President's Interview

Q Operating environment and summary of financial results for the half-year period ended September 30, 2017

A

During the half-year period ended September 30, 2017, domestic demand grew strongly, primarily due to the accelerating trend of increase in personal consumption, while external demand proved resilient against the background of expansion in overseas economies, as a result of which factors the Japanese economy demonstrated signs of turnaround. Looking ahead, we expect favorable domestic demand to continue to act as the driver in maintaining the momentum of this recovery. On the other hand, although there was an increase in cargo related to manufacturing, which has been the beneficiary of robust capital investments, and a recovery in consumption-related cargo driven by improvements in personal consumption, the situation remained challenging due to continued and significant upward pressure on costs owing to such factors as worsening labor shortages and rising fuel prices. The KONOIKE Group acquired all shares of NKS Holding Co., Ltd. and four other companies, on May 1, 2017, with the aim of strengthening its Airport-Related Business. In future, in addition to broadening our existing operations at Narita Airport, such as ground handling business, we will work to expand our business domains further by entering new areas.

The Group's business results for the half-year period ended September 30, 2017 saw recovery in the Steel-Related Business, maintained strength from the Beverage-Related Business and the consolidation of NKS Holding Co., Ltd. as a new subsidiary in Airport-Related Business. As a result, net sales grew 5.6% year on year to ¥137,363 million, operating profit rose by 3% year on year to ¥6,486 million, while ordinary profit increased 4.3% to ¥6,684 million and profit attributable to owners of parent rose by 2.0% to ¥4,334 million.

Q Looking back at the current medium-term management plan

A

For the current medium-term management plan running from the fiscal year ended March 31, 2016 to the fiscal year ending March 31, 2018, we put in place targets and initiatives to achieve net sales of ¥300.0 billion, operating profit of ¥15.0 billion, and return on equity (ROE) of 8.7%. However, with regard to its consolidated financial results for the fiscal year ending March 31, 2018, the Group is forecasting net sales of ¥278,100 million and operating profit of ¥11,000 million, suggesting that there is a high probability that these targets for the fiscal year ending March 31, 2018 will not be achieved.

After analyzing the situation, we found the probability that our vision was not clearly shared, leading to ambiguity with regard to our thinking on investment for growth, and resulting in insufficient initiatives to obtain new customers. Accordingly, we consider presenting a clear vision in order to clarify our policy on investment for growth as a matter of urgency.

Conversely, we believe that the Integrated Solutions Business, which currently accounts for approximately 70% of net sales, has succeeded in combining growth with the reduction of dependence on specific industries. It is our perception that, this growth has not been driven by our provision of stand-alone services such as logistics services. Instead, we feel that it has been driven by us leveraging our ability to bundle the KONOIKE Group's various services such as contract manufacturing services and logistics services.

We have positioned the current fiscal year as a time of preparation for the new medium-term management plan that will begin next fiscal year, and which is presently under consideration. We will reconsider our vision for management over the medium to long term, use the three years that begin next fiscal year as a first step in that direction, and draw up a new medium-term management plan accordingly.

Q Preparation for our vision for 2030

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Our mission is to contribute to increase productivity in society by ensuring safety and quality of services in our business activities, in accordance with the Business Principle stating that “the KONOIKE Group will provide high quality services and seek to develop into an organization of service professionals that can contribute to the well-being of all people and to the realization of safe and secure societies.”

In a rapidly changing environment, we believe that clearly defining the direction in which we must proceed to fulfill this mission is a matter of urgency. As the vision we are readying for the year 2030, which will be the 150th anniversary of the founding of the Company, we wish to remake it as an organization that generates abundant corporate value. In order to achieve that, it will be necessary for the value that the KONOIKE Group provides to be positively received by all of our stakeholders, eliciting such positive responses as, “The KONOIKE Group sure is a great company!”

We will ask ourselves again: What it is that our customers find valuable about the offerings of the KONOIKE Group? And we will change our operating environment so that our people on the front line will be able to tackle our operations with vigor. We also intend to delegate authority further, in order to create an organization in which all employees show leadership in implementing their duties in pursuit of their goals. In addition, we perceive the question of how to monitor progress towards balancing the provision of value to customers and solid financial performance, and how to allocate management resources appropriately as important issues we need to address with our new initiatives.

In this way we aim to gain recognition from our stakeholders for our “top-class quality” and to become a company that generates abundant corporate value.

Q Message to shareholders and investors

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I believe that a good company is “a company that enriches the lives of all stakeholders.” The management reforms that are under way are being implemented with the aim of accomplishing the transformation of the KONOIKE Group into a “good company” that generates abundant corporate value. However, even in the midst of reforms, there are some things that should remain unchanged. Engaging in our business while sharing the values of our customers, and contributing to improvements in productivity while ensuring the safety and quality of services–this is the source of the strength that we have built over the past 137 years, and is something that we believe absolutely must not be changed.

On the other hand, in order to maintain and strengthen the trust of our customers toward us, it is also necessary to change our approach to match the needs of customers and society. The transformation to a better and more appealing company must not be driven from the top down, but must instead come from each and every member of the KONOIKE Group working together in a manner that demonstrates our beliefs and visions.

I ask for your continued understanding and support of the KONOIKE Group.