Medium-Term Management Policies
Basic Management Policies of the Company
The NGK Group Philosophy and NGK Group Vision: "Road to 2050" that we adhere to are as follows:
NGK Group Philosophy
“Enriching Human Life by Adding New Value to Society.”
“Quality of People: Embrace challenges and teamwork”
“Quality of Products: Exceed expectations”
“Quality of Management: Social trust is our foundation”
NGK Group Vision: "Road to 2050"
We look ahead to a future society in 2050, taking the major trend towards carbon neutrality and the explosive evolution into a digital society as an opportunity for further development. We will work on driving Five Transformations:  Promotion of ESG management,  Profitability improvement,  Focus on R&D,  Focus on commercialization, and  Digital transformation (DX). With “Surprising Ceramics” as the slogan for our unique ceramic technologies, we intend to convert our business structure toward the “Third Foundation.”
Targeted Management Indicators and Capital Policy
The NGK Group is pursuing management that prioritizes capital efficiency based on return on equity (ROE) as one of our key management indicators. We employ return on invested capital (the NGK version of ROIC), which is closely linked to ROE, as a management indicator, and use business assets (accounts receivable, inventories and fixed assets) in lieu of invested capital, and operating income in lieu of after-tax operating income, to allow our business divisions to proactively take control of their targets. Aiming to achieve a minimum medium-to long-term target ROE of 10%, we will implement a capital policy that is conducive to the sustained enhancement of corporate value by accommodating changes in business risks. We will strive to reduce capital costs through communication with shareholders and investors, as well as conducting the decision-making process for business planning and capital investment, to secure earnings exceeding capital costs. We will also work on active shareholder returns, reviewing our payout ratio and dividend on equity (DOE) ratio. Through these efforts, we aim to maintain sound levels of profitability, capital turnover, and financial leverage, which are components of ROE, consistent with our business strategy while maintaining financial health of the Company.
Furthermore, as a new management indicator, we employed the NGK version of value added (NGK Value-Added) that considering costs of CO2 emissions, labor and R&D; and ESG target achievement rates. In a bid to improve corporate citizenship in a super-long term in addition to “financial value” such as short-term profitability and medium- to long-term growth potential, we will work on continuous improvement of human capital and intellectual capital, which are sources of future competitiveness of the Company, and also fulfill a broad range of social responsibilities including initiatives to reduce environmental burden and respect human rights. We will improve our corporate value by increasing “non-financial value” of the Company through these initiatives.
Medium-to Long-Term Management Strategies and Issues to Be Addressed
While it is still unpredictable when the COVID-19 pandemic will come to an end, the increasing prices of raw materials and supply chain disruptions are expected to be persistent and remain uncertain due to growing tension over the situation in Ukraine. From a medium- to long-term perspective, amid the global trend toward realization of a carbon-free society, business opportunities for our company are expected to increase against the backdrop of a technological revolution centered on carbon neutrality and DX. Toward the future society of 2050, we will ensure we drive the “Five Transformations” set forth in the NGK Group Vision in order to convert the business structure.
The NGK Group’s priority issues for the fiscal 2022 are as follows:
Advancement of ESG management
The NGK Group has 37 Group companies (including 19 manufacturing companies) across 19 countries. Placing ESG at the center of the management, we seek to ensure greater managerial transparency and an environment that allows every member of the NGK Group to act based on a fair sense of value and decision-making criteria and in a way that accords with international norms. In April 2022, we renamed the former “ESG Committee” to the “ESG Management Committee” whose chairperson is the President of NGK. The Committee will more proactively addresses the NGK Group’s sustainability issues that include ESG and SDG elements at the management level, and the activities will be appropriately supervised by the Board of Directors.
We also ensure thorough understanding of the “NGK Group Code of Conduct” by providing various opportunities for dialogue to enable all members of the NGK Group to achieve a sustainable society, pay respect to human rights and be compliant with applicable rules.
In April 2021, we formulated the “NGK Group Environmental Vision” along with the NGK Group Vision. With our goal of net zero CO2 emissions by 2050, we will make progress in initiatives whose framework consists of contribution to achievement of carbon neutrality, a recycling-oriented society, and coexistence with nature. The NGK Group has drawn up its “Carbon Neutrality Strategic Roadmap” to realize the goals of the NGK Group Environmental Vision. In fiscal 2021, we achieved the target of 700,000 metric tons, which is a reduction of 20% from 870,000 metric tons in fiscal 2019, of our record CO2 emissions (a reduction of 4% compared with the fiscal 2013 base year). We have established a target of 550,000 metric tons by fiscal 2025 (a reduction of 25% compared with fiscal 2013) and 370,000 metric tons by fiscal 2030 (a reduction of 50% compared with fiscal 2013) as a milestone. In order to achieve the targets ahead of schedule, we will work on development, implementation within the NGK Group and provision of products and services related to hydrogen, ammonia, CCU/CCS (Carbon dioxide Capture and Utilization and Carbon dioxide Capture and Storage). At the same time, as part of these efforts, we plan to switch all electricity used in our overseas sites to renewable energy by the fiscal 2025. Through these initiatives, approximately 60% of all energy used by the NGK Group is expected to be renewable energy by 2025, aiming to reduce CO2 emissions by 330,000 metric tons a year. In December 2021, the NGK Group issued its inaugural green bond (unsecured corporate bond), which will be used to offer environmentally friendly products and services and to promote carbon neutrality in its business and production activities.
With regard to the Task Force on Climate-related Financial Disclosures (TCFD), in April 2022, we posted information on our website regarding the result of scenario analysis based on the four categories: “Governance,” “Strategy,” “Risk management,” and “Metrics and Targets.” We will continue to expand and improve disclosure of relevant information without delaying the response to social demand.
The NGK Group will strictly comply with international standards regarding human rights and respect the diversity of all people. We will respect the individuality and independence of each employee and not engage in discrimination on the basis of race, nationality, gender, age, religion, belief, existence of handicaps, sexual diversity, or any other aspect. In fiscal 2021, we established “NGK Group Human Rights Policy” based on the “United Nations Guiding Principles on Business and Human Rights” to prevent violation or abuse of human rights of anyone impacted by the NGK Group's business operations, and released the UK Modern Slavery Act Statement. In the future, we will expand initiatives to ensure respect for human rights beyond the Group to our entire supply chain.
The NGK Group has positioned “human resources” as the top value in the NGK Group Philosophy. It is our human resources who will drive the “Five Transformations” to achieve the vision described in the NGK Group Vision. We are providing diverse career paths that allow self-directed growth of each of our employees and also deploying various measures including creating a work environment through flexible work styles utilizing telecommuting and reduction of long working hours.
In a bid to promote the advancement of women from the diversity perspective, we have set numerical targets for the percentage of female new college graduates hired and are expanding the areas of employment of the positions they are assigned or transferred to. We have implemented a system to support early return from parental leave to encourage employees who took maternity and childcare leave to resume their careers early. In addition to systems such as providing training for employees returning from childcare leave and expansion and improvement of childcare leave for male employees, we have been working on creating an environment that allows women to thrive through organizing internal lectures that aim for deeper understanding of balancing work and family responsibilities.
At the NGK Group, approximately 13,000 of the 20,000 Group employees are stationed overseas. We believe the advancement of local human resources is essential for prompt and appropriate decision-making based on the circumstances, culture and practices in each local community for management of the NGK Group. Therefore, we actively hire local human resources and assign them to division-head-level positions at overseas sites.
As part of social contribution activities, we support international students. We opened our first overseas branch and representative offices in the 1930s. We have since expanded its business operations while establishing production sites and other offices around the world. Based on our sense of gratitude for the warm welcome and support given by local communities and their residents, we began an international student support program focusing on dormitory lodging and scholarships in 1997 and established the “NGK Foundation for International Students” in March of the following year. In April 2022, the foundation was re-established as a “General Incorporated Foundation NGK Foundation for International Students” to further enhance its nature of public welfare.
With regard to corporate governance, in light of enhancing the functions of the Board of Directors, the Company appoints independent outside directors who are qualified to perform their roles and responsibilities for its sustainable growth and medium- to long-term improvement of corporate value. The number of independent outside directors is one-third or more of the total members of the Board of Directors. The Company established the Nomination and Compensation Advisory Committee, the majority of whose members are independent outside directors to ensure management transparency and enhancement of supervision and monitoring functions of the Board of Directors. The Company also founded the Business Ethics Committee, whose primary members are outside directors, and it handles response to fraudulent acts or violations of laws and regulations where the officers and others of the Company have been involved and provides response, reports and advice to the Board of Directors. The committee strives to strengthen the compliance system by establishing a whistleblowing system (“Hotline”), which is directly linked to the Business Ethics Committee. This serves as a mechanism to prevent any such fraudulent act or violation of laws and regulations in addition to the existing Helpline System, which provides advice and receives reports from employees.
From the compliance perspective, the Company has established the NGK Group Code of Conduct as guidelines for all members of the NGK Group to conduct sound business activities based on a sense of ethics. In April 2021, the “NGK Group Basic Guidelines for Compliance Activities” were formulated with the aim of establishing a mechanism for evaluating and verifying its compliance activities in light of international norms and for continuous improvement based on shared understanding and values.
For compliance with applicable laws and regulations such as competition laws and anti-bribery laws, the Company ensures thorough compliance through continuously disseminating messages from the top management, carrying out compliance education programs for officers and employees of the NGK Group companies in and outside Japan, and organizing competition law compliance programs that meet international norms and utilizing the “Competition Law Compliance Handbook.”
Regarding a quality compliance system, the Company has been working on improving corporate characteristics through enhancement of mechanisms such as quality control activities by the top management and direct guidance by the quality committee as well as ensuring thorough quality education for the management members and employees. In terms of safety of the working environment, the Company works on reducing work-related injuries by strengthening the control capability of each site across the NGK Group in addition to identifying significant accident risks and enhancing preventative measures through conducting risk assessment of the NGK Group companies in and outside Japan.
In respect of risk management, risks that are deemed significant from the management perspective are classified into categories of business environment, strategy and internal factors, and continuously reviewed. Furthermore, risks are analyzed through questionnaires and special risk assessment in the internal control process, and various committees including the Compliance Committee and personnel in charge of various departments take the lead and make efforts to avoid and prevent risks for each business.
Through these efforts, the Company will further increase the awareness of compliance that supports global management, reduce risks, and enhance and improve the governance system.
Initiatives for improving earning capacity of existing businesses and creating new businesses
Aiming to become a company that provides new value to society through NGK’s proprietary ceramics technology, the Company will transform its business structure through the “Five Transformations.” the Company has developed the business portfolio policy and carefully examines growth potential from two perspectives: profitability measured using the NGK version of ROIC and the net sales growth rate. In addition to considering investment of management resources in core businesses and business groups where future growth is anticipated, we evaluate the quantitative aspects of businesses in the low-growth, low-profit categories based on the annual and medium-term business plans and discuss their growth potential and profitability at the strategy departments, which will be supervised by the Board of Directors as important matters concerning the company management. Decisions on capital investments are based on the time it will take to recover the individual investment, the NGK version of ROIC, internal carbon pricing (ICP) implemented in fiscal 2022, and the value added from an ESG perspective.
As part of our efforts to strengthen the profitability of existing business, we launched the “Manufacturing ∞ (Chain) Innovation” initiative in fiscal 2021. This new initiative is focused on activities all across the process chain—from product development to manufacturing and sales—that contribute to increased competitiveness. The two central focuses of the initiative are “production innovation activities” which fill in the gap between the ideal and reality in the manufacturing chain and “cost reduction activities,” which improve manufacturing costs by reducing loss at production sites. The activities of this initiative will be driven by digital technology to achieve greater transparency and global integration in manufacturing, thereby leading to greater competitiveness.
For the business structure conversion, two major organizational changes took place in April 2022. The first one was a business segment review. In business domains related to “carbon neutrality” and “digital society” that were positioned as our areas of focus in the medium- to long-term vision, we are aiming to enhance the readiness for technological and environmental changes by streamlining the organization and generating synergetic effects among departments. To this end, the Company was reorganized into a three-business-group system from a four-business-group system.
The other change is to mobilize personnel in charge of various business domains from a number of business groups and departments in the head office to the newly founded “Corporate NV Creation,” which will be launched with 100 members in and outside Japan. NGK will speed up the processes from “research and development” to “commercialization” through cooperation among the three business groups: promoting the marketing function of the Corporate NV Creation, differentiation technology of Corporate R&D and manufacturing by Corporate Manufacturing Engineering. In the beginning of fiscal 2022, the “Development and Commercialization Committee” was established as a higher body in charge of policy development and to oversee the entire processes of the company internal research and development and commercialization. With the goal “New Value 1000” under which we aim to create a new business with sales of 100 billion yen by 2030, we will invest 300 billion yen in R&D over the next 10 years with 80% allocated to carbon neutrality and a digital society. As an input to achieve the goal, we will allocate our management resources, such as increasing the R&D staff by 40%, focusing on the promising themes. We will also promote materials informatics which involves creating databases of enormous testing results we have accumulated and combining them with AI technologies to develop innovative ceramic materials in a short period of time. Furthermore, we will convert our business structure by driving active creation of new products and businesses through alliances with third parties.
In April 2022, “NGK Group Digital Vision” was announced. It is to contribute to carbon neutrality and a digital society through realization of the “Third Foundation” using DX as a driving force for innovation. The “Digital Transformation and Innovation Department (DX Department),” established in April 2021, will transform the Company into a company where utilization of data and digital technology is an everyday activity by 2030. To this end, the DX Department will work as a company-wide department based on the following three pillars: “human resources” (internal activities for raising awareness of DX and training DX human resources for literacy improvement), “digital” (building a foundation for digital utilization, developing the next-generation technology, and solid IT security), and “organization and culture” (commitment of the management members through formulation of a vision, global cooperation and promotion, and reforming a correct mentality of all members of the NGK Group).
Priority issues by segment are as follows.
The Environment Business will respond to increasing demand due to a recovery of the automobile market and tightening of exhaust gas regulations in various countries in the foreseeable future, and will aim for profit maximization by building a stable supply system on a global scale. Although the internal-combustion business will experience a gradual decrease in the future due to the expansion of electronic vehicles, we will accelerate the speed of new product development such as gasoline sensors and electric heated catalysts (EHC) in addition to the conventional automobile-related products. As a business holistically involving the environment in a broad definition, the Environmental Business will produce high-value-added products and also venture into the carbon neutral-related market which is expected to expand globally.
Digital Society Business
In the business domains related to the digital society stated in the NGK Group Vision, new businesses using the metaverse are coming to the surface in addition to the progress of the IoT and 5G. The expansion of the semiconductor-related market is expected to be continued. As a leading supplier for manufacturers of semiconductor manufacturing equipment with a goal of customer value improvement, the Digital Society Business aims for highly profitable business by improving productivity at its domestic and overseas manufacturing sites through the use of digital transformation technology and providing new technologies. In addition, by integrating products that contribute to the digital society, we aim to link information of the company that is internal and external and venture into new fields by combining our unique process technologies and new materials.
Energy & Industry Business
In the Energy Storage Business, discussions for adopting renewable energy have been making progress toward carbon neutrality by 2050, and the importance of storage batteries has been increasing. While it may take a while for the demand for NAS® batteries to become full-blown, we will work on developing business models, leveraging the NAS® battery features of large capacity and long duration of energy discharging. Combining NAS® batteries and NGK’s unique energy management system (EMS) makes it possible to make the most of NAS® battery capacity and maximize the value of energy resources. Developing businesses to “sell value and services” will be accelerated in addition to the conventional business of “selling products.” Amid the continued reduction in capital spending by domestic power companies, the Insulator Business will run its business, having medium- to long-term market changes in perspective. The Industrial Process Business regards ceramic membranes as its core competency. It will provide products and facilities that contribute to environmental needs of society such as separation of CO2 and nitrogen, and a bio-economy, aiming to serve as a business domain that handles new carbon neutral products.
Through these initiatives, the Company will maintain its capital efficiency-focused and shareholder-oriented corporate management by further strengthening its management infrastructure in order to achieve sustainable growth and greater corporate value.