Issues Facing the Company

(1) Basic Management Policies

What we want to become in the future is expressed as follows: “Kokuyo aims to become a Life & Work Style Company by providing value that enhances the creativity of people through its products and services for better work and learning experience and higher quality of life, thereby contributing to the society.”

The Group has adopted “Self-reform focusing on value creation?Value Transformation 2018” as a basic management policy under the new medium-term management plan for the next three years starting from FY2016.

(2) Target Management Indicators

Taking into consideration various factors, including FY2017 earnings and information included in "Notification of Agreement With Sankyo Tateyama on the Business Store Spin-off (Simplified Absorption-type Spin-off)" released September 27, 2017, the earnings targets for FY2018, the final year of the medium-term business plan, we will aim to achieve net sales of 318 billion yen, a gross profit ratio of 36.1%, an operating income ratio of 5.7%, and an operating income of 18 billion. In addition, we forecast our ROE for FY2018 to be 6.5% as part of our forecasts of key financial indicators.

(3) Issues Facing the Company

Although the Group’s financial performance has been improving since the collapse of Lehman Brothers and is returning to a growth path in terms of both sales and profit, operating margin still remains at low levels and slow growth has become the norm. Aiming to break free from low growth and achieve sustainable growth, the Group has adopted “Self-reform focusing on value creation - Value Transformation 2018” as a new basic management policy in the medium-term management plan, under which we will work on the “operation model reform” to realize customer-oriented value creation and the “creation of the ability to sustain profitability” to enable medium- to long-term sustainable growth.

・Operation model reform

In all our segments, we will focus on profitability improvement and growth based on the premise of higher value added and strive to realize an operation model that will secure sustainable growth over the medium- to long-term period by making group-wide united efforts to “expand market share and improve gross margin” to ensure that manufacturing and distribution will increase value to customers. Through such efforts, we will aim to achieve a gross profit ratio of at least 35.5%, which will be our all-time record.

Basic policy for the stationery business:

“To realize sustainable growth that continues to enhance value to customers through a reform that focuses on the share and the gross margin ratio of the national brand products.”

Basic policy for the furniture business:

“To realize sustainable growth by aiming to achieve business model evolution through new, differentiated added value.”

Basic policy for the Kaunet business:

“To create signs of growth through the ‘attractive top 3 company’ strategy that focuses particularly on value added for customers.”

Basic policy for the overseas businesses:

“To establish a self-sustained business model to achieve business growth and profitability at the same time.”

・Development of the ability to sustain profitability

We will focus particularly on achieving an operating income ratio of at least 5.5% by improving the operational efficiency in the next three years. We will aim to significantly optimize the administrative business process on a group-wide basis by relocation of the resources to front office, productivity improvement, and the creation of new values to develop the ability to sustain high profitability.

Issues to be addressed by segments are as follows.

[Stationery Segment]

For domestic businesses, in addition to the known requirements of the customers, we will work on developing new products that would satisfy even their potential requirements and further strengthening the marketing activities. In addition, we will focus on market share and gross profit margin so that we can improve the profits.

In the overseas businesses, in the countries like India, China, and Vietnam, we will expand our revenue by aggressively launching new products, improving our plant productivity, and strengthening our sales capabilities while keeping a close tab on market share and gross profit margin.

[Furniture Segment]

For domestic businesses, we will develop new customers; aggressively undertake sales activities; work on various fronts, including making operations more efficient and improving productivity at factories; and strive to increase share due to the strong gross profit margin. We will also generate demand by making use of "Live Offices*" throughout Japan?the first one, Shinagawa SST Live Office, will open in January 2018?and proposing new ways to work.

In the overseas businesses, the Group will specialize in direct sales in the urban areas of China, while reducing fixed costs to improve profitability.

* Live Offices are Kokuyo’s cutting-edge offices created to suggest "ways of working", ideal office space, and ways of using offices that contribute to solutions to all business issues by capturing the trends of the times. In fact, it is possible to experience the latest "ways of working" at offices that Kokuyo’s employees work in. We started by opening the whole new Kokuyo head office building, which opened in 1969, to the general public as a "living showroom (live office)". There are now twenty-eight such locations throughout Japan.

[Online and catalog sales and Retail business]

In the Kaunet online and catalog sales business, the Group aims to achieve growth as “online and catalog sales to expedite work” by focusing on the development and sales promotion of high value-added original Kaunet products specifically designed to satisfy customer needs.

In the Actus retail business, we will offer products and services to help customers realize their specific lifestyles, while striving to attract more customers to the shops.