The Kanematsu Group’s Value Creation

Message from the President & CEO

The Origins of Value Creation

By returning to our fundamentals andadvancing Groupwide management,
we will spark innovation unique to theKanematsu Group.
President & CEOYoshiya Miyabe

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KANEMATSU Integrated Report 2023

The Kanematsu Group’s Origins

Kanematsu’s Foundations

Since taking office as President & CEO in 2021,
I have brought up the importance ofreturning to our fundamentals on a varietyof occasions.
Kanematsu’s founding purpose, “Letus sow and nurture the seeds of global
prosperity,” bids us to take action to benefit
people around the globe. The values of thispurpose permeate all that we do. They arealigned with today’s Sustainability
Development Goals and serve as compass
to guide us on the right path forward. Amid
the rapid changes of the modern world,
I think it is more necessary than ever toreturn to these fundamentals. At the sametime, it has become more than apparent tome through experience in a variety of settings that the founding purpose has truly
taken root in the minds of the people of theKanematsu Group. For example, our business partners often remark on the warmthand care they feel from Kanematsu, or theirsurprise at how attentive the service theyreceive is. Such comments are extremely
gratifying for us and naturally reinforce ourattachment to the Company while encouraging greater engagement. Furthermore,such reactions demonstrate how our people are unconsciously putting into practicethe sayings of our founder, Fusajiro
Kanematsu—“belief in the value of work,”“profit is just a by-product of business,” and“customers come first.” Indeed, Kanematsu
is full of people working this way. This isalso the reason why the Kanematsu Group
has such outstanding intangible assets.
Given the current emphasis placed onsustainable growth, companies must, ofcourse, work toward growth in terms ofnumbers and volume. However, I believethat we must also remember the importance of qualitative growth. One of the reasons that I keep bringing up returning toour fundamentals is to remind the peopleof the Kanematsu Group that we alreadyhave in place the kind of conditions neededfor qualitative growth and improvement.

The Kanematsu Group’s Value CreationReturning to Our Fundamentals andValuing Our Intangible Assets

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17The Kanematsu Group’s Value Creation

Message from the President & CEOGroupwide Management

future 135 Medium-Term Vision

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Message from the Digital Transformation Committee Chair

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Message from the Green Transformation Committee Chair

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Reinforcing Digital Talent and Innovation
In our main business of trading, humanresources are our most important management resource and the source of value creation. In particular, digital talent is key tosuccess in new businesses centered on such
advanced technologies as IoT and AI, which,going forward, are expected to only increasein importance as growth areas for Kanematsu.
Around 60% of our employees work in areas
related to the Electronics & Devices Division,and digital literacy is high throughout theGroup. To further increase digital literacy, wehave now made having all employees obtain
the IT Passport qualification an official part ofour Human Capital Development Policy.
Furthermore, through the proactive
exchange of personnel with Kanematsu
Electronics, we will advance the developmentof digital talent Groupwide, rolling out digitaltechnologies to businesses that have not mademuch use of them to date. Specifically, we plan
to dispatch personnel selected from each business division to Kanematsu Electronics as a wayof developing human resources equipped toapply digital technologies in their respective
businesses. We are starting these efforts witharound 10 employees, but plan to step them up
as we go forward. Our business divisions haveexpressed their eagerness to select and sendstaff. We have great expectations for these
efforts as a test of the fruits of our Groupwide
management.

KANEMATSU Integrated Report 2023

Kanematsu’s Foundations

KANEMATSU Integrated Report 2023

Opening Feature: Strengthening Groupwide Management

Part of our medium-term vision is to create
a new business portfolio through innovation
investment. To this end, we need to collaborate
with startups that are producing innovativetechnologies and business models. I think wemust be proactive in this area, given that mostof the movers and shakers in the world today
are companies that were startups just a few
years ago. Trading companies engage with theentire value chain, from end to end, so we are
well positioned to partner with startups. At
the same time, exercising discerning judgement regarding technologies is an area of difficulty for many trading companies, sopartnering with venture capital firms (VCs)
familiar with that ecosystem can be very effective. For VCs, meanwhile, such partnerships
offer the benefit of access to a trading company’s business partner network. In other words,
the combination of a VC’s technological discernment with a trading company’s businessnetwork can result in a win-win relationship,enabling the creation of a business model only
possible with a trading company.
The Kanematsu Group includes
Kanematsu Ventures Inc., a Group company
located in the United States that specializes infinding promising startups in Silicon Valley.
Kanematsu Ventures has invested in VC funds
in Silicon Valley and is building a network withpowerful VCs. These connections have led to abusiness tie-up with WERU INVESTMENT Co.
Ltd., a major Japanese VC. Kanematsu
Electronics and other Group companies haveexpressed interest in dispatching staff toKanematsu Ventures. Making effective use ofKanematsu Ventures will thus be significant interms of human capital development, as well.
Our innovation investment is currently
still in the sowing stage, but going forward,
we intend to focus efforts on cybersecurity,
the space business, and environmental businesses. A Silicon Valley VC we have partneredwith since 2019 has built relationships withstartups boasting world-leading cybersecuritytechnologies. By combining such constantly
evolving cutting-edge technologies with theKanematsu Group’s business network, mainly
though Kanematsu Electronics, we will expand
new security businesses. In addition,

The Kanematsu Group’s Value Creation

18businesses worldwide.
As publicly listed companies, both had
ample growth potential even as they werebefore, but they share Kanematsu’s DNA, andwe felt that integrating them fully into theGroup would generate greater synergies at theGroup level. This conviction led us to the decision to make the tender offers.

The Origins of Value Creation

Another thing I have been emphasizing repeatedly is the need to do away with the barriers
separating divisions and Group companies. The
Kanematsu Group does business with some
20,000 companies in and outside Japan, andour staff visit our business partners every day.
The information, insight, and experience that
this contact provides constitute valuable assets
for Kanematsu. This is the basic form of thetraveling sales model, i.e., going to where thepotential customers are and finding a way togenerate business where there is nothing, noteven an order. Kanematsu’s main business is in
optimizing trading—the buying and selling ofthings—to increase added value across thevalue chain. The traveling sales mindset lives on
as a strength of this trading business, and wewill continue to reinforce and take pride in it.
Going forward, we will work to make explicitthe implicit knowledge our staff have in theform of this information, insight, and experience so that it can be shared across the Groupand woven into existing and new businesses
and business models to impart added value. To
this end, we will build infrastructure and systems to facilitate the sharing and linking ofsuch implicit knowledge in order to comprehensively reinforce the Group’s strengths.
To reinforce the business foundations of
our Groupwide management, we madeKanematsu Electronics Ltd. and Kanematsu

Sustech Corporation, which had been listed
Group companies, into wholly owned subsidiaries via tender offers. The current fiscal year
(ending March 2024) is the final year of thefuture 135 medium-term vision, which includes
the key measures of promoting DX and GX. We
plan to keep DX and GX as priority initiativesof the new medium-term business plan slated
to begin next year. As we advance DX and GX
initiatives, both of the newly acquired companies will be essential partners in theKanematsu Group’s growth—Kanematsu
Electronics, which operates in the ICT businessdomain, brings with it abundant insight, experience, and human resources in the area ofdigital technologies, and Kanematsu Sustech
employs proprietary technologies to contributeto decarbonization through such businesses
as ground improvement and wood materials.
Until now, we have worked in partnershipwith these companies, but they were not wholly owned subsidiaries and were both publicly
listed, which imposed a variety of limits onwhat we could do. Now that they have been
consolidated into the Group, we will be able tofreely allocate Group management resources tothem while further advancing cooperation andenhancing overall Group enterprise value. Inparticular, given the current pressing importance of digital technologies and sustainability
across all industries, I think that the expertise of
these companies will contribute to the added
value and expansion of scale of the Group’s

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The Kanematsu Group’s Value Creation

Message from the President & CEO

Special Feature: Innovation Investment

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Message from the Chief Officer of Human Resources

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Enhancing Enterprise Value byReinforcing Global GovernanceLooking back on the business environment ofthe past few years, in addition to rapidly
advancing technologies, such as digitalizationand AI, as well as the increasing importance ofdecarbonization efforts, there have been
many major factors that we did not expect atall, such as the pandemic and the RussiaUkraine situation, all of which have had amajor impact on Kanematsu’s businesses. This20

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Message from the Chair of the Sustainability
Management Committee

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Initiatives to Ensure Respect for Human Rights

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Kanematsu’s Foundations

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Dialogue between the Chairman and an
Outside Director

The Kanematsu Group’s Value Creation

Human Capital Targets and Results

rising uncertainty has made steering management more difficult, but trading companies
are by their nature skilled at adapting tochange.
Our networks with business partners andthe vast volume of information they provide
make us better able to respond to change. Inaddition, trading companies have few major
physical assets, like factories, that have to beshed when change comes. This allows trading
companies to be light on their feet, facilitating
adaptation. Furthermore, Kanematsu is notengaged in resource businesses, so we areexposed to relatively little volatility, enabling
us to maintain stable revenue and financial
soundness. In times of uncertainty and ofchange, Kanematsu’s ability to stably secure
funds for growth investment is a major
strength.
To further solidify our footing, we areworking to reinforce global Group governance and internal control. In Japan, the tender offers for Kanematsu Electronics andKanematsu Sustech have strengthened Group
governance. Overseas, as we acquire overseas
companies, we are working to build an efficient global governance system. However, thereality is that there are limits to the measures
we can take to prevent deliberate misconduct
by individuals, and I think this is an area where
it is crucial to ensure that the spirit ofKanematsu’s founding purpose permeates
the Group. Amid calls for strengthening internal control, merely ticking off items on astrengths of and issues faced by each of ourdivisions and businesses as we formulate thenext medium-term business plan to broadly
leverage the Kanematsu Group’s strengths insociety. Taking pride in our roots in the shoeleather business of traveling sales, we will further strengthen our ties with business
partners with a focus on digital technologies
and sustainability as we aim even higher.
“Sow a seed now,” and take action tobenefit people around the globe. These are
our fundamentals.
We ask ourselves what the KanematsuGroup can do for the Earth and for people,
and we seek to make such contributions areality by engaging in dialogue with stakeholders and working to meet their expectations. As we do so, I ask for your continued
support and understanding.

The Origins of Value Creation

Kanematsu Ventures is increasingly partneringwith startups in the new space and green techarenas, which offer potential for new developments in the space and environmental businesses going forward.
Proactive investment in the most important form of capital for value creation—
human resources—is essential to innovation.
To maximize this capital, we have establishedthe Human Capital Policy and set metrics andtargets from the perspectives of human capital development and working environment
improvement. As we work toward these targets, we will enhance the value of our intangible assets in line with the philosophy that atrading company is its people.

checklist is not enough. We must return to ourfundamentals and get creative to reinforcegovernance.
In order to achieve sustainable growth,which is also the purpose of strengthening
global governance, we signed the United
Nations Global Compact (UNGC) on March 12,2023, endorsing its 10 principles in the four
fields of “human rights,” “labour,” “environment,” and “anti-corruption.” These are areasin which we had already been working, mainly though the Sustainability Management
Committee, but we took this step as anopportunity to exercise creative leadershipwithin the UNGC’s global framework andreinforce the global business operations of
the Kanematsu Group as a whole. By committing to the UNGC, we seek to level up oursustainability-oriented management andincrease the depth of our intangible assets. Inthis way, we aim to increase our enterprise value.
We are now in the final fiscal year of thefuture 135 medium-term vision. By reinforcing
Groupwide management, we believe that wecan achieve the vision’s targets. We aim toreach even greater heights in the next stage.
To this end, we are taking a fresh look at theKANEMATSU Integrated Report 2023

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