Roundtable Discussion with Outside Directors

From an external perspective, what strengths of the Itochu Enex Group constitute its advantages?

Saeki: From my own external perspective, for an organization that celebrated its 60th anniversary in 2021, the Itochu Enex Group seems to be completely free of the conservative mood commonly found in companies this old and established. Junior employees readily offer their own ideas and the organization as a whole has vitality. And since its core businesses involve the supply of energy products such as petroleum, LP gas, and electric power—essential businesses that are indispensable to local lifestyles and industries—the Itochu Enex Group is a company with great social significance. These characteristics are strengths that are part of the foundation of the Group. At the same time, there is now an expectation that all companies involved in fossil fuel businesses should act to achieve carbon neutrality, so the Group’s ability to switch to more sustainable forms of energy will be put to the test.

Yamane: After assuming the position of Director, I had the opportunity to visit sites such as industrial gas filling stations, fuel centers, and asphalt terminals in order to further my understanding of individual businesses. In listening to frontline and other personnel, it was clear how the deep ties developed over the past 60 years with people in local communities have become an important asset for the Group. In addition, I felt that employees have very naturally embraced their mission not simply to offer a lineup of energy products, but to provide “energy as a source of inspiration” to customers. I would also single out as a great strength the relationship of mutual learning and growth that the Itochu Enex Group and local communities have built.

Endo:I have been keeping an eye on three of the Itochu Enex Group’s strengths with particular interest. The first is its network, which is a product of its customer base and procurement network. As Mr. Saeki and Ms. Yamane mentioned, this strength is the driving force that enables the Group to be indispensable to local lifestyles and industries. The second is financial strength. And the third is management’s ability to take action, the proof of which is the setting of record-high net profit for six consecutive years. These three strengths are backed up by one more strength: human resources. Many Group employees have earned the abiding trust of its business partners, and many have been involved from their early years in Group operations that entail significant responsibility.

Motoyo Yamane
Board Member,
Characters Culture Promotion Organization
(Public Interest Incorporated Foundation)
Director, Junshin Hiroo Gakuen
Director, Picture Book Culture Promotion Association
(Incorporated Nonprofit Organization)

What measures can the Itochu Enex Group take to further enhance corporate value?

Ichiro Saeki
Representative Attorney,
Shi-Go-Roku Law Office
The Shinkumi Federation Bank
Emeritus Professor,
Aoyama Gakuin University

Saeki: Enhancing corporate value could be said to be the mission of all listed companies. However, given current external factors and legal restrictions, companies are limited in the measures they can implement. I believe an effective growth strategy would be one that utilizes the financial strength that Mr. Endo mentioned. In addition to continuing to operate debt-free in recent years, the Company has been generating stable free cash flows and has a large capacity for investment. That is why an increase in new investments in environmental technologies and the expansion of the range of low-carbon and decarbonized alternatives to petroleum will undoubtedly lead to enhanced corporate value. This is in line with the new medium-term business plan “SHIFT! 2022,” a key element of which is deepening the environmental and energy businesses. This approach has also been strongly championed by President Okada. For other investments, I believe that the Group has reached the stage at which it should plan and implement strategic M&A and new approaches to overseas markets.

Endo: As I mentioned before, one of the Group’s strengths is its network, which is a product of its customer base and procurement network. Utilizing that network to develop and supply inimitable new products and services will directly enhance corporate value. This is exactly what is meant by “maintaining and expanding bases,” the first policy of “SHIFT! 2022.” I would imagine that preparations for expansion are already under way, with close attention being paid to various markets, including those overseas. For overseas businesses as well as B-to-C businesses that utilize digital transformation, it will be important to make flexible and timely decisions that enable the Group to enjoy the first-mover advantage.

Yamane:From my point of view, the appeal of the Itochu Enex Group is that each division and Group company is engaged in activities that are “in the moment.” Just looking at the press releases of recent months reveals how the Group has been prompt in communicating initiatives by each division that are in tune with current social issues. Moreover, the Group is engaged in a far wider range of businesses than stakeholders might imagine. Much like a mirror ball, the Group’s approach is multi-faceted, with each facet actively functioning “in the moment.” I have confidence that the cumulative result of such dynamic dayto-day activities will be the sustainable enhancement of the Group’s corporate value.

How can the Itochu Enex Group’s strengths and corporate value be accurately communicated to the public?

Hiroshi Endo
Council, Public Interest Incorporated
Foundation Japan Police
Support Association
Counsel, Kamimura Ohira & Mizuno
Outside Director, Generation Pass Co., Ltd.

Yamane:The Group needs to be more proactive in communicating information such as sustainability indicators, business opportunities, and corporate activities. Nowadays, investors and general consumers alike are very critical of companies that are not fully committed to the SDGs and ESG issues. Prior to my appointment as Director in 2019, I could not help but wonder if the Board was devoting enough discussion to industrial trends such as the acceleration of decarbonization. I was also concerned that employees might not be sufficiently aware of these trends. However, after assuming this post, I found that the Company was clearly assigning priority to sustainability issues and vigorously discussing business opportunities and risks. I have high expectations of the Carbon Neutral Strategy Division, Sustainability Office, and the Sustainability Committee (an advisory body to the Management Advisory Conference), newly established in spring 2021.

Saeki:Speaking from the perspective of financial strategy, the Itochu Enex Group is an energy trading company that has always been keenly aware of the importance of ROEoriented management and has remained committed to securing returns in excess of the cost of capital. However, ROE is not the only indicator that the Group focuses on. For example, it engages in ongoing planning for aggressive investment in new fields in order to achieve management targets. Some investments may have a short-term negative impact on cost of capital, nevertheless, I think the Group should focus on investor relations that elicit positive evaluations of its strategy of targeting sustainable growth that weighs the tradeoff between ROE improvement and financial leverage.

Endo:At this point in time, the direction of the Japanese government’s next basic energy plan is uncertain and the energy industry is in a transitional phase that will entail major changes. The Itochu Enex Group needs to execute a challenging change of course. In light of these circumstances, it will be important for the Group to establish a longterm vision as early as possible and to make that vision public. Doing so should also provide a welcome tailwind for achieving the qualitative and quantitative plans of “SHIFT! 2022.”

What is the role of Outside Directors in efforts to achieve sustainable growth?

Saeki: First, it is a given that as an Outside Director I will continue to provide support to the Executive Directors to ensure their proper execution of duties. At the same time, I will contribute to improving the effectiveness of the Board of Directors by overseeing management from an unbiased perspective. Given the Group’s status as a listed subsidiary of ITOCHU Corporation, I will maintain vigilance to ensure that there are no conflicts of interest with minority shareholders. To these ends, I will exchange information with a diverse range of individuals within the Company and fulfill my role so that shareholders are properly rewarded.

Yamane:I see the Itochu Enex Group as having quite a well-established culture in which all employees are free to think and speak for themselves, and completely new ideas are welcome. I intend to support the Itochu Enex Group in opening up further to society as a corporate group, in developing an inclusive workplace environment that supports the success of women, and in raising the awareness of male employees. Furthermore, I hope to better enable the Group to expand possibilities for growth by contributing to discussions that are unbound by preconceptions and by raising issues from new perspectives, which should earn the Group more positive evaluations from stakeholders.

Endo:Somewhat echoing Mr. Saeki’s comment—as an Outside Director I hope to do my utmost in my supervisory and advisory capacities to see that the Group enhances its corporate value over the medium to long term while exercising strong governance. I would imagine achieving record-high net profit for six consecutive years discourages Group management from making bold decisions. Then again, the Group’s pledge to execute bold investments to create new core businesses should not be forgotten. As Outside Directors, in cooperation with the Inside Directors, we intend to contribute to the promotion of investments that will be indispensable to future growth, while comprehensively and appropriately monitoring investment profitability and risk management. While of course ensuring defensive governance measures, we will also pay close attention to offensive governance measures.