Download ITOCHU Corp Annual Report 2019: Economy, Social & Tech Risks, Opportunities & Growth and more Assignments Business Accounting in PDF only on Docsity!
Macroenvironmental PEST Analysis
P (Political / Legal)
Risks Opportunities
Global economic stagnation; decrease in trade volume; stricter export and investment regulations
U.S.-China Conflict (Trade disputes, forced technology transfer) Supply chain revisions
Disorder in the United Kingdom and destabilization of financial market
Brexit and Anti-EU Movements Increase in investment in the European continent Supply chain revisions
Coercive political management
Elections (U.S. presidential and Lower House elections)
Economic stimulus
Economic stagnation due to terrorism Disorder in financial markets
Geopolitical Risks Upward pressure on crude oil prices due to instability in the Middle East
Decrease in trade volume Trade Talks and Trade Agreements (Japan–U.S., U.S.–EU, USMCA, etc.) Supply chain revisions
Existing energy market shrinkage (coal and crude oil) Greenhouse Gas Containment Regulations (Paris Agreement, etc.)
Expansion of new energy market (wind power, solar power, etc.)
Business contraction in conventional vehicle fields Conversion to New-Energy Vehicles in China and Europe Business expansion in related industries
Rising costs, such as those for establishing data governance Damage and decline of reputation
Tightening Regulations on Handling of Personal Data
End of data monopolies held by existing platformers Expansion of open data availability
Decrease in existing business transactions
International Tax Trends (Lowering of corporate taxes, tax avoidance countermeasures)
Improvement in corporate performance Optimized taxation
Economic stagnation after tax increase Japanese Consumption Tax Hike^ Last-minute demand before tax increase
Develop businesses amid circumstances that directly impede or raise the uncertainty of sustainable growth in the global economy
Political Trends
Regulatory Changes
Tax System Revisions
The management environment surrounding ITOCHU is changing at a constantly accelerating pace. We are conducting PEST
analysis to understand the inherent macroenvironmental risks and opportunities that we will face during the period of our
medium-term management plan, “Brand-new Deal 2020,” and are building a competitive edge by adapting to macroenviron-
mental changes.
“Brand-new Deal 2020”
E (Economical)
Risks Opportunities
Decrease in business opportunities and trade volume Lower interest rates due to monetary easing Improved environment for fund raising
Worsening earnings environment due to yen appreciation Stabilization of emerging market currencies Lower overseas investment costs
Inflation and economic downturns due to overheating
Increase in demand for consumer goods connected with improved living standards; expansion of demand for infrastructure and food accompanying population increases; higher prices for resources such as iron ore, coal, and crude oil
Emergence and collapse of asset bubbles Higher fund-raising capacity due to increased value of own portfolio assets
Decline in expected returns due to slowing growth and increasing uncertainty Leveling of previously soaring project costs
Ascertain balance between expected returns and investment costs amid the wane of economic overheating due to deceleration in the
economies of developed countries and stabilizing growth in the economies of emerging countries.
Economic Deceleration in Developed Countries
Change in Investment Environment
Recovery and Accelerated Growth in Emerging Economies
Depreciation of the U.S. Dollar
Asset Price Increases (Stocks, real estate)
Transmit the sampo yoshi philosophy for the future and restructure business in light of the growing necessity to not only address
conventional social issues but also carry out a response with an awareness of ESG matters
S (Social / Cultural)
Risks Opportunities
Decrease in fossil fuel demand Business damage due to increasingly abnormal weather
Increase in business opportunities in renewable energy, etc. Customer retention and acquisition due to strengthened supply systems
Labor shortages and outflow of personnel; harassment and long working hours; increases in health-related costs
Improvement in labor productivity; improvement in health and motivation; securement of superior human resources
Project delay and continuity risks due to human rights issues Compliance violations and data leaks
Business stabilization and recruitment through harmonious coexistence with local communities; construction of a safe and secure product supply system
Decrease in creditworthiness when safety and health issues occur; destabilization of markets and the social security system
Increase in demand for food safety, security, and health promotion; expansion of personal consumption and information, financial, and distribution services
Occurrence of environmental issues and protest campaigns; industry-wide structural exhaustion as competition drives down prices
Increase in demand for resources in emerging nations Stable supply of environment-friendly resources and raw materials
Lowering of corporate value assessment by investors; withdrawal of invested funds; exclusion from investment target; decline in stock prices
Rising of corporate value assessment by investors; inflow of investment funds; addition to investment targets; increase in stock prices
Motivating Workplace Environment
Respect for Human Rights and Ensure Compliance
Focus efforts on establishing an earnings base to secure a stable consolidated net profit of ¥500.0 billion and creating “a new vision of what a trading company can achieve,” under an uncertain business environment
Macroenvironmental PEST Analysis
“Brand-new Deal 2020”
Create and evolve in businesses through the incorporation of new technologies and services in accordance with the current era
as rapid technological innovations occur and values and living environments change
T (Technological)
Risks Opportunities
Obsolescence and extinction of existing business models Leaks of internal data and other threats due to malware (malicious software)
Consumer-related Business (Non-resource Sector)
- Speed up in investment in next-generation retail models, strengthening of capabilities of physical stores
- Improvement in consumer value chain; transformation and streamlining of retail, wholesale, and logistics functions
- Development of new fintech / Advertising / Marketing fields, utilizing customer contact points
- Full-fledged entry into Chinese retail business Basic industry-related Business (Non-resource Sector)
- Evolution of existing business foundation by strengthening customer contact points
- Strengthening of water, environment, and renewable energy fields with an awareness of ESG
- Multifaceted development of next-generation mobility fields
- Reinforcement of next-generation electricity fields, centered on storage batteries
- Development of healthcare-related treatment businesses in China and Asia Resource Sector
- Acquisition of high-quality assets in resource fields that show promise
Progress in IT, Leading-Edge Technologies and Infrastructure Development
Evolution to Next-Generation Growth Models
Addressing Climate Change (Contribute to realization of low-carbon society)
Contribution to Healthier and More Enriched Lifestyles
Stable Procurement and Supply
Adherence to a Sound and Highly Transparent Corporate Governance System
Assumptions for FYE 2019 Result and FYE 2020 Plan FYE 2019 Result FYE 2020 Plan (Reference) Sensitivities on consolidated net profit Exchange rate (Yen/US$) average 110.56 110.00 Approx. ¥(2.5) billion (1 yen appreciation against US$) Exchange rate (Yen/US$) closing 110.99 110.00 — Interest (%) US$ LIBOR 3M 2.50% 3.20% Approx. ¥(3.0) billion (1% increase) Crude oil (Brent) (US$/BBL) 70.86 65 ±0.58 billion Iron ore (CFR China) (US$/ton) 71* N.A.** ±1.33 billion Hard coking coal (FOB Australia) (US$/ton) 202* N.A.** ±0.22 billion Thermal coal (FOB Australia) (US$/ton) 106* N.A.** (The above effect varies according to changes in sales volume, foreign exchange rates, and production costs.)
- FYE 2019 prices for iron ore, hard coking coal, and thermal coal are prices that ITOCHU regards as general transaction prices based on the market. ** The prices for iron ore, hard coking coal, and thermal coal used in the FYE 2020 Plan are assumed in consideration for general transaction prices based on the market. The figures are not presented since the actual sales prices are decided based on negotiations with each customer, ore type, and coal type.
Billions of Yen FYE 2019 Result FYE 2020 Plan
Consolidated net profit 500.5 500.
Gross trading profit 1,563.8 1,864.
Total of selling, general and administrative expenses
Equity in earnings of associ- ates and joint ventures
Income tax expense (149.7) (137.0)
Billions of Yen FYE 2019 Result FYE 2020 Plan
Net interest-bearing debt 2,406.8 (^) Approx. 2,400.0+ *
Total shareholders’ equity 2,936.
Increase total shareholders’ equity and improve ratio of shareholders’ equity to total assets Approx. 3,300.0 *
NET DER (times) 0.82 Gradually decrease
ROE 17.9% Approx. 16%
ROA 5.3% Approx. 5% *
Billions of Yen FYE 2019 Result FYE 2020 Plan
Core Operating Cash Flows 515.0 Over ¥580.0 as target
Net Investment Cash Flows (20.0) Actively promote growth investments and asset replacements
Core Free Cash Flows 495.0 Maintain positive
Dividends (127.5) Steady implementation of the medium- to long-term shareholder returns policy (Full-year minimum dividend of ¥ per share)
Share buybacks (68.0)
Core Free Cash Flows after deducting shareholder returns
Approx. 300.
Maintain positive Utilize Core Free Cash Flows of FYE 2019 (approx. 300.0) for growth investments and shareholder returns
FYE 2019 Review
Upward revision to initial forecast, third consecutive year of record-breaking consolidated net profit with figure of ¥500.5 billion
Fourth consecutive year of record-breaking core profit with figure of approx. ¥472.0 billion thanks to growth centered on the non-resource sector
Profit achieved over 90% of Group companies, a record-high level maintained due to thorough application of the “earn, cut, prevent” principles
Record-breaking Core Operating Cash Flows exceeding ¥500.0 billion, massively positive Core Free Cash Flows after deducting shareholder returns achieved due to exits from large-scale investments
Achieved upgrade by all four major credit rating agencies in a one-year period, historic best NET DER of 0.82 times, strong fi- nancial position maintained
FYE 2020 Plan
Profit Plan: Consolidated net profit of ¥500.0 billion (More growth in the non-resource sector which is more resistant to economic fluctuations.)
Cash Flows Plan: Balanced Cash Allocation (Growth investments, Shareholder returns, Control of interest-bearing debt)
Ratio & B/S Plan: Maintain high efficiency and control B/S for maintaining A ratings
Quantitative Targets
FYE 2019 Review and FYE 2020 Plan
“Brand-new Deal 2020”
FYE 2019 Result FYE 2020 Plan Non-Resource 378.0 420. Resource 115.5 110. Others 7.1 (30.0)
- Excluding the impact of IFRS 16 (Leases)
■ Textile ■ Machinery ■ Metals & Minerals ■ Energy & Chemicals ■ Food ■ General Products & Realty ■ ICT & Financial Business ■ The 8th ■ Others, Adjustments & Eliminations
500.0 500.
FYE 2019 Result
FYE 2020 Initial Plan
FYE 2020 Forecast
Consolidated Net Profit by Segment (Billions of Yen)
FYE 2019 Review
Reinforcement of strategic business foundations in the consumer sector through conversion of FamilyMart UNY Holdings Co., Ltd., into a subsidiary
Massive cash inflows realized through aggressive exits (from GMS business, China-related operations, large-scale resource interests, etc.)
Recognition of the impairment loss on the investment in CITIC Limited despite stable results, considering the share price and dispelling concerns in the future
FYE 2019 Major New Investments and Exits
Major New Investments Major Exits
Non-resource sector
Acquisition of FamilyMart UNY Holdings Co., Ltd. Investment in Taipei Financial Center Corporation Additional investment in DESCENTE LTD., etc.
Approx. ¥465.0 billion
Sale of entire stake in UNY Co., Ltd. Sale of entire stake in TING HSIN (CAYMAN ISLANDS) HOLDING CORPORATION Sale of entire stake in CIECO Exploration and Production (UK) Limited, etc.
Approx. ¥480.0 billion Resource sector
Capital expenditure of existing investments, etc. Approx. ¥35.0 billion
FYE 2020 Plan
Investments
Development of Foundations for Sustainable Growth
In areas of strength, actively promote evolution and transformation
of existing businesses and investments in new growth
Balanced investments
in new and existing
business
Optimally timed
investments and exits
48 ITOCHU CORPORATION ANNUAL REPORT 2019
“Brand-new Deal 2020”
- Capital expenditures for reinventing
existing businesses
- Reinforcement of existing businesses
- Proactive replacement of assets in
inefficient and peaked out businesses
Ratio of growth investments (^5) : 5
- New and next-generation growth
investments based on sector-specific
growth strategies
- Investments for steadily realizing profits
and for forming foundations for business
model evolution
Evolution and Transformation of
Existing Businesses
Next-generation growth investments: Approx. ¥70.0 billion
(Ongoing upfront foundation construction and acceleration of strategic business development and business model integration)
“Investments in next-generation”: Approx. ¥30.0 billion
Investments in New Growth
48 ITOCHU CORPORATION ANNUAL REPORT 2019
