COO Message

As the captain of the field, I will observe changes in the business environment from the front lines, leading the charge to firmer positions for further growth.

Guided by “Sampo-yoshi,” we will pursue economic value, simultaneously with environmental / social value, as we continue taking the necessary steps to polish ITOCHU’s strengths in the non-resource sector and to brace ourselves for the future.

Tapping into Our Full Potential

It has been one year since I inherited the mantle of President & COO and suddenly had to fulfill greatly expanded duties, broadening my perspective beyond the familiar Energy & Chemicals Company to the entire Company and multiple industries. I was again impressed by the breadth of businesses encompassed by ITOCHU as a general trading company, as well as the staggering amount of requisite information and knowledge. The importance of unceasing effort, day in and day out, was driven home.

My first fiscal year as President & COO happened to be a tumultuous one, requiring swift and appropriate responses to the Russia–Ukraine situation and the unprecedented surge in resource prices, in addition to COVID-19. Although I would not say I enjoy adversity, the truth is that adversity has always animated me, lighting a fire in the belly. My personality is such that I will choose turning around loss-making departments on challenging front lines over sitting back or comfortably reaping easy and quick profits. COVID-19 pandemic-related restrictions on overseas travel have had a major impact on my own personal “business model.” On the other hand, less road time meant more office time, which proved to be significant. I discovered new business opportunities in areas outside the Energy & Chemicals Company. I also met with new personnel in sales and administrative divisions with whom I had not previously had opportunities to interact. This was a foundational year that provided a bird’s-eye view of the entire Company.

Over the last few years, we have reflected on the history of ITOCHU, which all began with Chubei Itoh I balancing wares on a shoulder pole as he set out for trade. Through this practice, we reconfirmed our identity as “merchants” and ingrained this identity among both corporate officers and employees. Staying true to this sense of duty and identity as a merchant, each employee has played their position on the field, striving to protect every interest during the challenging environment posed by the pandemic, with the goal of helping to restore economic activity. This turned out to be a year in which I could palpably feel their eagerness to do so and sense real movement toward further growth going forward.（→ “Merchant” Business Model）

In FYE 2023, in order to tap into my full potential as the “captain of the field” infused with the power of these individual capabilities, I will head to the front lines and blaze a trail to pass onto employees. After the General Meeting of Shareholders, I made my first overseas business trip since the pandemic began. I was reminded of the limits of online interaction and renewed my appreciation for the importance of directly gathering vital information on the front lines. Over the next few years, amid the extraordinarily uncertain business environment, companies that stand to gain an advantage are those that are able to sufficiently analyze the direction their business is heading and accelerate highly effective measures. In the near future, when the pandemic is over and when resource prices and exchange rates return to normal, that will be the time when our true strengths will be put to the test. To ensure success in such a “moment of truth,” we are polishing the strengths of the non-resource sector, readying ourselves for the future.

The “Comprehensive Strength” of a General Trading Company

With the supply chain disruptions in various industries caused by COVID-19 and the Russia–Ukraine situation, companies are considering reshoring production for key industries back to their home country and rebuilding supply chains themselves. To assess the overall situation for supply chains that straddle multiple industries, we have self-confidence that the perspective of general trading companies will be definitely needed as we have built all manner of businesses around the world in wide-ranging industries. Going forward, expectations from various companies regarding ITOCHU’s know-how and experience will only continue to grow.

The stock market tends to focus on a “conglomerate discount,” but has largely failed to pick up on “comprehensive strength,” the advantage general trading companies bring with their expansive business portfolios. Especially in times of transformation, our comprehensiveness is a strong advantage, which makes the concept of a discount seem a bit odd. Generally speaking, companies have a life span. There is one reason ITOCHU has been able to survive for so long, 164 years to be exact. The Company has harnessed this “comprehensive strength” of a general trading company in line with the business environment and trends from era to era. As the very sustainability of society itself is being tested, it goes without saying that the sustainability of the companies undergirding society is also important.

The second half of the 1990s was marked by the Asian financial crisis, which was preceded by the bursting of Japan’s economic bubble. ITOCHU was also pushed to resolve bad debt, and the divisions in urgent need of reforming were Machinery, Metals & Minerals, Chemicals, and Real Estate. (These were referred to internally as the “4K divisions,” because the name of each division in Japanese begins with the letter “K.”) In an effort to carefully select owned assets and reduce interest-bearing debt, we moved rapidly to suspend unprofitable trades and trades with long payment cycles, pull out of unprofitable businesses, and spin off some businesses, but we took measures to ensure these businesses would remain viable in some form and would not altogether cease. In the proceeding years, the 4K divisions steadily accumulated capabilities and insights during challenging periods for business performance. Similar to how flowering plants bloom spectacularly in spring after surviving a particularly harsh winter, the 4K divisions have resurged wonderfully and are currently driving earnings for the entire Company.

Furthermore, some people have wondered whether ITOCHU, as a general trading company centered on the non-resource sector, should exit all business in the resource sector and specialize exclusively in the non-resource sector. Nevertheless, I do not think that the 4K divisions could have enjoyed this kind of resurgence had we only focused on short-term efficiency and profitability. Besides, it is very challenging to reinvest in businesses that were once halted and to try to expand revenue and build synergy quickly. For example, the significance of ITOCHU owning oil and gas interests goes beyond just the direct revenue contributions. These interests provide us with insights we utilize in trade in the non-resource sector for chemicals and fiber materials that use crude oil as raw material, automobiles, ships, and steel pipes. The competitive advantage of being able to assess the overall status of supply chains that straddle multiple industries, as I mentioned earlier, is closely tied to ITOCHU’s possession of a wide-ranging business portfolio.

Decarbonization Also Starts from Downstream

Regarding ITOCHU’s investment stance, please refer to the message from Chairman & CEO Okafuji on the importance of our market-oriented perspective starting from downstream, while I will explain the Company’s response to the SDGs.

I think our policy of focusing downstream also applies to the SDGs. To be sure, we are also engaged upstream in the next-generation fuel and renewable energy businesses of hydrogen, ammonia, and offshore wind power. Large-scale upstream projects such as these require significant time and investment before going operational and generating profit. Moreover, we need to carefully monitor new technology trends to ensure future competitiveness while being mindful to build a safe and robust supply network and collaborate with highly reliable domestic and overseas partners, all while coexisting in harmony with local communities. Securing safe and secure energy sources is one of Japan’s major issues, including national security, and is an important role that ITOCHU plays as a general trading company. We are carefully undertaking this from a medium- to long-term perspective.

At the same time, the Company is also involved in decarbonization businesses from downstream. A representative example is downstream energy management which uses energy storage systems (ESS). ESS performs a critical role in regulating renewable energy, which experiences volatility in the amount of power generated due to weather and other conditions, and we build systems that efficiently store and utilize generated electric power. Because ESS can utilize generated electric power without waste, while stabilizing electric power usage and reducing transmission loss, these systems directly enhance energy self-sufficiency and reduce GHG emissions. In addition, they provide important stand-alone power sources during emergencies. This kind of control over power consumption on the demand side is a downstream decarbonization measure that can be implemented by 2030 and 2050, the years the Japanese government target for GHG emissions reductions. It is also a field where ITOCHU, which has spearheaded these efforts, can take the initiative in working to expand the ESS business and thereby realize both economic value and environmental / social value as soon as possible. With AI deployed to control power, it is possible to assess power-use patterns and lower peak power. Building a virtual power plant (VPP), which is a distributed power platform, that centrally manages data and conducts optimal control, will enable a more stable and efficient supply of electric power. ITOCHU boasts one of the highest sales figures in the industry for ESS. To construct this kind of distributed power platform, we have been collaborating with electric power companies, developers, and other partners while simultaneously creating synergies with FamilyMart, ITOCHU ENEX CO., LTD., CTC, and other Group companies. As such, we are promoting an expansion of multifaceted businesses which are growing into highly competitive businesses.（→ Business Expansion in Accordance with a Decarbonized Society）

Under the medium-term management plan, we declared our aim of achieving net zero GHG emissions with offsets by 2040. Although the ESS business contributes to the reduction of GHG emissions, withdrawing from thermal coal interests will directly reduce GHG emissions. In FYE 2022, we divested our thermal coal interests in the Drummond mine in Colombia and the Ravensworth North mine in Australia. This mostly completed our overall divestment in thermal coal mines. As a fuel that can be substituted with alternatives, we positioned thermal coal as a field to withdraw from promptly. Although it is also coal, coking coal, on the other hand, is currently an indispensable raw material for manufacturing high-grade steel. Considering the current status of steel manufacturing technologies and the importance of steel in present-day society, it is not realistic to entirely eliminate coking coal for the sake of GHG emissions. In that same vein, crude oil is a fuel that cannot currently be substituted. It is a raw material for various daily necessities, so we should be thinking about reducing its use rather than eliminating it. Aiming to reduce GHG emissions and achieve net zero emissions with offsets, ITOCHU is realistically monitoring the downstream situation and will continue making efforts to that end, starting with the strengths the Company can leverage immediately.（→ Approach to Climate Change and Related Initiatives）

I understand that, now more than ever, what is being demanded is for companies to pick up on the various needs of society and practice well-balanced business and management with a broad overarching perspective.

Racing across the Front Lines with a “Sampo-yoshi” Mindset

Among the SDG and ESG trends, stakeholder capitalism is becoming a globally shared value. It does not refute the conventional shareholder capitalism nor diminish the value of investors and shareholders. As I understand it, what is being demanded is for companies to pick up on the various needs of society—just as merchants should be like water, flowing where needed to operate balanced businesses—and practice management with a broad overarching perspective. As the original company practicing “Sampo-yoshi,” ITOCHU’s policy is to carefully observe society and then steadily build up businesses that society needs. To do this, I want to race across the front lines together with employees. I would like to thank all our stakeholders for your continued support.