Mitsui & Co., Ltd.
Q3 2022 Earnings Call Transcript

Published: 4 Feb 2022

[Takakazu Uchida:]

Good afternoon, I’m Takakazu Uchida, CFO. Thank you for joining us today. I will begin by giving a summary of the Third Quarter Operating Results and Yearly Forecasts. I will then hand over to our Global Controller Tetsuya Shigeta for details of our operating results. In the nine-month period ended December 31, 2021, the global economy continued to rebound overall. Although the pace of economic recovery slowed due to the rapid spread of the Omicron variant as well as due to the prolonged supply constraints. Under this business environment, Mitsui continued to achieve strong performance in the third quarter based on our robust global business portfolio. Please turn to Page 3. I will provide a summary of operating results for the third quarter. Core Operating Cash Flow, COCF for the period increased by ¥369.5 billion to ¥862.9 billion, and profit for the period increased by ¥434.4 billion to ¥633.3 billion year-on-year, both reaching record historical levels. By firmly taking the upside of commodity market conditions, improving the quality of our business portfolio and strengthening our earnings base, we achieved high rate of progress in comparison to the previous forecasts, announced at the time of second quarter’s financial results. Based on above, we have upwardly revised our yearly forecasts. COCF and profit forecasts were upwardly revised by ¥170 billion to ¥1.09 trillion and by ¥120 billion to ¥840 billion respectively. The year-end dividend is increased by ¥10 per share from our previous forecast to ¥60 per share, resulting into the annual dividend of ¥105 per share for March 2022. Further, we intend to formulate our business plan assuming the annual dividend outlook for the last year of the MTMP, Medium Term Management Plan of Mar 2023, at ¥120 per share. We will continue to steer the company’s management while paying full attention to the business environment, especially the spread of Omicron variant and the impact of the U.S. monetary tightening on the global economy. Please turn to Page 4. We expect good performance in all segments. And we achieved progress of 94% and 88% respectively against previous forecasts for COCF and profit. In Mineral & Metal Resources, we continued to achieve strong profitability by steadily capturing commodity prices through our well-balanced and highly cost competitive business portfolio and high coking coal price, while the decline in iron ore prices from the historical high in the first quarter also seemed to have bottomed out. Furthermore, in addition to Chemicals and Iron & Steel Products that continued to demonstrate strong trading functions, increased competitiveness of each business, strengthened earnings base such as in automotive and healthcare, and FVTPL profit also contributed to performance. In Energy, valuation gain loss related to derivative transactions to hedge LNG trading was recognized in advance, but full-year performance is expected to exceed previous forecasts. Please turn to Page 5. As I mentioned at the start of my presentation, we have upwardly revised our yearly forecast for COCF to ¥1.09 trillion. We upwardly revised the Mineral & Metal Resources segment by ¥60 billion due to an increase in dividends received from the iron ore and ferroalloys businesses in China and higher coking coal price, and the Energy segment by ¥60 billion due to increases in oil and gas prices and good LNG trading performance. Additionally, as a result of upward revisions in all segments centered on Machinery & Infrastructure and Chemicals primarily due to an increase in dividends received from affiliates and good operation and trading performance. We have upwardly revised our yearly forecast by ¥170 billion against ¥920 billion across the company. Next, turn to Page 6. We have upwardly revised our yearly profit forecast in all segments totaling ¥840 billion. The upward revision of ¥120 billion to the previous forecast of ¥720 billion is mainly due to expansion of base profit as well as commodity and FOREX fluctuations. The upward revision of ¥70 billion yen reflects continued competitiveness and high rate of progress in both group companies and trading, such as automotive business, ferroalloys businesses in China, LNG, chemicals, and steel products, while the upward revision of ¥30 billion yen reflects improvement in earnings resulting from market commodity and FOREX fluctuations. The total upward revision is ¥120 billion, including other valuation factors and asset recycling. Please turn to Page 7. Next, I will explain an action plans for each segment, which were set out at the beginning of the year and which have been organized into strengthening trading functions, competitiveness of existing businesses and transformation of business portfolio together with project implementation and contribution to earnings and strategic focus which have made progress in the current quarter among the priority measures. I will begin by explaining the action plan for the period. Firstly, the demonstration of trading functions amid supply chain disruptions contributed to stable supply in chemicals, steel products and food, which boosted the performance of current period. Also, in various businesses, such as the automotive business, including Penske Group in the United States and the Healthcare centered on IHH, we further enhanced the competitiveness of each business by strengthening the management base, reducing costs, and accelerating the implementation of growth strategy which we had started even before spread of COVID-19. Further, we have continued to patiently reduce costs in group companies. And the results of lowering the breakeven point have led to improvement of performance in each company. We also made progress in transformation of business portfolio such as the merger of textiles business of Nippon Steel Trading Corporation with Mitsui Bussan I-Fashion, the acquisition of additional shares in Mitsui Oil Exploration and the sale of some businesses in the Machinery & Infrastructure and Mineral & Metal Resources segments. In project implementation and contribution to earnings, we steadily implemented large projects while taking appropriate measures in each field even during the pandemic, such as development of a successor deposit of iron ore operations in Australia, expansion of copper operations in Chile, progress on the Arctic 2 LNG project, and commencement of operations on the gas-fired power generation project in Thailand. Next, I will explain progress on the business areas of Strategic Focus that are defined in the current Medium-term Management Plan. In Energy Solutions, we made progress in the formation of business leading to reduction of greenhouse gas and responding to ESG, such as participating in an Australian forestry carbon credit project, commencing a feasibility study for low carbon ammonia production in Australia and UAE and promoting mobility electrification through a collaboration agreement by strengthening the capital alliance with Forsee Power a battery system manufacturer. In Healthcare Nutrition, we made progress in nutrition and food, while proceeding with participation agreement in Hendrix Genetics, multi-species animal genetics and technology company in Netherlands and participation in ISI Sementi, an Italian vegetable seeds company. In Market Asia, we subscribed to the convertible bonds issued by the holding company of CT Corp in Indonesia and making continuous efforts to improve its enterprise value. We have also steadily changed the level of Mitsui’s earnings and implemented growth strategy measures aimed at the future through strengthening of functions and competitiveness in existing business and portfolio transformation. We will continue to accelerate these efforts and realize unceasing Transform and Grow. Please turn to Page 8. In this section I will discuss about cash flow allocations for the third quarter of the current fiscal year. Cash-in for the period was ¥1.076 trillion, comprising COCF of ¥863 billion and asset recycling of ¥213 billion. Principal asset recycling included loan collection in the copper business and sale of the contract manufacturing business of MicroBiopharm Japan Co., Ltd. Cash-out was ¥553 billion, comprising investment and loans of ¥351 billion and shareholders return of ¥202 billion that is share buybacks of ¥129 billion and dividend of ¥73 billion yen. Main projects for investment and loans included subscription to the convertible bond issued by the holding company of CT Corp, maintenance CapEx for existing oil and gas projects, Australian iron ore and coal operations, LNG and power generation projects under development, and real estate business. We will continue strategic allocation of funds to growth investments and shareholder returns corresponding to the increases in COCF, comprehensively considering the investment opportunities and business environment. Please turn to Page 9. In the last part of my presentation, I will discuss on shareholder returns. In December last year, we decided to perform share buybacks of up to ¥50 billion, and the total amount executed during current financial year is expected to be ¥175 billion. And, as I explained earlier, we have raised the annual dividend forecast to ¥105 per share with the year-end dividend to be ¥60 per share for the fiscal year ending March 2022. Based on this, total shareholder returns as a percentage of core operating cash flow for the first two years of the current MTMP is expected to be 32%. We will continue to consider increasing dividends and also conducting share buybacks in flexible manner corresponding to stable improvement of cash generation ability. That completes my part of the presentation today. I will now hand over to our Global Controller Tetsuya Shigeta for details of the third quarter performance.

[Tetsuya Shigeta:]

Thank you. I’m Tetsuya Shigeta, Global Controller. And I will now provide details of our operating results for the third quarter. Please turn to Page 11. First, I will explain the main changes in COCF by segment compared to the previous period. COCF for the period was ¥862.9 billion, a year-on-year increases of ¥369.5 billion. In Mineral & Metal Resources, COCF increased by ¥227.8 billion to ¥433 billion mainly due to higher sales price of iron ore and coal operations in Australia, increase in dividends from Vale copper operation, and ferroalloys businesses in China. In Energy, COCF increased by ¥50.2 billion to ¥152.9 billion mainly due to increase in oil and gas prices. In Machinery & Infrastructure, COCF increased by ¥48.7 billion to ¥113.2 billion mainly due to good performance of group companies centered on automotive and the increase in the dividends from equity method affiliates. In Chemicals, COCF increased by ¥23.4 billion to ¥71.9 billion mainly due to good performance of group companies and trading following favorable market conditions and also through optimal response to supply constraints. In Iron & Steel Products, COCF increased by ¥7.1 billion to ¥9.2 billion mainly from good performance in trading driven by steady steel market. In Lifestyle, COCF increased by ¥22.2 billion to ¥33.5 billion mainly due to steady food production business, good performance in grain trading business and healthcare staffing business in the U.S., and the sale of Columbia Asia's business in India. In Innovation & Corporate Development, COCF declined by ¥5 billion to ¥35.1 billion. Other factors, such as expenses, interest, taxes, et cetera, which are not allocated to business segments totaled ¥14.1 billion. Please turn to Page 12. I will now explain the main changes in profit by segment compared to the previous year. Profit for the period increased by ¥434.4 billion to ¥633.3 billion. In Mineral & Metal Resources, profits increased by ¥294 billion to ¥370.9 billion due to factors such as higher sales price of iron ore and coal operations in Australia and copper operations and increase in dividends from Vale. In Energy, profits increased by ¥1.6 billion to ¥28.3 billion mainly due to increase in oil and gas prices. Although there was absence of deferred tax assets resulting from reorganization of U.S. Energy subsidiaries recorded in the same period of the previous fiscal year. In Machinery & Infrastructure, profits increased by ¥57 billion to ¥92.2 billion mainly due to good performance of the automotive business primarily in North America, in addition to the absence of the impairment of the rolling stock leasing Group Company incurred in the previous period. In Chemicals, profits increased by ¥19.2 billion to ¥51.6 billion, mainly due to good performance of trading business and the methanol business. In Iron & Steel Products, profits increased by ¥24.1 billion to ¥21.3 billion mainly due to the improvement in operation rate at group companies due to recovery in automotive production and good performance in trading. In Lifestyle, profits increased by $43.2 billion to $42.8 billion mainly due to recovery of salmon and fashion businesses, good performance of grain trading, and an increase in profits in the healthcare business. In Innovation & Corporate Development, profits increased by $4.8 billion to $42.2 billion mainly due to sale of multi-family housing property in U.S. Other factors such as expenses, interest, taxes et cetera, which are not allocated to business segments totaled ¥16 billion. Please turn to Page 13, which shows the main factors influencing year-on-year changes in profit. Base profit increased by approximately ¥190 billion. This was mainly due to increase in dividends received from iron ore business, and strong profitability of segments such as Machinery & Infrastructure, Lifestyle, Chemicals and Iron & Steel Products. Looking at resource-related costs volume, profit decreased by approximately ¥26 billion due to the impact of rising labor costs in the Mineral & Metal Resources business, and also decrease in volume due to the decline in of the MOECO Thai offshore project. Asset recycling resulted in an increase of approximately ¥11 billion in profits mainly due to the partial sale of shares in PHC Holdings and the sale of multi-family housing property in the United States. In Commodity prices FOREX, profit increased by approximately ¥199 billion yen. Commodity prices increased approximately ¥80 billion due to steady iron ore prices, approximately ¥38 billion due to coal prices and approximately ¥45 billion due to oil and gas prices. In FOREX, weaker yen resulted into an increase in profit of approximately ¥18 billion. Finally, valuation gain loss and special factors contributed to increase of approximately ¥60 billion yen mainly due to the absence of impairment loss in the Moatize coal and infrastructure projects incurred in same period of the previous year. Please turn to Page 14. Now let’s take a look at the balance sheet as of the end of the third quarter of the current fiscal year. Compared to the end of March 2021, net interest-bearing debt increased by approximately ¥220 billion to ¥3.5 trillion. Meanwhile, shareholder equity increased by approximately ¥410 billion to ¥5 trillion. As a result, net DER became 0.71 times. That concludes my presentation. Thank you.

[Q - Unidentified Analyst:]

Thank you for the presentation. I have two questions. Firstly, I think everybody was surprised about dividends on Page 3. Of ¥10 increasing the dividend was decided and the next fiscal year ¥120 per share as expected. One question previously, there is always a minimum standard set for the dividend. I think that wording was there. But this ¥120 per share as a focus for the next fiscal year. Is it something that we understand as the minimum level of the dividend and cash generating capability for the past -- based on the past three months of the first half? You have understood that this had been increased and including forward looking prospects you have come up with ¥120 per share, I would assume. So, this core operating cash generating capability you having understood that this has been raised, but how did you arrive at ¥120 per share? That's my first question. And second question is a bit deviating from possibly the earnings report, but for the next fiscal year, it is -- I’m sure, premature, but price fluctuations in resource prices, that's out of your control. But for the other factors, are there any concerns of when you consider sustainability including the business sentiment. If you have any concerns, please share them with us. And related to that deviating from the earnings report, there is an issue of Russia. Your company and the Mitsubishi Corp. have a relatively higher exposure to the country Russia. And there is uncertainty and there might be economic sanctions and there could be a ban on the use of Swift remittance system and the various simulations you may be running. So, you may not be able to deduct the dividend from the companies in Russia. That may be one of the concerns. So if you have any concerns about Russia for the next fiscal year, please share them with us. Thank you.

[Takakazu Uchida:]

Uchida speaking. First on the dividends. For the second half of this fiscal year, ¥60 is the focus and this will be decided at the board and then will be -- this determined approved at the shareholders meeting. But you can understand the ¥60 per share will be paid. And as for next fiscal year, considering the stability of the dividend. Of course, we have to start with the ¥60 level. So, that is how we would come up with business plan for the next fiscal year with. And so, for the medium term management plan, this final year would be the next fiscal year. So, in the next medium term management plan, we will review the shareholder return policy. So, we have not intention -- deliberately used -- not used the minimum standard, but the ¥105 for this fiscal year and ¥120 for the next fiscal year. I hope you can understand that this is a commitment from us to the market. And as the Mineral & Metal Resources and Energy we have had stronger numbers. But for Energy segment, the conventional LNG dividend, E&P business are all price increase. Those have been taken into account. But Cameron project that has been studied and full capacity operation and the full contribution has been continued. And so we can benefit from that. And also including other LNG projects, as LNG trading functions, there is scale -- significant contribution to the profit. And of course, there is some market initiative, but we can expect a steady stable contribution now. And also other Energy & Resources, Machinery & Infrastructure, Chemicals, Lifestyle and steel, Iron ore steel products, Innovation & Corporate Development, the ¥300 billion or more has been contributed from those segments. And of course, there is a tailwind that we are enjoying currently. But the profits improvement in existing business and increased competitiveness. These are the efforts that we have made and we have seen city performance in these segments. And that's how we have decided that we can expect increased dividend for the mid-term. So we have come up with that number of ¥120. Now for the economic prospect, the inflationary economic situation, is it going to be temporary, or is it going to be continued? That’s the question, but from the interim report as for the future prospect, there is a high uncertainty, that's what we said. But Omicron variant increased, those are some of the factors that we are concerned with. But in our business segments, the steady business performance is continued. There might be some slowdown in some segments but the environment is expected to continue for the time being in my personal view. But of course, U.S. Monetary Policy and market, if the balance is disrupted, and then there could be some correction. But as a main scenario, I think there's business segment the market sentiment is expected to continue until the end of this year in terms of timeframe. And for instance this was done the other day. And for the global economy, from this year to next year, it is expected to slow down, but if you look at the absolute number compared to the past average numbers, it is going to be higher in terms of recovery of the global economy. And as for inflationary trend, there are many other factors. In addition to COVID-19 labor shortage and tight labor market. If you can consider those, even if there is a recovery from COVID-19, we may not be able to expect the situation to be back in the pre-COVID-19 age. And as a Russian risk, we are doing business globally. And geopolitical risks are quite close to the heart. And it is affecting our business. And the sanctions. If they are exerted then the impact on businesses will -- are now under the detailed analysis. And what sort of actions we can we take is something that we have been considering. As we put together the project and we have been working with the related authorities in proceeding with the project. So we're assuming various scenarios. But we will be even more cautious and keeping a close eye on that. Thank you.

[Unidentified Analyst:]

I would like to ask two questions. Especially in the known resource areas, Machinery and Lifestyle, and also in Chemical compared to the second quarter, I believe the momentum is improving. That is my impression. So what made it improved from the second quarter? So what are the characteristics that you're seeing for the improvement? And the second question. It is very difficult, but we are all concerned about the next fiscal year. In the fourth quarter, I think they are improvements that are being forecasted. And we believe that that is achievable. But what is the actual ability of the company for making profits? I think it will depend on the Energy especially related to derivatives. So what is a total profits that can be expected? I think the ability for earnings is set, is that correct? For about ¥200 billion?

[Takakazu Uchida:]

Thank you very much for the question. In the third quarter, the Resource segments partly because of a PHC and gain on sales there was onetime profits that were concentrated in the numbers. So I believe it is going to be quite flat. I don't think it is big value wise but the in the U.S., the steel business is doing well. And as for Chemicals and also mobility, I think it is quite steady, too strong. And of course, for Lifestyle. They IHH, I think it is growing and that is where the contribution is coming from. I don't think I can use the word acceleration. However from the second quarter, gradually we believe there will be a slowdown. We believe that the level of growth has been maintained into the third quarter. And as for the ability to for earnings next fiscal year. I think that's a very difficult question to answer. But the level of ¥200 billion, I think you're talking about Mineral & Metal Resources and also Energy. And if we times it by four it will be ¥800 billion, which is quite similar to the numbers that we have this year. So I think we need to monitor and see whether this is achievable. But it will depend on the market. But there are some tailwinds that we are experiencing. But with supply and demand becoming tight compared to the past, I believe that the expansion of the margins. So it will depend on the economic situation. But if margins become a normal, I believe that it may stabilize going forward. But compared to the previous levels, whether we will go back to that level next fiscal year, I don't think that will be the case. That is my impression. Thank you very much.

[Unidentified Analyst:]

So, this is me speaking very frankly. But other than resources, I think there were areas in which you are lagging behind other companies. But under COVID-19, you have very -- you have become very strong in these segments. And of course, these may be the results of the initiatives that you had been taken. So, is that the kind of discussion that you may be having in house? How do you analyze the results yourselves? The improvement, excluding the environment factors, what is making the performance so good? Do you can give us any hints as to what your thoughts are?

[Takakazu Uchida:]

Yes. We would like to answer in the flow of the comments that you have made. But the situation we're seeing at the moment, this has started 4 to 5 -- 5 years ago, we have been taking initiatives from previous medium term management plan to work on existing business improvements. And also to restructure some of the projects and programs that we had had. And there were campaigns in house so that we both normalized all our personnel to make our improvements. And then the COVID-19, in each of the businesses, we had to have a very robust restructuring of the businesses and portfolios. And last fiscal year, around the middle of the last fiscal year, there were some areas in which we saw good recoveries in the initiatives and projects that we had been involved in. And these are reflected in the numbers. So there were negatives coming from COVID-19, but all those strings in the recovery that we are experiencing. And in the pent up businesses, whether the demand is going to be continuing, that is something that we are monitoring very closely. But on the other hand, we need to look at fiscal measures taken by different countries. And they are focusing the efforts so whether they are sustainable or not, is something that we want to monitor closely going forward as well. Thank you very much.

[Unidentified Analyst:]

Thank you very much. Thank you. I have two questions. First question. March ’23 dividend level has been raised this time. Of course, in non-resources, initiatives structurally, improving profitability, that's one factor. But if you look at the resources, of course, there should be some improvement in order to do this dividend. And iron ore prices originally, probably is expected to go below $100, I think in your estimate. So what sort of changes have you seen in that? And in the future -- next few years how is your prospect going forward? Can you share that with us? That's my first question. So may I ask a second question?

[Takakazu Uchida:]

Yes.

[Unidentified Analyst:]

The second one is about non-resources. The profitability of the segment's in second and third quarter the performance has been improving further. But if you look at resources, business, energy price increase iron ore price increase leading to profitability improvement, that's not the case with non-resources. Because in the Chemicals, if the crude oil prices are increasing, the price increase may improve the profitability to some extent, but at some point in time, you may not be able to pass on that price -- crude oil price increase to the finished product price. So is there any signs for changes that you're seeing or in the next fiscal year, are you assuming something that might change in those segments?

[Takakazu Uchida:]

Thank you for your questions. First of all, as for iron ore price prospect. With regard to specific levels, we do not disclose them. But in the mid to long-term, at the moment in terms of supply demand situation, and steel production in China is going to go down to some extent. And the Vale production is going to be revived. And so in terms of supply demand, it is going to be a bit soft and weak mid to long-term. That's our view. But if you look at the short term basis, price movements may look different. But in the mid to long-term, the prices are going to soften. And that has not changed. And as for the crude oil related -- commodities. I think the median level $70 to $90 is the range we have as a prospect. And in that context, with regard to the lower limit of the dividend ¥120 per share is something that we have come up with. But the share buyback that we have been continuing is going to continue. And the share buyback that we're doing, once it is finished, then 1.6 billion shares excluding the treasury stock. And we have been doing this share buyback, but in ¥120 per share ¥200 billion or less will still be available for dividend payment. And ¥1.09 trillion is the cooperating cash flow for this fiscal year. So if you focused all of these, then energy prices and resources prices compared to the past. If you consider all these the shareholder return can be sustained. And the policy that is going to be sustainable or can be done in a financial capability. And if you look at the capital allocation, since we're in the third quarter, it is not the exact analysis. But if you look at the Page 8, then capital allocation on the right as of April last year, we have updated. And that's the prospect that you see on this slide. And at the moment, as to investment and loans ¥1.5 trillion is existing one. And for the next three years ¥300 billion worth of new growth investments and loans are expected. And if you also include ¥128 per share in dividend, ¥340 billion is added to the shareholder return. So ¥640 billion will be allocated as management allocation. And that's how we are currently. And on the other hand, the ¥2 trillion for cash run and ¥1.27 trillion -- so there is an upside and the ¥650 billion for asset recycling and heightened recycling is not taken into account in this number. So, there is some allocation. There's a room for allocation as well. So, there will be growth strategy investment that can be done. And also, we can ensure, the sustainability and the flexibility for shareholder return as well. And the second question is about non-resources and signs of changes. In Chemicals in non-resources segment once the crude oil prices up, I think these will be the feedstock for the chemicals. So the non-resources performance has been improving because of the crude oil price increase. But at some point in time, you may find it difficult to take enough margin, because you may not be able to pass that raw material price increase into the price of your product. Well, from the second quarter to third quarter, we haven't sensed any such signs. But, as you said, the sustainability of resource prices. And also there are many theories about energy prices. But how long can we sustain this level? So at some point in time, what you said it might happen. But on the other hand, if you look at each segment, each segment is performing well. But food, retail and raw material prices increase because of the demand recovery slowdown or delayed recovery in demand. We may not have reached a similar recovery capability. But in the materials, there might be some correction that we might see in chemicals and iron and steel products. We may be seeing them, but as a trend it will peak out and then go back to where they are. I don't think that is what's happening. Thank you.

[Unidentified Analyst:]

I'd like to ask one question, please. The revenue from trading, the supply chain is very complicated. And the trading revenue is going up. And that was explained during the presentation. With that, how much of the revenue has increased? And I don't think it can be worked going forward. But this fiscal year, how much did you see in the upside of the revenue? That is my question.

[Takakazu Uchida:]

Thank you very much for the question. We have not been able to do a deep dive analysis. However, when it comes to two products, and also Chemicals, of course, we are working retail and also trading businesses. Especially with steel products that we have a North American business in addition is on the recovery trajectory. And with Chemicals, methanol business. And also, we are also working on coal, alkaline and salt businesses. But these are the businesses in which, construct total businesses. So I think it's about 50-50 when it comes to the increased revenue. Sugar and grains, I believe it's approximately half of the increase in revenue. And, of course the market is strong. And with the inflationary marketing environment that is becoming the tailwind, whether it says sustainable or not. As I mentioned earlier, it will depend on the business environment and the situation of the margins. I hope you have your understanding, but the trend is that we hope that we'll be able to sustain it going forward. And we believe that we have a good foundation. And we have been able to polish the functions that we have to shows the results that we have. Thank you.

[Unidentified Analyst:]

Thank you very much.

[Unidentified Analyst:]

Thank you very much. Thank you. I have one additional question just for clarification. Also pattern, I think -- I don't think this is included in one of the factors for the revision of the forecast. So in the extraordinary shareholders meeting, it has been approved, that’s what I heard. But what has happened since then? I think this is related to cash allegation that you talked about and this is also related to Paiton and periodic profit and loss is affected. So can you update us on this heightened issue? Thank you.

[Takakazu Uchida:]

So the approval from the counterpart has been gained in the shareholders meeting. But we have to gain approval from the various related parties like condition proceeded -- as condition proceedings. So not in this fiscal year, but in the early next fiscal year, we hoping to get into profitability. And in the performance focus for this fiscal year, Paiton is not included either. And in the last fiscal year medium term medicine plan, once we come up with cash allocation, we will take a look at that. I think they we can take that into account at that time. Thank you.

[Unidentified Analyst:]

I would like to ask one question. Thank you. Earlier, the CFO talked about the cash flow allocation in detail, including the possibilities for the future. For loans and investment, the budget achievement, I think we have come halfway. And I believe that the outlook is quite low. But with a management allocation, ¥300 billion has been allocated. I think that was explanation given towards the next fiscal year in the long list, the budget and also the cash-in whether it's going to go up. Do you think there is room pool increases in this area? That is my question. And in the strategic focus areas, how much room are there for accumulating projects further? That is my question. Thank you.

[Takakazu Uchida:]

Yes, as for the situation investment. In December, in the ESG day, we explain that Energy Solution is the area in which we are working with different initiatives. And Healthcare Nutrition is another area in which we are seeing accumulation of projects. And in the fourth quarter onwards, there will be projects that are going to show cash-outs. So the number of projects are under deliberation is increasing in that sense. And there are some very positive, proactive areas that we can work on, that is becoming much more clear. Therefore, going forward, we hope that we will explore more opportunities so that we can work on different and various projects. Because this is our third quarter financial results session, we have not been able to have sessions to discuss the initiatives. But we will be working on formulation of the new management plan going forward. So I think we will be able to update you on some of the project going forward. Did that answer your question?

[Unidentified Analyst:]

Yes. Thank you very much.

[Unidentified Analyst:]

Thank you. Thank you very much. I have one question on individual factors. By segment it's about Mineral & Metal Resources and coal business in Australia. ¥22.5 billion profit was produced in three months of third quarter. Is it because of the price increase simply or was there any special factor? And in fourth quarter and next fiscal year, what is the current situation? And what is the direction that we can expect? Can you give us any clues?

[Takakazu Uchida:]

Thank you very much. The Australian coal business ¥22.5 billion. Coking coal prices are plateauing. And that is one -- that is a factor. And in terms of operation, there's no issue. So that's exactly what's happening. So for the next fiscal year, you start from this -- for your forecast, or should we forecast your prospects starting from this level for the next fiscal year. So the coking coal price for the short term is not sustainable. That's what we believe. And in the fourth quarter and in the next fiscal year, when we make plans we have to be closely watching the prices but for the fourth quarter and most recent prices, we are more conservative than the market prices, obviously.

[Unidentified Analyst:]

Thank you.