Medium-term Management Plan (2021-2023)

August 6, 2020

Tekka Kuba

Revisions to the medium-term management plan

1

Kondotec had set new targets in light of the acquisition of TOKAI STEP CO., LTD. and the influence of COVID-19 infection.

Previous

Million yen 2020 2021 2022

Net Sales 63,070 65,010 66,570

Operating income 4,010 4,180 4,300

Ordinary income 4,080 4,240 4,370

Profit attributable to owners of parent

2,760 2,840 2,920

Revised

Million yen 2021 2023

Net Sales 62,000 67,000

Operating income 3,700 4,350

Ordinary income 3,800 4,420

Profit attributable to owners of parent

2,500 2,940

Overview of the 2020

2

Million yen 2019 2020 YoY Overview Topics

Industrial Materials

Net Sales 32,459 35,459 ＋ 2,999 Sales and profits increased due to the contribution from New subsidiary TECBUILD CO., LTD., and the improvement in the gross profit ratio.

Acquired shares of TOKAI STEP CO., LTD. Operating

income 1,954 2,111 ＋ 156

Structural Steel Materials

Net Sales 16,756 16,429 △ 326 Sales decreased affected by difficulty in procuring some materials, but profits increased due to improvement in gross profit ratio

Operating income

1,717 1,718 ＋ 0

Electrical Equipment

Net Sales 8,612 8,710 ＋ 98 Achieved sales and profit due to steady demand and improvement gross profit ratio Operating

income 262 281 ＋ 18

Total (Consolidated)

Net Sales 57,828 60,599 ＋ 2,771 Kanto Factory acquired certification of ISO 14001 Operating

income 3,907 4,085 ＋ 177

In recent years, sales of Structural Steel Materials, which have been driving the business performance, have been sluggish. However, due to the contribution of the new subsidiary TECBUILD CO., LTD. and the capture of steady demand, sales and profits of Industrial Materials and Electrical Equipment increased, and overall sales and profits increased. We were promoted the organic growth strategies, such as cultivation of distribution routes / adoption of flexible sales methods, in addition to the M&A.

Basic Policy

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Aiming for sustainable growth and improvement in long term corporate value while responding to changes in the business environment by strengthening the management base and promoting growth strategies through appropriate allocation of funds.

Growth strategy

Reinforcement of management base

Organic growth strategies

Periphery-strengthening M&A

Capital investment Strategic investment

Initiatives for ESG Utilization of digital

technology

During 2020s Net sales

100 billion yen

ROE 10％ or more DOE 2.5％ or more

Appropriate allocation of funds

Sustainable growth and improvement in long term corporate value

Management Target

4

Financial Target

The final fiscal year of our new Medium-term Management Plan（2023）

Net Sales 67 billion yen

Operating income 4 billion yen

2020(Actual) Net Sales 60 billion yen Operating income 4 billion yen Breaking past profit records for the 9th consecutive period

Capital Efficiency Target Shareholder Return Target

ROE 10％ or more

2020(Actual) 10.4％

DOE 2.5％ or more

2020(Actual) 2.8％(dividends 29 yen)

Increase dividends for the 9th consecutive period

Aim for breaking past sales and profits records, and further enhancement of shareholder returns (increased dividends).

33,258

27,347

35,548

38,745

41,153

47,991 49,168

50,211 50,410

52,811

57,828

60,599

62,000

67,000

1,911

933 1,275

1,926

2,664

3,271 3,303 3,441 3,516 3,537 3,907

4,085 3,700

4,350

09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 17/3 18/3 19/3 20/3 21/3 22/3 23/3

Net Sales (million yen)

Operating income (million yen)

Recognition of the Business Environment

5

So far, capital investment related to inbound demand and urban redevelopment projects had continued. We assume that in the future, in the short term, there will be a temporary decline in capital investment due to COVID-19, and in the medium to long term there will be various demands for construction investment, but the content will change.

Future

Changes in the contents of construction investment

Hitherto

Robust construction investment demand

Robust demand in the private capital investment ・Capital investment related to inbound

demand ・Urban redevelopment projects

Solid public investment ・Prevention / mitigation measures for natural disaster ・Construction work related to the Linear

Chuo Shinkansen and projected Shinkansen lines

Working environment and production form ・Labor-intensive

Changes in private capital investment ・Stagnation of domestic markets due to

population decrease and COVID-19 ・Increase in Capital investment related to E-

commerce and IT

Changes in public investment ・Prevention / mitigation measures for natural disaster ・Decrease in new construction and

increase in maintenance/repair construction work

Working environment and production form ・Increase in capital investment related

to labor-saving ・Advances in digital technology ・With COVID-19

the aging of social infrastructure

a declining birthrate and an aging /Technological

innovation

Changes in domestic market

Financial Target

Consolidated target (million yen)

2020 (Actual)

2021 (Plan)

2023 (Plan)

Net sales 60,599 62,000 67,000

Operating income 4,085 3,700 4,350

Ordinary income 4,177 3,800 4,420

Profit attributable to owners of parent

2,875 2,500 2,940

The Medium-term Management Plan adopts the rolling method which responds to changes in the business environment while verifying the outcome and issues every year in an effort to realize the mid-to-long vision.

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We will aim to achieve increase in net sales and income by financial target based on the Existing sales structure.

《Medium-term Target》

《Long-term target》

During 2020s Net Sales(Consolidated) 100 billion yen

Growth Strategy

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accelerating the growth

Organic growth strategies Periphery-strengthening

M＆A Strategy

Continue to supply "rice" for industrial infrastructure by strengthening existing businesses by capturing diverse demands

Active investment in the future to strengthen initiatives other than existing businesses

Accelerate growth through existing business growth and periphery-strengthening by transforming funds into profitable businesses

Main initiatives

Expansion of operating sites, Offer of new products and merchandise

Diversification of sales methods

Response to natural disasters

Cultivation of new customers etc

Main initiatives

Increasing presence in foreign markets

Entry into the neighboring industry

Expansion of the online business

Adapting to digitalization etc

Four perspectives in pursuing M&A

① Neighboring industry

Pursue M&A with companies associated with industries other than the construction industry

② Deepening the business

Pursue M&A with material manufacturers, etc.

③ Expansion of business area

Pursue M&A with companies that maintain overseas sites

④ Amplifying sales patterns

Pursue M&A with companies that operates different sales patterns from those of KONDOTEC

Example on M&A

Acquired TOKAI STEP CO., LTD. in February 2020

Sale of scaffolding for civil engineering and architecture

Examples of initiatives related to Growth Strategy

Company name

TOKAI STEP CO., LTD. Segment Industrial Materials

Business areas

Sale of scaffolding for civil engineering and architecture

Head office

Fujieda city, Shizuoka

Acquired TOKAI STEP CO., LTD. in February 2020 to strengthen the field of maintenance and repair.

【Example】

【Latest performance】

8

Condominium new construction Overpass repair construction

2,699 2,960 3,077

61

345 400

2017/6 2018/6 2019/6

Net Sales

Operating income

【Positioning in our group】

Main initiatives

Preventing failure in receiving an order by sharing skilled workers

Sharing expertise of both companies (TOKAI STEP: scaffolding construction for non-housing and TECBUILD: rental business)

Strengthen the field of maintenance and repair

Sustainable growth and improvement in long term corporate value

TECBUILD CO., LTD.

TOKAI STEP CO., LTD.

Collaboration

Reinforcement of management base

9

Reduction of environment load Initiatives for work style reform

Expansion of the handling of environment-related products and merchandise

Environmental protection and Energy-saving initiatives

Management of emissions

Recruiting diverse human resources year-round recruitment

Reconsidering initiatives to adapt to work system reforms

Reinforcement of governance Utilizing digital technology

Prevention of the manifestation of potential costs by reinforcement of corporate governance

Investment with conscious of capital costs Initiatives to improve of effectiveness of the board of

directors

Development of systems to promote digital

transformation Expanding opportunity to profit and improving of

business process and productivity by utilizing digital technology

We fulfill our social responsibility through business activities while taking the initiatives which are conscious of SDGs and ESG. Moreover, we will strive to reinforcement our management base to achieve our growth strategy.

E

G DX

S

Examples of initiatives related to reinforcement of management base

To contribute to the continuation of business activities and the improvement of productivity, the following initiatives were taken.

10

Kanto Factory acquired certification of ISO 14001

Following Shiga Factory, Kanto Factory acquired certification of ISO14001 (environmental management system) in March 2020.

We plan to acquire ISO14001 at the other two plants as well. And we will carry out activities with even more consideration for environment conservation.

Shift to a Company with Audit & Supervisory Committee

We shifted to a Company with Audit & Supervisory Committee. The purpose is to improvement the transparency and objectivity of management as well as reinforcement of the supervision function of the Board of Directors in order to further enhance corporate value as well as further enhance its corporate governance.

Ensuring the safety of all stakeholders including employees and customers and preventing the spread of infection

Meetings within the company are to be held using online tools as much as possible.

Business trips are to be avoided.

We place alcohol disinfectant in the operating sites.

Employees may work from home to the extent possible.

Reinforcement of governance

Consideration for the

environment

Response to COVID-19 infection

Allocation of funds

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Operating CF 11,000

million yen (*)

Funds on hand 8,305

million yen

We maintain high capital efficiency through growth investment with conscious of capital costs and stable shareholder returns.

Continuous increase in dividends Purchase of treasury stock

Dividends

DOE 2.5％

or more

Execution of M&A etc. Strategic

investment 4,000

million yen

Equipment replacement, Relocation and rebuilding of sites etc.

Capital investment

7,600 million yen

Transformation of lump-sum retirement allowance to defined-benefit corporate pension plan

Investment in people

400 million yen

Shareholder return

(*) Temporary increase in contributions due to the transformation of lump-sum retirement allowance to defined-benefit corporate pension plan is not included.

Operating income 4,350

million yen

ROE 10％

or more

2023 (Plan)

Investment for growth

Actual of Investment for growth

12

We made the necessary investments based on the previous plan (2020-2022).

Contents Previous Plan 2020～2022

Revised Plan 2021～2023

Investment in people

Transformation of lump-sum retirement allowance to defined-benefit corporate pension plan

Capital investment

Equipment replacement, Relocation and rebuilding of sites etc.

Strategic investment

Execution of M&A etc.

400

4,957

Execution rate 123.9%

Execution rate 14.6%

Execution rate 50.0%

800 million yen

6,300 million yen

4,000 million yen

2020(Actual) Total (3year plan)

Total (3year plan)

4,000 million yen

Rate of change ±0.0%

Total (3year plan)

7,600 million yen

Rate of change +20.6%

Total (3year plan)

400 million yen

Rate of change △50.0%

917

Dividend Policy

13

It targets consolidated DOE of at least 2.5% and ROE of at least 10.0%. We have a policy of continuous increases in dividends.

【Transition in dividends】

Since the initial listing: No decrease in dividends Plan to increase dividends for the 10th consecutive period

Note : We executed a 2-for-1 stock split of common stock on January 1, 2012. Dividend per share is all figures taking into consideration the impact of stock split.

5Yen 6Yen

11Yen

13Yen 14Yen

15.5Yen

20Yen

23Yen 24Yen

26Yen

29Yen

31Yen

(Plan)

5.5Yen

10Yen

13.5Yen

22Yen

1995 1999 2003 2007 2011 2015 2019

Ordinary dividend

Increase in ordinary dividends

Commemorative dividend

14

◆ Notes on forward-looking statements

This document contains forward-looking statements including operating forecasts and business plans. Future operating performance projections that the Company releases are based on data available at the time of making the release. Actual results may differ considerably from projections due to various factors and changes.