Kanematsu : Items Required in the Statutory Electronic Format for the Purpose of the Notice of the 129th Ordinary General Meeting of Shareholders

(Note) This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

ITEMS REQUIRED IN THE STATUTORY ELECTRONIC FORMAT

FOR THE PURPOSE OF THE NOTICE OF

THE 129TH ORDINARY GENERAL MEETING OF SHAREHOLDERS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ··········1

NOTES TO THE NON-CONSOLIDATED FINANCIAL STATEMENTS·· 18

The aforementioned items are omitted, based on the provisions of laws and regulations as well as Article 15 of the Articles of Incorporation of the Company, from the paper-based documents (the documents carrying the items required in the statutory electronic format) to be delivered to the shareholders who requested the delivery thereof.

For the purpose of this General Meeting of Shareholders, the Company sends the paper-based documents containing the items required in the statutory electronic format excluding, however, the aforementioned items, to all shareholders requesting its delivery or otherwise.

Kanematsu Corporation

Notes to the Consolidated Financial Statements

1. Notes on significant matters forming the basis for preparing consolidated financial statements 1-1 Accounting standards for preparing consolidated financial statements

The Company's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") pursuant to the provisions of Article 120, paragraph 1 of the Regulation on Corporate Accounting.

Some description and notes required to be disclosed in IFRSs are omitted under the provision of the second sentence of the same paragraph.

1-2 Scope of consolidation

Principal consolidated subsidiaries:

Kanematsu Electronics Ltd., Kanematsu Communications Ltd., Kanematsu Sustech Corporation, Kanematsu Trading Corp., Kanematsu KGK Corp., Kanematsu Petroleum Corp., Shintoa Corp., Kanematsu USA Inc.

1-3 Application of the equity method

Principal companies accounted for by the equity method:

Hokushin Co., Ltd., GLOBAL SECURITY EXPERTS Inc., AJU STEEL Co., Ltd.

1-4 Accounting policies

1. Valuation basis and methods for significant assets

1. Financial assets
   The Group classifies financial assets at initial recognition as financial assets measured at fair value through profit or loss, financial assets measured at fair value through other comprehensive income or financial assets measured at amortized cost. The Group initially recognizes financial assets measured at amortized cost on the date that they arise and the other financial assets on the transaction date.
   The Group derecognizes a financial asset when, and only when (i) the contractual rights to cash flows from the financial asset expire, or (ii) it transfers the contractual rights to cash flows and substantially all the risks and rewards of ownership of the financial asset.
2. 1. Financial assets measured at amortized cost
      A financial asset that meets both of the following conditions is classified as a financial asset measured at amortized cost:
   2. • The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and,
      • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

The Group initially recognizes and measures a financial asset measured at amortized cost at its fair value plus any transaction costs directly attributable to the acquisition of the financial asset. The Group subsequently measures it at amortized cost using the effective interest method.

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1. Financial assets measured at fair value through other comprehensive income

1. Debt instruments
   A debt instrument that meets both of the following conditions is classified as a financial asset measured at fair value through other comprehensive income:
2. • The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and,
   • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

The Group initially recognizes and measures a debt instrument measured at fair value through other comprehensive income at its fair value plus any transaction costs directly attributable to the acquisition of the financial asset. The Group subsequently measures it at fair value and recognizes the subsequent changes in fair value as other comprehensive income. When the financial asset is derecognized, the cumulative gain or loss is reclassified to profit or loss.

1. Equity instruments
   With regard to a financial asset that has been classified as a financial asset measured at fair value through profit or loss, IFRS 9 permits an entity to make an irrevocable election at initial recognition to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument that is not held for trading. The Group makes this election on an instrument-by-instrument basis.
   The Group initially recognizes and measures an equity instrument measured at fair value through other comprehensive income at its fair value plus any transaction costs directly attributable to the acquisition of the financial asset. The Group subsequently measures it at fair value and recognizes the subsequent changes in fair value as other comprehensive income. When the equity instrument is derecognized, or its fair value substantially decreases, the Group reclassifies the cumulative amount of other comprehensive income to retained earnings and not to profit or loss. Dividends are recognized in profit or loss except where they clearly form a portion of recovery of investment outlays.

1. Financial assets measured at fair value through profit or loss

A financial asset other than those classified as (a) and (b) above is classified as a financial asset measured at fair value through profit or loss.

The Group initially recognizes and measures a financial asset measured at fair value through profit or loss at its fair value and expenses the transaction costs as incurred that are directly attributable to the acquisition of the financial asset. The Group subsequently measures it at fair value and recognizes the subsequent changes in fair value in profit or loss.

1. Inventories
   Inventories are measured at the lower of cost determined mainly by the moving-average method and net realizable value.
2. Property, plant and equipment
   The Group uses the cost model to measure an item of property, plant and equipment after initial recognition and carries it at its cost less any accumulated depreciation and any accumulated impairment losses. The cost of property, plant and equipment includes the cost directly attributable to the acquisition of the asset.
3. Goodwill and intangible assets
4. 1. Goodwill
      Goodwill is carried at cost less any accumulated impairment losses.
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1. 1. Intangible assets
      The Group uses the cost model to measure an intangible asset after initial recognition and carries it at its cost less any accumulated amortization and any accumulated impairment losses.
      A separately acquired intangible asset is initially recognized and measured at cost. The cost of an intangible asset acquired in a business combination is its fair value at the acquisition date. With respect to an internally generated intangible asset that does not qualify for asset recognition, expenditures on such an internally generated intangible asset are recognized as expenses when they are incurred. Conversely, the cost of an internally generated intangible asset that qualifies for asset recognition is the sum of expenditures incurred from the date when it first meets the recognition criteria.
2. Impairment of non-financial assets
   The Group assesses at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, it estimates the recoverable amount of the asset or the cash-generating unit to which the asset belongs. Goodwill and an intangible asset with an indefinite useful life are tested for impairment annually and whenever there is an indication that such assets may be impaired. If the carrying amount of an individual asset or a cash-generating unit exceeds its recoverable amount, the carrying amount of the asset is reduced to its recoverable amount, and that reduction is recognized as an impairment loss.
   With regard to impairment losses recognized in prior periods for assets other than goodwill, the Group assesses whether, at the end of each reporting period, there is any indication that the recognized impairment loss may no longer exist or may have decreased. If any such indication exists, the recoverable amount is estimated, and if the recoverable amount exceeds the carrying amount of the asset or the cash-generating unit to which the asset belongs, the carrying amount of the asset is increased to its recoverable amount, up to the carrying amount less depreciation if no impairment loss had been recognized, and a reversal of impairment loss is recognized. Impairment losses recognized for goodwill are not reversed in subsequent periods.
   Goodwill that forms part of the carrying amount of an investment in companies accounted for by the equity method is not separately recognized and is not tested for impairment separately. If there is an indication that the investment in the companies accounted for by the equity method may be impaired, the carrying amount of the entire investment is tested for impairment as a single asset by comparing the recoverable amount to the carrying amount of the investment.

1. Depreciation and amortization method for significant depreciable and amortizable assets

1. Property, plant and equipment
   Property, plant and equipment are depreciated mainly using the straight-line method over the estimated useful life of each component thereof. The estimated useful life of each component is roughly as follows:
   Buildings and structures: 3 to 50 years
   Machinery, vehicles, and tools, furniture and fixtures: 3 to 20 years
   The depreciation method, the estimated useful life and the residual value are reviewed at the end of each reporting period and revised whenever necessary.
2. Intangible assets
   An intangible asset with a finite useful life is amortized using the straight-line method over its estimated useful life from the year in which it arises. The estimated useful life is primarily five years for software.
   The amortization method, the estimated useful life and the residual value of an intangible asset with a finite useful life are reviewed at the end of each reporting period and revised whenever necessary.
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1. Right-of-useassets
   Right-of-use assets are depreciated over the shorter of the lease term and the estimated useful life of the asset unless it is reasonably certain that the Group acquires ownership of the asset by the end of the lease term.

1. Accounting policy for significant provisions

The Group recognizes a provision when, and only when (i) the Group has a present obligation (legal or constructive) as a result of a past event; (ii) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (iii) a reliable estimate can be made of the amount of the obligation.

Where the effect of the time value of money is material, the Group recognizes the provision by discounting it using a current pre-tax discount rate that reflects the risks specific to the liability.

1. Accounting policy for revenue

1. Method of revenue recognition
   The Group recognizes revenue from contracts with customers based on the following five-step approach. In particular, when reviewing to identify whether a performance obligation is satisfied by a principal or an agent and when determining the timing at which the Group satisfies the performance obligation, the Group makes judgments that have a significant impact on the amounts recognized in the consolidated financial statements.
   Step 1: Identifying the contracts with customers
   Step 2: Identifying the performance obligations in the contracts
   Step 3: Determining the transaction price
   Step 4: Allocating the transaction price to the performance obligations in the contracts
   Step 5: Recognizing revenue when (or as) an entity satisfies the performance obligations
   When a single contract involves multiple identifiable performance obligations, the Group divides the transaction into separate performance obligations and recognizes revenue for each performance obligation. When multiple contracts must be considered as a single contract to present actual economic conditions, the Group recognizes revenue by combining the multiple contracts.
   In identifying a performance obligation, the Group reviews whether it is a principal or an agent, and if the nature of the Group's promise with the customer is a performance obligation to provide the identified goods or services itself, the Group recognizes revenue at the total amount of consideration received from the customer as a principal. On the other hand, if the performance obligation is to arrange for the identified goods or services to be provided by another party, the Group recognizes revenue at the net amount of the commission, etc. as an agent.
   In reviewing to identify whether a principal or an agent, the Group makes a comprehensive judgement based on the following indicators.
2. • Whether the Group has the principal responsibility for fulfilling the contract.
   • Whether the Group has the inventory risk both when goods are shipped and when goods are returned before and after the customer places an order for the goods.
   • Whether the Group has discretion over the setting of the price of the goods or services of the other party.

The Group measures revenue based on the consideration promised under contracts with customers, but there is no significant variable consideration.

Consideration for transactions does not include material financial elements, since it is received usually within one year after performance obligations are fulfilled.

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