Message from the President

Looking back on 2023

In May 2023, COVID-19 was reclassified as a Class5 Infectious Disease in Japan. Bullet trains were once again operating at near full capacity as the country seemed to see a sudden invigoration of consumer activity. And for the first time in a while, I was even able to see numerous employees enjoying their meals in our employee cafeteria.

Witnessing these changes made me feel that the sense of confinement that had enveloped all of society had finally been lifted. Last year also left me with a great awareness of the importance of an open society in which people are able to move freely and meet and converse with others.

We also saw a string of scandals involving various corporations. This reinforced within me the importance of building trust-based relationships with stakeholders. In 2018, we too caused an incident related to insulators and related products in which we failed to conduct testing procedures in accordance with the parameters outlined in customer contracts. I believe this issue can largely be attributed to our relations with employees and other stakeholders as well as factors rooted in our corporate culture. If the culture creates an environment in which employees are unable to speak freely or say “No” when something is not possible, then it is only a matter of time before that environment has a negative impact on the company.

Existing as a company that is trusted by stakeholders and that serves as a source of pride. I have renewed my commitment to ensuring we continuously position this promise at the center of business.

Changes in external environment

Looking at the external environment, I feel that society has seen continuous change due to the tense situation happening in Ukraine since 2022. Soaring energy costs and the resulting rise in price hikes overseas. Furthermore, the interest rate hikes implemented by various governments in response to price hikes created an interest rate differential between Japan and the rest of the world, triggering extreme yen depreciation that caused the price hikes in Japan to rise as well. The external environment has seen various actions and chain reactions. It is a forceful reminder that markets, by their very nature, will always be subject to change.

An earthquake struck the Noto Peninsula on New Year’s Day, 2024, and it has been predicted that other regions will experience major earthquakes, including the possibility of a Nankai Trough earthquake. It goes without saying that these natural disasters can also cause markets to undergo major changes. It is important that we recognize that such change is unavoidable and examine what preparations we must make to ensure our ability to respond flexibly to such change.

In response to these conditions, NGK is working to improve productivity. We are pursuing the visualization of our engineering chain and our supply chain, and over the past few years have promoted DX to increase our productivity. I think creating an environment that allows every individual to autonomously engage in such diligent efforts will lead to us being prepared to respond to change.

At the same time, the conditions directly influencing our business are undergoing various changes.

For example, the automotive industry, which faced stagnant manufacturing due to semiconductor shortages caused by COVID-19, is now seeing a rapid increase in manufacturing numbers. We also saw the rise in energy prices trigger changes in the energy policies of various countries and drive demand for storage batteries. While this situation can be viewed as a business opportunity, the semiconductor market has remained sluggish despite expectations for continued growth. Smartphone and PC sales have declined dramatically due to the impact of high prices and a drop in demand in China. This has caused stagnation on the markets of the electronic parts used in such devices. Similarly, data centers, which were expected to see continuous demand growth driven by the explosion in data, have seen a temporary downturn. Overall, we are continuing to see unexpected changes in markets. In particular, markets related to digital have seen fluctuations so drastic as to drive concerns about the dangers of a sudden market stagnancy.

Profitability improvement that is not influenced by market changes

Collaborate with various businesses to accelerate product development for a digital society and carbon neutrality.

One of the Five Transformations we outline in the NGK Group Vision, Road to 2050, is profitability improvement. However, looking back on FY2023, in how operating income failed to reach targets, it was a year during which our results did not match our goals.

Certainly, some of that can be attributed to sluggish performance by the Digital Society Business, which was impacted by the aforementioned decline in smartphone and PC demand. Also, during the first half of the previous fiscal year, the automotive industry hadn’t yet recovered from the decline in manufacturing numbers caused by the semiconductor shortage. However, those were not the only factors. While raw material prices were high, the reality is that we failed to sufficiently reflect those cost increases in our sales prices. Even in times of dramatic changes in our market environment, we must improve profitability through continuous cost reductions and strategic price revisions.

Moving forward, the semiconductor industry will return to a growth trajectory, with market scope expected to nearly double in size to one trillion dollars by 2030. Ahead of such rapid growth, we must focus on developing new products in the digital sector and be prepared to launch those products to market. The transition to electrified vehicles is also not progressing as originally assumed due to issues such as insufficient charging infrastructure and the high cost of batteries. However, sales of hybrid vehicles have grown significantly and progress is advancing in fields such as autonomous driving. This suggests that digital demand in automotive industries could see further growth in the future.

From 2030 onward, we expect to see the acceleration of initiatives related to creating social frameworks for reducing greenhouse gases as the world moving to realize carbon neutrality. While it remains unclear what will take center stage as an alternative energy to fossil fuels, what is clear is that we must collaborate with partners in various sectors to advance preparations and ensure our ability to respond, regardless of which energy systems are adopted by society.

NV1000 results and future outlook

Aiming for new product net sales of 100 billion yen in 2030. We will steadily advance initiatives towards achieving New Value 1000.

While we did fall short in some areas, we also had some major successes in FY2023. Aiming for 2030 sales of 20 billion yen by 2030, we decided to expand production capacity for AMB substrates for power semiconductor modules by 250 percent and we launched an organic compound crystal search service based on proprietary infrared technology. We also made steady progress towards New Value 1000 (NV1000), our plan to achieve net sales of 100 billion yen from new products by 2030. Another success was many employees came to embrace a greater awareness of NV1000. This has been a transformation from waiting around for someone to launch a new business to taking the initiative towards beginning something new. I feel that I am seeing more employees taking a vested interest in pursuing company growth.

In the past, there was an aspect of our culture in which, once R&D decided on a development theme and activities got underway, there was no stopping that process even when concerns were raised about a lack of sales potential. To address this, when we launched NV1000, we also established NV Gate Promotion Meetings, which serves as an opportunity for discussion midway during the process of proposal through commercialization. This serves as a framework that promotes thorough dialogue to help find the missing link between R&D and commercialization and deliberate on how to address issues.

This new framework not only allows us to better select development themes at an early stage, but also creates an environment for helping people embrace the reality that not all initiatives end in success. As I mentioned earlier, I believe people are able to more freely take the approach of, “Well, I might fail, but it’s still worth trying.”

New products we are currently developing towards realizing carbon neutrality include direct air capture (DAC) ceramics which absorb and recover carbon dioxide from the atmosphere, and sub-nano ceramic membranes, which separate specific gases and liquids from mixed gases and liquids at the molecular level. These types of products are successes achieved by taking on challenges. Also, our organic compound crystal search service and NR-Power Lab Co., Ltd., a power operator founded jointly with Ricoh Company, Ltd., were major gains for the NGK Group and represent our expansion into businesses focused on providing services beyond manufacturing.

To further promote the development and commercialization of products related to the digital society, we also started work on the construction of a new R&D building. From this new co-creation center, NGK will more concretely disseminate information about our history, current initiatives, group vision, technology, and strengths to our customers and partner businesses. This new center will also promote new creation by serving as a place of interaction between internal and external personnel and where we can better listen to the concerns of our customers.

The key to growth is utilizing intangible assets

We position intellectual property strategy as one of the keys to future growth. Thus far, our focus has been on a defensive strategy through which development and business departments collaborate to apply for patents and obtain rights for developed technology, and to conduct investigations to ensure that we are not infringing on competitor patents. Of course, this importance of this strategy remains unchanged. However, in addition to this defensive strategy, I also want to develop an aggressive intellectual property strategy that will lead to new business creation.

Specifically, we will use IP Landscape, which analyzes intellectual property information, to analyze global trends in new technology and industries. We will also work with partner companies to develop strategies related to how we can use our technology and patents to meet customer needs and identify what patents we need to turn that strategy into a business. I want to create a system that enables the integrated promotion of business, development, and intellectual property strategies.

The reason we reorganized our former Intellectual Property Department and created the new IP Strategy Department was to create clarity in this area. Using this department as a base, we will proactively foster an intellectual property mindset, review and strengthen our activity structure, and improve our intellectual property capabilities.

DX strategy also remains an important element. At manufacturing sites, awareness regarding digital technology has already changed significantly, and the use of data and digital technology has progressed steadily. At the same time, there are areas in the head office and back-office departments where digital adoption has not progressed sufficiently.

We outlined a DX Promotion Roadmap in the NGK Group Digital Vision. Stage 1, Building a foundation for digital utilization, was completed in 2023. We launched Stage 2, Establishing a promotion system and accumulating results, in 2024. We plan to enhance our use of digital technology in all areas, including data-backed decision-making in management and operational efficiency at the head office and back-office departments.

It goes without saying that it is our human capital who supports these changes. Outlined in Our Values is the concept of “Quality of People | Embrace challenges and teamwork”. ESG as a foundation of our management and one of the Five Transformations we are pursuing, we identify the recruitment and cultivation of human resources as critical to achieving our vision, what we want to be in 2050. In FY2023, we further solidified this stance by formulating the NGK Group Human Capital Management Policy. Based on this policy, we exchanged opinions with domestic Group companies. In the future, we plan to share this information with overseas Group companies.

The world today is one in which new businesses and products must be created quickly. This makes it critical that we create an environment in which diverse people with new perspectives, values, experience, and skills can thrive and flourish. Currently, 60 percent of Group employees have roots outside of Japan. We use that trait as an opportunity to receive feedback based on diverse perspectives as we work to achieve a truly global awareness.

We will also focus on creating opportunities for women. In March 2024, we were selected as a Next Nadeshiko Company that Supports Dual-career and Co-parenting, a list of companies jointly selected by the Ministry of Economy, Trade, and Industry (METI) and the Tokyo Stock Exchange (TSE). I believe this is recognition of our efforts thus far. Moving forward, we will further focus on creating a system that allows employees to play an active role in positions close to management, regardless of gender.

Furthermore, I also want to expand mid-career hiring of people with experience in a variety of fields to incorporate new perspectives.

Existing as a company that is trusted by society

We will link greenhouse gas reduction and other contributions towards resolving various social issues to improvements in enterprise value.

I believe that a company’s existence is meaningless unless it contributes to resolving social issues. At the NGK Group, our purpose is to contribute to society by using ceramic technologies to resolve social issues. Across generations and in the face of a changing environment, we must never stray from this guiding principle.

My greatest dream is to use ceramic technologies to contribute to reducing greenhouse gases. At the same time, reducing greenhouse gases is a major medium-term issue for our Company, and our greatest mission. Ceramics can certainly lead to resolving the social issues that in turn help prevent global warming. I hope to fulfill this mission by collaborating with other companies towards accomplishing what we cannot achieve on our own.

Fortunately, we have massive amounts of experimental data that we have accumulated over the 100 years since our founding. Furthermore, thanks to advances in technologies such as MI (materials informatics), it is possible to use AI to significantly improve efficiency in areas that previously relied on human intuition and experience. I am confident that we have the power to create more products that can contribute to society if we listen carefully to customer feedback.

No growth without challenge

I believe that the most important critical mission of a company is to be trusted by its stakeholders. I view enterprise value as an expression of how much a company is contributing to the world.

Of course, financial value such as stock price and PBR (price/book value ratio) are very important. In particular, meeting shareholder expectations and increasing stock prices requires more than simply improving business performance; NGK must also have the ability to create new products and services. We must also be able to raise the expectations of shareholders and investors by disclosing and disseminating information related to this process of creation.

To that end, what I want to promote is the concept of challenge. While the NGK Group has a serious corporate culture and is skilled at carrying out clearly defined tasks, we lack the spirit of challenge; the approach of “Well, I might fail, but it’s still worth trying.”

However, growth cannot come without challenges. Fear of risks and failing to take on challenges, can itself become the biggest risk to the NGK Group.

If we fail, then we can try again and again. The accumulation of failures becomes the experience that leads to the next success. We must foster a culture that encourages people to take on challenges when there is no guarantee of success and a culture that supports those challenges.

This is not something we can do alone by isolating ourselves. It is important that we interact with others both inside and outside NGK. This includes interaction between the technology and sales departments as well as collaborations with external partner companies. I am confident that new discoveries are inspired by ideas, vitality, and power that differ from your own.

To achieve our ultimate goal of becoming a company trusted by all stakeholders. The NGK Group will continue to move forward and pursue constant innovation and challenges.

Note: This interview was conducted in April 2024.