Overview and Strategies by Business Segment

Overview

Fibers, Textiles, and Garments Business
Sales in the Fibers, Textiles, and Garments Business increased

150

consolidation of STX Co., Ltd. into the Group and other factors.

120

In contrast, ordinary income decreased 23.1% year on year, to ¥3.0
billion, due to the effects of the surging prices of raw materials and

CHORI CO., LTD.

Group Structure
Major Subsidiaries

Main Business

Fibers, Textiles, andGarments Business:
13 companies

ASADA U CO., LTD.
CHORI MODA CO., LTD
STX Co., Ltd.

Sale of automotive interior and packaging materials
Planning and development of apparel products
Manufacturing and sale of textile-related products (including clothing and fabric materials)

Chemicals Business:
8 companies

Miyako Kagaku Co., Ltd.
KOZAKURA SHOKAI CO., LTD.
CHORI GLEX CO., LTD.

Sale of chemical products, industrial materials, pharmaceuticals, and food-related ingredients
Sale of lubricating oil additives and various other chemicals
Import sales of chemical products, construction materials, and industrial products

Machinery Business:
1 company

Chori Machinery Co., Ltd

Sale of transportation equipment and other products

Other:
2 companies

Business Anchor Corporation

Outsourcing of administrative work

Overseas subsidiaries:
20 companies

CHORI AMERICA, INC.
CHORI (CHINA) CO., LTD.
THAI CHORI CO., LTD.

Import and export sales, overseas transactions, and domestic sale of various products in the U.S.
Import and export sales, overseas transactions, and domestic sale of various products in China
Import and export sales, overseas transactions, and domestic sale of various products in Thailand(As of March 31, 2022)

6

personal consumption.

3

owing to a particularly strong performance in the organic chemicals,
standpoint, ordinary income came to ¥7.4 billion due to an increasein gross profit by virtue of the higher revenue.

Net Sales

2019

160

164.2
123.3

6.9

8

(0.7) (0.3)–4

Net sales

Machinery ¥4.3 billion (1.5%)

Other (incl. corporate adjustments) ¥0.1 billion (0.0%)

Japan (Imports)

1.7%¥4.8 billion

Greater China*

Asia

32.3%

27.9%

17.1%

15.9%

¥91.7 billion¥79.2 billion¥48.5 billion¥45.1 billion

Europe,the U.S.,and OthersIn the Machinery Business, sales soared 57.4% from the previous

80

automobiles in Europe, North America, and other regions.

60¥9.3 billion

revenue, the segment posted an operating loss of ¥6 million. This

* Includes China, Taiwan, and Hong Kong

2020

(FY)

2021

Operating income (loss)

Ordinary income (loss)(Billions of yen)

year, to ¥4.3 billion, due to the effects of the recovery in demand for
Meanwhile, despite achieving steady results, mainly due to the higher

Overseas Transactions 67.7%

2019

Machinery Business

3.2%

Import sales: Amount of net sales from overseas to Japan
Export sales: Amount of net sales from Japan to overseas
Overseas sales: Amount of net sales from overseas transactions

7.4

3.5

3.2

4

¥164.2 billion (57.8%)

1.9%

(FY)

120

Chemicals ¥5.5 billion

3.0

2021

150.6

¥115.5 billion (40.7%)

Middle East

3.5

Ordinary income(Billions of yen)

Fibers, Textiles, and Garments Central and South America

3.9

2020

Operating income

0

Percentage of Net Sales in Fiscal 2021 by Region

CHORI CO., LTD.

4.2

4.0

Chemicals Businessinorganic chemicals, and fine chemicals segments. From a profit

25

4.3

0

Fiscal 2021 Net Sales by Segment

Domestic sales:
Amount of domestic sales

90.1

Net sales

as sales climbed 33.1% from the previous year, to ¥164.2 billion,

Japan (Domestic Sales)

115.5

114.5

90

stagnant results in the apparel segment stemming from sluggish

In fiscal 2021, the Chemicals Business achieved brisk results overall¥284.1 billion(Billions of yen)

28.2% from the previous year, to ¥115.5 billion, as a result of the2

accounts of ¥0.7 billion as part of selling, general and administrative

0

receivables from business partners based in the UAE.

4.3

4

loss was due to the recording of provision of allowance for doubtful
expenses at the end of fiscal 2021 as a result of a delay in collecting

64.1

–2

Net sales

2.7
0.5

0.4

0.5

0.7
(0.1) (0.0)

2019

2020

Operating income (loss)

2021

(FY)

Ordinary income (loss)

Tsumugu Report 2022

26

Overview and Strategies by Business Segment

Fibers, Textiles,
and Garments Business

Road to Achieving
Chori Innovation Plan 2022
We will expedite our
global expansion while responding to

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

each challenge andSynthetic
Fiber Business
Dept.

Fiber Raw
Materials Dept.

Automotive Materials
and Fabrics Dept.

Technical
Textiles Dept.

Textile-Fabric
Dept.

Career Apparel &Workwear Dept.

Apparel Dept.

opportunity arising from COVID-19.
Hiroshi Yoshida

TextileDivision

Technical
Material &Garments
Business
Dept.

Managing Executive Officer
General Manager of Textile Division

Performance
Apparel Dept.

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

SWOT Analysis of the Fibers, Textiles, and Garments Business

Weaknesses

Strengths• Two-pronged business model involving manufacturing andcommercial capabilities• 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 OEM business that integrates supply chain processes,
encompassing production to distribution, by leveraging thecapabilities of production overseas• Responsiveness to customer needs by drawing on
global network•L ate start to globalization in downstream fields•D igitalization measures•O bsolescence of existing business fields

S

W

O

T

• Growing demand for car seats stemming from recovery
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

CHORI CO., LTD.

In fiscal 2021, sales in the Fibers, Textiles, and Garments Businessincreased from the previous year to ¥115.5 billion while ordinary
income fell to ¥3.0 billion. These results reflect the significant impact
of COVID-19 lockdowns on the Vietnam plant operated by STX Co.,
Ltd., which became a consolidated subsidiary, and the considerable
effects of the surging logistics costs and raw material prices inrecent years on low-price-zone products, an area of strength of
STX. The Synthetic Fiber Business Department, which handles
materials, is on the verge of fully recovering from the effects of
COVID-19 as sales grew 15% year on year, while the TechnicalMaterial & Garments Business Department posted a 2% decline insales due to the sluggish demand for outdoor wear. However, considering the fact that the demand for hygienic materials and otherproducts in fiscal 2020 that arose from the effects of COVID-19 was
virtually nonexistent in fiscal 2021, both departments are making
steady progress without feeling any significant effects of COVID-19.

From a global perspective, the textile, fiber, and garment industries are all growing, and how Chori responds to these trends will
be important going forward. The fact that the recent rise in material
costs has increased the prices of the finished products we handle
is certainly a positive sign, but we still have some ways to go before
we can pass on these price increases to our customers. To encourage customers to purchase our products at higher prices, we must
increase the value of our products to compensate for the price
hike, and we believe that this is where Chori's strengths can beutilized. Chori's Fibers, Textiles, and Garments Business is characterized by its semi-industrial/semi-commercial business model,
which allows us to create added value for our products by not only
trading but also proposing and developing materials with our business partners. We will continue to showcase our presence in thisfield of value-added creation, which will become increasingly
important in the years ahead.

Threats

Opportunities

27

Overview of Fiscal 2021 Performance of the Fibers, Textiles, and Garments Business•S luggish consumer sentiment due to rising prices•G lobal supply chain management disruptions(impact of zero-COVID-19 policy in China)•C oups d’état or conflicts in emerging countries
and disruptions to production and supply systems•S urging raw material and crude oil prices and volatile
foreign exchange rate movements



FY2020

FY2021

Difference(Billions of yen)

Ratio

Net Sales

90.1

115.5

+25.4

+28.2%

Ordinary Income (Segment Profits)

3.9

3.0

–0.9

–23.1%

Tsumugu Report 2022

28

Overview and Strategies by Business Segment

Fibers, Textiles, and Garments Business

Road to Achieving
Chori Innovation Plan 2022
Core Initiatives of the Fibers, Textiles, and Garments Business

Basic Strategies and Progress of Chori Innovation Plan 2022
With respect to the first strategy under Chori Innovation Plan 2022, “Bolster collective strength in thebusiness,” in fiscal 2022 we expect to fully realize the synergies created with STX, which was hit hardin fiscal 2021 by the effects of COVID-19. Through a unified effort between Chori, which specializes insynthetic fibers, and STX, which specializes in natural fibers, we will expand the scope of our productportfolio. Moreover, in fiscal 2020, we integrated the Fibers, Textiles, and Garments Business, thereby
strengthening its semi-industrial/semi-commercial business model. We will continue to expand thebusiness while harnessing the strengths of our global business sites based on the GLOBAL ONE
STOP Operation By CHORI approach. More specifically, we established subcommittees to discuss
the ways in which we will leverage Chori’s comprehensive strengths to create added value for ourcustomers and have steadily captured business opportunities as a result. As our daily lives begin to
get back on track in fiscal 2022, we will look to speed up our measures that draw on these comprehensive strengths of the Fibers, Textiles, and Garments Business.
As for the second strategy, “Enhance global supply chain management,” the Vietnam plant is
expected to contribute to sales on the scale of ¥10.0 billion, as operations will likely be fully
restored during fiscal 2022 and it will serve as an alternative production site to China. In addition,
we will continue to generate sales on the scale of ¥25.0 billion from the integrated operations being
carried out in Thailand, Indonesia, Hong Kong, Taiwan, and Bangladesh.
In terms of the third strategy, “Strengthen global proposals and marketing capabilities for Chori’s
original products,” we are expanding our portfolio of sustainable products throughout the supply
chain based on our new BLUE CHAINTM concept. In addition to its lineup of approximately 200 typesof yarn, Chori is able to develop environment-friendly products featuring high levels of quality andperformance through its engagements with exceptional business partners. In the Fibers, Textiles,
and Garments Business, we aim to achieve sales of ¥50.0 billion from our products, which accommodate needs for the environment, health, and comfort, by the conclusion of our next medium-term
management plan. Going forward, we will continue to proceed with initiatives centered on our BLUECHAINTM concept, which are expected to expand sales by more than 1.5 fold each year.

Basic Strategies of theFibers, Textiles, andGarments BusinessInitiative① Bolster collective strength
in the business② Enhance global supply
chain management③ Strengthen global proposals
and marketing capabilities
for Chori’s original products

29

CHORI CO., LTD.

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

5.1
3.9

4

3.0

2

0

In June 2021, STX Co., Ltd. became a wholly owned subsidiary of Chori.
As Chori specializes in synthetic fibers and STX specializes in natural fibers,
this partnership involving two companies that specialize in different materials
has enhanced our ability to propose solutions for our customers.
Summit Garment Saigon (SGS), a sewing factory in Vietnam operated
by STX, proved to be the difference in our customer proposals due to thestrong reputation it has built for production capacity. Despite a period inwhich operations were shut down due to the country’s lockdown, in fiscal
2022, SGS has seen an increase in orders from Chori and has been
producing at full capacity. At SGS, approximately 700,000 fabric items
for men’s and women’s apparel in the mid- and high-price zones areproduced annually. Since joining the Group, orders from sports brands,
including golf-related products, and for new high-end brands have also
increased. In light of the country’s ongoing issues of labor shortages andrising labor costs, SGS is taking a variety of measures to enhance productivity with sights set on becoming the largest production plant in the
ASEAN region through the concerted efforts of its employees.

2

Toward the Achievement of Fiscal 2022 Targets
In order to overcome the “late start to globalization in downstream fields,” which was identified as aweakness in Tsumugu Report 2021, MCC Industry COMPANY LIMITED was established in Hong
Kong in 2021. One of the strengths of Chori’s sports apparel is that it is highly recognized by overseas customers. By positioning the company as a sales hub for global apparel, we will further
expand our sports apparel into global markets. As for “digitalization measures,” which was also
recognized as a weakness, we established a project team led by young employees to advanceinitiatives geared to the next generation as well as forging ahead with our transition to the new
mission-critical system.
For the Fibers, Textiles, and Garments Business in fiscal 2022, our target for ordinary income is¥5.1 billion. To achieve this target, we will continue to focus on products in the sports and environmental fields, while drawing on the strengths of our handling of diverse materials and our supply
chain infrastructure in Asia to offer customers value-added proposals and steadily secure profits inthe process. During the first two years of Chori Innovation Plan 2022, we have delegated more
responsibility to our young employees and local staff overseas, which has led to the growth of ourentire workforce. We will strive to achieve the targets of our medium-term management plan bypositioning our human resources, who represent the greatest strength of Chori, as the foundationand continue to grow as an organization as we look ahead to the next generation.

Creation of Synergies with STX Co., Ltd.

FY2020(Result)

FY2021(Result)

FY2022(Target)1

Initiative

Proposals of Sportswear Made ofEnvironment-Friendly Materials
Chori produces and supplies fashionable and highly functional sportswear, outdoor wear, and sports casual products in Japan and overseas,
mainly for golf and athletic use for the leading brands of major manufacturers. Many manufacturers are highly conscious of sustainability and areinclined to increase the use of environment-friendly materials. Such manufacturers have therefore transitioned to the use of ECO BLUETM recycled
polyester fiber made from recycled plastic bottles, which are wellregarded as a raw material. The ability to offer a one-stop solution for raw
materials, textiles, and final products is a strength of Chori and its semiindustrial/semi-commercial business model.
MCC Industry COMPANY LIMITED, which was established in Hong Kongin March 2021, engages in sales activities with sportswear manufacturers in
Europe and the United States who are particularly keen on the use of environment-friendly materials. Moreover, as the sales hub for the ASEAN
region, TAIWAN CHORI MERCHANDISE COOPERATION LTD. proposes
products utilizing Chori’s proprietary materials, such as ECO BLUETM.

Tsumugu Report 2022

30

Overview and Strategies by Business Segment

Chemicals Business

Road to Achieving
Chori Innovation Plan 2022

We will steadily improve ourbusiness results and solidify ourEstablished in 1956, the Chemicals
Business has a track record spanningover 60 years. We have continued to takeadvantage of our global network not onlyin terms of procurement and sales within
China but also through exports andintermediary transactions with Southeast
Asia, India, the Middle East, and otherregions. Through these efforts, coupledwith our ability to meet the needs of ourclients for niche products, we have set
ourselves apart from our competitors andenhanced our market presence.
With an extensive product portfoliothat encompasses the environmental,
electronics and battery materials,
5G-related, personal care and healthcare,
and agricultural fields, Chori caters to thewide-ranging of needs of its customers.

position in the chemicals industry.
Chemical &Materials
Business Dept.

Chemicals
DivisionLife & Fine
Chemicals
Business Dept.

Performance
Chemicals Dept.

Yoshihiro Teratani
Inorganic Fine
Materials Dept.

Industrial
Chemicals Dept.

Fine Chemicals
Dept.

Life Science Dept.

Overview of Fiscal 2021 Performance of the Chemicals Business
Logistics Dept. (Chemicals)
Business Administration Sec. (Chemicals)

SWOT Analysis of the Chemicals Business

Strengths• 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 approach• Highly specialized knowledge

Weaknesses• Lack of brand recognition and smallness ofbusiness scale within business-to-businessmarket relative to major competitors overseas• Length of time needed for new businesses
to contribute to revenue

S

W

Opportunities• Growing demand for automotive-related materials• Increasing demand for products in the fieldof sustainability• Rising interest in environmental products

31

CHORI CO., LTD.

Managing Executive Officer
General Manager of Chemicals Division

Threats

O

T• Trade conflict between the U.S. and China andboycott of products made in China• Country risk such as Russia’s invasion of Ukraine• Supply–demand imbalance stemming frommarket deterioration• Limited desire among potential customers to switch
to other products due to economic recession

In fiscal 2021, the Chemicals Business posted sales of ¥164.2
billion and ordinary income of ¥7.4 billion, eclipsing the ordinary
income target of ¥5.3 billion set forth for the final year of Chori
Innovation Plan 2022 one year ahead of schedule. These substantial
year-on-year improvements in sales and ordinary income were theresult of both external and internal factors. External factors include
the increase in unit prices of products arising from the soaring costof resources. These higher prices helped drive our sales and ordinary income upward and accounted for approximately 20% of theyear-on-year increase in sales for the Chemicals Business.
Meanwhile, internal factors consisted of self-help efforts, such as
business acquisitions. In fiscal 2021, sales from new businesses in
the Chemicals Business grew ¥6.3 billion from the previous year.
Despite the impact of these external and internal factors, I commend the efforts of each and every employee who played a role inthis exceptional achievement.

More specifically in terms of product type, sales of pharmaceuticals and agrochemicals, which are indispensable to our lifestyles,
grew steadily as they were unaffected by the effects of COVID-19.
Moreover, sales of organic and inorganic chemicals, which contributed to the increase in sales through their higher unit prices, werebrisk and so were sales of electronic materials, owing to risingdemand for computers and televisions as a result of people staying
home due to COVID-19. In contrast, we saw sluggish growth forfood additives. Sales of commercial-use products also floundered
due to store closures and shorter business hours to prevent the
spread of COVID-19. However, with the state of emergency being
lifted throughout Japan in March 2022, we expect demand to
recover in fiscal 2022 through the resumption of store operations.



FY2020Net Sales
Ordinary Income (Loss)(Segment Profits (Loss))

FY2021

Difference(Billions of yen)

Ratio

123.3

164.2

+40.8

+33.1%

(0.3)

7.4

+7.7

—

Tsumugu Report 2022

32

Overview and Strategies by Business Segment

Chemicals Business

Road to Achieving
Chori Innovation Plan 2022
Core Initiatives of the Chemicals Business

Basic Strategies and Progress of Chori Innovation Plan 2022
While our medium-term management plan has coincidentally overlapped with the COVID-19 pandemic, one positive aspect is the fact that the recent surge in the cost of resources has even raised
the prices of the end products we handle. Meanwhile, the negative aspect is that too much of aprice hike could discourage customers from making purchases. For instance, we are beginning tosee a trend where the amount of additives used in animal feed is being reduced to cut costs andare therefore keeping a close eye on this situation. In regard to the first strategy under Chori
Innovation Plan 2022, “Enhance business investment and promote development of new businesses,” which has been at a standstill since fiscal 2020 due to the limited opportunities to engage
directly with customers as a result of COVID-19, we expect to make progress in fiscal 2022 as weare beginning to gradually interact with customers once again. Among the fields we will focus on
for this strategy are semiconductors and nonferrous metals, where we are expanding our lineupof new products, in addition to healthcare and green businesses.
As for the second strategy, “Accelerate global expansion,” our product development was partially halted in Malaysia and Vietnam due to the absence of Japanese representatives in the wakeof COVID-19. Accordingly, we have established a system that enables us to take appropriate
action in response to new pandemics that may occur in the future, such as dispatching representatives to these regions from Japan.
With respect to the fourth strategy, “Strengthen subsidiaries centered on Miyako Kagaku Co., Ltd.,”
we are seeing positive results from our green business. The seeds that have been sown through ourefforts to reduce sludge at plants using bio-disinfectants and to engage in the sales of biodegradable
resin are beginning to bear fruit and are contributing to increases in year-on-year sales. These projects,
which not only benefit the environment but also provide considerable advantages to customers, suchas cost reductions through disposal, will likely increase in demand going forward.

Basic Strategies of the
Chemicals BusinessInitiative① Enhance business investment
and promote development of
new businesses② Accelerate global expansion③ Transfer business headquarters to optimal location④ Strengthen subsidiaries
centered on
Miyako Kagaku Co., Ltd.
⑤ Expand business domain
through M&A

33

CHORI CO., LTD.

Lithium Compound Production Project in Chile
The evaporation method commonly used to extract lithium components from brine water 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 thatenables only lithium components to be extracted from brine water, thereby maintaining thewater 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.

2

Initiative

Biodegradable Resin

Toward the Achievement of Fiscal 2022 Targets
In the Chemicals Business, one of our weaknesses is the lack of brand recognition and smallnessof business scale within the business-to-business market relative to major competitors overseas.
While the business is more widely known nowadays relative to when it first emerged as part ofChori back in 1956, the Company’s share of the industry as a whole is still relatively small. On theother hand, there is still room for growth. As we continue to improve sales in this business, which
has been ascending year after year, thereby enhancing the credibility of the Chori brand, we willtake the measures necessary to overcome this weakness. The Company may also be exposedto the threat of country risk due to the conflict between Russia and Ukraine. Although we had oureyes on Russia as a market to potentially replace China, we have discontinued our operations inthis country as a result of the recent events. In fiscal 2022, we will leverage Chori’s distinctive global
network to compensate for the insufficient sales in other regions. Meanwhile, an area of strength at
Chori is the frontline capabilities of its employees. Well-versed in their respective lines of expertise,
Chori’s employees are adept at developing markets on their own without the need for receiving
instructions. Moving ahead, we will work to enhance our organizational strengths while making themost of our individual capabilities and boldly pursue the new projects that have come to a halt asa result of COVID-19.
For the Chemicals Business in fiscal 2022, the final year of Chori Innovation Plan 2022, ourtarget for ordinary income is ¥6.8 billion. Fiscal 2022 will be a year in which our numerical targets
will be achieved by responding appropriately to the demands and desires of our customers andreducing inventories that are exposed to high levels of risk. In general, Chori is known as a
specialized trading company in textiles. However, by continuing to expand sales and profits inthis business in fiscal 2022 and beyond, we will strive to become a company that is recognizedby customers and other stakeholders as a multifaceted specialized trading company that also
engages in chemicals and machinery.

1

Ordinary Income (Loss) of
Chemicals Business(Billions of yen)
8

7.4

6.8

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 the evaporation 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 the use 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 from plants suchas cassava and taro, which we are utilizing as raw material for garbage and shopping bags
due to the soft texture they generate.

64

Initiative

2
0
–2

(0.3)
FY2020(Result)3

Promotion of the Use of New Protein Sources
FY2021(Result)

FY2022(Target)With the global population projected to reach approximately 10 billion by 2050, there areconcerns over the potential imbalance between supply and demand for protein sources suchas beef and pork. At Chori, we have been focusing on soybeans, wheat, and green peas as asource of ingredients; procuring ingredients of the highest quality and safety that comply with
the Non-GMO Project Standard from overseas; and supplying these ingredients to food processing companies in Japan. We are also working to promote the use of sunflower protein,cricket powder, and other new sources of protein throughout the Group. In addition, throughour measures to prevent deforestation for livestock and reduce the use of water and crops,
we strive to help realize a greener and more enriched global environment.

Tsumugu Report 2022

34

Overview and Strategies by Business Segment

Machinery Business

Road to Achieving
Chori Innovation Plan 2022

We will steadily address
the individual needs of each country
through our wide range of products andChori Machinery Co., Ltd., which was spun off in April 2017 to enhance the flexibility of Chori’s business operations, has been
expanding its portfolio of automobiles, machinery, and related materials across the globe.

services that extend beyond
the trade of vehicles.

Operating Company
China

EuropeChori Machinery Co., Ltd.

South
Korea

Wholly owned consolidated
domestic subsidiary
Four-wheeled vehicles, two-wheeledvehicles, and trucks; agricultural
machinery; construction materials;
and marine equipment
Supplier

MarketSupplier and market

ASEAN

Recently, the company has been growing its business inAfrica and other emerging markets, in particular. By drawing on
its long-cultivated know-how in global trade and unique traderoutes, Chori Machinery will continue to expand its business inthe 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

S

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
to environment-friendly vehicles• Expanding product line in non-vehicles businesses

35

CHORI CO., LTD.

President, CEO & COO
Chori Machinery Co., Ltd.

CentralandSouth
AmericaSouth
AfricaLeveraging the Group’s unique global network, which has
expanded over the years, Chori Machinery commercializes
products acquired from China, India, South Africa, and othercountries in markets such as Europe and the ASEAN region.
Most notably, the company engages in a project in which theautomobiles of Chinese automakers are assembled throughsemi-knocked-down production and sold in Mexico.

Jun Hayami

MexicoIndia

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

Overview of Fiscal 2021 Performance of the Machinery Business
While proceeding successfully with our business activities until thethird quarter of fiscal 2021, in the fourth quarter we came to realize
our exposure to country risk. The shortage of foreign currency stemming from the production cutback of oil in Nigeria has had an impact
on our vehicles business in terms of our ability to procure funds, which
led to the delay in collecting receivables from business partners in the
UAE. As a result, while sales in this business increased from theprevious year to ¥4.3 billion in fiscal 2021, we posted an ordinary loss
due to the recording of provision of allowance for doubtful accounts inthe amount of ¥739 million. We will forge ahead to the final year of
Chori Innovation Plan 2022 while reminding ourselves of the possibilityof risks emerging at any time and developing measures that minimize
the impact of such risks.



Threats

O

T

In addition to being an indispensable means of transportation,
the automobiles we handle are currently in high demand worldwide,
mainly due to the unleashing of pent-up demand accumulated asa result of COVID-19. Moreover, China, a market in which we haveheld a competitive edge over the years, has implemented a national
strategy to funnel efforts into procuring parts that are essential toautomobile production. As a result, we have not had to deal withprocurement delays among our suppliers in this country. Althoughautomobile demand remains brisk, we must keep an eye on our
cash flow due to global inflation and soaring interest rates. Due tothe surging prices of automobiles and other major changes taking
place in the market, we will closely monitor the situation while
continuing to accurately identify the needs of each country.

• Country risk and risk of pandemics, coups d’état,and economic crises in emerging countries• Market fluctuations resulting from intense climate change• Global supply chain management disruptions(impact of China’s zero-COVID-19 policy)

FY2020

FY2021

Difference(Billions of yen)

Ratio

Net Sales

2.7

4.3

+1.6

+57.4%

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

0.7

(0.0)

–0.7

—

Tsumugu Report 2022

36

Overview and Strategies by Business Segment

Machinery Business

Road to Achieving
Chori Innovation Plan 2022
Core Initiatives of the Machinery Business
Basic Strategies and Progress of Chori Innovation Plan 2022
Under the first strategy of Chori Innovation Plan 2022, “Develop markets of four regions and India,”
we are conducting marketing activities based on the cultures and needs of each region of operation while continuing to focus on India due to the substantial size of this market. In regard to thethird strategy, “Promote strategic alliances with global corporations in each region,” our semiknocked-down production and sales of automobiles for Chinese automakers in Mexico, a market
we tapped into in 2018, continues to perform admirably. In the COVID-19 era, what has differentiated the economies of emerging nations is the availability of resources. As Mexico is an oilproducing nation, the market has been thriving. Moreover, in China, a market in which Chori boasts
a competitive edge as a business partner, the supply of automotive parts to Mexico and otherareas of the world is faring well due to the lack of delays in parts procurement as mentioned earlier.
Accordingly, in light of the situation surrounding the shortage of automotive parts in recent years,
we have seen an increasing number of customers switching to vehicles procured and producedby Chori Machinery Co., Ltd., which has boosted awareness of the Chori brand in various markets.
As for the second strategy, “Expand automotive materials through trade and convert to revenue
model,” we are utilizing automobiles as a means of expanding our relevant businesses. Specifically,in addition to the sales of automobiles, we are widening the scope of our non-vehicle products
and services, including dashcams and other peripheral devices and after-sales services. We willcontinue to explore new business opportunities by deploying and utilizing these intangible assets
called “sales methods.”

Basic Strategies of theMachinery BusinessInitiative① Develop markets offour regions and India

Semi-Knocked-Down Production in Mexico② Expand product lineups
through vehicles businessand convert to revenue model③ Promote strategic allianceswith global corporations ineach region

Toward the Achievement of Fiscal 2022 Targets
The Machinery Business is anchored by the market-in proposals made by its employees who havea sound knowledge of our various markets and the ability to create niche markets. Chori Machinery
excels in producing vehicles that cater to the cultures and needs of each country through the useof parts made in China. For this reason, sales have remained on a steady upward trend even in
Italy, a market that has high expectations for automobiles. At Chori, we will remain committed inour efforts to continue to achieve success in these areas.
Conversely, to address the need for improving flexibility and organizational capabilities that draw on
the strengths of each individual, which we have identified as a weakness, we have been sharing information and advice on in-house projects and holding study sessions. Moreover, while each employee
is in charge of a different region, the Company is working to strengthen the foundation for promoting
digital transformation (DX) by establishing a universal sales support function in all regions. Meanwhile,
we recognize that country risk and the risk of pandemics, coups d’état, and economic crises inemerging countries as well as global supply chain management disruptions are a threat to our business that will not fade away in the future and instead will enhance the uncertainty of markets. Although
the Machinery Business has not felt the effects of the delays in the procurement of parts triggered by
the conflict between Russia and Ukraine, the flow of funds must be carefully monitored on a global
scale. Going forward, we will continue to diversify risks by enhancing our awareness of risk detection
and staying on track with our strategy of developing the markets of the four regions and India.
For the Machinery Business, in fiscal 2022 our target for ordinary income is ¥0.8 billion.
In order to realize this goal, we will continue working to collect on the receivables that were delayedin fiscal 2021 while expanding our coverage of products beyond the vehicles business to steadily
increase profits. Chori Machinery was established in 2017 through a spin-off of Chori’s internal
machinery business. Our role within the organization is to develop emerging markets by constantly
remaining ahead of the competition. We aim to contribute to the further growth of the Chori Groupby sharing this know-how throughout the organization. Based on this commitment to market
development, we will further expand our business in the next 20 to 30 years and beyond while
taking the appropriate measures to prevent risks in these times of uncertainty.

37

CHORI CO., LTD.

1

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 thecountry of destination. As a result, more employment opportunities are available for local residents in not only assembly
processes but also at sales agencies and for 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

Benefit from cost due tosemi-knocked-down
production

JointventureChineseautomobile

Assembly

Automotive
retailer in
MexicoUser

Ordinary Income (Loss)of Machinery Business(Billions of yen)

0.8

0.9

0.7

0.3

(0.0)
FY2020(Result)

Initiative

Enhancement of Our Presence in Italy
and Other Parts of Europe

0.6

0

2

FY2021(Result)

FY2022(Target)

Chori Machinery has established a partnership with a company based in Italy to develop businesses in the country andother parts of Europe, including Spain, France, and Belgium.
The stylish and environment-friendly vehicles developed by
Chori’s business partner have been well received by theyounger generation and the local markets and continue toincrease in sales.
This joint initiative began with the establishment of ourpresence in Italy, a market on the scale of 1.6 million units.
Since then, in addition to expanding our business in Europe,
we have continued to form partnerships with other companies to examine new business opportunities in Asia andCentral and South America.

Tsumugu Report 2022

38