CORPORATE PHILOSOPHY

We aim to create new value for the future so that we remain a corporate group that is needed by society.

In this message, I explain in detail how we will draw on the solid accomplishments we have made through our continued efforts and what strategies we will implement to overcome issues so that we can make great progress toward achieving our vision for the TOTO Group.
We will strive to co-create new value for the future together with our stakeholders so that we remain a corporate group that is needed by society.

Using TOTO Group Corporate Philosophy and Our Long-Term Goals and the as Guideposts in These Times of Great Uncertainty

We continue to find ourselves in a time in which it is difficult to forecast the future due to natural disasters and the rapidly changing business environment. Even if we were to adopt detailed business targets for the near and medium term, we are currently in an unpredictable era in which our plans could quickly be derailed by unforeseen occurrences. In light of these circumstances, the TOTO Group formulated long-term goals in April 2021. These long-term goals are incorporated in the Shared Value Creation Strategy TOTO WILL2030, which aims to achieve clean, comfortable, and healthy lifestyles and contribute to society and the global environment. Under TOTO WILL2030, we have adopted the three material issues (materiality) of Cleanliness and Comfort; Wellness, Environment, and Relationships.

While utilizing the TOTO Group Corporate Philosophy as a guidepost, our roughly 35,000 Group employees across the globe are working to address these materiality. Every one of our employees pursues their day-to-day work with the firm belief that we will fully achieve our long-term goals for both 2030 and 2050, and this attitude serves as a major strength for the TOTO Group. The TOTO Group Corporate Philosophy is not simply an idea. Rather, it represents the unwavering spirit that has been passed down since our foundation and serves as the impetus for all our actions. As such, I believe that our Corporate Philosophy is what will lead us to achieving our long-term goals.

The longer we engage in our business activities as a member of society, the more contributions we can make to the United Nations (UN) Sustainable Development Goals (SDGs), and in turn, the greater our significance becomes to society as a corporate group. To that extent, our aim is to implement sustainability management, under which we strive to achieve economic growth while reducing our burden on the global environment and realizing an enriched and comfortable society. Through sustainability management, we will earnestly pursue both high-value-added products and services that lead to the resolution of social and environmental issues. We will also pursue the profits that come from providing such products and services, without compromise. In 2024, we obtained certification from the Science Based Targets (SBT) Initiative, an international group, in recognition of our 2030 greenhouse gas reduction target aimed at limiting the average increase in global temperatures due to climate change to 1.5°C of preindustrial levels. The acquisition of this certification reiterates our commitment to fully achieving strict environmental targets.

Reflecting on the Accomplishments and Remaining Issues upon the Conclusion of STAGE 1

Under TOTO WILL2030, we have divided the path toward achieving the long-term goals for 2030 into three stages. We evaluate the progress we are making with TOTO WILL2030 not on a single-year basis but rather based on the ongoing accomplishments we make in each stage. In this way, each stage serves as a milestone on which we can reflect. Looking back on STAGE 1, which ran from fiscal 2021 to fiscal 2023, we made solid progress on our indicators for social and environmental value. However, we fell short in terms of our indicators for profitability and efficiency, such as operating margin, return on assets (ROA), and return on equity (ROE). Although there were external factors that led to this outcome, including worsening market conditions, we must reflect on our inability to sufficiently create innovative solutions and our lack of speed for overcoming various difficulties. Going forward, we will further build on the results we accomplished in STAGE 1 and rethink our approach to areas where we did not fully meet our goals. By doing so, we aim to achieve success with all our targets in STAGE 2.

Turning Growth Segments into Drivers for the TOTO Group’s Growth

One major accomplishment we made during STAGE 1 was aligning the mindset and actions of all members of the Group, from the management team to employees. By considering the long-term goals and thinking in reverse about what needs to be done to accomplish them, each employee is now taking action with a greater sense of speed. Members of the executive team, starting with myself, have been visiting local offices to meet with employees, from those in the front lines to those at the managerial level, to discuss issues that are taking place. I have also been working with other Group employees to offer opportunities for dialogue on an ongoing basis. I am confident that these types of efforts have played a significant role in helping to align the mindset and actions of Group employees. Since my appointment as president, I personally have held dialogues with a total of nearly 2,000 Group employees. I came to realize just how extensively and deeply the long-term goals and Corporate Philosophy are shared across the globe when we were faced with several crises for which existing rules were of no use. During the three-year period of STAGE 1, we encountered many unexpected crises, including large-scale natural disasters, a global pandemic, and supply chain disruptions. However, it was in these moments where I gained an understanding of how well our Group employees respond quickly and work together toward a solution and how an independent sense of unity is growing stronger among them.

In terms of business performance, we started to see genuine signs of the widespread adoption of the spray seat WASHLET in the Americas, which has long been an aspiration for the Americas Housing Equipment Business. TOTO has been importing WASHLET to the Americas since the 1980s. At that time, WASHLET gained very little recognition in the local markets. The value offered by WASHLET was not thoroughly understood, and consumers often confused it for a medical device. Throughout the years, we continued to make concerted efforts to create as many opportunities as possible to experience WASHLET and increase its level of recognition, including installing the product in the homes of employees of local agencies so that they could explain to others its functions and value. Around the middle of the 2010s, social media became more widespread, and people who had visited Japan began sharing the experiences they had on their trip. In addition, more ways to purchase WASHLET emerged, including through e-commerce websites and major retail chain stores. These factors helped drive demand for WASHLET. Furthermore, the toilet paper shortages that started in 2020 due to the COVID-19 pandemic led to a surge in demand for WASHLET.

In light of this, we are now presented with an opportunity for WASHLET to be just as big of a success, if not bigger, than it has been in the Japanese market. Now that spray seats are on the verge of widespread adoption in the Americas, it is prime time for us to accelerate their promotion without hesitation. TOTO has spent many years refining the functions, design, and quality of WASHLET, and the cumulative total shipments of the product now exceed 60 million units. Moving forward, we will expand the market for WASHLET by drawing on the confidence and insight we have as a company that has provided the largest number of spray seats in the world. To realize greater growth in STAGE 2, we will review our allocation of capital and once again execute profit-oriented investments as we work to rapidly establish the Americas Housing Equipment Business as the main pillar for growth in the International Housing Equipment Business.

In addition, we believe that the Advanced Ceramics Business, which offers high-quality, high-precision ceramic products in the field of semiconductor manufacturing equipment, is poised to make a giant leap toward growth, in the same manner as the Americas housing equipment business. As a new business domain of the TOTO Group, we have persistently taken on challenges and pursued various transformations in the Advanced Ceramics Business. As a result, we started to see signs of genuine growth in the business in STAGE 1 between fiscal 2021 and fiscal 2022. Before this time, however, we were unable to capitalize on market growth in this business, and this is something we must sincerely reflect on. The Advanced Ceramics Business differs greatly from the Housing Equipment Business, as it requires far greater level of speed. Our in-house structure, including for manufacturing, was unable to keep pace with the speed required. To address this situation, we started to pursue dramatic reforms in conjunction with the start of operations of the new building at the Nakatsu Plant in 2020, including the swift promotion of the transition to smart factories. As a result, our response speed increased, and we were able to establish a highly profitable foundation enabling the business to achieve an operating margin of over 30%. Although market conditions were sluggish in fiscal 2023 due to the so-called silicon cycle of the semiconductor industry, there is no doubt that the market will expand again as we head toward 2030. To build a development and manufacturing environment that can respond to the speed and sophistication of the semiconductor industry, and to capitalize on future business opportunities, we will proactively implement investment and rigorously promote essential preparations with a focus on the future.

Also, we expect to see significant market growth in the Asia and Oceania Housing Equipment Business, with strong economic growth expected in each country and region. In these ways, the growth segments of the Americas Housing Equipment Business, the Advanced Ceramics Business, and the Asia and Oceania Housing Equipment Business will serve as an engine that will drive the growth of the entire TOTO Group as we head toward 2030.

Promoting Core Segments That Underpin the TOTO Group

The Mainland China Housing Equipment Business, which to date had been a driver of our overseas growth, was significantly impacted by the stagnant conditions in the real estate market in the region, resulting in a performance that fell far short of our targets. The Mainland China housing equipment business has achieved growth for over 30 years and has helped foster the TOTO brand as a premium brand in Mainland China , which has proved to be a tremendous asset. Throughout our history of growth, there have always been a large number of houses to complement our ample stock of TOTO products. Moving forward, as the house market turns from a growth market into a mature one, we will draw on the more than 30 years of experience we have in Japan’s remodeling market, shifting our focus to cultivating remodeling demand and strengthening our remodeling business. By doing so, we will establish the Mainland China housing equipment business as a core segment supporting the TOTO Group alongside the Japan Housing Equipment Business.

Pursuing Profit Growth and Quality Profits

The biggest point we must reflect on for STAGE 1 is the fact that both our profitability and capital efficiency worsened. With regard to profitability, we are pursuing improvements by building on the results we achieved in growth segments, as I mentioned earlier. Meanwhile, for efficiency, we will strive to enhance investment capital efficiency in such ways as reinforcing investment management under a hurdle rate that exceeds capital costs and accelerating the optimization of inventories, which have temporarily increased following the COVID-19 pandemic. With a greater awareness of capital efficiency than ever before, we will allocate personnel, resources, and funds to growth segments with the aim of achieving well-balanced business operations. In addition to increasing operating profit, we will focus on reallocating resources toward investment in pursuit of profit growth and quality profits. By making Groupwide efforts to enhance profitability and capital efficiency to the greatest extent possible, I am confident that we will be able to fully accomplish all our goals.

Remaining a Corporation That Plays a Valuable Role in Creating a Brighter Future

One great aspect about the TOTO Group is that it has continued to grow for over 100 years, even while tackling adverse circumstances, passing down the baton that is the TOTO Group Corporate Philosophy from generation to generation. The TOTO Group Corporate Philosophy and the words, “Kindness must always come first,” which were written in a letter from the first TOTO president to the second, have been passed on and cherished from president to president throughout the Group’s history. And as the Group’s 17th president, I will pass on these words to the next generation. Recently, I was asked by a new employee with previous work experience why the TOTO Group Corporate Philosophy was so thoroughly entrenched in the mindset of Group employees from Japan and overseas. This employee stated that they were surprised when they met an employee from the Americas working in after-sales services who frequently talked about the Corporate Philosophy. This employee from the Americas came to Japan for training, during which he visited a customer’s home together with a senior employee from TOTO Maintenance LTD. and observed the toilet repair process from start to finish. This employee mentioned how he was deeply moved to see the customer fully satisfied with the repair work. The TOTO Group Corporate Philosophy is not something that we just recite and then it is finished. Rather, it is something that is shared across the globe as part of TOTO’s unique presence, being passed on throughout the Group through the actions taken by our employees for the sake of the customer.

In 2023, many positive things happened for the TOTO Group, including become the first Japanese company to hold an exhibit at Forum, a single venue offered during International Sanitary and Heating (ISH) 2023. Held in Frankfurt, Germany, ISH is one of the world’s biggest international fairs for baths, toilets, buildings, indoor cooling, heating, air-conditioning, and renewable energy. Among the achievements we made during the year, I was very pleased with the fact that we ranked first in a notable survey for the question, “Do you believe that this company, product, or service will make society better in the future?” In addition to offering products and services that facilitate comfortable and sanitary living environments and contributing to the resolution of social issues, we are being recognized as a corporation that plays a valuable role in creating a brighter future. Through business activities and social contribution activities aimed at enriching society, we will become a corporate group that closely caters to the needs of each country and region. By doing so, we will strive to remain a company that is needed in countries and regions around the world.

Cultivating Employees That Will Take Action for Customers without Hesitation

To remain a company that plays a valuable role in creating a brighter future, we must remain one step ahead in terms of adhering to the Words of our Founder, “satisfy the customer.” Keeping these words in mind, we added “Wellness” to the materiality “Cleanliness and Comfort,” starting from STAGE 2. Toilets and baths are appliances from which various health data can be gathered through their use. When it comes to maintaining health, people often view this as a strenuous process that requires great effort. However, to deliver cleaner, more comfortable, and healthier daily lives to our customers, we will further advance research and development of products that can be used comfortably by customers while also making them aware of minor changes in their physical condition. Balancing cleanliness and comfort with wellness is precisely the kind of area in which a company such as the TOTO Group can create new value, and this is why we added “Wellness” as part of our materiality.

Also, we will promote digital transformation (DX) so that we can deliver value not yet realized by our customers in as swift a manner as possible. To do so, we will pursue three transformations: product transformation, where we will expand the variety of value we offer customers; manufacturing transformation, which will involve the transition to smart factories; and people transformation, in which we will deepen dialogue and contact points between people. Through these three transformations, we will further enhance the speed and efficiency of our value creation.

Furthermore, starting from fiscal 2024, we will commence an in-house project to support the commercialization of business proposals that will run alongside frameworks we already have in place enabling employees to voice questions and concerns to the executive team in writing. With this project, we will solicit ideas from employees that can serve as the seeds of new businesses. I want all Group employees to challenge themselves to act in a manner that is based on flexible ways of thinking. In the background of the many successes in this world lie countless failures. This shows that the experience of failure helps lay the groundwork for success. The kind of person who can help build an unprecedented and bright future is someone who can pursue challenges without fear of failure or criticism. By bringing together the individual capabilities of our roughly 35,000 Group employees and having them interact with each other to understand their respective diverse personalities and share experiences, we will strengthen the organizational capabilities of the TOTO Group to the greatest extent possible.

Fostering Trust That Builds Confidence in TOTO

The TOTO Group’s business activities are made possible thanks to the support and cooperation of all our stakeholders. First, our starting point is that we ourselves must be sincere in our approach and maintain an attitude of gratitude. As indicated by the materiality of Relationships, we will engage earnestly with our stakeholders and work to improve value for each and every one of them. This in turn will build stakeholder confidence in TOTO.

For customers, not only will we provide products that offer cleanliness, comfort, and wellness, we will also strengthen activities to build close relationships with them in terms of our services. By doing so, we aim to create lifelong fans of the TOTO brand. For shareholders and other investors, we will first and foremost realize business results and returns that meet their expectations. At the same time, we will seek to build trust-based relationships with them by deepening their understanding of our growth story through various dialogues, including those focused on non-financial information. With regard to our business partners, we will bolster our partnerships and work together to formulate targets for matters such as initiatives toward the environment and human rights. In this way, we will seek to achieve coexistence and co-prosperity with all our business partners. Furthermore, it is absolutely essential that we gain the understanding of local community members in areas where we pursue our business activities. To that end, we will expand community-focused efforts in each region in order to build even better relationships.

Of course, it is none other than our Group employees who build these kinds of good relationships with all our stakeholders. For that reason, we will seek to create environments in which employees help each other and work with a high level of satisfaction, pride, and fulfillment. Doing so will lead to the creation of products and services that are uniquely TOTO and set in motion a virtuous cycle among employees. Our people represent the lifeblood of the TOTO Group. Cherishing them means that we also cherish all our stakeholders.

In turn, this helps us remain a company that is trusted and builds confidence with stakeholders in all countries and regions around the world. Going forward, all Group employees will unite in their efforts to open the way for a bright future for our customers and for society.

President,
Representative Director