Kanematsu : Items Required in the Statutory Electronic Format for the Purpose of the Notice of the 130th 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 130TH ORDINARY GENERAL MEETING OF SHAREHOLDERS

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

NOTES TO THE NON-CONSOLIDATED FINANCIAL STATEMENTS·· 17

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

Number of consolidated subsidiaries:

104

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

Number of companies accounted for by the equity method:

28

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: 5 to 50 years
   Machinery, vehicles, and tools, furniture and fixtures: 4 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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1. Timing of revenue recognition
   The Group mainly sells goods such as ICT & communications equipment, security devices, mobile communication terminals, grain, meat products & seafoods, petroleum products, and aerospace- & ship-related products in the four segments of Electronics & Devices, Foods, Meat & Grain, Steel, Materials & Plant, and Motor Vehicles & Aerospace. It recognizes revenue at the time when performance obligations are delivered because customers obtain control of the goods and the performance obligations are satisfied at the time of delivery in many cases.
   With respect to service transactions such as maintenance and operation of ICT & communications systems, mainly in the Electronics & Devices segment, the Group recognizes revenue over a certain period of time for each individual contract in accordance with the fulfillment of the performance obligations of the contract.

1. Basis for recording of leases

In the event that, at the beginning of the lease contract, the Group transfers the rights governing use of specified assets over a fixed period in exchange for a consideration, said contract is deemed to be a lease or to include a lease. Leases or contracts that contain leases are recognized as lease liabilities and right-of-use assets.

On the commencement date of a lease contract, lease liabilities are measured at present value, after discounting unpaid lease payments, using the interest rate implicit in the lease or the incremental borrowing rate of the Group. After the commencement date, the book value is increased or decreased so as to reflect the interest rate on the lease liability and the lease payments made. In addition, if there is a revision to the lease term or a change in the assessment of an option, lease liability will be remeasured to be reflected in the book value. The lease term is determined by taking into consideration, during the non-cancellable period of the lease, any option to extend the lease term and any option to terminate the lease.

A right-of-use asset is measured by the acquisition cost that adjusts the initial measurement amount of lease liability on the commencement date of the lease contract mainly for initial direct costs and expenses for restoration to original state. It is amortized on a straight-line basis over the economic life of the right-of-use asset from the commencement date or when the lease term ends, whichever is shorter.

For short-term leases with a lease term of 12 months or less, the Group, applying recognition exemption, does not recognize lease liabilities and right-of-use assets, and mainly recognizes them as expenses on a straight-line basis over the lease term.

When the Group itself is the lessor in a lease, it divides leases into finance or operating leases, and treats them as follows.

1. Finance leases
   Finance leases are leases that substantially transfer all of the risks and economic benefits of asset ownership. On the day of lease commencement, the Group recognizes assets held based on finance leases in the consolidated statement of financial position, recording them as credits equivalent to net investment in the lease.
2. Operating leases
   Operating leases are leases other than finance leases. The Group recognizes assets relating to operating leases in the consolidated statement of financial position. Lease payments receivable are recognized based on a straight-line basis over the lease term, or by using some other regular standard in the consolidated statement of income.

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1. Other significant matters forming the basis for preparing consolidated financial statements

1. Foreign currency translation
2. 1. Translation of foreign currency transactions
      Foreign currency transactions are translated into functional currencies of individual companies using the exchange rates at the dates of such transactions. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated into functional currencies using the exchange rate at the end of each reporting period. Exchange differences on monetary items are recognized in profit or loss in the period in which they arise. Non-monetary items that are measured on a historical cost basis in a foreign currency are translated into the functional currency using the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated into the functional currency using the exchange rates at the date when the fair value was measured.
      With respect to the exchange differences of a non-monetary item, when a gain or loss on a non- monetary item is recognized in other comprehensive income, the Group recognizes any exchange component of that gain or loss in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognized in profit or loss, the Group recognizes any exchange component of that gain or loss in profit or loss.
   2. Translation of foreign operations
      The assets and liabilities of foreign operations, including any goodwill and fair value adjustments arising on the acquisition of foreign operations, are translated using the exchange rate at the end of the reporting period. In addition, income and expenses of foreign operations are translated using the average exchange rate for the reporting period unless exchange rates fluctuate significantly.
      Exchange differences arising from the translation are recognized in other comprehensive income, and the cumulative amount of the exchange differences is included in other components of equity. When the Group's foreign operations are disposed of, the cumulative amount of the exchange differences related to foreign operation is reclassified to profit or loss when the gain or loss on disposal is recognized.
3. Derivatives and hedge accounting
   In order to hedge the foreign currency fluctuation risk and commodity price fluctuation risk, the Group enters into derivative transactions such as forward exchange transactions, commodity futures and forwards transactions.
   When initiating a hedge, the Group designates and documents the risk management purposes and strategies regarding the hedge relationship and initiation of such hedge. Such documentation includes the designation of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and methods of assessing the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item's fair value or cash flows attributable to the hedged risk. Such hedging is assessed on an ongoing basis whether it was actually highly effective throughout the reporting periods for which such hedging was designated.
   The Group initially recognizes and measures derivatives at fair value and subsequently measures them at fair value and accounts for subsequent changes in fair value as follows:
4. 1. Fair value hedge
      The Group recognizes the changes in fair value of a derivative used as a hedging instrument in profit or loss, and the changes in fair value of a hedged item attributable to the hedged risk in profit or loss by adjusting the carrying amount of the hedged item.
   2. Cash flow hedge
      Of the changes in fair value of a derivative used as a hedging instrument, the portion determined to be effective is recognized in other comprehensive income, and the cumulative amount is included in other components of equity. Conversely, the portion determined to be
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ineffective is recognized in profit or loss. The amounts accumulated in other components of equity are reclassified from other components of equity to profit or loss in the same period that the transaction of the hedged item affects profit or loss; provided, however, that if hedging of a forecast transaction subsequently results in the recognition of a non-financial asset or liability, the amounts accumulated in other components of equity are then accounted for as an adjustment to the initial carrying amount of the non-financial asset or liability.

When the hedging instrument expires or is sold, terminated or exercised; or when the hedge no longer meets the criteria for the hedge accounting, the Group discontinues the hedge accounting prospectively. Amounts accumulated in other components of equity are retained in equity at the time of discontinuation of hedge accounting; any recognized net profit or loss on forecast transactions is recognized as net profit or loss. If, however, the forecast transaction is no longer expected to occur, the amounts accumulated in other components of equity are reclassified immediately from other components of equity to profit or loss.

(iii) Derivatives not designated as hedging instruments

The Group recognizes the changes in fair value of derivatives not designated as hedging instruments in profit or loss.

1. Retirement benefit liabilities
   Defined benefit plans are retirement benefit plans other than defined contribution plans. Defined benefit obligations are calculated separately for each plan by estimating the future amounts of benefits that employees will have earned in return for their services provided in the current and prior periods and discounting such amounts in order to determine the present value. The fair value of any plan assets is deducted from the present value of the defined benefit obligations. The discount rate is determined by reference to the market yields on highly rated corporate bonds at the fiscal year-end that have maturity terms that are approximately the same as those of the Group's defined benefit obligations and use the same currencies as those used for future benefits payments.
   When the retirement benefit plans are amended, the change in defined benefit obligations related to past service by employees is immediately recognized in profit or loss.
   The Group recognizes the changes in the net defined benefit liability (asset) due to remeasurements in other comprehensive income and immediately reclassifies them to retained earnings.
2. Application of group tax sharing system
   The Company has applied the group tax sharing system.
3. Put options granted to non-controlling interests
   With respect to the put options written on the shares of subsidiaries and granted to non-controlling interests, the Group has initially recognized the present value of its exercise amount as other financial liabilities, while deducting such exercise amount from capital surplus. The Group subsequently measures the exercise amount at its amortized cost based on the effective interest method, while recognizing its subsequent changes under capital surplus.

1-5 Changes in accounting policies

Important accounting principles applied to the consolidated financial statements of the Group have not changed from the accounting principles applied to the Group's consolidated financial statements for the previous consolidated fiscal year except for the following. The adoption of the standard below does not have any material impact on the Group's consolidated financial statements.

Standard	Name	Overview
IAS 12	Income Taxes	Clarification of accounting treatment applied to deferred taxes related to the assets and
liabilities arising from a single transaction

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1-6 Significant accounting estimates

1. Valuation of goodwill and intangible assets with indefinite useful lives

1. Amount reported on the consolidated financial statements for the current fiscal year

	(Million yen)
	As of March 31, 2024
Goodwill	16,952
Carrier shop operating rights	16,906
Impairment loss of goodwill	(16)

(Note) "Impairment loss of goodwill" is included in "other expenses" in the consolidated statement of income.

1. Information on details of significant accounting estimates for the items identified
   The carrier shop operating rights were recognized as an intangible asset with an indefinite useful life upon acquisition of the mobile business by a consolidated subsidiary of the Company.
   The method of measuring goodwill and intangible assets with indefinite useful lives are provided in "1-4 Accounting policies, (1) Valuation basis and methods for significant assets, 4) Goodwill and intangible assets" of the Notes to the Consolidated Financial Statements and "1-4 Accounting policies, (1) Valuation basis and methods for significant assets, 5) Impairment of non-financial assets" of the Notes to the Consolidated Financial Statements.
   Goodwill and intangible assets with indefinite useful lives are tested for impairment separately for each cash-generating unit, and the recoverable amount is calculated based on the value in use that is based on a future plan and the growth rates for the maximum period of five years approved by management. A cash-generating unit group is the smallest group of assets that generates cash inflows that are generally independent of the cash inflows of other assets or asset groups, based on the nature of the business and taking into consideration regional characteristics.
   Major assumptions used in the value-in-use calculations are the changes in gross profit over the relevant period, the growth rates, and the discount rates. The growth rates are determined taking into consideration the nominal GDP growth forecasts and long-term average growth rates of the countries to which these cash-generating unit groups belong.

1. Measurement of fair value of financial instruments

1. Amounts reported on the consolidated financial statements for the current fiscal year
   Financial assets measured at fair value are stated in financial instruments classified as Level 3 of the fair value hierarchy in "4-3 Breakdowns of financial instruments by level of fair value, (2) Analysis of fair value by hierarchy level" in the Notes to the Consolidated Financial Statements.
2. Information on details of significant accounting estimates for the items identified
   The information is provided in "1-4 Accounting policies, (1) Valuation basis and methods for significant assets, 1) Financial assets" of the Notes to the Consolidated Financial Statements and "4. Notes on financial instruments" of the Notes to the Consolidated Financial Statements.

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2. Notes to consolidated statement of financial position

1. Assets pledged as collateral and associated secured obligations

1. Assets pledged as collateral for obligations

				(Million yen)
			As of March 31, 2024
	Pledged assets
	Other financial assets (non-current)		25
	Property, plant and equipment		504
	Total		530
	Associated secured obligations
	Borrowings (current)		1,105
	Borrowings (non-current)		201
	Total		1,307
2) Assets pledged in lieu of guarantee money
				(Million yen)
				As of March 31, 2024
	Assets pledged in lieu of guarantee money and guarantee funds		1,045
	Other investments
	Total		1,045

1. Loss allowance directly deducted from assets
   Loss allowance directly deducted from current assets, including trade and other receivables

	¥627 million
Loss allowance directly deducted from non-current assets, including trade and
other receivables	¥2,088 million

1. Accumulated depreciation and accumulated impairment losses of property, plant and equipment ¥47,456 million
2. Contingent liabilities

1. Guarantee obligations

	(Million yen)
	As of March 31, 2024
Debt guarantees for companies accounted for by the equity method	44
Debt guarantees for third parties	1,344
Total	1,389

(Note) Debt guarantees for third parties include the debt guarantees covered by the insurance that is limited to ¥1,341 million.

1. Lawsuit
2. 1. The Company's subsidiary, Kanematsu Communications Ltd., was subject to a lawsuit brought by its business partner to the Tokyo District Court in April 2021 for damages, etc. caused by its default in connection with the transactions of communication services (the value of the subject matter of the lawsuit was ¥14,664 million). Although the court of first instance decided to wholly dismiss the plaintiff's claim in December 2023, the plaintiff filed an appeal to a higher court in January 2024, which is still pending in court at present.
   2. In May 2022, the Company was subject to a petition for damages, etc. caused by its breach of a nondisclosure agreement, etc. (in the amount of US$25 million) with the American Arbitration Association from the seller's advisor of a business investment project that we had considered acquiring in the U.S. In January 2024, however, the arbitral proceeding was officially terminated by the decision of the arbitral tribunal due to the seller's advisor's failure to follow the procedures necessary for the proceeding.
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