Good afternoon. My name is Uchida, the Chief Financial Officer. Thank you for joining us today. I will start by reviewing our results for the first quarter of the fiscal year to March 2021. Although performance for the first quarter of the financial year could not avoid being lower than the previous period of the last fiscal year due to the impact of COVID-19, we are progressing well against our plan, mainly due to strong performance from Resources & Energy and Innovation & Corporate Development. Even under the spread of COVID-19, we are adapting to remote working and utilizing digital tools across all of our offices worldwide to maintain our operations and to implement necessary countermeasures. Please turn to page three. I will now summarize our operating results for the first quarter of the fiscal year.
Core operating cash flow decreased by JPY 31.6 billion year-on-year to JPY 110.8 billion, representing progress to full-year target of 28%. Profit for the period decreased by JPY 62.4 billion year-on-year to JPY 62.6 billion, representing progress to full-year target of 35%. Due to the slowdown in commodity markets and economic activity arising from COVID-19, our results are lower year-on-year. Factors such as high iron ore prices, strong trading in oil and LNG, and FVTPL earnings mean that we are progressing steadily with our initial plan. Staggered consolidation of earnings from some of our affiliated companies with different reporting periods mean that it remains possible that the full impact of COVID-19 on our consolidated results will be reflected from the second quarter onwards.
Moreover, in the areas of mobility, healthcare services, and materials, where at the start of the period we were expecting quite a large impact, we need to be cautious about the future prospects. In the global economy, we have seen China resume economic activity in advance of other countries, while in the U.S., Japan, and other major developed markets, economies began to reopen from May and June. Although it seems that the worst period of economic shutdown may have passed sooner than we expected, some countries and regions are experiencing ongoing viral spread or a second wave of infections. We continue to be cautious about any expectations of a rapid return to normality. As management, we will continue to manage risk closely and take heed of the business environment in which we operate. Please turn to page four.
Next, I would like to discuss the progress of one of our corporate strategies, strengthening the profitability of core businesses and pursuing new businesses. Core operating cash flow from our core areas of Resources & Energy, Machinery & Infrastructure, and chemicals was JPY 106.9 billion, with profit for the period of JPY 60.5 billion, accounting for more than 90% of our total operating cash flow and profit. In Resources & Energy, we made steady progress, supported by high iron ore prices. Oil and LNG trading was strong, contributing to a steady start of the year with core operating cash flow of JPY 78.3 billion and profit of JPY 35.7 billion. In Machinery & Infrastructure, progress was largely in line with plan. Due to contribution from asset recycling, however, we will continue to watch performance closely from the second quarter when the full impact of COVID-19 is expected to emerge.
In chemicals, progress was also largely in line with plan, with basic chemicals trading and agricultural supply businesses contributing to good performance despite the spread of COVID-19. We are making progress in business restructuring and reorganization at our existing businesses. In lifestyle, we formed a holding company to combine four subsidiaries operating logistics for retail and restaurant businesses, and also a new subsidiary which aggregates import-export businesses. In Innovation & Corporate Development, we have started discussions on merging two of our ICT-related subsidiaries. In chemicals, we have decided to sell out of Sanei Sucre Chemical. Even amid the pandemic, we will not slow down our efforts to strengthen our competitive position by intensifying and increasing the sophistication of our operations. Please look at page five. I will now review progress on another of our medium-term management plan strategies to evolve our financial strategy and portfolio management.
Cash inflow for the period included core operating cash flow of JPY 110 billion, along with inflow mainly from asset recycling of JPY 40 billion, arising from the sale of assets such as power generation business in North America. Cash outflows included investments and loans of JPY 145 billion and a JPY 40 billion outflow for the acquisition of shares during the period as part of the share buyback previously announced. Main investment and loan items included the integrated development of Mitsui & Co. head office in Tokyo, iron ore business in Australia, and LNG projects under development.
The business environment remains severe, and we will continue to manage the company with focus on cash flow and maintain strict investment discipline, including closely reviewing both post-FID investment and maintenance CapEx and ongoing investment in existing businesses. Please turn to page six for a review of the balance sheet and the end of the first quarter. Compared to the end of March 2020, net interest-bearing debt has increased JPY 48.2 billion to JPY 3.5 trillion. Shareholders' equity increased JPY 53 billion to JPY 3.9 trillion. As a result, net DER was unchanged at 0.91 times. Page seven, please, and review progress of our strategic focus. Despite the spread of COVID-19 during the first quarter, we have taken necessary measures and have continued to move steadily forward with our strategy.
In Energy Solutions, progress included launching commercial operations at Fukushima gas-fired power plant and investing in the largest hydrogen station developer and operator in the U.S. Looking ahead, we will be pursuing business in areas such as smart energy services and climate change response. In Healthcare & Nutrition, at our Asian hospital operations, we are starting to introduce integrated telemedicine while contributing to the COVID-19 response and the development of new business models. We will continue to seek accelerated growth in medical and related areas. In Market Asia, at Bussan Auto Finance in Indonesia, we used AI technology to develop and introduce a credit collection scoring system supporting our efforts to strengthen risk management as the business expands. Focused on Asia, we will continue to make active use of DX to develop new business models and leverage the shift of power to consumers.
Please turn now to page eight. The global COVID-19 pandemic shows no signs of abating, so allow me to explain its current and expected impact on Mitsui. In Resources & Energy, the price of iron ore remains high, and oil has begun some early recovery, but coal prices have fallen and remain low. Machinery & Infrastructure remains the area of most concern as a high level of uncertainty persists in automobiles and other areas. In Materials business, there is growing impact on both chemicals and iron and steel products, particularly a fall in automotive industry demand and reduced operation rates. In Lifestyle, the negative impact on hospital business is beginning to ease, while the impact on services for cafeterias, event facilities, and such like might linger more than expected. The impact on retail foodstuffs and fashion business is also deepening.
On the other hand, in Innovation & Corporate Development, we see good performance at businesses such as digital security, which have contributed to positive results. The operating environment is changing day by day, and the level of uncertainty remains very high. We have not revised the business plan in the first quarter, but we will be making a thorough review during the second quarter. In the meantime, the businesses have been instructed to firstly focus on the countermeasures to the pandemic and to continue monitoring its effect. Although the worst period of macroeconomic stagnation may have passed, and our first quarter has produced a solid start relative to the plan, it is expected that the true impact on each business from COVID-19 will be reflected from the second quarter onwards.
For subsequent periods, we need to be mindful of the delayed consolidation of some affiliated companies with different reporting periods, heightened credit risk, and the possibility of changes to the business plans. We also need to be wary of any subsequent waves of infection and also be prepared for a scenario where the activities will not recover to before COVID-19 levels. That concludes my part of the presentation. I will now hand over to Tetsuya Shigeta, our Global Controller, to explain details of our results for the first quarter.
Good afternoon. My name is Tetsuya Shigeta, Global Controller, and I will now provide details of our operating results. Please look at page 10. First, I will explain the main changes in the core operating cash flow by segment compared to the first quarter of the previous fiscal year.
Core operating cash flow for the first quarter of the year was JPY 110.8 billion, a year-on-year decrease of JPY 31.6 billion. In Mineral & Metal Resources, core operating cash flow decreased by JPY 15.8 billion to JPY 41.9 billion, mainly due to a decline in sales price and volume of coal at Australian coal mining operations. In Energy, the core operating cash flow decreased by JPY 22.3 billion to JPY 36.4 billion, mainly due to a decline in oil and gas prices and production volumes. In Machinery & Infrastructure, the core operating cash flow decreased by JPY 5.3 billion to JPY 12.9 billion, mainly due to a decrease in dividends from equity method affiliates. Chemicals achieved core operating cash flow of JPY 15.7 billion, a year-on-year increase of JPY 9.2 billion, which is mainly due to a one-time factor at an overseas affiliate.
In the Lifestyle segment, the core operating cash flow was JPY 3.6 billion, a year-on-year decrease of JPY 3.8 billion. Which is mainly due to a decline in dining out and purchasing demand at retail, food, and fashion affiliates. Innovation & Corporate Development achieved core operating cash flow of JPY 12.7 billion, a year-on-year increase of JPY 14.8 billion, mainly due to strong commodities trading in addition to FVTPL profit. Please turn to page 11. I will now explain the main changes in profit by segment compared to the first quarter of the previous fiscal year. Profit for the quarter decreased JPY 62.4 billion to JPY 62.6 billion. In segments where profits were mainly influenced by the same factors I just explained for core operating cash flow, I will not go into further details here.
In Mineral & Metal Resources, profits decreased JPY 16.8 billion to JPY 32.2 billion due to an impairment loss at Mozambique coal mining operations. In energy, profits decreased by JPY 36.9 billion to JPY 3.5 billion due to an absence of deferred tax assets associated with the FID for Mozambique Area One, which was recorded in the same period of the previous fiscal year. In Machinery & Infrastructure, profits increased by JPY 1.2 billion to JPY 18.5 billion, mainly due to the sale of a power generation business in North America, and despite the absence of a one-time profit from the conclusion of arbitration related to a Brazilian gas supply business in the same period of the previous fiscal year. In chemicals, profits increased by JPY 2.2 billion to JPY 6.3 billion, mainly due to strong trading performance.
In iron and steel products, profits decreased by JPY 2.8 billion to negative JPY 1.3 billion, mainly due to a decline in demand for steel for the automotive industry and a decline in operating rate. In the lifestyle segment, profits decreased by JPY 13.2 billion to negative JPY 5.6 billion due to a decrease in demand at hotels and service-related businesses. Turning now to page 12. Here, we will look at the factors influencing year-on-year changes in the first quarter profit. Base profit declined by approximately JPY 10 billion. Although strong head office LNG trading and FVTPL recovery were positive factors, the impact of COVID-19 contributed to a decline in profit of approximately JPY 16 billion, primarily in non-resources areas and LNG dividends decreased.
Next, in resources related cost volume, the deterioration of mining conditions resulting in lower volumes and higher costs contributed to a decline in profit of approximately JPY 3 billion. In energy, lower volumes resulting from a decline in production at MOECO's offshore Thailand operations contributed to a decrease in profits of approximately JPY 6 billion. asset recycling contributed to a decline of approximately JPY 1.0 billion due to the absence of gain on sale included in the same period of the previous fiscal year in lifestyle and Innovation & Corporate Development, and despite gain on sale of power generation businesses in North America. In commodity prices and Forex, a decrease in the price of oil and gas was the main factor in the decline in profit of approximately JPY 11 billion, while a decrease in the price of coal was behind a decline of approximately JPY 8 billion.
In Forex, JPY strengthening against the AUD was the main contributor to a decline in profit of approximately JPY 5 billion. Valuation gain and loss and special factors contributed to a decline of approximately JPY 18 billion due to the absence of deferred tax assets associated with the FID for Mozambique Area One included in the same period of the previous fiscal year, impairment loss at Mozambique coal business this Q1 and other factors. That concludes my presentation. Thank you.
Now, we would like to go into Q&A session.
Thank you very much for the explanation today. I would like to ask two questions, both related to the business results. My first question. On page 12 of the presentation material, you talk about the COVID-19 impact on non-resources of JPY 16 billion. It was mentioned earlier that the impact will become more clear in the second quarter, and there may be some impact from delayed reporting from affiliated companies. It will be very difficult to foresee the impact of COVID-19 now. The corona impact of JPY 95 billion announced at the beginning of the year on non-resources, and in the first quarter, the value is JPY 16 billion. In HCA mobility, it comes to JPY 70 billion, material JPY 20 billion, and others JPY 10 billion. I believe these were the figures given.
If we consider the JPY 16 billion for the first quarter against the JPY 95 billion, do you believe this is appropriate? Of course, you mentioned that chemicals and tradings is very strong, and impact on healthcare may not be as big as was anticipated. Can you talk about the corona impact that you can see at the moment for different businesses? The second question is, the JPY 180 billion, the full-year figure. Of course, we believe that the iron ore price and the oil price, they may be favorable elements, and Vale paying the dividend also is a positive factor. Looking at the foreign oil majors and semi-majors, they are lowering the mid- to long-term oil price forecast. BP's $55 may be too much, but many are targeting around $60. Your price may be a little bit high.
Can you talk about the risk of lowering the price? Can you also talk about the positive and negative factors against the JPY 180 billion figure that you have given us? That is my second question. Thank you.
Thank you very much for your question. CFO Uchida will answer both your questions.
First of all, about the corona impact. As you just indicated, at the beginning of the year, we said that corona impact would probably come to around JPY 200 billion, JPY 100 billion for market, and also JPY 95 billion to JPY 100 billion for non-resources. Of course, it will depend on how we analyze the impacts, but for non-resources, in the first quarter, on a P&L basis, we are seeing negative impact of JPY 16 billion. We are conducting monitorings or hearings on the corona impact, but the level has not changed. Of course, it is very ambiguous.
With materials, I believe that maybe the impact may be bigger for materials, and for mobility, JPY 70 billion. Maybe the impact may not be that big on an annual basis. There are some fluctuations. In total, we are seeing the COVID-19 impact to come to JPY 100 billion, and that has not changed. Of course, in different areas, we may be a little bit on the conservative side, but in total, our outlook has not changed since the April announcement. When it comes to delayed reporting and consolidation of affiliated companies, in Machinery & Infrastructure, there are many that will be impacted. We believe that in the second quarter, the April to June figure will be reflected. There will be an impact coming from that delayed reporting in the second quarter. As for your second question, the positive and negative factors on an annual basis.
When it comes to iron ore, I think it is close to last year's prices. We believe that is a positive factor. When it comes to the oil price, there is an upside opportunity there. I mentioned earlier, of course, there is delay in the reporting, but if the current situation continues, or if the recovery from COVID-19 is slow, there will be other factors like credit cost or credit risks starting to appear going forward. Some may be included in the JPY 100 billion I talked about earlier, but in individual business plans, there may be some reviews or revisions necessary, and I believe that can be a negative factor. When it comes to the long-term oil price, oil majors are starting to lower the price.
At the end of March, we said that the assumption of the oil price will be continued, and repayment was also recorded. In the first quarter, we had focused very closely on the movement of the oil price. When it comes to the long-term outlook, post-COVID-19 or with COVID-19 situation should be analyzed to see what will happen to the oil price. Mid- to long-term demand and supply will also be considered. There are many different opinions, and we are in touch with third parties and third-party institutions. There has been revisions to mid- to long-term outlook after April, but there is not much of a change. We will continue to monitor the situation subsequent to the second quarter. We believe that discussion will continue in this area. Did that answer your question?
Well, as for the mid- to long-term oil price, I have a follow-up question, a more detailed one. The most recent financial report to the ministry of your company, $30-$80 was mentioned. For the mid- to long-term price, while you have not disclosed the numbers, but $80 is the one that you see in the financial report, then you have reduced the oil.
All majors in overseas have reduced their level to $60. It seems to be higher compared to that. Can you comment on that?
Uchida speaking. Well, we haven't given the timeframe, but from the financial report to the ministry, there is a range for oil prices, and $30-$80 is based on our assumption that we use. Therefore, in the longer term, it could reach $80. That's why we have the range up until $80. Whether that is appropriate would bring us back to the level that we are talking about. For the mid to long term, various outside institutions have not reduced the level yet, and $55 may be a bit too far, but some companies have reduced the level significantly. What sort of prospect that you have, it really depends on the market and the environment.
Of course, it is difficult to talk about mid to long term, but based on that, even if there is an impairment loss, there won't be direct impact on core operating cash flow. It all depends on how to distribute the cost, or allocate the cost, between different periods, and I would like to watch what's happening in the environment. Well, what you said about other energy companies not reducing the levels that much. $80, which timeframe are you talking about? That's not clear. The curve to reach that level, well, about 2025, that is the year that they are looking ahead into, and at that timing, they're coming up with $60.
If your final goal is $80, if you compare the curve that will reach that level, $60 in 2025 is probably not that deviated from the timeframe that you're talking about $80. Is that correct? Not that deviated. I'm not sure how much, but we're starting from 30/30 was the price at the end of March. We have drawn a forward curve to draw the curve. Other companies are not the oil majors, not just oil majors, but we are looking at other institutions that are coming up with the prospects. What other oil majors would do, rather than that, we're looking at the research company's forecast. Depending on how they may change, we would like to have discussions internally. Those levels have not been reduced that much.
The COVID-19 impacts may not have been fully reflected in the forecast from the institutions. How those numbers will be revised will be closely watched, we will come up with the mid to long-term prospect. Compared to what we had expected initially, the COVID-19 and also environmental load and energy transition, from these perspectives, oil prices may peak out at earlier timing than expected. We have to have a comprehensive review, that's why we have not changed our prospect this time. Okay. Thank you.
Thank you very much.
Thank you very much. I would like to ask two questions. The first question, in energy segment, where oil price may be a bit high, the consolidated oil price is $65, I see. With that high price, the profit may not be substantial. Maybe the volume went down, or the dividend may have gone down. Looking at the first quarter numbers, we believe that the second quarter, there will be some differences in the reporting period. It may go down to $30, and that is going to end up in a loss. In the first quarter, are there any special factors that did not bring about substantial profit? Can you talk about the energy oil price base and the situation that you're seeing at the moment? The second question, of course, you talked about the market at the beginning.
Of course, the environment deteriorated. In your core businesses, 90% was coming with a profit bringing about cash. However, for example, steel products and lifestyle, these are the areas in which if the environment deteriorates, the loss is going to get bigger. With COVID or post-COVID, there are areas or segments that we will not be able to go back to. These may be the lifestyle businesses. Assets, you have JPY 2 trillion of assets. There is no cash being gone out of that JPY 3 trillion. The external environment with COVID-19 is changing. Maybe you should accelerate your movements in order to be able to recover or rebuild your assets, in order to bring about profit.
With COVID-19 impact that you are seeing in the first quarter, have you had discussions internally as to what to do, what countermeasures you can take to make it better? If that is so, please share that discussion with us.
Thank you for the question. CFO Uchida will answer your question.
Thank you very much. In the energy segment, the oil price consolidated. Of course, it will be delayed in the first quarter. It will be the price beforehand. In the second quarter, I think there will be a downward pressure, as you just mentioned. Currently, of course, the prices will be decided, and in the first half, it will be $30, and the second half, $ 35. I think we need to think about the prices and minuses. In the material available in the energy segment, Integrated Energy Solutions Business Unit has been added.
Traditionally, energy solution, they have been working on comprehensively. The assets from such projects and energy solution businesses will be transferred to this new business unit. Of course, there will be some preceding costs, expenditures necessary. Profitability will be coming in a delayed manner. In the first quarter, there will be JPY 3.3 billion of loss in energy. Some of the information is not to be disclosed. However, there may some provisions necessary. That is why we get this figure. This may be the special factor that you refer to. For your second question, in Lifestyle, of course, the asset is very big. Healthcare is also included. IHH is involved as well. It will take time for it to show movements in the cash flow. This is included.
However, food and distribution businesses, of course, there may be pluses and minuses. As for eating out businesses, there may be services involved in that. In distribution or logistics, there may be some downward pressure. Eating in at home, I think these are doing well, and we have textiles as well. Sales at stores, they are being impacted very largely. We are still in the early phases of taking countermeasures, but the growth rate is quite strong. That is something that we have been working on before COVID-19, and we are using DX closer to the consumers. In this area, we talked about existing businesses, restructuring the existing businesses, and a number of businesses, companies, have been integrated. This is not just for cost reduction, but we are looking at business strategies to integrate them so we will see more synergy effect.
That is what we are aiming for. We are coming up with new retail and restaurant integrations. This is something that we've been aiming for a long time. However, these are some of the measures that we'll be taking. Of course, logistics and also some import and export businesses will be integrated as well. We'll be able to enhance their functions further. That is the aim of such integration. In the midterm business plan, we have outlined some of the integration that we'll be working on, and that had been implemented in the first quarter. Thank you. Did that answer your question?
Well, I'd like to ask a related question. In energy, the reduction in volume, is it bigger when we compare it to the full-year figure? Of course, energy. When it comes to energy, the products are not moving as much.
Maybe the volume is going down. What is your thought on the volume in energy when it comes to sensitivity? Is it a negative impact, or you do not see such a negative impact as much? Is that correct?
Well, this factor, MOECO, in 2023, the test flow will be completed. Of course, the depreciation started early. Of course, in 2023, of course, it will be completed, we will not make additional investments. I think we are on the suppression of making additional investment. That is quite big. I think that is a factor that we can refer to. Thank you very much.
Thank you very much.
Thank you. I have two questions. I also like to ask about LNG. The JPY 2.1 billion in received dividend, it has been reduced to about one-third one-sixth of the previous year. Because of the seasonality, this number should be small, but on a full year basis last year, there was JPY 60 billion. Year-on-year, would that be one-sixth for the full year this year, or was there any special factor involved? That was my first question. Second question, Machinery & Infrastructure, IPP has fallen significantly in the first quarter. I had thought that this would be a stable business. Was this because of a one-time factor, and in the second quarter we can expect the level to recover to the normal level? Is that correct?
Thank you very much for the questions. CFO Uchida will answer those questions.
First on LNG dividend, obviously, because of the oil price drop, the revenue may have dropped, but there doesn't seem to be special factors. If you just look at the first quarter, in this special environment, of course, this is true for other affiliates. We are more on the conservative side, and dividend may be adjusted, and that is the general trend that we're seeing. I'm sorry, I don't think there were any special factors. The oil price drop, and on a full year basis, what would be the result? That would be reviewed again in the second quarter. As for IPP, well, there's a seasonal factor involved, and also there were some pending issues that were fixed, and there was cost involved, and that was a downside factor. There was some special factor included in this area. Did that answer your question?
I see. Thank you.
Thank you very much. I have two questions I'd like to ask. The first question, in the earlier question about energy, you talked about the possibilities of impairment going forward. On a related note, if you need to record an impairment, for example, you need to think about the credit rating to think about cash flow or investors' returns. With credit rating agencies, with COVID-19, many of the Japanese companies' cash flow is going down, there may be some pressure. What are the discussions that you're having with them? If there was an impairment, the net DER may go down. Credit rating agencies, have you had discussions with them? Can you talk about the discussions that you may have had with them? That is my first question. The second question, with COVID-19, the supply of resources, what are the impacts that you're seeing?
For example, in the Central and South America and iron ore businesses in Brazil, I'm sure there may be a lot of impact that you may be seeing. Of course, you're involved in Vale, and in the first half, there may be some impacts appearing. What is the recovery like in the iron ore businesses, and what are the situations of the businesses that you have in these areas? Thank you.
Thank you very much for your question. CFO Uchida would like to answer your questions.
First, about the credit ratings. In the medium-term management plan, before we made the announcement, we had Moody's rank us as negative when it comes to the outlook. We do not feel that we have a downward pressure. Cash flow allocation, if we make it accurate in the framework that we have, and with the financial management, I believe that the downside risk is something that we can deal with. When it comes to the oil price and impairment losses related to the oil price, of course.
The long-term oil price, how we are going to look at it, of course, the impact from impairment is something that we need to consider. At the end of March, for the full year, it went down substantially. There is a delta value. Looking at our balance sheet, looking at it as a whole, how much impact there is something that we need to think about. I hope you can sense it from what I'm saying. Looking at the whole, in fiscal year 2016, for example, I don't think that will be the scale of impairment that we'll be repeating this year. When it comes to the prices of resources and the supply of resources for iron ore, for example, the Australian business is very strong. It is doing very well. When it comes to Brazil or Vale, they have their production plan.
I believe it is between JPY 310 million-JPY 330 million. Vale's explanation is that it is near to JPY 310 million. That is the explanation that they have given us. When it comes to iron ore, volume-wise, we are not negatively affected. When it comes to copper in Chile, in some of the projects, the operation rate has gone down. However, when it comes to (Koziaski), I think it is very strong. Any additional comments? Yes. When it comes to the copper business, Anglo American Sur, there is a COVID-19 impact. They have reduced number of personnel by 40%. I think that is the impact we are seeing there. The full-year target has not been revised. Of course, Caserones, COVID-19 impact is appearing. Of course, operation rate has been lowered starting at the end of March. Actually, the production is going up.
That is all the comments that I have for now.
Thank you. Copper production volume, has it gone up from the original forecast?
Collahuasi, I believe is positive, but I do understand that there was reduction in the number of employees, but the volume has not changed. There's not much impact on the copper volume. Is that correct? With Vale, you receive dividend. Production was between JPY 300- JPY 310, and it's closer to JPY 310 million, I believe. This is not a negative impact because Vale announced that they will be paying dividend. There is no negative impact there. Is that the correct understanding?
Yes. Thank you very much.
When it comes to production of copper, compared to the forecast at the beginning of the year, the numbers have not changed. Your interpretation is correct.
As for Vale, as you say, the production, 310 million to 330 million was the forecast. Last year, it was 302 million. We do see COVID-19 impact, but the volume, I believe, will increase. As for the dividend payment, you have stated it correctly. Vale business, the situation is as you just explained.
Thank you very much. The other one, I'd like to ask Uchida-san about the credit rating. Have you had discussions with the agencies? What about the impairment of the energy businesses? In March, it went down, but the impairment test has gone down. The long-term perspective may have changed. Of course, 2016, March, of course, that was a year in which a large impairment was recorded. This year, it is not going to be that big. Is that correct?
That is forward-looking information, but that is what we are thinking at the moment. I'm not saying that there will not be any impact. Of course, the situation may change. There's not much I can say here, but there will be some impact, yes.
Thank you.
Thank you very much.
Thank you. There are two questions. As for chemicals, ITC and Novus, the current status and prospects, that's what I'm interested to know. Lifestyle and healthcare, IHH, it started from the loss. Likewise, can you comment on the current status and the future outlook? Those are the two questions.
Thank you for the questions. Uchida, CFO, will answer those questions.
As for ITC, the operation itself has been continuing to recover. Incident-related cost, there's very little. There was a claim to the insurance that's partly included, but the incident investigation and the cause has not been finalized yet. It is expected to be finished by the end of this year, but there is a delay. As for the litigation, we're still at the early stage, and we are not in a position to disclose anything important.
As for Novus, there were several structural reforms that were ongoing. First is the structural reform-related costs. That has been incorporated this time, but the value is not that much. In the second quarter, there were some that will be incorporated, so there's a positive factor. Also, methionine prices in recent time has improved. It is not a sustainable level yet, but there was a slight favorable factor on the Novus performance because of that. As for IHH, in the first quarter at IHH, the Indian-related business impairment loss was recognized, and part of that loss has been incorporated in our performance. In the first quarter, there is a bit large loss, or a negative factor. We had thought that the operation rate will be affected more severely in Asia.
The PCR test has been outsourced, some patients have been received in IHH hospitals. As I said, there was some easing of the downward pressure that we have been receiving. Therefore, compared to the initial forecast, even though there was a first quarter impairment loss, compared to the initial expectation, the downward pressure or negative pressure may have eased, and we are on the recovery track. Did that answer your question?
Thank you.
Thank you very much. I'd like to ask a question. One question. With this business results announcement, you also announced a share-based compensation plan for your employees. The objectives have been outlined, but what are the changes you're expecting from your employees by offering this plan? Thank you.
Thank you very much for your question. Uchida will answer your question.
Thank you. To our employees, we would like to have a better remuneration system, and the HR system as a whole is being reviewed currently. Of course, performance-based treatment and also performance-based remuneration has been introduced. In the mid to long term, with ESOP being introduced, we would like to aim for mid to long-term growth of the company that is closely related to our stock price. That is something that our employees need to be sensitive of. Of course, directors have stocks as well, so performance-wise, short time, the annual business results and individual performance is being reflected, but the allotment is not that big. We would like to have the employees more aware of the movements of the stock prices. After a certain period, at the time of retirement, it will be vested to our employees.
That is going to lead to improving the company value, and I hope it will lead to better returns to our investors.
Okay. Thank you very much for your answer.
This is Uchida once again. This afternoon, in the headline, we said that we may have been able to go through the worst period for Mitsui. I'd like to make a correction to say that we do not see that the first quarter was the bottom. Depending on the spread of COVID-19 going forward, the second wave, for example, and of course, the delay in reporting from subsidiaries, and of course, there'll be some expenditures that will surface going forward. These are the areas that we'll be monitoring very closely going forward so that we will be able to manage the situation.
When it comes to the global economy, looking at the indicators, of course, the bottom may have been hit during the first quarter. That is what I wanted to say with the announcement. Thank you very much for your attention today.