Top Message
From Good to Great
Introduction
As we enter the final year of the 17th Medium-term Management Plan, which describes our transition to a sustainable growth cycle, we have reached a point that can be likened to the fourth corner of a track-and-field meet. We have also reached the fourth year of our “Good to Great” five-year growth strategy, announced on November 16, 2020. In last year’s Integrated Report, I reviewed my term in office since being appointed President and discussed my aspirations from a relatively inward-looking perspective.
On this occasion, I would like to discuss the company’s potential and future prospects from a more outward looking and wide-ranging perspective, based on our interactions with society and the issues and opportunities we face.
Our relationships to the environment and society
At the time of this writing—July 2024—we are in the midst of a fierce heatwave. This has impressed on all of us the urgent need to combat global warming. Under these conditions, the Kansai Paint Group continues to consider what role it can and should play and how it can contribute to environmental protection and to social progress.
For this fiscal year, the Group targets annual net sales of ¥610 billion, a figure that assumes steady growth from year to year. The paints and coatings that represent our main line of business are used with numerous essential products around the world, extending the lives of those products through extremely thin protective coats. They also provide various functions and features that make products more convenient and help products play a vital role in making life more colorful and enjoyable. The origins of our business can be traced back even tens of thousands of years to cave art, which implies that paints have been an essential facet of human life since prehistoric times. I’m confident this role and mission will grow even larger and more important as we work to enhance sustainability for humanity.
Our Group plays a vital role in improving human prosperity and quality of life around the world. As we strive to fulfill this mission, we understand that merely continuing to do things as we have to date will be insufficient to counter global warming and environmental degradation. I have sought to promote reforms since taking office as President because I want us to make clear contributions to environmental protection and to human progress and thereby serve as a powerful accelerating force in moving the world in a better direction.
One wonderful aspect of business lies in raising our own funds and taking risks in investing them. By doing what is right, we can raise still more funds for future investments. By running through and growing this cycle, we can contribute still more to the world. To contribute to society, we need to make steady progress on the value creation process, growing earnings and investing them actively as capital inputs to generate increased value in the form of outputs. These outcomes, in turn, have a positive impact on society.
The 17th Medium-term Management Plan describes the essential strategies underlying the efforts currently underway to create value for society.
The 17th Medium-term Management Plan links financial and nonfinancial factors
In FY2023, the second year of the 17th Medium-term Management Plan, our results surpassed initial plans. Both sales and profits at all levels reached record highs. A look at our businesses shows steadily improving profitability in Japan, which boosts our centripetal force. Strong growth in overseas businesses centered on India and Europe resulted in a ratio of more than 70% of sales from overseas. Having learned our lessons, in place of an overreliance on business growth, we are also strengthening the foundations that support our businesses. We are making significant progress on reforms of the financial structure, reducing cross-shareholdings, streamlining assets through sales of real estate in Japan and India, and launching CCC improvements. We have established a cycle whereby we invest the funds generated by such activities, in addition to business earnings, into growth areas. We are also working to make our management foundations more robust. For example, IT in Japan, which has lagged behind other markets, has now managed to catch up and is now making significant improvements to the point where we can certainly overcome the so-called 2025 ‘digital cliff’ issue in Japan.
The Global Digital Platform, developed to encourage the use of nonfinancial information, has also been established and is running in certain sectors. In addition, as discussed in detail below, we’re making full-scale investments in our human capital, the most important management foundation. I believe these multidirectional reforms are generating tangible results in the sustainable growth cycle. In terms of business performance, we plan to set new record highs once again this fiscal year as we bring the 17th Medium-term Management Plan to full completion and move ahead to the next Medium-term Management Plan.
Beyond financial structural reforms
I have promoted financial structural reforms energetically since taking office as President. (I refer you to the message from CFO Takahara and to the pages in this Integrated Report on changes in our financial activities for more information.) Here I would like to discuss our efforts to go beyond these financial structural reforms. Our goal is to become a partner in value creation to all stakeholders, including customers, shareholders, and employees, based on shared perspectives on growth in corporate value.In May 2024, we announced our policies on optimal capital structures and shareholder returns. These policies will play a major role in strengthening corporate value centered on our growth businesses.
Specifically, through our businesses, we will generate products and services that increase value for customers, then use the earnings as resources for further growth. We will boldly invest the funds earned into internal businesses, facilities, and human resources. Under the new shareholder returns policy, we will form “One Team” with all stakeholders as business growth generates enhanced returns to shareholders, which underscores the importance of holding our shares.
It’s important to note that these policies were developed through repeated dialogue with numerous shareholders. The ongoing dialogue with shareholders and investors I have maintained since taking office as President has strengthened mutual trust. It’s impossible to make substantial progress overnight. This policy was discussed on the basis of the strong mutual understanding created by such dialogue. It also represents the results of overcoming conflicts of interest through repeated dialogue, and I believe this process, too, will serve as a key foundation for future growth.
Talent development and global talent management
Earlier, I touched on the topic of talent development. Now I would like to discuss our plans for global talent management. The 17th Medium-term Management Plan identifies developing human resources and establishing related structures as top priorities. Over the past two years, we have appointed two international human talents as company executive officers. While this alone represents a major step, it’s essential to broaden such efforts across the organization. One pressing issue facing the Group is the slow progress of HR systems in Japan. Under the 17th Medium-term Management Plan, we are adopting a job-based system for managerial posts and reforming systems and operations to make this system more effective. In particular, in FY2024, we’re implementing assessments of all managerial personnel in Japan as we make progress on preparing for optimal assignments under the 18th Medium-term Management Plan set to take effect next year. For general staff as well, we have updated the HR system based on a results-oriented approach. We have thoroughly revised our training systems for both managerial and general staff personnel. Through such efforts, we will support skills development for a highly capable and motivated talents and establish a system whereby outstanding talents can rapidly begin to thrive in key positions.
These systemic reforms in Japan are just the start. We are striving to make the company a truly global enterprise, a company in which employees from diverse countries and with diverse attributes can thrive worldwide. We plan to establish a global HR system under the next Medium-term Management Plan. By expanding the scope of our activities beyond Japan, which have tended to be more inward-looking,
we will bring Group companies around the world on board and transform the Group into an organization that is more attractive to competitive, highly growth-oriented talents around the world. Toward this goal, designing a global HR system and fostering the required organizational culture will be the next challenges.
In the past, this aspect of talent development has clearly not been among our strengths. To address this issue, in addition to drawing on outside experts and midcareer hires, we will also solicit advice from our Outside Directors, who are highly experienced in diverse fields, to develop attractive global HR management strategies that suit the company.
Future plans include stimulating exchange of human resources on a global scale. We believe expanding opportunities for success for outstanding human resources from around the world will be a key contributor to accelerated Group growth.
Governance
As described in last year’s Integrated Report, we have learned painful lessons about weakening governance and profitability. The recovery and new growth achieved since represent the results of stronger governance and profitability.
It is impossible to envision a brighter future without continuously improving and strengthening governance. In the 160th Annual General Meeting of Shareholders, we migrated to the formal status of a company with an audit and supervisory committee. Henceforth, we will clearly differentiate the responsibilities and scope of authority of business execution between the Board of Directors and execution of businesses, with the former specializing in broad courses of action related to strategy, human resources, governance, and monitoring of business execution. The purpose of migrating to the
status of a company with an audit and supervisory committee is to strengthen centripetal forces within the Board while adding mobility and flexibility in business execution.
In addition, based on the results of last year’s assessment of the Board’s efficacy, we have launched improvements that seek to enhance the Board’s functions and clarify the roles and responsibilities of individual committees. In particular, the company has a remarkable team of Outside Directors of diverse backgrounds and areas of expertise. Expanding and increasing the quality of their interactions with the executive side offers the potential for substantial improvements in company management. To realize this potential, in addition to roundtables with unit heads and external discussions, we will provide various opportunities, including dialogue between Outside Directors and the Representative Directors, discussions among Outside Directors alone, and engagement with company employees. As with any new initiative like this, this Integrated Report features a roundtable discussion among Outside Directors. I encourage you to read it.
Governance has improved to a degree that would have seemed impossible a few years ago. Nevertheless, there is still room for further improvementss that will make the company a truly global enterprise. We will continue to pursue steady improvements in governance to better recognize the company’s unique characteristics and culture and to ensure the company can continue to meet society’s needs well into the future.
Kansai Paint’s future
The company has made clear progress toward becoming a better company through various reforms implemented under the 16th and 17th Medium-term Management Plans. I’m confident these reforms embody the spirit of the “Good to Great” vision. But we can’t stop there. The more progress we make with our reforms, the clearer our vision for the future becomes on a series of other issues that we must address. In fact, it has become clear that there are numerous topics the company must resolve to become a truly global enterprise.
We have yet to fully capitalize on the company’s many advantages. To accelerate business growth while demonstrating our potential as One Kansai, it is of the utmost importance to clarify and clearly indicate the roles and responsibilities of individual Group companies. We’ll also take on the challenges posed by new opportunities in various ways, including reforming the domains of development, production, and supply chains through digital transformation (DX) and leveraging AI in our development and nonfinancial activities.
We plan to announce our subsequent strategies in November 2024. Not all of the issues we must address can be resolved within three years; some involve long-term themes. Nevertheless, we’re firmly committed to gradually pursuing the objectives we must accomplish to become a truly global enterprise.
The upcoming 18th Medium-term Management Plan currently being formulated, will cover the three year period for implementing key strategies in the runup to 2030. We plan to approach challenges with an even more dynamic approach as we move toward that goal. We hope you will continue to look forward to seeing what we achieve.
Representative Director of the Board, President
