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Revenue increased 8.4% YoY. This was because in the
International Business demand recovered centered on processed
tomato products as the COVID-19 pandemic wound down, we
made progress with passing on higher costs to selling prices, and
we increased the amount of foreign currency conversions to yen
amid yen weakness.
Core operating income fell 9.4% YoY. This was because soaring
prices of raw ingredients and energy in the Domestic Processed
Food Business exceeded initial assumptions. This caused the core
operating income of this same business to deteriorate, but the
International Business saw core operating income rise similar to
revenue.
In the one year since I became CFO, I worked with management,
related departments and Group companies in Japan and overseas
in an effort to ascertain and address the operating results and
financial condition of each business and subsidiary in a timely
manner so as to cope with the rapid changes taking place in the
operating environment. Earnings were mixed with sales up, but
profits down, but we did pay out a dividend for FY2022 as initially
forecast.
We have also managed to maintain the soundness of our financial condition based on crediting ratings and financial indicators.
We have been working to increase capital efficiency since introducing ROIC as a management indicator in FY2021. Nevertheless,
in FY2022, this indicator fell 1.6 points YoY. This was mainly
because of decreased profits and a large increase in inventories,
which were up 22.1% compared to the previous fiscal year end.
Higher inventories were the results of rising prices of raw ingredients and efforts to secure volume. Amid tight supply-demand
conditions for raw ingredients worldwide, Kagome focused first
on securing stable procurement volume. This worsened ROIC, but
it was also the result of a stable supply of raw ingredients via our
global procurement network built up over many years. More than
just reporting positive or negative numbers, I will examine priorities in today’s management environment and their reasonableness, and fulfill my accountability as CFO.

As President & CEO Yamaguchi noted in his message, we have
no intention of modifying the vision laid out in the third Mid-Term
Management Plan. We do need to review our quantitative targets
because of the sharp changes in management environment, and,
for business growth, it will be important to push ahead with the
basic strategy of the third Mid-Term Management Plan.
Improving our core operating income margin is a particularly
urgent task. In addition to restoring the profit margin in existing
domains, achieving inorganic growth using M&A and other means
has become even more important. Investment in inorganic growth
during the third Mid-Term Management Plan announced in 2022
will amount to between 30 and 50 billion yen, an unprecedented
amount. At the present, we do not intend to change this investment amount. This is because aggressive investment to accelerate business growth is essential and our financial platform
underpinning this investment remains intact. Our shareholders’
equity ratio stood at 52.8% as of the end of FY2022.
Furthermore, we completed share buybacks for investment in
inorganic growth before the end of FY2022, with treasury stock
amounting to 22.5 billion yen as of the end of FY2022.
This severe business environment is precisely the time to move
ahead with investments aimed at future growth. At the same time,
it is important to maintain the financial platform underpinning
these investments, and we are working diligently toward this end.

Building appropriate finance and accounting governance is critical
to sound business growth. This represents the foundation of
Kagome’s business operations just as important as product quality. It also forms a core component of “corporate openness,” an
integral component of our Corporate Philosophy. A corporate
culture of informing stakeholders in a timely and easily understood manner of both positive and negative news is a foundation
that strongly supports our finance and accounting governance.
Going forward, we will continue to maintain and strengthen this
finance and accounting governance.

The Domestic Processed Food Business recorded an increase in
revenue amid strong sales of mainstay vegetable beverages in the
second half and the recovery in food service demand in the category of Food?Other. The International Business also posted an
increase in revenue amid increased demand for primary processed tomato products, the effects of price revisions, and yen
depreciation, in addition to robust sales to food service companies
in the United States.

The International Business posted increased profit on greater
demand for primary processed tomato products, as mentioned
above, but the Domestic Processed Food Business saw
decreased profit due to surging raw ingredient prices that outpaced price revisions and increased sales promotion expenses.

Profits decreased amid the decline in core operating income.

The effective tax rate declined amid the increased profit of overseas subsidiaries in low tax rate jurisdictions and tax incentives
implemented by countries. Therefore, the extent of the drop in net
income attributable to shareholders of parent narrowed compared
to operating income.

As of December 31, 2022, total assets increased by 10,163 million
yen compared to December 31, 2021. Current assets increased
by 5,677 million yen owing to the increase in inventories due to
efforts to accumulate inventory in preparation for soaring raw
ingredients costs. Non-current assets increased by 4,486 million
yen as a result of increased property, plant and equipment due to
updates in manufacturing equipment, etc. of overseas subsidiaries. Liabilities increased by 7,913 million yen due mainly to the
increase in borrowings following an increase in working capital.
Capital increased by 2,249 million yen since there was an increase
in net income attributable to shareholders of parent, etc., which
offset the decrease due to the acquisition and retirement of treasury stock.

As of December 31, 2022, cash and cash equivalents decreased
by 9,840 million yen compared to December 31, 2021.
Net cash provided by operating activities was 4,635 million yen.
This was mainly attributed to 12,557 million yen in profit before
income taxes and 8,282 million yen in depreciation and
amortization.
Net cash used in investing activities was 9,457 million yen. This
was mainly attributable to outflows of 9,878 million yen for the
acquisition of property, plant and equipment as well as intangible
assets.
Net cash used in financing activities was 5,512 million yen. This
mainly reflects 7,786 million yen from the net increase in treasury
stock and 3,278 million yen used for the payment of dividends.

It is the Group’s basic policy to balance both growth investment
and return of profits in our financial strategy based on a stable
financial structure. A stable financial platform is essential to supporting sustainable growth and having resilience in the face of
major changes. At the end of FY2022, our shareholders’ equity
ratio stood at 52.8% and our credit rating was Single A, indicating
a stable financial platform. However, the business environment
surrounding the Group is becoming more severe. This is because
of the worldwide shortage of tomato raw ingredients and surging
costs including for other raw ingredients.
Under this environment, Kagome is strategically increasing raw
ingredient inventory to provide a stable supply of products to
customers, controlling costs, and reviewing selling prices. In this
process, as part of our response to demand for funds from
increased working capital required for our operations, including for
inventory and in preparation for a temporary downturn in earnings,
we will incorporate new capital procurement methods, such as
issuing corporate bonds with digital benefit, while also relying on
borrowings from financial institutions. Therefore, during the third
Mid-Term Management Plan, we expect there to be temporary
phases where it may be difficult for us to maintain a shareholders’
equity ratio of 50% or higher and credit rating of Single A, which
are used as indicators of financial platform stability for the Group.
To breakthrough this severe environment, of particular importance will be achieving inorganic growth including through M&A,
not to mention the early restoration of profitability.
Investment in inorganic growth during the third Mid-Term
Management Plan is expected to amount to between 30 and 50
billion yen. We have secured capital toward this end through
treasury stock and our commitment lines and overdraft facilities
from financial institutions. Restoring profitability in organic
domains and achieving inorganic growth will make our financial
platform, which may temporarily erode, more stable and ultimately
result in medium- to long-term growth. Furthermore, in addition to
stability of the financial platform, we will pursue growth with an
emphasis on capital efficiency, including a Groupwide emphasis
on ROIC management and thorough investment management.
Also, during the third Mid-Term Management Plan, we plan to
provide stable and continuous shareholder returns so that the
total return ratio reaches 40% or higher, including dividends and
share buybacks. During the third Mid-Term Management Plan,
we aim to pay a stable dividend of at least 38 yen per share.

Investments in equipment and businesses are determined by the
Investment Committee, which consists of members selected from
specialized internal departments, after reviewing the investment
proposals of each department based on profitability and risk
assessment. The same committee also monitors each investment
to verify its effect. Proposals verified by the committee are submitted to the Board of Directors or the Management Meeting,
where they are deliberated officially.

Investment monitoring system
●Covers 5-year period post-execution
●Reported annually to the Board of Directors / Management Meeting

In FY2021, we introduced Kagome ROIC* management in order
to not only generate profits, but also measure the suitability and
efficiency of invested capital. Kagome ROIC measures the efficiency of invested capital compared to generated EBITDA. By
breaking down balance sheet items according to each element,
this approach aims to clarify themes that need to be improved.
Kagome’s targets and results for FY2022 are presented in the
table below.
In FY2022, revenue of the International Business increased
substantially, but the decreased profits of the Domestic Processed
Food Business resulting from soaring prices of raw ingredients and
energy caused our EBITDA margin to decline. Additionally, inventories increased largely causing turnover of invested capital to
increase. This was the result of changes in the external environment including soaring costs for raw ingredients and strategic
efforts to secure inventories as a countermeasure. Consequently,
FY2022 ROIC stood at 11.5%, 1.1 point lower than the target.
* Kagome ROIC: EBITDA ÷ Invested capital

(ROIC Tree implementation)
At Kagome, the ROIC tree is used as a control driver to increase capital efficiency. By implementing the ROIC tree, the balance sheet indicators that are broken down from ROIC can be incorporated into the KPIs of each department, and action plans based on this can be set by
each company / department, while the PDCA cycle can be self-driven to improve indicators. In addition, we will make improvements where
each company / department is aware of efficiency and implement initiatives including creating an optimal supply chain structure.

In 2023, we will try new capital procurement methods. As part of this, we have already issued a corporate bond with digital benefit called Kagome Bond to Support Health with Vegetables in Japan in the
amount 1 billion yen. This corporate bond with digital benefit utilizes Mizuho Financial Holdings’ digital
engagement platform with blockchain technology, making it intrinsically different than conventional
corporate bonds. These differences include a low unit purchase price, as well as the ability to obtain the
information of bond holders with bondholder consent, and to provide Kagome products to bondholders
as a benefit.
Currently, Kagome is supported by around 190,000 “fan shareholders.” It is our hope that we can
create “fan lenders” among the bondholders of this corporate bond with digital benefit. We also hope to
create relationships where we deepen people’s understanding of our products through financial instruments and encourage investors to buy our products.