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Corporate Strategies

In the Japanese economy, production activities have progressed steadily due to the recovery of the world economy including the United States of America and China, capital investment and personal consumption are gradually recovering.
However, as geopolitical risks such as overseas political problems emerge, it is inevitable that financial market and foreign exchange market turmoil and economic activity are inescapable, so we need to pay attention to future trends there is.
Based on these circumstances, NANYO plans to take the following measures to strengthen its foundation in preparation for future growth.

Management

Enhancement of Corporate Governance

Corporate Governance is of great importance. Accordingly, corporate law requires companies to establish internal controls, also, the Financial Instruments and Exchange Act stipulates that listed companies are now obliged to comply with J-SOX. We believe that our efforts to strictly follow the guidelines for corporate ethics, policies and manuals, allows those internal controls to be firmly established throughout the organization. In June 2016, we conducted an internal audit by a company with an audit committee whereby two outside members were appointed to the board. We will continue to increase awareness regarding compliance and further instill J-SOX through in-house training and instructive audits to enhance corporate governance.

Reforming Organizational Structure

In the construction machinery business, Olympic-related special procurement boom and quake restoration demands are likely to keep a certain level of investment in both private and governmental sectors. For the time being, maintenance and repair works will be ongoing. Cutbacks in public works projects in the future; however, seem unavoidable when considering the country's severe financial condition. We have integrated the sales and rental divisions to unify a chain of command which has strengthened our information sharing. We plan to share all information related to construction machinery business, and circulate both effectively and efficiently within the group. We will try to increase customer satisfaction by offering diverse services. In response to decrepit social infrastructures, we will strive to supply our customers with an extended range of goods for maintenance, repair, and inspection.

Enhancement of Credit Management

Introduction of negative interest and implementation of monetary easing by the Bank of Japan have led to historically low rates. With installment sales marketing of construction machinery business, we face intensifying competition between financial institutions and leasing companies. Under these circumstances, we will strengthen sales by not competing with interest rates by relaxing our credit line but instead will underscore the benefit that is gained from doing business with Nanyo. Furthermore, we must enhance the management of credit obligations by setting up risk categories to classify each obligator. We plan to take appropriate measures for each category and secure our credit obligations.

Acquiring and Fostering of Human Resources

We believe expanding the cycle of acquiring and fostering skilled employees is the source of NANYO's stable growth. In recent years, the baby boom generation has reached retirement age. At the same time, the birthrate is falling rapidly. We predict for the mid to long-term that obtaining skilled employees will get tougher.
We built a new headquarter building and relocated to it on October 2011 in an attempt to obtain excellent employees. To recruit employees who will become NANYO's core members in 5 to 10 years, we must boost the company's recognition and create an attractive work environment. We will also improve the quality of the existing employees through in-house or outside training and education programs.

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Marketing

Expanding Sales of Expendables and Production Parts

During a recession period, even if manufacturers know the investment in facilities is necessary for the future, they refrain from making big expenditures. Since we sell machineries, we are in some way influenced by their manufacturing decisions. To avoid the damage, we plan to offer expendable production parts since they are consumed no matter what, as long as production lines are open. Also, we will provide the overseas products that are inexpensive but have technological capabilities to help customers cut their production costs. That way we can stabilize our business platform.

Expanding into Robotics Industry and New Business Lines

Manufacturing industry players in Japan are implementing factory automation to enhance productivity and labor-saving measures. The players in China are accelerating moves to automation due to increased labor costs. Under these circumstances, NANYO seeks to improve the level of solutions for equipment in the robotic industry and for production parts related to automation. With regard to IoT or Internet, of things expected to expand its market, we must act quickly to technological trends and participate in the business from the developmental stage. This action will give us the opportunities to make proposals about the products or parts that can be mass-produced. In return, we believe we can continuously grow in this type of business.

Exploration in Chinese and Southeast Asian Markets

At one time, China led the world economy, but excessive production capacity and excess debt problems have surfaced and China is now going through a correction period. Investments in modernization in the agricultural industry and for automatization (due to increased labor costs) are expected to hover at high levels. Starting with NANYO International Trading (Shanghai) Co., Ltd. established in September 2003, we have grown in the Chinese market with four sales offices. To strengthen the market development in Southeast Asia including Malaysia and Thailand, NANYO ENGINEERING (MALAYSIA) SDN.BHD, our affiliate, has increased their presence in regional operations. Through these affiliates, we will explore and expand the Chinese and Southeast Asian markets where needs are growing across industrial robots and various machines.

Expanding Management Base

At our Industrial Machinery Business Division, robot filed is growing up rapidly as well as smart phone field and onboard semiconductor filed; latest technology regarding IoT is going to realize gradually.
As considered above situation in our society, we recognize that expansion of the network for sales and purchase is an urgent task.
Kyoei Tsushin Kogyo became our one of subsidiaries in April 2013; moreover, TODAKA Corporation, which manufactures precision mechanical parts, FA mechatronics and Ship related equipment at Oita City, became a group company in March 2017.
We will examine advance to existing business and field which would generate synergy effect also consider effective use of M&A as an important management policy to expand our business infrastructure.

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Accounting

Implementation of System Coordination

In recent years, the information systems at our affiliates have been rebuilt to share information within the group. To avoid loss of any sales opportunities, merchandise data has been centralized. Furthermore, trade information is now shared to intensify the coordination among group companies. We plan on constructing a consolidated accounting system and a system that will meet the IFRS requirements.

Compliance with International Financial Reporting Standards (IFRS)

More and more businesses are globalized and stock markets are becoming borderless. Investors are now more eager to invest in foreign companies. Accordingly, over 100 countries are already or planning on using IFRS as their domestic accounting standards. In Japan, the government has postponed the start of the IFRS application due to the Great Eastern Japan Earthquake of March 2011. However, the adaptation of IFRS in the future is unavoidable to do business worldwide.
The IFRS is much different from the standards currently used by listed companies including NANYO. Therefore we believe it will take time and effort to comply. We will pay attention to the decisions made by the Financial Services Agency to prepare for IFRS application.

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Finance

Improvement of Balance Sheet

We have advocated cash flow management since 2000 and have since taken actions to improve our balance sheets and investing within operating cash flow. Our debt equity ratio which was once 2 at its peak has improved to 0.21 in FY2015. We have refinanced a part of short-term debt to long-term, to stabilize the funding.
In March 2016, we were able to reduce consolidated interest bearing debt into a quarter of that during peak time. We'll continue to improve our balance sheet and pay attention to funding cost in order to stabilize funding and to secure healthy finance.

Enhancement of Fund Management

NANYO raises funds from financial institutions in a lump sum and lends out to its affiliates. Our finance department monitors the affiliates' funding status. At the monthly board meetings, their financial statements are reviewed to make sure the funds are used effectively.
The affiliates' information system has been upgraded to allow for highly accurate control. We will utilize and manage funds more effectively by re-examining the asset allocation and reducing unnecessary assets.

Shareholder incentives / Shareholder returns

Hereby, based on review our dividend policy in March 2016, we keep the payout ratio at around 25% of consolidated net profit and a dividend as JPY30 per stock( in case the consolidated net profit is lower than all amount of the dividend, given dividend to be range of the profit).
Also, we have practiced interim dividends and dividends of surplus twice a year to enhance passing on of profits to our shareholders since 2015. However, to reinforce further return to the shareholders, we finally introduced shareholder incentives plan and gifted JPY1,000 QUO card( more than 3 years tenure will give you JPY1,500 QUO card) to our shareholders who have more than 100 stocks in end of March.
NANYO will try to have active return to all shareholders as securing of safety and soundness in management continuously.

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