Mitsui & Co Ltd

TSE:8031

Earnings Call Transcript 2018-Q3

[Keigo Matsubara, executive]

Good afternoon. My name is Keigo Matsubara, Chief Financial Officer. Thank you for joining us today.

I'll start by reviewing our results for the third quarter and outlook for the full year. I'll then hand this over to my colleague, Kimiro Shiotani, our Global Controller, to explain the details.

In the third quarter result, profit and core operating cash flow both trended very positively, supported by another very strong display by Resources & Energy and steady growth in nonresource areas, particularly, in Iron & Steel Products and Machinery & Infrastructure.

Please turn to Page 3, which captures the main outcomes. In the global economy during the third quarter of the financial year, both developed and emerging markets continued their steady recovery, supported by strong consumption and investment. Amid this favorable business environment, third quarter profit after tax was JPY 376.8 billion, taking us to 94% of previous full year forecasts announced in November last year. In addition to the strong earnings capacity of Resources & Energy and strong results in Iron & Steel Products and Machinery & Infrastructure, profit resulting from revisions to the U.S. tax code also contributed. Core operating cash flow reached JPY 549.6 billion, 92% of previous full year forecasts, as a result of steady business performance and an increase in dividends received, primarily from power generation businesses. In addition to growth in core operating cash flow, we achieved positive free cash flow of JPY 376.6 billion that excludes the changes in working capital and time deposits as a result of continued strategic asset recycling and a focus on investment discipline. Based on the performance of the first 3 quarters, we are upwardly revising our full year forecasts, raising our profit forecast by JPY 40 billion to JPY 440 billion, and our core operating cash flow forecast by JPY 70 billion to JPY 670 billion. We are forecasting historical high profit and core operating cash flow. Moreover, as core operating cash flow is exceeding the assumptions of the medium-term management plan at the time of its announcement, we have decided to increase the annual dividend amount and implement the share buyback. We will increase the annual dividend by JPY 10 per share to JPY 70, and implement a share buyback to an upper limit of JPY 50 billion. We will subsequently cancel all treasury stock acquired, including those acquired in February last year. We expect the dividend increase and share buyback to bring the total amount of shareholder returns for the current fiscal year to JPY 172.5 billion. We'll continue to monitor our business environment and do our utmost to achieve the revised forecast numbers.

Please turn to Page 4. The first key initiative in our medium-term management plan is to build a robust profit base and thoroughly strengthen existing businesses, so allow me to review our progress in this area. Total third quarter profit in core areas amounted to JPY 370.8 billion. Core operating cash flow was JPY 485.6 billion. In Resources & Energy, third quarter profit was JPY 264.3 billion, making steady progress towards the previous forecast, and supported by good performance at our Australian iron ore and coal operations, higher dividends from our LNG business, cost reductions and volume increases in our various energy businesses and despite a onetime loss as a result of revisions to the U.S. tax code. Core operating cash flow grew at a very high pace reaching JPY 320.2 billion.

In Machinery & Infrastructure, overall businesses progressed mostly in line with previous forecasts with projects, including a new FPSO charter. Third quarter profit was JPY 79 billion, core operating cash flow was JPY 128.8 billion, supported by higher dividends from equity method affiliates.

In Chemicals, third quarter profit was JPY 27.5 billion, a high rate of progress supported by a onetime valuation gain, resulting from revisions to the U.S. tax code and strong methanol operations. Core operating cash flow proceeded in line with our plan at JPY 36.6 billion. Profit for the period reached approximately JPY 330 billion, excluding valuation gains and losses and the effects of revisions to the U.S. tax code.

Resources & Energy accounted for approximately JPY 190 billion of this figure, and nonresources areas accounted for JPY 140 billion, both achieved steady growth. Looking ahead, we'll continue efforts to build a robust profit base by improving the competitiveness of our existing businesses.

Please turn to Page 5. I will now briefly explain the main actions undertaken in Q3 for the second initiative, establish selected new growth areas. In Mobility, progress was made in EV-related businesses. As awareness of environmental issues continues to increase, the electrification of mobility is becoming more widespread in areas such as Europe and China. Investments by Mitsui have been made in CaetanoBus, an electric bus manufacturer from Portugal; Foresee, an electric battery manufacturing company from France; and The Mobility House, a company that operates in the electric power sector and utilizes EV batteries. Mitsui will work to improve the corporate value of each company and leveraging our comprehensive strengths, continue efforts to commercialize advanced European business models.

In Healthcare as recently announced, we invested in Russian pharmaceutical company R-Pharm. Mitsui will utilize its network to accelerate the supply of new pharmaceutical products to R-Pharm from pharmaceutical companies in Japan, Europe and the U.S., while contributing to enhancing corporate value through further improvements to manufacturing technology and cost optimization.

In Nutrition & Agriculture, we agreed to invest in ETC Group, a company engaged in trade of agricultural products and materials, and the manufacture and sales of food products, primarily, in East Africa. This project will promote business diversification in the Africa region such as collaborative infrastructure projects, while enhancing the business space of Nutrition & Agriculture, one of Mitsui's growth areas.

Please turn to Page 6. Our third key initiative is cash flow focused management and strengthening our financial base. First, I'll explain how we allocated cash flow during the third quarter. For the period, we saw a steady improvement in business performance and an increase in dividends from equity method affiliates, resulting in core operating cash flow of JPY 550 billion. In addition, strategic asset recycling showed solid progress for a combined cash inflow of JPY 780 billion. Meanwhile, we had investment in loans of JPY 400 billion, and with interim dividends of JPY 52.5 billion already paid, total cash out was JPY 452.5 billion. This meant that positive free cash flow after shareholder returns was a very healthy JPY 327.5 billion. Core operating cash flow has grown faster than our assumptions in the medium-term management plan. And over the 3 years of the plan, free cash flow is expected to increase. So for these reasons, we have decided to provide additional returns to shareholders. I'll provide further details in a subsequent slide on our shareholder returns policy.

Please turn to Page 7 for a review of the balance sheet. With strong business performance, we are steadily strengthening our financial base. Compared to the end of March 2017, net DER at the end of the third quarter had reduced 0.13 percentage points to a record low of 0.75x. It improves to 0.65x after adjustment for hybrid loans, and we aim to continue strengthening our financial base.

The last part of my presentation is about shareholder returns, on Page 8. As I mentioned a moment ago, with the growth in core operating cash flow, we've decided to increase the dividend and implement a share buyback. Our dividend plan is to increase the forecast annual dividend by JPY 10 per share to JPY 70 per share in total. With the interim dividend of JPY 30 per share already paid, this means the year-end dividend forecast is JPY 40 per share. For the share buyback, we have set a maximum acquisition amount of JPY 50 billion, or a maximum number of 30 million shares. These shares will be canceled after acquisition. Further, of the treasury stock currently held as of February 2, 28 million will also be canceled at that time. Details of the schedule will be explained by my colleague, Shiotani, shortly.

As a result of these initiatives, the combined value of dividend payments and share buyback brings the total forecasted returns to shareholders to JPY 172.5 billion. This gives a consolidated payout ratio from core operating cash flow of 26%. Our aim is to continue to increase dividend payments as business performance improves, while also continuing measures to ensure we achieve the target 10% ROE by the year to March 2020, set forth in our medium-term management plan. That's the end of my part of the presentation.

I will now hand this over to my colleague, Shiotani, our Global Controller for details of our operating results for the period.

[Kimirou Shiotani, executive]

My name is Shiotani, the Global Controller. I'll now provide further details on the third quarter results.

Please turn to Page 10. First, I'll explain the main changes in profit by segment, compared to the same period last year. For the third quarter period, profit increased JPY 146.5 billion to JPY 376.8 billion. Mineral & Metal Resources profit increased JPY 129.3 billion to JPY 229.3 billion. The main factors were a valuation gain on Valepar restructuring and profit growth at Australian coal and iron ore operations due to increases in the price of coal and iron ore.

Energy segment profits increased JPY 11.4 billion to JPY 35 billion. Although there was a profit decline at Shell gas and oil holding company MEPUSA Holdings due to reversal of deferred tax assets resulting from revision to the U.S. tax code, LNG dividends increased and profits grew with MEPUSA due to higher gas prices and the partial dilution of its stake in Marcellus. Machinery & Infrastructure profits increased JPY 27.1 billion to JPY 79 billion. The main factor was the sale of a holding in a U.K. pumped-storage hydroelectric operator. In Chemicals, profit increased JPY 2.9 billion to JPY 27.5 billion. Although profit declined at Novus due to a fall in the price of methionine, profits increased at U.S. terminal company ITC, as a result of reduced deferred tax liabilities arising from revisions to the U.S. tax code. Iron & Steel Products profit increased JPY 17.6 billion to JPY 22.1 billion, reflecting the start of consolidation of Gestamp and valuation gains arising from price adjustment agreements associated with investment in the company. In the Lifestyle segment, profit fell JPY 54 billion for a loss of JPY 26.7 billion. This mainly reflected losses in multigrain operations and the gain on sale of shares in IHH, that impacted results in the previous comparable period. In Innovation & Corporate Development, profit fell JPY 1.6 billion to JPY 5.3 billion. Although profits were generated from FVTPL gains on Chinese drug development company Hutchison China Meditech, there were FVTPL losses on a high speed mobile data network operator and poor performance by an Indonesian telecommunication operator.

Please turn to Page 11. I will now explain year-on-year changes in core operating cash flow by segment, focusing on factors different to those that caused profit changes. Core operating cash flow for the period increased JPY 200.7 billion to JPY 549.6 billion. Third item from the top in Machinery & Infrastructure, core operation cash flow increased JPY 76.8 billion to JPY 128.8 billion, mainly due to an increase in dividends from our IPP business. In Chemicals, cash flow decreased JPY 4.8 billion to JPY 36.6 billion. This mainly reflected lower gross profit at Novus arising from a fall in methionine prices, which was only partially covered by a strong performance in methanol business and trading. In Lifestyle, core operating cash flow increased JPY 3.8 billion to JPY 13.1 billion, mainly due to a strong performance in food and retail businesses. Meanwhile in Innovation & Corporate Development, core operating cash flow increased JPY 4.8 billion to JPY 5.7 billion, mainly due to higher gross profit from FVTPL.

Turning now to Page 12, we'll look at the main factors influencing year-on-year changes in Q3 profit. First, base profit contributed to an increase of approximately JPY 8 billion, compared to the previous 9-month period. Despite a decrease in profits from Valepar due to deconsolidation accompanying the company's restructuring and decreases in profits at Novus and Multigrain. Key factors included an increase in LNG dividends and higher profit from Iron & Steel Products. Under resource-related costs and volume, we recorded an increase in profit of JPY 3 billion due to reductions in Energy costs, despite higher costs associated with the change in coal mining plans. Under asset recycling, a profit increase of JPY 1 billion was recorded, despite the reversal effect of profit gain from the reclassification of Sims, and the sale of IHH shares in the 9-month period of the previous fiscal year. This was largely due to the sale of our holding in a U.K. power generation operator and the sale of a warehouse in Japan. Under commodity prices and ForEx, increases in the price of coal, iron ore, oil and gas contributed to a gain of JPY 78 billion.

Finally, under valuation gains and losses, despite recording provisions to cover a significant deterioration in Multigrain's operating environment, an appraisal gain on Valepar restructuring and revisions to the U.S. tax code contributed to a profit increase of JPY 56 billion.

Please turn to Page 13. I'll explain the results of asset recycling, investments and loans in this quarter. In asset recycling, we saw steady progress in the 9-month period, achieving a combined total of JPY 230 billion in cash inflows. In loans and investments, reflecting our overall cautious approach in this area, there was a total outflow of JPY 400 billion. In addition to items continuing from H1, items in our core areas included outflows from the offshore Energy business. Items in our growth areas included investment in R-Pharm and an outflow of funds to CIM Group.

Please turn to Page 14. Now based on our results for the third quarter of the fiscal year, I will explain our full year earnings forecasts. We have upwardly revised our profit forecast for the year by JPY 40 billion to JPY 440 billion. The main operating segments in which revisions have been made are Mineral & Metal Resources, which has been revised upwards by JPY 20 billion due to factors, including an increase in the price of coal and a gain on the reversal of undistributed earnings tax affect associated with an increase in dividends from equity method affiliates; Iron & Steel Products, which has been revised upwards by JPY 10 billion, due to a valuation gain related to Gestamp; and Lifestyle, which has been revised upwards by JPY 10 billion due to an expected gain on the reversal of undistributed earnings tax effected MBK Healthcare Partners. At the same time, the Energy segment has been revised downwards by JPY 10 billion, despite an increase in LNG dividends, mainly due to revisions to the U.S. tax code.

Please turn to Page 15. Here I'll explain our core operating cash flow forecasts. Our core operating cash flow forecast has been revised upwards by JPY 70 billion to JPY 670 billion. The main segments in which revisions have been made are Mineral & Metal Resources, which has been revised upward by JPY 25 billion due to higher dividends from equity method affiliates and an increase in the price of coal; and energy, which has been upwardly revised by JPY 25 billion due to cost reductions and increase in production volume and in LNG dividends increase. As Matsubara explained earlier, if we are successful in achieving these revised forecasts, both our profit and core operating cash flow for the year will be at a historical high.

Please turn to Page 16. For the final part of my presentation, I will explain the details of our stock repurchase and cancellation of treasury stock. As outlined in our timely disclosure statement, we will implement a stock repurchase of up to 30 million shares of common stock of Mitsui for a total acquisition amount of up to JPY 50 billion. The buyback period will be from today to March 23, and the repurchase will be done by auction market on the Tokyo Stock Exchange. With regard to the cancellation of treasury stock, all stock repurchased this time and 28 million of the treasury stock acquired as of the time of disclosure will be canceled. The total number of shares to be canceled will be up to an equivalent of 3.3% of the total outstanding shares. The cancellation is scheduled to take place on April 20. This ends my section of the presentation.

[Unknown Analyst]

Thank you for your presentation, I have 2 questions. You have decided to increase the dividend and implement a share buyback. As you increase the dividend, could you tell us how sustainable it will be looking into the next fiscal year and beyond? You put together a chart for this on Page 8. Previously, you had committed yourself to the minimum total dividend amount per year of JPY 100 billion or JPY 60 per share. However, do I understand correctly that going forward JPY 70 per share will become a new basis? This is my first question. Secondly, you have made an upward revision to the forecast for the full year. In that revision, your forecast for the fourth quarter seems to be a bit conservative, particularly, in the Energy segment, you seem to have assumed a slowdown on the quarter-to-quarter basis. Could you please give us additional comments on your forecast for the fourth quarter, especially for the Energy segment, where you have assumed a decline in profit on the quarter-on-quarter basis.

[Unknown Executive]

Thank you for the questions. Both will be answered by Matsubara, our CFO.

[Keigo Matsubara, executive]

Our policy on shareholder returns is as has been explained previously, based on the core operating cash flow and not on profits. For part of the financial results, our basic policy is to directly return to shareholders through dividends, while share buybacks will be implemented flexibly in terms of the timings and the amounts by considering various business environments. We have increased the dividend by JPY 10 per share this time, but basically, the dividend will be paid based on the stably generated core operating cash flow. Part of the total core operating cash flow is volatile in nature, affected by prices of resources to which we take flexible responses through share buybacks. Therefore, the thinking behind our decision to increase the dividend by JPY 10 per share this time is that, although it is difficult to identify exactly how much of the core operating cash flow has been generated stably, it can be assumed that the cash obtained in this fiscal year must have a certain portion of that nature for which we decided that it is appropriate to return to shareholders through dividends. You asked about the sustainability of the increased dividend. In the next fiscal year, while keeping our commitment to the minimum total dividend amount per year, we will make decisions by figuring out whether the core operating cash flow obtained is stable or volatile in nature. To answer your second question on the forecast for the fourth quarter looking conservative. In the third quarter, there are some major peculiar factors, including the tax reform in the U.S. and increased dividends received from LNG projects. If we exclude these factors, the quarterly profit we can stably realize should be around JPY 80 billion to JPY 90 million. If the fourth quarter forecast looks lower than that, that could be because since significant profits have been posted so far, each business unit might have come up with slightly conservative forecasts for the fourth quarter. Did that answer your question?

[Unknown Analyst]

On my first question, would it be correct to understand that the minimum total dividend amount per year will remain unchanged at JPY 60 per share?

[Keigo Matsubara, executive]

The minimum total dividend amount per year is not JPY 60 per share, but the amount we promised to make available to fund the dividend is JPY 100 billion per share. Therefore, if you divided it by the number of outstanding shares as of the beginning of the fiscal year, you will get JPY 57 per share, which should be the theoretical minimum amount of dividend per year. Thank you.

[Unknown Analyst]

I have 2 questions. First, there was a significant amount of reversal of deferred tax liabilities due to the U.S. tax reform in the third quarter. I'd assume, it will depend on the profits in the next fiscal year, but given your company tends to have larger reversals of deferred tax liabilities than those of deferred tax assets, I'd appreciate if you can share with us how much impact in the P&L you expect to see due to the reduced tax burden in the next fiscal year and beyond if you have made any trial calculations? My second question is about the shareholder returns. You did explain your policy on the allocation between the share buyback and dividend earlier, but on Page 8, the total shareholder returns as a percentage of core operating cash flow is indicated as 26%. Is this the metrics you focus on most and deciding the total shareholder returns? Though you did not mention the specific level, would it be correct to understand that the 26% should be regarded as a yardstick going forward?

[Unknown Executive]

Thank you for the questions. The first question will be answered by Shiotani, our Global Controller, and the second question will be answered by Matsubara.

[Kimirou Shiotani, executive]

In the U.S., as you know, we run businesses of certain sizes such as ITC Novus and PAG. Given the size of those businesses, based on profits assumed when the medium-term management plan was put together, was expected reduction in the corporate income tax rate. A ballpark estimate for the positive impact on the P&L is probably in the order of JPY 10 billion from the year ending March 2019 to March 2020.

[Keigo Matsubara, executive]

To answer your second question, looking back on our track record, we have consistently carried out shareholder returns worth 20% to 30% of the core operating cash flow. We do not necessarily set a numerical goal for single-year total shareholder returns, but as a yardstick for the total shareholder returns combining the dividend and share buybacks, 20% to 30%, or 25% if we take the number in the middle, of the core operating cash flow is what we bear in mind when deciding shareholder returns. Thank you.

[Unknown Analyst]

I have 2 questions. Firstly, the forecast for the core operating cash flow of this fiscal year was JPY 500 billion at the beginning, which was raised to JPY 600 billion after the first half, and now increased to JPY 670 billion, which represents a JPY 170 billion increase from the beginning of the fiscal year. How much of the JPY 670 billion is accounted for as factors not sustainable in the next fiscal year such as cash distribution from IVPs moved up in the schedule, or variation gains on derivatives in steel products? If you have any annualized figures to share with us, it would be appreciated. My second question is about Xingu, an additional impairment loss on the land was recognized in the third quarter and as described at the end of the consolidated financial results, the carrying amount of the asset is now around JPY 70 billion. Could you give us the background behind the impairment loss and let us know whether there was any risk of further impairment losses to be incurred, as JPY 70 billion is a sizable amount?

[Unknown Executive]

Thank you for the question. Matsubara will answer the question.

[Keigo Matsubara, executive]

I understand that your question is about how much of the cash flow is onetime in nature. I do not have exact figures calculated on hand, but valuation gain and loss is indicated as a positive JPY 45 billion in the PowerPoint presentation. Therefore, as a total, that could serve as a reference. And cash distribution from IPPs that has been moved up from the plan in the 2nd year of the medium-term management plan is about JPY 20 billion. On the question of whether the valuation gains and losses on derivatives are classified as cash flows from operating activities, our accounting policy is to classify the nonoperating profit and loss into elements constituting the core operating cash flow. Some are positive and others are negative, but we do not exclude those items just because they are posted as nonoperating profit and loss. As for the question on Xingu, in Brazil, the valuation of a farmland is calculated by multiplying the yield per unit land area with the price of the product. Now we get a lot of questions since the previous quarter asking why we recognized valuation losses when they had a good harvest. The valuation of the land was reduced because though the yield per unit land area did increase due to the abundant harvest, that was more than offset by a significant drop in the prices of the products. This logic should help you understand the situation better.

[Unknown Analyst]

I also have 2 questions. My first question has to do with the dividend policy. Earlier, you explained that your decision to increase the dividend this time was partly reflecting the increased stable core operating cash flow. In the medium-term management plan, the stable core operating cash flow was assumed to be around JPY 400 billion. If that has increased since then, what are the factors behind the increase? Can you give us the background? My second question is about the Machinery & Infrastructure segment in the third quarter. There may have been some positive and negative onetime factors, but the profit boosted in the single quarter of the third quarter seems to be particularly strong. In what businesses of the Machinery & Infrastructure you saw such strong performances? Could you elaborate more on this segment in the third quarter?

[Unknown Executive]

Thank you for the questions. The first question will be answered by Matsubara and second by Shiotani.

[Keigo Matsubara, executive]

The JPY 400 billion in the stable core operating cash flow announced in the medium-term management plan is intended to show the confidence our top management had in the figure in the sense that even at the bottom of the commodity market such as the one seen when we suffered losses in the year ended March 2016, we can generate enough amount to pay the dividend. Now the recent business environment was so favorable that we built up significant amounts of profits not just in the resources segment but also in nonresources segment. In our original plan, we had expected to achieve JPY 140 billion in profits in nonresources segment for the full year, but in the third quarter, on the year-to-date basis, we posted more than JPY 140 billion profit already. If we exclude noncash valuation losses, such as those for multigrain. And our current forecast for the full year is more than JPY 170 billion. The global economic environment has also been positive, enabling us to accumulate the profit in the trading business. All these factors together have been contributing to the upside on the stable core operating cash flow. And we believe this upside will remain present by the end of the entire 3-year period and, therefore, decided to spend the amount of the upside to fund the increase of the dividend.

[Kimirou Shiotani, executive]

I will answer your second question on the strong performance of the Machinery & Infrastructure in the third quarter. The Machinery & Infrastructure segment in the second quarter posted PAT, or profit after tax, of JPY 31.5 billion, and in the third quarter JPY 32 billion, which means that numerically the profit was flat or showed a slight increase. If you compare the second and third quarters, in the second, gain on the sale of first hydro was posted, and therefore, there was a negative reversal effect in the third as well as several onetime losses recognized, but those were mostly offset by the reversal of the deferred tax liabilities due to the dividend received from IPPs and the positive impact due to the U.S. tax reform. Thank you.

[Unknown Analyst]

I would like to ask 2 questions. My first question is also on the core operating cash flow. Looking at the quarterly trends of the core operating cash flow for the first quarter and the second quarter, it was around JPY 150 billion, and in the third quarter, it increases to nearly JPY 250 billion. The increase was from Machinery & Infrastructure and Energy segments. Would you elaborate further on the reason why the third quarter core operating cash flow increased so much? My second question is on Cameron LNG. Please update us on its progress. When do you expect it to make profit contribution?

[Unknown Executive]

Thank you for your question. The first question will be answered by Shiotani and the second by Matsubara.

[Kimirou Shiotani, executive]

As for your first question on the increase in core operating cash flow, increase in Energy came mainly from improved cost reduction; better revenue than expected due to higher prices, for example, of crude oil and gas; and increased LNG dividend in the third quarter. As for Machinery & Infrastructure, it was from increase in dividends from equity method affiliates related to IPP businesses and asset recycling. In other segments, valuation gain on derivatives is recognized as core operating cash flow in the Iron & Steel Products and better revenue due to higher coal and copper prices was a factor in the Mineral & Metal Resources.

[Keigo Matsubara, executive]

As for your second question on the progress of Cameron project, last December, it was agreed between APC contractor and Cameron joint venture to aim for start of production in all 3 liquefaction trains producing LNG during the year 2019. The original plan was to start the first train at the end of 2018 followed by the remaining trains in sequential order, but there has been delays due to construction issues. So the current plan is for the start of production by the end of 2019.

[Unknown Analyst]

Allow me to ask a follow-on question on the overseas LNG dividend. Did dividend increased because of improved profitability of the project from higher crude oil prices? In other words, if the commodity prices are maintained at the current level, is it expected that dividend income in the next fiscal year be at the same level?

It is difficult to forecast the dividend from the LNG business, so please explain what changes led to increased dividend?

[Keigo Matsubara, executive]

Thank you very much for your question. There are a number of LNG businesses and dividend policy is different for each one of them making it difficult for us to comment separately. It is correct, as you pointed out, that profitability is improving in accordance with the strong market environment. However, there are different factors involved in the dividend policy of each of the businesses. For example, consideration of future needs for cash. So it is difficult to elaborate further. I hope to have your understanding. Thank you very much.

[Unknown Analyst]

Profit forecast for mineral and metal resources has been revised upwards by JPY 20 billion. Please explain how the changes in the market and the current market situations are reflected in this forecast? It is stated that the deficit ex Caserones is getting smaller. Please explain the current situation in detail. And my second question is also on the details of shareholder returns. You talked about the definition applied for share buyback. If there is a cash surplus generated where there is volatility affected by resource prices, in the future, if a sizable profit is expected to continue in resources and energy-related businesses, will this buyback be maintained?

It may depend on the market situation with cash surplus generated. But is it correct to assume that stock repurchase of similar scale from this year can be expected in the future? Which segment's free cash flow should we take as guidance?

[Unknown Executive]

Thank you very much for the questions. First question will be answered by Shiotani and second question by Matsubara.

[Kimirou Shiotani, executive]

I believe your first question is on the assumption for the upward revision of profit forecast for Mineral & Metal Resources. As for price of coal, it is now trending at a higher level, leading us to a higher forecast from the previous forecast. As for iron ore, we have made calculations based on the same level from the original assumption. As for Caserones, we may have explained before, but we introduced improvement programs of a major consulting firm in order to overhaul economic efficiency and to conduct strong reforms. As a result, operation is being gradually uplifted. We are currently focusing our efforts on stabilizing copper production at a higher level. It is difficult to make comments on the future, but we are taking measures. I hope to have your understanding.

[Keigo Matsubara, executive]

And to answer your second question, our basic policy is to make returns to shareholders in the form of dividend payment first and foremost. As outlined before, we will be prompt and flexible in making decisions regarding share buybacks in consideration of business environment, future trends of demand for investment funds, free cash flow, interest-bearing debt levels and ROEs outlined in the medium-term management plan. Therefore, it is not as if we will be conducting share buybacks every year. We will always prioritize continuing to increase dividend payments through improvements in business performance.

[Unknown Analyst]

I have 2 questions. The outlook at the beginning of the year showed that equity share of coal production will decrease to 9 million tons next fiscal year, and it was explained that it was due mainly to sale of thermal coal equity. Is this outlook maintained in light of the changes in the environments surrounding coal? And my second question. Please tell us which investment projects initiated in the third quarter is showing prospects of making profit contributions next fiscal year?

[Unknown Executive]

Mano will answer your question.

[Yuji Mano, executive]

We explained before that as equity share of coal production, we have not necessary made the decision to sell. We will take into account various conditions such as timing, prices, et cetera, and discussion is ongoing. 9 million tons is not final. Once we make the decision to sell, we will inform you. As for your second question, the details of business plan for the next fiscal year will be announced in May. Out of the projects already announced and are expected to see increased contribution from this fiscal year to the next are: With steel products, Gestamp related projects are expected to make additional contributions, and Nippon Steel and Sumikin Bussan Corporation to be made an equity method associated companies starting next fiscal year; in Machinery & Infrastructure, the startup of the new power plants, as shown in the satellite charts of the medium-term management plan, for example, in Morocco and Oman, and additional FPSO charter is expected; startup cash flow contribution related to startup production at Tempa Rossa oil fields in 2018, in the Energy segment; and acquisition of Bigi in Lifestyle segment announced recently. These are all expected to start to make contributions next fiscal year.

[Unknown Analyst]

I would like to ask 2 questions. My first question is also on the core operating cash flow. In the Medium-Term Management Plan, the original quantitative target for the fiscal year ending March 2020 was set at JPY 630 billion, but this fiscal year, it was revised up to JPY 670 billion. I'm aware that there may be factors specific to this fiscal year, but is this JPY 670 billion likely to increase for the year ending March 2020? Please share the image you may have going forward. And my second question is on the takeover offer to acquire an upstream company in Australia, as announced through a news release this morning. The objectives of the offer were given as portfolio expansion and to obtain operator functions in order to expand the sphere of activity. Please elaborate further.

[Unknown Executive]

Thank you very much. The first question will be answered by Matsubara and second by Mano.

[Keigo Matsubara, executive]

The forecast of PAT and core operating cash flow for this fiscal year are already reaching the quantitative target for the year ending March 2020 outlined in the Medium-Term Management Plan. But at this moment in time, we feel that we are not in a stage of considering changing the core operating cash flow forecast of JPY 630 billion in the 3rd year. The assumption we based our resource prices on were on the conservative side. And as they are continuing to show recovery, there was an upside for this fiscal year.

When we draw up our next business plan, we will consider the possible impacts in the year ending March 2020, and if necessary, make revisions in the 3rd year, but we are not in a stage to make any comments today.

Allow me to make additional comments on the takeover offer to acquire AWE Limited. We have been involved in Energy business in Australia for the past 20 years. AWE has been our partner in the gas and oil field and Casino and also in Tui, in New Zealand, although the latter has been sold. So we have a very strong cooperation. AWE also has very good assets, for example, the inland gas field in Waitsia. One of the biggest objectives of this acquisition is to gain this quality asset. After 2020, the shortage of gas supply is expected, especially in Western Australia. So we believe this will be a long-term and stable business. Simultaneously, we have been involved in Energy business as nonoperator so far, but by acquiring AWE, which holds functions as an operator, we hope more width and depths will be added to our Energy business.

[Unknown Analyst]

I have one question. The performance of individual projects for which investments were made last fiscal year is not all disclosed. I believe such projects, such as Panasonic Healthcare and CIM Group are core investment projects in the medium-term management plan. Please share any information you may have.

[Unknown Executive]

Matsubara will answer your question.

[Keigo Matsubara, executive]

As for Panasonic Healthcare, we are not able to disclose financial results, but since the first quarter of this fiscal year, profit contribution is already seen with a single-digit billion yen worth of profit incorporated for the year, which is on target. As for CIM, it is included in the consolidation from the first quarter of this fiscal year. Investment into this fund management firm is recorded as investment under other investments and profit recognized as FVTPL. As CIM has publicly announced, assets under management is being accumulated steadily, and our revenue is expected to grow steadily towards the next fiscal year.

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