SANGETSU : REPORT 2022 A3-sized

Sangetsu Corporation

1-4-1 Habashita, Nishi-ku,Nagoya-shi, Aichi 451-8575, Japan TEL: +81-52-564-3314

https://www.sangetsu.co.jp/english/

Cover: Sangetsu Kansai Branch Center Office

Corporation Sangetsu

SANGETSU REPORT 2022

SANGETSU Integrated Report

Corporate Philosophy

Sangetsu's corporate philosophy consists of: Company Creed,

representing the timeless and unchanging spirit of Sangetsu since its founding;

the Corporate Mission; and our Brand Concept.

Company Creed

Sincerity

Realizing what people expect with Sincerity is the starting point of our business.

Sincerity is everlasting and unchanging Sangetsu original spirit.

Corporate Mission

To contribute to society through interior design and strive to create a daily

culture of enrichment.

Brand Concept

We share the joy of design with those who create new space.

The use of MSCI Indexes, logos, trademarks, service brand logos, and index names in this report does not indicate an endorsement, recommendations, or promotion from Sangetsu for MSCI or its affiliate companies.

MSCI indexes are the exclusive property of MSCI. The names and logos of MSCI and MSCI indexes are the trademarks or service brand logos of MSCI or its affiliate companies.

INDEX

About the Sangetsu Group

02 Corporate Philosophy

04 170-year History of Creating Value

Message from CEO

06 Message from CEO

12 Financial Strategies

Story of the Sangetsu Group

14 Story of Value Creation

16 Value Creation Process

18 Approach to Value Creation

22 Medium-term Business Plan (2020-2022)

24 ESG

1. ESG Management

1. Board of Directors

1. G: Governance
   28 Corporate Governance
   31 Round Table of Outside Directors
   34 Compliance
   35 Risk Management

S: Social

36 Human Resource Management

• SANGETSU REPORT 2022 Editorial Policy

The SANGETSU REPORT is an integrated report that has been published annually since 2015 to facilitate San- getsu stakeholders' understanding of the Sangetsu Group's corporate value and medium to long-term growth potential. The 2022 report describes our activities to become a Space Creation Company and includes enhanced financial and non-financial information based on the opinions of our stakeholders referred to in our interviews of persons both inside and outside the company. In the editing process, we used the International Integrated Reporting Framework published by the International Integrated Reporting Council (IIRC) as a reference. We sincerely hope that this report will help more people understand the Sangetsu Group.

• Overviews of Corporate Communication and Role of the Integrated Report

Compliance with the Accounting Standard for Revenue Recognition

Sangetsu has followed the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29 Accounting Standard for Revenue Recognition [March 31, 2020]) since the beginning of the fiscal year ended March 31, 2022. Therefore, data provided for the fiscal year ended March 31, 2022 uses figures after adopting this accounting standard.

Cautionary Statement with Respect to Forward-Looking Statements

All statements, including forward-looking statements, other than historical facts in this report are based on fore- casts, expectations, assumptions, plans, understanding, evaluation, and other matters and are prepared using the information available to the Sangetsu Group as of July 31, 2022. To calculate quantitative forecasts, a certain set of assumptions essential in forecasting is also used in addition to facts that have been confirmed and accurately understood in the past.

Scope of Reporting  Sangetsu Corporation and its Group

companies

Period Covered  April 1, 2021 to March 31, 2022

* Includes some activities after the reporting period

Date of Publication  August 2022

48 Business Strategy

1. Interior Segment

1. Exterior Segment
2. Space Creation Segment
3. Overseas Segment

1. Business Topics

Data Section

56 10 Year Consolidated Financial Summary

1. Financial Highlights
2. Non-financialHighlights
3. ESG Data
4. Corporate Profile/Share Information

About the Sangetsu Group

Sangetsu Group

170-year History of Creating Value

Four brothers led by founder Yoshiaki Hibi started Sangetsudo in Nagoya and grew it into the Sangetsu total interior company of today. The challenging spirit of these four men who demonstrated endless perseverance in contributing to society

Sangetsu Mindset Inherited from Its Founders

through interiors thrives throughout the Sangetsu Group even now.

Brand Statement

We share the joy of design with those who create new space.

Group Sangetsu the About

Founding at the End of

the Edo Period

Yasuke Hibi opened Sangetsudo doors as a framing business not far from Nagoya Castle.

Endorsement Written by Yasuke Hibi on the Back of a Frame in 1849

Showroom Opens at Nagoya Headquarters

(1970)

Sangetsu opened a showroom founded in a desire for people to actually see the wallcov- erings before making a choice. In 1972, we also opened the Tokyo Showroom (Minami Aoyama) as a sales office.

Inventory and Delivery System

(1970s to the 1990s)

Sangetsu strove to provide a stable supply of the right products at the right time under a Just In Time/Just Now management policy during the oil crisis.

Sangetsu Mindset Inherited from

Its Founders

"Reflecting on our history, it is clear Sangetsu has been a venture company since its found- ing. We were once criticized by pioneering new products, new sales approaches, and new logistics systems. However, Sangetsu has always poured all of its strength into doing what has never been done before.

I think our strong passion to always do our best to satisfy customers has supported this venture spirit."

"I believe that a company is a public entity of society and it should exist for the society and the world."

(Interview with Yoshiaki Hibi)

Start of Sangetsudo Shoten Co., Ltd.

(1953)

Each of the four brothers took a turn managing the family business, which was primarily led by Yoshiaki Hibi who was the fifth President to serve the company after Yasuke Hibi.

Challenging Spirit Which Knows No Bounds

(1960s to the 1970s)

Sangetsudo Shoten promoted designs and an ease of installation at a time when only a small percentage of the market used wallcoverings and completely transformed the mainstream interior culture of Japan via plaster walls and sliding door plywood.

Original Product Development

(Beginning in 1968)

Sangetsudo Shoten started developing its own original products to respond to diversifying needs. This lineup has grown to roughly 12,000 different products today.

Sample Book Sharing Our Passion Alongside Products and Product development

Name Changed to Sangetsu Corporation and

Branding of the Corporate Identity

(1970)

Sangetsudo Shoten changed its name to the Sangetsu Corporation. Yusaku Kamekura who was known for his work

Three Principles of Sangetsu

(1975)

Sangetsu defines the Three Principles of San- getsu as creative designs, highly reliable quality, and fair market prices, creating the basic policy to provide value tailored to customer needs.

Sangetsu Stock Listed on Nagoya

Stock Exchange

(1980)

We strengthened our delivery system via a quality through delivery policy to satisfy the needs of interior finishing services that require short lead times from order through delivery. Our Okayama Branch opened in 1991 to streamline seven inventory and delivery bases and systems in Japan, which greatly contributed to a higher level of services and business expansion.

Every Sangetsu employee carries on the venture spirit and sincerity demonstrated by our founder Yoshiaki Hibi.

Early Years

New residential construction grew during the period of high economic growth. This drove rapid demand for wallcoverings in western-style homes, which was further bolstered by a leisure boom.

Rapid Growth and Stability Period

on posters for the 1964 Tokyo Olympic Games was entrusted with the brand logo design.

Left to right: Kyohei Hibi (Managing Director), Yuichi Hibi (Senior Managing Director), Yoshiaki Hibi (President), and Touzou Hibi (Tokyo Store Manager) brothers

Period of Innovation

• Yoshiaki Hibi passes away
• Yuichi Hibi assumes presidency

Shosuke Yasuda assumes presidency

Brings Koroseal Interior Products Holdings, Inc. under the Group umbrella

• Brings Goodrich Global Holdings Pte., Ltd. under the Group umbrella
• Brings Fairtone Co., Ltd. under the Group umbrella

• Long-termvision [DESIGN 2030] Announcement of the Medium-term Business Plan [D.C. 2022]
• Yuichi Hibi passes away
  Brings CREANATE Inc. under the Group umbrella

04 SANGETSU REPORT 2022

Message from CEO

New Social Value Delivered

Through Design and Creativity

Picking Up the Baton Toward Transformation

The Sangetsu Group history stretches all the way back to 1849. Our company was originally founded near Nagoya Castle as a framing business handling sliding doors, folding screens, and other such products. Ever since then, Sangetsu has consistently been involved in creating living "spaces" for people. Sangetsudo Shoten Co., Ltd. launched in 1953 adapted to the changing times and built an inventory and sales business as a supplier of more than 10,000 different types of wallcoverings, flooring materials, and fabrics. We have valued the Sangetsu brand and expanded business ever since as a fabless company without manufacturing capabilities. As far as I know, Sangetsu was the only company using this revolutionary business model in the industry in Japan at the time.

Our founder passed me the baton when I was appointed President and CEO in 2014. I was very aware of the management challenges faced by my predecessor. One critical crisis that I felt in many ways was our declining competitive edge. The equipment and systems that was state-of-the-art at the time had become dated. Growth in the market itself was also slowing. I strongly felt our business model needed to change to adapt to the times. Our previous President and CEO strongly encouraged me to do just that saying, "I really hope you can transform this company."

CEO from Message

Aiming to Transform the Business Model

The world originally knew the Sangetsu Group as a sales company. Investors and other outside stakeholders categorized us as a specialized interior trading company. My first concern had to do with the potentially large issues which could arise from this business model. A specialized trading company is a sound and low risk business. As an extension of this though, the business does not offer very much potential for evolution or growth. I knew at my core Sangetsu would not grow in the future without first transforming its business model. That is why I decided Sangetsu must shift from a specialized trading company to a more robust and sophisticated business firm.

The transformation of an existing and mature business model is no small task. To dramatically change as a company, our business will of course encounter greater risks and higher costs. However, I know Sangetsu must evolve even if faced by these difficulties. Our founders had given Sangetsu healthy capital and cash reserves. This provided our Group with the necessary financial strength and internal reserves to drive forward such a bold transformation.

Shosuke Yasuda

President and CEO

The Sangetsu Group designated 2014 and later as our Third Founding Phase. We worked to go beyond past business patterns, invest and prepare for new growth, and draft and raise awareness about policies and rules intended to incite business action as an organization. I feel the Sangetsu Group has changed dramatically as a result of these efforts. We have clearly laid the groundwork for overseas expansion into North American, Southeast Asian, Chinese, and Hong Kong markets. I also feel our core interior business has been able to solidify its product, design, and procurement strategies to link the markets with the Sangetsu Group. More recently, Sangetsu welcomed the largest wallcovering manufacturer in Japan-which boasts domestic mass wallcovering production capabilities and holds a roughly 20% market share-to the Group. As a business firm, this acquisition puts in place an integrated production and sales system for mass produced wallcoverings, which is our main and most important product.

Fiscal year ended March 31, 2022 continued to face a harsh business environment due to impact of the COVID-19