Toyota Tsusho defines “risk” as “an event with the potential to cause unexpected losses in business operations, or cause damage to the Toyota Tsusho Group’s assets and trust, etc.” as laid out in the Risk Management Basic Policy. The company’s fundamental approach is to identify and consider the various risks that occur in the course of business operations, ensure management safety, and increase corporate value by exposing itself to risk only within an appropriate and controlled range.
In order to carry out the above, we have established the Enterprise Risk Management
Department, which comprehensively manages the risks of the Group, and cooperate with each department and the Group companies regards the risks of the entire Group by referring to the concept of the COSO-ERM framework. We are working in order to build and strengthen a consolidated risk management system in collaboration with each group company.
Regarding the management of financial risks, the company regularly measures its risk assets, and endeavors to ensure that the total amount of its risk assets is balanced by risk tolerance on a consolidated basis.
In addition, the following eight risks have been defined as major risks, with management policies formulated by each risk management department, and a consolidated monitoring system has been established to deal with them. In addition, the Integrated Risk Management Committee is to endeavor to understand risks and discover problems on a consolidated basis for the eight major risks, and discuss and promote necessary measures.
* Major 8 Risks ... "Market risk", "Credit risk", "Business risk", "Personnel labor risk", "Information security risk", "Compliance risk", "Safety / environmental risk", "Country risk"
Risk Management System
The previous ERM Committee was expanded from the fiscal year ending March 31, 2021, and Integrated Risk Management Committee was launched. Members from Corporate departments and officers in charge participate in Integrated Risk Management Committee. Quantitative and qualitative risks are widely taken up at the meetings. Efforts are made to grasp companywide risks and identify problems. The committee then deliberates on and carries out necessary measures.
Specifically, we identify important company-wide risks related to management goals, discuss and decide on policies for dealing with them, and propose to the Board of Directors agenda items related to the management of company-wide risks. In principle, Integrated Risk Management Committee consisting of the vice president and CFO (vice chairman) in charge is held four times a year to make recommendations to the CEO and report to the Board of Directors on the risk situation and response policy on a consolidated basis. Specifically, we clarify the risks that will have a significant impact on the Toyota Tsusho Group management, identify important company-wide risks related to management goals, discuss and determine response policies, verify the effectiveness of the risk management process, and inform the Board of Directors of our suggestions. The Board of Directors applies the continuous plan-do-check-act (PDCA) cycle including sufficient discussion and appropriate measures to lead concrete actions in which appropriate measures and thoroughly deliberated and concrete measures decided.
The Sustainability Management Committee also works with the Integrated Risk Management Committee to manage ESG risks related to important issues (materiality) and reports them to the Board of Directors.
Risk Management Iniatives
１．Business Investment Risk Management
(1) Initiatives and Results for Maintaining Financial Soundness
Aiming for stable growth while maintaining financial soundness, we
are promoting a financial strategy focused on the efficient use of
assets and on fund procurement commensurate with our asset base.
Regarding the efficient use of assets, striving to generate maximum profit with minimum funds, we promote the efficient use of working capital, such as through shorter collection periods for trade receivables and lower inventory levels. We also promote the efficient use of funds, such as by reducing any idle or inefficient fixed assets. Directing the funds generated through these activities toward investments in businesses with higher growth potential and toward reducing interest-bearing debt, our aim is to both enhance corporate value and improve our financial soundness.
As for fund procurement, our basic policy is to conduct procurement commensurate with our asset base, taking interest rate fluctuation risk and exchange risk into consideration. We borrow from financial institutions and issue commercial papers and company bonds, while working to ensure appropriate liquidity and to maintain stability. In addition, we are securing sufficient bank loans, including commitment line contracts, and paying attention to liquidity to avoid business difficulties, to cope mainly with the impact of COVID-19 on cash flows for each group company.
We are also striving to maintain a sound and stable financial position by continuing to increase the risk buffer (RB) based on Profit for the year attributable to owners of the parent. We also conduct country risk management to prevent an excessive accumulation of risk, by evaluating the total amount of risk assets (RA) and keeping this total beneath the upper limit determined for each country. As a result, during the fiscal year ended March 31, 2020, we again achieved keeping RA within the bounds of RB.
As a result of these ongoing efforts, net debt-equity ratio (net DER*) for the fiscal year ended March 31, 2020 was 0.86 times what it was for the previous fiscal year and ROE was 11.3%. Net DER deteriorated to 0.03 times what it was last term, which is largely due to increased lease liabilities with the adoption of IFRS 16 Leases from this fiscal year.
*Net DER is net interest-bearing debt divided by total equity attributable to owners of the parent.
(excluding lease liabilities)
Net Interest-bearing Debt/Total Equity Attributable to Owners of the Parent/Net DER
(2) Investment Cycle Operation
To achieve sustainable growth, we believe it is important to appropriately
manage risk and to generate reliable results from investments.
Rather than investments aimed at short-term profits, based on strategic investment whereby a business is developed over the medium to long term leading to expansion and strengthening of our group’s value chain, we have developed a system that optimizes the knowledge and experience accrued throughout the company to engage in deliberations at each stage of investment, from initial investigation to implementation. We have also enriched our systems for investment follow-up, to solve the problems faced by our business companies and to replace assets.
Regarding new investment projects, major policy is decided by the Mid-term Business Plan Meeting and the Investment Strategy Meeting, while decisions on individual projects are made by the organization concerned based upon business plans screened by the Investment and Loan Meeting/Investment and Loan Committee. At the Investment and Loan Meeting, chaired by the CFO, we use our own TVA (capital efficiency)*1 and RVA (risk income)*2 indicators, and conduct assessments of climate change and other environmental risks using our own environmental check sheets, to quantitatively verify projects from various perspectives. Some of our affiliated companies, both in Japan and overseas, have been authorized to make investments in order to accelerate the investment decisionmaking process.
After investments are made, the Administrative Unit and the sales division concerned jointly and continuously monitor and support projects facing issues (“check and support”). In addition to independent monitoring by the sales divisions, the Administrative Unit also monitors through balance sheet and profit/loss (BS/PL)*3 standards.
If a project falls short of quantitative standards, we assess the sustainability of the business and decide whether to restructure or exit.
By continuing to repeat this investment cycle, we aim to allocate management resources optimally and improve capital efficiency.
*1 TVA: An indicator, based upon the concept of return on invested capital (ROIC), that verifies that a certain revenue scale is achieved corresponding to the invested capital.
*2 RVA: An indicator that verifies that obtained revenue is appropriate for the risk.
*3 BS standard: If the capital impairment ratio is 50% or higher
PL standard: If there is a net loss for two consecutive periods, or if a downturn is at least 30% of planned value at time of investment for two consecutive periods, decide to either restructure or exit.
２．Credit Risk Management
Toyota Tsusho rates suppliers on eight levels based on their financial position using independent criteria and specifies limits for each type of transaction, such as accounts receivable or advance payments. For suppliers who receive low ratings, the company endeavors to prevent losses by reviewing transaction conditions, establishing transaction policies such as protection of accounts receivable or withdrawal, and conducting individually focused management.
３．Market Risk Management
(1) Product Risk
Toyota Tsusho sets position limits for market product transactions that are exposed to the risk of commodity price fluctuations, such as non-ferrous metals, crude oil, petroleum products, rubber, foodstuffs, and textiles; regularly monitors whether these limits are being applied; and takes measures to mitigate price fluctuation risks.
(2) Foreign Exchange Risk
Toyota Tsusho implements hedge measures, including using forward exchange contracts, for transactions denominated in foreign currencies, as they are exposed to the risk of fluctuations in foreign exchange rates. In the event we are unable to hedge a transaction, we implement measures that mitigate foreign exchange rate fluctuation risks by setting position limits and regularly monitoring the results of these limits.
４．Environmental Risk Management
The Group's business entities are operated in accordance with environmental policies and biodiversity guidelines. For existing business units, we are working to reduce the risk of environmental pollution by quantitatively evaluating the degree of environmental pollution risk for each facility and the management level of work sites. In addition, we carry out a compliance evaluation for environmental laws and regulations every six months, and double-check the status of legal compliance of priority issues through internal and external audits.
５．Crisis Management（Security Management）
(1) Overseas Crisis Management
In response to a major terrorist attack in Algeria in January 2013,
the Security Management Group was established as a specialist
organization within the Global Human Resources Department in
April of that year. In April 2017, the group was integrated with the
BCM Promotion Group from the General Administration Department,
and in April 2019 the Enterprise Risk Management Department.
Education and training includes pre-assignment seminars for employees (and their families) stationed overseas and hands-on training that enables them, in a controlled environment, to learn about and to experience the risks unique to their country or region.
1) A seminar on basic precautions while on business trips abroad is held for young employees with little overseas experience.
2) Hostile Environment Training, which includes topics such as terrorism,
is conducted for personnel assigned to high-risk countries.
We have stepped up our monitoring and analysis of security information and have developed a website through which we share information with Toyota Tsusho Group employees all around the world. We have also established a 24/7 response system offering medical consultation with a physician by telephone and emergency medical transport for employees stationed overseas.
(2) COVID-19 Pandemic
In January 2020, we set up the Emergency Headquarters and in
March declared our own state of emergency. We have linked our
major sites in Japan and abroad and are sharing the following information
and determining policy.
1) Employee safety
2) Regional/social safety
3) Impact on business operations
There are worldwide concerns that mineral resources mined in the Democratic Republic of the Congo (DRC) and nine neighboring countries are the source of funding for armed groups that are causing human rights abuses and environmental destruction. A survey has been conducted every year since 2013 to check whether these conflict minerals are contained by going back to the supply chain globally, centered on US-listed companies, and we are also actively participating in the survey as a member of the supply chain.