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Earnings call: Mitsubishi Corporation reports robust FY 2023 earnings

EditorNatashya Angelica
Published 05/06/2024, 12:46 PM
© Reuters.
MSBHF
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Mitsubishi Corporation (MC) has reported a consolidated net income of CNY 964 billion for fiscal year 2023, marking the second-highest earnings in the company's history. Looking ahead, the corporation anticipates a net income of CNY 950 billion for fiscal year 2024.

The dividend for the upcoming fiscal year will see an increase to CNY 100 per share, up from CNY 70 in the previous year. Mitsubishi also discussed their strategies to stabilize their metallurgical coal operations and plans for growth through investment in new opportunities.

Key Takeaways

  • Mitsubishi Corporation announced a consolidated net income of CNY 964 billion for FY 2023.
  • For FY 2024, the company expects a net income of CNY 950 billion.
  • Dividend per share for FY 2024 is projected to be CNY 100, a CNY 30 increase from FY 2023.
  • The company plans to focus on reinforcing current businesses, enhancing investments, and accelerating growth through new opportunities.
  • Mitsubishi aims to achieve profit levels exceeding CNY 1 trillion and is working on stabilizing metallurgical coal operations over the medium to long term.
  • Capital efficiency and shareholder returns are under consideration, with additional investments being evaluated.
  • Operating cash flows and divestiture collections are expected to provide ample cash inflows for FY 2024 and 2025.

Company Outlook

  • Mitsubishi Corporation is aiming for a sustainable income of CNY 1 trillion to support dividend payouts and future investments.
  • The company is adopting a value-added cyclical growth model for the next mid-term strategy.
  • Investments will focus on maintaining and growing income, with a disciplined approach to investment decisions.

Bearish Highlights

  • The metallurgical coal business and automobile production volume in Asia are facing challenges.
  • Environmental energy segment may see a decline due to market and pricing factors.
  • Some segments are expected to experience a profit decline compared to FY 2023.

Bullish Highlights

  • The company is considering expanding LNG projects in Canada, Cameron, and Australia.
  • Mitsubishi has won three domestic offshore wind projects in Japan and is currently developing them.
  • There are plans to offset cost overruns with additional revenue from strategic components.

Misses

  • No specific numbers were disclosed regarding one-off profits included in the FY 2024 guidance.
  • The fundamental trend for S.L.C. and food industry segments is profit growth, but other segments may see a decline.

Q&A Highlights

  • In response to Nomura Securities' inquiry about the weak plan for the year, Mitsubishi stated that the volume for FY 2023 was just over 37 million tonnes and is expected to be flat for FY 2024.
  • The company addressed questions about its underlying earning capability, stating that the CNY 730 billion mentioned in the guidance does not reflect the true earning capability.
  • Mitsubishi discussed the sustainability of dividend payouts and plans to improve financial soundness.

Mitsubishi Corporation's earnings call highlighted its strong performance in FY 2023 and its strategies for maintaining growth and stability in the coming years. The company's focus on disciplined investment and capital efficiency, along with its expansion plans in the LNG and renewable energy sectors, demonstrates its commitment to driving future growth.

Despite facing some challenges in specific segments, Mitsubishi Corporation is optimistic about its ability to achieve a sustainable income and provide ample cash inflows through operating cash flows and divestiture collections. The corporation's forward-looking approach and strategic investments are set to shape its performance in FY 2024 and beyond.

InvestingPro Insights

Mitsubishi Corporation (MSBHF) has demonstrated a robust financial performance, with a notable increase in its dividend, reflecting a commitment to shareholder returns. The company's strategic focus on stabilizing operations and pursuing growth through new investments is evident in its financial metrics and market position.

InvestingPro Data metrics reveal a market capitalization of $94.17 billion, underscoring Mitsubishi's significant presence in the market. The P/E ratio stands at 15.94, which may be attractive to investors seeking value in the current market environment. , the company has maintained a stable gross profit margin of 12.06% over the last twelve months as of Q4 2024, indicating a consistent ability to manage its cost of goods sold relative to sales.

InvestingPro Tips highlight Mitsubishi's high shareholder yield and a history of raising its dividend for 7 consecutive years, with dividend payments maintained for 33 consecutive years. This track record of dividend reliability is a strong signal for income-focused investors. Moreover, analysts have observed a high return over the last year, with a 1-year price total return of 86.74%, which may interest growth investors.

For investors looking for more insights, there are additional InvestingPro Tips available, including analysis on sales projections and gross profit margins. These tips provide a deeper understanding of Mitsubishi's financial health and market position. Access these insights and more at https://www.investing.com/pro/MSBHF, and don't forget to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

Full transcript - Mitsubishi Corp (MSBHF) Q4 2023:

Takuma Okamoto: Thank you all for taking time out of your busy schedule today to participate in our fiscal year 2023 financial results briefing for Mitsubishi Corporation. I am Okamoto from the Corporate Communications Department of Mitsubishi Corporation, and I will be your moderator today. We are pleased to welcome journalists, investors, and analysts to this briefing, which is held both in person and online. At 1:00 p.m. today, we have announced our financial results for fiscal year 2023 on our website. At the beginning of the presentation, Katsuya Nakanishi, President and CEO; and Yuzo Nouchi, CFO, will give an explanation. After that, we will have a Q&A session with the press until 2:00 p.m. Tokyo Time. A Q&A session with investors and analysts is scheduled from around 2:15 p.m. to 3:00 p.m. Thank you very much for your cooperation. Let me begin by introducing our presenters. The second person from your right is Katsuya Nakanishi, Representative Director, President, and CEO. To Nakanishi's left is, Yuzo Nouchi, Representative Director, Executive Vice President, and CFO. To the right of Nakanishi is Kenji Kobayashi, Executive Officer, CSEO. To the left most is Yoshihiro Shimazu, Executive Officer, General Manager of Accounting Department. So there will be four presenters. As a reminder, if you wish to take pictures, please do so from the camera stand in the back of the room or from the left and right sides of the room. If you wish to take photos at the front of the venue, please keep your photos within the line above your feet. Thank you for your cooperation. So President, Nakanishi, please start.

Katsuya Nakanishi: [Interpreted] Hello. I am Mitsubishi Corporation’s CEO, Katsuya Nakanishi. Thank you for joining us for our company's FY 2023 earnings briefing. I will start by reviewing our FY 2023 earnings results, followed by the outlook for FY 2024, and then the highlights of our returns to shareholders. Please refer to page three on the presentation materials. Consolidated net income for FY 2023 was CNY 964 billion. This represents an increase in earning power, even when excluding special factors such as rising commodity prices and post-pandemic demand rebound, which we took advantage of. This is our second highest ever net income result, after the record high we achieved in FY 2022. In FY 2024, we expect consolidated net income to be CNY 950 billion. I will explain in more detail later. Both the metallurgical coal operation and the Lawson [ph] business are expected to generate sizable profits in the coming fiscal year. At the same time, the special factors I previously mentioned is expected to taper off, and as a result, we expect FY 2024 profits to remain at the same level as in FY 2023. To achieve our company's next stage of growth, we will focus on the following. Reinforcing our current business; enhancing investments underway; and accelerating our growth by developing new investment opportunities. I would like to talk about shareholder returns. During the current fiscal year, we have taken into consideration the growth in earning power, the increased predictability of cash flows, and continued dialogue with stakeholders. The dividend for FY 2024 will be CNY 100 per share, an increase of CNY 30 from FY 2023, while maintaining the progressive dividend policy. Next, please refer to page four in the materials. Mitsubishi Corporation's earning power has steadily increased over the past few years, even when excluding the special factors such as rising commodity prices and post-pandemic demand rebound. As shown on this chart, our profit level has increased compared to the previous midterm strategy period. Beyond FY 2024, we will reinforce our current operations, enhance investments underway, and accelerate our growth by developing new investment opportunities. In order to achieve profit levels exceeding CNY 1 trillion through our value-added cyclical growth model. In addition, I would like to comment on the metallurgical coal operation, which is part of our reinforce portfolio. The operation has been challenged by labor shortages since the pandemic and record-breaking rainfall. Since FY 2023, we have been taking measures to stabilize the operation on a medium to long-term basis. For this reason, FY 2024 production volume is anticipated to be approximately the same level as FY 2023, excluding the two coal mines we sold this year. As a result of these divestments, which were completed in April this year, our metallurgical coal mines have been consolidated into the world's highest-grade assets. These high-grade metallurgical coal mines are expected to contribute to productivity improvement and the reduction of GHG emissions in the blast furnace steelmaking process. These high-grade coal resources are highly scarce and are expected to increase in profitability with growing demand for decarbonization of blast furnaces and with further economic growth in India. For FY 2024, we will focus on implementing measures to stabilize our operations on a medium to long-term basis as part of reinforce. Next, please refer to page five in the materials. I will highlight some projects which will under Reinforce, Enhance, and Accelerate. With regards to Reinforce, in addition to our metallurgical coal business, which I already mentioned, our Automobile, Salmon and Trout, and incumbent LNG business contribute a large portion of our profit. We aim to maximize the value of these businesses and all other existing projects and will work to strengthen our core businesses. With regards to Enhance, here we include the startup of LNG Canada as well as the collaboration with KDDI (OTC:KDDIF) to Enhance Lawson's corporate value. We will steadily ramp up these projects to ensure we maximize profitability. With regards to Accelerate, here we include investments in mineral resources for electrification, other initiatives related to our EX strategy, urban development and management, as well as strategic investments that lead to the creation of MC Shared Value. We are targeting businesses that are expected to drive growth. With careful consideration of macro and microeconomic factors as well as a time of horizon for returns, we'll pursue new investment opportunities for our company, maintaining our investment principles. Next, please refer to page six. As part of a strategic rebalancing of our business portfolio, in FY 2024, we consolidated our highest-grade metallurgical coal operations with the divestment of two mines, as I mentioned earlier. As for the asset replacement plan, the cumulative effect up to FY 2023 was approximately CNY 60 billion against the baseline of FY 2021. In addition, as in the case of Lawson and Nexamp, the U.S. power generation business, we implemented flexible capital structures and invited optimal strategic partners to accelerate growth. Next, please refer to page seven. As I explained earlier, we revisited the balance between dividend payouts versus share buybacks, in light of our increasing earning power and cash flow predictability, as well as through continued dialogue with our stakeholders. As a result, while maintaining the progressive dividend, the dividend amount will be raised to CNY 100 per share. The planned dividend amount is notability high considering our focus on Reinforcing, Enhancing, and Accelerating our businesses beyond FY 2024. However, we believe it is reasonable to pursue new investments and maintain the financial soundness of the company while sustaining this dividend level. With this, I conclude my commentary and will pass on to our CFO, Nouchi, for his comments.

Yuzo Nouchi: [Interpreted] I am Yuzo Nouchi, Mitsubishi Corporation CFO. I would like to give some supplementary commentary regarding the financial results. Please look at page nine. In FY 2023, we achieved the highest ever net income result in our natural gas, industrial materials, industrial infrastructure, automobile, and mobility and power solution segments. Also, as announced in Q3, FY 2023, total shareholder returns reached a record high of approximately CNY 890 billion after we made additional returns of CNY 500 billion. As for the outlook of FY 2024, while we expect sizable gains from asset sales and revaluation respectively, we expect a slowdown in the natural resource business, and therefore, we anticipate forecasted consolidated net income will be CNY 950 billion, the same level as FY 2023. As for shareholder returns, as explained by our CEO, Nakanishi, the dividend per share will be CNY 100. For details by segment, please refer to pages 14 and 15. Next, I will discuss the progress of our execution against the cash flow allocation plan set forth in our 2024 Midterm Corporate Strategy. Please refer to page 10. Cash inflows for FY 2023 consisted of CNY 1,178.5 billion in underlying operating cash flow and CNY 762.8 billion in cash flow from divestments. At the same time, investment cash outflows were CNY 968.6 billion. This resulted in adjusted free cash flow of CNY 972.7 billion. Under our 2024 Corporate Midterm Strategy, the total cumulative underlying operating cash flow is CNY 2.5 trillion. Cash flow from divestments totaled CNY 1.5 trillion. Both are progressing as planned. Total cumulative investment cash outflows as of March 31, 2024 was CNY 1.9 trillion, which is in line with our original plan. Total cumulative adjusted free cash flow is CNY 2.1 trillion. After deducting cumulative shareholder returns of CNY 1.7 trillion, free cash flow is CNY 400 billion. For details of the investment plan and progress of quantitative targets, please refer to pages 11 and 12. This concludes my explanation. With this, we would like to conclude our presentation. The Q&A session with investors and analysts will resume at 2.15.

A - Shigetaka Akamatsu: We will now begin the Q&A session for investors and analysts. I am Akamatsu from the Investor & Shareholder Relations Department, and I will serve as the moderator. Each of you may ask up to two questions at a time, and please present the two questions at the same time. If you have a question, please raise your hand on the Zoom (NASDAQ:ZM). When your status on the Zoom changes to panelist, please turn on your microphone and camera. We will nominate you. Please ask your question after identifying your affiliation and your name. Narita-san from Nomura Securities, please. Please turn on your microphone and the camera, please.

Yasuhiro Narita: This is Narita from Nomura Securities. I have two questions, please. The first question relates to – well, of course, this was another question in the press conference. I do believe this year's plan is somewhat weak. That was the impression that I have received. Especially, we have the extraordinary profit, but still you're expecting a flat trend in terms of income. You talked about the resources, so the stripping cost related to coal. You mentioned that within the previous briefing. So, I couldn't quite tell what you have factored in here. So, the volume is flat, but the cost will be on the rise. Is that what you're referring to? So, that point I want clarification. Another point, this is related to the actual numbers and performance. So, there are some changes in the segment. So, S.L.C. the Group, S.L.C. Group. I do believe gains from Lawson is included in here. I don't know how much of a special gains you had. But, I think last year you only had CNY 60 billion incorporated from the previous year. Are you expecting Lawson to come down significantly? So, if you can give us more detail or color within this group.

Katsuya Nakanishi: Thank you very much for that question. Related to the first part of the question, MDP. So, for 2024 expectation, we have Lawson and the two-mine divestiture. Despite of that, the number for the expectation for the income is somewhat weak. I believe that was the nature of your question. So, just to repeat, I have just mentioned, it's all about volume. So, the cost, so in terms of the renewal cost, those have been factored in already. So, we have no concerns whatsoever in terms of cost. It's more about the time that it takes. It is time consuming. The volume for FY 2023 and ‘24 and ‘24 onwards, we cannot share with you the volume expectation. But let's just say in comparison to FY 2023, we'd like to really clarify this point. So, for the two mines, has been divested already. Two mines have been divested. So, if you were to exclude those, the numbers that I'd like to give you for FY 2023, about 37 million tonnage, just over 37 million tonnage that was for FY 2023. That is the actual number. Now, for FY 2024 onwards, flat for 2024 in comparison to the previous year. So, we would focus on stabilizing the operation. It takes four to five years or so. Therefore, for FY 2026, so for 20 – we'll be back to 2020 to FY 2021. So, by 2026, we shall be back to that level. So, this is all about the volume factor. So, FY 2024, of course we cannot just talk about hypothesis. But if we're back to FY 2020 number, we shall be back to what, where we were before. We shall be meeting your expectations. So, it's all about how we intend to incorporate this time factor, within FY 2024 and 2025, how do we intend to catch up in the next two years. That is definitely one of the issue. Also, the second question, Nouchi-san, would explain.

Yuzo Nouchi: So, for S.L.C., as you rightly mentioned, because there has been organizational change. So, Lawson's gains has been factored in already. However, some of the gains from the affiliated companies. So, one of the products companies that was in the food industry group. So, we have about CNY 37 billion of gains from FY 2023 that has been posted already. So, as a rebound of that is impacting S.L.C. Also, for Lawson, back in FY 2023, albeit partially, we have some one-off gains from the past impairment. So, with an absence of that, we have some rebound. So, that is why our profit is back to CNY 12.3 billion. So, in terms of the cruising speed or the underlying profit, it is pretty much stable.

Yasuhiro Narita: MDP, you have mentioned flat, but this is flat after the divesting of the two mines. So, the loss from the two mines divestiture, the profit decline is significant. Is that what you refer to?

Yuzo Nouchi: Yes, even on a five-mines basis, excluding the two mines, it is still flat.

Yasuhiro Narita: Back in Q3, perhaps there is somewhat of a divergence of what President has mentioned, because I think you have mentioned that the general profit level was somewhat increased back in Q3. But this time around, the profit may increase, but this is more towards the second half of the next midterm corporate strategy. That was the impression that I have received. So, perhaps vis-à-vis your initial expectation, there would be delay in terms of the recovery of the volume from coal. So, it is more pushed towards the back end of the next round of the midterm plan. Is that true?

Yuzo Nouchi: That is correct. That is exactly correct.

Yasuhiro Narita: Understood. Thank you very much.

Shigetaka Akamatsu: Thank you, Narita-san, for your question. So, next question will be from Morimoto-san from SMBC Nikko. Morimoto-san, please turn on your camera and the microphone to ask a question.

Akira Morimoto: This is Morimoto from SMBC Nikko. Thank you for the presentation. I have two questions. My first one is regarding capital efficiency. The second question is about the performance and the guidance. On page 10, regarding the cash flow allocation and also the capital efficiency, this time the cash flow allocation expectation has not been changed from your guidance from Q3. For the underlying operating cash flow, in the last two years, you had CNY 2.5 trillion for the previous three years. This time it is CNY 50 billion, so together it will be CNY 3.4 trillion. So, versus the CNY 3.5 trillion plan, you are just slightly short with CNY 3.4 trillion. But looking at the cash flow from divestment, you have accumulated up to CNY 1.5 trillion, and remaining is CNY 500 billion. In the financial reporting, you have CNY 147.3 billion of the cash coming from the sales of the two mines. So, it seems like there might be some upside to these numbers. So, in sum, based on what I just said, so February, what is your outlook? What is the room? I mean, like the CNY 500 billion that you still have in the cash allocation plan. You are also talking about the acceleration of growth. But in terms of raising the capital efficiency further for the remainder of the cash, and also if you have more divestitures, you may see more upside on the cash flow from divestment. So, how are you thinking about the usage of this process in the cash? And regarding the time horizon, what would be your expected capital efficiency over the long run? You talked about 42% total payout ratio, and during the current mid-term business plan, or it has not been changed from the current mid-term business plan, and there is no end when it comes to the initiatives for the capital efficiency. When you think about the future shareholder return, and as you have shown confidence in the cash flow generation, are you already discussing about aiming for a total payout ratio that is higher than 40%? So, from the perspective of capital efficiency during the mid-term strategy, how are you going to be using the remainder of the cash? And what kind of discussion is taking place today so that you can aim for a higher capital efficiency in the future? My second question is a follow-up to Narita-san's question. So, on page 15, you talked about the S.L.C. and the mineral resources, and you talked about this earlier. But due to reorganization of the structure, it's a little bit hard to see from outside. So, if you exclude the one-offs, what is the underlying trend, apart from S.L.C. and mineral resources? So, what's the plan for FY ‘24 vis-à-vis FY’23? So, that's my second question regarding the guidance for this fiscal year.

Yuzo Nouchi: Yes, I will be taking both of the questions. I am Naochi. Regarding the capital efficiency and also the cash allocation plan for FY’24, that was your first question, I believe. So, for the cash flow from divestment of CNY 500 billion for FY’24, as you pointed out, there is a possibility that we may enjoy some upside from this number. For the underlying operating cash flow for FY’24, we are looking at CNY 0.95 trillion as compared to CNY 3.5 trillion, it's slightly down, but I think we'll be able to compensate for this. Based on that, for investment at this point, for CNY 3 trillion, we have already spent CNY 1.9 trillion. Also out of this CNY 3 trillion, we believe that it's highly likely that we will be using this budget. As presented in the material, for the future growth opportunity, we are now considering the investment. Already, for the remainder of the upside cash flow, we have not decided to use it for additional investment, but we are carefully looking at the investment opportunity to consider allocating this cash to other investment. Also for capital efficiency, of course, on your term, we will be making some measures to improve that. But we also have a long-term perspective to improve our capital efficiency. So, we'd like to improve the numerator, and for that, we need to make investment. When we make investment decision, we will see if that investment will help to enhance the capital efficiency in the future. We will be disciplined to make that judgment. Based on that, for the extra cash that we have on hand, it is possible for us to consider additional shareholder returns. Looking beyond that, the total payout ratio is about 40% as our target today, and we have any intention to raise this. And have we been discussing at that point? At this point, I cannot give you a clear answer, but for that kind of topic, we are always considering that. So, we are raising the dividend to CNY 100, and I think that you can see from that that with the dividend alone, we will be raising around 42% total dividend payout. As we are taking the progressive dividend policy going forward, we will be considering further enhancement of shareholder return. So, that is my response to your first question. On your second question regarding the profit guidance, when we made a plan on the one-off profit, how much should we have that? We are not disclosing the one-off profit that is included in the guidance, so that I will refrain from giving the actual numbers. But for Lawson, we have roughly CNY 120 billion or CNY 125 billion as a valuation gain. And also with MDP, the sales of the mines, the process will be CNY 95 billion from those sales. So, those will at least be one-off profits that is included in FY ’24 guidance. The one-off that we should expect, either gains or the losses, to a certain extent, those have been incorporated in the guidance for FY ‘24 as needed. Having said that, for FY’24 guidance and the changes of that on page 15, you can see the components of the changes. We don't really have any big, huge, special, or extraordinary gains or losses that is included in these numbers.

Akira Morimoto: So, if that is the case, earlier you said for S.L.C., on gross basis, you will see a profit growth. So, that was my understanding. But for mineral resources, as you pointed out, for the shipping cost, I think the profit is coming down on a fundamental basis. But for the other segments, I understand that you cannot disclose what are the one-off items. But if you look at the fundamental trend, can you at least give us the direction of how the business is progressing?

Yuzo Nouchi: Well, for example, for environmental energy, with the LNG, we have the next generation group that is included in the incumbent LNG business. And for the environmental energy segment, in FY23, our business was impacted by the market price. So, it was favorable for us, but that is no longer going to be the case this fiscal year in our expectation. In terms of dividend income, in FY’23, we enjoyed sizable dividend income. So, those are the items that we are not incorporating in FY’24. Also, a dividend or not it’s considered as one-off profits or losses, but those are the factors behind the decline in the profit. For the power solution, in FY’23, as is stated in the disclosed material, for the distributed energy business, part of the business was sold with a partner, and CNY 80 billion of the sales gain was booked in FY’23. So, those would be absent in FY’24. So, that would push down the profit for power solutions by CNY 67 billion.

Akira Morimoto: Apart from those, can you also go through the other businesses like material, mobility, food industry, and urban development infrastructure? A - Yuzo Nouchi Yes, for urban development and infrastructure, there will not be any special material factor in this segment. The urban development real-estate business is now included in the urban development infrastructure. So, the property sales gains compared to FY’23, it will come down for FY’24 within this segment. So, that is reflected in our guidance for this fiscal year for this segment. And for mobility, in ASEAN, our auto business in Thailand, Indonesia, that's the main business for ASEAN automobile business. Within ASEAN, from FY’23, if you look at the total demand, you can see that the sales volume has been coming down as a general trend. For FY’23, despite that adversity in the market trend, we were able to offset that and mitigate that with different measures. For the volume reduction in FY’24, we expect a similar trend to be observed in Asia because the recovery of the automobile sales is yet to be observed. So, that is reflected in our business plan. For food industry, for this segment, in FY’23, we had one-off losses which will be absent, and for Cermaq, in FY’23, the business in Chile was sluggish. We're expecting recovery of the Chile business for Cermaq in FY’24. So, those are the factors that will be composing the business plan.

Akira Morimoto: For excluding the one-offs, S.L.C. is the only one that's growing on a fundamental trend. But for the others, on a gross basis, the profit is declining. Is that the right understanding?

Yuzo Nouchi: Well, excluding the one-offs for the gross level business trend, for example, we do have capital gains. We do have asset replacement which are not included in the one-offs even though we get some capital gains. In our traditional definition of gross level trend without the one-offs, for S.L.C. and for food industry, the fundamental trend is profit growth. On a gross e basis for the other business segments, it's flattish or compared to the strong year in FY’23, FY’24 will be down. So, that will be the overall picture. Thank you very much.

Shigetaka Akamatsu: Thank you very much, Morimoto-san. Next, from Daiwa Securities, Nagano-san, please. Please turn on the camera as well as your microphone.

Masayuki Nagano: This is Nagano from Daiwa Securities. Thank you very much for the opportunity. I also have two questions. First question relates to the performance expectation and also the underlying strengths of your profits. So, page 15, please. So, you have CNY 950 billion, that is the expectation for FY 2024. But you have CNY 220 billion in terms of one-off. So, CNY 730 billion is the underlying strengths. So, CNY 730 billion, do you believe this is your earning capability? Also, looking into next year and the following year, perhaps a certain segment, it's somewhat weaker this year. But actually, it’s true earning capability is higher for the following years. If you can give us more color, especially for power solution. So, you talked about some of the asset divestiture in the previous year. But if it's CNY 300 billion for FY 2024, I wonder if that is the true earning capability. Also, for the environmental energy, you mentioned about the positive year that we've had. I think it's LNG Trading that's one of the factors, and also, the LNG dividend, especially in Q4, that has been quite strong. But do you believe FY 2023 was too good? Or is this CNY 150 billion, it's more of the earning capability? Or are you looking at it in a conservative manner? So, let's just say in the next three years out, what is the underlying earning capability in terms of your profit generation? That is the first question. So, is that CNY 730 billion, CNY 800 billion, or is it CNY 900 billion? I'm not quite sure, but let's just say if that's the assumption. I'd like to know about this dividend of CNY 100 per share. If that is, so you have CNY 400 billion of cash out. So, unless you have a certain level of net income, this will not be sustainable. However, in your case, you do have gains from the asset divestiture. So, about CNY 700 billion on a per annum basis that you may have. So, perhaps you can accommodate this dividend payout. But after this year three is over, next year onwards, the income from the asset divestiture, what is the level you have in mind? That is my second question.

Katsuya Nakanishi: So, I will give you the overview and the details, CFO would answer. So, it's straightforward. So, CNY 730 billion. No, we do not believe that is a true earning capability of the company. We have been very straightforward with those numbers. But I have been repeating this. The fact that we have even mentioned the volume, and the background to that is this metallurgical coal business. We have some up front, the profit that we were able to earn. So, after the COVID, it was the Ukraine. There has been price increase, price hike. So, this stripping process has been pushed back. The recovery for that would actually take until FY 2025. We're just saying by 2026, that is the level we shall see a recovery. So, for FY ‘24 and ‘25, it is somewhat depressed. Of course, we shall see some recovery in ‘25, but it will be depressed. So, we cannot reach that number back in FY 2020 and 2021. You'd have to wait until ‘26 to reach back to that level. Now, in terms of the environmental energy, so LNG Canada is finally launching. So, that would be in the beginning of FY 2025. So, of course, there is a question as to how much we can incorporate. But FY ‘26 onwards, we shall see a full year contribution from LNG Canada. Now, in terms of power solution, so the cyclical, the asset model, so that is the standard model. So, nothing could be considered as one-off. So, accordingly, once the project is completed with development, some of them may be divested. So, FY 2024, it just so happens that no projects will be divested or nothing major that we are expecting for FY 2024. So, Nexamp back in FY 2023, after feeding for five years, we have divested partially of Nexamp. That was back in FY 2023. So, it's hard to tell what exactly is the cruising speed. We shall see an ups and downs for the power business. FY 2025 onwards, we shall see some sizable profit gaining from this segment. So, adding all these factors together, so it will not be CNY 730 billion. So, as we have shown in page six in this diagram, so we included the dividend, inclusive of that, within CNY 400 billion. So, as we are aiming for 40% of the total payout ratio, that will give an idea in terms of the income. That is, we need to have CNY 1 trillion on a consistent basis in order to accommodate all these dividends and the payout. It will not make sense unless we have this CNY 1 trillion yen income on a sustainable basis. So, this is definitely we'd like to gain your understanding. So, for FY 2024, 2025, the question is how we intend to overcome these two challenging years. Having said that, operating cash flows and also the collection from the divestiture will be in place. So, we shall have ample cash ins. So, the question is, how can we actually bring this into accelerating future growth through new investment opportunities.

Yuzo Nouchi: For FY 2024, the profit comparison to the previous year, as President has just mentioned, in terms of metallurgical coal, this year and the next fiscal term, we intend to bring back to the previous profit level. Also, in terms of the environmental energy, in comparison to the previous year, there has been some decline because of market factor, pricing factor. Nothing could be conducted here. But in terms of dividend, we may have some dividend from the previous year and also for this year. Nothing is finalized. So, we shall see some ups and downs in terms of the dividend. On an upfront basis, we may look into feasibility of the businesses. Therefore, some of the upfront cost is inclusive in there. So, as for the question, we cannot actually tell you the exact number, what exactly is a true cruising speed capability or earning power of the company, but as we have shown in page four for the metallurgical coal and also the automobile, the production volume declined in Asia. We have already mentioned those. This is due to the economic downturn in China. So, perhaps the scoring in Asia, there has been some downturn. So, there has been more cautious in selling the automobiles with credit attached to it. But we do believe this will subside within the year of FY 2024. We do have a visibility. So, in comparison to the current level, we shall be able to enhance the profit level. That is the expectation.

Masayuki Nagano: Thank you very much. The second question related to cash flows. Could you also comment on that?

Yuzo Nouchi: As for cash flows, so we have increased the dividend to CNY 100. So, this will be applicable not just for this year, but also it takes into consideration the future cash flow projection. So, we do project and have visibility on the cash flow into the future. So, needless to say, going forward, we would have the asset divestiture and also the cash ins from the asset divestiture. The financial soundness is definitely improving. So, the next round of the medium-term corporate strategy, we will retain the financial soundness, yet utilize on the leverage. By doing so, we can allocate enough funds into future growth and future investments. So, taking all these factors into consideration, we have decided on the dividend of CNY 100 yen.

Masayuki Nagano: Very well understood. Thank you very much.

Shigetaka Akamatsu: Thank you, Nagano-san. The next question is from Morgan Stanley MUFG, Shirakawa-san, please. Please turn on your microphone and the camera to ask your questions.

Yu Shirakawa: This is Shigetaka from Morgan Stanley MUFG. Can you hear me?

Shigetaka Akamatsu: Yes.

Yu Shirakawa: I have two questions. On page nine, in the others, FY’23 to FY’24, you have a profit decline of CNY 40 billion. On page six, you also have a CNY 60 billion profit contribution coming from the value-added cyclical growth model, and I think this number net that. You have also answered with your investment plan. But overall, for the non-resources business, compared to FY’23, the business environment may see some headwind. Are you also calculating some upfront costs that you have already mentioned? So, reflecting that, are you conservatively planning for this CNY 40 billion of profit decline? So, that's my first question. My second question is on page six, regarding the value-added cyclical growth model, in FY’24 compared to FY’21, you're saying CNY 100 billion, and the progress has been in line with your plan. I may be going ahead of myself, but with these images, in your next corporate strategy, what is going to be the pace of executing the value-added cyclical growth model? Are you going to complete this to a certain extent within the current mid-term business plan, or are you going to increase the pace of these initiatives in the next corporate strategy as well?

Yuzo Nouchi: Yes. So, I will take your first question. This is Nouchi speaking. So, for FY’24, in the others, we have a profit decline of CNY 40 billion in our guidance. So, is there conservatism in this number? That's your question. But when we make the budget, we are not overly conservative, but we try to make a realistic target. Also, there's no excessive conservatism in this number of CNY 40 billion profit decline. In the power solution segment, we explained earlier that the asset divestiture sales gain was booked in FY’23. This was a big sizable sales gain in North America, which is the distributed power business, and that is going to be absent. So, that would have the biggest impact out of this CNY 40 billion decline projection. Yes, and on your second point about the page six, during the current mid-term corporate strategy, the second point, the capital efficiency through asset replacement and earnings improvement. Also, in the corporate strategy 2024, we are not going to limit the timeline to just the current mid-term corporate strategy. We will be executing this plan in the next mid-term corporate strategy as well. But this value-added cyclical growth model is not just targeting this second bullet point. It has to come with a package of doing everything from one, two, three. So, that is the important aspect of this cyclical growth model. Also, that said, if we are no longer the natural owner of the business, and if we believe that it's better for us to exit this business to enjoy a good sales gain, because there's not a big opportunity in the future. Also, then we would choose option one, which is a strategic rebalancing of our business portfolio. On the second option, over the consolidated companies, we are replacing the assets and also improving the capital efficiency. As you can see on this page, in order to improve profitability, we need to do this to exit from the unprofitable businesses. So, anything that we can turn into a positive profit, we will have to work on that. That's the second option, asset replacement and capital efficiency. The third option is like the Lawson project, where we welcomed the opt-in partner. So, all of these are the three components that make up the concept of the value-added cyclical growth model. Now we want to incorporate all the three options. So, this initiative will not be concluded during the course of the current mid-term corporate strategy. This will continue in the next mid-term plan as well.

Yu Shirakawa: Thank you. So, my follow-up question on the first question is, so there's no conservatism in this number. So, the power solution, sales gain is going to be absent. So, that's a big impact. Other than that, you mentioned regarding S.L.C. and also environmental energy. But from FY’23 to FY’24, you're not expecting the business environment to deteriorate materially for any of those segments.

Yuzo Nouchi: Yes, that is correct.

Yu Shirakawa: I see. Thank you very much.

Shigetaka Akamatsu: Thank you very much, Shirakawa. Next question comes from UBS Securities, Goroh-san please. Please turn on the microphone and the camera.

Harunobu Goroh: This is Goroh from UBS Securities. Thank you for the opportunity. Somewhat similar to the previous questions, page 11, and I’d like to ask a question from a different angle. So, last fiscal term I have raised this question in one of the briefings. So, you had the waterfall chart from the factor analysis of the profit. So, you have CNY 23 trillion, quite a massive asset you have. So, perhaps it's difficult to explain in details about the different factors. But we have the accumulation of the investment. It's hard to actually tell the connection with the expectations towards the – and what sort of value you may have. You have a CNY 60 billion that you have incorporated in terms of the improvement. Also, some of the one-off gains from the divestiture may also up and down – we may see some ups and downs. So, you have the investment amount that is necessary to sustain, improve the income. Of course, you have mentioned how you have solidly allocated the management resource. So, these are already showing its effect and because of that, we are seeing the profit benefit. But perhaps the EX, this is more of a long-term. So towards 2030, looking into carbon neutral, perhaps the risk is somewhat larger and also it is somewhat time-consuming. However, these are the businesses that you would also need to incorporate. So by combining these two, at the same time, you would continuously return to the shareholders. That was my understanding of the structure. But this investment to maintain and grow the income, I'd like to hear more about what sort of return that we should expect. Of course, you're making a much more disciplined approach towards investment, but it is harder to tell what sort of effect that you have already realized. So if you can actually clarify this idea about this, the return towards the investment into maintaining and growing the profit. Also, in terms of EX-related investment, which accounts for half of the budget already, but of course, this tends to be more of a long-term perspective. So, what are the risks? What are the certainty? And what is the difference in comparison to the conventional investment into resources? What sort of resources should we expect? If you can give us more color, that would be very helpful.

Yuzo Nouchi: Goroh-san, that is quite a challenging question as always. As Goroh-san mentioned, so this gross investment, perhaps it is true that we have not been able to tell you exactly when we shall see the return of these investments. But in terms of this top left, the maintaining and expanding earnings base, these are definitely businesses that are ongoing. So obviously, a renewal-related investment is necessary to sustain the current businesses. Also, within the investee companies, we may see some continuation in the investment as we see progress. So they are definitely supporting the current earning base. Having said that, as we invest, and as President Nakanishi already mentioned, as we have seen with the metallurgical coal, the renewal investment is necessary. So we do have to make that investment, but at the same time, because of the up-front stripping costs and so forth. So this renewal, the investment does not necessarily lead to immediate return. So, if you look at it on a single-year basis, the profit may appear to be down. So it is a mixture of different elements. So we would like to gain your understanding on this particular point. And when we talk about the EX-related investment, as we have shown before, we would definitely have more discipline in making decisions on investment. So just trying to make an investment at first, that is not our intent. We would look into whether that would actually enhance the capital efficiency into the future. We are quite selective. Also, for resource-related investment, back in 2015, we had deficient in terms of our results. So we do take lessons from those experiences. So we would like to have the downward resistance and formulate our portfolio accordingly. So definitely, this is a point we’d like to gain your understanding. And we are fully aware of the points that you have mentioned. We would definitely like to continue to engage in ways to give more clarity to the investors and analysts.

Yu Shirakawa: Thank you very much. I do appreciate the fact that it is challenging to give a clear explanation. But perhaps if you have much more clarity in terms of what sort of time frame they have in mind until we receive that return, that would be reflected more effectively on the shareholders' value as well.

Katsuya Nakanishi: Thank you very much, Goroh-san.

Shigetaka Akamatsu: So, I am conscious of the time. So I would like to take the last question from Nomura Asset Management, Ohata-san, please. Please turn on your camera and the microphone to ask your questions.

Akio Ohata: Thank you. This is Ohata from Nomura Asset Management. I have just one question. For LNG business, on page 11, you have the LNG new expansion that you are considering. In looking at your pipeline, the LNG Canada, I think the FID was completed in 2018, and since then, it has been some time. For the existing project, I think it's been quite old, so the production is likely to come down. So for the next LNG project, what is the size you have in mind and what can you do with the new LNG investment, or for that matter your energy business? So what are the expectations of your LNG business going forward? So, that's my question.

Katsuya Nakanishi: Thank you very much for your question. I will respond. This is Nakanishi speaking. As we have presented earlier, we will be expanding the Canada project, LNG Canada next year. Also end of this year toward next year, we'll be operating and apart from that, in Cameron, we have the expansion plan in the pipeline. Also, for a browse in Australia, it's another one that we are considering. We have not done the FID yet, but we are now considering that option on top of the LNG opportunities for Cameron, and also the projects in Australia are what we have put in our plan.

Akio Ohata: So, if executed, is the investment going to be quite sizable?

Katsuya Nakanishi: Yes, that would be a rough idea.

Akio Ohata: Thank you. I have another question, if I may. For the domestic offshore wind business, I understand that the production will not be happening for some time, but I think in the overseas wind offshore project, there has been some cost overruns. But for your domestic offshore wind project, can you give us some update and also the progress of your project, please?

Katsuya Nakanishi: Yes. We have three projects that we won in round one, and we are now developing them. I will not be able to offer you the details, but the cost overrun or when we did the cost estimate with the EPC, we have confirmed to bid into the project. But on the other hand, those assumptions have not all been true, but we have been able to offset that with some upside in other areas. So, I guess the situation is different from the European case, because the three projects, the wind offshore project that we are developing in Japan, we do not expect a big downside in the project.

Akio Ohata: So, you said that you were able to get some upside in the different items. What do you mean by that?

Katsuya Nakanishi: For the European project, in the project boundary, we have to pay some fee. So not subject to what kind of megawatts we want to generate to start the project. Also, to get the approval, we have to pay for the project boundary, even if we do not know if we are going to be the project owner. So based on that, you have to get the approval from the authority and also decide on the EPC. So, in terms of order, we have to pay some fee to secure the project boundary in the sea, and it was before inflation. And that was how we started the project in Europe, and later we found out that the CapEx has been going up and the projects are undermined. So that's what we are seeing in the U.S. and Europe. But in Japan, the projects that we have won are based on FIT. So the situations are very different from the ones I mentioned in Europe and U.S. Some of the upside that we are enjoying in the other items, I will not be able to give you the details because it is a strategic component. But compared to the business plan that we have submitted, we have been able to get some extra revenue, which is giving us some upside to the project.

Akio Ohata: Thank you very much. So those are all my questions.

Shigetaka Akamatsu: So, Ohata-san, thank you very much. Now, we have come to the end of the briefing session, the FY’23 financial results briefing from Mitsubishi Corporation. So, thank you very much for your participation despite your busy schedule.

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