Earnings Call: Q3 2021

Feb 3, 2021

Good afternoon. My name is Takakazuchi, the CFO. Thank you for joining us today. I will begin by giving a summary of the Q3 operating results and the yearly forecast. I will then hand over to our Global Controller, Tetsuya Shigeta, for details of our operating results. With business and economic recovery beginning to emerge in countries impacted by the COVID-nineteen pandemic, our operating performance also recovered at a rapid pace during the quarter. There was continued strong performance in areas that supported results in the previous quarter, such as iron ore business driven by demand in China and trading business related to the stable supply of lifestyle goods during the pandemic, but also a notable recovery trend in automotive related business and other areas that have until now been impacted by COVID-nineteen. Please now turn to Page 3, and I will summarize our operating results for the Q3 of the year. Core operating cash flow for the period increased by 21,200,000,000 yen year on year to 493,400,000,000 yen and profit for the period decreased by 136,200,000,000 yen year on year to 198,900,000,000 yen reaching the yearly forecast announced in October last year. Of note, core operating cash flow recovered to pre COVID-nineteen levels. Recovery of operating results were supported by high prices in the iron ore business, trading operations that contributed to the stable supply to our customers as essential business and FETPL gains. While there are still causes for concern, including regional disparities in the pace of economic recovery and the renewed spread of COVID-nineteen around the world, we're upwardly revising yearly core operating cash flow forecast by 120,000,000,000 yen to 600,000,000,000 yen and yearly profit forecast by 90,000,000,000 yen to 270,000,000,000 yen The annual dividend forecast remains unchanged at 80 yen per share. The global economy appears to be a recovery on a recovery truck led by China, which was relatively quick to halt the spread of COVID-nineteen. Although there is some good news, such as the start of vaccinations, renewed spread of the virus brings concern about the potential for double dip of the global economy. We'll continue to pay careful attention to the business environment, and we'll be managing our company to realize and accelerate each strategy outlined in the medium term management plan 2023, Transform and Grow, which we announced in May last year in order to build a mid- to long term competitive advantage. Please turn to Page 4. Here, I will cover the progress in our core business areas outlined in the medium term business plan, or mineral and metal resources and energy, machinery and infrastructure and chemicals. Total cooperating cash flow from our core businesses in the 3rd quarter was 400 and 20,900,000,000 yen and the profit for the period was 171,200,000,000 yen accounting for more than 80% of consolidated group profit for the period. In Mineral and Metal Resources and Energy, co operating cash flow for the period was 307,900,000,000 yen and profit was 103,600,000,000 yen Overall progress was steady, supported by strong iron ore market. The profit for the period was 86% of the previous year forecast despite additional impairment loss related to Moati's goal and Nakala infrastructure projects and impairment loss due to assumption for lower longer term oil price. In machinery and infrastructure, co operating cash flow for the period was JPY 64,500,000,000 and profit for the period was JPY 35,200,000,000 Profits were accumulated in automotive, construction and industrial machinery businesses in the recovery phase from COVID-nineteen, which led to results exceeding the yearly forecast. We're continuing to work on restructuring and reorganization in the machinery and infrastructure area. In Chemicals, core operating cash flow and profit for the period also exceeded the yearly forecast, supported by a recovery in demand mainly in East Asia and rising market prices for petrochemical products, leading to sound performance in industrial and trading business. For an explanation on cash flow allocation results, please turn to Page 5. For the period, core operating cash flow was 495,000,000,000 yen driven by high iron prices and FPTBL gains. In combination with asset recycling of 95,000,000,000 yen total cash in for the period was 590,000,000,000 yen Cash out for the period was 475,000,000,000 yen comprising investments and loans of 365,000,000,000 yen and payouts for shareholder returns of 110,000,000,000 yen Let's now turn to Page 6 and review the balance sheet at the end of the Q3. Compared to the end of March 2020, net interest bearing debt decreased by approximately 60,000,000,000 yen to 3,400,000,000,000 yen. Shareholder equity increased by approximately 320,000,000,000 yen to 4,100,000,000,000 yen And as a result, net DER was 0.83 times. Please look now at Page 7. This page covers the impact of COVID-nineteen on 3rd quarter results and the yearly outlook. If we look at the first half and the third quarter, although we saw a significant impact from fall in demand and market turmoil in the first half, we practice our company's materials materiality, secure sustainable supply of essential products and enhance quality of life through essential businesses such as food, agriculture related materials, hospitals, resources and power. In the second half, although we are seeing differences in business sectors and regions, markets are recovering. And by making further dynamic use of our capabilities as a Sogou shou shou shou, we believe we will be able to improve profits in each business area. In areas where the pandemic has caused a significant change in the business environment, we'll continue to thoroughly implement damage control. Moreover, we will challenge to search for signs of new business opportunities in parallel with portfolio reconfiguration in order to strengthen our mid- to long term business competitiveness. Please turn to Page 8, where I will review our progress on the action plan for the fiscal year ending March 2021 that we announced at the start of the period, covering the areas we progressed during the quarter, namely preserve and maintain existing businesses, maintain network of customers and partners, pursue business in line with materiality and create new businesses. We made steady progress implementing projects, including making a final investment decision for the Western Australian gas field and achieving stable operation at the U. S. Cameron LNG project. We also reorganized U. S. Oil and gas business subsidiaries and ICT related subsidiaries as part of measures to strengthen existing businesses. In trading, which we position as one of our essential businesses, we achieved stable supply in areas such as food and food ingredients, materials, agricultural related materials and power generation fuel and also made progress by aiming to demonstrate our comprehensive capabilities in new ways as evidenced by our decision to participate in the plastic bottle recycling business. As explained at our first half results presentation and Investor Day, we have been making progress in our portfolio reconfiguration in order to strengthen our business competitiveness centered on mineral and metal resources and energy. In mineral and metal resources, we made the decision to sell some assets. In E and P, we will shift our strategy to put more priority on the quality of each opportunity rather than to increase reserves, which was our focus in the past. We will continue to pursue ways to optimize our portfolio and to review our existing businesses. Pages 9 to 11 will be explained shortly by our Global Controller, so please turn now to Page 12. As I mentioned earlier, we have upwardly revised our yearly core operating cash flow forecast to 600,000,000,000 yen This reflects high iron ore price and outcome of efforts to maximizing the contribution from FPTPL portfolio companies by boosting their corporate value. Please turn to Page 13. We are upwardly revising our yearly profit after tax forecast to 270,000,000,000 yen reflecting factors such as solid contribution to profits from strong iron ore operations, trading businesses and the results of higher corporate value in our FTTPL portfolio. Please now look at Page 14 for an explanation of shareholder returns. The annual dividend forecast is unchanged at per share. During this quarter, our cash generation capability grew, and cooperating cash flow recovered to pre COVID-nineteen levels. Looking ahead, we aim to pursue continued growth in shareholder returns in line with improvements in operating performance while aiming to improve capital efficiency. That completes my presentation today. So I will now hand over to our Global Controller, Tetsuya Shigeta, for details of 3rd quarter performance. Thank you. My name is Tetsuya Shigeta, Global Controller, and I will now provide details of our operating results for the Q3. Please turn to Page 9. First, I will explain the main changes in core operating cash flow by segment compared to the Q3 of the previous fiscal year. Core operating cash flow for the period was 493,400,000,000 yen, a year on year increase of 21,200,000,000 yen In Mineral and Metal Resources, core operating cash flow increased by 35,000,000,000 yen to 205,200,000,000 yen mainly due to higher sales prices at iron ore operations in Australia and increase in dividends received even though sales prices declined at coal mining operations in Australia. In energy, core operating cash flow decreased by JPY 81,400,000,000 to JPY 102,700,000,000 due to a decline in oil and gas prices and the decrease in dividends received relating to LNG projects. In machinery and infrastructure, core operating cash flow increased by JPY 4,600,000,000 to JPY 64,500,000,000. Chemicals achieved core operating cash flow of JPY 48,500,000,000, a year on year increase of JPY 21,200,000,000, which was mainly due to onetime factor at overseas affiliates and good performance in chemicals trading and agricultural related businesses. In Iron and Steel Products, co operating cash flow increased by JPY 900,000,000 to JPY 2,100,000,000. In Lifestyle, co operating cash flow was JPY 11,300,000,000, a year on year increase of JPY 600,000,000. Innovation and Corporate Development achieved co operating cash flow of 40,100,000,000 yen a year on year increase of 41,000,000 yen mainly due to FBTPL profit and strong commodities trading. Other factors such as expenses, interest taxes, etcetera, which are not allocated to business segments, totaled JPY 19,000,000,000. Page 10, please. I will now explain the main changes in profit by segment compared to the Q3 of the previous fiscal year. Profit for the period decreased by JPY 136,200,000,000 to JPY 198,900,000,000. In Mineral Metal Resources, profits decreased by JPY 59,000,000,000 to JPY 76,900,000,000 due to factors such as impairment losses at Motis Coal and Nakara Infrastructure and Katarone's copper mine projects, along with a decline in the sales price at coal mining operations in Australia, which exceeded gains from higher sales prices at iron ore operations in Australia and increase in dividends received. In energy, profits decreased by JPY 69,400,000,000 to JPY 26,700,000,000 due to factors such as a decline in the prices of oil and gas, an impairment loss at Tempa Rossa oilfield project and decreasing LNG dividends despite the recording of deferred tax assets associated with the reorganization of a group of U. S. Energy Subsidiaries. In machinery and infrastructure, profits decreased by 26,000,000,000 yen to 35,200,000,000 yen due to impairments at Muerti's coal and Akara infrastructure projects along with the impairment loss recorded at the Rolling Stock Leasing Business. In Chemicals, profits increased by JPY 15,800,000,000 to JPY 32,400,000,000 mainly due to strong trading performance in Chemicals and Agriculture related businesses and a gain from one time factor at overseas affiliates. In Iron and Steel Products, profits decreased by 6,300,000,000 yen to negative 2,800,000,000 yen mainly due to a decline in demand for steel products and operation rate associated with decrease in automotive production. In the Lifestyle segment, profits decreased by JPY 18,500,000,000 to negative JPY 400,000,000 due to the absence of reduction in corporate income tax burden recorded in the previous fiscal year and the impact of declining dining out and purchasing demand at affiliated companies in food, retail and fashion. Innovation and Corporate Development achieved profit of JPY 37,400,000,000, a year on year increase of €31,400,000,000 mainly due to FETPL gains and strong commodities trading. Page 11. Here, we look at the factors influencing year on year changes in 3rd quarter profit. This profit increased by approximately €9,000,000,000 due to iron ore dividends and FBTPL recovery despite decreases in LNG dividends. Looking at resource related cost volume as a result of cost reduction efforts in each project in energy, profit increased by approximately 6,000,000,000 yen But on the other side, production decline at the Muayco Thai Offshore Field led to a volume related profit decline of approximately 14,000,000,000 yen Asset recycling resulted in decline approximately of 21,000,000,000 yen due to the absence of a reduced corporate tax burden included in the same period of the previous fiscal year despite a gain on sale of power generations businesses in North America. In commodity prices ForEx, a decline in the prices of oil and gas and coal were the main factors behind declining profit of approximately 41,000,000,000 yen and 21,000,000,000 yen respectively. Higher iron ore prices contributed to a profit increase of approximately 20,000,000,000 yen In ForEx, Australian dollar appreciation against the U. S. Dollar resulted in declining profit of approximately 16,000,000,000 yen Finally, valuation gain loss and special factors were reasons behind the decline of approximately 54,000,000,000 yen due to an impairment loss at the Moti School and Nakara infrastructure projects as recorded in the first half of the current fiscal year. The financial results for the period highlighted recovery in general for each business segment. As a result, it is difficult to clearly distinguish between recovery from COVID-nineteen's adverse effect on profit and profit improvement by our own efforts. Therefore, we are not disclosing the COVID-nineteen impact related to non resources business areas. Page 12. I will now explain the factors by segment in the yearly forecast described earlier by Mr. Uchida. The core operating cash flow yearly forecasts have been revised upward to 600,000,000,000 yen In mineral and metal resources, the strengthening trend in the prices of iron ore and higher dividends were the main factors in an upward revision of 55,000,000,000 yen In energy, a positive trend in oil and gas prices and less hurricane impact contributed to an upward revision of yen 10,000,000,000 yen In Chemicals and Lifestyle, strong trading performance is reflected increases of yen 20,000,000,000 yen 10,000,000,000 yen respectively, while in Innovation and Corporate Development, FPTBL gains and strong commodities trading contributed to an upward revision of 10,000,000,000 yen. Page 13. The profit after tax yearly forecast have been upwardly revised to 270,000,000,000 yen In mineral and metal resources, favorable iron ore price trend and higher dividends contributed to an upward revision of 35,000,000,000 yen In energy, a positive trend in oil and gas prices and less hurricane impact are the main factors contributing to an increase of 20,000,000,000 yen In chemicals, favorable market and strong trading performance contributed to an increase of 15,000,000,000 yen And in LASA business, strong trading performance and recovery in hospital business contributed to an increase of 10,000,000,000 yen. That concludes my presentation. Thank you. Now we'd like to go into Q and A session. Thank you for the presentation. There are 2 questions. First, the cash upside status and the thought behind that. Core operating cash flow, 400,000,000,000 yen was estimated at the beginning of the period, but now we're talking about 600,000,000,000 yen. So there's upside of 200,000,000,000 yen cash. So if you take a look at Page 5 of the presentation, in the 3 year period of medium term business plan, 200,000,000,000 yen cash upside is in sight, but in the asset recycling, there's not much progress made. So if you look at the total cash inflow, because of the downside of asset recycling potential, you cannot see the upside in cash. Is that what I should understand? Or the additional shareholder returns is something we can expect? Is that correct? Can you talk about cash upside, which is associated with the shareholder return? That's my first question. And second question, in the portfolio review, in the 3rd quarter, Tenpaloosa oil price revision downward revision and Matisse is making progress in the next quarter. So after the forecast revision in the segmental outlook, I think there has been some pieces of information embedded. So the negative factors of portfolio review, how in what segment to what magnitude are they reflected? Can you talk more about that? Thank you for the questions. For both questions, CFO Uchida will answer them. Thank you for the questions. For the cash flow, core operating cash flow compared to 400,000,000,000 yen at the beginning of the period, we're talking about 600,000,000,000 yen so there is a recovery more than expected. Compared to 400,000,000,000 yen including the allocation, including the shareholder return in the previous business medium return business plan period, excluding trading, 560,000,000,000 yen or in the previous 3 years, it was once close to JPY 660,000,000,000. So we're now recovering to that level. But in the Q3 onward, the iron ore prices have been plateaued, and that was one of the factors contributing. However, so there's a stronger recovery than expected, and there is a room for shareholder return or more management allocation because of this recovery. So looking at the outlook, how we end, in the Q4, we will continue to consider, including today as we speak. We will continue to consider that possibility. So that's how we position that shareholder return. And cash inflow and cash outflow was mentioned. It is true that if you look at the 3 year period, this is the estimate that was made before the pandemic. And cash inflow and outflow is shown on a gross basis. And for both values, the progress in projects and review and recycling, There's some upside factors or rather downside factors involved, but cash inflow is not making progress. We're not looking at the total picture because of the cash inflow not making progress. But the new strategic focus area investments progress is what we are also looking at. And looking at the new investment areas and the shareholder return, we have to hit the right balance. So we shouldn't put priority to shareholder return. Of course, we can't keep postponing shareholder return forever, but we have to look at progress in both areas and then make decisions. And to answer your second question, portfolio review at the interim report, the medium term management plan has not been able to reflect the impact of COVID-nineteen fully. So at the interim report level, we have coordinated and consulted with the business units. And there is no change from the medium term business plan. But there is a damage control that is required in more depths, and we have made a review. And one remarkable impact is Maltese Nakala. And after Q3 onward, it's not just for us, but there's negotiation with and discussion with Vale involved. And at the end of at the end, as we have elected our policy that was announced at the end of January. And as for E and P businesses, it's not necessarily the impact of COVID-nineteen, but price decline and also decarbonization were considered to relook at the prices that we have conventionally taken. So the organization and the structure has been reviewed or it's now ongoing still. So in that context, as we said at the interim report, so in mobility, in passenger transport business overseas, we're still in the process of negotiation and damage control in the field. And in the portfolio review, it's not just the headquarters, but and desk work review, but rather in the field, the restructuring, the cost reduction initiatives and required negotiations are underway. And as I may have said at the interim report, the time axis is so different from business to business. So we cannot disclose everything at once. But for the moment, there are still negotiations that are underway. But for major parts, we think we have reflected most of the review in the Q3. Does that answer your question? As for the passenger transport or the railway, a certain level of amount has been already reflected in the Q3. Is that correct? Well, there's still a large amount of uncertainty for the future. But as you look at this machinery and infrastructure area, 35,000,000,000 yen is the outlook. Up to 3rd quarter, we have come up with 35,000,000,000 yen And that 35,000,000,000 was the result up to 3rd quarter. So it's not just a simple addition and subtraction, but based on those factors, we have come up with 35,000,000,000. Thank you. Thank you very much. I'd like to ask 2 questions, please. The first question, in the first half, losses were recorded in Steel Products and also Lifestyle segments, but they showed recovery in the Q3. And you explained, health care and automobiles are doing well. Is this because of their inherent strengths? Of course, COVID-nineteen is showing resurgence, and maybe they are one time factors related. But can you talk about the continuity of the business going forward? That is my first question. And the second question is also on the shareholder returns policy. I'd like to confirm your shareholder returns policy. I can see annual core operating cash flow, onethree is given to shareholder returns. That is my understanding of your policy. But if you could please turn to Page 14 of the material, you talk about the returns policy. You talk about the dividend. And last year, in March, you talked about share buyback of JPY 40,000,000,000 is included. And even with JPY 600,000,000,000, are you trying to explain that there will be no additional returns going forward? Is that the right understanding? So how will this JPY 40,000,000,000 be dealt with? Thank you very much for your question. Uchida will answer both questions. Thank you very much. As for the first question, when it comes to iron and steel products and also chemicals, they are material related businesses. And after the midterm or interim, because of automobile production and also manufacturing showing recovery, we believe that these segments showed very strong performance, especially chemicals were strong. When it comes to iron and steel products, the main gas stamp business, there were large amounts of restructuring costs recorded. And if we look at the recovery, because of this restructuring cost, the recovery was quite slow. However, in the 3rd quarter, because of increases and recovery in the productions, we believe that it is doing well. And when it comes to lifestyle segments, in Food and Distribution and IHH, we believe that we are showing profit in the Q3. Of course, the impact is still there. However, we believe that it is doing very well. So whether there are inherent strengths in those businesses, there was a large gap between the demand and supply. But from the middle of the second quarter to the third quarter, we are seeing increased demand. And therefore, we believe that we can look at volume and also margin, which is shown to be higher. Whether we'll be able to maintain this high margin, we did see impact from the tailwind currently, but whether that can be maintained is something that we need to keep a close eye on going forward. And when it comes to shareholder returns, yes, we did make announcement in March 20, and the total return on a cash out basis, as you can see here, are the numbers. And in the second half, if we include the dividends, as you can see here, it will be in the scale of JPY 175,000,000,000 that will be the total returns that we can aim for. And as for the revised forecast of JPY 600,000,000,000 we do not make adjustments by the quarter or by the year. I think we look at it in a 3 year period for the allocation. And there may be some timing delay when it comes to investments. Therefore, it will not fall within the quarter or for the year. I think we need to think of it in a range of 3 year period. For the March 2021, we are looking for total shareholder returns as a percentage of core operating cash flow of 29%. And if we look at the average for the past 3 years for the previous MTMP, it was around 28%. Of course, we'll be conscious of this figure going forward. And in the shareholder returns policy of the MTMP, we will be implementing the growth strategies and aim for gradual increases in the returns. There are no major changes in our policy. Thank you. May I make a comment, please? So in the interim report, during the explanation given, even with upward trend of cash flow, there were no proactive comments coming out. Therefore, the stock market responded, and the share price did not go up. And today, you gave us an upward revision, but the share prices are not going up. I believe that is a pure response from the stock market. So looking at the track record of your investments from the past, they are not leading to profit, but there are a number of payments announced. So after making investment, whether that will be shared to the shareholders is something that we cannot really have our trust on. So reliability has been reduced on that sense. So market is looking at it very negatively, and I think that should be taken into consideration. That is my personal opinion. Thank you. Yes, I hear you, and thank you very much for your opinion. It is not necessary if we have decided not to do anything. We will be responding with agility going forward. And for long term investors, we hope that we will be able to work on it positively. Of course, we are looking at the short term variations in the stock market, but more, we'll be focusing on the mid- to long term improvement of our corporate value. And with that, we will be planning and implementing the shareholder returns going forward. Thank you. Thank you very much. Thank you. I have two questions. First is about upward revision this time. The one time factors, there are so many, so it's very difficult to see. So can you explain the upward revision by sector? Especially iron ore is strong, but there is a lot of impairment losses in the segment. And also, the chemicals that you explained and lifestyle, even though there is a recovery, what is the amount of recovery that you're seeing exactly? That's the first question. And secondly, your credit rating, Moody's in April last year has downward made a downward revision to negative for your company. And you have made impairment losses, but there's upward revision for the focus. So should we understand that there's no problem and concern about the credit rating by the credit agency? Is that correct? Thank you for the questions. So there are 2 questions as asked, and Uchida will answer both of them. First, as for one time factors, in the Q3, the major ones that we've posted are Motes, Nakala, additional impairment losses, slightly less than 50,000,000,000 yen and then Tenparosa impairment loss and U. S. Energy Subsidiaries' reorganization, DTA, 39,000,000,000 yen and MNC, 4,200,000,000 yen So on a net basis, it's about negative 40,000,000,000 yen And as for metal and mineral resources, as for Matisse and Nakala, in the machinery infrastructure, is share paying for some of the losses. And in the steel, products prices has been seeing some pause. So we're expecting some prices settle down, but iron ore prices has been surging more than expected. And in the Q4, Vale dividend is expected, and that has been incorporated. And that will be pushing up the profit, but the number is undisclosed. So that will offset impairment loss. So 35,000,000,000 yen upward revision has been made for that sector. And as for energy, the Tempurasa impairment loss, it's not that something happened in Tempurasa, but the long term oil price, because of the review of the E and P strategy, has been reviewed. And more recently, the prices have been going up. So the range of $50 to $70 has been used as an assumption and evaluate the assets. And Temparosa has been picked up in the impairment losses. And also, a structure in the terms of structure, there are restructuring that is underway. And as a result, because of reorganization in the U. S, DTA has been recorded to for 39,000,000,000 yen. So crude oil prices are fairly strong, but the prices are not going up that much. And also on an annual basis, in the summer, there was a huge impact by hurricane at one time, and Cameron project was halted once. And we had expected for the impact to be prolonged, but actually, it ended up being mild in impact. So in total, there is 20,000,000,000 yen in upper division. As for machinery and infrastructure, there is some uncertainty. So 35,000,000,000 yen is unchanged. And as for chemicals, the market the methanol market prices in the 3rd quarter has been impacted, and trading has been strong. So 15,000,000,000 yen upward revision has been made. And Nutri, Ethanol and Agriculture related ones, Novus remains in restructuring. So some of the businesses were divested. And some restructuring costs has been postponed. So there will be time delay in terms of posting. So there's going to be a positive factor. And agriculture related materials and fertilizer, there was less impact than expected by the COVID-nineteen. So there's JPY 15,000,000,000 up on revision. As for Iron and Steel Products, in terms of materials, especially automotive related ones, there's slight recovery, but cash stamp restructuring cost has been posted with some time factor, so 5,000,000,000 yen And then lifestyle, the IHH negative impact has been offset more than expected. So there has been a turnaround. And as for innovation and corporate development, the commodity trading is strong, and FBTPL has been improving. So 5,000,000,000 yen revision has been made. So that's how we segmented the upward revision. Thank you. One additional follow-up question. JPY 270,000,000,000 in profit for the year is the guidance. So what would be the onetime factor worse? In the Q2, there was a huge impact from COVID-nineteen, and there was also business environment changes. And as I have been saying, there are major projects and many other projects. And in each of the projects, as I mentioned, rather than deciding on a desktop basis, you look at the business environment and the results of negotiations, and we've been changing as we go along. So we are looking at the range of impact. And JPY 180,000,000,000 remained unchanged at the interim report period timing. And we've been recording some of onetime factors, and that depends on the timing of negotiations. So whether it will be reflected in Q3 or Q4, we it is out of our control sometimes. And so it was the case in the interim report, but this time, it's also difficult for us. And as for Moody's credit rating, an annual review with credit agencies has been done on a regular basis, and we've done that with Moody's as well. And our progress has been communicated, and there was no challenge from them. So negative outlook at the beginning of last year was given because of the disruption in the market, and our credit rating was reduced to negative. But we're hoping that it will be recovered back to neutral as soon as possible. But at least there's no negative new negative factors. Does that answer your question? Yes. Thank you. I would like to ask 2 questions, please. The first question, I would like to ask a question on cash flow. This is a confirmation question. On Page 5, this is what was announced in May, and you have talked about the progress as well. Core operating cash flow is on the upside. And of course, there was an upward revision announced as well. After May of last year, it's been more than 6 months. Do you feel that there is anticipation? Or when it comes to additional returns, if decisions are not made, please let us know of your decision so that we can have our expectations for the future. As you give more explanation, our concerns rise accordingly. That is how we feel, listening to your explanation. And because you need to rationalize that you are not announced any additional shareholder returns, and that is leading to our concerns whether investments and loans are going to increase going forward or asset recycling is not progressing, they may be the factors involved. But not only rely on the recovery of the iron ore prices, there are many businesses that are doing well. But if you have any concerns for the future that leads to no decisions to be made on additional shareholder returns, please explain. That is my first question. And the second question, you talk about steel products, iron products. And when it comes to IHH, in the Q3, I believe the situation has changed. With steel products, you may have more inventory or with gas stamp, but restructuring is very easy to understand. But what is the situation with IHH? What are the changes that you're seeing? And do you think they will continue into the future? Thank you. Thank you very much for your question. Uchida will answer your questions. Yes. As for your first question, there are no plans for the future. And I don't really understand why you are so concerned or anxious We are going to make a stable allocation going forward. And before COVID-nineteen, I think we are going back to the level before COVID. However, with cash flow, when it comes to chemicals and iron ore and steel products, I think they are making good contributions. So in the second and third year of the MTMP, as we move away from COVID-nineteen impact, we are not just going to aim for recovery but to exceed the previous level. That is something that we are going to aim for. It is not as if we have any hidden factors or we have changed our stances. If we are causing you concern, I'm sorry. I hope we'll be able to take away your concerns. And when it comes to IHH, people working in the field had to focus on COVID-nineteen factors, and the operation may have gone down. However, they are now being very creative, and they have now better resource allocation to deal with COVID-nineteen. And medical tourism is showing some recovery. Therefore, we believe that IHSA business, we were able to respond at an early stage to see the recovery that we are seeing at the moment. I hope that answered your question. Thank you very much. Thank you very much. Thank you for the presentation. There are 2 questions. First question, as you said, the 3 year cash flow plan is something that is related. The 3 year cash flow, when you put this together first, the iron ore price estimate back then and the outlook now would be totally different. And in this environment, for the 3 year period, the iron ore estimate has been increased significantly. So what are the factors? And in the 2nd 3rd year, what will be the impact that you can foresee? If you can just give us your gut feeling, that would be appreciated. And secondly, asset portfolio reconfiguration and reshuffling, The Mortise and Castoronas are going to be divested. So what is the background for that? And future coal and copper portfolio, what is your thinking behind those? That is my second question. Thank you for the questions. Uchida will answer both of them. As for iron ore, in the medium term management plan, when we put the current one together, iron ore price assumption has not been disclosed. I'm sorry for that. But back then, in March last year or February, March, April last year, when you look at the market prices, in our estimate, based on the supply demand situation, in the medium term management plan period, iron ore prices will probably gradually decrease. That was what we estimated in the assumption when we put this together first. So compared to that, as you said, more recently, or the situation in the Q3 onward, the total picture has changed significantly. So there is such significant impact that we're seeing. And as for 2nd and third year, to what extent we would what sort of estimate we would have would be reviewed and incorporated in putting together a second and third year plan. And the one that we disclosed in May, when we go to the next medium term management plan, will be reviewed once again. And as for management allocation, the new investment loans and shareholder return, that thought process will not be changed, but the number updating will be necessary. But from the Q3, there's overheated price increase for iron ore. So but there could be some settle down in the price levels. And as for coal portfolio, at the moment, the thermal we are going to withdraw from thermal coal only business, but that's not the only reason. But Motis Nakara, ultimately, the thermal coal is increasing in ratio. And also, there are several operational factors, and we've when we had the comprehensive review. And Vale has decided to withdraw from the business, so we've also decided to withdraw from the business. But as for the thermal coal, there's not going to be any new investments made. So EST and in other areas, there's a discussion on this, but there will be some technological innovation, and there will be research on new technologies on reduction. And in the R and D stage, although the scale is not that large, we're working together. But as for coking coal, still there is a demand for that. That's how we position that. So we would like to make progress. And as for copper, Kaserones business is what we are withdrawing from, but our mainstay, Kojuasi and Angosuru, those would be the 2 main pillars. So far, the resources are being invested in Casaonis to a large extent, but those will be reallocated to those 2 on a concentrated basis. So we will continue to work on copper business. Does that answer your question? Thank you. Listening to your explanation, you talked about Mozambique, and this is a related question. Basically, Vale's ESG perspective led to the divestment from the coal business on Vale's side. When it comes to Mozambique, what about the country risk? Was it very difficult to conduct a business in Mozambique? That may be a background factor. And recently, L and D Area 1, there was some violence reported, and there were evacuations necessary related to those incidents. Therefore, when it comes to core business in the pipeline businesses, the risks may need to be reviewed once again depending on the region. So can I have your perspective, please? And my second question, when it comes to the pipeline businesses, in the core businesses that were planned, there are many impairments recorded. And of course, there was a question previously, but when it comes to the capital allocation as a whole, will the rate be reviewed going forward? That may be necessary. Can you talk about that as well, please? Thank you very much for your question. Uchida will answer your question. First of all, about Mozambique, Moatiz and Nakara operations. Originally, in the emerging countries, conducting business is difficult. And that is not only for Mozambique, but we have many experiences of such nature. But as we have indicated, Area 1 is something different, but we need to overcome the challenges and be creative to be able to do business. But when it comes to the volume that has been ramped up, we took in many measures. But there were some difficulties when it comes to procurement of materials. And of course, there was COVID-nineteen impact as well, and there were some difficulties there. However, I think that is one factor of the difficulties of such type of projects. But in emerging countries, for each of the projects, there are certain difficulties attached, and we need to take in mediation measures so that we'll be able to adopt. And there will be not much of a change in our approach going forward. And when it comes to new investments, there are several, including Casa Lones. And in the 3 to 5 years, we withdrew from multigrain business as well. So these were major withdrawal decisions that we have made. But other than that, we see many projects that are doing well when it comes to operations. Therefore, as for Mozambique, for Moetis and Nakara, this is just a heads up agreement with Vale. Negotiations with Vale and stakeholders will start. So we cannot talk about their specific backgrounds or what led to this agreement, but we are going to take the benefit from our past experiences, and we will continue to be challenging in other areas going forward. And of course, returns of investments, getting investment profits or gains is something that we will aim for, and we have worked on improving the quality of the existing businesses, which is showing results. But in the MTMP, there are strategic focuses that we'll be working on, and they are going to be the foundation for building growth areas and growth projects going forward, and our policy remains the same. Does that answer your question? Yes. Thank you. Thank you very much for the answer. Thank you very much. With that, we'd like to close our Q and A session.