SECTION 02

SECTION 01

Achieving Sustainable Growth —Strategy for Continuing to Provide Value—

Daio Group’s Vision and Medium-Term Business Plans

Fulfilling Our Purpose

Achieving Sustainable Growth

Responding to Social Issues

Data and Information—Strategy for Continuing to Provide Value——Foundation for Sustainable Growth——Financial and Corporate Data—

H&PC net sales ratio

Business and 30% or more from the H&PC overseas business, and an operating margin of 10%. Aiming

High-quality,
high-value-added
products and services

50% or more 30% or more

toward the next growth stage and a new future, the Group will strategically transform its businessportfolio to become a corporate group capable of continuous growth.

Operating margin

Increase inpersonnel for the
H&PC business2020 2021

Planning through10%

2nd MTBPThe Group’s Medium-Term Business Plans,
formulated by backcasting from the targets
set out in the long-term vision, are centeredaround two business strategies: structuralreforms to reinforce its business foundationand transform its business portfolio; andexpansion into overseas growth markets tostrengthen and expand the H&PC Business.
With regard to structural reforms, the Grouphas carried out a strategic shift of the productmix while maintaining full pulp production at
the Mishima Mill—it has even increased its
kraft pulp production. By increasing the shareof household paper and containerboard,which are experiencing growing demand, in
its product mix and maintaining its machineutilization rate, the Group has amplified its
competitive advantages.
Regarding overseas business expansion, by
establishing production bases that produce

Three Well-beings

3rd MTBP

vision of an “Abundantand Affable Future”

2024

mainly baby diapers in China, Thailand andIndonesia, the Group has developed an
infrastructure for local production andconsumption in Asia. Under the Third
Medium-Term Business Plan, the Group
conducted M&A in Brazil and Turkey,
establishing new entry points in SouthAmerica and MENA (Middle East and North
Africa).
While implementing these businessstrategies, the Group is also taking actions tocombat the urgent global challenge ofclimate change and other ESG(environmental, social and governance) issues
and to contribute to the creation of asustainable society, which is the objective of
the SDGs. Through these initiatives, theGroup aims to realize its management
philosophy of “Shaping an abundant andaffable future for the world.”

Safety-first workplaceenvironment

Suppliers2030

5th MTBP

Enhancement of
in-house training
for global humanresources

Daio Abundant andAffable Future 2030

growth after theJapanese
Grow together
government’s target
year for achieving Local communities
carbon neutrality

Initiatives
toward a
Carbon-freeSociety

5th MTBP

We will make hygiene products accessible, inspire good
habits, protect people’s health, and realize an inclusive
society in every community.

2050

Contribution
to theachievementof the SDGs

Measures for

1. Hygiene Protect well-being of the bodyHygieneIntegrated Report 2023

4th MTBP

Employees andtheir families

backcasting from the2026

1st MTBP

33

H&PC overseas net sales ratio

p.71

p.57

2. Life Enhance well-being of lifestyles
Life

We will provide services thatenhance lifestyles, improve thequality of life, and enable people tolead happy and enriching lives.

Lifestyle, industrial
and culturaldevelopment

Shareholders
and investors

Stable dividend andimprovement ofshare priceShaping an abundant and affable future for the world

800 billion to ¥1 trillion

billion to ¥1 trillion, 50% or more of which will be generated by the Home and Personal Care (H&PC)

2023

Management
Philosophy

Customers¥

The Group set out its long-term vision with speciﬁc targets to be achieved by FY2026: net sales of ¥800

2014 2015

SECTION 04

Net sales

structural reforms and overseas expansion under its Medium-Term Business Plans (MTBPs).

2012

SECTION 03—Value Creation Story of the Daio Group—

The Group made a fresh start as the restructured Daio Group in FY2012, and has since primarily pursued

2017 2018

SECTION 02

3. Regeneration Restore well-being of the earth
Regeneration

We will actively conserve the environmentand regenerate the earth back into a planetwith abundant nature where diverse
organisms coexist and thrive.

Integrated Report 2023

34

SECTION 01

SECTION 02

Review of the Medium-Term Business Plans
Over the nine years from the First to Third Medium-Term Business Plans (FY2012–FY2020), the Group achieved
signiﬁcant improvements in business performance through the expansion of the Home and Personal Care
(H&PC) Business, while maintaining stable sales in the Paper & Paperboard Business through structural reforms.
The Group recorded increases in net sales and operating proﬁt for eight and three consecutive years,
respectively, and successfully built the foundation for the next growth stage to a new future.

SECTION 02

SECTION 03

SECTION 04

Fulfilling Our Purpose

Achieving Sustainable Growth

Responding to Social Issues

Data and Information—Value Creation Story of the Daio Group——Strategy for Continuing to Provide Value——Foundation for Sustainable Growth——Financial and Corporate Data—

The Group will continue to implement radical cross-business structural reforms of the Paper and Paperboard Businessand the H&PC Business under the Fourth Medium-Term Business Plan, which has been underway since FY2021, andsubsequent medium-term business plans. In its eﬀorts toward overseas expansion, the Group plans to extend thecoverage of its operations from its bases in Asia, Brazil and Turkey to surrounding areas, and also to promote multicategory business expansion by diversifying the range of its product categories in those markets with a view to multilayering its businesses.

■ Newsprint and Paper Business■ Industrial Paper and Containerboard Business■ H&PC Overseas Business■ Other Businesses● Operating Profit■ H&PC Domestic Business

Net Sales and Operating Proﬁt by BusinessNet sales (Billions of yen)
600

562.9

531.3
450.2

11.1%

7.7%

4.9%

400

36.9

21.8

200

11.1
0

FY2012FY2013

FY2014FY2015The First Medium-Term Business Plan (FY2012–FY2014)

Restart —Solid Reform and Further Growth
Basic
Policies

business

reduction and change in the product mix● Strengthening of the containerboard and corrugated container business● Expansion of H&PC Business

Review

Targets

Results

Net sales
Ordinary profit

450.0
22.5

450.2
21.8

Interest-bearing debt

400.0

375.0

Equity ratio

17%

23.7%

3.8

2.4

Promoted structuralreforms and improvementof ﬁnancial strength
to rebuild the businessfoundation(Billions of yen)

Restartmachines to respond to increasing demand forcontainerboard. It also merged and integrated
the operations of its corrugated container
subsidiaries to strengthen the containerboard
and corrugated container business.
Meanwhile, to further expand the H&PC
Business as part of its growth strategy, theGroup established factories in Thailand in
2011, in China (Nantong) in 2012, and inIndonesia in 2014 to produce mainly baby
diapers, thereby building an infrastructure for
local production and consumption in Asia.
The Group also worked on revamping its
governance structure and improving its
ﬁnancial strength in order to rebuild its
business foundation.

The First Medium-Term Business Plan
(FY2012–FY2014):

Review

Under the First Medium-Term Business Plan,in response to a continuing decline in demandfor paper and in order to maintain full pulp
production at the Mishima Mill, the Groupembarked on a structural reform. Aiming to
improve the proﬁtability of the paper businessthrough thorough cost reduction and achange of the product mix, the Group worked
to reduce pulp costs by increasing kraft pulp
production and improve the proﬁtability of
paper products by shifting to higher valueadded products. At the same time, in orderto build an optimal production system thatmeets demand, the Group converted paper
machines at the Kani Mill into containerboard

35● Restructuring of the paper● Improvement of proﬁtability of the paper business through cost

—Solid Reform and Further GrowthIntegrated Report 2023

Issues● Further structural shifting of the paper

business● Strengthening of production facilities

of H&PC Business

FY2017FY2018● Further growth and acceleration ofcontainerboard and corrugatedcontainer business
Promoted H&PC overseas businessexpansion
Achieved signiﬁcant expansion of
net sales through domestic M&A
Failed to achieve the proﬁt target

Step-up—Leap and Expand
The Second Medium-Term Business Plan
(FY2015–FY2017):

Review

Under the Second Medium-TermBusiness Plan, the Group continued topromote the restructuring of the paper
business and changed the product mix
to maximize proﬁt. It also worked tofurther strengthen the containerboard
and corrugated container business bystarting operation of the No.3 paper
machine at Iwaki Daio Paper.
With regard to the H&PC domestic
business, the Group acquired thepaper products business of Nisshinbo
Holdings, achieving an increase inmarket share of household paper

FY2020Move on: Reform and Soar Above● Radical cross-business structural reform of Paper and Paperboard

H&PC Business● Strengthening of the

FY2019The Third Medium-Term Business Plan (FY2018–FY2020)

Step-up —Leap and Expand● Rebuilding of business foundation

Net debt to equity ratio

FY2016The Second Medium-Term Business Plan (FY2015–FY2017)

Business and H&PC Business● Development of new businesses /● Global expansion and strengthening of proﬁtability of H&PC

Cellulose Nanoﬁber (CNF)

Business● Early commercialization of cellulose nanoﬁber (CNF)

Targets

Results

Net sales
Ordinary profit

500.0
25.0

531.3
12.8

Net interest-bearing debt

250.0

280.0

Equity ratio

28%

25.9%

1.5

1.6

(Billions of yen)

Net debt-to-equity (D/E) ratio

products. The Group also worked to increase salesof high value-added products by leveraging thestrength of the Elleair brand, and expanded thedomestic supply capacity for absorbent products
by commencing operation of Elleair Product’s
Fukushima Factory. As for overseas business, inaddition to expanding its production facilities andbroadening the product lineup to increase sales inThailand, China and Indonesia, the Group increased
exports from Japan to Korea, Russia, Taiwan, etc.
Furthermore, with regard to the Cellulose Nanoﬁber(CNF) business, a new business that it hopes will
drive future growth, the Group worked to expand
the CNF product lineup by starting the operation ofa pilot plant for the production of dry powder-type
CNF.
Issues● Radical structural reform from paper business togrowth business● Expansion into new overseas markets

Targets Results

Conducted cross-businessstructural reforms and overseas
M&A
Achieved targets for all items
other than net sales(Billions of yen)

* Operating proﬁt is used as a proﬁt indicator from the 3rd MTBP.

Move onthe H&PC overseas business focused on
expanding sales of premium toilet tissue
in China. Furthermore, the Group gained
operation bases in new markets in SouthAmerica and MENA through the acquisitionof Santher S.A. (Brazil) and EITR (Turkey). In
new businesses, the Group commenced thebiomass power generation business using thefeed-in tariﬀ (FIT) scheme in July 2020. Also,
progress was seen in the commercialization of
CNF as material for table tennis rackets, partsof electric racing cars, etc.

Reform and Soar Above
The Third Medium-Term Business Plan
(FY2018–FY2020):

Review

Under the Third Medium-Term Business Plan,
the Group launched a radical cross-businessstructural reform of the Paper & Paperboard
Business and the H&PC Business. The Group
resumed operation of the Kawanoe Mill in
October 2018 to produce household paper
by using pulp that was made available
by shifting from paper to containerboard,and also strengthened the paper products
business acquired from Nisshinbo Holdings.
Through these measures, the Group increased
its share of the household paper products
market and strengthened the proﬁtability of
the H&PC Business. As for growth strategies,

Net sales
Operating profit*

615.0
32.0

562.9
36.9

H&PC overseas net sales
ratio

15% 11.1%

ROE

8% 10.1%

Net debt-to-equity (D/E) ratio

1.6

1.3

Issues● Continuation of ongoing structuralreforms and promotion of overseas
growth strategies (bringing overseas
business into the black)● Promotion of management that is
conscious of capital efficiency andstrengthening of ﬁnancial position

Integrated Report 2023

36

SECTION 01

SECTION 02

Overview and Progress of the Fourth Medium-Term Business Plan

SECTION 02

SECTION 03

SECTION 04

Fulfilling Our Purpose

Achieving Sustainable Growth

Responding to Social Issues

Data and Information—Value Creation Story of the Daio Group——Strategy for Continuing to Provide Value——Foundation for Sustainable Growth——Financial and Corporate Data—

Material issues
Strategic transformation of business portfolio

P&P Business

Environmental
changes

Basic Policies of the Fourth Medium-Term Business Plan
Improve ﬁnancial

a strong and1 Establish
resilient business portfolio

to climate change
3 Respond(Carbon neutrality by 2050)

2 strength● Build an even greater competitive advantage in● Strengthen cash generating capacity and● Promote the use of renewable energy, aiming to achieve decarbonization

the Paper and Paperboard (P&P) Business throughcontinuous structural reforms● Lead the Group’s growth through faster multicategory business expansion and further M&A in the
Home and Personal Care (H&PC) Business● Create future growth opportunities through new
businesses such as cellulose nanoﬁber (CNF)

improve cash ﬂow by capitalizing on the
results of structural reforms and strategic
investment● Promote management conscious of thecost of capital and return on capital byintroducing ROIC as a management indicator● Obtain and maintain a credit rating of A

by 2050● Continually engage in proper plantation management and expansion ofplantation areas● Promote a shift to environmentally friendly materials through CNF andplastic-free product businesses● Started operating a paper towel machine at the● Obtained an A rating in September 2021

Mishima Mill● Started operating the second machine for household
paper products at the Kawanoe Mill● Entered the pet care products market● Started operating a pilot plant for CNF composite
resin● Selected performance monitoring indicators

Progress highlights● Started conducting an environmental impact assessment in preparation forthat link to existing indicators using the
ROIC tree● Reduced cross-shareholdings (Percentage inconsolidated net assets: 6.8% for FY2020,
5.2% for FY2022)

the installation of a waste-to-energy boiler at the Mishima Mill

Operating proﬁt(operating profit margin)● Baby care products● Feminine care products● Pet care products● Further decline in demand for graphic● Changes in consumer psychology before and after the COVID-19 pandemic (increased

paper due to price revisions and growing
environmental awareness● Expanding demand for packaging paper
due to further increase in the desire to
avoid plastics● Expanding demand for packaging paperand corrugated containers due to therevival of economic activity after the
COVID-19 pandemic

awareness of hygiene)● Expanding demand for health careproducts due to aging population● Shrinking demand for baby care andfeminine care products due to a decreasein the number of births● Significant decline in demand forsanitizing wet wipes and masks due tothe end of the COVID-19 pandemic

Thoroughly improve efficiency with theaim of creating a cash cow business● Improve productivity and profitability at
the Mishima Mill, our core paper mill
● Reduce logistics costs by decreasing
manufacturing costs and SKUs
● Review the organizational structure
to pursue profits (improve proposal
capabilities and expand the sales ofhigh-value-added products)● Capture e-commerce demand anddemand generated by a growing trend
toward plastic reduction

Shift to focus on profitability in existing
categories and develop new growth areas● Improve the accuracy and efficiency of
production/sales/inventory (logistics)● Procure important materials in a stablemanner (Produce fluff pulp in-house)● Strengthen the production and sales ofsoft pack tissues with growing demand● Enter the pet care products market, oneof the few growing markets in Japan● Collected information on CCUS technologies including BECCS (Shikokuchuo

4th MTBP

2nd MTBP(FY2017)

3rd MTBP(FY2020)(FY2021)

531.3

562.9

612.3

646.2

720.0

800 -1,000

21.8（4.8%） 11.1
（2.1%） 36.9
（6.6%） 37.6
（6.1%）(21.4)

51.0（7.1%）

80-100（10%）(FY2022)(FY2023 forecast)

Vision for the 5th
MTBP (FY2026)

4.9%

7.7%

11.1%

12.1%

13.8%

18.8%

30% or above

ROE

10.0%

2.2%

10.1%

9.5%

-14.0%

10% or more

12% or above

1.9

1.6

1.3

1.1

1.6

1.0

1.0 or below

Progress of the Fourth Medium-Term Business Plan
Prioritized investments in the growth-driving H&PC Business● Health care products

Paper and Paperboard

Operating Operating
profit(Billions of yen) (Billions of yen)marginOperating Operating
profit(Billions of yen) (Billions of yen)marginOperatingmargin

327.4

22.3

6.8%

347.0

(12.4)

-3.6%

370.0

11.5

3.1%

(Billions of yen) (Billions of yen)

Net sales

Net sales

257.3*

11.9

4.6%

270.3

(12.6)

-4.6%

300.0

4.0

1.3%

183.2

15.5

8.5%

181.2

(6.5)

-3.6%

200.0

4.0

2.0%

Overseas

74.1

(3.6)

ー

89.1

(6.1)

-6.9%

100.0

0

ー

27.6

3.3

12.0%

28.9

3.6

12.5%

30.0

2.5

8.3%

612.3

37.6

6.1%

646.2

(21.4)

-3.3%

700.0

18.0

2.6%

Other businesses(including adjustments)

Total

Plan for FY2023

Domestic

H&PC(Breakdown)

FY2022

OperatingprofitNet sales* This net sales amount is a downward revision from the previous disclosure due to the application of accounting standards for revenue recognition.

37

Integrated Report 2023

● CNF business ● RFID business (IC tags)● Initiatives toward carbon neutrality● Increase in consciousness ofenvironmental conservation● Economic growth in emerging● China’s birth population decline (2022:

countries-14% compared to the previous year)● Change in social issues● Intensification of price competition● Polarization between purchasing

psychology focusing on cost performanceand on quality

Enhance marketing functions
Establish new sales subsidiaries[China]Strengthen profitability by acquiring newcustomer base for baby care products andexpanding feminine care products[Brazil]Strengthen the revenue base by expanding
the lineup of premium products by leveraging
our product development capabilities[ASEAN region]
Establish overseas subsidiaries tostrengthen sales[Company-wide human resources strategy]
Enhance in-house training for global humanresources

Create future growth opportunities[CNF business]
Shift from fossil-based materials tonaturally-derived materials[RFID business (IC tags)]
Provide environmentally friendly RFID
tags made of paper that does not use
plastic film (PET film)[Carbon neutrality]
Promote the use of renewable energy toachieve decarbonization
Phase out coal
Promote energy conservation, etc.

Paper and Paperboard Business

H&PC Domestic Business

H&PC Overseas Business■ Net sales (Billions of yen)
■ Operating profit (Loss) (Billions of yen)

■ Net sales (Billions of yen)
■ Operating profit (Loss) (Billions of yen)

■ Net sales (Billions of yen)
■ Operating profit (Loss) (Billions of yen)

317.8

302.5

19.9

19.6

347.0

327.4

370.0

22.3

175.4

170.2

15.5

183.2

15.5

181.2

200.0

9.9

11.5

62.6

100

89.1

74.1

34.5

4.0

0

FY2020

FY2021

(1.9)

(6.5)

(12.4)FY2022 FY2023(target)

FY2019FY2020

FY2021

FY2022

FY2023(target)

FY2019(0.8)
FY2020(3.6)
FY2021(6.1)

FY2022

FY2023(target)Building a Foundation for Growth for the 5th Medium-Term Business Plan and beyond
H&PC BusinessBusiness segment

Create a third business pillar andpromote environmental initiatives

Net Sales and Operating Proﬁt Results and Outlook by Segment

FY2019FY2021

New Businesses● Started operating a waste-to-energy boiler at Iwaki Daio Paper

H&PC overseas net sales ratio

Net debt-to-equity (D/E) ratio● Household paper products● Industrial paper and corrugated containers

South America(Billions of yen)

450.2

Consistently turn a profit andstrengthen organizational structure● Newsprint and paper● Started using biomass boilers under the FIT scheme for self-consumption

City Carbon Neutrality Council)

Net sales

Drive performance as a core business● Obtained about 6.0 km2 (nearly 1,500 acres) of land for plantation in Chile,● Decreased coal purchase quantity (a decrease of 13.6% compared to FY2021)

1st MTBP(FY2014)Creation of new businesses

H&PC Domestic Business H&PC Overseas Business

Generate sustainable cash flow for
growth investment

Since FY2021, the Daio Group has been actively committed to implementing the Fourth Medium-TermBusiness Plan under the slogan “GEAR UP: The Next Growth Stage, to a New Future.”
Aiming to realize the Three Well-beings, the Group has been accelerating its initiatives to shape a new
future in high gear.

Acceleration of global expansion

Business
divisions

Corporatefunctions

Domestic

Overseas

Pursue increased sales andprofits by achieving both
efficiency and growth

Expand business and improve
profitability through new
categories

Purchasing
Human resources / Organization

Cashgeneration forinvestment
Shift ofhuman
resources

P&P Business
Improve the efficiency of the newsprint
and paper business and expand
business in the industrial paper field

Build strategies and organizational structures that respond to globalization
Shift human resources and build a human resources training system to strengthen the H&PC Business

For the Paper and Paperboard Business, we recognize that we now have a system in place that allows us to compete effectively with our domestic competitors
as a result of starting structural reforms from the 1st Medium-Term Business Plan. However, the continued shrinkage of demand for graphic paper is inevitable.
As a business structure change with an eye to the future, we will significantly shift resources from the Paper and Paperboard Business to the H&PC Business
and work to transform our business portfolio in consideration of solving social issues with a stronger determination than ever.

Integrated Report 2023

38

SECTION 01

SECTION 02

Message from the Officer Responsible for Financial Affairs

SECTION 02

Shuhei Shinagawa
Director
Managing Executive Officer(General Manager of Corporate Planning Division andBusiness Administration Division, Corporate Unit)

SECTION 04

Fulfilling Our Purpose

Achieving Sustainable Growth

Responding to Social Issues

Data and Information—Value Creation Story of the Daio Group——Strategy for Continuing to Provide Value——Foundation for Sustainable Growth——Financial and Corporate Data—the decline in our business performance. Although wewill not change our net D/E ratio target of 1.0 or lower,
the achievement of this target is expected to be delayed
until the 5th MTBP period or later. Securing free cash
flows for medium- and long-term growth has become
very important. We will achieve this through the dual
approach of improving capital efficiency and bolstering
cash generation. We believe that our sustained
efforts to improve our financial health and lay a solid
foundation for growth and expansion investments
will lead to an improved financial position of the Daio
Group.
As for ratings, we have set a target of obtaining a credit
rating of “A” from the Japan Credit Rating Agency(JCR) and Rating and Investment Information, Inc. (R&I)
during the 4th MTBP period, and we obtained “A”

Forging a solid return to a growth path
to restore our financial health as early as
possible toward further business growth

SECTION 03

ratings from both agencies in FY2021 for the first time.
The key to maintaining these ratings is to generatecash from our business activities and get back on a
growth track. It is also necessary to improve our capitalefficiency and demonstrate our potential for future
growth. The impact of the inflated raw material andfuel prices has been declining from its peak. We expectthat price revisions made in FY2022 will make a positive
contribution to our business performance throughout
FY2023. Our business performance is therefore
recovering steadily. Furthermore, we will improve our
profitability and demonstrate our potential for future
growth mainly in the Home and Personal Care (H&PC)
Business in Japan and abroad, which is a growth engine
for us.

Financial responses to expanded overseas transactions

Review of FY2022 results
In FY2022, we experienced a rapid deterioration in
the business environment surrounding us partly due
to significant fluctuations in foreign exchange rates, inaddition to sharp rises in raw material and fuel prices
in the second half of FY2021. We implemented various
measures to minimize the downside impact of suchenvironmental changes on our business performance.
Specifically, we revised our product prices multiple
times, mainly in the Paper and Paperboard Business,
our core business. While striving to procure raw
materials and fuels stably, we also devoted all-out
efforts to minimizing the impact of soaring costs forcoal, which could have a massive impact on our businessperformance, by reviewing our coal sourcing areas andthe types of coal we would use. However, we wereunable to offset the cost increase. As a result, FY2022
was a very tough year for us in terms of profitability, as
seen by the fact that we recorded an operating loss forthe first time since our listing.
Facing challenges in generating cash through our core
operations, we worked on generating cash outside
our core business, including reducing inventories anddownsizing strategic cross-shareholdings. This helped us
maintain a sufficient level of liquidity and stabilize ourcash flow.

Basic policies on ﬁnancial strategy
We anticipate that uncertainty will persist in ourbusiness environment going forward, but there will
be no change to our basic financial strategy from theprevious fiscal year.
To maintain liquidity even in such an uncertain
situation, we have adopted a policy of diversifying
our financing means while continuing to use indirect
funding (borrowing from financial institutions) as astable means of financing. We had set a target of raising
the ratio of direct funding (from corporate bonds andcommercial paper) out of all interest-bearing debt to
20% by the final year of our 4th Medium-Term Business
Plan (MTBP), and to 25% by the end of the 5th MTBP.
However, we opted not to issue corporate bonds in39

Integrated Report 2023

FY2022 in consideration of the rapid deterioration in
the business environment, which has made it difficult
for us to meet our initial target.
From FY2023 onward, we will raise the ratio of direct
funding again by actively issuing corporate bonds
in conjunction with improving profitability, thereby
increasing the amount of available funds for the 5th
MTBP. In addition, in anticipation of a further increase
in investments for achieving carbon neutrality in the
future, we will explore financing options such astransition finance.
The net debt-to-equity (D/E) ratio, for which the target
is 1.0 or lower, deteriorated from 1.1 as of the end of
March 2022 to 1.6 as of the end of March 2023 due toI believe that the expansion of business operations andtransactions outside Japan entail three major kinds ofrisks. First, when expanding business abroad, we facerisks associated with capital recovery and reduced
capital efficiency. Factoring in international tax treaties,
along with the laws and regulations applicable inforeign jurisdictions, we recognize that it is essential
to establish an optimal system for fund distribution
and repatriation. We are also examining the feasibilityof establishing regional headquarters in the future
for the efficient allocation of surplus funds built up at
overseas bases. Moreover, we are actively developing an
emergency response policy while responding to current
geopolitical risks, such as those related to the war in
Ukraine.
Secondly, international trade transactions and the
expansion of overseas investments entail foreignexchange risks. To mitigate foreign exchange risks, weincorporate forward exchange contracts into certaintransactions denominated in foreign currencies, suchas import transactions. Furthermore, since FY2023,
we have broadened the scope of transactions andcurrencies to which forward exchange contracts apply
to reduce cost fluctuation risks. Likewise, in overseas

investments or meeting the funding needs of ouroverseas subsidiaries, we are taking measures to directly
secure funds in local currencies. This is in addition
to parent-to-subsidiary loans from Japan, with theobjective of mitigating the impact of exchange rate
fluctuations on our financial performance.
The third kind of risk is related to the governanceof overseas subsidiaries. We devote serious efforts
particularly to preventing fund-related frauds suchas embezzlement and misappropriation. While wehave a plan to roll out a global cash management
system (GCMS), the implementation will be deferred.
At present, our priority is on reinvestment and we
recognize that an immediate introduction of a GCMS
is unlikely to offer substantial improvements in capitalefficiency. Nevertheless, we are actively working toestablish and maintain a robust management systemthat prevents the formation of the fraud triangle(opportunity, motivation, and rationalization) and havealready put in place various governance enhancement
measures. These include utilizing specific functions of
the GCMS to visualize account information, minimizing
cash on hand, and distributing workflow responsibilities
to prevent concentration of power in a single person.

Vision for asset allocation toward sustainable growthWith the intent of making the H&PC Business inJapan and abroad a key driver of profit growth, wewill rebalance the allocation of various resources. The
overseas business in particular is expected to achievesignificant growth under the 5th MTBP, so we must
make growth investments, including investments in
M&A. We plan to utilize the stable cash flows generated
by the Paper and Paperboard Business to fund our
growth investments and our goal is to establish andrealize a sustainable growth cycle while making steadyprogress in structural reforms. One of our strengths
lies in having packaging paper and household paper
products, which will remain in relatively firm demand,as mainstays in our product lineup. This sets us apartfrom those heavily reliant on graphic paper, for which
demand will decline in the future as more people aretransitioning toward paperless practices in both workand lifestyle, among other factors. Another importantIntegrated Report 2023

40

SECTION 01

SECTION 02
Message from the Officer Responsible for Financial Affairs

asset of ours is the sales skills that we have developed
while establishing an integrated system for producing
and selling a whole range of paper-related products,from pulp as an upstream product in the industry to
B2C products, such as household paper, which are final
downstream products. While leveraging these strengthsof ours, we will also allocate growth funds to businesses
in new fields, including Cellulose Nanofiber (CNF) andproducts that will contribute to a reduction in plastic

use, and foster them as new business pillars.
Furthermore, pressing global trends toward action
for sustainability have necessitated us to shift awayfrom our conventional coal-centered energy policy.
To invest in decarbonization and deliver returns to
our shareholders, we commit to ensuring that evenour growth fields, such as the H&PC Business and its
overseas business, will generate operating cash.

Progress in our efforts to increase return on invested capital (ROIC)
Up until recently, we mainly used income-statementbased indicators as KPIs for business management,
and made decisions on each investment project inconsideration of such factors as the payback period
and the ﬁnal return rate. While this approach certainly
allowed us to make quick decisions, we recognized theneed to incorporate a capital-cost-related indicator in
our investment decisions in order to more accurately
respond to the current business environment, which ismarked by growing uncertainty. Therefore, we began touse return on invested capital (ROIC) as a management
KPI under the 4th MTBP.
By expanding the adoption of ROIC throughout theGroup, we seek to foster a shared awareness among themanagement team and staff. The Corporate Planning
Division is leading efforts to promote the use of ROIC
across the Group. We're actively tackling the challengeof enhancing staff awareness of ROIC by carrying out
awareness-raising activities, leveraging the ROIC tree
to break down ROIC into its elements. This will vividly
illustrate the link between these elements and thecurrent departmental indicators in use. For instance,
sales staff currently rely on indicators like selling

prices, marginal income ratio, and the percentage of
unsold long-term inventories. To further familiarize
each business group's staff with the ROIC tree, we'reconducting workshops to demonstrate how theirindicators directly contribute to increasing ROIC.
Moving forward, as we progress with ROIC-driven
management, we aim to optimize resource allocation
and business portfolio, as well as improve our capitalefficiency and make better investment decisions.
In addition, in May this year, new business withdrawal
criteria were formulated and adopted under theleadership of the Corporate Planning Division.
These withdrawal criteria are not intended toencourage withdrawal. Their key aim is to support thereconstruction of any struggling business or subsidiary.
This would require the involvement of not only thepertinent business group but also the participation of
the Corporate Planning and Business Administration
Divisions in devising countermeasures. It is only when
every conceivable effort toward reconstruction has
been exhausted, and it is still considered difficult toreconstruct such a business or subsidiary, that we will
execute the appropriate withdrawal procedure.

Investments in environmental initiatives, human resource strategy, and intellectual property strategy
During the 3rd MTBP period, we made capital
investments of 175 billion yen (or over 200 billion yen
if M&A investments are factored in) with high leverage,
while implementing structural business reforms
mainly at the Mishima Mill. As a result, we were able
to carve a growth path. During the 4th MTBP, whileenvisioning further progress in our growth strategy,
we are continuing to work on the improvement offinancial strength as one of our three basic policies.
Therefore, our budget for investments, including
M&A investments, has been reduced from that forthe previous MTBP to 155 billion yen. However, ourdeteriorated financial results for FY2022 have brought
our efforts to improve financial strength to a standstill.
In light of this situation, I recognize that, under the 5th
MTBP, which will start in FY2024, we will need to focus

41

Integrated Report 2023

our growth investments on more carefully selected
targets.
Meanwhile, from a medium- to long-term perspective,
we must make growth investments in energy transition
to break away from our dependence on coal. We
predict that the introduction of carbon pricing in
FY2028 or later will cause a gradual decline in profitsand cash flows from the Paper and Paperboard
Business. I am therefore aware of the need toincorporate decarbonization-related risks into ourinvestment evaluation and decisions.
In the field of human resources, we are facing theurgent challenge of developing globally effective
human resources in preparation for overseas businessexpansion. Alongside offering training, including
language learning, we are partnering with the General

SECTION 02

SECTION 03

SECTION 04

Fulfilling Our Purpose

Achieving Sustainable Growth

Responding to Social Issues

Data and Information—Value Creation Story of the Daio Group——Strategy for Continuing to Provide Value——Foundation for Sustainable Growth——Financial and Corporate Data—

Affairs and Personnel Division to roll out a strategy
that offers our employees career paths that involve
overseas assignments within a few years of joining
the company. We are also exploring the possibilities
of recruiting globally effective human resources fromoutside. Moreover, we are working to shift humanresources from the Paper and Paperboard Businessto the H&PC Business. The efforts that the Paper andPaperboard Business has made in organizational
integration and efficiency improvement since the 1st
MTBP have allowed it to compete effectively with its
competitors in Japan with a small but competent staff.

We are planning to have the Paper and Paperboard
Business continuously pursue efficiency with a small but
competent staff, and to scale out its know-how to the
H&PC Business.
Our efforts in intellectual property strategy are focusedon innovations in priority fields, such as the H&PC
Business, CNF and other new materials as new businessfields, and environmentally friendly products that help
reduce plastic waste. In conjunction with our overseas
business expansion, we are devoting sustained efforts
to augmenting our global portfolio of intellectual
property, thereby enhancing our brand value globally.

Vision for shareholder return
Positioning offering return to shareholders as one of
our top priorities, we have adopted a basic policy ofcontinuing stable dividend payments while taking into
account our ﬁnancial results, internal reserves, andother factors. From the perspective of ensuring stabledividend payments based on equity, we have used thedividend on equity ratio (DOE) as an indicator since
FY2021. Our medium- to long-term target for DOE is
2.0%.

Mainly because we recorded a loss attributable toowners of parent for FY2022, we regrettably reduced
the dividends for that year. As a result, DOE deteriorated
from 1.5% for FY2021 to 1.1% for FY2022. For FY2023,
we plan to continue to pay the same level of dividends
as in FY2022. This is regrettable; however, we aim toincrease dividends by improving our profitability as earlyas possible with a view to achieving our medium- tolong-term DOE target of 2.0%.

Message to stakeholders
Our price-to-book ratio (P/B ratio) remained at alevel of approximately 1.0 until the end of March

2022, but it has recently continued to fall below 1.0.
We recognize improving the P/B ratio as a major
challenge we should solve. We acknowledge thatthe delay in improving the profitability of the H&PC
Business is the main cause of the decline in our
corporate value. We believe that the key to achievinga breakthrough in this situation and improving
our corporate value is to clearly demonstrate toall stakeholders an obvious improvement in our
profitability and remarkable progress in our overseas
business expansion, which will naturally result in
an increase in our P/B ratio. We will work to restore
our profitability as soon as possible with a view torealizing corporate management that is consciousof the cost of capital and the stock price. We will
also continue our efforts in investor relations (IR)activities to have constructive dialogue with ourshareholders and investors about such topics as ourviews on the P/B ratio, the price-to-earnings ratio (P/E
ratio), and the cost of capital, thereby incorporating
their opinions into our corporate management. By
adopting these measures, we will strive to further
increase our corporate value.
We look forward to the continued support of our
stakeholders.

Integrated Report 2023

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SECTION 02

Toward Achievement of the Targets of the Fourth
Medium-Term Business Plan

SECTION 02

SECTION 03

SECTION 04

Fulfilling Our Purpose

Achieving Sustainable Growth

Responding to Social Issues

Data and Information—Value Creation Story of the Daio Group——Strategy for Continuing to Provide Value——Foundation for Sustainable Growth——Financial and Corporate Data—

Major products

Paper & Paperboard Unit

Rems, a system for accepting orders for mixed-pulp paper—Reusing residues of production processes as araw material for paper—

Newsprint Sales Division and Paper Sales Division
Paper & Paperboard Business Group● Message from the General Manager of the Business GroupWe will further enhance our integrated
operations through organizational reforms,
and increase the added value of our
products and the efficiency of our operations
with the aim of improving our profitability.

Future vision of these divisions
In FY2022, in face of raw material and fuel prices soaring and remaining
high, we found ourselves in the unprecedented situation of having torevise the selling prices of our newsprint and paper products three times.
As a result, our profitability improved, but the increased prices of our
products caused a drastic decline in demand. We believe that, in view ofthe future, we need to further accelerate our efforts in product-mix shifts
and structural reforms, which we have resolutely launched. Until FY2022,with 19 paper machines in operation, the Mishima Mill, our core mill,used to produce approximately 2.1 million metric tons per year. However,in response to reduced demand, we implemented paper machine
conversion and adjusted our product mix. Furthermore, in April 2023, as
the downturn in demand intensified, we made a pivotal decision to cease
the operation of a newsprint paper machine. This decision was based on
our judgment that it would be better to trim energy costs by stopping
the machine than to keep it running on a reduced scale. We will continue
to resolutely execute such structural reforms and optimize the balance
between production, sales, and inventories, with the aim of maintaining
the profitability of the entire mill.

Atsushi Ishida

Examples of final
products using
mixed-pulp paper that
contains residues

Director, Managing Executive Officer
General Manager of Paper &Paperboard Business Group
Paper & Paperboard Unit

● Development of the product lineup

In October 2022, Rems products were newly added to Daio Paper’s product lineup. “Rems” is the name of a system whereby paper is made bymixing residues, such as rice husks and coffee grounds, in pulp fiber. Although some particles appear on the surfaces of paper sheets, this systemfor producing mixed-pulp paper containing residues that otherwise would have been disposed of contributes to the effective use of resources.
The residues that are used in this system are provided by other companies and organizations. We mix those residues in pulp to recycle them into
new paper. We have received a lot of requests for the utilization of residues of production processes to produce mixed-pulp paper for many years,
so the Rems system has enabled us to meet such requests in a timely manner. Many companies and organizations have made inquiries to us about
this system during the very short period since its launch.

pulp production, we had to raise the prices of our newsprint and graphic
paper products three times during the year, while we raised the pricesof our paper products with a high content of recovered pulp only twice.
Although we fell into the red in FY2022, we predict that the progress of
not only such selling price revisions but also product-mix shifts and productintegration through structural reforms will enable us to return to the blackin FY2023.

Daio Group’s strengths and challenges
I believe that the major strength of our Group lies in integrated
operations. The way we hold and share necessary information beyond
departmental and company boundaries consistently has enabled us toproactively propose total product and service solutions in response tocustomers’ requests and questions. The Newsprint and Paper BusinessGroup and the Industrial Paper and Containerboard Business Group haverecently integrated into one business group. We aim to increase the sales
volume of profitable products in the future by enhancing our marketing
activities encompassing all types of products through integrated
operations. Our ability to conduct sales activities across our entire productlineup means that we can serve as a one-stop provider of all types of
paper that customers need from a market-oriented perspective, thereby

Business results for FY2022
For FY2022, the Paper & Paperboard Unit as a whole achieved sales of347 billion yen, but recorded an operating loss of 12.4 billion yen. In thenewsprint and paper business, sales volume decreased due to the falling
circulation of newspapers and declining demand for graphic paper, but
our efforts to revise selling prices resulted in an increase in the amountof sales year-on-year. However, this increase was not adequate to offset
the increase in production costs caused by the soaring raw material
and fuel prices, resulting in a decrease in operating profit year-on-year.
The situation whereby the high raw material and fuel costs caused the
profitability of paper in general to decline made it difficult for us to earn
profits, particularly from paper containing a high percentage of virginpulp. Since the production cost for this kind of paper is higher than that for
paper containing recovered pulp due to the difference in the cost of the43

Integrated Report 2023

■ Net sales of the Newsprint Sales Division and the Paper Sales Division(Billion yen)

181.6

182.6
160.5

FY2018FY2019FY2020[Socially conscious product]
Tasukeai-no-wa+ copy paper, 1% of thesales amount of which is donated to theJapan Committee for UNICEF

169.0

173.0

FY2021

FY2022

evolving our sales organization. In terms of production, the Mishima
Mill, our core mill, is unique in that it manufactures all types of paper in
one site. This provides us with a distinct advantage, allowing us to adjust
our production and product mix easily and agilely. Having a printing
company in our Group benefits us by allowing us to receive feedbackon user needs. We are testing a business model of elevating the valueof printed materials by innovating value-added paper that enables
value-added printing, with the aim of increasing the added value of ourprinting company. Ultimately, our goal is to scale out this model to otherprinting companies, and establish a process whereby our customers willconsistently choose and purchase our paper products. On the other hand,
we are facing a logistical challenge. The progress of our shift from graphic
paper, which is in declining demand, to industrial and household paper
products has caused drastic changes in the total weight of our products.
Such a production shift is likely to have an impact on logistics, impeding
us from completely transporting our products and thereby causing us
to lose business opportunities. Therefore, we will foster collaboration
in logistics in such forms as mutually supplementing logistics together
with customers and shipping products jointly with companies in otherindustries. By doing so, we aim to devise effective measures, including
securing return cargos, to overcome the logistical challenge we are facing.

Views on the current market environment(opportunities and risks)
The COVID-19 pandemic accelerated digitalization and the shift fromgraphic paper to electronic devices. We had anticipated a certain levelof decline in demand due to the progress of digitalization. However,
the rises in raw material and fuel prices and their subsequent prolonged
high levels triggered by the Russian invasion of Ukraine have had an
impact on our profits, forcing us to revise our selling prices, which has
caused us to severely suffer from a more serious decline in demandthan expected. The risk of price revisions creating general trends toward
avoiding immediate purchase and resulting in the shrinking of themarket is common to all companies in our industry, including ourselves.
Nevertheless, I believe that our strengths—integrated operations, ourability to produce a wide range of paper products at the Mishima Mill,
which is located in a coastal area, and our sales system in place forflexible development—will enable us to differentiate ourselves from ourcompetitors and create business opportunities even amid the declineof the entire industry. I predict that price revisions and growing public
environmental awareness will continue accelerating the decline indemand for graphic paper. However, we will work to take advantage oftrends toward plastic-free lifestyles and create new demand for paper
products, including environmentally friendly ones.

Resolving social issues through our businessStreamlining logistics is a major challenge for us to solve, but tackling thischallenge will also lead us to reduce greenhouse gas (GHG) emissions.
I believe that, against a backdrop of recently mounting concern abouta shortage of drivers, we can make further progress in contributing to
the achievement of the SDGs by streamlining logistics. We will be able
to not only reduce logistics costs but also build win-win relationships
with customers who have bought our paper products, by cooperatingwith them in sharing return cargos to be loaded onto carriers. We havealso contributed to environmental conservation by effectively recycling
recovered paper into Forest Stewardship Council (FSC)-certified paperand other products. At the Mishima Mill, efforts are under way to reduce
production costs by stopping a large paper machine and rebuilding the
production system. We are also working to reduce coal usage at themill by adopting energy-saving measures and switching the biomass
power that we generated and sold externally through the feed-in-tariff(FIT) program to in-house consumption. We will also devote efforts todeveloping products that help reduce plastic waste, for which demandis expected to further grow significantly in the future, to fulfill the Daio
Group’s Management Philosophy: “Shaping an abundant and affable
future for the world.” We will contribute to the creation of a sustainable
recycling-oriented society based on the shared recognition that
promoting the effective use of recovered paper and other resources will
also lead to the achievement of SDG 12: Responsible Consumption and
Production.

Integrated Report 2023

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SECTION 01

SECTION 02
Toward Achievement of the Targets of the Fourth Medium-Term Business Plan

SECTION 02

SECTION 03

SECTION 04

Fulfilling Our Purpose

Achieving Sustainable Growth

Responding to Social Issues

Data and Information—Value Creation Story of the Daio Group——Strategy for Continuing to Provide Value——Foundation for Sustainable Growth——Financial and Corporate Data—

Major products

Paper & Paperboard Unit

Paperboard Sales Division andPackaging Paper Sales Division
Paper & Paperboard Business Group

Dear-Natura
from Asahi Group Foods, Ltd.

Atsushi Ishida● Message from the General Manager of the Business Group

Director, Managing
Executive Officer
General Manager of Paper& Paperboard Business
Group
Paper & Paperboard Unit

We will increase the sales volume ofprofitable products by establishing a new
Direct Demand Department, which canpropose paperboard and plastic-reducing
products in combination.

Future vision of these divisions
In April this year, we established a new Direct Demand Department in the
Paperboard Sales Division as an organization that proposes a total packageof solutions, including not only containerboard and corrugated containers
but also packaging paper, to end users. This organization embodies aGroup-wide style of proposing a wide variety of paper products, including
packaging paper and functional materials, transcending boundaries
between product types. I recognize its establishment as one of thehighlights of our FY2023 activities. We hope to use this new approachto organizational reforms as a model case to be scaled out in the Group,
rather than limiting it only within the Paperboard Sales Division. The Direct
Demand Department is currently in charge of proposing a total packageof solutions, including corrugated container, packaging paper, and paperbags, but we hope to broaden the lineup handled by the Direct Demand
Department to include newsprint and graphic paper products, such as
printing paper, in the future. The Direct Demand Department started
with 10 staff members. However, since the Paper & Paperboard BusinessGroup has a sales workforce of about 300, we are considering the ultimate
possibilities of engaging all sales staff members in marketing all types of
products. While proposing a total package of solutions to end users incooperation with converting companies, we focus on building networks bypromoting not only product-related measures but also logistics measures,such as joint shipment and the utilization of return cargos after delivery.

containers themselves. We will differentiate ourselves by providing added
value that other corrugated container companies cannot, such as designs
that increase the value of the corrugated container itself and its content,with a view to increasing the prices of the corrugated container products
themselves, thereby improving our profitability. In FY2022, we revised theprices of corrugated container products twice, but we should have increased
prices within a few months after the price hike of containerboard. In reality,
last fiscal year, it took about half a year for us to pass on the material cost
increase to selling prices, resulting in an increase in net sales and a decreasein operating income in the corrugated container business. We have alreadyalmost succeeded in rolling out our cost pass-through efforts, which we
expect to make a positive contribution to sales throughout FY2023, enabling
us to achieve a year-on-year increase in both net sales and operating profit.
Under the upcoming 5th MTBP, the Daio Group as a whole will adopt a
policy of enhancing its overseas businesses, mainly the overseas Home andPersonal Care (H&PC) Business. In addition, the plan also envisions overseas
expansion of the corrugated container business in the future. During the 5th
MTBP period, we will not only enhance our businesses in Japan, but also makea strong commitment to expanding our businesses abroad. The Overseas
Business Group of the H&PC Unit currently has factories in China, Thailand,
Indonesia, Turkey, and Brazil. Those factories use a huge volume of corrugatedcontainers. We will consider the possibilities of producing corrugatedcontainers locally, including M&A of corrugated container factories.

173.9
158.4

45

Integrated Report 2023

134.9

135.2

FY2018FY2019141.9

FY2020

FY2021

FY2022

MaMa Aerudake Pasta Sauce
Ippin
from Nisshin Seifun Welna Inc.

Daio Paper’s environmentally friendly products include the Elipla series, a series of products that contribute to plastic-free and low-plastic lifestyles. This
series started with stir sticks, but its lineup has so far been dramatically expanded and enriched to include hangers and toothbrushes, as well as spatulas
for use by cosmetics companies or as disposable amenities, all of which are made of FS Elipla Paper intended to serve as an alternative to plastic. FS Elipla
Heat Seal, an alternative to film, is used in packaging products for foods, including fried foods such as donuts. We have also received an increasing numberof customer requests for packaging paper that contains recovered pulp or is certified by the Forest Stewardship Council (FSC). In 2020, we launchedenvelopes and paper bags made of FS Unbleached Recycled Paper 100, which is FSC-certified paper made from 100% recovered pulp. During the past
year, the number of inquiries made to us regarding these products has been soaring, resulting in more widespread use of this recycled paper. We recognizethat the main factor behind such a strong interest in this kind of product is changes in environmental awareness of the general public. Even luxury brands
use this kind of paper for bags for sample products.

Daio Paper’s strengths and challenges
As embodied by the newly established Direct Demand Department, one of
our strengths lies in our Group-wide integrated organizational operations.
Against a backdrop of growing social demand for plastic waste reduction,
we established the Direct Demand Department to have a system in place
for proposing both containerboard and the plastic-reducing Elipla series
at the same time, which has made it easier for us to meet customers’
needs and their requests for products that facilitate their environmental
activities. We will make maximum use of our Group’s power to propose
total solutions ranging from upstream products to downstream final
products in order to increase our sales. One of the strengths of our businessgroup lies in our alliances and networks with independent converting andprocessing companies, as well as with other departments within the Group.
Such challenges as addressing logistics issues, reducing GHG emissions,and realizing closed-loop recycling are difficult for us to solve alone, andrequire us to build networks. Horizontal recycling, whereby used items arerecycled into the same kinds of items, has recently been a focus of growing
public attention. In the paper industry as well, it is now possible to collectused paper and recycle it into paper for the same use. We would not beable to implement this initiative without our networks with convertingand processing companies, as well as with end users. We hope to propose
solutions with higher added value to our customers from now on.

the market for newsprint and graphic paper. However, since October 2022,
demand for containerboard in Japan has remained lower than in previous
years. Since December of the same year, the country has also been seeing
lower demand for packaging paper than in previous years. I suppose thatfactors behind such weak demand for packaging materials in Japan include
reduced demand due to price increases, the declining birthrate, and thedecrease in the number of international tourists to the country. Now that the
COVID-19 pandemic is approaching an end, there is a potential for recovery
in the number of international tourists and in demand. Nevertheless, amid
the general trend toward a population decline, we should anticipate therisk of a subsequent decrease in demand for packaging materials, which has
remained firm and stable thus far. I basically believe that it is important for
us to increase the added value of our products so that we will be able to takeadvantage of even such a risk as an opportunity. Our business group will shift
the focus of our sales style from quantity to quality. For example, we may
provide the kind of paper package that makes its content look better andmore luxurious, rather than being a mere box for transportation. By adopting
such approaches, we will help increase the value of the products containedin the packages we provide, which will have an impact on the selling prices of
those products, hopefully leading to our paper products being purchased at
the prices that they more truly deserve.

Resolving social issues through our business■ Net sales of the Paperboard Sales Division and the Packaging Paper
Sales Division (Billion yen)

Business results for FY2022
For FY2022, these two divisions collectively achieved the expansion of theirbusiness scale and an increase in net sales year-on-year, but experienced
a decrease in operating profit year-on-year despite selling price revisions
made in response to the sharp rises in raw material and fuel prices. Thisdecrease can be explained by a delayed pass-through of the increase in
raw material and fuel costs. I recognize that the key challenges we shouldsolve in FY2023 include not only expanding the downstream corrugatedcontainer business and making a quick pass-through of the cost increase, butalso implementing initiatives to increase the added value of our corrugated● Development of the product lineup[Environmentally friendly products]
The Elipla series,
a new brand of the entire
range of products that
contribute to plastic-freeand low-plastic lifestyles

Premium Sweet
from Dole Japan, Inc.

Views on the current market environment(opportunities and risks)
It is said that demand for industrial paper, such as containerboard andpackaging paper, generally remains firmer and more stable than that fornewsprint and graphic paper. For example, the expansion of e-commerce
and the increased proportion of nuclear families have caused the downsizingof product packages. The downsizing of corrugated containers means
an increased amount of containerboard used. In addition, containers forvegetables, fruits, beverages, and processed foods account for about 60%of the corrugated container market. Demand for food products is stable,
so in that sense, the containerboard market is firmer and more stable than

Corrugated containers and paper bags are 100% recyclable, environmentallyfriendly packages. We will devote efforts to further reducing ourenvironmental load by increasing the ratio of recovered pulp contained in
our products and utilizing hard-to-recycle recovered paper, which has been
disposed of as waste thus far. Furthermore, in anticipation of continuing
steady growth in demand for products that contribute to plastic-free andlow-plastic lifestyles, we will continue to develop such products. At the sametime, we will also build networks and collaborate with external parties inpromoting various initiatives, including those to realize horizontal recycling
and to solve the so-called “2024 issue” in the Japanese logistics industry, thatis, the issue of truck driver shortages expected to be exacerbated by an upper
limit that will be imposed on the working hours of drivers in 2024.

Integrated Report 2023

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SECTION 01

SECTION 02
Toward Achievement of the Targets of the Fourth Medium-Term Business Plan

SECTION 02

SECTION 03

SECTION 04

Fulfilling Our Purpose

Achieving Sustainable Growth

Responding to Social Issues

Data and Information—Value Creation Story of the Daio Group——Strategy for Continuing to Provide Value——Foundation for Sustainable Growth——Financial and Corporate Data—

Major productsHome & Personal Care Unit

Domestic Business Group
Hiroyuki Fujita● Message from the General Manager of the Business GroupOur vision is focused on carrying out
structural reforms in what we alreadyhave in order to generate maximum
profits at minimum costs.

Future vision of this business group
The Home & Personal Care (H&PC) Business Group is committed toenhancing activities aimed at generating maximum profits at minimum
cost and initiatives to accelerate business growth through M&A. Last fiscal
year, our focus was on achieving results cost-effectively, in the face of the
difficulty in remaining profitable and the increase in raw material andfuel costs. For example, we adopted the approach of sharing information
about our social contribution projects with the general public to raise
general awareness of our products, while arousing our customers’
empathy. I believe that our sustained efforts to scale out such approaches
toward the 5th MTBP will become the core of our next future vision. In
October last year, we acquired shares in Daiki Co., Ltd., a manufacturer
and distributor of cat litter. We will enter the pet care business on a fullscale in the second half of FY2023. Our basic business model was to earn
profits through making capital investments in our own facilities. However,in a situation where we have to limit such capital investments, M&A could
serve as an effective method to acquire know-how in new ventures, which
not only enhances our brand power but also quickens and streamlines
the process of establishing and nurturing new businesses. Therefore, wewill keep in view the possibility of utilizing M&A to accelerate our businessgrowth.

Business results for FY2022
For FY2022, the Domestic Business Group of the H&PC Unit recorded salesof 181.2 billion yen, a decrease of 1.1% year-on-year, and an operating
loss of 6.5 billion yen. The main factor behind the operating loss was a lossof several tens of billions of yen caused mainly by the sharp rises in raw
material and fuel prices, which we were ultimately unable to completely
offset throughout the year even with selling price revisions and major
structural reforms. In preparation for FY2023, we slowed down our paceof launching new products and resolutely implemented no-holds-barredmeasures, including changing product specifications and reducing costs,
to increase the profitability of each product. Additionally, the market
positively responded to the price revisions we made throughout 2022. We

47

Integrated Report 2023

©Disney

Director, Managing Executive
Officer
General Manager ofDomestic Business Group
Home & Personal Care Unit

● Development of the product lineup[Collaboration-based products]• elis × M / mika ninagawa, featuring adesign created in collaboration with thephotographer and film director• Elleair Alcohol-based Disinfectant Wipes
in bottles designed in collaboration with
CHUMS

[Environmentally friendly products]
Products using paper packages:• elis Suhadanokimochi
Natural Series• Kirekira! Toilet Cleaning Wipes
in the Too-Nice-to-Throw-away
Package• Ellever Paper Towel
in a paper package (200 single-ply
sheets)In FY2021, we worked to increase the sales ratio of new products. By contrast, in FY2022, we slowed down our pace of launching new products and switched
our direction to increasing the added value of products and present the appeal of each product compellingly during business talks. In addition, as a strategy for
expanding the settings for use of our products, we developed a product series in collaboration with a popular outdoor brand. Our sanitizing products are typicallyused at home, especially during the COVID-19 pandemic. Going forward, we hope customers would also use them in outdoor activities, such as camping. To thisend, we have also increased where this series is placed on shelves in stores, placing them on shelves for camping goods as well as instore fairs, in addition to sections
for sanitizing products. In this way, we have been implementing further novel initiatives. Meanwhile, we believe that we will be able to reduce our stock, promote
optimal logistics, and improve production efficiency by accelerating our efforts to reduce the number of stock keeping units (SKUs) in parallel with launching various
limited edition products seasonally. Moreover, in the growing elderly care products market, we hope that our Attento brand disposable incontinence underwear
products, which are developed with the tag line, “For better comfort,” as well as in collaboration with Wacoal Corporation, can provide consumers with a bright
future where they can casually try on and wear them out with a smile.

believe that the outcomes of these measures will significantly contributeto improving our operating profit for FY2023, thereby enabling us toachieve the financial targets. Furthermore, in April 2023, we established a
new Structural Reform Promotion Division to speed up our responses tothe revamped mission-critical system based on our achievements during
FY2022. This division was established as a new organization that would
work collaboratively across departments in charge of sales, marketing, IT
systems, and logistics, as well as mills and factories. Its primary focus for
FY2023 and toward the 5th MTBP is on increasing efficiency, sales, andprofits through structural reforms of existing resources, equipment, andpersonnel without requiring additional investments.

recognition nudges consumers toward choosing our elderly care products,
masks, and wipes by appealing to their fondness for our family brand.
Furthermore, we will also leverage our strengths to develop the pet careproduct business into a new growth field in anticipation that, in the petcare goods industry, one of very few growth markets in Japan, we will beable to produce a lot of synergetic effects using our existing technologies
and in terms of production technology and raw materials. On the other
hand, we have also striven for sales expansion through low-cost marketingin various projects, resulting in opportunities for consumers to learn about
our products. I also believe that our joint research on the feasibility of adisposable diaper recycling business will give us a differentiating factor to
set us apart from other companies, against a backdrop of further growing
public environmental awareness in the future.

consumer buying behavior and awareness is changing. Demand for suchproducts as masks and wipes is predicted to decline from now on, so wewill consider marketing products to replace them. Amid an accelerating
population decline in Japan, the markets for baby care and feminine careproducts will inevitably shrink. Therefore, it is important for us to shift
our resources to promising growth markets, such as the elderly care andpet care markets. The depreciation of the yen and the sharp rises in raw
material and fuel prices appear to have begun to fall from their peaks
since the beginning of FY2023. As the industry leader in the household
paper category, we will continue our efforts to stabilize the selling pricesof household paper and other personal care products, thereby raisingourselves to a higher position in the industry.

Daio Paper’s strengths and challenges
Daio Paper’s strengths lie in its exceptional capability to meet the demandfor household paper products and its facilities that can adapt flexibly tochanges in the market situation. Our efforts to adapt to lifestyle changes
have enabled us to shorten the preparation period for the launch of new
regular or limited edition products, thereby increasing our ability to adapt
to changes in the market. In addition, our efforts to make maximum useof the brand power of Elleair and increase its affinity with other productcategories have contributed to sales expansion. Elleair's high brand■ Net sales of the Domestic Business Group, H&PC Unit (Billion yen)

160.6

FY2018170.2

FY2019175.4

FY2020

183.2

181.2

FY2021

FY2022

Resolving social issues through our business
Views on the current market environment(opportunities and risks)
Incineration of used disposable diapers requires a large amount of energy.
In the super-aging Japanese society, the volume of disposable diapers
consumed per se is rapidly increasing. Therefore, it can be predicted thatthe issue of disposal of disposable diapers will become more serious in the
future. Under these circumstances, Daio Paper aims to establish a uniqueenvironmentally friendly business model. In June last year, we launch a
joint research initiative with Livedo Corporation and Total Care System
Co. to explore the possibilities of establishing the recycling of disposable
diapers as a business. By establishing a system for the recycling of useddisposable diapers and insourcing the manufacture of fluff pulp, we aim
to launch a horizontal recycling process for disposable diapers, whereby a
mixture of fluff pulp and recycled pulp will be used to manufacture DaioPaper disposable diapers. Furthermore, we have already established amaterial recycling process that utilizes production rejects and scraps fromthe manufacture of household paper products and disposable diapers
to produce cat litter. This form of diaper recycling as an environmentallyfriendly business model, which also includes a strength entirely unique tous, will also help enhance our brand value as an initiative for sustainableproduct recycling. Now that the COVID-19 pandemic is reaching an end,

One of the important themes that our business group is pursuing is tosolve social issues of particular concern to us—including gender equality,
period poverty, long-term care issues due to population aging, and a
decline in close in-person contact triggered by the COVID-19 pandemic—
through our business activities. The “meet my elis” project, which has beenongoing since last year, embodies our desire to create a society where
no one has to forgo something they want to do just because they arehaving a period. This project also recognizes that those who menstruate
encompass a diverse range of identities. The period product provision
program that we launched under the project offers a solution to period
poverty during the COVID-19 pandemic. The “Egao-ni Touch” Projectis aimed at resolving the issue of the decline in close in-person contact
triggered by the pandemic. In this project, we are conducting activities that
respond to people’s concerns and questions about close in-person contact
while acknowledging the heightened hygiene consciousness. Moreover,as part of our efforts to reduce plastic waste, we are replacing plastic
packaging for some Kirekira! products with paper packaging. As a paper
manufacturer, we will place high priority on working on environmental
improvement by providing alternatives to plastic and make a meaningful
contribution to society by promoting sustainable business with the aim of
becoming a company fully approved by various stakeholders.

Integrated Report 2023

48

SECTION 01

SECTION 02
Toward Achievement of the Targets of the Fourth Medium-Term Business Plan

SECTION 02

SECTION 03

SECTION 04

Fulfilling Our Purpose

Achieving Sustainable Growth

Responding to Social Issues

Data and Information—Value Creation Story of the Daio Group——Strategy for Continuing to Provide Value——Foundation for Sustainable Growth——Financial and Corporate Data—

Major productsHome & Personal Care Unit

Overseas Business Group
Makoto Saito
Senior Executive Officer
General Manager of Overseas
Business Group andGeneral Manager of Overseas
Business Promotion Division
Home & Personal Care Unit

● Message from the General Manager of the Business GroupWe will strive to build a foundation for
the Overseas Business Group to serve as a
growth driver, with the aim of achieving
our financial targets through systemreconstruction and an intense focus on the
ASEAN region.

Future vision of this business group
As Daio Paper is devoting further efforts to implementing its generalpolicy of shifting weight from paper and paperboard products
to home and personal care (H&PC) products, the presence of theOverseas Business Group has grown even more prominent than in
FY2022. In FY2022, we failed to completely execute our plan despite
striving to achieve the goal of becoming a driving force for the entire
Daio Group. Based on the results of our review of our own FY2022
operations, we will go back to the starting point and revise ourfinancial targets to more reliably achievable ones, while maintaining
the lofty goal. By doing so, we hope to make FY2023 a new starting
point for the Overseas Business Group’s giant leap. In FY2022, wefaced even more drastic environmental changes than expected,
particularly in China, Brazil, and Turkey. Taking into account thechallenges we faced last year, we have devised new countermeasures.
We are currently implementing them to improve our strategies andoperations. Currently, we have overseas manufacturing and sales
bases in five countries, and bases dedicated to sales in two countries,
including Vietnam, where we established a new base in July 2023.
Around these countries are many markets with untapped growthpotential. From now on, we will focus on the ASEAN region, where
we will be able to explore markets at an increased speed and obtain
more reliable opportunities than elsewhere. We will concentratevarious resources in this region while capturing ever-expanding
demand. Specifically, we will strengthen local marketing functions andat the same time, explore the possibilities for reorganization and theestablishment of new sales subsidiaries.

Business results for FY2022
In FY2022, the business results in China, Brazil, and Turkey fell shortof the initial targets. In China, immediately after the local in-houseproduction of sanitary napkins started, a shortage of retailer staff
occurred due to strict activity control under the zero-COVID policy.
Many retailers long postponed starting to sell our new products,

49

Integrated Report 2023

despite agreements to include them as regular offerings in their stores.
Our failure to achieve the targets in Brazil and Turkey was causedby the faster progress of cost-increasing changes there—the drastic
increase in pulp prices in Brazil, and the massive depreciation of thelocal currency, hyperinflation, and the sharp rise in raw material prices
in Turkey—than of our pass-through efforts. In China, our sanitarynapkins have been on full-scale sale since this fiscal year. In Brazil, nowthat raw material and fuel prices have stabilized, the step-by-step passthroughs we made last fiscal year are expected to produce positiveeffects throughout FY2023. Furthermore, our business in Thailand
achieved profitability last year. Our strategy for the ASEAN region,
including the establishment of a new sales subsidiary in Vietnam,
is now beginning to make progress. The Turkish economy has longremained unstable, but we will continue our pass-through efforts,
focusing on expanding sales of high-value-added products.

Daio Paper’s strengths and challenges
Daio Paper’s strengths lie in its abilities to develop products and to
conduct marketing activities that match local needs. As part of the
Daio Group’s shift of weight to the H&PC Business, our marketing
divisions have recently been reorganized so as to sharply accelerate
the shift from the domestic business to the overseas business. One■ Net sales of the Overseas Business Group, H&PC Unit (Billion yen)
89.1
74.1
62.6

34.5

34.5

FY2018FY2019FY2020

FY2021

FY2022China elis-series sanitary napkins
elis Super Premium Napkin series (front); elis Premium Napkin series(back left); elis Fantasy Funie Napkin series (back right)● Development for the product lineup for each country

Turkey Premium liquid products
Komili Tea Tree Oil Hand Soap series (left)
Komili Premium Liquid Soap (center)
Komili Ecologic Soap (right)

Brazil Disposable baby diaper pants
Premium variety (left)
Standard variety (right)

Disposable baby diaper pants in Brazil and liquid-category products in Turkey have sold even better than expected. In particular, in Brazil, which is not yet a large
market for diaper pants, our premium-variety disposable baby diaper pants were launched onto the market in September last year and have since proved very
popular. Following that, we launched new standard-variety disposable baby diaper pants in February 2023. We are therefore marketing a two-tier lineup of
products in FY2023. Diaper pants account for about 15% of the entire Brazilian disposable baby diaper market. However, during the six months since their launch,sales of our diaper pants have grown so significantly that they currently account for about 20% of the total sales of our disposable baby diapers in Brazil. Meanwhile,in Turkey, we focused on increasing the added value of disposable baby diapers in the initial period of our local operations after business acquisition. Since the fall of2022, we have also enhanced and broadened our lineup of premium liquid-category products, which are our main products in Turkey. As a result, for the first quarterof FY2023, sales of liquid-category products grew 2.6-fold year-on-year. It was our first experience dealing with liquid-category products, but I am pleased to reportthat our efforts are yielding positive results and this category is finally gaining momentum. I envision that, if these products are successful in Turkey, we will be able
to scale out the know-how we have acquired there to other countries, such as China and Thailand.

of the challenges that Daio Paper has long faced is its lack of globallyeffective human resources who can play a central role in overseas
businesses. To address this challenge, the Company is currently making
a significant investment in increasing the number and capabilities ofglobally effective human resources. The Company is almost completely
ready to send about a quarter of its domestic marketing staff towork abroad. I hope this move will bring us major new strengths,
providing great support for our efforts in overseas business expansion.
Daio Paper entered overseas markets later than other Japanesemanufacturers, so it may be undeniable that we are still following
in their wake in some ways. However, the COVID-19 pandemic has
triggered radical changes in consumer needs and buying patterns.
Since we are still in a transition period in terms of overseas expansion
and capital investment, we can introduce the latest equipment,
whose high performance will arm us with great agility in responding
to new market needs. Therefore, I believe that our current position
as a latecomer will rather provide us with significant business
opportunities. We hope to leverage this as a strength of Daio Paper toaccelerate our efforts to increase the profitability of our business.

Views on the current market environment(opportunities and risks)
Daio Paper has so far positioned increasing the added value of its
products as the core of its overseas business strategy. However, thepandemic has changed consumer attitudes. For example, among
consumers in China, there had been a trend of buying for themselves
and their children without caring about costs. However, I recognizethat they are inclining toward cost-performance-focused attitudes,considering the balance between quality and price. Nevertheless, they
are still as uncompromising about product quality as before, so it isexpected that price competition will become fiercer in the future. On
the other hand, an increasing number of consumers are beginning toplace high importance on quality while being not very particular about
price. Polarization in terms of consumer attitudes is occurring between
customers who focus on cost performance and those who placehigher priority on quality than price. Keeping an eye on such changes
in customer segmentation, we will enhance product lineups thatappeal to respective types of consumers. Now that the sharp rises in
raw material and fuel prices are passing their peaks, we will speed up
our efforts to improve our profitability. In addition, our main strategy
of local production of products for local consumption helps to reduce
foreign exchange risks. In Brazil, the prices of raw materials and fuelspassed their peaks and have been falling since the start of this year. We
also hope that the selling price revisions that we have made four times
since March 2022 will produce major obvious effects this fiscal year. In
Turkey, the depreciation of the local currency and the soaring pricesof raw materials and fuels have severely affected our profitability.
However, we expect that the effects of our pass-through efforts willappear in FY2023.

Resolving social issues through our businessI believe that the mission of the Overseas Business Group is to maintainthe Daio Group’s business growth in the countries of its operation,
thereby creating local employment and providing stable returns to the
local communities. Therefore, I believe that our current top priority is tomake a solid contribution to the local economies. Meanwhile, we willcontinue our current activities, including period education for studentsin Thailand and diaper education for expectant mothers in Indonesia,
so as to deliver benefits to the local communities. In product terms,
we have developed a new technology for bonding elastic thread todisposable baby diapers using ultrasonic waves in place of hot-meltadhesive. This technology has prepared us for the launch of low-plastic
disposable baby diapers in each country in FY2023. Moreover, as partof our product and material recycling activities, in Brazil, we reuse
pulp and polymers recovered from rejects from the disposable baby
diaper production process. In Thailand, Indonesia, and China, we havelaunched an initiative to recycle production rejects of disposable baby
diapers, whereby Daiki Co., Ltd., an affiliated subsidiary of Daio Paper,collects such diapers to recycle them as a raw material for a pet careproduct: cat litter.

Integrated Report 2023

50

Overseas Business Initiatives in Preparation
for the Fifth Medium-Term Business Plan

FeatureWe will build a foundation for achieving our target forthe overseas net sales ratio under■ Ratio and amount of overseas net sales
the Fifth Medium-Term Business Plan (MTBP).

4.9%
22.2 billion yen

7.7%
41.1 billion yen

11.1%
62.6 billion yen

13.8%

12.1%
74.1 billion yen

14.3%

30%

or above

SECTION 01

2nd MTBP(FY2017)

3rd MTBP(FY2020)

FY2021Results

Fulfilling Our Purpose

Achieving Sustainable Growth

Responding to Social Issues

Data and Information—Strategy for Continuing to Provide Value——Foundation for Sustainable Growth——Financial and Corporate Data—

Promoting multi-category business expansion* and increasing added product value

Multi-category business expansion: EICN (China)
Proportion of products outside the baby care category

89.1 billion yen

5th MTBP(FY2026)■ Baby care

73.3%

Promote multi-category business expansion
and increase added value of products

Increase the capabilities ofhuman resources

47.0%

ThailandFY2022China

FY2023China

Basic Policies
Enhance operations in the
ASEAN region■ Other

77.6%

BrazilFY2023
Forecast* Multi-category business expansion: Business expansion
through the provision of products in multiple categories

In our overseas business, we aim to strengthen our business foundation and improve our profitability by promoting multi-category businessexpansion and increasing added value of products according to the circumstances of each local subsidiary. Specifically, in China, Elleair
International China (Nantong) Co., Ltd. (EICN) will leverage the firmly established brand image of DaWang as a brand of high-quality disposablebaby diapers to expand sales of feminine care and household paper products, thereby promoting multi-category business expansion. In Brazil
and Turkey, where we conduct business through the two subsidiaries we acquired in 2020, Santher-Fábrica de Papel Santa Therezinha S.A.
(Santher) in Brazil and Elleair International Turkey Kişisel Bakim Ürünleri Üretim A.Ş. (EITR) in Turkey, products outside the baby care productcategory already constitute the majority of our product portfolio. However, a significant percentage of these are standard products. Therefore,
they are working to market high-value-added products and expand their sales by introducing Daio Paper’s proprietary technologies.

100.0 billion yen

FY2022
Results

SECTION 04—Value Creation Story of the Daio Group—

Turkey1st MTBP(FY2014)

SECTION 03

SECTION 02

11.2%

0.0%

50%

100%

In contrast to our progress in multi-categorybusiness expansion in other countries, COVID
lockdowns in China prevented us fromachieving our desired progress last fiscal year as
we were made to defer the launch of sanitarynapkins as a new category in the Chinese
market. This fiscal year, we will leverage thesales capabilities we have developed throughour sales activities for disposable baby diapers
to facilitate our sales expansion and upgrade
product displays at stores, while enhancing our
production facilities. By doing so, we aim to
broaden our product lineup, which is presently
limited, and launch our sanitary napkins on afull scale in China as soon as possible.

Enhancing operations in the ASEAN region
Recognizing that the demand for disposable baby diapers in the ASEAN region is 2.6 times that of Japan on a volume
basis, we position the region as the largest growth market for us. This is underscored by the anticipated population
growth in the future. We will speed up our expansion into each of the markets in the region by reinforcing themarketing and sales staff and reviewing our product supply system.
We have so far provided consumers in ASEAN countries, excluding Indonesia, with the same products as we offer inThailand. However, those countries differ in terms of market and consumer needs. While many of them are promisingmarkets for standard and economy products, few are likely to match Thailand’s strong demand for premium products.
Therefore, we will implement the following measures to speed up our expansion into those markets:

Reinforcing sales and marketing staff inboth number and capability
National markets for disposablebaby diapers in the ASEAN region

Research by Daio Paper

Daio Group bases

51

Demand volume

Rank

Country

1

Indonesia

624

2Philippines

190

3

Vietnam

176

4

Thailand142

5

Malaysia

72

6Myanmar

39

…

…

…

(million diapers)

10

Laos

6

Integrated Report 2023

Manufacture

Sales

●

●
●

●

●

Manufacturing and providing productsthat meet the market and consumer
needs of each country
Vietnam: Establishment ofa sales subsidiary
In July 2023, we established a
new sales subsidiary in Vietnam, apromising market with high demandand great potential for further growth.
We will reinforce our sales andmarketing staff working in the country
to speed up our expansion into theVietnamese market.

Philippines and Malaysia
Sales in the Philippines or Malaysia weremanaged by our base in Thailand as
we lack a sales base in either country,
despite the two being among the top
five that account for 90% of demandin the ASEAN region. In a move toprovide products better suited to local
needs and advance our expansion in
the two markets by enhancing logistical
efficiency, we recently shifted this
responsibility to our base in Indonesia. To
support this move, we will reinforce ourIndonesian sales and marketing team inIndonesia in both capacity and capability.

Efforts to increase the added value of products: Santher (Brazil)
Business foundationof Santher

Technological prowessof the Daio Group

サンテル主要カテゴリ売上推移

Sales growth in toilet tissue, sanitary napkins,
and disposable baby diapers■ Volume■ Amount*T his graph shows the total rate of increase in sales volume andamount of products in these categories
with FY2021 results set as 100.

2021

Three-ply toilet rolls

2022

2023 forecast

Premium sanitarynapkins

Premium diaper pants

Efforts to increase the added valueof main products,
resulting in a net increase in salesof premium products
After our acquisition of Santher, thecompany began selling value-added
products in its main categories, resulting
in significant sales growth thanks inpart to synergetic effects with standard
products.

Standard diaper pants

Integrated Report 2023

52

SECTION 01

FeatureSECTION 03

SECTION 02

SECTION 04

Fulfilling Our Purpose

Achieving Sustainable Growth

Responding to Social Issues

Data and Information—Value Creation Story of the Daio Group——Strategy for Continuing to Provide Value——Foundation for Sustainable Growth——Financial and Corporate Data—

Overseas Business Initiatives in Preparation for the Fifth Medium-Term Business Plan

Before our acquisition of the predecessor of EITR,
the company mainly dealt with standard products.
However, since it joined the Daio Group, it has
devoted enhanced efforts to developing new valueadded disposable baby diapers and liquid products,
and expanding their sales. The company’s endeavor
to pass on the increase in raw material and fuelprices to selling prices and expand sales of valueadded products helped improve the unit prices of its
products, resulting in remarkable growth in the sales
amount when compared with the sales volume.
This acquisition also introduced expertise in theliquid category to our Group. Moving forward, we
will gradually scale out their know-how in the liquid
category to other countries where we operate.

Efforts to increase the added value of products:
EITR (Turkey)
Proprietary
technologies of EITR

Marketing prowess of
the Daio Group■ Volume

Sales of liquid-category products

2021

2022

■ Amount

Scaling out their know-how inthe liquid category from Turkey
to other Daio Group companies

2023 forecast

Thailand
Komili Tea Tree Oil
Hand Soaps

Komili Premium
Liquid Soaps

Training andstaffing

1. Enriching the staff training system▶Developing globally effective human resources
2. Reinforcing personnel in overseas business, which will continue to grow in the future
3. I ncreasing the staff of subsidiaries in ASEAN countries▶Boosting our marketing anddevelopment prowess in the ASEAN region

Systemimprovement

Komili Ecologic
Soaps

We are devoting increased efforts to developing environmentally friendly products that do not require additional costs.

Prices affordable for those whoneed those products

New technology: Ultrasonic bonding technology usedin newly launched disposable baby diaper pants
Reduction of costs and petroleumderived raw material used

Reducing the use of plastic by25%

We used a new technology for bonding
elastic thread to disposable baby diaper
pants using ultrasonic waves. Together withother efforts, we reduced plastic in a pair ofdiaper pants by 25%. Disposable baby diaper
pants using this technology were launched
in Turkey in December 2022, and in Brazil in
February 2023. We will also launch productswith the same specifications in othercountries.

AbroadCreation of new kinds of added value in addition to luxury and high quality

Environmentallyfriendly products

To expand our overseas business, we will shift our human resources to the Home & Personal Care (H&PC) Overseas
Business and enhance the capabilities of our overseas organizations and human resources. We will train our staff tobe able to take the initiative in taking on new challenges even among people with different cultural backgrounds
from their own, by such measures as providing young managerial-track staff with career paths that involve overseas
assignment. We will also recruit human resources with great expertise in marketing and other fields from outside. By
doing so, we aim to establish a system for ensuring speedy implementation of our overseas strategy.

Japan

Japan

Reinforcing human resources

Introduction of an overseas
career system

Organizational structure designed
in consideration of staff’s life plans

Creating an environment that facilitates the developmentof a global mindset in staff
Training system for local staff
at overseas bases

Appointment of local staff to
executive positions

Consistently creating local employment

Environmental conservation activities, team bonding with locally employed staff, and social
contribution activities* Compared with other Daio Group baby diaper pants of the same size
Elleair International (Thailand)Co., Ltd. (EIT)
Installation of additional solar panels

PT. Elleair International
Manufacturing Indonesia (EIMI)
Guided factory tour for local
residents

EICN (China)
In-house event for celebrating the 10th
anniversary of the company’s founding

Scaled out

Scheduled tobe launched inother countries
as well

53

GOO.N FRIEND
diaper pants

Personal baby TOTAL PROTECT
diaper pants

Launched in Turkey in December 2022

Launched in Brazil in February 2023

Integrated Report 2023

PT. Elleair International Trading
Indonesia (EITI)Recycling of disposable baby diapers
production rejects

EICN (China)

EICN (China)

Solar panels

Guided factory tour organized by the government body in charge of the
Nantong Economic and Technological Development Zone

Integrated Report 2023

54

SECTION 01

SECTION 02

Intellectual Capital

SECTION 02

SECTION 03

SECTION 04

Fulfilling Our Purpose

Achieving Sustainable Growth

Responding to Social Issues

Data and Information—Value Creation Story of the Daio Group——Strategy for Continuing to Provide Value——Foundation for Sustainable Growth——Financial and Corporate Data——Intellectual Property Strategies to Enhance Corporate Value—
The Daio Group’s basic principle for intellectual
property is to “Maximize the value of seeds that will
shape an abundant and affable future for the world.”
The Intellectual Property (IP) Department is involved
actively in all steps in the innovation process in order toincrease the value of “seeds” that could serve as our future
revenue streams. The IP Department staff listen sincerely
to the management team and related departments, suchas development and marketing departments, as well as
overseas bases, to ensure that no “seed” goes unnoticed,
no matter how small it might be. In our IP activities, wewill adopt a proactive stance toward co-creation and cocultivation with related departments.

Support for the creation of innovation
Responses to material issues
55

1 Development and protection of the Elipla seriesof environmentally friendly products

Takashi Imaizumi
Executive Officer
General Manager ofIntellectual Property
Department, Corporate
Planning DivisionCorporate Unit

Raising seeds into
ideas

Raising ideas into
our competitive
advantages

Good listeners and advisors

Good partners in co-creationand co-cultivation

The IP Department staff listen sincerely to thestaff of related departments, such as development
and marketing departments, as well as the staffof overseas bases, to identify promising “seeds.”
They also keep an eye out for information
about the external environment, and propose
new perspectives and directions to relevant
departments while utilizing such analysis methods
as IP landscaping. By doing so, they raise theidentified seeds to be “buds” of ideas for specificproducts and services that can offer high value tocustomers.

Major Initiatives

Raising our competitive
advantages into our
profit sources

The Daio Group views global trends toward plastic-free lifestyles as abusiness opportunity, and provides various paper materials and products asalternatives to plastic. To increase public recognition for those products, inFebruary 2022, Daio Paper consolidated products that contribute to plasticfree and low-plastic lifestyles under a single brand, and launched the new
Elipla series.
Among the Elipla-series products is FS Elipla Paper, high-density heavyweight
paper developed by leveraging Daio Paper’s proprietary technology. The
Company not only provides corporate users with this product as an alternative
to plastic, but is also developing highly functional and well-designed products
using this paper, including paper hangers. The IP Department protects thebrand name, logo, technology, and designs from various aspects, by obtaining
patents and trademark and design rights in order to ensure that the Daio
Group can continue to manufacture and sell environmentally friendly products
while maintaining its own advantages, thereby contributing to the Company’ssustainable growth and sustainable social development.

Solid offense and defense

To further develop those ideas into the Daio
Group’s competitive advantages, the IP
Department staff collaborate with related
departments and external partners with aproactive stance toward co-creation andco-cultivation. In addition, through departmentwide dialogues, they secure strong strategic
combinations of rights to patents, designs, andtrademarks, thereby building an intellectual
property portfolio that is finely tuned to the Daio
Group’s requirements.

The IP Department staff will fortify the Daio
Group’s offense and defense through intellectual
property rights, and work together with related
departments to cultivate the Daio Group’s products
and brands into its strengths and profit sources.
[Offense] Protecting and enforcing IP rights
globally, implementing proactive countermeasuresagainst counterfeits, etc.
[Defense] Performing thorough IP clearance
searches, providing the staff of related departmentswith IP training, disseminating IP-related
information throughout the Daio Group, etc.

● More than 30 applications have been submitted for patents anddesign registration for the entire Elipla series (including alreadyapproved or undisclosed applications), eight of which are forregistration of designs related to hangers and have been approved.
● The brand name and logo have also been trademarked.
Web page featuring the Elipla series

https://www.daio-paper.co.jp/en/csr/dedicated/environment/

2 Offensive and defensive IP strategies linked to brand strategies
The Daio Group respects the rights of other companies, and promotes brand protection activities closely linked to its brand strategies in Japan and abroad. We
promote a hybrid IP strategy that combines trademark rights, design rights, and copyrights with a view to scaling it out globally. Our main measures to achieve
this include selecting likely competitive brands from the planning and development stages for new products, checking that the names and designs of our
products will not infringe other companies’ rights, and obtaining rights that are highly effective in holding other companies in check.
Our recent progress in overseas business expansion has helped increase global public recognition of our brands, including Elleair and GOO.N, resulting in
growing obstacles to our business operations due to the distribution of counterfeits and imitations. The entire Daio Group rigorously monitors trends in thirdparty products in the market, and is ready to make resolute responses to any infringement on our rights or unfair competitive acts committed by third parties,
including even legal actions against such cases, by leveraging the IP rights that the Group has in Japan and abroad.

Leveraging the IP Department’s position that allows for a holistic view of the entire Group from a management standpoint
At Daio Paper, IP activities are regularly reported to the management team twice a year at Management Meetings. Important IPrelated matters are also reported to the management team as needed to consult the team about those matters. In April 2023, theIP Department made a new start as part of the Corporate Planning Division. This strategic shift that allows for a holistic view of theGroup from a management standpoint positions the department to play a pivotal role in driving innovative strategies across theentire Group. Each IP staff member will reframe their mindset as a member of the Corporate Planning Division, seek to understandthe business strategy and the current IP portfolio of their areas of responsibility, and identify the factors that differentiate the
Daio Group from its competitors and the ways the Group can cultivate and maximize the value of “seeds.” Ultimately, we aspire toestablish a framework where IP staff members can actively propose new avenues for product development to related departments
and fresh business directions to the management team.

IP Dataumber of patents held by the Daio
1 N
Group
■ In Japan■ Abroad
5,438
4,889

ercentages of patent applications
2 Prelated
to new businesses andenvironmentally friendly technologies■ Applications related to existing business fields■ Applications related to environmentally friendly technologies■ Applications related to new businesses
100%

Strategictransformation of ourbusiness portfolio
The IP Department supports thecreation of products and services thatcan provide high value to customers
and the protection of the Daio
Group’s competitive advantages,
both of which help increase theprofitability of each business.
→ Major Initiatives 1→
IP Data3

Integrated Report 2023

Acceleration of global
expansion

Creation of new
businesses

The IP Department protects
important technologies by obtaining
patents for them globally.
The IP Department protects
important brands by obtaining
trademark and design rights globally.

The IP Department contributes
to establishing competitive
advantages by applying for patents
for technologies related to cellulose
nanofiber (CNF) and radio frequency
identifiers (RFID; also known as “ICtags”), which are integral to the Daio
Group’s new businesses.

→ Major Initiatives 2→→

IP Data1

IP Data2

Realization of arecycling-oriented
society
The IP Department strategicallyapplies for patent for environmentallyfriendly technologies and utilizes the
Daio Group’s IP to aid in enhancing
product recognition.
→ Major Initiatives 1→
IP Data2*4

aio Paper’s rank in total YK Value
3 Din each technological field(as of the end of March 2023)

No.1
No.1
No.1

Hygiene products

3,849

Medical products

2,746

Cleaning tools

Daio Paper

1st MTBP(FY2014)

2nd MTBP(FY2017)

3rd MTBP
4th MTBP(FY2020) (as of FY2022)

2nd MTBP

3rd MTBP
4th MTBP(including applicationsin the planning)ranks top
in three fields!

[Notes] 1. The number of patents held by the Daio Group, the number of patent applications, and other figures shown here may not match previously published figures due to changes in internal tabulation standards andother factors.
2. The number of patents held by the Daio Group is as of the end of the final fiscal year of each Medium-Term Business Plan (MTBP). Only the number for the 4th MTBP is as of the end of the latest fiscal year.
3. The percentages of patent applications related to new businesses and environmentally friendly technologies are calculated based on the total number of patent applications submitted during the three-year periodof each MTBP. Although this graph shows the percentage of the number of patent applications related to environmentally friendly technologies only for FY2022, the Daio Group’s efforts to apply for patents forenvironmentally friendly technologies date back to before FY2022.
4. The YK Value is an indicator for the competitiveness of a patented technology. This indicator was developed by KUDO & Associates to measure the strength of a patent’s monopoly and exclusivity.

Integrated Report 2023

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