Thank you very much for joining our earnings presentation for Mitsubishi Chemical Group's financial results. It's time to start. First, CEO and President Jean-Marc Gilson will give you our presentation, followed by Yuko Nakahira, Executive Vice President and CFO, reporting on financial results for the third quarter of the fiscal year 2030. After the presentation, we will have Q&A, and the meeting will last for about 60 minutes. Before we start, we would like to remind you that the presentations may contain forward-looking statements, which are based on the expectations and information available as of now and are subject to risks and uncertainties. Actual results could differ materially from what is stated here. Q&A, including the presentation, will be posted on our website later. Now the conference should start. Jean-Marc Gilson, you can start now.
Welcome to our third quarter earnings presentation. My name is Jean-Marc Gilson. I'm the CEO of Mitsubishi Chemical Group. Let me first start by highlighting briefly what you probably have heard several times during the quarterly earnings announcement from other listed companies and other chemical companies. After an acceptable first quarter of fiscal year 2022, we witnessed an accelerated deterioration of the global economy in the second quarter, and that gained even more speed in the third quarter. A combination of rising raw materials, high energy price, high inflation started to drive a significant slowdown in demand across industries, but with a more pronounced effect on our commodity product lines. Pretty much all geographies were affected, with the U.S. being affected to a lesser extent.
To come out as a winner, as a company, after a recession in the chemical industry, we need to do 3 things correctly. Number 1, we need to cut cost rapidly. Number 2, we need to ensure the solidity of our balance sheet. Number 3, we must get ready for when the economy turns around. These are the reasons why we continue that disciplined and fast implementation of our Forging the Future strategy. As you have realized in the last quarter, we strongly accelerated our cost reduction efforts across the company. As communicated, we implemented difficult decisions including business restructuring, plants closure, outsourcing of activities, and consolidation of legal entities. While these measures resulted in large impairment charges, they will also reduce significantly our expense base going into fiscal year 2023.
As of now, we are expecting that 80% of our initial cost reduction target of JPY 1,000 oku yen that we had described in our strategy Forging the Future, will be delivered over the next several months. It is now likely that we will push our overall cost reduction target to JPY 1,500 oku yen. We expect that these measures will contribute quickly to better earnings and cash flows, and that, combined with our strong focus on working capital reduction, will drive our deleverage at even faster pace. We do also have our eyes on growth. In order to accelerate our earnings recovery when the economy turns around, we are also continuing to invest in our most promising opportunities.
Our CapEx spending has not been curtailed as it is directed towards the business that has been the least affected by the latest downturn and our key businesses for the future. I am talking here about projects directed to our performance products, gas business, and also to support licensing deals for our pharma business. As you can see, despite tough trading conditions, we are doing everything in our control to ensure a very strong step change in our results when the global economy turns around later this year, we hope. I'm resolutely optimistic that all these efforts and refocus around cost-cutting, portfolio management, and business growth investment will result in a better company with stronger earnings in a not too distant future.
Let me turn it over now to Nakahira, CFO, for a detailed review of our financial results for the last quarter and an explanation of our forecast for year-end.
Let's start presentation. Good afternoon, everybody. I'm Nakahira, CFO of Mitsubishi Chemical Group. I'd like to present our financial results for the third quarter of the fiscal 2023 and outlook for the full year. The yen continued to depreciate as in the second quarter, with an average rate of JPY 136.9 for the third quarter. Although naphtha unit price peaked in the first quarter and has been on a downward trend, it reached JPY 72,500 in the third quarter, averaged JPY 80,000 for the year-to-date period, a 48% higher level than the previous year, putting pressure on operating income.
In the cumulative third quarter, price pass-through activities and foreign exchange effect offset the decline in sales volume due to the drop in demand, resulting in sales revenue of JPY 3,406.2 billion, up 17% from the last year. Core operating income was JPY 177.9 billion, down 19% from last year. The breakdown will be explained later, we worked to mitigate the impact of falling demand and deteriorating market conditions, particularly in chemicals, through company-wide efforts to pass through on prices and reduce cost. Performance products other than display application, healthcare, and industrial gases contributed steadily to core operating income. Special items totaled JPY 125.1 billion in the third quarter. As indicate in Forging the future management policy, we are proceeding with structural reforms.
In the third quarter, we record impairment losses and provisions due to the closure of Cassel plant and winding up of Medicago, subject to the completion of labor management talks. The closure of Cassel plant amounts to 70.7 billion JPY, and the winding up Medicago amounts to 48.0 billion JPY. Operating income totaled 48.6 billion JPY, down 78% year-on-year. Income before taxes was 39.2 billion JPY, down 31% year-on-year, partly due to the change in accounting treatment of deferred tax asset associated with Medicago wind-down. Net income attributable to owners of the parent was 17 billion JPY, down 86%. Revenue and core operating income are shown for each business segment. Revenues increased in all segments due to the price pass-through and foreign exchange effect.
In the sub-segments, revenues increased in all segments except MMA. In terms of core operating income, films and molding materials posted lower income in the performance products segment due to a sharp drop in demand for displays, a key market. While polymers and compounds and advanced solutions reported higher income. Overall, performance products recorded slightly higher earnings than last year, excluding the impact of the sales of alumina fiber business. On the other hand, chemicals reported lower earnings due to softening demand and deteriorating spreads in all sub-segments, including MMA, petrochemicals, and carbon. Industrial gases and healthcare reported higher earnings. Core operating income decreased by JPY 41.0 billion in the third quarter. The breakdown is shown here. The price difference was a positive JPY 17.9 billion.
As shown on the right, chemicals was down JPY 20.4 billion, and healthcare was down JPY 5.4 billion due to the NHI price revision. We were able to significantly improve the price difference in performance products and industrial gases. Volume difference was significantly negative in performance products, mainly due to the impact of falling demand in the display market and in chemicals. In healthcare, volume growth was achieved in key products. Cost reduction totaled JPY 30.3 billion, 95% of the annual reduction of JPY 32.0 billion projected for the current fiscal year.
We are proud of the results of our accelerated company-wide efforts amid the deteriorating market environment. Although there were periodic maintenance and repairs in Ibaraki this fiscal year, our efforts to optimize repair costs through the use of DX have yielded favorable results. We will expand this to the periodic repairs in Okayama in the next fiscal year. We will further promote these activities through portfolio review and operations as one company. Others include a decrease of about JPY 10 billion in inventory valuation, a decrease of more than JPY 10 billion in equity in earnings of affiliates, and sales of alumina fiber business asset. Other factors such as an increase in labor and logistics, and other costs due to inflation noticeable in U.S. and Europe, and foreign exchange effect on R&D in various activity costs overseas.
As for core operating income of Performance Products, price pass-through activities were strong, contributing JPY 32.4 billion. Volume difference was a minus JPY 14.8 billion due to lower demand in the automotive and display market. We saw a drop in demand versus last year. By sub-sub-segment polymers and compounds and advanced solutions reported higher earnings. While films and molding materials reported a decline of JPY 12.5 billion due to the impact of the sales of alumina fiber business, as well as a significant decrease in demand for displays. In optical applications, earnings declined particularly sharply for polyester films and OPL films. On the other hand, engineering plastics, mainly in Europe and United States, performed well. In polymers and compounds, demand was driven by recyclable food packaging and other applications. While in advanced solutions, the semiconductor-related business continued to perform well.
Excluding the impact of sales of alumina fiber business, cumulative core operating income for Performance Products increased 6% compared to the same period last year, even after taking into account the decline in the display market. In Chemicals, the overall decline in earnings was due to a combination of factors that reduced profits across the board in terms of both demand and spreads, with profit down by JPY 64.2 billion year-on-year, JPY 25.9 billion for MMA, JPY 24.2 billion for petrochemicals, and JPY 10.5 billion for carbons. Market conditions for MMA continued to deteriorate, with ICIS Asia prices falling further from $1,600 in September. At the time of the second quarter earnings report, we had expected a gradual recovery after bottoming out in September, but both demand and market conditions remained sluggish throughout the third quarter.
Some customers' demand for clear resin applications for home appliances was less than half of last year's year-to-date demand, and demand for sheets for building materials and displays was about two-thirds of last year's year-to-date demand, indicating a significant cool down of demand. Chemicals were particularly affected by a sharp drop in the market for bisphenol A, which had soared in the first half of the previous fiscal year, and demand was also generally weak. The inventory valuation for petrochemical and carbon was positive in the first half of the year, but turned negative from Q3. Industrial gases grew steadily. At the NSHD's earnings briefing, President Hamada said that the company is focusing on growth, improved productivity, and price management. Indeed, revenue expansion through price management and cost reductions through productivity improvement contributed significantly to the increase in core operating income.
In healthcare, the impact of NHI drug price revisions was offset by volume growth and cost reductions, resulting in an income increase of JPY 13.9 billion. Radicava, the overall formulation in North America, has shown a very strong start. Sales of priority products such as Stelara are growing. Cost reduction measures are steadily implemented, such as streamlining operations and facility consolidations. Due to the ongoing legal dispute over Gilenya, a portion of the royalty income is not recorded in revenue. Special items amounted to the expense of JPY 129.3 billion. In the third quarter, we recorded a loss of JPY 70.7 billion related to the closure of the Cassel plant and a loss of JPY 48 billion related to the wrapping up of Medicago.
These two measures will reduce costs on a scale of JPY 40 billion next fiscal year. In terms of cash flows, operating cash flow was net inflow of JPY 174 billion. Cash flow used for investment amounted JPY 174.4 billion. Free cash flow was an outflow of JPY 400 million. As the cumulative for the first half was an outflow of JPY 24.5 billion, a quarter-on-quarter improvement was achieved, but still a net outflow as of the end of nine months. 90% of the increase in inventories was due to an increase in the unit price of inventories. We have been working to reduce inventories overall and have reduced since the second quarter, but we were unable to achieve a significant reduction due to a greater than expected drop in demand for petrochemicals and display applications.
These businesses are currently adjusting production toward the fiscal year end. Financing cash flow was an income of JPY 8.8 billion due to an increase in interest-bearing debt and dividend payments. The balance of cash and cash equivalents at the end of the term increased by JPY 11.2 billion at JPY 257 billion, partly due to exchange rate differences. Total assets were JPY 5,864.7 billion, an increase of JPY 290.8 billion year-on-year, of which JPY 135 billion was the impact of exchange rates. It decreased by about JPY 140 billion from the end of the second quarter. Total liabilities were JPY 3,964.6 billion, an increase of JPY 235 billion year-on-year.
Equity totaled JPY 1,900.1 billion, reflecting the recording of impairment loss. The net debt-to-equity ratio increased to 1.45. Towards the end of the fiscal year, we will work on improving the free cash flow as a top priority. Through price management, cost reductions, and working capital reductions, we will enhance our financial strength. Revisions to the full year earnings forecast. In the previous earnings briefing, we revised the full year forecast in light of the business environment of the chemical segment and the display-related business, and the issue of the commercial production of the COVID vaccine. Situations in relevant markets worsened since more so than our projection.
In addition, in light of our recent decisions to close Cassel plant, subject to the completion of labor management consultations and to wrap Medicago in the healthcare business, we have revised the full year forecast. Sales revenue is expected to be JPY 4 trillion 514 billion, down JPY 211 billion or 4.5% from the forecast announced on November 8th. Core operating profit is JPY 200 billion, a decrease of JPY 40 billion from the previous forecast. As a result of factoring in a loss of JPY 129 billion from special items, operating income is now projected to be JPY 71 billion, down JPY 171 billion. Profit before tax, JPY 57 billion, down JPY 177 billion.
Profit attributable to owners of the parent will be revised to JPY 28 billion, down JPY 104 billion. This is a breakdown of the full year core operating income forecast of JPY 200 billion, which has been revised downward by JPY 40 billion. Films and molding materials down JPY 11 billion. Chemicals down JPY 31 billion, of which MMA will decrease by JPY 8 billion, and petrochemicals down JPY 19 billion. Healthcare up JPY 1 billion. This is because the recovery of the display applications market cannot be foreseen during this fiscal year, and the market outlook for MMA, petrochemicals, and carbon is worse than the previous forecast. On the other hand, selection and concentration of our portfolio are progressing, and we expect significant cost reduction effect next fiscal year.
The year-end dividend forecast remains unchanged at 15 JPY per share, the same as the interim dividend, for a total amount of 30 JPY for the year. This concludes my explanation. We will move into Q&A session. From Mitsubishi UFJ Morgan Stanley Securities, Mr. Watanabe, please go ahead with your question.
This is Watanabe. Thank you very much. I have 2 questions. First, regarding cost reduction. In the beginning, Mr. Gilson mentioned JPY 100 billion cost reduction, and in a few months, you are able to achieve that. For this year, 90% achieved, maybe annually, JPY 300 oku yen or so. Regarding the 2 business exit and JPY 40 billion it was mentioned, is that included? You are able to achieve this JPY 1,000 oku yen in a few months quite quickly. Regarding next year's cost reduction, there are 2 business base that you will eliminate. I suppose there are some revenues also eliminated from your books. What is the net effect? Can you explain that, please?
Let me answer to the question. In the beginning, Ryosuke mentioned 80% of 1,000 oku yen need to be within next fiscal year. It's not that we will achieve 1,000 oku yen within a few months. That is the clarification. In the next fiscal year, about 800 oku yen, that's our estimate. As was mentioned, we have impairment losses, and that covers about 50% of that number. Other activities include repairs and maintenance and unified purchasing activities. In each region, we have cost reductions altogether will be put into that number. Regarding the net impact, as for Medicago and also MMA Cassel, for this fiscal year, there's no profit coming from those two entities, and the cost reduction can be counted as pure cost reduction in our calculation.
Thank you very much. Second question is regarding MMA. You are top manufacturer, and still you have a deficit. The situation is very challenging. What is your assessment for the market, going forward in six months? UK MMA, for this fiscal year, core operating loss, what's the amount? With that, next year it's going to disappear, so I want to know the improvement of MMA from this year to the next year.
Yes. First, regarding the market condition and our assessment. In the previous earnings report, we thought end of September would hit the bottom, which was not the case. As of now, regarding their price, it is over $1,500. As a market price, is it going to be stronger or not? We don't have good visibility. China and in some Asian countries, demand seems to be picking up. As of now, by this summer, this calendar year, we don't think we can expect a significant recovery. On that basis, we are considering our actions. As for the U.K. core operating income or loss, we do not disclose that information. The impairment loss that we have posted, we would be able to recover, I think, in three to four years.
Thank you very much.
Thank you, Mr. Watanabe. Next, from SMBC Nikko, Mr. Miyamoto, please. Thank you. Miyamoto from SMBC Nikko Securities. I also have 2 questions. First, related to the earlier question, you're going to cease the operations of 2 businesses, JPY 40 billion. Could you elaborate on what consists? For example, MMA, when you closed the Beaumont plant in U.S., I think the several billions of yen were the effect. Could you elaborate on this JPY 40 billion, which sounds to be rather large? As for the Cassel plant. Well, I think you know for the amount at Beaumont. In comparison, in terms of the production capacity and the number of workforce, Cassel plant is larger, so I think you can do the math.
A 130,000 and 200,000 tons are the capacity respectively. 150 versus 400 is the total workforce. I think that should give you an idea of the difference between the two. As for Medicago, the amount is not very small. In the case of Medicago, I think the workforce was about 600, and the labor costs related would disappear. Medicago impairment loss, JPY 48 billion. As for IFRS basis, the goodwill will not be included. I think depreciation is going to be a big factor. Am I correct? JPY 48 billion. The breakdown is as follows. Fixed asset impairment loss is the largest portion, JPY 41.3 billion.
The goodwill portion, several or 6 billion, and the goodwill of MTPC, JPY 8 billion or JPY 800 million. I see. My second question relates to films and molding materials of the performance products, JPY 4.3 billion decline quarter-on-quarter, and core operating income is expected to go down by JPY 1.1 billion further. I understand that display applications is suffering engineering plastics and others. Could you talk about those businesses as well from Q2 to Q3, as well as projections for Q4? From Q2 to Q3, polymers and compounds had the impact of the concentrated maintenance turnaround in the third quarter that had an impact for films and molding.
It was the most affected, especially for display applications, as I stated during my presentation. From Q3 to Q4, polymers and compounds maintenance turnaround impact would be alleviated somewhat. That will be a positive for films and moldings. The display applications have yet to recover and also some impact of semiconductors as well. For carbon fiber and engineering plastics, how about those? If possible, can you also talk about the OPL film, which you said that the volume reduction impact was rather large. For carbon fibers in Q3, demand remained strong year-on-year, around 10% increase in sales. For Q4, because sports leisure applications, which had been strong, are showing some signs of softening. Overall, we don't expect a big drop.
The polyester film for optical applications in Q3, like in Q2, year-over-year, around 30% reduction in volume. In Q4, we expect some recovery over Q3, but on a full year basis, -25%. Down 25% is our current projection. There are ups and downs, but the greatest impact was display applications, especially polyester films for optical applications. I see. Thank you. Thank you very much. Next question from Mizuho Securities, Mr. Yamada, please.
This is Yamada from Mizuho Securities. I have two questions. In Forging the Future, sales of 130 billion in four fields and medical vaccine will be gone and JPY 130 billion, that would be, could be revised lower. What's the risk there? MT-7117, to be planned and launched next year, but now you are in phase 3. Preparation for submission is ongoing according to the plan. Is it okay that we expect? Regarding MT-1186, I'm not much worried, but regarding MT-7117, can you give some update, please? This is a question related to pharma.
As you mentioned, in Forging the Future, we have four compounds and that should amount to JPY 130 billion. Considering the current situation now, in February 2024 we have an IR day. At that occasion we will give you more details, and vaccine would be gone from our plan. Other than that, Radicava is more than our plan, and the start has been very good. That is quite encouraging. MT-7117, we are in global phase III. That is in ongoing activities. By FY 2023 we plan to launch this NeuroDerm. Also launch in global 2024 is our plan. Regarding the other three products, it is in line or better than our plan. Including that-
We will incorporate into our midterm plan, and we will show you specific plans. ND0612 qualitative disclosure was reported. MT-7117, I don't really see news. I think it's ongoing okay. 26-week post study to be completed and within next fiscal year, you are confident that you can launch this product onto the market. Regarding that, Kobayashi will answer. From Kobayashi, thank you very much for your question. 7117, let me explain that. As of now, things are moving in line with our plan. There are no changes to the plan. We can give you more detailed information when the timing is right. The 26 follow-up period, right? That's right. Considering that, you can make it in time for submission. You're confident. Right. Preparation for submission is ongoing.
Of course, we need to negotiate with FDA. That is also an ongoing activity. Thank you. Second question. The performance product segment, fourth quarter forecast is my question. Can you give more details? In the third quarter to the fourth quarter, shift from 3, Q3 and Q4 film and compound. Outside that, you expect an increase in revenue and profit. You expect, I suppose, the material cost and fuel costs are coming down compared to the previous quarter. You think the market price can be maintained, or you think improve, or you can expand sales? Overall, automotive sector recovery is delayed. Regarding home appliances, according to other companies, qualitative compound, since the market is still challenging, what's the reason why you think there would be improvement? It can be qualitative comment, please. Thank you for your question.
First of all, in the fourth quarter, our forecast, as we planned our forecast, rather than strong recovery in quantity, we do not expect that in terms of the market environment. It's not yet strong. Therefore, regarding sales volume forecast, we are reflecting the short-term results so far. In the third quarter, this was true. Price management is the key. This is not related or linked to formula. naphtha or energy prices go down and the price go down accordingly right away. That's not the case. As I talk with business leaders, it is going up and the price went up and some customer want the price to be lower. Basically, our value should be accepted. For pricing activities, we continue to do our best for performance, product pricing and cost reduction and management. That is important for margin.
That's the focus of fourth quarter. That's not changed from the third quarter. Three segments, all of them, Q three versus Q four, you expect revenue increase. Volume is not increasing. If that's the case, the material cost and fuel cost overall is coming down. There are some areas where you can increase prices furthermore. Right. Price and the mix, that's the basis for this forecast. You think price and mix will improve? That's right. Thank you very much. Thank you very much, Mr. Yamada. We'll move to the next person. Okazaki-san. Ms. Okazaki from Nomura Securities.
Thank you. Okazaki from Nomura. I have 2 questions. First, MMA third quarter markets price and projection for fourth quarter, as well as rate of operation. You briefly mentioned signs of recovery in China and some parts of Asia. Can you elaborate on that? Okay. Q3 results on ICIS 1,573, ICIS price. Q4 projection, slightly lower than $1,600. The current level is between $1,500 and $1,600. The rate of operation, it depends from plant to plant, but overall approximately 50%. Earlier, I mentioned some signs of pickup in Asia, but it's not a strong recovery. Still, in some countries, some markets in Asia and China, for example, in India, we see some growth in demand, or at least that is what we are told.
Our current projection does not expect major improvement during the fourth quarter. Rather, maybe in the middle of the second quarter of next fiscal year, we may be able to expect some recovery. That is our current assumption. I see. In Q2, I think the rate of operation was about 70%. Now, is it 50% both for Q3 and Q4? In Q3, around 50%. For Q4, even with a slight increase, maybe 60% at best. I see. Thank you. My second question. I'm also looking at the JPY 40 billion cost improvement expected for next fiscal year as a result of two operations being ceased. Do I understand correctly that the majority comes from Medicago? Also, what will be the cost constraint?
What are the factors, elements in Cassel Site and Medicago? What will be the major items? Earlier, of course, earlier, I mentioned that I can't give you the detailed amount, but it's larger for Medicago than MMA Cassel. Cassel Site, it will be larger than Beaumont, given a larger size, and so the cost reduction effect will be larger. Medicago will have a major larger impact related to labor cost and also in relation to R&D expenses as well, which had been large. We have been spending a lot on R&D, and therefore that will be the biggest reduction item. R&D expenses will go down, labor cost, and the fixed cost will go down as well. Am I correct? Yes, that is correct. I see. Thank you. Thank you very much.
Next question. Mitsubishi UFJ Morgan Stanley Securities, go ahead.
Watanabe from Mitsubishi UFJ. Continuation from the previous question regarding impairment effect in the third quarter, you posted impairment, so you would have the result of that in the fourth quarter. Maybe it's difficult for you to mention next fiscal year, but I want to know the effects from that for this fiscal year. Regarding R&D cost in pharma business, probably the number is increased than the expectation in general. Can you explain that in relation to the impairment losses?
Yes. MMA and the plant closure that reduces fixed costs in the fourth quarter, JPY billions cost reduction can be reflected in our numbers right away.
As for Medicago, what about Medicago impact?
Well, we haven't finalized yet. We are calculating. Within this quarter, how much effect it can be, we are still calculating that. Some operations are still ongoing, and in the fourth quarter, how much we can calculate. Well, as of now, yes, we can include as a factor, but the full impact will be in the next fiscal year. As for R&D expenses going up, well, we think that is an issue. We had been spending much effort and time, but the yen depreciated very much, so FX impact is rather significant. That is a big factor for this fiscal year. That is another factor.
Thank you. Thank you very much.
Thank you, Mr. Watanabe, for your questions. Next, from Daiwa Securities, Mr. Umebayashi, please. Thank you. Umebayashi from Daiwa Securities. I have two questions. First, MMA project in the U.S. The final decision has been postponed, or that is what you mentioned about three months ago. With MMA plant closure in Europe. Any changes to the project, expected project in the US? The investment in the U.S., For MMA. To continue to be a winner, we regard this investment to be a must. This decision to close the Cassel plant. This closure is not to going to have a direct impact on revisiting the North American project. Rather, we want to increase the production volume of, from the locations where we have the cost competitiveness. So as to enhance our overall cost competitiveness. It's part of that strategy. I see. Thank you. My second question.
As of January 20th, you announced a new leadership, and some of the executive officers have are going to be replaced. Petrochemical, carbon, pharma. Current advanced solutions and supply chain, supply chain and HR. All these leadership is going to change. Especially the changes in the three business areas, what is the purpose? What is the expected effect of this change? Especially regarding pharma. From SanBio, you are re-inviting a new leader. Your strategy on Muse, maybe that's one expectation that you have. Can you elaborate on that?
I will take the question. Thank you for the question. We for sure there has been a lot of of question about this one. We generally do not comment on management changes. I think we really wanna thank all the departing leaders and the business leaders who who will take other jobs or will leave the company. We are welcoming the new leaders coming in. I think we have a really strong team now to further accelerate our strategy Forging the future.
I see. Thank you.
Thank you very much. From Mizuho Securities, Mr. Yamada. This is my second round. Yamada from Mizuho Securities. Financial position improvement is my question. What's the timeline for that? Net debt equity 1.45 times is rather high. Net debt EBITDA is about 4 times more. 4 times. I think you need improvement short term. That's my personal opinion. Is my understanding right? What would be the timeline? Normally, specialty chemicals would have 2.5 times. What is your goal for the ratio?
Thank you very much for your question. At the end of Q2, net DE ratio was 1.434. Then it went down from 1.4 in the beginning of the year. We made an improvement. It was very good direction. This time it is 1.45 times, and there are two major reasons. One is FX impact that worked negatively. Special items, equity areas, it got smaller. 1.45 times was the result. In Forging the future, we mentioned it should be below one time. In the midterm plan, that idea does not change. Free cash flow should improve, and that is our focus. Inventory, AR, AP, and asset sales, including all that, we are working on that.
In Q4, by the end of Q4, how much improvement we can achieve, that is, of course, important. Every year, we need to improve. That direction does not change.
In the Forging the future, you mentioned your commitment was below 1. As long that is still okay, then okay. For details, I'll ask IR members. Thank you very much. Thank you, Mr. Yamada, for your questions. Next, from Morgan Stanley, MEFT, Mr. Watanabe, please.
Thank you. Thank you for the second round. Just one question. You are keeping the dividend forecast. Great news. Towards the end of the year, Is there a possibility of decline in dividends? In the next fiscal year, do I understand correctly that that risk does not exist?
Yes.
You did make a commitment right now, am I correct? Jean-Marc, you are nodding, so you are committing to that as well, correct?
As long as the economy doesn't go into a complete crash, I think that we have all the necessary action from cost savings to improvement in performance that we are committed to keeping our dividend intact. We will talk more about it on February 24th.
Thank you.
Thank you very much for your questions. With this, we would like to close Q&A. Ms. Nakahira, you want to provide closing remarks?
Thank you very much for your participation. As Jean-Marc Gilson said in the beginning, visibility of the market is lacking. We can't be optimistic. With all of our effort, we'll focus on cost reduction, strengthening our financial state. After the economy turns around, then we are ready to pursue further growth. We will be preparing ourselves, and thank you very much for your support.
Thank you very much. With this, we close, but this conference will be archived on our website. Thank you very much. This is the end of the meeting. Thank you for your participation.