YOROZU : Integrated Report 2021

YOROZU

INTEGRATED

REPORT

2021

3-7-60 Tarumachi, Kohoku-ku, Yokohama, Kanagawa 222-8560, Japan Tel: [phone]

http://www.yorozu-corp.co.jp/en/

Printed in Japan

Introduction

Corporate Philosophy

[ Our Purpose ]

Our primary mission is to contribute to society by continually striving to deliver technological innovation and create products that are beneficial to people.

[ Management Stance ]

Our basic business creed is to conduct reliable management.

[ Behavioral Guidelines ]

1. Work is the foundation of life.
2. Trust is the basis of work.
3. Creativity in thought and action is the key to human progress.
4. Safety, quality, and productivity are fundamental to our corporate activities.
5. Risky endeavors are to be avoided while genuine endeavors are to be embraced.

Corporate Vision

With the one and only technologies and developmental capabilities in suspensions, we deliver solutions to customers' needs and aim to become a 100-year sustainable and evolving company.

Introduction

Becoming a Byword for Suspensions

Yorozu has earned the trust of domestic and foreign automakers as a premier supplier of suspensions, having honed its technologies as an auto parts maker

with a focus on suspensions.

Leveraging its advanced developmental and technological capabilities,

Yorozu will continue to expand globally as a suspension system manufacturer with a fully integrated production system, from performance development to mass production, for suspension parts and peripheral components.

FUTURE

The Origin of Our Name

In 1948, the Company was founded as Yorozu Automobile Works. In Japanese, "yorozu (萬)" is an auspicious Chinese character meaning good fortune, plentitude, perfection, and eternity.

With the passage of time, however, the true meaning of our name became obscure due to incorrect reading and misuse of the Chinese character in media reports.

To remedy this situation and coin a name befitting a new era, in June 1990, we substituted the character "yorozu" with Japanese syllabic writing, thereby making our name more readable and approachable.

The upwardly sloping diagonal lines of the second "O" in our logo symbolize our constant progress and development.

YOROZU INTEGRATED REPORT 2021

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Introduction

CONTENTS

Materiality (Material Issues)	Introduction

Introduction

1. Corporate Philosophy and Corporate Vision

1. Materiality (Material Issues)
2. Yorozu At a Glance

Management Strategy for Sustained Value Creation

6	Message from the President
10	Message from the CFO
12	Value Creation Process
14	Review of Medium-Term Business Plan

Management Foundation That Supports Sustained Growth

1. Message from the Environmental Management Officer

1. Human Resource Strategy

1. Board of Directors
2. Corporate Governance
   30 Dialogue between the President and an Outside Director

1. Compliance Initiatives
2. Risk Management

Yorozu has identified five material issues (materiality) that must be addressed through its business activities. As we seek solutions to such issues, we will continue to provide new value to society in a sustainable manner.

Moreover, in order to promote sustainability initiatives across the entire Group, we are enhancing the quality of ESG management and establishing key themes related to the environment (E), society (S), and governance (G).

Materiality Identification Process

Yorozu identified its materiality through a five-step process that involves reviewing and selecting social issues and determining the significance of their impact.

	Yorozu Spiral-up Plan 2020
16	Overview of Medium-Term Business Plan
	Yorozu Sustainability Plan 2023
18	Our Pursuit of Lighter Automotive Components
20	Message from the Product Engineering Officer
22	Strengthening of Competitiveness and
	Stabilization of Profitability

Data Section

1. Five-YearSummary of Financial and Non-Financial Data
2. Corporate Information

STEP

1

STEP

2

STEP

Uncover material issues (All materiality)

Measure the significance of material issues

Determine the order of priority of

Identify and select key material issues

Determine the significance of selected key issues from the viewpoint of their impact on stakeholders and on medium- to long-term increases in corporate value

Set the order of priority of material issues in accordance with

Editorial Policy

Following the precedent set in 2019, we have issued a third integrated report. We see this as a communication tool for promoting a better understanding of our corporate value and growth potential, aiming to convey in an easy-to-understand format our various initiatives to realize a sustainable society, as well as the Group's management policies, business strategies, and financial information, to all of our stakeholders, including shareholders, investors, suppliers, local communities, and employees.

The Yorozu Group will endeavor to provide its stakeholders with better reports to deepen their understanding of the Group. Please visit our official website for the most recent information.

Yorozu Corporation Website

http://www.yorozu-corp.co.jp/en/

Period and Scope of Reporting

• Period: Fiscal 2020 (April 1, 2020-March 31, 2021)
  (Some information from outside this period is also included.)
• Scope: YOROZU CORPORATION and its Group companies.

Guidelines and Entities Referenced

• The International Integrated Reporting Framework of the International Integrated Reporting Council (IIRC)
• Guidance for Integrated Corporate Disclosure and Company- Investor Dialogues for Collaborative Value Creation

Disclaimer Regarding Forward-Looking Statements

This integrated report contains forward-looking statements, including the Company's current plans, projections, and strategies, based on information available at the time this report was created. Actual performance may differ significantly from these projections due to a variety of factors.

3

STEP

4

STEP

5

material issues

Devise a materiality matrix

Obtain internal approval

management strategies, etc.

Compose a materiality matrix with importance to stakeholders on one axis and importance to the Yorozu Group on the other

Deliberate and decide on material issues at the Management Meeting and Board of Directors' meetings

The Yorozu Group's Material Issues

Materiality	Our Response under YSP2023		Disclosure within
	Yorozu Integrated Report 2021
	• Mitigate impact on global warming by reducing	Pages 18-19 Our Pursuit of Lighter Automotive
	the weight of our products
Reduce CO2 emissions		Components
• Realize carbon neutrality throughout the entire
	Pages 24-25 Environmental Management
	production process
Create a healthy and	• Promote work-style reform and diversity	Pages 26-27 Human Resource Strategy
engaging workplace	• Build a culture that respects diversity
	• Strengthen supervisory functions	Pages 29-34 Corporate Governance
Enforce highly transparent	Page 30	Dialogue between the President
• Promote higher compliance
governance practices		and an Outside Director
• Encourage shareholder communication
	Page 35	Compliance Initiatives
	• Establish a robust corporate structure impervious
	to sales fluctuations	Page 23	Our Commitment to Consistently
Ensure stable profits	• Strengthen free cash flow management
	Generating Profits
	• Strengthen project revenue management
	• Innovate monozukuri operation
	• Improve competitiveness of suspension parts	Page 20	Message from the Product
Introduce new technologies and	• Launch new lightweight EV products
	Engineering Officer
methods	• Proactively expand sales from the perspective of the
Page 22	Total Production System
	three elements of customers, products, and regions

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Introduction

Yorozu At a Glance

Financial Highlights

Sales		Operating income		Ordinary income
¥118,863million		¥ 377 million		¥1,449 million

Operating income ratio (FY2020)
First half	Second half	Full year
(9.5)%		6.1%	0.3%

• Please refer to the Message from the President (pages 6-9) and the Message from the CFO (pages 10-11) for the factors behind the increase in profit in the second half.

Japan
FY2020	Sales	¥ 39,798 million	Number of employees	1,508
Results			30.9 %			7
	Percentage of sales	Number of Group companies
The Americas (The United States, Mexico, and Brazil)
FY2020	Sales	¥ 44,829 million	Number of employees	2,325
Results			34.8 %			7
	Percentage of sales	Number of Group companies
Asia (Thailand, China, India, and Indonesia)
FY2020	Sales	¥ 44,240 million	Number of employees	2,329
Results			34.3 %			7
	Percentage of sales	Number of Group companies

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Introduction

Non-Financial Highlights

Number of employees (consolidated)

Number of countries

Number of Group companies

6,162 9 21

Promotion of Diversity

Ratio of women in management positions

Ratio of female directors

Ratio of non-Japanese employees

10.9%22.2%6.3%

Major Customers
Nissan Group*1	Honda Group	Toyota Group*2	Isuzu		Mazda	Kubota
Volkswagen	Daimler	Suzuki	Ford		GM	UD Trucks
				*1	Including sales to Renault and Mitsubishi
				*2	Including sales to Hino, Daihatsu, and Subaru

Ratio of overseas sales

73.9%

Trends in Sales Results

(Millions of yen)

						172,797
	102,206										118,863
2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	(FY)

YOROZU INTEGRATED REPORT 2021

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Management Strategy for Sustained Value Creation

Message from the President

Aiming to Become a Globally Recognized 100-Year-Old Company

We will confront the paradigm shift of the automotive industry, embracing our distinguished technologies.

In so doing, we will continue to create social value in a way that aligns with the expectations of our stakeholders.

Tsutomu Hiranaka

President and COO

Member of the Board

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Embarking on a New Chapter

Fiscal 2021 has been a year in which Yorozu Corporation has embarked on a new chapter. However, the outlook for the future is not great by any means, as we are in the thick of tumultuous times involving a paradigm shift of the automotive industry said to occur once every 100 years, the lingering effects of COVID-19, and environmental issues that must be resolved on the path to realizing carbon neutrality.

In light of such circumstances, in May 2021 Yorozu announced its new Corporate Vision, "With the one and only technologies and developmental capabilities in suspensions, we deliver solutions to customers' needs and aim to become a 100-year sustainable and evolving company." What we hope to emphasize in particular in the new Corporate Vision is our contributions to our stakeholders through the achievement of sustainable growth. Through the development of cutting -edge design and production technologies that draw on the know-how it has cultivated since its founding, Yorozu has continued to supply suspension parts across the globe that are unrivaled in terms of not only performance but also weight and price. We will continue to draw on this competitive strength so that we are able to provide safe and reliable components that offer exceptional quality and fulfill the expectations of our customers. By maintaining our competitive strength while sustainably increasing corporate value, we will nurture a sense of security for our employees and their fami- lies. Yorozu's "aim to become a 100-year sustainable and evolving company" incorporates its commitment to remain a globally recognized company for years to come.

Review of Medium-Term Business Plan YSP2020

Under Yorozu Spiral-up Plan 2020 (YSP2020), our previous medium-term business plan that concluded in fiscal 2020, sales and operating income fell short of their respective targets due to drastic declines in sales to major customers such as Nissan Motor Co., Ltd. We were hit particularly hard by the reduced production volume of automakers in the wake of COVID-19, amounting to massive impairment losses on tangible fixed assets for the second consecutive year.

While the figures indicate declines to both sales and operating income, the fact that we were able to post positive results for operating income in the final year of YSP2020 amid this fiercely challenging business environment has great signifi- cance. In the first half of fiscal 2020, Yorozu suffered an operating loss of ¥4,160 million. However, as a result of extensive reductions to fixed costs and successful cost-saving

* In Japanese, kaizen means "improvement"

	Management
measures in the form of Emergency Profit Kaizen* Activities,	Strategy
which have been ongoing since fiscal 2019, we achieved an
operating income of ¥377 million for the fiscal year under	for
Regardless, we should not be fully content with this
Sustained
review, more than compensating for the significant losses
incurred in the first six months.
achievement and instead use it as a stepping-stone toward	Value
the establishment of a more robust corporate culture. This is	Creation
the mission I have been tasked with as the president of Yorozu.
In addition, our profit improvement measures will continue to
be strictly enforced over the course of the three-year period
spanning fiscal 2021 to fiscal 2023 of Yorozu Sustainability
Plan 2023 (YSP2023), our new medium-term business plan.
While concerns remain regarding our business perfor-
mance after YSP2020, I am delighted by the significant
strides we were able to make in advancing ESG manage-
ment. Along with measures geared to strengthening our cor-
porate governance functions, including our transition to a
Company with an Audit & Supervisory Committee and
increasing the number of outside directors, we engaged in
initiatives focused on social issues, such as diversity promo-
tion activities, which led to the ratio of women in manage-
ment positions increasing to double digits. Furthermore, by
cutting the weight of suspension parts by 15% through our
advanced technologies and thereby helping reduce the
weight of vehicles, we played an essential role in lowering
driving emissions.

Strategies Geared to Improving Profits and

Achieving Growth

In reflection of the significant setbacks to our operating performance under YSP2020 through the incurring of extensive fixed costs, we have declared sales of ¥150.0 billion, an operating income ratio of 5.0%, and ROE of 8.0% as the consolidated performance targets for fiscal 2023, the final year of YSP2023.

Under YSP2023, Yorozu will look to establish a stable earnings structure in order to prevail over the competition; however, what holds the key to our success is the reduction of fixed costs. The arrival of the post-COVID-19 era still remains to be seen and the supply shortage of semiconductors is expected to contribute greatly to the diminishing trend of global automobile production.

In the face of such conditions, Yorozu decided to rebuild its production system based on an analysis of its three elements "customers, products, and regions," and streamlined fixed costs by adjusting production capacity to a level that

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