CFO Message

From a financial perspective, various factors changed significantly in FY2022, including increasing material costs, geopolitical risks, rapid economic recovery after the COVID-19 pandemic, progressive inflation, and rising interest rates. Not only for the Fuji Seal Group, but also for many companies around the world, FY2022 was probably the most difficult year to steer a business. However, in a situation where we had to take action in many ways, it was also a year in which FSG as a whole was able to take new unprecedented actions. One example is the expansion of our relationships with our business partners. By creating new relationships, we were able to ensure a secure supply. I believe that this will lead to more effective purchasing activities in the future.

Our products are resistant to economic slowdown due to their steady demand, but in FY2022, progressive inflation caused changes in customer demand, including a shift to private brands, which affected our profitability. However,　we were able to respond to these changes and proceed with selection and focus, which should lead to growth from FY2023 onward. At one point, President Okazaki and other members of the management team and I jokingly remarked that "too much change makes us insensitive to change." This is actually a very important perspective. I believe that it is essential to remain sensitive to changes and issues in order to survive in this era.

The spouted pouches business performed extremely well. Although previously the main demand was for refill pouches, there was increasing demand for pouches that can be used as containers. One of the reasons is that these pouches use less plastic than conventional containers and can contribute to the realization of a circular society. In addition, the fact that they became available in various sizes from small to large helped expand their range of applications, which led to increased sales. In the future, we would like to solve the profitability issues by building a business model that helps customers invest in filling machines.

On the other hand, the shrink sleeve label business and the pressure sensitive label business, which are our primary businesses, continued to struggle. Their profitability declined due to soaring material costs and other factors. Although we made great internal efforts and with their understanding passed on costs to customers, it is undeniable that our response time was slow compared to our foreign-affiliated competitors. However, considering that we are currently at a low point, we are positive about the future. Environmental solutions are in great demand. Our RecShrink^TM labels, developed in the U.S., which can be recycled together with PET bottles into PET bottles, have been well received by many customers and have been increasingly adopted. These efforts of ours have led to high evaluation from external organizations such as EcoVadis and the CDP, and we have received comments from customers saying that they appreciate our efforts because it makes it easier for them to choose us as their suppliers.

In the machinery business, although orders were strong, sales were almost flat. The reasons for this were that the lead time for materials and other items was extended under the difficult environment, and that the introduction of machines was postponed due to changes in the timing of customers'investments. We believe that we will be able to continue sales at favorable levels once the situation returns to normal. We are currently working on discovering new projects while taking advantage of our strength of "system sales," in which labels and machines are sold together.

In terms of performance in each region, Europe and ASEAN showed challenging results. First, as countermeasures for Europe, we implemented structural reforms aimed at recovering profitability, and reviewed our fixed costs. Furthermore, we must focus on delivering solutions that match the market needs to achieve growth and succeed over the competition. The U.S. is a large lot market with 330 million people and one language. Europe, on the other hand, has more than 400 million people and is larger in scale, but there are 13 major countries alone, with a wide variety of languages and consumer tastes, resulting in smaller lot sizes. How can we increase profitability in such a difficult market? We are working on promoting discussions and initiatives from various angles, including machinery and equipment.

As for the ASEAN region, I think we are still at the stage of steadily increasing sales. However, compared to other regions, its population and GDP are consistently increasing, and there is no doubt that its growth potential is high. In the future, we would like to aim for movement that can secure profitability as well as sales.

In my view, the role of finance is to make preparations for active investment. In order to fulfill this mission, it is necessary to carefully assess whether it is worth the money.

For instance, since demand for spouted pouches is expected to continue to increase in the future, we have purchased land in Yamagata Prefecture to build a new factory in order to improve our production capacity. We also promote investment in the pharmaceutical business, which has high growth potential and is important to society. We also manufacture medical equipment in Italy. Since its demand has been growing in recent years, we have purchased land adjacent to our current factory. We are currently considering what kind of factory to build there and how much production capacity to install, with the aim of starting construction in 2023. In Europe, for which we have completed structural reforms, I think FY2023 will be a year in which we will make further investment for growth in line with new markets.

We are also actively investing in human capital to achieve sustainable growth, and one of the ways we are doing this is through a partnership with a business school in Belgium. Our goal is to develop high-potentials to have management skills. We would like to create a follow-up system so that each participant can apply what they have learned in the field and further improve themselves, rather than just making a one-time investment.