President and CEO Message

First, let me explain the changes that occurred in FY2023, both net sales and operating income remained good in Japan, the Americas, Europe, and the ASEAN regions. In the Americas, this result was due to us successfully revising selling prices more quickly than in Japan, the growth of the market itself, and our withdrawal from unprofitable businesses. In Europe, according to our analysis major factors behind the results were the selling price revisions, structural reforms implemented in FY2022, and a significantly enhanced purchasing function.

Another factor behind our good performance was increased production efficiency. Formerly, our top priority was to satisfy our customers although we also valued employee satisfaction. Therefore, we used to have our employees work overtime and follow complicated rules. However, considering the sustainability of our business itself, we have realized that we must launch new efforts to discuss our production efficiency with our customers and seek to gain their understanding. Therefore, we have transformed our mindsets so that we place high priority not only on adopting customer-centered approaches and standing in customers' shoes but also on achieving high employee satisfaction.

In addition, we set up a trust-type incentive plan (an employee stock option plan [ESOP] trust) for the first time in 13 years. We did so in hope of helping our employees increase their own motivation to participate actively in business and management from the perspective of a shareholder and delivering to them the message that the Company supports their medium- to long-term asset development. This initiative is limited to Japan because we have adopted an ESOP that is valid only in the country. However, we will continue our efforts to transform the mindsets of all FSG employees, including those outside Japan.

Of course, our efforts not only refer to employees. Since FSG shifted to a holding company structure in 2004, Fuji Seal International, Inc. (FSI), the holding company, has been in charge of Group-wide governance operations, including formulating and promoting management strategies and conducting audits. As a listed company and a company with nomination and other committees, FSI is always committed to strengthening its corporate governance and achieving more transparent management. We therefore proactively seek the opinions of external parties, including outside directors, shareholders, and investors, and strive to incorporate those opinions in our management. On the other hand, our Group companies tend to place high importance on the steadiness of their business operations making this a challenging gap.

Therefore, through various management meeting bodies, we have further strengthened and implemented the promotion of our management strategies and measures across FSG, thereby strengthening what is known as "group governance."

From the perspective of our group companies, this may have caused some hesitation. Nevertheless, they listened an accepted the policies of the parent company and worked very positively with the awareness of the importance of their role in the Group management.

These measures have been producing obvious effects on our performance although they are still in progress. Some people point out that our business performance has not returned to what it was before the COVID-19 pandemic, but I believe our very lives have changed so drastically because of it that it is wrong to compare the current situation with the pre-pandemic one. If we can implement FSG's Guideline for Action "Changing along with changes," we will be able to continue to move forward without being bound by what occurs. We have been establishing systems to ensure our ability to do so.

Our major regret about the previous Medium-Term Management Plan for 2021 to 2023 is that, under the impact of the COVID-19 pandemic, the plan adopted a defensive stance and included few initiatives to take up new challenges. I have been reminded that taking up new challenges requires us to set high goals and dreams we want to realize.

Our implementation of the plan resulted in our acquisition of the ability to take action in the event of the realization of various risks, including cyberattack risks, so that we can contain their impacts within the scope of our expectations. Another result is several effective next-generation business models being created after our efforts. We were able to dedicate much time to such novel initiatives while being subject to activity restrictions, including prohibition on business trips.

Although the external challenges were quite difficult for us to take on, and we had to face tough situations, the seeds we had sowed within the Company began to sprout. This is my impression looking back on the past three years.

Based on our implementation of and reflection of the previous Medium-Term Management Plan (2021-2023), we have formulated our new management plan titled "FSG.30,*" with 2030 as both the target year and a milestone. We recognize that we are now ready to envision our next stage and have a system in place to do so. Therefore, rather than drawing up a three-year plan just as we did in the past, we have formulated a management plan for a longer period to define our medium- to long-term ideals. We will also perform corporate management while clarifying what we must put into practice every year.

When we worked out our growth strategies, we re-identified our strengths and business foundation. We have re-identified our strengths in our valued customers, global presence, and production. Meanwhile, our business foundation comprises financial affairs, human capital, the environment, governance, and intellectual property (IP) strategy. Further refining our strengths and business foundation, we aim to achieve sustainable growth by implementing three strategies: steadily strengthening the four existing business units; expansion of product markets/targets; and creation of new business models that will lead to the next generation.

*FSG.30: Fuji Seal Sustainable Growth 2030 Strategy

We believe one of our strengths is our "production capabilities", and underlying this is our desire to review the role and value that packaging plays in the midst of environmental issues being discussed.

First, the safety and protection aspects of packaging. Packaging protects products from tampering, impact, or dust and provides product information, such as the expiration dates and preservation instructions, thereby enabling consumers to handle and use those products with peace of mind. Next, the product management aspect labels that provide product information enable the unification of containers for different products, which helps reduce inventories of containers and makes product design renewal an easier task as it can be performed by just changing the labels. In addition, by using soft pouches as containers, the size can be made more compact, thereby increasing transportation efficiency. Furthermore, in terms of functionality, labels with added light-shielding and heat-insulating functions contribute to reducing food loss, for example, by extending shelf life.

The strengths of our products lie not only in their decorative roles in differentiating products and brands from others and broadening their appeal to consumers but also in their roles related to safety, security, product management, and functionality, leading to their value. As a leading company, we believe it is our responsibility to communicate the role of packaging, including our efforts to contribute to a circular economy, to a wider range of people.

Our Intellectual Property (IP) strategy has undergone significant changes over the past several years. By organizing and systematizing our previously disparate patents and Idea Bank program, we have improved the accuracy of our judgments and made it easier to pass these patents and ideas on to the next generation. We also practiced IP landscaping,* which has enabled us to objectively assess the level of our IP in the market and our weaknesses in IP terms, thereby giving us a clear understanding of our own position.

As for the environment as a component of our business foundation, we will continue to promote our ongoing initiatives for both "creating value" by supplying environmentally friendly products and "protecting value" by reducing the environmental impact of manufacturing. Taking a further step, we have set an additional target of reducing GHG emissions to achieve net zero GHG emissions by 2050. The progress and details of our environmental efforts are reported to the Executive Meeting and the Board of Directors and are also shared with a wider range of people through a monthly environmental report.

*IP landscaping: Analyzing IP information and utilizing the analysis results to formulate management strategies and make corporate decisions

In pursuit of expansion of product markets/targets, one of our three growth strategies, we will focus more efforts on the pharmaceutical business, which offers greater potential for growth and has higher importance for society. We obtained a license and approval for pharmaceutical packaging and processing about 30 years ago, and we have the expertise and a proven track record in the business. To take the next step, we acquired all shares of Toride Pharma K.K. in June 2023.To enter the biotechnology market. We are also pursuing the strategy of expanding our pharmaceutical machinery business, including line engineering and rotary labelers, by making proactive capital investments, for example, in a new building at our factory in Italy.

Against a backdrop of the increasing use of generic drugs worldwide, customers in the pharmaceutical industry are increasingly focusing on in-house R&D while outsourcing packaging. We view this change in the market as a major business opportunity for us.

For our market-leading customers, the distribution industry is now one of their competitors. Distributors currently run their own private brands and sell their products at low prices, resulting in a wider choice of products for consumers and fiercer competition between their products and products of domestic brands. This situation requires market leaders to provide consumers with more valuable products to firmly establish the value of their own brands. That is also the case with us. One of our growth strategies is "creation of new business models that will lead to the next generation," and we have launched various initiatives to implement the strategy. An example is container-related initiatives. Shrink sleeve labels and pressure sensitive labels are used on solid containers. Softer spouted pouches were originated from the idea of turning those labels into containers. They help significantly reduce the amount of plastic used compared to conventional solid containers. Our pouch products include spouted pouches, refill pouches, and pouches used in place of solid containers, and we are currently planning to develop new products.

A new business that has already reached the materialized is Deep IS®, a technology aimed at preventing counterfeit products and unauthorized resale. This is an innovative technology for identifying individual items by distinguishing slight fluctuations in printing that humans cannot notice which we developed in collaboration with a Swiss startup company. The global anti-counterfeit packaging market is expected to exceed 50 trillion yen by 2030, and we expect the Deep IS® technology to become our next growth driver.

As a packaging manufacturer, we take the stance that we will use whatever material we can use, whether plastic or paper. So why is plastic packaging so overwhelmingly prevalent? The answer is that it matches our customers' products best from hygienic, safety, and other perspectives. We believe that, if plastic issues mean environmental pollution caused by plastic wastes that flow into the sea and other waters, the most important thing is to increase plastic recycling rates. Therefore, we are promoting initiatives achieve a circular economy from various perspectives so that labels and packaging can be recycled into resources.

The "Label-to-Label" technology is a process that removes the printed designs from used Shrink Sleeve Labels and recycles them into new labels and ink. We will contribute not only to the effective use of resources but also to the reduction of GHG emissions by recycling labels that provide useful information to consumers into labels. In addition, RecShrink^TM has brought us success in our Label-to-Bottle initiative to collect PET bottles with labels and recycle them into PET bottles. This product has obtained certification from the U.S.-based Association of Plastic Recyclers (APR) and has already been used by many customers.