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Medium-term Management Plan (2020-2022) May 14, 2019 Tekka Kuba

Medium-term Management Plan (2020-2022)...certification of ISO 14001: 2015 Operating income 3,537 3,907 + 369 The segment of Structural Steel Materials were solid by big demand

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Page 1: Medium-term Management Plan (2020-2022)...certification of ISO 14001: 2015 Operating income 3,537 3,907 + 369 The segment of Structural Steel Materials were solid by big demand

Medium-term Management Plan (2020-2022)

May 14, 2019

Tekka Kuba

Page 2: Medium-term Management Plan (2020-2022)...certification of ISO 14001: 2015 Operating income 3,537 3,907 + 369 The segment of Structural Steel Materials were solid by big demand

Revisions to the medium-term management plan

1

2019 2020 2021

Million yen Plan Actual VS. Plan Previous

Plan Revised

Plan

VS. Previous

Plan

Previous Plan

Revised Plan

VS. Previous

Plan

Net Sales 55,316 57,828 + 2,511 58,056 63,070 + 5,013 58,674 65,010 + 6,335

Operating income

3,733 3,907 + 174 4,013 4,010 △ 3 4,089 4,180 + 90

Ordinary income

3,833 4,023 + 190 4,112 4,080 △ 32 4,191 4,240 + 48

Profit attributable to owners of parent

2,626 2,748 + 121 2,818 2,760 △ 58 2,873 2,840 △ 33

The revised targets reflect Kondotec’s expectation that the industry will be challenged by rising prices of steel materials and higher procurement costs, especially for imported materials. On the positive side, it expects continuing strong demand related to urban redevelopment projects and strong corporate capex supported by solid corporate earnings.

Page 3: Medium-term Management Plan (2020-2022)...certification of ISO 14001: 2015 Operating income 3,537 3,907 + 369 The segment of Structural Steel Materials were solid by big demand

Overview of the 2019

2

Million yen 2018 2019 YoY Overview Topics

Industrial Materials

Net Sales 30,262 32,459 + 2,197 Achieved sales growth due to steady demand. But, decreased profit due to declining gross profit ratio and the increased expenses.

・Acquired business from Mechatro Engineering Co., Ltd. ・Acquired shares of TECBUILD CO., LTD.

Operating income

2,030 1,954 △ 75

Structural Steel Materials

Net Sales 14,410 16,756 + 2,346 Achieved sales and profit due to the big demand

・Opened the Okayama office Operating

income 1,338 1,717 + 379

Electrical Equipment

Net Sales 8,138 8,612 + 473 Achieved sales and profit due to steady demand and improvement gross profit ratio

・Acquisition of Real Estate Brokerage license Operating

income 183 262 + 078

Total (Consolidated)

Net Sales 52,811 57,828 + 5,016 ・Completed the second factory in Shiga Factory

・Shiga Factory acquired certification of ISO 14001: 2015

Operating income

3,537 3,907 + 369

The segment of Structural Steel Materials were solid by big demand. As a result, KONDOTEC’s earnings were expanded. We were promoted the organic growth strategies, such as cultivation of distribution routes / adoption of flexible sales methods, in addition to the increasing presence in foreign markets / M&A.

Page 4: Medium-term Management Plan (2020-2022)...certification of ISO 14001: 2015 Operating income 3,537 3,907 + 369 The segment of Structural Steel Materials were solid by big demand

Recognition of the Business Environment

3

Future Present

The company’s business environment is expected to remain favorable in the foreseeable future thanks to support from inbound demand and urban redevelopment projects. However, it also expects changes, such as a gradual decline in demand from domestic construction spending (a key driver of its existing core businesses) and higher demand for maintenance and repairs.

Decrease in construction investment demand and increase in maintenance / repair demand

Robust construction investment demand

Robust demand in the private capital investment ・Capital investment related to inbound demand ・Urban redevelopment projects

Solid social infrastructure investment ・Prevention / mitigation measures for natural disaster ・Construction work related to the Linear Chuo Shinkansen and projected Shinkansen lines

Working environment and production form ・Labor-intensive

Changes in demand area for capital investment ・Shrinkage of domestic markets due to population decrease ・Increased investment in ASEAN countries

Changes in the content of social infrastructure investment ・Restraint in public investment due to fiscal constraint ・Increase in maintenance/repair construction work

Working environment and production form ・Increase in capital investment related to labor-saving

the aging of social infrastructure

a declining birthrate and an aging population

labor shortages

Domestic market stagnation

Page 5: Medium-term Management Plan (2020-2022)...certification of ISO 14001: 2015 Operating income 3,537 3,907 + 369 The segment of Structural Steel Materials were solid by big demand

Basic Policy

4

In order to respond to the changing opportunities and risks associated with changes in the business environment, we will strive for sustainable growth and improvement in long term corporate value by through investment in areas expected to grow going forward (overseas, maintenance and repair, and labor-saving) in addition to enhancement our earnings capability in the existing core business.

2019

Net sales 57 billion yen

ROE 10.7%

DOE 2.7%

Growth strategy

Reinforcement of management base

Establishment of target indicators

Appropriate allocation of funds

・Maintain and expand the current earnings, which have been breaking past profit records ・Growth investment with conscious of capital costs

Net sales 100 billion yen (during 2020s)

Page 6: Medium-term Management Plan (2020-2022)...certification of ISO 14001: 2015 Operating income 3,537 3,907 + 369 The segment of Structural Steel Materials were solid by big demand

Growth Strategy

5

We will strengthen areas expected to grow going forward (overseas, maintenance and repair, and labor-saving) by execution of non-core growth strategies and M&A strategy in addition to enhancement our earnings capability in the existing core business.

Non-core growth strategies

・Increasing presence in foreign markets

・Entry into the neighboring industry

・Expansion of the online business

etc.

Organic growth strategies

・Four growth strategies

・Expansion of operating sites

・Response to natural disasters

etc.

M&A Strategy Strategies to accelerate organic and non-core growth

1 Neighboring industry Pursue M&A with companies associated with industries other than the construction industry 2 Deepening the business Pursue M&A with material manufacturers, etc. 3 Expansion of business area Pursue M&A with companies that maintain overseas sites 4 Amplifying sales patterns Pursue M&A with companies that operates different sales patterns from those of KONDOTEC

Expansion of distribution channels Entry into the online business

Full-scale deployment in ASEAN countries (e.g. Thailand, Indonesia) Amplifying sales patterns

Deepening the business Reinforcement of

materials that support buildings and structures

Shipbuilding, transport, land and sea cargo handling, manufacturing & production facilities, fisheries, cultivation, agriculture, etc.

Four perspectives

Neighboring industry

Expansion of business area

Page 7: Medium-term Management Plan (2020-2022)...certification of ISO 14001: 2015 Operating income 3,537 3,907 + 369 The segment of Structural Steel Materials were solid by big demand

Business areas

Design and manufacture of labor-saving and image processing equipment

Color identification inspection

Sort out the different colors mixed in the high-quality goods flowing at high speed.

< Example >

Visual inspection

Inspect the external dimensions and the presence or absence of dirt and scratches, and sort out non-defective products and defective products.

Mechatro Laboratory Design and manufacture of labor-saving

and image processing equipment

Collaboration

CHUOH GIKEN Co., Ltd.

Design and manufacture of various

types of machines equipment,

including labor-saving equipment, etc.

Provide high value-added products

Examples of strengthening areas expected to grow

< Example >

Factory new construction Bridge construction

Business areas

Sale and rental of scaffolding for civil engineering and architecture

◆Acquired TECBUILD CO., LTD. in February 2019 to strengthen the field of maintenance and repair.

◆Acquired labor-saving and image processing equipment business from Mechatro Engineering Co., Ltd. in December 2018 to strengthen the field of labor-saving.

【System after business acquired】 【Latest performance】

2019

Net sales 2,620 million yen

Operating income △ 37 million yen

Ord inary income △ 51 million yen

EBITDA 190 million yen

6

Page 8: Medium-term Management Plan (2020-2022)...certification of ISO 14001: 2015 Operating income 3,537 3,907 + 369 The segment of Structural Steel Materials were solid by big demand

Target Indicators

Capital efficiency target

ROE is a major management indicator for KONDOTEC. We aim for an ROE of 10% or higher by striving to improve capital efficiency as well as working to strengthen our financial position and take other steps to enhance our earnings capability in pursuing strategic investment by M&A and other means, as well as actively expanding business investment aimed at growth.

Shareholder return target

In terms of dividends, while fully taking into account both consolidated operating results and the dividend payout ratio, we have the basic policy of distributing dividends to shareholders continuously and stably, targeting a dividend on equity (DOE) of 2.5% or higher.

Capital efficiency target ROE 10%以上

Shareholder return target DOE 2.5%以上

DOE is an indicator that takes into account both a dividend payout ratio, which is appropriation for shareholders and ROE, which is capital efficiency. That is an indicator that contributes to the creation of shareholder value we set.

7

We set “capital efficiency target” and “shareholder return target”.

Page 9: Medium-term Management Plan (2020-2022)...certification of ISO 14001: 2015 Operating income 3,537 3,907 + 369 The segment of Structural Steel Materials were solid by big demand

Financial Target

Consolidated target (million yen)

2019 (Actual)

2020 (Plan)

2021 (Plan)

2022 (Plan)

Net sales 57,828 63,070 65,010 66,570

Operating income 3,907 4,010 4,180 4,300

Ordinary income 4,023 4,080 4,240 4,370

Profit attributable to owners of parent

2,748 2,760 2,840 2,920

The Medium-term Management Plan adopts the rolling method which responds to changes in the business environment while verifying the outcome and issues every year in an effort to realize the mid-to-long vision.

8

We will aim to achieve increase in net sales and income by financial target based on the Existing sales structure

《Medium-term Target》

《Long-term target》

During 2020s Net sales(Consolidated) 100 billion yen

Page 10: Medium-term Management Plan (2020-2022)...certification of ISO 14001: 2015 Operating income 3,537 3,907 + 369 The segment of Structural Steel Materials were solid by big demand

Allocation of funds

9

Operating CF 8,700

million yen (*)

Funds on hand 10,133

million yen

We maintain high capital efficiency through growth investment with conscious of capital costs and stable shareholder returns

Stable and continuous dividends Dividends DOE

2.5% or more

Execution of M&A Strategic

investment

4,000 million

yen

Equipment replacement, Relocation and rebuilding of sites etc.

Capital investment

6,300 million

yen

Transformation of lump-sum retirement allowance to defined-benefit corporate pension plan

Investment in people

800 million

yen

Investment for growth

Shareholder return

(*) Temporary increase in contributions due to the transformation of lump-sum retirement allowance to defined-benefit corporate pension plan is not included.

Operating income 4,300

million yen

ROE 10%以上

2022 (Plan)

Page 11: Medium-term Management Plan (2020-2022)...certification of ISO 14001: 2015 Operating income 3,537 3,907 + 369 The segment of Structural Steel Materials were solid by big demand

Actual of Investment for growth and Shareholder return

10

◆The results have generally progressed well against the previous plan(2019~2021)

Item Contents 2019~2021

(Plan)

2019 Residual funds

Actual Progress rate

Investment in people

Transformation of lump-sum retirement allowance to defined-benefit corporate pension plan

1,200 million yen

400 million yen

33.1% 800

million yen

Capital investment

Equipment replacement, introduction of new equipment to factories, etc.

2,800 million yen

981 million yen

35.1% 1,818

million yen

Strategic investment

Execution of M&A 3,600

million yen 1,015

million yen 28.2%

2,584 million yen

Dividends Stable and continuous dividends 2,300

million yen 696

million yen 30.3%

1,603 million yen

Item Residual funds

① 2022 (Plan)

Previous Plan base total (①+②)

Revised Plan 2020~2022

(Plan) Revised factor

Investment in people

800 million yen

― 800

million yen 800

million yen No revised

Capital investment

1,818 million yen

508 million yen

2,326 million yen

6,300 million yen

Increased investment in sites to enhance our earnings capability in the existing business

Strategic investment

2,584 million yen

― 2,584

million yen 4,000

million yen Increased investment to execute of M&A strategy actively in the future

◆We revised the fund allocation plan to sustainable growth and improvement in long term corporate value

Page 12: Medium-term Management Plan (2020-2022)...certification of ISO 14001: 2015 Operating income 3,537 3,907 + 369 The segment of Structural Steel Materials were solid by big demand

Reinforcement of management base

11

We fulfill our social responsibility through business activities while taking the initiatives which are conscious of SDGs and ESG. Moreover, we will strive for sustainable growth and improvement in long term corporate value.

・Improvement of quality control ability, productivity and product development technology ・Response to natural disasters ・Promoting constructive dialogues with shareholders and investors ・Creating a platform on which diverse human resources can keep working free from anxiety

Social

・Expansion of the handling of environment-related products and merchandise ・Environmental protection and Energy-saving initiatives ・Management of emissions

Environment

・Reinforcement of corporate governance ・Investment with conscious of capital costs ・Thorough compliance

Governance

Specific initiatives Relevant SDGs

Page 13: Medium-term Management Plan (2020-2022)...certification of ISO 14001: 2015 Operating income 3,537 3,907 + 369 The segment of Structural Steel Materials were solid by big demand

【 Supplement 】 Transition in dividends (Plan to increase dividends for the 9th consecutive period)

◆ Transition in dividends

12

0Yen

5Yen

10Yen

15Yen

20Yen

25Yen

30Yen

35Yen

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Commemorative dividendIncrease in ordinary dividendsOrdinary dividend

Since the initial listing: No decrease in dividends We have the basic policy of distributing dividends to shareholders continuously and stably. Moreover, we are targeting dividend on equity(DOE) 2.5% or more.

We executed a 2-for-1 stock split of common stock on January 1, 2012. Dividend per share is all figures taking into consideration the impact of stock split.

5.5 Yen

6.0 Yen

10.0 Yen

5.0 Yen

11.0 Yen

13.0 Yen

13.5 Yen

14.0 Yen

15.5 Yen

20.0 Yen

22.0 Yen

23.0 Yen

26.0 Yen

(Plan) 24.0 Yen

29.0 Yen

(Plan)

Page 16: Medium-term Management Plan (2020-2022)...certification of ISO 14001: 2015 Operating income 3,537 3,907 + 369 The segment of Structural Steel Materials were solid by big demand

◆ Notes on forward-looking statements

This document contains forward-looking statements including operating forecasts and business plans. Future operating performance projections that the Company releases are based on data available at the time of making the release. Actual results may differ considerably from projections due to various factors and changes.