Executive summary

Business overview

Nichiban Co., Ltd. manufactures and sells adhesive products such as bandages (“CARELEAVES”), medicated plaster (“ROIHI-TSUBOKO”), cellophane tapes (“CELLOTAPE”), and various industrial tapes. In FY03/21, the company reported revenue of JPY41.5bn (-5.8% YoY) and operating profit of JPY2.0bn (-32.8% YoY). The company has two segments: the Medical business (42.6% of revenue; 61.6% of operating profit) and the Tape business (57.4% of revenue; 38.4% of operating profit).

Through its Medical business, the company manufactures CARELEAVES (first-aid bandages made of high-density non-woven urethane fabric) for general consumers and hemostatic bandages for medical institutions. Meanwhile, through its Tape business, it manufactures industrial adhesive tapes and CELLOTAPE (a series of cellophane tapes) for the stationery and office supply industries. Products are generally sold through wholesalers, but the company sells its products for general consumers through drug stores and e-commerce channels. Although the core adhesive technologies of its products are the same, products sold through the Medical business target human applications, while those sold through the Tape business target applications related to non-living objects.

CARELEAVES generated 14.1% of core product revenue in FY03/21, while CELLOTAPE products for stationery applications produced 11.1% and ROIHI-TSUBOKO products 5.2% (Shared Research estimate).

Sales of CARELEAVES began in 1997. From FY03/13 through FY03/21, revenue grew at a CAGR of 10.7% thanks to expansion in sales volumes and an increase in average selling price per unit caused by a rise in the ratio of high-performance products. The company introduced its CARELEAVES series of high-performance hydrocolloid bandages (CARELEAVES Hydrocolloid) in 2012 and later rolled out its waterproof series of CARELEAVES hydrocolloid bandages (CARELEAVES Hydrocolloid WATERPROOF) in 2016. While regular bandages facilitate dry wound healing, CARELEAVES Hydrocolloid products encourage moist wound healing*. The recommended retail price for the company’s regular-type products is JPY400 for a box of 30 and for high-performance type products, this price is JPY750 for a box of 12. Accordingly, the company’s high-performance products are priced nearly five times as high per single bandage as its regular-type products. Since their release in 2012, revenue generated through these high-performance products has grown at a CAGR of 15–20%. High-performance products accounted for about 20% of CARELEAVES revenue in FY03/21.

In the bandage market in Japan, Nichiban’s share is 30–39%, while Johnson & Johnson (NYSE: JNJ)’s share is 40–49% (source: Nichiban). Nichiban holds about 50% of the market for regular bandages, while Johnson & Johnson holds about 30％, and Nichiban holds about 15% of the market for high-performance bandages, while Johnson & Johnson holds about 60％ (source: Nichiban). Regular and high-performance products account for roughly equal portions of the bandage market (source: Nichiban). Johnson & Johnson first released moist wound healing products in 2004, and has since been expanding this market.

Nichiban estimates that CELLOTAPE has captured 70–80% of the domestic market for stationery cellophane tapes. The remaining share is held by manufacturers such as 3M (NYSE: MMM).

Sales of CELLOTAPE began in 1948. The primary raw materials used to manufacture CELLOTAPE products are natural materials such as wood chips and natural rubber. In contrast, Oriented Polypropylene (OPP) tapes, which are commonly produced overseas, are made from (petroleum-based) polypropylene film, with adhesives made from acrylic materials. In Japan, consumers mainly utilize cellophane tapes for applications associated with stationery, while OPP tapes account for more than half of industrial applications. The recommended retail price for CELLOTAPE products is JPY260 (12mm × 35m). OPP tapes are about 40–50% less expensive. Amid a shift away from plastics, fees for plastic shopping bags offered at cash registers became mandatory in Japan in July 2020, and to provide proof of purchase for customers who choose not to use these bags, some stores are marking products using light adhesive tape displaying their names. Taking advantage of this shift away from plastics, Nichiban is promoting the substitution of CELLOTAPE for OPP tapes.

ROIHI-TSUBOKO products (sales launched in 1989) are mainly small, round, moist, and warm compresses. These products began appearing on South Korean lists of popular Japanese souvenirs, leading to a substantial increase in sales to foreign travelers visiting Japan. This increase was particularly notable around 2014, when consumption tax exemptions were put in place for foreign travelers. In FY03/19, about 60% of revenue from these products was generated through foreign travelers visiting Japan; more than half of these travelers were from South Korea, with the second largest group coming from China. The ratio of South Korean users declined in FY03/20 due to a decrease in the number of South Korean visitors to Japan that stemmed from a deterioration in Korean/Japanese relations. Later, the number of foreign visitors to Japan dropped to almost zero in FY03/21 due to the COVID-19 pandemic. This substantial drop almost completely eliminated revenue generated through sales to foreign visitors. Companies like Hisamitsu Pharmaceutical Co., Inc. (TSE1: 4530), which holds a large share of the compress market in Japan, mainly offers large rectangular cold compresses, so Nichiban has differentiated its products through their round and small shape. Nichiban holds less than 10% of the JPY40bn market for compresses, but holds a roughly 80% share of the market for small, round compresses (source: Nichiban).

Nichiban was established in 1918. During WWII, as Japanese companies were being reorganized to meet military demand, 25 bandage manufacturers nationwide were consolidated into Utahashi Pharmaceutical Office Co., Ltd. (currently Nichiban), which subsequently operated a central factory as the only bandage manufacturer in Japan. After the war, General Headquarters (offices of the Supreme Commander for the Allied Powers) reviewed all letters and censored them as necessary, later sealing the envelopes in which they were placed with American cellophane tape. However, the volume of products imported from America was not sufficient to satisfy demand, so Nichiban, an established bandage manufacturer, was called upon to meet this demand. The company delivered a prototype cellophane adhesive tape product in 1948, and began selling the product later that year.

Overseas business revenue in FY03/21 was JPY2.9bn (-6.5% YoY; 7.1% of total revenue). The core products of this business field include bandages, cellophane tapes, masking tapes, and hemostatic bandages. The company generated 50% of revenue in this field within Asia and 34% in Europe. Nichiban has encountered difficulty expanding into foreign consumer markets due in part to the relatively high prices of its products in Asia and the lack of name recognition it has in Europe. However, in terms of medical applications, the company believes that the potential for opening up new sales routes through direct access to hospitals and other customers is considerable.

The company’s OPM improved from 4.2% in FY03/12 to 6.8% in FY03/20. The main reason for this improvement was an increase in the share of revenue generated through the Medical business (32.1% in FY03/12, 44.7% in FY03/20), which has a higher profit margin. In FY03/21, however, the company’s OPM dropped to 4.8% due to factors such as a decline in foreign visitors to Japan amid the COVID-19 pandemic and a subsequent decrease in revenue from ROIHI-TSUBOKO, which is highly profitable.

Earnings trends

In FY03/22, revenue came to JPY43.1bn (JPY41.5bn in FY03/21), operating profit JPY2.5bn (JPY2.0bn), recurring profit JPY2.6bn (JPY2.1bn), and net income attributable to owners of the parent JPY1.8bn (JPY1.4bn). Revenue of JPY43.1bn (versus JPY41.5bn in FY03/21) was attributed to various factors, including activities aimed at expanding domestic demand amid a loss in demand among foreign visitors to Japan resulting from the COVID-19 pandemic, as well as an increase in demand for some products amid the extended pandemic, such as an increase in rough hands and chapping due to the use of disinfectants and increased vaccinations. SG&A expenses rose due to higher depreciation accompanying the startup of a new backbone system, and costs grew in keeping with the increased unit prices for naphtha and other raw materials. However, operating profit was JPY2.5bn (JPY2.0bn in FY03/21) due to cost improvements resulting from a substantial recovery in utilization rates at production plants, mainly in the Medical business, in keeping with increased revenue.

The company’s forecast for FY03/23 calls for revenue of JPY45.0bn (+4.3% YoY), operating profit JPY2.5bn (+2.0% YoY), recurring profit JPY2.6bn (+1.5% YoY), and net income attributable to owners of the parent JPY3.0bn (+65.8% YoY). The economic outlook continues to be unpredictable, for example with the continuing effects of the pandemic both in Japan and overseas, and soaring raw material prices and logistics costs. Amid these circumstances, the company will implement the medium-term management plan “ISHIZUE 2023: SHINKA and Innovation,” and execute the key themes of “innovation,” "global rollout and growth,” “review of business promotion structures and earnings reforms,” “active use of AI and IoT,” and “manpower development for sustainable growth,” as part of its efforts to realize the “NICHIBAN GROUP 2030 VISION.”

Through its five-year medium-term management plan (FY03/20–FY03/24), the company targets FY03/24 revenue of JPY60bn (CAGR of 4.8%) and OPM of 10.0% (7.8% in FY03/19). The company anticipates that overseas operations will generate JPY7bn in revenue during FY03/24 while new products account for JPY6bn and existing businesses JPY47bn. In FY03/21, revenue amounted to JPY40.9bn, of which JPY2.9bn was generated through overseas operations, JPY3.0bn through new products, and JPY35.0bn through existing businesses. As of October 2021, the company was considering a review of its medium-term management plan.

Strengths and weaknesses

Nichiban’s strengths are: 1) CELLOTAPE has cultivated brand power, creating the same association with cellophane tape as Scotch Tape does in the US; 2) The company has adopted a strategy of developing unique, differentiated products to avoid competing with products from first movers; and 3) the company’s target markets are small and include few sellers, so profit margins have been maintained over a long period of time.

The company’s weaknesses are: 1) ROIHI-TSUBOKO, one of the company’s core products, is susceptible to impact from Korean/Japanese relations and the number of foreign travelers visiting Japan; 2) The company has many aged manufacturing facilities, so capex will be required for upgrades, which will hinder both profit margins and asset turnover rates; and 3) Maintaining long-seller products can obstruct the development of new products.

Key financial data

Trends and outlook

Quarterly trends and results

FY03/22 results

Summary of results

• Revenue: JPY43.1bn (JPY41.5bn in FY03/21)
•  Operating profit: JPY2.5bn (JPY2.0bn)
•  Recurring profit: JPY2.6bn (JPY2.1bn)
•  Net income attributable to owners of the parent: JPY1.8bn (JPY1.4bn)
  
  

Nichiban has applied the Accounting Standard for Revenue Recognition and other accounting standards since the start of Q1 FY03/22. Figures for FY03/22 reflect those after the application of the revised accounting standards, and YoY change rates are not shown.

As a result of the application of the revenue recognition accounting standards, consolidated revenue for FY03/22 was reduced by JPY727mn, while both operating profit and recurring profit decreased by JPY19mn.

Revenue was JPY43.1bn (JPY41.5bn in FY03/21). This was due to various factors, including activities aimed at expanding domestic demand amid a loss in demand among foreign visitors to Japan resulting from the COVID-19 pandemic, as well as an increase in demand for some products amid the extended pandemic, such as demand stemming from an increase in rough hands and chapping due to the use of disinfectants and increased demand related to vaccinations.

SG&A expenses rose due to increased depreciation accompanying the startup of a new backbone system, and costs increased in keeping with higher unit prices for naphtha and other raw materials. However, operating profit grew to JPY2.5bn (from JPY2.0bn in FY03/21) thanks to cost improvements attributed to a substantial recovery in utilization rates at production plants, mainly in the Medical business, in keeping with increased revenue. 

Recurring profit was JPY2.6bn (JPY2.1bn in FY03/21), mainly due to the increase in operating profit. Net income attributable to owners of the parent was JPY1.8bn (JPY1.4bn in FY03/21) for the same reason, and also due to the absence of downward impact from extraordinary losses booked one year earlier. In FY03/21, the company booked expenses arising from the teardown of Nichiban’s former Osaka Factory building as extraordinary losses.

By segment

Medical business

Revenue in the Medical business was JPY18.9bn (JPY17.7bn in FY03/21). SG&A expenses were up due to increased depreciation accompanying the startup of a new core system, but operating profit rose to JPY4.3bn (JPY3.6bn in FY03/21) due to improved costs attributed to a substantial recovery in factory utilization accompanying revenue growth.

With the application of the Accounting Standard for Revenue Recognition, etc., revenue in FY03/22 was down JPY528mn, while both operating profit and recurring profit were down by JPY54mn.

Healthcare field

In the OTC drug market (mainly drugstores), the unpredictable sales environment continued. Although there was some recovery including higher demand stemming from an increase in rough hands and chapping due to handwashing/disinfectant practices as pandemic prevention measures and lower temperatures in Tokyo in February 2022, the number of COVID-19 infections from virus variants remained high. Under such conditions, as part of efforts to increase domestic demand for the ROIHI series of analgesic anti-inflammatory plasters and the CARELEAVES series of high-performance hemostatic bandages, the company conducted PR activities including sales promotion campaigns to increase recognition, and continued to distribute samples. As a result, revenue for both product groups was up YoY, as was revenue for the healthcare field as a whole.

Medical materials field

In the medical materials market for medical institutions, the unpredictable environment continued. Although the peak in the fifth wave of the pandemic resulting from variants passed in early March 2022, the occupancy rate of hospital beds for severe cases at medical institutions remained high, and non-urgent operations were delayed. Amid these conditions, revenue for the CESABLIC hemostatic bandage series grew YoY due to increased distribution mainly for CHUSHAVAN products accompanying increased vaccination demand, and revenue for the field as a whole rose YoY.

Overseas field (for the Medical business)

Unpredictable conditions continued in overseas markets as well, as the global spread of the COVID-19 infections still had a substantial impact on socioeconomies. Under these conditions, the company worked with partners to implement sales activities with close ties to each region, with a particular focus on the CARELEAVES series of high-performance emergency bandages and the CESABLIC hemostatic bandage series. The CARELEAVES series in particular saw strong movement with an expanding lineup in South Korea and Taiwan, while medical materials saw robust sales in ASEAN countries and in Europe. As a result, revenue in the overseas field for the Medical business was up YoY.

Tape business

Revenue in the Tape business was JPY24.2bn (JPY23.8bn in FY03/21). SG&A expenses were up due to increased depreciation accompanying the startup of a new core system, and costs rose in keeping with the increased unit prices for naphtha and other raw materials. As a result, operating profit fell to JPY2.1bn (JPY2.3bn in FY03/21).

With the application of the Accounting Standard for Revenue Recognition, etc., revenue in FY03/22 was down JPY199mn, while both operating profit and recurring profit were up by JPY34mn.

Office/home field

In the stationery and office supply market, the harsh sales environment continued as demand for office supplies remained sluggish; the office attendance rate had been increasing slowly, but this changed when the teleworking ratio increased rapidly amid the fifth wave of the pandemic resulting from variants. Under these conditions, in CELLOTAPE, “CELLOTAPE large tape manual cutters (straight cutting type)” were released and the line was expanded, and in NICETACK double-sided tape, sales promotion campaigns were conducted to increase recognition in collaboration with interior design-related websites, but the slowdown in demand had a significant impact, and sales fell YoY. As a result, revenue for the office/home field was down YoY.

Industrial field

In the industrial tape market, the unpredictable sales environment continued, in part due to a slowdown in service consumption in areas such as restaurants and leisure in keeping with restrictions on activities amid the pandemic, as well as increased raw material prices and a decrease in production by automakers due to the semiconductor shortage.

Under these circumstances, the company used a special website and pamphlets to communicate that CELLOTAPE is an environment friendly product that uses natural materials, and this secured a positive response from many companies and municipalities as an example of activities targeting SDGs. In sales targeting supermarkets, the company has seen strong sales of CELLOTAPE food packing tape, which is used to secure the tops of bento boxes and deli packs, amid continuing demand for take-home foods and eating at home amid the pandemic. As a result, revenue for the field as a whole grew YoY.

E-commerce field

In the e-commerce market, due to the effects of the pandemic, there continued to be a high expectation for online purchasing, which reduces human contact, so the company strengthened Internet marketing to target these purchases. Amid the harsh sales environment characterized by continued sluggish demand for office supplies, in the e-commerce field, the company made improvements targeting easy-to-understand purchasing venues where product selection is easier for customers. As a result, revenue in the e-commerce field as a whole increased YoY.

Overseas field (for the Tape business)

In overseas markets, unpredictable conditions continued; for example, although there were signs of recovery in some automotive products that had been struggling due to the semiconductor shortage, the automotive industry has also been impacted by the conflict in Ukraine. Under these circumstances, in the key regions of Asia and Europe, the company sought out new markets and expanded applications for Panfix Cellulose Tape and Japanese paper masking tape for painting applications. It focused especially on building sales channels and fostering products; for example, for Panfix Cellulose Tape, it strengthened activities targeting the Indonesian market, and for Japanese paper masking tape for painting applications, it strengthened activities in the European market. As a result, revenue for the overseas field in the Tape business grew YoY.

Full-year outlook for FY03/22

• Revenue: JPY45.0bn (+4.3% YoY)
• Operating profit: JPY2.5bn (+2.0% YoY)
• Recurring profit: JPY2.6bn (+1.5% YoY)
• Net income attributable to owners of the parent: JPY3.0bn (+65.8% YoY) 
  

The economic outlook continues to be unpredictable, for example with the continuing effects of the pandemic both in Japan and overseas, and increasing raw material prices and logistics costs. Amid these circumstances, the company will implement the medium-term management plan “ISHIZUE 2023: SHINKA and Innovation,” and execute the key themes of “innovation,” global rollout and growth,” “review of business promotion structures and earnings reforms,” “active use of AI and IoT,” and “manpower development for sustainable growth,” as part of its efforts to realize the “NICHIBAN GROUP 2030 VISION.”

Differences between historical initial company forecasts and performance

In FY03/16, operating profit exceeded the initial forecast by 49.3%, which was greater than in typical years. The main reason was that bulk purchase demand for ROIHI-TSUBOKO among foreign tourists visiting Japan exceeded the initial company forecast. The initial company forecast assumed ROIHI-TSUBOKO revenue to grow by 20–30% YoY, but the actual revenue grew 85.0% YoY. In 2015, the number of travelers visiting Japan from South Korea increased 45.3% YoY. The number of travelers visiting Japan from China, which was second only to South Korea in terms of contribution to ROIHI-TSUBOKO sales, increased by 107.3% due to a relaxation of regulations on Chinese visas in January 2015. This also contributed to increased revenue.

In FY03/20, operating profit fell 33.9% below the initial forecast, and ROIHI-TSUBOKO was the main factor behind this difference as well. A boycott of Japanese products took place in South Korea, triggered by an announcement by the Japanese government in August 2019 of its intention to remove South Korea from its ‘white list’ of countries for preferential trading. As a result, the number of travelers visiting Japan from South Korea decreased by 25.9% in 2019, and ROIHI-TSUBOKO revenue also declined by 31.0% YoY in FY03/20. Sales trends for ROIHI-TSUBOKO are more difficult to predict than other products because they are impacted by the number of foreign travelers visiting Japan, and because these products have a high profit margin, the impact on profit is relatively large.

Medium-term business plan

Nichiban’s medium-term goals include achieving 10% or higher for both OPM and ROE. Operating profit and OPM are prioritized above revenue. The medium- to long-term vision and the medium-term management plan were announced in May 2019. As of October 2021, the company was considering a review of the medium-term management plan.

Numerical targets

In the medium- to long-term vision, the company targets to bring the FY03/19 ratio of 6% for new products and 7% for overseas operations to total revenue to 10–19% for both figures in FY03/24 and to 30% for both figures in FY03/31. In the medium-term management plan for the five-year period from FY03/20 to FY03/24 (figures publicly announced in May 2019, before the review), targets for FY03/24 included revenue of JPY60bn (CAGR of 4.8%) and OPM of 10.0% (versus 7.8% in FY03/19). The company expects the FY03/24 revenue target of JPY60bn to break down to JPY7bn for overseas operations, JPY6bn for new products, and the remaining JPY47bn for existing businesses. In existing businesses, further growth is expected for CARELEAVES and other products.

The breakdown for revenue in FY03/21 (JPY41.5bn) was JPY2.9bn for overseas operations, JPY3.0bn for new products, and the remaining JPY35.0bn for existing businesses. New products included additional items in the CARELEAVES lineup.

New products

In new products targeting medical and industrial applications, both of which are B2B fields, the company will investigate issues in the front lines of healthcare and industrial fields by conducting direct interviews with customers, and apply the knowledge acquired in new product development. It will also offer the items developed as medical and industrial products in consumer applications, as in the case of Rx-to-OTC switching. In B2C, it will propose new uses for existing products, for example by analyzing consumer insights. Consumer insight refers to an understanding of consumer behaviors that are rooted in underlying predispositions and emotions held by those customers.

The original definition of a “new product” was “on the market for three years or less,” but the company decided that three years was too early as a cutoff point, and so was considering changing this definition to “five years or less” as of October 2021. The company is promoting open innovations as part of activities aimed at increasing the ratio of new products. Open innovation refers to co-creation of innovative businesses and services in collaboration with outside parties, rather than relying solely on in-house management resources and technologies. The call for open innovation partners ended in October 2020, and the first stage of verification testing ended in October 2021.

Overseas

Nichiban’s overseas business encompasses Southeast Asia and Europe, and focuses on the medical field in particular. The company sees it as difficult to enter the consumer field in Southeast Asia and China due to the relatively high price of its products, and in Europe due to a lack of name recognition. Conversely, the company sees great potential in seeking out new sales routes by directly accessing hospitals and other customers. It is focusing its attention on China in particular, and is working to establish tie-ups with local distributors and sellers. The company is also focusing on Thailand, as sales bases have already been established there. Activities in Europe focus mainly on Germany, but the company is also looking at France, the UK, and Italy. Medical products require approvals and registrations in accordance with the pharmaceutical and medical device laws of each country, so the company is currently working to meet these requirements for each product in each country as required.

In China, it was once commonplace at hospitals to apply absorbent cotton to scars and injection sites, but as living standards have improved, tape has come to be used. The switch from absorbent cotton to tape is costly, but using tape reduces the time during which nurses need to apply pressure to the area in question. In China, due to a labor shortage and rising labor costs, there is strong demand to reduce labor costs. According to Nichiban, the prolonged COVID-19 pandemic has brought about an increased awareness of hygiene, and this in turn has led to increased demand for post-injection bandages. This is because using these bandages eliminates the need for the nurse to touch the affected area, protecting the injection site from infection and reducing the risk of infection for the nurses as well.

Key themes

Following are the key themes for activities covered in the medium-term management plan.

Innovations

Nichiban is building new frameworks for product design to more effectively use its core technologies and bring new products to the market quickly and efficiently. It is also creating new business and products expected to generate significant earnings based on new approaches to R&D, such as open innovations.

The company has created an Innovation Center that combines two units under the umbrella of the R&D Division: the TDS Promotion Unit responsible for the development and planning of new transdermal drug delivery products and the TRD Promotion Unit responsible for developing and fostering new products in the Tape business. This Innovation Center ensures optimum distribution of resources, from basic research to product development, to enable the creation of new businesses. In research activities, the company will position the Advanced and Applied Research Institute as a base for enhancing the R&D structure, with a focus on research into adhesives that offer new value-added and the development of technologies for reducing environmental impact.

Global rollout and growth

In terms of key regions, the company will seek out and foster East Asian, ASEAN, and European markets, using a tripartite structure based in Japan, Thailand, and Germany. In addition to existing core products in overseas markets (CARELEAVES, hemostatic bandages, Japanese paper masking tape, and CELLOTAPE), it will strengthen activities targeting new growth products as well (ROIHI-TSUBOKO, the CATHEREEPLUS wound care dressing series, and the ASCABLIC post-operative care series). Japanese paper masking tape is used in automotive, home, and construction painting applications.

The company will seek out and select strategic partners for expanding the overseas business (business tie-ups and M&As).

Reviews of business promotion structures and earnings reforms

The company will restructure sales and marketing organizations. In April 2021, it restructured its sales and marketing division organizations. In the healthcare, e-commerce, and office/home fields, which are B2C fields, the Consumer Sales Division will promote marketing strategies and sales/distribution channel initiatives. In the industrial and medical fields, which are B2B fields, the company will promote sales activities based on maintaining close ties with customers, investigating user issues, and offering appropriate proposals.

The company will promote activities targeting SDGs to contribute to a sustainable society. See the “Sustainability activities” section for details.

Active use of AI and IoT

The company will rebuild its core IT systems and increase productivity by improving operational processes and management in core operations such as sales, production, inventory, and accounting.

Manpower development

The company will foster manpower and establish skill maps for the talent required for business operations and establishment of management structures needed to realize its medium- to long-term vision. It will also strengthen middle-management capabilities and skills in specialized fields, while fostering the next generation of management.

Capex plan

The company’s capex plan calls for investments of just under JPY18bn over five years (just under JPY3.5bn per year). Approximately JPY2.0bn per year will be required for the maintenance of existing facilities and related expenses, and the remaining budget will be for new facilities. In the Medical business, new production facilities for ROIHI-TSUBOKO and other medical products were added at the Medical Anjo Factory in FY03/18, so in future, capex will focus mainly on CARELEAVES and the Tape business.

The capex ratio for the Medical business, the Tape business, and IT will be approximately 4:5:1. The business model for the Tape business tends to be more equipment-oriented than the Medical business, so capex will be somewhat higher there. A straight-line depreciation method will be applied, with depreciation periods of 38 years for factory buildings (three years for warehouses and other simple structures), 12 years for machinery, and five years for systems.

Following is a brief description of capex activities:

Medical business: Increase production capacity and improve productivity for pharmaceuticals and related products based on growth strategies

Pharmaceutical production facilities

Coating equipment and buildings for medical devices (bandages and adhesive products for medical institutions)

Tape business: Upgrade aging facilities, increase efficiency in existing facilities, shift away from solvents, and reduce CO2 emissions

Adhesive treatment agent production facilities and buildings

Manpower saving and labor-saving facilities

Solvent-free and environment-related facilities

IT related: Active use of AI and IoT, strategic use of data, and optimization of core operation processes

Renovation of core operation systems (sales, accounting, production, and inventory)

Business

Business model

Nichiban manufactures and sells adhesive products such as bandages, industrial tape, and adhesive tape for stationery. The company classifies its business into two segments: the Medical business, which focuses on bandages and medicated plaster for general consumers and the healthcare industry, and the Tape business, which focuses on industrial adhesive tapes and adhesive tapes for the stationery and office supply industries.

The foundational technologies for the company’s products include adhesive, base material, and treatment agent design, as well as coating, cutting, and packing technologies. Technologies underlying adhesive, base material, and treatment agent design are polymer* synthesis and mixing technologies. For example, Nichiban’s CELLOTAPE comprises four layers—from the adhesive side, adhesive, base agent, cellophane, and remover—which leverage those foundational technologies. Based on these foundational technologies, the company offers value in the form of “healing,” “protection,” and “gentleness to the body that the product adheres to.”

Adhesives do not change their form before or after use; they attach firmly to an object, but can also be removed as required. In terms of technical requirements, adhesives must function effectively even when wet or when the temperature changes, and must not harm the adhered surface or leave residual adhesive when removed. As of October 2021, Nichiban held 106 patents, including for adhesive patches and manufacturing methods.

According to Nichiban, adhesive products must meet a variety of requirements depending on the purposes and applications of the objects to which they adhere; for example, appropriate adhesive strength, weather resistance, ease of application and removal, lack of residual adhesive after removal, moisture permeation and lack of irritation when used on human skin, and compatibility with base materials. Base materials include cellophane, paper, cloth, or plastic film. Nichiban has achieved technological differentiation to meet these various needs. In the case of CELLOTAPE, raw materials such as natural rubber and resins are procured from trading companies and material manufacturers while base materials are procured from base material manufacturers, but the company has achieved differentiation through a combination of adhesive manufacturing, coating processes for combining adhesives and cellophane, and removers and other material technologies. Extensive manufacturing facilities are required in spite of the relatively small market size and per-unit prices of adhesive products, so capex starting from scratch would be substantial. However, Nichiban is able to create new products using existing facilities and technologies.

Nichiban defines its business fields in terms of customers: the Consumer Sales Division (healthcare, e-commerce, and office/home), medical materials, industrial products, and overseas. The Consumer Sales Division targets general consumers at homes and offices, and sells its products through drug stores and other retailers. E-commerce, which is included in the Consumer Sales Division, sells to office users through stationery catalog shopping companies such as ASKUL Corporation (TSE1: 2678) and Otsuka Corporation (TSE1: 4768), and sells to general home users through companies such as Amazon Japan G.K. (Japanese LLC under Amazon [NASDAQ: AMZN]). Medical materials are sold to hospitals. Examples of users for industrial products include food producers for vegetable bundling tapes, automakers for masking tapes, and manufacturing facilities in general for industrial cellophane and packing tapes. In overseas business, products are sold to both individuals and corporations in various countries. Sales are mainly conducted through wholesalers.

Nichiban generated JPY2.9bn in overseas business revenue during FY03/21 (-6.5% YoY; 7.1% of total revenue). The company indicated that 50% of this revenue was achieved in Asia, while 34% was generated in Europe, 7% in Oceania, 4% in North America, and 4% in other regions. The main products sold in the Medical business are CARELEAVES and hemostatic bandages. Almost all customers in the Medical business are in Asia. The main products sold in the Tape business are CELLOTAPE and masking tape for construction painting applications. Production is handled mainly by Union Thai-Nichiban Co., Ltd., a joint venture company in Thailand.

Nichiban handles around 4,000–5,000 items. Industrial products in particular combine lengths and widths in millimeter increments, so when these are included, the total number of SKUs exceeds 10,000.

Revenue breakdown by key product (FY03/21)

Healthcare (revenue of JPY10.6bn): CARELEAVES, 50%; ROIHI-TSUBOKO, 20% (40% before the drop-off in foreign visitors to Japan caused by the COVID-19 pandemic)

E-commerce and office/home (JPY9.1bn): CELLOTAPE, 40–50%; double-sided tape, 20%

Medical materials (JPY5.4bn): Hemostatic bandages, 30%; surgical tape, 30%; dressings, 10–15%

Industrial products (JPY12.9bn): Industrial cellophane/packing tapes, 40–50%; masking tape, 15%; vegetable bundling tape, 10–15%

Overseas (JPY2.9bn): CARELEAVES, 15–18%; hemostatic bandages, just under 10%; CELLOTAPE, 15%; masking tape,15%

The breakdown of revenue in FY03/21 in descending order was CARELEAVES, 14.1%; CELLOTAPE for stationery applications, 11.1%; and ROIHI-TSUBOKO, 5.2% (Shared Research estimates; total for domestic and overseas). When CELLOTAPE for stationery is combined with industrial cellophane adhesive tapes and overseas CELLOTAPE revenue, it accounted for about 18.4% of revenue (Shared Research estimate).

CAGR for key products from FY03/13 to FY03/21 was on the positive side for six out of eleven products. CARELEAVES in particular, which accounts for a high percentage of the company’s overall revenue, maintained growth from FY03/13 through FY03/21 with a CAGR of 10.7%. CELLOTAPE, which also makes up a large share of revenue, had a CAGR of 0.7% during the same period. Even for products whose revenue had declined, revenue fell at a compound rate of less than 2% per annum, so in Shared Research’s view, Nichiban’s products generate stable sales. CARELEAVES are bandages, which are essential products in cases of injury or chapped skin. CELLOTAPE is a cellophane tape, which is necessary in homes, schools, and offices. Ever since manufacturing and sales began in 1948, Nichiban has established a culture in Japan where, according to the company, consumers equate adhesive tape in general with the CELLOTAPE brand. As a result, in Japan, CELLOTAPE has come to be recognized as an essential lifestyle item, and one of three essential postwar stationery products (the other two being oil-based markers and ballpoint pens). Only ROIHI-TSUBOKO demonstrates a relatively high rate of change in revenue, because sales to foreign visitors to Japan account for about 60% of revenue (FY03/20).

The price of CARELEAVES has not been adjusted since the product was released in 1997. The company introduced its CARELEAVES Hydrocolloid series of high-performance hydrocolloid bandages (CARELEAVES Hydrocolloid) in 2012 and later rolled out its waterproof series of CARELEAVES hydrocolloid bandages (CARELEAVES Hydrocolloid WATERPROOF) in 2016. While regular bandages facilitate dry wound healing, CARELEAVES Hydrocolloid products encourage moist wound healing*. The introduction of new products resulted in even higher levels of YoY revenue growth than in typical years, at 18.0% in FY03/13 and 19.0% in FY03/17. The unit price for high performance products is about 5x higher per single bandage than for regular CARELEAVES products. Recommended retail price for regular type products is JPY400 for a box of 30 and for high-functioning type products is JPY750 for a box of 12.

High-performance products accounted for about 20% of CARELEAVES revenue in FY03/21 (approx. JPY1bn in revenue). Since their release in 2012, high-performance products have grown at a CAGR of 15–20%. As such, the continued YoY growth in CARELEAVES revenue reflects both an increase in sales volumes and an increase in the unit price resulting from a higher ratio of high-performance products.

ROIHI-TSUBOKO revenue in FY03/21 was down 54% YoY, but domestic revenue (excluding foreign visitors to Japan) was up 6%, with revenue from foreign visitors to Japan down by 60%. Revenue generated by foreign visitors to Japan includes proxy purchases in Japan for foreigners.

Market share and unique features of key products

CARELEAVES

Development history and unique features

The company released OQ BAN emergency bandages as a new brand in 1975, but competition was fierce, and this turned into a price competition.

In order to compete on quality rather than price, the company worked on developing a new product with a unified structure combining development, manufacturing, and sales. Having determined that consumer needs for bandages were for “reliable adhesion,” “discreet coverage,” “comfortable application,” and “the absence of reactions causing whitening or wrinkling of the skin (i.e., maceration),” the company focused on a non-woven urethane fabric for its tape material. Non-woven urethane fabric is softer and has greater elasticity than conventional vinyl chloride materials. Nichiban developed a high-density non-woven urethane fabric in collaboration with a raw materials manufacturer. As of 2021, the company had concluded an exclusive contract for the supply of high-density non-woven urethane fabric with a raw material manufacturer, specially designed for CARELEAVES.

High-density non-woven urethane fabric is highly elastic, and is difficult to produce using conventional methods, so the company developed a new manufacturing line. As a result, the product demonstrates elasticity both horizontally and vertically, offering a sense of fit when used on fingers and other joints. The company also improved the adhesive agent, and began sales of CARELEAVES in 1997. According to the company, samples were distributed to increase awareness of the product’s good quality, and CARELEAVES gradually came to be chosen by consumers, thus establishing a position of “choice based on quality.”

To achieve differentiation from competitors, the company says that even now, in addition to regular TV commercials, it distributes samples at retail outlets, schools, and hair salons, so that consumers can experience how good the products feel.

Markets

In 1997, Johnson & Johnson was the mainstream in the bandage market, but Nichiban expanded its market share, reaching a level of 30–39% in FY03/21 (source: Nichiban).

The ratio of regular vs. high-performance (moist wound healing) products in the bandage market is about 50:50 in terms of monetary amounts (source: Nichiban). Johnson & Johnson first released high-performance moist wound healing products in 2004, and has since been expanding this market. Johnson & Johnson’s share is 40–49%, with its share for regular products at about 30% and high-performance products at about 60% (source: Nichiban). Nichiban’s market share is about 50% for regular and about 15% for high-performance products. Its high-performance products were introduced in 2012.

Because the number of bandages used is determined by the number of wounds incurred by the general population, the company does not expect that volumes will increase in the future. The company does believe, however, that with increased recognition of moist wound healing products, there will be a shift from regular to high-performance products in the case of deeper wounds.

Price comparisons (regular type)

The prices of Nichiban’s CARELEAVES and Johnson & Johnson’s BAND-AID are slightly higher than other companies’ bandages. According to Nichiban, however, despite the higher price, its products are chosen for their comfort on the skin, and because they do not come off easily even when applied to bending joints.

According to a Shared Research survey, the prices of bandages in a 50-unit box are matsukiyo (Matsumoto Kiyoshi PB) M Size (manufacturing/sales: Toyo Kagaku, Inc.; unlisted), JPY217; Orange Care elastic bandages (manufacturing/sales: Ohki Healthcare Holdings Co., Ltd.; unlisted), JPY244; ASO Pharmaceutical K-select (Kirindo PB) Standard Size (manufacturing/sales: ASO Pharmaceutical Co., Ltd.; unlisted), JPY313; BAND-AID skin color type (manufacturing/sales: Johnson & Johnson), JPY424; and CARELEAVES M SIZE, JPY497 (source: Kakaku.com, December 2021).

Price comparisons (high-performance type)

Looking at high-performance products, Johnson & Johnson’s BAND-AID HYDRO SEAL (“Kizu Power Pad”) is a pad made entirely from hydrocolloid material, while Nichiban’s CARELEAVES Hydrocolloid features a hydrocolloid pad in the center of a high-density non-woven urethane fabric. According to Nichiban, because the part of the bandage that does not come in contact with the wound is made of high-density non-woven urethane fabric, skin maceration is minimized, and the skin around the wound is mostly unaffected. Furthermore, CARELEAVES Hydrocolloid WATERPROOF uses a waterproof film derived from the dressing material used to fix intravenous needles during medical treatments, enabling long-lasting waterproof function and minimal impact on the skin.

Based on a survey by Shared Research, prices for high-performance bandages are CARELEAVES Hydrocolloid M size, box of 12, JPY495; BAND-AID HYDRO SEAL, regular, box of 10, JPY510; and KIZU QUICK, regular size, box of 12 (manufacturing/sales: Toyo Kagaku, Inc.), JPY496 (source: Kakaku.com, December 2021).

Nichiban says that there are fewer competitors for high-performance bandages than for regular bandages because the high-performance type is used continuously for around three days, requiring more advanced technologies, and because consumers choose products with stronger brand names.

ROIHI-TSUBOKO

ROIHI-TSUBOKO products are mainly small, round, moist, and warm compresses. Companies like Hisamitsu Pharmaceutical Co., Inc. (TSE1: 4530), Kowa Company, Ltd. (unlisted), and Daiichi Sankyo Co., Ltd. (TSE1: 4568), which hold a large share of the compress market, mainly offer cold compresses in large rectangular shapes, so Nichiban has achieved differentiation through the small size and round shape of its ROIHI-TSUBOKO products.

Nichiban holds less than 10% of the JPY40bn market for compresses in Japan, but holds a roughly 80% share of the market for small, round, moist compresses (source: Nichiban).

About 60% of revenue in FY03/19 was from foreign travelers visiting Japan. More than half of this revenue was generated through sales to travelers from South Korea, and the second-highest percentage of this revenue came from sales to travelers from China. Sales began in 1989, but sales to foreign visitors to Japan began to grow around 2014, when consumption tax exemptions were put in place for foreign travelers. Another trigger for increased sales was increased popularity of ROIHI-TSUBOKO as a souvenir among Korean travelers.

Cross-border e-commerce revenue was about JPY35mn in FY03/20 and about JPY80mn in FY03/21.

As of 2021, ROIHI-TSUBOKO could not be sold in South Korea, as some of the product’s medicinal ingredients were restricted by Korean pharmaceutical laws. The company is preparing to replace these ingredients and obtain authorization.

“ROIHI” in the product name ROIHI-TSUBOKO is derived from the names of the product’s main ingredients: “RO” from Scopolia (rohto) extract, “I” from ichthammol, and “HI” from hinokitiol. Dr. Roihi (depicted on the package) is a fictional character.

CELLOTAPE

CELLOTAPE holds about 70–80% of the stationery cellophane tape market in Japan (source: Nichiban); the remaining share is held by 3M (NYSE: MMM) and others.

Cellophane tape, which is made by coating one side of a cellophane strip with an adhesive agent, was developed by 3M in the 1930 (3M’s registered trademark is Scotch Tape). In Japan, Nichiban developed a cellophane tape product in 1947, and registered the trademark CELLOTAPE in 1948. In western countries, the mainstream is petroleum-based OPP tape, which is less expensive than cellophane. See the “Sustainability activities” section for differences between CELLOTAPE and OPP tape.

NICETACK

NICETACK holds a roughly 70% share of the market for double-sided tape in stationery applications (source: Nichiban).

Medical materials

Hemostatic bandages: Roughly 60% share (source: Nichiban). Competitors include Nipro Corporation (TSE1: 8086) and Yutoku Pharmaceutical Ind. Co., Ltd. (unlisted).

Bandages: Roughly 30% share (source: Nichiban). Competitors include Nitoms, Inc. (consolidated subsidiary of Nitto Denko Corporation; TSE1: 6988) and 3M (NYSE: MMM).

Dressings: Roughly 10% share (source: Nichiban). Competitor: Smith & Nephew plc (NYSE: SNN).

Industrial products

Industrial CELLOTAPE: Roughly 50% share (source: Nichiban).

Vegetable bundling tape: Roughly 60% share (source: Nichiban). Competitors include Kyowa Ltd. (unlisted).

Industrial cellophane and packing tapes are sold in a broad range of industries, targeting customers with general industrial packing applications such as manufacturing facilities and backyard processes for supermarkets. About 60–70% of masking tape is used in automotive applications, with the remainder used in construction and other fields. Vegetable bundling tape is sold to agricultural co-ops and supermarkets. Some of these products are also used in the cultivation stage, or for food products, as when two packages of sausages are bound together as a set. In these cases, the tape products are sold to food manufacturers or their distributors.

Production structure

Saitama Factory

A production base for adhesive tape and adhesive sheets for industrial applications, including packaging, painting, and electrical work.

Tape Anjo Factory

Equipped with facilities capable of handling comprehensive production processes ranging from cutting to packing. It manufactures mainly stationery products, including CELLOTAPE cellophane tape, the company’s core product, and NICETACK double-sided tape, as well as Tabanera vegetable binding tape and bag sealing tape.

Medical Anjo Factory

Manufactures mainly pharmaceuticals and medical materials and devices (including bandages and compresses).

The utilization rate at the Medical Anjo Factory was around 50% in October 2021, because production capacity increased with a changeover to the new machinery in 2018. Utilization rates at the Saitama Factory and the Tape Anjo Factory are close to 100% for regular operations, but around 80% for 24-hour operations.

Aside from the facilities described above, manufacturing in the Tape business is also outsourced to equity method affiliate companies: Hanyo Kakou K.K., Union Thai-Nichiban Co., Ltd., and Daito Chemical Co., Ltd. Most of the outsourced products involve OEM manufacturing in the industrial field. In part out of respect for the founders’ policies, the company places a high value on establishing its own technologies, so as a rule, manufacturing is handled at in-house factories. Some manufacturing is handled at a factory in Thailand, but in principle, products manufactured at the company’s own domestic factories are sold in Japan and overseas.

Raw materials

The main raw materials include cellophane, paper, natural rubber, resin, organic solvents, and synthetic rubber. Transaction volumes are comparatively large for cellophane and paper. The ratio of raw material costs to revenue differs depending on the product, and the raw material cost ratio tends to be higher for tape products. Although it is difficult to transfer raw material costs to product prices, the company raised prices for packing tape and CELLOTAPE in FY03/19. Raw material costs are generally denominated in Japanese yen, with purchases made through material manufacturers or trading companies.

SG&A expenses

The main items for SG&A in FY03/21 were salaries and allowances (6.2% of revenue), distribution (4.5%), advertising (2.7%), and R&D expenses (2.6%). Advertising includes TV commercials, paper advertising, retail outlet POP, and exhibition expenses.

The SG&A to revenue ratio was 23.9% in FY03/12, but rose 3pp to 26.9% in FY03/21. According to the company, this was due to increasing system expenses and expenses related to the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices (the “PMD Act”), as well as price adjustments at transport companies. Further, as a result of strengthened regulations based on the PMD Act, pharmaceutical distribution standards were applied to the distribution of medical-related products. In keeping with this change, medical and tape inventory were separated, a process that began in FY03/19 and was completed in FY03/21.

Business overview by segment

OPM improved from 4.2% in FY03/12 to 6.8% in FY03/20. The main reason for this was an increase in the share of revenue accounted for by the Medical business, which has a higher profit margin (32.1% in FY03/12, 44.7% in FY03/20). In FY03/21, however, the OPM dropped to 4.8% due to a decline in foreign visitors to Japan resulting from the COVID-19 pandemic and an accompanying decrease in revenue for ROIHI-TSUBOKO, which has a high profit margin. CARELEAVES revenue grew at a CAGR of 10.7% from FY03/12 to FY03/21, while ROIHI-TSUBOKO revenue increased at a CAGR of 7.0% during the same period, so both acted as a driver for revenue in the Medical business.

Comparing OPM for the Medical business and the Tape business, in FY03/21, OPM in the Medical business was 20.5% and in the Tape business was 9.5% (before deducting eliminations and companywide expenses). The company says that although the Tape business has a comparatively low profit margin, it has a stable customer base to support revenue each year. For example, once the company’s tape products are adopted by automakers, they become a part of the front-line process, leading to continued sales. For this reason, the Tape business contributes to the stability of performance. The Medical business targets human applications while the Tape business targets applications involving objects, but the core adhesive technologies for these two businesses are the same. The company is making efforts to increase the profit margin in the Tape business. For example, the profit margin for packing tapes decreases inversely proportional to the size, so the company is focusing on products with greater value-added. As a result, OPM in the Tape business improved from 7.2% in FY03/12 to 9.5% in FY03/21.

GPM was 31.7% in FY03/21, with the GPM in Medical business at around 50% and in the Tape business 20–30%. In the Tape business, GPM for office/home products was 30–40% and industrial products 20–30%.

In the Medical business, healthcare products have the highest OPM, with medical materials and overseas business at about the same level. Levels in the Tape business are about the same, with a slightly higher OPM for industrial products. Among industrial products, vegetable bundling tape has the highest OPM, followed by masking tape and industrial cellophane/packing tapes. Nichiban’s products hold a roughly 60% share of the vegetable bundling tape market, and the high OPM results from this high degree of oligopoly.

Overview by business field

Up to FY03/21, Nichiban categorized its business fields into the Medical business, the Tape business, and overseas business, with the Medical business being broken down into healthcare and medical materials, and the Tape business into office/home and industrial products. The business fields changed starting in FY03/22. Business fields are now categorized into domestic business and overseas business, with domestic business being broken down into consumer (healthcare, e-commerce, office/home), medical materials, and industrial products. Reporting segments in securities reports and other financial statements are categorized into the Medical business and the Tape business based on the products handled, those products’ attributes and markets, and similarities in manufacturing methods; the reporting segments remain unchanged.

Capex and depreciation

In FY03/17 and FY03/18, new production facilities for ROIHI-TSUBOKO and other medical products were added at the Medical Anjo Factory.

Medium- and long-term trends and results