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We will lay the groundwork for future growth, leading into our next medium-term management plan.

• Net sales and profit both increased in 2023,
  and we recorded our highest-ever profit level

  Net sales increased by 2.1% year-on-year to 78,863 million yen and operating profit increased by 31.4% year-on-year to 4,956 million yen. We were able to boost our earning capacity by proceeding with the revision of low-profit products while also growing sales of high-value-added products such as optical products, as well as battery-related products, adhesives, and other functional materials. This enabled us to chart our course for 2024, the final year of our medium-term management plan.
  The results by business division are as follows. In the Plastic Film Business, net sales decreased by 1.2% year-on-year to 51,005 million yen but operating profit increased by 19.2% year-on-year to 4,144 million yen. The volume of flexible packaging products for food, daily necessities, etc. sold in the Life and Package Business Unit declined due to budget-consciousness among consumers. The Process Materials Business Unit saw strong sales of battery tab tape for electric vehicles, but the sales volume of protective films for optical products and packaging films for semiconductor transportation decreased significantly due to a deterioration in semiconductor market conditions. Sales volume decreased in the Basic Materials Business Unit, but this was offset by the continued transfer of cost hikes onto product prices and growth in Environmental Contribution Products. The Agricultural Materials Business Unit struggled, with a decline in orders after the last-minute surge in demand seen before the product price increases in 2022. Despite an increase in raw materials prices, electricity rates, logistics and other costs, profit increased due to the continued transfer of cost hikes onto product prices and growth in sales of high-value-added products.
  In the New Materials Business, net sales increased by 26.1% year-on-year to 13,691 million yen and operating profit increased by 38.1% year-on-year to 1,854 million yen. The Functional Materials Business Unit performed strongly due to an increase in the sale of thermoplastic polyurethane elastomer (TPU) film for automotive headrest applications and the adoption of substrate film for sealing materials. The Electronics Materials Business Unit struggled as demand cooled for medium and small panels, primarily for smartphones. In the Optical Materials Business Unit, demand for optical films for large liquid crystal displays (LCDs) grew substantially. Profit increased due to our efforts to improve yield and productivity.
  In the Building Materials Business, net sales decreased by 5.5% year-on-year to 12,612 million yen but operating profit increased by 4.5% year-on-year to 900 million yen. Our share of the particleboard market increased with the acquisition of new customers, in addition to existing customers. The environmental contribution concrete mold panels, comori™, struggled due to a slump in construction demand and the impact of a fall in the price of concrete panels. Sales of precut products were lackluster due to the impact of a decline in the number of new housing starts and a fall in the price of lumber. Profit increased as a result of stable production of particleboard and our focus on expanding sales of high-value-added engineered wood boards.
  We recorded our highest-ever level of profit, up 13.9% to 4,315 million yen, boosted by gains on the sale of investment securities held by the Company.

• We will strive to expand sales of high-value-added
  products through selection and focus in 2024

  In 2024, the final year of our current medium-term management plan, which is the second stage of “Next10(2030)”, we will grow our sales of high-value-added products from among our existing products through selection and focus to boost earning capacity. This will enable us to lay the groundwork for further growth leading into our next medium-term management plan. In the Plastic Film Business, we will strive to expand sales and develop functional materials for manufacturing processes, as well as expand Caerula™ Environmental Contribution Products. In the New Materials Business, we will work to ensure the stable operation of our newly constructed wide optical film manufacturing plant. In the Building Materials Business, we will aim to expand sales of engineered wood boards, the environmental contribution concrete mold panels, comori™, and Easy-to-install panels, as well as sales of precut materials to non-housing fields.
  In overseas markets, we will grow our sales centered on wide optical film and products for electric vehicles. OKURA VIETNAM is scheduled to begin operation in January 2025. We will invest just under 2.0 billion yen in Phase 1 of this project, beginning with the production of automotive adhesives, primarily for electric vehicles. We will strive to develop markets in Europe and Southeast Asia, in addition to existing markets in China and South America. Looking ahead, we will also aim to expand the automotive and office automation equipment-related film processing businesses.

• We are also focusing on investment in research and
  development to drive the next stage of growth

  The Research & Development Center will focus on development in the areas of “Information electronics” (film for high-frequency substrates and advanced-function display materials), “Environment & Energy” (chemical recycling and energy-related components), and “Life science” (single-use bags and ingredients for healthcare and skincare materials).
  Specifically, we have begun by considering the commercialization of chemical recycling, envisaging a scheme where recovered film would be returned to naphtha and supplied to petrochemical manufacturers. Once we can see a clear path to commercialization, we anticipate large-scale capital expenditures. We expect film for high-frequency substrates to experience a rise in demand for applications such as automatic driving systems and remote medical operations with the popularization of 5G and Sub-6, and we are working on the timing of investment in anticipation of the commercialization of this product. This is an area where we can leverage Okura Industrial’s underlying technologies, and we are developing materials for perovskite solar cells, which are considered a promising next-generation solar cell. In March 2023, to further promote this development, we made an equity investment in EneCoat Technologies Co., Ltd., a startup based in Kyoto University that develops and manufactures perovskite solar cells. We hope to launch commercial products in a few years.

• We exceeded our plan for 10.0 billion yen of investments in 2023

  In 2023, we made capital expenditures of 11.1 billion yen, exceeding the plan of 10.0 billion yen. These mainly included investing in a new manufacturing line for wide optical film in the New Materials Business. Demand for 2,500-mm-width film, especially, is increasing, so we constructed a new manufacturing line (G2 line) at our Chunan Plant, doubling production capacity. This new line commenced mass production in 2024. In the Plastic Film Business, we made investments including manufacturing equipment for seven-type/seven-layer film that contributes to longer food shelf life and mono-materialization for easy recycling, as well as manufacturing equipment for multi-layer film for agricultural use. In the Building Materials Business, we made investments such as the relocation of the precut plant to Takase-cho, Mitoyo City. In the event of the anticipated Nankai Trough Mega Earthquake, we expect to be required to maintain the lumber processing and housing components supply function in the precut business. We therefore relocated it to the Harashimo Industrial Park in Takase-cho, which has a low risk of damage. The precut plant recommenced operation in February 2024.
  In 2024, we plan capital expenditures totaling 6.1 billion yen. These primarily comprise equipment enhancements for battery components (TAB tape) production for electric vehicles to respond to higher capacity and increasing demand for automotive batteries, as well as digital transformation in the Plastic Film Business. We plan 650 million yen of capital expenditures in OKURA VIETNAM.

• We will invest a total of 7.0 billion yen in the businesses
  related to lumber from the Shikoku region

  In view of the move in recent years to use Japan-grown timber and the expanding areas where wood is used, we have decided to enter the structural timber and laminated wood businesses through the cyclical use of forestry resources. Through these businesses, we will be able to contribute directly to decarbonization and carbon neutrality. We are making preparations to construct a new plant in the Harashimo Industrial Park, together with the relocation of our precut plant, to manufacture structural timber using lumber produced in Kagawa and the Shikoku region.
  On beginning these businesses, we have concluded agreements with the government of Kagawa Prefecture and Kagawa Forestry Cooperative Joint Association, as well as Nice Corporation and its subsidiary Woodfirst Co., Ltd. in Tokushima Prefecture. Under these agreements, it is planned that Kagawa Forestry Cooperative Joint Association will supply us with Hinoki cypress lamina (the boards that make up laminated wood products), while Nice Corporation will supply us with cedar and Hinoki cypress lamina. By constructing an integrated supply chain from the harvesting of source lumber to the manufacture and sale of laminated wood products, we aim to promote the cyclical use of forestry resources and carbon fixation. We plan to make it easier to supply these products as materials for non-residential high-rise buildings, which are expected to use an increasing proportion of wooden materials in the future.

• We will contribute to the realization of a sustainable society through bold investment and the pursuit of new technologies

  We recently released our Multi-stakeholder Policy, designed to build sustainable relationships of trust with our employees, shareholders, business partners, sales outlets, and all our other stakeholders.
  We have identified “promoting management for decarbonization (climate action measures)” as one materiality of Okura Industrial Group, and set targets to reduce CO₂ emissions by 12% by 2024 compared with 2021 levels (equivalent to a 30% reduction from 2013 levels) and 37% by 2030 compared with 2021 levels (equivalent to a 50% reduction from 2013 levels). CO₂ emissions for 2023 were 105,282 t-CO₂, achieving our target for 2024. Moreover, by increasing our Environmental Contribution Products, primarily products containing biomass resin and recycled materials, we are engaged in reducing CO₂ emissions throughout the supply chain.
  In 2023, we began solar power generation at three sites with systems using the onsite power purchase agreement (PPA) model we have progressively introduced since 2022. These were followed by an additional two sites in February 2024. In 2025, we plan to introduce the onsite PPA model at one more site and the first offsite PPA model for Okura Industrial Group at one site. When all these systems come online, they will result in a reduction of 5,300 t-CO₂ in emissions per year.
  We are also continuing to actively implement investment to bring about a reduction in CO₂ emissions, such as the transition from absorption-type refrigeration units that burn oil and gas to generate cold water indirectly to air-cooled units that use electrical energy and the installation of equipment that uses the waste heat generated by plants. Through initiatives such as these, we aim to go on to achieve our CO₂ emissions reduction target for 2030.
  To realize carbon neutrality by 2050, innovations will be needed in areas such as reducing the CO₂ emissions from thermal power plants, improving hydrogen and ammonia infrastructure, and Carbon dioxide Capture, Utilization and Storage (CCUS) technology. At Okura Industrial Group, we will implement bold investments and pursue new technologies, hoping to contribute to the realization of a sustainable society.
  In addition to contributing to the reduction of environmental burden, we are also working to create more people-friendly products. An example of this is garbage bags imprinted with braille, a universal design for people with impaired vision. The garbage bags were adopted by a local government in 2023. Looking ahead, we hope to actively develop more products like these.

• We also plan training for women’s advancement aimed at increasing the number of women aspiring to management positions

  We believe that human resources development is the key issue as we strive to achieve our management vision “Next10(2030)”. We built a new education system in 2022, and have progressively launched training programs. In 2023, we began offering education to enable employees in management positions to acquire “the ability to direct workplaces (organizations) from a medium- to long-term perspective, set issues for organizations, and make decisions on these issues”, and “the basic knowledge to establish and evaluate targets as an evaluator”. To develop human resources capable of promoting DX in their own organizations, we are also continuing to offer education on “DX utilization case studies and understanding mind stance” and education aimed at the acquisition of “skills that will lead to operational improvements and higher productivity”. In 2024, we also plan training for women’s advancement aimed at increasing the number of women aspiring to management positions. Okura Industrial Group plans to invest approximately 300 million yen in human capital in 2024.
  The Group established the Working Group on Women’s Issues in 2022 and has been working to create environments for promoting women’s advancement and raising awareness among female employees. One reason for the Group’s focus on creating work-friendly workplaces for women in this way is to ensure organizational diversity, but that is not all. We are working from the management side to create work-friendly environments for women by aiming to increase the acquisition rate of annual paid leave and providing support for employees to build their career plans, as well as creating harassment-free workplaces. We believe that this will lead to the creation of work-friendly environments for all employees, regardless of gender, age, nationality, etc.
  Our personnel evaluations focus not only on results but also evaluate the processes behind these results. We also evaluate managers in terms of whether they have a management perspective. All employees complete a target-setting sheet. Every six months, we provide feedback and follow-up for all employees based on an assessment of progress against these targets.
  Through these initiatives, we will boost employee engagement and develop human resources able to work together to realize the vision for 2030 that we set forth in “Next10(2030)”: “a solution partner that creates new value through underlying technology and is selected by customers”.

• We will invest in growth to achieve our aims for the business portfolio

  We are embarking on a new project to formulate our next medium-term management plan, and we are currently refining our business strategy. To achieve our aims for the business portfolio, we will inject management resources into focus fields and aim to expand our earnings by investing in growth. We will also eye the possibility of M&A activities in fields with especially high growth potential.
  At the same time, we will proceed with the reduction of investment securities, primarily cross-shareholdings, and the enhancement of shareholder returns, endeavor to improve capital efficiency, and engage in measures with an awareness of raising the PBR to 1.0 or above. In addition, we will strive to further raise the level of dividends, premised on stable dividend payments, and consider implementing share repurchases as appropriate, when we determine they are suitable. We will continue to actively engage in dialogue with shareholders and investors, increasing the opportunities for them to deepen their understanding of Okura Industrial Group’s growth strategy. The status of progress on these measures will be verified each year by the Board of Directors and disclosed. We look forward to your continued support and guidance in the future.