Integrated Report 2019 - Toyota Tsusho

2000s2010sMerging and forming tie-ups to expand value chainsAiming to become a value-generating corporation thataddresses social and environmental issues using itsautomotive-sector foundationsoutside of the automotive sectorIn 2000, Toyota Tsusho entered a capital and operational tie-up with TomenCorporation and then merged with Kasho Company, Ltd. In 2006, it merged withTomen, which had a broad customer base and diverse business ventures, givingbirth to the present Toyota Tsusho. This move positioned the company to commence its full-fledged advance beyond theIn 2012, Toyota Tsusho began accelerating investments into new business fields byentering a capital alliance with French trading company CFAO, which trades inautomobiles and pharmaceuticals primarily in Africa. In 2016, CFAO became awholly owned subsidiary of Toyota Tsusho. This is a critical decade for the ToyotaTsusho Group as it exerts its strengths in newautomotive sector into fields such as infra-business fields to ensure sustainable growth.structure, chemicals, and foods, and its valueThe group is placing emphasis on renewablechains were greatly expanded as a result.energies, African businesses, and other areas inwhich both social needs are high and growthpotential is great, along with next-generationmobility and new technology development.CFAO Group. All rights reserved.Our distinctive trait as a memberof the Toyota GroupOur distinctive trait acquired through the pursuit of becoming a global companyOur distinctive trait acquired in theprocess of growth2017Establishment of the NEXTTechnology Fund2012Eurus Energy Holdings Corporationconverted to a subsidiary2016CFAO becomes a whollyowned subsidiary2012Investment inElematec Corporation2017NEXTY ElectronicsCorporation established2012Lithium production and developmentstarted in the Argentine RepublicNext technologyRenewable energyDistinctiveTraits ofToyota TsushoEstablishedOver TimeProcess of AcquiringCurrent GrowthDriversTo Become aValue-generatingCorporationAfricaElectronics & multimediaMobilityNext-generation mobilityINTEGRATED REPORT 201905

Philosophy and Management StrategyBusiness Model for Becoming a Value-generating CorporationBased on our DNA as the trading company of the Toyota Group, we developed Toyota Tsusho’s distinctive traits in theprocess of growing into a global company.Based on the Toyotsu Core Values, which are our distinctive strengths, in our three business domains we will undertakebusinesses that create new value that contributes to the development of a prosperous society.Toyota Tsusho’s Distinctive TraitsOur Distinctive TraitAcquired through thePursuit of Becoming aGlobal CompanyOur Distinctive TraitAcquired in theProcess of Growth Supporting customers through ourrole behind the scenes Fundamental stance of commitment toexpertise, effort, and hands-on workOur Distinctive Trait asa Member of theToyota Group S upplement areas of insufficiencythrough strategic M&As E mbody diversity and inclusionthrough a process of integration Knowledge acquired through lessons learnedfrom failures in the investment process External utilization of the knowledgeacquired within the Toyota Group Passing on of knowledge acquiredoutside the group to within the groupGrowth Driver DomainsNext technologyBusiness CarriedOut by the SalesDivisions06TOYOTA TSUSHO CORPORATIONRenewable energyAfricaElectronics &multimediaNext-generationmobility

Living and prospering together with people, society, andthe planet, we aim to be a value-generating corporationthat contributes to the creation of prosperous societies.Life &CommunityResources &EnvironmentA business domain that contributes tothe realization of a comfortable andhealthy societyA business domain that contributes tothe realization of a sustainable society inthe futureEmbodiment ofthe Toyota TsushoGroup WaySeeking growth through theToyotsu Core Values anddemonstrating our maximumcapabilitiesToyotsuCoreValuesAdapting to Changes inthe Business Environmentand Social IssuesGenba-focusCollective forceInnovator spiritUsing business strengths establisheduntil now, taking on thechallenge of future prioritydomains, and developingthem into growth driverMobilityA business domain that contributes tothe realization of a highly convenientsociety in the futureINTEGRATED REPORT 201907

Philosophy and Management StrategyPresident & CEO’s MessageImproved Quality and Speed ofDecision-making at All Levels ofOur Organization Will Generate Changeand Lead to Further GrowthIchiro KashitaniPresident & CEOShare a Healthy Sense of Crisis and Become the Frog that Leaps from the PotTrue to my word when I was handed the mantle of president andtendency to see ensuing tasks as an extension of the status quo. TheCEO in April 2018, over the past year I have concentrated on listen-reason simply extending the status quo is wrong is because, I believe,ing to customers and business partners while visiting business sitesthese past few years have come at a time about which people will inthroughout Japan and in 17 other countries around the world. Inthe future say, “Looking back, that was the gateway to change.”addition, through communicating with employees, I felt greatlyindustry, to say nothing of the Mobility domain in which ourcarried out and hearing about how employees are working hardstrengths lie. Amid these changes, we must remain a constanttogether with our partners at worksites rather than just trading frompresence, staying ahead of the changes and providing value to ourthe office.partners. In other words, we must maintain our ideal image, that is,In the fiscal year ended March 31, 2019, we were able to meetthe expectations of our shareholders and investors, setting a newto “Be the Right ONE.” In my view, this is impossible to achievewithout a healthy sense of crisis.profit record for the third consecutive year—a feat that is fully attrib-Sensitivity to change is another way of expressing a healthy senseutable to the earnest support shown by our customers and businessof crisis. If you are merely looking at an extension of the status quo,partners, and for this, I am sincerely grateful. At the same time,you might fail to see changes in the business environment. In termsrealizing again how our corporate value is supported by Toyotaof the commonly used metaphor of the boiling frog, as we aspire toTsusho Group employees working hard in their work boots andbecome a leader of reform, our raison d’être depends on whetherhelmets was a highlight for me last year.we can be the change-sensitive frog that leaps from the pot. OurAt the same time, I remember being concerned about whetherdevotedly working day in and day out might instead reinforce the08Major changes are progressing at a rapid rate in almost everyencouraged in seeing the distinctively Toyota Tsusho work beingTOYOTA TSUSHO CORPORATIONgroup’s current efforts promoting globalization and digitalizationare also designed to share this healthy sense of crisis.

In the Pursuit of Globalization and Digital Transformation,Our Organization Needs to be More AgileSince our establishment in 1948, Toyota Tsusho has built a uniqueorganization that leverages locally built networks and local ideas.network across all parts of the world, including in Africa, and hasThis is the globalization to which we aspire.played a part in the Toyota Group’s global production and supplyThe impact of digitalization is like the move to a corner square innetwork. Some people may be surprised or mystified as to why wethe boardgame Othello. In Othello, gaining control of the cornerare advocating globalization after all this time. While it is true thatsquares enables you to step up the offensive in one go or to reverseour group has business operations all over the world, if truth be told,an unfavorable situation. Digitalization is also an opportunity tothe organization has been driven by ideas emanating from Japan,create new domains beyond traditional business domains.led by our Head Office in Nagoya.Conversely, a delay in digitalization means the risk of our group’sTake, for instance, technological change. In Japan and otherdeveloped countries, regulations, the spread of prior services, andbusiness domains being eroded from unforeseen directions.To mark 2019 as the first year of digital transformation (DX), lastother factors have meant that change has only been incremental.year we discussed digitalization in depth from the perspectives ofBut in emerging counties, change has happened all at once, leap-internal reform and improving added value provided to ourfrogging into advanced technologies in some instances. This iscustomers. In addition to incorporating the results of theseespecially true in places such as Africa, where our efforts arediscussions as specific measures in our Mid-term Business Plan,focused, like in the drone business in Rwanda and in mobile pay-we plan to invest approximately 20 billion yen over three years toment services in Kenya. In order to act quickly and capitalize onsupport this DX.opportunities as they appear, we need an agile, maneuverableINTEGRATED REPORT 201909

Philosophy and Management StrategyPresident & CEO’s MessageI ncreased Value Brought About by Personal Commitment for Work andPreparing for Potential RisksConcerning our Mid-term Business Plan, the number of investmentinstance, even though we achieved a record-high profit, in truth, Iprojects in strategic areas of growth is steadily building up. As men-also have feelings of regret that this could have been larger still if nottioned below, we have also expanded promising initiatives throughfor losses. Personal commitment for work is also effective in defense.the combination of businesses.Noticing changes by taking a hands-on approach to business alsoEnsuring this trend and building on it further in the future, Ibelieve, requires a hands-on personal commitment for work. Beinghands-on in business means that you take ownership of the busi-allows you to limit losses by acting quickly while the extent of theproblem is still small.Also essential to improving corporate value is improving riskness, plot a clear path to the future, and observe business move-management of the group as a whole. Based on this perception, wements from a fixed point. If you are attentive to stepping into theconsidered what response we should take to identify “potential risksfield and making fixed-point observations, you can notice changes,that are undesirable if realized (nightmare story)” and to preventsuch as the tides of business and new threats. By being thorough insuch risks from manifesting, and what we should do to slow downour personal commitment for work, we ought to be able to turnthe manifestation of risks and to minimize their impact. We thenchange into chance, and link this to further growth.incorporated those responses into our growth measures.On the other hand, efficiency and productivity improvements arebecoming a challenge. In the fiscal year ended March 31, 2019, forM id-term Business Plan, Giving Concrete Form to Working“On Site for a Better Tomorrow”In our Mid-term Business Plan announced in May 2019, in additionowners of the parent of 170.0 billion yen and return on equity (ROE)to our African Growth Strategy and Next-generation Mobilityof at least 10%.Strategy—two traditional priority areas in which the Toyota TsushoThe following reports on our basic policy of business strategies forGroup has built a competitive advantage—we implemented a newachieving these targets as well as the specific initiatives we areRenewable Energy Strategy. Through organic growth and returns oncurrently working on, divided into each of the three priority areas.investment in these three priority areas, we aim to realize an annualprofit growth rate of 5–7%. Also, for the fiscal year ending March31, 2022 we will work to achieve profit for the year attributable to10TOYOTA TSUSHO CORPORATIONFor an overview of the Mid-term Business Plan, please see page 15.

Creating a Business Model for Mutual Growth, Rooted in Africa African Growth Strategy Approximately 15,500 of the 59,000 employees in our consoli-working in real earnest to contribute to growth in Africa. Withdated group are engaged in our Africa business. In January 2019,determination to make the most of the opportunity affordedall Toyota Motor Corporation sales and marketing operations forto us and to fulfill our responsibilities, we have mapped out aAfrica were transferred to Toyota Tsusho in a move that, I believe,strategy to strengthen our Toyota business based on the pursuitpins hope on the potential strength of our host of employeesof six pillars.Strengthen Toyota Business in Africa Based on Six Pillars123Strengthen Product LineupBuild KD (Knock-down) BusinessOptimize Supply Network456Strengthen Total Fleets Management (B2B)Promote “Best in Town” Activities* (B2C)Expand Value Chain* Creation of the most beloved firms “in town”Positioned with a commanding view over the entire value chain,In addition to the automotive business, the time is also ripe forthe role of our group in establishing a “local production for localthe “combination of businesses” on the African continent in theconsumption” model for vehicles is expanding. One example ofpharmaceuticals, infrastructure, and consumer goods & retailthis is the knock-down (KD) business in which vehicles are locallyareas, as well as in the field of renewable energy which is discussedassembled instead of complete vehicles being imported. Once KDbelow. By overlaying our existing network in eastern and southernproduction gets into full swing, there will also be a need to procureAfrica with the network of CFAO, which has advantages in west-parts locally. Besides the KD business, we will also demonstrate ourern and northern Africa and also became a wholly owned subsid-group’s strengths in building a value chain designed for “localiary of Toyota Tsusho in 2016, the aim is to achieve synergies byproduction for local consumption,” such as realizing our conceptextending each other’s business in the eastern and southern andof selling certified used cars across the breadth of Africa, andwestern and northern regions, respectively. Expanding laterally torolling out car care service centers in cooperation with Frenchcover the entire African continent will open up new businesscorporation, Total S.A.opportunities and lead to further growth.For details, please see “Feature: Growing Together with Africa—The History and Outlook of Toyota Tsusho” on page 22and “Africa Division” on page 52.Engaging in a More Flexible and Timely yet Swift Manner Next-generation Mobility Strategy The plan of action under our Next-generation Mobility Strategy isthe foundation of future mobility services, and to pioneer theto take the automotive value chain—namely: development, pro-energy management business.curement, manufacturing, sales, services, and recycling—andThe NEXT Mobility Development Department was established individe it into three stages based on a vehicle life cycle approach— April 2017 as a company-wide specialized organization under thedevelopment & production, usage & servicing, and reuse & recy-direct control of the chief technology officer (CTO). To be frank, ifcling, including end-of-life vehicle recycling and the battery “3Rs”we had done so any later, we might have been left behind by the(rebuild, reuse, recycling)—and then to pursue the creation ofmajor changes in mobility. With major changes set to continue intounique value at each stage as only the Toyota Tsusho Group can.the future, I am keenly aware that in the Mobility domain we mustSpecifically, we have enhanced our responsiveness to CASE (con-be willing to make timely decisions and take appropriate risks.nected, autonomous, shared, and electric) by working toThe department has roughly 30 core members. In addition,strengthen our approach to alternative materials through thebeyond the organizational framework, ideas for specific businessadoption of new technologies, to develop infrastructure to serve asopportunities to explore are also contributed by approximatelyINTEGRATED REPORT 201911

Philosophy and Management StrategyPresident & CEO’s MessageDevelopment ent of materials1 Respond to acceleratedmigration to EVsNext-generation services2 Create new businessopportunitiesEnergy managementUsage & ServicingBuild new business models that enable sustained growth in the next-generation mobility domain260 members globally. What needs to be emphasized here,Specifically, investment decisions are made by three executivethough, is the customer’s perspective. For instance, customersofficers, led by the CTO. These decisions do not need approval oflooking for materials that realize energy savings do not distin-the president and CEO, they need only be reported to me. In the firstguish between metals, glass, plastics, and so on. Therefore, ourfund through to March 31, 2019, investments totaled more thanorganization also needs to change flexibly. Particularly given the2 billion yen of investments, and we saw a considerable amount ofreality that new multi-industry businesses are being created thatinteresting proposals. At the same time, there was also a sense ofspan business domains, collaboration and proposals that tran-urgency that we would be left behind unless we began investingscend the traditional organizational framework are inevitable.to get in on the inside of cutting-edge initiatives. Therefore, theConsistent with responding in a flexible and swift manner,second two-year fund has been revised to 6 billion yen to supple-within the two years since its start in 2017 the NEXT Technologyment proposals already invested, and investments will againFund established an investment facility of 6 billion yen.continue to be made in the fiscal year ending March 31, 2020.E ntering a New Stage, Capturing the Needs

Council (IIRC), the Sustainability Reporting Standards of the Global Reporting Initiative (GRI), Guidance for Integrated Corporate Disclosure and Company-Investor Dialogue for Collaborative Value Creation of the Ministry of Economy, Trade and Industry, the . Toyota Tsusho INTEGRATED REPORT 2019.