Report of Operating Results and Financial Position for the Six Months ended April 30, 2016

[Management Environment]

During the first two quarters of Kanamoto’s current consolidated fiscal year, the business environment maintained a modest recovery trend, supported by the continuation of the government’s current economic and monetary policy measures. Conditions continued to warrant vigilance, however, in the wake of changes such as the economic slowdown in newly developing countries and resource-producing nations and a decline in corporate earnings at export-oriented manufacturers that was caused by appreciation of the yen.

[Second Quarter Consolidated Operating Results]

In the construction industry related to the Kanamoto Group, overall private sector construction investment remained brisk. Nevertheless, while ongoing construction demand can be anticipated for disaster restoration and projects such as the Tokyo Olympics, the management environment continues to be challenging, and on the whole the tendency to postpone public sector expenditures for activities such as regional infrastructure maintenance is projected to continue.
Given such circumstances, the Kanamoto Group continued to push ahead with key initiatives based on the various measures in its Medium-term Management Plan (fiscal 2014 - fiscal 2016). Together with expanding its base in the Tokyo metropolitan area and other locations where public sector demand is concentrated, the Company took steps to broaden and strengthen its domestic base of operations, including the conversion of Nishiken Co., Ltd. (Kurume City, Fukuoka Prefecture), the largest construction equipment rental firm in the Kyushu Region, into a subsidiary in March 2016.
As a result, consolidated net sales for the interim period were ¥68,642 million, up 0.5% compared with the same period of the previous consolidated fiscal year. From an earnings perspective, the Company is continuously undertaking investments in rental equipment to pursue its regional strategy aimed at expanding and strengthening its base of operations, and income reflected the impact of the increased burden for depreciation and amortization. As a result, operating income decreased19.2% from the same period of the prior consolidated fiscal year to ¥8,605 million, ordinary income decreased 22.6% year-on-year to ¥8,246 million, and profit attributable to owners of the parent fell 23.9% from the same period one year earlier to ¥4,967 million.
To support disaster recovery activities following the earthquake that struck Kumamoto City and the surrounding area in Kumamoto Prefecture on April 16, 2016, the Kanamoto Group has established a Kyushu Regional Disaster Response Headquarters within the head office of Nishiken Co., Ltd., and will devote its full capabilities to support restoration in the region, including strengthening cooperation with Group firms and effective allocation of the management resources of each Group company.

[Segment Information]

Business related to the Construction Equipment Rental Division

In the construction-related business that is Kanamoto’s core business, construction demand was brisk in regions such as Tohoku and the Tokyo metropolitan area, primarily for recovery and restoration in the Tohoku Region and infrastructure refurbishment ahead of the Tokyo Olympics. In other regions, however, the operating climate grew more severe. Public works were put off as execution of the third supplementary budget was delayed and because worksites continue to contend with a shortage of human resources, and demand for construction equipment rentals during the interim declined more than the Company’s assumption.
Used construction equipment sales slipped 3.1% from the corresponding period of the prior consolidated fiscal year, as Kanamoto restricted sales in line with its initial period plan in order to maintain the proper composition of rental assets in the Company’s portfolio.
As a result of the above factors, interim period net sales for Kanamoto’s construction-related businesses rose 0.5% from the same period of the prior consolidated fiscal year to ¥64,311 million, and operating income fell 20.3% year-on-year to ¥8,249 million.

Other Businesses

In the Company’s other businesses, both steel products-related sales and sales in the information and telecommunications-related division were steady. Net sales rose 0.8% from the same period of the prior consolidated fiscal year to ¥4,330 million, and operating income increased 28.7% year-on-year to ¥153 million.

[Change in number of branches]

The Company opened two new branches, the Kumagaya Branch (Kumagaya City, Saitama Prefecture) and the Okegawa-Kitamoto Branch (Kitamoto City, Saitama Prefecture) during its interim consolidated accounting period. The Company did not close any branches.
Beginning from the interim period of the current consolidated fiscal year, Kanamoto will include Nishiken Co., Ltd. in the scope of consolidation as announced on March 14, 2016.

The Company has changed its presentation method for the following classifications beginning from the first quarter consolidated accounting period, and to reflect these changes in presentation the quarterly consolidated financial statements for the second quarter of the fiscal year ended October 31, 2015 have been restated to reflect a consistent presentation format.

Consolidated Balance Sheets

Minority interests → Non-controlling interests

Consolidated Statements of Income (total)

Income before minority interests→Profit
Minority interests in income→Profit attributable to non-controlling interests
Net income→Profit attributable to owners of parent

Consolidated Statements of Comprehensive Income (total)

Income before minority interests→Profit
Comprehensive income attributable to minority interests→Comprehensive income attributable to non-controlling interests

Consolidated Operating Results

Divisional Sales (Consolidated)

Projected Consolidated Operating Results for the Fiscal Year Ending October 2016