Kaga Electronics Group

Integrated Report

2023

Contact: Investor Relations & Public Relations Department
20 Kandamatsunagacho, Chiyoda-ku, Tokyo 101-8629, JapanTel:+81-3-5657-0106

Fax:+81-3-3254-7133

Email: webmaster@taxan.co.jp
Web: https://www.taxan.co.jp/en/

TAXAN V, a retreat facility owned by the Kaga Electronics GroupINDE X
Corporate Philosophy

2

The Origins of the Kaga Electronics Group[Human Capital-related Initiatives]
Putting “People Are Our Greatest Asset”
into Practice37

Together with Our Employees

39

Together with Our Customers

41

Together with the Community

42

Together with the Earth43

Financial Highlights

45

The Timeline of Our Growth Driven
by the Kaga Spirit

3

Value Creation Process

5

Value Creation Model

7

Message from the CEO

9

Message from the COO

11Progress of the Medium- to Long-Term
Sustainability Management Plan

17

Electronic Components

46

Message from the CFO

19Information Equipment

47

Software Business / Other Business48

Special Feature
The Kaga Electronics Group’s Growth Drivers[Initiatives Related to the EMS Business]
Reaching New Stages of Growth through the
Maximization of Our Unique Strength
Roundtable Discussion of Outside Directors

21

Business Segment Overview

Financial and Corporate Information
11-Year Financial Summary

49

24

Analysis of Financial Condition and
Results of Operations

51

27

Consolidated Balance Sheet

53

Consolidated Statement of Income andComprehensive Income

55

ESG Information
Corporate Governance31

Consolidated Statement of Cash Flows

56

Internal Control / Compliance34

Corporate Information57

Directors and Auditors

35

Corporate Philosophy

Everything we do
is forour customers
Founded about 50 years ago, Kaga Electronics Co., Ltd. hadvery humble beginnings, starting out in a very small office. We
have since grown into a general electronics trading company
with operations that now span the globe. Our corporate
philosophy, “Everything we do is for our customers,” hasremained unchanged since our earliest days. Based on thisphilosophy, we will keep contributing to the creation of anaffluent society by continuing to support the development ofour customers.

Period covered

Forward-looking statements

This report covers the fiscal period from April 1, 2022 to March 31, 2023, with the exception ofcertain areas in which there is information prior and subsequent to these dates, as is required.

Certain statements in this document may
constitute “forward-looking statements.” Suchstatements are based on currently available
information and certain premises deemed rationalat the time of writing. As such, actual results may
differ from those projected due to various factors.
Key factors that could cause actual results to differ
from those projected include, but are not limited
to, general economic conditions in Japan andoverseas surrounding the Company’s businessdomains, as well as trends in demand for theCompany’s products and services, and trends inforeign exchange rates and stock markets.

Financial figures
Figures related to financial content in this report are rounded to the nearest unit. Ratios arerounded to one decimal place after calculation in yen.
Scope of report
Data calculation in this report covers Kaga Electronics Co., Ltd. and its 63 consolidated
subsidiaries (22 in Japan and 41 overseas).
All such companies are included in the scope of the Company’s consolidated accounting,
except where stated.
Notation and coverage of the Company: Kaga Electronics Co., Ltd.
The Group: Kaga Electronics Co., Ltd. and its 63 consolidated subsidiaries
Domestic facilities: Kaga Electronics Co., Ltd. and its 22 domestic consolidated subsidiaries

1

KAGA ELECTRONICS CO.,LTD.

Integrated Report 2023

2

The Origins of the Kaga Electronics GroupThe Timeline of Our Growth Driven by the Kaga Spirit
The Kaga Spirit(The Words of Isao Tsukamoto)

Personal connections areintangible assets
The Kaga Electronics Group is capable ofresponding quickly and accurately to changes inthe business environment and customer needs todrive continuous growth. This ability stems fromthe personal connections, or business network,
we have built up over the years based onrelationships of trust with customers andsuppliers. These relationships form a vital part ofour management foundations in conducting
business as a trading company. The idea that“personal connections are intangible assets” hasbeen passed down over the years as one of thepillars of what we call KAGA-ism, the essence of
who we are.

Never say “no”
Based on the motto “Never say ‘no’,” the Kaga
Electronics Group has been expanding its businessdomain from parts procurement to kit-parts sales
and even contract production, planning anddevelopment, and maintenance services, while
enhancing the lineup of products to meetcustomer needs. The origins of our global “onestop service system,” an enduring strength of theCompany, lies in this customer-first approach.

An organization driven
by communication
In order to ensure our ability to quickly seize
opportunities amid a changing businessenvironment full of future uncertainty, it isimportant to have a corporate culture that makes
maximum use of the individual capabilities of ourpersonnel. Based on this philosophy, the Kaga
Electronics Group is working to build an open
workplace that encourages different ways ofcommunication to achieve common goals.

Achieving Business
Expansion by Swiftly
Adapting to Changes
Having started out as a handyman businessbased in Akihabara, Tokyo, with an officespace of less than 7 m2, we achieved
business expansion thanks to surging
electronics parts demand in the wake of
rapidly growing popularity of CB transceivers
and the arcade game “Space Invaders” in the
1970s. In 1980, our net sales exceeded ¥10billion. Moreover, in 1983, we became a
supplier of mask ROMs for use in the
Famicom, a mega-hit gaming console, thus
making an entry into the field of gamesoftware for household gaming devices.

Net sales

600
600
550
550

The Kaga Electronics Group continues to tackle
new challenges with a view that there is no end
goal to corporate activities based on thephilosophy that “people are a finite asset;
companies are perpetual entities.” Pursuing
aggressive M&A activities and developing new
products and services that resolve social issues
are some of the initiatives we are undertaking todrive sustainable growth. We will remaincommitted to pushing the envelope as a Group as
we head toward a century in business.

3

KAGA ELECTRONICS CO.,LTD.

Proactively Securing Overseas EMS
Production Bases and Executing
M&A from the 2000s onward
Entering the 2000s, we expanded our overseas network of EMS production bases,
which had previously been centered in China, by establishing facilities in Malaysia,
Thailand, the Czech Republic, Indonesia, Mexico, Vietnam, Turkey, and India. In
Thailand, we eventually built two bases. At the same time, the number of our bases in
China grew to four. During the course of these endeavors, our net sales exceeded ¥100
billion in 2001 and ¥250 billion in 2006. From 2019 onward, we executed a rapid seriesof M&As, with KAGA FEI CO., Ltd., KAGA EMS TOWADA CO., LTD., EXCEL CO., LTD. andKyokuto Electric CO., Ltd. made into Group companies. In our pursuit of M&As over the
past several years, we have now entered a second
growth phase and are aiming for net sales of ¥750
billion in 2025 on the road to net sales of ¥1 trillion
Aiming to achieve
in 2028, the 60th anniversary of our founding.
target net sales of

Aiming to achieve net sales of¥750 billion

Net sales exceed

Net sales exceed
Net sales exceed

350
350
300
300

Net sales exceed¥10 billion

250
250
200
200
150
150

¥50 billion

Stock listed on the Second
Section of the Tokyo Stock
Exchange

100
100

trillion

Electronic components business

Acts as a sales agency handling general electronic parts,
semiconductors and other offerings for customers at home
and abroad

EMS businessNet sales exceed

450
450
400
400

¥1

The Kaga Electronics
Group’s Business
FieldsTransitioned to the Prime Market of the Tokyo Stock Exchange*E lectronics Manufacturing Services: Provision of
product development and manufacturing services on
a contract basis

500
500

¥400 billion¥250 billion¥100 billion

Promoted to the First
Section of the Tokyo Stock
Exchange

Provides comprehensive solutions supporting the design,development and manufacture of products ranging fromsemi-finished to finished products

Information equipment business

5050

Inventory is a liability

People are a finite asset;
companies are perpetual entities

In 1981, our TAXAN brand monitors,
developed in-house for use with Apple
computers, achieved considerable sales athome and abroad. Building on this success,we launched our first overseas base in the
United States and, in 1985, establishedanother in the United Kingdom, significantly
accelerating the pace of our overseas
expansion. In 1986, KAGA ELECTRONICS
stock was listed on the Second Section of
the Tokyo Stock Exchange. In the 1990s, webegan proactively penetrating Asianmarkets outside Japan, securing our firstregional foothold in Hong Kong in 1992. In
1995, we entered the Taiwanese market,
which, in turn, contributed to a major sales
increase. In 1997, our listing on the Tokyo
Stock Exchange was promoted to the First
Section. In 1999, we launched KAGA(SHENZHEN) ELECTRONICS LTD., our first
factory concurrently serving as an overseas
EMS* base.

(Billions(Billions
of of
yen)
yen)
650
650

0 0

In our earliest days, a lack of ample working
capital forced us to place each order for products
after receiving an order from a customer. This
gave birth to the idea that “inventory is a liability,”
which has evolved into a currently held principle
for how we receive and place orders, a criticalfeature of the Company. Responding as quickly as
possible to order information has enabled us tobuild win-win relationships with customers
and suppliers.

Pursuing Proactive
Global Expansion
since the 1980s’69’69’70’70’71’71’72’72’73’73’74’74’75’75’76’76’77’77’78’78’79’79’80’80’81’81’82’82’83’83’84’84’85’85’86’86’87’87’88’88’89’89’90’90’91’91’92’92’93’93’94’94’95’95’96’96’97’97’98’98Since 1968
Sep. 1968	KAGA ELECTRONICS CO., LTD. founded at 3-8-3 Soto-Kanda, Chiyoda-ku, Tokyo, with paid-in
capital of ¥1 million
Mar. 1980	Net sales exceed ¥10 billion
Jul. 1981	TSK ELECTRONICS CORPORATION established in the United States (liquidated in Oct. 2004)
Dec. 1985	Stock registered on the Japan Securities Dealers Association as an over-the-counter company
TAXAN (UK) LTD. established in the UK (liquidated in Aug. 2007)
Dec. 1986	Stock listed on the Second Section of the Tokyo Stock Exchange

1990–
Mar. 1991	Net sales exceed ¥50 billion
Jun. 1992	KAGA (H.K.) ELECTRONICS LIMITED established in Hong Kong
Jul. 1994	KAGA (SINGAPORE) ELECTRONICS PTE. LTD. established in Singapore
Feb. 1995	KAGA (KOREA) ELECTRONICS CO., LTD. established in the Republic of Korea(Merged with KAGA FEI KOREA Ltd. in Sept. 2021)
Dec. 1995	KAGA (TAIWAN) ELECTRONICS CO., LTD. established in Taiwan
Sep. 1997	Promoted to the First Section of the Tokyo Stock ExchangeJul. 1999	KAGA (SHENZHEN) ELECTRONICS LTD. established in China’99’99’00’00’01’01’02’02’03’03’04’04’05’05’06’06’07’07’08’08’09’09’10’10’11’11’12’12’13’13’14’14’15’15’16’16’17’17’18’18’19’19’20’20’21’21’22’22’23’23 ‘25‘25 2028
2028

From 2000 onward
Jun. 2000	KAGA COMPONENTS (MALAYSIA) SDN. BHD. established in Malaysia
Aug. 2000	KAGA (SHANGHAI) ELECTRONICS CO., LTD. established in China
Mar. 2001	Net sales exceed ¥100 billion
Apr. 2002	KAGA ELECTRONICS (THAILAND) COMPANY LIMITED established in Thailand
Dec. 2003	KAGA ELECTRONICS (USA) INC. established in the United States(Merged with KAGA FEI AMERICA, Inc. in Apr. 2022)
Aug. 2006	KAGA (DALIAN) ELECTRONICS CO., LTD. established in China
Apr. 2009	KD TEC s.r.o. established in the Czech Republic
Mar. 2014	Transferred to current Head Office building (company-owned building)Jan. 2017	TAXAN MEXICO, S.A. DE C.V. established in Mexico
Jul. 2017	KAGA ELECTRONICS (VIETNAM) CO.,LTD. established in Vietnam
Apr. 2018	KD TEC TURKEY ELEKTRONIK SANAYI VE TICARET LIMITED SIRKETI establishedin Turkey
Sep. 2018	KAGA ELECTRONICS (INDIA) PRIVATE LIMITED established in India
Jan. 2019	Fujitsu Electronics Inc. (currently KAGA FEI Co., Ltd.) made into a Group company
Oct. 2019	Towada Pioneer Corporation (currently KAGA EMS TOWADA CO., LTD.) made into aGroup company
Apr. 2020	EXCEL CO., LTD. made into a Group company
Nov. 2020	Kyokuto Electric Co., Ltd. made into a Group company
Apr. 2022	Transitioned to the Prime Market of the Tokyo Stock Exchange

Supplies PCs and PC peripherals to domestic and overseas
distribution channels while providing LED lighting
installation services and accommodating product needs inthe network solutions field

Other business

Operates a PC recycling business in addition to handling thedevelopment, manufacture and marketing of amusementrelated hardware and software as well as the sale of golf
supplies and other operations

Integrated Report 2023

4

The Origins of the Kaga Electronics Group

Value Creation Process

Guided by its corporate philosophy of “Everything we do is for our customers,” the Kaga Electronics Group has achieved
growth by exercising a venturesome spirit that leads it to seek opportunities emerging from changes in society. Under
the Medium-Term Management Plan 2024, the Group is currently pursuing quantitative growth via the electronics trading company business while expanding its EMS business, which aims to contribute to qualitative growth in profit.
Through these two endeavors, the Group strives to raise its net sales to ¥1 trillion and become a competitive world-classcompany. This is how we deliver greater environmental and social value via our business operations.

Medium- to Long-Term Sustainability

Management Plan
Expand our economic value

Medium-Term Management Plan 2024
Further enhance our earnings power

Everything we do isfor our customers

Strengthen management foundations“Challenge 1.60”
Create new businesses

Become “the Japanese industry’s
No. 1 corporate group”
Organic growth + Inorganic growth driven by new M&As, etc.

Promote SDG-oriented management

Distribute value tostakeholders¥750.0

E: H
 elp create a clean Earth environment
S: Offer an employee-friendly workplace while
contributing to a flourishing society
G: B uild sustainable management foundations
B: R ealize sustainable business growth

Basic strategy

Total value of products
procured

Increased
sales

Total wages and bonuses paid

¥21.1 billion

Total dividends paid

¥5.7 billion

GrowthfieldsAutomotive

Creditors

Total interest paid

Risks and Opportunities
Risks

Opportunities

Reduced significance ofexistence as a trading
company and loss ofcommercial rights

Generation of new
demand and market
for EMS business

Shortage of humanresources andsoaring labor costs

Growing need forfurther automationand efficiency

Increased
environmental cost

Growth ofenergy-saving andeco markets

Expansion

Enhancement of valueof trading company businessdelivered through the EMS business

Enhancement and expansion of the overseas business and the EMS business

Factory
automation (FA)¥0.7 billion

Government and administrative
agencies

Total corporate taxes paid

¥9.3 billion
Growthinvestment

Financial capital

M&As and other business activities, are strengthening
non-financial capital and propelling our basic strategy forward
Social capital

Human capitalIntellectual capital Manufacturing capital

Customers

Group employees

Technical staff

7,500
companies

8,092

1,645

Our ownmanufacturing sites

20

worldwide

Aim to become acompetitive worldclass company

Medicaland healthcare

UtilizeNon-financial capitalin conjunction with the 60th
anniversary

Communications

Shareholders
Increased
profitratio¥1trillion

Environmental

Employees

Expand the trading company business todrive further growth in the EMS businessbillion

Suppliers¥473.4 billion

Materiality

Net sales ofAchieve net sales of

Secure stable management foundations
ROE

19.6

Net D/E ratio

%

-0.08

Cost of shareholders’ equity Around

Deliver greater
environmental andsocial value

Equity ratio

45.3

%

7 8
% to

%

Strengthen
non-financial capital

5

KAGA ELECTRONICS CO.,LTD.

Integrated Report 2023

6

The Origins of the Kaga Electronics GroupStrength

1

Value Creation Model

Strength2

Increased
sales

Global network capability
We provide peace of mind to customers and instill confidence through oursales and production network, which spans 17 countries and regions worldwide, as well as our global procurement and information-gathering
competencies that we have built up over 50 years, which have been reinforcedby the addition to the Group of KAGA FEI Co., Ltd. and EXCEL CO., LTD.

A total of 64 companies,
41 in 17 countries
abroad and 23 in Japan,
comprise the Kaga
Electronics Group

Expansionof trading
company business

KAGA MICRO SOLUTION
Yamagata Site
Gunma Sales OfficeNiigata Sales Office

The Kaga Electronics Group sells not only electronics-related
components and materials but also accommodates for a range ofneeds in the manufacture of modules and finished products, covering
everything from large-lot consumer goods to small-lot industrial
devices. As for hardware, software and systems, ourcomprehensive capability similarly enables us toaccurately meet customer needs from upstream
to downstream.

Increased
profitratio

Enhancement of value

Strengthdelivered throughthe EMS business

KAGA EMS TOWADA

In addition to contract production,
the Kaga Electronics Groupboasts the capability to provide
one-stop services covering sales
through after-sales support

Sendai Sales Office
KAGA MICRO SOLUTION
Fukushima Site
Mito Sales Office
Toride Sales Office

Matsumoto Sales Office
Kyokuto Electric Yabase,
Urayasu and Nakayama factories

KAGA ELECTRONICS Head Office /Head Office Annex

Hiroshima Sales OfficeDomestic Sales BasesGroup Sales Bases in Japan
Group Production Bases in Japan

Osaka Sales Office
Fukuoka Sales Office

Shin Yokohama Sales Office

Nagoya Sales Office

Kita Kanto Sales OfficeHamamatsu Sales OfficeNumazu Sales Office

Shizuoka Sales Office

Meeting customer needs in a swift and flexible manner by taking full advantage ofour global EMS production system, which encompasses 20 bases in 10 countries

One-stop solution capability

3

Enhancement and expansion of
the overseas business and the
EMS business

Suzaka Sales Office
Hokuriku Sales OfficeConnect vendors around the world
with customers by fully leveraging
our strengths as an independent
trading company

Expand trading
company business to drive
further growth in the
EMS business

The Kaga Electronics Group’s trading company business and EMS business both employ aunique business model backed by a combination of its threefold strengths nurtured in thecourse of its operating as an independent general electronics trading company. This modelis also guided by our corporate philosophy, “Everything we do is for our customers.”

Comprehensive capability in theelectronics field

The Kaga Electronics Group has a structure for delivering products to its customers in the regions where they areneeded through its network of suppliers and production plants spanning North America, Europe and Asia. In order to
respond to customer requests more quickly and flexibly, KAGA ELECTRONICS supports its customers’ businessdevelopment through a one-stop support structure offering everything from planning consultation to engineeringdevelopment, the contracting of high-mix, low-volume production for both semi-finished and finished products, andfrom sales to after-sales services, leveraging the specializations of each Group company while collaborating together.

Planning,
development anddesignParts procurement
and kitting

EMS and contract
production

Sales and
distribution

KAGA ELECTRONICS Co., Ltd.

KAGA TECHNO SERVICE CO., LTD.

KAGA DEVICES CO., LTD.

KAGA MICRO SOLUTION CO., LTD.
KAGA SOLUTION NETWORK CO., LTD.

Germany

The Czech Republic
Austria
TurkeySuzhou

India

Hubei
ShenzhenHong Kong
Thailand

Malaysia
Indonesia

Group Sales Bases Overseas
Group Production Bases Overseas

7

KAGA ELECTRONICS CO.,LTD.

SANKOH ENGINEERING CO., LTD.

KAGA AMUSEMENT CO., LTD.

AD DEVICE CO., LTD.

KAGA AMUSEMENT CO., LTD.

DIGITAL MEDIA LAB., INC.

KAGA TECH CO., LTD.

KAGA SPORTS CO., LTD.

EXCEL CO., LTD.

EXCEL CO., LTD.

KAGA EMS TOWADA CO., LTD. / Kyokuto Electric Co., Ltd.

DalianSouth Korea
ShanghaiTaiwanVietnamSingapore

San Jose

ChicagoLos Angeles

MexicoSupport andafter-sales
services

KAGA AEROSYSTEMS CO., LTD.

KAGA FEI Co., Ltd.

BostonKAGA ELECTRONICS (USA) INC.
KAGA (DALIAN) ELECTRONICS
CO., LTD.
KAGA (TAIWAN) ELECTRONICS
CO., LTD.

TAXAN MEXICO, S.A. DE C.V.
KAGA COMPONENTS (MALAYSIA)
SDN.BHDKAGA (SHANGHAI) ELECTRONICS CO., LTD. /KAGA (H.K.) ELECTRONICS LIMITEDKAGA ELECTRONICS (THAILAND) COMPANY LIMITED /KAGA ELECTRONICS (VIETNAM) CO., LTD.
KAGA (SINGAPORE)
ELECTRONICS PTE. LTD.

KAGA ELECTRONICS INDIA
PRIVATE LIMITEDKD TEC (Czech Republic) s.r.o. / KD TEC TURKEY ELEKTRONIK

Integrated Report 2023

8

Message from the CEO

Corporate growth hinges on
employee growth

In the fiscal year ended March 31, 2023, we were able toachieve increases in both sales and profit thanks tosubstantial growth in operating results of the electronicparts business and the EMS business. These achievements
can be attributable to the success of our efforts to stably
meet customer requests, despite the global shortage ofsemiconductor and electronic parts. On the other hand,operating results for the fiscal year ending March 31, 2024
are expected to harshen, reflecting the absence of spot
sales. However, we are confident that we will return to a
growth track in the fiscal year ending March 2025.
Accordingly, we will continue to push ahead with efforts toachieve targets under the Medium-Term Management
Plan 2024.

Driving forces enabling the Kaga Electronics Group to grow
The Kaga Electronics Group has upheld a corporate
philosophy, “Everything we do is for our customers.”
Moreover, to embody this philosophy, we put into practiceaction guidelines called “F. Y. T,” which consist of
FLEXIBILITY (flexibility to align with changes in the market),
YOUNG (a young mindset and an ability to act) and TRY (trycourageously). The diligent implementation of these guidelines has enabled us to build an extensive track record andsuccessfully led us toward the celebration of the 55th anniversary of our founding in September 2022.
In addition, our founding spirit, along with insights accumulated by successive employees, gave shape to KAGA-ism,
which has been passed down to the present generation andtaken root throughout our workforce.
Furthermore, the mindset of “Never say ‘no’ to customer
requests” has been a unique stance cherished by KAGAELECTRONICS since its founding, which is why we have long
been appreciated by a large number of customers. Having
started out with the delivery of electronic parts, we subsequently received requests to handle the “kitting” of multiple
parts. This, in turn, led to orders requesting parts development and manufacturing. Our EMS business has emerged
from the success of these endeavors and grown into anearnings staple.
On the back of global semiconductor shortages, aparticular customer was struggling with its production line
operations due to a slight shortfall of its semiconductor
inventories. When we were asked to assist, we quickly moved
to procure the necessary parts, but found their unit prices tobe much higher than expected. We therefore proposed sellingthem only the essential number of parts. However, thisparticular customer requested we deliver all of the parts wemanaged to secure. We were able to make a customer happy
through this successful transaction while also garnering
even more favorable reviews. We take great pride in our
track record of such endeavors, as we have successfully
fulfilled 90% of our customers’ requests.
Another unique stance taken by KAGA ELECTRONICS is“Never say ‘no’” to employee suggestions. For example, weallow ambitious employees to handle the entire process oflaunching new businesses on their own. This is, of course,
no easy task as it entails the inauguration of a newcompany, staffing, and even fundraising. It brings us greatjoy, however, to witness the personal growth they attainthrough overcoming such challenges.
Of course, regulations regarding the withdrawal frombusiness ventures have also been put into place. The “3-5rule,” as it’s known, lays out our expectations for a new business venture to achieve profitability in terms of single-year
operating results in three years and to eliminate all cumulative losses in five years. This is an objective that must be
met. While it stands to reason that no employee is immune
to failure, support for the underdog is part of the KAGAELECTRONICS spirit. Using failure as a learning tool andachieving personal growth would be a wonderful thing,indeed. The Company would not have grown and thrived into
what it has today if it took a zero-tolerance stance against
failure. That being said, our employees thus far mark a highratio of success in new business endeavors, with 60% to 70%of these pursuits having proven to be profitable.

Happiness of all employees enables the Company to prosper

Isao Tsukamoto
Representative Director,
Founder & CEO

9

KAGA ELECTRONICS CO.,LTD.

For KAGA-ism to be resolutely put into practice, the health of
all employees is paramount.
Since 2021, the Social Issue Working Group of the SDGs
Committee has promoted initiatives focused on developing
an employee-friendly environment and improving awork-life balance.
Based on the conviction of “a company never thriving
unless its employees are healthy,” we place great priority on
employee health and have therefore implemented a variety
of initiatives. In recognition of these efforts, we were selected
as an outstanding organization under the 2023 CertifiedHealth & Productivity Management Organization Recognition
Program.
As part of specific measures to create the employee-friendly
office environment of the future, we set up a training room

equipped with cutting-edge, AI-powered training machines
in the Head Office. Produced by EGYM, these machines arecapable of proposing optimal training routines to users
based on individual physical characteristics via the use ofelectronic tags. Head Office employees who choose to commute now ranges from 40% to 60%, as we have maintained
our remote working system, even in the aftermath of the COVID19 pandemic. This freed up enough of a vacancy in officespace with which the training room could be established.
The Kaga Electronics Group aims to become “the Japaneseindustry’s No.1 corporate group” and “a competitive worldclass company.” The realization of these goals, in myopinion, ultimately hinges on our efforts to nurture humanresources and help individual employees stay healthy, both
physically and emotionally.

Integrated Report 2023

10

Message from the COO

Achieving profit targets
under the “Medium-Term
Management Plan 2024”
two years ahead ofschedule and promoting
initiatives to achieve
further growth

attributable to owners of the parent, hitting an all-time best.
Specifically, consolidated net sales amounted to ¥608,064
million, up 22.6% from the previous fiscal year. Operating
income rose 54.2% year-on-year to ¥32,249 million, thanks tohigher gross profit backed by increased sales and the improved
gross profit margin, which was up 0.7 of a percentage point
year-on-year. Ordinary income grew 52.6% year-on-year to¥32,739 million, while profit attributable to owners of the parent rose 49.8% year-on-year to ¥23,070 million. Thus, theGroup achieved record-high net sales for the second consecutive year. Furthermore, operating income and ordinary income
both hit an all-time high for the fourth consecutive year, while
profit attributable to owners of the parent similarly hit a record
high for the third consecutive year.

Financial highlights for fiscal year ended March 31, 2023

(Millions of yen)2022/3 Results

2023/3 Results

Change608,064

Net sales

495,827

Gross profit

60,54712.2%

78,514

SG&A expenses

39,6328.0%

Operating income

20,915

Ordinary income
Profit attributable to owners of
the parent

Previous forecasts for2023/3

Change fromforecasts(announced February 7, 2023)

22.6%

585,000

12.9%

29.7%

—

—

—

46,265

7.6%

16.7%

—

—

—

4.2%

32,249

5.3%

54.2%

29,5005.0%

9.3%

21,456

4.3%

32,739

5.4%

52.6%

30,0005.1%

9.1%

15,401

3.1%

23,070

3.8%

49.8%

21,000

3.6%

9.9%

Earnings per share (yen)576.46—878.65——799.78

—

—

ROE

15.7%

—

19.6%

—

3.9pt

18.0%

—

1.6%

3.9%

Notes: 1. The impact of foreign exchange fluctuations on consolidated net sales and operating income amounted to ¥38,483 million and ¥1,782 million, respectively.
2. “X.X%” represents profit margin.

Forecasts for the fiscal year ending March 31, 2024
In the electronics industry, demand for semiconductors andelectronic parts is expected to temporarily decline due mainly
to a recoil from major growth seen during the COVID-19 pandemic and inventory adjustments undertaken by customers in
preparation for the risk of economic recessions. Taking theseprojections into account, our operating results forecasts for the

Ryoichi Kado
Representative Director,
President & COO

Full-year operating results forecasts for the fiscal year ending March 31, 2024
2022/3 Results

Review of the fiscal year ended March 31, 2023
The economic environment surrounding the Kaga Electronics
Group at home and abroad has been positively affected bymodest recovery reflecting the progression of normalizing
socio-economic activities in step with the relaxation of movement restrictions aimed at curbing the COVID-19 pandemic,
along with the alleviation of semiconductor shortages and supply chain disruptions. On the other hand, the continuing
Russia-Ukraine situation resulted in surges in food and energy
prices. Furthermore, policy rate hikes aimed at countering
inflation led to radical foreign exchange fluctuations and growing instability of the financial system. Taking these and otherfactors into account, future outlook remains unclear.
In the electronics industry, to which the Kaga Electronics
Group belongs, the lingering supply shortage of some semiconductors and electronic parts and their prolonged delivery

11

KAGA ELECTRONICS CO.,LTD.

fiscal year ending March 31, 2024 include decreases in bothsales and profit, with consolidated net sales of ¥550.0 billion,
operating income of ¥25.0 billion, ordinary income of ¥25.0 billion and profit attributable to owners of the parent of ¥18.0 billion. Based on these forecasts, we expect EPS and ROE toamount to ¥685.42 and 13.3%, respectively.

timeframes have largely been resolved. Moreover, demandremained robust in a broad range of industrial fields.
In the electronic components business—the core business of
the Kaga Electronics Group, sales expanded considerably inboth the electronic parts and EMS businesses, especially salesof products related to automotive and medical equipment. In
the information equipment business, sales of high-end PC
products and security software expanded, as did sales from the
LED installation business. Meanwhile, the software businesshas benefitted from recovery in the volume of orders received
for smartphone game production and computer graphics production. In the other business, business results for the recycling of PCs and other products were robust.
As a result, sales increased year-on-year for all businesssegments, with all indicators, ranging from net sales to profit(Millions of yen)2024/3 Forecasts

Change550,000

Net sales

608,064

Operating income

32,2495.3%

25,0004.5%-22.5%

Ordinary income

32,7395.4%

25,0004.5%-23.6%

Profit attributable to owners of
the parent

23,0703.8%

18,0003.3%-22.0%EPS (yen)

878.65—685.42

—

ROE

19.6%

—

13.3%

-6.3pt-9.5%

Note: “X.X%” represents profit margin.

I will further elaborate on these operating results forecasts basedon an analysis of changing factors affecting operating income.
Looking at the breakdown of the year-on-year increase of¥11,334 million in operating income recorded in the fiscal year
ended March 31, 2023, sales volume and sales mix, spot sales,
and foreign exchange translation contributed to increases of¥17,538 million, ¥429 million and ¥1,782 million, respectively.
After the subtraction of a ¥6,633 million increase in SG&A
expenses, operating income thus amounted to ¥33,249 million.

With regard to forecasts for the fiscal year ending March 31,
2024, we expect a ¥4,883 million decrease in operating income
due to sales volume and sales mix, while anticipating that theabsence of spot sales will result in a decrease of ¥4,631 million. However, we will aim to achieve the reduction of SG&A
expenses totaling ¥2,265 million, which will, in turn, serve as aprofit contributor. We will thus secure operating income of¥25.0 billion. The factors behind the expected decrease of¥7,249 million in profit are as listed below.

Integrated Report 2023

12

Message from the COO

Progress under the Medium-Term Management Plan 2024

Comparisons between results for the fiscal year ended March 31, 2023 andforecasts for the fiscal year ending March 31, 2024 (changing factors affecting operating income)
FY2022/3 +4,202
FY2023/3 +4,631
Foreign exchange +17,538
fluctuations +3,610+429-6,633

Spot sales(-4,805)(13,928) Foreignexchange
fluctuations-1,82820,915+1,782

32,249Foreignexchange
SG&A
expense fluctuations(Net)-4,883-4,631
Sales volume
Sales mix
Spot sales

Sales volume
Sales mix

11,334 (Profit growth)2022/3Results(Millions of yen)

Including ¥1,691 million in the payment ofinflation and other allowances to employees+2,265±025,000Foreignexchange
SG&A
expenses fluctuations

7,249 (Profit decline)
2023/3Results

2024/3
Forecasts

Initiatives undertaken by the Kaga Electronics Group to address changes in electronicparts market conditions
Spot sales of semiconductors and electronic parts are inherentof the short-term nature and will disappear over time upon
improvement in the supply-demand situation. With this inmind, our focus has strongly been on delivering proposals on
alternative products and selling them to customers in order toconsistently secure profit.
In the fiscal year ended March 31, 2023, we conducted the
proposal and sale of such alternative products to a total of 88
clients (comprising 71 existing clients and 17 new clients),
achieving net sales of approximately ¥7.0 billion. Now that weare into the fiscal year ending March 31, 2024, we expect

these endeavors to yield approximately ¥7.5 billion in net
sales, with the number of target customers remaining virtually unchanged.
Looking at breakdown by product, the majority of these sales
is accounted for by power semiconductors, FPGA and analog
IC. In terms of sector-based breakdown, industrial devices
account for the largest proportion, with consumer goods andautomotive equipment ranking second and third, respectively.
In the current fiscal year, we expect demand for automotive
equipment to grow substantially.

Breakdown by product and sector (Inner: Results for 2023/3; Outer: Forecasts for 2024/3)
2023/3 Results

2024/3 Forecasts

Power semiconductors
30%Power semiconductors
24%

Other
30%

Other
18%

MOSFET
7%

By productAnalog IC
9%
FPGA

24%

Industrial devices

12%

Information and communication

6%

13

KAGA ELECTRONICS CO.,LTD.

Latest forecast(announced May 11, 2023)

April 2022 to March 2025 Plan period

Unchanged¥750.0billion¥600.0 billion:
organic growth¥150.0 billion: new M&A

Net sales

Unchanged¥20.0 billion

Operatingincome¥30.0 billion or more

Stable8.5% or more

ROE

Stable10% or more

Although operating income is expected to decline in the current fiscal year, this indicator will return to a growth phase in
the fiscal year ending March 31, 2025. With this in mind, we
have reset our operating income target under the plan at ¥30.0
billion or more.
Factors behind the setting of this target include sales volume, spot sales, EMS business expansion, the effect of
post-merger integration (PMI) and human resource-related
investment. Here, we present a diagram showing the analysis
of how each factor will affect profit on an annual basis, withthose contributing to profit depicted in blue arrows, and thosenegatively affecting profit depicted in red arrows.
The electronic parts business and the EMS business havebeen main contributors toward the accomplishment of recordhigh operating income for the fourth consecutive year by theclose of the fiscal year ended March 31, 2023. However, we
expect that, in the current fiscal year, these businesses will see
a decrease in profit due primarily to the looming risk of economic recessions, the temporary impact of inventory adjustments, and the absence of spot sales.
From the fiscal year ending March 2025 onward, however, we
anticipate a medium-term increase in demand on the back of
the popularization of EVs, the adoption of 5G/6G communication
infrastructure, the widespread use of IoT and AI, and other factors. This projection is unchanged. Moreover, we forecast that
progress in PMI will yield ongoing improvement in the profitability of acquired companies. In addition, we intend to continuously
take a proactive approach to investment in human resources in
the form of wages, bonuses and other allowances.

Operating income target and forecasts for changing factors
Factors positively affecting profit

2022/3

Factors negatively affecting profit

2023/32024/32025/32026/3 to2028/3———

Sales volume / inventory adjustment
Spot sales
EMS business expansion

FPGA

Improvement in the profitability of acquired companies
Human resource-related investment (wages, bonuses, etc.)

17%¥30.0 billion or more

Industrial devices

32%

Automotive equipment

Initial plan(announced November 25, 2021)

Other

24%

Consumer goods

Management targets under the Medium-Term
Management Plan 2024

Revision of the operating income target and the deeper analysis of changing factors

Analog IC
8%

24%

Other

26%

MOSFET
26%

In the fiscal year ended March 31, 2023, we accomplished ouroperating income and ROE targets under the Medium-Term
Management Plan 2024 two years ahead of schedule. Taking
this accomplishment into account, as well as upsides anddownsides in operating results forecasts for the fiscal year
ending March 31, 2024, we have revised management targets
under said plan.
The period of this management plan remains unchanged
from the three years from April 2022 to March 2025. Similarly,
we have not revised consolidated net sales targets for theplan’s final year from ¥750.0 billion, which will mainly consistof ¥600.0 billion to be earned through organic growth and be
supplemented by additional sales achieved via new M&A.
On the other hand, we have revised our operating incometarget to ¥30.0 billion or more while redefining our ROE target
to a “stable 10% or more” in line with our latest operating
income forecast.

20%
By sector

Consumer goods

22%¥32.2 billion¥20.9 billion

Automotive equipment
Information and communication¥25.0 billion¥20.0 billion

Spot sales¥4.2 billion

34%
7%

Spot sales¥4.6 billion(Initial target)

2022/3Results

2023/3Results

2024/3
Forecasts

2025/3
Management targets

2028/3
Desirable direction
Integrated Report 2023

14

Message from the COO

Our thoughts behind the revised ROE
Next, I will explain our thought process behind the revision of
our ROE target, using a graph showing the breakdown of threecomponents to address the changes in ROE.
The profit attributable to owners of the parent margin isshown at the bottom of the bar graph. Our forecast for thisindicator is set at 3.0% to 3.5%, given the estimated operating
income margin of around 5.0%. For us to improve ROE, maintaining high profitability is of the utmost importance. With
this in mind, we have set our forecast for financial leverage(immediately above the bottom) at 2.0 to 2.5 times, based on
our projection that the equity ratio will trend around 40% to50%. Above the financial leverage, the total asset turnoverratio is set at about 2.0, on par with the current level. Thus,
we believe that we will be able to stably achieve an ROE ofaround 12% to 15%.
Based on the previously discussed calculations, our ROE
target is set at “stable 10% or more.” In addition, theCompany’s cost of shareholders’ equity is around 7.0% to 8.0%.
Our ROE target also involves the pursuit of a major improvement in this indicator.

Maintaining the volume of dividends forthe fiscal year ended March 31, 2023

Concepts on ROE

19.6%
15.7%

13.5%

2025/3
Management target

10%

Stableor more

10.0%

7.6%
1.9

1.9
2.1

2.6

2.6
2.7
1.3
2020/3Results

2.2
2.4

2.7

3.1

3.8

2021/3Results

2022/3Results

2023/3Results

Total asset
turnover ratio
Around 2.0x
Financialleverage
2.0 to 2.5x
Profit attributableto owners of
the parent margin
to3.0 3.5%

The downsizing of the Board of Directors and the resulting enhancement of thegovernance structure
We have downsized and reconfigured the membership of theBoard of Directors with the aim of securing clearer separation
between the Board’s supervisory and executive functions toenhance the transparency of business management as well as
further invigorating its discussions and ensuring speedierbusiness execution.
Based on a resolution passed at the Ordinary General
Meeting of Shareholders held on June 27, 2023, the composition of the Board of Directors was subsequently changed froma total of 11 members consisting of seven internal and four

outside directors, to a total of six members consisting of threeinternal and three outside directors.
On the other hand, with regard to the promotion of diversity
among the Board’s membership, we were unable to propose theappointment of a female director candidate to the aforementioned General Meeting of Shareholders. However, we have proposed the appointment of Ms. Kyoko Oyanagi as an outside
auditor, which was approved by said meeting, with an eye totransitioning to a company with an audit committee system.

The full-year dividend for the fiscal year ended March 31, 2023
amounted to a record-high ¥220 per share. Furthermore, wehave decided to maintain our full-year dividend forecast for thecurrent fiscal year at ¥220 per share, despite our operating
results forecasts including a decrease in profit. This decision isbased on the judgment that maintaining the volume of dividends is desirable in terms of serving the interest of shareholders who intend to own our shares over the long term, despitechanges in single-year operating results on the back of the radically evolving business environment. Having resumed the overseas IR roadshow in February 2023 for the first time in three
years, we were able to engage with investors face to face, withsome investors stating that “reducing dividends will have adevastating effect on those willing to own KAGA ELECTRONICS
shares over the long term.” These activities thus provided us
with a valuable opportunity to directly hear their concerns
which will, in turn, inform our business management.
Based on its corporate philosophy, “Everything we do is forour customers,” the Kaga Electronics Group will contribute to
the realization of a sustainable society by striking a balance
between solving social issues and sustaining growth as a corporation through its business activities.

Trend in shareholder returns
32.8%
29.6%

28.6%
25.6%

25.5%

Payout ratio
Ordinary dividends
Commemorative dividends
Extraordinary dividends

27.4%

32.1%

Acquired treasury shares (¥3,674 million)

24.1%

25%

25.0%
Total shareholder
return ratio: 45.4%

19.3%

Acquired treasury shares (¥1,499 million)

20.8%

Includingapproximately
a ¥8.0 billion
gain onnegative goodwill

The downsizing of the Board of Directors and the resulting enhancement of management transparency

Internal directors

35%

Total shareholder
return ratio: 44.3%¥220
per share(An increaseof ¥100)¥220

Internal directors
70

11

members

Outside directors

6¥120
per share¥80¥80
per share¥70
per share¥70
per share (An increase per share (An increase

members

Outside directors¥60¥55
per share per share (An increase(An increase¥40(An increase¥35
of ¥5)of ¥15)per share per share(An increase (An increaseof ¥5)of ¥5)

5

15

KAGA ELECTRONICS CO.,LTD.

10

30

30

2014/3Results

2015/3Results15

of ¥10)of ¥10)10

55(An decreaseof ¥10)1040

2016/3Results

2017/3Results

10
220

40

of ¥10)

140

20

20

40

(An increaseof ¥40)

60

70

60

60

2018/3Results

2019/3Results

2020/3Results

2021/3Results80

2022/3Results

2023/3Results

2024/3
Forecast

Integrated Report 2023

16

COO Message

Progress of the Medium- to Long-Term Sustainability
Management Plan
In November 2021, we formulated our Medium- to Long-Term Sustainability Management Plan. In line with its corporate philosophy, “Everything we do is for our customers,” the Kaga Electronics Group will promote sustainability
management that aims to achieve both a sustainable society and its own sustainable growth as a corporate group.

In our efforts, we will also cherish dialogue with customers, business partners, shareholders, investors, employees,
local communities, and all other stakeholders. In these ways, we will proactively play our part in the realization of asustainable society while enhancing our corporate value.

Sustainability Policy

Progress of the Medium- to Long-Term Sustainability Management Plan

In line with its corporate philosophy, “Everything we do is forour customers,” the Kaga Electronics Group will strive for therealization of both a sustainable society and its own sustainable growth as a corporate group.
To inform our sustainability initiatives, we will also cherish
dialogue with customers, business partners, shareholders,

1

2

We tackle environmental issues
through our business activities

In the course of our business activities, wewill strive to reduce CO2 emissions as wellas curb emissions of waste while promoting
waste recycling. At the same time, we will
deliver products and services that give due
consideration to the environment. By doing
so, we will contribute to the realization of asociety that values the Earth’s environment.

Main themes

investors, employees, local communities, and all other stakeholders based on our Basic CSR Policy, Environmental Policy,
and Code of Conduct. In these ways, we will proactively play
our part in the realization of a sustainable society while
enhancing our corporate value.

3

We respect human rights andnurture human resources

We respect the human rights of all stakeholders, irrespective of gender, age, nationality,
social status, disability, or other personal
attributes. Furthermore, we will secure a
workplace environment that enables diverse
employees to work safely even as they staymentally and physically healthy. We will also
develop personnel systems as well as education and training structures aimed at empowering employees to fully realize theirindividual potential. In these ways, we will
nurture human resources able to take on thechallenge of achieving innovation.

Issues to be tackled or discussed

E

E

Switchover of companyowned vehicles to EVs

In compliance with laws, regulations, andother rules, we will practice a sincere
approach to our corporate activities, suchas engaging in fair competition, deliveringhigh-quality products and services, andmaintaining the timely and appropriate disclosure of information. Simultaneously, we
will strive to strengthen our governancestructure. We will thus remain a company
deserving of society’s trust.

Medium-term targets*

Diversity promotion andhuman resource management

2030: 50%
2050:100%• Introducing renewable energy atoverseas manufacturing bases

In-house power generation/external
procurement
Solar panel/biomass power generation/renewable energy power generation businesses

2030: 30%
2050:100%•S
 witchover of vehicles used by domestic sales
departments to EVs (including HVs, PHVs, and FCVs)

2024: 85% (78.5%)

2030:100%

Ratio of women among new graduates
hired as career-track employees
2023: 30% (5.8%)

Ratio of women among
new graduates hired as
career-track employees
2028: 40%

S
An optimal balance between
work-life management andproductivity improvement

G

Restructuring thegovernance structure in
response to the revision of the
Corporate Governance (CG)
Code and thereorganization of the Tokyo
Stock Exchange
Further strengthening thesupervisory and oversightfunctions of top management
over business execution

Ratio of women among managers
2024: 15% (13.3%)

2022: Implemented revisions to various
programs
2023: R ecognized as an outstandingorganization under the Certified• Aiming to be selected as an outstanding organization
Health & Productivity
under the Certified Health & Productivity Management
Management Organization
Organization Recognition Program
Recognition Program• Increasing the number of independent outside
directors so that they account for one third or more
Done in June 2021of the Board membership• Establish a Nomination and Compensation Committee• Enhancing the content of various programs supporting employees engaged in child rearing,
nursing care, and teleworking, etc.

• Diversifying the composition of the Board of Directors June 2022: Determine policies• Thoroughly complying with the revised CG Code andother requirements accompanying the Company’s
Done in November 2021
listing on the Prime Market

KAGA ELECTRONICS CO.,LTD.

Diversity promotion andhuman resource
management

S

An optimal balance between
work-life management andproductivity improvement

2025: O btain external
certification
2024- M aintain status asan outstandingorganization• Introducing a commissioned executive officer system April 2022: Enforced• Transitioning to a “company with committees, etc.” system March 2023: Determine policies
Note: Figures in parentheses are values at the time of the formulation of the plan (November 2021).

17

Main themes

Ratio of women among
managers
2029: 17%

Set targets inconjunction with thenext round of revisions
to the CG CodeIssues to be tackled or discussed

Main themes

G

Restructuring the governancestructure in response to therevision of the Corporate
Governance (CG) Code andthe reorganization of theTokyo Stock Exchange

Further strengthening thesupervisory and oversightfunctions of top management
over business execution

Main activities and progress in FY2023/3• Introducing renewable energy at domestic
sales bases• Renewable energy-derived electricity has already been introduced
at 1.2% of the total electricity volume, and studies are continuingwith a plan to achieve 40% in FY2025/3• Introducing renewable energy at domestic
manufacturing bases• Calculated expected power generation capacities of solar panels to
be installed at Aomori, Fukushima, and Tottori sites. Field design
has begun• Introducing renewable energy at overseas
manufacturing bases• I ntroduction of renewable energy-derived electricity using solar
panels at bases in China (Hubei) and Vietnam. Expected to cover
30-50% of annual electricity consumption at each site•S
 witchover of vehicles used by domestic sales
departments to EVs (including HVs, PHVs, and FCVs)• Increase in the ratio of electrified vehicles by 1.2 percentage points
from the previous year to 82.0% (as of March 31, 2023).

Solar panels installed on the roof of the Head Office building

Long-term targets• Introducing renewable energy at domestic
manufacturing bases• Hiring elderly citizens and people with disabilities

Switchover of companyowned vehicles to EVs

2030:100%

2024: D etermine policies via information gathering and analysis• Securing diversity in core human resources (women,
foreign nationals, and mid-career hires)

Aiming to raise the ratio ofrenewable energy to totalenergy consumption to 100%

We aim to establish mutual trustwith society• Introducing renewable energy at domestic sales bases 2024: 40% (1%)

Aiming to raise the ratio ofrenewable energy to totalenergy consumption to 100%

Main themes

Solar panels installed at our factory in Vietnam

Issues to be tackled or discussed

Main activities and progress in FY2023/3• Securing diversity in core humanresources (women, foreign nationals, andmid-career hires)• The ratio of female new graduates in career-track positions
increased by 12.3 percentage points to 18.1% from the previous
year due to the implementation of recruitment activities in linewith the formulated Action Plan
• Discussions were held within the Group to increase the ratio of
female managers, and each company has already set its own target number of female managers. As of April 2023, the number offemale managers was 16.5%, up 3.2 percentage points from theprevious year

• Hiring elderly citizens and people
with disabilities• Fully achieved statutory employment ratio for people with disabilities (March 31, 2023)• Enhancing the content of various programs sup- • Implemented a permanent remote work system as well as revised
porting employees engaged in child rearing,in-house rules and regulations
nursing care, and teleworking, etc.
• Aiming to be selected as an outstanding organization under the Certified Health & Productivity • Certified in March 2023
Management Organization Recognition Program

Issues to be tackled or discussed

Main activities and progress in FY2023/3• I ncreasing the number of independent outside
directors so that they account for one third or
more of the Board membership•E stablish a Nomination and Compensation
Committee

From June 2023 onward, the number of directors has been set at 6(including 3 outside directors), at least half of whom will be outside
directors. A Nomination and Compensation Committee has
been established•D iversifying the composition of the Board of
Directors• A female candidate was nominated as a new Outside Corporate Auditor(to be appointed after approval at the Ordinary General Meeting of
Shareholders). Continuing efforts to appoint female directors•T horoughly complying with the revised CG Codeand other requirements accompanying theCompany’s listing on the Prime Market• I mplemented since June 2022

• Introducing a commissioned executive officer system • I mplemented since April 2022
•T
 ransitioning to a “company with committees,etc.” system•T he corporate auditor system will remain in place, but the directors’ terms of office will be reduced from the current two years to
one year (implemented in June 2023)

Integrated Report 2023

18

Message from the CFO

We achieved substantial growth inoperating results backed by therobust performance of electronic
component and EMS businesses,with inventory reduction assisting ineven greater cash generation.
Yasuhiro Ishihara
Senior Executive Officer
Head of Administration Headquarters

Over the past few years, a number of manufacturers worked tosecure a solid volume of parts inventories, shifting theirprevious procurement policies on the back of factors such as
the worldwide supply shortage of semiconductors andelectronic parts, the prolongation of delivery lead time, and thedisruption of international logistics networks.
KAGA ELECTRONICS was no exception. In the electronic
component business, securing a sufficient inventory volume
was crucial in the face of upfront orders placed by customers.
Similarly, in the EMS business, we needed to secure a buffer
inventory as part of business continuity plans (BCPs) andmaintain the expanding volume of work-in-process products
due to difficulties in procuring some components.
As a result, inventory increased from ¥62.6 billion at the
beginning of the fiscal year ended March 31, 2023, to ¥71.2

billion as of September 20, 2022, and to ¥78.8 billion as ofDecember 31, 2022.
Therefore, we have positioned inventory reduction as amanagement issue requiring urgent response and identified atarget of curbing inventories to ¥50.0 billion or less and maintaining this volume as a benchmark by the end of said fiscal
year. Regretfully, this target was not met. However, we reduced
inventories by more than ¥20.0 billion from the level recorded
as of December 31, 2022, bringing their overall volumes toslightly more than ¥50.0 billion.
Our initiatives to reduce inventories were undertaken fromthe aspects of a manufacturing business centered on EMS,
and a trading company business centered on electronic parts
sales. As divesting inventories in the trading company businessis inherently easier, we have been able to achieve a drastic
reduction in this business from December 31, 2022, onward.
On the other hand, in the manufacturing business, a certain

Inventory trends / Inventory turnover period
Inventories (manufacturing)
Inventories (trading)Inventory turnover period (Groupwide)
Inventory turnover period (manufacturing)
Inventory turnover period (trading)

84.0¥37.9 billion

27.1

53.4

46.1

14.5

32.8
26.4

23.3

2021/319

34.3

Gross profit (millions of yen) / Gross profit margin¥71.2 billion
30.4
80.1
43.7
32.6

40.8

2022/32022/9+66,959¥78.8 billion
30.3
76.7

¥56.2 billion
65.5 days

47.9
38.9

48.5

2022/1229.3-1,547-8,4082023/3

2019/32021/32023/3Results+4,976+1,64310.5%

2022/3KAGA
KAGA FEI
Results ELECTRONICS+12

46,265+6,633+6,438+17,967

12.9%

7.3%
EXCEL

2023/3Results+4,449+135

32,249+11,334

20,9159.1%
6.3%

2022/3KAGA
KAGA FEI
Results ELECTRONICS
2023/32023/378,514

Operating income (millions of yen) / Operating income margin

39,6328.0%+1962023/37.6%
3.6%2022/3

12.2% 15.3%

2023/3

EXCEL

5.5%
4.2%

3.0%

6.3%

4.1%

3.4%

5.3%

2.4%

3.3%

-1,554-8,3272020/3

EXCEL+6,22360,54714.9%

2022/3KAGA
KAGA FEI
Results ELECTRONICS

7.2%

7,545
33.7 days
23.4 days-4,814+11,355

9.8%
6.5%

9.5%

18,7549,999

26.8+112,237

SG&A expenses (millions of yen) / SG&A expense ratio

30,56925,76322,406

608,064+50,092

495,827

Cash flows from operating activities /Free cash flow (millions of yen)
Cash flows from operating activities
Free cash flow

35.4

KAGA ELECTRONICS CO.,LTD.

Net sales (millions of yen)

Review of the fiscal year ended March 31, 2023

Making progress in inventory reduction¥62.6 billion

In the fiscal year ended March 31, 2023, net sales rose 22.6%
year-on-year to ¥608,064 million due to the significant expansion of both electronic component sales and EMS in theelectronic components business. Moreover, gross profit wasbuoyed by increased net sales and improved sales mix andthus increased 29.7% year on year to ¥78,514 billion, with thegross profit margin improving significantly from 12.2% to12.9%. Meanwhile, selling, general and administrative (SG&A)
expenses increased 16.7% year-on-year to ¥46,265 million.
However, as the pace of the increase in these expenses was
kept in strict control. Thus, we were able to record operating
income of ¥32,249 million, up 54.2% year-on-year.
Looking at operating results by company, net sales of KAGAELECTRONICS and KAGA FEI Co., Ltd. grew significantly
thanks to the robust performance of the electronic component
business. Specifically, net sales of KAGA ELECTRONICS
increased 23.8% year-on-year to ¥348,034 million, while net
sales of KAGA FEI Co., Ltd. rose 33.5% year-on-year to¥199,548 million.
In addition, all three main Group companies achieved
improvement in gross profit and gross profit margin. With theconsolidated gross profit margin rising 0.7 of a percentage point
to 12.9%, the margin recorded by KAGA ELECTRONICS, KAGAFEI Co., Ltd., and EXCEL CO., LTD. amounted to 15.3% (anincrease of 0.4 of a percentage point), 10.5% (0.7 of a percentage
point), and 7.3% (0.8 of a percentage point), respectively.
Although SG&A expenses increased, the SG&A expense ratio
improved 0.4 of a percentage point.
As the increase in SG&A expenses was offset by higher
gross profit, operating income recorded by KAGAELECTRONICS, KAGA FEI Co., Ltd., and EXCEL CO., LTD. stoodat ¥21,899 million (up 41.6% year-on-year), ¥8,103 million (up121.8% year-on-year), and ¥2,072 million (up 7% year-on-year),respectively. The entire Group’s operating income margin
improved 1.1 percentage points, while the operating income
margin at KAGA ELECTRONICS, KAGA FEI Co., Ltd., andEXCEL CO., LTD. improved by 0.8 of a percentage point, 1.7
percentage points and 0.4 of a percentage point, respectively.

volume of work-in-process inventories still remains, with thepace of reduction being modest. Nevertheless, we will strive toachieve a consolidated target of reducing the inventory
turnover period to 30 days by the end of the fiscal year ending
March 31, 2024.
Taking these annual trends into account, the volume ofinventories at fiscal-year end amounted to ¥56,205 million,
down ¥6,401 million year-on-year, with the inventory turnover
period improving from 46.1 days to 33.7 days.
While consolidated net sales grew significantly, we haveworked to reduce inventories. As result of these efforts, net
cash provided by operating activities totaled ¥30,569 million, asubstantial improvement from net cash used in operating
activities totaling ¥1,554 million in the previous fiscal year.
With these cash inflows allocated to the repayment ofborrowings, interest bearing debt decreased ¥9,232 million
from the end of the previous fiscal year. At the same time, cash
and cash equivalents as of the end of the fiscal year ended
March 31, 2023 rose ¥11,066 million from the end of theprevious fiscal year to ¥50,307 million.

2023/3Results

2022/3KAGA
KAGA FEI
Results ELECTRONICS

EXCEL

2023/3Results

2023/3

Note: Gross profit and operating income figures are shown prior to consolidated adjustments among the three companies. Consolidated adjustments are +¥33 million for gross profit and+¥173 million for operating income.

Integrated Report 2023

20

Special Feature

The Kaga Electronics Group’s Growth Drivers

Business portfolio

In line with the Medium-Term Management Plan 2024, we have defined “organic growth + new M&As” as the driver of
expansion. Accordingly, we have positioned the trading company business centered on electronic components and the
EMS business centered on circuit board mounting as growth drivers. Drawing on these two growth drivers, we will
focus on growth fields, namely, the mobility, communications, environmental, industrial device, and medical andhealthcare fields. Our scenario for the fiscal year ending March 31, 2025, the final year of this plan, is to become
Japan’s industry-leading company, capable of securing annual net sales of ¥750 billion. Once we have realized theaims set out under this plan, we will strive to achieve our vision of becoming a competitive worldclass company with
net sales of ¥1 trillion.

Net sales: Electronic components
Operating income¥608.0 billion¥495.8 billion
12.5

39.6

¥20.9

325.8

¥1

+
Inorganic growth
driven by newof trading company
business

drive further growthin the EMS business

M&As, etc.

2022/3Results

149.8

125.0

¥550.0 billion
175¥32.2 billion 140.0¥21.2 billion
398.7

334.0

2023/3
Forecasts

2023/3Results

Growth fields¥25.0 billion
380.0

347.5

2024/3
Forecasts

2025/3
Management targets

Connect vendors around the world with customers and deliver thebest possible products in an optimal way, to this end taking fulladvantage of our strengths as an independent trading company
free of restrictions on the products it can handle

More than

4,000

corporate customers

VendorJapanese vendors
European and
U.S. vendors
Asian vendors

Communications
Environmental
Industrial devices

delivered through the
EMS business¥30.0 billion

54.0 or more
150.0

vendors

Enhancement of
value

16.0

45.0

2,000
Mobility

company business to

39.0

43.6

More than

Expand trading

Expansion

12.0

15.7

Trading company business¥750 billion

Increased
profitratio

Organic growth¥510.0 billion

New M&As 150.0

trilliona competitive world-class company

Increased
sales

Medium-Term Management Plan 2024

billionAim to become

Other¥750.0 billion

Overview of the new Medium-Term Management Plan“the Japanese industry’s
No. 1 corporate group”

CSI** Consumer & System Integrator

117.8

BecomeEMS

More than 60 affiliated companies

Gathering of latest
information

Customer

Latest information

Consult

Selection of parts and materials
that satisfy requirements

Order

MedicalHealthcare

SelectEnhancement and expansion of the overseas business and the EMS business
Procure“Medium-Term Management
Plan 2024”
Furtherenhance ourearnings
power

21

KAGA ELECTRONICS CO.,LTD.

Create new
businesses

Strengthen
managementfoundations

PromoteSDG-oriented
management(Net sales)“Challenge 1.60”
Achieve net sales of ¥1 trillion
in conjunction with our60th anniversary

Procure optimal parts

DeliverLong-nurtured capability as a trading company to realign operations to reflect the changing times
Advantages of an independent
general electronics trading company

Global network capability

Technical support structure

Procurement capability that can be
furnished only by an independent
trading company backed by hard-earned
trust and know-how accumulated overthe course of more than 50 years

Information gathering capability thatenables us to stay ahead of thechanging times, thanks to various
functions of Group companies in adiverse range of fields

A rock-solid, trustworthy support
structure afforded by a team ofseasoned engineers

Integrated Report 2023

22

Special Feature

EMS businessWith high reliability and high-mix, low-volume production as our strengths, we develop
our business through local production for local consumption by our nearby customers

Main Items Manufactured in the EMS Business

AC inverter units[Initiatives Related to the EMS Business]

Reaching New Stages ofGrowth through the
Maximization of Our
Unique Strengths
Motonori Toshinari Managing Executive Officer

Automotive
lighting units

Air conditionerrelated units

Electric compressor units

Our strengths in the EMS business

Medical-related
devices

Power tool-relatedunits

Operations undertaken by the Kaga Electronics Group in its
EMS business have mostly emerged from customer transactions based on our parts dealership. As an electronic component trading company, we have been involved in negotiations
with customers from the design stage of semiconductors anddelivered needed parts to them, with these negotiations often
evolving into customer requests for EMS. Therefore, what distinguishes us from other companies is an environment conducive to the development of parts delivery transactions into
EMS. Transactional relationships with our EMS customers
typically last a decade or two as these operations are built
upon hard-earned customer trust.
Our area of expertise is consistently concentrated on

Point

Our strengths in the EMS business1

Convenience store-type EMS vs GMS* type-EMS
Qualityrequirements

Roll out of

Point

1

“Convenience
store-type” EMS“convenience store-type” EMS

on a global basis

to deliver convenience andvalue to customers

Point

2

Small initial investment(Leased land and buildings, standardized interiors)

Global network

Local production, local consumption model(procurement, manufacturing and logistics)

supported by 20 bases in 10 countries
to swiftly and flexibly meet customer needs

In addition to contract production,

Point

3

One-stop solution
capability

the Kaga Electronics Group’s
comprehensive strengths
enable it to provide one-stop services covering sales
through after-sales support• Small initial investment(Leased landand buildings,
standardized
interiors)• High-mix, low-volume production• Local production, local
consumption model(procurement, manufacturing
and logistics)

High-mix, low-volume production

Maintain a global production system

KAGA
ELECTRONICS

Large lot,
short-life
production

Long-term
stabledemandKAGA ELECTRONICS CO.,LTD.

The genuine capabilities of the Kaga
Electronics Group demonstrated during the
COVID-19 pandemic
Amid the COVID-19 pandemic, we thoroughly implemented
measures to curb infections among our workforce based on anawareness of the risk of disruption in factory operations as aresult of the spread of the virus. We also addressed emerging

Point

2

Global expansion

Maintaining 20 production
bases in 10 countries“We act as a close partner for our customers”

Securing a back-up system under which bases swiftly
supplement one another to avoid country risks

Procurement from the closest source,
production at the closest base, JIT supply
2009
Czech
Republic

1999 Shenzhen
2009 Suzhou 12013 Suzhou 22015 Hubei

2002 Yamagata
2005 Tokyo
2019 Fukushima
2019 Aomori2020 Tottori (3)Major competitors(mega-EMS firms)• Large amountof investment• Large volume of production• Export-centered model2016 Mexico

Costrequirements*General Merchandise Store23

low-volume, high-mix manufacture as opposed to massproducing PC and cell phone components. Moreover, we locate
our bases close to our clientele in order to follow the
local-production, local-consumption model, exactly as convenience store chains do. Even while an EMS transaction typicallybegins with an order for the monthly manufacture of 100 units,
other transactions could involve the manufacturing of up to
10,000 units each month.
Under the assumption that we rank around 20th within the
global EMS industry, we aim to secure a position among top 10
companies. As our Japanese customers currently account for
approximately 85% of our EMS customer portfolio, we consider
securing a growing number of non-Japanese customers key toraising our industry ranking. Although the proportion ofChinese customers is expanding in our customer portfolio,
European and U.S. customers still remain a minority. Accordingly,
we are proactively striving to reach out to the latter customer
group. To that end, our bases in Mexico and Turkey play
important roles in our bid to serve customers in the UnitedStates and Europe, respectively.

2018 Turkey

2018 India

2000 Malaysia
2004 Thailand 12014 Indonesia
2017 Vietnam
2019 Thailand 2

Integrated Report 2023

24

Special Feature

subsequent issues arising from supply chain disruption, surging logistics costs, and the shortage of electronic parts.
Specifically, we have leveraged all of the routes at our disposal
as an electronic parts trading company to either gather
necessary parts or propose alternative products to customers.
Thanks to these efforts, we were able to overcome thischallenging period.
Fortunately, there were no supply disruptions, and at notime did our production stoppages cause any customer
line stoppages.
The markets for electronic parts and semiconductors are
expanding due to the increasing use of electronics in all products, not just automobiles. Customers who want to reduce theburden of capital investment in these products are accelerating
their active use of EMS. The use of EMS to reduce fixed costs isalready well-established among Western companies. Similarly,
Japanese companies are beginning to employ EMS, including
our services, rather than investing in their own productionlines, with the aim of focusing more on development and sales
than ever before. Ultimately, someone has to make the goods.
As a company that fills lines with orders from various companies, we can utilize EMS from small lots, and we expect thatthe number of situations in which our Company can be utilized
will continue to expand in the future.

Managing Executive Officer
Motonori Toshinari

Point

For example, our bases in China serve local corporations
who prefer Japanese EMS providers to ensure that their products for exports are in conformity with global quality standards.
Meanwhile, our customers in Japan utilize EMS offered by ourbases in Turkey and Mexico in the course of manufacturing
products for the United States and Europe in order to mitigate
geopolitical risks.

Building a foundation supporting the future
growth of the EMS businessWe sometimes encounter customers who have never prepared
the necessary documents for commissioned parts manufacturing, as they have always been dependent on their own
in-house manufacturing know-how. For customers unfamiliar
with this type of EMS, the staff at KAGA EMS TOWADA CO.,LTD. (TOWADA) has formed a team to provide onsite EMS
launch support. We are also developing a framework in which
TOWADA serves as the mother plant and production center,
serving as a connecting hub for each base as well as
dispatching its own staff.
To nurture human resources capable of supporting EMS,
TOWADA, along with the Tottori Factory, another domestic

Shifting our value chain to high-value-added fields: Development / design + EMS services

3

EMS base run by Kyokuto Electric Co., Ltd., have begun hiring
graduates of industrial high schools and technical colleges.
We are currently training these individuals with the aim of dispatching them to bases overseas bases. At the same time, we
also invite human resources from overseas, including Vietnam
and Indonesia, to undergo training programs in Japan.
The Kaga Electronics Group is aiming to become a company
with sales of ¥1 trillion, of which we hope to generate at least¥300 billion in EMS sales. Currently, sales are approximately¥150 billion, and we are on track to reach ¥200 billion. The ratio
between Japanese-affiliated and non-Japanese-affiliated customers is 6:4, with 40% believed to be non-Japanese-affiliated.
In order to expand our non-Japanese affiliated customer base,local employees are indispensable. The Japanese way of thinking alone will never be enough. In terms of regions, Mexico,
Turkey, and then India are next. As India is a vast country, we
believe that multiple bases are necessary.
Looking ahead, we will not only offer EMS but also strive tosecure customer understanding of our unique, comprehensive
strength in the provision of one-stop services ranging from theprocurement of electronic parts and repair to after-sales
services. We are confident that the Group could be even stronger
if we assess needs of each customer and sector in depth andaccommodate such needs in a steadfast manner.

Proactive expansion of the EMS businessConventional value chain

Development
Added value
High

DesignVerification

Procurement

Manufacture

Inspection

Analysis

MaintenanceOur future value chain incorporating functions offered by KAGA FEICost planning, prototype design(Software & hardware)
Design for mass-production

Low

Analysis of mass-production, cost improvement(Software & hardware)
Mass-production

Development of inspection
machines and facilities

Oct. 2022
The relocated and expanded
plant in Malaysia is now infull-scale operation. Invested
approximately ¥1 billion to
expand its facilities by more than
20% from the existing plant.

ASEAN*Our conventional positions

New factory in Malaysia

Expand the scope of business fields

Facilitate collaboration among our bases around the globe and establish a human resource development structure,with KAGA EMS TOWADA (Production Center) playing a central role
Towada Factory

Production Center• Take a cross-functional approachto managing production bases
across the Group• Promote production and quality
standards for the entire Group• Enhance intra-Group
collaboration in terms of BCPs

25

KAGA ELECTRONICS CO.,LTD.

Serves as an
information hub forGroup production
bases and facilitates
their collaboration
Mother plant

Collaboration

Production bases across the Group Collaboration• Know-how related to production, quality
management, factory automation, andother factors• Serves as the primary factory supporting
domestic production• Promotes and advances the introductionof automated and labor-saving solutions
and IT technologies• Assists in the launch of overseas
production bases

Apr. 2024
June 2023
A new factory in Turkey started
operation. In light of strong needs
arising from manufacturers’
aversion of geopolitical risks, thisfactory is expected to serve as amain factor serving Europe.

EuropeThe relocated and expanded Mexican base will be operational. The Company will invest approximately ¥5 billion
over the next five years, aiming for sales of ¥50 billion
and the creation of approximately 2,000 jobs within thefirst five years of operations.

The Americas

New factory in Mexico

New factory in Turkey

Integrated Report 2023

26

Roundtable Discussion of Outside Directors

KAGA ELECTRONICS downsized its Board of Directors,
with the Board’s membership being split between outside
and internal directors. Please provide your assessments
regarding recent revisions executed to update theCompany’s governance structure.

KAGA ELECTRONICS Is Pursuing
an Ideal Governance Structure
Based on Our Suggestions
Here, we present the summary of a roundtable talk among our three outside directors, Susumu Miyoshi, Akira
Tamura and Noritomo Hashimoto, all of whom are seasoned corporate managers, to discuss the Kaga Electronics
Group’s ideals for corporate governance.

27

Akira Tamura

Susumu Miyoshi

Noritomo Hashimoto

Outside Director

Outside Director

Outside Director

KAGA ELECTRONICS CO.,LTD.

Miyoshi: The downsizing of the Board’s membership resulted in abetter governance structure. This move will help the Board of
Directors narrow its focus on determining the future direction the
Company must take, identify priority agenda items, respond tochanges in the external situation, and handle crisis management,
information disclosure, M&A and other important matters even as
it delegates authority over business execution to the executive
officers. Although the Board is also expected to address andupdate its vision regarding how it should look going forward,
I consider the downsizing of its membership a positive move in theright direction.
Having reduced the number of members, the Board of Directors
is better positioned to spend time discussing each topic in depth.
In addition, the roles to be borne by the Board have become muchclearer. While supervising business execution is an importantfunction of the Board of Directors, I believe that enabling the Board
to robustly discuss what the Company should aim to accomplish isa matter of utmost importance. I believe the Board is now fully
equipped to conduct future-oriented discussions.
Tamura: Attendees of Board of Directors meetings, Nomination
and Compensation Committee meetings, Management Meetings,
budget meetings and other important meetings are engaged in afree-spirited exchange of unfettered opinions. What supports these
discussions are relationships of mutual trust among
officers. At the same time, the differences in their standpoints
enable them to avoid growing complacent and too cozy with eachother. This is especially true of individuals from outside the Group
with different backgrounds and are capable of providing fresh
insights to those who have built their careers mostly within theGroup. Moreover, the external environment surrounding theCompany encompasses a diverse range of aspects. Accordingly,
bringing multilateral perspectives into discussions will help us
yield better results. On the other hand, a reduction in the numberof Board members to the smallest possible extent was necessary
in light of the importance of enabling the Board to engage inmeaningful discussions.
Previously, separation between the Company’s executivefunctions and its monitoring / supervisory functions had not been
so clear. However, the Company transitioned to a structure inwhich authority over detailed management matters is delegated to
executive officers to accelerate business execution, with the Boardof Directors tasked with deliberating matters deemed particularly
important for the Company as a whole. Although the three of us
have repeatedly suggested that the Board of Directors focus on
monitoring and providing necessary advice to executives, therecent revisions enabled the Board to realize just that.
Furthermore, the downsizing of the Board has put its members
in a position in which they can harness their diverse
backgrounds in discussions.
For the Company to maintain sustainable growth, it is importantto secure excellent human resources capable of handling
corporate management. To that end, we attend various importantinternal meetings, including Nomination and Compensation
Committee meetings, in order to identify candidates from amongindividuals in a rank immediately under top management. We also
conduct interviews to assess their awareness of issues
confronting the Company.
To date, the Company has upheld KAGA-ism, which summarizes
principles to be observed by employees and features various
quotes selected from remarks by Chairman Tsukamoto in line witha corporate philosophy of “Everything we do is for our customers.”
Although these principles have taken root among the workforce
and provided employees with action guidelines, I believe theCompany should update and align them with social norms, which
evolve over time. Businesspeople who operate solely within thescope of a specific business could end up becoming ignorant tochanges in society. I feel that the Board of Directors is called upon
to stay apprised of such changes, believing that to do so is one
form of the supervisory functions it is expected to exercise.
Hashimoto: A corporation can only exist by keeping its businessrunning. Accordingly, the Management Meeting is deemed an
extremely important meeting to support business execution. While
this meeting is aimed at thoroughly deliberating on ways toaccumulate sales and profit, the Board of Directors, including thethree of us, will focus on discussing the Company’s reason forbeing and the true value of its business as well as how it shouldlook and what it aims to achieve going forward, based on thehard-earned results of its business operations. In short, theCompany has secured a proper separation between supervisory
functions, which employ an overarching perspective that takes thestatus of the entire Group into account, and executive functions,which are provided by the Management Meeting to robustly
accumulate operating results.
For the former functions to be fully exercised, securing objectivity is of the utmost importance. In this light, the Board of Directors
has gained a greater ability to objectively address issues affecting
the entire Group while avoiding losing touch with what external
stakeholders would say about its operations. I consider this ability
to be the Board’s most notable feature deserving appreciation.
Currently, KAGA ELECTRONICS adopts a system of a company
with a board of corporate auditors with considerations toward a
possible transition to a company with an audit committee systemin the future. In addition, transitioning to a system of a company
with three committees could one day become a viable option in thecourse of pursuing further corporate growth. In any case, theBoard of Directors has now developed full capabilities to addressthese and other future-oriented subjects.
The updating of the governance structure also bears relevanceto the Group’s net sales target of ¥1 trillion. Doubling net sales
from ¥100 billion to ¥200 billion is one thing, but doubling net salesof ¥500 billion to ¥1 trillion is something totally different. The latter
will very likely cause various stakeholders in society to scrutinize
whether the Company’s conventional management structure iscapable of maintaining this scale of operations. Employees will
similarly be anxious about the same issue. I believe that,
therefore, the Company must continue to update its governancestructure in one way or the other.
Miyoshi: Since joining the Company’s Board of Directors, I havebeen vocal about the necessity of female officers and havesuggested appointing a female outside auditor as a first step. I am
happy about the recent reconfiguration of the Board’s membership,
which included the appointment of the right person.
Although Mr. Hashimoto has touched on a topic associated with
the Company’s net sales target of ¥1 trillion, the Board of Directors
will be called upon to discuss it as an important subject. I will
elaborate on this subject from the following three aspects.
First, the pursuit of this target requires the alignment of theCompany’s business model. Previously, KAGA ELECTRONICS haslargely been focused on procuring electronic parts from manufacturers and selling these parts. However, the Company needs toincrease its emphasis on the provision of modules, namely, theEMS business, to meet customer requests. Failing to do so will
deprive KAGA ELECTRONICS of its potential for corporate growth.
Second, M&A must be considered. Although nearly 30 listedcompanies operate in the electronics industry, there is an ongoing
trend toward reorganization and mergers among them. This trend
will continue. KAGA ELECTRONICS should similarly examine an
option of merging with a partner capable of achieving mutual

Integrated Report 2023

28

Roundtable Discussionof Outside Directors
introduced based on our suggestions aimed at invigorating the
Employee Shareowners Association. When a growing proportion of
employees become shareowners, employee affection and loyalty
toward the Company will grow stronger. Share ownership among
employees could also support share prices. We can conclude that
our suggestions have contributed to a rise in share prices, expansion
in sales and the enhancement of operating results as a whole
while helping realize a virtuous cycle of these improvements.

Director Tamura

development with the Company itself. In addition, in order toexpand its EMS business overseas at an even faster pace, theCompany must consider forming alliances with EMS corporations
abroad or signing M&A deals with them. It is about time for the
Board of Directors to robustly deliberate on these issues tocrystalize its strategies.
The third aspect is diversity. I consider promoting diversity to bea matter of extreme urgency. Specifically, the Company needs toempower women to serve as key workforce members in addition toeffectively utilizing capabilities of employees of an advanced age
and hiring foreign nationals. In particular, managers of overseas
bases should be appointed from among employees local to thearea. In this regard, the Company has recently decided to do justthat in China. As employees local to the area are well-versed inlocal affairs, the Company should fully utilize their capabilities andnetworks in the course of expanding its EMS business overseas.
The Board of Directors needs to thoroughly address these three
aspects going forward.
The aforementioned net sales target of ¥1 trillion must be
achieved in a few years subsequent to the close of the current
Medium-Term Management Plan. It is not a target for 2040.
Rather, the Company is called upon to meet this target by 2028, in
which it will celebrate the 60th anniversary of its founding.
Accordingly, gaining greater momentum to this end is theforemost issue.
Tamura: The ¥1 trillion net sales target is not far-fetched, while, inthe context of gaining the momentum for achieving it, theCompany has thus far earned operating results in excess of its
targets under its Medium-Term Management Plan. These results
have, in turn, positively affected the morale of the Company’s
officers and employees as well as the market participants’assessment of its potential. KAGA ELECTRONICS should keep up
the good work. In this regard, the appointment of a female corporate auditor is yet another positive move. Securing diverse humanresources in terms of backgrounds and expertise is essential toenhancing the quality of discussions by key bodies, be it the Boardof Directors or the Board of Auditors. Therefore, benefits arisingfrom the aforementioned appointment transcend mere conformity
with the growing public call for promoting diversity.
Meanwhile, the Sales Planning Department and other business
units are currently striving to develop new businesses, to this end
taking a forward-looking approach while abolishing the silo-based
internal structure. Moreover, to better motivate employees,
incentives granted to top-tier salespersons were substantially
increased. Biannually, employees who achieved excellent performance are being commended in front of their peers. In addition,
the overall salaries of employees have been upwardly revised.
The Company has also begun providing employees with special
subsidies for the purchase of its shares. This measure was

29

KAGA ELECTRONICS CO.,LTD.

The Company’s operating results forecasts for FY2024/3
include decreases in sales and profit due to a recoil froma temporary surge in demand during the COVID-19
pandemic and an inventory adjustment to be undertaken
by customers. Please share your thoughts on initiatives
the Kaga Electronics Group should undertake at this pointof time to achieve further growth.
Hashimoto: Although recovery in market demand from previous
stagnation brought on by the COVID-19 pandemic resulted inwidespread shortages of goods, the Kaga Electronics Group wasable to expand sales as it handles a diverse range of parts without
limiting the scope of markets it serves. Furthermore, the Group
has succeeded in translating rises in raw material prices and othercost items into sales prices. It can be said that thisachievement is a testament to customers’ appreciation for theGroup’s procurement capabilities.
Taking these factors into account, I believe that it is not fair topass a superficial judgment on the Company’s single-year operating
results, which were down from the previous fiscal year. Rather,
KAGA ELECTRONICS has performed robustly despite unfavorable
external conditions. This is where I give a positive assessment to
the Company in light of its genuine function as a trading company.
Miyoshi: In the course of achieving business growth, plateaus areinevitable. It is important for companies to determine what should
be done while facing a plateau. At present, KAGA ELECTRONICS
should therefore work to improve internal operational efficiency inpreparation for the coming of the next growth opportunity. It is time
for the Company, in my opinion, to plan these and otherpreparatory measures.
When a corporation continues to grow, there is little time topause and think. However, corporations that fail to do so will growweaker in the long term. Experiencing a plateau could be a golden
opportunity to think, plan and implement measures to grow evenstronger. In summation, discussing what should be done at timesof stagnation is of particular importance. As a director, I think that
all of us at the Board are called upon to fulfill this crucial mission.
Tamura: From the management crisis amid chaos in theimmediate aftermath of the World War II, Toyota learned theimportant lesson of securing cash and empowering humanresources being vital to the company.
With regard to the former, a corporation with robust
cash-generating capabilities is, indeed, better positioned toexercise management freedom. These capabilities will provide us
with a basis for the execution of genuinely essential strategies. Inline with Chairman Tsukamoto’s remark that “Inventory is aliability,” KAGA ELECTRONICS is currently striving to reduce thevolume of inventories while also developing a foundation
supporting its endeavors to attain a next growth stage.
As for the latter, a corporation whose employees work vibrantly
typically achieves growth. I believe that the Company is about toestablish a virtuous cycle of generating a robust volume of cash
and motivating employees to work energetically.
Hashimoto: Concerns over a possible shortage of products isalways on the minds of employees at the sales front lines as thatwill, in turn, cause them to fail to meet customer requests. On theother hand, inventories are a source of risks as they could turninto dead inventories at any time. While inventories of raw
materials may possibly be used for alternative purposes, KAGAELECTRONICS handles parts and products. Once they become
obsolete, these offerings could not be sold at even ¥1. Accordingly,
inventories held by the Company are entirely based on orders
placed by customers. Although the volume of inventories has been
accumulated over the course of the period leading up to December
31, 2022, this volume was successfully reduced in the threemonths ended March 31, 2023 to a level below the volume at the
beginning of the previous fiscal year.
Miyoshi: The phrase “bare minimum” has recently become
customary among us when discussing the volume of inventories.
In this regard, there is always a conflict of interest between sales
and administrative departments. If we reduce the volume ofinventories to zero, there would be no sales at all. Therefore, weshould work to visualize an optimal level of inventories, issue analert when the volume of inventories exceeds such a level andreplenish them when the level is less than optimal. It is important
to constantly monitor the volume of inventories to keep it at an
optimal level.
Tamura: When it comes to empowering employees, establishing a
positive cycle of achieving corporate growth, improving stock
prices and raising wages for employees is of importance. Recently,
KAGA ELECTRONICS placed 27th in a ranking complied by Nikkei
Newspaper of listed companies that substantially increased wages
for employees. Going forward, employee shortages will become
even more widespread in regions across Japan. Improvement inwages will help prevent the resignation of young employees.
Accordingly, it is important to create a Company in which
employees are highly motivated to pull together to support ongoing
corporate growth.

Although “business management conscious of stock prices”
is a subject of public discourse, could you explain the
stance taken by KAGA ELECTRONICS in this regard?
Tamura: The Company’s stock prices are trending stably whilegarnering robust market appreciation. For the Company tomaintain these trends, it is extremely important to steadily
implement IR and other activities aimed at gaining deeper public
understanding of the good points of KAGA ELECTRONICS.
We often discuss these activities at Board of Directors meetings
and remain aware of their importance.
Miyoshi: Stock prices are determined by the market. No
corporations are in a position to manipulate the value of theirshares. The Company is just called upon to do what it should do
while maintaining proper information disclosure. I hope that theCompany will take a more proactive approach to IR activities
Director Miyoshi

Director Hashimoto

because doing so could help it earn market appreciation, which
will, in turn, lead to an improvement in stock prices and theestablishment of an even better corporate image among thegeneral public. Of course, achieving robust operating results is abasis for the success of these activities. Stock prices typicallyreflect the market’s trust in a corporation. Accordingly, thespeed-oriented execution of the management plan is anothermatter of importance.
Looking at ESG initiatives undertaken by the Company,
discussions are underway regarding the near-future installation ofsolar panels at domestic manufacturing bases. Meanwhile, thesepanels have already been installed and are in operation at two
overseas manufacturing bases. I think that it would be even better
if solar panels are introduced at all the Group factories. I expect
the Company to pursue this initiative, beginning in areas fromwhich it can currently work on.
Hashimoto: Stock prices always involve a complex issue. For
example, if all shareholders decided not to sell their shares, stock
prices would no longer increase. When I joined the Company’s
Board of Directors, I was curious as to why its stock prices had not
risen despite achieving solid sales and being in good shape. I also
discussed this with my fellow outside directors to address thisquestion from diverse perspectives.
Although the Company’s stock prices have since risen in recent
years, we must also stay alert about the possible consequence ofstably high stock prices, which could lead to lower liquidity. Thiscan also be detrimental to us, making it difficult to assess thegenuine market reputation of the Company. Because of this, wecannot simplistically focus solely on pursuing higher stock prices.
Given these factors, if stock prices were to stay at the current
level, we may need to consider reducing the minimum number ofshare units to enable shareholders to easily buy and sell, or
execute a share spilt. These would be viable options for measures
to be implemented by the Company to counter the possible
deterioration of liquidity. I believe that discussing these subjects is
another important role to be borne by the Board of Directors.
Tamura: In the course of IR activities, sincerely heeding opinions
voiced by shareholders and investors is important. I deem it
essential to directly engage with investors, both domestic andoverseas, take heed of what they say about the Company andrespond to their requests.
Hashimoto: For the Company to achieve higher stock prices
backed by solid market reputation for its operating results andshareholder returns, IR activities are indeed a matter of extreme
importance. As Mr. Miyoshi has noted, however, improving
operating results will be a basis for the success of these activities.
The Company therefore should swiftly execute measures toachieve goals of its management plan so that it can maintain themarket’s trust, which will, in turn, affect stock prices.

Integrated Report 2023

30

ESG Information

Corporate Governance
Basic approach and structure of corporate governance
KAGA ELECTRONICS recognizes that enhancing corporate
governance is a key management issue. The Company istherefore building a corporate governance system with thefundamental policies and aims of ensuring total compliancewith corporate ethics, laws, and regulations, reinforcing
internal control systems, and securing the soundness, efficiency,
and transparency of business operations to improve its corporate value. Moreover, in light of the importance of corporate
governance, the Company maintains the CSR Promotion
Committee, the SDGs Committee and the Nomination andCompensation Committee, thereby strengthening its corporate
governance structure.
KAGA ELECTRONICS is a company with a board of directors
and board of auditors. It has adopted a corporate governancesystem based on collaboration among its Board of Directors,
auditors and Board of Auditors, and with the accounting
auditor. In principle, the Board of Directors meets once amonth and holds extraordinary meetings on a flexible basis.
The Board of Directors makes decisions on important mattersrelated to items stipulated by laws and regulations as well as

to management, and it supervises the execution of duties bydirectors. Consisting of six directors, including three of bothinternal and outside directors, the Board of Directors is
capable of sufficiently discussing the aforementioned mattersand making accurate and swift decisions. In addition, although
the Company has maintained an employment-based executive
officer system since April 1, 2005, it switched to a commissioned
executive officer system on April 1, 2022, in order to further
enhance corporate governance. Based on this system, theCompany has even more clearly defined the roles of individuals
tasked with management decision making and supervision andthose tasked with business execution, thereby facilitating theseparation of functions. Moreover, with this move the Company
secured a structure capable of responding swiftly to changes
in the external environment even as it strengthened both Boardof Directors functions and executive functions. The Board ofAuditors consists of four auditors, including three outside
auditors. Auditors regularly attend Board of Directors meetings
while proactively participating in other important internal
meetings as part of their duties.

Corporate Governance Organizational Diagram
General Meeting of Shareholders

Nomination and Compensation
Committee

Advice /consultation

Board of Directors (directors)

Selection / dismissal

Selection / dismissal

Selection / dismissal

Board of Auditors (auditors)

Audit

Audit
Collaboration

Representative Director,
Founder & CEO• Environmental Issue
Working Group• Social Issue
Working Group• Governance Issue
Working Group31

CSR Promotion
Committee• Compliance Committee• Risk Management
Committee• Information Disclosure
Committee• Personal Information
Management Committee

Representative Director,
President & COO

Collaboration

Audit

Group Management
Headquarters Council

Audit Office

Management Meeting

CSR Promotion Committee

The SDGs Committee is chaired by the President and COO,
and comprises each division’s chief officers, among others.
Working groups on the environment (E), society (S), and governance (G) are set up under this committee to establish
guidelines, measures and objectives for these ESG issues, aswell as to monitor progress and perform other functions.

The CSR Promotion Committee is chaired by the
Representative Director, President & COO. The Company
established Information Disclosure Committee, Risk
Management Committee, Compliance Committee andPersonal Information Management Committee as subordinate organizations. These organizations work to normalize
decision-making and the execution of business operations
throughout the Group.

Outside officers
The Company has appointed three outside directors and threeoutside auditors. Based on the Tokyo Stock Exchange standards on independence, we appoint outside officers who do nothave any special interests in the Company and who have extensive experience and broad powers of judgment in corporate
management. The auditors are also required to have highly
specialized knowledge and maintain independence from management executives.
The Company has established a staff office of the Board of
Directors, that distributes materials related to matters ofdeliberation by the Board to all officers, including outside officers, ahead of the meeting day. The staff office provides supplementary explanations to the outside officers when needed
to ensure that adequate information is imparted in advance.
This helps support lively debate at Board of Directors meetings. By the end of each fiscal year, the staff office sets theschedule for the regular Board of Directors meetings for thefollowing fiscal year and notifies all officers, including outside
officers, of this schedule in order to improve attendance.

Attendance at Board of Directors Meetings

Collaboration

Accounting auditor

SDGs Committee

Consult / advise

SDGs Committee

Audit

Divisions and Group companies

Status of attendance at Board of
Directors meetings held during
the year ended March 31, 2023
Position andassignment
at the Company

Attendance(times)Attendance
rate (%)

Isao Tsukamoto

Representative
Director, Founder &
CEO

17/18

94.4

Ryoichi Kado

Representative
Director,
President & COO

18/18

100.0

Director,
Senior Managing
Executive Officer

18/18

100.0

Name

Nomination and Compensation Committee

Audit Office

Shintaro Kakei

The Company has established the Nomination andCompensation Committee in an effort to secure the transparency and objectivity of its process for nominating
candidates for directors and auditors, evaluating their performance and determining remuneration for these individuals. The Nomination and Compensation Committee
consists of at least three directors selected by the Boardof Directors, a majority of whom shall be independent
outside directors, and the chairperson of the committee
shall be selected from the independent outside directors.

The Company established an Audit Office under the direct
authority of the Representative Director, President & COO. The
Audit Office works in collaboration with the Administration
Headquarters, etc., conducting audits to assess the appropriateness of business activities undertaken by Group companies andother entities, monitor the status of management resources theyuse, and confirm that they are in compliance with laws and regulations, the Articles of Incorporation, and other internal rules.
Moreover, pursuant to the Financial Instruments and Exchange Act,
the Audit Office conducts evaluations of internal control systems.

SusumuMiyoshi

Outside Independent

Outside Director

18/18

100.0

Akira Tamura

Outside Independent

Outside Director

17/18

94.4

Noritomo
HashimotoOutside Independent

Outside Director

18/18

100.0

KAGA ELECTRONICS CO.,LTD.

Outside : Outside directors  Committee membership
Nomination andCompensation
Committee

CSR Promotion
Committee

SDGs Committee

Independent : Independent directors as defined by the rules of the Tokyo Stock Exchange   ● : Committee chair   ● : Committee member

Integrated Report 2023

32

ESG Information

Internal Control / Compliance
Basic approach to internal control systems

Areas of specialty of Directors and Auditors
Corporate
management

Name

Globalbusiness

Sales andmarketingLaw
and riskmanagement

Finance andaccounting

Personnel
management Technology
andand human
manufacturingresource
development

IT anddigitaltechnology

Isao Tsukamoto

Directors

Ryoichi Kado

Shintaro Kakei

Susumu Miyoshi

Outside Independent

Akira Tamura

Outside Independent

Potential risks that the Group faces include factors relating toeconomic conditions, exchange rate fluctuations, country risks,
price competition and rivalries, product procurement capabilities,
internal brand risks, legal regulation, market risks, major litigation, severance pay obligations, personal information, accidents, the environment, and information management. As partof efforts to create the needed appropriate systems to manage
every risk the Group may face, the Company has designateddivisions tasked with handling specific risks while appointing

Auditors

Eiji Kawamura

Outside Independent

Yoichi Sato

Outside Independent

Kyoko Oyanagi

Outside Independent

Note: Up to four skill categories are presented per individual in line with the Company’s expectations regarding their contributions in their respective areas of specialty. The above matrix
does not fully describe the expertise possessed by each individual.

Remuneration system for officers
The Company’s basic policy regarding remuneration for its
directors is to structure a remuneration system that is linked
with shareholder interests and that robustly incentivizes these
individuals to strive for ongoing improvement in corporate
value, with the aim of securing and retaining excellent humanresources capable of practicing and realizing its corporate philosophy. To this end, the Company strives to set remunerationfor each director at a level commensurate with their assigned
responsibilities. Specifically, remuneration for executive directors

comprises basic fixed remuneration, performance-linked
remuneration, and share-based remuneration. Remunerationfor outside directors, who are tasked solely with exercisingsupervisory functions, consists only of basic remuneration due
to the nature of their duties.
The Company has also made it a rule to ensure thatprocedures for determining remuneration for directors arerational, objective and transparent as is the content of such
remuneration itself.

Total amount of remuneration for the year ended March 31, 2023

33

Total remuneration, etc. (millions of yen)

Number of recipients

Directors (Of which, outside directors)

1,039 (40)

11 (4)

Auditors (Of which, outside auditors)

46 (10)4 (2)KAGA ELECTRONICS CO.,LTD.

clarify the scope of authority of each director. As a company
adopting a system of corporate auditors, each auditor, including
each outside auditor, conducts detailed audits on the executionof duties by directors.
In addition, the Company has formulated the Basic
Compliance Rules, which serve as a code of conduct to ensurecompliance with laws and regulations and the Articles ofIncorporation as a means to enable the proper execution ofduties by employees of the Company and Group companies.
And to make this effective, the Company has also set up theCompliance Committee under the umbrella of the CSR
Promotion Committee chaired by the President & COO. In thisway, the Company secured a structure to ensure theappropriate execution of business throughout the Group.

Risk management system

Noritomo Hashimoto Outside Independent

Susumu Kitsunai

The Kaga Electronics Group is aware that enhancing corporate
governance is an important management issue. Our fundamental policy is ensuring compliance with corporate ethics
and laws and regulations and reinforcing internal control
systems while maintaining the soundness, efficiency andtransparency of management and raising corporate value.
To this end, the Company has defined its basic approach tointernal control systems. Moreover, the Company has established Rules on Officers and Board of Directors Rules toensure the proper execution of duties by directors and theBoard of Directors. The directors monitor one another’s
execution of duties at regular and extraordinary meetings ofthe Board of Directors. The Company has also established
Organization Rules, Rules on the Allocation of Work Duties,
Rules on Work Authority, and Rules on Internal Approval torisk control officers and managers tasked with spearheadingrisk countermeasures undertaken by such division.
The Risk Management Committee, a subordinate body of
the CSR Promotion Committee, analyzes and examines theGroup's various risks, and the predetermined departments incharge of each foreseeable risk are working to mitigate therisks. In addition, the Company has established Risk Management
Regulations to clarify how to respond to risks in business operations and to strengthen the risk management system.

Ensuring appropriate operations at Group companies
The Company has established Rules on the Management ofAffiliated Companies to ensure appropriate business
operations at affiliated companies and executes controls basedon these rules. In addition, it is required that any coordination
among Group companies as well as any action on importantmatters are first discussed by the Company’s Management
Meeting and Board of Directors before decisions are made.
The Company’s Audit Office conducts audits in collaboration
with the Administration Headquarters and other business units
to ensure that business activities undertaken by Group

companies meet unified standards and to confirm the appropriateness and compliance of their operations with laws andregulations as well as the Articles of Incorporation. The Officealso provides guidance for improvements in business activities.
Furthermore, Group companies submit the minutes from all
Board of Directors meetings to the Company and make monthly
reports on business activities, the status of budget implementation, and important matters relating to ensuring the appropriateness of business activities.

Efforts toward the elimination of antisocial forces
The basic position of the Kaga Electronics Group is to maintainno relationships whatsoever with antisocial forces that threaten social order and safety and to remain resolute in its refusalof all improper demands from antisocial forces as set forth in
its Fundamental Compliance Rules and Employment Rules.
In cases where the Company is subject to improper
demands from antisocial forces, the General Affairs
Department and CSR Promotion Committee work together,acting in collaboration with crisis management advisors andcompany attorneys on an as necessary basis in their efforts toensure proper and organized responses to such incidents. The
Company also holds regular discussions with company attorneys,
meets with police departments and other external specializedorganizations, and participates in training and other activities
to gather relevant information on antisocial forces.

Integrated Report 2023

34

ESG Information

Directors and Auditors
As of June 27, 2023

Directors

35

KAGA ELECTRONICS CO.,LTD.

Auditors
Representative Director,
Founder & CEO

Representative Director,
President & COO

Auditor (Full-time)

Outside Auditor

Isao Tsukamoto

Ryoichi Kado

Eiji Kawamura

Susumu Kitsunai

1968	Founded KAGA ELECTRONICS
CO., LTD.
(private management)
1968	Established KAGAELECTRONICS CO., LTD.
President
2007 	Founder & CEO
2021	Outside Director of ITbook
Holdings Co., Ltd.
(present position)
2022	Representative Director,
Founder & CEO

1980	Joined KAGA ELECTRONICS
CO., LTD.
1991	General Manager of Sales
Department, Sales
Headquarters
1995	Director, General Manager of
East Japan Sales Department,
High Tech Business Division
2002	Managing Director
2005	Senior Managing Director,
Chief of Specific Industry Sales
Headquarters
2012	Vice President
2014	President & COO
2022	Representative Director,
President & COO

1979	Joined KAGA ELECTRONICS CO., LTD.
1985	President of TAXAN (UK) LTD.
1993	General Manager of Overseas Sales
Department, Sales Headquarters No. 2
2005	Executive Officer, General Manager
of Accounting Division and General
Manager of Information Systems
Department
2012	Executive Officer Chief of
Administration Headquarters andGeneral Manager of Accounting
Division
2012	Director, Chief of Administration
Headquarters and General Manager
of Accounting Division2015	Managing Director, Head of
Administration Headquarters
2022	Director, Managing Executive Officer
Head of Administration Headquarters
2023 Auditor (Full-time)1997	Joined Tokyo Office of Tohmatsu &Co. (currently Deloitte Touche
Tohmatsu LLC)
2001	Registered as Certified Public
Accountant
2002	Opened Kitsunai Certified Public
Accountant Office as Representative(present position)
2004 	Established Asia Alliance Partner
Co., Ltd. as Representative Director(present position)2018	Auditor of KAGA ELECTRONICS CO.,LTD.
2022	Outside Director of Agent InsuranceGroup, Inc.

Outside Auditor

Outside Auditor

Yoichi Sato

Kyoko Oyanagi

1977	Assistant Judge at Tokyo District Court
1989	Judge at Tokyo District Court
1996	Judge at Tokyo High Court
2016	Admitted to the bar, Joined Alpha
Partners Law Offices(present position)2018	Auditor of KAGA ELECTRONICS CO.,LTD.
2021	Auditor of Bouygues Asia K.K.

2002	Joined Sanken Outsourcing K.K.
2004	Joined Sugata Labor Management
Office (currently Sakura
Management Office)2005	Registered as a labor and social
security attorney2006	Executive Director, Tokyo Labor
Improvement Promotion Association(Labor insurance affairs association)2016	Representative of Social Insuranceand Labor Advisors Corporation,
Sakura Management Office(present position)2020	Chairperson, Tokyo Labor
Improvement Promotion Association(Labor insurance affairs association)(present position)
2023	Auditor of KAGA ELECTRONICS CO.,LTD.

Director, Senior Managing
Executive Officer

Outside Director

Shintaro Kakei

Susumu Miyoshi

1980	Joined ITOMAN Co., Ltd.
1993	Joined KAGA ELECTRONICS CO., LTD.
2000	Division Director of Overseas
Business Division, Electronics Sales
Headquarters
2000	Director
2005	Managing Director
2014	Senior Managing Director
2022	Director, Senior Managing Executive
Officer

1963	Joined Toyota Motor Co., Ltd.
(currently Toyota Motor Corporation)
2001	Executive Vice President andRepresentative Director
2002	President of Osaka Toyopet Co., Ltd.
(currently Osaka Toyota Motor Co., Ltd.)2005	Advisor to Toyota Motor Corporation
	Chairman of Osaka Toyopet Co., Ltd.
2009	Executive Advisor to Maxell
Holdings, Ltd.
2015	Director of the Company

Outside Director

Outside Director

Akira Tamura

Noritomo Hashimoto

1970	Joined the Bank of Japan
1978	Deputy Director of the International
Finance Bureau, Ministry of Finance1998	Director of Information Systems
Department, the Bank of Japan
2008	Representative Director and Senior
Executive Officer, Sohgo Security
Services Co., Ltd. (ALSOK)2012	Advisor to Niigata Sohgo Security
Services Co., Ltd. (ALSOK) (present
position)2015	Director of the Company
2019	Outside Board Director of Solekia
Limited (present position)

1977	Joined Mitsubishi Electric
Corporation2009	Director, Chairman of theNomination Committee, Chairmanof the Compensation Committee,
Executive Officer, in charge ofGeneral Affairs, Human Resources
and Public Relations
2012	Director, Chairman of theNomination
Committee, Chairman of theCompensation Committee, SeniorVice President, in charge of Corporate
Strategic Planning and Operationsof Associated Companies
2012	Director, Member of the Nomination
Committee, Senior Vice President,
in charge of Corporate Strategic
Planning and Operations of
Associated Companies
2016	Director
2016	Advisor
2019	Director of the Company
2021	Outside Director of IBOKIN CORP.
(present position)

Executive Officers
Founder & CEO

Isao Tsukamoto

Executive Shoji Seki
OfficerPresident & COO Ryoichi Kado
Senior Managing Shintaro Kakei
Executive Officer

Representative Director,
President of KAGA SPORTS CO., LTD.

Hiroki Suzuki

President of DIGITAL MEDIA LAB., INC.

Hiroaki Maruyama

Director, Managing Executive Officer of KAGA FEI Co., Ltd.

Kazuhira Watanabe Division Director of Communication Network Sales
DivisionManaging
Motonori Toshinari
Executive Officer Mitsuhiro Nohara

Hironaga Nagasaka General Manager of Sales Strategy Office
Takahiro Urazawa

Senior Managing Director of KAGA SPORTS CO., LTD.

Katsutoshi Suzuki

Representative Director, President of KAGA DEVICES
CO., LTD.

Takeshi Tsukamoto Representative Director, Presidentof KAGA FEI Co., Ltd

Satoshi Eguchi

Representative Director, President of KAGA MICROSOLUTION CO., LTD.

Takao Okabe

Division Director of EMS Business
Division

Mitsuhiro Kumabe

Representative Director, President of KAGASOLUTION NETWORK CO., LTD.

Yasuhiro Ishihara

Head of Administration
Headquarters

Hitoshi Koujitani

General Manager of Corporate Strategy OfficeKenji Shimazaki

Managing Director of KAGA SOLUTION NETWORK
CO., LTD.

Zhen Zhou Zhu

China Supervisor

Senior Executive Mitsuhito Ikeda
OfficerPresident of EXCEL CO., LTD.

Integrated Report 2023

36

ESG Information[Human Capital-related Initiatives]

Putting “People Are Our
Greatest Asset” into PracticeKen Ishizaki
General Manager,
Administration Headquarters
Personnel Department

Our Basic Concept on Human Resources andInitiatives to Develop Human Resources
The Kaga Electronics Group’s approach to human resources
can be summarized into a single sentence, “People are ourgreatest asset.” In line with this approach, we have worked tonurture independent, autonomous, and self-motivated individuals with a strong spirit. In the course of human resource
management, we remain mindful of what can be done to maximize the value of our human resources and bring out their fullpotential while encouraging them to exercise their uniquestrengths as Kaga Electronics Group employees.
At the core of our training system are in-house position level
qualification systems and training programs that differ basedon employees’ years of service. The former grants membershipto each employee upon joining the Group and, as they accumulate experience, promotes them to leader, chief, manager,
general manager and, ultimately, senior general manager.
These titles, however, are irrespective of their job functions.
For example, an individual at the “leader” rank could be
appointed to a manager position if deemed to possess management skills. Likewise, a general manager can be appointed
from among individuals who have only reached the “manager”
level. As such, our in-house position level qualification is designed
to be flexible, imposing minimal limitations so that competent
individuals can be rapidly promoted to higher positions.
Meanwhile, our training programs that differ based on
employees’ years of service require employees to undergo
annual training until the end of their fourth year within theGroup. Usually, those in their fifth or sixth year would havereached the “leader” level and would then begin participating inleadership training via the position level-based training programs.
Accordingly, the pace of promotion begins to vary by individual.
The three job categories are sales, engineering and administrative staff. From the viewpoint of overall proportion of
employees within each category, sales staff account for a substantial majority with administrative staff constituting our

37

KAGA ELECTRONICS CO.,LTD.

workforce’s second largest group. The number of engineering
staff is small.
Recently launched human resource development initiatives
include sales training for younger employees, in addition tosales capability enhancement (strategic thinking) training, inwhich employees better hone their sales capabilities by learning
side by side with managers. Previously, on-the-job (OJT) training
was the main skill development method implemented at KAGAELECTRONICS as this approach can be closely aligned withwhat occurs at the front lines of business and yield immediate
effects. However, we have since realized that proficiency level
could vary by individual based on the staffing situation of eachbusiness unit to which new recruits are assigned. This was
ultimately the reason behind the launch of new training
programs. We believed basic concepts and methods for humanresource development should be unified. Furthermore, while
the overall resignation rate remains low at slightly in excess of
2%, we must provide new recruits with robust training in order
to curb the resignation of employees in their second and thirdyears of joining the workforce.
Sales capability enhancement (strategic thinking) training
brings together younger employees and managers frommultiple sales departments and encourages them to interact,
learn from each other and inspire one another to enhancetheir strategic thinking skills while they collectively study thatwill be put to use in their sales activities. While this may not
immediately turn new recruits into fully equipped salespersons, we aim to equip employees with 70% to 80% of thenecessary skills at a very early stage of their careers, with thehope of mitigating the risk of resignation.
Moreover, an issue associated with the low frequency of personnel transfer has come to our attention. Therefore, between
2021 and 2022, we implemented the Strategic Human
Resource Management Project. As we also aim to enable
employees to gain robust experience at early stages, we havemade it a rule to proactively undertake transfers, including
those between business divisions and Group companies.

Looking ahead, we will leverage the database accumulated in
the course of the above project regarding our human resources,
including those at Group companies, to inform our future
measures to develop top management candidates.
To date, we have rarely recruited mid-career hires. However,this traditional policy has now been changed due in part to the
expansion of the size of our operations. While we have previously
employed a handful of mid-career hires specialized in fields
such as accounting and engineering, we have begun toproactively recruit a growing scope of individuals from externalsources, including salespersons.
Traditionally, recruiting mid-career employees has been
seen as involving the risk of hiring individuals with an approachthat is incompatible with KAGA-ism, especially in terms ofsales activities. However, KAGA ELECTRONICS itself has
undergone changes in many respects, with KAGA-ism being
updated to align with the times. Accordingly, we feel that thisno longer discourages the recruitment of mid-career hires.

Nurturing Global Human Resources Based on the
EMS Business, Which Is Expanding Overseas
With regard to the development of global human resources,
the EMS Business Division serves as a hub from which
employees are dispatched to overseas assignments.
Specifically, we first assign salespersons who joined the Group
as mid-career hires to the EMS Business Division and thendispatch them to overseas destinations after amassing frontline experience for two to three years. Meanwhile, KAGAMICRO SOLUTION, a manufacturing subsidiary, recruits
mid-career hires specialized in manufacturing and thenseconds them to the Production Center of the EMS Business
Division after they gain proficiency. Following this secondment,
they are transferred to overseas bases. Going forward, we aim
to nurture human resources capable of handling overseas production management. To this end, we plan to promote suchinitiatives as assigning new recruits to KAGA EMS TOWADA
CO., LTD., and then sending them to countries abroad after astint at domestic factories, including those run by Kyokuto
Electric Co., Ltd.
To leverage the capabilities of foreign national employees,
KAGA EMS TOWADA CO., LTD. annually accepts technicaltrainees from Indonesia and Vietnam, leveraging agovernment-sponsored foreign technical intern training

program. These trainees are given the option of either returning
to their home countries after a three-year training period orcontinuing their career at KAGA EMS TOWADA CO., LTD.
Meanwhile, Kyokuto Electric Co., Ltd. accommodates humanresources from its subsidiary in Thailand, providing its own
in-house training.

Initiatives to Promote Diversity & Inclusion
In terms of women’s empowerment, our Medium- to
Long-Term Sustainability Management Plan includes the
specific target of increasing the consolidated ratio of women in
managerial positions to 15% by 2024 and 17% by 2029.
Currently, we have made steady progress toward this target.
However, when looking at KAGA ELECTRONICS on a
non-consolidated basis, along with its domestic Group
companies, this ratio is not steadily growing. With this in mind,
we have formulated targets aligned with the situation of eachGroup company. Furthermore, we are assiduously promoting
initiatives to raise the ratio of women as newly hired career
track employees to 30%. We recognize a need to focus on the
nurturing of our female employees at a robust pace at KAGAELECTRONICS and other domestic companies.
With regard to the promotion of foreign national employees,
Mr. Zhen Zhou Zhu, our China Supervisor, was appointed as thefirst foreign national executive officer of KAGA ELECTRONICS.
As for the empowerment of older employees, although theretirement age of 60 years old remains unchanged, we
consider reaching this age to be yet another milestone of
employee career development. We intend to provide older
employees with duties that allow them to leverage theirexperience and offers them fair wages. By doing so, we hope
our employees will remain highly spirited and serve as key
workforce members in an ever-broader range of businessfields even after reaching the age of retirement.
We also believe that “a company never thrives unless its
employees are healthy,” Based on this, we have undertaken avariety of initiatives focused on promoting employee health. In
recognition of these efforts, in March 2023, KAGAELECTRONICS was selected as an outstanding organization
under the Certified Health & Productivity Management
Organization Recognition Program. In addition, our pursuit ofhealth and productivity management has allowed us to gather
the health-related data of employees, which, in turn, led to theclarification of issues that should be addressed to promote
employee health.

Remaining an Organization in Which High
Motivation is Standard
When it comes to wages for our employees, our underlying
approach is to equally distribute what we have earned. Overpast several years, we have provided special bonuses at theend of each fiscal-year, as well as granting biannual bonusesin summer and winter. In this way, we have helped employees
maintain stable livelihoods even amid progressing inflation.
Thanks to these and other initiatives, we placed 27th in aranking of listed companies that substantially increased wages
for employees based on a survey conducted by Nikkei
Newspaper. Our stance has always been to return our profit toour employees in times of strong operating results. This, inturn, results in high levels of motivation among employees.
To maintain such a high level of employee motivation, we will
engage in in-depth communication with employees and further
improve their engagement with the Company.

Integrated Report 2023

38

ESG Information

Together with Our Employees

Average length of service / Job turnover rate

Attrition Rate

Male(year)(%)

FemaleOverall

The most important management resource for a trading company is undoubtedly its human resources. To drive sustainable growth, we promote the development of human resources and the creation of an environment that enables
the execution of our action guideline F.Y.T (pronounced “fight”). This guideline expresses our commitment to always
be Flexible and to think and act Young when Trying to take on challenges.

15.8

15.7

12.4

15.4

14.7

14.7

16.4

12.6

14.8

14.6

14.5

15.3

13.3

14.2

13.9

making effective use of diversity in human resources and inwork style. At the same time, we respect our human resources
who continue to take on challenges and see each person as acorporate manager. With this in mind, we will keep protecting
our corporate culture of tolerating failure as a consequence of
tackling challenges.

2019/32020/32021/32023/32022/3

Number of employees (persons)Ratio of female employees (%)

Male(years)

52.8

52.4

Male

Female

53.0

51.3

52.8

7,959

8,092

6,731

7,826

3,527

4,150

3,129

3,204

2019/32020/3

6,627
3,498

4,085

4,269

3,676

3,874

3,823

2021/32022/3

8,890

7,646

2019/37,504
2020/3

8,081

41.8

37.1

2019/3(%)

Overall

19.0

2022/337.0

2020/3

42.8

38.3

44.9
42.9
38.3

45.4
43.3
39.1

1,822.5

2021/32022/32023/3

Female18.6

2023/31,800.0

11.9
2020/3

1,815.0

1,807.5

12.7
10.0
2021/32022/32.2

1.9

2020/32.0
1.7
2021/3

2.4

2.1
1.7
2022/31.6
2023/32023/3

18.4

63.1
18.7

17.0

17.8

17.9

1,025.8772.8

1,642.5

1,526.0

2019/32020/3698.9
2,778.02021/3

4,715.02022/32023/3

Number of employees who took childcare leave / Ratio of
employees reinstated following childcare leave

53.2

54.3

56.2

18.7

18.7

18.3

2021/3

1,286.2
15,151.0

1,089.3

100.0

92.9

2022/32023/3

Note: Average of all employees, excluding the number of annual paid leave days carriedover to the subsequent fiscal year

100.0

23
17

17
22

2020/3Training Cost (10,000 yen)

Number of employees (persons)Male
FemaleRatio of employees reinstated following childcare leave (%)

2019/31
2020/316
12021/3

100.0

100.0

22

19

20

19

2
2022/302023/3

Note: The above number represents the simple sum of employees who took childcare leave.

Recognized as a 2023 Certified Health & Productivity Management Outstanding Organization

2019/3

3.7

4.2

4.0

2020/32021/32022/36.1
2023/3We believe that it is essential for each and every employee to be healthy both mentally and physically, andto be a group of professionals with integrity and high corporate ethics. We have been making various
efforts toward health management, such as organizing a Health Management Promotion Committee andconducting stress checks. In recognition of these efforts, we were recognized as a 2023 Certified Health &Productivity Management Outstanding Organization.

Promotion of employees’ physical and mental health

Employee education, training and income compensation programs

KAGA ELECTRONICS CO.,LTD.

2019/3

14.6

Pursuing a comfortable working environment

39

1,807.5

Number of annual paid leave granted (days)
Utilization ratio of annual paid leave (%)

2019/3

Note: The average annual wage for the fiscal years ended March 31, 2022 and March 31,
2023 include special stock incentives.

At the Kaga Electronics Group, we support the career development of employees through training for new recruits, annual
training, rank-based training and other forms of education, as
well as by providing assistance with correspondence courses.
Every year, we grant a total of six days of paid “refresh
leave,” which is separate from annual paid leave, to all employees. We also instituted a sick leave program for those who
develop one of three specified types of serious disease (cancer,
cerebral stroke and myocardial infarction) to help them secure

2.2

Training hours (hours)

Number of annual paid leave granted /Utilization ratio of annual paid leave

57.9

66.2
2.7

2021/3

44.9
42.0

2.5

2.7
2.3

Training Hours / Training Cost

Annual prescribed working hours (hours)
Monthly average overtime work per employee (hours)

2019/3Overall

44.0

2.9

Ratio of managers

Average annual wage (thousands of yen)
Average annual salary of female employees as a percentage of total (%)

7,815

Female44.0

2023/3

Average annual wage (including bonus)

Annual prescribed working hours /Monthly average overtime work per employee

11.3
Average age of employees

OverallNote: The job turnover rate represents figures for KAGA ELECTRONICS on a non-consolidated basis
and is calculated by dividing the number of permanent employees who have resigned over thecourse of each fiscal year by the number of permanent employees at the beginning of said year.

Human resource strategy / Diversity management

Number of employees / Ratio of female employees (consolidated)

Female3.8

1.8

Implementing the idea that “everyone is a corporate manager”

As our business activities become more global and the market
environment undergoes abrupt change, diversity and taking onchallenges are keys to driving sustainable growth. This isbecause diversity enables us to look at risk as an opportunity,
and when we take on challenges we can take full advantage ofthese opportunities. To make this a reality, the Kaga
Electronics Group promotes diversity management in terms ofMaletheir income during their hospitalization and absence fromwork. Specifically, employee entitlement for paid sick leave isaccumulated in step with years of service, for a maximum of 20days. Employees are also allowed to take hourly paid leave.
Through such initiatives as these, we aim to strike a goodwork-life balance for a safer work environment for employees.
Also, in the course of responding to the COVID-19 pandemic,
we placed the utmost priority on ensuring safety and security
for our employees at home and abroad.

Training room opened in Kaga Electronics
Head Office building

With the aim of supporting the maintenance and improvement of employee healthas well as betterment of work-life balance, the Kaga Electronics Group has established its own welfare facilities. In addition to maintaining company villas in four
locations in Japan, the Company owns two cruiser boats (Yokohama and Kyoto).
Moreover, the Company provides employees with access to resorts in Japan andabroad, contract golf courses and other facilities. Furthermore, in August 2023,
we opened a training room for employees in the Kaga Electronics Head Officebuilding, equipped with the latest AI machines that can provide optimal training
tailored to each employee’s physical factors through the use of electronic tags. We
will continue to implement various health promotion initiatives so that all of ouremployees can voluntarily maintain and improve their health.

Integrated Report 2023

40

ESG Information

ESG Information

Together with Our Customers

Together with the Community

The Kaga Electronics Group proposes and provides value-added products and services that swiftly meet changes inthe times based on its corporate philosophy of “Everything we do is for our customers.” By doing so, we support thetechnological innovation and production streamlining of our customers worldwide.

Cognizant of the importance of its social responsibilities as a company, the Kaga Electronics Group contributes tosports promotion and to the local community through its business sites worldwide, and actively undertakes activities
that help drive the advancement of education, art and culture.

To deliver high-quality products and services

Contributing to the local community

Quality control system
The Kaga Electronics Group established the Production Centerin its EMS Business Division, thus enabling a system of quality
control that centers on KAGA (SHENZHEN) ELECTRONICS CO.,LTD., its flagship base for overseas production, and KAGA EMSTOWADA CO., LTD., which boast a wealth of experience in the
manufacture of in-vehicle related products. At the Center, wemanage the entire Group’s resources as cross-functional
capabilities in such areas as production technology and quality
control and promote the optimal distribution of resources andthe strengthening of technological competencies on a global basis.
The Center also liaises with production sites in China andJapan as well as countries in the ASEAN region, Europe andNorth America to advance the standardization of production
facilities, IT systems and operational processes, and the sharing of information, for example, to prevent the recurrence ofissues. Through standardization, the aim is to ensure identicalstandards, quality and customer service.

In addition, regular exchange meetings are held to reinforce
quality on a Groupwide basis.

The remote verification of inspection machines involving an active
exchange of ideas among attendees

Pursuing our philosophy of “Everything we do is for our customers”

Efforts to enhance quality
The Company’s Engineering Department controls the technological resources of the entire Group, from planning and development to design, manufacturing and quality assurance, andworks to optimize these resources, strengthen technologicalcapabilities and expand business across the organization. The
Quality Assurance Department, one of the bodies of theEngineering Department, seeks to enhance development
quality and manages safety standards throughout the Group.
This department works with other departments responsiblefor quality within the Group, depending on the circumstances,in order to resolve issues.

Prototype evaluation using a measurement device

Status of ISO9001 certification
KAGA ELECTRONICS and the following Group companies have attained ISO9000 series certification, an international standard
for quality management. The Company is striving to further enhance customer satisfaction through the continuous
improvement of its quality management system.
Japan:	KAGA ELECTRONICS CO., LTD., KAGA TECH CO., LTD., AD DEVICE CO., LTD., KAGA MICRO SOLUTION CO., LTD.,
KAGA FEI Co., Ltd., NV DEVICES CO., LTD., KAGA EMS TOWADA CO., LTD., Kyokuto Electric Co., Ltd.,KAGA TECHNO SERVICE CO., LTD.
Overseas:	KAGA (H.K.) ELECTRONICS LIMITED, KAGA (SHENZHEN) ELECTRONICS LTD., KAGA COMPONENTS (MALAYSIA) SDN.BHD.,
KAGA ELECTRONICS (THAILAND) COMPANY LIMITED, KD TEC (Czech Republic) s.r.o., SUZHOU TAXAN KAGA TRADING CO., LTD.,
KAGA TECHNOLOGY (SUZHOU) ELECTRONICS CO., LTD., KAGA ELECTRONICS INDONESIA, PT,
HUBEI KAGA ELECTRONICS LIMITED, TAXAN MEXICO, S.A. DE C.V., KAGA ELECTRONICS (VIETNAM) CO., LTD.,KD TEC TURKEY ELECTRONIK SANAYI VE TICARET LIMITED SIRKETI, KAGA ELECTRONICS INDIA PRIVATE LIMITED,KAGA FEI AMERICA, Inc., KAGA FEI EUROPE GmbH

41

KAGA ELECTRONICS CO.,LTD.

The Kaga Electronics Group,
which conducts businessactivities around the world,
takes on a variety of social contribution activities at its sites inJapan and overseas as well.
Overseas, TAXAN MEXICO
S.A. DE C.V. (United Mexican
States) conducts tree-planting
activities with students
attending nearby schools. The
plant plans to move to a newfactory in 2024 to expand its
area and number of
employees. As a multinational
company, the company also
participates in events toeliminate cultural and gender
discrimination, in addition toTree-planting activities at a nearby
school (TAXAN MEXICO)
hosting events focused on how
to avoid diversity-based
discrimination and violence.
In Japan, KAGA EMS TOWADA CO., LTD. participated in the Aomori
Smart Move Campaign, an event organized by Aomori Prefecture withthe aim of curbing global warming. This company achieved a reductionof 667 kg-CO2 during the campaign period and winning the Smart Move
Commuting Award. Moreover, KAGA EMS TOWADA CO., LTD. engages
in regular cleanup activities conducted at nearby sightseeing spots andaround the plant.
We also provide work experience training and internships for local
junior high and high school students at various locations, including
KAGA MICRO SOLUTION CO., LTD. Kyokuto Electric Co., Ltd. is also
promoting initiatives that are rooted in the local community, such as
cooking classes for the purpose of interaction between foreign national
employees working at the plant and local residents.

Plant tour for local junior high school students (KAGA EMS TOWADA)

The Smart Move Commuting Award (KAGA EMS TOWADA)

Cooking classes with neighborhood residents (Kyokuto Electric)

Supporting education and welfare
At KAGA ELECTRONICS, the Founder & CEO Isao Tsukamoto gives lectures tostudents as a specially appointed professor for the Faculty of Service Innovation,
Chiba University of Commerce. Tsukamoto speaks at such events as study
sessions for young corporate managers
who run SMEs.
In addition, the Company also contributes
to society in a wide range of fields related
to education and arts and culture, such as
co-sponsoring “The Marriage of Figaro,” aKyogen-style opera supported by the
Ministry of Foreign Affairs and other organizations, and Hamamatsu Jazz Week held
Tsukamoto lectures to students at Chiba
University of Commercein Hamamatsu City, Shizuoka Prefecture.

Hamamatsu Jazz Week

Integrated Report 2023

42

ESG Information

Together with the Earth
The Kaga Electronics Group views the 21st century as the century for protection of the global environment and, withthis in mind, conducts business activities based on an awareness of energy and resource conservation that includes
reducing CO2 and other greenhouse gases and verifying the environmental load of the products and services it handles.

Environmental Policy
The Kaga Electronics Group looks to the future of electronics at all times, striving to meet customer needs as well as topreserve and enhance the natural environment in order to protect our irreplaceable Earth.
1

The Kaga Electronics Group shall establish an environmental management system that involves all employees and promote
ongoing improvement of this system to preserve the global environment and prevent pollution in all of our business activities toprovide products and services.

2

In executing our business activities, we shall strictly adhere to environmental laws, regulations and related requirements as wellas comply with all other requirements agreed upon by the Kaga Electronics Group.

3

We shall strive to prevent pollution and enhance the environment through non-wasteful office and business activities based on aphilosophy of conserving energy and resources.

4

We shall set targets for the following requirements to the extent possible for the products and services that the Kaga Electronics
Group handles and regularly review the progress of our activities.
• Must be composed of environmentally friendly substances• Must be able to cut waste through reuse and recycling• Must be designed with energy and resource conservation in mind using the latest electronics technology

Reduction of CO2 emissions
The KAGA ELECTRONICS Head Office building employs an air
supply type double-skin* curtain wall on the exterior, allowing
air to flow into the office, thus reducing heat load and providing
natural ventilation. The energy efficient design also provides
enhanced sound insulation. In addition, the building incorporates a variety of environmental technologies, with the use ofsolar panels on the roof enabling eco-energy and theinstallation of LED lighting throughout.
In addition, the Kaga Electronics Group began calculating
the Group’s overall electricity consumption in the fiscal year
ended March 31, 2023, which totaled 56,993,984 kWh.
Due to an increase in employees commuting to work after
the relaxation of behavioral restrictions against COVID-19
infection, both electricity consumption and CO2 emissions at
the Kaga Electronics Head Office building increased in the fiscal
year ended March 31, 2023; however, we will continue ourefforts to conserve energy and lower CO2 emissions in the future.

Power consumption and CO2 emissions at the Head
Office building
Power consumption (kWh)744,417

We shall provide education to all employees to increase their awareness of the need for environmental protection and to ensure
their understanding of our Environmental Policy.

Start of specific biodiversity conservation activities

6

Our Environmental Policy shall be disseminated widely throughout society through such means as the Kaga Electronics Groupwebsite and corporate profile.

KAGA ELECTRONICS views the 21st century as the century forprotection of the global environment and is committed toaddressing environmental issues such as the reduction of CO2
and other greenhouse gases through its business activities.
A biotope* was installed on the roof of our Head Officebuilding in an effort to preserve biodiversity and protect thenatural environment through the cultivation of living organisms
and plants, as well as to preserve species and create anenvironment conducive to their habitat.
In the future, we will conduct periodic habitat surveys of thebiotope’s organisms (about three times a year in spring,summer, and fall), as well as share information about thebiotope on our website.

The Kaga Electronics Group established an environmental
management system based on its Environmental Policy. Under
the system, environmental officers, the ISO Secretariat, theEnvironmental Manager Meeting and internal environmental
auditors team up and, guided by the president, conduct envi-

ronmental management at KAGA ELECTRONICS and its Group
companies. In addition, we have attained ISO14001 certification,
an international standard for environmental management systems, at the Company and 19 sites at four Group companies inJapan. We are strengthening our system through a PDCA cycle.

Environmental management system•KAGA ELECTRONICS CO.,LTD.
 Electronics Sales Division, Automotive Division,

Founder & CEO
President (COO)*A cohesive space in which local wildlife lives.

ISO Secretariat

Communication Network Sales Division,
EMS Business Division, Specific Industry Sales Division,
Engineering Department•KAGA DEVICES CO., LTD.

•AD DEVICE CO., LTD.

•KAGA TECH CO., LTD.

Environmental officers•KAGA SOLUTION NETWORK CO., LTD. (SOLNET Company)

Environmental Manager
Meeting
Internal environmental
auditors• KAGA ELECTRONICS CO.,LTD. Administration Headquarters Secretarial Department,

Investor Relations & Public Relations Department,
SDGs Promotion Department, Audit Office,Corporate Strategy Department, Sales Strategy Department,
General Affairs Department, Personnel Department,
Finance & Accounting Department, Information Systems Department,
Business Administration Department

Note: KAGA FEI, KAGA EMS TOWADA and EXCEL have each acquired ISO 14000 certification for their respective environmental management systems.

KAGA ELECTRONICS CO.,LTD.

677,957

CO2 emissions (kg-CO2)

821,130

601,660

281,388

256,267

2019/32020/3

667,097

227,427

252,1642021/32022/3

310,3872023/3* Double-skin technology refers to a method of construction in which part or all of abuilding exterior is covered by a two-layered double-glazed façade.

5

Environmental management system

43

Initiatives to reduce environmental burden

The biotope on the roof of our Head Office building

PC product reuse and recycling business
The Kaga Electronics Group company KAGA MICRO SOLUTION
CO., LTD. has flexibly changed and expanded its businessdomain to meet a wide range of customer demands, from thedevelopment, production and sale of electronic products totheir repair, maintenance, reuse and recycling.
The company has leveraged know-how in the production ofelectronic equipment and an extensive procurement route forelectronic parts and materials—both of which wereaccumulated in the EMS business, a strength of the Group—to
focus on a reuse and recycling business for PC products inrecent years.
In addition to “reduce programs” that look especially at
cutting CO2 and rubbish levels, the Group will contribute to a
reduction in environmental burden from a reuse and recycling
perspective and to the realization of a recycling-oriented society.

Number of PC products reused(thousands)

102.0

109.0
86.6

72.0
60.0

2019/32020/32021/32022/32023/3Integrated Report 2023

44

Financial Highlights

Outline of Business Segments

Financial Highlights
Net sales (millions of yen)

Outline of Business Segments

Operating income (millions of yen)

608,064

Profit attributable to owners of theparent / Earnings per share

Electronic Components

Profit attributable to owners of the parent(millions of yen)
Earnings per share (yen)23,07032,249495,827443,615422,36588.7%

878.65
15,401

20,915
292,779

11,3997,570

10,014

11,467

8,014

576.46
5,852

292.07
2019/3 2020/3 2021/3 2022/3 2023/3

Return on equity (ROE) (%)

2019/3 2020/3 2021/3 2022/3 2023/3

213.21

45.3
38.4

35.8
18,7549,999

7.6

Development, manufacture and sale of semiconductors, general electronic
components and other products, EMS, and other activities

37.7

2019/3 2020/3 2021/3 2022/3 2023/3¥43,680 million
7.2%

North America

7.2%

3.6%

Information equipment-8,408EuropeNet sales¥608,064
million2023/3¥23,785 million
3.9%

Japan

¥335,201million
55.1%

Electronic components

Asia

88.7%

33.8%

¥539,342 million

KAGA ELECTRONICS CO.,LTD.

Electronic
component
business¥43,679 million¥22,044 million

0.5%

2019/3 2020/3 2021/3 2022/3 2023/3-1,554

Others¥2,998 million

Up

56.4%

(millions of yen)

28,314539,342433,8522022/3

18,1072023/32022/32023/338.8-1,554-8,327

Net sales composition by segment and region (Inner: By segment, Outer: By region)

Software24.3%

Business overview and opportunities / risks

2019/3 2020/3 2021/3 2022/3 2023/3-1,547

Segment income(millions of yen)In the electronic component business, sales to a wide range of industries
remained high as the supply-demand situation for semiconductors and electronic
components improved from the second half of the fiscal year. For some parts
whose supply has constantly fallen short of demand, we strove to secure sales
volumes while proposing alternatives. In the EMS business, sales to the automotive industry grew significantly, while sales to the medical and office equipment
industries remained strong, and the yen's depreciation since the beginning of the
fiscal year boosted earnings on a yen basis.
As a result, net sales were ¥539,342 million (up 24.3% year-on-year) and segment income was ¥28,314 million (up 56.4% year-on-year).

7,545-1,547-8,408

Up

Review of FY2023/3 performance

Equity ratio (%)

30,56925,76322,406

13.5

Net sales

Business description

Cash flows from operating activities(millions of yen)Free cash flow (millions of yen)

15.7
10.9

415.07

2019/3 2020/3 2021/3 2022/3 2023/3

Cash flows from operating
activities / Free cash flow

19.6

45

Proportion of
consolidated net
sales¥205,398 million

EMS businessBusiness overview

Opportunities

Risks

In the electronic component business,sales to a wide range of industries
remained high as the supply-demandsituation for semiconductors and electronic parts, which had remained tight,
improved from the second half of the
fiscal year. On the other hand, for someproducts for the in-vehicle market,
supply shortages persisted, and theGroup made concerted efforts to securesales volume by taking advantage of its
procurement capabilities as an independent trading company and to propose
alternative products.

• Advancement of automobile-related
technologies represented by EV(electric vehicles) and CASE*.
• Expansion in demand due to the
popularization of high-performanceelectronics related to ICT, such as
those supporting the 5G mobile
communication system, IoT and AI• Continued tight supply-demandbalance for some semiconductors
and electronic components, including
those for automotive applications• Soaring prices of resources andother commodities due to theprolonged conflict in Ukraine• Financial system instability associated with policy rate hike measures• Loss of commercial rights due to achange in commercial distribution
at a sales destination or supplier• Rebound from the significant
increase in demand from the
COVID-19 pandemic• Impact of inventory adjustment bycustomers due to recession risk

In the EMS business, sales to suchmajor customers as manufacturers in
the medical equipment-related andoffice equipment-related industries
remained strong, while sales toautomotive-related industries grewsignificantly. Furthermore, the yen’s
depreciation since the beginning of theperiod boosted earnings in yen terms.

*Stands for Connected, Autonomous, Shared& Services, and Electric• Progress in a return to normal forsocioeconomic activities andsemiconductor shortages, andsubsiding supply chain disruptions• Increased demand from theindustrial sector due to the elimination of shortages and extendeddelivery times for semiconductors
and electronic components• Increase in the number of fablesscompanies and rising demand foroutsourcing• Growing need for further automation and efficiency• Shortage of human resources bothin Japan and overseas• Natural disasters such as earthquakes, or floods, or the spread of
infectious diseases• Suspension of factory operations
due to other external political andeconomic factors

Integrated Report 2023

46

Outline of Business Segments

Information Equipment

Software Business

Proportion of
consolidated net
sales

Proportion of
consolidated net
sales

7.2%

Net sales

Business description
Sale of PCs, PC peripherals, home electric appliances, photographic and imaging
products, and finished products, such as original goods

Up

Segment income

10.3%

Review of FY2023/3 performance(millions of yen)

Sales of PCs to corporate customers and educational institutions remainedsluggish in terms of volume due to the prolonged replacement cycle, but they
were strong in terms of value due to the contribution of sales of high-end
products. In the LED installation business, large-scale nationwide projects, which
had been delayed due to material shortages, progressed smoothly, contributing
significantly to business earnings.
As a result, net sales were ¥43,680 million (up 10.3% year-on-year) and segment
income was ¥2,449 million (up 17.4% year-on-year).

39,616

0.5%

Up

17.4%

(millions of yen)

43,680

Production of computer graphics, planning and development of amusement
products, and other activities

2,449

2,085

Net sales

Up

Segment income

8.3%

Review of FY2023/3 performance(millions of yen)

Business profitability improved, with orders for large-scale projects and new
projects in smartphone game and computer graphics production recovering, andprogress in cost reductions.
As a result, net sales were ¥2,998 million (up 8.3% year-on-year) and segment
income amounted to ¥286 million (compared with a segment loss of ¥26 million in
the previous fiscal year).

2,767

2,998

(millions of yen)

286

-26
2022/32023/32023/32022/3Business overview and opportunities / risks

Informationequipment

Business description

Business overview

Opportunities

Risks

Sales of PCs to corporate customers and educational institutions remained sluggish in terms ofvolume, but they performed well in terms of value
due to the contribution of sales of high-priced
products. Moreover, sales of security software andother PC peripheral products were robust. In the
LED installation business, large-scale nationwide
projects progressed smoothly, contributing significantly to business earnings.

• Robust expansion of needs for
information-related devices on
the back of advances in ICT• Growing needs for security
related solutions among higher
education institutions• Discovery of new commercial
products• Loss of sales opportunities due
to parts supply shortages• Loss of commercial rights andproduct procurement routes
due to changes in the distribution policies of buyers andsuppliers• Intensifying competition due tolower prices and more newmarket entrants

2022/3

Other Business2023/32022/32023/3

Proportion of
consolidated net
sales

3.6%

TOPICS
Node

AI-based Power Cost Reduction System Reduces Power Usage
In January 2023, we became the first distributor in Japan to sell AIrux8, an electricity cost reduction system
based on AI technology developed by TRaas On Product.
Using AI, the AIrux8 system collects and analyzes data, for example, congestion and absence status withina facility, through a centralized controller device called a Node that operates motion sensors. The systemcommunicates with the IoT lighting equipment and air conditioning equipment installed in the facility andthen, depending on the situation, including the time of day, day of the business week, and season, automatically adjusts the lighting brightness and air conditioning temperature settings in each lighting area group.
In Japan, where electricity and other energy prices continue to soar, energy cost reduction is a pressing
issue for all companies, regardless of industry, and AIrux8 is a truly groundbreaking solution for reducing
electricity consumption to achieve carbon neutrality, which is becoming increasingly important factor in the
global trend to promote the SDGs.
Through the sale of AIrux8, which solves these social issues, we will contribute to the realization of asustainable society.

47

KAGA ELECTRONICS CO.,LTD.

Repair and provision of support for electronic equipment, manufacture and sale ofamusement equipment, sale of sports goods, and other activities    

Review of FY2023/3 performance

3m

AIrux8’s structure

Business description

In this segment, the PC product and PC peripheral recycling business performed
well. Sales of arcade game machines for the amusement industry and golf equipment also recovered, reflecting the easing of restrictions on activities during the
COVID-19 pandemic.
As a result, net sales amounted to ¥22,044 million (up 12.5% year-on-year), andsegment income amounted to ¥1,101 million (up 76.0% year-on-year).

Net sales

Up

Segment income

12.5%(millions of yen)

19,590Up

76.0%(millions of yen)

22,044

1,101626

2022/32023/32022/32023/3Integrated Report 2023

48

Financial and Corporate Information

11-Year Financial Summary
Kaga Electronics Co., Ltd. and Consolidated Subsidiaries
For the years ended March 31 from 2013 to 2023

2013/3

2014/3

2015/3

2016/32017/3

2018/3

2019/32020/32021/32022/32023/3

Net sales (millions of yen)

216,405

257,852

255,143

245,387

227,209

235,921292,779

443,615422,365

495,827

608,064

47,01647,93660,54778,514

Fiscal year
Gross profit (millions of yen)

27,46232,522

32,73833,64831,22532,49835,546

Selling, general and administrative (SG&A) expenses (millions of yen)

26,202

27,416

26,37625,85924,346

24,37927,97637,001

36,46939,632

46,265

Operating income (millions of yen)

1,260

5,106

6,362

7,788

6,879

8,119

7,570

10,014

11,467

20,91532,249Ordinary income (millions of yen)

1,931

5,847

7,664

7,908

7,343

8,740

7,859

10,137

11,241

21,45632,739

444

3,877

4,416

5,437

6,975

6,490

8,014

5,852

11,39915,401

23,070

Profit attributable to owners of the parent (millions of yen)
Cash flows from operating activities (millions of yen)

7,041

3,334

9,127

9,546

10,746

10,077(1,547)22,406

9,999(1,554)30,569Cash flows from investing activities (millions of yen)

(4,910)(3,339)(1,465)(1,263)(258)(4,173)(6,860)(3,651)(2,453)(6,772)(4,805)

Free cash flow (millions of yen)

2,131

(5)

7,661

8,283

10,487

5,904(8,408)18,754

7,545(8,327)25,763

Cash flows from financing activities (millions of yen)

(403)

1,024

(4,431)(3,067)(6,118)(2,811)

11,684(7,544)(6,851)

1,155(15,549)

Depreciation (millions of yen)

2,303

2,418

1,907

1,604

1,452

1,481

1,740

2,754

3,167

3,738

4,000

Capital expenditures / Investment and loans (millions of yen)*1

3,748

4,087

2,660

2,166

1,464

4,520

6,712

6,133

2,906

5,739

4,910

Total assets (millions of yen)

111,888

126,028

127,948

124,281

125,751

128,755

213,761

207,638

237,004

272,139

286,217

Net assets (millions of yen)

48,80652,82559,60361,80865,932

70,631

84,25986,25095,062

105,800

129,737

Equity (millions of yen)

48,65652,78659,564

61,76465,87270,55676,60478,28490,967

105,680

129,608

Interest bearing debt (millions of yen)

15,08917,244

14,573

12,739

9,805

8,900

32,851

28,73638,261

51,171

41,938Cash and deposits (millions of yen)

12,25814,192

18,13022,516

26,42330,80335,00343,38445,636

41,05152,600Inventories (millions of yen)

18,77921,21922,703

19,17519,325

19,45540,02631,90837,94862,60756,20516.09

137.22

156.28192.43249.43236.58292.07213.21415.07576.46878.65

Annual dividend (yen)

30.00

35.00

40.00

55.00

60.00

70.00

80.00

70.00

80.00

120.00220.00

Payout ratio (%)

186.5

25.5

25.6

28.6

24.1

29.6

27.4

32.8

19.3

20.8

25.0

1,721.86

1,868.07

2,108.04

2,185.94

2,401.00

2,571.79

2,790.97

2,850.99

3,311.24

4,026.22

4,935.36

Gross profit margin (%)*2

12.7

12.6

12.8

13.7

13.7

13.8

12.1

10.6

11.3

12.2

12.9

Ratio of SG&A expenses to net sales (%)

12.1

10.6

10.3

10.5

10.7

10.3

9.6

8.3

8.6

8.0

7.6

Operating income margin (%)*3

0.6

2.0

2.5

3.2

3.0

3.4

2.6

2.3

2.7

4.2

5.3

Fiscal year end

Per share data
EPS (yen)

BPS (yen)
Major indicators

Ordinary income margin (%)*4

0.9

2.3

3.0

3.2

3.2

3.7

2.7

2.3

2.7

4.3

5.4

Profit attributable to owners of the parent margin (%)

0.2

1.5

1.7

2.2

3.1

2.8

2.7

1.3

2.7

3.1

3.8

ROE (%)*5

0.9

7.6

7.8

9.0

10.9

9.5

10.9

7.6

13.5

15.7

19.6

ROIC (%)

0.2

5.0

5.2

7.5

8.1

7.2

5.8

6.3

6.9

10.4

13.0

ROA (%)*6

0.4

3.3

3.5

4.3

5.6

5.1

4.7

2.8

5.1

6.1

8.3

Equity ratio (%)

43.5

41.9

46.6

49.7

52.4

54.8

35.8

37.7

38.4

38.8

45.3

Debt equity ratio (times)*7

0.31

0.33

0.24

0.21

0.15

0.13

0.43

0.37

0.42

0.48

0.32

CCC (days)*8

51.4

49.7

49.8

45.9

44.7

40.0

47.1

34.4

46.7

66.6

55.4

Receivables turnover period (days)*9

92.1

85.9

83.2

81.5

83.6

77.1

77.0

75.2

93.7

89.0

77.5

Inventory turnover period (days)*10

31.7

30.0

32.5

28.5

31.0

30.1

35.1

26.3

32.8

46.1

33.7

Payables turnover period (days)*11

72.4

66.2

65.9

64.2

69.9

67.3

65.0

67.0

79.8

68.6

55.8

Number of employees (persons)

5,048

4,752

5,092

5,243

5,216

5,427

6,627

6,731

7,826

7,959

8,092

*1.	Including spending associated with the purchase of property, plant and equipment, intangible assets and investment securities as well as the purchase of shares of subsidiaries resulting in change in scope of consolidation.
*2.	Gross profit margin = Gross profit / Net sales × 100 (%)*3.	Operating income margin = Operating income / Net sales × 100 (%)*4.	Ordinary income margin = Ordinary income / Net sales × 100 (%)*5.	ROE = Profit attributable to owners of the parent / Average equity × 100 (%)

49

KAGA ELECTRONICS CO.,LTD.

*6.	ROA = Profit attributable to owners of the parent / Average total assets × 100 (%)*7.	Debt equity ratio = Interest bearing debt / Equity (times)*8.	Cash conversion cycle (CCC) = Receivables turnover period (days) + Inventory turnover period (days) – Payables turnover period (days)*9.	Receivables turnover period (days) = Notes and accounts receivable—trade / Net sales × 365 (days)*10.	Inventory turnover period (days) = Inventories / Net Sales × 365 (days)*11.	Payables turnover period (days) = Notes and accounts payable—trade / Total purchase of goods × 365 (days)

Integrated Report 2023

50

Financial and Corporate Information

Analysis of Financial Condition and Results of Operations
Fiscal year ended March 31, 2023

Analysis of business performance

Cash flows

During the fiscal year ended March 31, 2023, the economic environment surrounding the Kaga Electronics Group at home andabroad has seen modest yet constant recovery due to the normalization of socio-economic activities in step with the relaxation of
movement restrictions that had been in place to curb the COVID-19 pandemic, along with the alleviation of semiconductor shortages
and supply chain disruption. On the other hand, future outlook remains unclear on the back of the prolongation of Russia-Ukraine
situation, which resulted in surges in food and energy prices, while policy rate hikes aimed at countering inflation induced a radical
shift in foreign exchange rates, with these factors leading to the growing instability of financial systems as a whole.
In the United States and Europe, personal consumption has been mostly robust. However, a sense of anxiety for the future hasgrown stronger due mainly to the collapse of some financial institutions affected by hyperinflation and monetary tightening. In China,
although the economy was negatively impacted by the country’s “zero-COVID” policy, there were signs of recovery in personal consumption following the policy’s lifting. In Japan, despite raised concerns over the impact of surging prices for various items due tothe depreciation of the yen as well as hikes in prices for resources and cereal crops, the economy has recovered modestly in stepwith progress in the normalization of socio-economic activities.
In the electronics industry, to which the Kaga Electronics Group belongs, manufacturers have largely succeeded in resolving lingering issues arising from supply shortages of some semiconductors and electronic parts as well as the resulting prolongation ofdelivery timeframes. Moreover, demand remained robust in a broad range of industrial fields.
Against this backdrop, the Kaga Electronics Group enjoyed substantial growth in sales from the electronic components business—
its core business. Particularly, sales of goods related to automotive and medical equipment saw significant growth in both theelectronic parts and EMS businesses.
In the information equipment business, sales of high-end PC products and security soft expanded, as did sales from the LED
installation business.
Meanwhile, the software business has benefitted from a recovery in the volume of orders received for smartphone game production and computer graphics production.
In the other business, business results for the recycling of PCs and other products were robust.
As a result, sales increased year on year for all business segments, with consolidated net sales for the fiscal year ended March
31, 2023 amounting to ¥608,064 million, up 22.6% from the previous fiscal year.
Operating income rose 54.2% year on year to ¥32,249 million due to increased sales and the improved gross profit margins, bothof which, in turn, contributed to significant expansion in gross profit. Ordinary income grew 52.6% year on year to ¥32,739 million,
while profit attributable to owners of the parent rose 49.8% year on year to ¥23,070 million. Thus, the Group achieved record-high net
sales for the second consecutive year. Furthermore, operating income and ordinary income both hit an all-time high for the fourthconsecutive year, while profit attributable to owners of the parent similarly hit a record high for the third consecutive year.

Cash and cash equivalents as of March 31, 2023 increased ¥11,066 million from March 31, 2022 to ¥50,307 million.
The status and factors thereof for each cash flow category in the fiscal year ended March 31, 2023 are as follows.

Financial condition analysis
Total assets as of March 31, 2023 were up ¥14,077 million from the previous fiscal year-end, amounting to ¥286,217 million. The
main items are as follows.

51

Current assets

Non-current assets

Current assets increased ¥11,587 million to ¥245,572 million.
This is primarily due to an increase of ¥11,549 million in cash
and deposits.

Non-current assets increased ¥2,490 million to ¥40,645
million. This was primarily due to an increase of ¥1,830
million in investment securities.

Total liabilities

Total net assets

Liabilities decreased ¥9,859 million from March 31, 2022, to¥156,479 million. This was primarily due to a ¥7,260 million
decrease in notes and accounts payable—trade a ¥4,273
million decrease in short-term loans payable.

Net assets increased ¥23,937 million from March 31, 2022,
to ¥129,737 million. This was primarily thanks to a ¥18,522
million increase in retained earnings due mainly to ¥23,070
million in profit attributable to owners of the parent, alongwith a ¥4,128 million increase in foreign currencytranslation adjustment.

KAGA ELECTRONICS CO.,LTD.

Cash flow from operating activities

Cash flow from investing activities

Cash flow from financing activities

Net cash and cash equivalents provided
by operating activities totaled ¥30,569
million, compared with ¥1,554 million
used in operating activities in theprevious fiscal year. This was mainly
due to the recording of income before
income taxes.

Net cash and cash equivalents used ininvesting activities totaled ¥4,805
million, compared with ¥6,772 million
used in the previous fiscal year. Thiswas mainly due to purchases ofproperty, plant and equipment.

Net cash and cash equivalents used infinancing activities totaled ¥15,549
million, compared with ¥1,155 million
provided by the previous fiscal year.
This was due mainly to the repaymentof borrowings and the payment ofcash dividends.

Analysis of capital resources and cash liquidity
As for the financing of necessary working capital and funds for capital expenditure, the Kaga Electronics Group utilizes such
sources as cash on hand and borrowings. Looking ahead, the Group intends to procure the necessary working capital and funds
for capital expenditure to support its future operations internally, with cash flows from operating activities positioned as its
financial base.

Funding requirements

Financial policy

The main elements of the Group’s working capital requirement are funds for the purchase of products to be marketedby the Group and for the purchase of raw materials and components to produce its own products. It also requires funds tocover manufacturing costs and selling, general and administrative expenses. Funding needed for investment purposes islargely in connection with capital expenditures and costs
associated with new business M&As and securingcommercial rights.

With respect to the procurement of short-term working capital, the Group’s basic stance is to strive to achieve optimal
capital efficiency within the Group before resorting to borrowings from financial institutions.
With respect to the procurement of funds for M&As, capital
expenditures and long-term working capital, the Group’s
basic stance is to conduct optimal procurement using thevarious methods available to it, extending from direct toindirect financing, with due consideration given to financial
conditions at the time of procurement as well as to the termand purpose of each funding requirement.

Integrated Report 2023

52

Financial and Corporate Information

Consolidated Balance Sheet
Kaga Electronics Co., Ltd. and Consolidated Subsidiaries
At March 31, 2022 and 2023
Thousands of
U.S. Dollars(Note)

Millions of Yen

ASSETS
CURRENT ASSETS:
Cash and bank deposits
Notes receivable—trade
Electronically recorded monetary claims
Accounts receivable—trade
Short-term investment securities
Merchandise and finished goods
Work in process
Raw materials and supplies
OthersAllowance for doubtful accounts
Total CURRENT ASSETSNONCURRENT ASSETS:PROPERTY, PLANT AND EQUIPMENT
Buildings and structures
Accumulated depreciation
Buildings and structures, net

2023

2022
¥

41,051
1,449
9,258
110,240
264
46,2302,363
14,0139,388(275)
233,984¥

52,6001,534
9,683
117,881
195
41,375
2,277
12,552
7,624(153)
245,5722023$

393,923
11,49272,517882,810
1,463
309,855
17,05694,00757,098(1,147)
1,839,077

15,033(8,108)
6,925

15,680(8,990)6,690

117,434(67,326)
50,107

Machinery, equipment and vehicles
Accumulated depreciation
Machinery, equipment and vehicles, net

14,181(8,132)
6,048

16,187(9,721)
6,466

121,226(72,800)
48,426

Tools, furniture and fixtures
Accumulated depreciation
Tools, furniture and fixtures, net

5,697(4,667)
1,030

5,880
(4,777)1,103

44,042(35,780)
8,261

Land
Construction in progress
Total PROPERTY, PLANT AND EQUIPMENT

5,074
313
19,3935,859
39
20,15843,881292
150,969

INTANGIBLE ASSETS
Goodwill
Software
OthersTotal INTANGIBLE ASSETS

98
3,021
42
3,163

48
2,617
36
2,702

363
19,601
270
20,235INVESTMENTS AND OTHER ASSETS:
Investment securities
Deferred tax assets
Guarantee deposits
Insurance funds
Distressed receivables
OthersAllowance for doubtful accounts
Total INVESTMENTS AND OTHER ASSETS

10,313
2,189
1,068
915
2,295
1,171
(2,355)
15,59812,144
2,162
1,280
920
4,842
1,298
(4,864)
17,78490,94916,1939,587
6,892
36,263
9,727(36,426)
133,187

38,15540,645

304,391¥ 272,139¥ 286,217$ 2,143,469

Total NONCURRENT ASSETS
Total ASSETS

Thousands of
U.S. Dollars(Note)

Millions of Yen

LIABILITIESCURRENT LIABILITIES:
Notes and accounts payable—trade
Short-term loans payable
Accrued expenses
Income taxes payable
Provision for directors' bonuses
OthersTotal CURRENT LIABILITIESNONCURRENT LIABILITIES:
Bonds payable
Long-term loans payable
Deferred tax liabilities
Provision for directors' retirement benefits
Net defined benefit liabilities
Asset retirement obligations
OthersTotal NONCURRENT LIABILITIES

2023

2022
¥

86,49323,858
7,138
2,834
301
12,291
132,918¥

79,232
19,585
8,400
6,011
465
13,852
127,5472023$

593,371
146,674
62,90745,018
3,485
103,739955,196—
25,136
2,046
123
2,095
572
3,446
33,421

10,00010,600
2,634
143
2,148
627
2,778
28,932

74,88979,382
19,728
1,073
16,092
4,701
20,805
216,673

166,339

156,479

1,171,870

NET ASSETSSHAREHOLDERS’ EQUITY
Capital stock
Capital surplus
Retained earnings
Treasury stock
Total SHAREHOLDERS’ EQUITY

12,133
14,81877,423(5,643)98,732

12,133
14,82095,945(5,614)
117,285

90,867110,988718,532(42,043)878,345

ACCUMULATED OTHER COMPREHENSIVE INCOME
Changes in the fair value of available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Remeasurements of defined benefit obligations
Total ACCUMULATED OTHER COMPREHENSIVE INCOME

1,299
(2)
5,439
210
6,948

2,534
(18)
9,568
239
12,322

18,977(141)
71,655
1,792
92,283120
105,800

129
129,737970
971,599¥ 272,139¥ 286,217$ 2,143,469

Total LIABILITIES

Non-controlling interests
Total NET ASSETS
Total LIABILITIES AND NET ASSETS

Note: The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥133.53 to $1,
the rate of exchange at March 31, 2023.

53

KAGA ELECTRONICS CO.,LTD.

Integrated Report 2023

54

Financial and Corporate Information

Consolidated Statement of Income andComprehensive Income
Kaga Electronics Co., Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2022 and 2023
Thousands of
U.S. Dollars(Note)

Millions of Yen

Thousands of
U.S. Dollars(Note)

Millions of Yen

2022

2023

2023

¥ 495,827¥ 608,064$ 4,553,769

Cost of sales

435,280

529,550

3,965,776

Income taxes—current

5,071

9,197

68,883Gross profit

60,54778,514

587,992

Income taxes—deferred

606

167

1,258

39,632

46,265

346,476

Total income taxes

5,678

9,365

70,141

20,91532,249241,516

Net income

15,66923,094

172,951

15,401

23,070172,776

268

23

174

Changes in the fair value of available-for-sale securities

(78)

1,235

9,252

(52)

(16)

(126)

4,922

4,033

30,206

Net sales

Selling, general and administrative expenses
Operating income
NON-OPERATING INCOME

2023

2022
Income before income taxes¥

Profit attributable to owners of the parent

21,348¥32,4602023$

243,092

Interest income

135

211

1,582

Profit attributable to non-controlling interests

Dividend income

195

279

2,091

OTHER COMPREHENSIVE INCOME

Commission fee

183

227

1,701

Foreign exchange gains

252

107

805

Deferred gains or losses on hedges

House rent income

104

126

947

Foreign currency translation adjustment

Share of profit of entities accounted for using equity method

—

97

732

Remeasurements of defined benefit obligations, net of tax

188

28

212

Others

572

412

3,087

1,443

1,461

10,948 Share of other comprehensive income of entities accounted forusing equity method

95

97

731

5,075

5,378

40,276

Interest expenses

315

748

5,602

Share of loss of entities accounted for using equity method

472

—

—

Others

114

223

1,673

902

971

7,276

21,45632,739245,188

Gain on sales of property, plant and equipment

15

20

151

Gain on sales of investment securities

363

626

4,694

Gain on transfer of business

7

—

—

Gain on revision of retirement benefit plan

—

126

943

Gain on reversal of estimated loss of funds from U.S. subsidiary

176

—

—

Others

34

1

7

596

774

5,797

Impairment loss

93

644

4,823

Loss on disposal of property, plant and equipment

13

37

277

Loss on sales of investment securities

2

12

95

Loss on valuation of investment securities

260

348

2,609

Loss on liquidation of subsidiaries and associates

175

—

—

Provision of allowance for doubtful accounts

129

—

—

Others29

11

88

Total NON-OPERATING INCOME
NON-OPERATING EXPENSES

Total NON-OPERATING EXPENSES
Ordinary income
EXTRAORDINARY INCOME

Total EXTRAORDINARY INCOME

Total OTHER COMPREHENSIVE INCOME
Comprehensive income¥

20,745¥28,472$

213,227¥

20,428¥28,445$

213,026

Comprehensive income attributable to:
Owners of the parent
Non-controlling interests

316

26

200

Note: The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥133.53 to $1,
the rate of exchange at March 31, 2023.

EXTRAORDINARY LOSS

Total EXTRAORDINARY LOSS

55

KAGA ELECTRONICS CO.,LTD.

¥

705

¥

1,054

$

7,893

Integrated Report 2023

56

Financial and Corporate Information

Consolidated Statement of Cash Flows
Kaga Electronics Co., Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2022 and 2023

Millions of Yen

2022

2023

Thousands of
U.S. Dollars(Note)

2023

2022

2023

NET CASH USED IN INVESTING ACTIVITIES¥ 21,348¥ 32,460$ 243,092

3,738

4,000

29,956

Proceeds from withdrawal of time deposits

Impairment loss

93

644

4,823

Purchase of property, plant and equipment

Amortization of goodwill

110

54

406

Proceeds from sales of property, plant and equipment

Increase (Decrease) in net defined benefit liability

16

(33)

(253)

Increase in provision for directors' retirement benefits

16

20

151

Increase in provision for directors' bonuses

175

163

1,226

Increase in allowance for doubtful accounts

92

2,358

Interest and dividend income(403)

Interest expenses

Income before income taxes

Payments for time deposits

¥

(856)

¥

(397)

$

(2,976)474——(3,276)(3,691)(27,647)

32

34

261

Purchase of intangible assets(1,377)(467)(3,502)

Purchase of investment securities(1,085)(750)(5,624)

Proceeds from sales of investment securities

834

1,102

8,260

17,662

Payments of short-term loans receivable

(388)

(421)

(3,155)(490)(3,674)

Payments of long-term loans receivable(1,180)

(7)

(54)

315

748

5,602

Purchase of insurance funds

(4)

(4)

(33)

Share of loss (profit) of entities accounted for using equity method

472

(97)

(732)

Payments for guarantee deposits

(28)

(103)

(777)

Gain on sales of property, plant and equipment

(14)

(8)

(64)

Proceeds from collection of guarantee deposits

65

37

284

Loss on retirement of property, plant and equipment

13

37

277

Other payments

(174)

(170)

(1,273)Gain on sales of investment securities

(360)

(614)

(4,599)Other proceeds

194

33

249

Loss on valuation of investment securities

260

348

2,609

Net cash used in investing activities(6,772)(4,805)(35,990)

Gain on reversal of estimated loss of funds from U.S. subsidiary

(187)

—

—

Increase in notes and accounts receivable-trade(7,889)(5,952)(44,578)

NET CASH USED IN FINANCING ACTIVITIES(Increase) Decrease in inventories(22,088)

9,316

69,773

Increase in short-term loans payable

7,636(5,555)(41,606)

2,451(11,503)(86,147)

Proceeds from long-term loans payable

5,000

500

3,744

Decrease in accounts receivable-other

583

2,239

16,771

Repayment of long-term loans payable(668)(15,040)(112,634)

Increase in accrued expenses

887

994

7,450

Proceeds from issuance of bonds

—

9,945

74,481

Decrease (Increase) in advance payments

1,349

(417)

(3,130)Purchase of treasury stock(3,681)(2)(21)(Increase) Decrease in consumption taxes refund receivable

(822)

2,340

17,530Cash dividends paid

(2,551)(4,590)(34,377)

Increase in other current assets

(264)

(741)

(5,550)

Increase in other current liabilities

2,030

393

2,949

(3,811)

(21)

(158)

Others, net

797

922

6,908

Others, net

(767)

(784)

(5,877)

Subtotal

2,723

37,183

278,463

Net cash (used in) provided by financing activities

1,155(15,549)(116,450)Interest and dividend income received

124

491

3,679

Effect of exchange rate change on cash and cash equivalents

2,079

852

6,382

Interest expenses paid

(315)

(732)

(5,484)

Net increase in cash and cash equivalents(5,092)

11,06682,875(4,263)(6,372)(47,726)

Cash and cash equivalents-beginning balance

44,33339,240293,871

175——

Cash and cash equivalents-ending balance¥ 39,240¥ 50,307$ 376,747(1,554)¥ 30,569$ 228,932

Depreciation and amortization

Increase (Decrease) in notes and accounts payable-trade

Income taxes paid
Others, net
Net cash provided by (used in) operating activities

57

Millions of Yen

2023

NET CASH PROVIDED BY OPERATING ACTIVITIESThousands of
U.S. Dollars(Note)KAGA ELECTRONICS CO.,LTD.

¥ Purchase of shares of subsidiaries not resulting in change in scopeof consolidation

Note: The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥133.53 to $1,
the rate of exchange at March 31, 2023.

Integrated Report 2023

58

Financial and Corporate Information

Corporate Information
As of March 31, 2023

Company overview
Name

Major affiliates overseas
China

KAGA ELECTRONICS CO., LTD.

Total number of shares authorized
Total number of shares outstanding
Number of shares constituting one unit
Number of shareholders

Address	20 Kandamatsunagacho, Chiyoda-ku,
Tokyo 101-8629, Japan
TEL +81-3-5657-0111
FAX +81-3-3254-7131
Business description	Sale of electronic parts and semiconductors,
provision of EMS,* and sale of finishedproducts such as PCs and PC peripherals, etc.
* Electronics manufacturing services:
Provision of product development andmanufacturing services on a contract basis
Founded

September 12, 1968

Capital¥12,133 million

Number of Group
companies

64 (23 in Japan, 41 overseas and threeaccounted for by the equity method)(Including KAGAELECTRONICS Co., Ltd.)(As of September 30, 2023)

Number of employees(consolidated)

8,092

8154

Fiscal year-end

March 31KAGA (SHENZHEN)ELECTRONICS LTD.

KAGA TAXAN (SUZHOU)ELECTRONICS CO., LTD.

KAGA (SHANGHAI)
ELECTRONICS CO., LTD.
KAGA ELECTRONICS Head Office

Major affiliates in Japan

Percentage
of totalsharesissuedThe Master Trust Bank ofJapan, Ltd. (Trust Account)

2,819

10.73

OKOZE CO., LTD.

1,840

7.01

KAGA (H.K.)
ELECTRONICS LIMITED

Custody Bank of Japan, Ltd.
(Trust Account)

1,815

6.91

Kaga Electronics Employee
Shareowners Association

1,503

5.73

Asia

MUFG Bank, Ltd.

1,137

4.33

Mizuho Bank, Ltd.

950

3.62

Isao Tsukamoto

730

2.78

The Bank of New York Mellon
140044516

1.97

Mitsubishi Electric Corporation

500

1.90

KAGA COMPONENTS(MALAYSIA) SDN.BHD.

Nippon Life Insurance Company

459

1.75

Note: In addition to the above, there are 2,438 thousand shares of treasury stock.
Percentage of total shares issued is calculated after excluding treasury stock.

North America

KAGA TECH CO., LTD.

Sale of electronic parts and electronic equipment, etc.

KAGA DEVICES CO., LTD.

Sale of electronic parts and electronic equipment, etc.

Breakdown by type of shareholder
Individuals
9,021,695 shares (9,228)

KAGA SOLUTION NETWORK CO., LTD.	Development, design, construction and maintenance of computer network systems, etc.
AD DEVICE CO., LTD.

Sale of electronic parts and electronic equipment, etc.

KAGA MICRO SOLUTION CO., LTD.

Development, manufacture, sale and recycling of PCs and PC peripherals, etc.

DIGITAL MEDIA LAB., INC.

Planning, development and sale of computer graphics

KAGA SPORTS CO., LTD.

Manufacture, wholesale and sale of sporting goods, etc.

KAGA AMUSEMENT CO., LTD.

Sale of electronic parts and electronic equipment, etc.

KAGA TECHNO SERVICE CO., LTD.

Electrical and communication facilities installation, interior work, etc.

KAGA FEI Co., Ltd.

Sale of electronic parts and electronic equipment, etc.

KAGA EMS TOWADA CO., LTD.

Manufacture and sale of electronic parts and electronic equipment, etc.

EXCEL CO., LTD.

Sale of electronic parts and electronic equipment, etc.

Kyokuto Electric Co., Ltd.

Manufacture and sale of electronic parts and electronic equipment, etc.

KAGA AEROSYSTEMS CO., LTD.

Import, export, sale and lease of aircraft and related parts

31.43%KAGA FEI AMERICA, Inc.

TAXAN MEXICO S.A. de C.V.

Other Japanese
corporations
4,099,403 shares (139)14.28%

EuropeTotal number ofshareholders

9,657
28,702,118
sharesFinancial institutions
8,435,579 shares (27)29.39%

Foreign corporations
6,565,272 shares (223)
KD TEC TURKEY ELEKTRONIKSANAYI VE TICARET LIMITEDSIRKETI

KAGA ELECTRONICS CO.,LTD.

Number ofshares held
(thousandshares)Name

KAGA ELECTRONICS(THAILAND)COMPANY, LIMITED

59

80,000,000 shares
28,702,118 shares
100 shares
9,657

Principal shareholders

Stock Listing	Tokyo Stock Exchange(Prime Market)
Securities code

Stock information

KAGA FEI EUROPE GmbH22.88%

Financial instruments business operators
580,169 shares (40)2.02%

Integrated Report 2023

60