KOKUYO Sustainability Message from the CEO

Message from the CEO Steady progress in our medium-term plan: Transforming our portfolio and accelerating field expansion

Representative Corporate Officer and President Hidekuni Kuroda

Shifting from tangibles to intangibles and expanding overseas

In 2021, we unveiled our long-term vision, CCC 2030, and committed to shifting to a new business model, which we call the Forest-Like Management Model. In conjunction with this, we updated our philosophy, reaffirmed our strengths, and set a revenue goal for 2030: 500 billion yen in net sales. Along with CCC 2030, we also unveiled our third medium-term plan, covering a three-year period ending in 2024. Titled Field Expansion 2024, this medium-term plan sets out financial goals for the end year of 2024, which represent milestones on the way toward our 2030 revenue goal. Specifically, we aim for net sales of 360 billion yen with an operating income ratio of 7.6%. To achieve this, we require revenue growth of 7% a year. To that end, we’re working to expand our business fields.

In FY2022, the year under review, we made good progress overall in Field Expansion 2024. True, that we recorded negative growth in operating income (although net sales growth was positive when the new revenue standard is applied retroactively), reflecting the economic uncertainties created by the prolonged pandemic. However, we recorded growth in two other profit items: ordinary income and profit attributable to owners of parent. We also made headway toward the longer-term goal, outlined in CCC 2030, of shifting to the Forest-Like Management Model and becoming the corporate group we envisage: one that cherishes social diversity and embodies our differentiated values, expressed in the slogan “be Unique.” As part of this, we laid the groundwork for transforming our business portfolio.

For FY2023, we have set two top priorities that will be crucial for achieving our goals in Field Expansion 2024. The first is to shift from business model focused on tangible goods to one focused on intangibles. The second priority is to expand globally.

Mindful of these two priorities, we’ll pursue the following actions in our two segments, the Workstyle and Lifestyle Fields, in FY2023. For the Workstyle Field’s domestic furniture business, we’ll engage in a new service business and step up efforts in our business process outsourcing business. The shift to hybrid work, driven by the pandemic, has created demand for office renovations and new offices. I’m confident that we can seize these opportunities. For the Workstyle Field’s overseas furniture business, we’ll focus on expanding in China. This expansion will be facilitated by Kokuyo Hong Kong Limited, which we acquired in 2022. Until then, our overseas strategy relied on sales offices. Now that we have a local subsidiary with manufacturing and procurement capabilities, we have strong prospects for expanding in China and also in other markets, including ASEAN countries and Australia. The Workstyle Field’s third sub-segment is businesssupply distribution, which is led by our retailer Kaunet, which sells via in e-commerce and mail order. Kaunet will step up digital marketing and target the demand for online shopping, leveraging the manufacturing expertise of our corporate group.

As for the Lifestyle Field, here we’ll focus on expanding the stationery businesses globally with the goal of becoming the world’s top stationery brand. The first step is Asia. Our stationery for schoolgirls has already achieved remarkable growth in China. Building on this success, we’ll start marketing the stationery in other Asia markets with a view to becoming the top stationery brand in Asia.

Entrepreneurship and investment for CCC 2030

Looking toward 2030, we remain confident in our prospects for achieving CCC 2030 despite the impact of the pandemic. To achieve the 2030 goal of 500 billion yen in net sales, we must shift to a business portfolio that delivers sustained growth. Part of this involves the medium-term tasks outlined in Field Expansion 2024: shifting from tangibles to intangibles and expanding overseas. Alongside this, we must start sowing seeds of growth by addressing social concerns. In a world where workstyles and lifestyles are transforming in profound ways, the success of our vision depends on whether we can develop new business ideas that reflect the new needs. That is what I will be focusing on as leader.

Regarding investment, we’ll invest in M&A opportunities and in startup partnerships. For example, we’ll explore partnerships and collaborations with startups that offer solutions to social issues. We may also provide our own corporate venture capital.

Another investment priority is to build the talent and organizational excellence necessary to transform our business portfolio. Our existing businesses have already made headway in organizational reform. However, for new businesses and overseas development, we’ve barely begun the work of building the necessary talent and organizational excellence. For Field Expansion 2024, alongside the medium-term tasks of expanding business fields and nurturing business ideas, we’ll also focus on building this talent and organizational excellence and forging partnerships. These efforts will transform our organizational culture.

Realigning our businesses and transitioning into a Work and Life Style Company

We recently realigned our businesses. Let me give you the background to this move. When we set to the task of drafting a long-term vision, the world had entered a period of accelerated change. Seismic shifts had occurred in the external business environment, with people embracing new lifestyles and values. Our own employees were certainly moving with the times, in terms of their motivation and workstyles. But it seemed that we as a company were struggling to keep pace with the changes, let alone stay ahead of them. This sense of crisis became the initial inspiration for CCC 2030.

Previously, we relied on a B2B distribution model. Our organization was like a single coniferous tree, rather than the forest we now aspire to be. It became clear that this single-tree model no longer worked in a world where workstyles and lifestyles were diversifying. We feared that the model was incapable of delivering our value to customers. We feared it would never deliver solutions that catered to this new landscape and that were also linked to a pressing social need. The solution, we concluded, was to shift to a new model that would enable us to address an array of workstyle and lifestyle needs. This model is the Forest-Like Management Model. It then became clear that this task required us to take on the challenge of expanding and rebuilding our business fields, and that by taking on this challenge we could contribute further toward a sustainable, prosperous society.

We also decided to clarify the kind of sustainable, prosperous society we wanted to see. After some thought, we decided that this should be a self-directed, collaborative society, in which everyone lives and works as free-spirited individuals while feeling socially connected to one another. We then reaffirmed that our mission or role is to help bring about such a society. On this basis, we formulated the following statement to express our corporate purpose: “Presenting a tomorrow you can’t wait for.” We also defined the kind of organization we wanted to be: a “work and life style company.” In other words, instead of being an organization that just makes and sells physical stationery or furniture, we’ll be an organization that creates new and exciting ideas for work and for learning and daily life. That is how we create social value along with economic value.

With this line of thought, we decided to reorganize our businesses into the Workstyle and Lifestyle Fields and to commit to shifting to the Forest-Like Management Model.

This reorganization has already started bearing fruit. One noticeable change is that our employees have expanded their field of vision, leading to different ways of viewing business growth. In the case of the Workstyle Field, we’ve made progress in developing business strategies not just in the workstyle changes prompted by the pandemic but in longer-term workstyle changes. We’ve also become more market-oriented. Rather than starting with the product, we start by identifying market needs and then create products and services to satisfy these needs. In the case of the domestic furniture business, rather than just selling office furniture, we’ve expanded into office services, in which we help clients create an effective office space or manage their operations effectively. In the case of the overseas furniture business, we returned to the drawing board and thought about what value we could offer the next generation given the shift toward hybrid work. We have now started testing a global strategy that aligns with our brand’s DNA. The acquisition of Kokuyo Hong Kong Limited is an outcome of this new approach, and it also corroborates its effectiveness.

Similar changes have emerged in our stationery businesses. In the past, employees focused on ideas for how to sell the products. After we re-conceptualized the Lifestyle Field, employees broadened their field of vision to overseas markets. They now think up strategies for bringing Japanese stationery, and the values associated with it, to a global audience. This new, global thinking culminated in KOKUYODOORS, a stationery store we directly manage. We opened KOKUYODOORS in January 2023 in Haneda Airport Garden, a new shopping facility with direct access from Haneda Airport Terminal 3 Station. The store showcases our stationery to international visitors. It is envisaged as a set of “doors” that open into a world of Kokuyo stationery and Japanese stationery, whetting visitors’ interest in the stationery.

The stationery businesses are undergoing an organizational transformation in 2023. As part of this reorganization, I’ve taken personal charge of the business. I decided that if we were to develop global markets for Japanese stationery and become the world’s top stationery brand, I should personally act as sales rep and promote Japanese stationery to a global audience. Alongside this change, the business has been renamed the Global Stationery Business Division to underscore its global focus. I’ll certainly be taking a global focus in my role as head of this division. While the domestic stationery market continues to shrink, I feel encouraged by signs that a global audience is responding positively to our added-value products. It’s my responsibility to seize this opportunity by channeling both domestic and overseas stationery resources into global expansion.

Early signs of our purpose becoming reality

When we adopted our corporate purpose in 2022 (“Presenting a tomorrow you can’t wait for”), we also ran a fresh materiality analysis to identify the issues that matter the most to us and our stakeholders.

One of our achievements in FY2022 was to reorganize our businesses into the Workstyle and Lifestyle Fields, identify strategic priorities for achieving the goals set out in CCC 2030 and those set out in Field Expansion 2024, and embark on organizational transformation. This also marked an achievement in the context of corporate sustainability, in that we defined the business themes and organizational structures through which we can fulfill our purpose. While it’s true that Kokuyo produces a wide array of products and services, our real forte lies in our ability to identify emerging workstyles and lifestyles and then develop ideas for new ways of living and working. In other words, what sets us apart is our social value—the role we serve in society.

Take KOKUYODOORS, for example. When international visitors encounter Japanese stationery at the store, they feel astonished, excited, and inspired by new ideas for their study life or general lifestyle. In other words, we’re seeing the emergence of new ideas and experiences as promised in our purpose statement: It’s presenting a tomorrow you can’t wait for.

Building a workforce of visionary leaders to present a tomorrow you can’t wait for

If we are to generate new value in line with our purpose, then we must, of course, invest in the necessary human capital and organizational infrastructure. One of the top duties for me and the rest of senior management is to build a workforce of visionary leaders, those who present “a tomorrow you can’t wait for.”

Workplace diversity is increasingly recognized as a vital part of business management, and it’s something that we are promoting. If our workforce is to embody our brand’s DNA, we must also create a more open organizational culture by breaking down departmental silos. By doing so, we’ll foster motivation and leadership. Employees will feel more engaged and will take the initiative in addressing social issues and customer needs. How to lead this change and ensure that it translates into business growth—that is a key task for the management and central to Kokuyo’s organizational management strategy.

Having handled many different kinds of products down the years, Kokuyo has long enjoyed a healthy, open culture, with authority being delegated effectively. The management will leverage this culture to encourage employees to personally identify with Kokuyo’s purpose and to show initiative and leadership. With a more engaged workforce, we can satisfy customers’ needs, address social issues, and deliver added value all the more effectively. Our whole organization, from senior management to frontline staff, will adopt a go-getting attitude and focus on how to satisfy customer needs and address social issues, not just on sales and profit targets. In that way, we will build a successful Kokuyo of tomorrow.

I can sum up the above by saying that we’ll make Kokuyo an organization that “presents a tomorrow.” Our junior employees are especially interested in finding ways to address social issues through their work. Critical to Kokuyo’s organizational management is how we as an organization address social issues, how our employees engage in such efforts, and whether such efforts ultimately produce businesses, services, or products that “present a tomorrow.”

I and the rest of the senior management must take a mediumto long-term view. Instead of focusing only on the problems customers are facing now, we should trace back the problems to their root causes—the wider social issues that underlie the problems. As indicated in our Value Creation Story, we must be mindful of outcomes and social impacts when developing businesses that present a tomorrow. To that end, we must build a workforce of visionary leaders. Whether we succeed in building such a workforce is a key goal indicator for our human capital strategy.

Keeping social impact in mind when allocating capital

Finally, I want to discuss our capital allocation strategy for improving our growth prospects. Regarding our financial capital, we’ll invest this actively in projects for CCC 2030, mindful of the need to strike the right balance between short-term and longterm allocations. As I mentioned earlier, we’ll keep pursuing opportunities for M&As and startup partnerships. We’ll also, of course, prioritize returning profits to employees in wage increases and to our shareholders in dividends. In this way, I and the rest of the senior management hope to build affinity and loyalty among our stakeholders.

Regarding non-financial capital, our top priority is to build our human capital—a workforce of visionary leaders who put our purpose into action. To create a diverse and inclusive organization, we’ll embrace workplace diversity further and fortify the organizational infrastructure underpinning our new business portfolio. An important part of this is workstyle reform underpinned by digital transformation.

Our workplace is part of wider society. It’s therefore important also that we keep innovating in our own workstyles and organizational practices so that we can stay at the forefront. To that end, our workplace must be diverse and engaged, with employees taking the initiative in pioneering new workstyles and lifestyles. With such a workforce, our marketing efforts will reflect our brand’s DNA. As our employees draw upon our accumulated knowhow to pitch ideas for living and working to customers, our loyal fan base will grow, and so too will our social capital.

As for intellectual capital, we’ll focus on developing our creativity, particularly our design finesse. This is because artistic appeal is crucial to pitching compelling ideas for work and life. If we are to transform the way our customers live and work, we need to develop our ability to reach and inspire customers directly.

I hope I have given you some idea about the tasks we’ll be engaging with in our efforts to transform our business portfolio and achieve sustainable growth. I look forward to further dialogue with our stakeholders as we transition to the Forest-Like Management Model. Over the years, you have shown confidence in our stationery and furniture businesses, and I hope that Kokuyo will earn your continued trust as we present ideas for workstyles and lifestyles of tomorrow. Thanks for taking the time to read, and I look forward to our continued journey together.