Message from the President

Significant Changes in the Business Environment

Buffeted by significant changes in its external environment,fiscal 2022 was a challenging year for the Gunze Group.Amid the ongoing impact of restrictions on social activities attributable to the spread of COVID-19, the Group’s efforts were affected by a variety of factors. This included disruptions to the global logistics function and soaring raw material and fuel prices, brought about by the conflict betweenRussia and Ukraine that began in February 2022, as well as sharp fluctuations in foreign currency exchange rates. As a result, operating income fell slightly below forecasts, at 5.8billion yen, on net sales of 136 billion yen, which were inline with forecasts, in fiscal 2022.As far as the functional solutions business is concerned,Gunze was successful in absorbing the sharp rise in raw material and fuel costs through price pass-on measures.Fluctuations in foreign currency exchange rates also had a positive impact on this business on the back of theGroup’s global manufacturing and sales system.Meanwhile, the apparel business was negatively impacted by sluggish consumption owing to the pandemic. The Business model of manufacturing overseas and selling domestically was also buffeted by the weak yen. Taking into consideration these and other factors, the apparel business incurred a loss of 0.2 billion yen. Turning to theGroup’s third mainstay pillar of business, the lifestyle creations segment was not immune to the effects of the pandemic. Against the backdrop of a harsh operating environment, both the number of visitors to shopping centers and sports club members failed to recover owing to the downturn in human traffic.

Evaluation of Activities in the First Fiscal Year of Medium-term Management PlanVISION 2030 stage1

Despite the harsh operating environment, I am confident in the progress we have made in the first fiscal year under our Medium-term Management Plan VISION 2030 stage1.We have positioned the creation of new value, capital cost-focused management, evolution of our corporate constitution, and environmentally responsible management as the four pivotal strategies of VISION 2030 stage1.These strategies encompass initiatives that target all of the Gunze Group’s stakeholders, including shareholders,customers, employees, and local communities.As a part of efforts to create new value, our first pivotal strategy, we are actively working to renew existing businesses and to cultivate new businesses. In April 2023, we completed the transformation of our Moriyama Plant(Moriyama City, Shiga Prefecture), our core factory in the plastic films business, into a circular factory (resource recycling factory). In addition to utilizing solar energy and large water resources, this factory will serve as a high-tech facility that employs a manufacturing system that allows products and raw materials that were previously discarded to be recycled as new resources without producing waste. To date, we have conducted an experimental resource recycling program in which the apparel business uses hangers manufactured from plastic scraps. Through our circle factory, we will commercialize the recycling of resources into a business in itself and directly link this technology-based system to the solution of social issues.

Furthermore, in the functional solutions business, the engineering plastics field has shifted to semiconductor and medical-related applications, and is growing as a field that will play a key role in the growth of the Gunze Group.Turning to the apparel business, we are expanding sales channels to online and directly managed stores to establish new points of contact with customers while continuing to introduce new products.As a part of efforts to push forward our second pivotal strategy, we are applying capital cost-focused management to each business frontline in a bid to instill increased capital cost awareness. Since the cost of capital varies widely between business divisions, we have introducedGunze Value Added (GVA) as an internal evaluation indicator. Each business division is working to strengthen the profitability management of invested capital and improveGVA. In addition to promoting measures aimed at reducing unprofitable capital, we are working to cut back cross shareholdings in a bid to maximize profits.Turning to the evolution of our corporate constitution, our third pivotal strategy, every effort is being made to provide employees with a comfortable and rewarding workplace.With the relocation of our Tokyo branch office to Shiodomein February 2022, for example, steps were taken to promote a free address system where employees are free to change desks as a part of our office reform endeavors. Adopting The same approach following relocation to the OsakaDojima office in August 2022, energies were directed toward building a comfortable workplace. The GunzeGroup is also upgrading and expanding measures aimed at promoting women’s active participation and providing child-rearing support. The goal is to improve our female employee retention rate by creating an office environment and systems that make it easier for women to work.
As a fourth pivotal strategy, the Gunze Group is engaging in environmentally responsible management. In doing so,we endorsed the recommendations of the Task Force onClimate-related Financial Disclosures (TCFD) in 2021 and are working diligently to reduce Group-wide CO2 emissions. Having identified specific reduction targets forScope 1 and 2 under our Medium-term ManagementPlan VISION 2030 stage1, we are also promoting steps to formulate Scope 3 reduction scenarios. Moving forward,we will continue to implement environmentally friendly initiatives in conjunction with efforts through our Moriyama Circular Factory™ (Moriyama City, Shiga refecture) and other businesses.

Business Restructuring and Spin-off of the Medical Business

Structural Reforms Designed to Transform theGroup’s Business

Impacted by a deteriorating external environment, theGunze Group was forced to restructure its business in fiscal 2022. Adopting a selection and focus approach, we transferred the Film Division of our electronic components business to Daicel Corporation in October 2022. Working to restructure the Group’s stocking production function,we terminated operations at our plant in China inFebruary 2023 and took steps to consolidate production in Japan. With authorities in Japan reclassifying COVID-19to a Class 5 category, social activities are returning to normal. Against this backdrop, demand for apparel, including innerwear, is expected to recover as people become increasingly active and more willing to travel.Looking ahead, we will accelerate efforts aimed at improving profit by reorganizing the apparel business. At The same time, we will promote price revisions in a bid to address soaring raw material prices and fluctuations in foreign currency exchange rates.Over and above the aforementioned, companies are expected to solve social issues. With this in mind, we will work to transform all of our businesses and transition to sustainable operations.

Spinning Off the Medical Business

In April 2023, part of the Group’s medical devices business and the QOL Research Center, which continue to drive the Group’s growth, were integrated into Gunze medical Limited by way of an absorption-type split. With An organizational structure for medical devices that enables integrated operations from research to sales, we are better placed to expand our business in a timely manner. In reforming our organization in this manner, we have also taken steps to fully comply with the Act onSecuring Quality, Efficacy and Safety of Products IncludingPharmaceuticals and Medical Devices (the Pharmaceutical And Medical Device Act).Gunze medical will not only develop medical devices based on the Group’s core technology of bioabsorbable and biocompatible materials, but also flexibly respond to market changes, accelerate development speed in response to needs, and strengthen selection and concentration through portfolio strategies by medical field and explore potential M&As.

Our Vision and Shared Values with Stakeholders

Despite engaging in a variety of activities that encompass a diverse range of functional solutions, lifestyle creations,and other fields, Gunze is still seen by many as an apparel company. With this in mind, we recognize the need to determine how to fine tune this overarching apparel banner going forward.

Based on its people-oriented approach, commitment to quality, and coexistence philosophy, the GUNZE Group Has identified certain corporate principles as warp threads that must never be changed. Moreover, the Group has continued to create new value by flexibly adapting its weft threads to the needs of the times. While our operations have continued to evolve and change, beginning with the silk business that produces silk threads, and progressing to the apparel, functional solutions, and medical businesses, we have enjoyed the support of stakeholders for a period of 127 years based largely on the ongoing importance we place on the three warp threads. Looking Ahead, we will continue to place the three people-oriented, quality, and harmonious coexistence values at the heart of our business activities and work to become a company that is needed by society.
In broad terms, the medical business underpins theGroup’s growth, the plastic films and engineering plastics fields in the functional solutions business ensure theGroup’s operating stability, and the apparel business showcases the Group’s appeal through its high visibility and profile. In fulfilling each of these roles, I believe that these three businesses enhance the Group’s corporate value. Meanwhile, we increased the ratio of performance-linked compensation for executives from 2022, and set GVA,total shareholder return (TSR), and the degree of achievement of Company Wide CO2 reduction goals as KPIs with the aim of ensuring the businesses are managed with an awareness toward both the social and economic benefits in an effort to share our values with shareholders.

Sustainable Management That Balances Social and Economic Benefits

While it is imperative, as a private company, that we pursue economic benefits, we must not neglect social benefits. Rather than merely contributing to society through conventional economic benefits, our goal is to engage in business activities that help solve social issues in their own right. In addition to adopting a people-oriented approach as apart of its management philosophy, the GUNZE Group Places the highest priority on education. As times change and the mobility of human resources increases, including the shift to job-based employment, I believe we must adapt our approach toward human resources to reflect the needs of each era.I also believe it is important to ensure employment stability with systems in place that accommodate a variety of needs, including child and nursing care thereby allowing employees to work on a continuous and flexible basis.After taking steps to help guarantee the foundation of employees' lives, I intend to implement a raft of system reforms.

As an executive, I believe in making the right choices, and doing what is right both ethically and economically.In this regard, it is management’s role to determine what's right. With that resolve in mind, I will work to promote our key phrase “Transform and Challenge” while aiming to sustainably increase the Group’s corporate value through sustainable management that balances economic and social benefits. In closing, I would like to express my heartfelt gratitude in anticipation of your ongoing support for and understanding of the activities of the Gunze Group.