Introduction

ISEKI Group’s value creation aims

ISEKI Group’s value creation aims

Message from our President

Business strategies for value creation

Foundation for sustainable growth

Financial and non-financial data

Company information / Stock information

Toward the 100th anniversary of our foundation

We will pursue management that balances social andeconomic value and drive through henkaku (Change)
targeting a “new ISEKI”
Shiro Tomiyasu
ISEKI & CO., LTD.
Representative Director, President & Executive Officer“Toward the next 100 years...”
ISEKI Group’s mission
Working to solve social issues as a “solution provider for
agriculture and landscape”
Continuously inheriting the passionate thoughts and feelings of its
founder, Kunisaburo Iseki, to “free farmers from exhausting labor,”
the ISEKI Group will celebrate its 100th anniversary in 2025. Duringthat time, we have contributed to agricultural modernizationand laborsaving by providing agricultural products and services.
Specifically, comparing Japan’s rice farming in 1960 with that oftoday, the energy required to produce one unit of rice in Japan
has decreased to about one-eighth of what it was. The Group has
supported this development by mechanizing hard manual work
and work done with the help of animal power. In the spirit of “being
farmers’ closest supporter,” we have developed many productsahead of the rest of the world as a frontrunner and, with ourtechnological power, have driven the mechanization of agriculture.
The Group’s continued high ranking in terms of the number ofpatents acquired per specialty field is a testament to this. We intend
to continue to uphold this “frontier spirit” and pride.
The products the Group offers contribute to improving
agricultural productivity, particularly in the Japanese and Asianmarkets. Moreover, the riding lawn mowers, compact tractors, andother equipment for the European and North American markets areused to maintain parks and green spaces, clean roads, and otherwise
improve the landscape, thereby contributing to the creation oflivable villages and towns and the improvement of people’s qualityof life. One social issue that the Group must help to resolve is foodsecurity, which emerged following the COVID-19 pandemic and theinvasion of Ukraine. The world’s population reached 8 billion in 2022,
and is expected to go beyond 10 billion in the first half of the 2050s.
Considering that more than ten percent of the world’s population issuffering from hunger, boosting food production is a pressing issue.
However, it is difficult to increase the land area under cultivation
due to issues such as the associated environmental burden

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ISEKI Report 2024

and reduced availability of farmland caused by industrializationand desertification. Thus, it is essential to improve agricultural
productivity. Moreover, climate change and increased natural
disasters due to global warming, and the loss of biodiversity areserious issues, making initiatives to mitigate the environmental
burden essential.
The corporate philosophy of the Group is to “strive to contributeto the creation of the prosperous and sustainable society through‘providing innovative products and higher quality of services to thecustomers.’” We also establish the long-term vision of becoming a“solution provider for agriculture and landscape.” Farming safeguards
food and land and provides the foundation to realize prosperity forpeople and society. We believe that our mission is to be a corporategroup that supports “agriculture” and “people and society” andto resolve issues related to them. We are confident that we cancontribute to the achievement of the Sustainable Development
Goals (SDGs). In addition to using the knowledge and experience
we have cultivated over the years, ISEKI Group will work to resolve
social issues by responding to changing business environment andneeds, with the aim of becoming a solutions company that creates
new value.

Progress of Mid-term Management Plan
(achievements and challenges)
Review of the fiscal year ended
December 31, 2023
Despite setting record for consolidated net sales, issues
remain in responding to changes in the environment
In the domestic market, challenges we face include bolstering foodsecurity, the rapidly decreasing agricultural working population,and mitigating environmental burdens such as climate change.
In addition to transitioning to large-scale and smart agriculture,

ISEKI Report 2024

14

Introduction

ISEKI Group’s value creation aims

Corporate Philosophy
Corporate Philosophy

We strive to contribute to the creation of the prosperous and sustainable society through“providing innovative products and higher quality of services to the customers”

Long-term Vision
To be a “Solution Provider for Agriculture &Landscape”
Passion of FounderTo free farmers from exhausting labor

ISEKI Group’s value creation aims

Business strategies for value creation

domestic agricultural machinery product sales and the buildup of
inventories for the U.S. and Europe, which had previously been low.
Meanwhile, operating cash flow was negative for the second
consecutive fiscal year, due to low net income levels and growth ininventories.
The challenge remains “the transformation into a company with alean and streamlined business structure that can constantly generate
profit,” which is the goal of the Mid-term Management Plan.

┃ Consolidated net sales(Billion yen, %)

149.8

149.3

158.1

166.6

169.9

170.0

Long-term VisionJapan

To be a “Solution Provider for Agriculture & Landscape”— Supporting a farming industry full of dreams and beautiful landscapesand creating a future of sustainable agriculture and landscape —● SDGs to be realized by ISEKI Group through its business

Farming
Food production

Agricultural
machinery

Toward the realization of a sustainable society
Environmental preservation

Supporting the enhancement of resilience in agriculture
Landscaping for comfortable villages and towns

Food
Survival

Landscape
Farmers

Environmental preservation for a recycling-oriented society

Foundation for living

People andsociety
we promoted measures for agricultural resilience throughenvironmentally sound agriculture and other initiatives. ( P37–40)
Looking at overseas markets, through collaboration with strategic
partners in North America, Europe, and Asia, we crafted measures
to satisfy the differing needs of each region. In North America,
we are strengthening our ties with AGCO. In Europe, we continue
to reinforce our sales network through subsidiaries such as ISEKI
France and ISEKI Germany. And, in Asia, particularly in ASEAN, weare bolstering our support for field crop farming with subsidiary
IST Farm Machinery Co., Ltd. In India, we are also evolving ourcooperation with TAFE and have begun procuring production parts
from the company. ( P41–44)
For the fiscal year ended December 31, 2023, consolidated net
sales reached a record high due to increased sales both domesticallyand abroad. In Japan, despite strong performance by the new BF
Series tractors, which went on sale in July 2023, sluggish rice prices
and continued high costs for agricultural production materials
worked to suppress demand. Additionally, sales of agricultural

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ISEKI Report 2024

machinery products fell due to delays in production caused bydisruptions in the supply chain for large-scale models. Meanwhile,
maintenance revenue and the completion of certain facilities underconstruction supported the overall increase in sales. Overseas sales
continued to be robust—particularly in Europe—reaching a record
high for the third consecutive fiscal year, and the ratio of overseas
net sales to total sales increased to 33.5%.
Profitability is an issue, as operating income was down year on
year and the operating margin was 1.3%, due in part to lower grossprofit margin resulting from a decline in production attributableprimarily to lower sales of agricultural machinery products andincreased selling, general and administrative expenses. Althoughprice revisions finally offset the impact of the sharp raw material
price increase for the single fiscal year of 2023, the total from fiscal
year 2021 is still insufficient.
Our balance sheet faces challenges with regard to asset efficiency,
including high non-current assets and growing inventories.
Inventories in particular grew significantly on the impact of lower

21.5%

22.4%

25.8%

Dec. 2019

Dec. 2020

Dec. 2021

32.4%

33.5%

32.4%

Dec. 2022

Dec. 2023

Dec. 2024(Forecast)

Overseas

Project Z Measures
Implementing structural reform without exceptions andbuilding a strong management foundation
Indicating a path toward a 5% operating margin
ISEKI Group’s results forecasts for the fiscal year ending December
31, 2024 remain challenging. We expect 170.0 billion yen in net sales(unchanged from the previous year), operating income down 0.2
billion yen to 2.0 billion yen (an 11.1% decrease year on year), andprofit attributable to owners of parent of 0.4 billion yen. Continued
production adjustments for the purpose of reducing inventories
bring down profit levels. For us, 2024 will be a year of patience.
While the numerical target of the Mid-term Management Plan
is an operating margin of 5% for the year ending December 31,
2025, the result for 2023 was 1.3% and the forecast for 2024 is 1.2%.
This makes the transformation to a leaner and more streamlined
structure an urgent issue.
Factors behind our failure to achieve the goals of the Mid-termManagement Plan include price revisions not keeping pace withsoaring raw material and energy prices, and the deterioration of
production site profitability due to production adjustments causedby the decline in domestic demand for agricultural machinery
products. Moreover, gross profit margin remained flat as insufficient
progress was made in initiatives such as the “Optimize development”
and production systems. Despite efforts to improve operational
efficiency toward reducing selling, general and administrative
expenses, they increased owing to factors such as a rise inFoundation for sustainable growth

Financial and non-financial data

Company information / Stock information

distribution costs. The selling, general and administrative expenses
to sales ratio has been worsening year by year.
In summary, 1) the measures in response to the drastic changes inthe environment were lacking in effectiveness and speed, and 2) the
efforts toward overall management reform and its implementation
were unsuccessful. We believe these are the two key points.
In response, we have identified the improvement of profitability
and asset efficiency as issues the Group must urgently address, andto implement the business structural reform without exceptions andbuild a robust management foundation, we established Project Z in
November 2023. Under Project Z, we will develop and implement
fundamental structural reforms and growth strategies.
We will promote the three fundamental structural reform themesof “Optimize production,” “Optimize development,” and “Deepen
domestic sales” in a short-term, intensive fashion. In 2024 and 2025,
we will develop key measures for each of the themes: “management
integration of manufacturing companies,” “improvement of profit
margins by product,” and “management integration of domestic
wide-area sales companies.” Meanwhile, time will be required before
some of the measures bear fruit, so we will continue to act, repeatedly
implement reforms, and complete the three aforementioned themes toachieve an operating margin of 5% or more and return on equity (ROE)
of 8% or more by 2027. Moreover, with regard to shareholder return, we
aim to increase dividend on equity (DOE) to 2% and price book-value
ratio (PBR) to more than 1.0x. ( P25–28)
Then, we will firmly and concurrently implement fundamental
structural reforms and growth strategies.
The axis of our growth strategy is, first and foremost, overseas
business. The ratio of overseas net sales to total sales has grown
to 33.5%. We will develop region-specific strategies and set oursights high for the next stage. Meanwhile, domestically, we willconcentrate on the growth areas symbolized by the keywords: large,
cutting-edge, environment, and dry fields. Now, let me explain our
growth strategy from a different angle and by product. The key tothis strategy is large-scale agricultural machinery in Japan and NonAgri products for landscape maintenance, which we are rolling out
in Europe and North America. We will focus our resources on growthareas and begin laying the foundation in 2024.
We are currently considering specific measures and will announce
them as they are determined during 2024. ( P25–28, P37–48)

Toward improving PBRSteadily implement a variety of measures under Project Z
to achieve a PBR of 1.0x or more
Bolster IR activities and ESG initiatives
Our PBR has remained below 1.0x, standing at 0.34x as of December
31, 2023. In analyzing PBR, we asked investors and securities analysts
with whom we regularly communicate for their opinions. We also
broke PBR down into ROE and price-to-earnings ratio (PER) andlooked at changes over time in analyzing the current situation.

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Introduction

ISEKI Group’s value creation aims

ROE has been stagnant for some time, remaining below 8%,
the target figure of the Mid-term Management Plan. A further
breakdown of ROE reveals that the primary reasons for this are
low net income margin and low total asset turnover ratio. Ourview is that the net income margin is affected by the profit marginand selling, general and administrative expenses to sales ratio foreach product, while the total asset turnover ratio is impacted byfactors such as inventory volume and facility utilization rate. The
understanding of our institutional investors with whom we have
daily contact is that our cost of equity is generally around 8%.
PER has been less than 10x since 2020. We were reminded that thereasons for this are the significant discrepancy between plans andactual results, along with insufficient disclosure of information on
issues such as growth, strengths, and profitability, and dividend level.
Our efforts to improve PBR based on our analysis of the current
situation center on Project Z. In addition to the three fundamental
structural reform themes, we will put into action growth strategies
to heighten profitability and asset efficiency, and allocate cash for
growth.
Furthermore, by enhancing and upgrading dialogue andinformation disclosure, reinforcing the governance structure, andotherwise strengthening IR activities and ESG initiatives, we aim toachieve a PBR of more than 1.0x by 2027. ( P29–30)
The introduction and setting up of an administrative accounting
system has made visible the profitability of each market andbusiness, finally enabling decisions to be made based on thesefactors. We believe that a key theme is to upgrade disclosure
information—both quantitative and qualitative—for dialogue, andto be able to show everyone how the plan is progressing.
We also feel that in achieving sustainable growth and realizing
mid- to long-term corporate value enhancement, building
relationships of trust with our shareholders and investors is essential.
We intend to outline our management policies in detail and strive toengage in constructive dialogue. ( P77–78)

Aiming for sustainable growth
We set up the ESG Committee, establishing a frameworkthat enables the management team to strengthen theirinvolvement
For the purpose of centrally managing ESG-related issues in theGroup, we established the ESG Committee in August 2022. The
Committee is composed of Directors and Corporate Officers
and chaired by an Independent Outside Director. In principle,
Committee meetings are held each month, and the Committee
seeks to find solutions for the Group’s materiality (priority issues) by
examining and deliberating sustainability-related initiatives for theGroup as a whole from the perspective of risks and opportunities.
Such initiatives include responses to climate change, respect forhuman rights, and employee health. The results of deliberations at
Committee meetings are reported to the Board of Directors, which

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ISEKI Report 2024

in turn deliberates and determines them, thereby strengthening
management’s involvement. Moreover, a working group led byworking-level personnel has been established to further promote
ESG-related activities.

Environmental initiatives
The Group has positioned the realization of a decarbonized
and recycling-oriented society as one of our priority issues, andpractices environmental management by setting the Environmental
Vision and the Basic Environmental Policy. We also announced
our endorsement of the Task Force on Climate-related Financial
Disclosures (TCFD) recommendations and have begun disclosing
information in line with the recommendations. ( P49–51)
Additionally, agriculture and landscape maintenance, which
receive benefits from nature, are closely related to issues such as
climate change and biodiversity. We are endeavoring to reducethe impact our business activities have on the environment. In
concrete terms, we are upgrading and expanding our lineup ofenvironmentally friendly products and services, such as proposals forenvironmentally sound smart agriculture and electric products. In
Japan, initiatives are proceeding to expand organic farming, utilize
carbon credits, and suppress agricultural methane gas emissions
through farm business solutions. In environmentally conscious
Europe, we launched limited sales of electric riding lawn mowers
in 2022. Based on local evaluations, this may lead to full-scale sales
in the future. ( P33–36) Through these initiatives, we will continue
to contribute to resolving climate change issues and mitigating theenvironmental burden.

A company is its people—initiatives related
to people, human capital, and diversity
In my message to employees when I assumed the position ofpresident, I said, “Our Group is based on the cumulative efforts ofour predecessors who, since our founding, have carefully preserved
our desire to be close to our customers. A company is supported byits people, and as such we will focus more than ever on cultivating
human resources.” We have established a policy for human resources
development and a policy for workplace environment creation, andunder the themes of “enhancement of employee engagement” and“transformation of human resources,” we are working to maximize
the Group’s human resource capabilities.
In enhancing engagement, we will accelerate our promotionof diversity, equity, and inclusion, and reinforce the bond with our
employees. We will also promote the cultivation of human resources
who will lead the way in the century to come.
Concerning the transformation of human resources, we are
actively promoting human resources management that transcends
the boundaries between Group companies. Our aim in this pursuit

ISEKI Group’s value creation aims

Business strategies for value creation

Foundation for sustainable growth

Financial and non-financial data

Company information / Stock information

is to optimize the allocation and full utilization of group personnel
based on our business strategy. In 2023, we introduced the Group
personnel open recruitment system. The program, which respects
employees’ autonomy, encourages them to cultivate their own
careers. Firstly, we transferred personnel from a sales company inJapan to a sales subsidiary in Thailand to capitalize on the knowhow these employees accumulated in Japan. We will continue toconcentrate the human capital within the Group on focused areas.
To secure and cultivate human resources to bring our businessstrategy to fruition, we are also working to diversify our recruitment
and further upgrade employee education programs related to DX
and other topics.

Initiatives to reinforce corporate governance
We have established the Nomination and Compensation
Committee, which comprises two Representative Directors andthree Outside Directors, to enhance and reinforce governance byheightening transparency and objectivity in the appointment andcompensation of Directors and Corporate Officers. In concreteterms, we revised the Directors’ compensation system in 2022. The
purpose of this revision was to make compensation’s link to businessresults and shareholder value more explicit. The revision is intended
to increase Directors’ focus on helping to improve business results
and enhance corporate value over the medium- to long-term byensuring that they have the same interests in the risks and benefitsof share price fluctuations as shareholders. Moreover, in the interestof diversity on the Board of Directors, two new female Directors—
including one with corporate management experience—were
appointed to the Board following approval at the Ordinary
General Meeting of Shareholders in March 2024. We will continue
to aggressively push forward the invigoration and functional
improvement of the Board of Directors.

Toward the next 100 years...
Pursuing an economic role alongside a social role
The Group, an integrated manufacturer specializing in agricultural
machinery, has developed its business on an aspiration to befarmers’ closest supporter and has worked to resolve social issues.
This aspiration is rooted in an abiding commitment to acting firstand foremost for the benefit of customers. This is our greatest
strength, and I believe it is precisely because we are fulfilling thissocial role that we have been able to continue operating ourbusiness for almost 100 years.
Nowadays, food security and food are of growing concern due
to the COVID-19 pandemic and the invasion of Ukraine. Agriculture,
which supports food supply, and landscaping business, which
supports people’s daily lives, are being reaffirmed as essential

businesses. I believe that ISEKI Group, through activities that support
customers, can grow while continuing to fulfill its social role.
Moreover, for the Group to sustain its development over the next
100 years and continue providing innovative products and higher
quality of services to customers, we must operate our businessin such a way that a diverse range of stakeholders, including
shareholders, suppliers, and employees, can feel confident about
joining forces with us. In other words, it is essential to generateadequate profits and fulfill an economic role as well.
These two roles do not need to be prioritized one above theother; I believe they can balance and complement each other as
they progress. However, ISEKI has become accustomed to lagging
behind somewhat in terms of pursuing its economic role. ISEKI
operates in such a way that it fulfills its economic role in addition to
the social role it has contributed to over the years.
Since I took office, I have advocated henkaku (Change). While
there has been gradual change with regard to certain aspects,
I believe that it is still insufficient. We have always said that themeaning of change is to review design, production, sales, andservice methods in particular from the ground up. Regardingthese changes, the structural reform through Project Z represents
the tightening of these screws. The “Z” in Project Z stands for “0.” It
represents the unknown and is the first letter in the word “zero.”
Project Z will be the key in creating a new century, looking aheadto the 100th anniversary in 2025 and the century to follow. In laying
the foundation for sustainable growth, I consider it my own personal
responsibility to involve the entire Group in a concerted effort todrive forward the transformation into a company with a lean andstreamlined business structure. As we determinedly move forwardwith our transformation, I hope we can continue to rely on yoursupport as we endeavor to forge a “new ISEKI.”

ISEKI Report 202418