Message from the President

We expect growth to accelerate again reflecting the recovery following customers՚ adjustments of their semiconductor-related product inventories (functional materials business) and from the decline in the market of in-car products (Polatechno business). We expect this to happen in the second half of FY2023 of later. To continue to respond to demand in the semiconductor, digital printing and automobile markets which will expand in the medium to long term, we will invest to increase production, which is necessary for the production of resins for semiconductors and inkjet inks in industrial applications, and strive to popularize new products, including polarizing films for heads-up displays.

We will offset the impact of annual drug price revisions with the growth of generic drugs and biosimilars as before. Further, we will prepare for the establishment of a structure for new drug discoveries, including introduction of the structure and in-house drug development, to achieve medium- to long-term growth during and after KV25.

While global automobile production is modestly trending toward recovery, the key to the resumption of growth is the timing of the recovery of domestic demand. Overseas, we will strive to get ready to increase production, aiming to respond to the expansion of the automotive safety component market, mainly in China and ASEAN countries.

As with the pharmaceuticals business, this business is unlikely to be influenced by economic trends. While pushing forward with development by leveraging the formulation technology that is our strength, we will continue to aim for the steady growth of insecticides and soil fumigants for fruits and vegetables.

The company as a whole is now being significantly affected by the changes in the market conditions. While we cannot be optimistic about the situation, we will ensure that we have a correct understanding of the actual conditions and advance cost-cutting activities and other initiatives in a company-wide manner. Thus, we will just continue to do the things that we should do to achieve net sales of 230.0 billion yen and operating income of 26.5 billion yen in FY2025, which are targets in KV25. Further, while net sales have been growing steadily for a while, operating income margin and ROE have been declining. We have set their improvement as one of our management issues, as I mentioned last year. As our medium- to long-term mission, we will work to improve the operating income margin and achieve the growth of each business in pursuit of our target ROE of 8%.

11-year Trend in Nippon Kayaku Group Operating Results

*  The fiscal year end was changed from May 31 to March 31 in FY2012. As a result, the FY2012 accounting period of Nippon Kayaku Co., Ltd. and its consolidated subsidiaries is the 10 months from June 1, 2012 to March 31, 2013.

We have been able to dramatically increase our opportunities to interact to achieve open innovation, such as opportunities to exchange information with academics and startups and to cooperate with them, including investment activities. Combined with the Group՚s current technologies, these interactions will be useful in creating new ideas in peripheral domains and new fields. In addition, we expect the interactions to create a climate that exposes the employees involved in research and development to new things every day and enables them to absorb new knowledge and technologies with enthusiasm.

We began to disclose information based on the TCFD recommendations last year in addition to implementing initiatives to achieve specific targets for reducing greenhouse gas emissions by 2030 and collecting data about Scope 3 emissions. In addition to internal efforts, such as efforts to save energy and conserve resources and the installation of solar power generation equipment and gas co-generation systems, we will consider a roadmap for achieving carbon neutrality that includes cooperation with the supply chain among the possible options.

For companies, DX is necessary to ensure they stay current with the world and remain competitive. In anticipation of changes in the value chain of the company as a whole, we have begun to strengthen IT infrastructure, take cybersecurity measures, and implement production DX linked to workplaces. In research, an informatics environment has begun to be built and used, and progress is being made in projects and initiatives led by researchers and engineers.

To realize management with high capital efficiency, we have set a company-wide ROIC target and are promoting division-based management and its use of ROIC in performance evaluations. In addition, we will engage in A3 activities (KAIZEN), which are aimed at promoting the reform of awareness to reduce the company՚s expenses by eliminating difficulty, waste, and inconsistency in all operations, in our efforts to develop a corporate climate that enables the improvement of productivity.

Based on the idea that people are the most important element of a company, we are pursuing a number initiatives, including steps to promote diversity, such as encouraging the active participation of women and increasing globalization, as well as the careful development of human resources and improvement of productivity through the development of an environment with high psychological safety. In FY2022, we introduced a talent management system and began using it as an HR tool that enables us to clearly see each individual employee.

While we have achieved results through these M-CFT activities by the final fiscal year of KV25, we will improve our capabilities as a sustainable company that continues to create economic, environmental and social value.

One of the material issues to which we want to attach importance is respect for human rights. Groups that operate globally must have a correct understanding of human rights issues, which arise in various parts of their businesses, and they must address them appropriately. Above all, as a company committed to sustainable management, we must never promote heart-wrenching human rights problems, such as child labor, in the procurement of materials. We have therefore signed the United Nations Global Compact to more effectively promote compliance initiatives, such as respecting human rights, and we registered as a participating company in September 2021. In April 2022, we established the Nippon Kayaku Group Human Rights Policy, committing ourselves to supporting and respecting international norms related to human rights as a company.

Addressing diverse social issues in consideration of problems on the global environment and human rights is the duty of companies, which are allowed to continue existing only when they are accepted by society. We will promote sustainable management by working sincerely on our KV25 Materiality action plan, thereby contributing to the realization of a sustainable society.

Believing that now is precisely the time for the reform because of major changes occurring in the external environment, we reorganized our segments from the previous system with four business groups into the Mobility & Imaging Business Unit, the Fine Chemicals Business Unit and the Life Science Business Unit. With this restructuring, we have clarified the three business units targeting the markets that we have defined as growth areas. In addition, we have newly established the Technology Unit, which brings together the Research & Development Group and the Technical Operation Group. The Technology Unit has taken over the roles of the previously existing divisions that it includes. At the same time, it has the mission of leading the creation of new business and products by mobilizing the Group՚s knowledge about the Environment and Energy areas, which are focus markets.

At the same time, as a result of the transition from the “Head-of-Business-Group” system to the “Officer-in-Charge” system, a large portion of the authority has been transferred to the heads of business groups who hold the top position in each subsegment. We will further accelerate site operations in accordance with the changing market environment. In addition, this enables the officer in charge who holds the top position in the business unit, to concentrate on making business decisions from the perspective of the management of the Group as a whole, such as the efficient sharing and utilization of human resources, possessed technologies and other management resources by the subsegments.

　For the Group, this was the first major segment change since the Safety Systems Group was established in 2007. I have great hopes that this structural change will result in flexible, agile organizations which are likely to demonstrate synergy between the business units.

Nippon Kayaku was founded in 1916 as Japan՚s first manufacturer of industrial explosives, which are essential for mining and the development of social infrastructure such as dams and tunnels. The company started with a desire to provide something useful to people and society. This spirit is reflected in the KAYAKU spirit, our corporate vision that was created based on the company credo expressing the founder՚s spirit: the combined forces of our consciences, ceaseless progress and the best products.

　Expressed in a single phrase, the KAYAKU spirit is the spirit of altruism. I think that the result of the continued pursuit of this spirit of altruism, that is, the pursuit of things that are useful to society and people, will be your own happiness and the happiness of the people around you. The happiness of living a fulfilling life filled with meaningful things to do is a great pleasure for a person. At the Nippon Kayaku Group, we would like to embody this spirit as a corporate entity and build a virtuous circle of happiness involving the KAYAKU spirit and people.

For us to remain a sound corporate entity that embodies the KAYAKU spirit, it is very important to practice conscientious communication internally and externally. First, we management team members must take a hands-on approach to have a better understanding of workplaces than anyone else. I think we can develop a sound, open corporate culture by listening closely to the voices of people in workplaces and realizing close two-way communication, not only taking a top-down approach of one-way actions. It is also important that leaders in each job class of the company be properly aware of regulations and compliance matters and try to create workplaces with a high level of psychological safety, not to mention being knowledgeable about the operations they are in charge of. We would like to develop a culture which will allow anyone to express their opinions without worry within their organizations, thus contributing to increasing employees՚ productivity and motivation.

At the Nippon Kayaku Group, we aim to be an organization and a group of human resources which are flexible and resilient like a living creature. I was taught the idea at the base of this comparison when talking with Professor Shinichi Fukuoka,^* a biologist.

　One of the things about living creatures that we want to emulate is their part in invisible, micro-level activities. The cells of living creatures are constantly and spontaneously replaced with new cells before the old ones become broken. The same is true for companies. There are concerns that if a company՚s system remains unchanged for a long time, its organizations and customs will become too rigid to keep up with the changes of the times. I believe that companies need to regularly work to regain their flexibility.

　The Group will also refresh its thinking as a corporate entity and each one of us will refresh our own thinking, through activities such as the reorganization of the company into three business units and its efforts to create new businesses and products.

　Further, according to Professor Fukuoka, animals act not in a centralized manner with the brain controlling everything but in an autonomous and decentralized manner, with the heart, digestive tract, muscles, and other body parts that have specialized roles working together in an integrated manner. Companies also have various organizations and each of their employees have ideas. If they share the same vision, each with their own responsibilities, and they act in an integrated, autonomous and decentralized manner, they can demonstrate potential several times greater than what they would normally do.

　The idea of a decentralized autonomous organization has recently been attracting the attention of companies, and some companies are actually trying to transform into this kind of organization. I expect that the change to the “Officer-in-Charge” system will enable businesses and each division to operate autonomously and quickly, and in addition, enable people and organizations inside and outside the Group to cooperate autonomously and closely, thus creating more value.

　When a living creature dies, the baton of life is handed down to the next generation. By changing even the species through adaptation to the environment and evolution, life has been resilient and continued to exist for 3.8 billion years, which is a mind-bogglingly long time. We at Nippon Kayaku Group will also aim to continue developing eternally by demonstrating our strengths, doggedness and flexibility like living creatures in a business environment where competition is intensifying.

*  Professor Fukuoka is a professor of Aoyamagakuin University and a visiting professor at Rockefeller University in the United States.
He has published a large number of works asking “What is life?” based on the dynamic equilibrium theory. They include Seibutsu to Museibutsu-no Aida (between animate and inanimate), a long-selling book that has sold 870,000 copies, and the Dynamic Equilibrium series.

◎ Diagram of autonomous decentralization: While individuals act autonomously with their own roles, they also work together in an integrated manner as a whole.

The more developed society is, the more complicated issues become. What the Nippon Kayaku Group can achieve on its own is quite limited. I think that our business partners are better described as our supply foundation than supply chain. We will strive to communicate closely with them by positioning them as valuable partners who will solve social issues with us while understanding the Group՚s thinking.

For our customers, the Group is positioned as a materials manufacturer and a components manufacturer. Materials are able to serve society as products only when they are used by customers. We will work hard to refine our technologies and create the Group՚s technologies which exist nowhere else to build strong trust-based relationships with customers and become essential to each other. I ask for your continued support.

As the president, I think that one of my important missions is to build an environment where employees can work happily and act according to one՚s conscience. I will connect the Group՚s development to the self-actualization of each individual employee so that they act in an integrated manner to achieve the same vision. For this purpose, I will create a workplace that ensures psychological safety with a high awareness of compliance so employees are happy to work for the Nippon Kayaku Group.

◎ Relationship with stakeholders from the perspective of Nippon Kayaku

I think that as a corporate entity we have a natural duty to proactively address the recent global environmental and social issues, such as climate change and global warming, as well as respecting diversity and human rights. We will endeavor to be a company with a strong presence that can consistently provide happiness and delight to environment, society, and all stakeholders, by practicing the KAYAKU spirit as our corporate vision: Continuously providing society with the best products through ceaseless progress and the combined forces of our consciences.

I believe that constructive dialogue with our shareholders and investors is a valuable opportunity for the Nippon Kayaku Group to make a wide of rage of discoveries. We will continue to strive to proactively share information in our dialogue with you, including the status of our management and sustainability-related initiatives. We will also continuously improve our IR activities by listening to requests and opinions during financial results briefings, social gatherings, one-on-one meetings with investors and other opportunities. I look forward to your continued support.