Nikko : Fiscal Year 2021 (Ending March 31, 2022) 2nd Quarter Financial Results Briefing Session Materials

In this briefing session material, "AP" denotes asphalt plants and "BP" denotes concrete plants of our business.

Our president, Masaru Tsuji, will explain the progress in the 10‐year long‐term plan and in the final year of the Medium‐Term Management Plan, and our initiatives to promote sustainability. Our senior managing director, Hiroshi Fujii, will then explain the financial results.

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Let me explain the progress in the Medium‐Term Management Plan and the 10‐year long‐term plan.

We summarized it in the table. In 2019, when we marked our 100th anniversary, we formulated Long‐term Basic Policies for 10 years, and in order to ensure its steady implementation, we launched the Medium‐Term Management Plan, which is into its third and final year.

Let me review the medium‐term plan including the progress in Long‐term (10 years) Basic Policies and outlook for the current fiscal year.

□1. Strengthen revenue base in Japan

Our plan is to achieve 10% in operating margin in 10 years. For the current fiscal year, it is expected to be 6.0%.

It was 6.0% in FY 2019 compared with 4.5% a year earlier. It was 6.5% in FY 2020, and is expected to be 6.0% for the current fiscal year. There are various factors and I will explain them later.

□2. Establish overseas sales

We want to spread our technologies not only in the domestic market but also overseas, and we are implementing initiatives to spread them especially in the ASEAN region. The target is to double overseas sales, from the current 4.5 billion yen to 9.6 billion yen. Net sales in FY 2019 were 4.39 billion yen, while it was 3.73 billion yen in FY 2020. The

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outlook for the current fiscal year is 4.9 billion yen. We were unable to properly carry out our activities overseas due to COVID‐19 and our Shanghai Factory could not operate for one month, which together affected sales.

In Thailand in particular, we signed a sales agent agreement with TIPCO, a Thai company that is top in asphalt sales, and we are expecting sales of five APs in the current fiscal year. We are also currently building a Thai factory, which will be completed in December. We would like to drive forward production activities there from next year.

□3. Promote new businesses (including M&A)

It means we will take on new businesses, allocate management resources, and create a base of new products in the fields of industrial machinery and construction machinery. We aim to generate 10 billion yen in sales in these new business fields. Specifically, we have mentioned the mobile plant business and waterproof board business, which have just begun to grow. The mobile plant business, led by mobile crushers, had sales of 90 million yen in FY 2018. Sales were 500 million yen in FY 2019, exceeded 1,000 million yen last year, and are doing very well in the current fiscal year with a forecast of 1,600 million yen.

Waterproof boards are products that prevent damage from floods, such as those caused by the recent guerilla rainstorms. Sales, which were 210 million yen in FY 2018, exceeded 800 million yen in FY 2019, reached 900 million yen last year, and we expect 900 million yen in sales again in the current fiscal year. We believe the business still has room for large growth.

□4. Put work‐style reform into practice

This item is to improve the efficiency of our operations and productivity, and we are promoting the centralization of office work and the utilization of IoT and AI.

We are promoting speedy information sharing that is not restricted by time as well as business improvement utilizing the internet, and have made tremendous progress in improving our operations, partly pressed by COVID‐19.

Remote maintenance service is worthy of special mention. This is a business where we offer plant maintenance service remotely to our customers, and have been doing this for almost 20 years. The contract rate of remote maintenance, which was 46% as of the end of January 2020, rose to 67% in August and to 73.8% as of the end of May 2021, and currently more than 75% of the customers have signed the contract. With the ratio of customers who have signed for the service rising, we believe that we are shifting from after‐incident maintenance to predictive maintenance and then to preventive maintenance. Instead of acting after a failure, we are promoting a fixed annual rate maintenance contract to take measures based on prediction before a failure occurs. Currently we have received orders for five plants, and we can further improve the business efficiency of maintenance services as well as customer satisfaction by expanding this business.

□5. Make ROE a KPI

It means we are aiming for 50.0 billion yen or more in market capitalization and ROE of 8% or more. It is also an initiative to offer returns to our shareholders by setting the payout ratio at 60% or more.

Market capitalization was 19.25 billion yen as of the end of FY 2018, 24.3 billion yen as of the end of FY 2019, 29.2 billion yen as of the end of FY 2020, and 26.6 billion yen as of

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the end of September 2021. Our ROE is stagnating after reaching 5.2%, but we expect to see some scope for improvement. The figure has been unexpectedly sluggish due to the sudden rise in price of supplies, partly due to COVID‐19, but we believe that there is enough room for taking measures.

As for listing our shares on the Prime Market in April 2022, we have fulfilled all criteria and would like to shift to activities on the Prime Market.

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