Message from the President & COO
What ITOCHU Must Aim to Achieve in 2020
To all the employees of ITOCHU and the ITOCHU Group and their families around the world, Happy New Year! I hope you all had a refreshing winter vacation. As for the global economy, 2020 started out with low stock prices at the New York Stock Exchange, weak yen and high oil prices due to US’s attack against the Iranian top general.
As we embark on 2020, I would like to remind you all that ITOCHU has just entered its 20th year of operations since recording an extraordinary loss totaling ¥400 billion. Looking back, we can see times were tough for a good while. Until fiscal 2000, we were in the red for three consecutive years and failed to pay dividends for two consecutive years. However, the following years saw us gradually recover. Since Mr. Okafuji—now Chairman & CEO—assumed the office of President in fiscal 2011, ITOCHU has successfully increased its consolidated net profit to ¥200 billion and then to ¥300 billion and to ¥400 billion. Eventually, we achieved fiscal 2019’s record-high consolidated net profit of ¥500 billion. Moreover, at the end of the first half of fiscal 2020, our consolidated profit stood at ¥289.1 billion. This six-month figure was also a record high, allowing us to secure the top position among general trading companies. Once again, I would like to thank you all for your dedication.
Although we are seeing continuously strong results, I would like to ask you all to stay vigilant. Twenty years ago, ITOCHU’s stock price hovered at low levels and sometimes dropped to just slightly above ¥200. Today, it is more than ten times higher, surpassing ¥2,500, and has hit record highs multiple times. This is a direct indicator of extremely high shareholder and market expectations. It can be said that, in terms of its financial statements, ITOCHU has effectively transformed, becoming a company entirely different from what it was 20 years ago. Nevertheless, we must stay focused on “commitment-based management” amid the increasingly murky business environment. Through the pursuit of this management practice, we will remain strong and continue to live up to the expectations of our shareholders and the market.
Fiscal 2021 is the final year of the current medium-term management plan, as well as a year to formulate a new medium-term management plan. As we are confronting an increasingly uncertain world, we must spare no effort to secure sustainable growth in terms that go beyond recording consolidated net profit of ¥500 billion. This endeavor requires establishing a “new vision of what a trading company can achieve.” Having experienced a breathtaking improvement over the past 20 years, ITOCHU is now being called to take on this new challenge.
Toward Sustainable Growth
Now, what do we need to achieve sustainable growth into the future? First and foremost, we need to yield profit. Without profit, we cannot achieve growth. Therefore, we must embrace a forward-looking approach in our growth strategies and accelerate their execution.
What we must do is clear. We need to be further enhancing existing businesses and reinventing our business models. As for value chains of our existing businesses centering in the consumer-related sector, we need to strengthen their efficiency and competitiveness by moving on with digital transformation. Simultaneously, we must engage in proactive investment in new technologies and new business models in the mobility, power, ICT, financial and retail sectors, which have seen radical structural changes, to get prepared for reinvented businesses. In the China and Asia markets, we need to maximize business synergies with CITIC/CP. At the same time, we need to work with FamilyMart who has the largest consumer touchpoints to utilize their consumer data. These pursuits in the consumer sector, where ITOCHU has traditionally been strong, will allow us to shift our trading business model from the conventional “product-out” approach to a “market-in” approach focused on incorporating the consumer perspective.
Putting into Practice the “Earn,” “Cut” and “Prevent” Principles Embedded in ITOCHU’s Culture
In the course of the aforementioned initiatives, we must always be aware of the need to put into practice “earn,” “cut” and “prevent” principles. In particular, the “cut” and “prevent” principles will be important in light of the recent business environment, which is becoming increasingly unclear. Accordingly, we should double down on lean management and strive to achieve constant reductions in costs and expenses, thereby realizing efficient business operations. Also, I ask all of you to do your best to prevent the occurrence of bad debt by engaging in close communication with business partners.
The “earn,” “cut” and “prevent” principles are deeply embedded in ITOCHU’s culture. Through the practice of these principles over the last 10 years, ITOCHU has developed a business portfolio that is well diversified and resilient against economic fluctuations. I am confident that a robust business foundation of this kind is beyond the reach of almost any other company. Looking ahead, we will endeavor to achieve our planned performance targets for fiscal 2021 through the continuous practice of “earn,” “cut” and “prevent” principles. Moreover, we will strengthen our business foundation even further as we aim for sustainable growth and an even greater performance than a consolidated net profit of ¥500 billion. These are challenges we must take on in 2020.
Going Back to Our Roots of “Sampo Yoshi”
As discussed above, we need to establish our unique vision of what a trading company can achieve in order to secure sustainable growth in a way that goes beyond what ITOCHU has been capable of. ITOCHU’s overall .corporate value is defined not only by its consolidated net profit of ¥500 billion. Today, the Company’s corporate value is defined via comprehensive assessments of how much value it has created and delivered to stakeholders including the environment, society, employees and shareholders, on top of its consolidated net profit.ITOCHU has created as well as the value it delivers to its employees and shareholders. At the base of this all is Sampo Yoshi (Good for the seller, Good for the buyer and Good for society) which also connects to ESG (Environment, Social, Government) and SDGs (Sustainable Development Goals). I would like to make 2020 a year for us to go back to our roots.
In recent years, ITOCHU has been at the vanguard of a management approach cherishing what is “Good for employees.” For example, the Company introduced a morning-focused working system, Dress-Down Days and other work-style reforms while promoting health management to support employees living with cancer. Thanks to these efforts, ITOCHU has secured the top position in Most Attractive Employers ranking including all industries. ITOCHU has also garnered a solid reputation for the shareholder return measures it has undertaken. The Company’s recent stock price, which continues to hit record highs, suggests the success of its efforts to deliver what is “Good for shareholders.”
In addition to achieving the basics ofSampo Yoshi, “Good for the seller” and “Good for the buyer”, ITOCHU is also working to achieve “Good for employees” and “Good for shareholders”. We are further being asked to achieve “Good for society” and “Good for the environment”. We are being questioned whether we provide products and services that respond to climate change and other environmental issues, and whether we are creating business that would help resolve social issues. I would like us to respond to the third aspect of Sampo Yoshi, “Good for society”, by responding to the modern needs.
Furthermore, the provision of solutions for environmental and social issues requires exactly the same practice followed in the aforementioned “market-in” approach. This is why I am convinced that addressing these issues will position us to meet new business opportunities and help refresh our perspective over the course of our ongoing pursuit of a new vision of what a trading company can achieve. The other day, I heard Dr. Akira Yoshino, a winner of a Nobel Prize for his contribution to the creation of lithium ion batteries, state “Environmental issues will provide businesses with perfect business opportunities; if I were to emulate the traditional saying of Osaka merchants, these issues will greatly help us earn money. Businesses must take a proactive approach in the field of the environment.” If this is the case, realizing “Good for society” will lead to acquiring a source of profit, and aiming to become a leading ESG company will lead us to go beyond ¥500 billion.
I believe that Sampo Yoshi, which has been passed down from generation to generation for 160 years since ITOCHU’s founding will surely provide us with guidance in our efforts in 2020 to establish a new vision of what a trading company can achieve. Through the practice of this philosophy, let us establish an even more robust earnings base and decisively take on various issues society is now confronting, ranging from climate change and other environmental issues, to make ITOCHU a company where each employee can feel a sense of fulfillment and happiness and see his or her contribution to society through their duties.
Lastly, I would like to close this New Year’s Message by sending best wishes to ITOCHU Group members around the world, their families and others who support them, wishing them all good health and greater success in 2020. Thank you very much.
President & Chief Operating Officer
January 6, 2020