Opening Feature: Strengthening Groupwide Management

GroupwideManagement
Aimed atLong-Term Synergy
GenerationYoshiya Miyabe

Akira Watanabe

Koichi Koizumi

President & CEO
Kanematsu Corporation

President & CEO,
Kanematsu Electronics Ltd.

President,
Kanematsu Sustech Corporation

We are heightening enterprise value by
further realizing synergies within the Group.

Kanematsu

With the aim of promoting Groupwide management to generate long-term synergies, we made takeover bids(TOB) for Kanematsu Electronics (KEL) and Kanematsu Sustech (KSU) executed from January to March 2023. TheseTOBs were aimed at creating new added value by strengthening digital transformation (DX) and green transformation (GX) as future growth drivers for the Kanematsu Group.

Kanematsu Electronics Ltd.

Kanematsu Sustech Corporation

Kanematsu Denshi Service Ltd. (currently Kanematsu Electronics Ltd.)was established in 1968 as a subsidiary of Kanematsu-Gosho, Ltd.
(currently Kanematsu Corporation).

Kanematsu Sustech Corporation was established in 1934 as Nihon
Sangyo Gomu Co., Ltd., and entered into a capital alliance with
Kanematsu-Gosho, Ltd. (currently Kanematsu Corporation) in 1989. Thecompany name was changed to Kanematsu Sustech Corporation in 2016.

Capital:¥9,031 million
Net Sales:¥85,430 million (as of March 31, 2023)
Number of Employees: 1,483 (consolidated, as of March 31, 2023)
Main Business:
KEL designs and implements information systems and provides operationand consulting services for businesses based on expertise in information
technologies. KEL retails, leases, maintains, and develops IT systemproducts and software, and also send loan engineers.

2KANEMATSU Integrated Report 2023

Capital:¥3,326 million
Net Sales:¥13,990 million (as of March 31, 2023)
Number of Employees: 286 (consolidated, as of March 31, 2023)
Main Business:
Construction and sale of ground improvement works, various groundinspections, sinkage repair, etc. Timber drying, wet preservative and antitermite treatment (wood preservation treatment) and sale, sale of woodpreservative treatment equipment and chemicals, etc. Sale of warranty
services and installation works for security cameras, recorders, othersecurity equipment, and related equipment.

Kanematsu
Electronics
Background and Goals of the TOBs
Miyabe: The Kanematsu Group is composed of about 130
Group companies with over 20,000 business partners. The
business and industry knowledge, experience, and network gained from this broad business foundation constitute tremendous management resources. To grow in thefuture, we must raise the enterprise value of the entire
Group by applying these strengths effectively and efficiently across the Group.
In our ongoing efforts to work with companies within the Group, KEL and KSU have been limited by theirposition as listed companies. We decided to proceed withthese TOBs to bring these companies fully into theKanematsu Group with the aim of taking advantage of
their respective expertise in DX and GX, thereby achieving
growth for each company and for the Group as a whole.
We aim to leverage digital technology to create beneficial relationships between Group companies andKanematsu
Sustechsynergies that transcend the barriers separating theKanematsu Group’s many individual businesses anddivisions.

Challenges and Initiatives to Groupwide
Management
Miyabe: We held repeated discussions on what weshould do to work towards our overarching goal of having not just these two companies but all of our Group
companies act as a united Kanematsu Group.
Watanabe: My company, KEL, works within the fastpaced IT industry, so we thoroughly considered its integration into the Kanematsu Group to determine whether
it would be an optimal solution for future management,
five or ten years from now. There were some concerns
about the impact on the KEL brand, but we determinedthat there would be significant benefits from joining up,
KANEMATSU Integrated Report 2023

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Opening Feature: Strengthening Groupwide Management

Watanabe: For KEL to promote the DX of the KanematsuGroup, I think many measures will be required, such as
personnel exchange through collaborative projects,
employee reskilling, and sharing knowledge that can leadto proposals for customers. We have about 1,000 engineers at KEL. To demonstrate KEL’s value as part of theKanematsu Group, our employees will leverage their practical experience and ability to make proposals in the ICTsolutions and DX fields. We have started talks withKanematsu to expand this beyond Japan.

Koizumi: Like President Watanabe, I also considered ouremployees’ feelings when I provided internal explanations on the TOB. KSU transitioned to the Standard
Market of the Tokyo Stock Exchange in April 2022, andthe TOB came right after we had encouraged our employees to shoot for the Prime Market, so I think that some ofthem were probably disappointed. However, since wewere concerned about the extent to which we could
grow on our own, I explained to our employees thatworking with Kanematsu would be just as valuable as
being listed on the Prime Market.
The “Sustech” in KSU’s name refers to our corporate
principle, “Support our society with technology,” which issimilar to the principles that form Kanematsu’s so-called
DNA. Going forward, we will aim to create synergies andachievements through collaborative GX projects, expand
our business to solve global issues, and work on a bigger
scale than ever before.

Taking on Global Business in DX and GX

Koizumi: We are also collaborating in security. KSU has
business in security cameras, and we have been supplying
our products to customers of other Kanematsu Group

KEL’s Business ModelppltionV

KANEMATSU Integrated Report 2023

endorsPursue directbusiness withend users
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end

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Medical Industry

Akira Watanabe1991 Joined Kanematsu Electronics Ltd.
2003 Manager, Solution Sales Dept. 2-Manufacturers, Solution Sales
Div. 2, Kanematsu Electronics Ltd.
2008 General Manager, Solution Sales Div. 2, Kanematsu Electronics Ltd.
2011 Executive Officer, Kanematsu Electronics Ltd.
2013 Director, Kanematsu Electronics Ltd.
2017 Managing Director, Kanematsu Electronics Ltd.
2019 President & CEO, Kanematsu Electronics Ltd.

1984 Joined Kanematsu-Gosho, Ltd. (now Kanematsu Corporation)2007 Manager of Chicago Head Office, Kanematsu USA Inc.
2013 General Manager of Motor Vehicles and Parts Department
No. 1, Kanematsu Corporation2014 Manager of Chicago Head Office, Kanematsu USA Inc.
2018 Executive Officer, Deputy Manager of Motor Vehicles &Aerospace Division, General Manager of Motor Vehicles andParts Department No. 1, Kanematsu Corporation
2021 President, Kanematsu Sustech Corporationcompanies, including KEL. We plan to work together inthe future with Kanematsu’s drone businesses to expand
into such fields as diagnosing the degradation of medium- to high-rise wooden buildings. Until now, workers
have had to conduct large-scale investigations fromdangerous aerial work platforms, but by utilizing drones,
we are able to reduce the risk of occupational accidentsalong with the cost and time required. Going forward,
we will continue to test this technology with the aim ofcommercialization. In addition, KSU is using its extremely
extensive collection of ground inspection data to develop e-soil, an all-in-one system to handle every stage fromsales proposals to design and construction management.
Going beyond use within our company, we aim to makethis system into a platform for the entire industry.

Kanematsu’s Foundations

Miyabe: One of KEL’s strengths is its expertise in the ICT
solutions and DX fields. If we can further expand KEL’sstrengths and apply them throughout the Group, we will
be able to increase the Group’s strengths and added
value. This will require Groupwide reforms via a variety ofmeasures, such as personnel exchanges to acquire anddevelop digital talent. Kanematsu Group employees haveinherited the Company’s founding spirit of “for the Earthand for people” as part of their professional DNA. We willdevelop human resources who take this spirit to heart toprovide even greater value to our customers.

Watanabe: In terms of collaboration, we are making
progress on a number of projects. One of these isstrengthening solutions in the security field. In 2019,Kanematsu Ventures Inc. (KGV), established byKanematsu in Silicon Valley in 2018, joined Cyber
Innovation Partners II, a fund created by the venture capital firm AllegisCyber Capital. KEL participated as a partnerand started working as a team with three or four othercompanies. This kind of global operation is a strength ofKanematsu that is very helpful for KEL, given its in-houseglobal professionals.

Koichi Koizumi

The Kanematsu Group’s Value Creation

Koizumi: I think joining the Kanematsu Group will provide
many advantages for KSU. We are a unique company thatuses proprietary technology in the ground improvement
and timber businesses. I believe that, as part of theKanematsu Group, we will be able to further expand ourvalue as a manufacturer in such areas as R&D at our technology development centers and manufacturing at ourfactories. KSU and Kanematsu still need to get to knoweach other better, but we have made progress in building
mutual understanding through several collaborative projects over the past two years. And, as a manufacturer, wewill need to take advantage of the Kanematsu Group’sstrengths to add value to our traditional business modeland grow further. In concrete terms, there are many things

for us to do, such as utilizing Kanematsu’s global network
to expand our international business, especially that inAsia, as well as advancing business investment and M&A
along with human resource development and exchange.

The Origins of Value Creationsuch as access to the Kanematsu Group’s customer baseof over 20,000 enterprises and accelerating decision making. Once we decided our response to the TOB, we carefully explained both the concerns and benefits of themove to our employees.
The Kanematsu Group has held meetings of Groupcompany presidents for over 20 years, but there are also
newer forums, such as the Digital Transformation
Committee launched in 2021, in which the Group canhave discussions in the course of regular operations. To
demonstrate Groupwide synergies, I believe we need anenvironment where everyone can discuss a wide varietyof topics on equal footing.
KEL has established an organizational culture withrelationships of equality. We encourage our employees tobuild such relationships both within the company andwhen communicating with customers. By doing so, weare better able to understand the true nature of our customers’ problems and derive the right solutions. To realize
frank discussions from positions of equality within theKanematsu Group, it will be necessary to build a communication environment that leverages DX, change the way
our employees think, and reform the corporate culture.

Groupwide Management Aimed at Long-Term Synergy Generation

Miyabe: Through these TOBs, we are now able to see apath forward for the united Group to take on global
challenges in both the DX and GX fields.
In the short term, we are examining how to improve
operational efficiency through collaboration with KEL as
well as how to expand KSU’s environmental businesses
into other parts of the value chain. In the long term,
these two companies will have a huge impact on theKanematsu Group’s DX and GX. A decade from now, DXand GX will be a standard part of how things are done,
and there may even be no need to put these concepts
into words. In their place, food transformation—or FX—
could become the next important movement, such that
Kanematsu’s Foods, Meat & Grain Division would
become a new source of added value for KEL and KSU.
Therefore, it will be important to look at the entire Group
as a whole and execute management aimed at effectively
utilizing each company’s strengths over the long term.

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Opening Feature: Strengthening Groupwide Management

Groupwide Management Aimed at Long-Term Synergy Generation

Significance and Purpose of Making KEL and KSU Wholly Owned Subsidiaries

Kanematsu Sustech Corporation’s Eco Wood Pile Construction Method

Priority initiatives and strategies of each company

The Eco Wood Pile in Use
Shared facilities

Parking lot and park

Effective use of domestically
produced materials
Check dam

Processing forhigh durability

Shared facilities
Box culvert• Strengthen competitiveness of service
business• Acquire knowledge of industries and businesstypes to establish our position as a strategic
partner for customers• Strengthen the management base throughinvestment in human capital and digitalization

Priority Initiative 1:

DXConduct DX across the supply chain
and reduce the burden on business
partners, Group companies, andother areas of the supply chain• Allocate medium- to long-term management resources to the growing IT
field and expand businesses targeting demand for security measures,operational efficiency, and potential demand for supply chain DX

Optimally allocate
management
resources• Use M&A to strengthen and expand application areas that complement ourstrong infrastructure construction business and secure IT human resources

Utilizing M&A

Miyabe: Kanematsu has been trading in these fields formany years, and our strengths in these areas make us aunique trading company. We believe it is important tobalance trading and business investment and by, adding
together our GX and DX-related strengths, we will
advance in a way that allows us to respond flexibly tochanges in the external environment. The KanematsuGroup, in line with its philosophy of “for the Earth and forpeople,” has a tremendous amount of non-financial capital. We will continue to carry this capital forward, and I
will take the lead in management that leverages synergies
across the entire Group and contributes to the improvement of enterprise value, thereby contributing to society
as a whole.

• Promote business collaboration through personnel exchange and information
sharing within the Group and restructure business using digital technology• Formulate a new medium-term business plan focused on digital transformation

Corporate initiatives• Strengthen and expand the customer base and R&D through M&A• Promote Groupwide GX and strengthen sustainability initiatives through thepromotion of DX

Improve the Group’s enterprise value by promoting DX, GX, and Groupwide management
1) DX: Utilize data and digital technology to create new business models and transform existing businesses
2) GX: Transform the entire socioeconomic system to realize carbon neutrality (reduce greenhouse gas emissions, including CO2, and subtract avoided emissions to reach net zero total emissions)3) Applications: Refers to tools, such as internet browsers and email, in contrast to infrastructure, which refers to hardware, such as servers

Deepening Group GovernanceKaoru Tanigawa

Kazuhiro Tanaka

Chairman(Presiding Officer of theBoard of Directors)

Outside Director(Chair of the NominatingCommittee)

I believe that making Kanematsu Sustech Corporationand Kanematsu Electronics Ltd. into wholly owned subsidiaries has significantly enhanced governance, thereby improving the value of the entire Group.
Previously, both companies strove to enhance theirgovernance as listed companies, but as listed subsidiaries, some aspects of their governance were insufficientin terms of independence, such as the appointment
and proportion of independent outside directors. Suchissues were difficult for them to resolve on their own.
Since making these companies into wholly owned subsidiaries, the Group has further evolved by maximizing
the various business synergies their integration enables,
as well as unifying Groupwide governance and internalcontrols.
I believe that this will further increase the Group’s
credibility from the perspectives of all stakeholders,
including investors and business partners, and encourage them to invest and do business with us. I hope you
will look forward to the continued growth of theKanematsu Group.

Undoubtedly, we need strong governance systems, forboth individual companies and the Group. However, corporate culture is even more important than systems, andthe foundation of a company’s culture is its management philosophy.
Developing and nurturing corporate culture by disseminating the management philosophy is necessary forgood Group governance. This is because each Groupcompany, while fully demonstrating its own individuality, plays a major role in realizing discipline and synergy
at the Group level.
Kanematsu Group employees share the philosophyof “for the Earth and for people,” which is based on ourfounding purpose. The Kanematsu Group’s philosophy
and culture consist of reliability and integrity as built up
by our predecessors. Our employees continue to takepride in these today. To strengthen Groupwide management, we will have to reaffirm and redefine these principles and work to ensure that they truly permeate theentire Group through strong leadership from both theBoard of Directors and the management team.
KANEMATSU Integrated Report 2023

Kanematsu’s Foundations

KANEMATSU Integrated Report 2023

year, thereby expanding our “underground forests.”
With the improvement of our proprietary Eco Wood
Pile technology, we have started expanding its use
beyond single-family homes to include large buildings. In
recent years, we have increasingly been using this technology for civil engineering applications related to disaster prevention, such as reinforcing the embankments oferosion control dams and reservoirs.

• Invest in R&D that contributes to expanding business areas and developing
new technologies and construction methods• Medium- to long-term investment and business reforms to strengthen thenon-residential sector

The Kanematsu Group’s Value Creation

6

Promote GX, build a stable andsustainable supply chain, andcontribute to decarbonization• Position sustainability as a priority initiative• Realize an environmentally friendly society
through business activities

The Origins of Value Creation

Koizumi: One of KSU’s visions is to “create undergroundforests through GX.” In 2022, we provided Eco Wood Pile,
which uses timber preservation treatment technology, formore than five thousand buildings. By replacing cement
or steel ground improvement materials with timber, thistechnology reduces CO2 emissions by 10 tons per building. We therefore calculate that, across the 43,000 buildings where we have used Eco Wood Pile since introducing
it 10 years ago, we have avoided emissions totaling
430,000 t-CO2. Going forward, we plan to increase theuse of these materials to 10,000 to 15,000 buildings perGXMeasures and expected synergies after the TOBs

Sluice gate

Eco Wood Piles

Watanabe: Recently, we have been receiving an increasing number of consulting-related inquiries from customers who want us to provide solutions or connect theircompanywide infrastructure through DX. To meet thisdemand, we need to quickly secure, cultivate, and invest
in digital talent. Planning is also under way for a project
to develop digital talent both within the Group and forJapanese society as a whole. By creating educational content and developing digital human resources in stages(through training lasting three months, six months, and oneyear), we will contribute to the DX of society as a whole.

Priority Initiative 2:7