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Gate 3 Medium-term Management Plan

Review of the Previous Medium-term Management Plan

Under the previous medium-term management plan, Driving Value Creation, Mitsui set four key initiatives in line with its vision of “A pool of diverse professionals that take the initiative to create new business and actively leverage the Mitsui Group’s comprehensive strengths and global network for sustained creation of new value.”

Key Initiatives of the Previous Medium-term Management Plan

Mitsui’s focus
  • Establish a profit base resilient to external changes and risks
  • Dynamic allocation of resources
  • Strengthen our management foundation
Key initiatives
  • Build a robust profit base and thoroughly strengthen existing businesses
  • Establish selected new growth areas
  • Cash flow focused management; Strengthen financial base
  • Enhance Governance, Personnel, and Innovation functions

Summary of Quantitative Achievements

Mitsui broadly achieved its initial targets for core operating cash flow and ROE by enhancing its ability to steadily generate cash and by improving capital efficiency.

In the fiscal year ended March 31, 2020, Mitsui failed to attain its target for profit for the year, owing mainly to impairment losses on assets related to oil and gas development, among others.

Profit for the year

Profit for the year Profit for the year

Core operating cash flow

Core operating cash flow Core operating cash flow

ROE

ROE ROE

Core Areas and Growth Areas

In the Company’s core areas of Mineral & Metal Resources, Energy, Machinery & Infrastructure, and Chemicals, Mitsui steadily expanded the profit base through bolt-on investments, operational improvements, portfolio optimization including recycling, and reinforcing trading functions. In the Company’s growth areas of Mobility, Healthcare, Nutrition & Agriculture, and Retail & Services, we allocated management resources targeting Asia, with its growing middle class, and North America, with its constantly growing economy, thereby promoting the expansion of our businesses.

In the fiscal year ended March 31, 2020, Mitsui endeavored to strengthen the foundations of businesses related to the environment and health. In addition, Mitsui aimed to expand and horizontally develop peripheral businesses.

Core Areas and Growth Areas

Core Areas

Mineral & Metal Resources
  • Maintained and expanded iron ore business base
    Decided to develop South Flank mine and Robe River JV new mining areas
  • Raised quality of coking coal portfolio
    Sale of interest in Bengalla coal mine (thermal coal), purchase of interest in Grosvenor coal mine (metallurgical coal)

Coal handling and preparation plant at Grosvenor coal mine Coal handling and preparation plant at Grosvenor coal mine

Coal handling and preparation plant at Grosvenor coal mine

Energy
  • Steadily promoted LNG business
    Final investment decisions for Mozambique Area 1 and Russia Arctic LNG 2, start of operations at Cameron LNG in the U.S.
  • Started production in the E&P business (Greater Enfield in Australia, Tempa Rossa in Italy)
  • Enhanced trading functions in LNG/crude oil

Crude oil processing facilities at Tempa Rossa in Italy Crude oil processing facilities at Tempa Rossa in Italy

Crude oil processing facilities at Tempa Rossa in Italy

Machinery & Infrastructure
  • Progressed with new power generation
  • Advanced Development & Sell strategy (sale of C2C power generation business in Canada)
  • Expanded FPSO business
Chemicals
  • Participated in European paint manufacturing business
  • Progressed environment-related businesses

Growth Areas

  • Became the principal shareholder in IHH Healthcare, Asia’s largest private hospital group
  • Invested in Thorne Research, Inc., a supplier of high-quality supplements in the U.S.
  • Accelerated initiatives for promoting MaaS
  • Expanded business base for agricultural inputs, crop protection and seeds
  • Entered U.S. prepared food business
  • Acquired digital functions and strengthened ­customer management

Financial Base, Governance, Personnel, and Innovation Functions

  • Advanced cash flow management and tightened investment discipline
  • Launched Moon Creative Lab, strengthened digital infrastructure for remote working
  • Strengthened global HR management and launched next-generation leadership program
  • Strengthened governance (expanded diversity and improved effectiveness of the Board)

Column

Final Investment Decisions for Mozambique Area 1 LNG Project and Arctic LNG 2 Project in Russia

In June 2019, Mitsui made a final investment decision for the Mozambique Area 1 LNG project, in which its ­affiliated company has a 20% interest. It is an integrated upstream-midstream project that encompasses all stages from natural gas production and liquefaction to LNG shipment. In September 2019, we made a final investment decision for the Arctic LNG 2 project in Russia, in which we have a 10% interest with Japan Oil, Gas and Metals National Corporation (JOGMEC). Through these projects, we will contribute to the reliable supply of energy to Japan and the rest of the world.

Arctic LNG 2 plant in Russia Arctic LNG 2 plant in Russia

Arctic LNG 2 plant in Russia
©Novatek

Investment in Vietnamese Shrimp Producer and Processor Minh Phu

In May 2019, Mitsui acquired approx. 35% of the shares in Minh Phu Seafood Joint Stock Company (“Minh Phu”), one of the world’s biggest shrimp producers. Through the strength of vertical integration, from shrimp farming to processing and sales, Minh Phu exports shrimp products to 50 countries including the U.S. and Japan. In 2013, Mitsui invested in Minh Phu Hau Giang Joint Stock Company, one of Minh Phu’s processing factories. Mitsui intends to expand sales for Minh Phu through its global sales network.

Shrimp farming (black tiger shrimp) Shrimp farming (black tiger shrimp)

Shrimp farming (black tiger shrimp)

Ongoing Challenges from the Previous Medium-term Management Plan

Under the previous medium-term management plan, Mitsui steadily expanded the profit base in core areas, centered on Mineral & Metal Resources and Energy, in addition to strengthening non-resource areas, especially Machinery & Infrastructure and Lifestyle. Furthermore, the Company expanded the business base with an emphasis on the environment and health. To achieve medium- to long-term improvement in corporate value, as explained on page 4, in the new medium-term management plan, Mitsui will pursue key initiatives to address issues that became more apparent during the previous medium-term management plan.

Ongoing challenges

  • Further raise profitability of existing businesses
  • Establish profit pillars in areas where Mitsui’s comprehensive strengths can be leveraged
  • Transform employee mindsets, improve productivity, and reduce costs without compromise
  • Bring talent into the Mitsui Group and strengthen training and development framework
  • Continuously raise ROE and shareholder value

New challenges in a “New Normal”

  • Strengthen risk management thoroughly and immediately
  • Reduce costs and strengthen resistance to downturns
  • Respond with agility to the accelerating digital economy
  • Manage with a long-term perspective, such as responding to climate change

Results for Cash Flow Allocation in the Previous Medium-term Management Plan Period

* Please view the table below while scrolling horizontally.

Unit: ¥ billion Cumulative results
for FY March 2018
to FY March 2019
(a)
Results for
FY March 2020
(b)
Cumulative results
for the last three years of
the previous medium-term
management plan
(a) + (b)
Review of three-year
cumulative plan
(Disclosed
in May 2017)
Cash-In Core Operating Cash Flow*1  [1] 1,240.0 620.0*2 1,860.0*2 1,700.0
Asset Recycling  [2] 530.0 250.0 780.0 700.0
Cash-Out Investment and Loans  [3] (1,490.0) (420.0) (1,910.0) (1,700.0)–
(1,900.0)
Shareholder Returns  [4] (310.0) (200.0)*3 (510.0) (300.0)
Free Cash Flow*3 after Shareholder Returns*4  [1] + [2] + [3] + [4] (30.0) 250.0*2 220.0*2 200.0–
400.0
  • Cash flows from operating activities minus cash flows from changes in working capital
  • Includes ¥50bn increase in operating cash flow associated with application of IFRS 16 “Leases”
  • Free cash flow that excludes the effects of changes in working capital and time deposits
  • From the fiscal year ended March 31, 2019, cash flows of some lease transactions, which had previously been recorded as changes in working capital, are recorded as investment cash flow and have been excluded from the table above.

Toward a New Stage

From a foundation in core areas and growth areas, we strove to strengthen and expand under the previous medium-term management plan. Mitsui will now enter the next stage, creating a robust cash generation capability, even in uncertain business conditions, while honing this foundation and thoroughly managing risks. In addition to ongoing issues from the previous medium-term management plan, we will address new issues that have emerged as a result of the COVID-19 pandemic.

Toward a New Stage