In FY March 2024, profit was 1,063.7 billion yen, exceeding one trillion yen for two consecutive fiscal years. Core Operating Cash Flow (COCF) was around the one trillion yen level for three consecutive fiscal years. Regarding the base profit enhancement target of 170 billion yen set out in the MTMP, by the end of FY March 2024 the progress was 55 billion yen. This was a result of what we call middle game^* initiatives and the contribution to earnings from new investments beginning to appear. We also made progress in improving the business portfolio, with the steady execution of investments for growth that aim to contribute to near-term earnings as well as forming a long-term earnings base.

Middle Game Initiatives

Although people tend to focus on the entry and exit points of investments, the initiatives that really increase intrinsic value are the ones that occur at the intermediate stages?the stages of enhancing individual businesses and implementing turnarounds to improve earnings power. Mitsui’s leadership team has communicated the importance of winning this middle game, and have instilled this concept throughout the Mitsui & Co. Group.

However, in light of the actual progress so far, I believe there is ample room for improvement in our middle game initiatives. Each operating company is working to improve the level of its management by setting KPIs aligned with its current business stage. These KPIs include not only profit and COCF, but also measures of efficiency such as ROIC and ROE, or in some cases targets such as increasing EBITDA and valuation multiples. Due to the impact of individual operating environments, there are a certain number of loss-making businesses. Reducing the number of loss-making businesses can lead to an immediate contribution to earnings, so we will be bold in taking middle game initiatives here.

＊The intermediate stages between the entry and exit points of investments, where the focus is on enhancing individual businesses and implementing turnarounds to improve earnings power.

Improving the Business Portfolio

In addition to middle game initiatives, we will steadily accumulate new investments for growth that can begin contributing to earnings immediately after the investment is made, in order to enhance our earnings power. Furthermore, as an example of our efforts to establish a medium- to long-term earnings base, we are pursuing businesses related to decarbonization and next-generation fuels as part of the Global Energy Transition, one of the Key Strategic Initiatives of the MTMP. Some of these businesses will take time to generate earnings. Therefore, in reconfiguring our portfolio, there is a need to have a balanced combination of investments with a diversified range of timeframes related to earnings contribution. In this way, by combining the diversification of earnings contribution and cash flow timelines with the global geographic diversification across developed and emerging countries, and with the diversification of products and business areas, we are reinforcing our areas of strength and improving our overall business portfolio.

The frontlines in each business unit are setting their sights higher for business portfolio improvement. I believe this is the result of company-wide efforts to promote the use of ROIC as an efficiency indicator, and to carefully select investments.

Effects of Introducing ROIC Management

There has been a significant effect from the widespread use of ROIC, which was introduced in the previous MTMP as an indicator used for discussing efficiency. The pursuit of efficiency is more deeply entrenched in discussions between the leadership team and the chief operating officers of business units. In discussions on achieving MTMP targets for COCF and profit, ROIC enables us to visualize and discuss the capital efficiency of each business area. As a result, I believe that the level of management in each business unit has risen in terms of pursuing capital efficiency. Moreover, a deeper understanding within the Company of the cash flow allocation framework has established a mindset of shifting to projects with higher profitability and growth potential in order to improve the overall portfolio. In addition, when verifying the justification for continuing to hold existing businesses, we are carefully selecting investments that will grow into core businesses in the future. We are raising the bar in looking at investments from that perspective. As an example of the results of this elevated focus on careful selection, we have been actively reducing our holdings of listed stocks. For investments for growth as well, as this focus is raised company-wide, there is greater awareness of selecting higher-quality projects that transcend the purview of each business unit, and our efforts to improve our business portfolio have evolved to be sustainable. On the other hand although ROIC functions as an indicator used for discussions, we have not made it a uniform KPI because the risks and stages of each business area are different. We are currently asking each business for clear improvements to ROIC but so far we are still making incremental improvements each year, leading us to believe there is ample room for further improvement.

Careful Selection of Investment Projects

We are also making advances in the careful selection of new investments. First, we are very mindful of strategy?that is, whether the investment fits our “Create, Grow, Extend” business model. In addition, although the hurdle rate should be raised in light of factors such as rising interest rates, appropriate judgment is needed for each individual investment, taking into account the fact that the uncertainty of preconditions varies depending on the case. The leadership team, which includes officers in charge of multiple business units, is unified in its involvement in the process of carefully selecting high-quality projects, including discussions on prioritizing the investment pipeline from a company-wide perspective. In addition, our External Directors have diverse experience and expertise, and they have numerous opportunities to point out sustainability issues in areas such as decarbonization and health, safety and environment (HSE), as well as the long-term sustainability of products and technologies, further raising the bar in our careful selection of new investments. The elevated focus on the business portfolio in each business unit, the leadership team’s company-wide perspective, and the expertise and experience of our External Directors are all organically linked, leading me to believe that our business portfolio will be further enhanced, and our earnings power further increased going forward.

To Our Shareholders and Investors

Mitsui conducted a 2-for-1 share split with a record date of June 30, 2024. By lowering the stock price per investment unit of common stock, we aim to make investing more accessible for our shareholders and investors, as well as to enable greater liquidity in our stock and further expansion of our investor base.

Looking back over the previous MTMP and the first year of the current MTMP, I can see that it has been a period when favorable conditions in the operating environment supported growth opportunities. Our financial results improved as the operating environment improved during the recovery from the COVID-19 pandemic. In this operating environment, we enhanced the earnings resilience of our entire business while also strengthening our business foundation to ensure that we can securely capture the upside arising from favorable conditions. We were able to conduct the reforms required for this purpose without any delays, while maintaining an overall balance. Looking at Mitsui’s operating environment, there continues to be a strong necessity to respond to geopolitical risk, tackle sustainability, and increase the sophistication of and build redundancy into our supply chains, and my view is that there will be an increasing number of situations around the world where Mitsui will be called on to demonstrate its capabilities.

We will establish a positive cycle of implementing investments for growth that generate cash and profit, accumulating returns, and then allocating a certain amount of those returns to shareholders while keeping in mind sustainable improvement in ROE. We will continue to create value in a way unique to Mitsui by providing cross-industry real solutions to social issues globally and across a wide range of industries. I hope to continue communicating Mitsui’s ongoing growth story, the appeal and potential of our business, and our performance in a way that is easy for all of you to understand.