Kanamoto : Report of Business Operations for the 58th Business Period

Report of Business Operations for the 58th Business Period (Business Period ended October 2022) (Attachment to the Notification and Invitation to the 58th Regular General Meeting of the Shareholders) From November 1, 2021 to October 31, 2022

1. Analysis of Operating Results and Financial Position

1. Analysis of Operating Results

1. Summary of consolidated fiscal year operating results (From November 1, 2021 to October 31, 2022)

During the consolidated fiscal year under review, while Japan's economy showed signs of recovery in economic activities that had been stagnant due to the spread of COVID-19, the situation remained unpredictable due to the prolonged situation in Ukraine, soaring raw material prices, and growing concerns of an economic recession caused by global financial tightening and other factors.

In the construction industry in which the Group is involved, although public sector investment remained steady and private sector construction investment has shown signs of gradual recovery, the situation still requires monitoring as semiconductor supply shortages, soaring material prices and chronic shortage of skilled construction workers are becoming increasingly more severe.

In such circumstances, based on the three key measures in the Medium-Term Corporate Management Plan "Creative 60" (FY2020-2024), the Group is reinforcing the Alliance Group's foundations in Japan and overseas, pursuing synergistic effects to further improve management efficiency, while carrying out a flexible investment strategy that responds to actual demand. In addition, the Group focused on sustainable development and enhancement of corporate value by realizing efficient utilization of rental assets and building an organizational structure to address sustainability issues.

Consequently, in the fiscal year ended October 31, 2022, the Group reported net sales of ￥188,028 million. On the earnings front, partly due to an increase in selling, general and administrative expenses caused by investment in human resources in preparation for the future, in addition to a trend of rental demand, operating profit decreased 9.5% from the same period of the prior fiscal year to ￥13,229 million, ordinary profit declined 10.5% to ￥13,780 million, and profit attributable to owners of parent decreased 6.3% to ￥8,345 million.

Results for each of the Company's business segments were as follows.

1. Summary of consolidated operating results by business segment [Construction Equipment Rental Business]

In the construction-related business, which is Kanamoto's core business, public sector investment remained steady, primarily in activities carried out for Japan's National Resilience Plan as well as infrastructure-related construction, and while private sector construction investment showed signs of picking up, regional differences, as well as delays and slow progress in construction due to soaring material prices at some sites, prevented a full-scale recovery in rental demand for construction equipment.

In addition to strengthening its ability to respond to the fields of maintenance and repair of social infrastructure and renewable energy, where further priority investment is expected, the Group also promoted technological development and business alliances aimed at realizing DX at construction sites by utilizing digital technology and reducing environmental impact.

As a result, sales by region in this business were up 5.5% in the Hokkaido Region, down 7.3% in the Tohoku Region, down 0.6% in the Kanto & Koushinetsu Region, down 0.7% in the Nishi-nihon Region, and up 1.1% in the Kyushu & Okinawa Region.

Used construction equipment sales decreased 15.1% year on year, as Kanamoto has carried out the extension of the rental equipment operation period as planned at the beginning of the fiscal year.

Reflecting these factors, the Group posted net sales in the construction-related businesses of ￥170,433 million, and operating profit of ￥11,508 million, a decrease of 11.8% year on year.

[Other Businesses]

In the Group's other businesses, net sales was ￥17,594 million and operating profit increased by 11.0% year on year to ￥1,232 million, as the business related to the Steel Sales Division as well as the business related to the Information Products Division and welfare-related business performed well.

			(Millions of yen)
	57th Business Period	58th Business Period	Change from
Segment	Business Period ended	Business Period ended
prior year (%)
	October 2021	October 2022
Construction Equipment	171,020	170,433	－
Rental Business
Other Businesses	18,395	17,594	－
Total	189,416	188,028	－

Note：Given that the Company has applied the "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29 of March 31, 2020) and relevant ASBJ regulations from the beginning of the 58th Business Period, the above figures for the 58th Business Period (Business Period ended October 2022) are amounts subsequent to the application of said accounting standard and relevant ASBJ regulations. As a result, percentage changes for year-on-year comparisons of net sales are not shown.

1. Financing activities
   1) Funds Procurement
   Funds procurement through capital increase or the issuance of corporate bonds has not

been performed during the current consolidated fiscal year.

2) Capital investment

Capital investment implemented by the Kanamoto Group during the current consolidated fiscal year totaled ￥35,831 million. This included purchases of rental equipment of ￥30,605 million, and investments in assets used by the group, including the establishment, relocation and expansion of branches, of ￥5,226 million.

• Main branches newly established in the Corporate Group >

Kanamoto Co., Ltd.

Closed branches: Tokyo Construction Branch,Special Small Equipment Center(Misato City, Saitama Prefecture)

Adachi Branch (Adachi Ward, Tokyo)

1. Transfer, absorption, division or new establishment of businesses The Company had no material items to report.
2. Receipt of businesses from other companies

The Company had no material items to report

1. Succession to rights and obligations concerning the businesses of other corporations etc. by absorption and merger or absorption and division

The Company's consolidated subsidiaries Nishiken CO., LTD. and Kyushu Kensan Co., Ltd. conducted an absorption-type merger with the effective date of January 1, 2022, with Nishiken CO., LTD. as the surviving company.

The Company conducted an absorption-type merger with its wholly owned subsidiary Sanwa Kikai Lease Co., Ltd. with an effective date of June 1, 2022.

1. Acquisition or disposal of shares, other equity or subscription rights to shares of other companies

The Company had no material items to report

1. Financial position and profit and loss in the current business period and three immediately prior business periods

(Millions of yen except per share data, which are in yen)

	55th Business Period	56th Business Period	57th Business Period	58th Business Period
	(current consolidated fiscal year)
Category	(Business Period	(Business Period	(Business Period
(Business Period ended
	ended October 2019)	ended October 2020)	ended October 2021)
	October 2022)
Net sales	180,694	179,053	189,416	188,028
Ordinary income	18,277	14,268	15,391	13,780
Profit
attributable to	11,430	8,466	8,907	8,345
owners of parent
Net income per	295.30	221.45	235.55	224.64
share
Total assets	268,182	301,533	303,754	305,320
Net assets	121,779	126,188	134,917	140,611
Net assets per	2,981.68	3,150.30	3,357.10	3,571.98
share

Note：1. During the 57th Business Period, the Company finalized the provisional accounting treatment for business combinations. As a result, figures for the 56th Business Period are amounts that reflect the finalization of the provisional accounting treatment.

2. Given that the Company has applied the "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29 of March 31, 2020) and relevant ASBJ regulations from the beginning of the 58th Business Period, the above figures for the 58th Business Period (Business Period ended October 2022) are amounts subsequent

to the application of said accounting standard and relevant ASBJ regulations.

(4) Issues to be Addressed by the Company

The outlook for the economy remains unclear due to the effects of COVID-19 infections and the global inflation accelerating.

In the construction equipment rental business, which is a core business of the Kanamoto Group, it is important to select rental assets that match the characteristics of sales areas and customers' needs. Based on the collected data, the Company must build an asset portfolio structure aimed at maximizing operational efficiency and establish a strong earnings structure with a detailed operation. In addition, the Company also needs to aspire to be a "general rental company" that provides one-stop and comprehensive customer service, not just rental of goods.

1) Strengthen human resources training, and also Kanamoto Group alliances

In the construction equipment rental industry, intensifying competition between companies could lead to a trend of mergers and acquisitions due to a further increase in distinction and selection. The Company will make efforts to develop employees with the knowledge and skills appropriate for a leader in the construction equipment rental industry, and we will work to develop human resources that can adapt to business expansion in Japan and overseas.

Also, in order to expand the business domains that are essential for the Company to become a general rental company, we will strengthen cooperation with the Group companies and relationships with alliance companies to increase synergy effects between the Group.

2) Deepen asset strategies

In introducing rental assets, we give top priority to market needs, but in recent years the particulars of domestic construction demand, such as ICT techniques, are changing, and therefore we ultimately determine the composition of the assets to be introduced and appropriate amount thereof by thoroughly examining the market and earnings characteristics not only at present, but also looking forward.

To improve operational efficiency of assets, the Group will work to further strengthen systems for collaborative cohesion within the Group.

3) Optimizing Maintenance Costs

Maintaining and improving rental asset value is the very lifeline of the construction equipment rental business, and maintenance costs are essential to that end, but we aim to reduce the cost ratio by consolidating and optimizing the expertise of the Group in