The Kanamoto Advantage

Kanamoto's dominance has been achieved through the
"Kanamoto Standard," our unique business model.

 

Equipment procurement standard and the major role played by construction equipment rentals

A substantial majority of Japan's construction companies utilize rentals as the optimal means to arrange for "the right equipment" at "the right time" and in "the right quantity". Rentals not only enable firms to ease the capital burden related to construction equipment purchases, and reduce their running costs for securing, maintaining, operating and insuring their inventory storage yard, for example, they also help prevent expenditures from becoming fixed costs. So it's no wonder rentals have already become the "standard" for procuring equipment and parts. This can be clearly seen in statistics from the Japan Civil Engineering Contractors' Association, Inc., which show the construction equipment rental utilization rate had reached approximately 50% in 2007, the most recent year for which survey results are available. Because many models with a high rental utilization rate are excluded from this figure, however, the true construction equipment rental utilization rate is much higher. The prominent role played by the construction equipment rental industry in Japan's construction business today is further highlighted by the fact rental equipment accounts for over half of all construction equipment used at construction sites.

Industry reorganization promotes trend toward consolidation among major firms

Net revenues for the construction equipment rental industry are about one trillion yen, and the market is comprised of about 2,000 firms engaged in the construction equipment rental business. Over the last few years, however, the progress toward reorganization in the industry has accelerated the consolidation of business among the leading large-scale regional firms such as Kanamoto. This reflects the fact that, as the operating environment has grown in severity with each passing year, the rental industry has been compelled to undertake heavy capital investment in order to always provide high-quality rental equipment, and sharp distinctions among firms have begun to emerge based on funding ability and creditworthiness.
Consequently Kanamoto has sought to expand its domestic market share by pursuing friendly business alliances with local firms that have established a solid base of operations, and through its M&A strategy.

[Change in construction investment in Japan and reliance on construction equipment rentals]

Actively promoting new product development and strengthening areas of specialized expertise

Actively developing new products that incorporate the latest technologies is another of Kanamoto's strong points. One example is the "Bridge Dragon," a highly efficient bridge inspection vehicle based on Kanamoto's original design. We've also introduced a range of construction equipment that is registered in NETIS*, the New Technology Information System managed by Japan's Ministry of Land, Infrastructure, Transport and Tourism. The "LED battery floodlight" developed by our New Products Office, for example, has already resulted in numerous orders from general contractors because it helps significantly reduce power consumption and CO2. Kanamoto also markets microturbine generators manufactured by the U.S. firm Capstone Turbine Corporation, which have been delivered to domestic biomass power generation facilities and are already producing results. Kanamoto will continue to develop its rental business in other sectors in the future.
In addition, our capabilities in handling systems and work methods for the foundation and ground improvement sector are another Kanamoto advantage. We boast an ample lineup of special construction equipment for ground improvement, plus teams of ground improvement specialists at companies within the group, enabling us to lend a hand for works at locations such as petroleum industrial complexes where deep underground construction work, underwater work and thorough prevention of ground sinking and subsidence are absolutely essential.
*Database of technical information accumulated in the Ministry of Land, Infrastructure, Transport and Tourism "System of Technologies Used for Public Works Etc."

Information-aided construction contributes to worksite quality and production efficiency improvements

"Information-aided construction" forms the backbone of construction technology innovations being promoted by the Ministry of Land, Infrastructure Transport and Tourism (MLIT). This program aims to achieve production efficiency and quality control improvements through use of the information and communication technology (ICT) advocated by the Ministry of Internal Affairs and Communications for construction works. The methods are already being applied at dams and other large-scale projects. MLIT is hoping firms will adopt advanced management using shared information obtained through operations such as works survey, design, construction and maintenance management, and has issued guidelines to make this technique the standard works procedure for roads, earthwork and similar engineering projects by fiscal 2012.
Kanamoto demonstrates its integrated abilities in information-aided construction as well. In addition to providing the latest information-aided construction-related devices and construction equipment in cooperation with Sooki Co., Ltd., a measuring instruments specialty firm, Kanamoto is giving its full support to the introduction of information-aided construction by holding management seminars with trained specialists, for example, and assisting firms in all phases from system adoption through operating startup.

Practicing "Rent to Sale" through flexible operating decisions

The essence of Kanamoto's business model is to recover investment outlays through rental income following the introduction of equipment, which is ultimately disposed of through sales. One ongoing theme in the Company's operations has been to boost profit margins by easing the depreciation burden and extending the useable life of assets. For models that enjoy robust demand in the second-hand market, however, Kanamoto must temper its response to global market conditions. As a result, the Company's operations pivot on maintaining flexible assessments, attuned to circumstances, on whether to hold assets for the long term or to replace equipment relatively quickly.

[Business Model for Kanamoto's Construction-related Businesses (Construction Equipment Rentals)]

Reliable maintenance technology and selection criteria enhance construction equipment asset value

At Kanamoto, the safety and functionality of our construction equipment are maintained daily by the highly trained maintenance staff assigned to all of our domestic branches. This thorough maintenance enhances the asset value of the equipment that is sold second hand.
Moreover, the clearance sale value of our construction equipment is raised even further by the fact Kanamoto selects construction equipment that is in use around the world. Of course, one criterion used equipment purchasers will rely on when selecting products is that the parts and maintenance systems available in other countries are similar to the networks established in Japan. In order to meet this requirement, Kanamoto selects the leading construction equipment manufacturers in Japan. We will continue to provide thorough maintenance and make strict rental equipment selections, and build the Kanamoto brand on both rentals and secondhand equipment.

Improving profit margins through optimized asset management

Kanamoto has long pursued a policy of earnings-focused asset management, and continues to follow this strategy in the new Long-Term Management Plan it currently is executing. By disposing of under-utilized rental equipment assets and surplus assets, and optimizing the mix of equipment models and ages in the equipment portfolio of each group company, we continue to aim at further profit margin improvements.

A unique financial strategy corresponding to the characteristics of a stock business

Because equipment rental is a stock-based business, Kanamoto's ratio of interest-bearing debt is higher than in other industries. As a financial strategy to service this debt, Kanamoto is working to increase shareholders' equity, and reducing interest-bearing debt and streamlining its balance sheet to limit capital asset investment to within the scope of annual cash flow.

A future-oriented investment strategy to secure the source of Kanamoto's earnings

Kanamoto makes average capital investments in excess of ¥15 billion annually, which results in an amortization burden corresponding to this volume of assets. Equipment rental, however, is a business characterized by the ability to receive a gain from the sale of used equipment after rental earnings have been ensured. In other words, the depreciation expenses incurred during each fiscal year become the source of future earnings. For this reason, Kanamoto considers its most important management indicators to be EBITDA+ (operating income + depreciation and amortization expense + lease fee payments + installment payment charges + purchase payments for small-scale construction equipment and inexpensive rental assets) and ROI (return on investment), rather than current year operating results, and has always worked to achieve growth in these indicators.

[Change in EBITDA+]
[Change in net assets, interest-bearing debt and D/E ratio]