Noriaki Kiyota President, TOTO LTD.

The TOTO Group is making a new start toward
the creation of shared value that we want to achieve by 2030.

New Shared Value Creation Strategy TOTO WILL2030

Looking Back on Fiscal 2020

When I became president and representative director in April 2020, the world was dealing with the unprec-edented crisis that is the COVID-19 pandemic, and even formulating annual targets for the TOTO Group was challenging. However, if our employees and their families are safe and well, I believe it is possible for our performance to eventually recover. The TOTO Group has seen both fortunate times and hard times in the 100 years since its foundation and has continued to grow by overcoming various challenges. This was achievable because we flexibly responded to changes in the surrounding business environment of the time and because all of our employees firmly shared our philosophy and conducted themselves with purpose.

We faced various impacts as a result of the COVID-19 pandemic, including disruption to the delivery of some products due to delays in the supply of our components and the inability to carry out consultations, which are an essential part of the domestic reform business, owing to showroom closures resulting from the state of emergency declaration. I am proud of the way in which our employees have come together, regardless of country, region, or division, and acted of their own initiative to decide what they should do for our customers, for society, and for their colleagues under these circumstances. The basis of these actions is our shared Corporate Philosophy and this past year I have felt reassured and reaffirmed that the TOTO Group’s ability to act together as one during a crisis is one of our greatest assets.

TOTO Group’s Purpose

TOTO’s first president, Kazuchika Okura, wrote a letter to his successor, Saburo Momoki. The words contained in that letter have been treasured by the TOTO Group ever since as the Words of Our Founder. These words express the idea that “kindness must always come first” and state that our goal should be to provide good products and satisfy the customer and, by accomplishing that, profit and compensation will follow. The Words of Our Founder are positioned at the center of the Group’s management and represent our unchanging vision. My duty is to ensure that this vision, which has been cherished by each president before me, is passed down to the next generation.

We have found ourselves in a period of dramatic change and uncertainty in recent years that has included the COVID-19 pandemic, frequent natural disasters, changes to the international situation, and the progression digital technologies. Under these circumstances, we are faced with the fundamental question of “what is the purpose of the TOTO Group’s existence as a company?” As the TOTO Group heads into the future, the answer to how we can be useful to people and society comes back to the Words of Our Founder.
Our purpose is to create enriched and comfortable lifestyles for customers around the world. The world is always undergoing change. And, if during this change we ever find ourselves unsure about something, the Words of Our Founder and our Corporate Philosophy lay out everything that we need to continue to value as we go forward.

The Company Mottos, TOTO Group Corporate Philosophy, and Charter of TOTO Group Corporate Behavior represent the inherited values, in other words the “heart,” of TOTO that are shared among employees and will be carried forward into the future. This remains unchanged. However, the way our “body” (business activities) moves will adapt in response to changes in the business environment. The TOTO Group’s strength lies in the fact that the “heart” is firmly rooted as the precondition of each employee’s actions.

New Shared Value Creation Strategy TOTO WILL2030

Starting in fiscal 2021, we launched our New Shared Value Creation Strategy TOTO WILL2030 (hereinafter, “WILL2030”), which clarifies the lifestyle, society, and environment we want to achieve from a long-term perspective.

Under WILL2030, with the aims of achieving clean, comfortable, and healthy lifestyles and contributing to society and the global environment, we will pursue sustainable growth by enhancing our organizational capa-bilities and increasing the speed of management with a structure that is resilient to environmental changes.

We promoted our TOTO WILL2022 Mid-Term Management Plan (hereinafter, “WILL2022” as a five-year plan for fiscal 2018 to fiscal 2022). We meticulously analyzed, constructed, and formulated a five-year plan that embodies our will. However, due to significant changes in the external environment, including frequent natural disasters and the COVID-19 pandemic, the premise collapsed. The pace of and scale of these changes will further increase in the future. Accordingly, our approach going forward will be to clearly define our long-term goals, and then backcast, ensuring that we address changes on a year-by-year basis to ensure that we solve our issues. Working on this basis, there are bound to be various changes, and even if we are unsure about what to do, we will share the long-term goals of “creating the kind of society we want to see in 2030,” adapt the way we move our “body” to the changes, and make Companywide efforts to achieve our aim.

Aims for 2030

When promoting WILL2030, we must clearly indicate our aims for 2030. There was a lot of discussion, but we came to the conclusion that our aim is to realize our Corporate Philosophy that is instilled in the hearts and minds of our employees. In other words, embodying our Corporate Philosophy.

Our aims are to create an enriched and more comfortable lifestyle and culture, which is a part of our Corporate Philosophy, and to contribute to society and the environment to realize a sustainable society. Going forward, we will fully align our management and CSR activities to tackle social and environmental issues and, as a result, increase our economic value. Namely, tackling social and environmental issues and achieving economic growth have become necessary and sufficient conditions. This approach was shared by the entire TOTO Group as a model for growth over the next 10 years.

Under the TOTO Global Environmental Vision, which serves as the driving engine for WILL2022, we established Cleanliness and Comfort, Environment, and Relationships as CSR material issues. However, going forward, rather than separating management and CSR, we will integrate CSR into the center of our management. Under WILL2030, we will completely integrate management and CSR as concentric circles, and promote the management material issues of Cleanliness and Comfort, Environment, and Relationships as essential for embodying our Corporate Philosophy.

Since our foundation, the TOTO Group has been providing products that are either a half step or even one step ahead of the rest of the world from a consumer perspective, bringing cleanliness and comfort, while at the same time providing eco-friendly, including water-saving, products. The intersection of “cleanliness and comfort” and “environment” is what makes TOTO’s products unique. We have therefore defined these as “sustainable products.” We established a goal for sustainable products to make up 78% of our product composition by fiscal 2030 and have made it clear that we are committed to achieving growth.

Realizing cleanliness and comfort while tackling environmental issues is uniquely TOTO and the approach at the core of WILL2030.

Aiming for Carbon Neutrality in 2050

In October 2020, the Japanese government declared its aim to achieve carbon neutrality and a decarbon-ized society in 2050. The TOTO Group will also contribute to achieving carbon neutrality in 2050 and realize a sustainable society as an initiative to prevent global warming, which is caused by climate change. We have established milestones for the future, such as acquiring SBTs*1, a certification system for CO2 emission reduction targets with a scientific basis, and joining RE100*2, a global initiative that aims to ensure 100% of the electricity we use is generated from renewable energy. We will also continue to actively working on technological innovation and expanding procurement of renewable electricity, in addition to our existing initiatives for reducing CO2 emissions.

On average, our products are used over an approximately 10- to 20-year period. If we look at this from the perspective of the entire product life cycle this means the period of product use accounts for over 90% of our overall CO2 emissions. In other words, by helping people around the world to use sustainable products that are clean, comfortable, and environmentally friendly, we are contributing to reducing their impact on the environment while improving their lifestyle value. The more we conduct appropriate business, and our products are widely used, the more we can create a clean, comfortable, and eco-friendly society.

*1 Science Based Targets: Greenhouse gas reduction targets for companies that meet the level of the Paris Agreement.
*2 Renewable Energy 100: A global initiative that aims to ensure 100% of the electricity we use in our business activities is generated from renewable energy sources.

Business That Contributes to the SDGs

For the TOTO Group, social, environmental, and economic values are extremely well correlated and I believe this is exactly what creating shared value is all about. We believe that tackling social and environmental issues will always lead to economic growth. Based on this approach, we are able to contribute to the United Nations (UN) Sustainable Development Goals (SDGs) through our business. For example, Goal 6, “ensure availability and sustainable management of water and sanitation for all,” is the very definition of the TOTO Group’s business. I believe that the TOTO Group is an extremely fortunate company in that if we conduct our business activities correctly, we can serve a useful purpose to the world, including society and the environment.

Mid-Term Management Issues WILL2030 STAGE1

To realize WILL2030, the first three years (fiscal 2021 to fiscal 2023) will be designated as Mid-Term Management Issues (WILL2030 STAGE1), during which we will consistently monitor the growth potential of the market, clarify management issues, and respond to changes in the business environment. Under WILL2030, we set out goals from a long-term perspective, and will take the approach of how close we can get to those goals in the next three years. The key points are to refine our sustainable products and quickly bring them to market, and further develop our services thereby increasing customer trust. In order to achieve this, we will visualize the market, create a system suited to each country and region, utilize digital technologies to create unique value that cannot be achieved by TOTO alone, and innovate business pro-cesses. We are changing faster than the rest of the world and will keep gaining TOTO fans around the world. In addition, we will promote cross-organizational innovation activities, namely Marketing Innovation Activities, Demand Chain Innovation Activities, and Management Resource Innovation Activities, tailored to the traits of each region.

Japan Housing Equipment Business

In Japan, we will continue to evolve the Anshin Remodeling Strategy. We have been promoting activities to distill concerns from customers over entering the remodeling process, however, we are now going to take further steps. In addition to the existing approach of visualizing and understanding, we will help customers to create their dreams by reinforcing our use of digital technologies to disseminate information and become an even closer part of their lives in order to realize the remodeling of their dreams.

Furthermore, in the public market, in addition to evolving cleanliness and comfort through TOTO’s unique clean technologies, and adapting to touchless capabilities, we will accelerate the proposal of new customer value that suits their needs, including visualization of damage, cleaning schedules, and the availability of toilet stalls through digital technologies. By promoting these efforts, I believe that by turning each of our facilities into a showroom, we will be able to show the world the progression of Japan’s toilet culture when the COVID-19 pandemic has subsided and inbound customers return to Japan.

China & Asia Housing Equipment Business

In our Mainland China business, the market has transitioned from a growth phase to a mature phase and we will further diversify our customer base. We are firmly committed to addressing new issues that became apparent in the reanalysis of the market conducted in fiscal 2019, and will work to further increase brand value by proposing products with high customer value and reinforcing value proposition accordingly. Additionally, we are promoting the creation of an optimal supply system at eco-friendly plants, including the TOTO (FUJIAN) Plant No.2 which manufactures sanitary ware and the New NANJING TOTO Plant which manufactures bathtubs, in order to meet increased demand due to long-term market growth.

In the Asia business, we will enhance our production structure in Vietnam and Thailand while being environmentally conscious as a global supply base. At the same time, we will work to improve sales of WASHLET and establish a structure for after-sales services by strengthening our sales network and actively rolling out promotions that adapt to meet the diverse cultures and lifestyles in each country and region.

Americas & Europe Housing Equipment Business

In our Americas business, the market environment surrounding spray seats is changing dramatically, including the move toward the threshold of widespread use as demand for WASHLET rapidly increases. Furthermore, touchless products, which emphasize hygiene, and SMART TOILET NEOREST, which is highly regarded by customers for its water-saving functions, comfort, and design, are also performing well. In the mid- to high-end market, we aim to differentiate ourselves from other companies by enhancing brand value through efforts to communicate the superior quality and value of our cleanliness and comfort products. In addition, we will promote the reinforcement of our contact points with customers and the creation of an efficient supply system, including expanding our showroom exhibits, enhancing our homepage, and increasing e-commerce, to ensure that we capture demand.
In our Europe business, we will continue to strengthen our value messaging of well-designed cleanli-ness and comfort products that meet the tastes of European customers. We are building sales channels and acquiring top-class facilities, particularly in Germany, France, and the United Kingdom, and will focus on improving the quality of showroom exhibits at sales agencies, as well as cultivating and expanding construction stores.

Advanced Ceramics Business

Social reform is accelerating around the world through digital transformation (DX). As digital technologies, including cloud service technology and artificial intelligence (AI), develop in the future, there is an increas-ing need to process a massive amount of data. In order to process this data in a stable manner, technologi-cal advancements in semiconductors, such as high-capacity storage, high-speed processing, and low power consumption, are essential, and the machinery and equipment used to manufacture these semicon-ductors must also evolve further. TOTO will support social reform through DX with advanced ceramic technologies and next- generation manufacturing.

Cross-Organizational Innovation Activities Tailored to the Traits of Each Region

Marketing Innovation Activities

Our marketing innovation activities involve efforts to communicate our value and planning products to meet changes around the world, as well as diversification of customer needs. We will continue to evolve the fusion of designs and technologies, and bring sustainable products to the market. In fiscal 2020, we received the internationally renowned iF Design Award for the eighth consecutive year and the Red Dot Design Award for the ninth. In these ways, our efforts to strengthen design have been producing solid results. Additionally, we will promote TOTO CLEANOVATION, which we have been developing, to our cus-tomers around the world with three values—WASHLET, CLEAN SYNERGY, and TOUCHLESS—in line with people’s behavior and attitudes. Going forward, we will further advance market visualization to understand the value required by customers in each region and create new customer-oriented lifestyle value.

Demand Chain Innovation Activities

In the past, supply chains were based on the assumption that goods flowed continuously. Shortening lead times and reducing inventory have been established on the assumption that the entire global supply chain will not stop. However, due to frequent natural disasters around the world and the spread of the COVID-19 pandemic, parts of the supply chain were interrupted. These are significant changes. Going forward, we will need to reevaluate the supply chain itself, which region we sell in, and where to manufacture in order to achieve this, with a strong awareness of business continuity plans (BCPs). It is important to be able to prepare for situations where the continuity of supply chains is interrupted and we will make renewed efforts to visualize the supply chain, including the utilization of digital technologies, in order to meet delivery deadlines and optimize inventory.

In our manufacturing innovation, we will strengthen the swift commercialization of sustainable prod-ucts by promoting cross-organizational seeds and elemental technology strategies in collaboration with marketing innovation activities. Additionally, in terms of production innovation, we will utilize digital tech-nologies to maximize the production capabilities of our plants, including automation and remote operation, and utilize big plant data to establish good product conditions and increase production efficiency.

Management Resource Innovation Activities

Our management resource innovation activities continue to focus on the promotion of diversity. We will develop an environment in which diverse human resources can work with peace of mind and demonstrate their capabilities, by expanding working from home, realizing a retirement age of 65, and promoting female advancement and advancement of people with disabilities.

By expanding working from home, employees can be liberated from commuting time and improve their quality of life. Furthermore, I also believe that the different ways of spending this newfound time will give us insights that we may not have noticed before. I hope that we can discuss these insights, leading to the creation of new value. In other words, expansion of working from home not only improves work efficiency but can also be perceived as a growth strategy. The TOTO Group has a history of manufacturing products by looking at things from a consumer perspective, considering what they would like to happen, and being either a half step or even one step ahead. I believe that expanding new workstyles leads to the creation of new value.

Together with Our Stakeholders

The TOTO Group’s business activities are made possible thanks to the support and cooperation of our various stakeholders. Accordingly, I believe we must continue to always be honest and sincere with our stakeholders. As set out in “Relationships,” one of the material issues under WILL2030, we will reinforce measures to be a company that can be relied on by customers, employees, business partners, and local community members.

To realize WILL2030, the development of each employee is essential. We place special emphasis on employee engagement to realize strong organizational strength and human resource capabilities. From fiscal 2020, we began holding meetings with younger employees, but I believe that by holding discussions in person with the next generation of employees we can inspire one another and turn that energy into further growth.

Additionally, in terms of strengthening corporate governance, we have made steady progress in creating a system for managing and supervising operations, and will continue to reinforce corporate governance in the future. While managing and supervising operations is important, we must also care-fully consider and implement what is necessary to enhance the TOTO Group’s purpose and corporate value. We will continue to strengthen these issues while taking into account the objective standpoint of our Outside Directors.

We conduct our business activities under the long-cultivated TOTO brand, which has refined the concept that “good people make good products.” The TOTO Group’s approximately 34,000 employees conduct themselves in an appropriate manner. They wholeheartedly work for the benefit of our custom-ers and society to create something different from mere industrial goods. When we communicate this to our customers through our products and services, I believe that the TOTO brand can shine even brighter. I am confident that as we continue to further refine the TOTO brand, we will keep gaining TOTO fans around the world.