Value Creation and Growth Strategies in Line with the Medium- to Long-term Management Targets
Message from the Director in Charge of Financemanagement on a global scale, taking into account the interest
rates and the currency selection, so as to promote an optimal
finance policy.
In fiscal year ending May 2024, we plan to reorganize thelogistics bases in East Japan. By further improving the efficiency
of logistics networks and selling land of a logistics site after its
relocation, we aim to create cash flows.

Aiming at an optimal capital structure
to lead to new growthHiroaki Usugi
Managing Director
General Manager, Administration Headquarters
Suminoe Textile Co., Ltd.

■Operating cash flow
■Free cash flow

Changes in Cash FlowsAs the General Manager of the Administration Headquarters, I amin charge of formulation and execution of financial strategies tomaintain an optimal capital structure, which is necessary to realize
the strategies for growth. My role is also to support the initiatives toimprove competitiveness of each Business Headquarters, such as
reviewing operations and improving efficiency by using
information systems as well as developing educational and othernew systems for human resources development and utilization.

Progress in the Company’s Status of Compliance with theContinued Listing Criteria and the Period of the Plan

Progress in Efforts toward Mediumto Long-term Management Targets

No. oftradable
sharesAffected by the external environment, failing toachieve the targets in FY2023
In the fiscal year ended May 2023, the second year of the Medium- toLong-term Management Targets “SUMINOE GROUP WAY
2022-2024-2027” (hereinafter SGW), although net sales exceeded thetarget figures in the plan, we failed to achieve the targets for operating
income, ordinary income, profit attributable to owners of parent, ROE
and D/E ratio. In the fiscal year ending May 2024, we will accelerate
efforts to “expand sales and build a foundation for growth,” which isone of the SGW targets, and aim to achieve the plan.

Results of the Second Year of the Three-year
Consolidated Income and Expenditure Plan
2022

2023

Plan* Results

2024

Plan* Results Plan*

Net sales (million yen) 86,480 81,713 90,360 94,828 93,490
Operating income(million yen)
Operating margin (%)
Ordinary income(million yen)
Profit attributable to ownersof parent (million yen)
ROE (%)
D/E ratio (times)

1,160

110

2,520

1,294

3,300

1.3

0.1

2.8

1.4

3.5

1,350

950

2,730

1,575

3,530

620

281

1,280

320

1,960

2.2

1.0

4.5

1.1

6.6

0.58

0.67

0.64

0.73

0.56

* Planned figures are as of the disclosure on July 13, 2021.

Efforts to Meet the Criteria for Remaining
ListedContinuously working to improve corporate value tomeet the remaining criterion
In response to the Tokyo Stock Exchange’s revision of the market
segments, we selected the Prime Market. As of June 30, 2021, therecord date of the market transition, the criteria “an average daily
trading value of at least 20 million yen” and “a market capitalizationof tradable shares of at least 10 billion yen” had not been achieved.
However, as a result of the enhanced IR activities and shareholder
returns, the average daily trading value as of December 31, 2022,35

SUMINOE GROUP Integrated Report 2023

the calculation reference date, reached 47 million yen, satisfying thecriterion. Meanwhile, however, the market capitalization of tradable
shares was 8.07 billion yen as of May 31, 2023, falling short of thetarget. Going forward, in order to satisfy the criteria for remaining
listed by May 31, 2024, we will continue various efforts to improve
corporate value through reinforcement of existing businesses,
capital investment and M&A, to promote proactive IR activities, andto enhance corporate governance.

MarketTradable Average daily
capitalization oftradable shares share ratio trading value

Listing maintenance
20,0001020
criteria for the Prime
35％
units
billion yen
million yen
MarketTransition
27,068
5.44
7The Company’s reference
35.2％units
billion yen
million yen
compliancedatestatus andCalculation 37,631
8.0747
referenceprogress
48.9％
units
billion yen
million yen*date
Status of complianceand the period of theConformed
Confirmed
Confirmed Confirmed
plan described in theMay 31, 2024
initial plan
* This description is based on the notification from the Tokyo Stock Exchange
concerning the state of compliance with the listing maintenance criteria(trading volume standard) for the period January to December 2022.

Cash Flow Management and Investment
Strategies
Creating cash flows by increasing cash from operating
activities and liquidating fixed assets
To proactively make investment to reinforce existing businesses
and expand the business fields, we have established a target ofsecuring free cash flows of 3 billion yen or more each year. With
particular focus on increasing cash from operating activities, wehave set an operating margin of 5% or higher as a target in theSGW. Moreover, we will make efforts to keep the level of current
assets, such as trade receivables and inventory, at an appropriate
level and liquidate fixed assets by selling securities and land, etc.
In fiscal year ended May 2023, cash flows increased due toincreased income in the Automotive Textiles and Traffic
Facilities segment. In fiscal year ending May 2024, businessperformance has been on a recovery trend, whereas inventory
has still remained at a high level. However, we will secure cash
flow from operating activities by returning inventory to a more
appropriate level, such as that before the COVID-19 pandemic.
We also significantly reduced the ratio of dollar
denominated debt in response to the increase in U.S. interest
rates. The lower payment of interest is expected to create cashfrom operating activities in fiscal year ending May 2024 andonward. In the future, we will continue to work on cash flow

(Million yen)
6,000

5,901

4,760
4,000

4,365

3,311

4,167
3,413

2,000

1,803
375

0
-2,000-816
2019

2020

2021

-1,0302022
2023(Each FY ended May 31)

Improving the financial structure by reducing
interest-bearing debt to achieve an optimal capital structure
In improving the financial structure, we attach importance to theD/E ratio. We have incorporated the improvement plan in theSGW, aiming at about 0.5 times. The D/E ratio for fiscal year ended
May 2023 was 0.73 times due to a reduction in cash flows fromoperating activities and an increase in interest-bearing debt
resulting from M&A and large investment undertaken since theprevious fiscal year. In conjunction with various measures to create
cash flows, we will make efforts to reduce interest-bearing debt,
aiming for achieving an optimal capital structure.
As an indicator to measure the profitability of capital, we focus
on ROE. In fiscal year ended May 2023, ROE was 1.1% since profit
recovery was on the way. However, for fiscal year ending May 2024,
we aim at ROE of 6.6%, as targeted in the SGW. In fiscal year ending
May 2024, we will accurately grasp the capital costs and carry out
analysis and evaluation regarding the profitability indicators andmarket assessment. We will then establish policies and targets
toward improving diversification of elements of corporate value inthe SGW 2027, and we will implement specific initiatives.

Interest-bearing Debt
and D/E Ratio(Billion yen)
25
22.1
20.1
20１５0.72
１０５02020

20.318.6
0.67■Including lease obligations ●D/E ratio■Excluding lease obligations
20.8
18.9
0.67

23.1
21.2

Aiming at (Times)
１.0
around
0.5 times

0.73

0.75
0.50
0.25
02021

2022

20232024(For each FY ended May 31)

M&A and investment for the next generation
With regard to M&A, Seki Textile Co., Ltd. joined the Group as asubsidiary in the Traffic Facilities business (p. 30). With thisacquisition, we will promote BCP of the Traffic Facilities business,
which holds the top market share, aiming to further increase
incoming orders and expand the business amid recovering demand.
As for capital investment, we launched the construction of a
new synthetic leather production factory at a subsidiary in Mexico tocope with the expansion of the synthetic leather markets in North
and Central America. A total of approximately 3 billion yen will be
invested to establish the new factory, which is slated for completionin December 2023. Regarding investment in restructuring of coresystems, Suminoe Textile Co., Ltd. introduced a receivables/payables
management system, an accounting system, and a production
management system. With these systems, we aim to reduce
maintenance costs, promote rapid decision-making, improve
inventory management accuracy through unified management, andenhance work efficiency. In the fiscal year ending May 2024, thesesystems will be deployed to subsidiaries.
We manage the above-mentioned investment by giving
discretion to each Business Headquarters to facilitate speedy
decision-making while using the payback period method andsetting the hurdle rate for each business at the Board of Directors’
meetings. Basically, internal reserves and cash from operating
activities are used as a source of funds for investment, and if
necessary, funds are raised and allocated to investment projects.

Shareholder Returns
Ensuring stable dividend payment and introducing ashareholder special benefit program
Our basic policy of shareholder returns is to ensure stable dividend
payment to our shareholders and properly allocate the surplus,
taking into consideration the trends in business performance andinvestment for business expansion. Starting from fiscal year ended
May 2022, we introduced a shareholder special benefit program toenhance shareholder returns.
For fiscal year ended May 2023, the Company revised theyear-end dividend from 35 yen to 20 yen per share, to total afull-year dividend of 55 yen, in light of the revisions to the businessperformance forecast. We plan to pay a full-year dividend of 70 yen
for fiscal year ending May 2024.

Changes in Dividends
(Yen)
80
60
40

70
50

2055

70 (planned)

3502020

2021

2022

2023
2024
(For each FY ended May 31)

Strengthening Communication withInvestors
Enhancing disclosure materials and proactive IR
activities
To raise the level of our recognition and reliability both inside andoutside Japan, we are working to enhance investor relations (IR)activities. Our IR efforts include improving the contents of theintegrated report and various other information disclosurematerials and translation to English thereof, continuous
publication of sponsored reports, and posting the proceedings offinancial results briefings on our corporate website to enhance
information provision for individual investors. In addition, recently
we have held an increasing number of individual meetings withinstitutional investors in every quarter. In this manner, we remain
proactive in promoting constructive dialogue with shareholders
and investors.
Going forward, we will continue to implement IR activities
aimed at an optimal capital structure, which will lead to new
growth and improved corporate value of our Group.

SUMINOE GROUP Integrated Report 202336