The ENEOS Group will face the big challenge of energy transition. However, looking back on our history, we have created and supported the norms of the times, while also tackling new social issues and creating the new norms. That DNA is firmly engraved in us. I would like to face the future firmly, work hard, and take on the challenge of realizing tomorrow's normal. This slide was created to show our determination to all of our stakeholders. Please turn to page four.
This third midterm plan covers the three years period from 2023- 2025. First, we look ahead to society in 2040. On top of that, this part summarizes what the ENEOS Group will do towards 2040, and how it will proceed in fiscal 23 through 25. Please see page five. This is a social scenario based on macro trends.
This is an update of the long-term vision social scenario announced in 2019 based on the most recent environment. Various changes have occurred since the last announcement, but I don't think the direction of the social scenario itself has changed significantly.
On the other hand, the speed of change is undoubtedly accelerating. The bottom half of the slide shows what a decarbonized recycling-based society will look like in 2040. Especially for us, whose business is energy and materials, we believe that challenging energy transition is essential. Please see page six. Based on the social scenario explained earlier, the ENEOS Group has set up a new long-term vision to take on the challenge of achieving both the stable supply of energy and materials, and the realization of a carbon neutral society.
While firmly fulfilling our current responsibility to provide society with energy and materials in a safe, stable, and efficient manner, we'll continue to fulfill our responsibility in the future through transition, thereby realizing a carbon neutral society.
This challenge will never be easy. However, just as our predecessors bravely took on the challenge, and as a result of the today's normal being born and becoming our value, we believe that taking on the challenge of this social issue will lead to new corporate value for the ENEOS Group. Please see page seven. This is the role of the ENEOS Group in Japan's energy transition. It is certain that society as a whole will move towards carbon neutrality.
There's no doubt that the proportion of electricity will increase at the consumption stage, but Japan has limited renewable energy resources due to national land restrictions, and there are limits to adjusting supply and demand. Other decarbonized energies also face various challenges, including economic feasibility. In other words, at this stage, it is still unclear what the future primary energy will be, and when the technological breakthrough will arrive.
We believe that the divergence will become visible around 2030. On the other hand, energy is an important issue that is directly linked to the economy and the life of the nation as a whole. Rather than specializing only in the environment, it is necessary to satisfy safety, energy security, and economic efficiency, and achieve a smooth transition. The ENEOS Group currently supplies approximately 15% of Japan's primary energy.
While continuing to fulfill that responsibility, we'll lead the energy transition as the first mover. Even in a carbon neutral society, we aim to continue to be a main player responsible for about 20% of domestic primary energy as a top supplier of hydrogen and synthetic fuels. Please see page eight. These are our strengths in assuming our future roles. As I mentioned earlier, at this stage, there's no definite answer as to what energy will play a leading role in a carbon neutral society. Several scenarios are envisioned. I hope you read the details, the strengths of the ENEOS Group is that it has powerful cars in each of these areas, and is advancing investment, research and development, and demonstration.
Support systems for Japan's 2050 carbon neutral goal, such as the GI Foundation , have been established and are expected to be expanded in the future. We are steadily laying the necessary groundwork, such as utilizing such government support and forming partnerships with leading domestic and foreign companies. We also have the technology and market share of vast materials and functional materials that support the digital society and points of contact with customers who deliver various products and services. We have a high degree of resilience to deal with future uncertainties. We are proud that this is our future earnings potential. Please see page nine. It explains the positioning of the long-term vision and midterm plan.
The key to a successful transition is how theory preparations are to be made in a period until the full-scale diversions arriving around 2030, the period between the third and the following fourth midterm plans, and strategic development based on them. It's up to whether we succeed in the execution to secure a sufficient advantage. In that sense, the third midterm plan will be a very important period. We have set up the three pillars as our policy. First and foremost is establishment of a foundation for solid earnings, which is the starting point for everything. An acceleration of initiatives for transition using these resources and strengthening the management base, which includes the preparations for listing JX Nippon Mining & Metals announced today. We believe that steadily implementing these measures will lead to the probability of continuing to generate earnings from now on into the future.
I'm convinced that ensuring this probability will lead to the evaluation of us by all of our stakeholders, which in turn will lead to an improvement in PBR. Page 10 shows changes in the business portfolio of invested capital in chronological order. Full-scale expansion of investment in decarbonization will occur after 2030 when the divergence arrives. Until then, we'll of course make necessary investments, but we will not unnecessarily expand our balance sheet. We will streamline our existing fossil-derived energy business, partly because of declining demand, and pursue more efficient operations. In addition, we'll work to create an enhanced value that doesn't appear on the balance sheet, specifically human resources, technology, partners, and support systems, et cetera. I believe that this kind of portfolio conversion and value increase on both the on-balance and off-balance side will be the source of great corporate value in the flowering phase.
JX Nippon Mining & Metals will start preparations for listing, the timing and the scale of the listing are yet to be decided, the image is based on 100%. Page 11 shows changes in our business portfolio in terms of earning scale. The ENEOS Group manages business based on return on invested capital, or ROIC. The fossil-based energy business now accounts for the majority of revenues. In fiscal 2022, we were unable to achieve a sufficient ROIC to exceed our cost of capital. In the third midterm plan, we'll focus on the three pillars that I mentioned earlier and generally aim to maximize earnings while maintaining the current business portfolio. After that, we'll establish a strategic advantage, by 2030, we will generate visible profits through decarbonization and lifestyle platform. By 2040, we'll achieve well-balanced earnings portfolio by blooming each of them.
As shown in the center of the pie chart, at any point in time, we'll deliver ROIC that exceed the cost of capital. We also expect to increase ROIC to 7% by fiscal 2040. Regarding the electric power business, since it spans both fossil-derived and decarbonized derived, the scale is shown outside the pie chart. The ratio of overseas business is also indicated. We also want to capture the needs of overseas energy transitions and increase the ratio of our overseas business. As with the previous slide, the JX Metals is listed on a 100% basis in this image. If metals are listed on the sub-exchange, our portfolio will naturally change, but we'll continue to generate profits that exceed our cost of capital. This concludes our explanation of our new long-term vision for 2040 and how to climb mountains to achieve it.
I have touched on some details, but from now on, I'll go into details about the third midterm plan. Please see page 12. This is the main part of the third midterm plan. So far, I've talked by backcasting from the long-term vision, but now I'll take a forecasting perspective to look back on the second midterm plan and then explain the basic policies of the third midterm plan. Please see page 13. The financial target of the second midterm plan was limited to achieving only the net debt to equity ratio due to the impact of sales declines and refinery troubles, mainly due to the impact of COVID-19. On shareholder returns, we accomplished more than 50% of net income over the three-year cumulative period, excluding the inventory valuation through dividends and share buybacks.
Looking back on the business side, although we achieved some success in replacing our business portfolio and strengthening our management base, we still have issues with the earnings power of our core businesses. Please read the details on page 14, which summarize the achievements and challenges of business and management foundation in the second midterm plan. We've made large-scale acquisitions and reshuffled the business portfolio. In the third midterm plan, we'll shift to a group management system that aims for autonomous management according to the characteristics of each business. Let me explain the details. Please see page 15. Here are the specifics of the third midterm management plan. First of all, I'd like to explain the changes in the group management structure.
In order to strengthen the competitiveness of each business and realize autonomous management according to their characteristics, we'll implement two major measures regarding the organization and structure of the group. The first is a spin-off and restructuring of the high-performance materials, electricity, and renewable energy business. The high-performance materials and the renewable energy businesses will integrate their related businesses from ENEOS, centering on ENEOS Materials and Japan Renewable Energy respectively, which were acquired during the second midterm. The electricity business will be separated from ENEOS, and a new company will be established. Through this, we'll visualize the results of each business and shift to autonomous management that pursues growth strategies and capital efficiency.
The second point is preparations for listing JX Nippon Mining & Metals. In order to further improve the corporate value of ENEOS Holdings and JX Metals, we'll start preparations for the listing of JX Metals. Through this measure, ENEOS Holdings will be able to appropriately appeal JX Nippon Mining & Metals high growth to stock market and execute investments for portfolio conversion and prompt and reliable returns to shareholders. JX Nippon Mining & Metals realizes quick decision-making according to business characteristics and implementation of various strategies in growth fields. In the future, we aim to transition to an equity method affiliate. Please see page 16. This shows the basic policies of the third midterm plan and their positioning. As I mentioned earlier, it consists of three pillars. First, in the blue box, we'll build the foundations for solid earnings, a starting point for everything.
We'll redistribute the cash gain there to accelerate the efforts to realize the energy transition in the green box. The key point is strengthening the management foundation in the red box. It underpins everything. In this box, portfolio management with ROIC as an index and changing the group management structure are inseparably important measures. After changing the group management structure, each company will be required to operate autonomously. By conducting portfolio management using ROIC as an indicator, low efficiency businesses will undergo drastic business improvements. While encouraging autonomy, we will realize such business management by maintaining appropriate grips.
Page 17 is financial and non-financial targets of the third midterm plan. As mentioned several times already, we have added an R-O-I-C, ROIC, target starting with the third midterm plan.
The ROIC target is allocated to each business segment by setting the cost of equity by reference to those of benchmark companies and in consideration of business risks and added values of our company. The overall target is 7% or higher by FY 2025, the final year of midterm plan, excluding incubation. For non-financial targets, we have adopted CI or Carbon Intensity, an indicator widely accepted internationally for our greenhouse gas emissions target. Page 18 shows our three-year capital investments and loans plan. As explained in the long-term vision part, the third midterm plan period is positioned as a period to establish strategic advantages while supporting today's normal. Based on this approach, the midterm plan focuses on growth strategy and cash flow. The plan also considers the balance between short-term investment and the midterm and the long-term investment. Page 19 is shareholder return.
Our profit distribution to shareholders will reflect mid to long-term business performance as well as outlook. The return policy basically remains unchanged from the second midterm, except for the calculation basis changed from three-year cumulative to three-year average net profit in response to voices from investors saying it's hard to estimate shareholder return until the final year profit is determined. We will continue to respond to shareholder expectations while enhancing our corporate value over the mid to long term. Information on page 20 onwards are priority measures derived from the basic policy of the Third Midterm Plan explained so far. In the interest of time, let me give you just the main points of each initiative. Page 21 shows the first of the three pillars of the Third Midterm Plan, establishment of a solid earning space.
This slide touches upon the energy business, which had remaining issues during the second midterm plan. There are two focus areas, prevention of refinery troubles and the business process re-engineering. Especially for prevention of refinery troubles, based on the lessons learned during the second midterm plan, we will try to accelerate the timing of inspections, improve the accuracy of maintenance planning, and allocate necessary resources such as repair costs and operators. In the third midterm plan, we will monitor unscheduled trouble-related drop in utilization as UCL. Through these initiatives, we will reduce refinery trouble-related drop to 3% by FY 25, which is the level before the problem became apparent. Having seen a positive impact from both initiatives put in place during the second midterm plan, we are determined to complete the transformation during the third midterm plan to establish a solid earning space in this business.
Page 22 shows the two-pronged approach of the oil and natural gas E&P business, namely conventional business and environment responsive business. Some examples of the conventional businesses are shown here. This business is positioned as the base business to secure and generate more resources, we will continue to promote safe, stable, and efficient operations of each project. Page 23 shows focus businesses for the metals business. Demand for semiconductor and ICT materials is destined to increase amid ongoing digitalization trend. We will steadily capture market growth by making strategic investments for capacity expansion and a new plant construction. Please turn to page 24. The second pillar of the third midterm plan is acceleration of energy transformation-related initiatives. The following pages explain each of these initiatives. Page 25 shows initiatives for energy transition. Among them, low-carbon high-octane gasoline is announced for the first time today.
The ENEOS Group has been conducting R&D of automotive synthetic fuel already for some time, but commercialization will likely take more time. On the other hand, Japan has announced a policy to electrify 100% of new cars sold by 2035. Unless we succeed in commercializing greener fuel by then, ICE vehicles will be totally banned and consumers will be deprived of such choice. In light of this background on both demand and supply sides, we have decided to introduce overseas synthetic fuel to be commercialized soon, as well as bioethanol with attractive volume potential. We plan to start test sales of low-carbon high-octane gasoline blended with these fuels in some regions from around 2027. This should help lower our non-financial target, CI, mentioned earlier. Please refer to information on renewable energy and VPP, hydrogen and SAF at your leisure.
Page 26 shows the other pillar of the oil and natural gas E&P business, environmentally responsive business. In addition to the CCS plant already in operation in United States, we will promote further installation both inside and outside of Japan, as well as starting new environmental businesses. Page 27 and 28 discuss our platform business. As energy transition continue to progress, we are transforming our B2C and B2B2C businesses, including next-gen energy, mobility, and various life support services, including EV-related services and household and community energy supply. Not only will the form of value we provide to our customers change, but also we need to make sure that customers will use the services they need without any stress. In particular, our service stations represent a great deal of useful data, including that which is not currently available today.
ENEOS has a strong network of customer contact points such as service stations, local dealers, and distributors. A mechanism to maximize the use of this data will be the core part of the ENEOS platform. A similar concept was envisioned in the second midterm plan, the third midterm plan feature concrete steps to develop a marketing system with next-gen outlets and strengthen connection with households and communities. Developing new generation energy offerings, we will build a mechanism that allows customers to use them conveniently, thereby making energy transition more realistic. Turning to page 29 on sustainable copper vision as ESG activities of the metals business. We will build a highly recyclable, energy efficient, and low-carbon copper resource cycle through four initiatives, including carbon footprint reduction and higher recycling ratio.
Page 30 shows the third pillar of the midterm plan, enhancement of the management base and its initiatives. First is the change of group management structure, which I explained earlier. Please refer to this section later. It describes the overall structure as of April 24th, as well as each business area and mission. Page 31st is group HR strategy. In order to enhance the management base, developing those talent who can execute business portfolio transformation and build a solid earning space is critical rather than just building a framework and systems. To support these initiatives, we will enhance our HR system as well as employee engagement. Page 32 describes the digital strategy. Since the second midterm plan, we have been promoting DX in our base as well as growth businesses under the banners of DX Core and DX Next.
There are many projects that have already been implemented and are contributing to enhanced management base, such as the enhancement of competitiveness in the crude oil refining and sales business using big data and AI technology and Materials Informatics. The third midterm plan will further accelerate DX to solve issues and promote initiatives of each business domain. Here, talent is the key, as well as data utilization, robust governance, and co-creation with others. That was my brief explanation of the ENEOS Group's long-term vision and the third midterm plan. For the ENEOS Group, which has been dealing with fossil fuel since its inception, making a significant shift towards carbon neutral energy transition can be considered a second founding. It is extremely challenging, but will in turn create a lot of business opportunities. The ENEOS Group is committed to being a first mover in promoting energy transition while supporting today's society.
We are supporting today's normal while taking lead in tomorrow's normal. Our vision is to play an important role in achieving carbon neutrality in our country, leading the rest of the world towards a sustainable future. We aim to realize this vision through our long-term vision and the third midterm management plan. The ENEOS Group will contribute to the development of society and the creation of a vibrant future through creativity and innovation in energy, resources, and materials. The information on page 33 onwards is provided just for reference. There's a breakdown and a detailed explanation of what I have just talked about. We hope you can refer to it at your leisure. From page 36 onward, you will find excerpts from the ENEOS Group's carbon neutrality plan, which has just been announced today.
I won't go into details, but the plan is more ambitious now with two pillars of Scope 1 and 2, reduction of our own emissions to prepare for future carbon price increases, and Scope 3, carbon neutrality as a way to create business opportunities. Scope 3 includes hydrogen, SAF, and synthetic fuels as initiatives of the third midterm business plan and a long-term vision, as shown in the first part of the document. Scope 1 and 2 may incur execution costs, but we'll achieve the guidance using forest absorption and CCS, in addition to energy conservation and other emission control measures. Please refer to today's press release later on our investment in a U.S. fund related to forest absorption. That's my overview of the third midterm plan. Mr. Tanaka will take you through the FY 2022 financial results and the FY 2023 forecast.
Hi, I am Tanaka. Let me explain the FY 2022 financial results and FY 2023 forecasts. Please see page four. Here are the highlights of the FY 2022 full year results. The orange bar in the middle of the left shows the operating income excluding inventory valuation. It was JPY 246.5 billion, down JPY 169.1 billion year-on-year. In the energy business, profit decreased by JPY 91 billion year-on-year due to the reversal of the significant positive time lag in FY 2021, deterioration in the petrochemical market, and impairment loss in the electric power business. In the metals business, profit decreased by JPY 89.5 billion because of evaluation loss by the decision to sell Caserones and the copper price drops and other factors.
The profit of Energy was JPY 16.2 billion, which was very unsatisfactory, hugely affected by the negative time lag in the second and Q3s. As you can see in the graph on the bottom right, operating income excluding the time lag has improved since Q3. Please see page five. This is the FY 2023 forecast, the first year of the third midterm plan. Operating income excluding inventory valuation is expected to increase by JPY 93.5 billion to JPY 340 billion for the group due to a significant increase in profits in Energy, mainly due to a decrease in troubles at refineries and elimination of the negative lag in FY 2022. More details to come later. The CDU utilization rate trend is shown on the bottom right, and improvement trend is continuing.
By firmly implementing the measures to reduce refinery troubles, a major action in the third midterm plan will further recover in FY23 over 22. Let me skip the major specifications, but instead, let me go over profit changes by segment. Please see page 12. The energy business profit, excluding inventory valuation, decreased by JPY 91 billion year-on-year to JPY 16.2 billion. By sub-segment, petroleum products and others recorded a decrease of JPY 56.7 billion, mainly due to the reversal of the positive time lag that occurred in the previous fiscal year, despite increased sales of clean oil. Petrochemicals reported a decline of JPY 29.9 billion due to the significant deterioration in petrochemical market conditions and the volume impact.
In electric power, profit decreased by JPY 25.5 billion, mainly due to the recording of impairment loss in the offshore wind power business in Taiwan, in which we participated in April 2019. As a result of working on measures to improve profitability, the electric power segment was profitable in the H2, excluding the impairment loss for renewable energy.
The materials on the far right increased by JPY 21.1 billion compared to the previous year due to the profit contribution of the elastomer business, which started operating as ENEOS Materials in FY 2022. Please see page 13. Operating income in the oil and natural gas E&P business increased by JPY 17 billion year-on-year to JPY 114 billion. This is due to the fact that improvement due to the rise in the resource prices and the yen depreciation outweighed the negative impact of the reversal of gains related to the sale of the U.K. business that occurred in the previous fiscal year. Please see page 14. Operating income in the metals business decreased by JPY 89.5 billion year-on-year to JPY 68.7 billion. On the far left, functional materials, thin-film materials remained almost unchanged from the previous year.
Mineral resources posted a significant decrease of JPY 94.1 billion year-on-year due to a decline in copper prices and a recording of a valuation loss following the decision to sell a portion of our interest in Caserones copper mine. In smelting and recycling, the decline in profits from the sale of shares in LS-Nikko Copper, a South Korean refining company, was offset by an improvement due to the depreciation of the yen.
On page 15, please refer to cash flow on the right-hand side, excluding the impact of lease accounting. Operating cash flow was negative JPY 190.7 billion due to a JPY 706.9 billion cash outflow from working capital and a tax payment incurred due to the timing of corporate and consumption tax payment falling within FY 2022 instead of FY 2023.
As noted at the bottom right, excluding this factor, we had a cash inflow of JPY 9.3 billion. From investing activities, we had a cash outflow of JPY 115.9 billion, mainly due to elastomer business acquisition and other strategic investments. Free cash flow was JPY 306.6 billion. Cash outflow of JPY 106.6 billion, excluding one-time factors, or net cash outflow of JPY 529.1 billion, including dividend payments and share buybacks. Moving on to the balance sheet on the left-hand side.
Net interest in bearing debt as of March end, shown in the bubble, increased by JPY 575.1 billion to JPY 2,760.1 billion, mainly due to the net cash flow mentioned earlier. A net D/E ratio after adjustment for hybrid bonds is 0.76. Let me explain the reclassification of sub-segments starting from FY 2023. Page 18. Page 18 shows the energy business new segmentation from FY 2023 when a new midterm starts in anticipation of the spin-off of three businesses in FY 2024. Page 19 shows metals business splitting its focus businesses into smaller segments to better address the longer-term vision while consolidating mineral resources and smelting and recycling in light of the decision to sell part of Caserones. Details are available later in the presentation.
I would like now to explain our forecast for FY 2023. Please turn to page 21. In energy, operating income, excluding inventory valuation, is projected at JPY 160 billion, at JPY 143.8 billion year-on-year. The increase is mainly attributable to petroleum products, where we expect a weaker export market after the sharp rise in FY 2022 to be more than offset by a higher export volume due to improving refinery operations, an elimination of negative time lag in clean oil and export margins, and a recovery in the petrochemical market. Renewable energy is expected to improve by JPY 34.4 billion, mainly due to the reversal of impairment losses recorded last year, mainly for offshore wind power generation in Taiwan.
Page 22 shows operating income in the oil and natural gas E&P business projected at JPY 50 billion, a JPY 64 billion decrease year-on-year, reflecting a negative impact from lower resource prices, increased expenses related to CCS and other environmental businesses, operating expenses for new gas fields, and the yen's appreciation. Page 23 shows operating income in the metals business projected at JPY 90 billion, up JPY 21.3 billion year-on-year. Semiconductor materials and ICT materials expect operating income to fall year-on-year due to capacity expansion related expenses exceeding the contribution of sales expansion. Metals and recycling expect a JPY 41.3 billion improvement year-on-year, thanks to the reversal of valuation losses associated with the partial sale of Caserones copper mine, which more than offset the decline in metals prices. Page 24 shows the forecast for FY 2023 cash flow.
The dotted line shows the figures excluding the impact of lease accounting. Operating cash flow is expected to be positive, JPY 798 billion. Excluding the temporary factor related to payment timing of taxes that I explained for FY 2022 results, the real cash flow is JPY 558 billion. After the investment cash flow of JPY 540 billion, free cash flow is expected at JPY 258 billion or JPY 18 billion excluding one-time factors. That was my explanation on the FY 2023 forecast. Please also refer to assumptions, sensitivities, and other information on page 26 onwards. That's all from myself. Thank you very much for your kind attention.