Earnings Call: Q2 2021

Nov 2, 2020

Good afternoon. My name is Tatsuya Asanaga, CEO. Thank you very much for joining us today despite your busy schedule. I'll begin by reviewing progress on the medium term management plan 2023, while giving a summary of the first half operating results and forecast for the full year. I will then hand over to our Global Controller, Tetsuya Shigeta, for details of our operating results. This fiscal year began amid immense changes to society and people's behavioral patterns with the spread of COVID-nineteen. During the Q2, we saw a clear recovery of production activity in China and improving trend in employment and consumption in the U. S. There is also a recovery of economic activity in other regions. Although there is a view that the worst is behind us in Europe and elsewhere, we are seeing renewed spread of the virus. So the situation remains deeply uncertain. Recovery pace to normalization is likely to be gradual, commonly in the whole world and full economic resurgence cannot be expected until the next year or later. At Mitsui, our performance has been underpinned by our iron ore business, supported by solid demand in China and our trading business where we have achieved higher results than initial plan by demonstrating our comprehensive strengths to capture the market needs. At the same time, in terms of businesses such as primary materials, which is facing decline in demand and impacted by weak commodity markets as well as business areas of which the impact of COVID-nineteen is likely to be prolonged and severe such as mobility, lifestyle etcetera. We will allocate certain amount of our management resources to defense as we strive for the earliest possible recovery towards the growth trajectory. On the other hand, our intention is not to focus only on defense, but also to show positive stance for offense, meaning to look for opportunities arising from the pandemic and continue to manage the company to realize the corporate strategy that we outlined in the new medium term management plan announced in May, believing that this will lead to increase our corporate value. Please now turn to page 3. And I will summarize our operating results for the first half of the year. Core operating cash flow for the first half decreased by 42 900,000,000 yen year on year to 274,100,000,000 yen and profit for the period decreased by 124,200,000,000 yen year on year to 110,000,000,000 yen representing progress to full year target of 69% 61%, respectively. Due to the prolonged widespread impact of COVID-nineteen and the decrease in oil, gas and coal prices, our results were lower year on year. However, we are progressing steadily toward plan supported by factors such as high iron ore prices, revenues from asset recycling including FETPL profit and trading business. For our full year forecast, we have upwardly revised core operating cash flow by 80,000,000,000 yen to 480,000,000,000 yen reflecting steady cash generation. On the other hand, as mentioned at the beginning, our focus for the profit for the year remains unchanged. Considering that we intend to reevaluate existing businesses and review our portfolio as there are business areas that suffer from a deeper and more sustained impact from COVID-nineteen. The annual dividend forecast also remains unchanged at per share with an interim dividend of per share. Please turn to Page 4. Here, I will cover progress in our core business areas outlined in the medium term business plan of resources and energy, machinery and infrastructure and chemicals. Total first half profit from core businesses was 101,700,000,000 yen accounting for more than 90% of consolidated group profit for this period. In resources and energy, co operating cash flow for the period was 157,400,000,000 yen and profit was 67,600,000,000 yen Although there was an additional impairment loss of 19,500,000,000 yen from Moaty's coal mining associated with revised 5 year production plan in the 2nd quarter, which followed an impairment loss of 5,100,000,000 yen in the Q1. Overall progress was steady supported by a strong iron ore market and dividend from Vale. In machinery and infrastructure, core operating cash flow for the period was 26 1000000000 yen and profit was 1000000000. Profits from multiple operating companies, mainly in the mobility sector, decreased impacted by COVID-nineteen, but with support from asset recycling, profit for the first half reached a high 67% of the 4 year plan. In Chemicals, progress was largely in line with plan with basic chemicals trading and agricultural supply businesses performing soundly. Please turn to Page 5 for an explanation of cash flow allocation in the first half of the year. For the period, in addition to core operating cash flow of 275,000,000,000 yen cash in was supplemented by asset recycling of 55,000,000,000 yen for total cash in of 330,000,000,000 yen Investments and loans for the period was 265,000,000,000 yen which combined with shareholder returns of 110,000,000,000 yen meant total cash out was 375,000,000,000 yen The business environment remains severe and we will continue to manage the company with continued focus on strict discipline for post FID investment and maintenance CapEx and at the same time we will pursue new challenges that would contribute to accelerating transform of our company. Let's now turn to page 6 and review the first half balance sheet. Compared to the end of March 2020, net interest bearing debt decreased by approximately 70,000,000,000 yen to 3,400,000,000,000 yen Shareholders' equity increased by approximately 120,000,000,000 yen to 3,900,000,000 yen and as a result, the net DER ratio was 0.87 times. Please look now at Page 7. This page covers the impact of COVID-nineteen on the first half results and the full year outlook. Although the economy in most of the developed markets have begun to recover, there is still a lot of uncertainty in areas such as Central and South America, Southeast and Southwest Asia. If we look at each business segment while some have adapted to stay at home demand and changes in consumer behavior and are performing well in mobility and related materials along with consumer businesses, the downward pressure on business has been more intense than anticipated. Although it is under recovery trend, we expect that certain negative impact will remain through the second half. To manage this situation, we will continue with damage control measures, while we are appraising existing businesses in light of the different business environment and changes in social structure. At the same time, we'll manage the company by paying close attention to search for signs of new business opportunities. Please turn to page 8, where I will review our progress on the action plan we announced at the start of the period. Regarding insured safety and minimized damage amid COVID-nineteen, we adopted guidelines with comprehensive measures to prevent the spread of infection while gradually restarting operational activities. We closely managed financial liquidity in each business during the peak period of the pandemic and as a next step we are under evaluation of how we could build an ideal business portfolio considering various risks including credit risk. We are also pursuing more progress in operational efficiency and cost reductions through further digitalization. Regarding steady implementation of business plan, the full scale operations have begun at the Cameron LNG liquefaction plant and Fukushima natural gas power plant. The Mozambique Area 1 project has progressed with the securing of project finance and we have been implementing trading contracts and addressing demand from stay at home consumers. Regarding acceleration of business reinforcement and transformation, there were progress in reorganization of sugar manufacturing industry and consolidating intermediary distribution subsidiaries, merger and pursuing reorganization and restructuring of existing businesses. And our aim will continue continue to be leaner company group as a whole. Page 9 to 11 will be explained shortly by our global controller, so please turn now to page 12. As I mentioned earlier, we will upwardly revise our forecast core operating cash flow for the full year to 4.80,000,000,000 yen this reflects good iron ore pricing and maximizing FPTPL portfolio companies after boosting their corporate value. Please turn to page 13, our full year profit and tax forecast is unchanged at 180,000,000,000 yen Downward pressure on profits has been less than initially expected due to contribution from iron ore business, improvement of FTPL in innovation and corporate development segment and strong trading in chemical products and other areas. However, the operating environment has been harsh for the mineral and metal resources, energy and machinery and infrastructure segments and there was substantial impact to some businesses in those areas. We held the strategy meetings again with each business unit first time since the beginning of the fiscal year and came to a conclusion that we need to thoroughly evaluate the existing businesses and review the portfolio taking into consideration mid- and long term improvement of corporate value. By doing the above, we're not able to preclude the possibility of recording one time profit and loss, thus determined to maintain the figure of the initial business plan. Please now look at page 14 for an explanation of cash flow allocation and shareholder returns. In reviewing our full year forecast for the year to March 2021, we also reviewed the medium term management plan announced in May this year. Although there is continuous downward pressure to our asset recycling, We are working on thorough cost reduction in the existing businesses in addition to upward revision to our core operating cash flow. As a result, we determine that there is no outstanding changes to our cash generation capacity thus we have not changed the cash flow allocations contained in our 3 year plan. As mentioned earlier, the forecast annual dividend is unchanged at per share with an interim dividend of per share. Looking ahead, we aim to implement a highly flexible strategic allocation of available cash for growth investment focused on capital efficiency. That completes my presentation today. So I will now hand over to our Global Controller, Tetsuya Shigeta for details of first half performance. Thank you. My name is Chetsya Shigeta, Global Controller, and I will now provide details of our operating results for the first half. Please turn to Page 9. First, I will explain the main changes in core operating cash flow by segment compared to the first half of the previous fiscal year. Core operating cash flow for the first half of the year was JPY 274,100,000,000, a year on year decrease of 42,900,000,000 yen In Mineral and Metal Resources, core operating cash flow decreased by 22,600,000,000 yen to 97,200,000,000 yen mainly due to a decrease in the sale price of coal at Australian coal mining operations. In Energy, core operating cash flow decreased by 56,200,000,000 yen to 60,200,000,000 yen due to a decrease in oil and gas prices and a decrease in LNG dividends received. In machinery and infrastructure, core operating cash flow decreased by 11,500,000,000 yen to 26,300,000,000 yen mainly due to a decrease in dividends from equity method affiliates. Chemicals achieved core operating cash flow of 22,700,000,000 yen a year on year increase of 9,400,000,000 yen which was mainly due to a one time factor at an overseas affiliate. In Iron and Sew Products, core operating cash flow was down 100,000,000 yen to 500,000,000 yen In Life Science segment, core operating cash flow was 1,300,000,000 yen down 1,000,000,000 yen Innovation and Corporate Development achieved core operating cash flow of 30,900,000,000 yen up 36,600,000,000 yen mainly due to strong commodities trading and the absence of FBPTL loss recorded in the first half of the previous year in addition to SVTPL profit. Other factors comprising expenses, interest, taxes, etcetera, not allocated to business segments totaled 36,000,000,000 yen. Please turn to Page 10. I will now explain the main changes in profit by segment compared to the first half of the previous fiscal year. Profit for the quarter decreased 124,200,000,000 yen to 110,000,000,000 yen. In Mineral and Metal Resources, profits decreased 30,600,000,000 yen to 71,300,000,000 yen due to an impairment loss at Mori's coal mine business and a decrease in the sale of price of coal at Australian Coal Mining Operations. In Energy, profits decreased by 68,300,000,000 yen to negative 3,700,000,000 yen due to a decrease in the price of oil and gas, decreased LNG dividends and an absence of deferred tax assets associated with the FID for Mozambique Area 1 recorded in the same period of the previous fiscal year. In Machinery and Infrastructure, profits decreased by 13,600,000,000 yen to 23,400,000,000 yen due to impairments at Moaty's coal mine business and at a rolling stock leasing business. In Chemicals, profits was up 6,000,000,000 yen to 10,700,000,000 yen mainly due to a one time factor at an overseas affiliate company, strong trading performance in basic chemicals and agricultural input business. In Iron and Steel Products, profits was down by 8,500,000,000 yen to negative 5,800,000,000 yen mainly due to a decline in demand for steel for the automotive industry and a decline in operation rate. In the Lifestyle segment, profits decreased by 28,800,000,000 yen to negative 11,900,000,000 yen due to the absence of reduction in corporate income tax burden recorded in the first half of the previous fiscal year and the impact of decline in dining out and purchasing demand on affiliated companies in food, retail and fashion. Innovation and Corporate Development achieved profit of 24,000,000,000 yen a year on year increase of 22,400,000,000 yen mainly due to strong commodities trading and the absence of a FPTPL loss recorded in the first half of the previous year in addition to FPTPL profit. Turning now to Page 11, here we will look at the factors influencing year on year changes in the first half profit. Base profit declined by approximately 6,000,000,000 yen Also, FBTPL recovery and Vale dividends were positive factors. The impact of COVID-nineteen contributed to a decline in profit of approximately JPY 38,000,000,000 primarily in non resources areas. Next, in resource related cost volume, the deterioration of mining conditions resulting in lower volumes and higher costs contributed to a decline in profit of approximately 5,000,000,000 yen In Energy, while cost benefits from the capitalization of Mapos contributed to a profit increase of approximately 2,000,000,000 yen production decline in Moeko, Thai Offshore was a main factor in the decrease in profit of 10,000,000,000 yen Asset Recycling contributed to a decline of approximately 16,000,000,000 yen due to the absence of a reduced corporate tax burden included in the same period of the previous fiscal year and despite a gain on sale of power generation businesses in North America. In commodity prices ForEx, a decrease in the price of oil and gas was a main factor in a decline in profit of approximately JPY 24,000,000,000 while decrease in the price of coal was behind a decline of approximately JPY 16,000,000,000 In ForEx, Australian dollar appreciation against the U. S. Dollar was a main contributor to a decline in profit of approximately 8,000,000,000 yen Finally, valuation gain, loss and special factors contributed to a decline of approximately 42,000,000,000 yen due to the absence of deferred tax assets associated with the FID for Mozambique Area 1, included in the same period of the previous fiscal year, impairment loss at Motis Coal Mine Business this first half and other factors. Page 12. I will now explain the factors by segment in the full year forecast described earlier by Mr. Yasunaga. The full year forecast for core operating cash flow has been revised upwards to JPY 180,000,000,000. The strengthening of the price of iron ore was a main factor in an upward revision of JPY 70,000,000,000 in mineral and metal resources, while the greater than expected recovery in oil and gas prices was a main factor in an upward revision of 10,000,000,000 yen in energy. FETPL profit and strong commodities trading contributed to an upward revision of 20,000,000,000 yen in Innovation and Corporate Development. Conversely, the impact of declining dining out and purchasing demand on affiliated companies in food, retail and fashion were the main factors in a downward revision of 10,000,000,000 yen in the Lifestyle segment. Please turn to Page 13. The full year forecast for profit after tax remains unchanged at 180,000,000,000 yen. FTTPO profit and strong commodities trading contributed to an upward revision of 20,000,000,000 yen in Innovation and Corporate Development, while strong trading in Basic Chemicals and strong performance in the Agricultural Import Business contributed to an upward revision of 5,000,000,000 yen in Chemicals. Conversely, the impact of decline in dining out and purchasing demand on affiliated companies in food, retail and fashion were the main factors in the downward revision of yen 15,000,000,000 yen in Lifestyle segment, while a decline in demand for steel for automotive industry and decreased operation rate contributed to download revision of 10,000,000,000 yen in Iron and Steel Products. Thank you. Now we'd like to take questions. The first question, through the response and impact from the COVID-nineteen, was there any learning for the sake of the company? And what was the impact on the first half from the COVID-nineteen and what would be the impact on the full year plan that has been revised? And what was the changes in the assumption from the beginning of the period? [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] The President will answer the question. Through the response to COVID-nineteen and impact from COVID-nineteen, what was the learning? First of all, for quite some time we have been promoting paper free practice in the company. And through this we have been able to simplify the processes and duplications inside the company operations have been reviewed and also we have used this for data driven business management. But those were the aims and through the COVID-nineteen pandemic, this whole practice has been accelerated and has taken root inside the company. And through this remote work and the physical work coming to the office, The coexistence between these two have been done by working out how to best do the company operation in each of the division and especially our mainstay, the overseas business, the overseas subsidiaries and overseas affiliates in those operations, the function has been working quite well. And under the lockdown there was an impact on the mainstay businesses or in order to avoid impact rather on the main infrastructure that we are responsible for, we have making contributions through trading and also make the logistics work properly. And by doing so, we have been contributing to the maintenance of infrastructure and supply. And as I said, we have been able to reap the trading profit, as I said. And the other thing is related to data driven practice for each business and for each employee, the productivity has been further visualized. And for businesses, of course, there has been prolonged and severe impact in some areas and we have been responding to those and we have been not been hesitating to allocate resources to those areas and we have been quite flexible enough to do that. And another thing is that this is not related to direct contribution to profit, but this is more or less related to CSR. In domestic operations, there is AIM service, which is providing school lunches and through these companies, hospitals and senior citizens homes and schools For those public organizations, this company has been providing the school lunches and in order to encourage health care professionals and those that are working in those organizations, We have tried to improve the menu of the school lunches and on a specific day, we're providing free lunches and also masks and other personal protection equipment have been provided to healthcare professionals. Through those efforts, we have been contributing them and we received depreciation from those healthcare professionals directly or indirectly and we have been able to feel that we were able to contribute to Sarty through our businesses. On the other hand, as for the numerical impact from COVID-nineteen, at the beginning of the fiscal year, the plan that we had planned about compared to that downside of about 200,000,000,000 yen has been seen For breakdown in the resources, the market related 100,000,000,000 yen downside and in known resources, demand disappearance and supply chain review and production plan will be reduced and so there is another 100,000,000,000 yen downside that was expected at the beginning. But after 6 months has passed, what we are seeing is that as for the market, as was said, the iron ore business is strong and oil prices have not fallen as much as we had expected. So in the resources area, about 50,000,000,000 yen was upside from the initial fear. So on a net basis 50,000,000,000 yen impact was seen actually in resources. And in non resources, the impact has been prolonged and become more severe in some areas and that is now still continuing. However, having said that, we have seen strong trading business and also in the mobility business. With regard to automotives and ships, there has been relatively more signs of recovery. But in the mobility, the airline and passenger railway have been impacted more. So if you offset those factors each other, from the 100,000,000,000 yen impact, it's about 90,000,000,000 yen So there would be 10,000,000,000 yen improvement. So 200,000,000,000 yen was the total expectation, but it's about 140,000,000,000 yen impact that we will actually see probably. So that means that 60,000,000,000 yen improvement should be seen. That's what you would say, but as was said in our presentations, the review of the portfolio has been done for a specific timeframes and reshuffling of portfolio would be something that we do not hesitate to do. So there could be one time profit and loss that could be recorded and we cannot preclude that. So that's why we ended up leaving the initial forecast of 180,000,000,000 yen unchanged. Thank you very much. So moving on to the next question. For the fiscal year ending March 2021, the profit after tax has been maintained from the original announcement. And the reason was not to preclude the recording of onetime profit and losses. So will there be a major impairment risk for the second half? And should we be conscious about downward pressure? Can you give us a sense of scale for the second half? I think I have touched on this in my reply to the first question, but the achievement of funds, in other words, in the core operating cash flow, we have given an upward revision of JPY 80,000,000,000 And steadily, our earnings power is well, as we had seen in the medium term management plan, it was 550,000,000,000 yen that is an annual increase every year. That was our plan. However, for this fiscal year, we will not reach 550,000,000,000 yen but we will be recovering close to 500,000,000,000 yen And with the impact of COVID-nineteen, I think we are able to manage that impact to a degree. So with this cash generating power and on the other hand, as I mentioned earlier, we have seen impacts from COVID-nineteen, which is getting more serious. And in the mid- to long term, we do have to be mindful of COVID-nineteen impact, but there are consumer sentiments regarding ESG or industry perspective on ESG, and there are some political agendas that are related to ESG. So we need to accelerate the review of our portfolio. I think there are areas in which we need to do that. To be more specific, businesses related to coal and E and P And also, what I touched on earlier, freight and also rail and also air is something that we need to be mindful of. So portfolio review needs to be done on a thorough basis. And if needed, we need to think about the exit strategy. That is something that I am mindful of. The cash generation power is strong. So the original figure is something that we are confident of achieving. However, on the other hand, we need to think about the upside of our cash generating ability. How that can be evaluated is going to be clear in the follow-up to the discussions of departments that I mentioned earlier. And we have come to a conclusion that by portfolio review, we will be able to have a stronger base for future growth. And that is something that we need to enhance. And then we'll be able to adapt to the onetime profit or losses that may occur. And that is something that we considered in maintaining our original forecast. Thank you very much for the question. Next question. The question is as follows. The review of portfolio and revaluation of the businesses. So the specific policy determination and strategy determination, what will be the time frame for that? Well, looking at the situation of COVID-nineteen pandemic, are you going to decide when to do that or are you going to do this immediately? The President will answer that question. I think I referred to this partially earlier as well, but the head of each business unit with some challenges and also as the ESG trend accelerates going forward, the portfolio needs to be reevaluated in the business domain. In those business units, there has been intensive discussions and more specific policies or directions have been already shared amongst those people. But with regard to more concrete individual projects, because we have business partners and other entities that we have to consider. So in what way specifically as a result of review of the businesses are we going to finalize the directions? For that question, for those that have the earlier timing, by the end of this fiscal year, we would include the timeframe for implementation as well. As I said, and the numbers that we have shared have taken that into consideration. So rather than looking at the pandemic situation in the current business environment, if we see already the future directions of the business, we don't waste any time to start doing this immediately. Thank you for the question. Next question is about the oil price. Consulting companies and public institutions have announced long term oil price, but the assumptions differ. How are you going to respond going forward? That is the question. Mr. Esnaga, please. Yes. I mentioned that we are reviewing E and P. But when it comes to the assumption of long term oil price, I think we need to take a little longer. IEA has made an announcement already, but we will look at the numbers announced by different external institutions to come up with changes to the long term oil price scenario, if needed. Of course, our partners, all measures, their trends will be something that we'll be taking as reference. And in addition, mid- to long term, hydrocarbon portfolio review will be done. And from oil to gas and to renewable energy to hydrogen. That is a transformation that we need to secure. And in the meantime, we believe that gas is a transitional energy that is going to take place of coal and oil. Hydrogen and also renewable energy is something that we want to focus on going forward, and that is a direction that we have confirmed with the frontline people. Thank you. Thank you for the question. The next question, there are several people who ask this question. With regard to Lifestyle segment, the second quarter has seen more losses than in the first quarter, especially fashion and food have been inherently weak. And with the COVID-nineteen, that weakness has been manifesting itself further. And compared to the peer, there is no other trading house that has suffered losses in the Lifestyle business as a whole. Can't you do any fundamental actions? [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] The President will answer the question. The biggest reason for loss increase in Lifestyle segment for this quarter was that as a next strategic focus, there is a Healthcare business segment. Unfortunately, the mainstay of healthcare, the IHH has to had to give priority to the prevention of infection of COVID-nineteen and this is of course natural for healthcare professionals that is in this business. And through that, each country and organizations and authority in each country is the entities that we have been working with in taking actions against pandemic. So this has been affecting the day to day businesses and the first half numbers have been under a severe downward pressure. Fortunately, the IHA set we are engaged in business and the countries that IHA is engaged in, 12 counts 12 and each of the countries has been recovering. And for the second half, however, in the first half, because of the actions against pandemic and COVID-nineteen, the priority has been given to that and the numbers have worsened in the first half and this will not be able to be offset by the end of this fiscal year. However, through the pandemic, the importance of medical institutions and also how you can make the clinical practice online and non contact type clinical operations have to be facilitated and that has been recognized and even before corona or COVID-nineteen, 6,000,000 persons' worth of personal data has been utilized in IHS in order to make the telemedicine work and also in prevention of diseases or pre disease prevention. And people with problems, health problems have seen the severity worsened in the COVID-nineteen. So in order to maintain the health, you have to have good nutrition and you have to take measures against pre disease. So we call this nutrition healthcare, but this integrated practice or business operation that we have been promoting already will be facilitated. And IHH has personal data or patients data of 6,000,000. And to each one of those patients, how we can contribute is something that we will see as the versioning of the Cs of the business. And we have to also look at profitability of each of the business operations with some challenges and we have been reviewing that quite properly. And what differentiates us from a peer is that we do not have any major revenue source in the Japanese market. And why is that? Because we have done the portfolio review and in the B2C area we have determined that we shouldn't stay in Japan, but rather go to the rest of Asia. And then Asia has been more affected by COVID-nineteen this time. But we would focus on the market of Asia that basic strategy will stay unchanged. In the strategic focus, we believe that this is important and so this is something that we will continue to do. But on the other hand in Japan which is relatively stable, we are lagging behind and that is the fact that we have to accept. And with this COVID-nineteen as a trigger, we have to facilitate the transition from physical face to face in person to remote operations and with the deregulation by Tsuga administration there could be structural changes in many of the industries. And as we look at that we have to do surround businesses in Japan such as AIM services that I mentioned earlier. There are several selected businesses that we have done probably in Japan. So we would like to take advantage of those to transform them into the platform to explore the new challenges. Moving on to the next question. On the cash flow allocation and shareholders' returns, core operating cash flow has been revised upward. Can you talk about that revision and also asset allocation going forward? Yes, Mr. Yoshinaga? Yes. As I touched on earlier, for the full year, the cash flow, the core operating cash flow has been revised up JPY 80,000,000,000. So we have the good cash generation power. That is something that we have secured. There has been some difference in the first half and the second half, and that is because FETPL occurred in the first half, and there were some tax related matters. With the economic recovery, the expenses will be increasing in the second half. That is our assumption. So they are factors related to seasonality. And cash flow achievement close to 500,000,000,000 yen is something that we are seeing. I may be repeating myself, but structural reform is something that we need to focus on. And that is going to be the priority in the second half of this fiscal year. So portfolio review will be prioritized. And accordingly, we are not forecasting cash out. However, the 180,000,000,000 yen the PEO numbers will be our focus going forward. And at the end of the fiscal year, we are going to review the asset allocation. I may be repeating what I've just said, but we will work on structural reform. And portfolio review is something that we first would like to work on. Thank you. Let's move on to the next question. The question is as follows. The iron ore business share in the profit has been increasing and because of the conflict of China between China and Australia and import regulation on coal has pushed down the prices of coal. So how do you see the risk factors for falling market prices of iron ore? The President will answer the question. Political conflicts and confrontation between China and Australia is something that we are worried about as well. However, for iron ore business, there is a limited source of procurement. Therefore, for the moment, it is difficult to find alternative suppliers and the relative position of or advantage of Australia is expected to continue. However, as we move into the second half, the prices of iron ore is something that we're not that optimistic, rather slightly conservative in seeing the prices. But securing alternative procurement sources is something that we need to do as Japan has diversified the energy sources and there is automotive demand in China and there will be such trend that we will see, but there are limited oil and oil mines available and there are some others, but they have not been developed because of the cost prohibitiveness. And so even if there are competitors with higher costs that would emerge, the price advantage or competitiveness will not be undermined. So that's our view for the midterm. But from the longer perspective, in the iron ore business, from the perspective of ESG, from the furnace to electric furnace with scraps as feedstock or direct reduction method is something that we would probably see as a focus in the future. So the iron ore material future demand is something that we would like to closely watch to figure out the growth of our iron ore business. So that is our basic strategy. Thank you for the question. So the next question about the trading. Trading is very strong. Can you talk about the sustainability of trading, please? From Mr. Esunaga. Yes. As I mentioned earlier, under this corona pandemic, the supply source was affected under the lockdown and steady source was affected. And of course, there has been some impact in the delivery. So there is some unsteadiness when it comes to demand and supply. So in the first half, commodities, especially chemicals and petrochemical products, there were some volatility in the situation. But we have virtual pipelines as a trading company. With our functionality, refinery and chemical conflicts have been connected and chemical complexes and clients' minds have been connected. And that has been evaluated highly. And through them, we were able to gain profits. And towards the second half, as we are now used to the corona and we are seeing situation becoming more steady and volatility and special factors are reduced as a whole. So we do not think the strongness we saw in the first half will continue in the second half. Measures to be taken in emergency or volatility, we so lead to profitability to a degree in the first half. But in the second half, in our trading business, we believe that we will go back to the profit situation that we had before in the second half. In the first half, the LNG trading, because of the impact of the hurricane in the Cameron plant led to certain suspension of operation. Therefore, there has been loss in the LNG trading. In the second half, we will not see such factors. And towards the winter, the LNG price is trending higher. The chemicals will stabilize, but when it comes to LNG into the second half, the negative factors will be eliminated. That is how we think. Thank you. Let us move on to the next question. Under the COVID-nineteen pandemic, how do you think the way you work has been changed, especially for President and Senior Management? How have you been compensating for the decrease in business trouble? And where did you see increased efficiency compared to the past? The President will answer the question as well. The number of business travel trips was 35 times last fiscal year. So 3 per month, including domestic and overseas trips, but for this fiscal year, it's been only 3 trips after slightly more than 6 months. So for that much for a long time, we have Tokyo and this has been unprecedented. But actually, we have visited 6 I have visited 66 countries on an online basis. And most for the major countries, I have remotely visited many times, especially the regular meetings with the top or head of the local subsidiaries. And actually, I have been finding myself talking to customers more often under the pandemic. For example, for Mozambique project that we engage in or Cameron project or ballet in Brazil and one of the customers in the U. S, Nucor and European majors, including all these entities, we have done web conferences many times and most of the web conferences have been able to cover most of the talks. Then what about the business trips that we had done before COVID-nineteen? But many Americans and Europeans are saying that we have had been able to see each other in person already and we knew each other already quite well. That's why we are able to have this online conference as well. And all the analysts that we are talking to today, we have met them already many times and if this were the first time that we see each other, then they may be wondering what would be the meanings between the lines and they could be wondering what we meant actually. So if we continue forever through only through web conferences then that could be worrisome. But we have already talked about what we have already talked about and what we are going to do actually implement them implement, we will be able to make decisions on an online basis. That's what we found and the number of business trips and the density of the business trips will be looked at based on this experience this time. But on the other hand, having said that, the seeing each other in person would bring about unique empathy and that is something that we need to embrace. As we engage especially in major large scale projects, in the end, the trust relationship between the top management will be the key. Therefore, we need to continue to have selective business trips. And also staying in Tokyo for a long time should not end up increasing the unnecessary business processes inside the company. With the digital transformation or data driven business transformation, there are many rooms for simplification still. And web conferences and digital tools on the various nature with the impact of COVID-nineteen have been implemented in society in a facilities matter and at least there is a business environment that would allow for that and that could help increase the efficiency of the entire company and we can do more. Thank you. Moving on to the next question. When it comes to valuation, profit and loss and also that being excluded, resource and non resources, can you talk about the ability of the business for this period? Thank you. First of all, at the beginning of the fiscal year, pre COVID-nineteen, that is when we formulated the plan as our ability, we had looked at fifty-fifty ratio. That was what we were forecasting. Non resources being weak, that was what we had heard. However, because of management efforts and improvement efforts, we requested to the front line. And in Machinery and Infrastructure and in Chemicals, non resources pillars are growing. And therefore, we had looked at the ratio of 50 to 50 between resources and non resources, and we believe that, that is something that we'll be able to achieve. But with COVID-nineteen, excluding coal, the non resources, the disappearance of demand was clear and impact was greater in known resources. Therefore, looking at the current situation, maybe it's 60 to 40 or 2 to 1. So the resources, 2 and non resources, 1. I think that is the ability of the businesses that we are seeing at the moment. So enhancement of non resources with corona and post corona is something that we need to take initiatives in. And we believe that is going to be a continued management challenge. Let us move to the next question. The question is as follows. Can you tell us your investment approach toward renewable energy? In this area, the valuation is increasing and I believe the large amount of capital investments and business acquisition will be required. So what would be your investment discipline toward the business expansion in this area? The President will answer the question. As you said, under the pandemic of COVID-nineteen, each of the countries, the government is looking at ESG and especially in the environment, the political or strategic inducement and the pressure from the equity market we're seeing and where renewable energy has become a sort of boom, in other words, there could be a bubble of renewable energy. That's how I feel. In reality, there's not that big capability to produce or generate cash. And there could be a higher premium for the future expectation than the reality in this area. So basically, what we are focusing on is a brownfield projects with increased value and but rather that will be given less priority and we would pursue rather the greenfield in the grassroots level. That's what I have been talking to the people in the field. Therefore, in Taiwan, the offshore wind power that we are engaged in is there. Of course, on a grassroot level, there is a huge amount of human resources to be spent if you're talking about grassroot project, but this is something that we have to start from scratch. Furthermore, under even under the pandemic, the hydrogen supply centers in or hydrogen supply stations in California have been enlarged with increased investments. Of course, transportation cost is still high for hydrogen. However, in California, where there is a high awareness about environmental protection, state government and the public organization in each of the municipalities and vehicle users and automotive manufacturers and operators of the pipeline and gas suppliers and ultimate service stations for gas, those who are supporting the supply chain or supporting ecosystem will have to share the cost of the transportation, so that total supply of hydrogen will be increased. And that system has been beginning to be in place. And if that is in place, then local production and local consumption type new energy is something that we can pursue and we will pursue. So the next question about Berkshire Hathaway. What is your thought on Berkshire Hathaway purchasing your stocks? Yes. Mr. Usunaga. Actually, I should be listening to the opinions of our analysts. But personally speaking, Warren Buffett has made the announcement in and outside of the company, and I have made his comment that achieving our goals, that is the most important thing for us. So medium term management plan, transformation and growth has been analyzed by people at Berkshire Hathaway, and that is how I felt. And through such analysis, the direction that we are moving toward for us to steadily achieve and realize these objectives is going to be most important. And if we do so, and by doing so, we believe that dependent on the situation that would lead to increased purchases of our shares and that is our expectation. And of course, we have to think about synergy. They have given us many hints. And for example, in the health care area, Berkshire Hathaway is a main shareholder with DaVita. So expanding collaboration with them is something that we have been working on. But going forward, in relation to IH, DaBITDA Ajea is something that we want to grow further. And that is going to lead to enhanced synergy and enhanced relationship between us and Berkshire Hathaway. Thank you. Next question is the following. I'd like to know the status of the progress of the strengthening of business management capability that was advocated under transform of medium term management plan. Partly due to the pandemic, the non resources earnings power, especially lifestyle business segment, has been falling significantly. So except for the turning around of the external environment going forward, when do you think we can see the visualization of the result of business management capability looking from outside? The person will answer the question. Thank you for the question. Even at this moment, the strengthening of business management capability resulting in more strengths in individual subsidiaries or affiliates. We have seen many examples of them. For example, Mitsui Sugar, one of the affiliates, has taken the lead in reorganization of the industry. And as we do so, the post integration company's direction has been twofold, the overseas and non sugar business area and they have clearly identified those. And of course, in the newly established integrated company, we'll have to come up with the sound, close strategy. But first and foremost, in that domestic industry, the reorganization, industry wide reorganization has been led by one of our affiliates and that is the adjustment to our strengths. And obviously, as I said earlier, in Japan, there will be digitalization and deregulation and things will change significantly. And this is one of the things where we can make our presence clearer and expand our presence. And for individual companies, affiliates, I have talked about being data driven earlier, but the monthly reports of individual companies affiliates have been eliminated and unnecessary reporting practice has been eliminated inside the company. And management status of the affiliates has to be able to be grasped on a real time basis through cockpit tool and that has been facilitated. Of course, individual companies have to promote themselves, but head of each business unit that is responsible for individual operations can interfere if necessary. And in order to reactivate the industry as a whole, you can take the next step. And in order for them to be able to do that, the visualization of the business management of individual companies and affiliates is important. And together with the strengthening of individual capability for business management, we have been promoting this as well. And under the pandemic, we will have to continue with this effort. And by doing so, when the demand recovers after COVID-nineteen, we will be able to be responsible for the business management of the companies. Thank you for the question. So the next question is. Thank you very much for sharing your cash flow allocation policy earlier. I'd like to ask a related question. In the previous medium term management plan, you adopted thought of interlocking core operating cash flow and shareholders' returns. I believe that is being followed on in the current medium term management plan. So upward revision of COCF will lead to enhanced shareholders' returns. Is that a high possibility? Yes. The core operating cash flow, we believe, is most important management KPI for our company and interlocking COCF with shareholders' return. That has not changed. But we have to look at the impact from COVID-nineteen. And under this pandemic with corona, as I explained earlier, structural reform will be something that we will continue to work on. What kind of outcome or results we will see in the second half is something that we need to look at so that we can review the full year shareholders' returns. That is the opportunity we would like to hold. But on the other hand, we place importance on cash flow, but that is not reflected in our share price, and that is our concern. We would like to have your understanding of it from the analysts on this point. Thank you very much. And with that, we'd like to end this Q and A session for today. So that was the financial results for the 6 months period ended September 30, 2020, the first half results for the fiscal ending March 2021. And we are planning to hold Mitsui and Company Investor Day 2020 next week on 10th November, Tuesday. So we'd like to talk about transformation and also our growth going forward, and we'd like to have your participation. So with that, we would like to end the financial results presentation. Thank you very much for your participation despite your busy schedule. Thank you.