SAKAI HEAVY INDUSTRIES ESG Briefing

Creating economic and social
value through our businessactivities
January 26, 2022

SAKAI HEAVY INDUSTRIES, LTD.

Introduction

Background of the ESG briefing
We have contributed to the social business of land development globally through our road construction equipment operations.
We believe that our raison d'etre and responsibilities are to provide our customers with highly reliable products and services, toconstantly reinforce our technologies for developing our road construction business further, and to apply our specialized
technologies in related businesses.
The road construction business has become an essential part of the world's infrastructure. We have entered an era, however,where we need to reduce burdens on the earth and the environment. Our objective is to become a truly global company that canplay a key role in global land construction, while accommodating demands of the new era through leveraging the tangible andintangible know-how accumulated over our many years of experience, as well as our relentless pursuit of new technologies.

Today, we are holding an environment, social, and governance—or ESG—briefing session. The session is designed to help those
involved in the capital markets to understand thoroughly that our business not only contributes to the resolution of a host of social
issues but also leads to further enhancement of corporate value by accurately seizing opportunities while managing environmental
and social risk.
Ichiro Sakai, President
SAKAI HEAVY INDUSTRIES, LTD.
1

Contents
Introduction

Background of the
ESG briefing

1.

Business overview and vision

2.

Resolving social issues through business activities andgrowth strategies

Overview, medium-term management plan, and corporate
value enhancement

Value creation process, social issues in the value chain, growth strategies
through problem solving

3.
4.

5.

Building human capital to support sustainable growth
Recruitment and talent development for global niche strategies

Climate change initiatives and commercialization
strategies

Opportunity and risk analysis, creation of new added value that helps
reduce CO2 emissions produced in the construction process

Creating a management structure to strengthen corporate
governance
A management structure in which one-third of the Board of Directors iscomprised of independent, external directors, complete independence ofbusiness execution from oversight, Nomination and Compensation
Committee, and skill matrix

6.

Policy for dealing with current supply chain issues
Sales price, logistics, procurement policy

21. Business overview and vision

Status of our compliance with the criteria for maintaining listing in the Prime Market

Company overview (1)Company overview (2)Quantitative targets in the medium-term management plan

Achieving an appropriate stock price level (P/B ratio over 1.0)

Status of our compliance with the criteria for maintaining listing While the requirement for retaining Prime Market listing is to maintain market capitalization of ¥10 billion, the company is about
30% short of this criterion. The company have submitted a plan to comply with the criteria for retaining Prime Market listing.
 Though the P/B ratio is currently stagnant at about 0.5, the company aims to achieve a ratio of 1.0 or above by steadily anddecisively implementing capital policies and fundamentally reviewing and fortifying our ESG initiatives—while continuing to
implement our growth strategy through business activities.

Compliance with listing maintenance requirements
Outstanding
sharesNumber of
Number of
Ratio of shares
Marketoutstanding
outstanding
shareholders
capitalization
shares(%)(owners)(units)(hundredmillion yen)

Current situation*1

Daily average
Trading value(hundred million
yen)

2,924

28,147

63

65

0.3

3,239

26,731

74

61

0.4

Criteria for
maintaining listing－

20,000

100

35

0.2

Items listed
in the plan

－

－

○

－

－

(As of the reference date)Current situation*2(Based on the publication of thecompliance plan regarding therequirements for maintaining
listing)*Calculated based on the distribution of the Company's stock certificates ascertained by the Tokyo Stock Exchange as of the base date.
*The Company's conformity status is calculated based on the share distribution status table as of September 30, 2021, and the Company's stock price as of December 9, 2021(¥2,795, P/B 0.53).

4

Company overview (1)Corporatephilosophy
Contribute to the social business of global land development throughroad construction equipment businessA specialized manufacturer of road construction equipment
for the Japanese, Asian, and North American markets

Businessoverview

Research and development, design, manufacturing, sales,
service, and technical guidance concerning equipment
required for road construction and various types ofcompaction work
Primary clients are paving and civil engineering
contractors
Commercial distribution is via direct sales, sales andservice through distributors, and construction equipment
rental5Company overview (2)Global expansion of production bases

Sales ratio by region(Fiscal year ended March
2021)

Other

Middle and Near East,

2.0%

Russia CIS 0.2%

Consolidated group summary(Fiscal year ended March 2021)

Consolidated

No. of employees:
602

North

Japan (4 companies),
overseas (5 companies)
SAKAI HEAVY INDUSTRIES, LTD.

Japan

AmericNo. of employees:
338

a

SAKAI, LTD.
TOKYO FUJI CO., LTD.
COMODO CO., LTD.

15.0%

U.S.

Asia

Japan

22.5%

60.3%

No. of employees:
48

SAKAI AMERICA, Inc.

PT. SAKAI INDONESIA

Indonesia

No. of employees:
162

PT. SAKAI ROAD MACHINERYINDONESIA
PT. SAKAI SALES AND SERVICES ASIA

China

No. of employees:
54

SAKAI HEAVY INDUSTRIES(SHANGHAI), LTD.

6

Quantitative targets in the medium-term management plan

Quantitative targets for March 2026

¥30 billion ¥3.1 billion
Net sales

8.0%
Return on equity (ROE)

Operating profit

Investment
activity

Shareholder
returns

Capital investment: ¥2.5 to 3.5
billionResearch and development(R&D): ¥4.0—5.5 billion

Dividend
payout ratio

ROE less than 3%: Dividend payout ratio of 100%
ROE between 3 and 6%: Dividend on equity (DOE)
return of 3%
ROE greater than 6%: Dividend payout ratio of 50%

Share buyback(upper limit)¥500 million—2.0 billion

P/B ratio greater than 1.0
7

Achieving an appropriate stock price level (P/B ratio over 1.0)
Initiatives for sustainable growth /further dialogue and higher quality of disclosureWith the objective of improving the P/B ratio (over 1.0), a market
indicator of corporate value, the company will seek to: (1) improve
ROE, (2) increase shareholder returns, and (3) reduce the cost ofcapital(3) Reducing
the cost of capitalManaging environmental
and social risk

(1) Improving ROE
Enhancing profitability

Maximizing corporate value
Improving capital efficiency

Capital policy with anawareness of optimal
capital structure
Proactive disclosure of
ESG-related information

P/B ratio
greater than
1.0(2) Enhancing shareholder
returns8

2. Resolving social issues throughbusiness activities and growth strategies
Initiatives to achieve SDG goals in theImproving construction site safetycompany's business activities



Resolving issues in developing nations



The company's "value creation process"Measures taken around the world to encourageAddressing social issues in the value chainResolving issues in advanced andbusiness expansion


The Ministry of Land, Infrastructure, Transport anddeveloping nations

Tourism's measures to encourage businessResolving issues in advanced nations

expansion

Future vision through digital transformation (DX)Initiatives to achieve SDG goals in the company's business activities
Solving social issues and creating social value through the company's businessactivities

Goal 9Building sustainable and resilient infrastructure
Promoting inclusive and sustainable industrialization, and fostering
innovation

Goal 10

Reducing inequality within and between countries (official
development assistance (ODA))

Goal 11Making cities and human settlements inclusive, safe, resilient andsustainable

Goal 12

Ensuring sustainable consumption and production patterns(product life cycle)

Goal 13

Taking urgent action to fight climate change and its impacts(countermeasures for natural disaster)
10

The company's "value creation process"Based on the company's corporate philosophy, "contributing to the social business ofglobal land development through the road construction equipment business,"
SAKAI HEAVY INDUSTRIES recognizes the importance of sustainability in seeking to realize a sustainable society.

Business activities and strategy

Social issues
Global-scale social
issuesProgression of global warming
Mass consumption and depletion of
resources
Development of disaster-resilient
infrastructure
Improving the living environments indeveloping countries

Customer on-site issues
Deterioration in safety resulting
from labor shortages
Productivity slowdown resulting
from labor shortages
Life cycle cost reduction

The
company's
strengths• Global niche strategy throughselection and concentration• Accumulation of distinct
compaction technologies(extending road service life)• Confidence of customers
backed by experienceengineering and performance• Global network and brandstrength

Contributing to the social
Materiality leading to value creation• Cultivating technology contributing to national landdevelopment through road construction• Developing overseas markets• Addressing carbon neutrality(Reducing the environmental burden across theconstruction process)• Fundamental evolution through DX support(Providing added value, improving the businesscycle)• Improving construction site safety

Medium-term
management policy

The company's
vision• Becoming a world-class nichecompany specializing in road
construction equipment• Solidifying the foundation
toward ¥30 billion in sales overthe next five years• Growing to a ¥50 billion
company over the long term

• The company's development isdriven by the expertise of eachindividual employee• R&D and manufacturing to
improve overall construction
efficiency and reduce
environmental impact• Promoting DX in construction
by leveraging driverless
operation technology• Supporting sustainable growthwith a sound financial base

Objective
business of global landdevelopment through thecompany's road
construction equipment
business

Economic valueKey
performanceindicators(KPI)

Materiality of the foundation forbusiness continuity• Retaining and developing specialized
personnel• Promotion of diversity• Quality assurance, CSR procurement• Supply chain management• Fostering an environment of respect forhuman rights

Growth strategy• Expanding market shareoverseas• Expanding business domains
overseas• Creating added value throughnext-generation businessdevelopment

Net sales
OperatingprofitReturn on
equity (ROE)
Dividend
policyNumerical
targets¥30 billion¥3.1 billion
8.0%
Dividend payout
ratio of 50%

Social value• Providing reliable products and services• Creating technologies that are beneficial tothe development of road projects• Utilizing specialized technologies in related
fields, which the company has cultivated inroad construction equipment

11

Addressing social issues in our value chain

Creating social value by addressing social issues in the value chain

Procurement

Manufacturing

Construction
companies

R&D

Logistics andsales

Construction
operations

Customers

Public infrastructure

Addressing social issues
Issues in construction operations

Public infrastructure issues

Achieving carbon neutrality in constructionCreating safe and resilient infrastructure

operationsExtending road service lifePromoting DX in the infrastructure fieldImproving the living environments inImproving construction site productivity anddeveloping nations

safety12

Resolving issues in advanced and developing nations

Resolving social issues and creating social value
through our business activities
Creating safeand resilient
infrastructure

Advancednations
Developing
nations

Extending roadservice life

Developing
infrastructure in
undeveloped
areas

Creating jobs indeveloping
nationsContributing to advanced road construction technologyReducing life cycle costs by extending the service lifeof roads

Total cost for design, construction,
management, and demolitionImproving construction operation efficiency and safetyContributing to road maintenance demand that canwithstand the increase in logistics



Providing reliable products and services

Transferring road construction technology
established in Japan13

Resolving issues in advanced nations
Actualizing high-quality, efficient road paving mainly
in Japan, the U.S., and Europe, where demand for this is increasing.

ResolutionCreating safe, secure public infrastructure through advanced compaction and flat-road paving



Saving energy and overcoming labor shortages by applying driverless, efficient autonomous
rollers

Accommodating demand for decarbonization with Electric rollers rollers that help reduce CO2
emissions

Leveraging DX to enhance safety

Highway paving in the U.S.

Autonomous roller- Test marketing to be

Electric roller - Demo vehicle to be completedcompleted14

Improving construction site safety

Social issues related
to construction site
safetyLeveraging DX to achieve safe, secure andcomfortable construction sites
Leveraging DX technology to promote problem solving

Improving safety
 Promoting rollers equipped withemergency brakes
 Enabling emergency stopping whenpeople or obstacles that are in the
direction that the roller is moving aredetected15

Resolving issues in developing nations
Thorough provision of construction equipment to Nicaragua, where the company has
committed to pave 2,000km of road over a five-year period

Resolution

A letter of appreciation fromthe government of Nicaragua

Transferring construction technology for the stabilizer construction
method (roadbed method of road reformation)Improving local living standards through stabilized logistics



Improving vehicle fuel efficiency by 25% through flat-road paving

Decreasing the number of traffic accidents caused by damage to roads

JAPAN GRANT Project (ODA)16

Policies to encourage business expansion in different countries

Expanding demand for land development

Japan

U.S.

Acceleration ofnational land resilience

The infrastructureBill totaling US$1.2
trillion has been
passedTo make national land more
resilient, additional projects
equivalent to about 15 trillion yen
are needed over the five-year
period beginning in 2021

Decarbonation anddigitization of
construction practices

Of the US$550 billion in newinvestment, US$110 billion will
be invested in roads and bridges
over a five-year period

ASEAN
Expansion of
infrastructure
investment budget
due to recovery indemand"Infrastructure Systems Overseas Development Strategy 2050"
Increasing overseas orders from Japanese companies to ¥34 trillion in five years

Achieving carbon neutrality in theinfrastructure field as well as
promoting DX(See next page for details)

17

The Ministry of Land, Infrastructure, Transport and Tourism's
measures to encourage business expansion
Achieving carbon neutrality in construction operations and application of DX
in the infrastructure field
Green growth strategy

Promoting DX in theinfrastructure field

Announced in July
2021

Achieving carbon neutrality throughout the infrastructure life cycle

Announced in
February 2021

Leveraging data and digital technology to resolve
issues in the infrastructure sector

 Promoting planning with a sustainable mindset
Planningand design Promoting materials effective for reducing CO2 emissions

Energy saving and technological innovation in
the construction and installation areas
1.

Promoting carbon neutrality in construction equipment▶
Construction
operations

2.

Compaction management and autonomous driving

Promoting the introduction and expansion of innovative construction
equipment▶

Electric roller

1.

Transitioning to LED roadway lighting

2.

Upgrading road lighting facilities

Promoting quality-oriented
construction recycling
Renewalanddemolition1.

 Promoting materials effective for
reducing CO2 emissions

Initiatives

 Improving on-site safety and efficiency byleveraging AI and other technologies▶ Emergency brake, compaction management, and▶

Extending service life

 Transforming work processes and styles byleveraging digital data
▶ Compaction management
 Transforming government procedures and services
in daily life

Maintaining a high recycling ratio of construction byproducts▶

2.

mindsetautonomous driving

Promoting energy saving in infrastructure services
Serviceandcontrol Promote planning with a sustainable

Eco Mode

Leveraging ICT to improve construction efficiency and sophistication▶
3.

Challenges at
Construction
sites

Stabilizer construction method

Enhancing the monitoring of construction by-products

Source: Outline of "The MLIT Green Challenge" for a green society

 Actualizing well-organized data environments for DX

Source: Digital transformation (DX) in the infrastructure sector

18

Future vision through digital transformation (DX)Transforming business models through DX
Providing customers with new added value

Database
platform
construction
 Developing a database platform
for centralized control over
operation management,
preventive maintenance, andparts / product information
 Creating new added value by
leveraging IoT technology andpromoting autonomous driving
technology

Business cycle
acceleration
 Reducing total lead times throughthe visualization of the locationsof information and goods,
enabled by DX in sales andmanufacturing

New added value
provision Significantly improving the company's
structure and efficiency by directly
connecting the company withcustomers and construction equipment
 Remote support fortroubleshooting, preventive
maintenance, and operational
technical support
 Standardizing the level ofconstruction technology andenhancing productivity byleveraging autonomous driving
and IoT technologies

19

3. Building human capital to support
sustainable growth

Human capital initiatives (1)Human capital initiatives (2)Human capital initiatives (3)Human capital initiatives (1)Fundamental policy

The company believes securing and strengthening humanresources is one of the most important managerial issues, and each
employee is essential to the company's development

Securing humanresources
 Actively recruiting specialized road paving personnel
 Actively recruiting foreign national, female, and midcareer employees as our production bases become
globalized
Today, foreign national employees account for about half of theGroup's workforce, which contributes to the creation of employment
opportunities in developing countries.

21

Human capital initiatives (2)Development of highly specialized personnel, which serves as the driving force
behind corporate development

Businessdevelopment

Highly specialized
personnel(intellectual property)

On-sitecapabilities

Accumulating on-site experiencethrough comprehensive
on-the-job training
Comprehensive service, fromplanning until use
Close collaboration with business
partners

GlobalExperience of local market
environments
Fostering technicalcapabilities
supporting SAKAIHEAVY INDUSTRIESProactive assignments to overseas
subsidiaries
Language study through the selfdevelopment support system

22

Human capital initiatives (3)A development department that reinforces the company's growth
Career

Shogo Hata
Department: RESEARCH &DEVELOPMENT (R&D) HQ
Position: General Manager,
PRODUCT DEVELOPMENT DIVISION Since graduating from university and joining SAKAI HEAVY INDUSTRIES, I have been consistently engaged in thedevelopment of our products. In my fourth year with the company, I worked for one year at the Sapporo Sales Office inmachine repair as part of my training in design operation. During two months of practical training at a road paving
construction site, I worked day and night covered in dirt with a shovel in my hand, to learn how the products we develop
were applied in the field. After that, through comprehensive on-the-job training, I have accumulated experience as adeveloper after learning from mistakes, as well as through trial and error

VOICE I have been involved in the development of all of our products. Among them, I have primarily overseen our best-selling
products (boarding-type vibratory rollers (2.5t-4t)). Currently, I am responsible for overall development work, with a focus
on new models of existing products, as well as commercializing products with special specifications that are requested fromthe market. When I had just turned 30 years old, I was involved in the SW300 development, a relatively small roller among
our products, for the U.S. market. This was a major turning point in my career development. I was involved with the SW300
from planning through to development, finally being able to commercialize it through repeated trial and error. The know-how
gained through this experience has become the foundation of my developed proficiency.

The strength of the company's development department
 The same development team is involved in the entire process of product planning, testing, mass production, and customer
use. Our developers reflect customers' needs in terms of planning and development by visiting construction sites and directlylistening to customers. The company's corporate culture of having a cooperative mindset also plays a key role in thefoundation of developmental capabilities. The company's developmental capability is supported by a system in which eachdepartment works in collaboration to tackle issues, rather than allocating responsibilities.
 From the perspective of human resource development, accumulating experience, not only through training and othereducational systems but also through comprehensive on-the-job training, is important. The company provides a variety ofopportunities to gain experience, from sales office work to overseas field work.

23

4. Climate change initiatives andcommercialization strategiesAwareness of climate change

Risks and opportunities in scenario analysis

Reducing CO2 emissions in construction operations



ICT compaction management system

Reducing CO2 emissions and waste across the construction equipment
life cycleReducing in-house CO2 emissions

Awareness of climate change
Our growth opportunities in the fight against climate change are significant,and we have formulated business strategies based on these.
Reducing CO2 emissions in construction operations and across the public infrastructure life cycle

creates new added value

Business strategy

Reducing CO2 emissions and waste
across the construction equipment life
cycle

Reducing CO2 emissions in construction
operations
1.
2.

Labor saving in overall construction operations and extending
construction product life
Energy efficiency and electrification for construction equipment

1.
2.

Long-life construction equipment that is easy to recycle are key
characteristics of SAKAI HEAVY INDUSTRIES' supplied products
Creating a recycling-oriented business in the era of the circular
economyGrowthopportunities
25

Risks and opportunities in scenario analysis
While climate change presents risks, it also brings economic opportunities.
Impact on business and financeTransition
Risk

Type

Item

Impact on business

PolicyRegulati
ons

Environmental
regulations
Carbon tax rollout

Technology

ImpactPeriod2°C or lower
scenario

4°C scenarioMore stringent fuel efficiency regulations will limit the use of conventional construction equipment,
accelerating market competition for electrification and low-carbon construction equipment.
Introduction of a carbon tax will increase the cost of regulatory compliance.

MediumSmall

Medium/lo
ng term

Decarbonization
technology

Investment into R&D for new technologies will be required, and any delays in development will
result in lost sales opportunities.

MediumSmall

Short/medium term

MarketTransition to
decarbonization

Energy prices will rise, as will transportation costs.
The price of materials such as thick plates and steel will soar, pushing manufacturingcosts upward.

Large

MediumShort/medium term

Chronic

Changes in weather
patterns

Deteriorating working environments will negatively impact employee productivity.
Maintaining favorable work environments will result in costs being incurred.

Small

MediumLong term

Small

MediumLong term

Physical
Risk
Acute

Abnormal weather
In addition to possible damage to the company's factories, the supply of parts will be delayed if
events are increasing in
suppliers are also affected by disaster.
severity.

Impacts on business and finance
2°C or lower
scenario

4°C scenario

Durationofimpacts

Heavy rain events, frequent typhoons, and rising sea levels will require levees andembankments to be fortified. In addition, restoring infrastructure damaged by natural
disasters will increase the demand for construction equipment.

MediumLargeLong term

Introducing new technologies, such as electrification for construction equipment and ICT
construction, will generate sales opportunities for the company's equipment and services.

MediumSmall

Short /
mediumterm

Transition to decarbonization

The conversion of construction equipment to electrification and the integration of digitaltechnology into business activities will increase our productivity and efficiency.
Lowering operating costs as well as increasing competitiveness.

Large

MediumShort /
mediumterm

Changes in customer evaluation

As ESG information disclosure becomes mandatory, and awareness of sustainability increases, thecompany would be recognized as a provider of high value-added construction equipment.

MediumSmall

Medium /long term

Item

Abnormal weather events are
increasing in severity.

Market shifts
Opportunity

Impacts on business26

Reducing CO2 emissions in construction operations
Creating new added value by contributing to CO2 emission reduction at ourcustomers' construction sites
Labor efficiency across the entire construction
process / virtual factories

Reduction of CO2 emissions fromconstruction equipment●Autonomous roller
Test marketing to be completed
Making driverless, efficient compaction work possible●Electric roller R&D
Demo vehicle to be completed
Advanced mass production schedule as decarbonization
policy is accelerated●ICT compaction management system
Real-time surface quality control
Implementation of efficient compaction●Measures to comply with Tier 1 - Tier 4 diesel engine
exhaust gas emission standards have been completed

Initiatives
for fiscal
year 2022

Initiatives
through fiscal
year 2021●All major models are equipped with Eco Mode
Energy-saving recommendations during
construction
CO2 emissions reduced by about 30%

27

ICT compaction management system
Technology to confirm and control compaction quality in real time andfrom a surface perspective using compaction control value (CCV)
In the past

Point-by-point post-construction
quality control
Time lost in inspection workConstruction loss due to failure to detect inferior quality parts and overcompaction resulting in work needing to be redone

Real-time surface quality control
High quality, reliable, and efficient compaction

Shortening construction duration

Extending construction intervals by extending road service life

Began on-site implementation of the Ministry of Land, Infrastructure, Transport andTourism's "Acceleration Response Compaction Management for Roadbed Construction"

Contributing to CO2 reduction in construction operations"High-value added by leveraging ICT" → Result could be passed on to sales price28

Reducing CO2 emissions and waste across the construction equipment
life cycle
Contributing to establishing a recycling-oriented society by supplying long-life
construction equipment that is easily to recycle

Durability of 20 to 30 years
Steel structures that are easy torepair

Minimal use of plastic-based materials

•
•
•
•
•

Leveraging DX to improve operational efficiency
Improving fuel efficiency
Applying Electric rollers
Extending product life through refurbishment
High operational rate through rental

Trade-inDesignProduction

Mitigation of production loss
through optimizing
manufacturing processes

Use

Resource
recycling

Resalemarketplace

Refurbishment and sale of used
vehicles and parts
Overseas export of used vehicles
29

Reduction of our CO2 emissions
Desir
able

Set a target of reducing CO2 emissions by 50%* by FY2030 *Compared to FY2013

Plan for CO2 emission reduction
In FY2020, the total CO2 emissions from domestic production plants was approximately 2,000 metric tons.
(t-CO2)

2,419

2,500
2,004

2,150

2,126

2,120

2,000

1,993

1,500

Initiatives for
reduction

1,000
500
0
2013

2016

2017

2018

2019

2020 Fiscal year

Scope 1*

Scope 2**CO2 reduction at
manufacturing sites
Conversion of businessuse vehicles toelectrification
3Rs in businessactivities

Transition to
renewable energy
beginning in April
2022

1,000

Annual CO2
emissions (t)* Scope 1: Direct CO2 emissions from on-site fuel-burning equipment that Sakai owns and operates, such as
gas boilers, vehicles, and air conditioners.
** Scope 2: Indirect CO2 emissions from the use of electricity, heat, refrigeration, and steam that Sakai
sources from external providers.

Carbon Neutral Committee●Formulate business strategies while bearing in mind that addressing climate change
is one of the highest priority management issues●Launched in December 2021 with company-wide representation,
led by the Executive Vice President●Promote discussions on company-wide CO2 reduction measures andpublic ESG disclosure●Discussions have launched regarding Scope 3 measurement

Board of Directors' meeting
ReportInstructions

Carbon Neutral Committee30

5． Creating a management structure tostrengthen corporate governancePrevious initiatives toward creating a management structure to strengthen
corporate governanceManagement structure of the Board of Directors

Composition of the company's Board of Directors and remuneration system

Skill matrix for our Board of Directors



Skill matrix for our Executive Officers



Dialogue with external directors

Previous initiatives toward creating a management structure
to strengthen corporate governance2015

Transition to a company with an Audit and Supervisory Committee

2016

Conducted through a questionnaire to evaluate the effectiveness of theBoard of Directors (ESG issues were added in 2021)

Strengthening
corporate governance

2019

Complete independence of the oversightand business execution functions of theBoard of Directors
Monitoring Board (all directors)
Management Board (all directors + all executive officers)
Reducing the number of Board of Directors members from 14 to 5.
Increasing the proportion of external directors from 14% to 40%.

2021

Establishing a Nomination and Compensation
Committee(Independent external directors account for the majority)

32

Management structure of the Board of Directors
Split the functions of the Board of
Directors into two parts:

the Monitoring Board andthe Management Board

Enhancing external directors' understanding ofbusiness execution
Strengthening the oversight function of
external directors

Governance structure diagram

Board of Directors (1/3 or more of the members should be independent
external directors)

Audit

Monitoring Board (oversight function)

Management Board(business execution function)

 Held once per quarter, in principle
 Consists of directors only
 Focus on oversight function
Election and dismissal of representative directors
Overseeing the execution of duties by directors
Supervision of management from a medium- tolong-term perspective
Making decisions on the direction of management,
including nomination and compensation

 Held once per month, in principle
 Comprised of directors and executive officers (novoting rights)
 Focusing on business execution function
Making decisions on basic management policies andsystems
Making decisions on business execution
Reporting of business execution

ReportInquiry

Nomination and Compensation
Committee

Convocation andexecution status
reportElection/dismissal

Representative Director

Audit and Supervisory
Committee*Two or more independent external
directors

ReportInstructions

Carbon Neutral
Committee

33Composition of the company's Board of Directors andremuneration system
Board of Directors' meeting
Audit & Supervisory Board Member

Ratio of external directors

40％Internal Internal

Basic remuneration

Internal

External ExternalYear-end remuneration

Restricted stock compensation

50%

25%

Directors (excluding
Audit & Supervisory

25%

Board Members)
Directors who are
Audit & Supervisory

70%

15%

15%

Board Members(including external
directors)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%
34

Skill matrix for our Board of Directors

Position

Name

Internal

President

Ichiro Sakai

Internal

Director andExecutive Vice
President

Ryosuke
WatanabeInternal

Audit andSupervisory
Board Member

KazushiKiyomiya

External

Audit andSupervisory
Board Member

RyuichiTokunaga

External

Audit andSupervisory
Board Member

MakotoKikkawa

Management

Road
equipment

GlobalCapitalmarkets

Management Manufacturing

Marketing35

Skill matrix for our Executive Officers

Position

Name

Senior Managing
Executive Officer

Kenichi Mizuuchi

Managing Executive
Officer

Yukinori Tsukimoto

Managing Executive
Officer

Toshihiko Akimoto

Executive Officer

Masahiro Tokita

Executive Officer

Takao Yoshikawa

Executive Officer

Yasunori Azumi

Executive Officer

Fumio Yamanaka

Executive Officer

Management

Road
equipment

GlobalCapitalmarkets

Management Manufacturing

Marketing

Hiroshi Baba

36

Dialogue with external directors
Career summary, and position and responsibility in the Company(Significant concurrent positions outside the Company)
Mar. 1971: Joined The Japan Society Of Industrial Machinery
Manufacturers
Apr. 1987: General Manager of Construction Machinery Department
Apr. 1990: Transferred to Japan Construction Equipment Manufacturers
Association (incorporated association), General Manager ofOperations Department
Apr. 2003:Secretary General
Dec. 2005:Managing Director
Oct. 2011: Associate Director of Japan Construction Equipment
Manufacturers Association (general incorporated
association)(transferred from incorporated association in
Sept.2011)
June 2012: Audit & Supervisory Board Member (part-time) of theCompany

Ryuichi Tokunaga

RyuichiTokunaga

June 2015: Outside Director and Audit and Supervisory Committee
Member (current position)

Makoto Kikkawa

MakotoKikkawa

Career summary, and position and responsibility in the Company(Significant concurrent positions outside the Company)
Apr. 1970: Joined The Industrial Bank of Japan, Limited
Apr. 1996: General Manager of Nihonbashi Branch
June 1998: Director and General Manager of Administration Department
Nov. 1998: Director and Deputy President of The Long-Term Credit Bankof Japan, Limited
Mar. 2000: Managing Executive Officer of The Industrial Bank of Japan,
Limited
Sept. 2000: Managing Executive Officer of Mizuho Holdings, Inc.
Apr. 2002: Senior Managing Executive Officer of Mizuho Bank, Ltd.
Apr. 2003: Administrative Officer of Mizuho Holdings, Inc.
May 2003: Representative Director and Vice President of Sogo Co., Ltd.
June 2003: Representative Director and Vice President of Millennium
Retailing, Inc.
Mar. 2007: Advisor of Kyowa Hakko Kogyo Co., Ltd.
Apr. 2007 :Corporate Officer
June 2007: Corporate Officer
Representative Director & President of Kyowa Hakko
Chemical Co., Ltd.
Apr. 2012: Representative Director, President & Chief Executive Officer
of KH Neochem Co.,Ltd.
June 2014: Outside Director of the Company
Sept. 2014: Director and Chairman of KH Neochem Co., Ltd.
June 2015: Outside Director and Audit and Supervisory Committee
Member of the Company (current position)

Reasons for nomination as candidate for outside Director and outline of expected

Reasons for nomination as candidate for outside Director and outline of expected

roles

roles

Ryuichi Tokunaga has abundant knowledge about the global construction machinery

Makoto Kikkawa has served as Senior Managing Executive Officer of Mizuho Bank, Ltd., Vice

industry based on his many years of experience at the Japan Construction Equipment

President of Millennium Retailing, Inc. and President of Kyowa Hakko Chemical Co.,

Manufacturers Association, and the Company proposes his election as an outside Director

Ltd.(currently KH Neochem Co., Ltd.), etc., and has abundant experience and a high levelso that his wide-ranging insight, mainly in this field, will be reflected in the Company’sof insight. Therefore, the Company believes that he will be able to play a sufficient role inauditing. Although he has never been directly involved in corporate management, thestrengthening the supervisory function over the execution of business by the Company’s

Company judges he will appropriately fulfill his duties as an outside Director based on the

Directors and further improving the transparency of management, etc., and proposes his

above reasons.

election as an outside Director.

The role that the candidate believe he / she should play as a board of director

The role that the candidate believe he / she should play as a board of director
1.

Overseeing and advising from a capital market perspective

1.

Advise and oversight for rebuilding a mindset as a global niche company

2.

Analyzing industry-wide trends in construction equipment, while verifying and

Evaluating governance from a market perspective to ensure proper execution ofadvising the Company's approach to the industry

management strategies

Identifying issues related to overseas expansion and providing advice on how to- Verifying and advising regarding whether the direction of management strategies

address themand investment decisions are aligned

3.

- Evaluating the performance of executive officers

37

6． Policy for dealing with current
supply chain issues
Supply chain management policySupply chain management policy
Policy for dealing with current supply chain issues

Setting sales prices
1.
2.

Passing on structural cost increases to sales prices
Enhancing sales pricing capabilities through value-added competition

Improving logistical efficiency
1.
2.
3.

Improving container loading efficiency
Improving logistical efficiency
Promoting supply chain re-evaluation while consideringtransportation costs and lead times

Strengthening procurement systems
1.
2.

Formulating production, sales, and inventory plans based on an accurate
understanding of the volume of parts available for procurement, and the sharing of
manufacturing and sales information
Monitoring the entire supply chain with an eye toward geopolitical risks, transportation
costs / lead times, as well as human rights related risks
39

SAKAI HEAVY INDUSTRIES, LTD.

Contact us

IR Office :Takao Yoshikawa

Email: sakai.ir＠sakainet.co.jp
Telephone: +81-3-3434-3401 (from outside Japan)
Fax: +81-3-3436-6513 (from outside Japan)

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