Iseki : Business strategies for value creation(How we create value)

Business strategies for value creation

Mid-term Management Plan (2021-2025)

In February 2021, ISEKI Group announced a long-term vision for 2030 of becoming a "solution provider for agriculture and landscape." Backcasting from that vision, we then formulated the Mid-term Management Plan, which is set to end in 2025, the halfway point to 2030.

In the Mid-term Management Plan, we set the numerical target of a 5% operating margin, and in addition to focusing on provision of services as well as products, we are aiming improve profitability in order to transform the Group into a lean and streamlined business structure unaffected by the fluctuation in sales.

2021-2022

Changes in the Business Environment

Ukraine situation	Increased
Soaring raw	demand for	COVID-19
material prices	food production

Introduction

ISEKI Group's value creation aims Business strategies for value creation Foundation for sustainable growth Financial and non-financial data Company profile / Stock information

2030

Long-term vision

Solution Provider

for Agriculture & Landscape

Operating margin for 2025

5%

Basic strategies of Mid-term Management Plan

and directions of initiatives

Provision of the best solutions

•Selection and concentration

•Business model transformation

Enhancement of corporate value by strengthening profits and reinforcing corporate governance

•Improvement of profitability

•ESG

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Business strategies for value creation

Mid-term Management Plan (2021-2025)

Progress of basic strategies (achievements and challenges)

Provision of the best solutions

Japan: Sales of smart agricultural machinery grew. We are pursuing organic farming as a new business model.

Overseas: Record high sales were achieved. We undertook limited sales of electrification products in Europe.

Introduction

ISEKI Group's value creation aims Business strategies for value creation Foundation for sustainable growth Financial and non-financial data Company profile / Stock information

Responses to the challenges identified

Improvement of profitability is essential for achieving the goals of the Mid-term Management Plan. ISEKI Group is pursuing a range of initiatives to transform into a lean and streamlined business structure.

Enhancement of corporate value by strengthening profits and reinforcing corporate governance

Improvement of profitability: We sought to establish an optimal production system by shifting production of overseas products to PT. ISEKI INDONESIA. We also built a new factory building.

ESG: We endorsed the TCFD Recommendations and started TCFD-compliant disclosure. We also implemented engagement surveys as a first step toward human capital management.

			Main achievements					Challenges identified
			Growth in sales of smart agricultural machinery in
	Selection and	concentration	Japan; enhancement of lineup	Risk of market stagnation as a result of inflation
	Growth in overseas sales	and higher interest rates
	Reinforcement of sales in the ASEAN region,
	Overseas sales grew continuously, driven by Europe
	led by IST
solutions	and North America
Further action to address smart agricultural
Started limited sales of electrification products
machinery and electrification
Signed technical and business alliance agreement with
TAFE in India
			Japan: Slowdown in growth of profits from
best
		Planning and deployment of new business model	maintenance
the			Undertook organic farming focused on the Aigamo-	| Japan: Parts and repair fees, and Mid-term Management Plan
Business model	transformation	Robo weeding robot as a first step in the organic			Results		Mid-term Management Plan
Provision of	(100 million yen)
farming business
Responses to digital transformation (DX)						217	219
and the new normal
Enhanced content on Amoni, a web portal for farm	207		214	212	214
business solutions; number of views by users increased
Introduced i-Magazine, a support tool for centralized
			management of service information, at sales		Dec. 2019	Dec. 2020	Dec. 2021	Dec. 2022 Dec. 2025
			subsidiaries in Japan
			Efficiency of sales activities enhanced						Mid-term Management Plan (2021-2025)
				Development of human resources for DX
			An optimal production system
			Shifted production of overseas products to PT. ISEKI	Disruption of parts procurement
			INDONESIA.

Selection and concentration

Shared design and fewer models

In order to improve profit margins on our products, we are pursuing shared design that employs the same design units for several models and reducing the number of models we supply based on identification of market needs. Our aim is to transform our development and production systems to make them resilient, lean, streamlined, and unaffected by the market environment.

Reorganization of sales channels

We are reorganizing our sales channels in line with changes in the market environment. In Japan, where concentration of farmland is leading to increased large-scale farming, we divided each region into blocks within which we optimally allocate business locations and personnel (the "block strategy"). Overseas, we are further enhancing our presence in the European market through synergies generated by strengthening our collaboration with ISEKI Germany, which we made into a consolidated subsidiary in 2022, and ISEKI France, which has been a wholly-owned subsidiary of ISEKI for some time already.

Improvement of profitability

Optimization of production

As we strive to establish an optimal production system, we are continuing to consider options such as rearranging production categories and concentrating operations, taking into account the characteristics and supply chain networks of our production sites in Japan and overseas.

New factory building at PT. ISEKI INDONESIA (right)

Improvement of operational efficiency

We are boosting productivity in administrative departments by improving operational efficiency, having set up the Operational Streamlining Working Group. We are seeking to improve productivity across the entire Group by reallocating the man-hours saved as a result of reviewing work processes and using robotic process automation (RPA) to important operations.

strengthening	governance	ofprofitability	(from July 2022)	Securing human resources at production sites
Shift production of overseas products;
Reinforced production capacity (constructed a new
deploy selection and concentration in production
factory building)
and procurement
Implemented centralized management of procurement
(establish an optimal production system and
and production technologies	review in-house/external production categories)
of corporate value by	reinforcing corporate	Improvement	(shared services)	Persistently high raw material and energy prices,
Selection and concentration of investment	etc.
Concentrated investments in priority domains	Increased inventories
and progressed with reducing property, plant and	Improve operating cash flow by promptly
equipment	optimizing inventory
Stopped in-house development and production of	Increasing shareholder returns
dryers (December 2022)
Environment (E): Environmental preservation
Endorsed the TCFD Recommendations and started
Enhancement profits and		TCFD-compliant disclosure	Strengthening collaboration with supply chains
ESG	Society (S): Enhancement of engagement
(CSR procurement; Scope 3)
Implementation of engagement surveys
Responding to more demanding requirements
Governance (G): Enhancement of corporate value
regarding non-financial information disclosure
Introduced performance-linked evaluation
compensation and performance-linkedstock-based
			compensation

Progress of numerical targets

Our financial results in 2021, the first fiscal year of the Mid-term Management Plan, were in line with projections. Our net sales results for 2022 and forecasts for 2023 also exceeded projections; however, profits continue to face headwinds due to the effects of soaring raw material prices. We are steadily implementing initiatives to

enable us to get promptly back on track with the Mid-term Management Plan.

Improvement of gross profit margin

Reduction of fixed costs

Enhanced management efficiency

				Structural reform				5.0%
Net sales	Operating margin
	2.5%	2.0%			2.6%	2.1%	2.5%
1.6%		1.8%
		1.4%
2016	2017	2018	2019	2020	2021	2022	2023	2024	2025

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Business strategies for value creation

ISEKI Group's strengths

The strengths of ISEKI Group that create value are "technological capabilities," "support capabilities to offer farm business proposals," and "innovation based on collaboration." ISEKI Group will continue to generate economic and social value through the business activities that leverage these strengths cultivated over 98 years as the source of its competitive edge.

Further reinforcement of these three strengths

will bring a sustainable growth of domestic and overseas businesses.

Introduction

ISEKI Group's value creation aims Business strategies for value creation Foundation for sustainable growth Financial and non-financial data Company profile / Stock information

Human resources development to enhance our strengths	Human capital Intellectual capital
		Manufacturing capital

Development of experts through professional training

We have built a comprehensive human resources development scheme for "development," "production," and "sales and services," to produce reliable products and provide breakthrough products and services. ISEKI holds several technology contests internally to improve the Group-wide technological capabilities and also works to upgrade the skills of individual employees by encouraging them to obtain certified qualifications. We also conduct training for employees working outside Japan actively to leverage our technological capabilities developed in Japan to roll out the global operations. During the pandemic, we continued to engage in human resources development by blending online training with classroom training.

DevelopmentProductionSales and services

To develop breakthrough agricultural and landscape machinery and create innovation as a leading company

Human capital

Intellectual capital

To develop and provide groundbreaking products and services and pitch new value to the new markets by collaborating with partners in each field and region both in Japan and overseas

Social and relationship capital

Innovation

based on

collaboration

IETC	ITTC	IGTC
ISEKI Basic Engineering	ISEKI Technical	ISEKI Global
Training Center	Training Center	Training Center
Nurturing young designers	Nurturing leaders of production	Nurturing sales and service staff
sites in Japan and overseas	in Japan and overseas

Number of trainees: 444 in 2022	Number of trainees: 243 in 2022	Number of trainees: 788 in 2022
Main training programs	Main training programs	Main training programs
Nurturing and training young engineers	Manufacturing leader development course	Product utilization and maintenance
Training related to advanced technologies	Skill tests, qualification certification training	technology training
	courses	Qualification certification training

Technological capabilities

ISEKI Group's high technological capabilities

Human capital

Intellectual capital

Activities to strengthen our IP related to advanced technologies

Technological	Support
capabilities to
capabilities	offer farm
	business proposals

To solve customers' issues from both hard (agricultural machinery) and soft (production management and advanced farm business technologies) aspects

Human capital

Intellectual capital

Manufacturing capital

Number of patent application	No. 2
registrations	(*)
per specialty field in Japan in 2021
*Other special machinery field
Patent allowance rate		No. 1
(in all industries)
Number of invention awards received
National awards for inventions:	19
Regional awards for inventions:	213
The Japan Institute of Invention and Innovation

(As of March 2023)

ISEKI Group's proactive efforts to develop, launch, and commercialize new technologies are exemplified by the high number of patent application registrations in Japan per specialty field, high patent allowance rates, and awards received in recognition of the inventions. Taking advantage of the technological capabilities underpinned by the intellectual property, we try to differentiate ourselves from peers.

Please refer to p. 51 for intellectual property strategies

We will strive to strengthen our advanced technological capabilities with the aim of achieving a ratio of advanced technology-related proposals to all invention proposals of 60% or more.

Going forward, this target could be raised again as we further accelerate advances in smart agriculture and electrification.

Percentage of invention proposals related to advanced technologies

	56%	60%
39%
2021 Result	2022 Result	2025 Target

Human resources development utilizing educational facilities (IETC)

Training related to advanced technologies

Training related to agriculture as foundation

Collaboration with external experts (advanced technologies, etc.)

Collaboration with retired employees and experts from industry, government, and academia

Prevention of infringements of third parties' advanced technology- related intellectual property rights

Enhancement of IP research related to advanced technologies

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Business strategies for value creation

ISEKI Group's strengths

Support capabilities to offer farm business proposals Human capital Intellectual capital

Manufacturing capital

Introduction

ISEKI Group's value creation aims Business strategies for value creation Foundation for sustainable growth Financial and non-financial data Company profile / Stock information

Initiatives to leverage our strengths	Human capital Intellectual capital	Manufacturing capital
	Social and relationship capital	Natural capital

Dream Agricultural Research Institute (DARI)

ISEKI Group established the Dream Agricultural Research Institute (DARI) in 2015 to create new agricultural value. DARI is engaged in research, demonstration, and promotion of smart agriculture that utilizes advanced technologies and advanced farm business technologies while strengthening collaboration with the government, municipalities, research institutions, universities, private-sector companies, Japan Agricultural Cooperatives (JA), and farm producers.

DARI is also strongly promoting the provision of information and farm business proposals to farm producers and the cultivation of the Group's human resources.

The Dream Agricultural Research Institute (Tsukubamirai City, Ibaraki Prefecture)

Diverse research,

demonstration experiments, and dissemination activities

To respond to diverse needs, DARI conducts research and demonstration experiments of advanced farm business technologies at its demonstration field. We support producers' farm management with farm business proposals and support that leverage the outcomes of these research and demonstration activities, as well as the diverse knowledge and experience that we have cultivated as an integrated manufacturer specializing in agricultural machinery.

We also provide proposals and hold seminars in line with customers' needs at DARI's exhibition hall and demonstration field. However, these activities were conducted online during the pandemic.

Online seminars conducted via

the Amoni web portal for farm 20 times business solutions

(August 2021-April 2023)

Development of experts

The Group strives to develop experts across the entire Group, including in the use of large-scale machinery and advanced technologies, to further strengthen its support capabilities to offer farm business proposals. Increasing the number of specialists in sales companies nationwide ensures that we can offer proposals and support that match the issues faced by farm producers.

Initiatives to realize environmentally sound smart agriculture

"Technological capabilities""Innovation based on collaboration"

Development of products that reduce environmental burden

ISEKI Group collaborates with partners including research institutions and universities on R&D for products that help to reduce environmental burden. Leveraging its technological capabilities cultivated to date, the Group is using such collaboration to accelerate development in order to launch innovative, environmentally friendly products.

Straight-travel assist	Reducing fuel usage through work optimization
function		Rice transplanters	From 2017	·············· Straight-travel assist function introduced in 60% of eight-row class models
with automatic steering	Tractors	From 2021	·············· Lineup enhanced in 2022 with addition of mid-sized models
(includes robots)	Combine harvesters	From 2023	·············· Rolled out primarily through demonstrations during 2022

Controlling the quantity of fertilizer used via sensors

Sensors	Variable fertilizer rice transplanters ········ Fertilizer use reduced by approx. 30%
(estimate for combination of variable fertilizing and crop-side dressing)
	High-clearance multipurpose vehicles ····· Fertilizer quantities controlled automatically according to crop growth
	(smart fertilizer top dressing system)
Partial fertilizing	Reducing fertilizer use by fertilizing only where necessary
Ridge-making tractor (tractor implement) ··· Fertilizer use reduced by approx. 30%-50%

Promotion of smart and environmentally sound agriculture in collaboration with local governments and private-sector companies

"Support capabilities to offer farm business proposals" "Innovation based on collaboration"

To promote smart and environmentally sound agriculture, we are collaborating with local governments and private-sector companies. We are reinforcing our initiatives to turn rural locations into agricultural production areas through farm business proposals and

support provided primarily by DARI.

Yamagata Design Co., Ltd. (Yamagata Prefecture)

Five-party collaboration with Gonuemon Co., Ltd.;

Innovation based on collaboration

Collaboration with national and local governments and private-sector companies

We carry out demonstration experiments of smart technology and environmentally sound agriculture in collaboration with the national government and municipalities to develop and promote technologies. We also engage in creating new agricultural technologies through innovation that combines breakthrough technologies owned by other companies and ISEKI's agricultural machinery and solutions.

Partnership agreements in Japan	9 cases
(March 2020-April 2023)

Social and relationship capital

Collaboration with overseas strategic partners

In our global business development, we are working to expand our business even further by enhancing and supplementing our product lineup in individual markets through OEM supply and other means in collaboration

with our strategic partners overseas.

From February 2022

Community development based on creation of a model for environmentally sound agriculture

Niigata City (Niigata Prefecture) From January 2022

Promotion of sustainable agriculture using advanced technologies

Nara Mirai Design Co., Ltd. From November 2021

Support for formulation of farm business plan, and production of agricultural produce following start of business

Three-party collaboration with Hamada City, Shimane Prefecture From February 2022

Creation of an organic rice production area to promote sustainable development

TDK Corporation; Yukimai Design Co., Ltd.; and Nikaho City From May 2022

Collaboration on environmentally sound smart agriculture

Kuroishi City (Aomori Prefecture) From March 2023

Creation of an organic agricultural production area to promote sustainable development

Tsukubamirai City (Ibaraki Prefecture) From March 2020

Promotion of agriculture using advanced technologies

Kisarazu City (Chiba Prefecture) From March 2021

Promotion of organic and non-organic farming using advanced technologies

Signing of a partnership agreement

(From left) Representatives of ISEKI & CO., LTD.; Yukimai Design Co., Ltd.; Nikaho City; Gonuemon Co., Ltd.; and TDK Corporation

In 2022, we received OEM supply of 27HP compact tractors from TAFE, a partner company in India, and sold them in Thailand.

Joint development with research institutions and universities

Joint development projects in FY2022

Research institutions	10 themes
Universities	3 themes

ISEKI Group engages in joint development of products with research institutions and universities to accelerate and improve efficiency of technology development. We pursue the creation of new value through development of groundbreaking products.

Yukimai Design Co., Ltd. (Tokyo) From June 2021

Formed business alliance to promote and develop organic farming using an automatic weeding robot

TOPICS - ISEKI's participation in the G7 Agriculture Ministers' Meeting in Miyazaki:Aigamo-Robo and SXGE2 electric riding lawn mower exhibited

At the G7 Agriculture Ministers' Meeting held in Miyazaki, we exhibited the Aigamo-Robo weeding robot and an electric riding lawn mower, introducing these products to the dignitaries and government officials from the various countries, as well as the representatives of international organizations. The Aigamo-Robo weeding robot works by muddying water to prevent photosynthesis, thereby curbing the growth of weeds. It earned high acclaim from attendees at the Ministers' Meeting for its capacity to reduce both environmental burden and workload simultaneously. Likewise, the SXGE2 electric riding lawn mower was well-received for its high performance, low noise-level, and for being chargeable using a household power socket. The Ministers' Meeting proved to be a valuable opportunity to inform a large number of people about ISEKI Group's initiatives to develop environmentally-friendly electric products and promote organic farming.

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Aigamo-Robo,an automatic weeding robot

Business strategies for value creation

Domestic market strategies (Domestic business company)

Introduction

ISEKI Group's value creation aims Business strategies for value creation Foundation for sustainable growth Financial and non-financial data Company profile / Stock information

We will co-create the value of Japanese agriculture

for the next generation.

Yukio Nawata

Market environment

Urgent need for promoting agricultural machinery which contributes to efficient work to maintain operating cultivated land while the number of farmers decreases

Environmentally sound agriculture, as seen in the "Strategy for Sustainable Food Systems, MIDORI" by the Ministry of Agriculture, Forestry and Fisheries, is gradually expanding

In all fields of agriculture, smart agriculture is underway

Diversification to cultivate not only rice but also vegetables and crops (grains, soybeans, etc.) is expanding

Situation continues where prices of materials such as fertilizers are soaring

Future outlook

In accordance with the Act of the Promotion of Business Activities to Reduce Environmental Burden for the Establishment of a Food System in Harmony with the Environment, smart agriculture and environmentally sound organic agriculture that contribute to reducing environmental burden are expected to be further promoted.

From the perspective of strengthening food security, further diversification to cultivate not only rice but also other vegetables and crops is expected to make progress.

Farmland is expected to be further integrated and concentrated through the development of farmers based on the "People and Farmland Plan."

Director & Senior Corporate Officer

General Division Manager, Business Division

Message from the General Division Manager of the Business Division

Progress of Mid-term Management Plan

Strengthening of initiatives for large-scale farmers Began sales of three main machine types of tractors, rice transplanters, and combine harvesters equipped with a function to assist straight traveling

Strengthening of DX and smart strategies Enhancement of the contents of "Amoni," a web portal for farm business information

Performance graph

Domestic sales

	Other		Implements, parts, and repair		Agricultural machinery products
1,159	1,173	1,126	1,215	(100 million yen)

486

496

469

525

Japanese agriculture is constantly changing, incorporating concepts such as the environment and sustainability, including acceleration of initiatives for environmentally sound agriculture and food security as seen in "Strategy for Sustainable Food Systems, MIDORI," in addition to becoming larger in size and smarter.

aim to improve productivity in farm work. To strengthen DX and smart strategies, we not only sell products, but also support solutions that assist subsequent farm business by combining evolving agricultural technologies and latest technologies such as ICT with information communicated through "Amoni," a web portal for farm

Development and operation of the sales activity support tool "i-Magazine"

Acceleration of revenue-expenditure structural reform Enhancement of large-scale maintenance facilities

	420	433	420		438
	252		243		237		252
	2020	2021	2022		2023		2025
							plan	target

In order to respond to this situation, the domestic business company is striving to improve the value of Japanese agriculture by focusing on the priority measures

business information. Furthermore, to accelerate revenue- expenditure structural reform, we have strengthened our service provision capabilities to respond to customers to

Featured topics Initiatives for environmentally sound agriculture and organic farming

of "strengthening of initiatives for large-scale farmers," "strengthening of DX and smart strategies," and "acceleration of revenue-expenditure structural reform."

To strengthen initiatives for large-scale farmers, we have enhanced our proposals for smart agriculture including various machine types equipped with a function to assist straight traveling to enable the expansion of operating cultivated land. In addition, with the BF series of tractors, newly launched in June this year, featuring an easy-to- operate continuously variable transmission with enhanced comfort performance and smart and safety functions, we

| Key points of the Mid-term Management Plan strategies

Three priority measures	Machine types to
promote sales
	• "All Japan series"

increase maintenance revenues as well as promote a block strategy (please refer to p. 38 for our block strategy) to become a company with a lean and streamlined business structure.

Through these initiatives, we will respond promptly to Japanese agriculture that is changing day by day. Toward the realization of "agriculture full of dreams = profitable," ISEKI Group will work on value creation, together with our customers, local communities, and our employees, to co- create sustainable agriculture.

Strategy for Sustainable Food Systems, MIDORI

Two years ago, the Ministry of Agriculture, Forestry and Fisheries formulated the "Strategy for Sustainable Food Systems, MIDORI," which strikes a balance between the improvement of production capabilities and sustainability in food, agriculture, fishery, and

The Strategy for Sustainable Food Systems, MIDORI aims to expand areas of organic farming to 25% of total cultivated land, etc., and ISEKI Group has also strengthened its initiatives with a view to expanding environmentally sound agriculture including organic farming.

ISEKI's organic rice farming technologies

Water and weed management has been a challenge for the expansion of organic rice farming. Especially in weed management, it is said to take about five times longer than conventional rice farming. The Group will aim to promote the dissemination and expansion of organic rice farming by achieving significant laborsaving in weeding work with Aigamo-Robo, an automatic weeding robot developed by Yukimai Design Co., Ltd.

Aigamo-Robo automatically moves around in rice paddies, with the water flow from its screw rolling up the

soil and make the water muddy to block sunlight. In this way it creates an environment where weeds in the water are less likely to photosynthesize. Furthermore, the soil rolled

up by Aigamo-Robo covers the seeds and sprouts, thereby suppressing the development and growth of weeds. Aigamo-Robo operates on natural energy, as it generates its own electricity with solar panels.

In 2022, demonstration was conducted in 210 locations in 100 municipalities. Demonstrations are being conducted throughout Japan this year.

The Group will work to expand organic farming with Aigamo-Robo at the center of its initiatives.

			Strengthening	• Smart agricultural machinery
		of initiatives for	• Vegetable farming machinery
Improvement of sales	large-scale farmers	• Imported implements
		Improvement of
and service provision	"Transformation"
capabilities		operating margin
	of domestic
	Strengthening	business Acceleration of
	of DX and	revenue-expenditure
	smart strategies	structural reform

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forestry industries through innovations, to respond to the global environmental issues and SDGs that are being addressed worldwide. In this strategy, various targets have been set, and specific measures will be implemented in the future.

Strategic goals (2050)

To reduce the use of agrochemicals by 50%

To reduce the use of chemical fertilizers by 30%

To expand areas of organic agriculture to 25% of total cultivated land

Assuming the expansion of environmentally sound agriculture including organic farming

Customer feedback Mr. Takashi Suda Representative Director of Gonuemon Co., Ltd.

We asked Mr. Takashi Suda, a farmer and representative director of Gonuemon Co., Ltd. in Nikaho City, Akita Prefecture, about his impression of Aigamo-Robo. Mr. Suda had used a paper-multi rice transplanter and hand-pushed weeder for weed control in his pesticide- free farming. He told us that he realized the weed suppression effect of Aigamo-Robo. In addition, he expressed the following impression.

"AS we can release Aigamo-Robo into the rice paddies to provide oxygen to the rice paddies at the plowing stage before rice planting, the growth of rice in the initial stage was good and weeding was more effective than the various weeding methods we had tried so far."

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