K O K U Y O C O . , L T D .
A n n u a l R e p o r t 2 0 0 1
Internet access, face-to-face communication,
and sharper customer focus
7,192
295,310
Primary Dilute d
ROE ROA
55.3955.44 2.23.6
NET SALES (Millions of yen)
NET INCOM E (Millions of yen)
NET INCOM E PER SHARE (Yen)
ROE & ROA (%)
’96 ’97 ’98 ’99 ’00 ’01 ’96 ’97 ’98 ’99 ’00 ’01 ’96’97’98 ’99 ’00 ’01 ’96 ’97 ’98 ’99 ’00 ’01
FINANCIAL HIGHLIGHTS
KOKUYO CO., LTD. AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2001 and 2000
Thousands of Millions of yen U.S. dollars (Note 2)
2001 2000 2001
For the year:
Net sales ¥295,310 ¥280,335 $2,383,454
Operating income 11,856 14,322 95,690
Net income 7,192 1,192 58,047
At year-end:
Total assets ¥329,505 ¥314,039 $2,659,443
Total shareholders’ equity 200,442 193,380 1,617,772
Amounts per share (in yen and U.S. dollars):
Net income (Note 1) ¥55.44 ¥9.13 $0.45
Diluted net income 55.39 9.16 0.45
Cash dividends applicable to the year 17.50 17.50 0.14
Notes: 1. Net income per share is computed based on the weighted-average number of shares outstanding during the year. 2. The U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥123.90=US$1.00, the approximate
exchange rate prevailing at March 31, 2001.
C O N T E N T S
1 A LETTER FROM THE CHAIRMAN/ FOUNDER’ S PHILOS OPHY
2 AN INTERVIEW WITH THE PRES IDENT— TOWARD A NEW KOKUYO FOR THE NEW ERA
2 The Firs t S te p to ward Our 1 0 0 th Annive rs ary 4 Pro duc t S trate gy Orie ntatio n
7 Eve r-Evo lving Inte rne t Co mme rc e
10 Finalizing the Re o rganizatio n o f Dis tributio n S ys te ms 11 In Co nc lus io n
12 REVIEW OF OPERATIONS 12 S tatio ne ry-Re late d Bus ine s s 14 Furniture -Re late d Bus ine s s 16 KOKUYO AND THE ENVIRONMENT
18 S IX-YEAR S UMMARY
19 MANAGEMENT DIS CUS S ION AND ANALYS IS 24 CONS OLIDATED BALANCE S HEETS 26 CONS OLIDATED S TATEMENTS OF INCOME
27 CONS OLIDATED S TATEMENTS OF S HAREHOLDERS ’ EQUITY 28 CONS OLIDATED S TATEMENTS OF CAS H FLOWS
29 NOTES TO CONS OLIDATED FINANCIAL S TATEMENTS 38 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
39 BOARD OF DIRECTORS / CORPORATE DATA/ CONS OLIDATED S UBS IDIARIES / OVERS EAS NETWORK
Cautionary Statement with Respect to Forward-Looking Statements
This annual report contains statements about Kokuyo’s future business plans and strategies as well as estimates. Statements regarding the Company’s projected business results are not based on historical facts and are subject to various risks and uncertainties. These risks and uncertainties relate to economic conditions in Kokuyo’s business environment,
Kokuyo Co., Ltd., established in 1905, is now the leader in its industry.
“To contribute to society through our products” —we at Kokuyo operate on the basis of this philos- ophy. By providing our customers and society as a whole with the products they need, we can grow and develop together with the peo- ple we serve.
In 2005, Kokuyo will celebrate its 100th anniversary. To mark this historic event, we have formed a
“ Vision” toward which Kokuyo can strive.
Our vision for the future of Kokuyo: 1) To be a company worthy of high praise from both its sharehold- ers and investors
2) To provide value to the “ knowl- edge workers” who comprise our customer base
3) To continually provide creativity, efficiency, and amenity as we evolve alongside our customers 4) To achieve and maintain top
ranking status in Japan in terms of customer and employee satis- faction
Kokuyo is constantly reinventing itself to achieve these goals and working to convert the continued support of its stakeholders into tangible results.
Shounosuke Kuroda Chairman
A Letter from the Chairman
Founder’s Philosophy
Upon entering the Company, new employees are introduced to the Kokuyo philosophy,
which is reflected in the Company’s products and services as well as the heartfelt way in which they are provided to cus- tomers, both in Japan and overseas.
When born into this world, a child has nothing to call its own. Our bodies, minds,
and spirits grow and are nourished by the love of our parents and families, the guidance and discipline of our teachers, and the encouragement of society as a whole.
We grow and mature and adopt vocations suitable to ourselves and the education instilled in us.
These vocations must be pursued with the utmost diligence and gain the trust of colleagues, clients, and communities around us. The only way to secure this trust is to act
with absolute sincerity in every action and endeavor undertaken. In this way, our endeavors succeed in and of themselves and we are happy in our vocations.
“Sincerity not only in words but also in action”—this is the Kokuyo creed.
Reinforcing our Profitability
Q
First of all, please outline Kokuyo’s overall consolidated results for fiscal 2001. Kokuyo has instituted a thorough-going program of selection and concentration in response to severe economic conditions and drastic reforms in the retail sector over the past three to four years. After initially
suffering declining sales in the face of weakening consumer spending during the period under review, we obtained a clear picture of the direction in which we must take our business. Boosted by a revival in demand for office furniture during the term, we succeeded in recording net sales of ¥295.3 billion, an increase of 5.3% compared with the previous fiscal year. Operating income amounted to ¥11.9 billion, a decline of 17.2% , while net income skyrocketed 503.4% , to ¥7.2 billion. The decline in operating income was due to sales promotion activities and a
¥2.4 billion strategic investment in Kaunet, which will be described in further detail later in this report. Regarding net income, with the omission of ¥9.1 billion in retirement benefit liabilities that was written off in a single lump sum during the previous term, results are proceeding smoothly along an upward trajectory.
Examined by individual segment, business in the stationery-related segment moved along at a slow pace overall due to changes in both demand structure and the structure of retail markets as a result of the widening usage of information technology (IT). Segment sales declined 0.2% , to ¥138.1 billion, and operating income declined 36.7% , to ¥7.8 billion, reflecting invest- ment related to Kaunet. If this investment were excluded, operating income would have declined only 17.3% , to ¥10.2 billion. Business in the furniture-related segment proceeded favorably due to recovering private-sector investment in the second half of the term under review and strong demand for office supplies in the Tokyo metropolitan area from IT businesses as well as
Toward a New Kokuyo for the New Era
In 2 0 0 5 , Kokuyo Co., Ltd., will celebrate its 1 0 0 th anniversary. In recognition of this event we have drawn up a 1 0 0 th “Anniversary Vision,” which will form the stepping-stone toward the creation of a new Kokuyo. Kokuyo is a company that evolves alongside its customers, and fiscal 2 0 0 1 , ended M arch 3 1 , 2 0 0 1 , was marked as the first step in this new evolution.
The First Step toward Our 1 0 0 th Anniversary
An Interview with the President
Principal achievements:
• ¥295.3 billion in net sales,
¥11.9 billion in operating income,
¥7.2 billion in net income.
• Although operating income declined year-on-year, this was due to strategic investments in the catalog sales service— Kaunet—as well as investment in R&D and sales promotion activities. The fact that we were capable of such investment proves the unrivaled firmness of our operational standing.
FY 2001 Operating Results (Millions of yen)
Net Sales ¥295,310
Stationery-related segment 138,142 Furniture-related segment 157,168
Operating Income 11,856
Net Income 7,192
Other
¥1.3 billion Metal molds and others
Total:
¥7.9 billion (depreciation and
amortization: ¥7.2 billion) Land
¥0.3 billion
Buildings
¥1.7 billion Integrated construction of Shibayama, Chiba Plant and others
Machinery
¥0.5 billion Yao Plant, Shibayama Plant production facilities and others Software
Development Cost
¥4.1 billion Kaunet, Benrinet and others
• Breakdown of Capital Investment (FY2001)
in overseas markets. Segment sales increased 10.8% , to ¥157.2 billion, and operating income surged 100.2% , to ¥4.1 billion.
Gross profit increased 8.3% compared with last year, to
¥89 billion. This was due mostly to the substantial effects of
¥3.6 billion in cost reduction efforts.
Although selling, general and administrative (SG&A) costs increased significantly, by ¥9.3 billion, this was due mainly to costs of ¥4.6 billion incurred in connection with Kaunet opera- tions and the new consolidation of such subsidiaries as Kokuyo Tokyo Sales Co., Ltd. as well as ¥2 billion in sales promotion costs.
Also during the fiscal year under review, ¥7.9 billion was spent on capital investment, includ- ing ¥4.1 billion in system development costs and ¥1.7 billion in construction aimed at plant integration. In addition, the Company recorded depreciation and amortization amounting to
¥7.3 billion. Taking these factors into account, even though operating income declined com- pared with the previous term, the fact that Kokuyo was capable of such investments confirms the Company’s undoubted operational stability.
Shareholders’ dividends of ¥17.5 per share were issued including special dividends of ¥2.5 per share to commemorate the 30th anniversary of the Company’s IPO.
100th Anniversary Vision
Q
How will the 100th Anniversary Vision shape the future of Kokuyo?We have adopted the phrase “ Always Innovating for Your Knowledge” as the slogan for our 100th Anniversary Vision. Driving this vision is the recognition that the orientation of customer demand will change from such traditional quantitative concerns as pricing and the lead times for manufactured goods to qualitative concerns emphasizing high-quality services. Kokuyo already occupies an unparalleled position within the industry in terms of quantity. The reorien-
tation toward quality will challenge the Company’s ability to trans- form itself while maintaining an operating structure capable of sustaining profitability. From this perspective, the fundamental phi- losophy behind our vision is to direct the knowledge we have toward developing our creativity and productivity as well as achieving cus- tomer satisfaction, while creating a new Kokuyo that will constantly provide fresh ideas and adapt to the changing market.
Akihiro Kuroda Pre s ide nt
Principal achievements:
• “ Always Innovating for Your Knowledge” has been adopted as the vision’s slogan.
• It is the policy of the new Kokuyo to emphasize share- holder value, CS, and ES. For the sake of shareholder value, the challenging goal of achieving an ROE of 10% has been set.
Customer Satisfaction
(CS) Shareholder
Value
Employee Satisfaction (ES)
ROE =10%
• Policy of New Kokuyo
Employee work standards will emphasize “ ownership” and “ wisdom,” in other words, hav- ing the initiative to create inroads into new business segments and the insight to draw on and bring together the knowledge of individual employees to enhance the strength of the entire organization. This will serve the interest of the new Kokuyo by using an individual employee’s strengths, gained through interaction with our customers, to augment the combined strength of the Company as will ownership by sharpening each business division’s sense of indepen- dent accountability. By way of implementation in April 2001, we overhauled our human resources framework and appointed new heads for 36 of our 74 sections.
Working to make our vision a reality, the policy of the new Kokuyo is to emphasize share- holder value, CS, and ES. Most notably, we have adopted the challenging goal of achieving ROE of 10% . We also recognize that if our employees are to join with us in the task of achiev- ing these lofty objectives, they will need to come up with outstanding and innovative ideas and maximizing productivity, including the possibility of mergers and acquisitions.
Product Strategy Orientation
Returning to Our Roots as a M anufacturer
Q
Before proceeding to a discussion of specific strategies, can you tell us why Kokuyo has chosen now to return to its manufacturing roots?From its establishment in 1905 to the mid-1950s, Kokuyo concentrated on perfecting its role as a manufacturer of high-quality goods and increasing the market endorsement of its prod- ucts. However, although the successful establishment of trust in the Kokuyo brand since then can be attributed to its reasonably priced, quality goods, equally significant was the three- tiered distribution system used to shorten lead times and meet expanding customer demand. Markets of the 21st century will see a shift in emphasis from quantitative to qualitative demands and will become increasingly complex. Against this backdrop, Kokuyo must convert from a
“ pull-style” customer approach, in which we merely react to customer needs, to a “ push- style” approach, in which we take initiatives to create customer demand. The concept of reverting to our manufacturing roots perfectly expresses our ambition to clearly separate the concepts of manufacturer and distributor and pursue the essence of our role as a producer of quality goods and an enhancer of added value.
Specific Developments
Q
What forces are at work in the stationery and furniture markets, and what direc- tions will Kokuyo take in its approach to these markets?The stationery segment is saturated with well-known commodities, and this ¥1,400 billion market—excluding office automation (OA) supplies—is now mature. Therefore, there is little room for product innovation and new market growth. To increase its share of this limited mar- ket, Kokuyo will cut costs further in the commodity segment and proactively promote such new and value-added products as IT stationery and OA supplies. To reduce both production and overall costs, we must accelerate our shift to overseas production, and increase our
An Interview with the President
Principal aim:
• As the orientation of customer demands shift from quantitative to qualitative concerns, Kokuyo will reinvent its operations and emphasize focusing on the cus- tomer as the original source of business.
Principal aims:
• As the stationery market has reached maturity, Kokuyo will seek to increase its market share by reducing costs and leveraging value-added prod- ucts. It will also position OA supplies as a third pillar of its business and aim to quadruple segment sales to ¥40 billion within five years.
• Strong demand in the furniture- related market is anticipated through fiscal 2003 in the Tokyo metropolitan area. Kokuyo will approach this growth segment with strategic new products and high-value-added ideas that will give it added advantages in this competitive market.
efforts to reform and systematize our purchase order infrastructure. Furthermore, so that we may offer customers exceptionally low prices, we will expand into no-name brand sales with the launch of our GPS (Global Price Stationery) business. As quantitative market expansion is improbable, creating profit by increasing our market share is our most important task.
Concerning new and value-added products, the Company already launched several new products during the term under review, including “ universal design” products that can be used easily by anyone (fiscal 2002 sales target: ¥3 billion) as well as environment-friendly products (fiscal 2002 sales target: ¥87.5 billion) that meet mounting environmental concerns.
Furthermore, OA supplies will join stationery and furniture as the third pillar of our business. We are targeting annual net sales of ¥40.0 billion within five years, four times the current level. In addition, we are continuing to develop products that are tailor-made for the IT age. In this regard we are jointly developing digital communications tools with Anoto AB, of Sweden.
The furniture-related segment is a growth area and it is anticipated that through 2003 the rate of office demand will rival that seen during the time of the bubble economy. By position- ing this growth segment as a major pillar of our business and raising our operating profit mar- gin in the segment, we aim to enhance our competitiveness on a Companywide basis. Thoroughly enhancing the added value of products and services from the customer’s per- spective is essential to achieving this goal.
In product terms, February 2001 saw Kokuyo introduce A-GAGE, the industry’s first office storage container to feature knockdown construction. This product (fiscal 2002 sales target:
¥2 billion) helps reduce environmental impact in a variety of ways. It enhances transportation efficiency, reduces the amount of energy used in transportation, and is easy to disassemble and sort for disposal. In July 2001, we also introduced the AGATA swiveling office chair, which won a product design award at the world renowned iF Design Awards in Germany (fiscal 2002 sales targets for AGATA are
¥1.3 billion).
Furthermore, to meet the increasingly diverse needs of our customers in terms of office utility and operation, we have launched a new business under the con- cept of the Competitive Workplace (CW), and commenced full-fledged services in this area through our subsidiary Kokuyo Office System Co., Ltd. Through this ser- vice, we will contribute to our customers’ strategies for market survival by providing consulting services to meet a wide variety
2000 2001 2002* 2003* 0
20 40 60 80 100 120 140 160 180 200
7 8 8 2 9 4
1 7 2 Total Area of Office Space Provided
in the Tokyo Metropolitan Area (Unit: 10,000 m2)
(Figures based on Mori Building Co., Ltd., and Kokuyo’s own calculations.)
*Forecasts
Creating
Competitive
Workplaces
o Multiple work styles o Developments in IT o Changing interest rates
o Foreign corporations entering the market o Changing regulations
o Reevaluation of tax system o Environmental issues o Aging society
o Globalization of capital markets
Consulting, Survey & Analysis o Survey and diagnosis of office conditions o Analysis of issues
o Analysis of work styles o Proposal of concepts
Programming o Suggestion of FM plan o Workplace consulting o Basic office plan
Planning o Space planning o IT planning o Record management o Budget planning
Management & Operations Services o Facility maintenance o FM staff dispatch
o Introduction of CAFM Project Management
o Implementation: budget planning o Implementation: construction planning o Order management
o Location planning o Quality management
Construction & Procurement o Furniture construction o Interior construction o Network construction Changing
Society
Strategy Proposal
Project Proposal
Planning Project
Implementation Operations
Evaluation
• Creating Competitive Workplaces
of needs, including the design of environment-friendly offices, efficient use of customer office space, and selection of appliances and implements. Revenues from consulting fees amounted to ¥140 million in fiscal 2001, and this business is likely to form one of the pillars of this segment.
Productivity Enhancement Initiatives
Q
Please describe specific Kokuyo initiatives intended to bring about the aforemen- tioned cost reductions?In the stationery-related segment, we will implement cost reductions of ¥1.6 billion for fiscal 2002. We are also working to shift a percentage of our production overseas over the next three years, mostly to our production facilities in Shanghai. Within five years, we propose to raise our annual overseas procurement ratio from the current 4% to 25% .
In the furniture-related segment, we will institute cost reductions of ¥2.3 billion in fiscal 2002. As part of its efforts to enhance its own productivity and respond effectively to environ- mental concerns, in May 2001 Kokuyo integrated its Chiba Plant, which manufactures office partitions for the Tokyo metropolitan area, into its Shibayama Plant, and held a grand opening for the resulting new plant. In addition to becoming the first plant in the office furniture industry to achieve zero industrial waste emissions, among the new plant’s more noteworthy features are its flexible, variable type and variable quantity production systems that enable it to meet such market needs as diversity, shorter lead times, and reduced costs. The plant represents an overall 30% reduction in operating costs.
Furthermore, in June in both its stationery- and furniture-related businesses, Kokuyo recon- figured its purchasing operations, which comprise 100 items and more than 500 suppliers and partners, into an international Internet-based procurement system. Leveraging this new system, the Company expects to achieve cost reductions of ¥4 billion in three years. Through such additional initiatives as materials interchangeability, Value Analysis/Value Engineering (VA/VE), and logistical cost revisions, we will strive to achieve total cost reductions of ¥15 billion.
An Interview with the President
Main points:
• In the stationery-related seg- ment, Kokuyo expects to achieve
¥1.6 billion in cost reductions for fiscal 2002 and raise the ratio of overseas production from the cur- rent 4% to 25% within five years.
• In the furniture-related seg- ment, the Company will achieve
¥2.3 billion in cost reductions for fiscal 2002. It has opened its new Shibayama Plant—which will produce such items as office partitions—a facility that will enable flexible production in terms of product type and quan- tity and help Kokuyo achieve a 30% reduction in manufacturing costs.
• Kokuyo will strive to achieve a total of ¥15 billion in cost reductions through such means as Internet and overseas procurement.
Application Application
Application
Call Passing of Inspection
KOKUYO
Existing Materials Manufacturer Existing Materials
Manufacturer
Existing
Subcontracting Plant Existing
Subcontracting Plant
Orders Received Over the Internet (Only companies accepted as suppliers may view homepage.) e-Ko-Buy Homepage
(No inspection system)
Call for New Supplier Candidates
New Supplier Candidate New Supplier
Candidate
New Supplier Candidate
• Kokuyo Net Procurement System (Internet-Based System)
Shibayama Plant
Ever-Evolving Internet Commerce
Introducing Kaunet
Q
Kokuyo seems to have embraced Internet commerce in earnest during fiscal 2001, with such services as Kaunet going on-line. How will Kokuyo meet the emerging needs of this new business sector?In January 2001, we launched Kaunet, a catalog sales service for office sundries covering the Small Office/Home Office (SOHO) market. Factors contributing to our decision to enter the mail-order office supplies market include a shift in customer purchasing trends and predic- tions that this portion of the overall mature market for small office supplies, which we estimate to be worth ¥2,300 billion annually, will grow to approximately ¥770 billion by fiscal 2005.
Furthermore, Kaunet will serve to help reform Kokuyo’s three-tiered distribution system— one of the traditional bricks-and-mortar sections of the Company—and will join Kokuyo’s existing sales branches as an essential tool for survival in the 21st century.
A unique feature of Kaunet is that area wholesalers operate between Kaunet and its sales agents. Kaunet’s area headquarters is vital as a source of agent training and education, credit management, and bricks-and-mortar type services. Also, since not only Kokuyo products, but
Main factors and achievements:
• The market scale of the mail- order office furniture business is expected to reach ¥770 billion by fiscal 2005.
• Kaunet went on-line in January 2001. In the first half of fiscal 2002, the service initially target- ed sales of ¥7.5 billion and 500,000 registered users. Within its first three months, it has achieved sales of ¥1.3 bil- lion and attained 300,000 user
registrations. Breakdown of Market Scales (fiscal 2001)
Consumables for Office Use
¥740 billion
¥440 billion (Delivered goods) ¥300 billion (In-store) OA Supplies
¥540 billion OA Devices
¥520 billion Office Furniture
¥540 billion Total: ¥2.3 trillion Large Companies,
with over 300 Employees
Medium-sized Companies, with over 30 Employees
Small Companies & SOHO (¥2.3 trillion)
Figure in parentheses is for the entire
small company and SOHO market. 0
100 200 300 400 500 600 700
800 (Unit: billion ¥)
FY2000 (Actual)
FY2005 (Projected)
2000 2001 2002 2003 2004 2005
Daily necessities 12.2 138.3 for office
Office supplies 57.2 629.0
Total 69.4 767.3
Customer Kaunet Supplier (Kokuyo, etc.)
Charge Charge Charge Charge
Payment Payment Payment Payment
Order
Delivery
Order
Delivery Relationship Between
HQ and Area HQ
Agent
Retailer
Area Agent
Wholesaler 0 .0
0 .5 1 .0 1 .5 2 .0 2 .5
0 5 0 1 0 0 1 5 0 2 0 0 2 5 0 3 0 0 3 5 0
Jan. 2001 Feb. 2001 M ar. 2001 Apr. 2001
Kaunet Results for 1st Quarter of 2001
(Unit: billio n ¥ ) (Unit: 1 ,0 0 0 o ffic e s )
0 .1 1 1 5
2 1 0 2 7 0
3 0 0
0 .6 1 .3
1 .9
2 0 3 0 4 0 5 0 6 0 7 0 8 0
4 0 0 6 0 0 8 0 0 1 ,0 0 0 1 ,2 0 0 1 ,4 0 0
Goals of Kaunet by 2003
(Unit: billio n ¥ ) (Unit: 1 ,0 0 0 o ffic e s )
6 4 .7
4 5 .0
5 0 0 1 ,0 0 0
1 ,3 0 0
• Kaunet Business M odel
• Market Scale for Office Products for Small Companies and SOHO (Figures based on Kokuyo’s own calculations.)
• Forecast of Growth of Catalog Sales Office Product Market for Small Companies and SOHO
(Figures based on Kokuyo’s own calculations.)
those of its competitors are listed on Kaunet, Kokuyo must work to ensure that its products remain the top choice items of its customers. It is also significant to note that according to recent surveys, approximately 80% of users depend on traditional purchasing methods. These results indicate Kaunet’s latent potential for market development.
In light of these circumstances, we at Kokuyo believe that retail outlets will be reinvigorated as ties to their customers continue to be reinvented and that through the addition of fine-tuned services we can breathe new life into the bricks-and-mortar segment of the business. Our goal for Kaunet in the first half of fiscal 2002 is net sales of ¥7.5 billion and 500,000 user registra- tions. In the three months since Kaunet went on-line, we have recorded sales of ¥1.3 billion and received customer registrations from 300,000 offices, and we fully expect to meet our tar- gets for fiscal 2002.
The Evolution of Benrinet, C-Business, and DELIVO
Benrinet is approaching a stage of new growth and displaying significant expansion in both number of users and scope of usage. Approximately 400 major corporations utilize Benrinet, which enjoys an excellent reputation for its low prices, and many of these customers have expressed interest in expanding the use of Benrinet into the nonstationery field of office
Maintenance and Repair Operations (MRO). In response, Kokuyo has developed New Benrinet. New Benrinet’s most remarkable feature is its integration of the secondary materials that are highly sought after by our customers. In other words, it has become an MRO procurement platform that can be tailored to customer needs. For example, in the case of hospitals, New Benrinet handles everything from uniforms to reagents while processing such special requests as purchase only or delivery only. System upgrades and maintenance are also conducted by Kokuyo, enabling its customers to cut costs in a wide range of areas. Moreover, New Benrinet provides greater business opportunities for suppliers and enables multiple user management
An Interview with the President
Principal achievements:
• Benrinet is evolving into an MRO platform and is developing a fee-business focused busi- ness model.
• Net sales of ¥14 billion were recorded in C-Business.
Low–cost, purchasing system
Low–priced purchasing/ affordable purchasing Catalog sales visits Operating
body Features
User needs
Figures in parentheses represent the scale of the market for clerical supplies only, as estimated by KOKUYO.
KOKUYO Co., Ltd. NET KOKUYONET KOKUYORetailersKAUNET
New Benrinet
MRO purchasing platform
C-Business
Catalog sales of office supplies performed using the dealer's name (dealer support tools)
KAUNET
Office supplies catalog sales
DELIVO
Office furniture catalog sales
Customization and purchase cost reduction
Personal added-value components such as pricing and billing methods not found in mail–order sales
Affordable, speedy one–stop shopping Larger
Companies (more than 300 employees)
(¥200 billion)
Medium-sized Companies (more than 30 employees) (¥4,500~5,000 billion)
Small Companies and SOHO (¥4,500~7,500 billion)
• Net Business
Kaunet Call Center
with a single platform, thus significantly enhancing value for both users and suppli- ers. Through New Benrinet, Benrinet has undergone an enormous business model conversion into a fee-based business that collects revenue from both suppliers and users. Furthermore, by expanding into the MRO business, the value of Benrinet trans- actions is expected to increase ten- to twenty-fold. Already, individual companies seeking as much as ¥2 billion in usage have registered for the service.
C-Business is a catalog sales tool aimed at medium-sized businesses that was origi- nally intended to act as part of Kokuyo’s support initiative for its sales branches. It is unique in that product prices are consid- ered to be list prices only and that prices can be negotiated between sales branches and their customers. Sales generated by C- Business in fiscal 2000 were ¥6 billion, and we expect this figure to increase to ¥14 billion in fiscal 2002.
DELIVO supplies office furniture via mail order for small businesses and SOHO operations. Although business was initially slow for DELIVO, mostly because it had not yet fully penetrated the furniture market, in January 2001 sales began to pick up. This is a market segment with enormous potential, and, in addition to providing high-value-added product service develop- ment, we believe we have finally reached a stage at which we can feasibly add Internet-based transactions to DELIVO operations.
Stationery Sales Outlets Furniture Sales Outlets
IT Device Sales Outlet
Office Workers Employees in General Affairs
Department
Employees in Information Support
Department Client Company
Director of General Affairs Department
Director of Materials Department
Director of Information Systems Department
Employees in Information Systems Department Employees in
Materials Department Employees in
General Affairs Department
Office
Stationery Supplies Furniture PPC PaperToner,
Over
¥10,000
Over
¥100,000
Over
¥100,000
• New Benrinet Configuration
New Benrinet
An Interview with the President
Finalizing the Reorganization of Distribution Systems
The Future of General Sales Operations
Q
In contrast with the Company’s efforts to return to its roots as a manufacturer is Kokuyo’s work to reorganize distribution. In light of the spread of such Internet- based operations as Kaunet, what steps will Kokuyo take to reform its general sales operations and other bricks-and-mortar business sectors?Previous mention was made of “ ownership” : the ability to take the initiative to forge new paths for our business, an ability that will be sought from our employees. This is exactly the same quality that we expect from the corporate management of our general sales operations. As previously stated, we are implementing reform in these bricks-and-mortar sections of our business by eliminating their total dependence on Kokuyo and expanding the volume of items handled—by opening the doors to products from other manufacturers—while enhancing cus- tomer services. However, to secure profitability amid expanding Internet commerce and the resulting growing trend toward low-margin, high-volume business will require a magnification of the scale of our operations and drastic reductions in fixed costs through the consolidation of general sales branches as well as the preparation of a diverse service menu to reorient salespeople toward providing better services for their customers. Regarding operations con- solidation, by reclassifying operations into prime sales branches, general sales branches, and common sales branches—according to the scale of merchandise handled—we will consoli- date our 59 exclusive agents (estimated to number 51 by October 2001) into approximately 30 exclusive agents in five years. Regarding service menus, as the customer base is composed primarily of small- to medium-sized businesses, the large-scale CW approach is limited in its effectiveness in meeting the needs of a single customer. Therefore, we are working to prepare a selection of original services that take into greater account their suitability to the customer and that customer’s needs.
The Emergence of “Super” Exclusive Agents and Their Role
The bricks-and-mortar segments that comprise approximately 70% of Kokuyo’s distribution operations will undergo a metamorphosis and renewed galvanization. Moreover, of the newly intensive 30 or so agent operations, we intend to convert 5 of these into “ super” exclusive agents operations serving major city centers. In terms of service, it is our intent to strongly emphasize our capacity as a provider of office services. Comprehensive relocation is one of the services slated for inclusion in Kokuyo’s new competitive services portfolio. This service would cover all aspects of office relocation—including selecting of a new location, securing new office facilities, and addressing environmental concerns—of enormous advantage to small- and medium-sized businesses. We foresee more than sufficient chance of success for this type of service.
As the first of these “ super” exclusive agents, in December 2000, we established Kokuyo Tokyo Sales Co., Ltd., by transferring the operations of Kokuyo’s Tokyo Office to Tokyo Kokuyo Co., Ltd., a general sales subsidiary. As Kokuyo Tokyo Sales is the source of Internet
Main points:
• Current sales operations will be restructured into approxi- mately 30 exclusive agents within five years.
• Kokuyo will establish “ super” exclusive agents in major city centers and position them as office service providers that handle everything for the office.
2000 2001 2002 2003 0
10 20 30 40 50 60
70 6 6
5 9 5 1
3 0 Number of Exclusive Agents (Companies)
FY
sales as well as one of the aforementioned service providers, we hope it will serve as the model for future single source supply operations that will meet all office-related needs. Kokuyo will continue to establish similar “ super” exclusive agents in major city centers.
In Conclusion
Q
What is the outlook for fiscal 2002?Little hope for recovery in market conditions is anticipated for fiscal 2002, and consumer spending is expected to remain weak. However, private-sector demand, which is especially influential on the furniture-related business, is predicted to be strong—particularly in the Tokyo metropolitan area. We expect net sales to increase 5% , to ¥310 billion, operating income to decline 7.2% , to ¥11 billion, and net income to slide 33.3% , to ¥4.8 billion. Sales forecasts by individual segment are: ¥145 billion for stationery, an increase of 5% , and ¥165 billion for fur- niture also an increase of 5% . In the stationery-related segment we expect a boost in sales thanks to Kaunet, and we predict further expansion in office furniture sales. Regarding profit, fiscal 2002 will be the takeoff term for Kaunet, and Kokuyo plans an additional investment of
¥5.6 billion to provide continual support for Kaunet and complete its establishment. Thus, although revenues are expected to increase during fiscal 2002, income will unavoidably decline. However, disregarding these factors, our existing businesses are expected to sustain increases in both revenues and profit and we anticipate that Kaunet will become profitable within the next three years. Against this backdrop, Kokuyo will strengthen its marketing and R&D functions and implement radical improvements to its operating framework in line with its goal of returning to its roots as a manufacturer. At the same time, we will accelerate our efforts to complete the reorganization of our distribution channels and proceed steadily on our growth trajectory, which targets fiscal 2005 for fulfillment.
To Our Shareholders
Q
Other than issues covered thus far, do you have any message to impart to Kokuyo’s shareholders?I believe that the framework for meeting our fiscal 2005 goals has been clearly set out. The next step is for the management of Kokuyo to determine how to implement our Companywide vision. I am confident that if we proceed with firm objectives in place, we will achieve signifi- cant results. Maximizing shareholder value is the goal of Kokuyo and as such we will empha- size ROE and EVA. As part of these efforts, on June 28, 2001, the Board of Directors decided to buy back and retire up to 1 million shares of the Company’s stock. In the interest of returning profit to our shareholders I hope to consider buyback and retirement on a regular, continued basis in the future.
However, it is my responsibility to raise shareholder value beyond that expected by the shareholders themselves—a goal I hope to attain through a range of initiatives. Therefore, I hope to continue to enjoy the support of our esteemed shareholders.
Main points:
• Projected net sales of ¥310 billion, operating income of ¥11 billion, and net income of ¥4.8 billion.
• Although revenues will increase, income is expected to decline due to such factors as investment in Kaunet.
• While implementing radical struc- tural reforms aimed at returning to its roots as a manufacturer, Kokuyo will accelerate its measures to conclude the reorganization of distribution channels.
Stationery- Relate Stationery-Related Business
Review of Operations
Lever file EZ
This “ Universal Design” range of files allows one-touch level operations.
0 4 0 ,0 0 0 8 0 ,0 0 0 1 2 0 ,0 0 0 1 6 0 ,0 0 0
0 2 ,0 0 0 4 ,0 0 0 6 ,0 0 0 8 ,0 0 0 1 0 ,0 0 0 1 2 ,0 0 0 1 4 ,0 0 0
0 1 ,0 0 0 2 ,0 0 0 3 ,0 0 0 4 ,0 0 0 5 ,0 0 0
1999 2000 2001 1999 2000 2001 1999 2000 2001
Sales
(Millions of yen)
Operating Income
(Millions of yen)
Capital Expenditure
(Millions of yen)
0 1 ,0 0 0 2 ,0 0 0 3 ,0 0 0 4 ,0 0 0 5 ,0 0 0 6 ,0 0 0 7 ,0 0 0
0 1 0 2 0 3 0 4 0 5 0 6 0
0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 0
1999 2000 2001 1999 2000 2001 1999 2000 2001
Percentage of Net Sales
(% )
Percentage of Operating Income
(% )
Depreciation and Amortization
(Millions of yen) 1 3 8 ,1 4 2
7 ,7 8 1
4 6 .8
6 5 .6
2 ,8 7 3 3 ,7 6 9
ed Business
In the stationery-related business, sales in fiscal 2001 amounted to ¥138.1 bil- lion, down ¥0.3 billion, or 0.2% , from the previous fiscal year. Operating income declined ¥4.5 billion, or 36.7% , to ¥7.8 billion.The market remained weak overall during the term, suffering the deflationary effects of changes in the structure of demand brought about by the proliferation of information technologies (IT) and the growth of mail-order businesses.
During the term under review, Kokuyo introduced a wide range of products consisting of 103 items—falling into 19 categories—under the universal design concept, the aim of which is to create products that can be used easily by anyone (fiscal 2002 sales target: ¥3.0 billion). In addition, we redesigned our mainstay Campus Notebook line, improving their utility, quality, and design (sales volume target: 70 million units; net sales target: ¥11.0 billion). Amid rising consumer awareness of environmental issues, sales of such environment-friendly products as the Eco-Twin R—a tube file with recyclable binder rings—were strong and amounted to ¥9.7 billion, an increase of ¥41.3 billion, or 30.7% .
Meanwhile, in response to the ongoing changes to the structure of the retail sector, in October 2000, Kokuyo entered into the high-growth-potential market of mail-order office supplies. We achieved this by establishing the Kaunet ser- vice, which commenced operations in January 2001.
In fiscal 2002, Kokuyo is targeting a ¥1.6 billion reduction in expenses by leveraging overseas procurement, Internet-based procurement, and VA/VE, in line with its policy of emphasizing profitability. Our product strategy for the upcoming fiscal year is to aggressively promote our new digital devices—IT sta- tionery—and our OA supplies. We will continue to market products from our universal design range, environment-friendly products, and other value-added products.
By proactively implementing these initiatives we anticipate recording net sales in fiscal 2002 of ¥145.0 billion.
Mobile Bag Bonito
These mobile bags use colorful pastel tones.
Eco-Twin R
The removable bindings of this product allow easy sorting.
Furniture- Related
Review of Operations
Furniture-Related Business
0 4 0 ,0 0 0 8 0 ,0 0 0 1 2 0 ,0 0 0 1 6 0 ,0 0 0
0 2 ,0 0 0 4 ,0 0 0 6 ,0 0 0 8 ,0 0 0 1 0 ,0 0 0 1 2 ,0 0 0 1 4 ,0 0 0
0 1 ,0 0 0 2 ,0 0 0 3 ,0 0 0 4 ,0 0 0 5 ,0 0 0
1999 2000 2001 1999 2000 2001 1999 2000 2001
1999 2000 2001 1999 2000 2001
Sales
(Millions of yen)
Operating Income
(Millions of yen)
Capital Expenditure
(Millions of yen)
0 1 ,0 0 0 2 ,0 0 0 3 ,0 0 0 4 ,0 0 0 5 ,0 0 0 6 ,0 0 0 7 ,0 0 0
0 1 0 2 0 3 0 4 0 5 0 6 0
0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 0
1999 2000 2001 Percentage of Net Sales
(% )
Percentage of Operating Income
(% )
Depreciation and Amortization
(Millions of yen) 1 5 7 ,1 6 7
4 ,0 7 5
3 ,7 7 1
3 ,8 8 7
3 4 .4 5 3 .2
AGATA adjusts to a variety of sizes and shapes
d Business
In the furniture-related segment, sales in fiscal 2001 amounted to ¥157.2 billion, an increase of ¥15.3 billion, or 10.8% . Operating income also soared ¥2.0 billion, or 100.2% , to ¥4.1 billion.Strong sales of office furnishings were achieved in fiscal 2001, bolstered by a recovery in private-sector capital investment and robust office-furniture-related demand from IT companies and overseas firms. Sales in the Store Fixtures and Fittings Division were also strong, owing to thriving demand from such sources as mass merchandising franchises. During the term under review, Kokuyo intro- duced several environment-friendly products, including the Dynafit Chair Exage, which utilizes recycled materials. Sales of environment-friendly products increased ¥35.3 billion year-on-year, or 18.5% , to ¥5.5 billion.
Kokuyo predicts that the demand for office-furniture-related supplies in the period from fiscal 2002 to 2003 will rival that of the bubble economy. Seizing on this opportunity, Kokuyo will strive to increase its market share through the implementation of fresh initiatives.
In terms of products, we will bolster our lineup of value-added products by introducing AGATA—the swiveling office chair awarded the fiscal 2001 product design prize at the renowned iF Design Awards in Germany—and A-GAGE—the industry’s first office storage container to feature knockdown construction. Fiscal 2002 sales targets for AGATA and A-GAGE are ¥1.3 billion and ¥2.0 bil- lion, respectively.
Not limited merely to offering products for sale, we will also provide workplace solutions to our customers through the CW (Competitive Workplace) concept. This service, combining high office productivity consulting and systematized operations support, not only meets the wide-ranging needs of our customers but is a market with high growth potential.
Kokuyo also integrated its Chiba construction materials plant into its
Shibayama Plant, yielding a 30% reduction in operation costs. In total, we antic- ipate ¥2.3 billion in cost reductions for the entire furniture-related business.
Through the firm implementation of these initiatives, Kokuyo anticipates net sales in its furniture-related business of ¥165.0 billion for fiscal 2002.
A-GAGE is the industry’s first knockdown office room partitioning system. It enables the rearrange- ment of doors and draw- ers through the use of common base frames.
Dynafit Chair Exage The design of Exage allows it to be broken down into constituent components.
Overview
Since completing the acquisition of Unified ISO 14001 certi- fication in March 2000, Kokuyo has installed ISO 14001 compliant management systems Companywide. These comprehensive systems allow for the consistent administra- tion of all business activities, including production planning and development, logistics, and services. By effectively applying these systems, Kokuyo strives to stay one step ahead of its customers’ expectations and make environ- mental management and protection an integral part of its operations. We will continue to provide environment-friend- ly products and services, while boldly undertaking the chal- lenge of creating new businesses and implementing reform without confining ourselves to the limits imposed by the tra- ditional perceptions or beliefs. As prominent members of 21st century industry, all Kokuyo employees will continue to strive to support operations that assume concern for the environment as their guiding principle.
Kokuyo Environmental Charter
In October 1993, Kokuyo set down its Environmental Activity Charter clearly defining its fundamental stance on the environment and providing the basis on which it has since conducted operations. However, the Company has now adopted Green Initiative 2005 as its action policy. This initiative comprises the five elements of R&D, production & technology, administration, sales, and logistics. Clear envi- ronmental goals have been set for each of these elements, with a targeted completion date of fiscal 2005, which coin- cides with the Company’s 100th anniversary.
Environmental Management System
The Kokuyo Group has established a uniform environmental management system governing all Group companies. We operate a system that is compatible with the ISO 14001 international standard, and within that framework, we strive to enhance our environmental performance, while at the same time implementing such measures as the surveillance and measurement of our products’ environmental impact, emergency contingency plans, and internal environmental auditing.
Climate Change
The Kokuyo Group takes action to prevent global warming.
Kokuyo and the Environment
Fundamental Philosophy
On its foundation, the Company set its corporate goal high—to contribute to society through its products—and it has maintained that goal ever since. As a natural extension of this philosophy, we are aware that the preservation of the global environment is a pressing issue for the whole planet, and we are drawing on the collective wisdom of all personnel and acting Companywide to address this issue.
Working Group President
Management Council Executives with Responsibility
for Environmental Matters
Internal Environmental Auditing Team
Companywide Environmental Monitoring Committee Eco–Promotion
Subcommittee
Product Compliance Subcommittee
Working Group Environmental
Management Division
Head of Environmental Monitoring
Yao Plant
Mie Plant
Shibayama Plant
Kokuyo Logitem Higashi–Nihon
Kokuyo Logitem Nishi–Nihon
Workplace Division
Corporate Staff Division
Project Promotion Division
Subsidiaries
Other Organizations
0 5,000 10,000 15,000 20,000 25,000 30,000 0 5 10 15 20
1990 (FY) (t-CO2)
1996 1997 1998 1999 2000 2003 2010 15,030 14,666 13,978 11,882 12,241 13,165
4,416 4,411 4,191
4,174 3,841 4,016 6,134 5,885
5,570
5,132 5,140 5,336 25,580
0.00 2.42
7.20
17.17 17.04
11.97
6.90 10.00
24,962 23,739
21,188 21,222 22,517 Change from the 1990 level
Trends in CO2 Emission Volumes
Plant Distribution Office (% )
Target
Resource Conservation and Recycling
The Kokuyo Group works to reduce output of both industrial and general waste, as well as make effective use of its resources by recycling.
Environmental Expenditures
0 200 400 600 800 1000 1200 1400 1600
Global warming countermeasures
Resource conservation and recycling measures
Product measures Promotion of green- purchasing activities Contribution to social
activities
Observance of laws and regulations Establishment
of EMS operations 1998
(FY) (Millions of yen)
1999 2000
Breakdown of environmental expenditures
0 5,000 10,000 15,000 20,000 -20 0 20 40 60 80 100
1996 (FY) (t-CO2) (% )
1997 1998 1999 2000 2005 3,358 3,404 3,333 3,558 3,050 8,972 9,769 10,402
11,599 12,816 12,330
0.0 2.1 -4.5 10.4 25.0 74.2 75.7
72.8 76.5 80.8
79.0
10.0 82.0
13,17313,735
15,15715,866 Recycling rate (% )
Changes from the 1997 level in fiscal waste output (% )
Trends of Waste Emission Volumes
Final waste output Recycled waste Target
Target
Environmentally Conscious Product Design
As a manufacturer, Kokuyo recognizes the vital need to reduce the environmental impact of its products. Beginning at the development stage, Kokuyo designs all of its prod- ucts with full consideration for their environmental impact at various stages of their life cycles.
1) Reduction of the environmental impact of materials These recycled paper Campus Notebooks use 100% recy- cled paper covers and 80% recycled paper in their pages.
2) Reduction of environmental impact during usage Kokuyo’s FITCURVE automatic pencil enables usage down to the last millimeter of lead.
These extraordinary automatic pencils can be used down to a remaining lead length of a mere single millimeter. 3) Reduction of the environmental impact of recycling TRUSS chair, the revolving chair that can be dissembled piece by piece.
This chair is designed to allow disassembly into its con- stituent parts.
S I X - Y E A R S U M M A R Y
KOKUYO CO., LTD. AND CONSOLIDATED SUBSIDIARIES
Thousands of
Millions of yen U.S. dollars
2001 2000 1999 1998 1997 1996 2001
For the year:
Net sales ¥295,310 ¥280,335 ¥291,664 ¥317,218 ¥334,370 ¥314,044 $2,383,454
Cost of sales 206,322 198,190 214,950 233,287 246,335 231,668 1,665,230
Selling, general and
administrative expenses 77,132 67,823 65,284 64,409 63,427 62,128 622,534
Operating income 11,856 14,322 11,430 19,522 24,608 20,248 95,690
Net income 7,192 1,192 4,986 8,706 10,893 9,463 58,047
At year-end:
Total assets 329,505 314,039 309,099 304,774 310,012 302,738 2,659,443
Working capital 82,803 89,688 88,874 78,559 82,660 76,644 668,306
Property, plant and equipment-net 102,207 103,342 102,318 104,452 96,614 96,311 824,915
Total liabilities 128,570 120,321 117,244 115,858 127,806 130,767 1,041,671
Interest-bearing debt 21,861 21,120 19,536 7,815 8,569 8,111 176,441
Total shareholders’ equity 200,442 193,380 190,676 187,732 181,060 171,090 1,617,772
Yen U.S. dollars
Per share date:
Net income ¥ 55.44 ¥ 9.13 ¥ 38.14 ¥ 66.59 ¥ 83.32 ¥ 72.40 $ 0.45
Diluted net income 55.39 9.16 38.11 66.51 83.20 72.31 0.45
Cash dividends applicable
for the year 17.50 17.50 15.00 15.00 15.00 15.00 0.14
Shareholders’ equity 1,544.92 1,490.49 1,458.41 1,435.89 1.384.87 1,308.98 10.56
%
Ratios:
Ratio of operating income to net sales 4.0 5.1 3.9 6.2 7.4 6.4
Return on sales 2.4 0.4 1.7 2.7 3.3 3.0
Return on equity 3.6 0.6 2.6 4.7 6.2 5.7
Return on assets 2.2 0.4 1.6 2.8 3.6 3.3
Equity ratio 60.8 61.6 61.7 61.6 58.4 56.5
Debt-to-equity ratio 6.6 6.7 6.3 2.6 2.8 2.7
Thousands of shares
Common stock:
Number of shares issued 129,742 129,742 130,742 130,742 130,741 130,705 Note: The U.S. dollar amounts are translated from yen, for convenience only, at the rate of 123.90=U.S.$1 the approximate
exchange rate prevailing at March 31, 2001.
