■New Medium-Term Management Plan 1. Long-term Management Policy "ND For The Next 2030" In the future, it is expected that new buildings in the booming air conditioning equipment-related business will not expand much more than the current level in the long term, as it will no longer be an era like this where new buildings are built one after another against the background of population decline. On the other hand, it is expected that large buildings that reach the time of renovation will increase with the passage of years, but few companies are able to respond to renovation. Moreover, it is predicted that the environmental business market will steadily expand toward the realization of a decarbonized society based on Japan's energy policy*, with particular efforts being made in the construction industry to achieve ZEB the ultimate energy-saving of buildings. Therefore, the demand for Nihon Denshitsu's (1723) "Instrumentation Engineering" technology that achieves energy-saving and labor-saving is expected to increase further. In the industrial system-related business, the digitalization (smart factoryization) of factories utilizing DX technologies such as AI, IoT, and ICT in the medium to long term is expected to be a tailwind, expanding the market significantly. In particular, an increase in demand related to the renewal of factory equipment and the construction of production management systems, such as process automation and factory automation, is expected. From the above, we consider the air conditioning equipment-related business to be a stable source of income that supports the company and the industrial system-related business to be a growth driver. In the short to medium term, we will accumulate profits from new construction projects that lead to existing projects in the booming air conditioning equipment-related business, promote the independence of the industrial system-related business, and further accumulate existing projects while actively investing management resources in the industrial system field with ample room for expansion, in order to give momentum to the growth of the industrial system-related business. *1 The country aims to achieve carbon neutrality by 2050 and to reduce greenhouse gas emissions by 46% from fiscal year 2013 by fiscal year 2030. *2 ZEB: Net Zero Energy Building.

2. Phase 2 of the medium-term management plan.

In addition to changes in internal and external environments, a new four-year medium-term management plan called "Phase 2" was launched in April 2024 based on the favorable conditions of the urban redevelopment business such as the success of the "Phase 1" and the postponement of the peak to 2027. In order to expand its growth foundation and improve productivity, Nihondenki <1723> plans to actively invest in reinforcing its human capital such as securing, nurturing, utilizing strategic personnel and strengthening its cooperative companies, as well as promoting DX to improve productivity. In particular, it plans to actively tackle the long-term issue of labor shortage. Concerning the start of overtime regulation from April 2024, the company plans to continue selective order activities, taking into account construction surplus, profitability, and maintenance contract availability after construction completion, and promote measures to secure and develop human resources, as well as to improve productivity through DX promotion. In April 2024, the department specialized in human resources education, "Denki Academy," was established, where new employees will concentrate on training for one year instead of being trained in the field for one month as originally scheduled in order to improve their quality and prevent early turnover, which will lead to a better construction quality of young people. Furthermore, it is considering expanding the "Denki Academy" to cooperative companies' human resource development and infrastructure strengthening to support the company's medium-to-long-term growth.

As financial targets, Nihondenki aims to achieve an ROE of 10% or more, sales of 42 billion yen (36 billion yen for air conditioning installation-related business and 6 billion yen for industrial system-related business), and an operating profit of 6.5 billion yen in the fiscal year ending March 2028. The scenario is that the air conditioning installation-related business will lead the performance and build a profit increase system, but the profit is expected to grow significantly. This is due to the very high level of profitability, which already exceeds the initial target value of "ND For The Next 2030" at the stage of "Phase 1" (which is considered to be high difficulty to maintain such a high level of profitability despite the high level of raw material prices and yen weakness), and the background of aggressively investing in human capital reinforcement. Therefore, the company plans to promote the leap in the "Phase 3" and the achievement of the long-term management guideline "ND For The Next 2030". As non-financial goals, the company plans to accelerate ESG management with the aim of continuing sustainable corporate management. For E (environment), it aims to accelerate measures to address climate change, set SBT (Science Based Targets) targets that conform to TCFD (Task Force on Climate-related Financial Disclosures) and Paris Agreement requirements, and started calculating the greenhouse gas (GHG) emissions (Scope1-3) of the group and planning to obtain SBT certification aiming to contribute to the realization of a decarbonized society in October 2023 by setting up a climate change response project team. For S (society), the company sets human capital enhancement and maximizes human resources as medium to long-term strategies, aims to create a workplace where a diverse range of people can play an active role by improving the internal environment, and aims to achieve a workforce of 1,100 employees by 2030 by promoting recruitment expansion and reducing turnover. Therefore, it plans to proceed with utilization of "Denki Academy", revision of wages such as initial salaries and base annual salary, review of personnel system and so on, and also collaborate with professional basketball team "Chiba Jets" to improve recognition and motivation. For G (governance), the company aims to establish an effective governance structure in accordance with the Corporate Governance Code for sustainable growth and medium-to-long-term value enhancement. To achieve this, it will improve English disclosure and interview support, strengthen the IR structure centered around the Corporate Communications Department, and promote management efforts that are aware of capital costs and stock prices.

As non-financial targets, the company plans to accelerate ESG management to aim for sustainable corporate management. For E (environment), it aims to accelerate measures to address climate change, set SBT (Science Based Targets) that conform to TCFD (Task Force on Climate-related Financial Disclosures) requirements and the Paris Agreement, and started calculating the greenhouse gas (GHG) emissions (Scope1-3) of the group, aiming to obtain SBT certification by contributing to the realization of a decarbonized society in October 2023 by setting up a climate change response project team. For S (society), the company sets human capital enhancement and maximizes human resources as medium to long-term strategies, aims to create a workplace where a diverse range of people can play an active role by improving the internal environment, and aims to achieve a workforce of 1,100 employees by 2030 by promoting recruitment expansion and reducing turnover. Therefore, it plans to proceed with utilization of "Denki Academy", revision of wages such as initial salaries and base annual salary, review of personnel system and so on, and also collaborate with professional basketball team "Chiba Jets" to improve recognition and motivation. For G (governance), the company aims to establish an effective governance structure in accordance with the Corporate Governance Code for sustainable growth and medium-to-long-term value enhancement. To achieve this, it will improve English disclosure and interview support, strengthen the IR structure centered around the Corporate Communications Department, and promote management efforts that are aware of capital costs and stock prices.

*1 TCFD: A task force on climate-related financial disclosures established by the Financial Stability Board (FSB), which recommends that each company disclose its concrete plans and current situation regarding measures to tackle climate change.

*2 SBT (Science Based Targets) certification: International certification that indicates that a company has set GHG emissions reduction targets that are in line with the Paris Agreement.

*3 IR (Investor Relations): Activities in which companies provide necessary information for investment decisions, such as financial condition, to shareholders and investors.

(Author: FISCO guest analyst Nobumitsu Miyata)