BRIDGE REPORT (1433) September 15, 2020

https://www.bridge-salon.jp/

BESTERRA CO., LTD (1433)

President Akitatsu YoshinoCompany Information
MarketIndustry
President
HQ Address
Year-end
Homepage

TSE 1st Section
Construction business
Akitatsu Yoshino
Kiba Park Bldg, 3-2-6 Hirano, Koto-ku, Tokyo, JapanEnd of January
https://www.besterra.co.jp/

Stock Information
Share Price
Share Outstanding (exc. Treasury Stock)¥1,1298,226,730 shares
DPS (Est.)
Dividend Yield (Est.)
EPS (Est.)¥16.001.4%¥15.80Market Cap.
¥9,288million
PER (Est.)
71.5x

ROE (Act.)
2.3%
BPS (Act.)¥308.57

Trading Unit
100 shares
PBR (Act.)
3.7x*The share price is the closing price on September 15. The number of shares issued was taken from the latest brief financial report excluding treasury stock. ROE
and BPS are the values of the pervious term.

Consolidated Earnings
Fiscal Year
Jan. 2017 (Actual)Jan. 2018 (Actual)Jan. 2019 (Actual)Jan. 2020 (Actual)Jan. 2021 (Forecast)

Net Sales
Operating Income Ordinary Income
4,182
397
404
4,496
386
373
4,927
497
495
3,436
93
97
3,800
120
200

Net Income
271
263
621
59
130

EPS
32.85
31.69
75.25
7.29
15.80

DPS
40.00
15.00
15.00
16.00
16.00

*Forecast is from the Company’s financial report. unit: million yen, yen

This Bridge Report reviews on the outlook of BESTERRA CO., LTD’s earnings results for the first half of the fiscal year ending January
2021 and its forecast of the fiscal year ending January 2021.

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BRIDGE REPORT (1433) September 15, 2020

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Table of Contents
Key Points
1. Company Overview
2. First half of Fiscal Year ending January 2021 Earnings Results
3. Fiscal Year ending January 2021 Earnings Forecasts
4. Conclusions<Reference: Regarding Corporate Governance>

Key Points⚫

For the first half of the term ending January 2021, sales and operating income fell 14.2% and 92.6%, respectively, year on
year. While sales grew for the human resource service business, the start of some large-scale dismantling projects were
pushed back until the second half due to the coronavirus pandemic, resulting in a decline in the amount of completed works.
Meanwhile, amid a decline in gross profit caused by lower sales, an increase in SG&A costs due to higher personnel andother costs also worked as a drag on profit. With that said, orders received remained solid, growing 70% year on year. The
order backlog at the end of the second quarter increased 2.8 times from the end of the same quarter of the previous year.

⚫

For the term ending January 2021, sales and operating income are estimated to grow 10.6% and 28.8%, respectively, year
on year. The plant dismantling industry is facing some restrictions, but is otherwise gradually returning to normal. For thecompany, self-imposed business restrictions at corporate customers have resulted in the start of dismantling work being
delayed. However, it seems that there have been no major changes in plant dismantling demand. The company plans tomove forward with operations while also paying utmost attention to the safety of workers carrying out sales activities anddismantling work. The annual dividend is to be 16 yen/share, including the dividend at the end of the second quarter and
10 yen/share at the end of the year.

⚫

In the first half of the term, the company was damaged significantly by delays of the start of demolition work caused by
the coronavirus pandemic, but the order backlog grew sharply, and it has apparently recently received many inquiries forpotential new projects. This includes a large-scale dismantling project related to plant closures in the ironmaking industry,a project for a coal-fired thermal power plant that has a significant impact on the environment, and the replacement of apower-generating wind turbine. In addition, thanks to the success of sales activities geared toward obtaining primarycontract orders, the company is seeing an increase of direct (primary contract) orders from major conglomerate chemical
manufacturers in the petroleum and petrochemical fields. Amid solid orders for projects in the ironmaking and electric
power industries, the petroleum and petrochemical industries are accounting for an increasingly higher percentage oforders received. There is also a possibility that changes in the manufacturing industry spurred by the coronavirus
pandemic will lead to the acceleration of surplus facility disposal, etc. In view of this, earnings are anticipated to swiftly
return to a growth trajectory.

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1. Company Overview
As a specialist in plant dismantlement, BESTERRA manages the dismantlement of plants (metal structures) for iron-making, power
generation, gas, petroleum, etc. Its core competence is “the method and technology for dismantling plants,” and it has many patented
methods including international patents. The company concentrates its managerial resources on engineering (proposal, design, and work
planning) and management (supervision and work management), and outsources actual dismantlement work to its affiliates, and so it
does not own heavy machinery or construction teams (the risk of owning assets can be avoided), and it is unnecessary to procure materials,
etc. and make transactions for material production (the inventory risk can be avoided).
The Group also has two consolidated subsidiaries, Hiro Engineering, which provides human resource services for design work, etc. and
3D Visual KK, which handles 3D scan modeling and design work.
The corporate name “BESTERRA” was coined by combining the English word “Best (the superlative of ‘good’)” and the Latin word
“Terra (the earth),” and、infused with the ambition to “create the best earth.” By developing an integrated system for dismantling andrecycling, the company aims to actualize an advanced recycling society and contribute to the earth environment.
Corporate ethos and the code of conduct
Under the corporate ethos “We will contribute to the earth environment with our flexible way of thinking, creativity, and technologies
using these concepts,” the company enacted the following code of conduct.
Long-term vision (Ideal state of the company)
・ Plant Demolition Leader in Japan・ Proposing Plant Disassembly Technologies to the World
1-1 Characteristics of the business
The company has a single segment consisting of the plant demolition business. For others, it engages in the human resource service
business and the 3D scan, modeling and design business. In the term ended January 2020, the plant dismantling business accounted for
93.8% of total sales.
Plant dismantlement businessIn the plant dismantlement business, the company works on all types of plants in the fields of ironmaking, electric power, gas, petroleum
and petrochemicals, etc. The company offers services on overall engineering processes including proposals, designing, work planning,
outsourcing/arrangement of equipment and materials, supervision, safety management, cost management, financial management, andhandling of governmental procedures. It focuses on designing its unique demolition technologies and supervising demolition works
based on demolition plans, and uses specialized subcontractors for demolition works.
The clients for plant dismantlement are leading companies that own plants for ironmaking, electric power, gas, petroleum, etc. In mostcases, the equipment installation companies of the corporate groups of clients or leading general contractors are entrusted withdismantlement, and then BESTERRA serves as the primary or second-tier subcontractor.
Also, in the plant dismantlement business, BESTERRA receives valuable materials generated through dismantlement, such as scrap,
and sells them to scrap handlers. Accordingly, the company estimates the value of valuable materials while comprehensively considering
material, quantity, price (market price of each material, such as iron, stainless steel, and copper), etc. and negotiates with clients about
the fee for dismantlement work. In accounting, the gain from sale of valuable materials is included in revenue from dismantlement work,and posted as part of sales from completed dismantlement work. In some cases, contractors (clients) dispose of (sell) scrap, etc. bythemselves.

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https://www.bridge-salon.jp/*Two standards for posting revenue and seasonality of revenue posting of the company
The standards for posting revenue from contracts can be classified into the completed contract method, in which revenue is posted whenworks are completed, and the percentage-of-completion method, in which revenue is posted according to the progress of works. In thecase of plant dismantlement, where valuables, such as scrap, are collected, revenue cannot be confirmed until the sale of scrap. Therefore,
the company basically applies the percentage-of-completion method to large-scale projects whose contract amount exceeds 50 million
yen and whose period exceeds 3 months, from the term ended January 2018 (the completed contract method is applied to the projects
that are not applicable to the above criteria). The timing of posting revenue (the completion of demolition work) from works for which
the completed contract method is used is often affected by the capital investment plans of clients. In the case of BESTERRA, revenue
tends to be posted in the first quarter (February to April) and the fourth quarter (November to January) (the seasonality of revenue
posting). However, the variation in quarterly performance may mislead investors, so the company is expanding the scope of applicationof the percentage-of-completion method step by step, to equalize the timings of revenue posting.
OthersIn response to the chronic shortage of skilled construction workers, the company began providing human resource services in January
2013, and in March 2018, it made Hiro Engineering, which handles human resource services such as design work, a subsidiary. In
January 2015, the company began offering a 3D measurement service as well. It established 3D Visual KK in December 2019, and 3D
scan modeling and design business was transferred from INTER ACTION Corporation (securities code: 7725) in February 2020.
1-2 Strengths: an excellent client base, efficient dismantlement management based on plenty of experience, and intellectual
property, such as patented methods
The strengths of the company are excellent client assets, efficient dismantlement management based on plenty of experience, andintellectual property, such as patented methods. Because the clients are basically engineering subsidiary companies of leading companies
in ironmaking, electric, gas, coal oil fields, and major general contractors, which are easily trustable excellent clients, and it is predictedthat they will receive orders continuously. The clients of the leading companies highly evaluate its company’s total management (lowcost and high efficiency) of plant dismantlement that it cultivated experiences for over 40 years, and it elect a barrier to entry.
Furthermore, a variety of technologies and know-how the company possesses, which have been accumulated through environmental
work, etc. is also the strength of the company, including the recycling of waste materials which is a manifest and potential intellectual
property.
Patented methods, etc.
“Apple peeling demolition method” and fusing robot “Ringo☆Star”
The “apple peeling demolition method” is a method of dismantling a large spherical tank, such as gas holders and oil tanks, by cutting itin spirals from the center of the ceiling of the enclosure part. The cut part spirals down to the ground gradually under the force of theearth’s gravity (natural energy). The method enjoys superiority in a work period, cost, and safety, and has considerable competitive
advantages, realizing “greater promptness, higher cost efficiency, and added safety.” Furthermore, the company offers a robot for thefusing process, “Ringo☆Star,” which automates the “apple peeling demolition method.” (The company is also working to expand therange of applications for “Ringo☆Star” by developing a new attachment).
Environment-related methods
The company has cultivated experiences and business results of a multitude of environment-related demolition works, using the “firelessmethods” which do not require the use of fire. For example, although polychlorinated biphenyls (PCBs) are considered as a toxic
substance and therefore totally abolished today, it had been used for many years in transformers and condensers because of its excellent
thermal stability and chemical stability (electric insulation characteristics). In many cases, transformers and condensers are disposed ofin conjunction with plant demolition works; however, because PCBs gasify when they are treated at the high temperature, posing a riskof inhaling the gas so generated, any firearms (such as gas cutting machines) cannot be used in demolition and withdrawal involving
PCBs. The company is skillful at fireless and quasi-fireless methods using saber saws (which cut off objects with their saw blades moving
in a reciprocating manner) that can cut off objects thicker than the thickness, which, in the industry, had been considered impossible tocut, through numerous devices, including measures against seizure of motors and recycling of blades. BESTERRA has applied for joint
patents with Hitachi Plant Construction, Ltd. for a transformer dismantling method, a transformer dismantling jig, and a cutting devicefor dismantling a transformer.
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Windmill demolition works
The number of power-generating wind turbines continues to increase by about 20% annually worldwide, but the demand for dismantlingis expected to increase in the future due to wear and tear and economic obsolescence. According to the material presented by the company,
the wind power generation volume worldwide is 486,790 MW (by about 340,000 onshore power generation plants and about 4,000
offshore ones) with an annual growth rate of about 20%. In Japan, the number of wind power generation plants stood at 2,225 as of theend of 2017, expanding by about 90 every year. Meanwhile, as the useful life is approximately 15 to 20 years, and the windmills for
power generation established in the early stage are reaching the application limit. Moreover, not a few plants need to be dismantled due
to damage or fatal failure caused by thunderbolts or typhoons.
How to knock down a power-generating wind turbine (international patent application)
As some windmills have been built in mountain districts and on the sea, demolition of them is highly difficult. The company has deviseda method for dismantling wind turbines that does not require scaffolds, and has already acquired a domestic patent for “Method ofknocking down a power-generating wind turbine.” International patents are pending for “Method of knocking down towering structuresusing their bases” and “Method for dismantling tower-shaped equipment for wind power generation.” Safety of workers can be improved
dramatically, and the work period can be shortened by using these patent-based methods.
Pursuit of the value of the 3D business
Using services such as layout simulation, strain/bending/torsion measurement, comparison of structures before and after improvement,
and video walkthroughs, the company converts physical data taken when plants were established (more than 30 years ago) into the latest
3D data, and uses that to provide detailed information about the dismantling process. They also provide unique 3D measurement services
for dismantling work using the latest measuring technology and simulation systems that are capable of drawing data as 2D diagrams,
handling BIM/CIM modeling, Perfect 3D, and 3D printing, etc.
“Visualize” the dismantling process
Layout simulation
The equipment models produced with 3D CAD are placed in 3D data, and the replacement ofequipment can be simulated. By moving the equipment models, it is possible to check how theyinterfere and collide with one another.
Strain, bending, and torsion It is possible to measure changes in shapes. This is useful for diagnosing frameworks tentatively, tomeasurements
check whether a building got distorted due to an earthquake, deterioration, etc.
Comparison of structures
The shapes of equipment that changes due to heat and vibration, such as pipes, conveyors, andbefore and after installation furnaces, at the time of installation and after operation are compared. With 3D data, it is possible tograsp overall changes intuitively.
Video walkthroughs
Walk-through videos are produced by using synthesized point cloud data. These videos can be utilized
for presentations and publicity videos regarding dismantlement plans and real estate information.
Unique 3D measurement service
Draws a two-dimensional
The 3D CAD models based on point cloud data are converted into drawings. It is also possible todiagramproduce drawings directly from point cloud data in a simple manner.
Handles BIM/CIM
Modeling is conducted with 3D CAD based on point cloud data. It is possible to produce models ofmodeling
the parts that require construction or renovation as BIM (building information modeling) data.
Perfect 3D
This is a large-scale 3D data measurement service combining automobile-based MMS (mobile
mapping system), airborne laser measurement, water area measurement, etc.
3D printing
After modeling with point cloud data, data are processed and deformed so that they can be shaped witha 3D printer. It can produce fine structures with a lamination pitch of 15 μm.

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2. First half of Fiscal Year ending January 2021 Earnings Results
2-1 Consolidated results for the first half
1H of FY 1/20
Sales
1,907
Gross profit
434
SG&A expenses
280
Operating income
153
Ordinary income
153
Profit attributable to101
owners of the parent*unit: million yen

Ratio to sales
100.0%
22.8%
14.7%
8.1%
8.0%

1H of FY 1/21
1,636
303
291
11
17

Ratio to sales
100.0%
18.5%
17.8%
0.7%
1.1%

YoY
-14.2%-30.2%+4.0%-92.6%-88.4%

5.3%

6

0.4%

-93.8%

Sales and operating income decreased 14.2% and 92.6%, respectively, year on year
Sales fell 14.2% year on year to 1.63 billion yen. While sales for the "other" business increased 36.9% year on year due to the growth in
employee dispatch operations (human resource service business), sales for the plant dismantling business declined 17.1% to 1.49 billion
yen, owing to the impact from the start of large-scale projects being pushed back until the second half of the year.
Operating income slumped 92.6% year on year to 11 million yen. This was attributable to (1) a decrease in sales, (2) a lower gross profit
margin caused by a decrease of orders for relatively high-margin additional work, due partly to the coronavirus pandemic, and (3) a4.0% year on year increase in SG&A costs (mainly personnel) to 290 million yen.
The number of completed works (rough estimates)
1H of FY 1/20
Ratio to sales
Electric power
325
18%
Steelmaking
1,011
56%
Petroleum/petrochemical
289
16%
Gas
144
8%
3D
Other
36
2%
Total
1,804
100%

1H of FY 1/21
209
763
389
15
60
60
1,495

Ratio to sales
14%
51%
26%
1%
4%
4%
100%

YoY
-36%
-25%
+35%
-90%
+67%
-17%

*unit: million yen

While the start of large-scale projects for the petroleum and petrochemical industries, for which the company is strengthening sales
operations, has been pushed back until the second half of the fiscal year, the amount of completed works grew sharply, thanks to a steady
inflow of orders. In the electric power industry, although the amount of completed works decreased year on year, reflecting the orderbacklog at the end of the previous fiscal year, orders received and the amount of completed works increased in the first half of the term
thanks to the steady receipt of orders. Meanwhile, the amount of completed works and orders received from the ironmaking industry
fell, owing partly to the recoil from the significant increase of orders received in the previous year.

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Breakdown of SG&A
1H of
FY 1/20

Ratio to
sales

1H of
FY 1/21

Ratio tosales

Increase/
Decrease

Personnel Cost

132

6.9%

161

9.8%

R&D Cost
Commissions andRemunerations Paid
Recruitment Cost
Advertisement
Other
Total SG&A expenses*unit: million yen

12

0.6%

0

0.0%

Increase in headcount and newprovision of bonuses-100.0% Decreased Development of Robots

27

1.4%

30

1.8%

+9.7% New licensing fee

8
7
92
280

0.4%
0.4%
4.8%
14.7%

11
2
86
291

0.7%
0.1%
5.3%
17.8%

+33.6% Advertising media, referral fee-69.5% Decrease of exhibition
-6.3%
+4.0%

Major change factors+22.0%

As for SG&A, personnel costs rose, due to the aggressive hiring of new personnel, as well as 15 million yen in allowances for employee
bonuses (also booked as cost of sales), which were previously booked in the fourth quarter on a one-time basis, being booked in the firsthalf of the term as part of efforts to level out quarterly profit.

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The company is continually hiring for more construction supervisors as this is essential for its sustainable growth. The number ofsupervisors at the end of the first half of the fiscal year was 41, up 4 from the same period last year.

2-2 Orders received and the backlog of orders
1H of FY 1/20
The backlog of orders at the beginning of the term
The amount of works received
The amount of completed works
The backlog of orders at the end of the term

1H of FY 1/21
1,046
2,746
1,495
2,298

1,021
1,615
1,804
832

YoY
+2.5%
+70.0%-17.1%+175.9%*unit: million yen

The order backlog at the end of the second quarter increased 2.8 times year on year. This owed to orders received soaring 70% year on
year in the first half of the year, centered on orders from the electric power industry, which saw an increase in the dismantling of thermal
power plants, and the petroleum and petrochemical industries, from which the company successfully received orders for large-scalechemical plant dismantling projects. The demand for dismantling is favorable in all industries.
Orders received by sector (Amounts are approximate.)
1H of FY 1/20
Ratio
Electric power74
4.6%
Steelmaking
1,115
69.0%
Petroleum/petrochemical
248
15.4%
Gas
142
8.8%
3D
Other
37
2.3%
Total Orders Received
1,615
100.0%*unit: million yen
The backlog of orders by sector (Amounts are approximate.)
1H of FY 1/20
Ratio
Electric power
24
3%
Steelmaking
533
64%
Petroleum/petrochemical
183
22%
Gas
49
6%
Other
41
5%
Total Backlog of Orders
832
100%*unit: million yen

1H of FY 1/21
1,055
450
934
83
60
164
2,746

Ratio
38.4%
16.4%
34.0%
3.0%
2.2%
6.0%
100.0%YoY

1H of FY 1/21

Ratio
40%
11%
41%
3%
5%
100%

YoY

919
252
942
68
114
2,298

+1326%
-60%
+277%
-42%
+343%
+70%

+3729%
-53%
+415%
+39%
+178%
+176%

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2-3 Financial condition and cash flow（CF）
Financial condition
January
2020
938

Cash
Notes receivable, accounts receivable from completed
construction contracts and other
Current Assets
Investments, Others

July
2020
1,461 Payables
Borrowings and
1,010
Bonds
2,684 Liabilities
1,776 Net Assets
Total Liabilities,
2,074
Net Assets

708
1,965
2,680

Noncurrent Assets

2,975

January
2020
347
1,747

July
2020
355
2,641

2,400
2,540

3,241
1,518

4,941

4,759

*unit: million yen
The total assets as of the end of the second quarter stood at 4.75 billion yen, down 180 million yen from the end of the previous term.
An increase in long-term borrowings with the aim of securing a stable source of working capital pushed up cash and deposits. Accounts
receivable also increased. Meanwhile, investment securities decreased due to revaluation (specifically, the value of REVER Holdings
shares, etc. dropped from 2,580 million yen to 1,680 million yen). On the credit side, long-term borrowings rose, while the deficit ofvaluation difference on available-for-sale securities augmented (from a loss of 10 million yen to a loss of 960 million yen) due torevaluation. Equity ratio was 31.8% (51.4% at the end of the previous fiscal year).
Cash Flow（CF）
1H of FY 1/20
Operating Cash Flow(A)Investing Cash Flow(B)Free Cash Flows (A + B)
Financing Cash Flow
Cash and Equivalents at Term End*unit: million yen

1H of FY 1/21

-539
-132
-671
-81
1,277

-236
-50
-286
809
1,461

YoY
+302
+81
+384
+891
+183

+14.4%

3. Fiscal Year ending January 2021 Earnings Forecasts
3-1 Consolidated Earnings
Sales
Operating income
Ordinary income
Profit attributable to owners of the parent

FY 1/20
Ratio to sales
3,436
100.0%
93
2.7%
97
2.8%
59
1.7%

FY 1/21(forecast) Ratio to sales
3,800
100.0%
120
3.2%
200
5.3%
130
3.4%

YoY
+10.6%+28.8%+105.7%+116.8%*unit: million yen

Sales and operating income projected to grow 10.6% and 28.8%, respectively, year on year
The company unveiled its earnings forecast for the full fiscal year, which it had initially set as undecided. The plant dismantling industry
is facing some restrictions, but is otherwise gradually returning to normal. For the company, self-imposed business restrictions at
corporate customers have resulted in the start of dismantling works being delayed. However, plant dismantling demand appears to haveremained largely intact, and the company has apparently seen a steady inflow of orders and inquiries. The company plans to move
forward with operations while also paying utmost attention to the safety of workers carrying out sales activities and dismantling work.
The annual dividend is to be 16 yen/share, including the dividend at the end of the second quarter and 10 yen/share at the end of the year.
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3-2. REVER Holdings becomes an equity-method affiliate
Following the approval given at the General Meeting of Shareholders in September 2020, REVER Holdings Corporation, with which
BESTERRA has a capital alliance, became an equity-method affiliate. The two companies plan to join forces in order to realize anadvanced recycling-orientated society by creating a platform for Japan's venous industry.
The conversion to an equity-method affiliate was conducted, as BESTERRA's Representative Director and Chairman Yoshihide Yoshino
was appointed as an outside director for REVER Holdings at the board meeting of REVER Holdings held in August 2020, while
BESTERRA holds shares of REVER Holdings, whose voting rights account for 15.01% (i.e., REVER Holdings automatically becoming
an equity-method affiliate due to capital and human relationships). The executives of BESTERRA are to be dispatched to REVER
Holdings as part of efforts to deepen cooperation between the two companies via the mutual dispatching of executives. The dispatch of
executives from REVER Holdings to BESTERRA is to be implemented in the near future.

4. Conclusions
In the first half of the fiscal year, the company was damaged significantly by delays of the start of demolition work, and also saw anegative impact in terms of sales activities and meetings with clients due to the coronavirus pandemic. At the same time, operations atwork sites continued, and there were no major coronavirus infections. There was a sharp increase in orders received, particularly fromthe electric power and the petroleum and petrochemical industries, areas of focus for the company. There has also been a strong influxof inquiries recently, including those for a large-scale dismantling project related to plant closures in the ironmaking industry, a project
for a coal-fired thermal power plant that has a significant impact on the environment, and the replacement of a power-generating windturbine. In addition, thanks to the success of sales activities geared toward obtaining primary contract orders, the company is seeing an
increase in direct (primary contract) orders in the petroleum and petrochemical fields from major conglomerate chemical manufacturers.
Amid solid orders for projects in the ironmaking and electric power industries, the petroleum and petrochemical industries are accounting
for an increasingly higher percentage of orders received. There is also a possibility that changes in the manufacturing industry spurredby the coronavirus pandemic will lead to the acceleration of surplus facility disposal and other moves. In view of this, earnings are
anticipated to swiftly return to a growth trajectory.
One key issue is personnel. Given the company's fairly substantial order backlog, it seems that it has had to limit the number of orders
received in view of capacity constraints from the standpoint of maintaining work quality. At the end of the second quarter, the numberof supervisors increased by 4 from the beginning of the fiscal year to 41. The focus is on the extent to which the company can makeheadcount additions by the end of the term.

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https://www.bridge-salon.jp/<Reference: Regarding Corporate Governance>◎ Organization type and the composition of directors and auditors
Organization typeCompany with a board of company auditors
Directors
9 directors, including 2 outside ones
Auditors
3 auditors, including 3 outside ones
◎ Corporate Governance Report Update date: April 24, 2020
Basic policy
In order to promote sound business administration and win social trust sufficiently, our company recognizes corporate governance as themost important issue, puts importance on the improvement of the soundness, transparency, and fairness of business administration, andcomplies with laws and regulations thoroughly, and all executives operate business while keeping in mind that “the violation of laws or
regulations would lead to management responsibility.” In detail, our company disseminates and executes business pursuant to laws,
regulations, and in-company rules thoroughly, by developing appropriate systems for making decisions about business administration,
fulfilling duties, supervising work, conducting internal control, etc.
It is also important to reform management systems for “achieving appropriate share price” and “increasing share price sustainably” toemphasize shareholders and strengthen the function to check business administration, to establish global-level corporate governance.
The results of such efforts would win the trust of society, increase corporate value, and satisfy shareholders.
<Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)>【Supplementary principle 4-3-3】
Our company has not established a clear procedure ensuring objectivity, timeliness and transparency for dismissal of the president orCEO, but we strive to realize a mutual assessment by involving outside directors in the process of evaluation of nomination andremuneration of the Board of Directors, in order to carry out the assessment of effectiveness of the Board of Directors appropriately.
【Principle 4-11】
The Board of Directors consists of directors and others with thorough knowledge of each of our business lines, and outside directors
who are company managers. While we consider the size of the board appropriate, we cannot say the same with regard to gender andethnic diversity. As such, we will strive to place importance on diversity when appointing directors going forward. In addition, the Boardof Directors, joined by outside directors, shall periodically meet to discuss the structure and management of the board in order to improveits capabilities and effectiveness. Our Board of Auditors comprises three independent auditors, including tax accounts and persons withexperience in corporate management, with expert knowledge and experience in management, finance, accounting, sales, auditing, etc.
<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>【Principle 1-4 Strategically held shares】
From the viewpoint of business expansion based on maintaining and strengthening long-term, stable partnerships with business partners,
etc., we will acquire and hold the shares of business partners, etc., if we judge that this will contribute to the improvement of our mid/longterm corporate value. For equity investments premised on forming business alliances, the management meets with and receives
explanations of the operating environment, business strategy, and purposes of the capital alliance from representatives of the other party.
Based on this, the Board of Directors comprehensively evaluates the appropriateness of the stock valuation report and judges whether
the deal should take place. For strategically held shares, the Board of Directors constantly checks whether the holding of such shares willcontribute to the improvement of our corporate value, and confirms the purpose and rationality of said holding based on that check. Our
company will appropriately buy/sell shares and exercise voting rights in accordance with relevant regulations, based on a comprehensive
evaluation from the viewpoint of improving our corporate value.

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BRIDGE REPORT (1433) September 15, 2020

https://www.bridge-salon.jp/【Principle 5-1 Policy on constructive dialogue with shareholders】
Regarding requests from shareholders for dialogue (interviews), our company believes that we should express a positive attitude withina reasonable scope in order to contribute to sustainable growth and medium- and long-term improvement of the corporate value of ourcompany. Aiming to promote constructive dialogue with shareholders, with the planning department designated as a department incharge of IR activities, our company holds financial results briefings targeted at financial institutions and investors semiannually anddiscloses corporate information as needed on our website and through the system of optional disclosure offered by Tokyo Stock
Exchange.

This report is intended solely for information purposes, and is not intended as a solicitation for investment. The information and opinions
contained within this report are made by our company based on data made publicly available, and the information within this report comesfrom sources that we judge to be reliable. However, we cannot wholly guarantee the accuracy or completeness of the data. This report is nota guarantee of the accuracy, completeness or validity of said information and opinions, nor do we bear any responsibility for the same. All
rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice.
All investment decisions are the responsibility of the individual and should be made only after proper consideration.
Copyright(C) 2020 Investment Bridge Co., Ltd. All Rights Reserved.

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