With This Fiscal Year Positioned as a Turning Point, Promote a Shift Toward Capital Efficiency-Orientated Management and Enhance Management Effectiveness
Please allow me to express my sincere gratitude for your continued support.
My name is Masaaki Yajima, and I recently took up the position of Representative Director, President and CEO. I would like to take this opportunity to extend my warmest greetings to all of you.
Last fiscal year (ended March 31, 2023), we posted poor results due to sluggish performance in our major markets of Japan, China, and the United States. Additionally, we recorded a net loss, the first in the company’s history, due to the impact of booking a large impairment loss in our US business, among other factors. We take seriously the concerns we have caused shareholders and other stakeholders as a result of this performance.
Additionally, our Group’s market capitalization, which is the market valuation that takes into account future growth, has been below our net asset value (P/B ratio below 1.0) for an extended period. As such, I recognize that achieving a return on capital that is above the cost of capital by improving profitability and strengthening portfolio management to quickly restore our slumping P/B ratio to a level above 1.0 is a critical issue.
With this fiscal year positioned as a turning point, each operating company and business division will transition to a management style that places greater importance on profitability and capital efficiency than has been done in the past, and by formulating and executing highly effective strategies, we will achieve medium- and long-term improvements in corporate value through sustainable growth.
Wacoal Group Challenges
I believe that our Group is currently facing three major challenges, the first of which is profitability. Though each operating company has been moving forward with initiatives such as cost structure reform and business model restructuring to enhance the profitability of the entire Group, I believe we need to take further steps toward structural reform to facilitate a shift to a leaner management structure. The second issue is governance. There have been cases where the supervisory function of operating companies has not worked effectively because the roles of the operating companies and Wacoal Holdings were not sufficiently organized. Accordingly, we will improve management effectiveness by organizing roles and ensuring they function correctly. The third major challenge facing us is corporate culture. Since its founding, our Group has achieved growth by repeatedly taking on challenges. We must restore that corporate culture of taking on challenges, reflecting our true nature.
Fiscal Year Ending March 2024 Initiatives
For FY2024, we expect the business environment will remain unstable in many countries and regions as sentiment is mixed between expectations for a recovery in personal consumption accompanying the return to normal from COVID-19 and concerns about a slowdown in consumption due to rising prices, geopolitical risks, and financial instability. Against such a backdrop, our Group will continue to promote “sustainability management”; however, in order to quickly fulfill the challenges of “turning around performance” and “improving the P/B ratio,” it will be necessary to make even greater efforts to improve management effectiveness. To that end, we will focus on “furthering changes to realize capital efficiency-orientated management,” “improving business profitability,” and “strengthening governance” in the current fiscal year.
One of the reasons our Group’s return on capital remains low is that each operating company and business division has been operating with a focus on their P/Ls. Additionally, the parent company, Wacoal Holdings, has not sufficiently revised its business portfolio and made decisions on investments and withdrawals from the perspective of maximizing the return on invested capital. Accordingly, we have started considering the introduction of ROIC as a KPI for improving capital profitability. Wacoal Holdings and each operating company and business division will shift to a management style that is more conscious of profitability and capital efficiency than before while also promoting disciplined portfolio management.
There is also a need to further strengthen the supervisory function of the Board of Directors regarding business execution and to improve management effectiveness. For this fiscal year, we examined the skill set of the Board of Directors and appointed additional External directors with extensive experience and knowledge related to investment and financial capital markets in order to steadily implement improvements aimed at bettering profitability and capital efficiency, which are issues for the Group.
Accelerate Cost Structure Reform
Though behavioral restrictions implemented in each country and territory in response to the spread of COVID-19 have eased, the recovery in earnings has been delayed due to our inadequate response in dealing with changes to consumer needs and behavior that occurred as a result of people experiencing the pandemic. We will achieve renewed growth by providing new customer experience value and creating new businesses, and, at the same time, continue to reform our cost structure and improve business efficiency.
Against a backdrop of slumping sales and a high fixed-cost structure, profitability at Wacoal Corp., our core operating company, is on the decline. In order to return to topline growth and improve profitability, we will work on “rebuilding our brand and customer strategies” and “speeding up cost structure reforms.” Regarding the brand strategy, we will clarify the customer image, brand, story, growth path, and why customers should choose us for each brand, and proceed with strategy redevelopment, including numerical backgrounds. In the customer strategy, we will revise the customer management guideline for maximizing life time value (LTV). We will implement highly accurate marketing measures by analyzing customer data and improving the clarity of our customer behavior understanding. Additionally, to improve Wacoal’s profitability, we need to take further steps with structural reform at this current stage when sales are slow to recover. Currently, the new management team is taking the lead in examining additional improvement measures, implementation schedules, profit and loss impacts, and associated furtherance structures. We are also considering using external consulting firms to assist with increasing the precision and effectiveness of our structural reforms. Regarding our overseas businesses, in addition to strengthening the EC component, which is a core strategy, we will continuously work on enhancing product competitiveness according to the characteristics of each market and implement appropriate cost controls in line with each sales situation, etc., to achieve the profit targets we are aiming for.
With environmental issues such as climate change and human rights issues becoming more serious, the international community and customers strongly demand that we undertake efforts to support a sustainable society. In April 2022, our Group joined the United Nations Global Compact, an international framework, and we are conducting business activities in collaboration with the international community in accordance with the Compact’s ten principles across the four areas of human rights, labor, environment, and anti-corruption. Furthermore, in order to strengthen our response to important sustainability issues, we have established the Sustainability Committee, which serves as an advisory body to the Board of Directors, and four furtherance subcommittees, which formulate specific measures for dealing with sustainability issues, monitor progress, and evaluate achievements.
Regarding human rights, in April 2022, we revised the Wacoal Human Rights Policy to align it with the United Nations Guiding Principles on Business and Human Rights. We have already begun implementing a cycle of accurately assessing compliance with the Wacoal Group CSR Procurement Guidelines and making continuous corrections and improvements accordingly. Going forward, we will further enhance our efforts to respect human rights while working to reduce and prevent adverse impacts on human rights based on a human rights due diligence approach that aligns with the United Nations Guiding Principles on Business and Human Rights.
Concerning the environment, in September 2021, we expressed our support for the recommendations put forth by the Task Force on Climate-Related Financial Disclosures (TCFD) and, in June 2022, made disclosures accordingly. Currently, in addition to formulating concrete action plans to reduce greenhouse gas emissions, we are also promoting other initiatives, such as increasing the ratio of environmentally friendly materials we use, reducing product disposals, and recycling activities.
Revising the Medium-term Management Plan
As announced on Friday, May 19, 2023, we have decided to revise our current medium-term management plan. In addition to reexamining the business strategies laid out in the medium-term management plan, we will reconsider measures to strengthen our management foundation aimed at improving profitability and capital efficiency. We plan to announce the results of our deliberations around November 2023.
The environment surrounding our Group is becoming increasingly challenging, and the path toward renewed growth will not be easy. However, we view these environmental changes as the greatest opportunity for new growth and are determined to meet and overcome this great challenge working together as a united Group.
I would like to sincerely ask all stakeholders for your continued support and backing.
Representative Director, President and CEO (Group CEO)
Wacoal Holdings Corp.