Message from the President
Record sales and core operating income, better profitability
In fiscal 2018, ended December 31, 2018, Unicharm reported record net sales and core operating income. Net sales rose ¥46.6 billion (7.3%) year on year to ¥688.3 billion and core operating income increased ¥8.3 billion (9.5%) to ¥95.1 billion. Profitability also improved. In domestic operations, exports to China increased, supported by continued firm demand for products made in Japan, while our shift to high value-added products underpinned high margins. In Asia, we achieved strong rates of growth in China, Vietnam and India, our business in India was consistently profitable and profit margins in Indonesia improved. Those factors helped absorb the impact of higher marketing expenses, distribution costs and input prices, supporting a 0.3 percentage point rise in the core operating income margin to 13.8%. We also made good progress toward the targets in our 10th Medium-term Management Plan (ending December 31, 2020) – net sales compound annual growth rate (CAGR) of 7%, core operating income margin of 15% and ROE of 15%.
After starting out in 1961 as a manufacturer and supplier of building materials, we switched our focus in 1963 to making and selling sanitary napkins, with the aim of helping to make life better and more comfortable for women. In addition to building materials, we moved into a range of other business fields, including early childhood education, wedding services and holiday resorts. In the 2000s we started overhauling that diverse business portfolio, focusing on areas where we could harness our nonwoven fabric and absorbent material processing and molding technologies developed for feminine care products. Today, Unicharm channels its business resources into disposable baby diapers, adult incontinence care products, household products and pet care products – all areas where we can leverage our nonwoven fabric and absorbent material processing and molding technologies. We now serve a diverse range of customers in roughly 80 countries and regions worldwide. Our goal is to continue generating sustained growth, motivated by our desire to “maintain our No.1 position through continued and dedicated service.”
Plenty of scope for further growth in nonwoven fabric and absorbent material products
The types of products we supply are indispensable for hygienic and healthy lives, and demand for them is expanding worldwide. In developed countries, demand is growing for adult incontinence care products and pet care products as societies age. In emerging countries, economic expansion is spurring an increase in the number of people using feminine care products and disposable baby diapers. Rising income levels in Asia are also behind growing demand for high value-added products. In 2019 we completed construction of our fourth domestic plant, the first to be built since 1993. The new plant in Fukuoka Prefecture, Kyushu, has been built to address rising demand for high-quality products made in Japan and projected growth in demand for our products in countries in Asia, which face the same issue of aging populations as Japan and China. The new plant will also help minimize disruption to our operations in the event of a large earthquake or other major natural disaster. We see enormous potential for our products worldwide, as there are still plenty of blank spaces in our global market coverage in both emerging and developed countries.
Our corporate philosophy and 10th Medium-term Management Plan
The world faces a diverse array of social challenges highlighted by the Sustainable Development Goals (SDGs) and COP21, such as aging populations and declining birthrates in Japan and other developed countries, global environmental issues, and poverty and hygiene issues in emerging countries. Helping to resolve these challenges through our core business, by focusing on achieving sustainability with an emphasis on environmental, social and governance (ESG) factors, coincides with efforts to fulfill our corporate philosophy of NOLA & DOLA (Necessity of Life with Activities & Dreams of Life with Activities). NOLA & DOLA embodies our vision of helping people worldwide lead richer lives and fulfill their dreams by offering a wide range of products for babies through to the elderly that make life easier by supporting the mind and the body. Our mission is to “continually support people’s lives and dignity.” Guided by our NOLA & DOLA philosophy, we are working to help build cohesive societies where all generations live alongside each another, providing support and assistance. To achieve that goal, we have incorporated specific action plans into our current 10th Medium-term Management Plan. Looking back over the years since Unicharm was founded in 1961, we have achieved a measure of success in eliminating discomfort that people face in their lives every day, as expressed by the NOLA part of our corporate philosophy. However, we still have much work to do to address DOLA – helping to make their dreams a reality. To achieve DOLA, we first need to attain the goals in our 10th Medium-term Management Plan and generate sustained growth. Specifically, we aim to leverage digital technologies, carefully monitor and adapt to consumers’ changing values, work towards the SDGs and realize our vision of cohesive societies.
Stepping up our response to changes in the business environment with a new management model based on the OODA loop
We have updated our management approach to match the new realities of our operating environment. We previously used the SAPS Model, which was based on a weekly plan-do-check-act (PDCA) cycle. However, amid advances in IT and globalization, changes in our operating environment worldwide have exceeded our previous assumptions. With constant change now the “new normal,” we realized that the Group was unable to respond flexibly using the existing SAPS Model, which was developed at a time when such extreme changes in the operating environment were not anticipated. To respond to the ever-changing conditions, we need to constantly improvise our approach by taking action based on developments in the business environment, rather than spending too much time on planning. Under our new management model based on the observe-orient-decide-act (OODA) loop, we start by observing the situation then responding flexibly to conditions, without putting too much emphasis on the planning phase. Also, we need to drill deep into the reasons for changes in the operating environment, rather than just passively monitoring the situation. To help us make the right decisions about actions we need to take with the OODA loop, all our employees need to fine-tune their senses and use their powers of intuition from years of frontline business experience to anticipate changes in the operating environment. Under the OODA loop management model, we will continuously and carefully observe consumers and use any insights to rapidly adjust our product and service lineup, aiming to ultimately build cohesive societies that empower people of all generations.
Protecting the global environment and reinforcing governance
As a manufacturer of consumable goods, Unicharm takes its responsibility as a supplier of disposable products very seriously. We also have to take environmental factors into account in our manufacturing activities. That’s why we formulated and are implementing our Eco Plan 2020 medium-term environmental targets. Specifically, we aim to do our part to solve a range of high-profile environmental issues, such as building recycling-oriented societies that generate less waste, promoting sustainable procurement that takes into account resource use, and mitigating the impact of climate change across the entire value chain. In particular, we are focusing on extracting and reusing resources from used disposable diapers to help create a sustainable, recycling-oriented society. Through our research efforts, we have succeeded in creating technology that extracts pulp and superabsorbent polymer from used disposable diapers and restores them to a quality higher than unused materials. We are currently testing the recycling process in a joint demonstration trial with the City of Shibushi in Kagoshima Prefecture with a view to establishing it as a viable recycling system in Japan and overseas.
We formulated the Unicharm Group Policy on Human Rights and the Unicharm Group Sustainable Procurement Guidelines in 2017. Based on those documents, we are working with business partners to fulfill our shared corporate social responsibility. As part of our efforts to mitigate the impact of climate change, Unicharm signed up to the Science-based Targets (SBT) initiative in June 2018, referencing recommendations from the Task Force on Climate-related Financial Disclosures (TCFD). Going forward, we will flesh out our next Eco Plan 2030 and fulfill our corporate social responsibility.
To meet the expectations of stakeholders from a global perspective, Unicharm moved to an audit & supervisory committee corporate governance structure in 2015 in order to reinforce supervision of executive actions by the Board of Directors and to improve transparency and efficiency in decision-making processes through greater involvement of outside directors in oversight. Also, at the Annual General Meeting of Shareholders in March 2019, we adjusted the composition of the Board of Directors to increase the ratio of independent outside directors to one-third of the board. In addition, we appointed outside directors to chair the Nomination Committee and the Remuneration Committee, which are each composed of two independent outside directors, one representative director and one non-executive director. Our aim is to increase objectivity in decision-making processes and to further separate management oversight and executive functions.
Paying stable returns to shareholders
At Unicharm, one of our top priorities is to return an appropriate level of profits to shareholders, which is also important from the standpoint of capital efficiency. We are committed to paying stable returns while at the same time strengthening the Company to boost earnings and actively investing in the business to drive growth.
For fiscal 2018, ended December 31, 2018, we paid a full-year dividend of ¥24.00 per share, an increase of ¥4.00 from the previous fiscal year, in line with our initial dividend forecast. We have now raised the dividend for 17 consecutive fiscal years.
In fiscal 2019, in accordance with our shareholder return policy, we will place priority on business investment to deliver sustained growth, while continuing to pay a stable and sustained dividend in line with medium- to long-term growth in consolidated earnings. Where necessary, we also intend to increase the total shareholder return ratio by conducting share buybacks on a flexible basis. We plan to pay a full-year dividend of ¥28.00 per share for fiscal 2019, an increase of ¥4.00 from the previous fiscal year.
At Unicharm, we are committed to more than just supporting customers through our business activities. We are striving to realize sustained growth in corporate value by promoting sound business management that delivers value to all the stakeholders who support us: our shareholders, business partners, employees and society as a whole. We look forward to your continued support in the year ahead.
President and CEO
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