Action to Implement Management that is Conscious of Cost of Capital and Stock Price

Action to Implement Management that is Conscious of Cost of Capital and Stock Price (updated as of June 20, 2025)

Summary

Analysis of current situation	Our cost of equity, estimated using the capital asset pricing model (CAPM), has risen to around 7%, due to the rise in long-term interest rates (the estimated cost for FY3/2024 was 6.2%.) Based on interviews with institutional investors, the expected market return is estimated to be around 7-8%, which we believe does not deviate significantly from the CAPM estimated cost of equity. While the cost of equity is rising, ROE is also increasing (FY3/2025: 9.5%,) so a certain equity spread^1 has been secured. Our PBR^2improved to 1.4x due to the upward revision of the financial targets of the 14th MTP in May 2025. Although it does not reach the weighted average PBR of 1.7x for the machinery industry on the Tokyo Stock Exchange Prime Market, it exceeds the weighted average PBR of 1.2x for the construction industry. While we believe that we have received a certain level of recognition from the market, we need to continue our efforts in order to meet market expectations.
Policies	Maintain and increase ROE in excess of cost of equity (FY3/2027: at least 11.5%; FY3/2031: at least 12%). To achieve the target ROE, we will increase balance sheet efficiency while improving profitability and maintaining a solid financial foundation. At the same time, we will promote initiatives to reduce the cost of capital.
Initiatives	Steady implementation of the 14th Medium-Term Management Plan to achieve Vision 2030. (Working especially to maintain and expand our market position in the EPC Business, the source of our recurring revenue model businesses) Optimal cash allocation to achieve both our growth strategy and capital efficiency. Specification of a quantitative policy on shareholder return. Further enhancement of IR activities, including effective dialogue with investors and enhanced disclosure information.

*1 Equity spread = ROE - Cost of equity
*2 Calculated based on average closing stock price from May 15 to May 30, 2025 and net assets per share as of the end of March 2025

Analysis of Current Situation

ROE / Cost of equity^*3 / Equity spreads over time

ROE has remained above cost of equity, and a certain equity spread has been secured.

ROE / Cost of equity / Equity spreads over time graph

*3 Cost of equity calculated based on CAPM.
Beta values are measured over multiple time periods (weekly 1 year, weekly 2 years, monthly 3 years, monthly 5 years, monthly 10 years), and the median value is used.

PBR^*4over time

Although PBR does not reach the weighted average for the machinery industry on the Tokyo Stock Exchange Prime Market, it exceeds the weighted average for the construction industry.

*4
- Each year PBR = (Average month-end stock price over 12 months) / (Year-end net assets per share)
- Latest PBR = (Average closing stock price from May 15, 2025 to May 30, 2025) / (net assets per share as of the end of March 2025)
- The weighted average PBR for the machinery industry and the construction industry based on the data as of May 2025 for the "Average PER and PBR by Size and Types of Industry" published by the Tokyo Stock Exchange.

Analysis of ROE (Net profit on sales ×Total asset turnover×Financial leverage)

Over the past 15 years, we have enhanced our equity capital to stabilize management and improve creditworthiness. As a result, financial leverage decreased, and capital efficiency declined. While maintaining our strong financial base, we aim to achieve our target ROE by improving our profit margin on sales.

*The product of the three components of ROE may not equal ROE because the figures are rounded to the second decimal place.

Policy and Main Initiatives

Policy	Main Initiatives	Results
Improvement of profitability	We will expand EPC orders, which is a prerequisite for further growing recurring revenue model businesses. In particular, we will give priority to investing management resources in municipal solid waste treatment plants, for which a large amount of renewal demand is expected during the Medium-Term Management Plan period.	Orders received reached ¥246.3 billion and order backlog reached ¥577.7 billion in FY 3/2025, both were record highs.
Enhancement of balance sheet efficiency	Over the last 15 years, we’ve enhanced our financial foundation by building up a substantial internal reserve. Looking ahead, we will maintain a solid financial foundation to back our EPC and long-term O&M businesses, all the while ensuring a balanced distribution of profits between investments for growth including M&As and shareholder returns. Specify a new, quantitative policy on shareholder return. We will maintain the equity ratio at the 50% level with cash and deposits at a minimum level of roughly two to three months’ worth of sales (JPY 30-40 billion).	Completed 2 M&A projects in September 2024 and April 2025. Established the policy to strengthen the reduction of policy-held shares (selling approximately ¥7 billion worth of shares for the 14th MTP period) in November 2024, besides decided to increase share repurchase (during the 14th MTP period: from ¥12 billion to ¥18 billion yen.)
Reducing cost of capital	Through proactive investor relations, we will carefully explain our business environment and corresponding business strategy to our investors so that they can expect stable returns over the long term, thereby bridging the gap between cost of equity and the future business outlook.	In FY 3/2025, we held a total of 149 individual meetings with investors and 3 small meetings, as well as SR interviews and an information session for individual investors.

Investor RelationsIR