MESSAGE FROM THE CSO

3rd medium-term plan: Effective in gearing up for growth

During the three years of our 3rd medium-term plan, Field Expansion 2024, our financial performance improved. We achieved growth in net sales, gross profit, and operating profit, and our gross margin, a measure of profitability, increased 0.5 percentage points over the three years. On the other hand, we struggled to grow sales in China, a market we were focusing on. Crucially, demand for value- added stationery diminished amid the economic downturn China experienced in 2024. We also struggled to grow sales of office furniture amid the slumping real-estate market. With these headwinds, we fell short of the initial targets in Field Expansion 2024. We did, however, achieve strong results in other key indicators. ROE exceeded the initial target of 8.0%, reaching 8.5%. This accomplishment partly reflects the gain on sale of investment securities that we recorded after bringing forward the sale of cross shareholdings. Another indicator we performed well in was gross margin, which was particularly relevant to our strategy of focusing on added value. Gross margin reached 39.3%, an increase of 4.6 percentage points from the level in 2015 (34.7%). The results for ROE and gross margin suggest that our operations have become much more profitable.

On the qualitative side, we made palpable progress in our growth strategies aligned with our long-term vision, CCC 2030. We improved the profitability of our existing businesses and sowed seeds of new business growth. We also geared up our corporate-level assets (corporate functions, IT system, strategic investments) for the next stage of growth.

4th medium-term plan: Committing to bolder growth

The 4th medium-term plan, Unite for Growth 2027, envisages three years of powerful growth, with a strategic investment budget for growth at least twice the size of that in the previous medium-term plan.

In our investment activities, we will focus on projects related to existing businesses with low risk and high return prospects. Such investments will generate stable cash flows. These cash flows will fund riskier investments such as M&A deals and new business ventures, which in turn will accelerate the shift in our business portfolio. Even in these comparatively riskier investments, we will minimize the risk by targeting investments into areas that are adjacent to, or are likely to generate synergies with, our existing businesses. We will also invest actively in digital innovations to develop a new service- or subscription- based model for recurring revenue, driving the transition to a new business model for the whole of KOKUYO Group by 2030.

In the Japanese furniture business, our investments in tangible production assets have mainly involved updating existing assets. This implies that we could do a lot more to improve productivity. We will therefore invest in a productivity transformation to further improve gross margin. We will then combine high added value with competitive pricing to create a clear differentiation from competitors. Logistics is another area where we will create more efficiencies. These areas will account for a large portion of our maintenance capital-expenditure budget of 19 billion yen and our growth capital-expenditure budget of 70 billion yen, and the fund allocations will improve our competitiveness.

In our M&A strategy, we will focus on penetrating or expanding in ASEAN markets and in India and Australia. To that end, we will acquire assets that will enable us to localize production and sales operations in these markets. We will accumulate potential M&A leads and consider a range of possibilities, including contributing to an industry shakeup in Japan and overseas markets.

After investing in a project related to an existing business, we will closely monitor the performance of the investment using our internal profit standards. When it comes to investing in IT systems, we will invest in projects for adapting to increasingly complex business flows and in projects for updating basic automatization platforms. Likewise, in our M&A activities, we will use rigorous valuation methods and assess strategic alignment in order to increase the odds of success.

Greater experience value across our global operations

Furniture

For the Japanese furniture business, our medium-term targets are as follows: an average annual growth rate in net sales of 5% and an EBITDA margin of 19.3%, an increase of 1.9 percentage points from the 2024 level.

With more women in the workforce and higher retirement ages helping to curb the decline in Japan’s working population, we anticipate a higher supply of office spaces in the Tokyo Metropolitan Area and, commensurate with this, brisk demand for office relocations and office renovation. KOKUYO, ahead of its competitors, upgraded its operations to take on office interior design services. Consequently, we now have more than 300 experts in office interior design, one of the highest in the industry. This gives us a competitive advantage that we can flex to the full to beat any competition in this area. Having forged a relationship with many large-size enterprises, we can leverage our interior design prowess to expand into office renovation services and meet the demand among these large enterprises for utilizing idle real-estate. We can also improve services we have already launched, including a service that evaluates the effects of office designs upon employee performance and an implementation-phase service that helps employers empower and deploy their talent effectively. Having integrating our operating companies in 2015, we now have much better coordination between sales, production, and development. After becoming less product-focused and more market-focused, we have optimized our products and services to market needs while also improving productivity, which has been a driving force behind the increase in gross margin. We will improve our gross profit margin further by continuing to invest in projects to transform productivity and by tightening coordination across the value chain. We will also improve our capacity to take on contracts and develop global products to improve our competitiveness in Japan and overseas markets.

As for overseas markets, success here requires us to reduce lead times and improve cost competitiveness. To that end, we will transform our supply chain for ASEAN markets by localizing and concentrating production on a component basis and establishing localized sites dedicated to component assembly. We will also start taking orders from markets in the Asia-Oceania region. To differentiate our products, we will localize them to the demand landscape particular to the country or territory in question. In ASEAN markets, we will target middle and high market segments and offer experience value across the whole of the office cycle, from design to implementation, thereby building a business model that delivers recurring revenue. Through these measures, we can achieve the following medium-term targets for the overseas furniture business: an average annual growth rate in net sales of 16% and an EBITDA margin of 13.4%, an increase of 3.7 percentage points from the 2024 level.

Business supply distribution

For business supply distribution, our medium-term targets are as follows: an average annual growth rate in net sales of 8% and an EBITDA margin of 7.0%, an increase of 0.7 percentage points from the 2024 level. The B to B e-commerce market is set to grow, and AI innovations will improve customer experience and productivity. To capitalize on the opportunities, we will develop platform- based services that are differentiated from the competition in how they deliver services optimized to the needs of individual users. We have two platform-based services for purchase management (Benri Net and With Kaunet) and we inherited part of Fujitsu Coworco Limited’s business in October 2024. These assets give us access to a clientele consisting of more than 6,000 large enterprises and links with some 700 e-commerce websites. Adding to these assets, we will link up with big-name e-commerce players, dedicated suppliers, and local suppliers to offer an overwhelming range of products and a smooth user experience. We will also use AI to provide customized recommendations, reducing the stress associated with purchase management, and deliver services for improving risk management. Leveraging a multi-business model that combines e-commerce with our nationwide network of offline retail stores, we will keep growing our clientele of large enterprises. Eventually, we will develop services that use data analytics to optimize supply chains.

Stationery

Japan’s stationery market will continue to shrink, and adversities will persist in the Chinese market. The outlook is more favorable in India and ASEAN markets, where population growth and higher incomes will create brisk demand for stationery. Given these projections, our medium-term targets are as follows: an average annual growth rate in net sales of 3% and an EBITDA margin of 10.6%, an increase of 0.9 percentage points from the 2024 level.

In the Indian and ASEAN markets, we will place weight on the B to C sector, leveraging the expertise we developed in the Chinese market. Part of this will involve building the global brand identity of Campus, which commands a strong brand identity in Japan. It will also involve differentiating our products by ensuring that they deliver experience value. In the writing and drawing tool category and in other stationery categories, we will insource global products to improve profitability and increase the ratio of global products to products for the Japanese market. Insofar as our B to C stationery operations target the student demographic, we will need localized branding and localized production. Likewise, our sales channels will need to consist of local retail partners as well as an online channel. Accordingly, we will invest to develop such assets.

Interior retail

As in other markets, e-commerce is accounting for an ever-larger share of the residential furniture market. Our growth strategy for this market will involve linking offline stores with the online store in our existing business. It will also involve KOKUYO and Actus working closer with external partners to extend our reach into the B2B sector. We can market Actus’s upmarket European furniture to owners of high-class apartment blocks and hotels to expand our reach to the residence sector, as part of our portfolio transition.

Driving further transformation

I joined KOKUYO in 1985. Over the years, I have seen KOKUYO adapt to the changing times by shifting from a model of mass-producing high-quality goods at low cost to a model that targets more precisely a range of unmet needs. KOKUYO now has a more diverse range of individualist employees and a flatter organizational structure. Staying true to the founder’s belief in providing something useful, we will uphold our organizational culture and values while embarking on bold reforms. I look forward to helping President Hidekuni Kuroda drive this agenda of transformation.

• Leadership’s commitment to sustainability