Report of Operating Results and Financial Position for the 47th Business Period

Report of Operating Results and Financial Position for the 47th Business Period
(November 1. 2010 - October 31, 2011)

Summary of Operating Results Operating Environment

During the consolidated fiscal year under review, Japan's economy began the year with a comparatively calm start despite weak business sentiment. However, conditions were abruptly transformed by the Great East Japan Earthquake, and economic activity slowed dramatically as production was hampered by supply chain disruptions that significantly influenced economic activity both at home and abroad. Additionally, even as a pall was cast over the domestic economy by the spread of rumors concerning Japan's nuclear accident and a self-imposed mood that constrained consumption, Japan's industries continued to face an extremely grim economic situation that included turmoil in the global economy and financial markets caused by the deteriorating European debt crisis, a marked economic slowdown in newly emerging countries, and the prolonged appreciation of the yen.

Following the Great East Japan Earthquake, construction equipment demand in conjunction with recovery and restoration work in disaster areas in the Tohoku and Kanto regions, and generator demand spurred by electric power supply problems, both expanded in industries related to construction equipment rental, the principal business of the Kanamoto Group. On the other hand, depending on the region a polarized management environment has emerged, as public works expenditures have been reduced in areas other than those devastated by the quake and private sector capital investment, with the exception of a few major metropolitan centers, has trended downward.

The Kanamoto Group, which considers devoting its resources to recovery and reconstruction activities in the Tohoku region to be its social mission, established a task force immediately after the earthquake and created an organization to supply urgently needed support materials and construction equipment, and worked to provide local support that included sending assistance teams, particularly maintenance and repair staff. Moreover, as a result of standing its ground and firmly maintaining its market share in other operating regions, revenues expanded substantially, exceeding prior year levels in all regions except Hokkaido. Rental unit prices improved somewhat as well.

From an earnings perspective, opportunities for profit were limited by the priority given to ensuring available construction equipment for responding to the earthquake and postponement of sales of used construction equipment owned by the Company. Nevertheless, the asset utilization ratio improved as construction equipment rental revenues rose briskly because of the Great East Japan Earthquake, comparatively steady demand for equipment for recovery work after heavy rainfall disasters in areas that escaped the earthquake devastation, and even the partial improvement in rental unit prices mentioned above. Furthermore, even though Kanamoto could not avoid recording a loss on assets destroyed by the earthquake and tsunami, this was offset by the creation of an extraordinary profit from revision of the Company's pension system, and Kanamoto was able to ensure higher earnings than in the previous fiscal year. Finally, despite an anticipated increase in claims in default in light of the recent economic environment, thorough day-to-day credit management was successful in keeping such claims to a minimum.

Summary of consolidated operating results by business segment

■ Business related to the Construction Equipment Rental Division
In the construction-related businesses of the entire Kanamoto Group, revenues and earnings were both higher. For the consolidated fiscal year under review, consolidated revenues increased 0.7% from the previous consolidated fiscal year to ¥64,711 million, and operating income rose 2.5% year-on-year to ¥2,586 million.

By region in Japan, the company was able to limit the year-on-year decline in rental revenue in the Hokkaido Region to 10.5%, despite lower demand from both the public and private sectors that signaled the diminished effect of economic stimulus measures in the previous fiscal year and a local economic slowdown. This result reflected the Company's overwhelming market share, plus demand from projects such as work for the Hokkaido Shinkansen. In other regions, demand in the Tohoku Region jumped 26.6% year-on-year because of special demand for restoration and reconstruction following the earthquake and heavy rainfall disasters. In the Kanto Region, demand grew 12.4% over the previous fiscal year because of demand for generators related to planned rolling blackouts and liquefaction damage restoration and reconstruction demand. Demand in the Kinki & Chubu Region, which was unaffected by the earthquake, was driven by heavy rainfall disaster restoration demand and private sector capital investment, rising 6.3% year-on-year. Finally, in the Kyushu & Okinawa Region, demand was nearly unchanged from the previous fiscal year, edging down just 0.1%, supported by past official demand, countermeasures following an eruption of Shinmoedake and storm disaster demand.

Revenue from the sale of used construction equipment contracted 44.1% from the level in the previous consolidated fiscal year, reflecting planned equipment sales during the fiscal year under review that were partially postponed to ensure availability of construction equipment for earthquake restoration works.

In foreign operations, Shanghai Jinheyuan Engineering Construction Co., Ltd., which is developing a construction equipment rental business in China and currently accounts for only a small proportion of Kanamoto's operating results, achieved operating performance that was nearly identical to the previous year, when revenues expanded because of special procurement related to the Shanghai Expo. Although affected by China's economic slowdown resulting from the government's tight-money policy, this performance was the result of opening new branches and attracting demand in Tianjin, Wuhan, Nanjing, Ningbo and other cities. In Hong Kong, vigorous demand caused revenues to increase steadily, while revenues at SJ Rental, Inc. in the Territory of Guam, United States were basically unchanged year-on-year, reflecting the lack of progress toward the relocation of U.S. military facilities from Japan.

< Subsidiaries >

The Company's Construction Equipment Rental Division, Daiichi Kikai Co., Ltd. (a consolidated subsidiary), Kanki Corporation (a consolidated subsidiary) and Toyo Industry Co., Ltd. (a consolidated subsidiary) are engaged in the rental and sale of construction equipment and machines used for construction. These companies borrow rental equipment assets from the Company as needed in order to meet customer demand. In addition, the Company borrows rental assets from each of these companies as needed to rent to other companies.

Assist Co., Ltd (a consolidated subsidiary) and Comsupply Co., Ltd. (a non-consolidated subsidiary) are engaged in the rental and sale of furniture and fixtures and safety products, and SRG Kanamoto Co., Ltd. (a consolidated subsidiary) rents and sells temporary materials for construction use. The Company borrows rental assets from these three companies as needed to rent to other companies.
SRG Kanamoto Co., Ltd. (head office: Chuo Ward, Sapporo City), was absorbed by and merged with the Company on November 1, 2011, with Kanamoto as the surviving company.

Kanatech Co., Ltd. (a consolidated subsidiary) sells modular housing units for temporary use. Flowtechno Co., Ltd. (a non-consolidated subsidiary), is engaged in the technical development, manufacture and sale of construction equipment for ground improvement works. Kanamoto purchases modular housing units for temporary use and construction equipment for ground improvement from these two companies as needed to rent to its own customers.

Kyushu Kensan Co., Ltd. (a consolidated subsidiary) rents and sells construction equipment and foundation equipment, and rents construction cranes and small machines. Kyushu Kensan borrows rental equipment assets from Kanamoto as needed in order to meet its customer demand.
Shanghai Jinheyuan Engineering Construction Co., Ltd. (a consolidated subsidiary; Shanghai, China) and SJ Rental, Inc. (a consolidated subsidiary; Territory of Guam, United States), are engaged in the rental and sale of construction equipment and tools and the import and export of construction materials.

In addition to the above, Kanamoto has three unconsolidated subsidiaries: KG Machinery Co., Ltd., KANAMOTO (HK) CO., LTD. and Kanamoto & JP Nelson Equipment (S) PTE Ltd. KG Machinery Co., Ltd. (head office: Tokyo) mainly rents specialized large-scale construction equipment in foreign countries. KANAMOTO (HK) CO., LTD. (head office: Hong Kong, China) borrows rental assets from Kanamoto and is engaged in the rental and sale of construction equipment and tools and the import and export of construction materials. Kanamoto & JP Nelson Equipment (S) PTE Ltd. (head office: Singapore) rents and sells specialized equipment for engineering works in Singapore.

■ Other businesses
In the steel products sales the Company is developing in Hokkaido, demand remained steady despite a lull in the region, and revenues were up 4.6% compared with the previous fiscal year, aided somewhat by the general sense of insufficient supply and a strong push to sell steel materials. In Kanamoto's information and telecommunications-related business, on the other hand, revenues expanded a healthy 23.3% because of growth in personal computer rentals and the steady expansion of activities related to other specified worker dispatching.

As a result of the above factors, for the consolidated fiscal year under review revenues for the Company's other businesses increased 7.9% from the previous consolidated fiscal year to ¥6,374 million, and operating income soared 213.6% year-on-year to ¥143 million.

Change in number of branches

During the consolidated fiscal year under review, Kanamoto newly opened 2 branches and closed 8 branches.
New branches: Rokkasho Branch, Kesennuma Branch
Closed branches: Shiranuka Equipment Center, Tomikawa Equipment Center, Muroran Equipment Center, Makubetsu Equipment Center, Yaita Branch, Nanyo Branch, Murakami Branch, Biratori Equipment Center

Medium to long-term corporate management strategy

The Kanamoto Group has formulated a long-term management plan extending through the Business Period ending October 2014. However, because the management environment has changed more than initially assumed, the Company has re-set its earnings objectives for the three remaining fiscal years as follows. Restoration and reconstruction demand generated by the Great East Japan Earthquake is reflected in this medium term plan as temporary demand that sees a certain degree of convergence. Details of Kanamoto's management strategy are provided below.

a) Response to the Great East Japan Earthquake and Fukushima nuclear accident

The Kanamoto Group considers a strong involvement in the support for restoration and recovery work to be a social mission it shoulders willingly. Along with continuing its efforts to supply construction-related materials on a timely basis, Kanamoto will participate in this project, which is expected to take many years, on an ongoing basis, by undertaking ground improvement works, an activity in which Kanamoto particularly excels, and establishing a full-time team to concentrate on the Fukushima nuclear accident. The Kanamoto Group will work zealously to achieve the quick restoration and recovery of the stricken areas in the Tohoku and Kanto regions.

b) Expand and enlarge Kanamoto's domestic base of operations

Beyond the Tokyo metropolitan area where much of Japan's public and private sector demand is concentrated, the Kanamoto Group is actively pursuing branch development, including M&A, in areas west of the Kanto Region where the Company's presence until now has been limited. Moreover, Group firms are also working to expand operations through cooperation centered on Kanamoto's Regional Special Procurement Sales Division.

c) Broaden sectors and enlarge new businesses

In Japan there is a heightened desire for new power generation facilities, including biomass power generation, to supplement electricity shortages. Microturbine generators manufactured by the U.S. firm Capstone Turbine Corporation and marketed in Japan by Kanamoto are already delivering results to domestic biomass power generation facilities, and as a leading member of Japan's Biogas Council, Kanamoto will broaden the opportunities for introduction of this technology, and pursue development of its equipment rental business in other sectors that are unrelated to the construction business.

d) Undertake overseas deployment

In addition to operations in mainland China, Hong Kong, Guam and Singapore where it has established overseas affiliates, the Company will pursue development in ASEAN countries that are exhibiting remarkable growth. Because the sales of high-quality used construction equipment implemented by Kanamoto each year enhance the Company's reputation, and contribute substantially to business development in other countries, Kanamoto also will continue to offer high-quality used construction equipment for sale.

e) Increase asset management efficiency

In the future, the Company will continue efforts to enhance the operating income margins on its rental assets, by disposing of rental equipment with low operating rates and optimizing its asset portfolio by model and age through asset introductions and sales.

Fiscal Year ended October 31, 2011 Consolidated Operating Results

Earnings objectives of new long-term management plan (Consolidated)

An asterisk (*) indicates actual figures.

Outlook for the next fiscal year (Business Period ending October 2012)

As the European debt crisis has grown more serious, global financial markets have become less flexible and the weaknesses of a free economy have spread to newly developing countries. Lacking any means to correct itself, this confusion could have a major impact on Japan's economy, which relies heavily on exports, and become a factor causing the strengthening tendency of the yen to become even more serious. Given concerns that a contraction of the financial markets will lengthen the deflationary trend in Japan unless a corrective mechanism is found, the outlook for Japan's economy, including the slump in consumption and reductions to capital investment, is becoming increasingly uncertain.

Although earthquake reconstruction demand is expected to be substantial, the trend in reconstruction plans for the devastated areas remains unclear and the recovery of domestic construction demand in Japan, which influences the earnings of the Kanamoto Group, will require more time. In addition, central government allocations for public works have been pared back substantially, and nationally there is little hope for investment in public works. Furthermore, given the uncertainties in the business outlook, firms are not relaxing their prudent stance toward new private sector capital investment, and the severity affecting construction demand in local regions particularly has intensified. Except in regions where earthquake recovery demand is anticipated, heightened competition in various regions among firms in the construction equipment rental industry is inevitable, and the seesaw nature of the operating environment appears set to continue.

In addition to further enhancing its support for reconstruction efforts in the wake of the Great East Japan Earthquake, the Kanamoto Group will utilize all of its abilities to capture public and private sector demand in regions other than the stricken areas and proceed to build a solid business base, just as it has during the consolidated fiscal year under review. Moreover, because the demand for generators is expected to continue in industries other than construction such as manufacturing, Kanamoto will focus on this demand as a future new business area.

On the other hand, with regard to sales of used construction equipment, some of which Kanamoto postponed in order to respond to the earthquake, for the next business period the Company has prepared a sales plan similar to its plan in a typical year, to reflect the gradual progress in introducing new equipment and the heightened demand for used construction machinery in other countries as a disaster recovery measure. Given current conditions, the Company judges it will be able to proceed with sales as planned, but will exercise greater prudence while closely monitoring the overseas used construction equipment market and the exchange rate trend.

Furthermore, as it continues to focus on controlling costs, boosting asset operating efficiency and implementing other measures to improve its financial position, the Company will take steps to bolster its regional sales organization, which has achieved substantial results. Kanamoto will also move forward with efforts to generate earnings from all aspects of rentals, including the creation of rental demand in sectors other than construction.

In summary, factors such as the anticipated earthquake recovery demand in the Tohoku Region and gradual progress in the sale of the Company's used construction equipment will help improve Kanamoto's operating performance in the construction equipment rental business in the Business Period ending October 2012.
Nevertheless, in light of other considerations, including the uncertain construction demand trend in regions other than those devastated by the earthquake and the fact its depreciation burden will increase because of the rental assets introduced to respond to the earthquake, Kanamoto has prepared the forecast summarized in the table below. The Company will continue to closely watch the construction demand trend in each region, work to increase revenues and earnings through effective asset deployment and a sure response to customers' needs, and seek to expand the content of its business, including the development of new sectors and new markets domestically and overseas.

Turning briefly to the businesses being developed by Kanamoto's subsidiaries overseas, which account for only a very small portion of the Company's consolidated earnings, in China a large shadow has begun to fall across private sector demand as the government adopts a tight monetary policy and a real estate bubble has formed, while in the Territory of Guam, United States, issues affecting the relocation of U.S. military forces remain in flux, and conditions affecting Kanamoto's redevelopment business are uncertain. On the other hand, in Hong Kong and Singapore there are no major changes in the present circumstances. Although there are concerns about the effect of weakening private sector demand in each region, fortunately Kanamoto has cultivated new business centered on rentals for public works, and will continue focusing on business expansion while giving sufficient consideration to both country and business risks.

Fiscal year ending October 2012 Projected Operating Results
(November 1, 2011-October 31, 2012)