Toshiba Corp
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Toshiba Corp
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We would now like to start the briefing on the fiscal year 2020 third quarter consolidated business results. Now let me introduce today's speaker. Mr. Masaharu Kamo, the Executive Officer and our Corporate Senior Vice President.
Hello. This is Kamo speaking.
And I am Hara of Corporate Communications. Using the PowerPoint material entitled Fiscal Year 2020 Third Quarter Consolidated Business Results. Mr. Kamo will now make a presentation.
Thank you very much. I would like to highlight the main points. We have made some changes from this announcement this time. Core operating income. We have [ have maybe been seen ] the core operating income going forward, financial accounting-related operating income will be the main focus of our attention when we announce the forward because market people and shareholders have mentioned that the announcement so far was difficult to understand.
And 1 year has passed since the COVID-19 pandemic. And what is COVID-19 impact and what is not COVID-19 impact? It's become difficult to discriminate between the two. And from the viewpoint of continuity, core operating income should be calculated. COVID-19 impact as well as restructuring impacts are mentioned so that core operating income can be calculated, and we are also using the word core operating income. Thank you for your understanding.
Now please turn to Page 3, key points of our announcement this time. There are 5 main points this time. #1, third quarter fiscal year 2020, 3 months operating income, significant year-on-year increase. Last fiscal year, at JPY 10.4 billion, this increased to JPY 20.9 billion, a JPY 10.5 billion year-on-year increase. And fiscal year 2020 first quarter, first half, there was a restructuring impact and COVID impact, excluding that [ income would be ] JPY 15 billion. Core earnings power, we have been able to strengthen this successfully.
Second point. Impact of COVID-19, gradually impact of COVID-19 is declining. Third quarter JPY 19 billion, a downward impact on profit. Fourth quarter forecast is JPY 800 million. Significant decline in impact of COVID-19 as expected. In the fourth quarter as well, COVID-19 impact will exist, but we are approaching the fiscal year-end. And due date and delivery time that have been delayed, that's catching up. And because of these positive factors as well as the fourth quarter COVID-19, they will offset each other. And a negative JPY 800 million is what we forecast for the fourth quarter.
The third point is free cash flow. On a year-on-year basis, there's been a significant improvement in free cash flow, LNG, a onetime factor is included JPY 269.9 billion, including one-time factors such as LNG. And excluding the one-time factors, free cash flow increased JPY 124.9 billion, significant increase. The fourth point is order backlog. The same as the end of the first half, it's remained steady on a year-on-year basis, a positive 6%.
Orders received has remained steady at plus 6%. And net income, net income forecast, we have revised upward from JPY 50 billion to JPY 70 billion. As a result, more than 30% or more, a dividend payout ratio in order to achieve this, we have a result at Board meeting today to increase dividend payment by JPY 10. Now these are the 5 points in the agenda today.
First, overall business results, business results by segment and supplementary information about Kioxia, we will omit this portion. And #4 is the fiscal year 2020 forecast. And finally, in relation to a dividend, we would like to explain about our company's financial management policy.
Now please turn to Page 6. Mainly because of COVID-19 impact from the first quarter to Q3, there's been decline in net sales and profit. But if you just take a look at the third quarter, there's been an increase in profit year-on-year. First of all, net sales. Please, take a look at the net sales column. It was the middle of the page, there's COVID-19 impact.
COVID impact in total is JPY 289.8 billion and JPY 62.3 billion impact on Q3. But fiscal year 2020, we were originally expecting net sales to concentrate in the second half. Please take a look at the right-hand side of the page. Fiscal year 2020 Q3 net sales, a negative JPY 19.1 billion. That's the only difference. And operating income up until Q3 -- JPY 38.5 billion decline. But if you just take a look at the third quarter positive JPY 10.5 billion. In the third quarter, JPY 4.5 billion structuring -- restructuring costs is included, including that about JPY 15 billion increase in the core earnings [ it says ].
Furthermore, towards the bottom of the page, income or loss before income taxes. Income before income tax. Last fiscal year, there was LNG and Kioxia loss. Because of these impacts this fiscal year on a year-on-year basis, there's an increase of JPY 179.3 billion. I will explain in detail later on. If you just take a look at the Q3, Toshiba logistics equity sales contributed significantly.
Page 7, breakdown of operating income. Please take a look at the middle, procurement reform, sales reform, restructuring and others. And these 3 factors are up to third quarter, JPY 24.7 billion profit improvement. If you just take a look at the third quarter, JPY 10 billion improvement. And please take a look at others. So procurement reform, sales reform, and restructuring changes a lot, and it says JPY 31 billion, and the breakdown is written next to the others column. Negative JPY 24 billion first half, positive JPY 12 billion in the second half it says. In Q3, this is the impact of sales concentrating in the second half, JPY 24 billion downward impact in the first half.
In the second half JPY [ 12 ] billion positive impact and [ out of this a large ] portion [ is also included in ] Q3, JPY 18 billion fixed cost reduction and total up to Q3, JPY 43 billion profit increase impact. The third column from the right restructuring costs, et cetera. Please take a look at that column. Restructuring costs up to Q3, JPY 12.3 billion has been restructuring cost. We just take look at Q3, JPY 4.5 billion restructuring cost. The second column from the left up to last year, Q3 last year, JPY [ 220 ] million was the restructuring costs. JPY [ 4.3 ] billion is the difference if you add that up, in addition to JPY 10 billion, about JPY 15 billion profit increase is taking place this fiscal year.
And the COVID-19 impact, I will explain using the next page. Please take a look at Page 8. Q3 COVID-19 impact. Hard disk customer product approval today. Because of that, the device and storage was impacted the lowest. However, on the other hand, impact at [ 2D ] sector is gradually declining in -- towards the fourth quarter this likely to be a recovery, that is what we are forecasting.
On the other hand, building, second from the top. First half -- the first quarter and second half, second quarter, a similar COVID-19 impact is going to continue in Q3. Today installation work is continuing to impact this business. Non-operating income at Page 9, please. Concerning non-operating income overall, there's a large income gain up to Q3, a JPY 49.3 billion, a first half positive at JPY [ 217 ] billion. So in the third quarter, we've been able to generate a large amount of non-operating income. Main factors are fourth from the top income on sale of securities and others at the bottom. Please take a look at the right-hand side, please take a look at the footnotes. And the income on sales of securities of Toshiba Logistics earnings from sales, JPY 16.6 billion. And we still have the remaining portion that is not sold with regards to Toshiba Logistics. Valuation came from that is JPY 9.2 billion. Put together, JPY 25.8 billion positive impact due to Toshiba Logistics.
Next, cash flow, Page 10, please. As with the case in the first half, cash flow, once again, is positive JPY 18.1 billion. And the details will be explained using the next page, Page 11.
On the right-hand side, in the boxes, EBIT to cash flow. And EBITDA JPY 87.6 billion. And what we posted in the past, lost contracts that we posted in the past, they ought to be realized and JPY 8.2 billion cash out as a result of that JPY 50.5 billion in tax and others is as written in the footnote, improvement in working capital. As a result of that, a positive JPY 46.2 billion. Consequently, as you can see at the very bottom, cash flow, excluding onetime factors, operating factors -- activities, JPY 75.1 billion. In the middle, onetime factors. Please allow me to explain about this. Other onetime factors, operating activity at the top, positive JPY 9.4 billion.
This is a cumulative from Q1 to Q3 this year. And there was negative impact mainly from a subcontracting-related trade term impact. There was a negative impact from this. But in the third quarter, the year-end date has a positive impact, and that is placing an overall positive impact. And cash flow from investing activities, Toshiba Logistics has a large positive impact. Excluding these onetime factors, the cash flow is cash flow from operating activity, JPY 75.1 billion, JPY 96 billion. Cash flow from investing activities, negative. And free cash flow is negative JPY 20.9 billion.
Next, Page 12. Balance sheet. This page is for your reference. On Page 13 is the detailed items that as explained earlier. And if you could refer to your reference, we appreciate it. Next, on Page 14 and onwards, I'd like to talk about business results by segment. If you look at Page 15. This is the consolidated business results by segment. On right, if you could see FY 2020 Q3, please refer to, in the third quarter, then you will see that, in particular, regarding the top electric devices and storage solutions, if you take a look at the [ center ], net sales increased by about JPY 21.4 billion and operating income increase of JPY 1.7 billion.
And for this particular section, in the third quarter, there were restructuring costs of JPY 3.4 billion be posted. And if you add back JPY 3.4 billion, then year-on-year, the increase in profit is about JPY 5.1 billion. So that is the business results for Electric Device & Storage Solutions.
Now may I go into the segment results one by one. If you could look at Page 16, this is about Energy Systems & Solutions. If you pay attention to far right numbers, related to third quarter results, a JPY 6.8 billion reduction in net sales. However, the operating income was increased by about JPY 1 billion. And below that, you will see Nuclear Power Systems. There was a recovery in Nuclear Power Systems. And net sales equal JPY 1 billion and operating income of JPY 3.7 billion increase were marked. As a result of that, we had an increase in income.
Now next is regarding the Infra System Solutions & Building Solutions on Page 17, please. Infra Systems & Solutions. During the third quarter, if you look at far right, as you see in terms of net sales, as opposed to operating income, we are still having difficult situation.
On the other hand, during the fourth quarter, we are expecting to make a good recovery on this area. On the other hand, regarding Building Solutions. If you look at in the middle, you will see COVID-19 impact number. Impact of COVID-19 will continue to have significant impact on this business. Well, looking at the third quarter number alone for Building Solutions, then there were some recovery from the backdrop of quality issues last year. And as a result of that, we were able to make operating income increase, and that is actually having some benefits out of the profit improvement efforts and cost reduction efforts. During the fourth quarter, we will continue to have COVID-19 impact. And that is our forecast assumption at this point in time.
Next Page 18 is Electric Devices & Storage Solutions. First of all, regarding semiconductor. As you see on far right in the middle, then in the third quarter, we started to see a drastic increase or improvement in the business condition for this business. The net sales was positive JPY 10.7 billion increase. And also, operating income was plus JPY 6.9 billion.
And therefore, the third quarter made a profit for this segment. And HDDs and others below is that during the first quarter, there was a suspension of the plant operation in the Philippines, and there were significant reduction in the utilization rate, and Nearline products for data center, which is a new product. And because of that, as mentioned, the products approval by customers are lagging behind. Now we are continuously making a capital investment for the Nearline product. And therefore, that is a great burden of profit for this segment. And the JPY 3.4 billion is restructuring costs being included in this particular number. And the restructuring cost of the JPY 3.4 billion, if that number is excluded from the calculation. And then in the real term, then the profit decrease is going to be only JPY 1.8 billion. Then third quarter, plus JPY 3 billion would be the operating income for this particular segment.
Now turning to Page 19. This is regarding Retail & Printing Solutions. And please refer to Toshiba tax results announcement for this particular segment. Now regarding Digital Solutions, because of the structural reforming efforts, profitability is improving, increasing, improving for this segment. And of course, there are some COVID impact continues at this point in time. However, on the whole, we are seeing an improvement in sales and income. That is a cumulative number, plus JPY 1.5 billion for operating income. And the third quarter [ still move on ], now we have increase in net sales and operating income.
Next is Page 20, which is the situation of orders received and order backlog. Now amount of orders received, as is the case of the first half results, despite the COVID situation, we were able to maintain the usual level of orders received. On the right-hand side, we have order backlog. Compared to 1 year ago last year, we have an increase of about 6%, partly we subject to the impact of the demand in construction periods. But overall, we are seeing a great good progress. Now on Page 21 and onwards regarding Kioxia being part of supplement information, I'd like to skip this slide.
Now from Page 23 onward, here is we are presenting the focus for this fiscal year. Please turn to Page 24. Forecast for overall business. JPY 110 billion has been the expected operating income and JPY 20 billion increase is estimated to reach JPY 70 billion. That is the estimate or forecast for operating income. Therefore, ROIC, ROIC will be 7.1% for this fiscal year.
Operating income and loss, the breakdown is provided on Page 25. First, procurement reform, sales reform and restructuring, please look at these 3 columns. In these sections in the middle, procurement sales and restructuring reforms in the fourth quarter, JPY 15 billion improvement is expected for the profit. On the other hand, as you can see in the box at the top right corner, sorry, the other breakdown of the others in the box in the middle. In the fourth quarter, plus positive JPY 12 billion in shift during the fiscal year 2020 and decrease in fixed costs. And up until the third quarter, that -- in the fourth quarter, the trend has been different from the trend in Q1 through Q3 and negative JPY 18.6 billion is to be recorded because we have been suppressing this expenditure in fixed expenditure up until last fiscal year, but we are expecting a rebound, therefore, JPY 18.6 billion.
And in total, JPY 12.6 billion negative is expected. And the core operating income, JPY 220 billion. And this has stayed unchanged. restructuring costs, et cetera. An impact of COVID-19 have remained unchanged. And therefore, forecast for fiscal year 2020, in operating income will be JPY 110 billion.
Next, Page 26, you will see the forecast by segment. I hope you will refer to the details on this page, but just one key point, which I would like to explain now regarding Device & Storage Solution. The second from the right column and forecast for fiscal year 2020 impacts of COVID-19, Device & Storage. Impact of COVID-19 for the full year, JPY 118 billion in net sales and JPY 36 billion in operating income. These are expected to be the impact of COVID-19. As regards to the impact until Q3, JPY 39.8 billion in operating income. This has been estimated as the downside. Regarding this segment, in the fourth quarter, we are expecting to see recovery. Lastly, I'd like to talk about financial management policy and dividend. Since November 2018, our company at a time when we are making a report on the progress of the Toshiba Next Plan, we have been announcing the financial management policy.
And when we made the plan in November 2020, we announced the policy related to the financial management. And there may have been opinions raised regarding potentially, we have changed the policy so far, but we do not have any fact that we have changed our financial management policy. But there may have been some misunderstanding, which we would like to correct for today. So we'd like to once again explain our policy. In order to say, clarify that our policy has stayed unchanged.
Please look at Page 28. Here is the basic policy for financial management, there are 6, these 6. In November 2018, we announced Toshiba Next Plan at such briefing session. And until June 2020. We have kept this financial management plan. In November last year, when we made announcement, which we believe was in line with these policies. But once again, I would like to explain clearly that these following policies have stayed unchanged. First one, the outline for the policies, we'd like to strengthen core earning power and we like to focus investments in growth fields. And this is the basic policy for the management for the company.
On the right-hand side, you see the star mark respectively. And in the following pages, you will find at which timing and at which briefing session we stated these policies. So I hope that you will refer them later. As the second point, which is about the invested capital, we would like to shift business model from heavy capital to light capital model in order to reduce the use of the capital as much as possible. And this has also stayed unchanged.
Next, Page 29. Third policy. The growth that will be achieved through organic growth and the programmatic M&A rather than large-scale M&A. This policy has been kept as well. Fourth policy, cost of capital. For growth investment, we are going to utilize leverage in order to optimize the cost of capital and reduce the cost of capital. And by expanded debt within the principle of net debt-to-equity 30% and net debt-to-EBITDA 100% by FY 2025. Next, fifth one, shareholder return. We target average consolidated dividend payout ratio of at least 30%. And any capital in excess of the appropriate level of capital will be used to provide shareholder returns, including share repurchase. We have not changed this basic policy either.
Kioxia, lastly, will continue to evaluate alternative means to monetize Kioxia shares and intend to return the majority of the net proceeds to shareholders. And these are the 6 policies that we wanted to clarify, reiterate again.
I used the term appropriate level of cost of capital. Therefore, we would like to provide you with our opinion about this. Please turn to Page 30. When it comes to appropriate capital level, capital, so we'd like to always achieve the growth. Investment as well as achieving and keeping the appropriate capital level. Capital in excess of an appropriate level of capital will be used to provide shareholder returns. The Board of Directors at our company will verify the appropriate level of capital every year, taking into account strategic investments, including certain amount of M&A. And in close investments must meet ROIC or IRR criteria. These are the conditions for gross investments. And strategic investments include shareholder returns. Based on the verification of the appropriate level of capital and in organic growth investments, which includes a certain amount of M&A, the Board of Directors will review the appropriate level of capital. Whenever there is a major change in the capital section, such as when an asset sale is realized or at an accordance of event with significant strategic importance.
Last point. In November last year, we published the statement. We currently believe that our capital is at an appropriate level. And we'll reevaluate at the end of this fiscal year, fiscal year 2020. The Board of Directors will evaluate it by reviewing the balance sheet and the business portfolio and a business plan, including gross investments at that time.
Turn to Page 31. We have been providing these policies in text or sentences, but now this is the diagram to explain the overall policies for capital allocation. As you can see at the bottom, what we said in November, the target for fiscal year 2025 is ROIC, 12%; and ROE, 15%. In order to achieve these targets, we need to generate cash flow and also capital allocation for growth. And the TSR to be improved, we needed to make the return to shareholders. And as you can see on the right-hand side, capital allocation is composed of those elements. Regarding the cash flow generation, if you go to the left, first, we have took strengths in core earning power in order to generate operating cash flow.
And during the third quarter under review, Toshiba Logistics was sold. So regarding the sale of the non-continuing business, we are going to generate cash flow as well. Below that by procuring the interest-bearing cost debts in order to reduce the cost of capital. And by generating cash flow, which will be utilized in both the gross investment as well as the return to shareholders. And as the policy for calculating these, as you can see at the bottom, we use this theory concept of appropriate level of capital.
Lastly, based on these policies, as I said earlier, there are items that have been determined related to dividend. Based on the policies, as the Board of Directors meeting held earlier today, it resolved to increase the dividend. As you can see at the what top, the dividend for fiscal year '20, the JPY 50 billion to JPY 70 billion is that the forecast revision was made for this fiscal year in net income. And then the 30% or over is the payout ratio based upon which we decided to increase the dividend from JPY 40 to JPY 50 per share. For fiscal year '21 onward, for fiscal year '21. In November 2018, we announced the Toshiba Next Plan. We have targets incorporating that plan.
So based upon those targets, we are trying require to plan to increase dividend. At the time of the financial closure for fiscal year FY '20, we are going to make public announcement for this after decision is being made. And the dividend target for FY '22 through '24 based upon the policies aforementioned, we'd like to target steady and continuous increase of dividend more specifically for fiscal year '22 through '24 medium-term plan when such medium-term plan is announced, we would like to present dividend policy for this term. With this, I'd like to conclude my presentation. Thank you very much for your kind attention.
This concludes explanation from Toshiba Corporation. We would now like to start the Q&A session.
Nihon Keizai Shimbun. [ Yao ] San, please.
I am [ Yao ] from Nihon Keizai Shimbun. Can you hear me?
Yes, we can hear you.
I have about 3 questions. Extraordinary meeting of shareholders is to be convened. It was announced and 2 shareholders are mainly involved.
And what is the reason for request for convening extraordinary shareholders meeting? And about the July operation of the shareholders meeting, what...
Sorry, there's extra sound coming in, I could not hear your question. Could you please repeat?
About the shareholders meeting about the extraordinary shareholders meeting. My question is about the extraordinary shareholders meeting. Two shareholders have raised the reason why they are requesting to convene the extraordinary shareholders meeting. How does Toshiba perceive these 2 reasons.
Is that your question?
Yes.
Today, extraordinary shareholders meeting, is to be held on March 18. This is what we announced today. However, resolutions of the actually convening the external shareholders meeting, that is not held yet. At our company's board meeting, we are prudently considering the opinions of all parties concerned. And once we come up with a conclusion from this discussion, we would like to send out a convocation notice for the extraordinary shareholders meeting. However, thus far, we have spent time. So we have chosen the earliest date possible, March 18, as the date of the extraordinary shareholders meeting and that is what we announced. And when it comes to the company's opinion concerning the -- to shareholders' opinion, please wait, we are still discussing about this at Toshiba's board meeting.
And at this point in time, you're not able to comment on Toshiba's perception of the shareholders meeting?
That is correct.
So this -- I wanted to listen to the reason as well as Toshiba's [ position ]. And the net income forecast JPY 20 billion upward revision was made. What is the main reason for this upward revision?
May I respond. First is, as I explained before, Toshiba Logistics, again, on sales was higher than expected. And various provisions, we revisited them. And there's been a decline in provisions announced. And as the recent -- the share price situation, the share price is on an increasing trend in the market. And there's unrealized gain from shares. As a result of these reasons, there's likely to be a positive impact of JPY 20 billion in total.
Next, NHK. Rena Yamada San, please.
This is Rena Yamada from NHK. Can you hear us?
Yes, we can hear you.
I have 2 questions. First is, this is the first announcement since returning to the first section to the TSE, congratulations. And what kind of impact is that likely to be on the company's performance? That's my first question. Please go ahead.
That the support of people concerned as well as the guidance from the shareholders and focus on that compliance, compliance-related measures in the company as a result, we have been able to return to the first section of TSE. But this is just a starting point, we think. And compliance covenants, we want to reinforce further going forward. And currently, from external experts, we are receiving various opinions from the viewpoint of people outside of the company. We would like to have had these opinions in mind to evolve Toshiba's compliance and governance further. On the other hand, we have been able to return to the first section of the TSE.
And share price liquidity is likely to increase as a result. And we have -- but TSR will return -- improve. And we hope the shareholders will be able to benefit from this, and we would like to focus much more than before on Investor Relations activities [ and such things as this ].
May I go on to my second question?
Go ahead.
In the world at large, many companies are focusing on Toshiba. And Mr. Mori resigned as Chairman of the JOC, Olympics Committee about the Olympics in Japan Olympics. And what do you think about what has been happening so far? And successor is to be decided and open and transparent discussion may be necessarily to decide upon this person to succeed Mr. Mori as Chairman of JOC. What do you think about this?
So are you asking you about Mr. Mori, who just resigned as Chairman of JOC or about gender?
It's a question about Mr. Mori.
Our company is not in a position to be able to comment about Mr. Mori, so please allow me to refrain from commenting. But our company is always discussing about diversity, including gender. In order to enhance diversity, we would like to continue our effort.
All right. Next, Reuters. Yamazaki San, please.
Hello. Can you hear me?
Yes, we can hear you.
I want to confirm about your financial policy, fiscal year 2018 onwards, there's been no change to your financial management policy, appropriate level of capital, whatever that exceeds that will be returned to the shareholders. And that point of the policy also remains unchanged from 2018. Is that the correct understanding?
In that sense, may I respond?
Yes, please go ahead.
From 2018, we've been explaining about financial management policy in the Toshiba Next Plan. We've been announcing this a number of times. And as you can see on Page 33, a list of sources. And clearly, we disclosed in November 2019 -- on November 13, 2019, we made a clear comment as written on Page 30. And in 2018, we were using the word revival. But in 2019, onwards, we started to have a clearer view of cash flow, and that is when we started to discuss [ full fledged ] about level of capital. And we shared with you our concept in November 2019, and our policy has not changed since then.
Then no change from November last year as well. I think that is the correct understanding. So I think this is, Farallon is the most important point your question for extraordinary shareholders meeting. And did Toshiba -- probably Toshiba has explained about this to Farallon. And how did Farallon respond to the explanation that Toshiba has really made.
I'm very sorry, but a conversation we are having with -- specific shareholders, we would like to refrain from commenting. Thank you very much.
Next from the Asahi Shimbu. Koide San, please.
This is Koide of Asahi Shimbun. Can you hear me?
Yes, we do hear you.
Good to talk to you. Related to the earlier question, now at the very end of the presentation materials, you are putting out some explanation. So that shows that you are considering this topic in a particular -- with a particular attention. Now between company and the shareholder, well, the gap in understanding about the capital policy, what is your analysis of how such difference was developed?
Well we made a summary of our financial policies. And because that like as discussed earlier, for example, appropriate capital. We have actually added that concept on top of the FY '18 to '19. And we've actually explained that way, which means, as I said, the old concept was completely abundant, and the company produced completely new concept and that was a misunderstanding on the part of the shareholders. And therefore, we decided to represent the whole picture rather than to show some minor changes or additions at this point.
And content-wise in the Toshiba Next Plan presentation that we've explained already, but nothing new about the slides that we present today, but we wanted to emphasize that there has not been any change. I thought that that will be useful for the shareholders. And by reconfirming this was -- well, we fail to reconfirm this, and therefore, there were some misunderstanding among the shareholders, in my opinion.
Now question in November presentation meeting alone, it will be difficult to truly understand. But after that, with the shareholders and of course, that you might have had some discussions and conversation. But through such process, you were not able to resolve such issues, but now they are seeking for an AGM. It seems that situation is aggravating, then perhaps because you added on the explanation one by one, and therefore, resulted in misunderstanding. I personally think that you could have resolved these issues by having conversation with them. But why did you fail? What is your take?
Right. Answer is that they [ sure ] the conversation with shareholders, some were well understood, some were not fully understood, and some shareholders fail to fully understand our policy. And we decided that as an official IR material, we present this in the summarized and a coherent manner by doing so between our company and shareholders. We should not just rely on the individual communication between our shareholder and the company. But rather, we wanted to present this as the official IR documents.
Now not limited to this time. However, until AGM petitioned, there was a great gap in understanding with shareholders in your company. What contributed to such a grave misunderstanding? What is your take?
Well, big gap in understanding rather than to put that -- in fact, a particular shareholder, which started to seek AGM were actually expressed in the AGM of last year. And in the relationship with the company and then they did not believe that there is no change in capital policy, and therefore, they are seeking AGM this time. But company's position is that there's no change. And for the individual conversation with individual shareholder, we are not in the position to disclose anything. And therefore, I would rather not to mention anything at this point.
Understood. Another question. So on the net profit of JPY 20 billion, do you have any breakdown? If you have idea or images of breakdown, we appreciate it.
Well, the breakdown is not the subject of disclosure, please allow us.
The largest is the gains from the Toshiba Logistics. Gains of the sales of Toshiba Logistics.
I'm sorry, I am not able to disclose that information. Thank you very much.
Now Tomioka San of Toyo Keizai, please.
Hello, can you hear me?
Yes, we can hear you.
This is Tomioka of Toyo Keizai. There are 2 questions. Regarding semiconductor. Yes, automotive semiconductor is in shortages at this point in time. And for the power semiconductors, you are in negotiations to raise prices or thinking about increase of production and what are your situation?
Regarding semiconductor, as you mentioned correctly, on the whole, market is very bullish. And our company is trying to accommodate the needs of the customers, and we are preparing to increase production as much as possible. But in the back-end processes, the resources is actually in shortages, such as those contracted out and so forth. So therefore, we will fulfill what we need to do and that we are doing at this point on every week basis, we are capturing customer needs, and try to accommodate with that.
Another question. Apple is considered to endeavor into the automotive area. And the sense that Apple is highly interested in your battery technology. Is there anything that you could comment on?
Right. That is SCiB battery, as you are mentioning. It is true that the media reported that particular product. However, our company is not in the position to disclose the discussion with any particular customer.
Is there any question? If not, this time run out, we'd like to close the questions to be received from the members of the media. As since announced earlier, from 2:30 to 3:00, we would like to invite analysts and investors to raise their questions. It is okay for media to listening into the conversation. However, members of the media are not allowed to raise questions from 2:30. We will take short break. Thank you.
Now it's 2:30. Therefore, we'd like to hold a Q&A session with analysts and investors until 3:00. [Operator Instructions] Now then from Citi Securities, Mr. Ezawa, please.
Citigroup Securities. My name is Ezawa. Can you hear me?
Yes. It's a bit disconnected.
Excuse me, this is Citigroup Securities. This is Ezawa. Can you hear me? Great. And there are 2 questions. First of all, sales and operating income by segment, then non-GAAP and GAAP numbers where you have changed the ways with which you disclose. And at -- to see -- ensure continuity of the numbers from the previous results announcement. And in the past, there was a GAAP-based number. And full year forecast for net sales and operating income were not disclosed. Is this correct?
It is correct to understand that there were no official disclosure for the accounting base numbers for net sales and operating income for each segment. And then on the accounting base, segmented net sales and operating income. In some segment, if there's any differences, major differences that's subject to the disclosure requirements. And I'd like to know. That is the first question.
Up to the end of the first half, non-GAAP base numbers were used for our forecast announcement. So COVID impact by segment was disclosed. But as you correctly understood -- regarding restructuring impact, there were no segmented numbers. And then from the point of view, you were not able to make consistent comparison. Is that correct?
Right. These 2 were the only GAAP that you have. And if you confirm that, that'd be appreciated?
Right. Then the forecast so far was only disclosing COVID impact for restructuring. So far, [ ERV Rutan ] is expected for restructuring. And therefore, we were not disclosing the segment in numbers. However, toward the end of the fiscal year, we already announced all these -- mentioned, therefore, we will try to disclose as much as possible, and we will return back to you later.
Great. There's another point. Regarding the overall company's strategy that I'd like to raise question. First of all, in the decarbonization strategy of the Japanese government is becoming -- being materialized. And of course, Toshiba has been supporting the development and the evolution of a social infrastructure in Japan. Now according to METI's roadmap, renewable energy be it wind and solar, efforts made by Japanese companies and made in Japan or production in Japan has not been well implemented so far. And it seems that METI's roadmap is trying to make Japanese companies to do more [ manufacturing ]. For example, wind, solar, ammonia and hydrogen. And also, there are nuclear capabilities as well and you are having capability to engage in all parts of the renewable energy.
Now as a part of renewable energy strategy, among your business portfolio, what is missing? What is the management resources that you are lacking in renewable resources. Do you see any necessity to acquire from outside? And how much needs do you have in your renewable energy area? Could you elaborate on that thought?
Yes. Now for the net 0 -- carbon net 0 or decarbonization, there are many fronts. First is the power generation in using the renewable energy technologies. Second is that once the renewable energy is generated quite well. Then there are needs for balancing the generation. And also other CCS and others where carbon dioxide in air could be collected [ doxazosin ], for example, and then there are -- and in such a way, there are 3 pillars, for example. And for the second pillar in the balancing of energy mix, we have not well experienced and therefore, for the next [ well care that ] company that we have formulated a joint venture for that purpose.
And we will add some missing parts by doing so. And for the future needs, many renewable energy sources versus renewable energy users will appear in the market. Therefore, we'd like to accumulate the know-how. We've already established joint venture to acquire that knowledge and going forward, for such facility operated as well as the service provider for such facilities, we would like to make a network of these facility operators or network service providers and networking with them is going to be very important.
A generation of renewable energy itself. As is mentioned in November, related to wind power and the perovskite, which is the new type of a TV solar panel film, and we'd like to proceed with such technology development going forward. And third area, which is the CCS area, where we will -- we are currently developing technologies for [ CACF ].
And on that point, are we missing some specific parts? Rather than that, we need to continue to develop in a very speedy manner. And that is the stage where we are in at this point in time.
So for the future, the second pillar, balancing and matching between sources and the users are going to be the key for our business going forward.
Have we responded to your question? Then from SMBC Nikko Securities, Yoshizumi San.
My name is Yoshizumi from SMBC Nikko Securities. I have 2 or 3 questions. First question. On Page 25, you have provided us with the breakdown in the forecast of the full year. And for fourth quarter, here, you have presented a list of items, but now JPY 68 billion for the fourth quarter. And last year, JPY 20 billion was estimated as the impact of COVID-19. And this year, you're estimating to have a 0, and then there will be a positive side of JPY 20 billion or so. And restructuring costs, and then there will be JPY 4 billion increase in the fourth quarter. And the semiconductor business is recovering. And regarding the plan going forward, I think there is a some leeway, is this right understanding on Page 25, others in the fourth quarter?
You mentioned that this rather conservative. And then JPY 12.6 billion negative. So do you think that there are any major factors for causing the major downside risk? That is my first question.
Currently, we do not have any concerns about the big risks. As we said in the first quarter last year, excluding the impact of COVID-19 and then the size could be estimated for the estimate for the fourth quarter. And as you can see, through various reforms and restructuring, that we are estimating the positive effect of this in increasing the profit.
But this fiscal year 2020, actually, this has been a rather abnormal year. And everything had to be postponed. I mean all the unnecessary, not urgent items had to be postponed. So conservatively such costs that have been postponed, may be incurred. So those are included in the others portion. So as regards to the numbers, these are the numbers that we are confident in achieving these, but out of which the fixed costs so far may have been postponed to the fourth quarter, and that could be accommodated enough in the fourth quarter. That's the basis for our estimate.
Let me clarify again. And in the fourth quarter, JPY 12.6 billion over fourth quarter. And I think the JPY 18.4 billion total increase. And so these -- this number has already incorporated all the factors that have been already known. Not all of the factors, but in that sense, this may be the max.
Understood. Second question. I think at the last meeting in November 2020, last fiscal year, I think the core operating income JPY 260 billion, JPY 280 billion. That estimate was disclosed. And have there been any change to this forecast? And in first, second and third and fourth and the COVID-19 impact is made to be 0 for the fourth quarter and next fiscal year, and do you estimate that there will be no impacts by the COVID-19? A GAAP operating income and the core operating income will be almost the same. So is this a right understanding?
Core operating income or the impacts of COVID-19, first, in the fourth quarter, to be incurred in the fourth quarter, and those are incurred in Q1 through Q3, some of which have been postponed into the fourth quarter and the gain in the revenue. And in total, JPY 800 million is estimated. And as I have been explaining, building solution and also other construction projects and so forth.
Looking at those, we believe that there are many items that are being continuing to be postponed. More simply put elevator business, for example, in the condominium complex in order to renovate those buildings of apartment and then the residential board needs to approve such a board of the resident is not held. Therefore, the contractor cannot have a contract with them. Therefore, the project has been postponed.
And for fiscal year 2021, we believe that to some extent, particularly those projects with the delay of the construction completion, maybe there will be some impact. But this -- do we really needed to call them as the impacts of COVID-19? Or is this because of the sluggish economy, which have not fully recovered.
So we are wondering which expression we should use. But so far, I think it is because of the impacts of the usual -- the recession in the economy. And from '19 to '20, there was a -- the downside pressure on the GDP. And for fiscal year '21, are we going to recover fully from that downside. No, we do not expect to see such a full recovery. That is [ this message ] that we have towards the FY '21. And then we'd not call them as the COVID-19 impact, but the overall economy has been hit and not recovering to the level estimated for the fiscal year 2019. So I think that the level to be recorded in FY '21 will be lower than the level before 2019. So we are going to accommodate that into our plan for fiscal year '21.
From UBS Securities, Yasui San.
My name is Yasui. I am from UBS Securities. Can you hear me?
Yes, we can.
I have 3 questions. First question is for fiscal year 2020. In my understanding, you said that this has been an extraordinary year. And I think costs have been reduced as an emergency measure. And looking into fiscal year 2021, of course, they're estimating the performance next year will be difficult, but roughly a reduction in fixed costs. Those costs have been reduced as the emergency measure during the fiscal year 2020. So the only recovery in the spending as well in FY '21.
So could you please elaborate? And to what extent you are going to see such a recovery in the expenditure in FY '21? Or rather you can say that we do not expect such recovery or improvement in the spending at all. Compared in pre- and post-COVID-19, how do you see the changes potential changes you see? That is my first question.
And the second question, according to my calculation, how do this business in the fourth quarter [ 949 ] in revenue or sales. And I think that you are estimating the loss-making business. And you said that there has been a delay in the customer approval. And for this quarter, how should I read and interpret the performance expected for fourth quarter for the hard disk business?
Last question, the third question. And the industrial system, I think for revenue, net sales estimate is not very aggressive. So could you please explain. In the third quarter, GDP as well, I think it is recovering back to the usual level in the public infrastructure as well so could you please explain the background?
Right, public infrastructure and industrial system. Yes, well because this fiscal year 2020 is extraordinary, therefore, there may be some incremental recovery spending in the fixed costs in fiscal year 2021. Among the sites that have been deployed all over the world and then the subsidies from the government or support for the insurance premiums in various ways, there has been the subsidies or support for supplementing the reduced expenditure in fixed costs, of course, in '21 -- FY '21, the support or subsidies will be gone.
And for fiscal year 2020, sales and promotional activities with the travel -- business travels were all gone. And in fiscal year '21, whatever can be done through remote manner. That will continue to be conducted remotely. However, to some extent, travel expenses are expected to grow again. And overall, the growth investments will be made.
However, as we announced in November last year, from '22 to '24 medium-term management plan, we'll have that as the main theme. So costs related to the preparation for such growth investment will start to increase next fiscal year. So all in all -- and are we going back to the level recorded in FY '19? Or the contraction we made as an emergency measure during the FY '20. Are we going back to that? No. I believe that the increase you slated for the FY '21 will be contained at some level, certain levels.
Well, let me check on the industrial system. But regarding the railway and industrial system, I will touch upon the public infrastructure later. And the first, railway, delivery of the railway, including the outside of Japan and also -- and industrial equipment delivery, both in Japan and as well as outside of Japan, one impact is mainly in Europe.
Based upon the progress of projects that has been delayed significantly. That was one major factor. And mainly in North America, for some time, crude oil price has been very low. Therefore, shale-related business has been very sluggish. So since this spring, we -- coming spring, we believe that there will be recovery in these business segments.
And regarding hard disk business. Structuring -- restructuring costs were included in this business. This hard disk business has turned into the black ink. And this -- today, we have made a press release as well. Restructuring in semiconductor business is progressing. And during the third quarter, JPY 3.4 billion was incurred. And in the fourth quarter, JPY 4.6 billion is to be recorded. So for this hard disk and others, such JPY 4.6 billion as the cost for restructuring is already included.
Next, Goldman Sachs Securities, Harada San.
This is Harada from Goldman Securities, Goldman Sachs Securities. I have 2 questions. The first is the power semiconductors. Tight situation about utilization rates, the factories' utilization rate is very high, you mentioned before, I think. What is the current situation? And what is your forecast for the fourth quarter?
And in relation to that when can you shift from the current pilot line to the mass production line? Please explain about the situation?
And my second question is about SCiB battery business. Hybrid, I think, is the main application at the moment. Can it be installed in a full-fledged hybrid vehicles as well going forward? What is your policy here as well as the progress? These are the 2 questions I had.
First about the semiconductor. Currently, utilization rate is above 90%. And our current forecast is fiscal year '21, the first half, the same situation will likely to continue. However, as everything mentioned before, our factories, we -- if we try to increase our utilization rate further, including the back end of the line, we need to secure overall capacity. And maintain going to utilization rate and then we should be able to somehow manage in the first half. But we are discussing with entities outside of the company so that we can increase utilization rate further, about 300-millimeter. We have a plan to invest in 300-millimeter products, and we are going to start this project. However, in order for this to fully contribute, I think, is likely to take about 3 or 4 years.
And about your second question, the SCiB. Concerning SCiB, as you may know, the characteristic or feature is such that the power storage and discharge is about 10x that of a lithium ion battery. But costs, logically speaking, is 1.5 to 1.8x in terms of capacity, that's the feature of this product. And the main applications would be high-frequency power storage and discharge related applications as well as safety. Even at high-temperature as well as low-temperature operation has to be possible, and safety has to be ensured so that there is no explosion.
Therefore, for automobiles, ordinary so-called how shall I say it full-fledged hybrid vehicles or electric vehicles. Can they fully utilize SCiB, it's difficult to imagine is happening. That's the nature of this product. However, the power charging and the discharge, if you want to have that happen in a short period of time or SCiB and lithium-ion battery can be used together in a hybrid manner to improve life cycle cost and prolong the life. That's another possibility, and we are discussing about these possibilities. And commercial buses or trains, we are starting to see this kind of demand. And industrial social infrastructure-related applications. We expect to see an increase in such application for SCiB.
Any other questions? [Operator Instructions] It seems that there are no further questions. So we would now like to start the third quarter results briefing. Thank you very much for spending all the time with us today. Thank you very much.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]