Fiscal 2023 saw business recovery in food and automobile retail industries. However, in the chemical industry, which the Group belongs to, procurement costs remained high because of high resource prices due to prolonged geopolitical risks and weak yen due to interest rate differences with other countries.

The group made relentless cost cutting while revising prices through dialog with customers. However, higher prices set back demands and there was delay in the launch of new products and services for compensating this situation. With these, the Group could not secure enough profits to cover the lowered operation, resulting in a consolidated operating loss of 958 million yen (an operating loss of 713 million yen in the previous year) and consolidated ordinary loss of 171 million yen (ordinary loss of 117 million yen in the previous year) in fiscal 2023. The Group recorded an impairment loss of 4,973 million yen for the vehicle, urethane, and thermal insulation material businesses and 3,093 million yen for the adjustment of corporate tax and other taxes including the reversal of deferred tax asset. As a result, the period under review recorded a net loss of 8,210 million yen (1,204 million yen in the previous year).

The most important challenge that the Group faces is to improve profitability by overcoming high costs in the existing businesses. However, we must also create new values to return the business results to an upward trend. We will continue price revisions to compensate rising costs, but this effort potentially sets back demand. Therefore, it is vital to create new businesses to keep operation going.

In creating value, we will explore new fields in addition to the cultivation of existing businesses. In order for the Group to continuously grow, it must transform to a corporation that constantly explores new business fields and unceasingly creates innovations that lead to the resolution of social issues. To this end, we must provide an environment in which all executives and employees develop products and services through interaction with people in different industries with freewheeling thinking and without being bound by existing practices, and value and respect resulting accomplishments. From this perspective, the Group recognizes the importance of human capital management and started listing challenges from the previous fiscal year. Going forward, we will enhance human capital management to contribute to the growth of the Group in the medium- and long-term perspective.

I look forward to the continuing support of our stakeholders.

Based on our corporate philosophy, the Group adopts the slogan of “company that creates a comfortable living space that is human-and environment-friendly”, and considers the following fields important in terms of the business strategy.

1. (1)Disaster prevention
2. (2)Mobility
3. (3)Energy conservation
4. (4)Electronics
5. (5)Life science (in a broad sense including health)

They all can also be viewed as human-centric business fields. The Group is driving the approach of creating new values by fostering products and services that resonate with five senses people through our technology.
Specifically, the Group focuses on the following four business strategies:

1. (1)Enhancement and Strengthening of Growing Businesses

   1. [1]Strengthening of businesses that promote decarbonized society

      1. 1)Strengthening of thermal insulation material businesses for the realization of ZEH (Net Zero Energy House)
      2. 2)Enhancement of businesses that handle biomass and biodegradability materials
      3. 3)Promotion of the recycling of existing plastic products
      4. 4)Strengthening of vehicle material businesses targeting EVs

   2. [2]Promotion of the enhancement of overseas businesses

      1. 1)Manufacturing and sales of medical-care films by ACHILLES USA, INC. (based in the United States)
      2. 2)Manufacturing and sales of materials for vehicles and others by Achilles (Foshan) New Materials Co., Ltd. (based in China)
      3. 3)Development of new business fields leveraging the existing and new overseas production/sales business locations
      4. 4)Optimization of product delivery channels from manufacturing sites inside and outside Japan to the global market

   3. [3]Fostering businesses for solving issues arising from the movement of population

      1. 1)Promotion of businesses required for super-aging society
      2. 2)Strengthening of businesses for responding to the food waste problem and raising Japan's self-sufficiency rate of agriculture products

2. (2)Creation and Establishment of New Businesses (and New Exploitation)

   1. [1]Enhancement of disaster prevention businesses

      Enhancement of businesses of products used for disaster measures, disaster prevention, and infectious diseases measures by developing new products leveraging the total power of the Group.

   2. [2]Creation of new ways of using intermediate goods by improving their quality

      Promotion of the development of functional films and functional foam materials

   3. [3]Effective use of management resources in different groups

      Creation of new businesses by the effective use of “diverse product groups and customers in diverse markets.”

3. (3)Reconstruction of Existing Businesses

   1. Improvement of the profitability of the shoes business

      1. 1)Focusing on main products such as Syunsoku, ACHILLES SORBO, and BROOKS
      2. 2)Promotion of sales of Syunsoku and ACHILLES SORBO in Asia
      3. 3)Transformation to effective business management system by closing manufacturing in Japan

4. (4)Strengthening of Management Base

   1. [1]Strengthening of initiatives for the reduction of greenhouse gas emissions

      1. 1)Quick development of new products from the customer viewpoint, taking into account resource saving, energy saving, and the reduction of greenhouse gas emissions
      2. 2)Promotion of the manufacturing style that minimizes greenhouse gas emissions by the active use of renewable energy and other ways
      3. 3)Reform of logistics for the reduction of greenhouse gas emissions and the improvement of profitability

   2. [2]Improvement of productivity

      1. 1)Improvement of productivity in all business activities by smart processes and digital technology
      2. 2)Global business development, fostering of talents who lead DX, and the promotion of work-style reform with respect for diversify

We will continue active and efficient business operation by making maximum use of the management resources of the Group in order to respond to changes in production and consumption inside and outside Japan to maintain sustainable growth.

Achilles (Foshan) New Materials Co., Ltd. founded in December 2022, recorded a loss in fiscal 2023 due to the cost of launching business. However, the company started mass production from April 2024, and expects the transfer of production functions from the Group as well as expansion in sales to major customers. On the other hand, the urethane manufacturing facility built in Shiga Factory No. 2 in fiscal 2023 recorded an impairment loss due to the recent decline of demand in urethane products. However, this production facility is an environment-friendly facility with the use of liquefied carbon dioxide and is capable of a significant improvement in quality and productivity. Therefore, we expect that it will contribute to the strengthening of our competitive edge. Also, facility investment is ongoing for in ACHILLES USA, INC. (based in Washington, USA) aiming to enhance the production capability of film products, with the target completion date in September 2025. We, the whole Group, are committed to recovering investments that we have made.

The Company announced its agreement with the TCFD* recommendations in April 2023, and disclosed the information on the risks that climate change presents to its business. This year, we changed the transition risk scenario used for analysis from that of less than 2˚C to 1.5˚C. We also changed the reduction targets of scope 1 and scope 2 greenhouse gas emissions to 50% at the end of 2030 compared to fiscal 2018, which was 30% in our previous goal. Toward the achievement of this reduction target, we will find the optimum solution for the Group through the comprehensive examination of different measures, including through energy saving, use of the cogeneration system, procurement of renewable energy, use of in-house solar generators, purchase of credits, and introduction of e-methane.
We also disclosed the calculation result of scope 3 emissions of the Company. Going forward, we will enhance the scope 3 calculation to cover the Group.

The basic idea of the new value that the Group aims to create is to contribute to high sociality and resolution of social issues. That is to say, receiving compensation for the true satisfaction of customers. In order to truly satisfy customers, we must largely exceed their expectations—what we should provide may be something beyond customers' imagination. Therefore, we must design products and services with exploration beyond customers and a hypothesis on the core of satisfaction. This looks tough, but I think it is a challenging and exciting task.
I would like to contribute to the realization of a society filled with smile by having more employees of the Group smile through this existing challenge and also having customers smile.

• * Acronym of Task Force on Climate-related Financial Disclosures. It is an international organization established by the Financial Stability Board (FSB) to promote the disclosure of specific approaches to climate change by companies.

September 2024