Interview with the President
What kind of a company is the Kurita Group?
What do you think society expects from Kurita?
Since its founding in 1949, the Kurita Group has consistently focused on the treatment of industrial water over its 74-year history. Fundamentally, water treatment is a business that contributes significantly to society. However, reflecting the rising awareness of social issues, such as water resources and climate change, and the development of a circular economy, society’s expectations for our businesses have clearly risen.
I believe that the image that many have of our group is of a company that cleans and purifies water. However, our businesses are not limited to just this: we provide a diverse range of value to society and industry, with water as the starting point. For example, water is widely used as an agent in processes where objects are heated or cooled. These processes are always accompanied by GHG (Green House Gas) emissions. Kurita proposes solutions which address customers’ needs and potential issues, focusing not solely on water itself but the applications and functions of water. The solutions not only improve the productivity of the customers’ manufacturing plants but can also contribute to reducing water usage or GHG emissions volume. In addition, if we look at the substances that are eliminated from water, Kurita can also contribute to a circular economy through the recovery and reuse of resources which had previously been treated as waste. I believe that society expects the Kurita Group to create new value by leveraging its accumulated expertise and experience, cultivated through addressing issues for society and industry, to support the realization of a sustainable society and the wider development of industry.
What does the Kurita Group aspire to become in the medium to long term?
Our aspiration is simply to realize the Kurita Group’s philosophy: “Study the properties of water, master them, and we will create an environment in which nature and humanity are in harmony.”
At sites where water is required, regardless of the industry, Kurita has numerous points of contact in multiple locations within manufacturing plants. Depending on the customers’ scale and the products being manufactured, required volume and quality of water and customer’s challenges are different: the range of optimal solutions is very broad. Our competitive strength derives from our ’water knowledge,’ the accumulation of expertise and experience born from responding to the needs of diverse sites.
To realize our corporate philosophy, I believe it is important to share and properly leverage the group’s accumulated ’water knowledge’ as explicit knowledge throughout the organization at a wide array of frontline sites as swiftly as possible. In seeking to achieve this, my mission is to clearly establish what we aim to become and ensure that we have alignment across the organization. By continuing to create value for customers and society at sites around the world, I believe the Kurita Group can achieve a virtuous cycle where sustainable growth and enhanced corporate value leads to new contact points which drives further sustainable growth.
How do you evaluate the previous Medium-Term Management Plan “Maximize Value Proposition 2022”?
Under “Maximize Value Proposition 2022 (MVP-22),” the company focused on transforming the business model and changing its business processes as a way of establishing a solid profit foundation. Prior to MVP-22, Kurita’s medium-term plans were 3-year plans. However, to ensure we could take a medium- to long-term perspective, we chose to make MVP-22 a 5-year plan. The management metrics set out in MVP-22 targeted profitability and capital efficiency. However, the business profit margin improved to only 11.2%. We fell short of our target metrics of a 15% business profit margin and a 10% ROE.
At the same time, there were also a number of positive achievements. First, we were able to establish a solid business foundation on a global basis. Through M&A and organic growth, the proportion of overseas net sales expanded to around 50%. We were also able to set up a business foundation with a global four-region structure: Japan, Asia, North and South America and EMEA. In addition, we also made progress in generating synergies within the group, with Project Acorn, which targeted the expansion of solutions in fields related to RO membranes, and the Global Supply Team project, designed to optimize group procurements and manufacturing. Next, Kurita created and developed a high-value-added business model, driven by the value we generate. As a result of our focus on developing the recurring contract-type service and CSV* (Creating Shared Value) businesses, we deepened our understanding of the challenges confronting our customers. This reaffirmed the importance of products and services which enable the visualization of the value proposition to drive growth. We also promoted DX and innovation. Recognizing the importance of these areas in providing value, we established the foundation and framework needed to undertake full-blown initiatives going forward, through the Meta Aqua Project with Fracta Leap and the establishment of Kurita Innovation Hub. Another key achievement was the progress made in raising awareness of the need for change amongst our employees. In addition to integrating organizational structures, which had historically been split between water treatment chemicals and water treatment facilities, the pandemic was also a catalyst in accelerating a change in mindset, in prompting employees to be highly creative in responding to customer issues within the constraints of activity restrictions.
As a consequence of the above, Kurita was able to develop the foundation for improving profitability. I believe we have transitioned to a stage where the changes will begin delivering results. As the pandemic fades, I view the reopening of the global economies as an opportunity. That said, given rising geopolitical risk and climate change issues, the operating environment for the Kurita Group is increasingly uncertain, making it difficult to project the future. Under such conditions, enacting complex management decisions with speed requires further strengthening of the functions of management supervision and execution.
- *Products, technologies, and business models that contribute to saving water, reducing GHG emissions, recycling waste into resources and reducing resource inputs more greatly than conventional ones.
What is the positioning of the new Medium-term Management Plan “Pioneering Shared Value 2027”?
The “Pioneering Shared Value 2027 (PSV-27)” plan further deepens and accelerates the value-driven business developments under MVP-22. Sustainability has been positioned at the core of our management strategy. We will strengthen our efforts to link the enhancement of value for society and our customers to an improvement in the Kurita Group’s economic value.
First, in implementing this plan, we have transitioned to an organizational structure with dedicated teams by customer industry. Our customers do not simply want products like water treatment chemicals or water treatment facilities from Kurita. Instead, they want the value generated by these products. To achieve this requires an organizational structure with the ability to provide value on a one-stop basis, based on a deep understanding of customers’ businesses.
The electronics industry, with semiconductors at the core, is expected to grow globally. Given the substantial impact the timing of production ramp-ups have on profitability, the ability to shorten the lead time from the initial consideration of capital expenditures to execution represents significant value. By consolidating all of our group’s functions which serve the electronics industry, from sales to engineering and R&D, into a single organization, we have created a team that is dedicated to responding to the electronics industry. Our objective is to expand our customer base and the fields that we cover with a diverse lineup of service businesses and combinations thereof. For instance, by diversifying and further developing conventional water supply services into standardized services designed with a specific focus on pure water generation or wastewater reclamation, water supply services that utilize existing facilities or cost reduction proposals covering both water treatment and utilities, we can provide solutions that respond to the differing challenges or priorities of our customers. Furthermore, with countries now moving to expand semiconductor production capacity, securing business bases in Europe and the U.S. to capitalize on this opportunity is a major challenge. In North America, we are swiftly establishing a business framework, including chemical and maintenance services. In Europe, we acquired Arcade Engineering in July, securing a manufacturing base and supply chain for the electronics industry water treatment facilities business. The precision tool cleaning business is also a business where demand is expected to grow alongside growth in the electronics industry. However, as performance is closely linked to customer capacity utilization, it also tends to be impacted by the silicon cycle. We aim to grow this business into a stable profit pillar within the electronics industry business through a unified approach to managing Kuritec Service of Japan and Pentagon Technologies of the U.S., making investments in a timely manner in conjunction with our customers’ capital expenditures, expanding and diversifying our customer base, and introducing new technologies and automation to improve production efficiency.
For our general industry customers, non-financial metrics are becoming increasingly important; many are now focused on environmental and social impacts, such as reducing GHG emissions volumes, in their operations. To respond quickly and appropriately with the value needed by our customers, while factoring in regional and market characteristics, we have set up an organization which brings together the management of the four regions and will focus on developing the CSV business. We are also aiming to create new businesses. We aim to nurture businesses that will develop into future growth pillars, by demonstrating the strength of the Kurita Group’s know-how in water treatment technologies and contact points, including exploring potential collaborations with other companies with expertise and experience in new business fields.
To support these business strategies, I consider human capital and intellectual capital to be particularly important medium-term management resources. Human capital is the driving force behind corporate activity. It is my belief that a deep understanding and embrace of our corporate philosophy and vision, which lays out what Kurita aspires to become, is indispensable for the development of strong and responsive human resources able to engage sincerely with our customers and maintain high levels of motivation. Our assumption in formulating PSV-27 was that there was a need to revise our philosophy system to further elevate Kurita’s uniqueness in a way that would resonate with group employees. We updated our Corporate Vision and set out our Values. To ensure that each and every one of our employees around the world understand our philosophy and are ’Pioneering “new value for water” to contribute to the realization of a sustainable society’ we are implementing organizational structures that facilitate the generation of innovation by diverse human resources across the group under an already established human resource strategy. As president, I feel that the Kurita Group’s employees are very highly motivated to address social and customer issues every day. To create and set the direction for an environment that will further elevate motivation and maximize performance, I plan to create opportunities where I can proactively engage with employees directly. With regard to intellectual capital, I believe it is important to not only manage in-house intellectual property but also to proactively analyze information on patents held by customers and peers: to capitalize on intellectual capital as the starting point for business. We will set out a clear direction for the development of technology based on the needs that emerge as a result of analysis and the understanding of the competitive environment, promoting innovation on a group-wide basis.
Also, at the Ordinary General Meeting of Shareholders in June 2023, Kurita transitioned from a company with an Audit & Supervisory Board to a Company with a Nominating Committee, etc., clearly separating management supervision and execution. The board of directors will focus on management supervision, taking into account the viewpoints of diverse stakeholders, while the executive will leverage the expertise and the monitoring function of the board to make swift and bold decisions.
Through these initiatives, we aim to achieve net sales of 450.0 billion yen, a business profit margin of 16%, ROE of 12% or higher and ROIC of 10% or higher in the final year of PSV-27. By expanding business models that have value creation as their starting point, such as recurring contract-type services, precision tool cleaning and the CSV businesses, our plan is targeting topline growth and improved profitability as well as enhancing capital efficiency. The Kurita Group aspires to grow along with society. We have established non-financial metrics, including targets for shared value such as contributions from water savings, GHG emissions reductions, recycling and reduction of resource inputs achieved at our customers through the CSV business. We have also set basic thematic targets, which are key metrics for management and business activity, such as human capital development, innovation, quality and safety, and compliance.
We ask for the continued understanding and support of our stakeholders for the Kurita Group’s initiatives.
July 2023
Hirohiko Ejiri
President and Representative Executive Officer
This interview was quoted from Integrated Report 2023.