KAGA ELECTRONICS
CO., LTD.

Next Medium-Term Management Plan

Medium-Term Management
Plan 2024 (FY2022-FY2024)
KAGA
ELECTRONICS CO., LTD.
加賀電⼦株式会社
November 25, 2021
TSE 1st section 8154

I am Kado of KAGA ELECTRONICS CO., LTD. Thank you very much for your continued
support and cooperation in our IR activities. Next, I would like to explain the Kaga
Electronics Group’s next medium‐term management plan, which was announced today.

Review of Medium-Term Management Plan 2021: Management Measures
Undertaking priority issues in line with basic policy, with overall achievement of initial targets forecasted

Focus on markets and areas in which high growth and profitability are
expected
Enhancement of
Revenue Base

▲ Revenue increase effect of about ¥200 bn through acquisition of companies including
KAGA FEI and EXCEL▲ Growth of EMS business: ¥89.4 bn (FY18 results) ➔ ¥110 bn (FY21 forecast)(Contribution from growth in vehicular, medical care, and other priority markets)

Early improvement of efficiency and financial soundness following
Stabilization ofManagement
Base

incorporation of KAGA FEI as a Group company▲ KAGA FEI: Gross profit margin

6.3% (FY18 results) ➔ 9.3% (FY21 2Q results)▲ Kaga Electronics: Equity ratio

35.8% (end/Mar 2019 results) ➔ 39.6%▲ Kaga Electronics: Consolidated SG&A ratio 9.5% (FY18 results) ➔ 8.4% (FY21 2Q results)(end/Sep 2021 results)

Active utilization of in-house resources and M&As to strengthen
resistance to changes in the external environment
Creation of New
Businesses▲ Social issues solutions-oriented business: Entry into disaster-readiness helicopter andEV bus mobility business, preparation for entry into medical device business▲ Venture investments: 18 projects executed (investments in 41 companies from Apr 2017
to Nov 2021)

1

First of all, the progress and results of the mid‐term management plan 2021, which will end in
FY2021, are summarized in the 2 slides.
This page is a review of our management policies.
In the mid‐term management plan 2021, we have set 3 basic policies and have been working oneach of the priority issues. In this section, we would like to report on some typical cases.
The first is to strengthen our revenue base. Over the past 3 years, we have been actively
engaged in corporate acquisitions, including Kaga FEI and Excel. As a result, we have gained
approximately JPY200 billion in new sales and customers. From the perspective of profit‐
oriented management, we were also able to grow our high value‐added EMS business byapproximately JPY20 billion.
With regard to the second issue, stabilization of the management base, we have been able toimprove the gross profit margin of Kaga FEI by 3 percentage points over the past 3 years, which
was pointed out as low profitability at the IR presentation at the time of the acquisition. We aremaking progress as I explained to you at the time. SG&A ratio of KAGA ELECTRONICS has
dropped by 1 percentage point over the past 3 years, and the equity ratio has returned to nearly
40%. In this way, efficiency and financial soundness have been steadily improving.
The third is the creation of new businesses. We are working on projects to solve social issues,
such as disaster prevention helicopters and EV buses, but frankly speaking, the results here areinsufficient.
The management measures are summarized in this way, with blue ▲ marks for items that havebeen achieved and red ▲ marks for items that are not so good.

Review of Medium-Term Management Plan 2021︓ Management Targets
Predict for exceeding operating income and ROE targets by executing “profit-focused management”,
despite unmet net sales target due to losses of major commercial rights
Net sales
Operating income

ROE

Opareting income margin

JPY443.6bn
10.9%

JPY292.7bn

JPY470bn
JPY422.3bn

JPY15bn

13.5%
7.6%

JPY10.0bn

JPY11.4bn

JPY500bn

9.7%

JPY13bn8%

JPY7.5bn

3.2%

2.5%

2.2%

2.7%

FY2018Results

FY2019Results

FY2020Results

FY2021
Forecasts

FY2021
Management
Targets

Net sales

JPY292.7bn

JPY443.6bn

JPY422.3bn

JPY470bn

JPY500bn

OperatingincomeJPY7.5bn

JPY10.0bn

JPY11.4bn

JPY15bn

JPY13bn

10.9％

7.6％

13.5％

9.7％

８％ or higher

ROE

Medium-Term Management Plan 2021
2

Next, I would like to reflect on the management targets.
In this graph, the leftmost column shows the results for FY2018, the year before thecurrent medium‐term management plan began, the rightmost column shows the
management targets for FY2021, the final year of the medium‐term management plan,and the 3 columns in between show the results for FY2019 and FY2020, and the forecast
for FY2021.
Although we will not able to achieve our management targets of JPY500 billion in Net
sales due to the loss of major commercial rights, we expect to exceed our operating
income target of JPY13 billion, and we achieved ROE target of 8% or more from FY2020,
which was 1 year ahead of schedule.
As such, we have just passed the halfway point of the final year of the current medium‐
term management plan, and we are on track to exceed our profit plan, so we havedecided to announce the next medium‐term management plan today, as we believe it isnecessary to keep our shareholders and investors informed of our next growth path.

Systemization of Corporate Philosophy/Vision/Action Guidelines
Systematize the philosophy at the core of Kaga Electronics' thinking and conduct
The core of Kaga Electronics' thinking and conduct is reflected in our Corporate Philosophy thathas remained unchanged since our founding in 1968, our Management Vision that indicates
our medium- to long-term visions for the company 5 and 10 years into the future,and our Action Guidelines that set forth the behavior that forms norms
by which Kaga Electronics employees can achieve these visions.

Everything we do is for our customers
Aim to be “Japanʼs No.1 corporate group in the industry”
Aim to become a competitive “World Class Company”“F.Y.T.”“3G”: Flexibility, Young at heart, Try: General, Global, Group“KAGA-ism”: Management mindset,
Sales mindset,
Readiness as a member of society
3

The next screen shows a systematization of our corporate philosophy.
It represents the fundamental activity policy of the Company, including basic ideas,values, and thoughts regarding our corporate management and activities.
It is also available on our website, but I wanted to share it with you again as I explain thenext medium‐term management plan.

Medium-Term Management Plan 2024︓ Management Targets
Realize sustainable growth by organic growth and further M&A challenges

FY2021 Forecasts

FY2024 Management Targets
Organic growth

Net Sales

Operating
IncomeJPY

470 bnJPY

JPY

Including new M&As

600 bn

15 bn

JPY

JPY

750 bn

20 bn

With cost of shareholdersʼ equity (7–8%) in mind,
ROE

9.7 %

stable8.5 % or higher

4This slide shows the next medium‐term management plan 2024.
Net sales are JPY600 billion with autonomous growth. With the addition of new M&A,
we have set a target of JPY750 billion. The reason for the 2‐tiered approach is that inorder to achieve the goal of JPY1 trillion in the future, we will have to produce about
JPY750 billion in the next medium‐term management plan, which will be far too late.
Therefore, we thought that a realistic scenario would be to buy from outside theCompany what is not enough to reach the JPY600 billion from autonomous growth.
For operating income, we have set a target of JPY20 billion. Unlike sales, here we have 1.
In M&A, we can set some targets for the scale of sales, but not for profit, so we thought
it would be unrealistic to expect profit from M&A and factor it into the plan. In otherwords, JPY20 billion is to be created through autonomous growth, and the managementtarget is also equivalent to be JPY20 billion or more.
We have set our ROE at a stable 8.5% or higher, with an awareness of a shareholder’scost of capital of around 7% to 8%, with the goal of stably exceeding that level.

Medium-Term Management Plan 2024: Basic Policy
Basic policy and key issues/actions

Further
Reinforcementof Profitability

Predicting the era to focus on markets
with potential for high growth andprofitability

Reinforcementof Management
Base

Pursuit of further efficiency andsoundness, and transformation toa Group management foundation
worthy of "Japanʼs No. 1 corporategroup in the industry"

Creation of New
Businesses

Active use of venture investments andM&As to create new businesses andstrengthen resistance to change inthe external environment

Promotion of
SDGs
Management

Promotion of management that seeks toachieve solutions to social issues andsustainable growth as a company• Selection and concentration in growth fields:
Mobility, Communications, Environment,
Industrial equipment, Medical/Health care
• Reinforcement and expansion of EMS
business and overseas business• Reinforcement of corporate governance• Efficient Group management• Investments in human capital• Initiatives in new fields• Promotion of open innovation throughventure investments• M&A efforts aimed at discontinuous growth(See “Medium-Term Sustainability Management
Plan” for details)

5

Next, I would like to explain the 4 basic policies of the next medium‐term management
plan.
In order to further strengthen our profitability, our key issue is to focus on markets withhigh growth potential and profitability.
The fields we will work on are mobility, communication environment, industrial
equipment, and medical/healthcare, and we will strengthen and expand our EMS
business and overseas business of electronic components.
In order to strengthen our management base, we will work to transform ourselves into amanagement base that is appropriate for the number 1 company in our industry. I will
explain more about strengthening corporate governance and investing in human capitallater.
As for the creation of new businesses, continue to promote open innovation throughventure investment. We will also aggressively pursue M&A opportunities to achieve
discontinuous growth.
The promotion of SDGs management will be explained again later in the sustainability
medium‐term management plan.

Medium-Term Management Plan 2024︓Business Portfolio*CSI: Consumer & System Integrator

Electronic Componens

EMS

CSI
OthersExcluding new M&A:
Net sales: 8.5%

1,000

CAGR
800

600

Net Sales: 17％ Operating Income: 26％

JPY443.6bn
13.9
400

JPY292.7bn
13.9
44.3

200

Net Sales: 17％ Operating Income: 10％

Initial plan:
Net sales: 20%; Operating income: 20%

CAGR

43.5

JPY422.3bn
12.1

JPY470bn
12.0

48.4

93.3

40.0

89.5 JPY7.5bn
292.9

New M&As
150.0

35

16.0
54.0
150.0
JPY20bn

30
25
20
15

380.0
262.3

145.0

40

JPY15bn

JPY11.4bn

45

JPY750bn

110.0

99.6

JPY10.0bn

50

10

308.0
5
0

0

FY2018Results

FY2019Results

FY2020Results

FY2021
Forecasts

Medium-Term Management Plan 2021

FY2024
Management Targets
Medium-Term Management
Plan 2024
6This slide shows the segment structure with sales of JPY750 billion.
The bottom of the bar graph shows the Electronic Components business, the largest
business of the Group. The second from the bottom is EMS business, followed by CSI
business, Other businesses, and new M&A at the top.
Although not shown here, the CAGR for the 3 years from FY2021 to FY2024 is 7.2% for
the Electronic Components. EMS and CSI are expected to account for 10.9% and 10.5%,
respectively.
The Group’s overall sales growth rate is set at 17%, the same as in the current medium‐
term management plan, or 8.5% excluding new M&A, but we intend to maintain adouble‐digit percentage growth rate in operating income.

Basic Strategy for Four Major Businesses

FY2024 sales targets

Electronic
Components
Business

EMS
Business

Priority measures• Expansion of industrial equipment business

JPY

JPY

380 bn150 bnCSIBusiness

JPY

54 bn

Other
Business

JPY

16 bn

• Rollout of new products in vehicular markets• Enhancement of products in communications
field• Reinforcement and expansion of customer base• Shift in value chain to high value-added areas• Reinforcement of business base• Acquisition of new products/suppliers and newsales channels• Promotion of collaboration within Group andintegration of overlapping organizations• Review of unprofitable businesses• Creation of new businesses through venture
investments and M&As

7

Next, I will explain the basic strategies for each business segment in line with thisbusiness portfolio.
First, in the Electronic Components business, we will expand our business by expanding
our product lineup for customers in the industrial equipment, in‐vehicle market, andtelecommunications fields, which are expected to grow steadily.
In the EMS business, we will work to strengthen and expand our customer base and shift
our value chain to high value‐added areas. This will be explained in more detail in thefollowing slides.
Next is the CSI business, where we will work on developing new commercial products
and suppliers, and acquiring new sales routes. In terms of improving efficiency, we arealso planning to promote collaboration among group companies and integrate
overlapping organizations.
Lastly, for the Others, we would like to give top priority to the review of unprofitablebusinesses rather than fine‐sounding talk.

Priority Strategy for the EMS Business
Reinforce and expand our customer base in high quality markets, with shift to higher value-added areas
Qualityrequirements

Reinforcementand Expansionof Customer
base• Expansion of businesses with highquality requirements and stable longterm demand orientation• Expansion of US, European, and Asiancustomer bases

Large lot,
short lifeoriented• Design/Development + EMS service• Support for software and hardware
design and development• External sales of production
equipment/IT systems developed inhouse

High
Added value

Shift in Value
chain to Highvalue-added
areas

Mega
EMS

Kaga
Elec.

Stablelong-term
demandoriented

Cost
requirements

Development

Equipment/ICT

Manufacturing
Low
Upstream

Downstream• Global site collaboration and construction of human resource development structure,with EMS Towada (Production Center) at the core

Reinforcementof Business base

• Fast and flexible launch of new factories with limited initial investment (development of"convenience store-type EMS")• Promotion of smart factories through automation and visualization• Reinforcement of BCP (fast and flexible inter-Group collaboration on
procurement/production/logistics risks)

8

In this slide, I will explain the key strategies of the EMS business.
The first point of our strategy is to expand our customer base in the market that requires
quality rather than cost, and to shift our focus to high value‐added areas such as
upstream development and downstream production facilities and IT systems in the value
chain.
In order to promote such a strategy, it is important to strengthen the current businessfoundation, and for this purpose, it is important to develop a system of collaboration
among global production bases and human resources development, with EMS Towada at
the core. We refer to ourselves as a convenience store type EMS, and we try to respondto 100% of our customers’ requests with light footwork, by starting up new factories
quickly, flexibly, and with low initial investment.
We are also accelerating our response to the promotion of smart factories and thestrengthening of BCP.

Medium-Term Management Plan 2024︓Summary

JPY 1 tn

Aim to become a competitive “World classcompany”
Aim to be “Japanʼs No. 1
corporate group in the industry”

Organic
growth+Further M&A
Challenges

Expansion of
trading company business

Increased
Sales

JPY

750 bnGrowth fields

Increased
ProfitRatio

Mobility
Communications
Environment

will lead to
growth of the EMS businessIndustrial
equipment

Quantitative
expansion of trading
company business

Qualitative improvement
through EMS business

Reinforcement and expansion of overseas business, EMS business

MedicalHealth care

（Net Sales）

Medium-Term Management Plan 2024
Further reinforcement of
profitability

Reinforcement ofmanagement basePromotion of new
businesses

Promotion of SDGs
management“CHALLENGE 1.60"
Sales of ¥1 tn in yearof 60th anniversary offounding
9This slide is a summary of the outline of the next medium‐term management plan,
which I explained today.
The basic design is inherited from the current medium‐term management plan.
The sources of our growth potential are autonomous growth plus new M&A. Our growthareas are overseas business and the EMS business, and the growth areas we will focus
on are mobility, communications, environment, and industrial equipment. In this field,
we will focus on the trading business of electronic components and the EMS business ofBoard mounting as growth drivers, with net sales of JPY750 billion. Our goal is tobecome 1 of the top companies in the industry in Japan.
We will also continue to work toward our vision of becoming a company that canachieve sales of JPY1 trillion and survive global competition. The next medium‐termmanagement plan after the next medium‐term management plan will be the 60th
anniversary of our founding, and we have set a challenge target of JPY1 trillion by thattime.

Initiatives to aimed at becoming a "trillion-yen company"

1

Formulate M&A strategies to achieve the targets of the next Medium-Term Management Plan, and becomea "trillion-yen company"

Aim

Direction

Electronic
Components
Business
EMS Business• Expansion of business scale• Study large-scale projects on scaleof tens of billions of yen

CSI Business
Others Business• Acquisition of new
fields/products/sales channels• Study projects with high growthpotential in collaboration withventure investments

2

Development of core human resources to support the "trillion-yen company" of the future, and restructuringof personnel management

Specific measures

Key points in
Restructuring of
Personnel
Management• Development of management human resources: Cross-departmental strategic
personnel rotation, human resource pooling, etc.
• Reform of personnel systems and operation: Review of evaluation processes,
shortening of length of service until determination of promotions, etc.
• Utilization of diverse human resources: Utilization of female and elderly
employees, development of specialists, etc.

10This slide explains the direction of M&A and human resource management as an
initiative to realize a 1‐Trillion‐Yen company.
First of all, with regard to the M&A strategy to create a Trillion‐Yen company, in theElectronic Components business and the EMS business, we will prioritize theconsideration of large‐scale projects of at least several tens of billions of Japanese yen inorder to expand the scale of our business.
On the other hand, CSI and Others will consider projects with high growth potential inorder to acquire commercial materials and sales channels or to create businesses in new
fields.
From the perspective of human resource management and the development of corehuman resources that will support a Trillion‐Yen company in the future, we will work on
fundamental changes in our human resource system, including the development ofmanagement human resources through strategic personnel rotation across divisions,reform of the operation of the human resource system to enable the selection of young
employees, and the utilization of diverse human resources, such as the utilization of
female employees and the development of specialists.

A Sound Financial Foundation to Support Growth Strategies
Borrowing capacity▲ Net D/E ratio: 0.04 times▲ Cash position: JPY 40.1 bn▲ Commitment line: JPY 15 bn

Cash generation ability▲ Total 3-year operating cash flow: JPY 30.8 bn*FY2018–FY2020▲ Use of cash: ① Growth investments② Shareholder returns③ Repayment of borrowing*End of September 2021

Capital efficiency▲ ROE: 13.5% ＞ Cost of shareholdersʼ
equity 7.6%

Stability and credit rating▲ Equity ratio: 39.6%*End of September 2021

Assumptions for calculations①Risk-free interest rate ︓0.02%/10-year Japanese
government bond, five-year average②Market risk premium︓6.3%/TOPIX yield③β (beta)
︓1.2%/Five-year, weekly▲ Bond rating: A- (Stable)*Japan Credit Rating Agency, Ltd. (JCR)*FY2020 results
11

In this slide, I would like to explain the status of our financial base that will support our
growth strategy to become a 1‐Trillion‐Yen company.
In the upper left corner, we titled it as borrowing capacity, and our net debt‐to‐equity
ratio is zero. We have JPY40 billion in cash and deposits on hand, and we have secured
JPY15 billion in commitment lines from banks.
Operating cash flow, shown in the upper right, has generated JPY30 billion over the past
3 years, and free cash flow has earned JPY18 billion.
In terms of capital efficiency on the lower left, the ROE of 13.5% in the previous year
exceeded the cost of capital, and in terms of stability on the right, the capital adequacy
ratio is 40% and the bond rating is A minus.
In short, we have a certain amount of cash on hand, and we have no concerns aboutbank borrowings, with a structure that can generate cash on a stable basis, andmanagement that considers capital efficiency and stability, so I would like to confirm
that we have a financial base that can handle any kind of financing in times of need.

Shareholder ReturnBasic Policy on
Dividends ofSurplus

We shall perform stable dividends, while securing a consolidated dividend payout
ratio of 25 to 35%.
We shall use funds for business investments, capital investments, and M&A, etc.
in order to contribute to future growth.
Decisions on the acquisition of treasury shares shall be made appropriately,in consideration of capital efficiency and share price, etc.

■ Commemorative
dividend

27.4%

25%
19.3%

Total return trend︓45.4%
Acquisition of treasury shares(JPY 1,499 mil)

※Including negative goodwill
about JPY8 bn■ Special dividend

JPY35
5
30
FY2013Results

JPY80
JPY70
5
JPY60
10
JPY55
5
JPY40
20
15
10
70
60
40
40
30
FY2014
Results

FY2015Results

35%

27.5%（Forecast）
24.1%■ Ordinary dividend

32.8%

29.6%

28.6%
25.5% 25.6%

Total return trend︓72.2%
Acquisition of treasury shares(JPY 3,674 mil)

FY2016
Results

FY2017
Results

FY2018Results

JPY70

JPY90

JPY80

10

20

60

60

FY2019Results

FY2020Results

1080

FY2021
Forecasts

FY2022Image

FY2023Image

FY2024Image

12Now, the last slide is about shareholder returns.
Returning profits to shareholders is 1 of the most important management issues for ourcompany, and we strive to provide stable dividends in accordance with the basic policy
described here.
The consolidated dividend payout ratio will be 25% to 35%, and the Company will aggressively
invest in growth and make appropriate and flexible decisions on share buybacks.
The Company pays dividends in 2 forms: ordinary dividends and special dividends.
It is customary to pay a special dividend if the profit plan made at the beginning of the fiscal year
is revised upward during the fiscal year, or if the final result exceeds the previous forecast,depending on the extent of the upward revision.
For the current fiscal year as well, the dividend forecast at the beginning of the fiscal year was
JPY40 per share for both interim and year‐end dividends.
But in the announcement of the second quarter financial results on the 4th of this month, weannounced a revision to increase the dividend by JPY5 each as a special dividend.
We have paid a special dividend for 8 consecutive fiscal years.
This concludes the explanation of the next medium‐term management plan announced today.
Thank you very much for listening.

＜ｍemo＞

13

“Everything we do isfor our customers
20 Kandamatsunagacho, Chiyoda-ku, Tokyo 101-8629
Contact: Investor Relations & Public Relations Office
TEL:+81-3-5657-0106
FAX:+81-3-3254-7133
E-mail︓ webmaster@taxan.co.jp
https://www.taxan.co.jp

■ Forward-looking statements in these materials are based on information available to management
at the time this report was prepared and assumptions that management believes are reasonable.
Actual results may differ significantly from these statements for a number of reasons.
■ Display method in this material
Number : Truncated less than the display unit.
Ratio: After calculation in yen units, Round down one digit of Display unit.