MITSF - Mitsui & Co. Ltd. (MITSY) Q1 2023 Earnings Call Transcript
2023-05-08 03:32:08 ET
Mitsui & Co., Ltd. (MITSY)
Q1 2023 Earnings Conference Call
May 02, 2023, 04:00 AM ET
Company Participants
Tetsuya Shigeta - CFO
Masao Kurihara - Global Controller
Conference Call Participants
Presentation
Unidentified Company Representative
Welcome everyone. We'd like to start the briefing on the Financial Results of the Fiscal Year ended March 2023 of Mitsui and Company. And also, like to explain about the medium term management plan or the business plan for March 2024. Thank you very much for attending this webinar. Let me introduce the presenters today, Tetsuya Shigeta, CFO. Masao Kurihara, Global Controller. I'll be serving as moderator, [indiscernible] from IR.
There will be presentations by CFO; Shigeta and Global Controller, Kuihara, for about 15 minutes. Then we will take questions afterwards. And the copyright of today's video and audio streaming belong to our company and the company operating in the webinar. Please refrain from copying or diverting them for other purposes either internally or partially regardless of the purposes. And today's webinar will be recorded and posted on to the website of Mitsui and Company on later date and made available on demand.
Let's get started CFO, Shigeta over to you.
Tetsuya Shigeta
Good afternoon. I'm Tetsuya Shigeta, CFO Thank you for joining us today. First, I will explain the results for fiscal year March 2023 give overviews of medium-term management plan 2023 and of the business plan for fiscal year March 2024. Then I will hand over to Masao Kurihara, Global Controller, who will speak on the results and business plan in more detail. A separate explanation of the new medium-term management plan will be presented by CEO, Hori at a briefing to be held next week on May 9.
I will begin by summarizing our operating results for fiscal year March 2023. On a year-on-year comparison, core operating cash flow increased by ¥46.8 billion to ¥1,205.5 billion and profit increased by ¥215.9 billion to ¥1,130.6 billion, both of which exceeded forecast and hit new record highs. Regarding shareholder returns, we plan to raise a year-end dividend to ¥75 per share, ¥5 higher than what we announced in February, bringing the full year total to be ¥140.
Furthermore, approximately ¥270 billion in share repurchases were made, including approximately ¥30 billion of the ¥100 billion in additional share repurchases also announced in February that were executed by the end of March. Based on this, shareholder returns for the year were approximately ¥490 billion in total. ROE reached 18.9% due to an increase in earning power and an improvement in capital efficiency.
Now I will provide an overview of the medium-term management plan, which ended in March 2023. Core operating cash flow increased significantly over the three-year period. In fiscal year March 2023, it had more than doubled compared to fiscal year March 2020, which was the final year of the previous medium-term management plan.
In the Mineral & Metal Resources segment and Energy segment, we were able to significantly capture the upside of commodity prices through a portfolio transformation. Furthermore, earnings power increased across all segments due to our trading functions and the strengthening of businesses such as automotive and healthcare. Like core operating cash flow, profit increased significantly. And in fiscal year March 2023, it had nearly tripled compared to fiscal year March 2020, which was the final year of the previous medium-term management plan.
I will now look back on the qualitative aspect of the previous medium-term management plan. We made steady achievements by transforming the business portfolio and strengthening the management base to realize, transform and grow in line with our corporate strategy. In strengthened business, management capabilities and earnings power, we demonstrated trading functions for stable supply and steadily capture the upside of commodity prices and business environment.
Furthermore, we improved earnings power and ROE through deeper ROIC management. In Evolve financial strategy and portfolio management, we executed strategic cash allocation through management allocation using our strong cash flow as a source of funds. In particular, for shareholder returns, we continue to increase dividends and flexibly made share repurchases. Furthermore, we strengthened our financial position given the highly uncertain business environment.
In Human Resources strategy, we implemented measures such as development of capable individuals, diversity and inclusion and appropriate allocation of human resources and also realize value creation and improvement of productivity through promotion of new work styles.
In Strategic Focus Pursue new businesses, we made progress with initiatives such as LNG, hydrogen, ammonia and renewable energy for the realization of a decarbonized society, the expansion of earnings within the healthcare business and the creation of businesses related to disease prevention. Furthermore, we also accumulated the growth investment pipeline aimed at the new medium-term management plan.
In Sustainability management and evolution of ESG, we formulated and executed a roadmap for climate change action and increase the disclosure of non-financial information. Furthermore, we established a new stock-based remuneration plan for Directors using ROE and ESG elements as KPIs and engage the improvement of the effectiveness of the Board of Directors.
I will now discuss the results of Cash Flow Allocation. Cash in was ¥3,815 billion, comprising COCF of ¥3,023 billion and asset recycling of ¥792 billion, such as the sale of Australian metallurgical coal business, SMC, real estate business, financial assets measured at FVTOCI, power generation business and the Caserones, the copper mine in Chile.
Cash out was ¥2,623 billion, comprising investments and loans of ¥1,584 billion and shareholder returns of ¥1,039 billion. I will explain about the main investments and loans in the Energy Solutions area, we made investments, such as those in mainstream a renewable energy developer and climate friendly, which is the developer of emissions credits and a large-scale renewable energy projects in India as we pushed ahead in reshaping our portfolio. We also subscribed convertible bonds of CT Corp's holding company.
In this section, I will discuss the results of management allocation. While cash inflow through asset recycling was ¥790 billion, core operating cash flow was ¥3,020 billion, significantly exceeding our target as we achieved strong cash generation. As for cash outflow, there were ¥1,300 billion in total investments and loans and dividends increased to ¥530 billion, backed by strong cash generation.
As a result, the management allocation came out to be ¥1,980 billion. Of this ¥1,980 billion in the management allocation under strict investment discipline, we allocated ¥280 billion to carefully selected growth investments and flexibly allocated cash captured from the upside of commodity prices and implemented ¥510 billion of share repurchases.
As a result, we executed shareholder returns, including dividend payout in excess of ¥1 trillion over three years. Of the ¥100 billion in additional share repurchases announced in February, the amount executed by the end of fiscal year March 2023, were approximately ¥30 billion. The portion of approximately ¥70 billion unexecuted will be managed by including it as part of the cash flow allocation under the new medium-term management plan.
We're steadily accumulating projects in our growth investment pipeline, actually, pipeline projects with a high probability of execution that will see cash outflows in fiscal year March 2024 total approximately ¥400 billion, including, for example, making AIM Services, our wholly owned subsidiary for approximately ¥70 billion, the tender offer and business integration with Relia for approximately ¥60 billion.
This ¥400 billion will be managed by inclusion in the cash flow allocation for the new medium-term and management plan. Unallocated management allocations are temporarily distributed to strengthening our financial position to address a highly uncertain business environment, but we will flexibly consider future allocations, including those for growth investments and shareholder returns, taking into account the future business environment.
I will explain shareholder returns. We continue to increase dividends in line with expansion of cash generation with a full year dividend per share of ¥140, ¥5 higher than what we announced in February and up ¥55 from the ¥85 in fiscal year March 2021. Furthermore, we flexibly implemented share repurchases as we captured the upside of commodity prices. As a result, shareholder returns as a percentage of core operating cash flow for the three years of the medium-term management plan reached 34%.
I will now explain the quantitative targets in the business plan for the fiscal year March 2024. Commodity prices are expected to revert, and we expect core operating cash flow of ¥870 billion and the profit of ¥880 billion. However, despite a given business environment, we project that core operating cash flow and profit will significantly improve compared to fiscal year March 2021, the first year of the previous medium-term management plan.
Furthermore, we aim for continued growth during the new medium-term management plan. That completes my part of the presentation today.
I will now hand over to Global Controller, Masao Kurihara for details of performance in fiscal year March 2023 and our new business plan.
Masao Kurihara
I am Masao Kurihara, Global Controller. I will now provide details of our operating results for the current year and the business plan for fiscal year March 2024. First, I will explain the main changes in core operating cash flow by segment compared to the previous fiscal year, core operating cash flow for the year increased by ¥46.8 billion to ¥1,205.5 billion.
In Mineral & Metal Resources, metallurgical coal prices were higher, but COCF decreased by ¥116.1 billion to ¥436.7 billion, mainly due to the declining oil prices and the falling dividend from Relia.
In Energy, COCF increased by ¥139.4 billion to ¥419.6 billion, mainly due to increase in oil and gas prices and LNG trading
In Machinery & Infrastructure, COCF increased by ¥38.9 billion to ¥182.9 billion, mainly due to higher dividend income from associated companies, primarily in automotive and commercial vehicles related businesses.
In Chemicals, although prices and sales volumes performed well, mainly for fertilizer and fertilizer raw materials, COCF decreased by ¥4.3 billion to ¥89.5 billion, mainly due to falling prices and rising costs in the U.S. methanol business.
In Iron & Steel Products, COCF increased by ¥5.6 billion to ¥18 billion, mainly due to higher dividend income from associated companies.
In Lifestyle, although grain trading, et cetera, performed well, COCF decreased by ¥4.1 billion to ¥31.1 billion, mainly due to the valuation loss on the fair value of the drug discovery support fund.
In Innovation & Corporate Development, COCF was ¥46.6 billion. Other factors such as expenses, interest, taxes, et cetera, which were not allocated to business segments totaled an outflow of ¥18.9 billion.
Next, I will explain the main changes in profit by segment compared to the previous fiscal year. Profit increased by ¥215.9 billion to ¥1,130.6 billion.
In Mineral & Metal Resources, metallurgical coal prices were higher, and there was a gain on the sale of the Australian metallurgical coal business, SMC, but profit decreased by ¥58.8 billion to ¥438.8 billion, mainly due to the decline in iron ore prices and the falling dividends from Relia.
In Energy, profit increased by ¥195.4 billion to ¥309.4 billion, mainly due to increase in oil and gas prices and LNG trading.
In Machinery & Infrastructure, profits increased by ¥51.1 billion to ¥171.9 billion mainly due to good performance of automotive and commercial vehicle businesses and the ship-related business.
In Chemicals, although we recorded a decline in the U.S. methanol business due to falling sales prices and rising raw material costs. Profits increased by ¥2 billion to ¥70.9 billion as a result of solid performance in prices and sales volumes, mainly for fertilizer and fertilizer raw materials.
In Iron & Steel Products, profits decreased by ¥4.4 billion to, ¥22.5 billion, mainly due to a fall in steel prices.
In Lifestyle, although grain trading, et cetera, performed well, profits decreased by ¥6.7 billion to ¥54.8 billion, mainly due to the absence of the gain on fair value of the fashion business in the previous fiscal year.
In Innovation & Corporate Development, profits increased by ¥9.1 billion to ¥66.7 billion, mainly due to gains on sales in the real estate business. Other factors such as expenses, interest, taxes, et cetera, which were not allocated to business segments totaled a loss of ¥4.4 billion.
This page shows the main factors influencing year-on-year changes in profit. Base profit declined due to decreases in dividends from the iron ore business and due to a fair value valuation loss of a drug discovery support fund. However, trading of LNG, chemicals grain commodity derivatives, et cetera, together with the automotive and ship businesses drove performance. Excluding one-time items, profit was almost unchanged year-on-year.
Although costs were reduced in the energy upstream business due to lower depreciation, there was the impact of lower volumes in the Mineral & Metal Resources business, which also led to an increase in unit costs as well as increases in fuel and labor costs. That resulted in a decrease in profit by ¥44 billion under resources-related cost volume.
Asset recycling resulted in an increase of approximately ¥75 billion, mainly due to the sale of the Australian metallurgical coal business, SMC, and gains from the sale of assets in real estate business.
In commodity prices, ForEx, profit increased by approximately ¥236 billion. For commodity prices, despite a ¥73 billion decline in profit caused by falling iron ore prices, higher oil and gas prices resulted in a contribution of approximately ¥116 billion, and increases in metallurgical coal prices contributed approximately ¥40 billion.
In foreign exchange, the weaker yen resulted in an increase in profit of approximately ¥159 billion. Finally, our valuation gain/loss and special factors contributed to a decrease of approximately ¥33 billion due to impairment losses on some projects in machinery and infrastructure.
Now let's take a look at the balance sheet as of the end of the previous fiscal year compared to the end of March 2022, net interest-bearing debt decreased by approximately ¥100 billion to ¥3.2 trillion. Meanwhile, shareholder equity increased by approximately ¥800 billion to ¥6.4 trillion as a result, net DER fell to 0.5 times, that's all for fiscal year March 2023.
I will now move on to our business plan for fiscal year March 2024. First, I will explain core operating cash flow by segment in the plan for fiscal year March 2024 by comparing with the results of fiscal year March 2023. COCF is expected to decrease by ¥335.5 billion to ¥870 billion.
In Mineral & Metal Resources, COCF is expected to decrease by ¥116.7 billion to ¥320 billion, mainly due to the impact of a projected fall in metallurgical coal prices and iron ore prices and a decrease in dividends from associated companies.
In Energy, COCF is expected to decrease by ¥189.6 billion to ¥230 billion, mainly due to a projected fall in oil and gas prices and LNG trading.
In Machinery & Infrastructure, COCF is expected to decrease by ¥42.9 billion to ¥140 billion, mainly due to a percent decrease in cash gains through asset sales and an increase in tax payments.
In Chemicals, although an increase in profit is expected due to a projected drop in costs in the U.S. methanol business, COCF is expected to decrease by ¥9.5 billion to ¥80 billion, mainly due to an expected fall in sale prices of fertilizer and fertilizer materials that performed well in the previous fiscal year.
In Iron & Steel Products, COCF is expected to decrease by ¥8 billion to ¥10 billion, mainly due to a decrease in dividend income from associated companies.
In Lifestyle, COCF is expected to increase by ¥18.9 billion to ¥50 billion due to a recovery in coffee trading in addition to rebound from the valuation loss on the fair value of the drug discovery support fund recorded in the previous fiscal year.
In Innovation & Corporate Development, COCF is expected to decrease by ¥6.6 billion to ¥40 billion.
In Others due to COCF expected to increase by ¥18.9 billion, mainly due to expenses, interest, taxes, et cetera, the allocated business segments. We're not forecasting any significant cash flow there or here.
Next, I will explain profit by segment and the plan for fiscal year March 2024 by comparing with the results for fiscal year March 2023. Profit is expected to decrease by ¥250.6 billion to ¥880 billion.
In Mineral & Metal Resources, profit is expected to decrease by ¥148.8 billion to ¥290 billion, mainly due to the impact of a projected fall in metallurgical coal prices and iron ore prices and the absence of the gain from saleable Australian metallurgical coal business, SMC, that was present in the previous fiscal year.
In the Energy, profits are expected to decrease by ¥179.4 billion to ¥130 billion, mainly due to projected fall in oil and gas prices and LNG trading.
In Machinery & Infrastructure, although profits are expected to fall in automotive, commercial vehicle and ship-related businesses, profit is expected to increase by ¥68.1 billion to ¥240 billion, mainly due to asset recycling gains.
In the Chemicals, although an increase in profit is expected due to a projected drop in raw material prices in the U.S. methanol business, profit is expected to decrease by ¥10.9 billion to ¥60 billion, mainly due to an expected fall in sales prices of fertilizer and fertilizer materials have performed well in the previous fiscal year.
In Iron & Steel Products, profit is expected to decrease by ¥2.5 billion to ¥20 billion.
In Lifestyle, profit is expected to increase by ¥35.2 billion to ¥90 billion, mainly due to the revaluation gain on existing holdings of AIM Services.
In Innovation & Corporate Development, profit is expected to decrease by ¥6.7 billion to ¥60 billion, mainly due to the absence of the good performance of commodity derivatives trading recorded in the previous year.
Other factors such as expenses, interest, taxes, et cetera, which are not allocated to business segments expected a total loss of ¥10 billion.
Here, we have a comparison of plan for fiscal year March 2024 and the results of fiscal year March 2023 with a summary of the factors involved. Base profit is expected to decrease by ¥159 billion, mainly due to a decrease in trading of LNG, chemicals and grain, et cetera, a decrease in the mobility business due to the impact from changes in the operating environment and a decrease in profit from the Australian metallurgical coal business, SMC, which was sold.
Although an increase in volume is expected in the Mineral & Metal Resources business, resources-related cost volume is expected to show a decrease of ¥68 billion, mainly due to a decrease in production volume in LNG business, increases in depreciation expenses in energy upstream business and increase in labor expenses and fuel expenses in copper operations and iron ore operations.
Asset recycling is expected to increase profit by approximately ¥41 billion due to the anticipated sale of multiple interests, including the power generation business, commodity prices, ForEx is expected to reduce profit by approximately ¥155 billion.
Following revisions to the outlook for market prices, commodity prices are expected to drive decreases in profit of approximately ¥80 billion for oil and gas, ¥31 billion for metallurgical coal and approximately ¥25 billion for iron ore.
In foreign exchange, a decrease in profit of approximately ¥17 billion is expected, mainly due to expectation of a stronger yen. Finally, valuation gain loss and special factors expected to increase profit by ¥88 billion, mainly due to one-time valuation gains in multiple instances, including AIM Services.
That concludes my presentation.
Question-and-Answer Session
A - Unidentified Company Representative
[Operator Instructions] If you have a question, please raise your hand. Please unmute yourself and ask your question. Can you hear me?
Unidentified Analyst
Yes. We can hear you. Thank you very much for taking my question. I'd like to ask two questions. First question, you explained at the very end on Page 19 about the increase and decreased factors about the base profit, it was plus ¥159 billion. So can I talk about the specifics?
So looking at this, Of course, for the ended fiscal year, the trading, which you were able to show functionality with the external environment, it may have gone down, and you have divided it by different items?
But can you talk about the quantitative contents of this ¥159 billion which were the factors that led to the declines? If you can give us more granular explanation, please do so. And when I looked at this, on the other hand, they are factors that led to increases in profit. So returns from past investments or Relia outcomes. Looking at these materials, these may be some efforts made by the company and these are not shown in the materials. So if you have any additional information you can share with us, I would appreciate that?
So the first question was on the base profit. And my second question for this fiscal year about the asset allocation, I'm just talking about this single year, but looking at the numbers on the surface, so COCF over ¥870 billion. And looking at the new medium-term management plan about the total returns, it is around 37% so it will be about ¥320 billion. And of course, the dividend will be about ¥220 billion.
So there will be a difference of about ¥100 billion. So now you're implementing the share purchases remaining after April of this year was about ¥70 billion Tetsuya Shigeta explained earlier. So looking from the numbers on this material, with the additional share buyback, it will be about ¥30 billion that we can expect. So many people would expect this to be the number.
I'm sure, as you have explained 37% maybe the average for the three years and not for a single year that may be the explanation that you may give. Then how can we think of the decisions made for the single year, for the returns, so for the capital allocation this year, can you give us a more detailed explanation? Thank you very much.
Unidentified Company Representative
Thank you very much for your questions. So Tetsuya Shigeta CFO will answer your question.
Tetsuya Shigeta
Thank you very much for your questions. As for your first question about the base profit for '23 March to '24 March, so the decline and you would like to know the factors that, is involved. Of course, as for each of the items, I will not give you the numbers for each one of them. I'd like to have your understanding. But for LNG and Chemicals and grains that are trading businesses and mobility business, for '23 March after COVID, there was a pent up demand.
And that opportunity was captured. And we were able to see and capture the upside. And LNG, especially when it comes to the trading of LNG, with suppression of demand and supply, I believe there was a lot of profit capturing opportunities, and this has been subsiding and that is one of the main factors for the decline.
As you can see here, of course, as the SMC for Australia metallurgical coal related business and we had recorded capital gain and there would be a decline in that profit also it will be a decline of ¥160 billion. And on the other hand, in the previous medium-term management plan, there were improvement in the profit making ability in chemicals and lifestyle and machinery and infrastructure businesses.
And within those businesses, these were included so the numbers here are not extracted for each one of them. And within the trading, market - commodity prices may have led to a decline. And on the other hand, we were able to expand the platform, and that may have led to increases in profit. So we are just showing you the net figures and not showing you the individual factors. So I hope to have your understanding.
As for your second question, yes first of all, as for dividend, your understanding is correct, but as per COCF, we are looking at about 37% that is not the plan that we have at the moment. So here yes we are not looking for 37%, but with the share buyback, the share prices and the steady COCF, anything that exceeds the steady COCF, which is transient, that kind of pace is also considered, so we would like to be agile going forward in our share repurchases. So the ¥70 billion that is being executed this year, how much of a buyback we will be able to add that has not been decided yet. That is all. Thank you.
Unidentified Analyst
Understood very well. Thank you very much.
Unidentified Company Representative
Thank you very much. Now let us move on to the next question, the second person.
Unidentified Analyst
Thank you very much. I have two questions. The first one is about energy. Last year, it performed quite well within the new fiscal year. It seems to be a bit weaker in plan, and there's a big difference it seems. Was explained, but in terms of cost and volume reduction in the new fiscal year, ¥23 billion or ¥46 billion, it's big. And also, trading reduction was also presented. So how much you expect in terms of LNG trading that you expect for profit reduction. You may not be able to disclose, but if there is anything that you can disclose, please share that with us.
And second question is about dividend ¥150 per share was mentioned. The minimum is a hundred ¥140 so ¥10 increase from that, so you have decide this? If the earnings capability of power is increased and the dividend will be increased that's what you have been saying previously, but there been any change to that.
And ¥750 billion in - what about or rather that is the base starting point that you set. And if you exceed that, then - you would plan for dividend increase. Is that what you're doing? So is there any such predictability that you can give us in terms of metrics that you are mindful of?
Unidentified Company Representative
CFO, Shigeta we'll answer that question. Thank you for the question.
Tetsuya Shigeta
The first one, now let me just give you the overview first. And then as for details, I will our Controller Kurihara will make additional comments. So compared to plan or the - and compared to the previous year's results, the plan has been decreased significantly. So there's, the factors shown in quarter four, but ¥80 billion in prices and ¥46 billion in volume and the ¥23 billion in terms of cost. Those are the factors behind them. And then for us - trading has been mainly the factor.
And in terms of trading, we have already explained. So there's a supply demand situation that is quite tight. That was what happened in the previous fiscal year, but that is not going to be true anymore in - this fiscal year. So that's how we made the plans. So I'd like to ask him to add more on cost and control.
Masao Kurihara
So let me explain about cost and control more as for the cost. So the depreciation of the exploration cost has been increased in MEPAU in Australia. The new key - exploration rate also increased and MEPUSA also increased and that's in Abu Dhabi also is expected to increase. And as for the volume, the previous year's production was quite good.
And also gas field in its entirety. In the North field, there's a production decrease that is increasing - and Greater Enfield [indiscernible] there is a turnaround maintenance that is expected so the volume is expected to decline. And also - up until April 2022, we had this interest and maintained, but [indiscernible] production decline afterwards. So that's another reason.
And as for the second question, ¥150 in dividend and in the new medium-term management plan, could offload their shareholder return based on core operating cash flow, we are going to come up with some numbers - and 37% is the target or yard stick wise. And as for the increase of the dividend to ¥150 yen and also cash dividend, stability or we are going to gradually increase stably.
So that was the policy in the previous medium-term care management plan, but that is going to be also maintained in this medium-term and plan. And we - COCF that can be generated continuously and stably there has been a bit increased in terms of level we feel. And also, we have been continuously conducting share buyback. And so COCF per share has been increased and as a result, we find it easier to reflect that in the dividend per share as well.
That has been effected and as for the portion that is stable in COCF, and the solid part of the COCF, if that is increased and grown, then we like to reflect that in the increase in return - shareholder return. Well, for the energy part, it's just a simple math ¥180 billion decline in profit is expected. Cost market prices ForEx about ¥150 billion plus that's being taken into account.
So ¥25 billion is decline as a result. And energy trading has stopped. So maybe the dividend is increased or decreased in other factors, but ¥25 billion in profit increase - profit decline is not from the LNG trading. Is that correct or is that the part that you are expecting in terms of the decline?
Well, I can't give you any details in numbers. But the LNG trading profit decline is a reasonable number that we expect. And there are some negative factors in the previous fiscal year, but there's a rebound from that and that has also been included So what you understand or how you understood is correct.
Unidentified Analyst
I see. Thank you.
Unidentified Company Representative
So we'd like to take the next question. [indiscernible] are you there?
Unidentified Analyst
Yes, thank you very much. I'd like to ask two questions, please. First question is on energy once again. On Page 19, we have '24 March volume energy was minus ¥46 billion and in the material provided on Page 25, you talk about the forecast for energy production '24 March, it is going to decline substantially. So what are the factors for this decline? And the perfect decline from the volume change, can you explain the factors behind them once again, please?
And my second question about machinery and infrastructure business. For March '24, the forecast is for the COCF and net profit is going to show a large gap. Of course, they are gain on sales of coal business, but there may be some transient factors which are the factors that is going to lead increase in profit and those that lead to decrease in profit? Thank you very much.
Tetsuya Shigeta
I'd like to answer the second question first. And the first question, the Global Controller will answer. So in answer what we can give you right now, as for machinery and infrastructure in the path, the gain on - asset recycling is included and this is quite large. Therefore, there is a gap in COCF and profit and Widen is a big factor. The sale of Widen business is very big as a factor.
And in addition, the name of the project and the number is not disclosed, but we are looking for strategic recycling and that has led to large gap between the COCF and the profit that is a main factor. And as for energy, the production volume, so this graph is showing the production, so this is not the actual sales volume, but we are looking for decline and it - is on par with what I have explained earlier MEPAU and MOXENA decline is also included. I'm sorry. We have not disclosed the specific so I hope to have your understanding. Thank you very much.
Masao Kurihara
Thank you very much. So the decline like MEPAU these are included in the factors for profit decline. So this is in line. So in order so yes in the order that I mentioned, the impact is showing. Okay, thank you very much.
Unidentified Analyst
In machinery and infrastructure, the excluding the one-time factors, in machinery and infrastructure, what are the business situation?
Masao Kurihara
Yes for example, the Widen business, because there was a contribution from equity. So from machinery infrastructure that will be removed. However, in other projects, we will see a bottom up. Therefore, as a whole, we are going to show flat year-on-year and when it comes to mobility, last previous year, the pent up demand from post COVID was continuing, and we were able to capture the upside opportunities, but this will be removed.
Therefore, we will see decline in profits. And when it comes to mobility, exempting special practice, there will be some settlement of the environmental practice. So post COVID pent up demand will be removed. That is something that we have incorporated in our plan, but we're not looking for a huge drop.
Unidentified Analyst
Thank you very much. Understood very well.
Unidentified Company Representative
Thank you very much. Now let's move to the next one.
Unidentified Analyst
Thank you very much. I have two questions. I just would confirm the way we should look at this, if I may, the first one. In the conventional strategy, ability business it's now being also mentioned, but our own investments have been promoted in this area and base profit has been strengthened. And this is the result of the base profit strengthening, but in the new fiscal year, the recovery from COVID-19, the momentum has been slowing down I do understand that?
But in the previous fiscal year, there was an increasing profit from U.S. and Asia market and there's a turning point that you can see, is that true or in that plus a positive and negative numbers, there are something that has been missing. Or automotive or truck related businesses inclusive of those, what are your thoughts on directions going forward?
In the new medium-term management plan, mobility is going to be your important pillar. So in the first year of this plan, what are your - the feeling if you can share that with us. And secondly, again, on energy, on Page 25, the production graph is shown. And previously, Arctic 2 and Mozambique were expected to start-up that was assumption included in the plan.
But for the next three years, that has not - for the next - for the past few years that has not been affected, but maybe you sorted out again so that something - you also give us more details update on that? Thank you.
Masao Kurihara
Okay. As for the mobility business, in the base profit earning power, I may be repeating myself, but in the previous fiscal year, it performed quite well even that, in this fiscal year, things settle down. And we're looking at the level that we can expect from the things having been settled down. And in the new medium-term management plan, well there will be a presentation next week, and it will be mentioned.
But the supply chain, industrial solutions, the three strategic initiatives, the new ones and the mobility is included on these and both on investments and adjacent business is also has potential, and we are promoting investments in these areas. And so - from the settle down level, we are going to further expand their profitability and earnings power.
So as a turning point, the profit is not going to be just decrease. But we are going to take some actions in there. So part of that will be presented next week. And as for the second question, our Head of IR [indiscernible] will explain.
Unidentified Company Representative
As for energy schedule, let me answer that question. As for Arc 2, and the production beginning it is not changed. Things are in - by the end of 2023, the first train is expected to start operation. So from next fiscal year onward, this will be affected that's what we are assuming. And as for Mozambique, the given the situation in the local area, it is difficult for us to identify the clear date. So we have to continue to watch how things will play out and then answer questions. Thank you.
And for the second question, so Arctic 2, there is no change that you have seen or you're seeing the schedule. So you have maintained a view. Yes, that is correct. There is no change in our view on the schedule. Thank you.
Unidentified Analyst
Thank you very much for taking my question. I'd like to ask two questions, two questions on energy about volume it is ¥45 billion minus. And when it comes to production, it's going to be 16,000 new users so ¥46 billion the scale does not really match. So - I think there is a difference between production and sales?
So can you talk about the gap between the two, 16,000 BD, if we translate by the number of days in a year, it will come to 5.84 million. So it will be about $60 per barrel when it comes to decline in profit. So can you talk about the balance between production volume, and also sales, that is my first question.
My second question on Page 28 about exposure to Russia so, part of it has been recovered. Is it from ForEx or is it going to be from decline or investment, what has been revised? What has led to this valuation? That is my question. Thank you very much.
Tetsuya Shigeta
Thank you very much for your question. As for your first question, I'm not sure if I can answer your question, but as for the question about the Russian LNG business. Are you limiting your question to suffering? Not just as suffering, but to Russia as a whole, including Arc 2. Okay. So we have not changed our thinking. As for investments and loans, Of course, there was an impact from ForEx as well. Suffering from - the end of March, I think in the first quarter of March '23, There was a growing concern scenario and the scenario for the business to stop.
So there was a 50% yield on the two scenarios, and we had to drop by 50% so we have not changed our thinking since our net position has increased. This is because of the guarantees this is off balance, but the positioning of guarantees has increased. The content of the guarantees is very variable, but as a whole, construction is progressing and the total exposure is increasing. And that is the reply to the Russian LNG business question.
So I cannot really go into the specifics, but basically in past fiscal year, we went from the production of that year. There was an increase substantially in the previous year and the market upside has been incorporated in the data. And with that, we are looking at volume decline and we have cut off at that point. And production and sales volume that they - I don't think is a huge difference between the two. There's not much more that I know of. So I'd like to keep my question or answer to that. Thank you very much.
Unidentified Analyst
That is all I wanted to know. Thank you.
Unidentified Company Representative
Thank you very much. We're getting closer to the schedule ending time. So this will be the last question we can take. Next person, please?
Unidentified Analyst
Thank you very much. It's not really a question just a clarification. The CFO Shigeta said earlier. He talks about the future directions. But for March 2024, so the good performance in the previous fiscal year will be gone, so they'll be decline in profit. But as for March '25 onward, there will be a steady growth that you're expecting. Is that the direction that you're looking at?
Tetsuya Shigeta
Thank you for the question. Well, yes your understanding is correct. Next week, there will be a presentation and presentation material that does include something not this, but in March 2026, which is the final year of the new medium-term management plan. The commodity prices and the ForEx rates, one-times first of course, if they are excluded, we compare the March 2023 and 2026 and the profit expansion plan between these dates will be explained.
And up until the previous medium-term management plan, there were investments made and inclusive of those, the business cluster creation. And to increase profits in the aviation business and also continued geopolitical risks that will be manifested itself and given that, the stable function demonstration in the trading business that, will lead to profiting profitability increase. So giving those from March 2024 to '26 March. There will be profit increase that is planned that's upon in a new medium-term management plan. Thank you very much.
Unidentified Company Representative
We are running out of time. So that concludes the Q&A session. And with that, I'd like to conclude today's briefing. Thank you very much for attending this webinar despite your busy schedule today. Thank you.
For further details see:
Mitsui & Co., Ltd. (MITSY) Q1 2023 Earnings Call Transcript