In fiscal 2022, the Nitto Group achieved revenue of 929.0 billion yen and an operating profit of 147.2 billion yen, both record highs, despite the difficult business environment. We could not hope to accomplish this without everyone in the Group forging ahead with their business.
This past year was highly unpredictable, with geopolitical risks including China’s zero COVID policy and Russia’s invasion of Ukraine, price surges, and rising interest rates. On the other hand, we benefited from the yen’s depreciation against other currencies, so our operating environment was mixed, to say the least.
As much as it is hard to anticipate what to expect in the global economy, I believe it important that business managers keep abreast of management risks by running simulations within a certain margin. It is also important to respond to changes flexibly while building a resilient corporate structure immune to the external environment. I think it’s safe to say that the brilliant showings in fiscal 2022 are attributable to the fact that both officers and employees united as one to address burning issues common throughout the Group.
To build a resilient corporate structure, it is vital that we transform our business portfolio. While the information and communication technology (ICT) business, which offers circuit materials, and the medical business, which includes oligonucleotide therapeutics, keep growing, the Nitto Group is trying to establish new mainstay businesses by aggressively investing in them. I am pleased to say that we are moving step by step toward building a robust business portfolio.
When I joined Nitto some 45 years ago, I remember the president of the company often saying, “From changes arise opportunities.” This phrase is still entrenched in my mind nearly half a century later. At the risk of sounding too general, we become restless when change arrives. His positive thinking that change comes hand in hand with opportunity left a lasting impression on me as a new recruit.
On its way to sustained growth, the Nitto Group has created a large number of Niche Top products as we constantly explore the ever-changing markets.
Looking back on the past 10-plus years, the Nitto Group has encountered major changes, a.k.a. adverse situations, many times. Still fresh in my memory is the global recession triggered by the economic and financial crisis in 2008, which resulted in our business performance dropping significantly, albeit temporarily. Yet we took things positively, rather than being unnecessarily intimidated by the change, and navigated the company accordingly. Our solution was to “discontinue” or “downsize” some of our operations, which is not very easy to do during ordinary times, while investing a lavish amount of money in products that we believed would grow. It is this approach of pursuing both restructuring and growth strategies that underpins the Nitto Group’s sustained growth.
And now, a clear and present change is happening to the global environment. It is never easy to reduce the negative impact that business activities may cause on the environment, by achieving carbon neutrality and other initiatives. To address this challenge, we are focusing on proposing products that help our customers reduce their environmental impact, while properly assessing risks and opportunities. Hence PlanetFlags/HumanFlags.
In the field of contributions to human life, we have launched numerous products already. We thus believe that we must add to the list of such products in the field of contributions to the environment going forward. As you can imagine, it is no easy task to ask users of our existing products to replace them all at once. As every player in the supply chain is increasingly required to comply with regulations on carbon neutrality, and so on, it is not necessarily in the best interest of our customers in the long run to continue to use existing products. Rather, I firmly believe that, through close communication, encouraging them to use products that help to reduce environmental impact will eventually serve their interests best.
One of the challenges that will face the Nitto Group from now on, as we build a resilient corporate structure immune to the external environment, lies upstream of the supply chain, that is, stable procurement of raw materials. Also challenging is securing reliable access to raw materials in the face of rising geopolitical risks. Regulations on chemical substances are being tightened everywhere globally, and we must be more attentive to sustainable procurement than ever. More than a few of our Niche Top products use raw materials whose procurement can be affected by such risks. If the supply of such resources suddenly stops due to environmental regulations or geopolitical risks, we will be affected enormously. To prepare against this, we have established the Supply Chain Committee to invite key organizations, including the procurement division and development departments from each business division, to locate risks associated with procurement and conceive countermeasures.
The Nitto Group has drawn up a new mid-term management plan, Nitto for Everyone 2025, which will serve as a beacon to us during the first three years (from fiscal 2023 to fiscal 2025) as we seek to realize our “2030 Ideal State.” Now, we envision ourselves as an “essential top ESG company that continually brings amazement and inspiration as a Niche Top creator,” by 2030. Merely having people appreciate our existence is not enough; our goal is to be an “essential” piece as we pursue what makes Nitto stand out and be unique. In more concrete words, by combining ESG management and the Niche Top Strategy, we intend to deliver more “products and services that are essential” for customers, society, and planet Earth than ever.
Meanwhile, to expedite ESG management, we are dedicated to ESG initiatives within the Group. At Nitto, we deliberately call information other than financial information “future-financial” information, not “non-financial” information. This is because we expect ESG investments to have financial value in the future. We classify future-financial indicators into human resource-related ones, which concern the revitalization of people and teams, product-related ones, including PlanetFlags/HumanFlags and Niche Top products, and environment-related ones, which concern decarbonization and resource recycling. In each category, we are adding more new indicators on top of existing ones and are working hard to achieve targets for each indicator.
Some of the leading examples of what we do for ESG management include: announcement of support to the Task Force on Climate-Related Financial Disclosures (TCFD), realization of carbon neutrality by 2050, development of PlanetFlags/HumanFlags into Niche Top products, formulation of the Basic Policy on Sustainability, implementation of the measures that aim at empowering female employees, and the establishment of an organization dedicated to ESG.
One ESG initiative that merits special mention here is the Nitto Group Carbon Neutral 2050, in which we commit ourselves to decreasing CO2 emissions to 470,000 tons by fiscal 2030. To this end, we intend to spend 30.0 billion yen over the three-year period of the new mid-term management plan. Furthermore, we will increase the total amount of relevant investment up to fiscal 2030 from 60.0 billion yen to 80.0 billion yen in a bid to achieve the goal ahead of schedule. To drive our environmental initiatives beyond decarbonization, environment-related futurefinancial indicators of the new mid-term management plan include the waste plastics recycling ratio and the sustainable materials procurement ratio.
Leading this company as I am, I wasn’t initially certain what to do with ESG management. How should we go about boosting performance while making ESG investments?—It’s not easy to find an answer to this question. After careful consideration, however, we have decided to “pursue solutions to social issues and creation of economic value through our unique approaches, placing ESG at the core of our management.” Now, when you invest in your business, you have to recoup it by any means. Therefore, I take it as an essential duty of the top manager of this company to provide PlanetFlags/ HumanFlags to customers, generate a fair amount of earnings, and reinvest part of them into future product development.
So far, we have recognized a total of ten products according to our unique standards. In fiscal 2022, I had the opportunity to commend our employees who were involved in PlanetFlags/HumanFlags on our Foundation Day, along with recipients of the President’s Award. We hope to recognize more going forward and have asked our development teams to have all of their projects meet the standards for PlanetFlags/HumanFlags. At the same time, we are planning to make a shift to PlanetFlags/HumanFlags for existing businesses as well, so that we can accelerate this initiative in a uniquely Nitto way.
Sometimes, people tell me that Nitto will soon become a one-trillion-yen company, but my bottom line is the business’s profitability. What’s more important for me is achieving a 17% ratio to revenue. I also feel that it’s essential to keep ROE in the double digits. Salespersons may even prefer to see sales numbers grow even at the sacrifice of some operating profit, but that will rid us of our uniqueness. This being the case, we will never play in a volume zone in any business, because competing in a volume zone means a pricing war and a lower ratio to revenue. What we should be playing in is the high-end market. Although its volume may be somewhat limited, we can still achieve high profitability if we take the lead in niche market segments. The Nitto Group also covers up to the mid-end market, where we can expect high returns if we follow a business model that is different from those of the high-end market, such as a royalty business based on the patent strategy.
Outside of business, the Nitto Group organizes social contribution activities on a global scale. One of them is the sponsorship of the Nitto ATP Finals, the season-ending tournament of men’s professional tennis. As part of this sponsorship, we offer a social contribution program. We will remain committed to such activities as a way to help realize a better society.
Having redefined its three focus domains as digital interface, power & mobility, and human life, the Nitto Group is seeking business in a way to accommodate societal changes, such as decarbonization, digitization, and health and longevity. When we updated the focus domains, younger employees were invited to join a series of discussions on such topics as how we should perceive our markets in anticipation of 2030.
In the new focus domains, we believe that the Nitto Group’s strengths can be felt more where each domain intersects, not in any of the three individual domains. For instance, in a space where the digital interface and human life intersect, we have set up a digital health business utilizing devices that make the most of high-performance materials with little burden on patients. By facilitating the cross-domain business, we aim to create Niche Top products that have never existed before.
The Nitto Group has a business division system, but it would be difficult to create new value if each division functions individually at the time of change, giving rise to the need to overcome or break barriers among organizations. As a top manager, I will ensure that we create a workplace environment that encourages our employees to make a cross-sectoral attempt to transcend organizational barriers.
We are also implementing drastic personnel programs. One of them is to replace heads of each business division to accelerate the intersection among different business domains. It may seem a reckless attempt, but we have a group of human resources that we believe can prove themselves given the opportunity. We have already begun to see the interdivisional collaboration produce an effect.
What we believe to be most important for the Nitto Group to move ahead in attaining 2030 Ideal State is human resources. As artificial intelligence and other forms of technology advance, all sorts of operations will be automated, but it will continue to be people that hold creative jobs which give rise to new values. Being aware of this, the Nitto Group is committed to putting greater efforts into human capital management, aiming to be an organization where every employee works happily and enthusiastically. Through the recruitment and development of human resources, we encourage the growth of each employee and strengthen our efforts to develop managerial candidates.
Now that over 80% of our net sales are generated overseas and approximately 70% of the workforce is based outside of Japan, DE&I poses an important issue we need to address. As part of efforts in this regard, the Nitto Group is making dedicated strides to develop global leaders. Specifically, we organize our global leader development program, Nitto Global Business Academy (NGBA), outside of Japan, implement a succession plan, rotate candidates of executive managers internationally, and run an overseas trainee program. We also ensure that diversity of human resources is promoted by, for example, inviting international graduates of NGBA to Japan to get involved in marketing activities. We expect them to create new businesses across different regions.
We also believe that the empowerment of women employees is another imperative issue. To promote this cause, we have started the FLOWER Program, which aims to develop women who will lead organizations. This program offers a unique mix of positive activities, including opportunities for its participants to talk with senior executives and take management skill development seminars, to name but a few.
Also at the linchpin of ESG management for manufacturing businesses, along with the development of human resources, is occupational safety. Under the policy of “We place safety before everything else,” the Nitto Group identifies risks at each site and implements countermeasures according to the degree of their danger to reduce every kind of accident and injury to zero. Among such countermeasures are the installation of safety devices, as well as shields so human bodies don’t touch dangerous machines, or the introduction of fully-automated equipment that negates the need for operators to get directly involved.
In addition to doing something with the “tangibles,” including equipment on the shop floor, working on the “intangibles” is also important. Here we promote reform in employees’ safety awareness and action. In fiscal 2022, a major fire broke out at one of our Group companies. The number of occupational accidents has remained stagnant, making us more aware than ever of safety.
The word “safety” has another important meaning. It’s safety of management, that is, compliance. Even one single misconduct can shake a mega enterprise to its foundations. What is important here is that a top manager takes the lead in showing a model with speech and behavior, thus further elevating the entire Group’s awareness of compliance.
Together with my secretary and a few members of the corporate planning team, I have paid visits to various sites on the pretext of a “mobile President’s Office.” On such occasions, I tried to communicate with employees there as much as possible and solicit “bad news first.” As the pandemic is winding down, I’m hoping to do the rounds more frequently than ever. By sharing with them the awareness of safety and compliance through the candid exchange of opinions with people in the field, I will further the policy of “placing safety before everything else.”
For the mid-term management plan, “Nitto Beyond 2023,” which guides us up to the end of fiscal 2023, we were able to achieve our self-set targets one year ahead of the original timeline. As we embark on the new mid-term management plan, “Nitto for Everyone 2025,” we will tighten the reins to achieve renewed targets.
As I mentioned at the outset, the Nitto Group is surrounded by tough, marked changes. If we can successfully carry out the Niche Top Strategy by creating a seamless flow of PlanetFlags/HumanFlags products, I believe we can sustain our business growth into the future.
My dream is to see countless PlanetFlags/ HumanFlags fluttering at the end of fiscal 2025, the final year of the new mid-term management plan, having established themselves as Global Niche Top™ and Area Niche Top™ products. Under the belief that dreams will come true if you envision them, we will implement the mid-term management plan.
The Nitto Group will keep challenging itself in uncharted territories. One prime example is a brave attempt to develop oligonucleotide therapeutics. In the history of Nitto, which spans over a century, this is the first product that functions inside the human body. We may encounter various difficulties on the way, but beyond them, we see the joy of patients who have conquered their illnesses and our delight in having contributed to society through business.
We at the Nitto Group wish to be an “essential” entity creating Niche Top products in the focus domains where our strengths can be felt most, as in the case of PlanetFlags/HumanFlags. Our biggest wish is to see that the end products in which Nitto products are incorporated are appreciated by the general public, which in turn brings profit to our customers.
We sincerely appreciate the continued support from our stakeholders in this regard.
Nitto Denko Corporation
Representative Director, President
CEO, COO
Hideo Takasaki
