Mitsui & Co Ltd

TSE:8031

Earnings Call Transcript 2024-Q1

[Hideaki Konishi, Investor Relations]

I'd like to start the briefing on the Financial Results of First Quarter of Fiscal Year March 2024 of Mitsui & Company. Thank you very much for joining us despite your busy schedule today.

I'd like to introduce you to the presenters for today. Representative Director, Senior Executive Managing Officer, CFO, Tetsuya Shigeta, and General Manager of Global Controller Division, Masao Kurihara. I am Konishi from IR, and I'll be moderating this session today.

The CFO and Global Controller will give presentations for about 15 minutes. Then, we will entertain your questions.

The copyright of today's video and audio belongs to the company and the managing company. Please refrain from uploading or reproducing or diverting all or part of it without permission for any purpose. This meeting will be recorded, and will be available on-demand on our website.

We'd like to start the presentation. Starting with the CFO, Shigeta. Thank you.

[Tetsuya Shigeta]

Good afternoon. I'm Tetsuya Shigeta, CFO. Thank you for joining us today.

I will begin by giving a summary of fiscal year March 2024 Q1 operating results. I will then hand over to our Global Controller, Masao Kurihara, for details of our operating results.

During Q1, the U.S. economy showed overall strength, underpinned by consumer spending while monetary tightening continued, and a gradual recovery was seen in the Chinese economy. Going forward, while there continue to be many uncertain factors in the global economy, it is expected to pick up moderately. In this operating environment, we made a good start against the projections of our business plan for both core operating cash flow, COCF, and profit.

I will summarize our operating results for Q1. COCF for the period decreased by JPY44.5 billion year-on-year to JPY255.9 billion, and profit for the period decreased by JPY22.1 billion to JPY252.9 billion. While profit decreased year-on-year due to commodity prices reverting, our results show a progress at a pace exceeding our business plan.

Furthermore, of the share repurchases announced in the previous fiscal year, for the JPY70 billion carried over to this fiscal year, we carried out JPY61.7 billion by the end of June and in July carried out the remaining JPY8.3 billion, thereby completing the share repurchase as planned. The 22 million shares repurchased are scheduled to be cancelled at the end of August.

This slide indicates the progress rate of each segment against the full-year business plan. In Q1, although there was some variation in the progress rate across segments, all segments are progressing steadily against the business plan. Lifestyle segment showed a high progress rate in terms of profit due to the valuation gain on Aim Services. In some segments, the progress rate of profit in Q1 may seem relatively low as asset recycling based on the business plan is expected to occur in the second quarter onwards, but on a full-year basis, things are progressing as planned, if not slightly ahead of expectations.

In this section I will discuss cash flow allocation for the current period. During Q1, growth investments were steadily executed, in line with the business plan. Cash inflow for the period was JPY308 billion, comprising COCF of JPY256 billion and asset recycling of JPY52 billion, including the sale of aircraft in the aviation business.

Cash outflow was JPY297 billion, comprising investments and loans of JPY235 billion and share repurchases of JPY62 billion. The main investments and loans executed were growth investments such as making Aim Services a wholly-owned subsidiary, the acquisition of an interest in the South Texas Vaquero shale gas project in the U.S., and the acquisition of Sumitomo Pharma Animal Health. Furthermore, in capital investments related to sustaining existing businesses, there were outflows for iron ore and metallurgical coal operations in Australia, and for oil and gas projects.

This table indicates growth investments along the three key strategic initiatives in the current Medium-term Management Plan, MTMP, as well as progress in our studies and development of projects aimed at further expansion of the investment pipeline. I will introduce a few examples regarding progress we have made on investment decisions in each of the key strategic initiatives.

In Industrial Business Solutions, in the area of digital infrastructure, we have been moving forward with the tender offer for Relia Communications and business integration with KDDI Evolva. In July, we completed the tender offer, and decided to begin operations as Altius Link from September 1. Through this integration, Altius Link will be one of the largest contact center operators in Japan, a country in which the working population is forecast to decline, and subsequently corporate outsourcing demand is forecast to rise. In addition to its contact center business, we expect Altius Link to accelerate its digital BPO business and, through taking a significant share of the rising demand, it will aim to become the largest operating company in this space.

In Global Energy Transition, we have decided to enter the business of production and sales of e-methanol. We expect to start production in 2024 in what we expect to be the world's first commercial scale, and one of the world's largest e-methanol businesses. In addition to this, we will expand our business pipeline -- our investment pipeline, continuing to consider business opportunities with our partners in various areas that will contribute to realization of a decarbonized society. Areas such as next-generation fuels, low-carbon metallics and iron making, battery minerals and materials, and CCS, to name a few.

In Wellness Ecosystem Creation, as part of the creation of a food and nutrition value chain, we decided to invest in Nutrinova, which manufactures and sells functional food ingredients. This is an investment that has been realized through our long partnership with Celanese, that has continued since we began working together in the U.S. methanol business from 2013. Nutrinova is a business in which stable profitability as well as growth can be expected due to high-quality and differentiated products, and can immediately contribute to earnings. In addition, the nutrition team in the Chemicals segment and the food team in the Lifestyle segment will work together to combine their respective strengths, knowledge and networks across industries, in an effort to increase Nutrinova's corporate value.

With regard to shareholder returns, as we explained in the current MTMP that we released in May, we will strengthen stable and flexible shareholder returns in line with the expansion of our cash generating capability.

That completes my presentation today, so I will now hand over to the General Manager of Global Controller Division, Masao Kurihara, for the details of performance in Q1.

[Masao Kurihara, General Manager of Global Controller Division]

I am Masao Kurihara, General Manager of the Global Controller Division. I will now provide details of our operating results for the first quarter.

First, I will explain the main changes in COCF by segment compared to Q1 of the previous fiscal year.

COCF for the period was JPY255.9 billion, a year-on-year decrease of JPY44.5 billion.

In Mineral & Metal Resources, COCF decreased by JPY51.1 billion to JPY91.1 billion mainly due to the fall in prices of metallurgical coal and iron ore, and the decrease in dividends due to the sale of our shares in SMC, an Australian metallurgical coal business, in Q3 of the previous fiscal year.

In Energy, although affected by a decrease in LNG dividends and a fall in gas prices, COCF increased by JPY2.9 billion to JPY55.3 billion, mainly due to the absence of derivative valuation losses in LNG trading, which were recorded in Q1 of the previous fiscal year.

In Machinery & Infrastructure, COCF increased by JPY24.6 billion to JPY60.2 billion, mainly due to an increase in dividends from equity method affiliates in areas such as automotive and construction machinery and IPP, as well as bringing forward some of the dividends within the fiscal year.

In Chemicals, COCF decreased by JPY11.7 billion to JPY20.3 billion, mainly due to a fall in prices of fertilizers and feed additives. There were no significant changes in Iron & Steel Products and Lifestyle.

In Innovation & Corporate Development, COCF decreased by JPY4.8 billion to JPY7.1 billion due to the impact of taxes paid in the -- in this fiscal year associated with real estate sales executed in Q4 of the previous fiscal year.

Other factors, such as expenses, interest, taxes, et cetera, which were not allocated to business segments, totaled an outflow of JPY2.1 billion.

I will now explain the main changes in profit by segment compared to Q1 of the previous fiscal year.

Profit decreased by JPY22.1 billion to JPY252.9 billion.

In Mineral & Metal Resources, profit decreased by JPY41.9 billion to JPY77.9 billion, due to the lower prices of metallurgical coal and iron ore, and due to the sale of SMC, an Australian metallurgical coal business, in Q3 of the previous fiscal year.

In Energy, although affected by a decrease in LNG dividends and a fall in gas prices, profit increased by JPY3 billion to JPY26.7 billion, mainly due to the absence of derivative valuation losses in LNG trading, which were recorded in Q1 of the previous fiscal year.

In Machinery & Infrastructure, although there was an impairment loss at Mainstream, profit increased by JPY13.7 billion to JPY52.6 billion, mainly due to the increase caused by the absence of one-time items and valuation losses that were recorded in Q1 of the previous fiscal year, as well as the good performance in the automotive and construction machinery, ship, and FPSO businesses.

In Chemicals, although there was a valuation gain at an associated company, profit decreased by JPY7.6 billion to JPY15.5 billion, mainly due to the fall in prices of fertilizers and feed additives.

In Iron & Steel Products, profits decreased by JPY1.4 billion to JPY5.6 billion, mainly due to a fall in steel prices.

In Lifestyle, profit increased by JPY33.8 billion to JPY60.3 billion, mainly due to the fair value gain of Aim Services.

In Innovation & Corporate Development, profit decreased by JPY12.3 billion to JPY8.1 billion, mainly due to the absence of a gain on sale of real estate business, which was recorded in Q1 of the previous fiscal year.

Other factors, such as expenses, interest, taxes, et cetera, which were not allocated to business segments, totaled a profit of JPY6.2 billion.

This page shows the main factors influencing year-on-year changes in profit. Base profit was driven by the absence of advanced recognition of derivative valuation losses in LNG trading and one-time losses recognized in Q1 of the previous fiscal year, as well as the good performance of multiple businesses such as the U.S. food business WILSEY FOODS, automotive and construction machinery, ships, FPSO and fashion. However, there was a decrease in profit from trading in areas such as chemicals and grain due to sales prices reverting, a decrease in LNG dividends, and a decrease in profit due to the sale of our shares in the Australian metallurgical coal business, SMC, in Q3 of the previous fiscal year. These were the main factors behind base profit decreasing by approximately JPY8 billion as a net total.

Looking at resources costs/volume, profit decreased by approximately JPY8 billion, mainly due to decrease in volumes and increases in depreciation and exploration costs in some energy upstream businesses, and a decrease in volume and an increase in unit costs in the copper business.

Asset recycling resulted in a decrease of approximately JPY4 billion, mainly due to the absence of a gain on sale of real estate business that was recorded in the previous fiscal year, although there was a valuation gain at an associated company in the Chemicals segment.

In commodity prices and ForEx, due to decrease in commodity prices, profit decreased by approximately JPY18 billion for metallurgical coal, JPY13 billion for oil & gas, JPY9 billion for iron ore and JPY4 billion for copper, which resulted in profit decreasing by approximately JPY44 billion in total. For ForEx, profit increased by approximately JPY15 billion, mainly due to the weaker yen.

Finally, valuation gain/loss and special factors contributed to an increase of approximately JPY27 billion, mainly due to the fair value gain of Aim Services.

Now let's take a look at the balance sheet as of the end of quarter one of the current fiscal year. Compared to the end of March 2023, net interest-bearing debt increased by approximately JPY100 billion to JPY3.3 trillion. Meanwhile, shareholder equity increased by approximately JPY400 billion to JPY6.8 trillion. As a result, the net D/E ratio was 0.49 times. We are confident that we have a strong financial base, sufficient enough to withstand the ongoing uncertainties of this operating environment.

That concludes my presentation.

[Operator]

Now, we like to start taking questions. [Operator Instructions] The first question?

[Unidentified Analyst]

Thank you very much. Thank you for the presentation. There are two questions. First, the first quarter evaluation is what I like to ask about. Earlier, Mr. Shigeta said that in all segments, the progress has been made steadily. But, several one-time factors involved. So, [at glance] (ph) in each of the segments how to interpret and evaluate the progress is quite unclear. So, looking from outside, if you look at the earnings capability, machine and infrastructure is strong, and nutrition, agriculture, and chemicals are weaker. On basis excluding one-time factors, there is some differences and variations from segment to segments. So, if you look at the two [status] (ph) of each segment, how do you evaluate each of the segments, Mr. Shigeta?

And if -- the base profit JPY170 billion gross that you're expecting for medium-term management, if you can also relate your response to that contest? If you can share that with us, that would appreciate it.

And in the news conference, the -- if there's an additional shareholder return, that would be considered, I think that's what it said, and for the prospect to the rest of the year. There are not many the risk factors that you are sensing. That's what I [indiscernible] based on your comments. In the stock market, there is no concern for the recessions, since stock prices are quite strong. But then if you look at the results of the first quarter, and the most recent voices from the front lines, is there any changes or signs of changes that you're looking, observing, and especially focusing on risks? If you can answer the question, that'd be appreciated.

[Tetsuya Shigeta]

Thank you very much for the questions. For the two status of basis, real status basis, it's not just a comparison with the plan, but the trend from the previous quarter and what are the trends. I think that's what you're asking about. First of all, compared to the previous fiscal year, there was a pent-up demand after the COVID-19, that will be settling down. And so, the logistics trading or rather trading prices reverting or shutting down. I think that has been incorporated in the plan. And also the trends from the previous fiscal year or year before last, we have come up with a plan this fiscal year, but there is variation from segment to segment. So, the machinery and infrastructure, especially in mobility, especially the automotive sector, the business was quite strong. So in the expansion in the previous quarter and the quarter before last, there was some decline in the profit, but we are feeling the strengths.

And, on the other hand, as you rightly said, in chemicals, NA, nutrition and agriculture, and fertilizer materials and raw materials, the prices went down, and there's more reduction in profit. So, it really depends on the segment that you're talking about. But structurally speaking, suppose in this first quarter, relatively speaking, there are some segments and business units that have started late or started it late, there will be cost reduction or pass on some costs increase into the prices, those approaches will be taken on a full year basis. So throughout the year, we will be able to make some recovery. As for fertilizer and raw materials, there is some seasonality to be taken into account.

So, in the previous fiscal year, March 2023, the segments that were extremely well, compared to that, there may be some decline. But if you compare the levels on a pre-pandemic basis, in each of the segments, the performance and base profit, I think there are some sectors that have achieved the improvements in terms of levels of base profit. That's what we sense. So, you are not asking about comparison with the plan, but throughout the year, and compared to the forecast in the beginning of the fiscal year, we probably be able to achieve the -- exceeded or overachieve the forecast.

JPY170 billion for the medium-term management plan, in terms of breakdown for that, at this moment, we're not in a position to respond immediately. But -- so this -- we'd like to build up our performance and results, so that we'll be able to explain more. And part of JPY170 billion, actually it's something that we have seen already.

And as for additional return -- shareholder return, the base profit and core operating cash flow increase, especially the fundamental level improvement to that, cash dividend will be made in the form of progressive dividend. That's what we explained at the beginning of this fiscal year. So, we'd like to improve the level. And also depending if there's an upside from the commodity prices, and then, we would like to make additional return. There's no change from the conventional policy, but we like to continue to consider that.

There're many risk factors, geopolitically or environmentally. In light of this -- these, there are various risks, so integrated risks that are being heightened. However, if you look at the economy, this fiscal year, in the U.S., we are away from the concern about serious recession for the U.S. And in Japan, the monetary policy and dialogue with the market seem to be going well. And we don't expect to face any shocks. On the other hand, the economic slowdown is prolonged in China. So, effective stimulus measures could bring about recovery. There is some expectation on that, but there's a concern that that expectation may not be met. But in Europe -- and also in Europe, the economic slowdown could be prolonged.

So, those are some of the risks that we have to address properly. So, we have a strong profit foundation in the [global south] (ph). We have to ensure the profitability there. And also, we have to build up the growth investments. And so, we don't -- it's not the case that we don't sense any risk factors. There is a concern about integrated risks, but we'd like to build that profit, so that we won't face a downsized risk.

[Unidentified Analyst]

Thank you. As for the second question, you explained from the macroeconomic perspective, but if you look at this from the bottom-up perspective, from the front lines, any ominous signs that you're not hearing. Is that correct?

[Tetsuya Shigeta]

Well, it's not the case that there is none, honestly speaking, but in a new process, the starting up may not be going as well as expected. And, of course, inclusive of measures against those, how they are addressing this is something that we are looking at numerous examples. I think this is something that we see on a day to day basis. But we are -- there is information coming up from the front lines with the transparency about that news, and how to avoid loss making is what they addressing. And so, it's not the case that there's no concern. But on the other hand, if there is any huge impairment loss that is impending, that is not the case. We don't feel that.

[Unidentified Analyst]

Thank you.

[Hideaki Konishi, Investor Relations]

So, next question, please.

[Unidentified Analyst]

Thank you so much for taking my questions. I'd like to ask two questions. First question, I ask this question every time about energy. Can you hear me?

[Tetsuya Shigeta]

Yes?

[Unidentified Analyst]

So, my first question is on energy. I asked at the beginning of the year as well, so cost and volume, there is a downside that has been projected. In the first quarter, I don't think that really surfaced. But after the second quarter, do you think there will be decline in profit? When we look at the trading, last year, there was, like, a derivative assumption that was incorporated, but in first quarter, when it was explained by the CFO, you said that the progress is good. However, from first quarter to the second quarter, is there a negative that you had projected, is that going to appear going forward?

And the second question, the CFO earlier said that China may be concerned. And I think the market is thinking the same. Maybe I can ask [Koni-san] (ph) the market may be strong, there may not be demand, but maybe we are seeing strings, which is underlying. So, maybe we can talk about demand and supply as well, but how do you see the situation? Is there a risk that it may decline? Or do we not have to worry about such risks? Sir, may I ask for your comments, please?

[Tetsuya Shigeta]

Yes, the second will be answered by Koni-san from IR department. But first question on energy, yes currently, as we had projected at the beginning of the year, cost increases and also a decline in volume, we believe that, that is going to appear from the second quarter onwards. And, with that assumption, we are making responses initiatives in each of the projects. In Western Australia, there is a plan that the negative volume is something that we had incorporated. And compared to that plan, we are going to increase the production. That is something we are starting to see. So, the negative factor we had included in the plan is something, yes, we are projecting. However, we hope to make sure that we can shrink it as much as possible. So that was the answer to your first question.

[Unidentified Analyst]

So if that is the case, of course, the progress was about 20% or so in the first quarter. So, from the second quarter onwards, of course, if there are negative factors, then the start may not be -- may not have been good. Is that how you value this? And with the dividend included, with this progress, do you think this is on par with your plan? How should we interpret this?

[Tetsuya Shigeta]

Yes, of course, there are seasonal factors. And if that is adjusted, I think, we are on the line that we'll be able to achieve the plan. Seasonality, dividend and LNG trading that is strong in the winter months. So, if we consider all these factors, yes, I think we are on par with the plan.

[Unidentified Analyst]

Thank you. Understood.

[Hideaki Konishi, Investor Relations]

As for your second question about situation in China about the market of iron ore, of course, this is very solid when it comes to its foundation and when we look at the trends. When we look at the demand and supply, of course, not just -- so you mentioned that, the demand may be slow, but I don't think that's what we are seeing with the crude, steel. And of course, when we look at our interest, of course, the cost curve on the left hand side, we are securing enough merging, that is a kind of asset situation that we have at the moment. So, iron ore, I think that it's going to be quite strong and the margin from iron ore, I think, is going to be quite strong for us as well. So that was a plan. And at the moment, the plan has not changed.

Did that answer your question?

[Unidentified Analyst]

Yes. Thank you very much.

[Hideaki Konishi, Investor Relations]

Thank you very much. Next question, please?

[Unidentified Analyst]

Thank you very much for today. Two questions. First is about trading. In the segments, chemicals, especially methionine probably, prices overall weak in terms of trading it seems, and you explained that chemicals and grains, prices are declining, that's what you said. But profit in trading, in your initial forecast, compared to that, is it weakening? And how do you see the chemicals, energy, steel, and grain, how do you see your prospect going forward after second quarter?

And second point is the shareholder returns. You told us your policy on shareholder returns. But if you can drill this down, and in light of other companies' movements, I like to ask this question. Mitsubishi Corporation in the fourth quarter of March 2023, JPY300 billion share buyback was announced and JPY200 billion was started because of the improvements in balance sheet. And the financial position is quite similar in your regard. And, in order to maintain the balance, in the core cash flow, if you just look at the 37%, then ROE is bound to decline. And so, how to maintain that ROE level is also I'd like to ask about? If you explain more about your policy in shareholder return in this regard, that would be appreciated.

[Tetsuya Shigeta]

Thank you. As for the trading, chemicals, energy, steel products, and the grain, that's what you asked about. For each one of these, I will explain. For chemicals, [VM] (ph) and NA business units, in the previous fiscal year, there was a pent-up demand and there was a tailwind industry in that regard. But, there was some declining trend now compared to the previous fiscal year. Of course, so I'm not saying that it is -- it keeps deteriorating, but the opportunities to gain margin or margin rate shrinkage, it was seen compared to the previous fiscal year.

So in terms of environment, the things will continue to be challenging for the time being. That's my frank view. China or Southeast Asia, in those areas, the economic recoveries and also the volume and prices associated with the economy, if there's any rebound, we can capture profitability -- and profits, and of course, we are taking that into account. And we are taking every measure to reduce cost, working with partners and business partners. And so, I'm not saying that we would be in the financial position to keep losing money. But how to secure margin is something that we have to address.

With regard to energy, in terms of trading, in the long -- we are covering with long-term contracts for the most part. So, we have to perform that contract. And so, the basis is quite strong. But beyond that, with improved production, the spot sales, depending on the volume -- equivalent to the increased volume, if there is any such opportunities, we like to aim for further upside.

As for LNG trading, in the previous fiscal year, the Cameron production was performing quite well. So there was a big positive number. Compared to that, we cannot avoid decline in profits. But we would like to exhibit our functionality so that we can secure a certain level of profits. And that is what we are going to continue to do throughout the year.

And as for steel products, in the previous fiscal year and a year before last, there has been continuing trend of strengths from Japan to Japan and also trilateral trading, is something that we excel at. And so, we are pursuing business opportunities. And of course, in addition to the profits from various businesses -- some businesses, in the trading, we would like to also secure profits.

And as for grain, UGC and other base businesses are available, but international commodity prices are affecting grains. And so, if there's more volatility, there'll be more profitability opportunities for us, so we like to capture that. And as we did in the past, we are expecting the environment to be challenging, while at the same time, capturing trading profits properly. And from the perspective of food, I think there's a great impact from the climate. So, there will be continued fluctuations in prices. So, we have to maintain the supply chain or contribute to the maintenance of supply chain, and aim for capturing upside.

I have been a bit vague in my response, but I have responded to the trading questions on four commodities.

As for shareholder returns, well, in 2014, since that year, we have been performing share buybacks on a continuous basis steadily -- slowly, but steadily. We have been building up the repurchases. And that has contributed to the capital efficiency. We have given priority to shareholder return. And that's in line with that philosophy we have been continuing with this practice.

And as you said, in order to maintain a high level of ROE, how to maintain equity is a question and how you can improve ROE, and also to an extent, we use leverage. Net DER is only 0.49 times this quarter. So,, it has been maintained at the lowest level ever. And so, the balance of those three, the gross investment -- through gross investment, base profit increase by improvements and equity level focusing on capital efficiency and leverage, looking at the total balance sheet, you have to hit the right balance between these three factors. And we are in a position to be able to pursue that, because of the performance improvement that is in sight still.

So, while looking at this balance and closely watching the balance, we are trying to improve each of these in the positive direction. And we are hoping that this will be the case in the discussion in -- within the management. As you said, of course, this will directly linked to the evaluation from the market, including [indiscernible]. So, we'd like to meet that expectation.

[Unidentified Analyst]

I like to ask more about shareholder return. After the last medium-term management plan, management allocation of about JPY1 trillion was there to spare. And this has been carried over to this fiscal year. And in March, there was some financial crisis in the U.S., and there was some stability pursued back then. But now in [indiscernible], in general, that view has been weakened. So, net DER compared to that time is something that you can more solidly look at. So, 0.49 times is the end of June net DER, with a further decline. So, what would be profit level that you see as net DER?

[Tetsuya Shigeta]

There's no fixed numerical target or the appropriate level that we have that'll come up with as a consensus. We haven't had that discussion yet. So, for the -- if you look at the balance sheet, we're looking at various growth investments. The size of the balance sheet itself, whether it is appropriate or not, we haven't decided, which size is appropriate specifically. So, appropriate equity level throughout this medium-term management plan period probably, we would end up with profit percentage rate in terms of the efforts -- as part of the efforts to improve to what extent we can enhance the capital efficiency that will be part of our efforts. Thank you.

[Unidentified Analyst]

Thank you very much for taking my questions. My first question, I just want to confirm what was presented. In the one-time factor explanation, you talked about JPY9 billion. I'm sure it is not that big. However, this JPY9 billion is something that I want to confirm with you today. And about the Paiton about the delay in the sale of shares. So, is this not a major project? So, how can we interpret the sense of delay? Is it going to impact the cash flow for the full year or not? That is something that I want to confirm with you today.

And also on Page 7 about growth investments, you gave the explanation about some pipeline and project investments. When it comes to energy transition, there, very interesting project that we see, but agreement of contracts for business, what is the time [excess] (ph) from agreement to implementation of business? So, what can we expect for the projects, the time excess for important projects? If that can be shared, it would be appreciated.

[Tetsuya Shigeta]

Okay. Thank you very much. About the mainstream, this is Chile, renewable energy and impairment has been recorded. I'd like to ask our Global Controller to give us details, but the mainstream, of course, globally and into the future, we are going to develop these pipelines going forward. So this is a kind of business that we have. So, Chile asset after acquiring, we are facing impairments. And, of course, we want to utilize this further globally as a renewable energy project and we want to continue to work on new projects so that we can expand this for our business further. The Global Controller will explain the details later.

And as for Paiton, yes, I'm sorry, we made a disclosure that there will be some delays. And of course, we are waiting for the signatures of the relative parties. So, I hope you will wait a little while for this to be closed.

[Masao Kurihara, General Manager of Global Controller Division]

And your second question about the pipeline projects, MTMP, of course, when we asked for your understanding, I think it is very important that we see the progress of growth investments, that's why we added a slide about this. And of course, we talked about investments we made and agreements to be made to invest, et cetera. And of course, they are contracts that has been agreed to and closed. So, the progress is different, but anyway, when it comes to basic agreement that has been reached with a number of projects, of course, we may be operating with the projects. And, of course, we may have [indiscernible] paper for some of these projects. So, we believe that in a short time, time excess wise, about next-generation fuel [indiscernible] CCS, et cetera, we hope that with a short time excess, we'll be able to implement these projects. So, the time excess is, as such for the projects that are listed on this page.

As for the impairment of mainstream that you asked about in Chile, as for the assets in Chile, of course, we need to think about receivable of energy in Chile. And of course, we have to look at the spot prices and there is a difference between receivable and the spot prices. And the -- this is to be paid by the energy company. And of course, with Ukraine status, of course, the spot prices went up and the difference has expanded and the cost is increasing. And of course, we want to have some energy and that fuel prices that is to be paid by the energy company and the cost is increasing there. Therefore, including mainstream, the RE companies are taking on the losses at the moment. And of course, our maintenance of the lines -- energy lines, there are losses there as well. So, we have [Aker] (ph), which is a partner. And for the Chile asset, there's uncertainty that is continuing. Therefore, fixed asset impairment has been recorded, and as well, we are recording it as the equity share that has been lost.

[Unidentified Analyst]

Thank you very much. Understood.

[Hideaki Konishi, Investor Relations]

Thank you very much. There is only 10 minutes left. At this moment, there are four people who are raising hands. I would like to take as many questions as possible from as many people as possible. So if you raise your -- if you ask questions -- if you limit your question to one, that would be really appreciated. The next question, please.

[Unidentified Analyst]

Thank you very much. Can you hear me?

[Tetsuya Shigeta]

Yes.

[Unidentified Analyst]

So, the only one question. So, I have a question on investments, especially the management allocation. JPY1.13 trillion, how to spend that? Compared to the beginning of the year, is there any increased pipeline? And what is your mindset on the investment? Is there any change? In the Q&A, as comments, there are some heightened risks, but there's no less risk for serious recession in the U.S. So, what is your mindset toward investments right now? It's my only question.

[Tetsuya Shigeta]

Thank you. Investment and pipelines compared to the beginning of this fiscal year up to now, double the amount that is shown or more than double the amount worth of projects building up. So, we're now severely selecting the projects. There is some, I don't know, if this is a correct word, but there's some sort of competition for funds, strategicness and rareness and, immediately, contributing profit or not or expertise in existing business or strong relationship with partners and on field deals. From these perspectives, we are prioritizing the projects through discussions.

And so, originally, in our company, amongst existing businesses, both owned and adjacent business, the peripheral businesses, and business clusters, the ones that we are pursuing in the business -- that's our business model, of course, it sometimes depends on the prices. So the timing of investment decision should be carefully considered. But we'll spend time -- spent time -- enough time to these projects. So, from the beginning of the fiscal year up to now, the pipeline of investments has not change in terms of volume. Thank you for the question. Thank you.

[Unidentified Analyst]

Thank you very much. I'd like to ask one question about MOECO, about the Hokkaido, in Niseko, there has been some eruption of the gas. So is there are any information that you can give us, please, let us know. We believe that the incident is ongoing. So, if you cannot disclose, please let us know that way, too.

[Tetsuya Shigeta]

As for this incident, of course, to the people living in the neighborhood and to the municipality, we are sorry for the inconvenience and for causing concerns. So, we'd like to give a sincere apology. But we believe this is something serious. And with MOECO, we hope that we'll be able to respond appropriately, and we are supporting their efforts at the moment, about the eruption of the vapor that is something that we need to suppress, and that is something that we are prioritizing at the moment.

And as for whether it is going to have impact on the business, that is something that we need to think about later. As for the first quarter, the setting of the pipes and emergency engineering, consultation responses of the third party is supporting this matter. So, these costs compared to the business scale, it is not that big, but these costs are being recorded. If there's going to be a big impact on the performance, we will share that information in a speedy manner, but currently, we are not at the stage of giving any estimation at the moment. Thank you very much.

[Unidentified Analyst]

Thank you very much for answering my question.

[Hideaki Konishi, Investor Relations]

Thank you very much. We are close to ending time. So, the next question will be the last one that we can take. Next question, please.

[Unidentified Analyst]

Thank you. I have one question with regards to investments. In the first quarter, JPY235 billion in gross investments. What will be the full year amount? And in these investments in this fiscal year and next fiscal year, what would be the projects that -- investment that will give you immediate returns, if there are any?

[Tetsuya Shigeta]

Well, in the framework of cash flow allocation, cash inflow and cash outflow should be balanced, and that hasn't changed. And from the previous medium-term management plan, there has been some different projects that have been carried over. So, ultimately, what would happen, it should be looked at from the three-year perspective. And, in that sense, the amounts are shown in the cash flow allocation is what we like to fulfill and perform during the three-year period. So, immediate contribution, well through quarterly disclosure, we like to share the information with you. For example, as I explained Celanese -- collaboration with Celanese, in this project, because this is existing project – business, there's some immediate effect we can expect. So, when this is expected to start contributing to profit is something that we like to share with you in some way or other. I haven't been able to answer your question exactly. I'm sorry.

[Hideaki Konishi, Investor Relations]

Let me make some additional comments. As for the timing of starting of the contribution to profit, in the medium-term management plan, Page 35, the new project starting time, this is the focus that we had at the beginning of the current medium-term manager plan. So, we'd like to take a proper follow-up and keep you posted. So, I like to ask for your kind understanding. Thank you.

So, it is done. So, we'd like to end the Q&A session for today. We have some announcements regarding the IR events. As you can see on the last page of the PowerPoint material, September 21 from 4 pm, we are going to have a business explanation session at the Otemachi Mitsui Hall, and November 30 afternoon, we are going to have Investor Day in this Otemachi Mitsui Hall as well. So, details will be sent to you by email. We hope that you'll be able to participate.

With that, we'd like to end this briefing for today. Thank you very much for your participation despite your busy schedule.