ITO EN : INTEGRATED REPORT 2021

ITO EN INTEGRATED REPORT 2021

Fiscal year ending April 30, 2021

CONTENTS

ITO EN Group's Management Principle ・・・・・・・・・・・ 1

ITO EN Group'ｓManagement Philosophy ・・・・・・・・ 2

"Always Putting the Customer First"

Becoming a "Global Tea Company" ・・・・・・・・・・・・・・ 3

Using experience and achievements to advance to the next stage

Message from the President ・・・・・・・・・・・・・・・・・・・・・ 4

The President and Outside Directors Discuss Issues

and Goals・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 9

ITO EN Group-A History of Accumulated Product

Development・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 12

Financial and Non-Financial Highlights ・・・・・・・・・・ 14

Value Creation Model based on "Always Putting

the Customer First" ・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 18

ITO EN Group Material ESG Issues ・・・・・・・・・・・・・・ 20

Special The True Potential of Tea for the Future-

Feature Tea Sustainability ・・・・・・・・・・・・・・・・・・・・・・・・・ 22

Business Overview

Oi Ocha・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 28

Tea Leaves and Matcha Products・・・・・・・・・・・・・・・・ 30

Barley Tea Products ・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 32

TULLY'S COFFEE ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 33

Vegetable and Aojiru (barley grass green juice)

Products ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 34

ITO EN Non-consolidated Sales by Category and

Outlook for the Next Year ・・・・・・・・・・・・・・・・・・・・・・ 35

Overseas Business ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 36

A powerful foundation for the creation of value

A Value Circle for "Always Putting the Customer

First"・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 38

Research, Product Planning and Development ・・・ 40 Procurement, Production and Logistics ・・・・・・・・・・ 42

Sales and Distribution・・・・・・・・・・・・・・・・・・・・・・・・・・ 44

Initiatives to Tackle Environmental Issues ・・・・・・・・ 46

Human Resource Strategies ・・・・・・・・・・・・・・・・・・・・ 50

Financial Management・・・・・・・・・・・・・・・・・・・・・・・・・ 54

Corporate Governance・・・・・・・・・・・・・・・・・・・・・・・・・ 56

Stakeholder Engagement (Building relationships with

customers) ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 62

Executive Ofcers ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 64

• Related data

Key Financial Indicators ・・・・・・・・・・・・・・・・・・・・・・・・ 66

Non-nancial Summary (ITO EN non-consolidated

bases) ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 67

Introduction of Main Group Companies ・・・・・・・・・ 68

Company Outline・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 69

Editorial Policy

The ITO EN Integrated Report 2021 is issued as an integrated report, combining our nancial and non-nancial information in a single document. Additionally, we communicate information from multiple viewpoints via various other reports and websites, to enable all stakeholders to gain a greater understanding of ITO EN and its activities. This report focuses primarily on activities during scal 2020 (May 1, 2020 to April 30, 2021), but also includes details of selected ongoing initiatives and more recent activities. The professional afliations and ofcial positions of the stakeholders introduced in this report are current as of the time of their activities. (Date of publication: February 2022)

ITO EN Group's Management Principle "Always Putting the Customer First"

Denition of Our Customers

Consumers	Shareholders	Retailers
Suppliers	Financial institutions	Local communities

Management Message

"Always Putting the Customer First" is the ITO EN Group's management principle, representing the fact that the foundation of business management at ITO EN is our commitment to placing importance on each and every customer. Our definition of customers includes consumers, shareholders, retailers, suppliers, financial institutions and local communities.

We regard everyone involved with the ITO EN Group as our customer, and earnestly strive to address our customers' needs through the opinions and requests we receive, and by always using the perspective of our customers as the foundation of our management strategies. Looking ahead, under this management principle, we will continue working vigorously towards the fulfillment of our long-term vision of becoming a Global Tea Company.

Hachiro Honjo, Chairman of the Board Daisuke Honjo, President and CEO

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ITO EN Group's Management Philosophy

	ITO EN Group's Management Principle
Basic management concept
Always Putting the Customer First
	Company motto, ITO EN Group Basic Code
	ITO EN Group Mission
Mission in society
Health Creation Company
	Contributing to the realization of healthy and prosperous lives
	for our customers and a sustainable society through products
	derived from nature and sincere services
	Medium- to Long-Term Vision
Aiming for the medium-to
Global Tea Company
long-term
	Contributing to the health of customers around the world, the
	corporate group "ITO EN" supports the enriched lifestyle of
	each and every person
	Always Putting
	the Customer First
	Health Creation
	Company
	Global Tea
	Company

Thoughts for realizing the mission and vision

The spirit of "STILL NOW"

5 Concepts for Product Development

(Natural, Healthy, Safe, Well-designed, Delicious)

〈Code of Conduct〉

ITO EN Group Code of Conduct, ITO EN Group Standard of Conduct

ITO EN Group CSR Charter Environmental Policy

ITO EN Group CSR Charter Human Rights Policy

"Always Putting the Customer First"

Becoming a "Global Tea Company"

All employees unite as "Team ITO EN" to pursue our management principle of "Always Putting the Customer First."

At ITO EN, in order to implement effective marketing, we have prepared the following interpretation of the mechanism

for making a sale, which we instill in our employees.

			Attend
			to the customer's
			wants and needs
			Merchandising
Know	Marketing
Research
your customer
		Five	Sales
		marketing functions
			Provide
			service
			to the customer
	Advertising
			Sales Promotion
Communicate		Attract
with the customer		the customer

The spirit of	We are constantly considering the problem of "what customers are
"STILL	and dissatisfactions.
NOW"	still now dissatised with…" and contribute to solving their requests
We are actively working to solve social and environmental issues
through our core businesses, including products and services.

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Using experience and achievements to advance to the next stage

Message from the President

Quality, healthy lifestyles and

a commitment to social responsibilities underpin the growth of the ITO EN Group.

President and CEO

Daisuke Honjo

Overview of the Past Fiscal Year

• Challenging market conditions created new opportunities for ITO EN

This is an extremely positive trend for the ITO EN Group as well as the entire Japanese tea industry. In fact, tea bags and other leaf tea products are one of our best performing product categories. We are also posting strong sales of products for healthy living as the interest in staying healthy increases in Japan. For example, Oi Ocha Koicha and other functional food products are selling very well.

1. New Medium-toLong-term Management Plan

The impact of the pandemic on our sales and earnings has forced us to take another look at the goals of our current management plan, which covers the ve- year period ending in April 2022. The business climate today is much different from our outlook when we announced this plan in June 2017. As a result, we must revise our goals and strategies. We are working on a new medium-tolong-term management plan to be announced in June 2022. This plan will incorporate our outlook for negative effects of the pandemic to continue during the rst half of the scal year ending in April 2022 and then begin to taper off slowly in the second half.

The ITO EN Group must accomplish two important goals: make our core brands even more powerful and speed up our growth outside Japan. As Japan's population declines, the beverage market is maturing and undergoing fundamental changes. For instance, tea and other unsweetened beverages now have a

Operations that encompass beverages and tea leaf products are a major strength of the ITO EN Group. For example, we sell Oi Ocha and Kenko Mineral Mugicha as bottled and canned beverages as well as tea bags and a variety of other tea leaf products. Selling Tully's Coffee beverages in bottles and cans generates synergies with the 764 "Tully Coffee" specialty coffee shops. Going one more step, we launched a drip coffee product in June 2021 that is easy to prepare. We will continue to leverage these strengths to make our branding activities even stronger.

The ITO EN Group has operations outside Japan mainly in North America, China, Southeast Asia and Australia. In the United States, the green tea leaf market is growing at an annual rate of about 4% and sales of ITO EN tea leaf products are increasing at an annual rate of about 6%. In addition, sales of our Oi Ocha beverages and global branded MATCHA GREEN TEA teabag products are consistently strong outside Japan. We will expand the Japanese tea market overseas by making more people aware of the aroma, umami and vivid color of high quality "Japanese tea," and by taking advantage of the opportunities presented by the increased health consciousness among people worldwide.

An Uncompromising Commitment to Quality

Based on the ITO EN Group's philosophy of "Always Putting the Customer First," we are constantly focusing

I would like to begin this year's message with my condolences to everyone who lost family members or friends due to the pandemic and my sincere wish for a speedy recovery of everyone currently infected with the coronavirus. I also want to express my sincere respect and appreciation for the hard work of healthcare professionals and others who are treating people and ghting this crisis.

The pandemic has dramatically altered the economy, society and our values. Many people have shifted to new life styles in order to live with the pandemic, such

as by restricting outings and working from home. The past scal year was a difcult period for Japan's beverage industry as the pandemic along with record- setting rain and ooding reduced total beverage sales in 2020 by 9% compared with 2019 sales. At the ITO EN Group, sales decreased 7.7% to ¥446,281 million in the scal year that ended in April 30, 2021.

Market conditions pose challenges for us but also create new opportunities. As people spend more time at home, the number of people, including young people, who make Japanese tea at home is increasing.

market share of more than 50%. We want to raise the market shares of our four core brands: Oi Ocha, Kenko Mineral Mugicha (Healthy Mineral Barley Tea), Tully's Coffee , and Ichinichibun no Yasai (A Day's Worth of Vegetables). The targets are market-leading positions by a wide margin for these brands.

Continuing to increase sales of Jujitsu Yasai (vegetable/fruit juice) and Mainichi Ippai no Aojiru (one glass of barley grass green juice a day) are also goals of ours as a growing number of consumers in Japan seek products that are healthy and authentic.

our attention on issues we call "STILL NOW," which means seeking what customers are still now dissatised with. Furthermore, we are always developing products that will satisfy our customers by prioritizing ve themes: natural, healthy, safe, well-designed, and delicious. We are also dedicated to providing services closely linked to our customers' needs. About 75%

of the beverages we sell are unsweetened, including the core Oi Ocha brand and other key brands such as Kenko Mineral Mugicha and Tully's Coffee . A commitment to technologies which maintain quality

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to produce outstanding unsweetened products that retain all of the richness and avors of tea and other ingredients is one of our greatest strengths. This mindset has dened the ITO EN Group since the beginning of our operations as a tea store in 1966. One result of this resolute commitment was the

1980 launch of canned oolong tea, the world's rst unsweetened tea beverage. This was the beginning of our beverage business. Today, we carry on this spirit of using innovative technologies and the creation

of new types of avorful unsweetened products. Furthermore, a resolute commitment to quality is paramount throughout the ITO EN Group, such as at Tully's Coffee Japan Co., Ltd., and Chichiyasu, K.K. and all overseas group companies. This dedication gives us a competitive edge that other companies cannot match. I believe that the high market shares of our tea beverages, tea leaf products and other major products are the direct result of these strengths of our group.

the production of quality tea leaves used in our tea leaf and beverage products. This innovative project has the dual goals of solving problems involving agriculture in Japan and ensuring a reliable supply of tea leaves. In addition, we operate a new type of specialty tea stores for the purpose of reinforcing the public's perception of the value of Japanese tea. The stores are also a link between tea farmers and consumers. The stores are Nihombashi Wa-no-ChaITO EN in central Tokyo and ocha room ashita ITO EN in Tokyo's trendy and vibrant Shibuya district. To increase the number of Japanese tea fans, the stores raise awareness of the delicious avors of Japanese tea and are sources of information about tea, including its appeal and culture as well as other knowledge.

ITO EN has succeeded at creating a culture of enjoying sugar-free tea beverages by developing products with origins in Japan's culture of tea along with qualities that reect the preferences of today's consumers. As the pandemic dramatically alters the lives of people worldwide, I believe that the mission of the ITO EN Group as the world's preeminent tea company is to be a constant source of new ideas for tea and other products that contribute to good health.

Supporting the Sustained Progress of Agriculture

Demand for green tea beverages and green tea leaf products has been climbing steadily for many years.

However, land used for growing green tea, the amount of green tea produced and agricultural workers for green tea are all slowly declining year after year. As

a buyer of about one-fourth of Japan' green tea production ITO EN have been conducting the Tea Producing Region Development Project since 1976. The purposes are ensuring a reliable supply of high- quality ingredients for our products and of helping solve various issues in Japan's agricultural sector. The project has two elements. One is contract growing, in which we purchase all of the green tea leaves produced by farmers participating in the project. The other is creating new land for growing green tea, such as by utilizing abandoned farmland to establish large tea elds. We started the farmland project in 2001 mainly in Kyushu and in 2020 extended these activities to Shizuoka prefecture. As of April 2021, this project has added 2,207 hectares of green tea elds, well above our original target of 2,000. Enlarging the cultivation of green tea also has the benets of supporting

the sustainable growth of green tea production in Japan, nding successors for the many farmers who are retiring, and dealing with the social problem of abandoned and unused farmland.

We also use knowledge acquired from the Tea Producing Region Development Project to use contract farming for the production of vegetables for our vegetable juice products. In addition, we participate in the Nippon Support Project that was started by Japan Agricultural Cooperatives as a new way to support

agriculture in Japan. In June 2021, we jointly launched the Nippon Support Miyazaki Prefecture Grown Hyuga Summer project and started sales activities of jointly developed products. I want ITO EN to continue to play a role as a link between farmers and consumers in Japan in order to raise the awareness and sales of Japan's agricultural products.

Environmental Activities

In 2020, we established the ITO EN Group Medium- to long-term Environmental Goals, which include goals related with climate change and water resources, and initiative for containers and packaging. We are making steady progress in all these areas while taking into account various changes affecting our initiatives. Plastic trash in the world's oceans and the need to recycle containers and packaging are two urgent issues directly linked to the primary business operations of the ITO EN Group and the entire beverage industry.

Our Mission as the World's Leading Tea Company

Formulation of the next medium- to long-term management plan in response to changes in the business environment

We have established the goal of using only PET plastic bottles made entirely of recycled materials by 2030 throughout our group. We plan to accomplish

Increasing demand for authentic products is another result of customers' new life styles and growing interest in healthy living. One trend we can see is a return

to making tea at home using a tea pot. To continue growing, the ITO EN Group needs to further appeal the authenticity of Japanese tea and further enlarge the Japanese tea market.

The ITO EN Tea Producing Region Development Project is a framework for working with tea farmers for

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Medium-tolong-term

Management Plan

・Strengthening the second pillar of business and prot base

・Strengthening management base ・Financial strategy

・CSV management initiatives

FY04 / 2022 target

Consolidated sales	600	billion yen
ROE	10	%or more
Total pay ratio	40	%or more
Overseas sales ratio	10	%

Changes in the business

environment

・Corona infection spread ・Super-aging society

・Expansion of health / life anxiety ・Changes in life and

communication, increase in community issues

・Drastic decrease in foreign visitors to Japan

・Reduction of domestic agriculture ・Global warming and water

resource problems ・Natural disasters

・Resource depletion / resource circulation

Medium- to long-term vision Towards a Global Tea Company

・Japan's leading tea company Global presence of "ITO EN"

・Proposal of food culture utilizing natural materials

Challenge to the domestic food eld

・Growth through the practice of CSV management

・Strengthening ESG initiatives: Consumer issues, communities / society, global environment

・ROE management:

ROE 10% / Total payout ratio maintain 40%

June 2022

New medium- to long- term management plan will be announced

this switch to 100% recycled materials for PET plastic bottles even earlier for our core Oi Ocha brand, which has an annual sales volume of more than

80 million cases. For this brand, our target is 2025. Our environmental activities also include the sale of products with biodegradable ECO straws made of plant-based materials. Overall, we plan to step up the pace of a broad range of environmental initiatives in accordance with the ITO EN Group Policy on Plastics. (see page 46)

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