This will mark the seventh year since I took office as President. The three-year 18th Medium Term Plan that takes effect in April 2025 will be the third Medium Term Plan under my leadership. With the 18th Medium Term Plan—after working to eliminate negative legacy factors under the 16th Medium Term Plan and envisioning a new growth track under the 17th Medium Term Plan—we define the vision of Enrich Lives with Happiness and mark the beginning of bold, forward-looking initiatives based on a medium- to long-term perspective.
Our frame of mind today is poles apart from that of 2019, when we were grimly determined not to leave a negative legacy to future generations. I am glad to lead a new Medium Term Plan, one marked by hopes and dreams for the future, as we have now addressed most of our major problems and are beginning to demonstrate the high potential of Kansai Paint. We continue to make progress on improvements from year to year. Behind this work is the firm solidarity with which all members of the management team are determined to take on challenges directly, without putting them off. Our improvements have been powered by cooperative management based on listening to and dialogue with customers, shareholders, employees, and our experienced outside directors. I want to take this opportunity to express my deep gratitude to all stakeholders who have contributed to these management improvements. At the same time, with a focus on dialogue, I pledge to continue to take the best possible measures under the same policy as we move forward.
Review and presidential summary of the 17th Medium Term Plan
We have not yet fully completed the settlement of accounts for FY2024. Nevertheless, I would like to take this opportunity to express my thoughts as of this point in time.The past three years of ongoing change in the external environment have given us a true sense of the difficulties posed by uncertainty in business growth.At the same time, we have made significant progress on internal reforms. In FY2023, we recorded record high sales and profits. Through these reforms, we have come to recognize the Group’s underlying strength and future potential. A growing number of talented individuals are beginning to emerge and demonstrate their capabilities across the organization.While this can be described as the result of having made every possible effort, ultimately we have started to see our limitations under our current circumstances.To continue to grow in today’s world of bewildering change, we must take on risks and boldly address challenges, considering things from even loftier vantage points and broader perspectives. I believe clarifying these practical points will be more valuable than any numerical results.
A key positive is improved governance.We took the opportunity of migrating to the formal status of a company with an audit and supervisory committee to proceed with various improvements, including enhancements in oversight functions and acceleration of the pace of management by delegating authority. Led by the Board of Directors, our management team is currently benefiting from the perspectives offered by Pravin D. Chaudhari and Prejay R. Lalla, two international executives who joined our team during the period covered by the 17th Medium Term Plan. They bring to the Group the management perspectives of India and Africa, as the globalization of Group management proceeds.
A look at business operations shows that we have made progress on reforms in the Japan segment, which has seen improved earning ability and begun to demonstrate its presence as leader of the Group. Following the decision to continue operating as part of the Group, the Africa segment has also strengthened rapidly, helping to drive improvements in Group business performance. We have succeeded in significantly improving the earnings of automotive paints and coatings, boosting both sales and profitability.Industrial paints and coatings, identified as the next pillar of our businesses, has secured new technologies, customers, networks, and outstanding talents through bolt-on M&A in each of the strategic priorities of rail, construction and agricultural machinery, and powder coatings. We believe we have laid the groundwork for global business growth.
A solid financial foundation is a major prerequisite for taking on such challenges. Regarding this topic, we have taken more proactive steps to strengthen the cycle of growth while providing returns to all stakeholders. Some of the fruits of these efforts include the establishment of policies on optimal capital structures and shareholder returns. We believe we have laid solid foundations for growth. The record high business results achieved during the period covered by the 17th Medium Term Plan are the direct result of these changes.At the same time, in the process of taking on these challenges, certain initiatives fared less well than planned, or even failed, but this has as a result helped us clearly identify numerous issues. The most symbolic decision was the issue of euro-denominated convertible bonds. While we took this step because we saw this as a promising measure, it became, after its announcement, the topic of harsh criticism from numerous shareholders. This proved a very valuable opportunity for us to hear the views of as many stakeholders as possible, allowing us to recognize what they considered problematic about this move and how we could recover from it and regain their trust.
Another was the need to revise performance plans for FY2024 downward. This was due mainly to hyperinflation in Turkey, the economic downturn in Europe, and EVs imported from China taking Southeast Asian auto markets by storm. While our own businesses themselves remained steady, we were unable to bounce back from the failure to achieve our initial goals. We have revised our targets to strive to achieve record high sales and profit. By continuing to work hard toward these targets through the final day of FY2024, we hope to report positive results in May. (Note: This message was written on March 7.) This has made it clear that we still lack sufficient strength to rebound fully from external environmental pressures, which is something we must address in the future. We will reflect the lessons learned in the 18th Medium Term Plan.
On February 28, 2025, we received from the Japan Paint Inspection and Testing Association (JPIA) notice of temporary suspension of use of the JIS mark for compliance with the JIS K5659 standard. We offer our sincere apologies for the concern this has generated among our business partners and other stakeholders. We intend to do everything we can to implement thorough preventive measures, to get this temporary suspension lifted as soon as possible, and to regain trust. (Note: The temporary suspension was lifted on March 25, 2025.)As these examples show, success and failure are truly two sides of the same coin. For example, we learned a great deal from the failure of the convertible bonds referred to above. This lesson led directly to the revision of our optimal capital structure and shareholder returns policy. Behind the temporary suspension of use of the JIS mark was the discovery during a thorough fact-finding investigation on quality assurance, based on discussions at the Board of Directors, of the mislabeling of certain products in violation of JIS K565. We promptly reported this finding to the JPIA and the Ministry of Economy, Trade and Industry.In addition, amid growing exports to Southeast Asia by Chinese EV makers, we have strengthened cooperative efforts with our Chinese equity-method affiliate Hunan Xiangjiang Kansai Paint Co., Ltd. (Hunan Kansai). This has led to new opportunities including the inauguration of transactions with BYD, with whom we had not been able to establish a transaction relationship until now.
Looking back on these developments, it is clear that corporate activities and management involve taking on challenges. The challenges can lead to success or failure. What is most important in this cycle is to address failures head on and to resolve them thoroughly, not halfheartedly.Based on our current business performance, we estimate our ROE to be around 13%, and our EBITDA margin to be in the range of 14–15%. In doing business on a global basis, we will not fare equally well in all regions and in all businesses. Rather, it is essential to generate stable results through a structure in which the strengths offset weaker ones. Over the past five years, we have made progress on efforts toward such optimization, and we have succeeded in achieving a cycle of setting new record highs in profits.But to generate even better results, we will need to carry out large-scale revisions to the supply chain itself, increasing profitability by improving efficiency. This has been made clear by the steady efforts made over the six years of the 16th and 17th Medium Term Plans, and we will link it to our next targets.
Under the 17th Medium Term Plan, we set new record highs in business results. Moving forward, we will take on the challenge of being a global leader. This is the theme we will address beginning with the 18th Medium Term Plan. Our future targets are to pursue quality instead of quantity, targeting the global pinnacle, particularly in the areas of efficiency and profitability.
In formulating the 18th Medium Term Plan, we developed a new Group mission, vision, and values (MVV). The mission carries on our corporate creed. We believe it remains an inspiring message for today and the future, both in Japan and around the world. One point I would like to note is that the Japanese wording of the mission message Unite as “ONE KANSAI,” has been simplified to more clearly express the intended message.
Our values of Profession and Integrity have remained unchanged since our founding. As used here, the word profession refers to the pursuit of profits defined broadly as more than simply profits on the income statement. Since both Profession and Integrity are philosophical terms and can be difficult to understand, the recent revisions have described these more clearly as follows: By doing what’s right, we will generate the funds needed to invest in the future and drive the growth cycle to increase our contributions to society. In my youth, I learned about the meaning of Profession and Integrity from senior colleagues. The Kansai Paint spirit continues across the generations as we take steps to retain our valued principles.
The newly established Group Vision is Enrich Lives with Happiness. I consider these words to be the ultimate conclusion of thorough discussions among participants, including the Board of Directors and international team members of what is Kansai Paint’s reason for being. If our products and services can bring happiness to the lives of others, we will be considered a company needed by the world, and our corporate value will increase. This is an important sequence of events and cycle. While it may seem obvious, by making clear through this Vision the direction in which all of us should aim, we can avoid a situation in which the means themselves become the ends. A business operator like Kansai Paint needs to clarify the various principles by which it will, in the right way, grow its businesses. This Vision calls for us to remain a company that values people at heart and strengthens interpersonal connections, no matter how big we may grow. This Vision should be the foundation on which all Group employees operate, regardless of whether they are involved directly in development, production, or sales of paints and coatings. We will convey to employees that it takes wonderful work to make others, both inside and outside the Group, glad they worked with us. This is the embodiment of the corporate Vision. It’s easy to be led astray as the business grows in scale, through higher market capitalization and sales or global expansion. Ultimately, it is what lies in the hearts of individual employees that builds a company. I hope we will never lose sight of this.
To my knowledge, the 18th Medium Term Plan is our most carefully considered plan ever, one that aims to overcome challenging barriers and lay the foundations for continual growth into the future. While the plan itself covers a three-year period, it also incorporates long-term perspectives to ensure we can achieve our goals of an EBITDA margin of 18% and ROE of 16% in 2030, along with the KPI2030 nonfinancial targets. While none of these targets is an end in itself, it should be considered important to achieve them as a whole since this would express that the Group is recognized around the world as an enterprise that Enriches Lives with Happiness. As you read this message, you will come to understand how the 18th Medium Term Plan incorporates strategies and plans for realizing the MVV.
Our key focus areas are twofold: business growth and steady promotion of the reforms needed to enable such growth. Based on our efforts so far to optimize the business and regional portfolios, clean up the balance sheet, improve capital efficiency through improved capital policies, and reform management toward a focus on cash, under the 18th Medium Term Plan, we will accelerate business growth and refresh the elements that are essential to such acceleration. The organization has been revised to establish business units to operate the businesses to achieve business growth and the head office to carry out reforms to strengthen these businesses. On the topic of business growth, we will first strengthen our businesses in the automotive paints and coatings field, in which we are confident we are the world leader. This is a field other paints and coatings makers dismiss as unprofitable, in which only five paints and coatings makers, including us, have global supply structures. We are the most successful of these companies. We will transform the dramatic changes affecting the auto industry into opportunities for rapid growth by building further on these strengths to expand our business domains from automobiles to mobility as a whole, including EVs, auto parts, and motorcycles.We will also expand our successful model for the automotive field to industrial applications as well. As the f irst step, we will establish independent business divisions for rail paints and coatings and those for construction and agricultural machinery, reforming these into global organizations like that in the automotive field. Kansai Helios Coatings GmbH in Europe will play a leading role in this. I look forward eagerly to the challenge of taking on this brand new challenge, in which we will seek to build global businesses in non-automotive fields under leadership from outside of Japan.
In businesses in which globalization is vital, such as the automotive and industrial fields and in businesses that should be advanced with strong roots in each country, we will develop appropriate tactics suited to the properties of individual businesses. In businesses in which local roots should be developed, we will grow market share through solutions to regional challenges.
In Japan, we will increase profitability further by making the supply chain more efficient.In India, we will focus on growing the industrial paints and coatings field and rebuilding the architectural paints and coatings field. In Europe, we will concentrate on improving profitability while adapting to structural changes in the auto industry in Southeast Asia. In Africa, we will promote the One Africa vision to lay the foundations for development into the second growth engine after India.In these ways, the businesses that should be strengthened and their individual courses of action have been made clear. To generate results in addition to executing individual strategies, we will proceed with the necessary reforms on a Companywide basis as each business section does its best. This, in a nutshell, describes the 18th Medium Term Plan.
We established the Head Office organization to refresh the elements essential to accelerating business growth: for example, the need to grow the cashconversion cycle (CCC) from its current level of about 100 days is a Companywide topic. Improving the CCC will require wide-ranging improvements across areas, including global suppliers’ and internal production forms and processes, logistics and delivery, sales forms, and relations with customers. Success depends on the steady accumulation of effort. The mission of the Head Office is to identify Companywide reform themes such as these and plan and lead the way to support reforms in business sections. Let’s look at a number of specific topics involved in this mission.
First, let’s consider global HR systems. We will redesign these from a blank slate to build an environment that allows the optimal assignment of human resources on a global scale over the coming three years. We will develop common rules and environments so that human resources who want or are able to play active roles on the global stage can do so. A look at the past record shows numerous di cult experiences in which globalization was advanced only on a surface level. I am determined that this time we will realize true globalization without evading di cult issues such as discrepancies in job posts and compensation.
Next, we will focus on the R&D domain. So far, the capacity to develop the paints and coatings customers demand has been one of our strengths. But to grow in the future it will be essential to improve on our abilities to create new value ourselves based on ourown observations and research. In doing so, it is vital to understand that product development becomes meaningful only when it has generated sales success. No matter how outstanding we believe our products to be, if the market does not choose them, that means the world does not consider them good products. In addition to doing business by meeting customer needs centered on the B2B segment, we will expand our investments in global R&D in cooperation with diverse companies, institutions, and other partners to develop products and services and contribute to the world.
Keywords common to all of these transformation themes are digital transformation (DX) and finance. The Group is making progress on IT enhancements at a rapid pace. We have laid the foundations for what we can consider to represent the true meaning of DX. Our strategic partnership with IBM Japan continues to evolve from year to year. Having set the period of the 18th Medium Term Plan to be the dawn of our digital transformation and the period covered by the 19th Medium Term Plan to be the DX adoption stage, we will continue to invest in data lake development, use of materials informatics (MI) and generative AI, and development of human resources able to use these technologies to the fullest. In focusing on these domains, in addition to making our financial foundations more robust, we will make the standards for investment decision-making clear and maintain them appropriately to concentrate on good ideas while employing appropriate post-investment monitoring and verification to increase ROI.I will have multiple opportunities to keep you posted on the progress of the 18th Medium Term Plan. I look forward to constructive, forward-looking dialogue with all of you on such opportunities.
So far, I have described our future in my one words. But the details thereof give concrete form to the results of dialogue with stakeholders—all of you reading this message. My experience as President has taught me that management is not something done by the President and executive team alone. Rather, it is the result of joint efforts by all those who want to identify and grow the value of Kansai Paint.
Representative Director of the Board, President