高千穂交易（2676） – [Delayed]New Medium-term Management Plan 2022-2024

2022-2024～Towards 100th anniversary – Creating new value in a new normal era～高千穂交易株式会社TAKACHIHO KOHEKI CO.,LTD.AGENDA１Reviewing our previous medium-term management plan and sorting out the issues we face2Concepts and management strategy underlying our new medium-term management plan3◼ Summary of our business performance◼ Summary of our basic strategies◼ Our corporate vision◼ Results of our structural reforms◼ Overview of our new medium-term management ◼ Our management issues and policy on making planimprovements◼ Management targets (FY2022-FY2024)ESG initiatives in support of our new medium-term management plan◼ Various ESG/SDG initiatives➢ Contributing to the environmental field➢ Contributing to the societal field◼ Strengthening corporate governance➢ Initiatives for growth with an eye on tackling new ◼ State of our governance system◼ Business strategybusiness reforms➢ Basic strategies➢ Targets by segment◼ Capital policies➢ Improving capital profitability➢ Shareholder return policy➢ Procuring and allocating cash2Positioning of our new medium-term management planPeriod covered by our current medium-term management planStage２The challenge of changing～Next stage to 70th～*1◼ Creating motivation for Job among employees◼ Improving customer satisfaction◼ Establishing a new business modelImproving ROEStage１Realize productivity improvements~IT strategy & personnel system reform~◼ Loyal Customer Strategy*2Period covered by our new medium-term management planStage３Challenges for Creation~To create new corporate value~◼ Self-realization on the part of employees◼ Inspiring customers◼ Developing business with a sustainable competitive advantage◼ Improving capital profitability◼ Attaining key performance indicators (KPIs) in our management plan◼ Commitment to shareholdersOptimizing our business portfolioCreating a new revenue baseTowards a growth stageFY2019FY2021FY2022 to FY2024Profit-structure reformMaximization of corporate value※1 We will commemorate the seventieth anniversary of our founding in fiscal year 2021.※2 A strategy through which we aim to provide added value and thereby create and reinforce relationships with satisfied customers.3Reviewing our previous medium-term management plan and sorting out the issues we faceSummary of our business performance◼ The numerical targets for the final year of the previous medium-term plan were revised downwards: sales from 26 billion JPY to 21.7 billion JPY and ordinary income from 1.8 billion JPY to 1.1 billion JPY.Primary factors•••In the business of fire-protection systems in Thailand, plant construction has been at a standstill due to a slump in crude oil prices. In addition, group management has not been functioning properly, which has led to a drop in profits.Global business and office- and retail-related markets have been slowing down due to the spread of COVID-19.There has been sluggishness in various new businesses, such as our EC business and our RFID business.◼ Due to a failure to meet our performance targets, the ROE failed to reach our initial forecast of 8%.◼ For shareholder returns, a consolidated dividend payout ratio of 40% or more (minimum dividend of 24 JPY) will be implemented. Sales and ordinary incomeCapital profitabilityShareholder returns経常利益Ordinary income売上Sales21,700 ⚫ ROE (%)5.3%(Millions of JPY)FY2019FY2020FY2021 (forecast)raey lanif eht rof stegraTNet SalesRevised: 21.7 billion JPYPre-revision: 26.0 billion JPYOrdinary incomeRevised: 1.1 billion JPYPre-revision: 1.8 billion JPY20,616 20,591 885 926 1,100 ROE forecast: 8%4.0%1.4%2019年度FY20192020年度FY20202021年度FY2021(Forecast)2019年度FY20192020年度FY20202021年度FY2021(Forecast)Dividend payout ratioMinimum dividendAt least 40%24 JPY per yearDividend per shareDividend payout ratioCurrent-term net income24 JPY25 JPY50 JPY*112.1%40.6%57.8%191 million JPY548 million JPY770 million JPY* Includes commemorative dividend of 15 JPY.5Summary of our basic strategies(i) Strengthen our competitiveness and improve our profitability through value-adding initiativesSales expansion resulting from efforts to concentrate on loyal customers and from the growth of our managed service business.Although we have improved the profitability of and streamlined our low-profit businesses, we have not generated operating income.Select and concentrate on high value-added businesses that pursue customer satisfaction through a loyal customer strategy.• Increase sales to loyal customers and growth rate in the number of loyal customersSales growth rate: 22%, growth rate in the number of loyal customers (client companies): 15%＊Loyal customers: Clients with whom we engage in transactions of at least 30 million JPY in sales per company＊Loyal customers on a non-consolidated basisGenerate operating income by improving the profitability of and streamlining our low-profit businesses.6• Business downsizing and cost-sharing achieved through a merger with Takachiho Comtec.• Downsizing of GuardFire Singapore.the entire Group.• Despite carrying out the above, there remain issues as operating income has not been generated for Carry out profit-structure reform by expanding recurring revenue model, such as MSP and maintenance• Expand recurring revenue model through the growth of our managed service (MSP*) business for the provision of cloud-based wireless LAN＊Managed service: Our original service through which maintenance, operations, and alive monitoring of cloud products are offered on a subscription basis.Basic Strategy 1 target amount: + 2.5 billion JPY(compared to FY2018)16,50016,90015,70014,40014,900Expansion of salesForecasted amount of growth for FY2021 + 2.1 billion JPY2018年度FY20182019年度FY20192020年度FY2020(Unit: millions of JPY)2021年度FY2021 forecast予想修正前目標Pre-revised target6Summary of our basic strategies(ii) Creating a revenue base through new businessesAlthough sales of Mechanical Component Products for the United States expanded, the originally planned growth could not be achieved due to the sluggish fire protection business in Thailand and the withdrawal of the EC business, which is a new business.Business development through proactive investments, the scope of which includes M&A and business tie-ups / Strengthen cloud- and software-related businesses5,5005,9005,4004,800Expand global business in China, Southeast Asia and the United States（Strengthening of Fire protection business and Mechanical Component Products）• In addition to the fact that group management of our fire-protection business in Thailand was not functioning, the construction of new plants was significantly delayed due to the effects of sluggish crude oil prices and the spread of COVID-19 infections.• Sales of unit products for housing equipment in China have floundered due to delays in commercialization.• Industrial equipment products for the US market have doubled in terms of sales and gross profit since FY2018 due to increased stay-at-home demand from COVID-19.• By investing in venture capital, we were able to secure contact points with venture companies with new technologies and implemented an open innovation education program.• The EC business and cloud camera business, which are new businesses, were sluggish, and a decision was accordingly made to withdraw from the EC business.• RFID business is sluggish.• We are developing and have taken steps to commercialize EMLINX, a cloud-based information distribution service for stores designed to allow communities to share information on shoplifting and theft.Basic Strategy 2 target amount: +3.6 billion JPY(Compared to FY2018)(Breakdown)⚫ Global business + 2.0 billion JPY⚫ New revenue base: + 1.6 billion JPY9,100Sales are flatForecasted amount of growth for FY2021 – 100 million JPYFY20182018年度 2019年度 2020年度 2021年度FY2021 forecast予想FY2019FY2020(Unit: millions of JPY)修正前目標Pre-revised target7Summary of our basic strategies(iii) Business structure reforms and improved productivityWe are making steady progress with respect to organizational reforms and are also strengthening our marketing functions, which had been an issue that we needed to address. We need to focus on increasing the efficiency of operational processes while we repeatedly engage in a process of trial and error.Improve operational efficiency through organizational reformsReform our personnel system◼ We raised our salary level to that of our industry through the reformation of our personnel system.◼ We introduced a 360-degree evaluation system to promote fair evaluations.• Share and improve the efficiency of operations through the consolidation of internal operations and technical support units.Carry out working style reformsRedesign our organization to adapt to business, reform our sales organization, and strengthen our SE and marketing functions◼ By having built a teleworking environment prior to the emergence of COVID-19, we smoothly achieved a 70% teleworking rate.◼ We have also improved productivity through progress made in terms of shifting to a paperless system.• Accelerate the launching of new products and implement digital marketing through the strengthening of marketing functions.• Contribute to achievements through the acquisition of large-scale projects by dealing with customers in a way that involves the integration of sales and SE functions.Centralize management information and review operational processes through IT investments• Reduce infrastructure management costs and improve efficiency by shifting internal infrastructure into the cloud (such as by adopting Office 365 and a cloud-based core system).• The optimization of operational processes and the centralization of management information remain issues for the next mid-term plan.8Results of our structural reformsIssue addressedResultsBusiness portfolio optimizationBy absorbing subsidiaries serving a market that is expected to shrink (mailing business), we have improved the efficiency of our structure.Reallocate resources from low-growth businesses to growth businesses such as services and support.I.II.III. We reduced personnel costs at Takachiho Fire, Security & Services (Thailand) Ltd., reallocated human resources to service products, and downsized Guardfire Singapore.Concentration of resources to increase market share in the electronic products.IV.Establish a new revenue baseWe succeeded in commercializing a managed service provider (MSP) for our service and support business (Cisco Meraki). In addition to establishing a high-revenue business model, we also succeeded to create a revenue base.Changes in sales in our service & support business (millions of JPY)2,1221,9402,3501146976FY20191010930FY2020984FY2021Changes in the operating income component ratios in our service and support business26%31%43%37%23%40%上期First half下期Second half1,366下期見込Forecast for second halfCloud-based wireless LAN systemMSP businessCloud servicesSD-WANCentralized management of multiple WAN routersCloud mail securityシステムSystemsデバイスDevicesサービス&サポートService & support*Wi-Fi services for corporate customers◼ Strengthened sales of MSP services based on the use of cloud-based wireless LAN systems.◼ Expanded network maintenance contracts.◼ Expanded various network subscription models (Velocloud, d-dive, Vade secure, and more).FY2018FY2021 (forecast)＊We calculated changes in sales and operating income component ratios for “service & support” products in the system segment.9Changes in salesSales (millions of JPY)単体Non-consolidated連結ConsolidatedChanges in net incomeCurrent-term net income (millions of JPY)Our management issues and policy on making improvements18,15019,58118,80919,98719,03719,57019,89420,61621,70020,591Issues requiring awarenessIn looking back at our performance over the last decade, we see that most of our income has been earned on a non-consolidated basis.➡ Review the business portfolio of the entire group and improve profitability.Primary factorsFY2012FY2013FY2014FY2015FY2016FY2017FY2018FY2019FY2020FY2021◼ We were unable to identify synergies across the entire Group.Forecasted◼ The PMI of group companies and group management did not function primarily for our acquired Thai fire protection business (GF) and RFID business (MC); the resulting deterioration of business performance caused an impairment loss to be posted.557566595491547Strengthen business portfolio management functions and engage in discussions770Measures for improvement単体Non-consolidated連結ConsolidatedImpairment減損280103131191Establish an Investment Committee and strengthen supervisory, examination, and monitoring functions to be carried out at the time of execution.Forecasted2. Commence discussions on the businesses that failed to 1.3.surpass growth and revenue expectations during our previous medium-term management plan.Establish a new business model and create a new revenue base.FY2012FY2013FY2014FY2015FY2016FY2017FY2018FY2019FY2020FY2021-87MC*1-253-184GF*2-260Impairment loss on goodwill (millions of JPY)＊１：Mighty Cube (MC) became a subsidiary in 2012. RFID-based inventory-management systems are provided.＊２：Guardfire (GF) became a subsidiary in 2014. Our fire-protection system business was rolled out across the ASEAN region.10Concepts and management strategy underlying our new medium-term management planOur corporate visionCreativity lies at the heart of all our business activities. This allows us to pursue our three principal goals:.Corporate philosophyEnhancing customer satisfactionGaining worldwide trustContributing to societyIssues affecting customers当社の強みとミッションOur strengths◼ Building a business environment for the new normal era◼ Network security measures◼ Measures to address store crime◼ Add value to customer services and manufacturingSocietal issues that we face◼ Dealing with climate change and disasters◼ Crime deterrence and prevention◼ Contributing to a highly livable society through the promotion of digital transformation (DX)◼ Accurately identify market needsDemonstrate marketing capabilities◼ Quickly introduce leading-edge global products to the Japanese market◼ Technological prowess to continuously provide new value and products to the market◼ Provide the following, which are backed by a high level of technological prowess:Consulting / Development design services / After-sales services◼ Relationships of trust with customers cultivated over many years⇒Total number of accounts: 25,000Our new medium-term management planWe aim to realize a prosperous society and will work to take on the challenge of creating with a view to carrying out new business reforms and realize new value creation in order to resolve societal issues and issues that are faced by our customers on an ongoing basis.In order to maximum corporate value:◼ We will promote a business strategy to give rise to new value;◼ Promotion of [Capital Policy] aiming for optimal capital structure without accumulating equity capital.◼ Practice of [Governance] suitable for a prime-listed company12Overview of our new medium-term management planMedium-term slogan～Towards our 100th anniversary – Creating new value in a new normal era～Increase shareholder value◼◼Achieve ordinary income of 2.0 billion JPY and current-term net income of 1.4 billion JPY for the fiscal year ending in March 2025.Set the KPI for our new medium-term management plan to an 8% average ROE for three fiscal years and implement our business plan and capital policies.Capital strategy◼ Limit increases in equity capital in order to improve return on invested capital and thebalance sheet.Maintain a dividend payout ratio of 100% until the average ROE for three years exceeds 8%Consider using interest-bearing debt for control capital costs.◼◼Business strategyStrengthening the management baseSet aside a total of 3.0 billion yen over 3 years for a strategic investment framework.Growth strategy for new business transformation:➢ Promotion of strategies for loyal customers/Growth of service business/Creation of future core businesses◼◼◼Governance◼ Establish an Investment Committee and strengthen supervisory, examination, and ◼◼monitoring functions to be carried out at the time of execution.Establish a Nomination and Compensation Committee to ensure fairness, objectivity, and transparency.Set KPIs for capital efficiency in executive compensation to promote management from the perspective of shareholders.Accelerate the transition from goods to services13Management targets (FY2022 to FY 2024)We will achieve the sustainable growth of our Group and medium- to long-term increases in corporate value with the basic policies of “Concentrating on high value-added businesses transformation” and “Creating new value by strengthening the management base,” PointsNumerical objectives◼ Promote a growth strategy for business transformation ➢ Expand high-profit businesses in core areas➢ Growth of service businesses➢ Build new businesses and new business models◼ Build a robust governance structure to support business and strengthen our management base➢ Optimal allocation of resources for realizing a growth strategy for the entire Group➢ Transform the entire company, including business models and organizations, with the power of digital tools➢ Improve capital efficiencyFY2021 (forecast)FY2024Net Sales21,700 million JPY26,000 million JPYOrdinary income1,100 million JPY2,000 million JPYNet income770 million JPY1,400 million JPYROE5.3%Dividend payout ratio57.8%50 JPY dividend per share10.0% (target)8.0% (required)100％Maintain a dividend payout ratio of100% until the average ROE forthree years exceeds 8%.14Reference: Approach to reaching 10 billion JPY in market capitalization of tradable shares to conform to the listing maintenance standards of the prime-listed market.◼ In valuations of electronics trading companies, a certain level of correlation between PBR and ROE can be seen.◼ We will continue our policy of a 100% dividend payout ratio until we attain an 8% average ROE for 3 fiscal years, therefore there will be no change in equity capital for a certain period after the next fiscal year, which means that higher profits will directly lead to a higher ROE. ◼ If our ratio of tradeable shares does not decline, the market capitalization of tradeable shares is expected to surpass the 10.0 billion JPY level once our PBR exceeds 1.08.PBR1.81.61.41.21.00.80.60.40.20.0Correlation between ROE and PBRFY2021(forecast)FY2024(target)Company ACurrent-term net income(forecasted EPS)770 million JPY(86.5 JPY)当社が目指す水準Our target levelR² = 0.6857ROE5.3%1,400 million JPY(157.2 JPY)FY2022-FY2024Exceeds 8% averageEquity capitalーZero increase in equity capital until 8% average ROE for 3 fiscal years is attainedCompany CCompany BOur companyCompany ECompany FCompany DCompany HCompany ICompany JCompanyPBR to attain 10.0 billion in tradeable shares market capitalization : 1.080.0%2.0%4.0%6.0%8.0%10.0% 12.0%※Refer to figures as of the end of June 2021.ROEImproved ROE and PBR15Concepts and management strategy underlying our new medium-term management plan➢ Business strategyGrowth initiatives for new business transformation➤ Segment changeNew segmentCurrent segmentsNew segmentSystemsCloud services and supportDevicesSystemsDevicesBeginning in the term covered by our new medium-term management plan (FY ending March 2023), cloud-based subscription-type service businesses and maintenance businesses will be positioned as growth businesses and treated separately as segments from the standpoint of growth potential and profitability.※ “Services and support” under the existing systems segment will be renamed “Cloud services and support” to comprise a new segment.Cloud services and supportSystemsDevicesAccess control systemsPower modulesSilicon microphonesCloud-based wireless LANCloud services• MSP and other services constituting an integration of Equipment, cloud services, and operation managementwithin the systems segmentMaintenancesystems segment• Maintenance services for products coming within the Facial recognition systemsSoft-close units• The electronic article surveillance (EAS) system, surveillance camera systems• Store management systems• Display products security systemsElectronics• Semiconductors, IC/electronic parts, sensors• Various types of modulesIndustrial equipment• Slide rails, gas springs• Soft-close units, electronic locksRetailOfficeGlobal• Access-control systems• Auto Mailing Insertion Systems• RFID systems・Network systems• Fire-protection systems17Growth initiatives for new business transformation➤ Restructuring our basic strategiesBasic strategiesSales (millions of JPY)＋4,300i.Promote and deepen “Loyal customer strategy”Expand businesses with high profitability and growth potential among existing businessesRelated segmentsDevicesSystemsii.Growth of service businessesTransformation from “selling goods” to “selling services”Cloud services and supportiii. Creation of future core businessesAcquiring a new revenue base through launching new businesses and business model新規事業New business プロジェクトprojectsiv. Strengthening the management basev.Setting a total of 3 billion yen as the limit for strategic investments21,7002,300 10,400 9,000 FY2021*(forecast)Growth of service businessesPromote and deepen “Loyal customer strategy”26,0004,000 10,900 11,100 FY2024(targets)デバイスDevicesシステムSystemsクラウドサービス&サポートCloud services and support+4,300 million JPYBreakdown of sales growthLoyal customer strategyService businesses※Some figures for the current fiscal year’s forecast have been rounded.※A breakdown of sales for FY2021 is presented based on the assumption that segments have been separated.18Semiconductor ProductsMechanical ComponentsRetailMaintenanceOfficeGlobalCloud servicesBasic strategy(i) Promote and deepen “Loyal customer strategy”Expand businesses with high profitability and growth potential among existing businessesOur top market share areas*1The electronic article surveillance (EAS) system, surveillance camera systemsin drug store marketOffice security systems for foreign-affiliated companiesMechanical parts for ATMs and copiers machines*2Further expansion of market shareLoyal customers and market share◼ Increase in corporate clients with whom we have earned at least 30 million JPY in sales per companyCore areas Focus marketsCorresponding high-profit businesses and businesses with high growth potentialSystem segmentBuild a safe, secure, comfortable system environmentOptimize corporate management and business operationsRetailOfficeData centerPlantLogistics• Labor-saving and smart-store solutions• Combining network security elements• Surveillance camera systems with image recognition and AI technology• Logistics and store solutions based on the use of RFID technologyDevice segmentElectronics companiesDigital equipment marketHousing equipmentIn-vehicle on-board devicesGlobal (US, Asia)TK’s original solution proposal from single item salesAdding value at a high level to customers’ manufacturing and products• Acoustic/voice, communications, sensors, power supply solutions• AI and image-recognition solutions• Combination proposals and modularization• Unitization of mechanical parts• PWB (printed circuit boards)• Cables and power-supply products100 companiesMore than 130companies87 companiesFY2018FY2020FY2024◼ Average sales per company for all customers approx. 10M JPY ➡ 20% increaseInitiatives for expanding our loyal customer base and market shareLoyal customer strategyStrategy by which we provide added value to create satisfied customers with whom relationships are strengthened.*1 In-house survey*2 Mechanical parts: Slide rails with dampers, mechanical fixtures for opening/closing mechanisms and drawers19•Based on relationships of trust with customers whom we have cultivated over many years, we will ascertain potential customer needs, generate new added value for which we have harnessed our strengths in the areas of information and technology, and resolve issues faced by our customers.• Maximize group synergies that transcend corporate and organizational boundaries.Increase market share with high value-added products that are unique and superior.•Build WIN-WIN relationships that will help give rise to growth and high profits for customers, manufacturers, and the Company.•Basic strategy(ii) Growth of service businessesFrom “selling goods” to “selling services” Realize customer successNumerical targetsCustomer success cycle ~ growth factors ~ dnai secvres duoc fl tohworGtroppusPercentage of total salesPercentage of total operating incomeFY2021 (forecast) 10%FY2021 (forecast) 40%FY2024 (target) 15％FY2024 (target) 45%～50％Accumulation and utilization of dataService improvementsDataSolve problemsReduce management costsCustomer valueMSP salesFY2021 (forecast) 500 million JPYFY2024 (target) 1.2 billion JPYInvesting to improve service and improving services by utilizing data stored in the cloudDevelop servicesImprove servicesInvestmentsReduce cancellation rates by improving levels of customer satisfaction and providing value on a continuous basis.MSP (subscription model)Managed serviceDifferentiation with our unique cloud service resulting from the integration of maintenance and operation management servicesEvolution▼Integrated services are provided for a monthly feeTK Eco SystemMulti-cloud service◼ Further evolution from cloud-based MSP services◼ Our own proprietary platform for the centralized management of physical security and network security◼ Leveraging data to further Building TK’s own B2B platform that integrates physical security and networks.Access-control systems/cloudsecurityMulti-factor authentication/zero trustimprove servicesFree-WiFi authenticationIntegrated service platformBig dataSERVICEEquipmentCloud serviceMaintenance and operation managementCorresponding services• Cloud-based wireless LAN• Switch• Network securityCustomer• Cameras• Access control system and other services added20Basic strategy(iii) Creation of future core businessesEstablish new businesses and business modelsCreating demand: Towards becoming a business that accounts for more than 5% of total ordinary income for the entire TK Group in 5 yearsCloud-based crime-preventioninformation serviceCloud-based video systemSaaS-based RPA solutionsCloud-based crime-prevention information distribution service for stores that shares information across companies and industrial sectorsImage confirmation and AI image analysis can be performed in the cloudReal-time confirmation from any terminalCloud-based RPA solutions for which no server or terminal is neededDeveloped EMLINX, our proprietary platformPrevention of store crimesEasy to install for immediate usageResolves worker shortages through operational streamliningSafe and secure local environmentCrime detectionReduce costs of adoption and managementScheme and focus areas for creating new businesses and business modelsUSA: Silicon Valley Innovation Center, JPN: Business Development DepartmentNew business development areasCyber-security (vulnerabilities, privacy), climate change (SDGs, ESG), blockchains (metaverse, VR/AR, Web3, NFTs), robots (labor-saving, automation, logistics, automation, sensors), quantum computers, 5G/6G, smart homesExisting customersProviding new commoditiesRetail sector (camera analysis, privacy issues, labor-saving), office sector (TK cloud service, SASE, bringing net security into the cloud, logistics solutions), electronics sector (mid-sized, Asian manufacturers, acoustics, communications, sensors), industrial equipment sector (global commodities, existing alternatives), support for solution proposalsPotential customersInformation sources x collaborationsCreating new businesses and business models by obtaining various information and collaborating with them..VCUniversitiesOwn information sources21Basic strategy(iv) Strengthening the management basePromote the following initiatives with a view to strengthening the management base that supports our businessShift management resources to businesses to which we should direct our focusand carry out marketing activities that transcend the organization.iii.Carry out business portfolio management.i.ii.Shift human resources to businesses on which we should focus and carry out an optimal allocation of personnel.Form an organization capable of executing strategies:✓ In order to promote company-wide loyal customer strategy and digital marketing, we will collect functions distributed in the system business in one place Promote digital transformationImprove the efficiency with which leads (potential customers) are acquired through digital marketing.Improve customer satisfaction and reduce internal costs through the enhancement of customer services.Promote the automation of internal processing and the move to paperless operations for small-scale customers.Develop human resources and strengthen investments in human resourcesHire and cultivate human resources required for the growth of service businesses and solution businesses that constitute focus businesses.Engage in the management of human resources in a manner that is highly transparent and that meets with the substantial approval of employees through the promotion of a new human resources system.Improve capital efficiencyImprove capital efficiency by controlling inventory assets.Improve the receivables turnover period: Improve capital efficiency through the growth of our monthly billing service business with short payment terms.Set decision criteria through the ascertainment of revenue on an operating income base for each project and deal.22i.ii.iii.i.ii.i.ii.iii.Basic strategy(iv) Strengthen our management base➤ Shift management resources to businesses that should be focused onBusiness portfolio management using four-quadrant analysisOrganize the positioning of each business with axes consisting of Market attractiveness (growth) and Leveraging our strengths (profitability).◼ Proactively invest in focus businesses using an investment framework.◼ Re-evaluate the direction of businesses with issues by assessing market and customer conditions.Focus businessesHigher• We will shift management resources to and engage in proactive investments in business areas that are expected to help increase our corporate value and that can allow our strengths to be fully harnessed. As well as improving profitability, this will strengthen our ability to weather downturns in performance (such as by eliminating impairment losses).Mature businesses• We will expand our market share through distinctiveness and superiority.• We will increase our efficiency and our profitability.Higher added valueDevice solutionsCloud servicesCCTVImage recognition, AILabor saving, crime preventionRetail solutionsSemiconductorsCCTVRevenue-improvement businessesRevenue-improvement businessesFocus businessesOffice solutions• We will develop products and services with high added value and uniqueness.• We will shift from the selling of goods to the selling of services.Businesses with issuesMature businessesBusinesses with issues••In this medium-term management plan, we will, in accordance with our corporate philosophy, promote cross-sectional discussions on businesses with issues from the standpoints of such as synergy effects, and growth.In particular, we will strengthen the governance of Group companies and hold business review meeting with every month.Fire protection systemsRFIDElectronic article surveillance (EAS) systemMechanical ComponentsMailingIncrease productivity and efficiencyMarket attractiveness (growth)*Prepared by the Company based on growth rate projections and profitability over the three-year period covered by our medium-term management plan.LowerLeveraging our strengths (profitability)Higher23Basic strategy(iv) Strengthening the management base➤ Promote digital transformationPromote the digital transformation ofthe management baseKey measures for the digital transformation of our company➢ Promoting digital transformation through a company-wide cross-sectional projectWe will improve customer services to achieve improvements in sales efficiency and the growth of our service businesses as well as improve profitability by transforming our internal processes.Promotion marketingSales activitiesTransactionsAfter-sale servicesStrengthen promotionsStrengthen managementImprove the efficiency of transactional operationsImprove customer satisfactionEfficient acquisition of leads (prospective customers) through digital marketingEstablish management methods based on the use of sales force automation (SFA) tools.Improve efficiency by adopting EC for supply transactions and electronic invoices and contracts.Improve the quality of customer services by providing a Web-based operational support reception desk and constructing a knowledge website.Improved sales efficiencyReduced operating costsGrowth of our service businessesEstablish operations of a new core systemStrengthen our internal IT base and further develop a work-from-anywhere environment by establishing operations of a cloud-based core system and linking this system with SFA tools and auxiliary systems.Improved profitability24Basic strategy(iv) Strengthening the management base➤ Develop human resources and strengthen investments in human resourcesPromote a new personnel system to develop DX and global human resources, provide support for women’s activities, and engage in the flexible allocation of human resources as well as strengthen our shareholding association to enable employees to become shareholders.◼ Look into introducing a DX personnel and global personnel development support program.◼ Hire personnel required for the growth of core businesses.◼ Introduce a side-job system with the aim of creating new knowledge.◼ Support women’s activities.◼ Select professional and management positions.◼ Shift to the flexible reallocation of human resources.◼ Promote initiatives to support a work-life balance:➢ Paid-leave utilization rate: 70%➢ Childcare-leave utilization rate: 100％◼ Continue to promote telework.◼ Introduce a system that provides for three days off per week on a test basis (April 2022).Establish a scheme to enable various career paths to coexistPromote the sharing of the common interests of shareholdersConcept of our new personnel systemReform working stylesStrengthen job-based and performance-based compensation systems◼ Expand the employee stock ownership incentive program with the aim of raising awareness of management participation among employees:➢ Incentive amounts will increase from 10% ◼ Increase the rate of employee stock to 50%.ownership.◼ Strengthen the pay-for-performance and pay-for-job schemes and their operations.◼ Review salary levels according to the market to which individuals are assigned.◼ Introduce and utilize 360-degree ◼ Introduce ROIC evaluations for evaluations.sections.25Basic strategy(v) Setting a total of 3 billion JPY as the limit for strategic investmentsSet up a 3.0 billion JPY strategic investment framework to create new corporate valueStrengthen our business foundationProactively invest in focus businesses and domainsAccelerate growth driversCreate new businesses and business modelsFuture core areasStart up and commercialize new businesses and business modelsInvest in venture capital funds, alliances with software companies, M&As, and more.Core areasGrowth of service businessesDevelop new products and services3.0 billion JPYInvest in realizing the needs of loyal customersPromote and deepen a loyal customer strategyInvest to develop new businesses, such as service businesses and platform-building initiatives.Invest to develop new businesses, such as solution units for the realization of customer needs.Invest in our internal foundation: Invest in SFA, RPA, and other internal IT solutions; invest in the development of human resources; expand employee stock ownership incentives. *Included in some PLLaunch of new business2.6 billion JPYInvestments to grow service business400 million JPYStrengthen internal foundation26Segment targetsDevelop businesses focused on growth areas and develop solutions for the resolution of issues affecting customers.Numerical targets for operating income and a breakdown thereof (millions of JPY)デバイスDevicesシステムSystemsクラウドサービス＆サポートCloud services and support売上構成Sales compositionGlobal 25%Retail 38%Office 37%We will carry out segment separation from the fiscal year ending in March 2023.1,130710260Maintenance 43%Cloud services 57%2,050400750420420Industrial equipment 49%Electronics 51%885609276FY2020FY2021FY2021*FY2024(forecast)(forecast)(targets)＊Breakdown of operating income for FY 2021 in the event that segment separation is carried out.Priority measures for each segmentSystems◼ Provide full-stack IT solutions for supporting the digital transformation of customers, including with respect to working styles, customer contact points, and business models.◼ Create security systems that help solve such societal problems as shoplifting, theft, and a shrinking workforce.Cloud services and support◼ Expand cloud-based solutions suited to new-normal working styles that are not tied to specific locations.◼ Aim to reduce the operational management of customers and improve customer satisfaction through a managed service that integrates operations, maintenance, and critical monitoring.Devices◼ Accommodate the need for semiconductors and electronic devices in response to, among other factors, the spread of 5G, the IT upgrading of plants through DX, and the adoption of robots.◼ In order to increase customer satisfaction, we will shift from engaging in single-device sales to engaging in a business involving the provision of solution proposals.◼ Expand our global business (United States and Asia).*From the fiscal year ending in March 2023, we will set cloud services and maintenance services as the cloud services and support segment.27Concepts and management strategy underlying our new medium-term management plan➢ Capital policiesImproving capital profitabilityIn order to create new corporate value after taking into consideration the overall financial soundness of the Company, we will steadily implement capital policies towards improving our capital profitability and our current balance sheet.Profit growth◼ Appropriately manage our business portfolio.◼ Ascertain revenue as it corresponds to operating profit by project and job.Improve profitabilityReduce sales and general administrative costs◼ Increase profit rates by reducing costs.Creating new corporate value◼ Structural reform and strengthening of existing businesses◼ Cultivate businesses in growth areas◼ Exceeding 8% average ROE for three fiscal yearsImprove our balance sheet by utilizing leverage◼ Limit increases in equity capital◼ Optimize capital costsOptimize the allocation of management resources◼ Proactively invest in core businesses and personnel.◼ Flexibly reallocate human resources.Strengthen shareholder returns◼ Maintain a dividend payout ratio of 100% until the average ROE for three years exceeds 8%.Improve capital efficiency◼ Reduce working capital through the growth of our ◼ Reduce inventory assets.subscription model.Investments and M&As◼ Study the use of interest-bearing debt when carrying out investments and M&As.◼ Carry out disciplined investment activities in accordance with discussions held by our Investment Committee.29Shareholder return policyShareholder return policy during our medium-term management planWe regard management that takes capital profitability into account to mean the constant maintenance of an ROE at 8% or higher and efforts to obtain even higher levels of an ROE. Upon taking into consideration the Company’s highly secure financial base and other factors, we will implement the following in an effort to proactively return profits to shareholders without increasing equity capital based on our existing stable dividend policy.◼ We will maintain a 100% dividend payout ratio until the average ROE for 3 fiscal years reaches 8%.We plan to maintain the current minimum dividend policy of 24 JPY. We also plan to conduct a review of our shareholder return policy in the fiscal year after we reach an average ROE of 8% for 3 fiscal years.Changes in dividends per share (JPY)The current policy will be continued until we reach an average ROE of 8% for 3 fiscal years.Special dividend1535 24 24 24 24 25 FY20162016年度FY20172017年度FY20182018年度FY20192019年度FY20202020年度FY20212021年度FY20222022年度FY20232023年度FY20242024年度・・・・・Minimum dividend is currently 24 JPY30Raising and allocating cashUtilize obtained operating cashflow and surplus funds for shareholder returns and making strategic investments.The use of interest-bearing debt to control capital costs shall also be studied.Cash inflow (raise)Cash outflow (distribute)Create cashflowUse interest-bearing debtInvestments for growthShareholder returns3-year operating cashflow of 2.5 to 3.5 billion JPYSurplus fundsCash on hand(required cash)Interest-bearing debtStrategic investment framework of 3.0 billion JPYPoint 1Management that prioritizes financial soundness above all elseShift to management that emphasizes capital profitability.Point 2Strengthen service businesses with high capital efficiency.➡ Lower the base of cash on hand (required cash).Shareholder returns of 3.0 to 4.0 billion JPY31ESG initiatives in support of our new medium-term management planVarious initiatives for ESG/SDGsOur basic policy on sustainabilityWe regard the resolution of environmental issues, societal issues, and corporate governance issues as important matters of management policy.Under a corporate philosophy of “Creation,” we will contribute to the realization of a prosperous future and sustainable society as a technology trading company after also taking the supply chain into account.EContributing to the environmental field~Environmentally-conscious solutions~SContributing to the societal field～Realizing a safe and secure society through technology～GResolving corporate governance issuesDeal with climate changeContribute to the protection of the global environmentDevelop healthy, rewarding workplace environmentsContribute to a livable society through the promotion of DXDeter and prevent crimesEnrich educationStrengthen governanceEngage in eco-activities for the office (reduce CO2 emissions).Provide various types of environmental sensors and product services.Promote health-oriented management.Use eco-cars for sales vehicles.Reinforce the environmental consciousness of workplaces and facilities with “Verkada”Promote a paperless system.Provide disaster-information services.Engage in appropriate waste disposal practices and reduce the amount of waste.Plans to accommodate the TCFD.Contribute to a recycling-oriented society (3R).Establish a Health and Safety Committee.Undertake the IT upgrading of internal systems.Establishment of a telework environment and the maintenance of regulationsAppoint a diverse range of human resources.Establish child-care and nursing-care leaves, increase the rate at which paid leaves are taken, and promote a zero-overtime approach.Provide support for the latest technology markets, including AI, IoT, 5G, and RPA.Support customer streamlining and convenience through the provision of cloud services.Provide support for the safety and security of local communities through crime prevention.Provide support for access security.Improve IT solutions.Establish ties with industrial societies, the Japan Association of Electronic Article Surveillance Machines, and the National Shoplifting and Crime Prevention Organization.Provide crime-prevention support to offices and plants.Provide various education training programs.Promote OJT.Engage in initiatives for corporate governance code.Comply with our CSR Charter and Corporate Code of Conduct.Enact a qualification acquisition incentive program.Establish various committees.Upgrade governance education.Provide support for office management.Provide support for preventing and deterring crimes affecting stores.Security services to protect customers from becoming victims of crime33Contributing to the environmental field➤Reinforce the environmental consciousness of workplaces and facilities with VerkadaIn addition to the security of workplaces and facilities, the “visualization of information that contributes to environmental friendliness” is achieved by linking environmental sensors and hybrid cloud-based AI cameras.Environmental sensorsMeasurable items・Temperature・Humidity・PM2.5・Noise・AQI (Air Quality Index)・Cigarette and e-cigarette smoke・TVOC (total volatile organic compounds)・Motion◼◼◼Environmental changes in the office can be monitored in real time through links with hybrid cloud-based AI cameras.Sensor readings can be visualized.Equipped with an alert function that is activated in emergencies, these sensors can be used to ascertain conditions in detail with live video.Works well in a wide range of situations•Visualization of working environmental spaces in offices, facilities, and manufacturing sites.• Detects temperature and other environmental changes inside server • Detects cigarette smoke in schools and other locations where smoking is rooms.prohibited.Reduce environmental risks• Detects air pollution, noise, vibrations, land subsidence, bad odors, and •other pollution risks.Strengthens the monitoring and observation of information that contributes to environmental conservation.By visualizing environmental information…Rapid identification of environmental changes and prompt responses.Controls temperature, humidity, and air quality at proper levels and can analyze factors causing environmental changes from the data.We provide total support for the security and health of workplace and facility environments and contribute to environmentally conscious measures implemented by customers.34Contributing to the societal field➤ Security services to protect customers from becoming victims of crime1Through security services that provide safety, security, and comfort, the provision of total support is made possible by our top-class domestic market share.Physical securitySurveillance camera systemCloud securityEMLINXProduct-monitoring systemFacial recognition system••This system operates by detecting the faces of visitors with a dedicated camera installed at the entrance of a facility and authenticating them against facial data registered in advance.This system can quickly and accurately detect and verify any visit to a facility by a specific person.Sharing information on store crimesCloud servicesNotification emails are sent to nearby member stores upon registrationOther companies’ cases are subject to camera image checks (*masking process)Easy registration of casesCan be perused, searched, and analyzedCan produce and output reports and damage notifications (original data) instantly•••Crime prevention solution that contributes to loss reduction and crime elimination by sharing information on thefts with others in the community and enabling staff across different stores to immediately respond on a coordinated basis.The more information is aggregated, the more it can transition from enumerating lists to engaging in analytical work.This analysis will lead to the next step and effective measures.◼Store operations will be rendered more efficient by utilizing a high degree of flexibility in terms of satisfying space, functional, design, and other requirements and a cloud-basedsystem.◼ We offer office security and network features that are indispensable for a business environment on a comprehensive basis.We propose security and comfort backed by a strong track record in the area of safety management and the development of thelatest technology.◼ We use EMLINX, our own proprietary platform, to resolve crime-prevention issues faced by our customers. Furtherpenetration of the system will help reinforce our information network in the area of crime prevention (i.e., increase theadded value we can offer).We are committed to contributing to the creation of an environment in which our customers and the users of customer services canlive with peace of mind.35Status of the Company’s Governance StructureBoard of Directors responsible for attaining our new medium-term management planNamePositionTakanobu IdePresident and Chief Executive OfficerPresident & Executive OfficerYoshiaki HirataDirector and Executive OfficerGeneral Manager, Device Business DivisionIn charge of Device Group CompaniesIn charge of the Nagoya BranchMasazumi UematsuDirector and Executive OfficerIn charge of Administration & OperationsIn charge of Southeast Asian Group CompaniesIchidou TatsumiDirector and Executive OfficerGeneral Manager, System Business DivisionTetsuo WasanoOutside DirectorMichitoshi TsuruokaOutside DirectorTerm of office3 years7 years7 years3 years7 years3 years●●●●●*Up to five primary skills possessed by each individual are marked with a blue dot (●).*The term of office is the number of years as of February 8, 2022.Corporate managementFinance, accountingGlobalLegal, complianceIT, technologyRisk managementSales, marketingESG, sustainability, SDGsHuman resources, labor, personnel developmentSkill matrix●●●●●●●●●●●●●●●●●●●●●●●●●Percentage of directors consisting of outside directors33.3%State of the establishment of various committeesOutside directorsIn-house directors◼ Investment Committee – To be established in April 2022◼ Nomination and Compensation Committee – Established in October 2021◼ Crisis Management and Compliance Committee◼ Information Disclosure Committee◼ Personnel Committee◼ Health and Safety Committee◼ Environment Committee◼ Information Security Committee36Strengthening corporate governance (1)Establish an Investment Committee01◼ We will improve the quality of discussions held by the Board of Directors and Board of Executive Officers by strengthening supervisory and review functions pertaining to investment decisions, including those that concern our M&A strategy.Monitor progress subsequent to an M&AInvestigate investment criteria and exit criteria as they apply in the short to medium termPurposeThoroughly verify the appropriateness of an investment project, including any concerning our M&A strategyChaired by: Director in charge of Administration and OperationsMembers: Management Planning Section, Business Development DepartmentCommittee members: Administration Department: Investment Execution Section◼ Positioned as an advisory committee to improve the quality of discussions held by the Board of Directors and Board of Executive Positioning of committeeOfficers◼ The Investment Committee checks and discusses investment projects in advance and disseminates a set of knowledge and expertise on making an investment decision to the Board of Directors and Board of Executive Officers.Frequency of meetingsAssumed to be twice a year (and flexibly convened for any large investment project)37Strengthening corporate governance (2)Establish a voluntary Nomination and Compensation Committee◼◼Strengthen the fairness, transparency, and objectivity of procedures related to nominations and compensation.Endeavor to enhance corporate governance. ◼ Composition of the Committee◆ Composed of at least three directors selected by the Board of Directors with a majority of members consisting of outside directors.◆ The chairperson will be selected by way of the adoption of a resolution by the Nomination and Compensation Committee.0203Revise performance-linked compensation for directors◼ Increase the ratio of performance-linked compensation and stock-based compensation for officers.◼ A capital efficiency index will be newly adopted as a KPI for performance-linked compensation in addition to ordinary income.◼ Compensation for officers◼ Compensation-determination process◆ Fixed compensation◆ Performance-linked compensation◆ Aiming for a stock-based compensation ratio of 15%87% ➡ 70%13% ➡ 30% (when 100% target attained)◆ Performance-linked compensation⁻ Rate at which the single-year ordinary income and current-term net income plan is attained◆ Performance-linked stock-based compensation⁻ Rate at which our medium-term management plan as well as our target plan in terms of consolidated ordinary income, consolidated current-term net income, and capital efficiency (ROE) are attainedIssues to be studied in the future◼ Appointment of female directors for the purpose of strengthening our initiatives for ensuring diversity.◼ Restructuring of our personnel system at group and global levels as well as our evaluation and compensation system.38◼Direct any inquiries you may have regarding this document to the following:TAKACHIHO KOHEKI CO., Ltd.Masaya Iwamoto, General Manager, Administration DepartmentE – m a ilir-takachiho@takachiho-kk.co.jpT E L03-3355-1111This document includes statements in connection with future performance. Such statements encapsulate risks and uncertainties and do not guarantee future performance. Note that future performance could differ from targets due to changes in the management environment and other factors.In addition, this document is made available solely for the provision of information and is not intended to be used as a solicitation for transactions.