Message from the President

Looking back at fiscal 2011, the fiscal year ended March 31, 2011, we predominantly focused our efforts on implementing two key measures. First, we decisively resolved pending issues according to the objectives that we set out at the beginning of fiscal 2011. While we recognized restructuring losses of more than ¥60 billion, thanks to the higher-than-expected levels of natural resource and energy prices, and the steady earnings from sectors other than the natural resource / energy-related sector, we recorded net income attributable to ITOCHU of ¥161.0 billion, an increase of approximately ¥32.8 billion from fiscal 2010 and higher than our initial plan.

Second, we implemented a wide range of internal reforms centered on the theme of “strengthen our front-line capabilities.” These reforms prepared the foundation for proactively seeking new opportunities in fiscal 2012 and thereafter. I believe that working hard to understand customer needs through close, ongoing communication was the driving force behind ITOCHU’s growth as a general trading company in a wide range of business areas. The goal of our internal reforms is to return to this traditional approach, in other words, to establish an environment that aggressively supports front-line sales activities. To that end, we have revised the previous operational rules, which focused on reinforcing our balance sheet over a 10-year period.

In particular, we strengthened operating activities and enhanced the motivation of all employees through the implementation of such initiatives as reducing the frequency of in-house meetings and the volume of materials used in these meetings, revising our investment criteria and the risk asset calculation method, and enhancing the personnel compensation system and the system for evaluating and promoting officers at affiliate companies. Moreover, as one facet of efforts to prepare the foundation for proactively seeking new opportunities, we revised our organization. In ITOCHU’s first large-scale organization restructure in 11 years, the seven Division Companies were streamlined into five Division Companies, while the previous 16 administrative divisions were consolidated into 11 divisions, thereby fostering increased administrative efficiency and strengthening administrative capabilities. In addition, functions that had been concentrated in headquarters, such as business accounting and control and credit control, have been shifted to the Division Companies. These reforms were implemented to ensure that administrative divisions also implement a rigorous focus on front-line operations and work together closely with business departments to foster “practical management” on the front-lines of each of our businesses.

Through the various initiatives that I have described, we first created a system that will focus ITOCHU’s strengths on proactively seeking new opportunities. Then, we announced our new medium-term management plan-"Brand-new Deal 2012"-covering FY2012-2013. The name was selected from recognizing the dual concepts of “building a new ITOCHU Corporation” and “accelerating growth” described within the new plan. The basic policies of the new plan are as follows: Strengthen Our Front-Line Capabilities, Proactively Seek New Opportunities, and Expand Our Scale of Operations. With a revitalized, new spirit, officers and employees will work to achieve growth in profits and expansion in scale going forward.

The plan calls for record-high results at each major level of profit on the income statement, with net income attributable to ITOCHU of ¥240.0 billion, an increase of 49.0% from fiscal 2011. We will also enhance our business portfolio, centered on the following measures by key sector: Aggressively Expand Business in China, Increase and Accumulate Assets in the Machinery-Related Sector, and Expand and Upgrade Business in the Natural Resources.
Over a two-year period, we are planning new investment of ¥800 billion on a gross basis.

At the same time, we will pursue strict financial discipline to ensure our financial soundness as we embark on the process of expanding our scale of operations. By further increasing consolidated stockholders’ equity and controlling interest-bearing debt, we will maintain consolidated NET DER at a sound level of approximately 1.6 times, balancing risk assets and the risk buffer. My management philosophy is that plans should be achieved. It is ideal to exceed them. We will therefore rigorously implement the three guiding principles-Earn, Cut, Prevent-and strive to meet, at the least, the targets spelled out in the plan.

In the current medium-term management plan, we announced our targeted dividend payout ratio. We will target a dividend payout ratio of 20% on net income attributable to ITOCHU up to ¥200 billion, and a dividend payout ratio of 30% on the portion of net income attributable to ITOCHU exceeding ¥200 billion. In accordance with this policy, if net income attributable to ITOCHU reaches our target of ¥240 billion, the annual dividend for fiscal 2012 will be ¥33 per share. We will endeavor to clearly meet the expectations of stockholders through increasing earnings.

The key capabilities and roles of trading companies have changed with the times. However, there exist capabilities and roles that customers always expect us to provide. To sustain a competitive advantage, we need to continue to provide distinctive capabilities and added value in a variety of industries so that we are always needed by our customers. In addition, we must continue to take the initiative in markets.

Moreover, from a broader perspective, we need to continue to fulfill a role that is essential for society through our business activities as well. As shown by the Great East Japan Earthquake, there are many tasks that can be accomplished by companies. In addition to direct support such as donations, companies have the duty and ability to provide support through their various business activities. To provide support that is ongoing and effective, however, it is necessary for a company to have a certain operational scale and strength. Expanding profits and contributing to society are not mutually contradictory by any means. Rather, I believe that they are in accord with the idea of being a company that fills an essential role through business activities. I will manage ITOCHU in the determination that we will help to drive recovery and growth for Japan’s economy.

I have always been proud that ITOCHU, which originated from the traditions of the Ohmi merchants, is the strongest among trading companies not belonging to any of Japan’s conventional industrial groups (“Zaibatsu”). As can be seen from our current strengths in the consumer-related sector, our founding business of textiles was closely linked with consumers. From that starting point, we expanded our areas of business into heavy industry and natural resource-related areas. ITOCHU’s history is truly unique. What enabled us to grow in this way are the talents of each individual employee and the fact that we have distinct front-line capabilities of discovering and cultivating business opportunities. Accordingly, to recover the original strength of ITOCHU, I will continue to emphasize “strengthening front-line capabilities.”

We are now facing a period of great change. It is necessary that we take the initiative and move boldly to drive future progress. I would like to assure our stockholders, investors, and other stakeholders that we are committed to making further progress in strengthening our front-line capabilities and creating a new stage of growth for ITOCHU.