Sustainability Message from the CEO

The essence of the value proposition by Nippon Thompson

Nippon Thompson is a company centered on developing technology, with a history that dates back 73 years. To date, it is the quality of our products that has supported the Group’s growth and shaped the essence of the value we provide to our customers. It is our responsibility to supply unique, high-quality products that are exclusive to the Group and that our customers can use them without any worries. Fulfilling this responsibility is the reason we exist.

We provide products under the IKO brand name. IKO is an acronym of our three core beliefs— Innovation, Knowhow and Originality—or providing products that are artfully creative and based on advanced technology. Immersing ourselves in manufacturing based on these three keywords has led to the creation of the Group’s high-quality, high-value- added products, which continue to receive high acclaim in industrial circles. The idea that the value of the IKO brand must exceed our customers’ expec- tations is firmly rooted not only among management but also among all Group employees. It is here that the strength of the Group can be found. This belief is ingrained at all of our production and sales sites, both in Japan and overseas. In 2017, the Group established the Brand Image Improvement Committee, and since that time, the Committee has continued to find ways to improve, across the entire Group, the value of the brand. One conclusion the Committee has drawn is that the value of the IKO brand lies in the quality of our products.

Moving ahead, we are finding new ways to communicate the value of the IKO brand more widely. Having more customers use our products and experience their value firsthand will encourage their use in customers’ products. This in turn can help our customers to generate technological innovations and improve their value. Ultimately, we aim to help improve value throughout the entire industry.

Human capital and organization are the sources of our growth

Improving the value of our employees

The Group’s human capital is an essential management resource that generates high quality and drives growth. Moreover, to build the foundation for the future, it is necessary for us to utilize our employees’ unique ideas and ability to take action. As President, I will make every effort to invest the management resources and take all necessary actions to improve on the strengths of our employees, and I will provide comprehensive support for their growth. I believe that the growth of employees drives the growth of the Group. For this reason, and to boost our rate of growth, I intend to invest management resources in creating an environment that makes possible the more rapid growth of every employee. Over these past few years, we have reinforced employee motivation and growth, including by introducing new personnel systems. The next challenge, however, will be to create an organizational culture that supports individual growth. To do this, we must first work to rebuild awareness among management. I am certain that we already have many managers who take good care of their employees. However, moving forward, it is important that they now think about every employee more than ever before, discuss what is required for them to grow even more, and look for solutions together. For managers themselves, we must also create a culture and systems that enable employees to make proposals or suggestions to their managers to grow, in addition to top-down management.

Moreover, considering human capital, I am strongly aware of the importance of diversity. Organizational management through employees who only have experience of their own organization and culture is not helpful for fostering new ideas or for speedy growth. To make changes, we must increase opportunities so we can learn from the expertise of women, people from other companies, and those from overseas. Diversity is also a key theme for the Board of Directors. While last year we appointed a female outside director to the Board of Directors, we have not yet to appoint an officer from overseas. In this area, I hope to meet the global standards as quickly as possible.

In recent years, the expression human capital has come to be used more frequently. Rather than considering investments in human resources as expenses, it is becoming increasingly important to view them as asset investments that enhance the corporate value. Although we too must continue to invest in people to drive growth, we first need to boost our ability to generate earnings in order to secure enough capital to do this. I believe that this approach will result in a distinctive human capital management system.

Reinforcing our organization

A strong organization is key to bringing together the strengths of individual employees and turning them into a powerful force.

Moving forward, for the Group to achieve more growth, the essential tasks are reinforcing and optimizing our production capacity. In April 2023, we implemented a major organizational change in our Production Department. Under the leadership of Nobuya Hideshima, the Senior Managing Director in charge of the Production Department, senior frontline employees repeatedly discussed ideas for a new production organization and finalized the concept for an organization that could bring about changes on the production front lines. Mr. Hideshima previously served as an outside director of the Company for three years, before being appointed as Senior Managing Director in June 2022. The new organization, because it was based on many frontline ideas, is full of highly motivated employees. I am incredibly grateful to Mr. Hideshima for the excellent job he has done.

At the same time, the reinforcement of an entire organization requires wide-scale or horizontal teamwork. For a manufacturing company like ours, it is not only essential that all of our production, technology, sales, and management departments are effective, but that there is also horizontal teamwork. Without this, we will not be able to fully respond to our customers’ requirements. There is a thorough internal understanding of the need for this type of widespread teamwork. Over the past decade or so, we have been able to create a culture that places the highest value on cross-departmental and cross- organizational teamwork. In the current Medium-Term Business Plan, we are working to reinforce a strong management foundation through the One Team IKO concept, where we aim to maximize our organizational strengths— from the customer’s perspective—that transcends departments and organizational boundaries.

We are also moving ahead with initiatives to support horizontal teamwork. One example is the Medium-Term Business Plan Top Management Review meeting, where departments share their respective frontline issues and explore solutions. By looking at the issues that other departments face and then working together to find solutions, the meetings are helping us to learn innovations and apply them in their own departments. As a result, these meetings are leading to stronger horizontal or widespread teamwork.

The importance of achieving the current Medium-Term Business Plan
and our long-term vision beyond this plan

While working to reinforce our human resources systems and organization, at the IKO Group we are also taking actions for new growth. Our current Group-wide initiatives focus on attaining the goals of Medium-Term Business Plan 2023: deepening, expanding, and embracing change. This plan was formulated by backcasting from IKO VISION 2030, which outlines the Group’s vision for 2030, and our basic policy for the plan is improving and co-creating value by deepening, expanding, and embracing change. The decisive difference between our previous plans and the current one is the close involvement in its formulation by the general managers, section managers, and mid-level employees who will be responsible for the next generation. Deepening, expanding, and embracing change are the actions that will be taken by these senior employees and candidates for these positions in their day-to-day operations. Under this plan, we must clearly recognize the business domains where we can show our strengths, as well as our robust products. This policy signifies our enduring ambition for thorough investigation and research, intensive investment, and the behavioral change that is required to further refine our strengths.

Turning to progress, at the end of the second year of this management plan, we have already achieved roughly 70% of our targets. As a result of our work to shift to a stronger business structure that is capable of responding to highly volatile market conditions, in the fiscal year ended March 31, 2023 (the fiscal year under review) we had 9.4 billion yen in operating profit and an ROE of 11.0%. In the fiscal year under review, despite a tough earnings environment compounded by soaring raw material prices and other factors, we were able to maintain prices with the cooperation of our customers. We believe this is due to the strong reputation of the IKO brand among our customers and the solid relationship of trust we have built with them. For example, without such solid trust, our customers would be unwilling to listen to the one-on-one presentations we are hosting as part of the Medium-Term Business Plan. In addition, we are also focusing on industry-specific presentations, and because we have a thorough understanding of the issues facing customers in particular industries, we are able to offer proposals that resonate with our customers.

On the other hand, there are still many issues that we must tackle to achieve our long-term vision, IKO VISION 2030. In addition to continuing to strengthen profitability and improve efficiency, we will also reinforce some of our financial strategies, including growth investments and shareholder returns.

Initiatives for sustainable management

We will continue to focus on strengthening our management structure and attaining more sustainable management to ensure that we can sustain strong growth into the future.

Sound corporate governance will be the key to these initiatives. The Board of Directors, which I mentioned briefly above, has nine directors, three of whom are outside directors. These three outside directors are providing valuable advice based on their deep insight in their respective areas of expertise. Moreover, in 2022, we welcomed Atsuko Noda onto the Board as our first female outside director, and she has been offering substantial advice and guidance, including opinions from her perspective as a female director.

For advancing the initiative for sustainable management, based on our Basic Sustainability Policy, the Sustainability Committee, which is linked directly to the Board of Directors, holds discussions on sustainability-related issues and regularly reports to the Board. We are also addressing materiality (key issues) that has been identified as consistent with the Basic Sustainability Policy, and have organized these into six themes with 16 issues.

At the IKO Group, we recognize that our businesses are built on the support of our wide range of stakeholders. We therefore looked carefully at the kind of company we want to be for five groups of stakeholders: customers, shareholders, suppliers, employees, and competitors. We then used the desired outcomes as key criteria when formulating our Medium-Term Business Plan. Note that we consider competitors as one of our stakeholders, while wanting to have the No. 1 competitive advantage in niche markets. Moving forward, we will create strategies to make us even stronger, succeeding even more in robust business areas and with outstanding products.

Achieving growth from valuing human connections

When looking at our reputation in the capital markets, it is clear that our explanations to investors are not getting the results that we expected. Looking ahead, we believe it will be important to ensure that investors thoroughly understand the Group’s growth story and our cash allocations, including our proactive return of profits to shareholders.

I always place the most importance on human connections. This is the case for both my role as a corporate manager and my life outside of work. I strive to be considerate, then think and act in a way that can benefit others. The One Team IKO concept in our Medium-Term Business Plan embodies the importance of human connections.

Throughout our history, I believe we have built a culture in which employees act with honesty, integrity, and giving their all for both customers and to their work. The Group’s strengths are our employees and organization, as well as the high quality of products, that are the result of this genuine corporate culture.

Moving forward, we will strive to achieve sustainable growth by maintaining the support of our customers through high-quality and high-precision products. I would like to ask all of our stakeholders for their continuing understanding and support.

*This message is Message from the CEO in the Integrated Report 2023.