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Outside Directors Message

Round-table Discussion among Outside Directors
The four outside directors and Audit & Supervisory Committee members who support SWCC's corporate transformation and growth strategy from a management monitoring standpoint spoke from their own perspectives about their assessment of the current situation and the challenges they face in further increasing value

Contributing to the promotion of Change & Growth from a neutral standpoint and by utilizing professional expertise

What is expected of an Outside Director

Sakakura: The roles required of outside directors are to monitor and supervise management execution from the perspective of corporate governance, and to contribute to medium- to long-term enhancement of corporate value by utilizing their experience and knowledge. From my career as CFO in the finance department of a general trading company and at an independent M&A advisory company, I believe that I am expected to make proposals on financial strategies, capital policies, and M&A strategies for growth.

Ichikawa: I have gained experience working mainly in the production department of a beer manufacturer. In addition to production, I have been involved in research and development, quality control, engineering and product development. I use this knowledge to monitor and supervise management operations in a wide range of areas and to offer our opinions and recommendations. I am also involved in dealing with quality issues and support appropriate improvement efforts.

Mukuno: I have worked for a long time at a material manufacturer that focused on B2B where I was involved in management planning, intellectual property/legal affairs, and marketing operations. For a total of 16 years, I have been responsible for the management of overseas subsidiaries in Europe, the U.S., and China. Based on these experiences, I would like to make recommendations in terms of pursuing a business model utilizing SWCC's elemental technologies based on an analysis of domestic and international business conditions and trends of other companies in the industry, and creating mechanisms to establish such a model.

Nishimura: I am expected to make proposals that make use of my experience in human resource development and career development, my insight as a corporate manager, and my IT field-based knowledge. Although this is my first time working in the wire and cable industry, I would like to use my experience in human capital to support SWCC reforms that are being strongly promoted under President Hasegawa.

Effectiveness of the Audit and Supervisory Committee and Board of Directors

Sakakura: SWCC adopted the system of a company with an audit and supervisory committee as part of our organizational design. As an Audit and Supervisory Committee member, I play both the role of Ddirector and Aauditor but feel that I am able to work in an organic manner thanks to the work of full-time Audit and Supervisory Committee members and secretariat staff. In the past, domestic businesses were the main subject of audits, but since the COVID-19 pandemic has subsided, we will enhance audit activities also targeting overseas businesses, including businesses in China and Vietnam, in the future.

Ichikawa: I have the impression SWCC's Audit and Supervisory Committee is very straightforward in how it operates. Committee members are able to have substantive discussions because we can provide information openly within the Company. I very much appreciate the fact that the discussions held by the committee with outside directors are not formal.

(Seiichiro Ichikawa/Outside Director, Audit and Supervisory Committee Member)
(Seiichiro Ichikawa/Outside Director, Audit and Supervisory Committee Member)

Sakakura: SWCC is a company that listens to the opinions of outside directors in various situations and tries to incorporate them. Although the Executive Management Council is the decision-making body on the executive side, outside directors also attend meetings and actively provide opinions and advice rather than mere observers in an effort to support decision-making. In addition, the Company also holds management retreats* where all executive officers and those with higher ranks discuss important management issues without distraction, helping to improve the effectiveness of the Board of Directors by providing a timely grasp of the Company's important issues.

* Management retreats: Retreats where all directors (including outside directors), executive officers, and fellows participate in intensive and constructive discussions on various management issues of the SWCC Group

(Yuji Sakakura/Outside Director, Audit and Supervisory Committee Member)
(Yuji Sakakura/Outside Director, Audit and Supervisory Committee Member)
Recent Event

Nominating and Compensation Committee activities

Sakakura: In regard to officer nomination and remuneration, SWCC is also undertaking reforms aimed at creating an effective system under the Nominating and Remuneration Committee. A performance-linked remuneration system, such as the granting of restricted shares, was introduced from the perspective of shareholders and management. In addition, with the emphasis placed on sustainable corporate growth, we are also implementing measures to reflect ESG-related indicators in executive compensation.

Ichikawa: We are just getting started with the use of ESG-related indicators and officers' remuneration. Currently, the indicators are the rate of in-house adoption of renewable energy, greenhouse gas emissions, and lost time injury frequency rate, but the weight and content of these indicators will change in accordance with the demands of society. With SWCC's unique ESG perspective, for example, the business growth of SICONEX® and SICOPLUS®, which address the needs of the electricity market for a decarbonized society, could be considered as indicators.

Sakakura: With regard to the appointment of directors, discussions have been held on topics such as the term of office of the President and the qualifications required, and the SWCC's basic approach to the succession plan has been finalized. The appointment of a manager needs to be considered from a variety of perspectives, including not only business performance but also leadership, foresight, and execution abilities. With regard to the CEO in particular, it is necessary to think about what succession should be like to grow the Company sustainably and increase shareholder value.

Ichikawa: I feel that SWCC's succession plan is wonderful.
This is because it is meticulously planned and steadily implemented from the development plan. Since candidates are narrowed down through a clearly defined process, I believe that it is possible for shareholders to select successors that are clear and without anxiety.

For increasing the corporate value of SWCC and achieving sustainable growth

Results of management reform and future transformation

Sakakura: Four years have passed since the full-scale start of our management reforms in FY2019. During this period, EBITDA, which is the basis for calculating corporate value, increased by approximately 1.5 times from the 9 billion yen level at the end of March 2019 to the 14 billion yen level at the end of March 2023. Shareholders' equity ratio improved significantly from 28.7% to 43.7% and the debt-to-equity ratio improved significantly from 1.34 to 0.61. As a result of these management reforms, the Company was able to increase shareholder return, which was a major achievement.
However, in the VUCA era, which is rapidly changing and difficult to predict, we must continue to reform in order to increase our growth potential. For example, I believe that improving productivity and operational efficiency through the promotion of DX is an important issue.

Mukuno: Since SWCC is now in the midst of a period of change in its group management structure, this is an even better time than usual to pursue operational standardization and efficiency by making full use of DX. The success or failure of DX depends on each employee. There are also great expectations for digital talent placed in each workplace, but it is necessary to change the mindset so that all employees feel that DX promotion is their own work rather than the work of others.

(Takashi Mukuno/Outside Director, Audit and Supervisory Committee Member)
(Takashi Mukuno/Outside Director, Audit and Supervisory Committee Member)

Nishimura: There are two aspects to corporate DX. One aspect is the use of digital technology to improve and streamline operations, and the other is to create new value through digital technology. As Mr. Mukuno stated, the key to accelerating these efforts and achieving success is to have a strong awareness of the importance of promoting DX among all Group employees. I would like to have as much contact as possible with the employees on the front lines and keep a close eye on how awareness of DX is spreading to each and every one of them.

Challenges to achieving Change & Growth

Sakakura: In order for SWCC to achieve continuous growth, I believe it is necessary to review the business portfolio through further penetration of ROIC management and a shift to high-profit businesses. Although SWCC offers highly competitive products such as high-performance magnet wires, I think it is necessary to increase the profit margins of these products. As part of future business investments, I think it is necessary to consider M&A that increase added value, such as expanding the scope of business downstream, not only in Japan but also in Southeast Asia and other regions overseas.

Mukuno: In terms of overseas businesses, I believe I can share a more practical way of thinking in light of my own experience. In many cases, the key to business in China, Vietnam, and Southeast Asian countries is to build relationships with central and local governments and major local companies. In addition, it may be necessary to utilize third-party products and services, such as being required to propose solutions as technology packages. I believe that we can expect significant growth if we can develop strategies and tactics tailored to local conditions by considering alliances with other companies and M&A, as well as strengthening human resources and organizations at overseas bases

Nominating and Compensation Committee activities

Ichikawa: I would like to touch upon the quality management system as a foundation for further growth. Over the past two years, SWCC has been improving its quality management system which was initiated due to quality problems at Group companies. Inappropriate behavior is said to occur when three things come together: opportunity, motivation, and justification. At SWCC, efforts to reduce opportunities for inappropriate behavior through digitalization of operations, to increase flexibility in personnel allocation, and to prevent motivation and justification from being created through the project to instill quality awareness, are progressing smoothly. As an Outside Director, I have seen improvement activities, and I think things are changing in a positive direction. Although it may be difficult to establish a quality system overnight, I would like to help so that reforms can be made as quickly as possible.

Nishimura: I would now like to talk about human capital. SWCC has expanded the scope of initiatives for diversity in human resources from promotion of women's participation to promotion of diversity and is making steady progress. In order to increase human resource diversity in the future, although it is important to recruit human resources, SWCC must be an entity that applicants want to work for. I would like to actively make proposals for the creation of a company where employees can be active and shine in their own ways so that SWCC will be perceived as a company that takes on new challenges.

(Minako Nishimura/Outside Director, Audit and Supervisory Committee Member)
(Minako Nishimura/Outside Director, Audit and Supervisory Committee Member)

Sakakura: In order for SWCC to take a leap to the next stage, it will be a great strength to create a growth vision and story that anticipates the needs of society, and continue to realize that vision, thereby increasing the number of shareholders who can be called fans of the Company over the long term. I look forward to working with the Directors, Executive Officers, and many other employees to further enhance the corporate value of SWCC, which is developing businesses necessary for the society of the future, and to help as many people as possible understand the importance of SWCC.

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