23CHORI CO., LTD.

Tsumugu Report 2021

Overview and Strategies by Business Segment

Fibers, Textiles, andGarments Business

Chemicals Business

Machinery BusinessIn light of the severe operating environment, our overseas
business, including hygienic materials, stood strong, whileapparel products and other sectors in the Japanese market felt
the effects of COVID-19, leading to store closures that translated into a loss of sales opportunities and weaker consumer
sentiment. As a result, the Fibers, Textiles, and Garments
Business posted net sales of ¥90.1 billion (compared with
¥114.5 billion in fiscal 2019) and ordinary income of ¥3.9 billion(down 3.8% year on year) in fiscal 2020.
Moreover, the adoption of the Accounting Standard for
Revenue Recognition, etc., resulted in a ¥5.8 billion decreasein net sales.

Despite signs of recovery in the latter half of fiscal 2020, we
could not offset the deterioration of the organic chemicals andelectronic materials markets fueled by the effects of COVID-19,
resulting in net sales of ¥123.3 billion (compared with ¥150.6
billion in fiscal 2019). In terms of profit, provision of allowancefor doubtful accounts equivalent to the entire amount ofaccounts receivable of ¥5.1 billion pertaining to the Chengxing
Group that was recorded under selling, general and administrative expenses led to an ordinary loss of ¥0.3 billion (comparedwith ordinary income of ¥3.5 billion in fiscal 2019).
Moreover, due to the adoption of the Accounting Standard
for Revenue Recognition, etc., net sales fell ¥2.8 billion.

Primarily due to the impact of the adoption of the AccountingStandard for Revenue Recognition, etc., in fiscal 2020, theMachinery Business posted net sales of ¥2.7 billion (comparedwith ¥64.1 billion in fiscal 2019). Owing to profitability improvement measures, ordinary income amounted to ¥0.7 billion (up69.0% year on year).
Moreover, net sales decreased ¥33.1 billion due to theadoption of the aforementioned standards.

150
120.2
120

123.3

150

3.9

6

3.7

4.3

3.7

4.0

4.2

5

3.9

2018

Net sales

2019

Operating income

2020

(FY)

Ordinary income–5

Net salesGroup Structure

2019

Operating income (loss)

Over view¥90.1 billion(41.7%)

Fiscal 2020 Net Sales by Region

4
2

2018

Fibers, Textiles,
and Garments

64.1

3.5

0

0

Net Sales¥216.2 billion

603.2(0.7) (0.3)

3(0.0%)(57.0%)

59.7
10
3.6

¥0.1 billion(1.3%)¥123.3 billion

80

90.1
90

Other (incl. corporate
adjustments)¥2.7 billion

100

150.6

114.5

Machinery

Chemicals(Billions of yen)(Billions of yen)200 176.5(Billions of yen)

Fiscal 2020 Net Sales by Segment

2020

(FY)

Ordinary income (loss)

0

Net sales

2.7
0.3

0.3

2018

0.5
2019

Operating income

0.4

0.5
2020

Ordinary income

0.7
(FY)

Middle East

Europe, the U.S.,
and others¥3.4 billion¥8.2 billion(1.6%)(3.8%)

Central andSouth America

Japan(Domestic sales)¥4.3 billion¥73.1 billion(2.0%)

Domestic Sales:
Amount ofdomestic sales(33.8%)

Overseas
Transactions
Asia(As of March 31, 2021)¥31.9 billion(14.8%)

Japan (Imports)

CHORI CO., LTD.

Major Subsidiaries

Main Business

Fibers, Textiles, andGarments Business:
10 companies

ASADA U CO., LTD.
CHORI MODA CO., LTD.

Sales of automotive interior and packaging materials
Planning of fashion apparel

Chemicals Business:
9 companies

Miyako Kagaku Co., Ltd.
Sales of chemical products, industrial materials, pharmaceuticals, and food-related ingredients
KOZAKURA SHOKAI CO., LTD. Sales of lubricating oil additives and various other chemicals
CHORI GLEX CO., LTD.
Import sales of chemical products, construction materials, and industrial products

Machinery Business:
1 company

Chori Machinery Co., Ltd.

Sales of transportation equipment and other products

Export sales:

Other: 2 companies

Business Anchor Corporation

Outsourcing of administrative work

Overseas sales:	Amount of net sales fromoverseas transactions

CHORI AMERICA, INC.

Import and export sales, overseas transactions, and domestic sales of various products in the U.S.
Import and export sales, overseas transactions, and domestic sales of various products in China
Import and export sales, overseas transactions, and domestic sales of various products in Thailand

Overseas subsidiaries:
CHORI (CHINA) CO., LTD.
20 companies
THAI CHORI CO., LTD.

Greater China*¥58.2 billion¥37.0 billion(26.9%)(17.1%)

Overseas Transactions 66.2%
Import sales: 	Amount of net sales fromoverseas to Japan mount of net sales from
A
Japan to overseas* Includes China, Taiwan, and Hong Kong

24

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CHORI CO., LTD.

Tsumugu Report 2021

Overview and Strategies by Business Segment

Road to Achieving Chori Innovation Plan 2022

Fibers, Textiles, andGarments Business
Synthetic
Fiber
Business
Dept.

Fiber Raw
Materials Dept.

Technical
Textiles Dept.

TextileDivision

Technical
Material &Garments
Business
Dept.

Technical Fiber
Garments Dept.

Automotive Materials
and Fabrics Dept.

Textile-Fabric
Dept.

Apparel Dept.

Intimate Apparel
Dept.

Logistics Dept. (Textile)
Business Administration Sec. (Synthetic Fiber)
Business Administration Sec. (Technical Material & Garments)

By merging the three divisions of
the Fibers, Textiles, and Garments
Business to form a single divisionin fiscal 2020, Chori established its
Textile Division. Doing so has eliminated divisional boundaries andunited the divisions to operate asa single entity.
The ability to seamlessly conduct
operations as a result of establishing this single division has allowed
the Fibers, Textiles, and Garments
Business to conduct cross-divisional
projects, share ideas and know-how,and engage in joint efforts with
manufacturers as well as with­partners in industry and academia.
The restructuring has also facilitatedthe development of unique materials
with water-repellent, odor-eliminating,and antibacterial features, in addition
to proposals of optimal solutions at
each stage of the material production process.

SWOT Analysis of the Fibers, Textiles, and Garments Business
Strengths

Weaknesses• Two-pronged business model involving manufacturing andcommercial capabilities in fiber, fabric, and other products• Customer base in the Hokuriku region, the largest textile-producing
region in the world• Well-versed team of personnel in Japan and overseas• Operation of original equipment manufacturer business that
integrates supply chain processes, encompassing production
to distribution, by leveraging the capabilities of production
sites in China, Thailand, and Vietnam• Responsiveness to customer needs by drawing on
global networkS• Late start to globalization in downstream fields• Digitalization measures• Deterioration of business sectors employing
defensive strategies

adapting to changes in needs

through our collective strengths

Hiroshi Yoshida
Managing Executive Officer
General Manager of Textile Division

Overview of Fiscal 2020 Performancein the Fibers, Textiles, and Garments BusinessIn fiscal 2020, net sales in the Fibers, Textiles, and Garments Business came to ¥90.1 billion, aroughly 20% decline from the previous fiscal year. However, ordinary income amounted to ¥3.9
billion, falling just below its highest result ever despite the effects of COVID-19. While cost
reductions certainly contributed to this result for ordinary income, I believe this is the product ofintegrating the three divisions into a single division. This integration has allowed us to share information on the risks associated with COVID-19 throughout the entire division while addressing theneeds for masks and protective garments in a timelier manner. Thanks to these collective
strengths, we were able to overcome the sluggish performance of apparel and other downstream
fields in the first half of fiscal 2020.
COVID-19 has certainly shifted the lifestyles of consumers; however, demand for basic
needs—food, clothing, and shelter—is not likely to undergo significant changes. In fact, we saw
an increase in demand for TEXBRIDTM highly stretchable yarn, dust wipes, and other productsthat contribute to a more comfortable and relaxing time at home.
Japan’s apparel market, which is currently at the scale of roughly ¥9 trillion, was previously
expected to shrink to ¥7 trillion by 2030.* However, now the market is projected to contract to thislevel by 2025 due to the impact of COVID-19. With that said, this will not hold back our optimism
for the future. That is because the global apparel market will likely grow at an average annual rateof 5% as a result of the growing population.* Accordingly, outing wear, which saw the market
shrink temporarily due to COVID-19, is also expected to see an upturn in demand going forward.

(Billions of yen)

Threats• Growing demand for car seats stemming fromrecovery of automotive market• Growing demand for hygienic materials• Increasing demand for sports apparel owing to greater
health awareness• Expansion of textile product market due to a rise in global population

O

T

”

in textiles.

* Source: The Future of Apparel in 2030: When Japanese Companies Become Half the Size, Minoru Fukuda (Toyo Keizai Inc., 2019)

W

Opportunities“

We will continue to grow by• Boycott of products made in China as a result of
U.S.–China trade conflict• Coups d’état in emerging countries and discontinuation of production and supply

FY2019FY2020Difference

After Adoption of Accounting Standard
for Revenue Recognition*

114.5
106.4

90.1
90.1

–24.4
–16.3

–21.3%–15.3%

Ordinary Income (Segment Profits)

4.0

3.9

–0.2

–3.8%

Net Sales* In the first quarter of fiscal 2020, Chori adopted the Accounting Standard for Revenue Recognition(ASBJ Statement No. 29, issued on March 30, 2018).

Ratio

26

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CHORI CO., LTD.

Tsumugu Report 2021

Overview and Strategies by Business Segment

Road to Achieving Chori Innovation Plan 2022

Chori’s Sustainability-Focused Initiatives

Basic Strategies and Progress ofChori Innovation Plan 2022
Basic Strategies of the Fibers, Textiles, and Garments Business① Bolster collective strength in the business② Enhance global supply chain management

I n i ti ati ve③ Strengthen global proposals and marketing capabilities for Chori’s original products

In addition to restructuring the business to form a single division, we ① bolstered the collective
strength of the Fibers, Textiles, and Garments Business by making Sumitex International Company
Limited—a specialized trading company in textiles—a consolidated subsidiary inJune 2021. We expect to generate synergies through this consolidation in the form of stronger
exit strategies. The company owns various commercial rights that were not at Chori’s disposal,
such as for loading methods and low-price zones for specialty store retailers of private label
apparel (SPAs), and is a major domestic supplier of cotton yarn, one of the two main raw materialsof fiber. By combining this with Chori’s strengths in synthetic fiber, we will look to enhance ourlineup of products and enhance our exit strategies in the form of sales contacts.
From the perspective of ② enhancing global supply chain management, we are expanding ourlineup of products for the ASEAN region. While sustaining our business in China, where we havebroadened our footprint over the years, we will funnel more efforts and resources into our projects
in the ASEAN region, firmly preparing for such geopolitical risks as the trade conflict between the
U.S. and China. Because Vietnam and other ASEAN countries are currently the target region ofvarious countries across the globe for the production of textile products in lieu of China, processing
and other costs have been on the rise. Chori can, however, minimize these higher costs by taking fulladvantage of a Group subsidiary’s factory in Vietnam. We will continue to devote our attention to
the ASEAN region as a platform for our supply chain in lieu of China.
By expanding Chori’s original product line, which includes ECO BLUETM recycled polyester fiber
and TEXBRIDTM highly stretchable yarn, we have ③ strengthened global proposals and marketing
capabilities for such original products. ECO BLUETM was initially developed under the sole initiativeof recycling used plastic bottles (“First”). However, we have expanded the scope of ECO BLUETM toinclude the reuse of yarns and fabric waste (“Loop”) and the creation of nylon yarn through the useof used fishing nets (“Ocean”) and corn waste (“Earth”). Another initiative we have rolled out is ahighly durable material that draws on the elasticity capabilities of TEXBRIDTM highly stretchable
yarn, which will be used in white coats and other types of workwear and uniforms.

Progress toward Fiscal 2022 Targets
In fiscal 2020, ordinary income amounted to the equivalent of 75% of the ¥5.2 billion targeted forfiscal 2022. This fiscal 2022 target is certainly an ambitious figure; however, Chori has put in place
an array of project teams to address the needs that have come to light in fiscal 2020 as a result of
COVID-19.
“Progressive” and “unceasing” are two of my favorite words. We at Chori will take a“progressive” approach to firmly grasp and address the changes in our external businessenvironment while making an “unceasing” effort to reinvigorate our businesses that were affectedby COVID-19, along our path to realizing Chori Innovation Plan 2022.

ECO BLUETM Recycled Polyester Fiber
Ensuring Stable Supplies of Ultra-White Fiber
To help resolve the issue of plastic pollution, which has been gaining greater attention in recent years, Chori has been expanding its lineup of recycled materials
derived from plastic bottles. While ECO BLUETM recycled polyester fiber has been apart of our product lineup for some time, in 2019 we established a joint project with
Utsumi Recycle Systems Inc., one of the largest manufacturers of recycled pellets
for textile materials in Japan. This joint project has allowed Chori to establish traceability for this brand, which is essential to managing the quality and realizing asystem that ensures stable supplies of these ultra-white, high-quality pellets.
With this system in place, Chori boasts the capacity to recycle approximately
one billion plastic bottles per year. Moreover, ECO BLUETM is also certified with the
Global Recycled Standard as it generates less carbon dioxide during production
compared with virgin polyester. Going forward, we will redouble our efforts to maintain traceability for ECO BLUETM through actions such as providing information thatverifies the use of Chori’s recycled pellets in apparel products.
蝶理

環境配慮型総合ブランド

Expanding the Scope of ECO BLUETM-loop-first-

Ordinary Income of Fibers,
Textiles, and Garments Business(Billions of yen)
6

5.2
3.9

4

2

0

FY2020(Result)

FY2022(Target)-ocean--earth-Along with our “First” initiative of creating recycledmaterials through the use of used plastic bottles, ECO
BLUETM has been expanded to include three otherinitiatives: “Loop,” “Ocean,” and “Earth.”
Under the “Loop” initiative, yarn waste, greige yarn,
and used fibers of apparel and other products are reused
and recycled to recreate clothing and acoustic materials
utilized in automobiles. We intend to roll out this initiative inthe Hokuriku region, where we have built strong ties over
the years, and expand it elsewhere thereafter. In the“Ocean” initiative, used fishing nets are used as a raw
material to create material-recycled and chemically recycled nylon yarn. These materials are characterized by thefact that they are post-consumer recycled and by thetransparency of fishing nets as a raw material. In the “Earth”
initiative, highly sophisticated nylon yarn is created throughthe use of bio-based raw materials such as corn waste.
By expanding its range of initiatives for ECO BLUETM,
Chori will continue to recycle valuable resources andthereby contribute to realizing a sustainable society.

28

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CHORI CO., LTD.

Tsumugu Report 2021

Overview and Strategies by Business Segment

Road to Achieving Chori Innovation Plan 2022“

Chemicals Business

Chemical &Materials
Business
Dept.

Performance
Chemicals Dept.

Inorganic Fine
Materials Dept.

Chemicals
DivisionLife & Fine
Chemicals
Business
Dept.

Industrial
Chemicals Dept.

Fine Chemicals
Dept.

Life Science Dept.

Logistics Dept. (Chemicals)
Business Administration Sec. (Chemicals)

Established in 1956, the Chemicals
Business has a track record spanningover 60 years. We have continued
to take advantage of our global
network not only in terms of procurement and sales within China
but also through exports and intermediary transactions with the
Middle East, Russia, and otherregions. Through these efforts,
coupled with our ability to meet theneeds of our clients for niche products, we have set ourselves apartfrom our competitors and enhanced
our market presence.
With an extensive productportfolio that encompasses theenvironmental, electronics andbattery materials, and 5G-related
fields, Chori caters to the wide
range of needs of its customers.

SWOT Analysis of the Chemicals Business
Strengths

Weaknesses• Lack of brand recognition and smallness of businessscale within B2B market relative to major competitors overseas• Length of time needed for new businesses tocontribute to revenue• Global network centered on China• Diverse lineup of high-performance materials• Exceptional synergies created with subsidiaries• Product development and product supply capabilities thatdraw on the market-in approachS• Growing demand for automotive-related materials• Increasing demand for products in the field ofsustainabilityT

to forge ahead with our”sustainability-related business.
Yoshihiro Teratani
Managing Executive Officer
General Manager of Chemicals Division

Overview of Fiscal 2020 Performance in the Chemicals BusinessIn the first half of fiscal 2020, the initial year of Chori Innovation Plan 2022, the Chemicals Businessfelt the drastic effects of COVID-19. All of Chori’s products were affected by the pandemic to a certain
degree; however, demand for automobiles started to regain momentum in around September 2020
while sales of chemicals also gained ground in the latter half of the fiscal year. Meanwhile, sales ofpharmaceuticals and agrochemicals remained firm throughout the year, leading to net sales of¥123.3 billion and an ordinary loss of ¥0.3 billion. The ordinary loss is mainly attributable to therecording of provision of allowance for doubtful accounts equivalent to the entire amount of accounts
receivable of ¥5.1 billion pertaining to the Chengxing Group in China. If not for this negative impact,
the ordinary loss of ¥0.3 billion would have instead resulted in ordinary income of ¥4.8 billion, anamount that would have surpassed its results from the previous year.
While COVID-19 has hit our business hard in a variety of ways, we have also benefited throughthe establishment of a remote operating system. Through the use of this system, the audits thatwere traditionally carried out on-site at our overseas facilities can now be conducted from a remotelocation. Without the need to visit our overseas facilities, we have also increased production anddecreased costs. The global economy has slowly begun regaining traction, so we will steadily look
to reap the benefits of the subsequent growth in demand moving forward.

Net Sales
Threats

O

term targets while continuing(Billions of yen)W

Opportunities

We will pursue our medium-• Trade conflict between the U.S. and China andboycott of products made in China• Discontinuance of production and disruptions to
supply routes in emerging countries• Supply–demand imbalance stemming from market
deterioration• Limited desire among potential customers to switch
to other products due to economic recession

After Adoption of Accounting Standard
for Revenue Recognition*

Ordinary Income (Loss)(Segment Profits (Loss))

FY2019FY2020Difference

150.6
139.5

123.3
123.3

–27.3
–16.2

–18.1%–11.6%

3.5

(0.3)

–3.8

–109.2%* In the first quarter of fiscal 2020, Chori adopted the Accounting Standard for Revenue Recognition(ASBJ Statement No. 29, issued on March 30, 2018).

Ratio

30

31

CHORI CO., LTD.

Tsumugu Report 2021

Overview and Strategies by Business Segment

Road to Achieving Chori Innovation Plan 2022​

Chori’s Sustainability-Focused Initiatives

Basic Strategies and Progress ofChori Innovation Plan 2022
Basic Strategies of the Chemicals Business① Enhance business investments and promote development of new businesses

I n i ti ati ve

1

I n i ti ati ve

2

I n i ti ati ve

3② Accelerate global expansion③ Transfer business headquarters to optimal location④ Strengthen subsidiaries centered on Miyako Kagaku Co., Ltd.

Lithium Compound Production Project in Chile⑤ Expand business domain through M&A

The evaporation method commonly used to extract lithium components from brinewater was associated with concerns over its significant environmental impact.
In contrast, Chori has been participating in a project to produce lithium compounds
through the use of a new method that enables only lithium components to be
extracted from brine water, thereby maintaining the water volume of salt flats.
Compared with our conventional approach, this new extraction method contributes
to significant reductions in production time, and, because it does not hinge on
weather conditions, the production volume can be adjusted in line with market
conditions. Through such means, Chori will address the needs of the lithium-ion
battery market, which we anticipate will expand even more going forward.

Unlike the Fibers, Textiles, and Garments Business, which originated 160 years ago when the Company
was founded, the Chemicals Business has only been in operation for over 60 years. As such, we havealways been on the lookout for new opportunities to expand this business. Our strategy of ① enhancing
business investments and promoting the development of new businesses remains unchanged, as we
continue to keep track of developments in the environmental, 5G-related, and other growth fields.
Proceeding with new projects currently poses quite a challenge due to the inability to meet customers
face to face. Nonetheless, we must continue to take an active stance toward business investments
and product development to ensure that we do not miss out on key opportunities. Also, we willremain firmly committed to our ongoing lithium compound production project and other initiatives.
Chori’s strong ties with China are clearly evident in chemical products as well. We will look tocontinue ② accelerating our global expansion by exporting to Japan and other countries the products of chemical manufacturers in China, a country that recovered quickly from the effects of
COVID-19. In addition, we are currently planning to establish new businesses and expand our presence not in only China but also in ASEAN countries as well as India, a pharmaceutical powerhouse.
In a bid to create more synergies, we will aim to ④ strengthen our subsidiaries, centered on
Miyako Kagaku Co., Ltd., while ⑤ expanding our business domain through M&A. Miyako Kagaku is a
trading company that engages in sales of chemical products, industrial materials, pharmaceuticals, andfood-related ingredients. With our sights set on achieving the goals laid out in Chori Innovation Plan
2022, we will continue to work in tandem with Miyako Kagaku while adopting a more environmentally
responsive approach aimed at achieving a carbon-neutral society, such as by reducing sludge at plants
through the use of biodisinfectants and rolling out biodegradable resin to the agricultural industry. In
regard to M&A, our focus will be on the promotion of initiatives toward realizing a more extensive product lineup in the pharmaceutical field, which mainly relies on the handling of raw materials nowadays.

Progress toward Fiscal 2022 Targets
The path to realizing our ordinary income target of ¥5.3 billion in fiscal 2022 began with the posting of an
ordinary loss of ¥0.3 billion in fiscal 2020. However, had it not been for the recording of provision of allowance for doubtful accounts in the amount of ¥5.1 billion, this result would have come to ordinary incomeof ¥4.8 billion, the equivalent of approximately 90% of the ¥5.3 billion targeted for fiscal 2022. As statedearlier, it is not the most ideal time to proceed with new projects; however, the projects that were alreadyin the pipeline prior to the emergence of COVID-19 will likely come to fruition in fiscal 2021 and fiscal 2022.
Our sustainability-related businesses are also projected to expand in scale. Chori’s plant-based
meat is currently in the development stage and approaching its final stage. Amid concerns over ashortage in the supply of protein stemming from global population growth, plant-based meats areseen as a solution to such issues. These alternative meat products are also expected to reduce theamount of water and energy used to produce livestock. Moreover, Miyako Kagaku has begun handlingcricket powder to function as an alternative source for protein. We also handle alternative paper
and alternative plastic products made primarily of limestone procured in Japan. We will continue toinfuse more energy into our sustainability-related business, for which we foresee further growth in
the years ahead, with the goal of realizing our fiscal 2022 targets.

Biodegradable Resin
At Chori, we have recently been expanding our lineup of biodegradable resin,a raw material used in seed sheets. Seed sheets serve as a means to prevent theevaporation of soil moisture and are used for weed and pest control. As they are
made of biodegradable resin, they eventually decompose into water and carbon
dioxide. Accordingly, they eliminate the need for disposing waste while reducing theuse of plastic and, because the seed sheets do not need to be collected, they help
enhance agricultural productivity.
We are also working to enhance our lineup of biodegradable resin derived fromplants such as cassava and taro, which we are utilizing as a raw material for
garbage and shopping bags due to the soft texture they generate.
Ordinary Income (Loss) of
Chemicals Business(Billions of yen)

5.3

6

4

2

(0.3)
0

FY2020(Result)

FY2022(Target)Supplying of Ingredients for Plant-Based Meat
With the global population estimated to reach 10 billion people by 2050, there are
growing concerns over the potential breakdown in balance between the supply anddemand for beef, pork, and other sources of protein. At Chori, we procure ingredientsfrom overseas derived from soybeans, wheat, and green peas of the highest
standard in terms of safety and quality that comply with the Non-GMO Project
Standard and provide them to food processing companies in Japan. These plantbased meats offer the texture and appearance of real meat and are flavored to suit
the tastes of Japanese people. Through the growth in popularity of our alternative
meat, as well as the prevention of deforestation for livestock and the reduced useof water and crops, we will continue to help resolve environmental issues.

32

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CHORI CO., LTD.

Tsumugu Report 2021

Overview and Strategies by Business Segment

Road to Achieving Chori Innovation Plan 2022

Machinery Business
Operating Company
Chori Machinery Co., Ltd.

Wholly owned
consolidated
domestic subsidiary

Four-wheeled vehicles, two-wheeled vehicles,
and trucks; agricultural machinery; construction
materials; and marine equipment

With the aim of providing greater
flexibility, in April 2017 Chori spun
off Chori Machinery Co., Ltd., asupplier of automobiles, machinery,and related materials.

“

We will continue to expand

our business by tapping into

new markets and establishinga new revenue model.
Jun Hayami
President & Representative Director
Chori Machinery Co., Ltd.

”

China

EuropeSouth
Korea Japan

AfricaMexico

India
ASEAN

Centraland South
AmericaSouth
AfricaOverview of Fiscal 2020 Performancein the Machinery BusinessSupplier
MarketSupplierand market

Leveraging the Group’s unique global network, which has expanded
over the years, Chori Machinery commercializes products acquired from
China, India, South Africa, and other countries in markets such as
Europe; the ASEAN region; North, Central, and South America; andWest Africa. Most notably, the company engages in a project in which
the automobiles of Chinese automakers are assembled throughsemi-knocked-down production and sold in Mexico.

Recently, the company has been growing its business in Africa andother emerging markets, in particular. By drawing on its long-cultivatedknow-how in global trade and unique trade routes, Chori Machinery willcontinue to expand its business in the years ahead.

SWOT Analysis of the Machinery Business
Strengths• Sophisticated information and global networks• Creation of niche market by leveraging unique customer base• Market-in proposals by employees deeply familiar
with markets• Ability to develop customer relations worldwide bydrawing on individual capabilities

Weaknesses• Need for improvements to flexibility andorganizational capabilities that draw on the strengthsof each individual• Timeliness of digital transformation measures

S(Billions of yen)W

Opportunities• Global recovery of automotive market• Expanding product line in Africa, Southeast Asia,and other thriving emerging markets• Growing business opportunities associated with shift toenvironment-friendly vehicles• Expanding product line in non-vehicles businesses

ThreatsO

In the first half of fiscal 2020, we suffered the effects of COVID-19 while concerns were raised
temporarily in regard to the collection of accounts receivable at an overseas subsidiary. However,
we managed to collect on the accounts receivable without any major consequences, and theautomotive market, which Chori Machinery relies on heavily for its major products, was clearlyon the road to recovery. In particular, automobiles and other transportation equipment are an
essential infrastructure for the lifestyles of the citizens of emerging countries; therefore, thesemarkets are regaining ground quickly around the world. Ultimately, in fiscal 2020, the initial yearof Chori Innovation Plan 2022, net sales amounted to ¥2.7 billion and ordinary income totaled¥0.7 billion in the Machinery Business. This net sales result takes into account a decrease of¥33.1 billion resulting from the adoption of the Accounting Standard for Revenue Recognition, etc.
Consumer spending, which diminished in fiscal 2020, will more than likely bounce back in
fiscal 2021, leading to the regrowth of markets around the world. The rejuvenation of markets will
be particularly evident in emerging countries, the core markets of Chori Machinery’s products.
Meanwhile, the rising cost of logistics precipitated by the global imbalance between supply anddemand is a prominent issue that has surfaced in light of COVID-19. This issue has come into playin a variety of facets of our business, so the situation will be monitored carefully moving forward.

T• Country risk and risk of pandemics, coups d’état,and economic crises in emerging countries• Market fluctuations resulting from intenseclimate change

FY2019FY2020Difference

Net Sales

After Adoption of Accounting Standard
for Revenue Recognition*

64.1
2.6

2.7
2.7

–61.4
+0.2

–95.7%+6.4%

Ordinary Income (Segment Profits)

0.4

0.7

+0.3

+69.0%* In the first quarter of fiscal 2020, Chori adopted the Accounting Standard for Revenue Recognition(ASBJ Statement No. 29, issued on March 30, 2018).

Ratio

34

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CHORI CO., LTD.

Tsumugu Report 2021

Overview and Strategies by Business Segment

Road to Achieving Chori Innovation Plan 2022

Core Initiatives of the Machinery Business

Basic Strategies and Progress ofChori Innovation Plan 2022
Basic Strategies of the Machinery Business① Develop markets of four regions + India

1② Expand product lineups through vehicles business and convert to revenue model
I n i ti ati ve③ Promote strategic alliances with global corporations in each region

One of the basic strategies laid out in Chori Innovation Plan 2022 for the Machinery Business is① developing the markets of four regions and India. Over the years, the Machinery Business has
continued to expand its presence in a number of emerging countries, alongside its core market of
China. In addition to Mexico and Central and South America, the Middle East and Africa, Southeast
Asia, and Europe, which comprise our four regions, we will look to tap into and enhance ourpresence in the Indian market going forward. With the geopolitical risks that exist in other countries,
Chori Machinery is looking to ramp up its business in India due to the significance of this market interms of its population size and economic scale, which is paralleled only by China.
Another basic strategy we are embracing as a part of Chori Innovation Plan 2022 is ②
expanding our product lineups through the vehicles business and converting to a revenue model.
While the import and export business has traditionally been the lifeblood of trading companies,
in order to take one step further and expand their businesses, such companies constantly consider
the possibility of engaging in business investments and joint ventures with investees. In fact, oneof our projects involves the development of three-wheeled vehicles, which emerged through thesynergy created by our business, which made its start in automobiles. We will pursue alliances withother companies in an effort to engage in production and sales activities in Africa and thereby
capitalize on the explosive economic growth expected in the region.
In regard to ③ promoting strategic alliances with global corporations in each region, we havebeen working in partnership with a company based in Mexico to carry out semi-knocked-down
production and sales of automobiles in the country for Chinese automakers. Our expectations arequite high for this business as Mexico will likely follow on the heels of the U.S. and steadily revive
its economy in the near future. We will continue to seek ways in which the universal knowledge
accumulated through this partnership, including the range of solutions invented over the years,
particularly in automobile sales, can be leveraged as intangible assets in other markets.

Progress toward Fiscal 2022 Targets
On the back of the revitalized automotive market mentioned earlier, in fiscal 2020 ordinary income
amounted to ¥0.7 billion, exceeding our target of ¥0.5 billion for fiscal 2022. Looking ahead, we willcontinue to set our sights on raising the level of our profits by tapping into new markets and developing a new revenue model.
Chori Machinery is still in its fifth year of business after it was established through the spin-offof the Machinery Business, which had been a part of the former Chemicals and Machinery
Business of CHORI CO., LTD. until 2017. Accordingly, our path has just begun and, because ofthat, one of the issues we must address is the strengthening of our business foundation, particularly the establishment of a solid human resource foundation and organizational structure. We willcontinue to expand the Machinery Business in the coming years by proposing solutions throughits market-in approach, made possible by our wealth of market knowledge accumulated over theyears. In so doing, we will become a corporate entity that makes a difference to society by staying
closely attuned to the lifestyles of our customers around the world, addressing their needs at all
times wherever they are, thereby enhancing our corporate value.

Semi-Knocked-Down Production in Mexico
In semi-knocked-down production, automobile parts and com­ponents are transported to the country of destination, where
they are assembled and the automobile is completed. It differsfrom completely knocked-down production in that the frame,
engine, powertrain, and other main components have alreadybeen assembled by the time they are transported overseas.
Semi-knocked-down production offers a variety of
economic benefits, such as job creation as well as tax
benefits for the country of destination. As a result, more
employment opportunities are available for local residents
in not only assembly processes but also at sales agents andfor after-sales services. In 2017, Mexico’s annual automobile
production volume nearly reached the 4.0 million-unit mark.
Moving forward, Chori Machinery will continue to seek
greater business opportunities centered on Mexico’s
mainstream automotive industry.

Plant in Mexico

Joint venture

Benefit from cost due
to semi-knocked-down
production

Chineseautomobile

Assembly

Automotive
retailer in Mexico

User

I n i ti ati ve

Economic Community of West African States (ECOWAS)The Economic Community of West African States (ECOWAS) is a subregional groupconsisting of 15 nations that promotes the economic integration of the countries
constituting West Africa. Of these nations, Nigeria accounts for the majority of thegroup’s GDP.
By joining forces with a local company, Chori Machinery has been engaging in
the business of assembling automobiles through semi-knocked-down production in
the West African nation. In addition, we are planning a number of projects for a varietyof business domains geared to Nigeria, Ghana, and other nations of ECOWAS.

Ordinary Income ofMachinery Business(Billions of yen)
1.0

0.7
0.5

ECOWAS

0.5
Nigeria0

FY2020(Result)

FY2022(Target)ECOWASThe Economic Community of West African States(ECOWAS) was founded in 1975 as a subregionalgroup that promotes the economic integration of thecountries constituting West Africa.

Joint venture (Nigeria)

Three-wheeled vehicle (India)

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