Message from the President & CEO

Seizing upon changing, uncertain times as growth opportunities, we will forge our own path and elevate Marubeni to new heights.

In addition to anticipating issues and challenges facing society and providing solutions to society and customers, we will challenge new growth domains and new business models by transcending the status quo and conventional wisdom.

President & CEO Masumi Kakinoki

In speaking with people both inside and outside of Marubeni since becoming president in April 2019, I keenly feel the magnitude of the expectations placed on Marubeni.

I believe that meeting such expectations is our raison d’être. I believe a general trading company is an essential partner that continually bridges gaps in society. In the 20th century, we bridged geographic gaps through trade. In the 21st century to date, we have been bridging gaps between current value and future value through investment. Over the past few years, we have entered a new era of rapid economic, technological and political change. Going forward, the Marubeni Group aims to bridge the new gaps (societal issues) that arise between the present and an obscure future. It is difficult to know what form these gaps will take, where they will lie or how big they will be. Additionally, gaps interact with each other, abruptly joining together or splitting apart.

We live in a challenging era. Nonetheless, I believe Marubeni is expected to continue to be a bold leader even amid such an environment. Marubeni will remain a company that propels society forward. The Marubeni Group aims not only to create timely solutions by anticipating societal challenges and the emerging needs of customers but also to co-create and realize dreams by anticipating the dreams of society and customers. The key to doing so is teamwork, as I tell all Marubeni Group personnel. Our teams need to hit the ground running, with everyone playing a valuable role. We cannot afford to have even a single member who lacks commitment or enthusiasm. We must forge ahead no matter what, thinking, acting and creating as a team. We do not fear failure. We never let failure become an intractable crisis. Additionally, we cultivate human capital by providing opportunities to bounce back from failure. As long as Marubeni workplaces are filled with hard-working young people warmly supported by their seniors, I have absolute confidence that we can meet expectations as a leader that continually bridges gaps.

The Marubeni Group adopted a vision of its future self as a Global Crossvalue Platform in June 2018. We did so to reaffirm our commitment to anticipating issues and challenges facing society and creating innovative solutions for society and customers, even in the coming era of uncertainty, through vertical evolution and horizontal expansion that break down various barriers, including between sectors, inside and outside the Company and national borders. As a first step toward realizing this vision, we unveiled our GC2021 Medium-Term Management Strategy in May 2019. We aim to be a value-creative group that transcends the general trading company framework. To do so, we will simultaneously pursue both sustained growth by strengthening existing businesses and explosive growth by creating new business models with sights set 10 years ahead.

In the fiscal year ended March 31, 2019, Marubeni earned consolidated net profit in excess of ¥230 billion, a second consecutive record, to achieve our GC2018 medium-term management plan target. Our earnings power and financial foundation are now stronger than ever before in Marubeni’s history of over 160 years. We are heading into an unknown world. I believe uncertain times call for a management approach that places priority on Marubeni’s Creed of “Fairness, Innovat and Harmony.” This creed calls on us to act with fairness and integrity at all times, pursue creativity with enterprise and initiative, and give and earn the respect of others through cooperation. There are no words more fitting to the current era or more conducive to sustained growth in corporate value. I believe that upholding our Company Creed will in turn generate even greater expectations of Marubeni and further reinforce Marubeni's raison d'être and clarify its path forward. As president, I will make every effort to realize this aim.

Career History

April 1980 Joined Marubeni Corporation
June 2009 Senior Operating Officer, Power Projects & Infrastructure Division; Senior Corporate Officer, Abu Dhabi Trade House Project Department
April 2010 Executive Officer; Chief Operating Officer, Power Projects & Infrastructure Division
April 2013 Managing Executive Officer; Chief Operating Officer, Corporate Planning & Strategy Department, Global Strategy & Coordination Department, and Research Institute; Chairman of Internal Control Committee; Vice Chairman of Investment and Credit Committee
June 2013 Managing Executive Officer, Member of the Board
April 2014 Managing Executive Officer
April 2017 Senior Managing Executive Officer
April 2018 Senior Executive Vice President, Chief Executive Officer, Power Business & Plant Group
June 2018 Senior Executive Vice President, Member of the Board
April 2019 President and CEO, Member of the Board
President & CEO Masumi Kakinoki on Strategy
President & CEO Masumi Kakinoki on Strategy

President & CEO Masumi Kakinoki on Strategy

GC2021 Medium-Term Management Strategy in the President & CEO's Words

Q1What is the Global Crossvalue Platform?

A1Clarification of the Marubeni Group’s raison d’être.

In June of 2018, the year in which Marubeni commemorated the 160th anniversary of its establishment in 1858, the Marubeni Group adopted Global Crossvalue Platform as a long-term vision to aspire toward.

In simple terms, building a Global Crossvalue Platform will involve radical reform of Marubeni's businesses and organizational structure. Until recently, Marubeni grew by creating and providing various solutions to society and customers while transforming its business model from trading to investing. However, we started to experience a major sense of crisis in response to society’s changing values, the digital revolution and drastic changes in the industrial structure and competitive landscape. Under our existing organizational structure based mainly on product verticals, we were concerned about the possibility of sooner or later losing the ability to provide solutions to problems, obsolescence of our existing business models and the risk of asset holdings becoming stranded assets. We feared that perpetuation of the status quo could call Marubeni’s raison d’être into question. In response, we initiated radical reforms after discussing how to best navigate the whole Marubeni Group through these changing times and how to turn threats into opportunities. The Global Crossvalue Platform is the Marubeni Group’s commitment to its internal and external stakeholders — a clarification and reaffirmation of its raison d’être when launching these reforms and a commitment to continually grow corporate value on a Group-wide basis.

The Global Crossvalue Platform was formulated through repeated face-to-face discussions among not only the Corporate Management Committee but also frontline Marubeni Group employees who create solutions that only Marubeni can deliver.

We extensively engaged in frank discussions with employees who have built our existing business models, asking them how long they expect those business models to last under an organizational structure based predominantly on product verticals, the conventional trading company framework. We were told that current business models would survive for another 2-3 years, 4-5 years or in some cases 10 years, but there were few business models that frontline employees were confident would survive beyond 10 years. I continue to communicate with all Marubeni Group personnel, constantly encouraging them to depart from the status quo, think hard about creating value throughout the Marubeni Group, embrace challenges without being afraid to fail and break free of existing organizational silos.

The “plat form” in Global Crossvalue Platform is a generator of new businesses based on cross-pollination of various forms of value on a global scale. The Marubeni Group itself aims to create solutions for society and customers by anticipating the issues and challenges facing society while evolving vertically and expanding horizontally as a single mega-platform encompassing a wide variety of businesses.

We will challenge new businesses by dismantling outdated organizations and transcending conventional wisdom. We will realize a Marubeni Group that challenges new growth domains and new business models.

What is the Global Crossvalue Platform?
Q2Is the GC2021 Medium-Term Management Strategy a plan to realize your Global Crossvalue Platform vision?

A2It is not a mere plan, but a strategy. It is a first step toward realizing our vision.

We formulated the GC2021 Medium-Term Management Strategy as a first step toward implementing our Global Crossvalue Platform with the aim of long-term corporate value creation with our sights set on 2030. Additionally, strategies toward realization of our 10-year vision in various business domains have already been extensively discussed and shared between management and frontline business units. GC2021’s three-year term is those strategies’ execution phase. GC2021 is accordingly a medium-term management strategy, not a mere plan.

The Global Challenge 2018 (GC2018) medium-term management plan, GC2021’s precursor, was launched in April 2016 and revised in May 2017, largely in response to changes in the external environment. In its final fiscal year (ended March 31, 2019), we achieved the revised quantitative targets, including consolidated net profit, free cash flow fronafter delivery of sharholder returns, net debt/equity ratio and ROE. With our financial and earnings foundations steadily strengthening, we believe we have now laid the groundwork for GC2021’s new challenges.

Our basic policy under GC2021 is to simultaneously pursue both sustained growth by strengthening existing businesses and explosive growth by creating new business models with our sights set 10 years ahead, all predicated on building and maintaining a strong financial foundation as a cornerstone for growth. To do so, we have incorporated three growth horizons into GC2021 as a new concept for Marubeni. These three growth horizons are one of GC2021’s distinguishing features.

Horizon 1 supports sustained growth through improvement of existing businesses. Specifically, we will endeavor to grow earnings by maintaining or upgrading the value of existing businesses through capital ex-penditures* that, for example, extend the useful lives of existing assets.
Horizon 2 supports sustained growth through the pursuit of strategies distinctive to the Marubeni Group in existing business domains. Business divisions finished formulating their respective visions and strategies at 2018. These strategies are now in the execution stage. New investments made in existing business domains in the course of executing these strategies are Horizon 2 investments.
We have designated Horizons 1 and 2 as the Marubeni Group’s core earnings drivers for achieving sustained growth during the GC2021 execution period.
Horizon 3 targets explosive growth toward 2030. To realize such explosive growth, we have defined a concept we call White Space, which refers to new business models and growth domains that the Marubeni Group has yet to exploit. Because White Space represents a new frontier for the Marubeni Group, we recognize that Horizon 3 investments may not have realistic prospects of contributing to earnings during the GC2021 execution period. Nonetheless, we will boldly engage these highly promising growth domains to achieve explosive growth toward 2030. Beyond the explosive growth stage, Horizon 3 businesses will be treated as Horizon 1 or Horizon 2 existing businesses, meaning that we will further expand and upgrade them. Meanwhile, we will continue to challenge White Space businesses in pursuit of another round of explosive growth. Through this approach, we seek to increase the Marubeni Group’s value not only on a single year basis but over one- to three-decade timeframes by always challenging new business models with different timelines corresponding to the three growth horizons.

Organizationally, we have carried out structural reforms and reallocated human (organizational) capital. We will explicitly allocate cash flows to implement our three growth horizons with differing timelines, all in the aim of strengthening existing businesses and creating new business models.

*Capital expenditures are additional investments in existing assets to maintain or increase their value.

Is the GC2021 Medium-Term Management Strategy a plan to realize your Global Crossvalue Platform vision?
Q3How do you plan to allocate capital in pursuit of growth?

A3We will realize a virtuous cycle toward cash-flow maximization by allocating capital based on growth horizons.

Under GC2021, we will further strengthen cash flow management in pursuit of long-term corporate value creation. We will work to maximize core operating cash flow*, our root source of cash generation, and aim to generate cumulative positive core operating cash flow of ¥1,200 billion during GC2021’s threeyear term.

In terms of capital allocation, we will maintain financial discipline and further strengthen our financial foundation by achieving three-year cumulative positive free cash flow of at least ¥100 billion after delivery of shareholder returns, and use it to pay down debt. By doing so, we expect to achieve our target of reducing our net debt/equity ratio to around 0.8 times by March 31, 2020, one year ahead of schedule. By March 31, 2022, the end of GC2021’s third and final fiscal year, we expect our debt/equity ratio to improve to approximately 0.7 times.

We have been consistently allocating capital to growth opportunities since GC2018’s inception. We plan to maintain a strategically selective approach to new investments and capital expenditures. During GC2021’s term, we plan to invest some ¥900 billion, allocated as follows to the three growth horizons.

Horizon 1: ¥200 billion allocated to expenditures required to improve existing businesses

Horizon 2: ¥500 billion allocated to new investments aimed at strengthening and expanding our foundations in pursuit of strategies in existing business domains

Horizon 3: ¥200 billion allocated to new investments in White Space, defined as new business models and growth domains not yet exploited by the Marubeni Group, for realization of explosive growth toward 2030

Through this approach that aims to generate cash flow with differing timelines, our allocation of capital to growth opportunities will realize a virtuous cycle that maximizes core operating cash flow and, in turn, further increases our capacity to invest.

*Core operating cash flow: Operating cash flow excluding Net increase/decrease in working capital and others

How do you plan to allocate capital in pursuit of growth?
Q4What is your stance toward new investments under GC2021?

A4SPP: Strategy × Prime × Platform

As part of GC2021, we have formulated a trio of new business policies we call SPP —Strategy × Prime × Platform— as basic principles common to all of the Marubeni Group’s business models.

Strategy policies involve closing the gap between the status quo and our vision. It expresses our renewed commitment to staying intensively strategy-focused.

Prime policies involve proactively executing strategies across all Marubeni Group businesses. If we were to merely invest in businesses, we would have much fewer opportunities to create solutions to the challenges and issues facing society and customers. We would also have less growth potential. We have accordingly made a commitment in the form of our Prime policy, which means proactively formulating and executing with the aim of increasing the value of our businesses. When investing in businesses that are too large for us to acquire a majority stake, we will take the initiative to add value to these businesses by teaming up with like-minded partners in mutually complementary strategies. Additionally, we believe our Prime policy increases the motivation of frontline Marubeni Group personnel.

Platform policies involve leveraging the Marubeni Group’s platform to substantially grow its businesses. In White Space businesses in particular, we believe we must create new value by synergistically combining a wide variety of internal and external expertise. Additionally, we treat businesses with promising prospects of geographic, market or product-line expansion as platforms. We will pursue expansion of such businesses through M&As and/or organic growth with the aim of long-term earnings growth.

After instilling these new SPP business policies in our workforce as values common to all personnel, including both employees and management, we will work to maximize the value of the Marubeni Group’s overall portfolio businesses by selectively making SPP-based new investments, strengthening existing businesses and expediting recoupment of previous investments and asset turnover.

What is your stance toward new investments under GC2021?
Q5What are your specific growth strategies?

A5We will meet the challenge of expanding into White Space in addition to pursuing further growth in existing business domains based on our growth horizons.

GC2021 does not designate any strategic growth sectors because our business divisions are pursuing their own respective strategies to create new value. When formulating GC2021, we placed priority
on strategies devised by our business divisions based on their experience addressing the needs and wants of customers and society. The business divisions of course formulated their respective growth strategies in accord with GC2021’s basic policies, namely the growth horizons and SPP business policies.

Organizational aspects of the growth strategies’ implementation were also extensively discussed in the process of formulating GC2021. We concluded that for the Marubeni Group to be able to anticipate dizzyingly fast changes in societal values, digital technologies, industrial structure and the competitive landscape, we must speed up our own processes and expedite the implement of growth strategies. GC2021 therefore includes organizational reforms. Specifically, we flattened the chain of command from four layers to three so that business divisions are able to implement their strategies more swiftly. The three layers consist of Marubeni’s president, Division COOs and departmental general managers. Additionally, our previously product-based business divisions were reorganized along business-model lines, centered on steadily implementing each growth strategy. Our previous structure of six groups comprising 16 business divisions was reorganized into four groups comprising 13 business divisions. Additionally, we newly established the Next Generation Business Development Division. Its mission is to create new White Space business models from the standpoint of Group-wide optimization. It will develop growth strategies with a staff of some 100 reassigned from other business divisions.

The other four groups and 13 business divisions will deploy the Three Growth Horizons in their respective growth strategies. In Horizons 1 and 2, they will steadily progress along the path of sustained growth by expanding existing businesses and business domains. At the same time, they will pursue the White Space of Horizon 3 in close coordination with the Next Generation Business Development Division.

What are your specific growth strategies?
Q6What is your shareholder returns policy?

A6We will flexibly buy back shares after achieving our net debt/equity ratio of around 0.8 times.

For dividends, we maintain a consolidated dividend payout ratio of ‘25% or more’. We treat the dividend forecast we disclose at the beginning of every fiscal year as a minimum dividend for that fiscal year. Under GC2021, we are targeting consolidated net profit of ¥300 billion in the fiscal year ending March 31, 2022. Although we don't plan to change our dividend payout ratio of ‘25% or more’, we expect to increase our dividends by growing profits.

In addition, after achieving a net debt/equity ratio of approximately 0.8 times, we will buy back shares as an additional shareholder returns policy. The buyback will be done flexibly based on our ability to generate core operating cash flow, the primary source of capital allocation, and after evaluating our growth investment pipeline.

In addition to maintaining and enhancing the value of existing business, we believe that profit growth driven by new investments is important to long-term growth in shareholder value. During GC2021’s three-year term, we plan to allocate some ¥900 billion to new investments (including CAPEX), including Horizon 3 investments. We aim at strategic investment in prime assets to lead to growth in shareholder returns through future profit growth and share price appreciation.

What is your shareholder returns policy?
Q7What are the management indicators and financial targets of GC2021 ?

A7Consolidated net profit, cash flow, ROE and pursuit of sustained growth in market capitalization.

The main management indicator of GC2021 is consolidated net profit. We aim to earn consolidated net profit of ¥300 billion in the fiscal year ending March 31, 2022, GC2021’s final year. It is ¥60 billion higher than our ¥240 billion consolidated net profit target for the fiscal year ending March 31, 2020, and we are confident that it can be attained through steady execution of our ongoing growth strategies. During GC2021’s term, we expect improvements to existing businesses to add about ¥50 billion to consolidated net profit and new investments to add another ¥20-¥30 billion, giving us a ¥10-¥20 billion buffer built into our target.

Other targets include threeyear cumulative positive core operating cash flow of ¥1,200 billion, three-year cumulative positive free cash flow of ¥100 billion or more after delivery of shareholder returns, and net debt/equity ratio at March 31, 2022, of around 0.7 times.

Additionally, we have set a minimum ROE target of 10% in light of our cost of capital. Our ROE is currently in the vicinity of 14%.

Under GC2021, we are pursuing sustained growth in market capitalization as a new management indicator/target not included in any of our previous medium-term management plans. We did so to signal internally and externally that we will pursue growth in market capitalization through efforts to increase corporate value as a value-creative corporate group that transcends the trading company framework in pursuit of our Global Crossvalue Platform vision. We believe management has a responsibility to grow market capitalization.

What are the management indicators and financial targets of GC2021 ?