ROE Management
Continuing Efforts to Improve Profits and Aiming for Management with High Dividend Payout Ratio
The ITO EN Group is targeting an ROE of 10% for the management index in its medium-term management plan.
As the background to this, compensation based on executives’ performance and linked to the business performance of the company was emphasized in the aftermath of the collapse of the bubble economy in 1990, with the aim of clarifying the management responsibilities of officers and enhancing corporate governance. In July 2002, ITO EN discontinued the system for providing retirement allowance and bonuses to its officers and introduced the stock option system as compensation linked to business performance in April 2004.
We chose six management indices as our assessment indices for this process: growth (net sales), profitability (operating income and EPS), efficiency (ROE), cash earning capacity (operating cash flow) and return to shareholders (total return ratio). ITO EN is carrying out its business activities by maintaining an awareness of these indices.
Pursuing Profitability from Raw Material Procurement to Marketing
ITO EN has been focusing on 100% domestically grown crude tea. The ratio of handling crude tea grown in Japan is about quarter. In the value chain, procurement of crude tea through such means as the Tea-Producing Region Development Project is the starting point and it is contributing to the enhancement of profitability and stability. In this way, contributions to profitability start right from the cost level, achieving high gross profit ratio.
Flexible adjustment of production volumes according to demand, use of optimal production lines according to the strengths of the packers, benefitting from the fruits of technical innovations generated from competition among the packers and other aspects are making highly efficient value chain management possible, contributing to enhanced profitability at the variable cost level.
Moreover, we have established a business model in which customers’ voices are directly captured by approximately 3,500 sales persons, mainly in route sales from the 196 sales bases across the country and used for marketing.
Pursuit of Efficiency Through a Slim Balance Sheet
ITO EN controls fixed asset investment by relying on the fabless method, whereby capital expenditures are kept within depreciation, in order to strengthen its financial standing.
Keeping a Balance for Both Capital Efficiency and Financial Soundness
Based on the method of managing profit and loss statements and balance sheets by utilizing its strengths, ITO EN maintains financial soundness, while securing adequate funds to realize total return ratio of 40% as well as its credit rating. Retained earnings and cash are controlled at appropriate levels and the allocation of funds to strategic investments, including M&A, may be made for future growth, as appropriate. Our capital policies, as part of ROE management measures, are based on the process for seeking an appropriate capital structure that also takes capital efficiency into account.