlook for next fiscal year at this point in time is, it's a matter of – we're not really able to foresee what's going to impact us next year. But regarding productivity gains and improvements, this is something that is being conducted on a daily basis, but when it comes to the weather, this is something we can't really control. So if something were to happen like that, of course, we've liked to ensure that we could absorb the impact by a certain degree and that's what we are working on every day. And from the field or at the mines at the job sites, we are hearing that they are working on it. So even if there is a weather factor, hopefully the impact can be minimized through our efforts. Thank you. Regarding production volume, of course, for weather, this is something we can't control, and I understand it's difficult to foresee. But the reasons why production volume was weak this year, is this pretty much attributed fully to weather? Yes, yes. Basically yes. There's no other special factor. For example, strikes. There were some concerns at one point, but more than we thought the impact was limited and we were able to go beyond it. So the production volume decline is pretty much due to weather conditions.

Masayuki Nagano: Okay, got it. And also for the ports for Dalrymple Bay, it seems that it's not that impacted, but for Hay Point that BMA utilizes it's close by, but the impact was small. Is that the case?

Yuzo Nouchi: Relatively speaking, but it has been impacted by a certain degree, but we have been hearing that one of the four facilities have been impacted heavily. And BMP is close by to the ports that were mentioned. But I'd like to keep my comments there.

Masayuki Nagano: Okay. So moving on to the second question for nat gas. This time around, you have revised up the full-year forecast substantially, so I think the trend is favorable. So regarding the factors, why, as well as its sustainability, when you think about next fiscal year, how much earnings power do you think that the Nat Gas Group has?

Yuzo Nouchi: For natural gas, the reason why we did the upward revision was natural gas, but in reality, whether it be the third quarter, spot prices were trending high. Basically, we conclude long-term contracts for the majority of contracts. But production volume, we were able to make more, which we were able to sell more of. So compared to our assumptions, we have been able to generate better profits. And in Q2, in our trading business, there were some missed opportunities, but this also already has been taken care of, and we have been able to respond to what has happened. So our fundamental earnings power has been improving for this business. For next fiscal year apart from our outlook, I would like to say that for natural gas, its earnings power is steadily improving. That is the feel we have. But including long-term contracts, when it comes to price volatility, this is something that happens, which is hard to control. And what's most important is, and production of the project to ensure that production is steady. So that is part of the business that we would like to address, which will allow us to capture the upside when prices go up. So I think that's where we are. That's it for me. Thank you.

Masayuki Nagano: So you're headed towards that position, meaning for Q1 and Q2, for this fiscal year. For transactions with Europe and spot volume there were some areas where production was weak. Was that the case? Because you were saying you were making more and you're seeing an improvement in production volume and for the transaction in Europe and the issues you faced, it's pretty resolved, which means that is the starting point going to be higher for this business next fiscal year?

Yuzo Nouchi: For trading losses, this already has been taken care of, and we're not expecting something similar to happen next year – next fiscal year. So yes, that wasn't the upside we were able to capture. For production volume, project-by-project, we have been optimizing and for Q3, additional production has been realized. So for next fiscal year onwards, we believe we are at a point where we could meet expectations. And personally, I have good expectations towards this business as well.

Masayuki Nagano: Thank you. Well understood.

Tatsuhiko Terada: Thank you, Mr. Nagano. Some supplementary comment. In Europe, rainfall has been increasing overall. So irrespective of specific industry, there are some impact in different industries. So next question is from Narita from Nomura Securities. If you don't mind, please turn on your camera?

Yasuhiro Narita: Thank you. This is Narita from Nomura Securities.

Tatsuhiko Terada: Your image is not right.

Yasuhiro Narita: Sorry, I'm trying.

Tatsuhiko Terada: It's okay now.

Yasuhiro Narita: I'm sorry about that. There are two points. The first one is about the metal resources, the breakdown in Q2, Q3. MDP they had higher profit despite the lower pricing and the [indiscernible], the losses are increasing. So there was a significant change in Q3 from Q2. So what were the factors behind it? Could you explain about the factors?

Tatsuhiko Terada: Yes, Narita. You talked about the metal resources.

Yasuhiro Narita: I talked about the MDP and [indiscernible] vehicle.

Tatsuhiko Terada: Okay, for both of them. So for MDP, Mr. Shimazu, Manager of Corporate Accounting will answer.

Yoshihiro Shimazu: Yes. This is Shimazu from Corporate Accounting. For MDP from Q2 to Q3, I like to explain about the changes. The actual for Q2, ¥42 billion, and in Q3 we had ¥59.8 billion. The changes from Q2 to Q3 was about ¥18 billion, positive movement by factor. The pricing and the loyalty was minus ¥7 billion; and volume and cost was positive ¥17 billion; foreign exchange rates positive ¥3 billion; and others positive ¥5 billion. So as you pointed out from Q2 to Q3, if you only look at the index, Q2 was 250 and Q3, it was $278. So if you only look at the dollars and then index, it looks like it's going up, but the actual selling price is not necessarily linked to index. Therefore, in terms of the pricing royalty from Q2 to Q3, was negative ¥7 billion. Regarding vehicle, I would like to answer your question. Already in production. From July last year, we had already commenced the production. And in September from the authorities, the license was issued, and we started the commercial operation, and we started shipping in October last year. It's not the full capacity production yet. There is a time lag of three months continuously. So that's part of the reason. So up to Q3, we incurred cost, but not the sales yet. So for Q4, there are certain profits that we are already expecting at a reasonable level. So that's why in the revised plan, we have fully taken that into consideration. In terms of the full capacity production, it will happen in the second half of FY2023. So this is something that can benefit the next year's performance. So we have a very positive expectation from that, and we can expect considerable contribution from that.

Yasuhiro Narita: Thank you very much. My second question, well, this time you have announced the share buyback and dividend increase in line with the market expectation. I saw that phrase in the statement. And in your outlook for the performance, the profits independent of the market factors, you said that it was ¥730 billion. How can I interpret that? You said that the next year there are still uncertainties, but when it comes to FX and the resource prices, all of these upside factors will not be gone next year, therefore, ¥730 billion, is this the normal normalized level for the company already? So if the market factors, some of them are still remaining, maybe you can achieve ¥800 billion or so, or is ¥730 billion just the bottom up numbers of different factors. So how did the each segment decide their forecast? It's difficult to see from outside. So if you could give us supplementary comment on ¥730 billion that would be great.

Yoshihiro Shimazu: Yes. The bottom up number of ¥730 billion, it's not a complete bottom up number. So when we talk about the company's capability or normalized level, it is misleading. So when we look at the resource prices and the FX rates, so it's the profit after the adjustments of the resource prices and the FX rates. So during the mid-term period – midterm plan that we have this time. So what is the normalized level? That's not always the normalized level. There are some price or market factors as well as one-time factors included. Some of them are included. But the biggest factor of volatility is the resource price fluctuation. So at a certain resource price levels and FX levels, we have made some assumptions as benchmark. And then that is reflected and towards the end of the final year of the MTP, we are trying to reach that level, so that we can make an overall improvement in profitability or earnings power. By doing so, the current progressive dividend scheme, while is continuing with that, we would like to increase the level of increase year-by-year under the progressive scheme. So you are asking about the reasons for the increase. It's not that we are intentionally increasing that. So one of the reasons for the increase is that, well also there was a risk buffer that we secured in the beginning because we only have several months to go for this fiscal year, so we put back some of it. And also the resource prices are increasing, however, the volume wise, they are working towards the other way around between price and volume. But we took that into account and there were some negative factors included. But other than those for the auto and also industrial materials for those areas compared with the original expectations as we tried to make upward revision of ¥120 billion and as we looked into the content and break up, then we realized that the profit or profitability earnings power of these sector is increasing. So based on that with the certain assumptions we announced the changes. These are not absolute level, but it can be one reference level where we think about whether the earning power is getting higher or not. This is one of the indicators that we can look at when we think about that. So that's how we have conducted analysis internally this time.

Yasuhiro Narita: Thank you. Well, I'm curious, you increased the dividend this time, but it's not that you are increasing the dividend unless there is no increase in profit. Well, how important is it?

Yuzo Nouchi: Well, it depends on the reasons, breakdown of the profit. In the beginning as Mr. Morimoto asked and as we answered, well, this time we decided to increase the dividend because the basic progressive dividend scheme as we tried to maintain that scheme. And then while maintaining that, how much dividend increase we can make, that's the question that is always in our mind. And as we thought about it, we decided to raise the dividend at a certain level and because we were confident that with that level we can maintain the progressive dividend scheme. So as we thought about it, the profit independent of the market factors, that is something we always look at. Thank you.

Tatsuhiko Terada: So next question is from UBS Securities, Goroh. If you don't mind, please turn on the camera and go ahead with your question.

Harunobu Goroh: This is Goroh from UBS Securities. Thank you for taking my question. Thank you. Well, related to what's been discussed is my first question. So profits independent of market factors by 2024, you would like – you're aiming for ¥800 billion and the lead up to that. Earnings contribution was large from some businesses this quarter. When you look at the quarterly trends, automotive and mobility is a good example, but it seems that from the first half going into second half, we were seeing some decelerating trends maybe due to economic deterioration. Is that your view? Or is it just simply seasonal factors for each segment? So for fiscal 2023, as we head towards next fiscal year in order to increase profit independent of market factors, which segments are going to contribute? Can you comment on that together with the momentum you've been observing for the segments for this quarter?

Yuzo Nouchi: Thank you very much for your question, Goroh. As you rightly said, there are some one-off profits as well, so that needs to be taken into account, but for a normalized underlying profit for some of the segments. When you think about the economy or this fiscal year, from the beginning of the year, rate hikes started in Europe and the U.S. and inflationary trends have taken off leading to people talking about the deceleration in the economy. It hasn't materialized as much. That's how we feel, but the slowdown in the economy has been a factor that maybe materializing in some areas. But going forward, we need to continue to closely watch the trends to see how things unfold. There are some segments that are more susceptible on a relative basis to the economy. However, in the medium-term value plan, we would like to engage in value added cyclical growth, such as replacing our assets. So for those projects that don't exceed our hurdle rate or have been slowing down, we would like to consider divestments. And also we would like to concurrently ensure that we recognize capital gains to harvest in our past investments. So if the economic sentiment were to worsen, and if there were some businesses where earnings power is declining, we would like to ensure that we are able to offset those trends with other parts of the business. But of course, timing is important as well. So on a fiscal year basis, I'm not sure if we can continue to see this grow in a linear way. But going back to Narita question, but profit, excluding independent of market factors may fluctuate as well. But over the longer term, we would like to ensure that it continues to grow. And during the mid-term period, we would like to manage to reach ¥800 billion. In order to achieve that, we will be implementing various initiatives.

Harunobu Goroh: Thank you. My second question is a question as well as a request at the same time. Regarding the breakdown of investments for EX, you have included ¥60 billion for Eneco, but you were talking about the volatility of Eneco earlier, but in your EX strategy for core companies that you invest into, I think there's various elements of investments. For example, offshore wind power generation in the Netherlands, that was covered in the press as well as the President and media has been talking about green hydrogen opportunities, and I think that is also included in investment plans as well. So instead of saying profitability maybe fluctuating every year, how are you going to go up the steps? It's kind of hard to get a better picture. So can you talk about – give more flavor on the investments that you are going to make or making, and towards 2030 in your long-term vision as growth drivers, how is your allocation like, and which part or how much of investments are going to be in the nature of sowing the seeds for the future? So it was a question as well as a request at the same time, allocation to increase your profit as well as sowing the seeds for the future.

Yuzo Nouchi: So the answer is, regarding EX, over the course of the mid-term plan, we are planning to invest ¥1.2 trillion. And as we have in the materials, it's not just for Eneco and apart from what's noted here in North America, our power generation business opportunities, our employees and also LNG-related investments are included in this budget as well. Apart from that, regarding future investment plans, including our commitments, we have accounted for that in this plan. So in order to respond to your request about raising visibility, I think that's what you're trying to get at. We will consider your request. Thank you.

Tatsuhiko Terada: Thank you very much. For EX-related, as the CFO just explained for copper, HKW and offshore wind power, we are working on those. So when the time comes, we'd like to give you more details going forward. We still have some time left, so if you have any questions, please raise your hand. Thank you very much. I see hand from Tokai Tokyo Research Center, Kuribara. The floor is yours. Please turn on your video if you don't mind, please.

Hideaki Kuribara: This is Kuribara speaking. Can you hear me?

Tatsuhiko Terada: Yes, we can hear you. Thank you very much for your question.

Hideaki Kuribara: Yes. You may have already mentioned this, but for the fourth quarter, the end of the year, last year there was ¥80 billion year one-time loss. You had accounting process and this year, I'm sure that you will be looking at the asset. But in terms of the amount, I don't think that there will be another one-time loss to be recorded this fiscal year?

Yuzo Nouchi: Well, at the moment, we wouldn't have three-digit [indiscernible] level or two-digit billion level asset impairment or such significant impairment this fiscal year. We are not planning that. Last year, well for any asset with any concerns, we thought that we should take care of them as early as possible. That was the stance last year. And for this fiscal year, for the assets with any concern we have already taken care of those pretty much. But if there is any left, we would like to do so. But even if we do so, the amount would not be as large as last year. Of course, if there is anything that comes up and then we wouldn't hesitate to record such accounting item.

Hideaki Kuribara: Okay. Going to the second question about the auto and the mobility. The business is going well, as I understand, and there is a shortage of semiconductors and that led to the shortage in products. That means, your profits are stable because of that. Is this trend is still going on? And how do you see the trend going in the future?

Yuzo Nouchi: For the auto and mobility business? Yes, the business is doing very well for this fiscal year and in Thailand, in Indonesia, the business so far has been strong. We have hit the record high in history as Kuribara as you suggested. In terms of the volume – sales volume, there isn't such a tremendous growth. However, we are seeing a very positive growth in the profitability of each car sold. It is because of the demand supply situation partly, and also it is because of the cost reduction efforts that we are making during the COVID-19 pandemic and that is turning out to be very effective. So we believe that this initiative is going to have a positive effect continuously. On the other hand, in terms of the demand supply situation, as the gap is being addressed in terms of the profitability. For this fiscal year compared with the past, we had high level profitability. So in the future there maybe some negative repercussion. But we would like to cover up for that by increasing the efficiency in our sales.

Hideaki Kuribara: Understood. Thank you.

Tatsuhiko Terada: Thank you very much, Kuribara.

Yuzo Nouchi: Thank you very much. It's time. So we would like to wrap up the Q&A. Just one point I want to add, Morimoto at the very beginning asked about the duration of the share buyback at the ¥70 billion announced in November. For that in the middle of this month 15, we are going to finish that program earlier than planned. And other than that the new share buyback plan of ¥100 billion at the maximum will be started. And by the end of April, we would like to finish that program. Thank you.

Tatsuhiko Terada: Thank you very much for taking time out of your busy schedules today to attend our Financial Results Briefing for Q3 FY2022. This concludes the briefing. Thank you very much. Thank you for your participation.