Annual Report 2013
Fiscal year ended December 31, 2013
Our Sustainable Success Factors
1 Profile
2 Highlights of Our Sustainable Success Factors 4 Financial/Non-Financial Highlights
6 Message to Our Stakeholders 18 Review of Operations 38 Eleven-Year Summary
40 Management’s Discussion and Analysis 46 Consolidated Balance Sheets
48 Consolidated Statements of Operations
49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes in Net Assets 51 Consolidated Statements of Cash Flows
53 Notes to Consolidated Financial Statements 78 Independent Auditors’ Report
79 Corporate Data
Note: Starting from fiscal 2012 (ended December 31, 2012), segment information is disclosed based on the following three segments: “stationery segment,” “furni- ture segment,” and “online and catalog sales and retail segment.” Accordingly, the historical figures for fiscal 2011 are reclassified using the new segments.
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 uncertain- ties. These risks and uncertainties relate to economic conditions in KOKUYO’s business environment, particularly the state of private-sector and public-sector capital investment, competitive pricing pressures in the marketplace, and KOKUYO’s ability to continue designing and developing products that will be accepted in markets. However, it should be noted that elements affecting performance are not limited to the previously mentioned factors.
Corporate Philosophy
“Enrich the world through our products”
Stimulating demand with value-added products
See P. 18
See P. 3
Ideas for new work styles
See P. 12
A best-seller for four decades
Contents
Increased notebook sales as a result of promotional campaigns in Vietnam
Purchased Riddhi Enterprises, a notebook manufacturer based in India
Profile
KOKUYO is a full-line manufacturer of stationery and furniture with a history stretching back over a century. We continue to evolve, and are now setting our sights on the dynamic markets of Asia. We have implemented
a new strategic road map with an ambitious target of boosting our ratio of overseas sales from the current 6% to 30% by 2020, while also improving governance and expanding CSR initiatives.
KOKUYO aspires to sustained growth as an Asian company, engaged in both Japan and the rest of the world, and to realize our long-term vision of being not only the “Honor of the Country,” but the “honor of Asia.”
Expanded lineup of original products through online and catalog service
See P. 16
See P. 10
Newly opened ACTUS stores
See P. 22
See P. 11
Raising brand awareness in China
See P. 14
Interactive craftsmanship to befit a wide range of users
See P. 20
Annual Report 2013 1
Highlights of Our Sustainable Success Factors
KOKUYO ranks in
corporate brand perception
in Japan.
Workforce and HR Utilization
Environment
1st in stationery, 2nd in office
furniture, and 3rd in online and
catalog services for offices in Japan
The Company has
received high marks in the
CSR survey conducted
by Toyo Keizai, Inc.
Total of 400 new stationery prod-
ucts sold annually
Our corporate brand enjoys an extremely high
recognition rate in Japan, and we ranked 8th
in a corporate brand perception quotient (PQ)
survey conducted by Nikkei Research Inc.
8 th
AAA
1 st
400
items
1 Apple Japan
2 Yamato Transport
3 Microsoft Japan
4 SONY
5 Google
6 Kewpie Corporation
7 Canon
8 KOKUYO
9 Panasonic
10 TOTO
Founded in 1905, for in business
Total of 2.6 billion
notebooks sold in Japan
KOKUYO opened its first “Live Office”
in actual use situations.
KOKUYO traces its roots back to 1905 to when it began to
manufacture the covers of Japanese-style bookkeeping ledgers.
The Company then evolved into a comprehensive stationery
manufacturer by expanding its lineup, mainly for paper products,
such as Western-style account books, invoices, and
notebooks.
Our attention to detail regarding the six
components of value—binding method,
material quality, ruling, size, design, and
price—for our Campus Notebook series
has made it the top notebook brand in
the industry for four decades, with
annual sales now topping 100 million
notebooks and cumulative sales since
its launch topping 2.6 billion notebooks.
KOKUYO’s head office building was opened as a show
room (“Live Office”) in 1969 , more than
40 years ago. This innovative experiment of
showing our employees at work continues
to this day.
109 years
2.6 billion
40 years
Annual Report 2013 3
Net Sales
(Millions of yen)
Operating Income/
Ratio of Operating Income to Net Sales
(Millions of yen) (%)
300,000
0 100,000 200,000
2013 2012
2011
7,000
0 2,000 5,000 6,000
1,000 3,000 4,000
2.8
2.4
0 0.8
0.4 1.2 2.0
1.6
2013 2012
2011 L Operating Income (Left Scale)
L Ratio of Operating Income to Net Sales (Right Scale)
Net Income (Loss)/Return on Equity
(Millions of yen) (%)
Total Assets/Equity Ratio
(Millions of yen) (%)
6,000
-6,000 -3,000 0
4
-4 -2 0
3,000 2
2013 2012
2011
300,000
0 120,000
60,000 180,000 240,000
100
0 40
20 60 80
2013 2012
2011 L Net Income (Loss) (Left Scale)
L Return on Equity (Right Scale)
L Total Assets (Left Scale)
L Equity Ratio (Right Scale)
Millions of yen
2013 2012 2011
For the year:
Net sales ... ¥288,083 ¥275,822 ¥260,005 Operating income ... 6,427 4,853 4,073 Net income (loss) ... 4,804 2,429 (5,460)
At year-end:
Total assets ... 270,739 258,462 252,794 Net assets ... 163,616 150,633 147,270
Yen
Per share data:
Basic net income (loss) ... ¥ 40.62 ¥ 20.53 ¥ (46.16) Cash dividends applicable to the year ... 15.00 15.00 15.00
Financial Highlights
KOKUYO CO., LTD. AND CONSOLIDATED SUBSIDIARIES The years ended December 31, 2013, 2012 and 2011
Number of Employees CO2 Emissions Volumes/
Electric Energy Consumption per Unit of Sales
(t-CO2) (GJ/¥100 Million)
8,000
0 2,000 4,000 6,000
2013 2012
2011
50,000
0 20,000
10,000
0 50 100 150 200 250
30,000 40,000
2013 2012
2011 L Number of Employees
L Number of Employees (Including Overseas)
L CO2 Emissions Volumes (Left Scale)
L Electric Energy Consumption per Unit of Sales (Right Scale)
Occupational Accident Frequency
(%)
Ratio of Employees with Disabilities to Total Employees
(%) 3.5
0 1.4
0.7 2.1 2.8
2013 2012
2011
2.5
0 1.0
0.5 1.5 2.0
2013 2012
2011
2013 2012 2011
Number of Employees (cumulative) ... 6,399 6,489 6,177 Employees Overseas ... 2,400 2,359 2,084 CO2 Emissions Volumes (t-CO2) ... 44,777 40,954 26,702 Electric Energy Consumption per Unit of Sales (GJ/¥100 Million) ... 221.0 224.7 232.3 Occupational Accident Frequency (%) ... 2.26 3.33 2.10 Ratio of Employees with Disabilities to Total Employees (%) ... 2.24 2.27 2.41
Non-Financial Highlights
KOKUYO CO., LTD. AND CONSOLIDATED SUBSIDIARIES The years ended December 31, 2013, 2012 and 2011
Annual Report 2013 5
Message to Our Stakeholders
Toward Becoming the “Honor of Asia”
Drawing on its corporate name, which embodies the
Company’s aspiration to maintain a strong sense of “Honor of the Country,” KOKUYO has positioned the goal of becoming the “Honor of Asia” as its long-term vision. As a part of this overarching vision, the Company is looking to raise the per- centage of overseas sales to total sales to 30% by 2020. In following this path, KOKUYO recorded a second and fourth consecutive fiscal year of increased net sales and income,
respectively, in fiscal 2013, ended December 31, 2013, a mea- sure of the success of its strategies going forward. In 2014, KOKUYO will continue to target further net sales and income growth. Over the medium term, the Company will promote a variety of strategies in an effort to secure operating income of
¥10 billion and to move its overseas operations into the black in 2016.
We are implementing a new
strategy to achieve sustainable
growth over the next century—
to be the “Honor of Asia.”
President and CEO
Akihiro Kuroda
Results and Targets
Fiscal 2013:
A Second Consecutive Fiscal Year of Increased Net Sales and Four Consecutive Fiscal Years of Income Growth
In fiscal 2013, KOKUYO experienced robust sales in Japan and overseas. These positive trends helped to secure a sec- ond consecutive fiscal year of increased net sales. From a profit perspective, and despite the burden of persistently high raw material prices attributable to the weak yen, the Company reported a fourth consecutive fiscal year of income growth on the back of robust trends in Japan.
The increase in net sales was primarily attributable to the Japanese government’s pump-priming policy measures, which helped to fuel a positive turnaround in economic conditions. This, in turn, triggered strong demand for office furniture, which, coupled with our value-added proposals, allowed us to increase our market share. On the profit front, and despite growth investments aimed at expanding our overseas busi- ness, profits climbed. This was largely attributable to the upswing in gross profit, reflecting sales growth in Japan and stringent efforts to control overhead expenses. In overall terms, KOKUYO’s performance surpassed plans established at the beginning of the period.
Fiscal 2014:
Continued Gains in Both Net Sales and Income together with Investments Aimed at Maximizing Income in Japan
Looking at our business in Japan, we anticipate sales will con- tinue to improve thanks largely to the upturn in the economy. However, in an effort to ensure sustainable income growth from 2015 and beyond, we will incur a steady stream of strategic expenses. For this reason, we are projecting a downturn in income in Japan in 2014. Naturally, we recognize the potential for income growth without the need to incur strategic expens- es. Our decision to undertake this expenditure is, therefore, based on what we believe is the essential level of investment required to secure overwhelming success in Japan. Overseas, we are looking to expand sales in each country of operation by progressively resolving pending issues.
Taking each of these factors into consideration, we are again targeting gains in both sales and income in fiscal 2014. Despite the downturn in profit in Japan, this is largely attributable to improvements in overseas losses.
Our Long-Term Vision
2013 2020
Long-Term Target6 % 30 %
Overseas Sales Ratio
Annual Report 2013 7
Message to Our Stakeholders
Stationery Business in Japan:
Building a Platform for Overwhelming Success in Japan
The stationery market has continued to exhibit a gradual decline. Over the past two years, however, demand for note- books and writing materials has helped to drive the market forward, allowing this decline to bottom out.
Over the past several years, KOKUYO has placed a priority on pushing forward its product strategy. The Company has experienced a certain level of success across a variety of areas, including improvements in its gross profit margin through the release of several hundreds of new products and items.
Despite these endeavors, sales through both wholesale and retail channels, which account for around half of KOKUYO’s income, have declined each year. As a result, the Company has suffered a prolonged decline in sales in its business in Japan. To secure overwhelming success in Japan, it is import- ant that we arrest the decline in wholesale channel sales. This continuous downward spiral can be attributed to such external factors as the growing penetration of online sales for offices as well as a downturn in the number of retailers. Moreover, the manufacturers’ catalog issued by the Company alone is insuffi- cient to meet the needs of corporate-sector orders. KOKUYO is losing market share to other catalogs, which provide details of other company as well as affordably priced private brand
products, published by competing wholesalers. Taking these trends into consideration, KOKUYO alone is suffering as a result of an increasingly fast-paced contraction of its market share.
Under these circumstances, KOKUYO experimented with the publication of the new KiSPA catalog in 2014. The release of this catalog has finally allowed us to compete on a level playing field. On a personal note, I have tried to ascertain the direct feedback of retail stores. Despite positive comments, the truth is that we are yet to see a complete changeover from other catalogs. Looking ahead, we will work diligently to improve this catalog as well as systems. We will strive to increase the share of the KiSPA catalog and to reinvigorate our sales channels.
In addition, we will increase the level of our research and development expenditure to ensure the continuous release of several hundred new items. This will allow us to bolster sales of high-value-added products. Furthermore, we will actively invest in promotional activities, including advertising campaigns to enhance the exposure of KOKUYO products. We recognize that earnings will temporarily tighten in fiscal 2014 as a result of these measures. However, we anticipate continuous growth in both sales and income from 2015 and beyond thanks to the shift to sales of high-profit products.
5,000 110
105
100
95
90 0
2,500
1,250 3,750
2011 2010
2009 2012 2013
4,864
4,864 4,7884,788 4,7194,719 4,7244,724 4,7374,737
94.4 94.4
98.4
98.4 98.698.6
100.1
100.1 100.3100.3
* Japanese manufacturer shipment amount basis (stationery/writing materials/paper products)
* Reference: “Stationeries and Office Supplies Markets in Japan: Key Research Findings 2013” published by Yano Research Institute Ltd.
Stationery and Office Supplies Market Scale
(Billions of yen) (%)
L Market scale (Left Scale) L YoY (Right Scale)
KiSPA catalog—inaugural issue: A publication containing details of the
21,000 stationery product and office supply items of 450 companies
Building on the manufacturer’s catalog devoted solely to KOKUYO products, the KiSPA*
catalog, an office supply publication that contains details of around 21,000 new and
basic item products manufactured and sold by a variety of companies, was launched
in January 2014. This catalog, which is distributed by retailers, allows user companies
to quickly and easily select and order office supplies from a wide range of products
manufactured by approximately 450 companies, including the Company.
In addition to streamlining the catalog distribution process at retail outlets, and
working to enhance operating efficiency, KOKUYO and a nationwide network of
around 7,000 retailers have continued to make effective use of the KiSPA order
placing/receiving system since 1986. This system helps users to confirm the sta-
tus of stock as well as delivery schedules while fulfilling an order placement and
operating function.
Note: KiSPA: Kokuyo is YOUR PARTNER.
Story behind the strategy
New products launched in 2013
Annual Report 2013 9
General Merchandise Stores
Convenience Stores Wholesaler
Stores
Planning
&
Development
Production
&
Procurement
Marketing
Sales
Distribution
Message to Our Stakeholders
Overseas Stationery Business:
Building a Value Chain Tailored to Each Country KOKUYO is placing particular emphasis on the overseas mar- kets of India, China, and Vietnam. Each market is expected to experience between 30% to 100% growth by 2020. Taking these market forecasts into consideration, the stationery markets in countries throughout Asia are projected to enjoy significant expansion.
After acquiring Camlin Limited in India in 2011, the
company’s name was changed to KOKUYO Camlin Ltd. In the ensuing period, the Group has introduced Sampark, an order placing and receiving system for use with wholesalers, and promoted efforts to optimize production and inventory as well as more-efficient sales activities while striving to proactively expand sales in cities of focus. To bolster its notebook produc- tion capabilities, the KOKUYO Group purchased Riddhi Enterprises (RE) in 2013. Building on this assets purchase, the Group plans to boost its annual notebook sales from the cur- rent level of 10 million to 50 million over the next three years. In addition, steps will be taken to bring a new plant online in 2016 with the current network of nine plants consolidated into five. These measures are aimed at enhancing productivity and reducing costs.
In China and Vietnam, the Group has continued to leverage its network of locally owned and operated plants. In 2013, sales of high-quality notebooks reached around 40 million in China. After conducting a large-scale campaign that largely involved a series of television commercials, the Group achieved its sales target of 10 million in Vietnam.
In the future, we will expand our share of the notebook mar- ket in China and Vietnam by developing new products and sales channels. At the same time, we will broaden our lineup as a part of efforts to become a comprehensive stationery manufacturer. We have already attracted wide acclaim in China for such high-value-added products as tape glue and extreme- ly sharp scissors.
Additional investment is still required to bolster our overseas stationery business. While we have already identified counter- measures, a host of issues remain, not the least of which is the greater-than-expected costs in uncovering the causes behind our inability to apply methods that have been nurtured over many years in Japan to our overseas operations. Although it will take some time, we will work to resolve pending issues and move our overseas business activities into the black.
KOKUYO’s value chain-oriented strategy is the key
to its dominant position in the value chains.
• Expand private brand products
• Collaborations with other companies
• Increase exposure for KOKUYO products in stores
Maintaining close relations with all links in the value chains
Customers
Purchase of a Notebook
Manufacturer in India
KOKUYO purchased the assets of Riddhi
Enterprises (RE), a notebook manufacturer based in
India. RE was then included in the Company’s scope of
consolidation as a wholly owned subsidiary. A number of considerations led to the decision to purchase the
assets of RE. Most notably the fact that the Group’s stationery manufacturer, KOKUYO Camlin Ltd., did not
possess or operate a notebook manufacturing plant of its own. Without a proprietary brand, RE had histori-
cally functioned as an original equipment manufacturer exporting all of its output to the United States,
Central and South America, the Middle East, and Africa. Moving forward, RE will manufacture KOKUYO
Camlin brand notebooks for sale in India while at the same time exporting notebooks and other products
through established overseas distribution and sales channels including those in the United States. Together
with its operations in Vietnam and China, this assets purchase represents KOKUYO’s third overseas note-
book manufacturing plant. With the plant standing on a site that measures 22,400 m
2, plans are in place to
apply portions of unused land for plant expansion. Excess production capacity will then be channeled toward
domestic sale.
Story behind the strategy
KOKUYO Camlin’s “Sampark” order placing/receiving system run- ning on a tablet computer in India
Business exhibition held in China Poster advertising Campus notebooks in Vietnam
India China Vietnam
Annual Report 2013 11
Furniture Business in Japan:
Putting in Place a Unique Value Chain-Centric Strategy
The furniture business in Japan struggled in the period after the Lehman Brothers shock, incurring four consecutive fiscal years of losses. Despite these difficult conditions, the Company has worked steadily to carry out a unique value chain-centric strategy. These efforts have helped put in place a virtuous cycle that entails (1) the development of products that incorpo- rate users’ tastes based on customer feedback, which, in turn, drives sales growth, (2) improvements in plant operating rates on the back of increased sales of new and own plant products, (3) market share expansion that reflects the channeling of improved profit and expense balances at plants into sales and promotional budgets, and (4) market share growth thanks to improved order ratios owing mainly to high-value-added space proposals.
As a result, the Company attracted considerable customer acclaim for its proposals on how to effectively use space. This was particularly true for large office buildings in Tokyo and Osaka from the latter half of 2012. Moving forward, KOKUYO continues to expand its market share at a pace that exceeds those of comprehensive manufacturers.
The Company is expecting to achieve ongoing gains in both sales and income despite a downturn in the construction of large buildings in the Tokyo metropolitan area and the subse- quent drop in office space supply.
The principal driving force behind this positive outlook is our unwavering commitment to continuously hone our value chain-centric strategy on a daily basis. Retail stores and
KOKUYO sales staff, who call on customers each day, are gathering detailed information on the needs of corporate cus- tomers. This information provides the backbone behind efforts to identify strategies as well as initiatives aimed at driving busi- ness forward. As a manufacturer, KOKUYO draws on informa- tion to work with retail stores. By collectively placing the utmost importance on the sales and marketing process, every effort is made to put forward useful proposals and to ensure further added value. Moreover, we have developed a framework under which the internal marketing, production, and procurement as well as planning and development departments work in unison with subcontracting plants to support sales activities. We are confident that this furniture business model is an inherent KOKUYO strength.
Message to Our Stakeholders
“LEAF LINE” conference room tables
“AIRFORT” office chair
Story behind the strategy
PUNTO—Excellence in Office Chair Design
and Development
The PUNTO office chair launched in February 2013 is the culmination of
KOKUYO’s unwavering commitment to quality. While demand in Japan
has centered on mesh-type chairs in recent years, KOKUYO has taken
the bold step of adopting a design using polyurethane cushioning to put
forward a product that cradles the entire body. By balancing and alleviat-
ing the burden of body pressure, the PUNTO office chair provides com-
fort over extended periods. Characteristic of Japanese confectioneries,
PUNTO offers a smart and stylish design with the focus very much onthe “Made in Japan” concept. As such, the craftsmanship of artisans
is incorporated into the manufacturing process, a rarity for the industry.
While KOKUYO’s Biotech chair, which was launched in 1983, is a
long-running seller of three decades, the Company plans to position
PUNTO as the next-generation standard going forward.2,000
0 1,000 2,500 3,000
500 1,500
’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18
’86
860 860 560
560 12 12
650 650
850 850
1,170 1,170
1,750 1,750
580 580
880 880
1,110 1,110
1,020 1,020
1,260 1,260
990 990 25
21 25 21
31
31 2929 3232
16 16 1919
23 23
17
17 1717 1717
Historic average 1,040,000 m2 per year
Average from 2014 1,050,000 m2 per year
L Completed buildings L Buildings under construction
Number of items supplied
Trends in the Volume of Supply for Large-Scale Office Buildings in the 23 Wards of Tokyo
(Thousand m2)
Source: From a news release entitled “Market Trend Survey of Large-Scale Office Buildings in Tokyo’s 23 Wards (Special Bulletin Report),” issued by Mori Building Company on April 22, 2014.
Annual Report 2013 13
Overseas Furniture Business:
Bolstering Penetration of the KOKUYO Brand and Sales
The scale of the office furniture sales market in China is several times larger than that of Japan. Given China’s extensive land- mass, however, KOKUYO is unable to cover the needs to the entire nation on its own. For this reason, the Company engag- es in direct marketing in major metropolitan cities along the coast while working through a network of distributors in region- al areas. In undertaking direct marketing, we actively put for- ward proposals that make full use of our flagship showroom in Shanghai for the benefit of Japanese firms as well as European and U.S. companies that have entered the Chinese market. This showroom has received a host of awards and plays an important role in raising the profile of the KOKUYO brand and in sales promotions.
To bolster its indirect marketing activities, KOKUYO holds distributor meetings and training sessions to reinforce its
distributor network. Through these means, we are working to foster a close affinity with the Company.
While direct sales to Japanese firms still account for the majority of sales, we will lift the ratio of indirect sales to local enterprises going forward.
In addition, low-grade products make up the bulk of the office furniture sales market in China. The middle-grade market in which KOKUYO boasts an inherent strength is virtually non-existent. Despite this current predicament, we are confi- dent that this middle-grade market will enjoy steady and substantial growth in tune with China’s continued economic growth. Accordingly, we will reinforce our product lineup to address the needs of this promising market.
Meanwhile, and from an ASEAN perspective, we construct- ed a Jakarta showroom. In addition to ongoing business devel- opment endeavors in Singapore, Malaysia, and Thailand, this initiative is aimed at capturing new demand. While maintaining our principal focus on China, we will look to expand our ASEAN activities in the future.
Message to Our Stakeholders
Jakarta showroom
Our Flagship Showroom in Shanghai Receives Multiple Awards
Despite its short history of just over one year, KOKUYO’s flagship showroom in Shanghai, opened in
December 2012, has received multiple awards. Initially, the showroom acquired GOLD certification under
the Leadership in Energy and Environmental Design (LEED)
green building rating system. This was soon followed by the
showroom’s selection as one of China’s top 10 designer
brands. Among a host of other awards, the showroom
received the internationally recognized Red Dot Design Award
as well as the best of the Commercial Space Design Award of
the Golden Bund Award, a prestigious award for outstanding
interior design in China, and the Interior Design Academy
Silver Award, both sponsored by the China Institute of Interior
Design. The Shanghai Flagship Showroom was opened in
the People’s Square area in the heart of Shanghai as a cen-
ter to help boost KOKUYO’s brand profile and sales.
Story behind the strategy
Shanghai Flagship Showroom
Annual Report 2013 15
Online and Catalog Sales and Retail Business: Successful Strategies that Incorporate KOKUYO’s Unique Ingenuity
While the catalog service for the office market continues to grow, the market for small and medium-sized enterprises has matured. Against this backdrop, our ability to differentiate our- selves from other online and catalog sales companies will hold the key to ongoing growth.
With this in mind, Kaunet, which allows customers to choose office supplies with ease while providing the inspiration
to resolve a host of issues, will play a critical role in setting us apart from competitors. Through easy-to-understand, user-friendly catalogs and Kaucore, our private brand that offers a touch of ingenuity, we are, in fact, attracting strong support from customers.
Looking ahead, Kaunet will help to differentiate KOKUYO in such areas as merchandising as well as catalog and online sales, which are the source of the Company’s value. This, in turn, will underpin our efforts to achieve the leading operating income margin in the office catalog sales sector.
Story behind the strategy
Message to Our Stakeholders
5,000
0 3,000
2,000
1,000 4,000
2011 2010
2009 2012 2013
Source: Company estimate taken from data provided by Yano Research Institute Ltd. and other organizations.
Online and Catalog Service for Office Market Scale
(Billions of yen)
Information on Over 5,000 Kaunet Original Private
Brand Products
In adding its own touch and flavor, the Kaucore Premium range of original
private brand (PB) products, designed to address the dissatisfaction and
concerns of customers, attracted wide acclaim with 160 new items released
during the year. Placing particular emphasis on boosting sales, a Kaucore
Premium special feature has been included in the spring/summer editionof the Kaunet catalog, the Company’s online and catalog sales service.
KOKUYO’s online and catalog sales site, Kaunet, covers a total of 5,300 PB
products.
Achieving Our Long-Term Vision through Our Unique Sustainable Growth
Toward Increasingly Sophisticated Corporate Governance In a bid to bolster our management structure, we have increased the number of internal and independent directors by two and one, respectively. This brings the total number of inter- nal directors to five and independent directors to four. We have increased the number of internal directors to bring a breath of youth to the Company’s management table. We will also place considerable weight on nurturing the next generation by inject- ing human resources who will play a prominent role in leading the Company forward. These efforts to nurture the next gener- ation will go beyond the director level and extend throughout every level of the Company. From a governance perspective, we have added another independent director with a wealth of business experience. Our goal is to enhance the sophistication of our corporate governance capabilities with expectations of further stimulating engagement from a fresh management perspective.
To Our Shareholders
As I mentioned at the beginning of this message, our goal is to shift from a spirit of “Honor of the Country” to become the
“Honor of Asia.” As a result, we will endeavor to raise the per- centage of our overseas sales to consolidated net sales to 30% by 2020. Staying true to our roots, we will bolster our value chain in Japan while building a business model that will help to secure overwhelming success. I am convinced that we are taking definitive steps throughout 2014 to achieve these lofty goals.
Despite this positive outlook, the fact of the matter is that we are entering unchartered waters. To reach our destination, each and every employee will be asked to think long and hard about what will be required. Fortunately, KOKUYO has more than a century’s experience of caring for its customers across a comprehensive value chain from development through pro- duction to sales, delivery, and maintenance. This DNA has been passed from generation to generation and is the well- spring of relationships built on mutual trust. Over the past few years, we have seen this DNA evolve to a point where employ- ees know exactly what is required without being told what to do. By focusing on fostering our human resources and maxi- mizing the value of each and every employee, I am confident in
our ability to build a robust value chain and to secure our posi- tion as the “Honor of Asia” based on our business strengths. The strategies that we have advanced since 2011 will remain unchanged through to 2020. In putting together a plan in 2010, we focused on what was important to the Company and how to transpose our accumulated assets and wide range of strengths in Japan to operations overseas. This, of course, took into account anticipated difficulties in expanding our busi- ness in Japan and intense competition within the domestic market. Despite the many difficulties that we faced, we secured an overseas sales ratio of 7% from a zero base in three years. Today, the KOKUYO Group boasts over 5,000 overseas employees, including temporary staff. If we include domestic operations, our total workforce comes close to 10,000. This increase in personnel numbers together with the growing globalization of staff is, indeed, a groundbreaking occurrence. In the future, we would ask for the continued sup- port and understanding of investors as we pursue sustainable growth backed by our unique corporate culture.
KOKUYO places the utmost emphasis on management that focuses on its shareholders. Our goals are, therefore, to deliver appropriate returns to shareholders and to ensure the stable payment of dividends. Taking into consideration the Group’s consolidated performance, we have identified a dividend pay- out ratio target of 20% or more. With dividend payout ratios of 73% and 37% in 2012 and 2013, respectively, KOKUYO continues to return profits to shareholders at a high level. Cognizant of requests by shareholders and investors to further increase returns, we are also keenly aware of the need to secure necessary reserves to fund future growth. Taking into consideration our medium-term goal of achieving operating income of ¥10 billion (an operating income margin of 3% or more) in 2016, efforts to achieve our long-term goals in 2020, and a variety of factors, including the risks associated with undertaking investments overseas, we will again review our policies toward the payment of returns to shareholders after exceeding a certain level of profit. In the short term, we are projecting a dividend of ¥15 per share in 2014.
As we work toward achieving our predetermined goals, we kindly request the continued support and understanding of shareholders and investors.
Annual Report 2013 17
Net Sales
In the domestic market, sales in the Stationery segment decreased. Despite suc- cessful efforts to launch a large number of new high-value-added products, this decline was largely attributable to a slower-than-expected recovery in the B-to-B channel.
In overseas markets, on the other hand, sales increased as the KOKUYO Group worked diligently to build value chains that take into consideration the circumstances of each country.
Operating Income
In Japan, operating income improved as efforts to curtail costs and expenses more than offset the negative impact of an upswing in raw material procurement prices. Overseas, the Group was successful in narrowing its operating loss. This was mainly due to robust trends in the notebook business in Vietnam.
Principal New Products
• Gakushukei Campus Notebook, a notebook to best suit the learning needs of high-school and junior high-school students
• RAKUHARI, a double-sided adhesive tape that uses a roller system to eliminate the time and effort required to peel off the release liner as well as any waste
• Red Tech, a red instant adhesive that allows the user to easily see where the adhesive is being applied
Main Developments
• Purchased the assets of Riddhi Enterprises, a notebook manufacturer based in India
• Broadcast the Group’s first overseas Campus notebook TV campaign in Vietnam
Stationery Segment
Share of Total Net Sales
Net Sales
(Millions of yen) 100,000
0 50,000
25,000 75,000
2013 2012
2011
Operating Income
(Millions of yen) 8,000
0 4,000
2,000 6,000
2013 2012
2011
25.4
%Notes: 1. Starting from fiscal 2012 (ended December 31, 2012), segment information is disclosed based on the following three segments: “stationery segment,” “furniture segment,” and “online and catalog sales and retail segment.” Accordingly, the historical figures for fiscal 2011 are reclassified using the new segments.
2. Percentage composition figures in the pie charts in this Review of Operations are based on sales after eliminations for internal transactions. Bar graphs are based on sales before eliminations for internal transactions.
Review of Operations
Gakushukei Campus Notebook
RAKUHARI
Red Tech
RAKUAKE, a two-hole punch that helps align documents with a single simple action
Annual Report 2013 19
Review of Operations
Net Sales
In Japan, the Company took steps to ensure collaboration between its manufac- turing and sales functions as a part of efforts to aggressively push forward solu- tions in the private-sector office as well as medical, education, public-sector, and other markets. In particular, KOKUYO witnessed an increase in its share of the private-sector office market in the Tokyo and Kansai metropolitan areas as the Company’s high-value-added proposals in support of enhanced worker produc- tivity were well received by customers. Taking each of these factors into consider- ation, domestic sales in the Furniture segment increased.
Overseas, sales also grew. This largely reflected the Group’s use of its flagship showroom in Shanghai to engage in vigorous proposal activities in China and successful efforts to expand sales in inland areas.
Operating Income
Thanks to the substantial increase in revenues and steps to reinforce profit man- agement through collaboration between the manufacturing and sales functions, operating income improved in Japan.
In overseas markets, operating income declined as the Group undertook forward-looking investments, including the establishment of a new showroom.
Principal New Products
• PUNTO, an office chair that boasts improved backrest and seating for optimal comfort
• LEAFLINE, a conference and meeting table with a simple and stylish design
Main Developments
• Opened the Umeda office and office furniture showroom in Osaka
• Set up a showroom in Jakarta, Indonesia
Furniture Segment
Share of Total Net Sales
Net Sales
(Millions of yen) 120,000
0 60,000
30,000 90,000
2013 2012
2011
Operating Income (Loss)
(Millions of yen) 2,000
-2,000 0
-1,000 1,000
2013 2012
2011
38.9
%The PUNTO line of office furniture goes with a wide range of office decors and features a high level of sitting comfort. PADRE, an office lobby chair that places a premium on the
aesthetic appeal and functionality of public spaces.
The Umeda Live Office was opened in April 2013. LEAFLINE
Annual Report 2013 21
Online and Catalog
Sales and Retail
Segment
Share of Total Net Sales
Net Sales
(Millions of yen) 120,000
0 60,000
30,000 90,000
2013 2012
2011
Operating Income
(Millions of yen) 2,400
0 1,200
600 1,800
2013 2012
2011
The Kaunet Internet-based order service catalog is designed to enable users to compare the features and sizes of various products at a glance.
The ACTUS Umeda Store was opened in April 2013.
Review of Operations
35.6
%Net Sales
In the online and catalog sales business, Kaunet results were robust. As a result, sales increased.
In the retail business, sales also grew on the back of contributions from newly opened ACTUS stores and other favorable trends.
Operating Income
Operating income declined as Group management and operational fees kicked in from the fiscal year under review. The downturn in operating income was also attributable to such factors as the increase in expenses associated with the opening of new ACTUS stores.
Main Developments
• Kaunet set up the new Kaucore private brand and took steps to develop and promote original products.
• Shares in consolidated catalog service for offices subsidiary FOREST Co., Ltd., were sold to J. FRONT RETAILING Co., Ltd.
Annual Report 2013 23
KOKUYO’s CSR
Based on the Corporate Philosophy of “Enrich the world through our products,” the concept on which KOKUYO was founded, the KOKUYO Group engages in businesses that are necessary for society, while conducting its operations honestly and profitably. By operating in compliance with laws and regu- lations as well as fulfilling its responsibilities as a corporate citi- zen, KOKUYO works to win the trust of all its stakeholders and sustain its business activities for the long term.
As KOKUYO has moved forward with the development of its overseas activities, however, maintaining high standards of compliance has become an important management issue. Overseas, the KOKUYO Group comes into contact with a wide range of cultures and values as well as differing interpretations of laws. Therefore, the KOKUYO Group thinks it is necessary to prepare a common code of conduct for its activities that takes account of circumstances in markets around the world. For this reason, the Group reviewed its KOKUYO Corporate Ethics Guidelines, which were originally issued in 2001, and
prepared its KOKUYO Group Code of Conduct, which was issued in August 2012 as the common code of conduct for the Group. This code of conduct applies to all management and staff, both in Japan and overseas, and provides basic stan- dards for conduct that Group employees should observe. In addition, the Group put in place the KOKUYO Group Basic Procurement Policy in 2013.
This section of the KOKUYO Annual Report 2013 is divided into six sections that are linked to the Group’s corporate social responsibilities and to the key CSR themes of Economy, Society, and Governance (ESG). These six sections— Corporate Governance, Human Rights and Labor Practices, Environmental Preservation, Fair Business Practices and Consumer Issues, and the Community Involvement and Development—explain the Group’s basic policies for continuing to develop its business operations and increase its corporate value.
KOKUYO began its business activities in 1905 when founder Zentaro Kuroda opened a small shop selling covers for Japanese-style account ledgers. Since that time, KOKUYO has steadily expanded under its corporate philosophy of “Enrich the world through our products.”
KOKUYO’s CSR Charter
Grounded in the founding Corporate Philosophy of “Enrich the world through our products,” the KOKUYO Group
conducts business that is necessary for society, while remaining profitable and honest in its business practices.
In addition to complying with laws and regulations, we seek to maintain continuity of our business by acquiring
the trust of all related stakeholders, investors, and, of course, our customers by fulfilling our social responsibilities
as a corporate citizen.
For Our Customers
1. Without being satisfied with the present conditions, we continue to improve the safety and quality of our entire product line and services.
2. Strive to continually innovate society through our business operations by developing new products and services.
For Regional Communities
1. Strive to be a trusted ‘corporate citizen’ on both regional and national levels via proactive interaction and plan- ning with regional communities, while respecting regional culture and customs and encouraging their advance- ment.
For Environmental Conservation
1. Concentrate the wisdom of each of our employees, and align the actions of our entire Company in order to assist in reaching solutions for the common environmental problems facing the world today.
2. By developing Eco Products, we strive to decrease the environmental burden over the life cycle of these products and to introduce new environmental engineering and green procurement techniques.
3. Contribute towards the advancement of a ‘low carbon society’ by proposing revolutionary work styles and environments, and decrease society’s overall burden on the environment.
Corporate Activities
1. Conduct transparent, just, and free competition and business transactions while keeping sound and correct relations with politicians and governmental bodies.
2. In order to become a trusted company, we strive for business partner relations that are consistently fair and built upon a foundation of reciprocal cooperation, allowing for mutual growth.
3. Recognize our responsibility to increase our corporate value for stockholders, and maintain a corporate management style that earns the trust of society through its transparency and virtue.
Respect for Human Rights
1. Respect the human rights of all individuals involved with or affected by all of our corporate activities. We sup- port work environments free from discrimination, and do not approve of child labor or forced labor practices. 2. Strive to accept each and every employee’s individual character and personal values, and become a company
where many different human resources can fully express their abilities and develop themselves.
Annual Report 2013 25
ISO 26000 Table
The KOKUYO Group uses the ISO 26000 International Standard as a guideline on social responsibility. We have
classified our initiatives according to the main topics under this standard.
ISO Core Subjects Issues KOKUYO Group Initiatives
Organizational governance
Issue 1: Organizational governance • Establish KOKUYO’s CSR philosophy
• Promote corporate governance
• Compliance implementation
• Communicate with stakeholders
• Issued the KOKUYO Group Code of Conduct Human rights Issue 1: Due diligence
Issue 2: Human rights risk situations Issue 3: Avoidance of complicity Issue 4: Resolving grievances
Issue 5: Discrimination and vulnerable groups Issue 6: Civil and political rights
Issue 7: Economic, social, and cultural rights Issue 8: Fundamental principles and rights at work
• Promotion of human rights educational activities
• Promote diversity
• Promote employment of people with disabilities
• The establishment of the KOKUYO hotline for employees
Labor practices Issue 1: Employment and employment relation- ships
Issue 2: Conditions of work and social protection Issue 3: Social dialogue
Issue 4: Health and safety at work
Issue 5: Human development and training in the workplace
• Personnel system
• Human resource development programs
• Promote diversity
• Child-care/family-care and work compatibility support
• Safety at work
• Health care and mental health
• Safety measures regarding employees during disasters
• Strengthening international business training programs to prepare employees for work in KOKUYO’s global organization The environment Issue 1: Prevention of pollution
Issue 2: Sustainable resource use
Issue 3: Climate change mitigation and adaptation Issue 4: Protection of the environment, biodiversity,
and restoration of natural habitats
• Environmental management
• Global warming preventive measures
• Resource saving and recycling measures
• Development of environmentally friendly products and services
• Consideration for biodiversity
• Compliance and pollution prevention
• Promoting environmental communication
• Environmental accounting
• Third-party evaluation Fair operating
practices
Issue 1: Anti-corruption
Issue 2: Responsible political involvement Issue 3: Fair competition
Issue 4: Promoting social responsibility in the value chain
Issue 5: Respect for property rights
• Establish KOKUYO’s CSR philosophy
• Compliance implementation
• KOKUYO Group Basic Procurement Policy
Consumer issues Issue 1: Fair marketing, factual and unbiased information, and fair contractual practices Issue 2: Protecting consumers’ health and safety Issue 3: Sustainable consumption
Issue 4: Consumer service, support, and complaint and dispute resolution
Issue 5: Consumer data protection and privacy Issue 6: Access to essential services
Issue 7: Education and awareness
• Provide products and services that incorporate customers’ perspectives
• Provide safety and reliability to customers
• Promote optimal quality standards for each country and region
• Continuously improve quality
• System for harnessing customer feedback
• Initiative to bond with customers
• Introduction of risk analysis and implementation of quality audits
Community involvement and development
Issue 1: Community involvement Issue 2: Education and culture Issue 3: Employment creation and skills
development
Issue 4: Technology development and access Issue 5: Wealth and income creation Issue 6: Health
Issue 7: Social investment
• Support the recovery from the Great East Japan Earthquake
• India—(KOKUYO Camlin Ltd.) Film competition
• China—Grassroots support activities
• Vietnam—Library donations
• Design awards ceremony in progress
• Provide tours of factories and showrooms
* KOKUYO’s CSR Charter applies in common to all topics.
Corporate Governance
Under its corporate philosophy of “Enrich the world through our products,” the KOKUYO Group strives to achieve
sustainable growth while maintaining harmonious relations with its shareholders. By creating and maintaining a
structure which ensures replicability and continuity of transparent, apt, and efficient business administration, the
KOKUYO Group will continue to work toward elevating its corporate governance standards.
The KOKUYO Group is a company that has an Audit & Supervisory Board. We have created a corporate
governance system that consists of a Board of Directors that supervises the execution of business, and the Audit
& Supervisory Board that, as an entity independent of the Board of Directors, audits the duties executed by the
directors. As a global company, we strive to build corporate governance that is worthy of our shareholders’ trust.
To realize this goal, we work to enhance our supervisory function, clarify the responsibilities of management at all
levels, and heighten the objectivity and transparency of business administration.
Structure of Corporate Governance Business Execution
The KOKUYO Group’s Board of Directors is comprised of a total of seven members, three of whom are independent directors. As part of a system that is able to respond to corporate governance promptly to changes in the business environment, directors are appointed for a term of one year. In attendance at the board meetings, along with the directors, are four Audit & Supervisory Board members, including two outside statutory Audit & Supervisory Board members. The KOKUYO Group has separated its supervisory and executive functions and, in order to promote faster decision making and
streamlined business execution, adopted a corporate officer system. The Board of Directors, which assumes a supervisory function, makes crucial decisions on such matters as Group- wide management policies and various business plans. Also, as an entity responsible for business execution, it runs the Headquarters Management Board. This board is comprised of four Group Headquarters Operating Officers, the head of which is the President and CEO, and its main functions are to deliberate and make decisions on issues related to the Group Headquarters. Further, issues regarding business execution are discussed and decided upon at the Board of Directors’ meetings held at respective Group operating companies.
Operating Companies
Nominating and Compensation Committee
Audit & Supervisory Board
Investment Council
J-SOX Committee
Disclosure Committee
Compliance Committee
Head Office Divisions Process Development
Department HQ Management
Board Board of Directors
Accounting Auditors
General Meeting of Shareholders
Inquiry
Inquiry Advice
Appointment and dismissal Appointment and dismissal
Report Instructions Report
Instructions
Report
Coordination
Internal auditing Approval of important business operational matters
Appointment and dismissal
Coordination Holding Company
Auditing
President & CEO Major Committees
Relating to Internal Controllership
Coordination and report
Accounting audit
Accounting audit Appointment,
dismissal, and supervision
Internal auditing Risk Management
Committee
Advice
Annual Report 2013 27
Advisory Body for the Board of Directors As an advisory body for our Board of Directors, we have in place a Nominating and Compensation Committee, a majority of which consists of external members or directors. The Nominating and Compensation Committee reviews, appoints, and dismisses candidates for director, Audit & Supervisory Board member, and operating officer (hereinafter collectively referred to as “officers”). It also deliberates on compensation plans, evaluates individual officers, verifies remunerations, and offers reports and recommendations regarding such matters to the Board of Directors.
Audit & Supervisory Board
The KOKUYO Group’s Audit & Supervisory Board is comprised of two full-time internal Audit & Supervisory Board members and two outside Audit & Supervisory Board members who possess a wealth of knowledge and experiences in a wide range of fields. The Audit & Supervisory Board members attend the Board of Directors and other important meetings to audit the legality of the duties executed by the directors. Moreover, to ensure the effectiveness of audits, the Audit & Supervisory Board members exchange opinions regularly with personnel in charge of various duties and functions, as well as have in place a system for working closely with the Internal Audit Division and the Audit & Supervisory Board members of the main subsidiary companies.
Internal Audit Division
The Internal Audit Division has set up the Process Development Department—the head director of which is appointed by the Board of Directors—and audits the Group Headquarters and affiliated companies. The Process Development Department audits, from a Company-wide standpoint, the appropriateness of risk-management, compli- ance, and business operations. It also evaluates the efficacy of internal control and reports on the audits directly to the President and CEO at the Headquarters Management Board. It also reports on its activities to the Board of Directors at appropriate times.
Compliance Implementation
In addition to our domestic activities, the KOKUYO Group has begun education initiatives focused on compliance in foreign countries in order to become a proper business in Asia. Based on the lessons learned from unfortunate events that have occurred since 2008, the KOKUYO Group’s Compliance Initiatives are grounded in the intent and assumption that all employees of the KOKUYO Group act in compliance with laws and regulations so that KOKUYO may be considered as an upstanding and honest corporate citizen.
Since 2009, we have conducted discussion-type compli- ance training, and starting this fiscal year, we will sequentially expand these training initiatives into our overseas locations, starting with China.
Building a Highly Transparent Business Management System
2010
No Independent Directors
Internal directors: 6 Independent directors: 0
2011
Recruit Independent Directors
Internal directors: 4 Independent directors: 2
2013
Internal directors: 3 Independent directors: 3
2014
Internal directors: 5 Independent directors: 4
2012
Increase Independent Directors
Internal directors: 3 Independent directors: 3
Note: Four of KOKUYO’s Board of Directors qualify as independent directors under the stipulations of the Tokyo Stock Exchange.
Independent Directors
Compensation of Directors and Audit & Supervisory Board Members
Position
Applicable directors and Audit & Super- visory Board members
Total compensation (Millions of yen)
Directors (excluding independent
directors) 3 179
Independent directors 3 38
Audit & Supervisory Board members (excluding outside Audit &
Supervisory board members)
2 33
Outside Audit & Supervisory Board
members 3 18
Total 11 269
Note: The number of applicable directors and Audit & Supervisory Board members includes one director and two Audit & Supervisory Board members who resigned their posi- tions at the end of the General Meeting of Shareholders held on March 28, 2013.
Compliance
As a truly Asian corporation, the KOKUYO Group always acts consciously in good faith with a high awareness of compliance held by each and every director and employee.
Meeting Held Overseas to Discuss KOKUYO Group Code of Conduct
In August 2012, the KOKUYO Group published the KOKUYO Group Code of Conduct* as a set of principles to be shared across the KOKUYO Group, acting on the belief that a com- mon code of conduct is essential for overseas business devel- opment, one that takes into consideration local culture, values, and different interpretations of the law. In addition, the Group has also prepared the KOKUYO Group Code of Conduct Handbook, which contains supplemental information about the different business customs, laws, and regulations of each country and region.
* The KOKUYO Group Code of Conduct is available in English on KOKUYO’s website at the URL below.
http://www.kokuyo.com/en/csr/group/brand.html
The KOKUYO Group holds meetings across regions to ensure that all staff adhere strictly to the content of the code of conduct and to raise awareness of compliance issues. In 2013, these meetings were held in the seven countries and regions outside Japan where it has operations—namely, China, Vietnam, Thailand, Malaysia, Singapore, Hong Kong, and India. Employees that participated in these local meetings comment- ed that clarification of the Group’s way of thinking and rules made them feel like a more-important part of the Group, and expressed a desire to learn more about compliance after understanding how important it is.
In addition, the Group has compiled a collection of case studies about actual compliance issues in China, where com- pliance training has been a priority, and distributed them to all employees working in the country to deepen their understand- ing of the KOKUYO Group Code of Conduct. At KOKUYO (Malaysia) Sdn. Bhd., local employees decided to launch com- pliance initiatives on their own accord. While collaborating with Group companies, we will continue to implement activities tuned to local circumstances that raise awareness of compliance issues.
Annual Report 2013 29
