The Sustained Creation of New Value

Financial Times

Jun. 6, 2017

With the end of the commodities super cycle, Mitsui & Co. is focused on turning its core businesses into resilient and stable sources of profit while investing aggressively in promising areas for future growth. The new medium-term management plan "Driving Value Creation" is a roadmap for change.

One year ago, Mitsui & Co. posted the first annual loss in its seven-decade history. However, for the year ended March 31, 2017, the company reported profits of ¥306.1 billion (US$2.7 billion), marking a successful turnaround. "We're headed in the right direction," declares Tatsuo Yasunaga, Mitsui President and CEO.

Yasunaga followed these results by unveiling "Driving Value Creation," a three-year plan designed to maintain this positive trajectory. Defining Mitsui as "43,000 talented professionals who incubate and develop new businesses bolstered by the group's comprehensive strengths and global network," the plan sets out clear financial targets for March 2020: annual profits of ¥440 billion; core operating cash flow of ¥630 billion; and ROE of 10%.

To be sure that Mitsui hits these targets, Yasunaga launched four key initiatives. The first involves strengthening the company's three existing, highly cash-flow-generative business pillars—Resources & Energy, Machinery & Infrastructure, and Chemicals—to generate sustained value. In Resources & Energy, the priority is to minimise volatility by measures like reducing operating costs; applying enhanced IRR criteria to new asset acquisitions; and tackling more greenfield projects where the firm gets to exercise more of its functions and reduce capital expenditure. With a slew of new projects coming on-stream, profits from Resources & Energy are projected to rise 36% by 2020.

In parallel, Mitsui means to increase the contribution from the non-resource—and less volatile—components of its portfolio. Thanks to the imminent completion of several power stations in the Middle East and Asia, and expanded capacity at a Texas bulk liquid storage terminal, Machinery & Infrastructure and Chemicals should lift profits 40% by 2020.

Next-generation Growth Pillars

That's only the start of a more radical rebalancing. According to the second initiative, Mitsui will establish four next-generation growth pillars: Mobility, Healthcare, Nutrition & Agriculture and Retail & Services. All four areas stand to benefit from secular trends, whether revolutionary changes in automobile technology and consumer behavior (Mobility) or the care needs of Asia's increasingly prosperous and ageing demographic (Healthcare).

"We can approach these areas from multiple perspectives because of our comprehensive strengths. In Healthcare, we're building an ecosystem comprising hospitals, clinics, pharmaceutical companies and medical device makers," Yasunaga explains.

Thirty-five percent of Mitsui's cumulative investment until March 2020 will go into these next-generation pillars. And a greater focus on cash flow management is another key initiative. "Cash flow is the best key performance indicator (KPI) for an unpredictable business environment," Yasunaga says. "With it, we can build a robust financial base and allocate capital properly between shareholder returns, investments and debt repayment."

Mitsui Is People

Crucial to realising the first three initiatives is the fourth, which deals with strengthening governance, realising employee potential and reinforcing innovation functions. As regards governance, Yasunaga is bolstering the global perspective and management expertise of Mitsui's board, as exemplified by the recent nomination of Sam Walsh, former Rio Tinto CEO. Meanwhile, the company is introducing flexible working to enable individual employees to work with maximum efficiency and productivity.

The individual is also set to play a crucial role in strengthening Mitsui's ability to innovate. Under a new Internal Business Start-up System, employees can set up, invest in and lead new ventures while tapping Mitsui for support. "We're prepared to step outside conventional investment discipline where appropriate," notes Yasunaga.

That same determination to actively get to grips with change was behind the May appointment of a Chief Digital Officer tasked with deploying technologies like AI and big data to improve internal productivity and develop new businesses.

"Mitsui's DNA is based on open-mindedness, a belief in our people, and 'challenge & innovation,'" concludes Yasunaga. "We have the will and capability to nurture businesses with long lead times. My job is to ensure we keep doing so even as times change."