MESSAGE FROM THE CEO

My Task as CEO

KOKUYO Group is now on its 4th medium-term plan, Unite for Growth 2027, which runs from 2025 to 2027. Let me tell you about the background and strategic context in which we developed this plan.

KOKUYO traces its history back to 1905, when Zentaro Kuroda opened a shop selling binders for Japanese-style ledgers (wacho). Initially producing just binders, Kuroda started producing his own wacho with built-in binders and then started producing Western-style ledgers. After Japan entered its period of high economic growth, Kuroda launched a range of other products, including the iconic Campus notebooks and other stationery. He also expanded into office design and installation, offering goods such steel cabinets. As Kuroda’s company expanding in this way, it remained true to its underlying ethos—Kuroda’s belief in creating a positive social impact, encapsulated in his maxim that any business will succeed as long as it provides something useful. This ethos was then incorporated into KOKUYO’s code of conduct, which emphasized listening to customers and empathizing with their needs. This philosophy inspired KOKUYO to create unique products. However, it started becoming overshadowed by something else: In the process of prioritizing business expansion and competitiveness, KOKUYO established a business model that involved selling through a distribution network across Japan. This model served the company well for many years, but it also meant that KOKUYO became a little too focused on the needs and competition trends among its retail partners, and not focused enough on end users. The problem with this approach became apparent in the 2008 financial crisis. Amid the crisis, office furniture and stationery became increasingly homogenous, leading to intense price competition that narrowed profit margins.

When I became president of KOKUYO in 2015, I was assigned a tough task by the Nominating & Compensation Committee at that time: I was to lead a radical transformation in KOKUYO to create a high-profit business portfolio that would deliver sustained growth in the long-term value of our organization—and I was to do so without damaging the confidence of employees and supply chain partners. I had no illusions about the toughness of such an undertaking, as I knew just how conservative the company’s culture was and how its Campus notebooks had delivered stable sales for many years. I started by reorganizing our corporate structure in Japan. Back in 2004, KOKUYO had formed a corporate group by spinning off its businesses and establishing a holdings company. This structure had left us in a suboptimal situation, impeding effective communication and decision-making. I believed that unifying KOKUYO into one organization would help us coordinate resources and pursue a bolder vision. On this basis, I adopted a policy of focusing on adding value to avoid price wars and focusing on gross profit ratio as the key performance indicator. The first stop in this agenda was to understand our customers.

A new corporate culture to support business transformation

We could never avoid a price war just by targeting the obvious needs. I decided that the secret to stimulating customers’ creativity would be to target niche unmet needs along with ones that are emerging but not yet prevalent. For these needs, we would deliver experience value—an added value proposition that would set apart the KOKUYO brand. To deliver experience value, we would need to shift our focus from our sales channels to the end user. Needless to say, committing to this approach would also benefit our retail partners.

It had become apparent that a top-down approach was ill-suited to the challenges of the new age of uncertainty. Believing that employee autonomy would be the driving force of experience value, I focused on ending the insular, conservative, and top-down culture and building in its place a culture that would unleash each employee’s creativity. I particularly wanted to create an open, speak-up culture.

When the COVID-19 pandemic struck in 2020, it sparked rapid changes in people’s values and workstyles along with calls for an end to office attendance. Many spoke of a decline in demand for stationery. A sense of alarm rose in KOKUYO too, and this alarm motivated everyone in the company to commit to my program of reform. Employees shared their perspectives and ideas, and we incorporated this feedback into a long-term vision, which we unveiled in 2021 under the title CCC 2030.

CCC 2030 committed us to building a world that is self-directed and collaborative. Suited to an age of diversity, this is a world that celebrates people’s independence and individuality but in which everyone respects each other and works together as a community. Guided by this vision, we committed to a business model suited to delivering experience value. Under this deepened model, known as the Forest-Like Management Model, employees were to act autonomously and reach out across divisional boundaries to create one example of value after the other. CCC 2030 included a financial goal for 2030: 500 billion yen in net sales. The vision presented two challenges: First, if we were to meet the need for unique value in an age that celebrates individuality, then KOKUYO employees would have to be unique themselves. Second, if we were to shift from a business model focused on mass producing a small number of items to one focused on mass producing a wide variety of items, then we would have to do something to prevent inefficiencies. The solution, I concluded, was to change practices right across the value chain—including production and sales as well as planning, design, and development. That is why we updated our philosophy, which had remained the same for over a century, to the new philosophy statement, “be Unique.”

The first part of this long journey was our 3rd medium-term plan, called Field Expansion 2024, which ran from 2022 to 2024.

3rd medium-term plan: Laying the foundation for a more adventurous KOKUYO

The 3rd medium-term plan had set two strategic priorities: improving profit growth and efficiency in our existing businesses in Japan and expanding our revenue streams overseas. We fell short of our targets for FY 2024, the final year of the plan, after experiencing headwinds from economic adversities in China. However, we did make headway in gearing up our corporate resources for going forward in the Forest-like Management Model. We grew net sales and improved profitability in our furniture business and other businesses and used M&As and other means to build stronger business assets overseas. In 2022, we made Hong Kong furniture maker HNI Hong Kong Limited (now KOKUYO Hong Kong) a fully consolidated subsidiary. This acquisition gave us furniture production function targeting Mainland China and other markets. It also gave us Lamex, a popular furniture brand in the region. By transferring production to Lamex, we expanded our production capacity. By gaining Lamex’s knowhow, we improved production efficiency. In this way, we have gained a firm foothold for further global expansion. We have also hired outside experts in business administration to gear up our corporate functions for the next step.

The cultural transformation now has tangible manifestations. In one example, we renovated a disused company dormitory into THE CAMPUS FLATS TOGOSHI. KOKUYO’s first co-living space, THE CAMPUS FLATS TOGOSHI embodies our new organizational culture in which employees think and act independently and proactively. Employees have spontaneously developed ideas for business projects. One is the Office Renovation Project and another is the Tokushima Future Convenience Store, but there are many other examples, too numerous to list. I also have a palpable sense of the progress we have made toward a more open culture. The change is clear from our monthly questionnaire on employee engagement. Most strikingly, for the item measuring the degree to which employees feel we have a culture that empowers challenge-taking, the score has gone from 63 in 2021 to as high as 71 in March 2025. This finding reinforces my faith in the actions we have taken. By reinforcing our corporate assets, we have created a solid platform for going forward in the 4th medium-term plan.

Updating the Forest-Like Management Model for Better Group Coordination

Back in 2021, we renovated our office in Shinagawa, Tokyo, turning it into THE CAMPUS. To date, THE CAMPUS has received some 270,000 visitors. We keep tweaking and improving the site, including its greenery, lighting, and size of art installations. We also keep monitoring data on how employee-friendly the environment is and the extent to which it is facilitating communication. THE CAMPUS serves as a laboratory in which employees, taking a customer perspective, experiment with interior design ideas for workstyles and organizational setups that align with our vision of a self-directed, collaborative society.

We apply this culture in our strategy for tangible products, including our iconic, long-selling Campus notebooks. Listening to customer feedback, we identify unmet needs, experiment with product samples, and observe the settings in which customers use the products, with a view to refining the products. We take the same approach when designing office furniture. Taking the perspective of the person who will use the furniture, we consider subtle design touches in areas that might not be obvious but that will make a big difference to the user.

As these examples illustrate, we develop future-oriented experience value through a culture of experimentation underpinned by emotional empathy and co-creation with the customer. Our longstanding commitment to this creative cycle has enabled us to expand the reach of our business fields. The 4th medium-term plan uses the phrase “wow-factor creation cycle” to describe this cycle and identifies it as a forte of KOKUYO Group. The plan also commits us to using this cycle to expand the scope of the experience value we offer. In overseas markets, we can draw on our experience value to differentiate ourselves from the competition, enabling us to expand overseas without getting dragged into price wars over tangible products.

While each of our businesses has its own separate set of products, each also has a body of best practices and knowledge in relation to the same wow-factor creation cycle. If such business-level knowledge is shared and channeled, we can update our Forest-Like Management Model (incorporating the idea of the wow-factor creation cycle) and identify specific ways to transform our business portfolio. That is exactly what we have committed to doing in the 4th medium-term plan.

4th medium-term plan: The phase for portfolio transformation

Over the years, we have built up our business assets and have seen decent growth in our performance. However, our portfolio has remained largely the same, and overseas sales have only ever represented only a small share of total revenue. The three years of the 4th medium-term plan will be a phase for far-reaching changes in the portfolio. With these changes, KOKUYO will look very different in 2027 to how it looks now. For this transformation, we have increased the growth investment budget from 30 billion yen of the previous medium-term plan to about 70 billion yen. We will spend this budget both on projects to fortify our existing businesses in Japan and overseas markets and on inorganic, M&A-led growth. To give our shareholders and other investors confidence in our commitment to increasing the value of our stock, we have made our quantitative targets as precise as possible and established a framework for improving the value of our organization. Instead of prioritizing annual operating income as we have done previously, we will focus on minimizing capital costs while also prioritizing the medium- and long-term cashflows (or EBITDA) to support our investing activities. For 2027, the final year of the plan, our targets are as follows: Net sales of 430 billion yen (27% higher than in 2024), an EBITDA of 43 billion yen (39% higher than in 2024), and an EBITDA margin of 10%.

With these targets in mind, we clarified our portfolio strategy. That is, we plotted our businesses onto a matrix of four quadrants and committed to two modes of growth for each business: top-line growth (growth in net sales) and bottom-line growth (improvement in profitability). As the matrix indicates, the business with the highest strategic priority is the furniture business. KOKUYO entered the interior design market as early as 1969, with a nationwide network of live offices. Over the decades since then, we have accumulated industry-leading expertise in interior design. Harnessing this expertise, we will create synergies between interior design, human capital, renovation, and other upstream needs in order to expand the scope of our experience value. Likewise, in our investment strategy, we will focus on generating cash flows from our existing businesses in the Japanese furniture market and then use these cash flows to fund adventurous growth opportunities such as M&A deals and new business ventures. A key theme for such adventurous growth opportunities will be overseas businesses.

Going global in experience value

In our global expansion, we will focus resources on Asian and ASEAN markets. These markets will continue to enjoy economic growth, but we can only achieve business growth in them if we understand what the consumers want and then add distinctive value. Part of our value proposition is the quality associated with our brand. In Japan, KOKUYO has history of craftsmanship going back over a century. In overseas markets, we will uphold this heritage to build a brand identity and penetrate the market. However, no matter how high the quality of our products is, we will succumb to price competition if we rely on exporting the products from Japan. We must therefore localize production. There are several options for localizing production, including establishing our own plants, closing M&A deals, and collaborating with local partners. We will pick the options that are best suited to the markets in question. Such localization will enable us to deliver differentiated experience value. CSO Toshio Naito will explain our business-specific strategies for overseas markets. I will therefore briefly discuss the strategic backdrop to the stationery business, which has a key role to play in our global expansion.

With Chinese consumers increasingly prizing design flare and functionality, Japanese stationery has grown popular among Chinese schoolgirls thanks in part to social media. Meanwhile, the student market in China has diversified, with a rise in exploratory learning, cooperative learning, and individualization. To respond to these diversified needs, we shifted to a direct-to-consumer model, in which we bypass retailers and sell directly to consumers online or at directly run stores, increasing our touchpoints with end users. This approach proved successful. Between 2017 and 2023, we achieved an annual growth rate of 15% and increased our gross profit margin by 10 percentage points.

But the thing is, this kind of student market for stationery exists only in Japan, China, and South Korea, which have similar exam prep practices. Student markets around the world remain largely untouched. We made a start in targeting India’s student market in 2011 with the acquisition of Camlin Limited (present KOKUYO Camlin), a company covering the whole of India. By replicating this process in ASEAN markets, we can steal a march from our competitors in building global business assets. We will insource a higher percentage of stationery products for global markets, with a focus on writing and drawing tools, and build up our overall momentum with a view to becoming the top player in Asian student markets by 2027.

To enable such global expansion, we need a workforce savvy in the global markets concerned. We can go some way in acquiring local talent through M&As, but we will also hire such talent and train up a globally fluent workforce.

Diversity as driving force toward a self-directed, collaborative society

I always keep two things in mind. The first is the need to keep listening to objective opinions. In 2024, we transitioned our governance structure to that of a “company with a nominating committee and other committees.” Such a structure is globally standard and befits an organization committed to going global. Another reason we shifted to this structure is that it more clearly separates monitoring from business execution, enabling swifter decision-making. On our Board of Directors, five of the eight members are company outsiders. These outside directors bring a range of professional insights and are unafraid of giving constructive criticism. I listen to their feedback. Such company outsiders tend to raise many concerns when the company is about to take a risk. I welcome such constructive criticism because it increases our chance of success. Let me share an example. For the 3rd medium- term plan, we had a growth investment budget of 30 billion yen. Ultimately, we spent only 11 billion yen of the budget. We were considering some potential M&A deals that would have put us over budget. However, we decided against these deals following a multiangled, intricate risk analysis, which considered the valuation of the companies in question as well as the prospects for a return on investment and post-merger integration. We could only have undertaken such a rigorous analysis because we were able to draw on the expertise of the outside directors.

Another example is embedding a long-term perspective in our business strategy. A long-term perspective is crucial in creating sustained value for our organization and all our stakeholders. It is my duty as a leader to take a long-term perspective, review the longstanding culture and practices that an organization with a long history as ours has, and then clear away that which is not worth keeping while retaining and upholding that which is. One thing I certainly want to keep is KOKUYO’s unique workforce, which is full of what I call “diligent and quirky” employees—employees who are diligent about meeting the customer’s needs and who will engage their creative thinking to the full in order to do so. Such a workforce is a core asset for the sustained creation of experience value. I respect the ideas and opinions of the employees and want to build the world’s most open, speak-up corporate culture so that employees feel confident about taking challenges.

The year 2025 marks KOKUYO’s 120th anniversary. With diversity as our driving force, we envisage the shape of world in the next 100 years and press on in our journey toward the self-directed, collaborative society we believe in. I hope you will share in this journey.

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