Looking back on fiscal 2020, could you provide an overview of the company’s business situation?
The global economy in fiscal 2020 greatly stagnated under the novel coronavirus pandemic. Amid these circumstances, the Takasago group’s sales declined by 1.4% from the previous year. Looking at specific divisions, sales of products for air care and hand soaps were strong in the Fragrance Division, while sales of products for beverages were poor in the Flavor Division. Sales of mainstay menthol and other products were sluggish in the Aroma Ingredients Division, as were Pharmaceutical Intermediates in the Fine Chemicals Division.
Looking at profits, operating income increased by 36% from the previous year; ordinary profit and net profit increased as well. These increases were due to declines in raw material prices from the previous year, solid performance in the Fragrance Divisions of overseas subsidiaries, and declines in some expenses related to the pandemic.
In fiscal 2021, as we seek a balance between combating the spread of contagion and engaging in economic activities, we believe we will trace a modest path of improvement. At the same time, we foresee the continuation of highly uncertain circumstances.
We expect sales of the Takasago group to be nearly flat, with a 0.4% increase from the previous year. We anticipate a decline in profits due to the return of some expenses that decreased during the current fiscal year because of contagion prevention measures, and due to increases in SG&A expenses and R&D expenses aimed at future growth.
Could you talk about the company’s founding spirit, corporate philosophy, and Vision 2040?
The phrase “Contributing to Society through Technology” expresses a universal principle of the Takasago group, and has served as a corporate
philosophy that has supported us for a hundred years since our founding. In celebration of our 100th anniversary, we incorporated “Takasago uniqueness” into our corporate philosophy of “Continuing to create new value through innovative technology that begins with kaori,” and set the previous corporate philosophy as our founding spirit.
The Takasago group’s aforementioned ideal for itself 20 years ahead in 2040, an ideal based on our founding spirit and corporate philosophy and which all employees can agree with and aim for, is expressed in our Vision 2040.
We’ve made “Care for People, Respect the Environment” our slogan for Vision 2040. It expresses as “kindness” the act of taking the standpoint of others to consider things together, in order to achieve a prosperous company in which every individual can shine. We want to be a company that creates a future in which people can maintain a good state physically, mentally, and socially. Naturally, we cannot engage in product creation without considering human health and the global environment.
The four items that follow the slogan are concrete representations that indicate the attitude of the company and of our employees.
Could you discuss the three-year medium-term Management Plan that began in fiscal 2021?
New Global Plan (NGP-1) is the name of our three-year Mid-term Management Plan that begins in 2021, the 101st year of the company since its founding. NGP-1 is composed of Three Basic Directions, Five Pillars, and Seven Priority Issues.
The Three Basic Directions are “Growth expansion overseas,” “Profit improvement in Japan,” and “Sustainability promotion.” Our profit structure had been one in which Japan generated stable profits while overseas profits were unstable. In recent years, however, our overseas offices have grown steadily in terms of both sales and operating profit, and are supporting performance across the group. During the period of NGP-1, too, we will seek growth in overseas markets. In Japan, a difficult situation in terms of profits has continued in recent years, and significant market expansion is not expected. However, while overseas growth is remarkable, the market in Japan still accounts for over 40% of our total sales. Accordingly, we will work to improve our profit to make Japan a region that serves as a base for generating a stable profit. From the standpoint of achieving Vision 2040 and with the aim of long-term business growth, we have made “Sustainability promotion” one of our Basic Directions.
Our Five Pillars are unchanged from our previous Mid-term Management Plan. During the three years of that plan, however, we were greatly impacted by the soaring prices of raw materials in the second year and were hit by the COVID-19 pandemic in the third year, circumstances that left us unable to adequately respond and resolve the issues. Under NGP-1, we will continue efforts to address these, centered on these
As our Seven Priority Issues, we selected items we should newly advance to achieve Vision 2040 on the basis of the Three Basic Directions and the Five Pillars,
and, continuing from the One-T previous Mid-term Management Plan, items that should be deepened in NGP-1.
Based on our new corporate philosophy and guided by Vision2040, the Takasago group will continue to grow.
You’ve set “Sustainability promotion” as a Basic Direction. What sort of issues are you tackling?
The Takasago group’s sustainability vision sets out a trinity of economy, environment, and sociality. This expresses the group’s basic stance of fulfilling our responsibility as a member of society, in terms of the environment and society, as our business grows.
We laid a foundation with One-T of the previous Midterm Management Plan, and compiled our action plans for the next 10 years in the form of Sustainability 2030.
Under NGP-1, we will advance efforts according to that plan.
Issues involving sustainability include addressing the issue of global climate change. Last year, we announced group policies (governance, risk management, strategy, and indicators and goals) in line with TCFD recommendations. In the area of risk management, in recent years Japan has experienced many disasters caused by heavy rains thought to originate in climate change. With a strong sense of urgency, our group as a whole is advancing safety measures and BCP measures to deal with this. Such heavy rains often damage regional social infrastructures, resulting in stoppage of water supply, disruption of logistics, and other problems. In raw material procurement, the increasing severity of damage caused from hurricanes, cyclones, cold waves, and other disasters impacts agricultural products, creating shortages of aroma ingredients and price inflation. We view these as major risks directly connected to our business.
Mitigation measures include the strengthening of activities to reduce CO2 emissions. For 2030, we have set CO2 emissions reduction targets of 27.5% for Scope 1 + Scope 2 and 13.5% for Scope 3, compared to the results of 2019. (We acquired SBTi certification in May of this year.) To address Scope1 + Scope2, we will advance emission reduction activities through the introduction of renewable energy, as well as through means such as energy saving programs and appropriate maintenance of equipment. With regard to Scope 3, which accounts for the greatest proportion of our group’s emissions, we will work with business partners not only in raw materials procurement but also in areas such as logistics to reduce emissions. While green chemistry is our key strategy for carbon reduction, we hope to create new business opportunities through means including the development of new materials that leverage biotechnology as well as synthesis using consecutive flow processes. We will engage in innovative product development through open innovation and our own technologies.
Another major global issue is human rights. During the period of One-T, we formulated our group human rights policy and established guidelines for conducting human rights due diligence, a process for preventing violations of human rights. Conducting this due diligence for two years, we have affirmed the absence of human rights violations in our group. Regulations concerning human rights are being strengthened in Western countries. While closely watching global movements, we will work to prevent human rights violations by sharing our values with our business partners not only within our group but also in the supply chains all of our business activities.
Cooperation in supply chains is an indispensable element both in the strengthening of CO2 emission reductions and in the prevention of human rights violations. In developing business activities that contribute to sustainable growth and to the resolution of social issues, our group will strive for responsible procurement based on our Corporate Procurement Policy when we procure raw materials, services necessary for business, and so on. Last year, we reorganized our requirements and revised our Supplier Code of Conduct to shore up mutual understanding and cooperation with our business partners. We will also act on our business partners to ensure that our Group Code of Conduct is properly shared in their supply chains.
In addition to the environmental and social aspects that I have discussed, the improvement of IT security can be noted in relation to governance. Amid frequently occurring cyber attacks, our group is strengthening its IT security across the globe. In terms of physical measures, we have introduced tools and device authentication aimed at preventing intrusion by attackers. On the non-physical side, we are continually raising employees’ awareness through diverse training.
Facing these and other issues, we will promote sustainability across the group under NGP-1.
Could you discuss the current progress and future development of the global SAP project that began in the final year of One-T?
As a part of our measures aimed at One-Takasago, from the start of last year we began developing a global template aimed at the global integration of ERP systems. Immediately after the start, however, the COVID-19 pandemic prevented project members from coming together to work, so we switched to remote work. I think the members faced difficulties as they worked through trial and error, with daily meetings among members in different time zones and the frustrations of being unable to meet and talk in person.
At the same time, I am pleased that the remote work conversely allowed an expansion of project members as more people were able to participate in discussions, including persons who had given up on taking part in the project due to various circumstances. We are trying to make full use of remote work tools to make up for time zone differences, such as recording meetings on video for viewing by people unable to attend. I believe the project is going well so far.
Around the middle of the year, we will complete development work on the global template and will then transition to the work of introducing it to our major overseas offices. Through the project, we will unify our workflows globally in the form of best practices.
The introduction of the global template will unify cost accounting and other accounting standards, which will allow us to obtain management data under identical standards and in timely fashion. I also believe that unifying business processes will allow people to work in the same way at any office, expanding the global scope of our human resource utilization and leading to stronger BCP systems as well.
As a final item, could you describe the earnings forecast for the first year of NGP-1?
Our consolidated earnings forecasts for the fiscal year are net sales of 151,000 million yen (an increase of 0.4% from the previous year), operating profit of 5,000 million yen (a decrease of 20.5% from the previous year), and ordinary profit of 5,300 million yen (a decrease of 27.2% from the previous year).
While this includes a slight increase in sales, we expect SG&A expenses, which had been constrained by the pandemic in the previous year, to increase and expect operating profit to decline by 1.3 billion yen from the previous year.
We also expect R&D expenses to increase (ratio to net sales: 8.1%) as we actively undertake product development (strengthening development of highly biodegradable aroma ingredients, etc., and development of alternative technologies for separation processes that emit large amounts of CO2) with an awareness of contribution to the SDGs, one of our Seven Priority Issues.
Addressing sustainability issues is essential to continued sustainable growth. We want to address every issue with sincerity, expand our market presence in line with business growth, and fulfill our responsibilities as a member of society in both environmental and societal terms.
I ask for the continued understanding and support of our stakeholders.