Star Micronics : Annual Report 2023

Diversity

the Key to Growth

ANNUAL REPORT 2023 (PDF Version)

For the year ended December 31, 2023

Profile

Since its establishment in 1950, Star Micronics Co., Ltd. has worked diligently to "generate the greatest impact from the least materials."

In order to achieve its aspirations, Star Micronics Co., Ltd. (the "Company") has continued to deliver a steady stream of high-added-value products based on its core technologies of small-scale precision processing and assembly. Currently, the Company is engaged in the Special Products business including point-of-sale (POS) printers and the Machine Tools business including CNC automatic lathes.

From each of the sales and manufacturing perspectives,

the Company is also actively engaged in global business development. Today, Star Micronics maintains a ratio of overseas sales to all sales of 89% and a ratio of overseas production to all production of 81%.

Working toward its next leap forward, the Company is leveraging its core technologies to promote a wide range of measures aimed at both creating new businesses and expanding existing businesses.

Star Micronics is committed to contributing to the sustainable development of society as a leading small and medium-sized enterprise that seeks to excel on the world stage.

Contents

Corporate Philosophy, Purpose, Management Policy,
Action Guidelines . .	. . . . . . . . . . . . .				01
History	. . . . . . . . 對 . .				02
Highlights	. . . . . . . . . 對 .				04
	Financial Highlights	.			04
Related Information by Geographical Region . .	. .	.	05
To Our Shareholders	. . . . . . . . . . . . . .	.	06
Strategy	. . . . . . . . 對 .				10
	Medium-Term Management Plan . .	. . . . . . .		10
Review of Operations	. .			15
	Special Products .	. . . . . . . . . . . . . .		15
	Machine Tools . .	. . . . . . . . . . . . . .		17
Research & Development			19
Solution Center . .	. . . . . . . . . . . . . .	.	20

Sustainability . .	. . . . . . . . . . . . . . .	.	22
	Environment . .	. . . . . . . . . .	. . . .				22
	Society	. . . . . . . . . . .	對 .				27
	Corporate Governance	. .			30
Consolidated Eleven-Year Summary . .	. . . . . .	.	34
Management's Discussion and Analysis	. . . . . .	.		36
Consolidated Balance Sheet . .	. . . . . . . . .	.	42
Consolidated Statement of Income . .	. . . . . . .		44
Consolidated Statement of Comprehensive Income . . . .	.	44
Consolidated Statement of Changes in Equity . .	. . .		45
Consolidated Statement of Cash Flows	. . . . . . .	.	46
Notes to Consolidated Financial Statements . .	. . .	.	47
Independent Auditor's Report .	. . . . . . . . . .		73
Stock Information	. . . . . . . . . . .	. . . .				78

Forward-looking Statements

Statements in this annual report with respect to Star Micronics' plans, strategies and beliefs as well as all other statements that are not historical facts are forward-looking statements involving risks and uncertainties. These forward-looking statements rely on a number of assumptions concerning future events. The important factors that could cause actual results to differ materially from such statements include, but are not limited to, general worldwide economic conditions, competitive pressure on sales and pricing, and movements of currency exchange rates.

Corporate Philosophy

A company and its employees must constantly evolve through a process of steady development while also making every effort possible to improve the lives of each individual. This growth must happen together.

Purpose

Contribute to the sustainable development of society as a "leading small and medium-sized enterprise" that seeks to excel at the world stage

As a technology group, Star Micronics strives to provide new value through unique technologies that increase corporate value. At the same time, the Company will enrich the lives of its employees by providing a place where diverse engaged employees can contribute their best. Our goal as a group is to stand at the forefront of Japan's small and medium-sized enterprises by generating a high level of productivity that rivals large companies as we contribute to the sustainable development of society.

Management Policy

1

2

3

4

5

Do not pursue scale unnecessarily; position capital efficiency and labor productivity as primary evaluation indicators

Maintain the ability to continuously offer new value to society in response to changes in the environment

Constantly look to the global market for each business, and position "global niche" at the core of the Company's strategy

Invest in building an environment that allows employees to realize their full potential and the pursuit of unique technologies from a long-term perspective, regardless of generational environment

Strive to become a company that perpetually evolves in harmony with society through its products and its people

Action Guidelines

Act with initiative	Continue learning	Pursue technology	Focus on team
and courage			productivity

Annual Report 2023 STAR MICRONICS CO., LTD.

01

HISTORY

1950

1958

1960

1962

1965

1971

1976

1979

1981

1984

1989

1990

2000

2004

Star Seisakusho Co., Ltd.

Established in Tegoshi, Shizuoka (current Tegoshi, Suruga-ku,Shizuoka-shi) with a capital of ¥500,000, six employees and five automatic lathes, began the manufacture and sale of such products as wristwatch and camera parts as a small workshop factory.

Began sales of automatic lathes.

After finalizing automatic lathes, began sales with the catchphrase, "automatic lathes made by users for users."

Tokai Seimitsu Co., Ltd.

Established Tokai Seimitsu Co., Ltd. in a partnership with Citizen Watch Co., Ltd.

Evolved as a factory specializing in the manufacture of watch screws.

Began the export of automatic lathes.

Exported the first unit to the UK. Cultivated overseas sales channels and steadily increased market share.

Changed the company's name to Star Micronics Co., Ltd.

Absorbed Tokai Seimitsu Co., Ltd. and changed the company's name to Star Micronics Co., Ltd.

Began the manufacture and sales of electronic buzzers.

Widely adopted as a buzzer for clocks. Electronic buzzers extensively used in mobile phones as an incoming call sound source. Captured a large market share throughout the 1990s.

Began the manufacture and sales of NC automatic lathes.

Began the manufacture and sale of NC automatic lathes. Incorporating innovative ideas and mechanisms, extremely well received for precision accuracy.

Began the manufacture and sale of small printers.

Entering the digital printer field, began the manufacture and sale of products in a bid to respond to the information age and the widespread use of personal computers.

Listed company stock on the Second Section of the Nagoya Stock Exchange.

Began the manufacture and sale of large-scale printers.

Entered the printer market in earnest.

Listed company stock on the First Section of the Nagoya Stock Exchange. (Delisted in 2006.)

Built the new Kikugawa Factory.

Built a new machine tools production base in Kikugawa-cho,Ogasa-gun (current Kikugawa-shi), Shizuoka Prefecture.

Installed state-of-the-art rationalization system machines and contributed to improved productivity by enabling continuous automated operations.

Established Star Micronics Manufacturing Dalian Co., Ltd.

Established a subsidiary in Dalian, China to engage in the manufacture of printers.

Became the fourth foreign company to enter the Dalian Economic and Technological Development Zone.

Listed company stock on the First Section of the Tokyo Stock Exchange.

Listed on the First Section of the Tokyo Stock Exchange after 40 years of operation.

(Shift to the Prime Market from the First Section due to the market restructuring of the Tokyo Stock Exchange in April 2022.)

Began the manufacture and sale of microphones, speakers and receivers.

Developed a full lineup of micro audio components for mobile phones, and aggressively cultivated the market.

Began the manufacture of CNC lathes as finished products at Star Micronics Manufacturing Dalian Co., Ltd.

Began assembling finished products in China ahead of competitors to reduce costs and strengthen production capacity.

02 Annual Report 2023 STAR MICRONICS CO., LTD.

2012

2013

2018

2020

2022

2023

Established Star Micronics Manufacturing (Thailand) Co., Ltd.

Established a subsidiary to manufacture machine tools in Nakhon Ratchasima, Thailand. Set up a machine tools production system across three bases in Japan, China and Thailand in response to the expansion of emerging markets in Asia.

Launched Apple® iOS Compatible MFi Certified Printer

Developed a printer that can be connected to iOS devices via Bluetooth® amid the growing global demand for tablet POS systems using smartphones and tablet devices. Buoyed by the rush of inquiries prior to release, product widely accepted by the market.

*1 Apple is a trademark of Apple Inc., registered in the U.S. and other countries.

*2 IOS is a trademark or registered trademark of Cisco in the U.S. and other countries and is used under license.

*3 The Bluetooth® word mark and logos are registered trademarks owned by Bluetooth SIG, Inc. and any use of such marks by Star Micronics Co., Ltd. is under license.

Established Star Marketing Japan Co., Ltd.

Established Star Marketing Japan Co., Ltd. as a sales subsidiary in Shimbashi, Tokyo in a bid to further develop and expand the mPOS market in Japan. Through activities in the city center, responded quickly to the diverse needs of customers.

Completed construction of a new head office

Completed construction of a new head office with a view to upgrading and expanding the Company's Business Continuity Plan (BCP) by taking full advantage of such high disaster prevention capabilities as a seismic isolation structure that can handle long periods of seismic motion and an emergency power supply that can continue for a long period of time. In addition, actively introduced new work styles through a variety of measures including the adoption of information communication technology (ICT) to help create a paperless office and free address system.

Completed construction of the Solution Center

Completed construction of the Solution Center to strengthen before- and after-sales service and product quality. As a new base for the Machine Tools Segment, the Solution Center can serve as a permanent display of various automatic lathes while accommodating multiple functions. The Center is equipped with a wide range of showrooms, a dedicated NC training room, and evaluation, testing and other rooms enabling the use of actual machines for instruction and process testing.

Shift to the Prime Market from the First Section of the Tokyo Stock Exchange.

Converted Smart Solution Technology, Inc. into a wholly owned subsidiary

Included Smart Solution Technology, Inc., located in Shinjuku-ku, Tokyo, in the Company's scope of consolidation as a wholly owned subsidiary.

					¥62,723	¥52,304	¥73,884	¥78,196
NET SALES				million	million	million	million
(Millions of yen)				2 /19 91	2/2001	2/2008	12/2023
100,000
80,000
60,000
40,000
20,000
0	1951	1960	1970	1980	1990	2000	2010	2023
Precision Products	Machine Tools	Components	Special Products

*1 Data up to the fiscal year ended February 28, 1970 is based on the total of each segment.

*2 Data from the fiscal year ended February 29, 1972 to the fiscal year ended February 28, 2005 is classified into the three Precision Electronic Equipment, Machine Tools and Precision Products segments. Effective from the fiscal year ended February 28, 2006, operations were reclassified into four business segments with Precision Electronics Equipment separated into Special Products and Components. However, data from the fiscal year ended February 29, 1972 to the fiscal year ended February 28, 2005 is based on the four business segments for comparative purposes.

*3 Effective from the fiscal period ended December 31, 2018, Star Micronics Co., Ltd. changed its account settlement date from the end of February to December 31.

*4 In conjunction with its decision to dissolve the Precision Products Division, Star Micronics Co., Ltd. took steps to revise the classification of its business segments in 2020. Effective from 2021, the Company reclassified the three Special Products, Machine Tools, and Precision Products segments into the two Special Products and Machine Tools segments.

Annual Report 2023 STAR MICRONICS CO., LTD. 03

HIGHLIGHTS

Financial Highlights

Financial Highlights				Related Information
			by Geographical Region
Star Micronics Co., Ltd. and Consolidated Subsidiaries
For the years ended December 2021, 2022 and 2023
		Millions of yen		Change		Thousands
			(%)		of
							U.S. dollars
	2021	2022	2023	2023/2022		2023
For the year :
Net sales	¥64,360	¥87,368	¥78,196	-10.5		$550,676
Operating income	7,415	13,925	10,351	-25.7		72,894
Net income attributable to	5,740	10,299	8,175	-20.6		57,570
owners of the parent
Return on sales	8.9%	11.8%	10.5%
Capital expenditures	1,926	3,390	2,680	-20.9		18,873
Depreciation and amortization	2,127	2,414	2,710	12.3		19,085
At year-end :
Total assets	82,361	99,539	93,399	-6.2		657,739
Total equity	61,728	73,088	80,347	9.9		565,824
Equity ratio	74.1%	73.0%	85.6%
		Yen		Change (%)		U.S. dollars
Per share :
Basic net income	¥150.83	¥271.14	¥218.89	-19.3		$1.54
Diluted net income	142.38	270.01	218.17	-19.2		1.54
Cash dividends	58.00	70.00	60.00	-14.3		0.42
applicable to the year
Stock information :
Common shares issued	44,091,334	42,465,134	41,921,434
Number of shareholders	10,727	11,776	10,920

Note : The rate of ¥142 to US$1, prevailing on December 31, 2023, has been used for translation into U.S. dollar amounts.

NET SALES

(Millions of yen)

			87,36878,196
60,652		64,360
	45,671
'19	'20	'21	'22	'23

OPERATING INCOME

(Millions of yen)

			13,925
				10,351
5,817		7,415
	2,173
'19	'20	'21	'22	'23

NET INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT

(Millions of yen)

			10,299
				8,175
		5,740
4,054
	1,732
'19	'20	'21	'22	'23

CASH DIVIDENDS APPLICABLE TO THE YEAR

(Yen)
			70	60
56	58	58
'19	'20	'21	'22	'23

04 Annual Report 2023 STAR MICRONICS CO., LTD.

HIGHLIGHTS

Related Information by Geographical Region

Financial Highlights		Related Information
	by Geographical Region

Star Micronics Co., Ltd. and Consolidated Subsidiaries

For the years ended December 2021, 2022 and 2023

Net Sales by Geographical Region

Note : The rate of ¥142 to US$1, prevailing on December 31, 2023, has been used for translation into U.S. dollar amounts.

Japan
10.7%
Others
34.7%
Net Sales
by Region	USA
2023	28.1%

China

13.2% Germany

13.3%

USA

(Millions of yen)

	27,904	21,952
17,315
2021	2022	2023

Japan

(Millions of yen)

8,072	9,037	8,402
2021	2022	2023

Germany

(Millions of yen)

	8,743	10,422
6,076
2021	2022	2023

China

(Millions of yen)

14,543	17,112
	10,333
2021	2022	2023

Others

(Millions of yen)

	24,572	27,087
18,354
2021	2022	2023

Annual Report 2023 STAR MICRONICS CO., LTD. 05

TO OUR SHAREHOLDERS

Mamoru Sato

Representative Director, President and CEO

Building a Foundation for Change

In 2023, operating results in both the Machine Tools and Special Products segments were weak, with a downturn in sales and significantly lower profits compared with the previous year. This was mainly due to growing concerns surrounding the threat of an economic recession owing to such factors as the prolonged upswing in interest rates in the U.S. and Europe as well as deteriorating market conditions and slowing investment in China. Moving forward, the outlook for the future remains uncertain.

2024 is the final year of our First Medium-Term Management Plan, a roadmap for building a foundation for change over the three-year period from 2022 to 2024. Recognizing the need to further solidify our foundation, we will redouble efforts to bring about a sustainable society and enhance corporate value by putting into practice our corporate philosophy, growing together with employees, and contributing to society.

01 Operating Results in 2023

Looking at 2023, the outlook for the economy remained uncertain throughout the period under review. Despite an overall modest recovery amid signs of a lull in the surge in resource prices and prolonged inflation, this uncertainty largely reflects growing concerns surrounding the threat of an economic recession owing to the prolonged upswing in interest rates in the U.S. and Europe, deteriorating market conditions and slowing investment in China, and fluctuations in foreign currency exchange rates.

In each of the major markets in which the Star Micronics Group

operates, demand for POS printers was generally weak. In

NET SALES

addition, demand for the Group's mainstay machine tools in

(Millions of yen, %)

overseas markets, which had previously remained high, stalled

87,368

with little or no forward momentum. Exacerbating these difficult

78,196

trends, demand in Japan also failed to recover.

-32.2%

25,710

Under these circumstances, the Star Micronics Group reported net

17,428

sales of ¥78,196 million for the year under review, down 10.5%

-20.4%

17,841

compared with the previous year. Despite the overall impact of

22,405

depreciation in the value of the yen, this was mainly due to a

+0.4%

decline in sales of the Company's mainstay machine tools. From a

21,713

21,810

profit perspective, operating income declined 25.7%, to ¥10,351

million. Net income attributable to owners of the parent fell 20.6%,

17,540

+20.4%

21,117

to ¥8,175 million.

Meanwhile, Smart Solution Technology, Inc. (SST) was included in

'22

'23

the Company's scope of consolidation and the Special Products

Segment effective from the year under review.

1Q

2Q

3Q

4Q

06 Annual Report 2023 STAR MICRONICS CO., LTD.

NET SALES

OPERATING INCOME

02 Business Overview

In the Machine Tools Segment, sales of CNC automatic lathes decreased. Notwithstanding progress from the beginning of the year under review to reduce the order backlog from the previous year mainly in the U.S. and European markets, this decrease was ostensibly due to delays in market recovery in China. By geographic region, sales in the U.S. declined overall owing to sluggish market conditions, which largely reflected such factors as the prolonged upswing in interest rates. In addition, sales in the European market increased significantly centered mainly on automotive-related products. Meanwhile, sales decreased substantially in the Asian market. This was essentially attributable to weak sales of automotive- and telecommunications-related products on the back of the continued cautious approach toward capital investment in China over the latter half of the previous year and other factors. Sales declined significantly in the domestic market, for the most part due to the continued lackluster performance of the automotive sector.

Accounting for each of the aforementioned factors, sales and income declined year on year. In specific terms, sales decreased 10.6% compared with the previous year, to ¥62,085 million. Operating income declined 15.5%, to ¥10,350 million.

Turning to the Special Products Segment, sales of POS printers declined. This largely reflected the downturn in mPOS demand, which had remained robust. Looking at trends by geographic region, sales in the U.S. market decreased substantially owing to the downturn in mPOS demand. Sales in the European market were essentially unchanged from the previous year due to the impact of such factors as the yen's depreciation. Meanwhile, despite weak market conditions throughout the domestic market, sales in Japan increased significantly compared with the previous year owing to the inclusion of SST in the Company's scope of consolidation.

Accounting for these factors, sales decreased 10.3% compared with the previous year, to ¥16,111 million. Operating income declined substantially year on year, to ¥1,953 million, down 48.0%.

03 Outlook for the Following Year

Looking ahead, conditions throughout the global economy are expected to remain uncertain. In addition to ongoing concerns surrounding such geopolitical risks as the prolonged crisis in Ukraine and military conflicts in the Middle East, this is due to a variety of factors, including anxieties toward a slowdown in economic activities owing to the impacts of continued inflation and the tightening of global monetary policy.

Under these circumstances, and in the context of the Company's consolidated business performance for the coming year, sales in the mainstay Machine Tools Segment are forecast to decline. Despite expectations of a recovery mainly for automotive-related products in Japan and an anticipated gradual positive turnaround overseas toward the latter half of the coming year, this forecast decline is amid sluggish capital investment demand across all regions since the

previous year. In the Special Products Segment, sales are

projected to decline. While sales are expected to increase due to

NET SALES AND OPERATING INCOME

new products, this forecast downturn largely reflects the overall

(Millions of yen)

weak nature of market conditions especially in the U.S.

Taking into account the aforementioned factors, our outlook for

87,368

consolidated results in the coming year is a downturn. In specific

78,196

terms, we expect a decrease in net sales of 15.9% compared with

64,360

65,800

the year under review, to ¥65,800 million. On a year-on-year basis,

45,671

operating income is forecast to decline 32.4%, to ¥7,000 million

and net income attributable to owners of the parent to also drop

37.6%, to ¥5,100 million in the year ending December 31, 2024.

13,925

2,173

7,415

10,351

7,000

Forecasts are based on the assumptions that the yen/US dollar

'20

'21

'22

'23

'24

exchange rate will be JPY135 and the yen/Euro exchange rate

(target)

will be JPY150.

Annual Report 2023 STAR MICRONICS CO., LTD. 07

04 About the Medium-Term Management Plan

The Star Micronics Group formulated its Medium-Term Management Plan in 2022 as part of a review of its Corporate Philosophy, Purpose, Management Policy, and Action Guidelines to empower employees to make decisions and act autonomously as it seeks to become a company that grows sustainably together with society. At the same time, we formulated a Vision for 2030. (Please refer to pages 10-14 of the Company's Medium-Term Management Plan for details.)

In order to realize its Vision for 2030, the Company has divided the next nine years into three-year periods. In working toward "building a foundation for change," "driving

change," and "realizing our vision" over each period, respectively, Star Micronics has formulated the first Medium-Term Management Plan covering the three years from 2022 to 2024. Details of issues to be addressed and progress in 2023, the second year of the Company's First Medium-Term Management Plan, are presented as follows.

Positioning the mPOS and food delivery markets as a principal area of operations, the Star Micronics Group will work to further expand sales of printers and peripheral equipment while at the same time refining software technologies in a bid to continue providing new value to customers. Through these means, the Group will endeavor to become a total solution provider for store operations in the Specialty Products Segment.

In 2023, the Star Micronics Group expanded its product lineup, including label printers and peripheral equipment, while undertaking plans for new products. Moving forward, the Group will further step up its new product planning activities. In the Machine Tools Segment, the Group will strengthen the production system in Thailand and China, position the Kikugawa Factory as a sustainable factory that nurtures people, develops technology, and grows together with society and promote large-scale renovation in order to meet robust demand for facilities and equipment. At the same time, steps will be taken to delve deeper into hardware technologies and adopt software technologies, and to further cement the Group's position as a leading manufacturer of automatic lathes.

In addition to the start of operations at the Asia Solution Center in Shanghai, steps were completed to upgrade and expand facilities and equipment at the Company's factory in Thailand as a part of efforts to strengthen the production system. These initiatives were geared toward reinforcing sales in 2023. In 2024, plans are in place to establish a sales subsidiary in India with the aim of cultivating the Indian market. Moreover, renovation work is finally scheduled to comment at the Group's Kikugawa Factory.

As far as new business is concerned, the Group will focus on uncovering opportunities in the three production DX, store DX, and logistics DX domains while aiming to construct a new business model mainly through M&As.

In 2023, Star Micronics completed steps to include SST, a company with strengths in software and system development, in the Company's scope of consolidation as a wholly owned subsidiary. To use this as a foothold to explore opportunities in each of the three DX domains, we will work to improve the DX capabilities of the entire Group and accelerate the pace of new business creation while incorporating SST's technologies.

From a Group-wide perspective, energies will be directed toward strengthening the management platform, reforming human resource systems that allow employees to maximize their potential, and constructing R&D structures and systems to continuously create proprietary technologies, while vigorously moving forward with initiatives to address material issues based on the Sustainability Policy.

At the start of 2023, we launched the Development Headquarters and initiated activities in a bid to establish R&D structures and systems. As far as strengthening the management platform is concerned, we also established a designated department with management planning functions. In addition to further promoting these activities, we plan to put in place a new human resource structure and systems in 2024.

Positioned as KPIs, we are targeting cumulative operating cash flow of ¥20-¥25 billion, an average consolidated annual operating income per employee of ¥6 million, ROE of 10.0% or more, a ratio of R&D expenses to net sales of 5.0%, and non-consolidated annual education and training outlays per employee of ¥100,000 over the three-year period from 2022 to 2024. In the second year, 2023, operating cash flow came in at ¥7.1 billion on a single-year basis and ¥14.6 billion on

08 Annual Report 2023 STAR MICRONICS CO., LTD.