Message from the President

Looking back at fiscal 2012, the fiscal year ended March 31, 2012, the first half of the year was marked by the influence of the Great East Japan Earthquake and, due to the problems in Europe, by a sense of uncertainty regarding the global economy. In the second half of the fiscal year, commodity prices declined, and ITOCHU recorded a loss on reversal of deferred tax assets due to a change in the corporate tax rate. Overall, the management environment was challenging. Nonetheless, we drew on our strengths and generated strong earnings, especially in non-resource sector, centered on the consumer-related sector, where we have built a leading position. In the consumer-related sector, record-high profits were recorded by the Textile Company, the Food Company, and the Forest Products & General Merchandise Division. Moreover, all of our business segments recorded year-on-year gains in profits. We have established a well-balanced earnings structure. In fiscal 2012, net income attributable to ITOCHU was ¥300.5 billion, a substantial increase over our initial plan of ¥240.0 billion and a new record high for ITOCHU. We also set a new record in non-consolidated net income, which reached ¥131.0 billion.

Fiscal 2012 was the first year of the current medium-term management plan, “Brand-new Deal 2012”. Throughout the year, we worked to implement the plan’s basic policies: “strengthen our front-line capabilities,” “proactively seek new opportunities,” and “expand our operations.” On that basis, all directors and employees worked together to “Earn, Cut, Prevent.” The fact that we were able to achieve record-high income despite the uncertain environment demonstrates the steady progress that we have made in strengthening and increasing the earning power of ITOCHU in accordance with the “Earn” principle. The fact that we were able to overcome challenging conditions is the result of management structure with a low center of gravity in line with the “Cut” principle, the avoidance of losses in line with the “Prevent” principle, and a proactive approach to dealing with change. I believe that our steady implementation of the three indispensable principles in expanding profits—Earn, Cut, Prevent—enabled us to record significant growth in a challenging operating environment.

Under “Brand-new Deal 2012”, we will follow a policy of expanding earnings and assets. Accordingly, we originally planned total new investments over the two-year plan of ¥800.0 billion on a gross basis, substantially exceeding the ¥560.0 billion that was invested under the previous plan—Frontier^e 2010. In fiscal 2012, the first year of the current plan, we invested about ¥620.0 billion on a gross basis. Moreover, in consideration of the solid progress that we have made, we have decided to increase our two-year investment amount to ¥1 trillion. In fiscal 2012, we scrutinized potential investment projects from a variety of perspectives, including their degree of risk reduction, profitability, and potential for immediate earnings. We selected a number of superior projects. By sector, we invested about ¥380.0 billion in the natural resource / energy-related sector. For example, we invested in Colombia mining operations and related infrastructure owned by Drummond Company, Inc. We invested about ¥131.1 billion in this project, which will provide a new source of supply for thermal coal. This is the largest investment in newly acquired coal projects among Japanese companies. Also, in shale gas and shale oil, which are unconventional resources, we invested in Samson Investment Company, one of the largest private oil and gas exploration and production companies in the U.S. In the consumer-related sector, we acquired all of the shares of the Kwik-Fit Group, which operates an independent tyre retail business in Europe, centered on the U.K. By integrating the distribution and retail functions of Stapleton’s and Kwik-Fit, we substantially strengthened our European tyre business. In China, we concluded a capital tie-up with Shandong Ruyi Science & Technology Group, one of China’s leading corporate groups in the area of textiles. In the machinery-related sector, we took steps to reinforce our long-term stable earnings platform, including the decision to participate in a new coal-fired IPP project in Indonesia that will be the largest in Asia.

In April 2011, we implemented the first revision to the Division Company organization in 11 years, and in April 2012 we implemented further revisions. The previous five Division Companies have been reorganized into six Division Companies. Specifically, the ICT & Machinery Company; Energy, Metals & Minerals Company; and Chemicals, Forest Products & General Merchandise Company becoming the Machinery Company, Metals & Minerals Company, Energy & Chemicals Company, and ICT, General Products & Realty Company. This series of revisions was undertaken with the objective of facilitating greater accuracy in management by evening out the scale of earnings and the size of organizations. In implementing this reorganization, we focused on the generation of synergies and considered our relationships with customers in each industry. In addition, there is also another aspect to this reorganization. By reallocating personnel to workplaces where there are opportunities to “Earn,” we will strive to invigorate ITOCHU Corporation as a whole and to further improve our results. This process required two years, under management strategy, but we were able to establish the optimal organizational system that had been our objective from the beginning.

In the fiscal year ended March 2012, we reached a major benchmark of ¥300.0 billion in profits, and ITOCHU moved on to a new growth stage. Moving forward, we will work to sustain and increase the current level of earnings. Fiscal 2013, the final year of “Brand-new Deal 2012”, will be a year that tests our true strength. The uncertainty in the management environment is expected to continue, and our plans call for net income attributable to ITOCHU of ¥280.0 billion, a year-on-year decline. Market conditions are sluggish in the natural resource / energy-related sector, which is not expected to drive high growth in earnings. However, ITOCHU has strengths in non-resource sector, and we will steadily implement our plan.

For dividends attributable to ITOCHU during the period of “Brand-new Deal 2012”, we have established a clear policy that links the amount of dividends to net income attributable to ITOCHU. Specifically, we will target a dividend payout ratio of 20% on net income attributable to ITOCHU up to ¥200 billion, and we will raise the target dividend payout ratio to 30% on the portion of net income attributable to ITOCHU exceeding ¥200 billion. For fiscal 2012, our interim dividend was ¥16.5 per share and our year-end dividend was ¥27.5 per share. Consequently, our annual dividend was ¥44 per share, which is more than 2.4 times the previous year’s dividend, or an increase of ¥26 per share, and a dividend payout ratio was 23.1%. For fiscal 2013, we are planning an annual dividend of ¥40 per share in accordance with our dividend policy and profit plan. We will endeavor to meet the expectations of shareholders by increasing earnings.

ITOCHU has entered a new growth stage, and in the years ahead we will aim for dramatic growth. We will continue to rigorously implement the three guiding principles--Earn, Cut, Prevent--and strive to enhance our front-line capabilities, thereby strengthening and expanding our earnings platform. I would like to ask all of our stakeholders for their continued support.