ENEOS Holdings, Inc. (5020) Earnings Call Transcript & Summary

Good morning. I'm Tomohide, Miyata. I have been appointed as the CEO of ENEOS Holdings from April 2024. I think there may be some overlap in today's presentation with the press conference the other day, but I help you bear with me. Since December 19, 2023 as acting President I have placed the highest priority on restoring the trust of our shareholders, employees and other stakeholders and have had numerous discussions with inside and outside directors regarding recurrence prevention measures as well as initiatives for the enhancement of the ENEOS Group including continuous governance transformation, reestablishing a work environment where employees can work comfortably and with pride and reforming the group management structure. First, I would like to touch on the main points regarding improving the effectiveness of recurrence prevention measures, which has been discussed under the leadership of outside directors. In this review, with the advice of outside experts, we comprehensively evaluated the recurrence prevention measures announced in February 2023 and existing compliance measures and identified issues. We once again recognized that we had not adequately responded to the risk of top management, violating the group philosophy and group code of conduct and systematically strengthened measures to prevent recurrence from 4 main perspectives. Specifically, we have enhanced the director selection process to ensure that the company select the ideal top management and we will enhance officers normative awareness to improve their literacy about the social norms of the times and increase their own commitment. In light of the inappropriate behavior of top management that occurred in 2 consecutive years, we have decided to strengthen the behavior management of directors including gatherings involving alcohol, which we consider to be particularly risky. Finally, by enhancing monitoring of directors with the introduction of 360-degree evaluations and zero cooperation with the Audit and Supervisory Committee and Nomination Advisory Committee have created a system to ensure the continued effectiveness of measures to prevent recurrence. Let me share more specifics. For the enhancement of the director selection process, we have strengthened human resources due diligence to create a process that allows the Nomination Advisory Committee, the majority of whom are outside directors to objectively confirm candidates using the ideal CEO as the standard. As an additional element in this due diligence process, our third-party organization conducts interviews with current and past subordinates about the candidates abilities and characteristics to enable us to identify potential risks. In the recent selection process, the directors recommended a wide range of both male and female candidates from both inside and outside the company. And then the selection was made by utilizing information from enhanced human resources due diligence. If you'd like more details, please ask during the Q&A session. In addition, specific measures for normative awareness, behavior management and monitoring are described on Page 3. So please refer to them at your convenience. Also, please note that ENEOS Holdings and ENEOS will first take initiative in setting an example for enhancing the normative awareness officers and managing the behavior of directors. These measures will gradually be expanded to the entire group. And next, please turn to Page 4. I would like to explain continuous governance transformation. The first initiative is improvement in the transparency of governance. Specifically, after the General Meeting of Shareholders to be held in June 2024, we will increase the ratio of outside vectors on the board to over 50% and appoint an outside director as the Chair of the Board of Directors, making a significant step forward from the previous system to further improve our governance. In addition, we will pursue not only transparency but also a healthy sense of urgency in our management. Furthermore, I'll welcome restructuring our succession plan. Although more detailed discussion is necessary, we will develop a highly effective succession plan by redefining the personnel who will lead the next generation of group management, formulating and implementing an appropriate training plan and conducting monitoring by the Board of Directors of the training plan and progress. Next, please turn to Page 5. I would like to talk about reestablishing a work environment where employees can work comfortably and with pride. The incidence of inappropriate behavior have greatly disappointed our employees who are our important stakeholders. As acting President, the first thing I did was the other 2 Executive Vice President last December was to make a commitment to reestablish a work environment where the employees of ENEOS Holdings and ENEOS can work comfortably. At ENEOS, we established a project at the beginning of this year mainly led by 2 outside directors, Ms. Kawasaki, who is here today and Ms. Oka, as well as 3 executive vice presidents, including myself, in which interview of officers and employees are being conducted by a third party to understand the reality of the workplace. Although we are still in the process of investigation, it has been confirmed that there are various gaps in values between generations, genders, departments, et cetera. Based on the final results, we will review our customers and practices promote dialogue to close the gaps and consider and implement specific measures. We also believe that it is essential to make these efforts visible in order to rebuild trust with employees, improve engagement and strengthen human capital. Next, please turn to Page 6 for reforming the group management structure. We touched on ROIC management by business domain last year when we announced the third medium-term management plan. As we will start a structure with 6 principal operating companies in April 2024, we will strongly advance portfolio management in which ENEOS Holdings will formulate strategies for the entire group and when necessary, be involved in important business strategies of the operating companies. With this change, we will resolve the integrated management of ENEOS Holdings and ENEOS which has continued since June 2020 in order to clarify the operations, profitability and management responsibilities of each business. And after the General Meeting of Shareholders in June 2024, CEOs or President of principal operating companies will no longer serve as Director of ENEOS Holdings. In addition, the positions of CFO, CHRO, CTO and COO will be established directly under the CEO to strengthen and optimize collaboration among principal operating companies and intellectual capital, such as financial capital, human capital and technological strategies and improved group governance. That is all for the explanation of initiatives for the enhancement of the ENEOS Group, including measures to prevent recurrence of inappropriate behavior. Lastly, I'd like to briefly give my thoughts as the new CEO of ENEOS Holdings. We have expressed our commitment to achieving our group philosophy with the slogan, supporting today's normal, taking the lead for tomorrow's normal. This means that we must continue to be an integral part of the stable supply of energy and materials in Japan and of the energy transition toward the realization of a carbon-neutral society as stated in our long-term vision. However, in order to fulfill this mission, a role must be recognized by society, and we must earn society's trust. To this end, I would like to make 2 promises as the new CEO of ENEOS Holdings. First, I would like to show you that our steadily strengthened group governance by implementing various measures, including the recurrence prevention measures I explained today. Second, I will maximize the corporate value of the group by utilizing management resources as people, good capital and information efficiently and effectively with good control under ENEOS holdings to strongly advance portfolio management in which ENEOS Holdings is involved with strategies related to the important base businesses and growth businesses of the principal operating companies with the help of our shareholders and investors, our lead group management with the determination to transform. And I would appreciate your continued guidance and support. Thank you.