Message from the President
Using the Power of Chemistry and Our Unwavering Technological Capabilities to Contribute to the Creation and Development of a Sustainable Society
Representative Director, President Eiji AgaAchievement of All Numerical Targets in Medium-term Business Plan Stage Ⅰ
Continuation of Growth Investments and Efforts to Reinforce Our Management Foundation
It has now been approximately two years since I assumed the role of president in April 2021. Our business environment has been impacted by the Russia–Ukraine situation and economic friction between the US and China, and as a result the future remains uncertain. Despite these circumstances, at the Nippon Soda Group we have implemented a range of measures with full force to improve our corporate value and achieve the targets in our Long-term Vision Brilliance through Chemistry 2030 (FY 2021–FY 2030), and our medium-term business plan Brilliance through Chemistry Stage Ⅰ (FY 2021–FY 2023). As a result, in FY 2023, the final year of our Stage Ⅰ medium-term business plan, net sales totaled ¥172.8 billion (up 13.3% year on year), operating profit came to ¥16.9 billion (up 41.6% year on year), ordinary profit stood at ¥26.5 billion (up 60.2% year on year), net profit was ¥16.7 billion (up 31.6% year on year), and ROE was 10.3%. These results mean that we achieved all the numerical targets in Stage Ⅰ. Although external factors such as the weak yen helped drive this success, the expansion of our growth-driver businesses—the pharmaceutical additive NISSO HPC, the semiconductor photoresist material VP-POLYMER, and our new proprietary agrochemicals—progressed as planned, and the steady liquidation of our unprofitable businesses enabled us to reform our business portfolio and significantly increase our profit ratio. The liquidation of our unprofitable businesses saw us withdraw from the electrolysis businesses related to caustic potash at the Nihongi Plant (Joetsu City, Niigata Prefecture), of which we began production in 1929, and suspend sales of caustic potash, potassium carbonate, and other related products. Elsewhere, we transferred all shares of our former consolidated subsidiary Alkaline S.A.S., which was engaged in the manufacture and sale of sodium metal and chlorine in France. On the other hand, as part of our growth investments to increase cash flows, we completed construction work as planned aimed at increasing production capacity for our pharmaceutical additive NISSO HPC, as well as for the mass production of our new fungicide MIGIWA (ipflufenoquin). Regarding shareholder returns, we implemented a significant dividend increase and achieved our dividend payout ratio target of 40%. We also purchased and cancelled treasury shares in a timely manner. Without room for complacency, I believe it is my duty to maintain this strong performance into our new medium-term business plan Brilliance through Chemistry Stage Ⅱ, and achieve further improvements in our corporate value.
The mission of the Nippon Soda Group is to “Create new value through the power of chemistry and increase corporate value by contributing to society.” To fulfill this mission, through our Long-term Vision Brilliance through Chemistry 2030, we are working to transform and enhance our business portfolio into one that is resilient to changes in the business environment and that generates stable earnings. We will also shift from a management style that is focused on measures of profit/loss to one focused on ROI, and while expanding our high-added-value businesses and moving forward with the liquidation of our unprofitable businesses, we will thoroughly enhance management efficiency and transition to a highly efficiency business structure. At the same time, we will work to refine our core technologies by enhancing our proprietary technologies and creating synergy with external technologies, and looking ahead to beyond our Long-term Vision, promote the development and creation of new products and businesses. In terms of our vision for ten years in the future, we are targeting more than 10% in ROS (operating profit on sales), more than 7% in ROA (operating profit on assets), and ROE (return on equity) of 12%. With the increasing severity of geopolitical risks and climate change, and rising inflation caused by the continuing depreciation of the yen, we are facing a challenging business environment. Despite this, we will hold onto our century of tradition and strive for business innovation.
In our new medium-term business plan Brilliance through Chemistry Stage Ⅱ (FY 2024– FY 2026), we will seek to maintain the increase in profitability we achieved in Stage Ⅰ, and move forward with the expansion of high-value-added businesses to ensure even greater profitability in Stage Ⅲ. At the same time, through growth investments and structural reforms focused on capital efficiency, we will aim for further improvements in profit. Elsewhere, through our Brilliance through Chemistry 2030 research and technology strategy, we will aim to establish and advance our core technologies and create new businesses. In terms of growth investments, on top of the work we have already begun to increase production capacity for the semiconductor photoresist material VP-POLYMER, we will progress as planned with work to increase capacity for our pharmaceutical additive NISSO HPC, and reinforce and expand our existing businesses and peripheral domains through business partnerships and M&As. Meanwhile, our policy for shareholder returns will be to target a total return ratio of more than 50%, and continue with stable dividends and the purchase of treasury shares.
Four Materialities to
Tackle Social Challenges
In our Long-term Vision Brilliance through Chemistry 2030, we have identified four materialities that will enable us to contribute to the development of a sustainable society and improve our corporate value: Agriculture, Healthcare, Environment, and ICT
Agriculture
As a research and development company, to date we have launched numerous proprietary agrochemicals to market. With growing needs for improved efficiency in food production due to the increasing global population, and an expected increase in crop pests, diseases, and weeds due to global warming, we recognize that chemical pesticides are essential to ensuring global food supplies. Elsewhere, in line with the Sustainable Food Systems Strategy “MeaDRI” published by the Ministry of Agriculture, Forestry and Fisheries, and the Farm to Fork Strategy in Europe, agrochemical standards are becoming stricter by the year. When looking back on my time in France, there was a certain level of demand for organic products that did not use chemical pesticides and fertilizers. However, with today’s technologies, it is not possible to supply food using biopesticides alone, without using chemical pesticides. This is why we believe it is our duty to focus on the development of new biopesticides alongside the development of low-risk and highly effective chemical pesticides to offer end-consumers peace of mind. The challenges that come with developing agrochemicals are increasing year on year, but in recent years we have been able to release three new proprietary agrochemicals to market, while we also have several promising compounds in our development pipeline. Moving forward, through our unrelenting frontline efforts and our technologies, we will strive to contribute to stable food supplies and sustainable agriculture.
Healthcare
In addition to being highly safe, our pharmaceutical additive NISSO HPC has a range of excellent functionalities. As such, it is highly regarded throughout the pharmaceutical industry, and is increasingly being used in supplements and other food-related products. With demand growing quicker than expected in recent years, although we have just commenced operations after increasing our production capacity in 2021, we have begun work on a new production line ahead of further capacity increases in 2026. NISSO HPC is highly effective in drug delivery systems, which efficiently deliver medicine throughout the body, and its outstanding binding force can help to reduce tablet sizes. The additive therefore helps to support people’s health while improving quality of life.
Environment
Since our founding, we have contributed to stable water supplies through water processing technologies based on the chlorine that is generated through electrolysis. We also supply HIDION, a heavy metal fixative for fly ash treatment at waste incineration centers, and in doing so are contributing to the reduction of the environmental impact caused by waste. Elsewhere, our consolidated subsidiary Nisso Metallochemical Co., Ltd. collects zinc and other valuable metals, recycles used sulfuric acid, and provides various other environmental solutions using its high-difficulty waste treatment technologies, contributing to the creation of a sound material-cycle society.
ICT
Using our proprietary precision polymerization technology and organic synthesis technology, we are focusing on the development of new materials required for the electrification of vehicles and the promotion of autonomous driving, and the shift to higher speed, larger capacity smart devices and telecommunications technologies. Elsewhere, our resin additive NISSO-PB was the world’s first product to be commercialized using our proprietary living anionic polymerization technology. Meanwhile, demand for VP-POLYMER, a KrF photoresist material for semiconductors that we developed using the same technology, is expected to grow further, and so we are working to double our current production capacity. Developed using the same technology, we have also released 1,2-SBS for the next-generation telecommunications devices market, and using this material we are supporting technological innovations in information and electronics.
Moving forward, we will work to create new value in the four fields we have identified as materialities—Agriculture, Healthcare, Environment, and ICT—and in turn contribute to solving social issues and increasing corporate value.
The Technological Capabilities of Nippon Soda Standing Side by Side with Leading Companies in Global Niche Markets
Based on the power of chemistry and our proprietary technological capabilities, we have created numerous businesses in niche domains. Through strategies that have targeted gaps in the market, one of our greatest strengths is our ability to focus on fields in which there are few competitors. Although we already have numerous outstanding core technologies to take on global niche markets, if we consider future changes in market needs and social environments, in addition to enhancing our existing core technologies, it will be essential to introduce and enhance new technologies. Without relying on precedents and our own capabilities, we are actively forming alliances with external partners through investments in startups and technological partnerships, for example, and multiple projects are currently under way. Moreover, to reinforce and expand our existing and peripheral businesses, we are promoting business partnerships and M&As. Using my experience in acquiring an overseas company and in my ensuing role there as a local member of staff, I will look at M&As from a broad perspective both inside and outside Japan. In our overseas business expansion, in Agri Business, while working with local staff to understand market trends in each region, we are promoting development and the expansion of applications. In addition, in the pharmaceutical additive business, we are deploying technical staff to business sites in Europe, the US, India, and other regions where demand continues to grow, and are working to expand applications through collaboration with research institutes around the world and co-creation with our customers at in-house collaboration facilities. Currently, based on our Brilliance through Chemistry 2030 research and technology strategy, on top of efforts to quickly commercialize new businesses, we have set up the New Business Planning & Development Department under my direct control as president. Through the department’s activities we have set ourselves the ambitious target of creating businesses that can contribute ¥10 billion toward net sales and ¥1 billion toward operating profit by 2030, and are making progress with the relevant R&D and business creation activities.
Elsewhere, the fusion of our proprietary technologies is another important theme. To accelerate the development of new products, in April 2021 we integrated the operations of the Odawara Research Center and the Chiba Research Center. This move has helped to strengthen mutual collaboration between R&D for agrochemicals, as well as R&D for chemicals for functional and electronic materials. For the development of agrochemicals, we have a research structure in place to advance every process from basic research to field trials. One of our major strengths in this area is our ability to link evaluation and research and carry out highly efficient and swift product development. For the development of chemicals, we have created a structure that enables us to undertake everything from the development and commercialization of functional chemical products using our proprietary technologies, to research on improvements and rationalization. Looking ahead, we will reinforce collaboration between our marketing, technology, service, manufacturing, and other departments to further improve our research and development structure.
Bringing Employees and Management Closer Together and Facilitating the Success of Individuals with Diverse Personalities and Values
Human capital is one of the most important elements of our management foundation as we aim to achieve sustainable growth. Unquestionably, it is people who are responsible for carrying on our technologies and generating innovation. For us to achieve our Long-term Vision and respond to social requirements including ESG management and initiatives to contribute toward the UN SDGs, more important than anything will be the individual capabilities of our employees, and their ability to demonstrate their strengths in business and work toward targets. To coincide with our new medium-term business plan Brilliance through Chemistry Stage Ⅱ, we have also formulated a new human capital management vision, Make Employees Brilliant. Through this vision we are promoting employees’ independence and growth through flexible, efficient workstyles, and aiming to create workplace environments where employees can work with pride and that facilitate a positive cycle of value creation and employee fulfillment.
I often communicate to our workforce the importance of being considerate but not reserved. We do not need people who simply follow instructions. We want employees to express their ideas and think about matters for themselves. We value direct feedback, and so in addition to implementing engagement surveys and investigating employees’ expectations and level of satisfaction, we also host the Free Talk Square, which is an opportunity for company directors to listen to employee feedback and requests while also engaging in informal chat. The Free Talk Square was set up voluntarily by directors based on their desire to create a more open workplace environment. I also make every effort to travel to our worksites and converse with our employees. Nippon Soda alone is home to around 1,300 employees, and I believe that activities like these are helping to enhance our face-to-face relationships and revitalize communication between employees and management.
For a while now, systems that encourage employees to put forward their ideas have been in place at our plants and research centers. These systems have created a culture that values frontline opinions and in which new ideas are generated. An in-house culture that enables anyone to express their opinions without reserve is key to corporate growth, and the presence of diverse individuals and their exchange of opinions will lead to corporate development. To ensure that employees’ ideas are not rejected based on the judgement of their senior colleagues alone, we are striving to create an organization that allows for free and open interaction and that is brighter and more energetic than ever before. Looking ahead to sustainable growth beyond our Long-term Vision, we hope to be a company that former employees can continue to look back on with pride and positivity.
We are also focusing on the maintenance and improvement of employee health as an important management issue, and our initiatives have been recognized by the Certified Health & Productivity Management Outstanding Organizations Recognition Program (White 500) for six consecutive years. At Nippon Soda, although we are a company of tradition, we will also actively engage in new initiatives such as the hiring of senior executives from outside the Company. Moving forward, regardless of gender, age, nationality, ability or disability, or any other background, we will create systems that allow every individual to thrive, and workplaces where everyone can work with peace of mind.
My hope is that our junior employees can take on as many new challenges as possible. Looking back on my own career, using my experience working in Europe I was able to boldly try different things at my own discretion. While maintaining thorough compliance and respecting internal control and approval processes, among other measures, I hope to encourage employees to think of everything as an opportunity and endeavor to try new things. In November 2023 we are relocating our head office. Ahead of this move, we set up a taskforce consisting mainly of junior employees to think about how to improve operational efficiency, creativity, and workforce unity. As a result, we have designed a highly creative office layout that will further improve employees’ motivation to visit the office. Although introducing unassigned seating plans at our offices and work-from-home systems at our plants and research centers is an issue for the future, we will also aim to accelerate our workstyle reforms in terms of institutional aspects. I believe that our creation of an environment in which employees can be frank in their discussions has increased employee fulfillment and pride.
Carrying Forward a Century of Tradition to Pave the Way for the Next 100 Years
In 2020, we formulated our Long-term Vision Brilliance through Chemistry 2030 to outline our vision for ten years into the future. However, Nippon Soda will of course continue well beyond 2030, and so it is essential that we steer the Company with an eye on what comes next. I feel a great sense of urgency regarding the labor shortages we will face in the near future. In particular, if we cannot secure a workforce that can reliably work in shifts to ensure our manufacturing operations can continue 24 hours a day, it could directly impact the Company’s survival. The key here will be to promote operational reforms using digital transformations (DX) so that we do not rely on manpower alone. There are many calls for DX when speaking with employees at our manufacturing sites, and frontline-led reforms have already begun. For example, at the Chiba Plant (Ichihara City, Chiba Prefecture) junior employees have taken the lead in efforts to ensure that production technologies and expertise are accurately communicated to the next generation. Specifically, they have created video-based procedure manuals, which previously were text-based, enabling anyone to check the relevant procedures on their smartphones at any time. By continuing to combine our accumulated production technologies with digital technologies, while aiming to optimize and reduce the required manpower in production, we will also work to develop personnel who can handle digital technologies. We will also strive to create manufacturing worksites where diverse personnel including seniors and foreign nationals can work in safety and with security.
At Nippon Soda, while responding to the expectations and trust placed in us by our customers, shareholders, investors, employees, local communities, and various other stakeholders, we have conducted business activities that have contributed to society. Although we expect further drastic changes in the social environment, based on our Responsible Care activities, we will continue to grow as a chemical company that supports new social innovations through our revolutionary technologies and products, and fulfill our duty to achieve a sustainable society. Over the next 100 years, we will maintain the sincere and honest corporate culture unique to Nippon Soda that was developed by our predecessors, and at the same time harness the power of chemistry as we constantly pour our efforts into the creation of new value.
We ask that you continue to look forward to the growth of the Nippon Soda Group. Thank you for your continued support.
Representative Director, President
