Investor Relations

Message from the President

(from Integrated Report 2019)

 Kanematsu is pushing ahead with future 135, its medium-term vision for the six years beginning fiscal 2019. Under future 135, we have established the priority initiatives of sustainable growth in fundamental businesses and the expansion of the revenue base through business investment, response to technical innovation, and establishment of management infrastructure for achieving sustainable growth. Leveraging our stable earnings structure and financial structure, we are advancing into the next stage of growth, with the aspiration of being a unique general trading company.

01.Kanematsu's Social Mission

This year marks the 130th anniversary of the Kanematsu Group's founding in 1889. In line with the entrepreneurial spirit that flows through the core of our business activities, which span three centuries, we believe that taking a broad view of international society and ambitiously working to solve social problems through our businesses is our mission. Kanematsu has long played an important role in society by creating businesses that provide new added value, contributing to the development of the Japanese and global economies.

Today, in agreement with the principles of the United Nations' Sustainable Development Goals (SDGs), we are encouraging development in areas rooted in social issues and problem solving within fields unique to Kanematsu, where other trading companies do not operate. At the selection stage of each project, including the formulation of the of the medium-term vision, we explore the project's relevance to the SDGs. As a result of this approach, over the past year, I have noticed a rise in responsiveness to SDG related topics both within the Company and among our suppliers and business partners. As a trading company, Kanematsu controls entire supply chains and coordinates operations across countries, regions, cultures, and levels of economic development. Accordingly, I think that communicating the importance of the SDGs from our positions at key nodes of business is extremely important. In addition, I think that we need to deepen our understanding of the role of the Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD), more comprehensively examine climate-related risks and opportunities, and factor such considerations into our businesses going forward. Top management must take the lead in making clear their company's role in society, mission, and growth trajectory so that each and every employee can understand their own social mission and social impact, and always act accordingly. To this end, we are proactively working to share timely information and messages from management through such means as an internal Group website established in October 2018 that is accessible from overseas Group locations and Group companies.

02.Where Kanematsu Stands and the Challenges Ahead

 Under future 135, Kanematsu's medium-term vision launched in fiscal 2019, we are taking a long-term perspective to ensure that Kanematsu continues to grow in the future.

Kanematsu's business model is rooted in trading, the very foundation of a trading company. Kanematsu is a unique presence; while we do not invest in such volatile markets as natural resources, our business activities extend over a broad range of fields, and we engage in professionalized businesses based on sophisticated expertise in areas of strength.We are aiming for further scale expansion in these fields while focusing on securing greater added value in areas of strength. By doing so, I hope that the Kanematsu Group will be seen as leader in numerous areas of expertise.

 Furthermore, we are carefully reading market trends as we focus efforts on developing businesses centered on AI, IoT, and other advanced technologies. Turning to the challenges ahead, the long process of rebuilding our management base has taken the edge off the speed of Kanematsu's business creation. This is an issue we have been facing for some time. Quick management decision making requires human resources with the know-how to maintain a comprehensive view of all operations, even when dealing with individual processes. We see the reinforcement of management personnel development as the most important measure we can take to resolve the business challenges we face. Accordingly, during the six years of the medium-term vision, we will strive to raise the level of management expertise and rebuild the Company as a dynamic organization to speed up business creation. Specifically, in July 2019, we reinforced and systematized our existing human resource training systems, creating a training system called Kanematsu University to guide and teach employees over their first ten years with the Company. We are also conducting management education not only for current executives, but at varying scales in accordance with each individual's capabilities, regardless of gender or age. Winning the trust of our business partners, so that they are confident letting Kanematsu handle their business management, is a guidepost in determining the ideal as a trading company that we should aim for going forward. As president, I take pride in the high quality of the Kanematsu Group's employees. By further reinforcing our human resource development, I feel that we will secure the people who will drive the Company toward our vision for the future. I therefore have tremendous expectations for the future of the Kanematsu Group. By taking a long-term approach to human resource development, spanning 20, or even 30 years, I hope, as a member of the Group's leadership, to foster a sense of unity and trust within the Company.

03.Fiscal 2019 Performance

 In fiscal 2019, the year ended March 31, 2019, gradual economic growth continued in and outside Japan, despite concerns about modulations in global financial markets and increasingly serious trade frictions. Within the Kanematsu Group, the energy business, which was affected by falling crude oil prices, the motor vehicles and parts business, which saw reduced shipments to the Middle East due to U.S. economic sanctions, and the semiconductor parts and equipment business, which was impacted by U.S.-China trade frictions, each recorded year-on-year declines in revenue and profit. However, several other businesses achieved increased revenue and profit, driving the Group's overall performance. These included the ICT solutions business, which enjoyed robust IT investment demand, the mobile business, which benefited from continued synergy from the merger of two mobile phone sales subsidiaries, the feedstuff business, which benefitted from stable mixed feedstuff prices, and the aerospace business, which saw favorable sales to Japanese government agencies and overseas aircraft part transactions. As a result, both revenues and sales rose year on year, and profit before tax reached a new record high.

 Furthermore, reflecting the recording of retained earnings, the equity ratio* increased to 22.8%, and the net D/E ratio came to 0.4.

  However, these results are merely a point on the way to the long-term growth we aim for. By focusing on how the Kanematsu Group can grow and contribute to society as society continues to evolve, we aim to reach even greater heights.

04.Priority Initiatives under future 135

 While maintaining and strengthening the sound financial base we have established, we will focus on more deeply developing our areas of strength and work to build businesses using innovative new technologies. Our targets for fiscal 2024, the final year of future 135, are consolidated net income of ¥25 billion, ROE of 13%-15%, and a total return ratio of 25%-30%. Implementing the vision's three priority initiatives, we are moving forward on the past to growth.

I. The first priority initiative under future 135 is "Sustainable growth in fundamental businesses and the expansion of the revenue base through business investments." Our existing businesses will remain the foundation of the Kanematsu Group's revenue, and we will continue working toward sustained, steady growth in these businesses. The feedstuff business, which plays an important part in food supply in Japan, is a good example. Going forward, as technologies evolve and needs change, some businesses will fade away, while other, new businesses emerge; in such an environment, I think that imagination and ingenuity will be particularly crucial to expansion in existing businesses. Technological innovation may bring more opportunities for investment in efficiencies and other areas. To make sure we do not drop the ball, we will advance collaboration between businesses and expand our revenue base through appropriate investment and M&A in areas where we have deep insight. The time span of the new vision, six years, is rather long. Each business must therefore set goals, such as, for example, doubling revenue in existing fields, and consider what is necessary to meet those goals as we move forward.

II. Second, "Response to technical innovation," as exemplified by such technologies as IoT and AI, will be indispensable as we build the Kanematsu Group's future. Across all business fields, the application and integration of IoT and other new technologies are advancing, creating needs for structural innovation. In this environment, the Electronics & Devices Division is focusing on offering high-value-added business models using new technologies. Going forward, trading companies will need to create added value that transcends individual business areas. We will promote the coordination of businesses that possess cutting-edge technologies with other businesses and our partners, further reinforcing business creation through broad-reaching collaboration across business areas. From fiscal 2019, we have created the position of Chief Officer of Technologies and Business Collaboration, and we are working to accelerate the creation of new businesses and develop them into pillars of growth by harnessing technological innovation. By building new businesses in step with changes in society, the Kanematsu Group aims to fulfill its mission.

III. Third is "Establishment of management infrastructure for achieving sustainable growth." We recognize that people are the foundation of all we do, and, accordingly, there are many things we must work on. First, we urgently need to cultivate management personnel. To this end, we are creating new training programs and enhancing other educational measures aimed at raising the quality of our employees. At the same time, we are implementing measures to raise employee satisfaction as well as work style reforms. Each individual has different values, so it is extremely difficult to create something that everyone will be 100% satisfied with. It is important, however, that we create frameworks in which employees can find meaning in their work and enjoy the use of their imagination and ingenuity and then operate such frameworks while enhancing communication. Furthermore, as we work toward global business expansion, we are aiming to increase the number of specialized operating companies in key overseas markets. To this end, we are working to enhance our internal systems. We plan to complete these initiatives during the first half of the medium term vision. In addition, we will implement systems to quantitatively assess our management situation and related risks.

05.Progress in the First Year of the future 135 Medium-Term Vision

 Looking back at the first year of future 135, I am confident that we have made steady, if gradual, progress on such fronts as replacing portfolio assets, advanced technology initiatives, and promoting consolidated management.

  At the same time, I feel that growth was a little slow. Business creation and expansion are possible only if a business opportunity is identified, researched, and assessed to determine its future potential. I have felt that we need to further accelerate this process leading up to business development. The most important factors in making accurate judgments are the amount of firsthand information obtained and the discernment to interpret it, and fostering such discernment entails equipping human resources with management knowledge. Therefore, human resource development is a pressing and essential task.

 Looking at progress by segment, in the Electronics & Devices segment, which boasts a stable earnings base, the market for the ICT solutions business of Kanematsu Electronics Ltd. is in the midst of rapid technological innovation, which we believe will present further business opportunities going forward. Over the past 30 years, reflecting the tide of innovation from analog to digital technologies, the segment has steadily grown stronger and larger, becoming one of the Group's mainstay divisions. Today, the concept of digital transformation is causing a new wave of digitization in corporate operations. By seizing on the opportunities presented by this shift, we expect the Electronics & Devices segment to develop and evolve immensely going forward.

  The Foods & Grain segment maintains strong competitive advantages. However, the importance of developing new technologies and products is increasing, particularly in the areas of raw ingredients, processed foods, and cooked foods. As such, I think that we need to develop businesses in these areas even more aggressively.

 In the Steel, Materials & Plant segment, we continue to aim for scale expansion centered on business investment and M&A in the areas of steel, chemicals and machinery and working to bring highly specialized human resources into the Group.

 In the Motor Vehicles & Aerospace segment, our strength is in our proposal- and problem solving-based business model that leverages abundant information resources. Business expansion in next-generation automobile markets as well as eff orts in the space business are progressing smoothly.

06.Growth Strategy by Business under future 135

 Expansion of scale, acquisition of added value, and investment in innovation (seeds) are the axes of growth strategy under future 135. The first, expansion of the scale, is aimed at growing our customer base, markets, and market share. In addition to investing in the Electronics & Devices segment, which encompasses numerous business areas where we are highly competitive, I think that the machinery and chemicals businesses in the Steel, Materials & Plant segment need a boost. The main areas for the acquisition of added value include feedstuff, foods, and steel, where we will add new functions to existing businesses. Looking at investment in innovation aimed at sowing the seeds of the future, we will need to take a new approach to business investment. We will realize cross-division collaboration focused on advanced technologies, such as AI and IoT, to create new businesses.

 In light of the importance of advanced technologies and business collaboration, in November 2018, we established the Technologies and Business Collaboration Team to coordinate across all segments and assigned an executive officer to manage it. By fostering collaboration within the Group and with overseas businesses, this team will accelerate new business creation. Going forward, we will intensify our response to technical innovation and advance investment in business creation and innovation in pursuit of the expansion of scale and acquisition of added value based on effective business investment.

07.Investment in Growth under future 135

 In fiscal 2019, we made new investments totaling approximately ¥8 billion in areas where we have strength and insight. In the Electronics and Devices segment, we made G-Printec, Inc., a domestic card printer company, a wholly owned subsidiary. G-Printec has already contributed to division results. In the Motor Vehicles & Aerospace segment, we invested in Cyber Innovation Partners II, a U.S. cyber security fund. Through this fund, which is set up by AllegisCyber Capital, a U.S. venture capital firm, we aim to uncover advanced technologies in the cyber security field, which is expected to see continued growth, and to contribute funds toward the growth of such technologies. Furthermore, by purchasing used aircraft, we built up the assets of the aircraft part business. In addition, we made an equity-method investment in a South Korean steel sheet and plate processer and established a company for the primary processing and sale of meat products in China.

 In terms of investment projects, we formed a business tie-up with WERU INVESTMENT Co. Ltd., a venture capital entity that originated at a major Japanese university. By linking Kanematsu's business base with WERU INVESTMENT's venture capital investment platform, we aim to reinforce our framework for finding and nurturing start-ups in and outside Japan that have promising advanced technologies or business models. Going forward, innovation through long-term R&D in such areas as space, AI, neurotechnology, synthetic biology, and quantum technology is expected to prompt the creation of new industries and revolutionize existing ones, driving sustained economic growth. We are therefore looking to focus efforts on developing such areas. Over the remainder of future 135, we plan to invest approximately ¥60 billion to ¥100 billion in such projects along the axes of expansion of scale, acquisition of added value, and innovation in each segment. We are currently considering specific pipeline projects in and outside Japan.

 While we aim for ongoing growth, every investment will be carefully scrutinized to ensure that none becomes a burden down the line. To this end, we will rigorously apply our standards to investment decisions while proactively selecting our fields of specialization and honing our precision.

08.Our Management Base

 In fiscal 2019, Kanematsu made major changes to its corporate governance and management framework. Specifically, we reduced the number of directors to improve flexibility and efficiency, took steps to better separate management oversight from business execution, and appointed a female outside director, helping to promote diversity. We also raised the number of overseas executive officers with an eye to expanding overseas businesses. Furthermore, in fiscal 2019, we introduced a performance-linked stock incentive plan for directors. By more closely linking director compensation with corporate performance and stock price, this system helps increase directors' awareness of shareholder and investor value.

 As I touched on earlier, we see preventing a shortage in management personnel as a matter of urgent concern, and we are working to strategically develop human resources. Respect for diversity is deeply embedded in the bedrock of the Kanematsu Group. I think that the Group has the necessary resources and conditions, including the aforementioned respect for diversity, to develop the diverse human resources it needs. In addition, we are now even more aggressively advancing work style reform initiatives. We believe that employee-friendly workplaces increase motivation, ultimately helping improve revenue. Convincing others of the true benefit of such efforts and promoting their thorough adoption is one of the duties of top management, and we are working assiduously to do so.

09.Fiscal 2020 Outlook and Message to Stakeholders

 In fiscal 2020, we are planning for revenues of ¥740.0 billion, up 2.2% year on year, operating profit of ¥31.0 billion, up 2.1%, and profit for the year attributable to owners of the Parent of ¥17.0 billion, up 2.4%.

 The Kanematsu Group considers providing returns to shareholders to be one of its most important tasks. Since resuming the payment of dividends in fiscal 2014, we have increased said payments each year. Under future 135, we have established a target total return ratio of 25% to 30%. We will continue to balance careful decision making with aggressive investment as we move into a steady growth trajectory and endeavor to consistently fulfill our responsibilities to shareholders.

  Kanematsu has continuously pursued growth for 130 years. As we celebrate this milestone, we promise to never be complacent, but always look for new, better approaches in all aspects of our corporate activities, from the management base to business creation. We will then return the results of these efforts to our stakeholders. Going forward, we will endeavor to ensure that stakeholders will be eager to deepen their relationships with Kanematsu by enhancing our enterprise value with a focus on growth.

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