President's Interview

Q Please summarize the achievements of the prior medium-term management plan that ran from the fiscal year ended March 31, 2016 to the fiscal year ended March 31, 2018.
A

We defined three key targets in our medium-term management plan spanning the period from FY3/2016 - FY3/2018:
1. Enhance our ability to generate earnings to achieve sustainable growth
2. Strengthen corporate governance policy
3. Engage in social responsibility initiatives
We also rallied as a group to pursue specific targets of net sales of 300 billion, operating profit of 15 billion, and ROE 8.7%. Organizationally, we delegated more authority throughout our organization, revised our system of governance, and did away with anti-takeover measures, dedicating the KONOIKE Group management resources to these and other measures tied directly to improving our corporate value. We believe these initiatives are fundamental for future growth. However, I must address significant underperformance in reaching these targets revealed some management issues.

Under our prior medium-term management plan, our foremost focus was on growing the KONOIKE Group business. Unfortunately, we fell short in building the type of clear vision and direction for the KONOIKE Group required to face a rapidly changing business environment. Our inability here was one factor preventing us from fully innovating in our businesses and expanding our client base.

Q Please inform us about the new medium-term management plan that you have formulated.
A

1. Our Vision for 2030 and positioning of the new medium-term management plan

The KONOIKE Group has a 138-year history in business. Our continued existence is due solely to the support of our customers and stakeholders.

Looking out over the next ten years, we expect tremendous changes in the business environment. The ongoing decline of the working-age population will lead to serious labor shortages. Artificial intelligence, IoT, and other new digital technologies will continue to develop at breakneck speed, changing the nature of manufacturing, logistics, and services. However, we view the long-term impact of these changes as opportunities. To take advantage, we must become a corporate group that is indispensable to society.

We want to be an organization in which employees in our sales offices, branches, head offices, and other front-line workplaces are proud to affiliate. We want to be an organization that creates corporate value of the type that benefits all stakeholders. This is precisely the vision we hold for the KONOIKE Group of 2030. The three years covered by our new medium-term management plan are a time for us to build a firm foundation for achieving our 2030 vision. The measures defined in this plan have been created for this purpose.

2. Role of the new medium-term management plan

Role of the new medium-term management plan

3. New Medium-Term Management Plan Overview
Strengthen business foundation to facilitate future growth
▪Personnel training / education
▪ICT investment
▪Stronger safety and quality initiatives (Corporate / Quality Division)
Business restructuring
▪Pursue excellence in Corporate governance
▪Delegate decision-making
▪Improve management monitoring systems (restructure management accounting system)
Increase management awareness of capital cost
▪Adopt ROIC
▪Review business portfolio
Foster growth by promoting cooperation across divisional lines
▪Establish the Sales Division
Initiatives aimed at value innovation and discovering and nurturing new core businesses
▪Discover and incubate new core businesses, led by the New Business Development Division
▪Innovate new value through new technologies

Q Please provide an overview of the new medium-term management plan running from the fiscal year ending March 31, 2019 to the fiscal year ending March 31, 2021.
A

We have established the KONOIKE Group 2030 vision and began operating under our new medium-term management plan FY3/2019- FY3/2021. This new plan, which runs through March 2021, provides a three-year period for our group to build a firm foundation for achieving our management vison.

As structural labor shortages become more serious, building a solid business foundation becomes an even more urgent matter. We will step up our recruiting activities, while investing in ICT and taking other active measures to improve our productivity. While we adopt measures to run our business in alignment with our 2030 Vision, we will also restructure the basics of our operations. Stronger corporate governance will improve growth and profitability. We intend to add new levels of delegation to foster operational execution, facilitating rapid decision-making closer to the business frontline. At the same time, we will introduce visibility across many aspects of our business, redesigning management accounting functions to support appropriate human resources development and evaluations.

In addition, we will work on strengthening our business models and revising our business portfolios while delivering the optimal solutions for our customers.

Historically, the KONOIKE Group has based our growth strategy on delving deeper into existing and peripheral businesses to generate sales and Profit margin growth. This strategy has resulted in several issues in terms efficient capital usage. As a management team, we cannot deny that this strategy has lent itself to the pursuit of volume. Specifically, we will adopt return on invested capital (ROIC) as an important KPI. By grasping the management status of each business objectively from a capital efficiency perspective, we aim to reallocate our resources into a more suitable arrangement.

In the coming years, I think that surely result in quantum leaps forward in the business environment between now and the year 2030. I see these changes not as risks, but as opportunities for the KONOIKE Group to meet the social responsibilities expected of us. We will take these opportunities to take dramatic steps forward in accomplishing our 2030 Vision.

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