Sustainability Initiatives

Business Status
In fiscal 2022, the outlook for the TOKYO KEIKI Group’s business environment remained uncertain. Despite the full-scale resumption of economic activity around the world, issues such as elevated resource prices, the short supply of semiconductors and other components, and the soaring price of raw materials were further compounded by dramatic movement in exchange rates and a rapid rise in energy prices. The Group was affected by these factors, and although we managed to achieve an increase in revenue, profit declined, and we recorded an impairment loss in the Fluid Power & Control Systems Company, which is part of the Hydraulics and Pneumatics segment.

While we expect the adverse business environment to continue in fiscal 2023, each internal company and subsidiary in the Group has formulated an ambitious business plan and is working to implement them. We are also actively promoting the development of growth drivers. We plan for a year-on-year increase in revenue and profit, but do not expect to achieve our targets under the three-year medium-term business plan that began in fiscal 2021. At the same time, however, we are steadily preparing for rapid growth under our next medium-term business plan.

Steering the Group toward Future Growth
The Group’s history can be traced back to the development of navigational instruments in Japan’s in Japan’s Meiji era around the turn of the twentieth century. We began with marine gyrocompasses and other gyroscopic applications. As we developed toward our present-day business structure, we progressively created numerous core technologies such as applications using inertial sensors, microwaves, and ultrasonics, as well as hydraulic and pneumatic control technologies. These core technologies were shared and integrated between the Group’s various businesses, forming the creative technologies that are the source of our growth. We have earnestly engaged in fulfilling customer requests and orders. Working face-to- face with our customers, mainly in Japan, to promote joint development, we have expanded our business domains by creating numerous “niche-leading” products. As a result, when one of our businesses faces an adverse external environment due to economic conditions or other reasons, we are able to offset its decline through earnings in other business fields, enabling us to maintain stable performance.

However, as the Ito Review notes, today’s stock market demands that corporate groups achieve growth targeting an ROE of 8%. The restructuring of markets on the Tokyo Stock Exchange has further fueled this trend. Meanwhile, with the competitive strength of the Japanese manufacturing industry on the wane, during the period sometimes referred to as “the lost 30 years,” there is a limit to what we can achieve by focusing only on the Japanese market.

It was in this context that we established TOKYO KEIKI Vision 2030 in June 2021, aiming to steer the Group toward future growth, use the SDGs as a starting point for creating global niche-leading businesses and shift to a stage of medium- to long-term corporate value enhancement and sustainable growth. We have also positioned the three-year medium-term business plan that began in fiscal 2021 as a means to strengthen and reinforce our foundations as we strive to achieve our targets for the next decade. Under this plan, we will focus on identifying, incorporating, and developing growth drivers that open new markets.

One of the five growth drivers (see page 15) established as candidates for new businesses on which the Group may embark is the aerospace business. The frequent natural disasters in recent years, such as typhoons, extreme heat, and torrential rain due to linear rainbands, are thought to be partly due to global warming resulting from the rise in greenhouse gas (GHG) emissions. The use of small synthetic aperture radar (SAR) satellites is expected to assist in understanding such disasters. Small SAR satellites are used in constellations of several tens of units, and we have constructed the space wing at our Nasu Plant in Tochigi Prefecture as a production base to meet the continuing demand for satellite renewal. Although some time will be required before these satellites are deployed, we are steadily progressing towards contributing to disaster prevention and mitigation through the aerospace business, a new growth area.

Sustainability Management Integrated with Our Business Strategies
At the TOKYO KEIKI Group, we are forging ahead with sustainability management to achieve TOKYO KEIKI Vision 2030. I believe that sustainability management should be more than just a slogan: it must bring growth and perpetuity to our businesses. To date, the Group’s employees have worked together with customers to pioneer new eras with creative technologies. However, simply maintaining our current businesses and methods will not lead to growth in sales and profit. Since becoming president, I have explained the keywords that describe our business environment to all employees at Group-wide instruction and meetings with management personnel, and repeatedly emphasized the importance of overcoming the adverse business environment to achieve growth. I have especially stressed the importance of a two-pronged approach to management, promoting medium- and long-term growth in addition to strengthening existing businesses to boost short-term revenue, and consistently reiterated how vital it is that we create a corporate culture overflowing with the desire to take on challenges.

The members of the Sustainability Promotion Office have also visited each plant and business location to hold briefings wherein they explain the policies and measures that form the core of the Group’s sustainability management. They have directly conveyed our concept of sustainability management as an approach that leads to growth and perpetuity. It is vital that we ensure that a philosophy of sustainability management, integrated with our business strategies, penetrates throughout the Group by engaging in dialogue on business sustainability with a focus on front- line issues. I do not believe we can get anywhere unless we break down the issue into an understanding of what sustainability management actually means, as well as what each of us as individuals must do to achieve it.

In addition to these efforts to disseminate the Group’s philosophy and align the direction of employees, we are undertaking revisions to our personnel evaluation and target management systems aimed at encouraging employees to actively take on new challenges such as proposals to enter new growth fields and pioneer new markets. Around me, I am now beginning to feel the results of the change in perceptions created by these reforms.

Identifying Materialities Rooted in Sustainability Management and Related Activities
As part of our pursuit of sustainability management, we have appointed, from among the Executive Officers, an officer responsible for actively promoting our response to each of the Group’s four materialities (see page 23), which we have identified as important issues shared by the Group and our various stakeholders. Each responsible officer reports to the Sustainability Committee, which I chair, on the status of activities to address these materialities. The committee provides direction and support as necessary.

Here, I will present the main activities we have undertaken so far to address the Group’s materialities.

Regarding the provision of products that solve social issues, the Corporate Planning & Administration Office has played a central role in product development initiatives based on the growth drivers and strategies for existing businesses established under TOKYO KEIKI Vision 2030. As part of this, we moved the Future Design Unit, newly established as a forum for innovation-generating proposals from individual employees, under the control of the Business Development Office newly established at the Corporate Planning & Administration Office in April 2023. The Business Development Office oversees the five areas of business we wish to enhance (see page 15), while the Future Design Unit is responsible for pioneering other new businesses. We will promote the development of “new products that contribute to resolving social issues” with greater clarity between the roles of each section.

Regarding the realization of an “environmentally conscious society,” today, amid international awareness of the importance of achieving a decarbonized society, it is crucial for us, as a company listed on the Prime Market of the Tokyo Stock Exchange, to take the initiative in achieving this goal. We have established a target for the Group to reduce GHG emissions by 37% by fiscal 2030 (relative to fiscal 2013). While this is an ambitious target for us, the Chief Production Officer is playing a central part in promoting efforts to achieve it. In addition to the ongoing upgrade to energy-saving equipment, in fiscal 2022 we began procuring electric power sourced from renewable energy, achieving a reduction in emissions ahead of our plan. In fiscal 2023, we have decided to install solar power generating equipment and we can expect an even more rapid reduction in GHG emissions in the future. We are also focusing on the hydrogen-related business as part of our development of new products that contribute to resolving social issues, as mentioned above. We will continue to contribute to achieving carbon neutrality, not just for the Group, but for society as a whole.

Regarding the “enhancement of supply chain management,” we issued our Partnership Declaration in April 2023. TOKYO KEIKI has three plants in Tochigi Prefecture (Nasu Plant, Yaita Plant, and Sano Plant). Our production at each of these plants is only made possible through the support we receive from our local partner companies and other stakeholders. Building a strong supply chain is vital for the Group to achieve sustainable growth and realize TOKYO KEIKI Vision 2030. This not only requires improving efficiency but also building sustainable relationships of co- existence and mutual prosperity through concerted efforts with our partner companies, including the construction of environmentally friendly supply chains. The Chief Purchasing Officer plays a central role in exploring ways to construct resilient supply chains. We will work to strengthen our supply chain management, including efforts to reduce GHG emissions and protect human rights, to enable the Group to grow together with our partner companies.

Regarding support for the activities of a diverse workforce, we have established the slogan “Relentlessly taking on challenges” as a value under TOKYO KEIKI Vision 2030 to promote our transformation to a culture of taking on challenges. In fiscal 2022, we created the new catchphrase “If we stop taking on challenges, we will stop being TOKYO KEIKI” and made it known throughout the Group. We have also endeavored to create a corporate environment where diverse human resources can play an active part. In addition to reforming our human resources system, the Human Resources & General Affairs Department is playing a key role in promoting various initiatives. As diverse human resources are the Group’s greatest asset, we encourage employees to acquire qualifications and enhance our training programs to support their growth, as well as establishing a range of other programs that enable diverse working styles. In these ways, we seek to create a virtuous cycle where boosting employee engagement leads to sustainable development for the Group.

Regarding the “promotion of gender equality” indicated by the Japanese government, the Group welcomed its first female Outside Director in June 2023, and we also sought to boost the diversity of our management team. We will continue to engage in initiatives related to diversity as a Prime Market-listed company.

Towards the Next Stage
Many of the Group’s products are incorporated into the products manufactured by our customers. Despite their inconspicuous presence, our products have supported safety and security around the world for over 120 years by making full use of the Group’s unique, creative technologies. Employees throughout all of the Group’s divisions — not only those related to manufacturing but also technological development, quality assurance, and the sales and service divisions responsible for contact with customers, as well as the staff who support the operation of each division — feel a sense of pride in this history and the role played by the Group’s products. By striving for further growth by enhancing the abilities of our employees, each of whom holds limitless potential, I firmly believe that we can change the future of the Group.

Corporate growth has become a focus of attention in recent times, with the Tokyo Stock Exchange issuing requests to listed companies with price-book ratios (PBR) below 1.0. The Group’s PBR has remained below 1.0 for some time, and I apologize for the concern that this has caused to our stakeholders. I believe that to increase our PBR and ROE, all we need to do is improve performance. To this end, it is crucial that we accelerate the Group’s growth through inter-company alliances and M&A activities, in addition to further refining our technological capabilities.

We will deploy all our management resources as we aim for sustainable growth, and I look forward to the continued support of all our stakeholders in this effort.

Representative Director
President & CEO

Fiscal 2022 saw the intensification of Russia’s full-scale military invasion of Ukraine, shaking democracy to its core. Held in these circumstances, the 27th Conference of the Parties of the United Nations Framework Convention on Climate Change (COP27) concluded without reaching an agreement on the further reduction of fossil fuel usage to achieve a decarbonized society. Conflict between nations leads to an explosive increase in energy consumption. In this sense, fiscal 2022 was a year of significant setbacks from the perspective of sustainability.

Meanwhile, global-scale climate change continues to cause chaos with no regard for human convenience, giving rise to a spate of natural disasters around the world such as widespread bushfires in western Australia, heatwaves soaring above 50 °C in India and other parts of South Asia, the collapse of glaciers in the Alps, and large-scale flooding in Pakistan. And the rise in temperatures is accelerating. According to the latest report by the World Meteorological Organization (WMO), we face a critical situation, with temperatures expected to rise by over 1.5 °C by 2027.

In this environment, we have established the TOKYO KEIKI Group’s Sustainability Policy, drawing on our management philosophy, as a guideline for raising our sustainability in terms of the environment, society, and economy. We have also identified four materialities as we pursue sustainability management in line with this policy. These materialities reflect the expectations of our shareholders and important issues for the Group’s growth going forward. They will be our driving force as we practice sustainability management.

Our materiality initiatives have just gotten underway, and it will take a little longer before we can present specific targets and results. However, resolving these materialities will form the nucleus of the Group’s sustainability management, including the achievement of TOKYO KEIKI Vision 2030. We have therefore decided to share our progress on each initiative with our stakeholders, beginning with this fiscal year’s Sustainability Report.

Achieving our four visions through these materialities will be no simple task. However, we are already face-to- face with the urgent need to respond to climate change, especially, and it is no longer possible to simply look the other way. In terms of consideration for the environment, we also have a corporate responsibility to engage in efforts such as the reduction of plastic waste, including packaging materials, all of which causes serious marine pollution. We will take the challenge to resolve these materialities through the value of “Relentlessly taking on challenges” set forth in TOKYO KEIKI Vision 2030.

Director & Executive Officer, Chief of Sustainability Promotion
Yukihiko Suzuki

At the center of our Group, the Sustainability Office plans and promotes measures involving sustainability management.
The Sustainability Committee is chaired by the President & CEO and selects Members from Internal Directors and Executive Officers. It functions as a meeting body that discusses and shares sustainability management-related policies and measures, and executes decisions without delay across the Group.
It also makes proposals on key measures and issues progress reports to the Management Conference and the Board of Directors.