Mitsui & Co Ltd

TSE:8031

Earnings Call Transcript 2021-Q1

[Takakazu Uchida, executive]

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 through 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 3. 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 and 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. However, 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. However, 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 onward. 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 the economic shutdown may have passed sooner than we expected, some countries and regions are experiencing ongoing viral spread or a second wave of infections. So 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 4. 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, Infrastructure & Machinery (sic) [ 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 4 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 2 of our ICT-related subsidiaries. In Chemicals, we have decided to sell out of San-ei Sucrochemical. 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 5. 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 6 for a review of the balance sheet at 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 0.91x.

Page 7, 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 and 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 a business expense. Focused on Asia, we will continue to make active use of DX to develop new business models and leverage a shift of power to consumers.

Please turn now to Page 8. 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 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.

[Tetsuya Shigeta, executive]

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'll 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 was 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 FID for Mozambique Area 1, 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 onetime 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 & 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 hospitals 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 fiscal -- 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, the 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 the decline of approximately JPY 8 billion. In ForEx, yen strengthening against the Australian dollar was the main contributor to a decline in profit of approximately JPY 5 billion. Finally, 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 1, 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.

[Unknown Executive]

Now we would like to go into Q&A session.

[Unknown Analyst]

I would like to ask 2 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. However, 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 HC -- or mobility, it comes to JPY 70 billion; material, JPY 20 billion; and other, JPY 10 billion. I believe these were the figures given.

So if we consider the JPY 16 billion for the first quarter against the JPY 95 billion, do you believe this is appropriate? And of course, you mentioned that Chemicals and trading is very strong, and impact on Healthcare may not be as big as was anticipated. So can you talk about the corona impact that you can see at the moment for different businesses?

And 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. But looking at the foreign oil majors and semi-majors, they are lowering the mid- to long-term oil price forecast. And BP said $55 may be too much, but many are targeting around $60. Your price may be a little bit high. So can you talk about the risk of lowering the price and 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.

[Unknown Executive]

Thank you very much for your question. CFO Uchida will answer both your questions.

[Takakazu Uchida, executive]

Yes. 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 per-year 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. So there are some fluctuations, but 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. And when it comes to delayed reporting and consolidation of affiliated companies in Machinery & Infrastructure, there are many that will be impacted. And we believe that in the second quarter, the April to June figure will be reflected. So there will be an impact coming from that delayed reporting in the second quarter.

And as for your second question, there are 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. And 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. And 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.

And when it comes to the long-term oil price, all majors are starting to lower the price. And at the end of March, we said that the assumption of the oil price will be continued and impairment was also recorded. But in the first quarter, we had focused very closely on the movement of the oil price. When it comes to the long-term outlook, plus corona or with corona 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. So we will continue to monitor the situation, subsequent to the second quarter. We believe that discussion will continue in this area. Does that answer your question?

[Unknown Analyst]

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 to $80 was mentioned. And so for the mid- to long-term price, while you have not disclosed the numbers, but $80 is the one that's what you see in the financial report, then you have reduced the oil -- oil majors in overseas have reduced the level to $60. So it seems to be higher compared to that. So can you comment on that?

[Takakazu Uchida, executive]

Uchida speaking. Well, we haven't given the time frame, but from the financial report to the ministry, there is a range for oil prices and $30 to $80 is based on our assumption that we use. And therefore, in the longer term, it could reach $80. That's why we have the range up on to $80. And 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. So 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. So how -- 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.

[Unknown Analyst]

Well, then what you said about other energy companies not reducing the levels that much. So $80, which time frame are you talking about? That's not clear. And the curve to reach that level, well, about 2025, that is the year that they are looking ahead into. And that timing, they are coming up with $60. And if your final goal is $80 and if you compare the curve that will reach that level and -- so $60 in 2025 is probably not that deviated from the time frame that you're talking about, about $80. Is that correct?

[Takakazu Uchida, executive]

Well, not that deviated. I'm not sure how much, but we're starting from [ site ] $30 and $30 was the price at the end of March. And then we have drawn a forward curve to draw the curve. And other companies, not the major -- oil majors, but not just oil majors, but we are looking at the -- of other institutions that are coming up with the prospects. And what other oil majors would do, rather than that, we're looking at the research companies' forecasts. And depending on how they may change, we would like to have discussions internally. So those levels have not been reduced, that much. The COVID-19 impact may not have been fully reflected in the forecast from the institutions, so how those numbers will be revised will be closely watched. And then 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. So we have to have a comprehensive review and so that's why we have not changed our prospect this time.

[Unknown Analyst]

I would like to ask 2 questions. The first question, in Energy segment, well, oil price may be a bit high. The consolidated oil price is $65, I see. And with that high price, the profit may not be substantial. Maybe the volume went down or the dividend may have gone down. But looking at the first quarter numbers, we believe that the second quarter, there will be some differences in the reporting period. Therefore, it may go down to $30, and that is going to end up in a loss. So in the first quarter, are there any special factors that did not bring about substantial profit? So can you talk about the energy oil price base and the situation that you're seeing at the moment?

And the second question, of course, you talked about the market at the beginning. Of course, the environment deteriorated. And 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, that loss is going to get bigger. So with corona or post corona, there are areas or segments that we will not be able to go back to. So these may be the Lifestyle businesses. So assets, you have JPY 2 trillion of assets and there is no cash being borne out of that JPY 3 trillion. So the external environment with COVID-19 is changing. So 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.

[Unknown Executive]

Thank you for the question. CFO Uchida will answer your question.

[Takakazu Uchida, executive]

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. So in the second quarter, I think there will be a downward pressure, as you just mentioned. But currently, of course, the prices will be decided. And in the second -- first half, it will be $30. And in the second half, $35. So I think we need to think about the pluses and minuses. But in the material available, in the Energy segment, energy solution business unit has been added. And traditionally, energy solution, they have been working on comprehensively. So the assets from such projects and energy solution businesses will be transferred to this new business unit. And of course, there will be some preceding cost expenditures necessary. So profitability will be coming in a delayed manner. But in the first quarter, there will be JPY 3.3 billion of loss in Energy. And some of the information is not to be disclosed. However, they made some provisions necessary. That is why this is -- we get this figure. So this may be the special factor that you referred to.

And for your second question in Lifestyle, of course, the asset is very big, but Healthcare is also included. IHH is involved as well. So it will take time for it to show movements in the cash flow. So 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. And in distribution or logistics, there may be some downward pressure. But eating in at home, I think these are doing well, and we have textiles as well. And the sales at stores, they are being impacted very largely. So 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 corona and we are using DX closer to the consumers. And 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. So we are coming up with new retail and restaurant integrations. So this is something that we've been aiming for a long time. However, these are some of the measures that we'll be taking. And of course, logistics and also some import and export businesses will be integrated as well. So we'll be able to enhance their functions further. That is the aim of such integration. So in the midterm business plan, we have outlined some of the integration that we'll be working on and that have been implemented in the first quarter. Thank you. Did that answer your question?

[Unknown Analyst]

Well, I'd like to ask a related question. In Energy, the reduction in volume, is a 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. So maybe the volume is going down. So what is the -- what is your thought on the volume in Energy? When it comes to sensitivity, is there a negative impact? Or you do not see such negative impact as much? Is that correct?

[Takakazu Uchida, executive]

Well, this factor, MOECO, in 2023, their cash flow will be completed. And of course, the depreciation started early. Of course, in 2023, of course, it will be completed so 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.

[Unknown Analyst]

I have 2 questions. I'd also like to ask about LNG. The JPY 2.1 billion in received dividend, it has been reduced to about 1/3 -- 1/6 of the previous year. And because of the seasonality, this number should be small. But the full year -- on a full year basis last year, there was JPY 60 billion. So year-on-year, would that be 1/6 for the full year this year? Or was there any special factor involved? That was my first question.

And second question, Machinery & Infrastructure, IPP has -- IPP has fallen significantly in the first quarter. I had thought that this would be a stable business. So was this because of one-time factors and in the second quarter, we can expect the level to recover to the normal level? Is that correct?

[Unknown Executive]

Thank you very much for the questions. CFO Uchida will answer those questions.

[Takakazu Uchida, executive]

First, on the LNG dividend, obviously, because of the oil price drop, the revenue may have dropped, but there doesn't seem to be special factors. But if you just look at the first quarter, in this special environment, of course, this is true for other affiliates, but we are more on the conservative side. And dividend may be adjusted. And that is the general trend that we're seeing. But I'm sorry, I don't think there were any special factors. And so the oil price drop and on a full year basis, what will be the result, that will 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. So there was some special factor included in this area. Did that answer your question?

[Unknown Analyst]

I have 2 questions I'd like to ask. The first question, in the earlier question about Energy, you talked about the possibilities of impairment going forward. So 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. So with credit rating agencies, with COVID-19, many of the Japanese companies' cash flow is going down. So there may be some pressure. But 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. And 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?

[Unknown Executive]

Thank you very much for your question. CFO Uchida would like to answer your questions.

[Takakazu Uchida, executive]

First, about the rating. The -- about 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. But 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 downward side risk is something that we can deal with. And when it comes to the oil price and impairment losses related to the oil price, of course, the long-term oil price, how we're going to look at it? Of course, the impact from impairment is something that we need to consider. But at the end of March, for the full year, it went down substantially. So there is a delta value. And looking at our balance sheet, looking at it as a whole, how much impact there is, is something that we need to think about. I hope you can sense it from what I'm saying. But looking at the whole, in fiscal year 2016, for example, I don't think that will be the scale of impairment that we will 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 310 million tons to 330 million tons. And Vale's explanation is that it is nearer to 310 million tons. That is the explanation that they have given us. So when it comes to iron ore, volume-wise, we are not negatively be affected. When it comes to copper, in Chile, in some of the projects, the operation rate has gone down. However, when it comes to Collahuasi, I think it is very strong. Any additional comments? Yes?

[Unknown Executive]

When it comes to the copper business, Anglo American Sur, there is a corona impact. So 40% -- they have reduced the number of personnel by 40%. And I think that is the impact we are seeing there. But the full year target has not been revised. And of course, Caserones, corona impact is appearing. And of course, operation rate has been lowered starting in -- at the end of March. But actually, the production is going up. That is all the comments that I have for now. Thank you.

[Unknown Analyst]

So copper production volume, has it gone up from the original forecast? Collahuasi, I believe is positive. But I do understand that there was a reduction in the number of employees, but the volume has not changed. So there is not much impact on the copper volume. Is that correct? And with Vale, you receive dividend. So production was between 300 million tons to 310 million tons and it's closer to 310 million tons, I believe. So this is not a negative impact, because Vale announced that they will be paying dividend. So there is no negative impact there. Is that the correct understanding?

[Unknown Executive]

Yes. Thank you very much. When it comes to production of copper, so compared to the forecast at the beginning of the year, the numbers have not changed. And your interpretation is correct. And as for Vale, as you say, the production, 310 million tons to 330 million tons was the forecast. Last year, it was 302 million tons. So we do see COVID-19 impact, but the volume, I believe, will increase. And as for the dividend payment, you have stated it correctly. Vale business is -- that situation is as you just explained.

[Unknown Analyst]

And the other one, I'd like to ask Uchida-san about the credit rating. Have you had discussions with the agencies? And what about the impairment of the Energy businesses? In March, it went down, but the impairment test has gone down. So the long-term perspective may have changed. Of course, 2016 March, of course, that was a year in which a large impairment was recorded, but this year, it is not going to be that big. Is that correct?

[Takakazu Uchida, executive]

That is a 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.

[Unknown Analyst]

There are 2 questions. As for Chemicals, ITC and Novus, the current status and prospects, that's what I'm interested to know. And Lifestyle and Healthcare, IHH, started from a loss. Likewise, can you comment on the current status and the future outlook? Those are the 2 questions.

[Unknown Executive]

Thank you for the questions. Uchida, CFO, will answer those questions.

[Takakazu Uchida, executive]

As for ITC, the operation itself has been continuing to recover. And incident-related cost, there is very little. There was a claim to the insurance that's partly included, but incident investigation and the cause has not been finalized yet. And it is expected to be finished by the end of this year, but there is a delay. And as for the litigation, we're still at the early stage, and we are not in a position to disclose anything important.

And 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 large. But in the second quarter, there were some that will be incorporated. So there's a positive factor. And also, methionine prices in the recent time has improved. It is not a sustainable level yet, but there was a favorable -- slight favorable factor on the Novus performance because of that.

And 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. So in the first quarter, there is a bit large loss, but -- or a negative factor. But we had thought that the operation rate would be affected more severely. In Asia, the PCR test has been outsourced. And so some patients have been received in IHH hospitals. So 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. Does that answer your question?

[Unknown Analyst]

I'd like to ask a question, 1 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?

[Unknown Executive]

Thank you very much for your question. Uchida will answer your question. Thank you.

[Takakazu Uchida, executive]

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. And in the mid to long term, with ESA 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, a short time, the annual business results and individual performance is being reflected, but the allotment is not that big, but 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 employees. So that is going to lead to improving the company value and I hope it will lead to better returns to our investors.

[Unknown Analyst]

Okay, thank you very much for your answer.

[Takakazu Uchida, executive]

And 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. But 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 will 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.

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