Our policy of safeguarding our supply chains has borne fruit, with three consecutive fiscal years of record-high earnings.

In terms of business performance and financial structures, our Mid-term Business Plan for the fiscal years ended March 31, 2022, through March 31, 2024, produced great results.

The main reason behind our three consecutive fiscal years of record-high earnings was that we were able to meet the expectations of customers and society. We did this by conducting a detailed review of our businesses in each country and region in line with our policy of safeguarding our supply chains, even during the COVID-19 pandemic. We also successfully launched a series of businesses that helped us mitigate new issues that have developed in society, including the deterioration in U.S.-China relations and other geopolitical risks, and natural disasters. What was perhaps most significant was our ability to instantly respond to problems in the workplace as a trading company with very close ties to the front lines.

In terms of financial structures, we focused on eliminating waste from our operations and became deeply involved in each business to appropriately control working capital turnover periods, which we prioritize in our businesses. As a result, we were able to steadily strengthen our balance sheet over three years after it had excessively grown.

With operating cash flow of more than 500.0 billion yen also exceeding our target, I am happy to say that this three-year period has gone exactly as I had hoped.

We are continuing to strengthen our foundations for long-term growth while targeting 400.0 billion yen in profit for the year attributable to owners of the parent (hereafter “profit for the year”).

In our Mid-term Business Plan for the fiscal years ending March 31, 2025, through March 31, 2027, announced at the end of April 2024, we established an aggressive target of 400.0 billion yen in profit for the year ending March 31, 2027. As we enter a time for reaping the benefits from the businesses and investments we built up over many years, coupled with enhancements to our lean operations, we are improving our cash-generating capabilities, and it seems highly likely that we will achieve just under 7% average annual growth.

In this Mid-term Business Plan, we have established and announced our approach to three medium- to long-term growth investment domains from qualitative and quantitative angles. The first domain is core value (our core businesses), which is where our strengths lie, including our mobility, semiconductor-related, and African businesses. The second domain is social value (value generated by businesses that contribute to resolving social issues), where we use the social capital of our battery, recycling, and other businesses and return the added value generated to social capital. The third is nature value (value generated by businesses that reduce impact on the environment), where we return added value to natural capital, including our renewable energy and hydrogen-related businesses. Fundamentally, we maximize revenues through the distinctive traits of Toyota Tsusho that we have developed through our core value, and we invest in sustainable domains, including social value and nature value, that will become the main pillars of our businesses in the future.

During the period of this Mid-term Business Plan, we will invest in additional CapEx^* in our core value domain, the base of our company, and further enhance functions and efficiency to strengthen our ongoing cash-generating capabilities.

We consider social and nature value domains to be business domains that offer future upside. By adding our specialized “Be the Right ONE” vision to the mix, we will create further value that will increase corporate value going forward.

We are investing 1.0 trillion yen for long-term growth while managing ROE and net DER.

Over the three years of the Mid-term Business Plan, we expect to generate 1.3 trillion yen or more in cash by refining our existing businesses, centered on the mobility-related value chain, and reaping the benefits of years of investments. Of that amount, we plan to spend 1.0 trillion yen or more on growth investments and return 300.0 billion yen or more to shareholders.

Of this allocation to growth investments, we will spend 400.0 billion yen or more in the core value domain and specifically on businesses that contribute to advancements in the supply chain. We will also spend 300.0 billion yen or more each in the nature value domain, which includes renewable energy, and the social value domain, which includes helping to develop resource recycling systems. When investing in the domains of nature value and social value, we need to think about returns from the medium- to long-term time frame. However, we again set our company-wide ROE target at 13% or more over the coming three years based on growth investments that promise shareholders a return of shareholders’ equity over the short term as well.

Net DER is another important indicator that we manage. From the perspective of increasing borrowings to create leverage as a trading company, we consider our current DER of 0.48 times to be a little low. It is important therefore that we lift this figure and tightly control it within the range of 0.6 to 1.0 times. In the current situation, even if we were to borrow around 1 trillion yen for large-scale M&A activities, we would still be able to hold DER to around 0.8 times. Therefore, we hope to maintain this level of safety over the coming three years.

We set separate ROIC targets for each of our three value domains, and we are managing with an awareness of the cost of capital while working to merge ROIC and TVA, a unique Toyota Tsusho indicator.

In addition to setting a company-wide ROE target, we have also set separate ROIC^*1 targets for each of the three value domains in which we invest and clarified the returns to achieve in each domain. Our ROIC targets are 5% or more for the nature value domain, 10% or more for the social value domain, and 15% or more for the core value domain. Rather than ignoring nature value because it is a domain in which it is difficult to achieve profitability, investment is possible whenever the target line is exceeded in any value domain. However, we consider it important to invest with an eye to higher returns with additional upside synergies after three years. The ROIC figures at this stage are our first step in ensuring that all employees and people outside the Ccompany understand the importance of investments that aim to resolve environmental and social issues. I have had several opportunities to speak with investors since announcing this Mid-term Business Plan, and I noticed a significant reduction in the number of people questioning why we are involved in low-return renewable energy businesses, so I feel people are gradually coming to understand our way of thinking.

In the domains of nature value and social value, we can increase returns at the same time as solving our Key Sustainability Issues (Materiality). We will promote long-term sustainable businesses with a balance between these two ideals while pursuing the realization of our “Be the Right ONE (a one-and-only, essential presence)” corporate group vision.

At Toyota Tsusho, we use a unique in-house indicator called Toyotsu Value Achievement (TVA),^*2 in addition to ROIC. TVA is an indicator that measures the amount of added value over expected profits (cost rate of invested capital) from invested capital (funds used), so we monitor TVA to ensure we achieve the income expected of our invested capital. ROIC, as an indicator of profit ratio, is better for gauging the level of achieving the ideal image for which we aim when creating new businesses, but TVA, as a quantitative indicator, is more suitable for monitoring whether a business is profitable. However, trying to use these two indicators together can be confusing, so we are currently working on a project to develop a key performance indicator (KPI) that merges the two. With many of our younger members also participating in the project, we hope to achieve a KPI that can function for the next 20 or 30 years.

We will continue to focus on renewable energy businesses in the nature value domain.

In the nature value domain, we are continuing to focus on renewable energy businesses. We have been implementing priority investments since our previous Mid-term Business Plan, such as wholly owned subsidiary of Eurus Energy Holdings Corporation and Terras Energy Corporation as our acquisition. Eurus Energy Holdings Corporation brought with it years of knowledge and data from its work in renewable energy businesses from the 1980s, and that is something that cannot be replicated overnight. Going forward, we aim to establish a solid position for ourselves as Japan’s No.1 renewable energy company. We will continue to focus on renewable energy businesses as we pursue the considerable potential of this field, including the utilization of hydrogen, and virtual power plants (VPPs^*), which are gaining attention as a method that eliminates the disadvantages of unstable power supply from renewable energy.

Ten years ago, we anticipated the unsustainability of fossil fuel-related businesses, so we set about quickly divesting ourselves of those businesses as we shifted to businesses that are unique to us. We have now decided to completely withdraw from the coal and heavy oil power generation business during the fiscal year ending March 31, 2025, which will mark the end of our investment in power generation-related businesses that use those energy sources.

We aim to create a circular ecosystem of above-ground resources in the social value domain.

For more than 10 years now, we have not invested in the development of underground resources and have instead focused on businesses related to above-ground resources, which means resource recycling businesses.

Amid calls for the creation of a circular economy, there is an increasing need for the recycling of metal resources, including lithium from EV rechargeable batteries and scrap aluminum. In Europe, for example, a proposed regulation has been announced that makes it compulsory to use recycled material for 25% of plastic parts in the production of new vehicles. Going forward, we will continue to quickly identify such regulations and requirements to take the lead in creating a circular ecosystem.

We plan to return a total of 300.0 billion yen or more to shareholders, which will greatly exceed shareholder returns during the previous Mid-term Business Plan.

In terms of shareholder returns, we promised progressive dividend increases during the current Mid-term Business Plan, so we expect that the fiscal year ending March 31, 2026, will mark our 16th consecutive fiscal year with an increased dividend. We believe this will appeal to shareholders and earn their further trust. We also expect to achieve our targeted dividend payout ratio of 30% or more.

When formulating the new Mid-term Business Plan, we conducted extensive discussions within the Company on our medium- to long-term capital allocation. In other words, we carefully incorporated medium- to long-term numerical targets in our investment strategy, investments in three value domains, targets for their returns and ROE, and movement in leverage. As part of that, we set a total shareholder returns target of 300.0 billion yen or more over the coming three years. In our Mid-term Business Plan announced in May 2021, we set a shareholder returns target of 130.0 billion yen or more but paid out 226.0 billion yen, which greatly exceeded that target. Despite the ability to conduct a share buyback if needed, our basic policy of returning profits to shareholders via dividends means that we will prioritize progressive dividend increases instead.

A deep understanding of businesses and products is essential for managing risk and building the optimal business portfolio.

Having worked in the domain of finance and accounting for many years, I believe that in addition to the actual numbers, it is important to have a firm understanding of businesses and products. This is because you cannot perceive real risks and numbers without an understanding of such things as the realities of your business, trends in countries and regions in which you do business, and market conditions for your products. I, myself, strive for an extremely granular understanding of the status of our businesses. I believe it is possible to operate at levels that exceed ROIC targets by managing risks with a grasp of the conditions and changes of each business.

For example, the mobility industry, which is one of our domains of specialization, is conducting a reevaluation of hybrid vehicles as expectations for EVs diverge from actual markets. In the countries of Africa as well, conventional gasoline-powered vehicles are necessary because the infrastructure required for EVs is still not in place. With different government policies in each market, the best way for us to proceed is to look closely at each policy and conduct business along the most appropriate timelines. Additionally, looking back on the past 20 or so years, we have been able to achieve results by reviewing our investment ratios by country and domain and enhancing our investment in Africa while focusing on the global situation and business trends. When we talk about Africa, it is important to remember that Africa comprises 54 countries with different languages, business customs, and risks. We therefore need to, and we do, tailor strategy and risk control individually to each of these 54 countries. Apart from these country- and domain-specific perspectives, we also verify risks from multiple angles, including on a product-by- product basis, to build our optimal business portfolio.

In terms of quantitative indicators, we have also established the RA/RB (risk assets/risk buffer) indicator and are working to maintain it at less than 1.0 times.

I value learning from history as a way to improve the accuracy of forecasts.

Something else that I value is learning from history. Whichever economic indicator you look at, rather than continuing to climb forever, there will always come a time when it falls. I always try to keep in mind the status of our main indicators over the past 50 or so years.

And as a trading company operating businesses around the world, understanding the history of each country is imperative. It is firmly stamped on my mind that history will always repeat itself, so I strive to improve the accuracy of our forecasts by learning from the past.

New challenges coming

As I have indicated, we want to give back to nature and society. I would therefore like to suggest that contributing through companies is one way that we as individuals can contribute to the planet. We will also invest in domains in which the future may still be unclear, but with the support of all our stakeholders, we will be able to keep our promise as a company. In other words, for our part, we are committed to maintaining an ROE of 13% or more. To our shareholders, we ask that you watch over and support us as we take on these challenges.