ITOCHU Corporation (8001) Earnings Call Transcript & Summary

Now we'd like to start the Sustainability Briefing of ITOCHU Corporation, Enhancing Corporate Value Through the Evolution of Work-Style Reforms. Today, we would explain the background, tracks of evolution and key concepts of our work-style reforms, which clearly defines the human resource strategy as one of our management strategies from both an executive and supervisory standpoint. In the corporate value calculation formula, we will mainly focus on how to lower the cost of capital. Let me introduce the participants from ITOCHU. First, Mr. Fumihiko Kobayashi, member of the Board, Executive Vice President and CAO. Next, Ms. Atsuko Muraki, Outside Director. Next, Ms. Yoshiko Matoba, General Manager of Human Resources and General Affairs Division. Also, as observers, we have Mr. Tsuyoshi Hachimura, member of the Board, Executive Vice President and CFO; also, we have Yoshihito Tabe, the General Manager, Sustainability Management division. So first, Mr. Kobayashi, CAO, who became the General Manager of the General Affairs Division in April 2010 and has stayed close to the front line and led the human resources and general affairs policies, he will talk about the evolution of work-style reforms of ITOCHU. And then, Ms. Muraki, Outside Director, who was the official at the Ministry of Labour, Health and Welfare (sic) [ Ministry of Health, Labour and Welfare ] in charge of the labor policies and employment of women, will talk about evaluations from the macro perspective of the country. Now I'd like to hand the microphone to Mr. Kobayashi.

This is Kobayashi, CAO of ITOCHU. When we talk about the work-style reforms, we usually discuss this in the context of improvement of the labor involvement and improving the motivation for the employees. But today, we would like to add the perspective of sustainability and talk about the work-style reforms that we have conducted at ITOCHU. So this is today's agenda. First, what we sought with the original programs will be explained and how did we switch to the work-style reforms and what did we do. I would introduce the major ones. And as a result, what were the quantitative achievements? And now we are moving on to the next page and the relationship between the work-style reforms and sustainability. So that will be the end of my part and ask Ms. Muraki to talk about #6, evaluations from the macro perspective of the country. So let me start with what we sought with the original programs. In 1999, we went through major revisions of HR programs. We aim to be an employee-friendly company. We went through various challenges, but we tended to pursue the -- only the ideal. And there were two major reasons. Many numerical targets which were quite different from the reality were set, so there were mismatches from the front line. And the second reason was that the program expanded, and there was a negative effect and there were employees who abused their rights. So we needed the reforms. In 2010, Mr. Okafuji became the President. And first in-house childcare facility was set up because it was very much needed, and we started with the work-style reforms. So the beginning of the work-style reform was 2010. And at that time, there were two major assumptions at ITOCHU which continue to be the same. First assumption is that we have a remarkably low number of employees compared with the general trading companies associated with former zaibatsu industrial groups. You can see the blue line at the bottom. Number of employees is about 70% of other trading companies'. So we needed to maintain the smaller and capable employees. Also, many of our customers were very close to the consumers. So our employees also needed to be close to their customers. So based on those 2 assumptions, those are the 5 aims of the work-style reforms. First, since we are smaller in terms of the number of employees, every employee is better positioned to realize their full potential than at any other general trading companies. And secondly, in addition to the employee friendly, we set the vision of creating challenging but rewarding company and to provide returns to all the stakeholders, including employees, as we achieve results. And we set the quantitative KPIs of -- for the labor productivity, dividing the consolidated net profit by number of employees. And finally, we would implement reforms based on the spirit of Sampo-yoshi. Next is the concepts supporting the work-style reforms. Since we are a smaller team, to achieve good results, we needed to be efficient. We also need to enhance the employee motivation and develop capability of each employee. And the most important is the health of all the employees. And as a result of those factors, we can generate the synergy to reshape the labor productivity. This slide shows the history of changes of the work-style reforms. Due to the shortage of time, I would only mention the ones which are encircled in red, starting with the morning-focused working system. This started with a strong initiative of the top management to eliminate overtime at night and instead to work the following morning at early hours. And we provided the wage increases equivalent to the late-night working and distributed the various free light breakfast. Right way, we started to see the results. After 8 a.m., the over time was reduced from 30% to 5%. And 10 p.m. or later was reduced from 10% to almost 0. Also, power usage, taxi fares were reduced. This measure was quite astonishing reform. But many employees and union welcomed this. This created a lot of reaction, and hundreds of companies and organizations wanted to visit us. And we accepted all of them and provided all the know-hows that we have. Government also focused on this. In June 2014, This was included in Japan revitalization strategy. And in 2015, the Keidanren actually communicated this to their companies based on the recommendation of the government, and government also started new kinds of activity. This created a powerful surge. We have recognized that the employees' health is a foundation for the development of stakeholders. So we had a very good medical care. In 2016, we formulated ITOCHU Health Charter, saying that the employees' health is the foundation of the stakeholder development. This is available from our website. And you can see the improvement of the health indicators shown on the right-hand side. Now next is support measures for balancing cancer care and work. This started with one story moving our company. In 2017, an employee battling a long-term cancer sent an email to then President, Mr. Okafuji. At that time, an economic journal did the ranking on the happy companies, and we were ranked second. And this employee got to know this, and he was treated so well by the senior workers, colleagues and younger workers. So this employee wrote in the email, "For me, ITOCHU is the best company in Japan." He wants to overcome cancer and wants to come back to work for the company. Mr. Okafuji was so moved. And with the consent of the employee, he made this public in the Internet and appealed to all the employees to pray for this employee so that he can come back to work. But, unfortunately, 2 weeks later, this person passed away. Attending his funeral, President Okafuji promised to make ITOCHU the best company in Japan as he wept and sent the message to all the employees. And as a result, in July 2017, he sent a message to all the employees: "Don't lose to the cancer." So not to get cancer, or even if you get cancer, you will get the most advanced care. And also, even if the employees die, the bereaved families will be taken care of. So regardless of the number of the children, the company will give the financial support until the children finishes the graduate school of the private universities. And also, if the spouses want to find work, the company will make the -- take all the initiatives to find a post. And if children want to work in the future for ITOCHU, the ITOCHU Group will find the position for the children. And he ended the message saying that, "You belong here" and "The employees are family." So this created the waves of reaction and empathy inside the company. And also, this was widely reported. Therefore, we received so many emails and letters from outside. And many of those messages were quite moving. And Mr. Okafuji responded to all of those messages. Now this shows the content of these support measures of the balance in cancer care and work. They are divided into prevention, treatment and coexistence. We'll just touch upon the red part, alliance with National Cancer Center Research Institute and providing the special checkups and providing full company assistance for expense for advanced cancer treatment and construction of support system for balancing cancer care and work. There's a very important point that I'd like to convey when we talk about these support measures. 1 person in 2 in Japan get cancer. But if you look at women, younger women suffer from cancer, as you can see here, while they are still working. In the case of a male, the cancer rate becomes higher, half at the older age. This is because of the fact that the gynecologic cancer hit women as the early age, and it is twice or 3x higher, the cancer rate, for women than men. So this is something that we cannot avoid when we think about the empowerment of women. We want to make sure that even when the women get cancer, they don't have to give up work. If the company wishes to empower women, we have to have the infrastructure so that women can continue to work. We have to avoid the sustainability in that sense to be limited. So this policy was widely awarded by the ministry and also other organizations. We're very honored to receive those awards. Now we -- when we have a consent from the employees, we'll provide all the health checkup data to the National Cancer Center Research Institute because usually, the institute will get the data only after the employees go to this research institute. So if they can get additional data before employees get sick, this would be a very important information in the research of cancer as well as for the treatment of the patients. Now let me talk about the COVID-19 pandemic countermeasures that we have taken for more than 2 years. There's one concept. That is, our commitment to the front lines. Even during the pandemic, our customers are at the forefront. Supermarkets have abundant merchandises and products anytime you go there. And convenience stores continued to operate, and deliveries are made without interruption. All of those daily necessities are provided by people working at the forefront. So for us, those -- this business is important in order to make sure that the employees are safe. We started to have very strict prevention measures for the infection, and we have -- we changed the work system flexibly 24 times. And last year, when the workplace vaccinations started, we were one of the fastest to start this. And actually then, the Chief Cabinet Secretary, Kato, visited us. And as one of the first workplace vaccination, we provided the information about the layout and the manual and record of the vaccination through our website. And we accepted all the requests for the visits from outside so that we can improve the -- and help the other workplace vaccinations. We also provided vaccination for the 1,500 childcare facility staff. This led to the local government following suit. So this is based on the spirit of Sampo-yoshi. That is, we are not doing this only for our company but also for the society. Now this quick workplace vaccination gave us an opportunity to meet with then Prime Minister Suga, and he gave us a very warm words of appreciation. Now let me talk about the quantitative achievements of our work-style reforms. From the beginning, we wanted to achieve the improvement of the labor productivity. After the beginning at the end of fiscal year ending March 2022, this has improved to 5.2x. Next is the returns to the stakeholders. The dividend increased 6.1x and share price 4.4x. So we are making sure that we make returns to shareholders. And we are committed to the minimum level of the dividend at JPY 130 per share in the fiscal year end March 2023. So that means that more than 7x. Employee annual salary increased more than 20% during this time. And we are now moving on to the next stage. Last year, we established the Women's Advancement Committee as one of the advisory committees to the Board of Directors. This is chaired by Ms. Muraki, our Outside Director. This committee is validating our measures of the work-style improvement and also providing us with new proposals. And we are promoting the selection and promotion of the female executives. I think there are similar committees like this, but it's very rare to have this as one of the advisory committee to the BOD. And this committee will be regularly reporting to BOD so that we can expand the environment where women can engage more and succeed. Once every 2, 3 years, we conduct a major engagement survey with the employees. In terms of the motivation of the employees, among the leading companies, we are in the top class. But if you compare the numbers with that of 3 years ago, there were some lower numbers, especially among the young generation and women. We believe that we need to develop measures that respond to the diversification of the values. So as I mentioned, based on the assumptions that we have, we need to move on to the next stage. Starting with May, we started to introduce the Morning-Focused Flextime System to provide more flexibility. So even under non-pandemic times, people can combine their work from home and the Morning-Focused Flextime System, and allowance to balance the engagement in work and child-rearing and leave for the infertility treatment, the holidays or the leaves are provided so that the work-and-life balance can be established regardless of the agenda. Now let's talk about the relationship between the work-style reform and sustainability. Earlier, I mentioned that Mr. Okafuji wanted to make the company #1 in Japan. But what does #1 in Japan mean? Is it in terms of the market cap or profit? There are different factors, and there's no clear definition. But these days, a sustainable company is a good company, and I don't think many people will say no to that. Next, based on that assumption, I'd like to show you the next page. From 2023 graduates, this is a company ranking among those job seekers. And fortunately, we were #1 among the trading companies. And in one of the -- 4 of those media, which are shown in red, we were #1 among all companies. So how do the young people graduating from university choose company? High salary or working abroad? There are different reasons. But they are choosing a company where they might spend decades of their lives. So they would choose a sustainable company. So in that sense, at least from the students' perspective, we are getting close to becoming one of the most sustainable companies. Next page. This is something that came out recently. It shows the changes of the birth rate among our employees. Since the beginning of setting up in-house childcare facility in 2010, we have seen the increase of the birth rate and reached 1.97 at the end of March 2022, in response to the work-style reform and health management. And this exceeds the 1.33 of the national average and 1.13 of total. Especially, this gained momentum since we introduced the Morning-Focused Working System. The trading company appears to be dominated by men. But when the women joins our company and go through life events, we want to make sure that they can continue to work without giving up work. And I think this number -- or graph proves that we have a very employee-friendly and gender-equal environment, and I encourage all the female students who are interested to apply for the job here. And next page shows the external evaluation, including DJSI, and we are ranked #1 among the trading companies. So as I said, if you look at our work-style reform from the sustainability perspective, what is the characteristic? I think that is our reform is based upon the spirit of Sampo-yoshi and based on the commitment to the front lines. Sustainable companies need to have a resiliency to respond to the rapid changes in the society. So several changes would lead to the major environmental changes. And I think that the commitment to the frontline will make it possible for us to respond to those situations. So sustainable is very important for the companies, and the sustainable company is supported by all the employees. And each one of the merchant who are willing to make returns to the society, they -- their efforts will grow a company and create the social model and lead to the sustainability in the society. So this is the end of my part of the presentation. When we talk about sustainability, we tend to focus more on the clean energy, which is the major theme. But unlike other trading companies, who focus more on the natural resources, we are very much focused on the daily lives of people. So in the market or -- we want to make the whole market greener, and that is something that we are trying to do. I think that is our way of work-style reform, which is based upon Sampo-yoshi spirit, and that would reshape corporate value. We'll make sure that we will maintain this commitment to the front lines and try to improve the corporate value. I ask for your support. And I hope that my presentation was helpful in some ways. Next, we have Ms. Atsuko Muraki, Outside Director.

Thank you. I am Muraki, Outside Director. I would like to talk about the evaluations from the macro perspective of the country. Now from the macro perspective, the work-style reform and empowerment of women, those gained momentum in the past 10 years or so. As a background, we have falling birth rate and aging population. This expands the social security burden. And the fiscal deficit also increased which needs to be paid by the future generation. We needed to do something. And at that time, we increased the consumption tax and also tried to make the social security system more focused and efficient. It was a very tough reform. At that time, this reform was called reforms with pain. And frankly speaking, this was something that we have to do, but we cannot do it many times because it was so tough. And how can we make this more forward-looking reforms? That was a discussion we had. And we focused upon the empowerment of women. By empowering women, we can increase the number of the children who can support the society in the future. So we were discussing the policies. And the graph that the government was focused on is shown here on the right-hand side. Horizontal axis is the women's employment ratio of different countries. If you go to the right, that means that more women are working. The vertical axis shows the total fertility rate. When more women work, the birth rate or fertility rate increases. So there are countries where both the employment ratio and fertility rate are high. So why is it not like this in Japan? What are the obstacles? So we discussed those matters. And as a result, we found out the reasons. First of all, the long work hours and also the atmosphere of the workplaces were the reasons. That is to say that when people are working for a long time, the women people found it difficult to leave early because of the children. So in order to empower women and increase the number of children regardless of the gender, we recognized that we needed to reform the work styles. So finally, we started to recognize that need. And there's another data that we are very much focused upon, the graph shown on the left-hand side. This shows the hours per day the husbands engage in the homemaking and child-rearing in households with children younger than 6 years old. As you can see, in Japan, it's hour and 23 minutes. But in the United States and Europe, it's 2 hours or 3 hours. So this means that both husbands and wives working and taking care of children. So this was the model that the Western countries have already shifted to. And in those countries, they have a high women's employment ratio and high fertility rate. The graph in the middle is the Japanese data. Lower bars represent the longer hours that the husband spend on homemaking and child-rearing, and the blue means that women remain in the same workplace. More interesting data is on the right-hand side. This is the ratio of the couples who gave birth to two or more children based on the hours spent by husbands for homemaking and child-rearing during holidays. So in order for a country to become sustainable, we cannot avoid the work-style reform. So we've found out about this from the macro perspective. So what about individual companies, whether they can do a very drastic work-style reforms? And at that time, the Morning-Focused Working System of ITOCHU was quite sensational for the government. We thought that finally there's a company with the Board (sic) [ broad measures ]. And some data -- ITOCHU's data that I felt quite interesting and impressed with is shown here. So this is the ratio of married male employees with working wives. The one on the left is the 2001 and the one on the right is 2022. So as you can see, the ratio of the married male employees with working wives is so high. So what kind of lifestyle do they want to have? How can they make sure that they can enjoy both work and home life? So when we asked the question to ITOCHU employees about the reasons why women at ITOCHU believe they can continue to work while engaging in child-rearing, the highest answer was the work-style options and work-style reform. And another was the atmosphere at workplaces. So those matches with what we found out from the macro perspective. So to make sure that we have a good work-style reform for both men and women will lead to higher satisfaction of the work life as well as private life. And this has been proven by ITOCHU. As Mr. Kobayashi mentioned, it's extremely important to have employee-friendly company. But in addition, there has to be sense of fulfillment. So whether ITOCHU can realize both is something that I'd like to make sure that I watch over as one of the Outside Directors. Thank you for your attention.