Mitsui & Co., Ltd. (8031) Earnings Call Transcript & Summary

Good morning. Thank you for joining us today. I would like to present the details of our Medium-term Management Plan 2023. Normally, we would hold this meeting physically, and I would explain and take your questions in person. But considering the extension of the COVID-19 state of emergency, we have decided to hold this year's meeting online. Firstly, I would like to take a moment to explain about the effects of COVID-19. Movement has been restricted around the world in response to the spread of the virus and cities have been locked down. As a result, demand has declined significantly and the prices of commodities, most notably oil, have dropped sharply. There is deepening uncertainty about when the spread of COVID-19 will end and what will become of the social and economic environment thereafter. We have continued our internal discussions since last summer on our new Medium-term Management Plan, which I will explain shortly. However, due to the worldwide spread of COVID-19 since March this year, it has been increasingly difficult to foresee its impact, especially on our quantitative figures. On the other hand, we believe the Transform and Grow, which is the theme of the Medium-term Management Plan, is a direction that will not change and will only be accelerated. It is assumed that the whole business environment will fundamentally shift itself to a new normal with new working practices, including working from home. We must proactively seek to transform ourselves, grasp the changes and the needs of the environment, grow and contribute to society. We have compiled the quantitative targets in the Medium-term Management Plan based on a set of assumptions, including the commodity prices and the timing of the economic recovery. However, we have not been able to incorporate the effect of post-COVID-19, including the mid- to long-term changes to the economic environment and the social trend, and therefore, we will make and announce revisions to these targets as appropriate when the pandemic eases and we see a path to recovery. I would like to manage the company focusing on business continuity and continue to put first priority on the safety of our employees in the countries and regions that have been affected by the spread of COVID-19. Please turn to Page 1. These are the 5 topics I will discuss today. In the new Medium-term Management Plan, in addition to Mitsui's goals, we have formulated a group-wide corporate strategy based on which each business segment has compiled each of their respective business strategies. All employees of the group worldwide will work to implement it and seek to Transform and Grow. Also, this fiscal year we have updated our mission vision values to comp off guiding our long-term goals for Mitsui, which I will introduce at the end of this presentation. Please turn to Page 3. I will start by briefly explaining Mitsui's goals and the positioning of our new Medium-term Management Plan. This fiscal year, we will aim to grow sustainably and support social development by responding flexibly to this tumultuous business environment and accelerating changes in customer demand based on our newly formulated MVVs and on the materiality that we updated last year. Please turn to the next page. I will now explain our quantitative targets of the Medium-term Management Plan. Our outlook is that in the short term, a fall in profit is unavoidable due to the spread of COVID-19. However, we will steadily implement the strategies in the new Medium-term Management Plan and aim to quickly return to a growth trajectory. The figures here are quantitative guidance for targets for this fiscal year ending March 2023, the final year of our new Medium-term Management Plan. They are core operating cash flow of JPY 550 billion, profit for the year of JPY 400 -- JPY 400 billion and ROE of 10%. Also, under our new Medium-term Management Plan, in addition to the above 3 KPIs, we will be more conscious of per-share profitability indicators with the aim of improving shareholder value. Please take a look at Page 6. I will now discuss the qualitative progress we made on the previous Medium-term Management Plan and our achievements. Two of the measures in the plan were to build a robust profit base and thoroughly strengthen existing businesses and to establish selected new growth areas. We managed to grow our profit base in resources and energy and strengthened nonresource areas, particularly machinery and infrastructure and lifestyle. We also expanded our business base in environment and health, which we -- were our focus areas. To strengthen our final base -- financial base, we further developed cash flow management, which played a big part in considering capital measures, including investment discipline and shareholder return. In regard to innovation functions, we launched Moon Creative Lab in the U.S. and Japan and put effort into starting up our own new businesses. We made progress on establishing and strengthening digital infrastructure, including functions that enable our employees to work from home, which are in use under emergencies like the one that we are currently experiencing. We have been driving personnel efforts forward on a global basis, including efforts to create next-generation leaders regardless of their place of hire. We are also continuing to strengthen governance, including improving board effectiveness by making discussions more dynamic. Please turn to Page 7. This page explains the ongoing challenges that have become apparent while reviewing the progress of the previous medium-term management plan and also by the outbreak of COVID-19. First of all, if Mitsui is to realize sustainable growth, we need to increase the profitability of our existing businesses. We also need to concentrate management resources in growth areas in which we can demonstrate our strengths and establish our next profit pillars. In order to achieve this, it will be crucial to transform the mindset of each individual employee. At the same time, we need to face the challenge -- changes to the business environment resulting from the spread of COVID-19 and swiftly respond. COVID-19 will further accelerate the structural changes in society and in businesses. We need to engage changes such as digitization and decarbonization as opportunities to use them grow in addition to making ourselves more resilient to economic downturns, through risk management and cost cutting. Please see the next page. I will now explain our corporate strategies, which have also taken into account the above ongoing challenges. Each business unit has formulated its own business strategy based on these corporate strategies. The aim of our transformation is to raise profitability in line with the invested capital, increase ROE and transform the mindset of our employees. To achieve this, we will strengthen business management capabilities, evolve financial strategy and portfolio management and pursue personnel strategy. We will grow by pursuing strategic focus that are growth areas where Mitsui's comprehensive strength is effective and strengthen profitability of core business and take on challenges in new businesses. Lastly, we will support our Transform and Grow by evolving ESG and promoting sustainable management to realize sustainable growth. Please look at Page 9. Our first corporate strategy is strengthen business management capabilities. In order to quickly recover a growth trajectory within an increasingly uncertain environment, Mitsui's most important task is to improve profitability of existing businesses by means of strengthening our business management capabilities. We will work to improve business management expertise and to foster and deploy business management talent, while at the same time, prioritizing the allocation of management resources into businesses where profitability improvement can be realized. We will introduce ROIC as an internal management indicator, strengthen budget control and manage the company that is more conscious of the profitability of investment assets. Please turn to the next page. I will talk about how we will evolve financial strategy and portfolio management. In the new Medium-term Management Plan, we will implement more flexible and strategic capital allocation. Capital, excluding post-FID investment, maintenance CapEx and minimum dividends, will be defined as management allocation. We will allocate capital strategically and flexibly to grow investment and additional shareholders' return after comprehensively considering investment opportunities and the business environment. Furthermore, we will thoroughly review post-FID investments and maintenance CapEx in the move that we have been implementing from previous years. During the term of the new Medium-term Management Plan, we will set a dividend of minimum JPY 80 per share and promote shareholder returns that reflect the improvements in capital efficiency, while at the same time, working to maintain and improve our financial base. The pie chart shows our forecast for cumulative cash flow allocation over the 3 years of the new plan based on this basic strategy. We forecast cash-in of JPY 2.4 trillion, comprising core operating cash flow of JPY 1.5 trillion and asset recycling of JPY 900 billion. As for cash out, we forecast planned investments of JPY 1.5 trillion to JPY 1.7 trillion, a minimum total dividend amount of JPY 400 billion as well as a management allocation of JPY 300 billion to JPY 500 billion. Please turn to Page 11. I will explain our personnel strategy. We will realize next-generation work style that also considers post-COVID-19. In addition, we will deploy diverse professional talent to the right positions on a global group basis and foster business management talent. We will require a strong commitment from employees and organizations to meet individual targets and accelerate the new working style utilizing DX. We will also use a move to a new head office to transform employee mindsets and behavior patents. By implementing global talent management, we will allocate diverse professionals into appropriate positions to realize stronger business management capabilities and sustained competitiveness. Please turn to the next page. Here, I will explain our strategic focus for realizing growth. Based on initiatives taken to date, we will continue to focus on business areas where a multifaceted approach to value creation using existing business as platforms can be leveraged. Specifically, our focus will be energy solutions, Healthcare/Nutrition and market Asia. In Energy Solutions, we will pursue smart energy services and businesses that contribute to mitigating climate change with LNG development and renewable energy projects as a central platform. In Healthcare/Nutrition, IHH will be the central platform as we accelerate growth in medical data and integrated facilities management and businesses related to nutrition and food protein. At the same time, in recognition of the power shift to the consumer, particularly in Asia, we will establish a growth platform and pursue the evolution of business models. We believe trends in digitalization and decarbonization will accelerate as a result of the spread of COVID-19, and we will pursue growth by identifying opportunities from changes in the environment. Please turn to the Page 13. In the previous Medium-term Management Plan, we pursued 4 growth areas. That strategy is progressing steadily, and new platforms are emerging, particularly in the areas of environment and health. Energy solutions and Healthcare/Nutrition are areas where we can achieve multifaceted value creation, and we believe they are businesses areas on which we must focus. Please turn to the next slide. In our previous Medium-term Management Plan, we identified Resources and Energy, Machinery & Infrastructure and Chemicals as core businesses. We will continue to pursue steady growth in these areas by strengthening our competitiveness, optimizing our portfolio through business recycling and making bolt-on acquisitions. As for new business, we will be conscious of evolving from being a networker to being a creator. We will utilize our Moon Creative Lab, where we are bringing together multiple capabilities to accelerate our ability to shape new business models. And amid the spread of COVID-19, the importance of DX has become even more apparent, and we will be accelerating both defense and offense in this area. We'll move now to the next slide. This chart shows a group of high-quality assets accumulating in the previous medium-term management plan and the timing of their contributions to earnings and cash flow. In Mineral & Metal Resources, we are staying competitive by sustaining iron ore production through the South Flank development and Robe River JV development in Australia, while in Energy, our progress is shown by the production start of all trains at the Cameron project and progress in the Mozambique Area 1 and Russian Arctic LNG 2 projects. In Machinery & Infrastructure and Chemicals, we are expanding our profit base for stable earnings in areas that are resilient to market fluctuations, such as power generation and FPSO and agricultural chemicals and inputs. We will also accelerate measures to restructure existing businesses to ensure we maintain strong competitive positions. Please turn now to Slide 16. We will be pursuing sustainability management as a basis of Transform and Grow. We have identified 3 core issues to engage with during the term of our new plan based on the impact on our businesses and the increasing expectations of society. The 3 issues are climate change, the circular economy and business and human rights. With respect to climate change, in particular, we have clarified our position and decided on a guiding policy. I will explain this in detail on the following slide. As a company pursuing sustainability, we have been addressing climate change from an earlier stage. And in December 2018, we adopted the TCFD policy on financial disclosure. Now as part of Mitsui's goals in 2050, we have set a goal of achieving net 0 emissions by that year, with a 2030 milestone of reducing GHG impact by 50% compared to 2020. There are 3 main measures to achieve this. The first is reduction where we optimize our resource and power generation asset portfolio to reduce emissions. The second is transition where we support the shift from coal-fired to LNG-fired power generation to realize a low-carbon society. The third is opportunity where we drive new business in Energy Solutions and other areas that can address climate change. To realize these goals, we have introduced an internal carbon pricing system in April this year to assess risk in existing businesses and to support decision-making on new investments. Moreover, depending on the international rules as they're adopted, our plan is to measure our cheap reductions while refining our GHG reduction targets. We aim to set these GHG emission-reduction targets during the period of the new Medium-term Management Plan. Continuing on, please now turn to Page 19 for our qualitative targets (sic) [ quantitative targets ]. The target for core operating cash flow is JPY 400 billion for the year to March 2021 and JPY 550 billion for the year to March 2023. The target for profit is JPY 180 billion for the year to March 2021 and JPY 400 billion for the year to March 2023. In formulating their quantitative targets, we have assumed that the slowdown in economies around the world will continue until the end of June. And then from July onwards, we will gradually see a recovery of activity; and then from the second half of the fiscal year, for the world economy to normalize. On this basis, a decrease in profit of JPY 200 billion has been included in the year to March 2021. I should add that our estimation is quite uncertain and based on limited information only but does incorporate the decrease in commodity prices; the severe falling demand and operation rate for mobility and healthcare; the slowdown of material-related businesses, such as iron and steel products and chemicals; and the delay in business recycling and new IPOs. Due to these factors, the earnings for the year to March 2021 are expected to fall significantly year-on-year. On the other hand, we expect to produce core operating cash flow of JPY 400 billion. Please turn to Page 20. The COVID-19 pandemic has drastically changed the operating environment. Our task is to manage our way through this crisis. And as you can see here, we have prioritized the following themes: ensuring employees and stakeholders safety and maintaining our existing businesses, rigorously managing risk and reducing cost to further strengthen our downside resilience. We will not only maintain the business network with customers and partners, but also create new businesses, making full use of digital technology. Please turn to Page 22. I will now outline our shareholder returns policy. With respect to dividends, as I said earlier, in the year to March 2021, we expect to generate core operating cash flow, which is a source of shareholder returns of JPY 400 billion, even amid COVID-19. Moreover, through management allocation, we will pursue growth opportunities that will arise after the pandemic crisis has ended and aim to increase overall shareholder returns compared to the previous Medium-term Management Plan by focusing on capital efficiency when allocating capital resources. Based on this policy, we have set an annual dividend pressure of minimum JPY 80 for the period of the new Medium-term Management Plan. Our aim is to enable a steady increase in dividends by expanding the amount of core operating cash flow per share. We will continue to consider buybacks flexibly taking into account the overall business environment, capital efficiency, our share price and other such factors. For the fiscal year ending March 2021, our forecast annual dividend is JPY 80 per share. Please look at Page 24. In closing, I would like to introduce Mitsui's mission, vision and values, the corporate philosophy that we renewed this year. Our previous MVV was established in 2004. And in the intervening 16 years, it is clear that not only has the environment changed, but also our people are becoming even more diverse, the business front line, shifting towards group companies and the work we do becoming ever more distributed around the world. We have, therefore, redefined our MVV, preserving the basic spirit of the previous MVV but reflecting this era of change. It is precisely in times like these when COVID-19 is disrupting the entire world, that we need to follow our DNA of being challengers and innovators and continue meeting the expectations of our direct stakeholders and of society at large. Our new MVV is expressed in such a way that each of us at Mitsui can follow it in the work we do every day. The COVID-19 has thrown many things into a state of confusion and made the business environment more uncertain than ever. Nonetheless, as I hope I have shown today by working together and committing to reaching greater heights, I'm confident that we can reach the goals of Transform and Grow, our 2023 Medium-term Management Plan. That completes my presentation. Thank you very much. Now we'd like to move to question-and-answer session. I may be repeating myself, but if you like to ask questions, please take a look at the top-right corner and identify your name and your affiliation, type that in and send the questions. Or if you can't use the question phone, please e-mail to the address on the screen. And we will limit the questions to 2 at a time, but you can ask questions as many times as you like. If there are multiple people asking similar questions, we will consolidate them and then answer them at a time. Now let's get started.

The first question with regard to the impact from the COVID-19 outbreak. There are 2 questions. The first one, the current outbreak of COVID-19, is there any change that has been caused by this to your management policy? For example, more shift to Healthcare business or is there any business that you reduce your priority where you know you don't have the strength? Particularly, what is your thoughts on E&P, in energy and food and lifestyle? And the second question, or second person. The impact of COVID-19, what is the actual impact in the actual business operation? Is there any change that you've seen in the sales and project promotion under this outbreak? Is there any segment where that is the case? And if there is any consideration that you are looking at for post-COVID-19 environment? The President will answer the questions.

Thank you for the questions. The state of emergency declaration in Japan and lockdowns in other countries. Under this environment, what are the impacts on our business? And what is the status of the way we work? First and foremost, we are putting priority to safety of employees and health management of our folks and to protect ourselves and then ensure the business. Of course, previously, in order to achieve goals, what needs to be done? That was the first priority. But under the current environment, we have to put priority -- top priority to safety. And you have to ensure safety. Unless we do that, we will not be able to do the turnaround of damaged business or damage control. In some countries, there are emergency evacuation that is in place or work from home is assured to ensure the business continuity, but on the other hand, the movement of people and materials has been suspended. And so demand has evaporated in some cases. So for the forecast of those businesses, the reopening of the economic activities in each of the countries, there are measures taken in different countries and different measures are taken in different countries, and we have to look at that, and it depends on that. And with regard to the impact on the Medium-term Management Plan, we have been reviewing that for the past month, and we have been slightly conservative in each of the project sites and business because you have to look at the lockdown. And as we put together the plans, we are not able to foresee the future. We don't know when the normal business environment will come back. And while there's such uncertainty, we have to put together the plan. So we are looking at the environmental changes -- external environment changes, and you have to look at what you can do. In other words, you have to reduce the payment or spending. So we will look at -- we review the cost structure. And once the reopening of the country is allowed, and what will be the first thing that you would do? Those are the things that we have to consider. That's what we have been telling the people in -- just through the web meetings, and they are looking at these thoroughly. And for the past 3 weeks, we have made online -- or I have made online business trips 25 times. So web and online tools will have to be made use of. And we, the management team, are actually demonstrating ourselves and showing the example. And through these, we are grasping the current situation and challenges, what are the requests to the top management from the -- each work site. And by picking them up, we are preparing ourselves for the next move. And the COVID-19 is something that we have never experienced before. This is a global pandemic that has been unprecedented. So what is it that we are doing to prepare for post-COVID-19 environment? Firstly, using digital tools to improve work styles and the way we work and promote changes. And because there is restriction on how you work, you need to come up with how you overcome those restrictions, and you would make the best use of digital tools, and we are changing our way of work and also the new way of creating businesses, and due diligence may also have to change. And then ultimately, the businesses themselves will change, especially the demand that has disappeared. Especially in mobility and energy areas, we do not expect the demand to come back anytime soon. Based on that assumption, how you will reshuffle the portfolio to strengthen the profit base. From that perspective, the E&P, that is the upstream of energy business, we have to stay in business. In other words, in extension of existing businesses, we would narrow down the investments once again by reviewing and scrutinizing the investments and also automotive businesses and steel and the chemicals that are leading to automotive business. There could be a prolonged period of demand decline. And what sort of measures are there available, including consolidation of an industry? And also for the midstream business, the foodservice demand has disappeared. So the demand is declining in a way that is different from the previous experiences in some segments. And so we believe that demand will come back sometime down the road. But based on the pace of the recovery, we have to change the way we work and also put together the portfolio. And so we are now in the process of preparing ourselves for that. And another thing, I have talked about how we use digital tools to change the way we work. And through these efforts, the way you work in terms of efficiency and also embracing diversity in the way you work, these have to be taken into account, like -- and also, we believe that there will be changes in concept like platform and location of the businesses. Work from home should not be sufficient to cause the favorable chemical reaction. So we have to consolidate all of these different ways of working and so that we can have some reactions and then move to the next -- lead to the next new businesses. And also, the quality of output and performance of individual employees could be made clearer through remote work. So this would ultimately lead to pay-for-performance as we engage in personnel, organization and system reform. We can visualize the personnel performance furthermore. And under such circumstances, we take advantage of this COVID-19 outbreak to actually accelerate the transformation where it is appropriate. That's the answer for me. Thank you very much for the questions.

We'd like to move on to the next question. So this question is regarding the quantitative targets for March 23. We have 3 related questions. The first question, the outlook is for JPY 163 billion for March 20 to increase by JPY 77 billion to JPY 240 billion for March 23. Please explain the background for this outlook. And which business areas are you looking for profit to go up? And what are the profit growth drivers? Can you also give us an image of the breakdown for organic growth and asset-recycling gain related to business cyclic models and new investment returns, too? And for growth of known resources with low ROA, ROE of 10% seems like a high hurdle. Without increasing the leverage, basically, what is your outlook for raising the ROA in each segment? And second question, please give us a breakdown of the road map to increase profit for nonresource businesses in the Medium-term Management Plan. I assume, one, corona impact to be resolved; two, organic growth; three, additional investments are some of the factors, I'm sure. But are there any other factors that you can share with us? And the third question, what are the assumptions for net profit increase during the Medium-term Management Plan for resources from JPY 120 billion, March 21, to JPY 170 billion from March 23; and for nonresources, JPY 8 billion to JPY 240 billion? And iron ore prices, oil prices, please talk about the assumptions, changes in volume of the resources and breakdown on machinery, infrastructure, chemicals and other known resources as well. And another question related to this is on Page 19, you talked about the outlook in the Medium-term Management Plan of the net profit and core operating cash flow. And for nonresources, the increase is for JPY 150 billion for net profit and 111 -- excuse me, JPY 115 billion for core operating cash flow, which is quite large. Which areas are you looking for growth? And there will be rebound from the coronavirus. So what are the degree of profit contribution from existing businesses?

First of all, on nonresources for March '21, JPY 80 billion is the outlook that we have given. For this fiscal year, there'll be pressure from the coronavirus and that will be about JPY 100 billion. That is our assumption. And as I mentioned earlier, the demand has evaporated. And we start all of the business operations, there are some limitations because we need to follow some conditions. And in Healthcare, for example, we need to prioritize COVID-19 measures. For example, the hospital groups belonging to IHH, because of requests from different governments, need to provide medical services to respond to COVID-19 and care for the existing patients have been lower in the priority. And of course, these are downward pressure on our profit. So JPY 100 billion COVID-19 impact will be seen, but we believe this will recover going forward. And as for the existing businesses, we need to strengthen the profitability. And approximately JPY 30 billion for the period of 3 years is something that we are looking for. And during the Medium-term Management Plan, there are projects under development or construction, and there are also capital gains through recycling, and that will come to JPY 30 billion. And that would come to JPY 240 billion in total. That is a situation that we are seeing for the moment. Of course, I need to be more elaborate. So in nonresources, strengthening that area is going to be the priority for the management. And in order to make that possible, not -- of course, it is important to gain a big platform, but because we made a major investment to become the top shareholder for IHH. But of course, we need to, of course, raise the profitability of the existing businesses. So that is something that we need to work on. This is something that we've not began with a new Medium-term Management Plan. But since I became the President and CEO, we have been working with heads of different business departments or group companies. We have been holding discussions with them to come up with measures that we need to take. And detailed measures that we have taken, the CB headquarters. This is working on how we can transform our businesses. And we also have a group working on accelerating our business strengths. And we have a special team established working on reviewing the businesses, sending people to different business groups. And when compared to the industry, what we are lacking, what are our shortfalls, what we need to do in order to raise the top line or improve our cost structure? That is something that this group has been working on steadily up to now. And this is going to continue forward. To give you some success stories, one is Mitsui Norin. It is a beverage company. And of course, it's been -- it has a long history. It has 2 plants, but we decided to close one plant and consolidate our efforts into one plant. And operation rate of that plant and also management expenditure was improved for that company. And Mitsui Bussan Inter-Fashion is a fabric company. And we did selection and integration of the businesses. And because we had diminished some areas, we had prioritized protecting our customers and we had less focus on our business profitability. Therefore, for low profitability businesses, we decided to terminate so that we'll be able to raise the profitability. And that is a discussion that we have had with our customers. And by improving each one of them, we were able to see steady growth in profitability. And MKI is another example. After receiving work orders, how we proceed with our operation or their framework of operation was decided after we started the operation, and that led to downward pressure on our profits. Therefore, we drastically changed the management. And if there are projects that we were not able to guarantee profits, we decided not to renew or -- renew the contract or continue with that business, and that is a decision that we have been making to improve profitability of each one of the projects. There are more than 100 such companies in non-resources. And we have made improvements that can be reflected in numbers and some cannot be reflected in numbers. But with such steady measures to be taken with individual cases and projects and companies, we work with their management, and each head of the business sections will continue to work on improving management and operations. That is something that we're working on. And that is, I think, what we need to continue to do in order to achieve the goals for this new Medium-term Management Plan. Of course, we are seeing influences of COVID-19. But as I mentioned earlier, as I have been making online business trips, I do interviews and discussions with project managers of the construction projects that are going on. Of course, there are limitations because of the COVID-19 impact, but we need to avoid the 3Cs. In continuing with such work, however, with the limitations, we are continuing to maximize the operations as much as possible. In the past 5 years, in resources and non-resources, we have been continuing to do asset recycling to improve the quality of the portfolio and see profit-making. And that is something that we have been working on in the past 5 years. The average for the past 5 years is about JPY 53 billion to JPY 54 billion per year. So that is a PAT contribution that we have been seeing through the asset recycling in the past 5 years. And as for resources, as I mentioned briefly earlier, for oil and gas, the recovery of the oil price, we believe, will take time. And that is the assumption that we have incorporated. The oil measure and the oil-producing countries, they are diminishing the investments. And with the evaporation of the demand, there were sale focus. However, we believe that the demand will recover gradually. And with that slow gradual recovery, the scenario is written. And Tempa Rossa is going to plan increasing production based on that scenario. For PAT, for Tempa Rossa, for example, for that mining zone, we have sufficient deposit and reserves. However, when it comes to the mining period, by continuing with the operation, we need to make sure that we can explain the mining operation so that depreciation period will be shorter. So the early-stage depreciation or amortization burden is going to be quite high. And when it comes to Minerals & Metals, our partner, Mining & Metals have incorporated the coronavirus measures, and they are showing steady operations currently. And as mentioned earlier, using the existing infrastructure, the new iron ore coming from the new mining zones will start. Therefore, volume-wise, basically speaking, we'll be able to maintain the current level. And natural pricing, we believe that the price will go down a little further and that is our assumption. But fortunately, the operation in China is maintained high and iron ore demand is maintained at a level desirable. Whether this will continue, whether there is demand to consume such metal products, and what are the economic measures that the governments will take? Of course, there will be new demand for such minerals and metals going forward. So we need to look at the demand that will come in the future and whether there will be any changes in the supply side and recycling demand going forward. But we believe that the iron ore price will be a bit softer than what we see at the moment, and that is assumption that we hold. But with the recovering in the oil price, we believe that March '23, the demand will come back. That is all for myself. Thank you.

Next is about minimum dividend amount. There are 2 questions. The first question. The JPY 80 per share, which is a minimum payment amount, what sort of policy do you base this on? If outbreak of COVID-19 ends sooner than expected and if there is a big profit increase, then what sort of policy do you apply in calculating dividend amount? And the second question, the minimum dividend amount is at JPY 80 per share. But as you consider the possibility of increasing dividend, what would be the cash flow -- core operating cash flow as a percentage of that, which is equivalent to JPY 80 per share? Uchida is going to answer the question.

Uchida speaking. Thank you for the question. With regard to shareholder return policy, basically, we use a dividend to directly return to the shareholders. But to finance that, the core operating cash flow has been on our mind and allocate that to dividend. And for the cash flow, the oil price has declined, which had a great impact. But as we put together the plan in March '21, under the outbreak of COVID-19, even though there are several factors -- other factors, but we are expecting JPY 400 billion in our core operating cash flow. On dividend, we put priority to stability and continuity. So we have decided to JPY 80 per share, which is the same as the previous year and JPY 130 billion per year. And if you continue this for 3 years, then JPY 400 billion. But the worst-case scenario, even if the JPY 400 billion in cash flow is continued for 3 years, we can continue with this policy, and 33% payout ratio is the one that we have the basis for this policy. Thank you for the questions.

Next question is of management allocation. We have 2 questions related to this topic. For March '23, the net profit plan of JPY 400 billion and ROE target of 10%, I believe, is not easy. So please be more elaborate on the management allocation? And the second question on management allocation, I believe there are 2 ways, investment into growth and additional shareholder returns. How are you going to allocate the management resources?

There are opportunities for growth investments. And also, you need to look at share prices as well. Yes, I may be repeating myself, but for March '20, as the conclusion of the last fiscal year, of course, we saw impairments related to COVID-19 impact at the very end of the year. And unfortunately, we were not able to meet the plan. However, as I explained earlier, in non-resource areas, that is what we have strengthened. And in resource areas, we were able to reduce cost and also improve competitiveness and we were able to see cost improvements in the upstream resources, and we were able to come up with a very robust profit structure. The ROE 10% is a target we had set. And if we exclude the impact from COVID-19, we were able to see that 10% be achieved. After COVID-19, that is something that we need to go back to. And what we need to achieve as targets, how to see early recovery. Even under the situation we see, at the moment, is something that we are focusing on at the moment. And that is why we have came -- we have come up with the management allocation plan that we have announced today. For this fiscal year, which is the first year of the new Medium-term Management Plan, there are many factors that we need to consider. But in the next few years, how we are going to recover the business and return to the level that is expected so that it can lead to future growth is the discussion that we have held. At the beginning of the year, with each of the Head of the business segments, we have given conditions and set the framework of investments and whether projects will be included in the investment guideline was discussed. But for this period, we have not come up with a framework, but we have decided that the management takes responsibility for the decisions not only for new investments but for existing businesses to stay in the business is something needed. If we need investments to expand or to continue, we have decided not to create exclusions, but look at the market conditions currently and look at the outlook, so that we can make decisions whether it can meet the investments necessary, whether it's justifiable or not. For the projects already decided, whether we really need to work on the project now or consider the situation and wait for the optimization of the projects going forward is something that we see. So JPY 1.5 trillion to JPY 1.7 trillion, not only looking at the quality of the investments. But in order to gain what we see now, we need to look at what can be done in the future so that we can be more flexible. If there are areas that we need to compress going forward, depending on the situation, I think that is something that we need to accept. So recycling for this year, dilution and divestment, even if they're conducted, I think we need to follow due diligence and conduct management interviews. That is a kind of asset-recycling processes, but these will be limited, reflecting the situation. And of course, looking at the market as a whole, whether we can divest at the optimal price is something that we need to take time to make decisions on. So optimal conditions, optimal price is something that we need to wait for to divest. During the Medium-term Management Plan, of course, we are looking at JPY 900 billion of recycling. But in the first year, we are looking for cash-in to be 0. In other words, the second year, third year, whether we'll be able to achieve this JPY 900 billion in total, we will have to wait for the recovery of economic activities and due diligence. At the moment, these kind of activities are to be suspended. There are many deals that are suspended for now. Even for projects that we have decided our investment, we need to review. So people who have decided to invest into divestment are also reviewing their plans. So the schedule will have to wait until the recovery of the economic activities, and the economic measures to be taken after the recovery needs to be considered. So these are the assumptions just for now. What we can adjust going forward, how to adjust the investments and outflow is something that we need to consider very carefully. And that is part of the management allocation. And whether we can take that as investment into growth and with precision, whether we can go ahead and implement those decisions is something that we need to consider. I may be repeating myself, but there are segments in which demand has gone down. Whether the demand can be recovered in a speedy fashion is something that we need to consider very carefully going forward. Such plan and the current situation and asset allocation for improving corporate value, that is something that we need to consider. And additional shareholder returns is also included for consideration. What, as a company, are the choices we need to take is something that we need to consider carefully to decide on the management allocation. We have a period of 3 years. So at the moment, we will not be able to say what we'll be doing in the first year, but we will see it as a 3-year period, and that is something that we will work on going forward. Thank you very much for the question.

Next question is about investment plan for medium -- new Medium-term Management Plan. There are 2 questions. The first one, with regard to the allocation of the investment in the previous Medium-term Management Plan, the core was -- the core business is a focus. But if you look at the material, I'm under the impression that there's a broader range of investment. So what sort of segments that you are focusing on in terms of investment, especially in non-resources segment? And the second one, the investment plan in the new Medium-term Management Plan does not seem to have declined as we have expected. And LNG is the majority of 30% of the resources and E&P is not that included. Is that correct? And the 50% or the non-resources, what are the big factors? I think the Healthcare management M&A has settled down for now. Now the President will answer the question.

I may be repeating myself, but the JPY 1.5 trillion to JPY 1.7 trillion is for staying business -- staying in business and post-FID projects. Mostly, it is for those. And there are some for growth investments that are already in the pipeline to some extent. But basically speaking, these are for strengthening existing businesses or bolt-on investments. In other words, the businesses that we can have the control over. And with additional investments, we can expect further improvement in profitability or strengthen the continuity. So we have focused on those investments or projects. So the -- maybe a broader range that is covered, but the strengthening existing businesses or improve profitability, this is the first and foremost our priority. And in that sense, if we -- we are the drivers -- in driver seat and have the control of those projects, then we will focus on those and concentrate our efforts on these. I would like you to understand that first. And with regard to new large investments, what's on our mind is the Healthcare and Nutrition segments or what is related to environment and also market in Asia. In order to develop market Asia business, what are the necessary investments? Those are the ones that fall under strategic focus areas basically, and we don't have any intention to loosen our investment discipline even in those segments. And also under the current outbreak of COVID-19, we have to have more strict profitability goals. And also, we have to be more conservative in forecasting the demand recovery. And from this perspective, we have to even -- be even more selective in taking up the projects. And with regard to Healthcare, just because this segment is expected to grow, we will cover all the ground, that is not the case. The Columbia Asia and the Sogo Medical, those assets-recycling was conducted. And when you look at the whole portfolio, what is the priority? And in individual projects, from the KPI that we have, sometimes the assets can be sold at a favorable price or it will be more profitable for us to sell the assets at that price. And then we would have the improvement portfolio and also the improving of the profitability. And we don't believe that COVID-19 will last for the next 3 years, but this is quite an impact in terms of pushing down the profitability. And from that perspective, with the assumption that cash flow -- free cash flow should be in the positive territory. Then, of course, obviously, you have to be very strict -- selective in the investments and also narrow down the targets. So we have to strengthen existing businesses. And also, the growth domains are identified as strategic focuses. Those are 2 different aspects that we will focus on. That's all. Thank you.

Thank you very much. The next question on introduction of ROIC, R-O-I-C. The first question, looking at the time access, in order to raise the corporate value during the new Medium-term Management Plan, it is important to look at the strengthening profitability of core businesses shown on Page 14. Do you have in-house quantitative targets for the contributions of the businesses listed on Page 14? Of course, results are important, but actual implementation, how much implementation is achieved needs to be shown externally? So can you share your ideas, please?

Yes. Thank you very much for your question. From the previous Medium-term Management Plan, of course, not only in the profit level or cash flow level, but we need to look at efficiency of each asset is very important, and that is something that we have been saying repeatedly. But we have, since April, set the targets in-house. Of course, ROE is important, but we have decided to introduce ROIC. And technically speaking, in implementing ROIC, there are a number of issues, and we have not been able to disclose contents externally. But the understanding and awareness of ROIC is penetrating in-house, and we believe we are holding good discussions on this matter. In the businesses, there are main business areas, 80 to 90 of them have been set and target ROIC levels have been set already in-house. And for each of the business areas, we have asked them to set KPIs and action plans and measurable targets for each of the plans need to be shown. Operation rate, how much it needs to go up, these are the level in which we have asked each of the business segments to come up with. And during the Medium-term Management Plan period, we'll be monitoring the movement so that we'll be able to measure the contribution.

Next question is about the commitment to achieving the ROE 10%. If the business environment is worse than expected and business management capability may not be strengthened as you wish, and if it is difficult to achieve JPY 400 billion in March '23, even with that, are you going to be more proactive in share buyback in order to get closer to ROE 10%? And also in the capital allocation, you are giving the same priority to growth investments and additional return to shareholders. This is because with the prerequisite of ROE 10% achievement, you're looking at the business environment and you weigh the growth strategy and additional shareholder return and then allocate the capital to the more profitable segments. Is that correct understanding? The President will answer the question.

ROE 10% -- with regard to ROE 10% achievement, the solid cash flow allocation should be done to achieve 10% in ROE, as I explained earlier. And to that end, as a management team, the allocation that we have in mind or the funds that we have available is allocated to growth investments and additional shareholder return on the same footing. And then you weigh both and compare these and then decide whether to put cash to grow strategy or shareholder return, which will be contributing more to the enterprise value. We would make that decision based on that, as I said. But on the other hand, what we are explaining now is the new Medium-term Management Plan. And assumption for that has various scenarios for business or economic recoveries, and assumptions for the businesses for the -- in the future. But on these, there is a significant volatility expected going forward. So if the external environment changes significantly, then obviously, our management decision will need to be adjusted accordingly. And what we have been saying is that if the external environment recovers within what we have assumed, then as the management team, what we need to do is to control the spending and then measure what is coming in and then have the shareholder return and gross investment to -- and then try to achieve ROE 10%. So that is the management policy that we have. Thank you for the question.

Next question. You decided to ask for commitment to performance from employees. Can you be more granular, please? For example, it is very difficult to measure the short-term performances. And of course, it will be difficult to measure other performances. Of course, with the changes in the commodity prices, project performance may change. It will be very difficult to measure the performances of the individuals. That is my concern. Can you elaborate, please?

Yes, thank you very much for your question. Of course, this question is reflective of when we were line managers ourselves. As a result, our past HR performance and systems have been reviewed. And of course, organizational performance, the evaluation of the teamwork consisted of the majority of the performance. So individual performance and organizational performance were balanced to give an overall evaluation of the performance. However, there was a risk of a moral hazard. The individual may have been working very hard. However, the organization itself were not able to contribute to the profit. That was some of the situation that we saw in the past. And of course, it is very important as managers to manage such situation, but -- and secure the existing businesses, but people creating new businesses tended to be evaluated higher those -- than those people securing their existing businesses. So individual performance and review and summarizing all the work that they are working on, whether they can link what they had done in the past year to the evaluation, whether they are linked clearly to his or her individual targets is something that we needed to look at. Setting target at the beginning of the year is not enough. Line managers need to have one-on-one interviews and discussions so that he can periodically evaluate the personnel and give guidance and education for further improvement in their performances. So coaching by line managers is also very important. By continuing such efforts, we believe that the output of the individual can be improved. Absolute evaluation is very difficult. However, we are trying to work on how we can give adequate evaluation to the individual performances. I think self-realization by the individual is very important. So that they can turn what they are working on as a measurable work. I think that is very important. So we will come up with a new HR system and strengthen pay per performance. And these are the work that is necessary in order to make it possible. And of course, skill of the line managers. In the past, they were regarded as play manager, but now they are seeing transition to coaching managers, whether they can educate and coach the individual by understanding the individual and contribute to their growth is very important as the management skill of the line managers. So these are the factors that are going to be weighted more going forward when it comes to the new HR system. And in addition, if we are not able to accomplish this, we will not be able to realize diversity. Of course, the affiliated companies and overseas companies, the proper employees and local employees, they needed to be in the same level playing field as those working in the head office. And they needed to be evaluated equally so that their level can be improved. So we need to be more transparent when it comes to evaluations of the employees. Of course, they will be trying an error period, but that is a direction that we'll be moving towards in the future so that efficient performance from the individual can be achieved and diversity can be realized as a company. Self-realization and satisfaction of the employees will naturally improve accordingly, we believe. Thank you.

Last question. In the interest of time, the question -- this question will be the last one that we can answer. And the question is the following: As you put together the new Medium-term Management Plan, what did you think was the core competence of Mitsui and company? And what is the causal relationship between that core competence and the mission that you set? Can you share with us your thoughts on that?

Thank you for the question. Since I became President, what I have said often is that the company name, Mitsui & Co., what this represents? It's not Mitsui trading company, but Mitsui & Co. because we are the company that creates something, products that was named by our predecessors. And back then, it was about creating products, but now we are talking about creating events or creating the businesses. So this is the mission for our company, and it's not just limited to Japan, but globally, creating new businesses. And through that, we would contribute to the development of global economy. So that is our mission. And in order to realize that, we have to have the spirit of challenge and innovation that has to be maintained all the time. Challenge and innovation, that is our DNA. And what's in our DNA, what is close to core comp -- is what is close to core competence and how that values that will support challenge and innovation can be communicated to employees. And even because of this outbreak, the employees are encouraged to reflect on the mission and make it the basic starting point for the work and behavior. And that's what we have incorporated into the new Medium-term Management Plan. The 360-degree business innovators, there are different various discussions that we made. As we look at the whole earth, wherever we go in the world, we can develop new businesses and cause innovation and establish new business models. That is what is incorporated in this mission. Well, this has to be the case at present, but this is also our future vision that we have set for ourselves. Thank you for the question.

So we have received many questions, but we have reached our ending time. So we'd like to conclude the question-and-answer session. For those questions that we have not been able to answer, please separately contact the IR department. And thank you very much for staying with us until the end. As for the PowerPoint presentation material, as you saw at the end, the Investor Day, that was supposed to be held on June 9. This has been extended to -- it's postponed to November 10, because of the outbreak of COVID-19, and details will -- are to be followed -- are to follow. And we will encourage you to join us. And that concludes our presentation on Medium-term Management Plan. Thank you very much for joining us again. [Statements in English on this transcript were spoken by an interpreter present on the live call.]