Outside Executive Roundtable Discussion

Nakai

Gunze has remained in operation for many years thanks to its solid management, and current sound financial standing. Solid financials are extremely important because they ensure that the Company can weather unexpected events such as COVID-19. However, concerns have been raised regarding the issue of Gunze’s profitability.
Management is working to improve profitability and eliminate loss-making divisions, but there are still some areas that continue to confront issues. At Board of Directors meetings, outside Directors consistently make recommendations on the future outlook and on how to deal with divisions that are facing profitability issues. I do not expect significant improvements in capital efficiency by simply following an expansion strategy that is an extension of current operations.
Accordingly, we are engaging in discussions to explore business expansion through M&A, both in Japan and overseas, in each business field. For business expansion, we need to discuss not only where current operations are weak but also further globalization.

Kida

I believe that we should continue to make bold investments in the medical business, which is driving growth, and in the engineering plastics field, which contributes significantly to profits. At the same time, improving apparel and lifestyle creations-related profitability is an urgent issue, and given how fast the market changes, there is no time to spare.
Without being bound by the past, we should once again clarify the future vision for the business in the context of Gunze’s overall growth strategy, while strongly pursuing streamlining, transformation, and restructuring to achieve this vision.
In order to ensure a high level of profit for Gunze going forward, beyond introducing unique products with high barriers to entry and strengthening brand power, the Company must keep abreast of the rapidly changing business conditions and continuously focus on optimizing its business portfolio. In addition to divisions that create new technology and value not currently found in the world, I believe that the role of divisions tasked with formulating strategies based on Gunze’s overall outlook should be strengthened even more than before.

Kida

It looks like Gunze is finally taking the axe to businesses for which drastic overhauls to improve profitability have been unsuccessful, namely selling off electronic components operations and closing some sports clubs.
Going forward, I hope that the knowledge and expertise gained through these reform efforts will be used to accelerate restructuring. In addition, the apparel business underwent major structural reforms, including closing a factory in China to consolidate production facilities and realigning the organization to a cross-industry sales system. As a result, the Company got off to a good start by making a positive turnaround from a loss to a profit at the operating line in FY2023.
Going forward, however, there are several issues that must be addressed to further improve profitability and point the Gunze Value Added (GVA) indicator toward profitability, which include strengthening the shift to D2C, solving logistics issues, addressing the yen’s depreciation, and coping with the population decline in Japan. I realize that changing the status quo for long-standing business operations is no easy task, but I hope that the Company will continue to pursue drastic reforms with strong determination.

Kujiraoka

In 1983, Nikkei Business advocated a theory about 30-year corporate lifespans, and even today, it goes without saying that constant management effort and ingenuity are necessary for a company to sustainably grow and survive.
Over its 128-year history, Gunze has been involved in many reforms and the creation of new businesses, developing from its beginnings in the yarn manufacturing industry to its current operations. In other words, Gunze has inherited this DNA of taking on the challenge of pursuing various reforms and business creation. In the past year or two, beyond restructuring problem businesses, Gunze has been strengthening investment in growth areas like the medical business. In addition, the Company has actively engaged in discussions on financial indicators such as the P/B ratio and ROE, as well as business-specific GVA management.
I would like to see the Company place priority on initiatives aimed at improved profitability and profit growth by increasing added value through more aggressive and decisive investment in growth businesses, while focusing on rapid action going forward. In addition, it is important to communicate corporate activities, including investor relations, and conduct public relations activities to increase name recognition.
Gunze made the Medical Division a business segment starting in 2023, and I think this is an excellent decision since it clearly positions it as a growth driver. Gunze’s key medical devices are based on product development that leverages its experience and knowledge of thread and plastic technologies, and are fully in line with its basic policy of providing “people-focused products and services” and “products and services that help improve people’s quality of life.” I would like to see Gunze further solidify its competitive advantage mainly in bioabsorbable products and aim to capture an overwhelming market share.
I recently visited the construction site of a new medical plant in Ayabe City, which is fairly close to central Kyoto, taking just one hour by express train from Kyoto Station. I am looking forward to seeing the products and production system come to life in this new facility. Conditions at this facility look conducive for work and for fostering relations with universities, research institutes, and medical institutions.

Nakai

In the attention-grabbing field of engineering plastics, Gunze has been providing various products that meet the needs of companies in various fields through its advanced technological capabilities. Recently, the Company has redoubled its efforts by developing various applications with new companies. Last year, Gunze constructed an office building at the main plant, Konan Plant (Konan City, Aichi Prefecture) and plans to expand this facility going forward. In addition to a stable supply of products, I expect Gunze to expand the engineering plastics field by establishing new core products through technological improvements that cannot be duplicated by rivals.

Nakai

One of the Company’s pivotal strategies, the “creation of new value,” and the Circular FactoryTM (Moriyama Plant in Shiga Prefecture) in the plastics field is worth mentioning.
Many people have visited this facility so far, and I hear that orders from clients are gradually increasing. Amid growing criticism of plastic products, the Company is increasing sales through this eco-friendly, resource-recycling facility. In the apparel business, Gunze is strengthening its e-commerce channel and launching new products and brands, while also working to restructure the production division. In the medical business, Gunze has launched products poised to boost sales later on like adhesion barrier materials and is working to expand sales channels, especially overseas. All of the activities of the medical business are a work in progress, but the Company is moving in the right direction, and these efforts are meaningful for new value creation.

Kujiraoka

Under VISION 2030 stage1, Gunze has been tremendously successful in transforming its business portfolio and reforming its business structure by strategically allocating management resources. In fact, I visited the construction site of the new medical plant and laboratory in Ayabe, the Circular FactoryTM in Moriyama, and the new engineering plastic plant in Konan, all of which look promising for Gunze’s future development.
Business restructuring is evaluated based on the results of Gunze’s bold efforts. I believe that reforms should continue with the aim of achieving a robust corporate structure in the future. Unfortunately, Gunze has not achieved its targeted Companywide GVA indicator for profitability, but its planning and activities to realize this numerical target are worth noting.

Kida

Gunze’s human resources management guidelines are based on the three pillars: diversity, independence, and performance. Although it is difficult to visualize its progress and achievement, one prominent indicator is the promotion of women’s activities. Gunze has a high ratio of female employees (34%) among Japanese manufacturers, and women have accounted for about half of all new graduates hired in recent years. On the other hand, it has a low percentage of female executives at 13.6% and female managers at 7.0%, with both below the domestic manufacturing industry average. It is clear from these figures that the Company faces challenges regarding how to train and promote the success of diverse human resources once they are hired. Gunze cannot move forward if it just adheres to conventional organizational practices, values, and methods that used to be efficient and correct. Beyond measures such as childcare support systems, unconscious bias training, and the Gunze Leadership School for Ladies (GLSL), a framework for training and support, uninterrupted from the recruitment phase to the appointment as managers or officers, is necessary. The Company is expected to go one step further and identify issues for each hierarchical level and business division and push for strategic measures based on specific goal-setting and roadmaps. I also think that the process reforms currenty promoted through changes in work styles and active use of digital technology are essential to realizing these goals.

Nakai

As far as eco-friendliness is concerned, the FY2023 targets for both the CO2 emissions reduction rate and the energy intensity reduction rate have been achieved, and I expect the Company to continue its efforts to achieve the FY2030 CO2 emissions reduction rate target of 35% or more. I am very impressed by resource recycling through the aforementioned Circular FactoryTM in terms of eco-friendliness. In the spirit of its founding, Gunze’s motto is to coexist in harmony with the local community, so I believe it must continue to engage in advanced environmental initiatives.

Kujiraoka

Gunze’s core business is in the plastics field, so eco- friendly management is an important theme that should be addressed with the idea of creating value rather than out of obligation. The tours of each factory gave me a sense of the Company’s latest environmental initiatives, but the Circular FactoryTM in particular as a symbolic facility for Gunze, provides an opportunity for not only business partners but also local residents and others to broadly experience Gunze and become fans of the Company. These initiatives will likely increase Gunze’s corporate value.

Funatomi

While inheriting the spirit of its founding, Gunze has evolved by developing various businesses that reflect changing times. The Company currently has four business segments, and while this wide-ranging business expansion is a great strength, I believe it can also be a weakness. In light of severe socioeconomic conditions in recent years, maintaining brisk operations in each business is difficult, and developing each business requires a high level of expertise from employees. It is important to further promote streamlining and con- tinue to aim to be a company that is needed by society.
The Board of Directors discusses business restructuring in a timely manner and listens to the opinions of outside Directors with a flexible attitude, which conveys management’s sincere desire to improve Gunze.

Naka

I have been auditing Gunze for a year and believe that the systems and mechanisms for governance and compliance are functioning well.
After receiving explanations on each business, visiting the sites, and participating in Board of Director meetings, I confirmed that all executives and employees are working strategically and diligently to achieve VISION 2030 stage1. At the Board of Directors meetings, there is no significant divergence in views on management approach between internal and outside Directors, and many of the points raised and opinions expressed by outside Directors are reflected in management. I think Gunze is currently managed in a very stable manner but believe that the challenge lies in improving profitability.

Naka

Advanced efforts have already been made in the functional solutions and medical businesses, and they are beginning to contribute to the further increase of profitability.
However, breaking through the profitability barrier will require improving the earning power of the apparel business, which accounts for 45% of sales and encompasses half of the Company’s human resources. Although Gunze has made progress in streamlining production by consolidating factories, I think it needs to strengthen sales in order to further increase revenue.
Especially in innerwear, Gunze products feature high quality that is unparalleled. It will likely take some time to see results from strengthening sales capabilities, including product development capabilities, but I would like to see Gunze continue to focus its efforts on this area. However, I personally feel that there are too many brands and products. It is necessary to revamp brands and products, separate the brands handled by traditional sales channels such as mass retailers and direct sales channels like e-commerce sites, and increase investment to strengthen e-commerce sites.

Funatomi

After all, it is human resources that support corporate growth, so I believe that every effort should be made to hire and train human resources. In VISION 2030 stage1, Gunze’s human capital strategy is “Evolution of Our Corporate Constitution,” aiming to become a healthy and visionary company chosen by customers. Of course, it is also necessary to respond to the needs of employees by providing better work conditions and proactive support for career development. As employment becomes increasingly fluid, however, I believe that in order for Gunze to be a visionary company for its employees, employees and the Company must mutually understand each other, as well as for employees to feel satisfied working at Gunze. If employees feel that they are contributing to society through their work, it will help increase their motivation. It is important for the Company to more actively communicate the purpose and significance of its work to its employees. When I visit business sites for audits, I listen to employees’ opinions and try to convey the excellence of Gunze as seen from the eyes of an outside Director.