Mitsubishi Stock

Good afternoon. This is Nakanishi, the President and CEO. Due to the impact of Typhoon, today's Investor Day will be held in a video conference format. Thank you for your understanding. While our regular earnings briefings typically focus on current performances and near-term results, today, we would like to provide a more comprehensive update on our strategies and initiatives to drive medium- and long-term corporate value.

We remain deeply focused on continuous value creation. This slide outlines our value creation framework, which is also described in detail in our integrated report. Starting with the top section, under Corporate Strategy 2027, we have established growth in underlying operating cash flow and capital efficiency and ROE as our primary KPIs.

With respect to underlying operating cash flow, which serves as our earnings base, I am pleased to note that we are seeing stronger alignment and awareness across the organization, and we continue to accelerate the execution of our enhance, reshape and create initiatives. To increase our ROE, we are strengthening baseline profitability and improving ROA while maintaining a strict focus on the discipline and effective use of leverage.

Finally, turning to our goals of elevating growth expectations and reducing our cost of capital. We're actively working to deepen the market's understanding of our strategy and growth potential through proactive investor engagement and enhanced disclosures.

It has been 1 year since we announced Corporate Strategy 2027. At the time, following the announcement of U.S. tariffs, uncertainty in the macroeconomic environment was particularly high. In that context, we set out a strategy to strengthen and accelerate initiatives centered on our core businesses where our confidence is strong as well as new domains with clear growth potential.

Since then, the global landscape has continued to evolve. We are navigating through rising geopolitical risks, increasing complexity and the path towards decarbonization and structural shifts in industries and lifestyles driven by the expansion of AI. As a result, we are even more keenly aware of the growing importance of ensuring a stable energy supply, securing critical mineral resources, strength in food supply chain and addressing increasingly diverse customer needs.

Against this backdrop, we will leverage our high-quality asset base we have built over many years together with our extensive downstream touch points and utilize our integrated strengths to address global challenges while achieving sustainable growth.

As mentioned already, in this evolving macro environment, I would like to highlight several areas where we believe we can leverage our strengths to drive value creation. In mineral resources, we will ensure a stable operation and supply of high-quality steelmaking coal while further strengthening our initiatives in critical minerals for electrification.

In copper, we are steadily growing equity production towards FY 2030. We plan to commence production at Copper World in Arizona, U.S., in FY 2029. Also, we have agreed on a joint mine plan for the Los Bronces copper mine in Chile, part of the Anglo American Sur copper business in which we have an interest, and the adjacent Andina copper mine owned by Codelco, and plan to increase production as a result. We are also conducting feasibility studies across other critical mineral projects.

Turning to the energy value chain. In January, we announced the acquisition of shale gas assets in Haynesville, which spans across Texas and Louisiana. Building on competitive upstream gas, our aim is to capture the growing demand for gas within the U.S. industrial and power sectors.

In addition, we are evaluating the supply of LNG to international markets using LNG facilities owned either by ourselves or by third parties. We also hold LNG interest on the West Coast of Canada, providing supply optionality across Asia, Europe and other regions. We believe this flexibility is one of our key strategic strengths.

In food and bio-based businesses, we are capturing expanding demand for protein while contributing to global food security and advancing initiatives at the intersection of food and energy. For example, in Hawaii, we are engaged in biofuel production. Our presence across both food and energy has enabled us to move early into new bioresource value chains.

Going forward, we will continue to leverage our expertise in grain procurement and trading together with a global network. While much of what I have covered so far has focused on upstream, we are also actively strengthening our downstream businesses through our C2B value chain approach.

We are taking a market-driven approach, enhancing services that directly address consumer needs through channels such as convenience stores and supermarkets while strengthening linkages with other consumer-facing businesses, including food products, logistics and urban development.

At Lawson, we are advancing service diversification and improving operational efficiency by leveraging KDDI's capabilities, and we are beginning to see tangible results. At Mitsubishi Shokuhin, which we took private last year, we are accelerating business development, both in Japan and overseas by leveraging our extensive networks with the aim of unlocking synergies across the entire value chain.

Finally, in addition to the initiatives in mineral resources, energy value chain, food and bio-based businesses and the C2B value chain, we are steadily advancing Enhance, Reshape initiatives in the core business domains where we have long held strengths.

Finally, let me share our view on our mid- and long-term growth. We are building a business portfolio capable of delivering the sustained average annual growth rate of approximately 10% or more in underlying operating cash flow.

Based on a bottom-up assessment of all ongoing and pipeline projects, we have developed underlying operating cash flow projections through FY 2028 and beyond. This gives us a high level of confidence in our ability to sustain this growth trajectory and reinforce our earnings toward FY 2030.

With respect to ROE, we have consistently stated that 12% is a milestone, not an endpoint. From FY 2028 and onward, we will continue to strengthen our existing businesses while proactively managing our portfolio through capital recycling and new investments.

Furthermore, we will utilize leverage appropriately while maintaining financial discipline, accelerating value creation that transcends traditional industry boundaries. Through these efforts, our goal is to achieve sustainable growth and continuously improve our capital efficiency. Thank you for your attention.

My name is Yoshihiro Shimazu, CFO. Let me briefly introduce myself. Most recently, I served as General Manager of the Corporate Accounting Department. Prior to that, I held roles within the Machinery and Living Essentials segments was seconded to Mitsubishi Motors, was stationed in China and worked in the Corporate Strategy and Planning department. I assume my current position as CFO this April. Thank you for joining us today.

Today, I will outline the operating model that enables the delivery of our targets for Corporate Strategy 2027. Under Corporate Strategy 2027, our aim is to simultaneously achieve high growth and capital efficiency. First, with respect to growth, our goal is to sustainably deliver an average growth rate of over 10% in underlying operating cash flow. This target has been assigned to all business segments since the launch of Corporate Strategy 2027.

Turning to capital efficiency. We have set a corporate ROE target of 12% or higher by FY 2027. To support this at the operational level, we have introduced an approach where specific ROE targets are set for each business segment calibrated to their respective sector fundamentals. I will cover this in more detail later.

In terms of financial soundness, we maintain an upper guideline of approximately 0.6x for the net D/E ratio. At the same time, we have implemented a cash flow management strategy, requiring each business segment to maintain positive free cash flow, thereby empowering segments to independently optimize their portfolios, including asset replacement. Ultimately, this ensures we optimize our use of leverage while maintaining our financial soundness.

I will also walk through the ongoing monitoring and follow-up processes that support our value creation framework. Let me now turn to our operating model for achieving our corporate ROE target. As mentioned earlier, we have established ROE targets for each business segment for FY 2027 to support our overarching goal of a 12% or higher corporate ROE. We have not previously explained this capital efficiency approach in detail. So I would like to take this opportunity to do so.

For each business, we determine a risk-adjusted cost of equity based on industry benchmarks while incorporating business-specific risk factors. We then calculate a weighted average to arrive at the risk-adjusted cost of equity for each business segment. The corporate weighted average is then regarded as our overall risk-adjusted cost of equity.

The required excess return, defined as the difference between the cost of equity and the ROE target, is allocated to each business segment and set as a specific ROE target. As each segment works to achieve and exceed its target, the company as a whole is structurally aligned to achieve an ROE of 12% or higher. From a management perspective, we conduct tailored monitoring and follow-up at the business level to maximize these excess returns.

The diagram on the right illustrates this target setting concept. While targets are managed at the business segment level, the five business domains presented earlier can be mapped as shown here. For each domain, the risk-adjusted cost of equity is derived from an industry-specific cost of equity that incorporates business-specific risks.

Against this baseline, we aim to maximize excess returns through our core strength, such as our foresight, expertise and value creation capabilities. Our portfolio spans businesses with diverse risk return profiles. Some generate higher returns in favorable market conditions while other provide stability during downturns.

Ultimately, through a combination of operational improvements, asset replacement and capital allocation, we are steadily enhancing our overall corporate ROE. As I mentioned earlier, achieving both segment ROE targets and a corporate ROE target requires each business to generate returns above its risk-adjusted cost of equity and deliver additional excess returns. To support this, we apply rigorous investment screening and ongoing monitoring.

Let me -- I would like to explain about this process. First, about the individual investment or financing decisions. At the time of each investment or financing decision, we assess not only quantitative criteria such as the ability to achieve returns above the risk-adjusted cost of equity, but also qualitative factors, including strategic rationale, value-added to Mitsubishi Corp., and exit strategy.

Decision-making authority varies depending on the size and characteristics of each investment. For large-scale investments involving significant risk capital, decisions are made through comprehensive discussions among senior management across business segments.

Next, going to the monitoring process. After an investment is executed, we conduct annual reviews of each investment through a formal business plan process. In these reviews, we evaluate KPI performance, future growth prospects, risks and holding strategies together with the corporate functions.

In particular, for businesses that fall below the risk-adjusted cost of equity, exhibit slowing growth or have reached maturity, we conduct a detailed review of strategic alignment, improvement plans and holding policies.

Since the launch of Corporate Strategy 2027, approximately 20 companies have been identified for divestiture based on these reviews. As mentioned earlier, our segment ROE approach and cash flow management strategy have been fully implemented across all business segments.

These mechanisms are designed to empower segments to independently replace businesses with relatively lower profitability or weaker strategic positioning, particularly as we pursue new growth investments. As a result, portfolio replacement activity is expected to increase going forward.

The diagram on the right illustrates our overall business management cycle. At the corporate level, we hold an annual Business Strategy Committee meeting where we view medium- to long-term strategies and quantitative plans for each business segment to ensure they are aligned with the corporate strategy.

These sessions are attended by senior management, including the President and CEO as well as the heads of all business segments. Together, the committee assesses progress against business plans and actively explores opportunities for cross-segment alignment and synergies.

During the Corporate Strategy 2027 period, we have also introduced additional Enhance, Reshape reviews conducted primarily with businesses expected to drive future growth. These involve in-depth discussions between the CEO and business segments on KPI validity, business plans and required actions. In addition, we conduct follow-ups to monitor progress during the course of the fiscal year.

In summary, our operating model consists of a corporate strategy that sets overall direction, the Business Strategy Committee, which ensures alignment capture synergies and reviews medium- to long-term plans; Enhance, Reshape reviews that support steady earnings growth.

Investment and financing decisions are evaluated rigorously from both quantitative and qualitative perspectives. Following execution, performance is monitored through annual business plan reviews complemented by ongoing follow-ups throughout the year to enable timely and appropriate actions.

These processes are complemented by ongoing follow-ups throughout the year, enabling timely and appropriate actions in response to market changes. We remain committed to this disciplined management process to ensure we meet our corporate targets. Thank you very much.

So this is Kobayashi, CSEO. So this will be the last part of the Part 1. So I'd like to share with you our initiatives. First, let me begin with our ongoing efforts to enhance corporate and shareholder value. As shown here, our total shareholder return, TSR, has increased approximately twelvefold over the past 10 years, representing an average annual growth rate of around 28%. We believe this reflects our sustained commitment to growing earnings per share, EPS, while progressively increasing our dividend per share, DPS.

And going forward, we will continue to ensure the highly effective execution of Corporate Strategy 2027. We will make progress towards sustainable growth in both EPS and DPS by expanding our underlying operating cash flow, improving capital efficiency and maintaining strict discipline in our capital allocation. At the same time, we will actively work to enhance the clarity of our growth story and our value creation process, ultimately aiming to strengthen market expectations for our future growth.

In FY 2023, we established a CSEO position and revamped our stakeholder engagement model, strengthening our ongoing engagement with shareholders, investors and other key stakeholders. The insights gained through this engagement, which include feedback on our management approach as well as critical intelligence on market trends, are shared continuously and in a timely manner across various internal forums.

These forums include Board of Directors meetings, executive level discussions and other interactions involving senior management, our business segments, corporate functions and our broader employee base. Ultimately, these insights are incorporated into our strategy formulation and execution processes.

Alongside incorporating stakeholder feedback into our management practice, we are continuously enhancing our disclosures to ensure the market has a clear understanding of our value creation story and growth strategies. In response to investor demand for deeper insight into Corporate Strategy 2027 and our medium- to long-term business strategies, we provide both qualitative and quantitative information through IR events such as today's session.

Our goal is to improve visibility into the progress of our Enhance, Reshape and Create initiatives as well as the impact of our executed investments. We have also expanded our disclosures through our earnings materials and other channels.

Beyond financial metrics, as the scope of required disclosures continues to expand year-by-year, we have significantly increased the range of information we share. For example, in recent years, our greenhouse gas emissions reporting has evolved to cover not only Scope 1 and 2, but also Scope 3 alongside our broader contributions to emission reductions.

While we have made solid progress in these areas, we continue to listen closely to your feedback regarding the quality and clarity of our disclosures. We remain fully committed to further improving our transparency by actively incorporating stakeholder perspectives.

As part of the efforts to improve visibility, we have introduced several new disclosures approaches in today's CEO and CFO presentations. In this section, I would like to present a new perspective on our portfolio structure.

Historically, our businesses have often been categorized as either resource or non-resource. So this has been the way it has been categorized. However, we believe this classification does not fully capture the true characteristics of our portfolio.

For example, even within resource-related businesses, midstream LNG and upstream mineral resources have fundamentally different exposure profiles. Similarly, some food and bio-based businesses also face significant market volatility. Based on this perspective, we have introduced a new disclosure approach categorized by the degree of exposure to market fluctuations.

As illustrated on the slide, the areas outlined in orange along the outer ring represent businesses with relatively low exposure. Here, our aim is to strengthen our earnings base through our company's unique value creation capabilities. Conversely, the areas outlined in blue along the outer ring represent businesses with higher market exposure, including certain food and bio-based businesses such as salmon farming to LNG businesses.

For these areas, we will enhance visibility regarding asset quality, growth potential and risk mitigation measures. While this presents a new analytical perspective, we will continue to enhance our disclosure to enable a deeper understanding of our portfolio.

Finally, I will outline a Roadmap to a Carbon Neutral Society 2.0 announced on May 2. We have reaffirmed the policy of directly addressing the three key energy challenges: stable supply, affordability and decarbonization. By balancing these priorities, we are advancing a responsible energy transformation.

To support this approach, we have revised our fiscal year 2030 GHG emissions reduction target to a range of 30% to 50%. This update gives us agility to navigate the varying pace of energy transition across global markets.

And while we maintain our goal of achieving net zero by 2050, we will pursue multiple pathways so we can pivot as the energy landscape evolves. At the same time, we will continue to conduct rigorous risk assessment of businesses with high climate exposure, including a close monitoring of potential stranded asset risks.

In addition, we have introduced avoided emissions as a metric to measure our contribution to decarbonization across society. Through our diverse EX initiatives, including our copper business, we aim to support the path to decarbonization.

This concludes my presentation. For further insights into the Board level discussions regarding our value creation initiatives and our revised road map, we invite you to hear directly from our independent directors in the following session. Thank you for your time and attention.

Today, we are joined by our two independent directors, Mr. Tsuneyoshi Tatsuoka and Ms. Mari Sagiya. We also welcome Mr. Akitsugu Era from Brunswick Group as our facilitator, who has extensive experience in corporate governance and engagement with both Japanese and global companies. I will hand the microphone over to you.

Thank you very much. My name is Era. So today, we have the independent directors. And of course, some of their activities may not be so visible from outside. So we hope that we can enhance the visibility of the shareholders in the market. So this session, I would like to pose several questions, after which we would like to entertain your questions from those participating.

So without further ado, so about the Corporate Strategy 2027, I'd like to pose a question about the progress. So this is to Mr. Tatsuoka. So I believe this corporate strategy has been formulated after extensive discussion with the independent directors. So it's been 12 months. So how do you actually perceive the progress so far?

So this is Tatsuoka. Thank you very much. So the progress of the corporate Strategy 2027. So basically, it really boils down to what sort of number that they're going to generate. So we shall see the outcome. So what is important?

And of course, the initial discussion was incredibly important, but also we need to evaluate the progress. And also, what is the pathway that we will take? We would also need to evaluate those. So it is important that we have clarity in that respect as well.

As CFO Shimazu just mentioned, there's a various the business management cycle or system in place. So as they address those management cycle on a regular basis, we receive the report. And based on that, we look at the corporate strategy and also the business strategy as well.

So since the beginning of the fiscal year, all the independent directors will participate in terms of the engagement with the senior level management. So we also look at the micro perspective as well. So that is how we have been monitoring. So both the vertical axis and the horizontal axis, we have been evaluating the progress.

So there are various opportunities to assess the progress then. So if possible, if you can share with us, so in terms of portfolio or the resource allocation, are there any specific areas that you have interest in?

So from the perspective of portfolio, so the portfolio of the company's portfolio, the monitoring that is conducted on an annual basis. So there are various axis to perceive that. So there could be capital efficiency, as we talked about in the Part 1, or we could perceive those from the perspective of risk management or how they're trending in terms of the segments or by country or by currency, for instance.

So it's quite multifaceted in the way we monitor. So from various perspectives, we need to perceive the progress. So it is multi-tier, shall we say. And that is how we check the current state. And on an annual basis, discussions have been conducted.

So Ms. Sagiya, could we hear your thoughts?

So this is Sagiya. It's exactly as Mr. Tatsuoka mentioned. So for the Corporate Strategy 2027, so the formulation and the announcement, that is nearly a starting point. So for the Mitsubishi Corporation, we have the ROE target, and we need to manage the business. And so there has been some concrete sharing of the information with the independent directors. And as CFO, Shimazu mentioned about the business strategy meeting, he mentioned that within -- at one of the forums.

So in terms of the discussions conducted within the management, so in terms of the opportunities and what sort of comments were raised, those information are also shared with the independent directors. So basically, the general experience is, everything will be shared with independent directors.

So through those information exchange, we have full visibility in terms of the management, the initiatives. And also, we explore whether we can add anything from the independent directors' point of view. And that is exactly the venue for the Board of Directors.

But aside from that particular forum in various business segments and business headquarters, we are given the concrete -- the explanation of the current state. So we've been able to have a fairly detailed monitoring process.

That was very concrete and detailed. We appreciate that. Especially for Ms. Sagiya, so your background, you have been involved in a lot of digital businesses. So from that perspective, how do you perceive the current initiatives by Mitsubishi Corporation?

For digital, actually, 2 years ago, so I had the opportunity to speak in one of the forums, and I still remember the question that was raised from the floor. So Mitsubishi Corporation, can they really do the DX digital transformation? So there was a pretty big picture that was raised from the floor. And back then, how I responded to that?

So actually, it was almost immediately after I have been assigned a job of an independent director. And so I have actually conducted an interview with the various levels of the management to understand what is the current state of the DX. So depending on the department, I was able to hear that the different perspectives reside depending on which chair or which department they are.

And of course, the AI Solution Task Force was announced at the same timing of the Corporate Strategy 2027. So there's been heightened knowledge and experience as other companies engage in DX. So going forward, from the AI perspective, they have been able to focus the areas that they need to invest and the direction they need to take.

For instance, value enhancement from the investee or the portfolio companies. And that includes AI utilization. So I think it has become much more full-fledged within the Mitsubishi Corporation. So there's definitely an evolution.

So again, you've talked about the historical discussions, and there has been some [ heightened ] improvement. So thank you very much. We'll be able to understand that. There's a lot of things that I want to ask. But I think we have more time. So some additional question to Sagiya-san.

So I think basically not to make a decision to continue and I think -- but it's also important to conduct the decision about to terminate or withdraw from the business. I think you had something that you said. And I think basically, Mitsubishi Corporation has been this stance to conduct the kind of a cyclical or the business or -- so I think basically, it has a kind of an uncertainty.

So in terms of the businesses that have the investment has a big impact on the businesses and profits, but there are some businesses that are still in the nurturing level that I have to follow up. So is the value-added cyclical growth model that Mitsubishi Corporation takes under this stance? And Mr. Shimazu has mentioned it. So can Mitsubishi Corp. actually offer value and enhance and grow the product?

I think you have to make a decision. But I used to work at the IT company. So DX AI would be the companies that have this type of feature. The technological cycle is rapid and then a lot of technologies come and go. And I think the cycle will be shorter than Mitsubishi Corporation. Basically, the decisions will have to be made in 2 to 3 years' time. So I did say that maybe you have to make that kind of cycle shorter to make a decision.

So the change of the time line -- a difference in the time line, I think from the investors' point of view, that's very important. Thank you very much for that view. So from this point, I would like to switch gears a bit. I would like to talk about the carbon neutral road map 2.0. So we have conducted a revision and the independent directors included, I think, a lot of discussions have been made and has been disclosed last month. So what is the thing that was discussed? Mr. Tatsuoka, what are the things that you have discussed?

So the initiatives that Mitsubishi Corp. is taking in this area, so I have been at the position of the independent director for a long period of time. So before the 2.0, even before we have compiled this road map, from my perspective, it has been very solid. In terms of the figures, in terms of Scope 1, 2, 3, we have been very advanced in looking at the numbers.

In terms of taxonomy, that has been conducted and scenarios, there were multiple scenarios referring to various discussions out there in the market. We have looked both at the risks and opportunities, and the process has been compiled.

And I think that has led to the previous road map. And I think basically we have put into action or we had decided in this road map. So we revised this road map in terms of deliverables, this is the 2.0 road map in itself.

And I would just like to talk about what type of mindset I had when I was engaged in this discussion. One was that -- so as I said in the text of 2.0, the supply stability or the economy and the environment, this harmony of three will be important. And I have been engaged in the energy policy over a long period of time.

So these ideas, how are this going to be enhanced, and that has been a challenge. I have been looking at this area for a long period of time. I think right now, it is the most difficult environment and these three values are at odds with each other.

We have the Russian-Ukraine situation, the Middle East situation. So you have to be realistic. And in this context, how are we going to create this world that you envision? So it's not a linear path that we used to think. So the road map is that there are multiple pathways. I think basically, it's more like a long and winding road that we are looking going forward. So that's the image that I have. And from that perspective, I have been engaged in this revision of this road map.

And the second point is that -- so Mitsubishi Corporation's business model is that -- it's not the case that we are conducting a manufacturing industry in a specific country. We do business with all around the world. It's a global company. So in terms of the environment issues framework, basically from the mid-'90s, the cap was set in terms of emissions by each country.

But this was not really compatible with a company that conducts business globally. So how are we going to take this into account and consider about our path? And these three values at odds to each other and each of the countries will have to think what they have to do in each of the countries.

So Mitsubishi Corporation has various businesses under its umbrella, and that is the strength. So each of the regions offering -- to each of the economies offering solutions, we have to -- of course, we have to consider that. But that said, from a long-term perspective, just emitting a large amount of GHG, and then I think not recycling, that is not sustainable.

So I think in the long term, the direction is unchanged. So we have to show that at the same time, what should we do as a global corporation? So that is the responsible energy transformation. That is what we are focusing on. And I think that has basically been represented in this responsible EX, this word.

Another point I want to make is that Mitsubishi Corporation's carbon -- related to carbon emission, Scope 1 and 2, that's not that large. But then actually, what we offer, deliver it to the customers and that emits carbon, the Scope 3 is large. Of course, Scope 1 and 2 should be reduced. But for Scope 3, I don't think that we should leave it to other people, meaning that the society overall should be -- we should be able to reduce the burden of carbon for the society overall. So that is the important mission.

So for instance, in terms of the -- do we try to reduce the emission? So in terms of the emission contribution to the environment, I think we have to consider that it's not greenwashing. But in terms of Scope 3, so there is -- externally, there will be the risk of a stranded asset. So monitoring the risk of these type of assets, I think you have to be very careful and look at that. And that is how I have been engaged in this discussion about the road map.

Thank you very much for offering various perspectives. So yes, I do understand that now we are in unprecedented times in these three values at odds with each other. So I'd like to pose a question from my end because this is such a unique opportunity. So independent directors' role, so you mentioned how there's been a solid information provision from the company. So what is the distance you have with the executive, the officers or the execution of the company?

So of course, supervising, monitoring. So you cannot -- you need to, of course, be involved, but do not -- but you cannot be overly involved. So Mr. Tatsuoka, could you start from there? Sorry. It's just our eyes met. So sorry, Mr. Tatsuoka, you can start, please.

So that is quite a tough question to answer. So I have had experience as independent directors elsewhere. So it really differs depending on the company. But my thought, basically, it's hard to actually have the appropriate distance, and that is the wording that you used.

Personally, I believe it's essential that we understand -- deeply understand the business of the company. That is -- that forms the basis of my role. And of course, we need to have a trusted relationship to engage in discussions. But at the same time, we need to have a sound sort of attention or sound distance. Otherwise, such productive discussions would not take place.

Another point. So this sort of a relationship with certain level of tensions, what does that mean? So let's just say we propose some issues. So the executive side, they need to have the capability to listen. And they need to be motivated to listen and also appreciate the ideas so they can internalize those ideas. So that is how we can have a virtuous cycle.

So this may be off track in terms of stories. So a couple of years ago, when I first started my job with Mitsubishi Corporation, so some of the past or incumbent, the independent director says, they said, they will actually show us the living room, the salon, but they won't really show us the kitchen. That was the comment I received from the independent directors back then.

So I didn't quite feel that way. But I think the scope of business is so wide that it is rather challenging to understand. Basically, we don't know what exactly they're cooking in the kitchen. That can be the reason why for that comment. But we had already some explanation about the pre-briefing of the BOD meetings. And also, there is a continuous engagement with those in the field.

So there has been a heightened frequency, and a lot of time has been spent to really deepen our understanding of the business. And because of that, we were able to have a much in-depth trusted relationship. And based on that, we can actually propose the serious -- the ideas and issues to them. And that has been well received by the management side.

So they don't just listen. They intend to internalize those ideas. And so I think it's just a matter of whether we have that sort of relationship. From that perspective, I believe there is a very positive cycle that is working. So personally, I feel we are in a good state.

So actually, we are reaching the end of our session. So my thoughts -- my takeaway. So depending on the changes in the environment, there has been a definite thought process, and the BOD is not afraid to actually change the system or the mechanism. Those were my impressions.

So of course, the time frame is different for each of those projects. So those changes have been taken into consideration in hopes of engaging in the management for the long-term basis. So I was able to feel that those in-depth discussions are underway at the BOD meeting. So thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Hello. I am Nakanishi, President and CEO. Thank you very much for attending our FY 2025 Earnings briefing today despite your busy schedules. First, I would like to go over the highlights of our financial results. Please refer in terms of the financial results. The underlying operating cash flow was JPY 1.0481 trillion, and consolidated net income was JPY 800.5 billion. Through our initiatives to Enhance and Reshape across each business, we have steadily accumulated profits, coupled with the impact of a market upswing toward the end of the fiscal year. Those figures significantly exceeded our full year forecast.

Moving on to the FY 2026 Forecast. As explained recently, driven by the growth of our normalized profit, including the start of earnings contribution from our U.S. shale gas business as well as sizable asset and business recycling-related gains, we forecast an underlying operating cash flow of JPY 1.25 trillion and a consolidated net income of JPY 1.1 trillion. Given the increasing predictability of our higher profit levels, we will maintain our progressive dividend policy and increase the dividend by JPY 15 compared to FY 2025, bringing it to JPY 125 per share. Next, regarding the progress of our Corporate Strategy 2027. Against our total profit growth plan of JPY 400 billion or higher, driven by initiatives to Enhance, Reshape and Create, we consider our progress to be generally well on track.

For Enhance and Reshape initiatives of JPY 300 billion or more, please refer to the slide. As for initiatives to Create, that is JPY 100 billion or more in the U.S. shale gas business, we anticipate a profit increase of JPY 60 billion predicated on a 25% stake sale to the founding family to enhance operational stability. We are also exploring a gas value chain concept originating from this business to drive further profit growth. Although the uncertain environment continues, we will keep driving our value creation mechanism powered by our integrated strengths. We will thoroughly strengthen the earnings base of existing businesses and aggressively pursue growth investments in new businesses, leveraging our broad industrial footprint, aiming to achieve the quantitative targets of our Corporate Strategy 2027. This concludes my initial explanation.

Next, CFO, Shimazu, will provide a summary of the financial results.

My name is Shimazu, CFO. I would like to provide a brief overview of our financial results and an update on the progress of Corporate Strategy 2027. Please turn to Page 5. In FY 2025, although we experienced a negative rebound from the capital recycling recorded in the previous fiscal year, each business steadily accumulated earnings. As a result, both operating cash flow and consolidated net profit exceeded our expectations. For FY 2026, we expect profit growth driven by initiatives under our Enhance, Reshape and Create strategy.

Including our entry into the U.S. shale gas business and the full year operation of LNG Canada. In addition, we expect gains from large-scale sales and evaluations across several projects. As a result, we project an increase of approximately JPY 200 billion in operating cash flow and JPY 300 billion in consolidated net profit. Next, I would like to add 2 comments on the progress of Corporate Strategy 2027. Please go to Page 6. First, let me explain the latest outlook for our capital allocation plan under Corporate Strategy 2027. Given the solid trend of operating cash flow and the faster recovery of investments as well as the ongoing investment pipeline and dividend expansion, we have raised both cash in and cash out by JPY 0.7 trillion, respectively. We will continue to strengthen cash in and utilize leverage.

Additional allocation capacity will be flexibly directed to growth investments and shareholder returns as we pursue both growth and efficiency. Please turn to Page 14. For the profit growth plan under Enhance and Reshape through FY 2027, we made partial revisions in reinforcing the earnings base based on the latest business environment.

At the same time, reflecting strong progress in asset turnover type businesses under executed projects, we continue to plan for JPY 300 billion profit growth. Plans and progress under executed projects, rebound of core businesses and reinforcing the earnings base are shown on Page 15 and 16 with key initiatives of major categories. We will steadily execute these initiatives to achieve our JPY 300 billion profit growth target. Cash flow results and the segment performance are shown on Pages 7 through 12 for your reference.

This concludes my explanation. Thank you very much.

I'm Nouchi, the CFO. Thank you very much for taking the time out of your busy schedules to attend our fiscal '25 third quarter earnings briefing today. First, I'll walk you through an overview of our fiscal '25 third quarter results as well as key updates under Corporate Strategy 2027.

Please turn to Page 3 of the earnings presentation. First, let me begin with our financial results. In fiscal '25 Q3, underlying operating cash flow was 763.3 billion, and consolidated net income was JPY 607.9 billion. Supported by improved market conditions, enhanced profitability and revenue growth across multiple businesses, performance remained stronger than we had initially anticipated.

Regarding the full year forecast, we have reflected changes in the business environment since the second quarter earnings announcement as well as updated segment level risk assessments. Accordingly, we have revised our forecast for underlying operating cash flow upward by JPY 20 billion to JPY 920 billion, while maintaining consolidated net income at JPY 700 billion. Progress against the revised forecast are at high levels with 83% for underlying operating cash flow and 87% for consolidated net income. While there is a possibility that full year results may exceed the revised forecast, given the continued uncertainty in parts of the business environment toward fiscal year-end, we will carefully monitor conditions across each business and work steadily toward realizing potential upside.

Next, I will discuss progress under Corporate Strategy 2027. With respect to our value creation framework of Enhance, Reshape, and Create, we have announced several new initiatives since our previous earnings release. By way of example, in the Create initiative, as announced at our recent briefing, we decided to participate in the U.S. shale gas business, representing the largest investment in our history. In addition, under the Enhance initiative, we have reached an agreement to acquire upstream gas assets in Brunei. Through these initiatives, we expect to generate profit contributions of meaningful scale. Details of each project are provided on Page 14 of the presentation materials for your reference later.

Beyond these examples, initiatives under Enhance, Reshape, and Create are all making steady progress. Under Enhance, expected profit contributions from projects already executed alone account for roughly half of the planned target. Under Reshape, in addition to the completed full consolidation of Mitsubishi Shokuhin, several other projects are currently under consideration. And as for Create, the U.S. shale gas project alone that I mentioned earlier accounts for approximately 80% of the planned progress. Taking other projects into account, we believe that even in the first year, we are already well on track to achieve the plan by a certain degree. An overall view of progress across all initiatives as well as the breakdown of Enhance, which represents the largest profit contribution, is provided on Pages 11 and 12 of the presentation materials.

Next, please turn to Page 4. Underlying operating cash flow for fiscal ' 25 Q3 was essentially flat year-on-year despite variations among segments. Consolidated net income was also at a similar level when excluding the absence of large capital recycling gains and losses as well as onetime items. Even amid a challenging business environment, each business performed more solidly than expected. With signs that performance has bottomed out and steady progress being made across various initiatives, we are gaining increasing confidence in achieving the quantitative targets set forth under Corporate Strategy 2027. We will continue to push forward strongly with our Enhance, Reshape, and Create initiatives.

In addition, our share buyback program of up to JPY 1 trillion announced on April 3, continues to progress steadily. As of the end of December, the total repurchase amount reached JPY 794.3 billion.

Please turn to Page 5. I will now explain progress against the cash flow allocation plan under Corporate Strategy 2027, as well as our financial leverage position. Cash inflows consisted of JPY 763.3 billion in underlying operating cash flow and JPY 334.8 billion in cash inflows from divestitures. Major capital recovery items this period included loan repayments from the Quellaveco copper project and collection of deferred payment related to the divestiture of 2 Australian steelmaking coal mines in the previous fiscal year. On the other hand, we executed investments totaling JPY 913.9 billion as cash outflows.

During the period, we completed acquisitions, including the salmon farming business at Cermaq. As shown in the investment progress section, sustaining CapEx as well as Enhance, Reshape, and Create initiatives are all progressing smoothly against plan. Also, as of the end of fiscal '25 Q3, our net debt-to-equity ratio, net DER, which we use as an indicator of financial soundness, stood at 0.46x. Due to the recently approved investment in the U.S. shale gas business, net DER is expected to temporarily exceed 0.6x. However, we will manage leverage, so that it returns to an appropriate level with 0.6x as an upper guideline by the end of fiscal 2027, thereby maintaining financial soundness.

Furthermore, as we continue to have sufficient leverage capacity during the Corporate Strategy 2027 period, we plan to flexibly and proactively allocate additional capital to growth investments and shareholder returns, taking into account attractive investment opportunities and market expectations.

That concludes my remarks. Next, Mr. Shimazu, GM of Corporate Accounting, will provide a detailed explanation by segment.

My name is Shimazu, the GM of Corporate Accounting. I'll provide additional details on fiscal '25 Q3 results. Please turn to Page 6 of the presentation. First, I'll explain the year-on-year changes in underlying operating cash flow, focusing on segments with larger fluctuations. The segment at the top, Environmental Energy, recorded JPY 124.1 billion, a decrease of JPY 32.3 billion year-on-year. While there was a reduction in tax burden due to differences in the timing of payments in the Asia Pacific LNG business, this was more than offset by factors such as upfront costs associated with the start of production at LNG Canada and the North American LNG business.

Next, the third segment from the top, Mineral Resources posted JPY 118.8 billion, a decrease of JPY 45.3 billion year-on-year, mainly due to declining market conditions in the Australian steelmaking coal business and lower dividend income from the iron ore business. By contrast, the Urban Development & Infrastructure segment, beneath, recorded JPY 96.9 billion, an increase of JPY 40 billion year-on-year, primarily driven by improved profitability at Chiyoda Corporation following contract amendments for the U.S. Golden Pass LNG project.

Next, please turn to Page 7 for consolidated net income. In addition to the factors explained for underlying operating cash flow, due to the absence of major capital recycling and onetime gains recorded in fiscal '24, such as gains on the sale of coal mines in the Australian steelmaking coal business within Mineral Resources and revaluation gains related to Lawson within SLC, the decline in consolidated net income is larger than that of underlying operating cash flow.

From this period onward, we have disclosed the factor analysis of year-on-year changes in consolidated net income separating capital recycling and onetime items from adjusted consolidated net income. This analysis is summarized on Page 8 for your reference later.

Next, I'll explain the full year forecast by segment. Please turn to Page 9. As our CFO, Mr. Nouchi, explained earlier, we have revised our full year forecast for underlying operating cash flow upward by JPY 20 billion to JPY 920 billion. We have revised forecast for all segments. The fourth segment from the top, Urban Development & Infrastructure, is expected to reach JPY 104 billion, reflecting a JPY 20 billion upward revision from the November forecast, mainly due to improved profitability at Chiyoda Corporation, as explained in the year-on-year comparison. The bottom segment, Power Solution, is projected to reach JPY 114 billion, reflecting a JPY 10 billion upward revision from the November forecast, driven by increased trading profits in the European Integrated Energy business and the North American Power business.

Finally, please turn to Page 10 for consolidated net income. We are maintaining the full year consolidated net income forecast at JPY 700 billion, while revising the outlook for several segments. The segment at the top, Environmental Energy, is expected to reach JPY 143 billion, reflecting a JPY 15 billion downward revision from the November forecast, mainly due to reduced volumes associated with the extended time line to reach full production at LNG Canada.

The third segment from the top, Mineral Resources, in the Australian steelmaking coal business, while a decline in profits is expected due to factors such as operational issues at underground coal mines and volume decreases resulting from rainfall impacts, taking into account higher copper prices and the strong performance of the Mineral Resources trading business, is expected to reach JPY 110 billion, reflecting an upward revision of JPY 15 billion from the November forecast.

Underneath, regarding the Urban Development & Infrastructure segment, it's expected to reach JPY 76 billion, reflecting the JPY 16 billion upward revision from the November forecast, driven mainly by improved profitability at Chiyoda Corporation, consistent with the underlying operating cash flow outlook. Additional details by segment and assumptions regarding market conditions are provided on Page 17 onward. That concludes my explanation.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Hello, everyone. I am Nakanishi, President and CEO. Thank you very much for taking the time to attend Mitsubishi Corporation's Fiscal '25 Q2 Earnings Presentation. First, I will explain the highlights of our fiscal '25 second quarter results and the main progress under Corporate Strategy 2027.

Please refer to Page 3 at the bottom right of the presentation materials. First, regarding our results, underlying operating cash flow for fiscal '25 Q2 was JPY 446.3 billion, and consolidated net income was JPY 355.8 billion. Both are progressing at around 50% toward our full year forecast. While there are differences across segments, overall performance is largely in line with plan.

Taking into account macroeconomic trends and the external environment, we are revising the forecast by each segment, whilst we maintain our overall full year forecast of JPY 900 billion in underlying operating cash flow and JPY 700 billion in consolidated net income set at the beginning of the fiscal year.

Next, regarding progress under Corporate Strategy 2027. We have continued to advance initiatives under our value creation framework, Enhance, Reshape and Create and have announced several new projects since the previous quarter. For example, in our copper business, as a Reshape initiative, we reached a definitive agreement for a joint mine plan with the adjacent copper mines in Chile.

Under Create, we agreed to acquire shares in a copper mining project in North America with which we conducted a press release the other day. Through these initiatives, our equity copper production is expected to increase by 42,000 metric tons on average from around fiscal year 2030.

In addition to these announced initiatives, under Enhance, we are steadily promoting efforts to strengthen the earnings base across all 244 businesses. For example, LNG Canada is progressing smoothly, aiming to begin production at Train 2 in November following May this year. Other initiatives announced through the second quarter as well as the main actions and progress of each business under Enhance are detailed on Pages 10 and 11 in the materials.

We will continue to advance our value creation mechanism, powered by our comprehensive strengths, pursuing both enhancement and expansion of existing businesses and new investments. Under Corporate Strategy 2027, we aim to achieve an average underlying operating cash flow growth rate of over 10% and ROE of over 12% by fiscal year 2027. That concludes my remarks. Next, our CFO, Mr. Nouchi, will explain the financial overview.

I'm Nouchi, CFO of the company. I'll provide several additional comments on our financial results. Please turn to Page 4. Underlying operating cash flow for the second quarter was JPY 446.3 billion, down JPY 81 billion year-on-year. And consolidated net income was JPY 355.8 billion, down JPY 262.3 billion year-on-year. The decline in underlying operating cash flow was mainly due to worsening market conditions in the Australian steelmaking coal business and the reclassification of Lawson as an equity method affiliate.

Consolidated net income decreased year-on-year, reflecting the absence of the previous fiscal year's major capital recycling gains, such as the gain on sale of steelmaking coal mines in Australia and the revaluation gain associated with Lawson's reclassification to an equity method affiliate.

Regarding the full year forecast, as President Nakanishi mentioned earlier, after reviewing each segment, we will maintain our full year forecast of JPY 900 billion in underlying operating cash flow and JPY 700 billion in consolidated net income. Despite changes in the market and business environment, both indicators are progressing smoothly with about 50% achievement against the full year forecast. Our share buyback program announced on April 3 with an upper limit of JPY 1 trillion is also progressing steadily with total purchases amounting to JPY 578.2 billion as of the end of September.

Please now turn to Page 5. I will now explain progress in cash flow allocation and leverage as of the second quarter under Corporate Strategy 2027. Compared to our cash flow allocation plan, cash-ins consisted of JPY 446.3 billion in underlying operating cash flow and JPY 251.3 billion through divestitures. On the cash-out side, in addition to payment for reentry into the Malaysia LNG Dua project in Q1, in Q2, we executed a tender offer for Mitsubishi Shokuhin as a Reshape initiative and acquired a stake in GCash, a digital financial business in the Philippines as a Create initiative with total cash outflows reaching JPY 593.6 billion, including the ongoing share buyback with an upper limit of JPY 1 trillion, total shareholder returns for fiscal 2025 are expected to reach JPY 1.5 trillion.

As of the end of fiscal '25 Q2, our net DER, an indicator of financial soundness, stood at 0.39x, well below our upper target of 0.6x, indicating sufficient capacity for additional funding. Overall, progress in cash flow allocation remains on track. Leveraging our strong financial position, we will continue to allocate resources proactively to enhance, reshape and create, advancing our value creation framework.

Next, please refer to Page 6 and beyond for segment details. First, I'll explain the segments with large year-on-year changes regarding underlying cash flow, underlying operating cash flow on a year-over-year basis. In Environmental Energy at the top, although initial costs were incurred ahead of production start at LNG Canada, as dividends in the LNG Asia Pacific business were recognized in the first half, profits increased. The third from the top, in Mineral Resources, profits declined mainly due to worsening market conditions and lower dividends from the iron ore business. Underneath, in Urban Development & Infrastructure, the decline in profit was due to lower dividends from North American real estate development and reduced equity income from the commercial vessels-related business.

Please turn to Page 7 for consolidated net income. Compared with underlying operating cash flow, the decline in the consolidated net income was greater, reflecting the absence of one-off gains recorded in fiscal '24, such as the coal mine sales in Mineral Resources and the loss and revaluation gain in the SLC segment.

Next, please refer to Page 8 for forecast by segment. Like explained earlier, we have maintained our full year forecast of JPY 900 billion in underlying operating cash flow, but made several segment level revisions. First, at the very top, for Environmental Energy, we revised our forecast upward by JPY 14 billion to JPY 167 billion, reflecting the impact of upstream reorganization in the North American LNG business.

For Materials Solution, we revised our forecast downward by JPY 12 billion to JPY 79 billion due to sluggish steel products transactions and weaker marketing conditions in the basic chemicals business. At the very bottom, for Power Solution, we revised our forecast upward by JPY 11 billion to JPY 104 billion, driven by favorable ForEx impact in the European integrated energy business and stronger trading income in the U.S. power business.

Finally, please turn to Page 9 for the consolidated net income forecast. We have maintained our full year consolidated net income forecast of JPY 700 billion with segment level revisions. In light of changes in the business environment, like underlying cash flow -- operating cash flow, Materials Solution, Mineral Resources and Mobility were revised downward, while Urban Development & Infrastructure, SLC and Power Solution were revised upward. The market assumptions used for these forecasts are detailed on Page 46 of the materials. Please refer to it later. That concludes my presentation.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]