Consolidated Financial Results
for the Three Months Ended June 30, 2021
SAKAI HEAVY INDUSTRIES, LTD.
Stock code: 6358
URL https://www.sakainet.co.jp/en

August 11, 2021

Contents

1.

Summary of Consolidated Financial Results for the Three Months
Ended June 30, 2021

2.

Implementing Key Initiatives Outlined in the Medium-Term
Management Policy

3.

Supplementary Information: The Medium-Term Management Policy,
announced June 2, 2021

1

1. Summary of Consolidated Financial Results
for the Three Months Ended June 30,2021

1. Summary of Consolidated Financial Results for the Three Months Ended June 30, 2021

Summary of Consolidated Financial Results

3

1. Summary of Consolidated Financial Results for the Three Months Ended June 30, 2021

Highlights of Consolidated Business Performance
1. Summary of Quarterly Business Performance(1) Consolidated net sales: ¥6,089 million, up 33.4% YoY
Sales rebounded from a slump a year earlier brought about by a sharp downturn in the global economy amid the COVID-19
pandemic.

(2) Consolidated operating profit: ¥202 million, up 5.5 times YoY
An increase of 2.4 percentage points in the cost-of-sales ratio resulting from a change in the customer mix was more thanoffset by the increase in gross profit from strong sales.

(3) Sales in Japan: ¥2,765 million, up 13.9% YoY
Sales were helped by robust public spending.

(4) Sales in North America: ¥1,376 million, up 85.0% YoYDemand for construction machinery rebounded thanks to robust investment in construction projects.

(5) Sales in Asia: ¥1,782 million, up 32.0% YoY
The economy turned around in China, South Korea, Thailand, Vietnam. The Indonesian economy showed signs of bottomingout.

2. Adapting to a Changing Business Environment(1) Shifting to business management with a focus on a sound capital policy
Formulated the medium-term management policy with the goals of achieving net sales of ¥30 billion, ROE of 8%, a dividend
payout ratio of 50%, DOE of 4%, and buying back treasury shares flexibly.

(2) Becoming more agile in dealing with volatile demand
Reduced inventory by 30.7% YoY to ¥6,767 million.

4

1. Summary of Consolidated Financial Results for the Three Months Ended June 30, 2021

Highlights of Consolidated Business Performance
3. Medium- and Long-Term Growth Strategy(1) Make more significant inroads into the Asian market:
Step up marketing and sales efforts out of the Indonesian office(2) Expand the scope of overseas business:
Enter the road-maintenance machinery segment(3) Pursue business opportunities in North America:
Increase our market share through stepped-up niche marketing(4) Start developing next-generation businesses:
Focus on developing emergency brakes, a compaction management system, and autonomous vibratory rollers

4. Outlook for Business Environment(1) Japan
Demand for construction machinery is projected to remain strong, buoyed by the Japanese government’s ¥15-trillion initiative
to accelerate the pace of building national resilience to prevent and mitigate natural disasters over the next five years.
(2) Overseas
Demand for construction machinery is likely to pick up, driven by infrastructure investment and major economic packages todrive green growth strategy in China, the EU, the United States, and other countries.
(3) Business risks
We anticipate the risk of running short of manufacturing materials and components amid disruptions in the supply chain andthe risk of a growing cost pressure from rising materials costs and container shipping rates.
(4) Social requirements
We need to transform our business management with a focus on DX, SDGs/ESG, and a sound capital policy to better
respond to social requirements for adopting digital solutions and green business practices.

5

1. Summary of Consolidated Financial Results for the Three Months Ended June 30, 2021

Consolidated Business Results

6

1. Summary of Consolidated Financial Results for the Three Months Ended June 30, 2021

Consolidated Business Results
Net sales(Millions of yen)

Operating profit(Millions of yen)

7,000

250

6,000

5,000

U

.4％
p 33

6,089
202（3.3%）

Net sales
4,565

3,323
4,000

3,000

2,000

2,138
Overseas

200

150

Operating profit(Operating profit ratio)
100

2,427
Japan

2,765

50

1,000

36（0.8%）00Three months ended
June 30, 2020Three months ended
June 30, 2021

7

1. Summary of Consolidated Financial Results for the Three Months Ended June 30, 2021

Sales by Region in which customers are located8

1. Summary of Consolidated Financial Results for the Three Months Ended June 30, 2021

Sales by Region
Three months
ended June 30,
2020

Three months
ended June 30,
2021

Japan

2,427

2,765

+338

+13.9%

Overseas

2,138

3,323

+1,185+55.4%

Total

4,565

6,089

+1,523+33.4%(Millions of yen)

YoY change

China segment
57 → 165

North America
743 → 1,376（+107, +187.7%）

ME and Russia/CIS
2 →2（-0, -17.3%）( ) : YoY ch a n g e（+632, +85.0%）

Up 1 3 . 9
2

U
743

5.0
p8

%

1,376

%

2

Japan
2,427 → 2,765

Indonesia segment
240 → 174

2,427

2,765

（+338, +13.9%）（- 65, - 27.4%）

Asia
1,350 → 1,782（+431, +32.0%）

U

.0
p 32

%

Other (Africa, Oceania, Latin America)

41 → 163（+121, +289.1%）

1,350

41

163

1,782
Pla n ts a n d sa les offices
Sales offices
Service an d sa les offices9

1. Summary of Consolidated Financial Results for the Three Months Ended June 30, 2021

Segment Information by Region in which our manufacturing facilities and sales offices are located10

1. Summary of Consolidated Financial Results for the Three Months Ended June 30, 2021

Segment Information by Region(Millions of yen)

North America

Japan

4,785
3
Up

3

.3 %

100

2
(40)

745

6.7%
Up 8

743

Th re e m o n th s en d ed Ju n e 3 0 , 2 0 2 0

1,392
90
1,376

16

Th re e m o n th s en d ed Ju n e 3 0 , 2 0 2 1

412

3,589

Indonesia
863

Intercompany
sales 65

622
240

174

Th re e m o n th s en d ed Ju n e 3 0 , 2 0 2 0Th re e m o n th s en d ed Ju n e 3 0 , 2 0 2 1

4,373

254

China
Sales toexternalcustomers
3,523
Th re e m o n th s en d ed Ju n e 3 0 , 2 0 2 0

127
(21)
Th re e m o n th s en d ed Ju n e 3 0 , 2 0 2 1

982
50
807

15
Operatingprofit 48

Up 13.8%

9.0%
Up 9

70
57

Th re e m o n th s en d ed Ju n e 3 0 , 2 0 2 0

88
165
(21)

Th re e m o n th s en d ed Ju n e 3 0 , 2 0 2 1

11

1. Summary of Consolidated Financial Results for the Three Months Ended June 30, 2021

Breakdown of YoY Changes in Operating Profit(Millions of yen)Three months Three months
Impact on
ended June
ended June YoY change
operating profit
30, 2020
30, 2021

Net sales

4,565

6,089

+1,523+397

1,523 ｘ （1 - 73.9％）(144)

6,089 ｘ 2.37％

Cost-of-sales ratio

73.9%

76.3%

+2.37
percentage
pointsGross profit

1,190

1,443

+253

SG&A expenses

Operating profit

Note

1,153

1,241

36

202

+87

Transportation costs: up 19; Technical research(87) expenses: up 18; Salaries and bonuses: up 11;
Other SG&A expenses: up 39

+165

12

1. Summary of Consolidated Financial Results for the Three Months Ended June 30, 2021

Breakdown of YoY Changes in Operating Profit(Millions of yen)

Impact ofincrease in
net sales+397
Operating profit
for three months
ended June 30,
2020

Impact of
Increase incost-of-sales
ratio
-144

Increase intransportation
costs
-19

Increase intechnical
research
expenses-18

Increase in other
SG&A expenses Operating profit-39
for threemonths ended
June 30,2021

36

Operating profit ratio
0.8%

Increase insalaries andbonuses
-11

202

＋165

Operating profit ratio
3.3%

13

1. Summary of Consolidated Financial Results for the Three Months Ended June 30, 2021

Net Working Capital (Trade receivables + Inventories – Trade payables)(Millions of yen)

As of June30, 2020
Annualized
consolidated net sales
Trade receivables

21,976
6,009

As of June30, 2021

23,148
7,412

YoY change
Amount+1,172+1,403

Annualized
consolidated net sales
21,97620,80923,14821,624
20,429

%

+5.3%

Trade
receivables
6,009

7,412

+23.3%

9,759

6,767

(2,992)(30.7%)Net working
capital11,131

Trade payables(4,637)(5,118)(481)+10.4%

Inventories
9,759

Net working capital

11,131

9,061(2,070)(18.6%)

Inventories( Million s of yen )11,021

10,982

10,321
9,061

6,767

Trade payables-4,367-5,118

As of Jun 30, As of Sep 30, As of Dec 31, As of Mar 31, As of Jun 30,
2020
2020
2020
2021
2021

14

1. Summary of Consolidated Financial Results for the Three Months Ended June 30, 2021

Consolidated Business Forecast
No change from the earlier forecast

15

2. Implementing Key Initiatives Outlined in theMedium-Term Management Policy

2. Implementing Key Initiatives Outlined in the Medium-Term Management Policy

KPIs Established in the Medium-Term Management Policy(Millions of yen)Three months Three months Fiscal year
Target for
Target forended June
ended June ending Marchfiscal year
fiscal year
30, 2020
30, 2021
31, 2022
ending March ending March(Results)(Results)(Forecast)31, 2024
31, 2026

Net sales
Operating profit
Annualized return on equity (ROE) ¹
Share buybacks(through March 31, 2026)

4,565

6,089

23,50026,50030,000

36

202

900

2,000

3,100

(2.2%)

2.8%

ー

5.5%

8.0%

ー

87

340 ²

500 ～ 2,000 ³

1. An annualized ROE applies to the corresponding fiscal year.
2. The amount of share buybacks projected for the fiscal year ending March 31, 2022, represents theamount of buybacks conducted for the year to date as of August 11, 2021.
3. The cumulative amount of buybacks projected through March 31, 2026

17

2. Implementing Key Initiatives Outlined in the Medium-Term Management Policy

Dividends per ShareOur goal is to achieve an ROE of 8% in the medium term, and our dividend policy is as follows:• When ROE falls below 3%, a payout ratio of 100% will apply.
• When ROE is between 3% and 6%, a DOE of 3% will apply.
• When ROE exceeds 6%, a payout ratio of 50% will apply.

Note: We made a ten-for-one share consolidation effective October 1, 2017. Dividend payouts for the periods
prior to the share consolidation are adjusted to be in line with the post-consolidation payouts.

18

2. Implementing Key Initiatives Outlined in the Medium-Term Management Policy

Progress in the Key Medium-Term Management Initiatives(1) Share buybacks
Completed the first round of share buybacks with a ceiling of 130,000 shares for ¥500 million:① June 17 to 23: Bought back 34,700 shares for ¥87.6 million.
② July 1 to 15: Bought back 95,300 shares for ¥252.8 million (a total of 130,000 shares for¥340.4 million)(2) Implementing a medium-term dividend policy
Announced a dividend forecast for the fiscal year ending March 31, 2022:• ¥120 per share (up 50% YoY)
• Payout ratio: 100% (an estimated ROE of 2.3%)(3) Disclosing financial information in English① Convocation notice of general meeting of shareholders② Medium-Term Management Policy③ Annual Report④ Quarterly earnings announcements

19

3. Supplementary Information:
The Medium-Term Management Policy(Announced June 2, 2021)

Medium-Term
Management Policy

June 2, 2021

SAKAI HEAVY INDUSTRIES, LTD.

Contents
Introduction

Background for creation of our medium-term management policy andholding of a briefing session

1

Corporate Profile

2

The Company’s Business Environment

3

Our Corporate Vision

4

Business Strategies for Achieving Objectives

5

Capital Strategies for Achieving Objectives

6

ESG Supporting Sustainable Growth7

Policy for Dialogue with Capital Markets
22

Introduction

Background for creation of our medium-term management policy

As a company listed in the First Section of the Tokyo Stock Exchange, we have striven to maximize ourcorporate value, primarily by expanding our businesses.
We are aware that listed companies are now being required to make a commitment to maximize
corporate value and achieve sustainable growth based on an advanced governance structure, as seen
by developments such as the revision of the Corporate Governance Code and changes to the market
categories of the Tokyo Stock Exchange.
We view this transformation regarding listed companies as a major opportunity for a “second listing.”
We have created a medium-term management policy in order to enhance dialogue with the capital
markets, and clearly express our commitment to meeting the expectations of our investors andshareholders.
We will continue to carry out growth strategies through our business activities, while at the same time
striving to maximize our corporate value through the decisive execution of our capital policies.
Thank you for your understanding regarding our management, and for your continued cooperation andsupport.
June 2, 2021
Ichiro Sakai
President and Representing Director
SAKAI HEAVY INDUSTRIES, LTD.
23

01 Corporate Profile

24

Corporate Profile

Corporate Philosophy

Contribute to the social project of global land development
through the road construction equipment businessA specialized manufacturer of road construction equipment,
centered on the Japanese, Asian, and North American markets

Our Business
Overview

Research and development, design, manufacturing, sales,
service, and technical guidance for the construction machinery
necessary for road construction and various types ofcompaction work
Our end users are paving and civil-engineering contractors.
Our commercial distribution is by direct sales, sales andservice distributors, and construction-equipment rentals.
25

Corporate Profile

History
1918

The Company is founded by Kinnosuke
Sakai, with the aim of manufacturing andrepairing parts for automobiles, internal
combustion engines, and steam locomotives.

(As of March 31, 2021)

Status of the Consolidated Group
Consolidated

1929

With the increasing scale of civil engineering
works in Japan, the Company starts
producing road rollers.
Continued capital investment, driven byincreasing demand leads to a dramatic
growth in business.

1935

Initiated export of road rollers, etc. toThailand.

1964

Listed on the Second Section of the Tokyo
Stock Exchange.

1981

Listed on the First Section of the Tokyo
Stock Exchange.

(602 employees)

Japan (4 companies) / Overseas (5 companies)

SAKAI HEAVY INDUSTRIES, LTD. (the Company)

Japan(338 employees)

SAKAI KIKOH CORPORATIONTOKYO FUJI CO., LTD.
COMODO CO., LTD.

United States(48 employees)

Indonesia(162 employees)

China(54 employees)

SAKAI AMERICA, INC.

P.T. SAKAI INDONESIA
P.T. SAKAI ROAD MACHINERY INDONESIA
P.T. SAKAI SALES AND SERVICES ASIA

SAKAI HEAVY INDUSTRIES (SHANGHAI), LTD.

26

Status of Business

Since the global financial crisis, net sales have trended
upward over the medium to long term
Sales by region for FY2020

30,00025%

Middle & Near East/Russia and the CIS: 0.2%

25,000

Others: 2.0%

20%

21,62420,000

North America: 15.0%

15%

11%
9%
7%

13,516

8%

10%

7%
6%

3%

4%

4%

Overseas: 39.7%

4%
5%

3%

Domestic: 60.3%-1%0%Asia: 22.5%-5%

Japan: 60.3%
-10%

Japan
国内

(Millions of yen)

Asia
アジア

North
北米
America

Middle & Near East/

中近東・ロシアＣＩＳ
Russia and the CIS

Others
その他

Operating profit margin
営業利益率

27

Status of Global Business Development(Millions of yen)

FY2018FY2019FY2020

Domestic

11,035

13,251

13,042(2,006)(18.2%)

Overseas

13,739

9,492

8,582

(-5,157)(-37.5%)

Total

24,77522,744

21,624(-3,150)(-12.7%)Compared to two years ago( ) Compared to two years ago

Middle & Near East/Russia and the CIS
127⇀588⇀32
127 588 32(-95, -74.6％)

China Segment474⇀305⇀398(-76, -16.1％)

8,000
4,708

4,854

11,035
Japan
11,035⇀13,251⇀13,042(+2,006, +18.2%)

13,251 13,042

North America
4,656⇀3,618⇀3,245 4,656 3,618 3,245(-1,410, -30.3％)

Asia
8,000⇀4,708⇀4,854(-3,145, -39.3％)
Others (Africa, Oceania, Central & South America)

Indonesia Segment
3,255⇀1,551⇀586(-2,668, -82.0％)954⇀576⇀449(-505, -52.9％)

954

576

449

Production factory + sales
Sales office
After-sales service + sales

28

Our Road Equipment

Tandem Roller (left)/Combined Roller (right)
Used in mid-sized and smaller urban paving works.

Road Planer

Used for road repair works.
Cuts damaged existing road surface to a width of 2 m
and a depth of 15 cm.

Used for asphalt paving work, primarily on expressways.

Vibratory Single Drum Roller forlarge-scale earthworks

High demand for large-scale paving work, primarily in the
United States and China

Used for road foundation work and large-scale civilengineering work, such as land development and dams.

Vibratory Roller for large-scale paving

29

Our Strengths

Expertise
Trustin products and services

backed by experience in engineering

Mechanical vibration technologies

andVibration isolating technologies

Deploying a global niche strategy throughselection and concentration
Please see following video for details:“SAKAI Is:”https://www.youtube.com/watch?v=dkEx1muYo6E

30

02 The Company’s Business Environment

31

Global Business Environment

COVID-19 and global
warming have triggered amassivetransformationof global society

Restrictions on
activities on a
global scale

Decarbonization
policies at a
global level

have given digitaltechnologies penetration insocietydetermined and a majortransition to an era of green
growthA more fluid
geopoliticalsituation andsupply-chain
disruptions

As a company that emphasizes the development of technology, weview the current era of structural transformation, with acceleratingDX, decarbonization, and energy efficiency, as a once-in-ageneration chance for business growth.

From simple competition in physical goods, to competition in termsof the environment, quality, and productivity of construction
equipment work as a whole, over the medium to long term

32

Domestic Market

100%

Solid Market Position

90%

70.4%

80%

high market share

We are maintaining a,backed by long years of trust and technology forged by
the stringent quality requirements in Japan.

70%

A five-year national resilience budget of 15 trillion yen is
expected to create

50%

stable market conditions.

In addition to the horizontal rollout of automatic
emergency brake system equipped models, our policy

high value-added
businesses through nextgeneration technology

is to develop

such as a rolling compaction management system for
ICT construction and autonomous vibratory rollers.

60%

40%

30%

20%

10%

0%

Large-scale (≧ 5t)

Medium-scale

Excludes road maintenance equipment(< 5t)

33

Overseas Markets

Further developing our business,
fueled by the post-Covid policies in each country

United States

Post-Covid economic policies are providing a tailwind,including a $1.7 trillion jobs plan and a $300 billion-scalemedium-term road improvement plan, which represents
a 34% increase over the previous plan.
We aim to expand our businesses by capitalizing on arecovery in demand (recovery to the 9,000 range, fromthe current 6,000 range) and a larger market share(acquisition of an 8% share, from the current 5%).
The Vietnamese, Thai, and Cambodian markets havealready recovered from the Covid shock.

Southeast Asia

Indonesia, Malaysia, and the Philippines have alsoannounced policies of aggressive infrastructure
investment budgets.
We are aiming for a 40% market share (from the current
30%) in Indonesia, by strengthening our manufacturing
and sales/service capabilities as a key ASEAN location,and leveraging our 50-year history in Indonesia.
34

Trends in Global Demand

Global roller demand statistics for FY2016 to FY2020(Number of units)

Global aggregate demand

North America

Manufacturers
within China

Asia (ASEAN, etc.)

China

Foreignmanufacturers

Japan
North
America
Asia (ASEAN, etc.)
Japan
FY2016FY2017FY2018FY2019FY2020
Forecast
Central &South America

Japan

Asia (ASEAN, etc.)

North America

Oceania

AfricaRussiaMiddle & Near East

China

India

Eastern Europe(excluding Russia)

Western Europe

Source: Research performed by the Company

35

03 Our Corporate Vision36

Objectives

01 Vision

02 Maintain listing in the Prime Market

A global niche corporation thatis world top-classin road construction equipment
Over the next five years, we will aim fornet sales at the ¥30 billion level,のand long-term growth into a company
with ¥50 billion in sales.

Break away from traditional stability-oriented management,
and transition to qualitatively and quantitatively

global standard corporate
management
Increase

corporate value

Maintain and improve our brandvalue and creditworthiness.
Hire talented human resources.

shareholder value Enable flexible procurement offinancing through the stock market.

Business Challenges and Objectives
Our current challenge is expanding our market
share, especially in overseas markets.
While all of the major global players in the industry other than us
are conglomerates, we will expand our market share byleveraging the experience, trust, and advanced day-to-day
technology development results we have built as an independent
enterprise in the road construction equipment industry.

Growth Strategy
Create added value by growing our overseas market share, expanding
overseas business domains, and developing next-generation businesses.

Capital Strategy Objectives

Execute a disciplined financial
strategy based on ROE.
Procure the necessary financing toinvest in growth, while
maintaining an awareness of
ROIC.
Dividend policy based on awareness ofthe dividend on equity ratio (DOE)37

Numerical Targets

Medium to LongTerm Objectives

Achieve net sales ofwhile¥30 billion and an ROE of 8%,

maintaining a stabledividend payout ratio of 50% (DOE of 4%)
KPI

FY2020 Results

FY2023 Targets

FY2025 Targets

Net sales¥21.6 billion¥26.5 billion¥30.0 billion

Operating profit¥0.7 billion¥2.0 billion¥3.1 billion

ROE

0.0 ％

5.5％

8.0％

If ROE falls below 3%, the dividend payout ratio will be 100%.

Dividend policy

If ROE is between 3% and 6%, the DOE will be 3%.
If ROE is above 6%, the dividend payout ratio will be 50%.

Share buybacks

Consider flexible share buybacks with an upper limit of ¥0.5 to ¥2 billion.
38

04 Business Strategies for Achieving Objectives

39

Business Strategy Overview

Overall Policy

Growth strategy for achieving

sales of¥30 billion

Our policy is toimprove capitalefficiency
based on our medium to long-term growthstrategy and business portfolio(We will set standards for our business portfolio, andengage in thorough, disciplined portfolio management.)

Transition to

managementthat emphasizes
return on capital(ROE and ROIC)

Initiatives by Area
Cultivate markets more fully, andexpand our product domains

Stabilize and develop next-generation
businesses

Expand our market share

Southeast Asia

Japan

North America

Enhance our Indonesia site, where a newfactory started to operate in 2019, as a core
location for sales, manufacturing, and service
directed at the ASEAN region.

Maintain a 70% share of large rollers.

Strengthen our North America logistics
strategy and advance measures toincrease our market share.

Expand overseas business domains througha strategy of expanding sales of roadmaintenance equipment.

Horizontally roll out models equipped with
automatic emergency brake systems.
Improve compaction quality using a rollingcompaction management system.
Commercialize autonomous (unmanned)
vibratory rollers.

Niche marketing strategy based on the
Lanchester/Blue Ocean strategy
Promote high-end engineering sales
focused on improved pavement quality.

40

R&D Initiatives
Streamline our business strategy and R&D,
aiming for improved capital efficiency(ROIC) over the medium to long term
Our policy is to continue active
investment in DX/next-generation
businesses, to meet today’s needs

Rolling compaction management system

Compaction Meister (with CCV)
Remotely links work managers with worksites,
allowing compaction quality to be confirmed
and managed (e.g., number of rollingcompactions) in real time.

(while also conducting joint development forlunar exploration with JAXA).

Quality

Improve our growth strategy anddevelopment productivity througha medium to long-term
development roadmap(Module development/CAE)

Policy of maintaining aratio of R&D to net salesof 3-4%Autonomous vibratory roller

SafetyAutonomous driving standard
equipment development project

Automatic emergency brake system

TW/SW354G
TW/SW504G(since Sep. 2020)

Performs an emergency stop of operating
equipment if a person or obstacle is in theequipment’s movement path. Promoting
horizontal roll out of equipped models.

TZ704G (since Oct. 2018)

Productivity

Through unmanned construction,
we aim to create safe worksites,
improve productivity throughefficient compaction operations,and stabilize and improve quality,
independent of operator skill.

R2-4G (since Oct. 2019)* The “Smart Compaction Tryangle” is a term we coined to express the constant challenge of improving compaction quality, safety, and productivity using next-generation technologies.

41

05 Capital Strategies for Achieving Objectives

42

Basic Capital Policy Approach

8% ROE.
Medium-term targets are an 8% ROE and 50% dividend payout ratio.

Return profits to shareholders at level that supports our objective of an

Focusing on market trends for stock price, consider flexible sharebuybacks with an upper limit of ¥0.5 to ¥2 billion by FY2025.
Review investment securities from a business strategy perspective.
Also consider the use of leverage for investment in growth.
If ROE is between 3% and 6%, theIf ROE falls below 3%, thedividend payout ratio will be
100%.

DOE
4％

Dividend

Payout ratio:
50%

Profit for fiscal year

Payout ratio:
50%

DOE
3.5％
Dividend

Dividend

Payout ratio:
60%

DOE
3％

Profit for fiscal year

DOE
3％
Dividend

Payout ratio:
75%

ROE
5%

ROE
8%

ROE
7%

ROE
6%
Profit for fiscal year

DOE
3％
Dividend

Payout ratio:
100%

ROE
4%
Profit for fiscal year

Dividend

Dividend

Profit for
fiscal year

Payout ratio:
100%

Profit for fiscal year

ROE DOE
2% 2%

DOE will be 3%.

Profit for fiscal year

ROE DOE
3% 3％

DOE levelof 3%

If ROE is above 6%, theDividend payout ratio will be
50%.

Payout ratio:
50%

43Image of Cash Procurement and Allocation

Cash In

Cash Out

Procurement

Allocation

Cash flow
creation/usage

Usage of interestbearing debt

Business
investment

Return of profits
to shareholders

Financing

Review of assets heldSale of investment securities that do notcontribute to our business strategy

Effective use of leverage while
maintaining an awareness of financial
soundness

Capital investment¥2.5-3.5 billion

R&D

Five-year
business profit¥4-5.5 billion
Level of roughly 3-4% of net sales¥8-12 billion

Other investments ingrowthROE falls below 3%:
dividend payout ratio of 100%
ROE between 3% and 6%:
DOE of 3%
ROE above 6%:
dividend payout ratio of 50%

Share buybacks
Maximum: ¥0.5 to ¥2 billion

Dividend: ¥3-4 billion

Cash on hand
44

Initiatives to Increase Corporate Value

Improve TSR

Increase shareholder value
Improve ROIC & ROE

Capital Strategy

Business Strategy
Top-line growth
Achieve net sales of ¥30 billion
by steadily executing different businessstrategies for each area.

Improve profitability
Using operating profit as the KPI,
aim to steadily increase profits from ourmain business. (Minimize increases in the
break-even point.)

Active R&D initiatives that createhigh added value

Investment activities
Maintain an awareness of ROIC
when investing in new businesses andperforming R&D.
For the time being, maintain an R&D
expense rate of roughly 3-4%.

Improve
capitalefficiency

For our business portfolio, thoroughly manage
businesses by creating a medium-term policy.

Review investment securities that do not contribute toour business strategy or businesses.
Actively utilize leverage for investment in growth,
while considering the balance between capitalefficiency (utilization of loans) and resistance todrastic changes in the environment (equity capital).

Policy for returning profits to shareholders

Dividend policy

Share buybacks

If ROE falls below 3%, thedividend payout ratio will be
100%.

ConsiderIf ROE is between 3% and
6%, the DOE will be 3%.
If ROE is above 6%, thedividend payout ratio will be
50%.

flexible sharebuybacks with an
upper limit of ¥0.5 to¥2 billion by FY2025.
45

06 ESG Supporting Sustainable Growth46

E: Environmental Initiatives

R&D and manufacturing initiatives, with an awareness of reducing the environmental impact

from all construction work utilizing our construction equipment and other machinery

Drastically reduce CO2 emissions, by reducing energy consumption
and converting to virtual factories for all construction work.

Response to
Climate Change

Equip worksites with autonomous vibratory rollers, to enable remote work
using 5G and unmanned construction using AI.
Greatly reduce construction lead time through an ICT rolling compaction
management system and real-time quality inspections.

Reduce the CO2 emissions of our construction equipment.
Compliant with primary to quaternary regulations on diesel engine exhaust gas.
R&D on electric rollers is ongoing.

Resource
Utilization

Recommend energy efficiency during construction via an ECO mode setting.
The CN team has begun activities to reduce CO2 emissions from factories.

The products themselves have high circularity.
(Durability of 20-30 years; the steel structure is easy to repair)47

S: Social Initiatives

Management policy of contributing to the social projectof global land development through road construction

Worker Safety

Activities to Contributeto Society

Human Capital
Development

Improve safety at construction
worksites

Develop technologies that
contribute to land development interms of road construction

Diversity(each density increase of 1% prolongs road life by 10%)

Prevent accidents involving
death or injury atconstruction worksites
through the adoption of“Guardman,” an automatic
emergency brake systemequipped roller.

Vertical vibratory roller for earthwork, rationalized
through thicker compaction (from 30 cm to 60cm); 4,000 vpm high-frequency vibrating roller
which solves the difficulty of compacting the longlifetime paving material, Superpave used in North
America; vibrating tire roller that provides anenhanced ability to achieve compaction density
under conditions where rolling is difficult.
Provides equipment and transfers construction
technologies to emerging countries (Africa, Central
America, and Asia) through ODA, enables ruralroad construction through the use of local
materials, and transfers technology for stabilizer
construction methods.

Due to the global expansion of our
production sites, half of the Group’s
personnel are foreign nationals.
In addition, our Japanese sites also
actively hire foreign nationals each
year.
48

G: Governance Initiatives

In addition to being a company with an Audit and Supervisory Committeethat realizes advanced governance, we carry out the following initiatives

Items Under Consideration

Items Already Implemented

Clarification of our basic standards and approach toperformance-linked compensation

Outside Directors comprise at least 1/3 of the Boardof Directors.

Establishment of a compensation committee,
comprising a majority of Outside Directors

We have built a system that completely separates
oversight from business execution, by establishing a
Monitoring Board (comprising Directors only)
dedicated to oversight, and a Management Board(Directors & Executive Officers) dedicated to businessactivities.

Methods for evaluating the effectiveness of the Boardof Directors
Establishing an Officer (Directors & Executive Officers)
composition with an awareness of the skill matrix

49

07 Policy for Dialogue with Capital Markets

50

Policy for Enhancing Dialogue with Capital Markets

We will carry out the following initiatives, aimed atmaintaining our listing in the Prime Market.

01 Officer in Charge of IR/SR: Takao Yoshikawa, Executive Officer(has been serving as the Officer in Charge of IR, to the present)sakai.ir＠sakainet.co.jp

SAKAI HEAVY INDUSTRIES, LTD.

Head of IR Office: Takao Yoshikawa

02+81-3-3434-3401+81-3-3436-6513

In addition to our Annual Reports, we will actively translatematerials into English, including the notification of the convocationof the General Meeting of Shareholders (simplified version) as well as
our financial statements (main portions).

51

Contact Us

SAKAI HEAVY INDUSTRIES, LTD.

IR Office: Takao Yoshikawa

Email:

sakai.ir＠sakainet.co.jp

Telephone:+81-3-3434-3401

Fax:+81-3-3436-6513

Performance forecasts and other forward-looking statements in this document are based on
information available at the time of this writing, as well as certain assumptions deemed reasonable.
Actual performance and other results may differ depending on a variety of factors.