Shofu : IntegratedReport2021

I n t e g r a t e d

R e p o r t

2021

Headquarters:

11 Kamitakamatsu-cho, Fukuine, Higashiyama-ku, Kyoto 605-0983, Japan

Phone: [phone]

The major role of dentistry is to support people's ability to live by maintaining oral functions at all stages of life so that they can perform the basic activities of eating and speaking.

Whereas medicine is medical care for life, dentistry is medical care for living. Through the development of superior dental materials and equipment, we aim to contribute to better dental care together with dental professionals and doctors involved in dental education.

[Corporate Philosophy]

Contribution to dentistry through innovative business activities

[The Origin of Our Management ̶ The Founder's Vision] "The Japanese must eat rice with teeth made by the Japanese."

Shofu's history began in 1922 about a hundred years ago. In the era of valuing imported goods when dental care depended mainly on imported goods from Europe and the United States, Kajo Shofu III, the founder, established SHOFU DENTAL Mfg. Co., Ltd. with high aspirations after he succeeded in domestic production of high-quality porcelain teeth.

In 1890, the founder Kajo Shofu III married into the Shofu family, a well-known member of the ceramics industry. Based on the Kiyomizu-ware technique, he was involved in many businesses, including exporting ceramics, industrializing ceramic manufacturing, and entering the insulator business.

In 1915 when he visited North America to expand sales channels for export ceramics, he met Dr. Mitsuru Okada (later professor of oral surgery at Keio University School of Medicine), who strongly persuaded him to produce high-quality porcelain teeth in Japan. Stemming from his desire to contribute to people's oral health and society, he decided to develop high-quality porcelain teeth on

his own.

Learn about Shofu	Value Creation Story	Business Strategy	ESG	Financial Data and Company Profile

CON T E N T S

Learn about	Financial and Non-financial Highlights	3
Shofu	Shofu's History of Value Creation	5
	Global Network	7
Value Creation	Shofu's Value Creation Process	9
Story	Shofu's Value Chain	11
	Message from the President	13
	The Shofu Group's Medium-term Management Plan	17
	Executive Vice President's Message	19
Business	Shofu's Core Competence	21
Strategy	Business Overview (Dental Business)	23
	Special Feature: Developing unique technologies and products to meet customers'
	needs backed by research and development capabilities we have
	built since our establishment	25
	Business Overview (Nail Care Business/Other Businesses)	26
ESG	Corporate Governance	27
	Compliance	32
	Environment	33
	Society	35
Financial Data	Financial Summary for Past 11 Years	39
and Company	Company Profile and Stock Information	41
Profile

The development of high-quality porcelain teeth was no easy task as he faced many challenges to overcome, such as how to find a form that suits the Japanese and materials that can be used in the oral cavity, and how to produce them. However, with support from many people he finally made his dream come true after years of struggles and failures.

The founder's passion̶to have high ambitions and achieve them̶has been handed down from generation to generation and has now become the foundation of our strong focus on research and development.

	Japan's first high-quality porcelain
Kajo Shofu III, the founder	teeth developed by Shofu

Corporate communications

Overview	Financial information	Non-financial information
	Integrated Report

Shareholder Report

Materials for financial results briefing

Corporate Governance Report

Details	Materials for financial results
(including Annual Securities Report, etc.)
		Corporate website

Visit our website for mode detailed financial and non-financial information and figures. https://www.shofu.com/global/

Editorial policy

We prepared this integrated report in the hope that our shareholders, investors, and other stakeholders will deepen their understanding of our social and economic value creation through reporting on our management strategies, business activities, and ESG activities, among others. We will continue to use this integrated report as a communication tool with our stakeholders.

In editing this report, we have referred primarily to the "Guidance for Collaborative Value Creation" by the Ministry of Economy, Trade and Industry of Japan.

Period covered by the report

Fiscal year ended March 31, 2021 (April 1, 2020 through March 31, 2021) is the primary period covered by this report.

* The report includes information for periods before or after the period above.

Scope covered by the report

SHOFU INC. and its consolidated subsidiaries (Some activities are relevant to SHOFU INC. alone.)

Forward-looking statements

Forward-looking information in this report including earnings forecasts is based on projections and forecasts in light of information currently available to us and is subject to potential risks and uncertainties, among other factors. As a result, actual results may differ materially from those we currently anticipate due to changes in various factors.

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SHOFU INC

Integrated Report 2021

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Financial and Non-financial Highlights

Learn about Shofu	Value Creation Story	Business Strategy	ESG	Financial Data and Company Profile

Financial Indicators

Net sales/Overseas net sales/ Overseas sales ratio

Net sales		Overseas net sales		Overseas sales ratio
(Left axis)		(Left axis)		(Right axis)

24,680	10,946		44.4％
	million yen		million yen
(Millions of yen)					（％）
30,000			24,915	26,108	24,680	60
		24,031
	22,305	44.0
	43.2	45.3	44.4
20,000	40.9			40
10,000	9,116	10,378	11,295	11,499	10,946	20
0						0
	FY2017/3	FY2018/3	FY2019/3	FY2020/3	FY2021/3

Operating income/

Operating profit margin

Operating income		Operating profit margin
(Left axis)		(Right axis)

2,300million yen			9.3％
(Millions of yen)					（％）
2,500				2,210	2,300	25
2,000			1,814			20
1,500	1,382	1,497				15
1,000	6.2	6.2	7.3	8.5	9.3	10
500						5
0						0
	FY2017/3	FY2018/3	FY2019/3	FY2020/3	FY2021/3

Profit attributable to owners of parent/ Payout ratio

Profit attributable to owners of parent		Payout ratio
(Left axis)		(Right axis)

1,674million yen			30.1％
(Millions of yen)			58.8		（％）
2,000					60
				1,674
1,500	38.0	36.2	1,201			45
1,000	836	877	30.4	704	30.1	30
500						15
0						0
	FY2017/3	FY2018/3	FY2019/3	FY2020/3	FY2021/3

Non-financial Indicators

R&D expenses/

Ratio of R&D expenses to net sales

R&D expenses		R&D expenses ratio
(Left axis)		(Right axis)

1,563million yen			6.3％
(Millions of yen)					（％）
2,000						20
1,500	1,408	1,494	1,492	1,537	1,563	15
1,000	6.3					10
	6.2	6.0	5.9	6.3
500					5
0						0
	FY2017/3	FY2018/3	FY2019/3	FY2020/3	FY2021/3

Equity ratio

Equity/Return on equity (ROE)

					Equity (Left axis)				ROE (Right axis)
79.4%					30,024million yen			6.2％
（％）		80.4	79.7		(Millions of yen)					（％）
80			79.4	40,000						8
77.8							30,024
76.9
						24,035	24,250	23,786	6.2
75					30,000	22,185	6
					20,000	3.8	3.8	5.0	2.9		4
70					10,000						2
0					0						0
FY2017/3	FY2018/3	FY2019/3	FY2020/3	FY2021/3		FY2017/3	FY2018/3	FY2019/3	FY2020/3	FY2021/3

Average years of service/

Job turnover ratio

		Average years of service		Job turnover ratio
		(Left axis)		(Right axis)
17.57years		1.4％

(Years)						（%）
20	17.48	17.61	17.87	17.77	17.57	4
15		2.4		2.4		3
10			1.7			2
	1.0				1.4
5						1
0						0
	FY2017/3	FY2018/3	FY2019/3	FY2020/3	FY2021/3

• The job turnover ratio does not include employees who have reached the mandatory retirement age.

Average monthly overtime hours per employee

6.09hours
(Hours)
12		10.33
		9.28
	8.80
8	7.45

6.09

4

0

FY2017/3 FY2018/3 FY2019/3 FY2020/3 FY2021/3

Total assets/Return on assets (ROA)

Total assets (Left axis)		ROA (Right axis)

37,813million yen			4.9％
(Millions of yen)					（％）
40,000					37,813	6
30,000	28,853	30,890	30,161	29,834	4.9
		3.9			4
	2.9	2.9
20,000		2.3
10,000						2
0						0
	FY2017/3	FY2018/3	FY2019/3	FY2020/3	FY2021/3

Cash flows from operating activities

2,829million yen

(Millions of yen)

3,000				2,829
2,308			1,942
2,000	1,936
	1,468
1,000
0
FY2017/3	FY2018/3	FY2019/3	FY2020/3	FY2021/3

Number of patents held

378patents

(Patents)		380	389
400	358	378
336
300
200
100
0
FY2017/3	FY2018/3	FY2019/3	FY2020/3	FY2021/3

Number of overseas employees/ Ratio of overseas employees

	Number of overseas employees		Ratio of overseas employees
	(Left axis)		(Right axis)
564persons		46.7％

(Persons)					（%）
600	522	561	567	564
509	46.5	47.0		50
41.6	43.2	46.7
400					40
					30
200					20
					10
0					0
FY2017/3	FY2018/3	FY2019/3	FY2020/3	FY2021/3

• Non-financialindicators are on a non-consolidated basis (except for the number of overseas employees and the ratio of overseas employee, which are on a consolidated basis).

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SHOFU INC

Integrated Report 2021

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Learn about Shofu	Value Creation Story	Business Strategy	ESG	Financial Data and Company Profile

Shofu's history of value creation

Since its establishment in 1922, the founder's passion̶to have high ambitions and achieve them̶has been handed down as Shofu's DNA. With such background, we have been leading the dental industry by developing many products that were the first of their kind either in Japan or in the world. Going forward, we will continue to take on new challenges to cater for ever-changing needs of society.

1983

Changed the Company's name to SHOFU INC. and conducted management reforms.

1985

Developed and began selling the Japan's first light-cured composite resin, Lite-Fil.

1986

Developed and began selling hybrid resin teeth, Endura̶new generation artificial teeth.

1987

1991

Acquired ADVANCED HEALTHCARE LTD., a dental material manufacturer in the U.K.

1997

Completed a new research center, the most advanced facility in the dental industry. Obtained CE Marking certification.

2003

Established a manufacturing subsidiary, SHANGHAI SHOFU DENTAL MATERIAL CO., LTD. in China.

2012

Listed on the First Section of the Tokyo Stock Exchange.

2015

Purchased MERZ DENTAL GmbH and made it a subsidiary, which is a manufacturer of artificial teeth in Germany.

2017

Established a sales subsidiary, SHOFU DENTAL BRASIL COMERCIO DE PRODUTOS ODONTOLOGICOS LTDA. in Brazil.

1922

The first president, Kajo Shofu III, established SHOFU DENTAL Mfg. Co., Ltd. Began manufacture and sale of artificial teeth and research and development of dental materials.

Photos of the Company at the time of establishment. Shofu developed Japan's first products one after another.

1952

Developed and began selling Japan's first diamond abrasives and vacuum fired porcelain teeth.

1955

Opened TOKYO SALES OFFICE in

Azumabashi, Sumida-ku, Tokyo.

1956

Completed the laboratory building.

1963

Registered shares as over-the-counter stock to

1971

Established a sales subsidiary, SHOFU DENTAL CORPORATION in California, U.S.

1973

Established SHIGA SHOFU INC. in

Shigaraki-cho,Koga-gun, Shiga (currently,

Shigaraki-cho,Koga-shi, Shiga).

Liquidated SHOFU DENTAL SINGAPORE and opened SINGAPORE SALES OFFICE (currently, SHOFU DENTAL ASIA-PACIFIC PTE. LTD.).

1989

Listed on the Second Section of the Osaka Securities Exchange and on the Kyoto Stock Exchange.

2005

Established a sales subsidiary, SHOFU DENTAL (SHANGHAI) CO., LTD. in China. (currently, SHOFU DENTAL TRADING (SHANGHAI) CO., LTD.)

2007

Listed on the Second Section of the Tokyo Stock Exchange.

2008

Purchased NAIL LABO CORPORATION and made it a subsidiary, which imports and sells materials and equipment for professional nail care specialists.

Established a sales subsidiary, SHOFU DENTAL INDIA PRIVATE LIMITED in India.

2020

Enhanced the business and capital tie-up with Mitsui Chemicals, Inc. and Sun Medical Co., Ltd.

Established a manufacturing subsidiary, SHOFU PRODUCTS VIETNAM CO., LTD. in

Vietnam.	(Billions of yen)
		30.0

1937

Developed and began selling the Japan's first palladium alloy, SHOFU Palladium S.

1939

Opened the SHOFU Showroom at Ginza 1-chome, Tokyo.

1945

Developed and began selling Japan's first resin teeth.

Osaka Prefecture Association of Japan Securities Dealers Association.

1965

Began selling the world's first dental spherical amalgam, SHOFU Spherical Amalgam.

1976

Established the Shofu Dental Club.

1978

Established a sales subsidiary, SHOFU DENTAL GmbH in the suburbs of Dusseldorf, Germany.

1980

Established a sales subsidiary, SHOFU DENTAL SINGAPORE in Singapore.

											25.0
2009											20.0
Concluded a business and capital tie-up with
Mitsui Chemicals, Inc. and Sun Medical Co., Ltd.
		Prevention and aesthetic awareness were increased in public			15.0
				The revised Pharmaceutical
				Affairs Act was enforced（2005）
				Medical fees were revised.					10.0
				Largest reduction in history（2006）
Patients' burden of
				Advancement of
medical expenses					digitization in dentistry
increased										5.0

Era when imported

High-growth period driven by the

goods were valued

spread of the health insurance system

Entering

an

aging society

1922 (Established)

1959 1960

1970

1980

Policies to control medical costs/ Period of low growth

1990

From 10% to 20% (1997)
The dental market expanded in emerging
From 20% to 30% (2003)	countries due to population growth and
	growing economy
				0
2000	2010	2020 (FY)

* Figures for FY1999 and thereafter refer to consolidated net sales.

1922 ‒ 1951	1952 ‒ 1970
SHOFU DENTAL Mfg. Co., Ltd.	Became a leading company of
started business	the dental industry

Shofu's products that have been serving social needs

1971 ‒ 1982	1983 ‒ 1989	1990 ‒ 2011	2012 and beyond
Expanded to the overseas market	Boldly implemented	Moved forward as a listed company	To be a 100-year company
management reforms

Japan's first high-quality porcelain teeth SHOFU Anatome Form

The world's first dental spherical amalgam	Cement with HY agent	Japan's first hybrid resin teeth	Light-curing C+B Composite	Digital oral cavity photography device
SHOFU Spherical Amalgam	HY-Bond Carbo Cement	Endura	SOLIDEX	EyeSpecial C-II

Most artificial	In the 1960s, Shofu	In 1980, Shofu	After the	During this period,	A digital oral
teeth used in	worked to develop	developed	management	competitors	cavity
dentistry in	products that are	dental	reforms, Shofu	already launched	photography
Japan were	competitive in the	cements with	succeeded to	light-cured hard	device used
made in the U.S.	global market, and as	HY agent,	develop Endura in	resin used to create	when obtaining
or Europe and	a result, succeeded to	which	1986, Japan's first	resin-made	informed
they were not	launch dental	contains	hybrid resin teeth,	prosthetic	consent from
designed to fit the Japanese bone structure.	spherical amalgam	tannin, a	using newly	restorations such as	patients or
To meet the needs for high-quality porcelain	ahead of the rest of	material used	developed materials. Endura was highly rated	crowns and inlays.	making comparison before and after operation.
teeth for Japanese people, the founder, Kajo	the world. We	for tooth-blackening dye. We applied HY agent	by the Japan Dental Association and the then	Shofu focused on	It allows users to take high-qualityintra-oral
Shofu III, started full-scale research in	launched SHOFU Spherical Amalgam in 1965,	to various dental cement products according	Ministry of Health and Welfare for its	the operability and aesthetic quality of such	photographs with easy operation while being
artificial teeth. With the cooperation of many	which immediately had a great impact on the	to the research results that HY agent is	biocompatible shape, color, and other	resin and succeeded to develop SOLIDEX.	lightweight and compact, and helps improve
people involved, he succeeded to develop	dental materials industry in and outside Japan	expected to strengthen tooth structure like	characteristics, and adopted by the health	With SOLIDEX, we increased operability of	communication between dental professionals
Japan's first high-quality porcelain teeth	as it was easy to be processed due to its	tooth blackening, which contributed to the	insurance by its brand name, succeeding in	dental technicians and achieved color	and patients.
through a number of challenges.	spherical particles and small surface area.	prevention of dental caries in patients.	anticipating the demands of an aging society.	reproduction close to that of natural teeth.

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SHOFU INC

Integrated Report 2021

6

Global Network

SHOFU DENTAL GmbH ●

MERZ DENTAL GmbH ●●

DIGITAL DENTAL SERVICES GmbH ●●

Learn about Shofu	Value Creation Story	Business Strategy	ESG	Financial Data and Company Profile

Russia

（15,000 people）

ADVANCED HEALTHCARE LTD. ●●

Central Europe, Eastern Europe

Western Europe

Europe

（1,495 million dollars）

Japan

（9,026 million dollars）

（453,000 people）

China

（102,000people）

（144,000people）

Other Asian countries

（186,000 people）

SHOFU DENTAL MIDDLE EAST

Japan

& AFRICA OFFICE

（2,153million dollars）

Asia, Oceania

Middle East, Africa

India

（2,764 million dollars）

（151,000 people）

（333,000people）

North America（794,000people）

Including America（770,000people）

NAIL LABO INC. ●

SHIGA SHOFU INC. ●

SHOFU INC. HEADQUARTERS/KYOTO SALES OFFICE

SHOFU PRODUCTS KYOTO INC. ●

	FUKUOKA SALES OFFICE
	North America, Central	OSAKA SALES OFFICE
	and South America
	（14,413 million dollars）

SAPPORO SALES OFFICE SENDAI SALES OFFICE

TOKYO BRANCH SHOFU BIOFIX INC. ● NAIL LABO CORPORATION ●

NAGOYA SALES OFFICE

• Sales subsidiaries
• Manufacturing subsidiaries
• Nail care business subsidiaries

Number of dentists in the world:	Middle East, Africa
（703 million dollars）
Approximately 2.65 million
Estimated market size:				Oceania
Approximately 3.0 trillion yen			（23,000 people）
Number of dentists（	One icon represents 50,000 dentists.）
SHOFU DENTAL INDIA PRIVATE LIMITED ●
Source: Number of dentists, Estimated market size...	SHOFU DENTAL TRADING (SHANGHAI) CO., LTD. ●
"Worldwide Medical Devices Market Factbook 2019", BMI Research	SHANGHAI SHOFU DENTAL MATERIAL CO., LTD. ●

SHOFU DENTAL

CORPORATION ●

SHOFU MEXICO

S DE RL DE CV ●

SHOFU DENTAL

BRASIL COMERCIO

DE PRODUTOS

ODONTOLOGICOS LTDA. ●

NAIL LABO TAIWAN CO., LTD. ● SHOFU INC., TAIWAN BRANCH

SHOFU PRODUCTS VIETNAM CO., LTD. ● SHOFU DENTAL ASIA-PACIFIC PTE.LTD. ●

Central and South America（452,000 people）

Including Brazil（319,000 people）

Global dental equipment market: 30.5 billion dollars

Growth rate in the last 5 years: 4.9% per year

Dental equipment market size

Source: Global dental equipment market, Growth rate in the last 5 years… "Worldwide Medical Devices Market Factbook 2019", BMI Research

Shofu's network around the world	Overseas Sales/
	Overseas Sales Ratio

Dental business

Overseas sales (By region)

Unit: millions of yen,

[ ] shows component ratio

Since the 1970s, when we first expanded operations overseas, the Company Group has been promoting overseas

further increase our contribution to the world's dental care in order to realize the corporate philosophy.

Overseas sales (Millions of yen)

Dental business overseas sales ratio (%) Overseas sales ratio (%)

46.6

overseas sales ratio

45.1%

(Fiscal year ended

10,946 million yen (Fiscal year ended March 31, 2021)

■ North America/Central and South America

■ Asia/Oceania and others

Asia/Oceania and others

Europe

North America/Central and South America

expansion by making the most of our global network, which is centered in North America and Central and South America, Europe, as well as Asia and Oceania.

The Group currently sells Shofu's products in more than 100 countries, with overseas sales accounting for more than 40% of total sales. However, we have not been able to fully demonstrate our presence in the overseas market, which is about 14 times larger than the domestic market. We must

7 SHOFU INC

We are actively promoting the establishment of sales subsidiaries and manufacturing subsidiaries in order to capture demand not only in developed markets with high levels of dental care, but also in emerging markets.

In order to promote Shofu's products around the world, we will aim to expand overseas business by increasing the recognition of the Shofu's brand through the development and expansion of overseas sites.

43.5		45.2	45.1
45.3	44.0	44.4
41.3	43.2
40.9		11,295	11,499	10,946
9,116	10,378
FY2017/3	FY2018/3	FY2019/3	FY2020/3	FY2021/3

March 31, 2021)

2,500 million yen

Year-on-year decrease of 394 million yen (-13.6%)

In North America and Central and South America, sales decreased by 394 million yen, or 13.6%, due to the struggling sales of almost all product groups, except for artificial teeth and nail products, as well as the negative impact of foreign exchange rates.

■ Europe

4,237million yen

Year-on-year increase of 111 million yen (+2.7%)

In Europe, sales increased by 111 million yen, or 2.7%, due to flexible efforts in sales of disposable masks and gloves, as well as the positive impact of foreign exchange rates.

4,208 million yen

Year-on-year decrease of 270 million yen (-6.0%)

In Asia and Oceania and others, overall sales decreased by 270 million yen, or 6.0%.

By district, sales in China decreased by

24 million yen, or 1.0%, due to the negative impact of foreign exchange rates, although sales in China increased on a local currency basis due to strong sales of chemical products.

Sales in elsewhere in Asia decreased by 246 million yen, or 12.0%, as a result of weak sales in all product groups except nail products due to the significant decline in sales in emerging countries including ASEAN countries and India, despite strong sales in South Korea and Taiwan.

11,499 10,946

4,479		4,208
［ 38.9 % ］
	［ 38.4 % ］
4,125
	4,237
［ 35.9 % ］
	［ 38.7 % ］
2,895
	2,500
［ 25.2 % ］		［ 22.9 % ］
FY2020/3		FY2021/3

Integrated Report 2021

8