Financial Section

Report of Operating Results and Financial Position for the 53rd Business Period
(November 1, 2016 ‒ October 31, 2017)

Matters Concerning the Corporate Group

Summary of consolidated fiscal year operating results

Inthe fiscal year under review, Japan’s economy maintained a modest recovery trend, supported by strong corporate earnings, the recovery of capital investment, and reasons for optimism in both the employment and income environments. However, a wariness must remain in place about uncertainties, such as the economic impact of unstable political conditions in the US and Europe and geopolitical risks posed by the Middle East and Asia.
The construction industry, in which the Kanamoto Group is involved, was solid overall due to robust public sector investment and a recovery in private-sector construction investment attributable to improved corporate earnings.
Given these conditions, the Group promoted various measures with the aim of achieving its Medium-term Management Plan (fiscal 2014 to fiscal 2016), and worked to ensure strong future revenue and build a stable management base. Those measures include strengthening the business structure by expanding the Group’s business in urban areas, and the optimal reallocation of rental equipment and further improvement of such equipment’s utilization rate.
Consequently, in the fiscal year ended October 31, 2017 net sales rose 9.4% from the prior consolidated fiscal year level to ¥158,428 million. On the earnings front, operating profit increased 10.1% year on year to ¥16,665 million and ordinary profit rose 19.4% to ¥17,193 million. Profit attributable to owners of parent increased 32.7% over the prior consolidated fiscal year to ¥10,744 million.

Consolidated Operating Results

(Millions of yen; % change from prior year)	Fiscal Year Ending October 31, 2016	Fiscal Year Ending October 31, 2017
Net Sales	144,870 (8.7)	158,4280（9.4）
Operating Profit	15,134 (-7.0)	16,665（10.1）
Ordinary Profit	14,405 (-10.9)	17,193（19.4）
Profit attributable to owners of parent	8,098 (-15.3)	10,744（32.7）
Net Income per Share	¥ 229.16	¥ 304.05

Summary of consolidated operating results by business segment

Business related to the Construction Equipment Rental Division

In the construction-related business, which is Kanamoto’s core business, reconstruction demand in the Tohoku Region decreased gradually but in other regions, demand was relatively brisk. Overall, rental demand for construction equipment was solid. The Group focused its management resources on supporting reconstruction and recovery efforts following last year’s Kumamoto earthquake and typhoons in Kagoshima and Hokkaido, as well as this year’s torrential rain storms throughout Japan, and worked on building a continual support system.
By region, sales in this business were up 16.7% in the Hokkaido Region, down 7.7% in the Tohoku Region, up 7.5% in the Kanto & Koushinetsu Region, up 8.1% in the Nishi-nihon Region, and up 54.9% in the Kyushu & Okinawa Region. The inclusion of NISHIKEN CO., LTD. in the scope of consolidation from the third quarter of the previous fiscal year and the signs of synergy effects in the Kyushu Region, including NISHIKEN, led to strong growth in net sales and operating profit in the Kyushu Region during the fiscal year.
With regard to sales of used construction equipment, the Group continued to systematically sell rental equipment that had been in service for a certain number of years, in order to maintain an appropriate asset portfolio. Sales of used construction equipment, included in net sales, increased 9.1% versus the previous fiscal year.
Reflecting these factors, the Kanamoto Group posted net sales in the construction-related businesses of ¥142,414 million, an increase of 8.5% year-on-year, and operating profit of ¥15,415 million, an increase of 9.7%.

Other Businesses

In the Company’s other businesses, sales were steady at both the Steel Sales Division and the Information Products Division. Coupled with the addition of NISHIKEN's welfare related business, this resulted in a 17.2% increase in net sales from the same period of the prior consolidated fiscal year to ¥16,013 million and a 29.7% increase in operating profit to ¥856 million.

Divisional Sales (Consolidated)

(Millions of yen; % change from prior year)	Fiscal Year Ending October 31, 2016	Fiscal Year Ending October 31, 2017
Construction Equipment Rental Business	131,2080 (6.2)	142,4140 (8.5)
Other Businesses	13,662 (40.6)	16,013 (17.2)
Total	144,8700 (8.7)	158,4280 (9.4)

■ Divisional Sales and Sales Ratio (Consolidated)

　　 (Millions of yen; % change from prior year)

Change in number of branches

The Company opened seven new branches and closed one branch.
New branches: Kuji Branch (Kuji City, Iwate Prefecture), Hidaka Equipment Center (Sarugun, Hokkaido), Kanto Aerial Work Vehicle Maintenance Center (Wakaba-ku, Chiba), Iida Branch (Shimoina-gun, Nagano Prefecture), Fuji Branch (Fuji City, Shizuoka Prefecture), Murakami Branch (Murakami City, Niigata Prefecture), Komaki Branch (Komaki City, Aichi Prefecture)
Closed branch: Tsugaru Dam Branch (Nakatsugaru-gun, Aomori Prefecture)

Outlook for the Next Fiscal Year (Fiscal year ending October 2018)

In the next fiscal year, the Group expects public investment and private-sector capital investment to remain strong. However, the industry faces issues such as widening regional disparities due to the concentration of construction work in urban areas and changes in the procurement environment for equipment, materials, and labor. Given these conditions, the Group will continue to ensure that it holds the optimal rental equipment and mix of equipment models aligned to construction demand and customer needs, while raising operational efficiency and utilization rates further by operating new systems. Pursuing these priority measures will enable the Group to achieve the goals of its long-term vision “BULL 55.” In addition, Kanamoto aims to further improve its earnings management and strengthen its corporate governance system as well as to build a management system that will facilitate sustainable growth in the long term.
For the fiscal year ending October 31, 2018, the Kanamoto Group aims for net sales of ¥161,870 million, a growth of 2.2% year-on-year, operating profit of ¥17,330 million, an increase of 4.0%, ordinary profit of ¥17,420 million, a rise of 1.3%, and profit attributable to owners of parent of ¥10,900 million, an improvement of 1.4%.

Projected Operating Results for the Fiscal Year Ending October 31, 2018

(Millions of yen; % change from prior year)	Consolidated full-year projection	Non-consolidated full-year projection
Net Sales	161,870 (2.2)	109,670 (2.2)
Operating Profit	17,330 (4.0)	ー
Ordinary Profit	17,420 (1.3)	12,650 (1.0)
Consolidated：Profit attributable to owners of parent / Non-consolidated：Net income	10,900 (1.4)	8,680 (1.5)
Net Income per Share	¥ 308.44	¥ 245.62