Oki Electric Industry / 6703

COVERAGE INITIATED ON: 2017.04.21 LAST UPDATE: 2019.07.26

Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg.

Research Report by Shared Research Inc. Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2019.07.26 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

INDEX

Executive Summary ------3 Key financial data------5 Recent updates ------6 Highlights ------6 Trends and outlook ------7 Quarterly trends and results ------7 Full-year company forecasts ------13 Medium-term strategy (as announced in May 2017) ------14 Business, market and value chain ------16 Business overview ------16 Business segments ------19 Strengths and weaknesses ------35 Historical results and financial statements ------36 Income statement ------36 Balance sheet ------37 Cash flow statement ------39 Historical results ------40 Other information ------54 News and topics ------54 Corporate governance, environmental, and CSR information (as of March 2018) ------56 Top Management ------57 Dividend policy ------58 Major shareholders ------58 Employees ------58 Profile ------59

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Executive Summary

Core business

◤ Since manufacturing the first domestic telephone in 1881, when it was founded, Oki Electric Industry Co., Ltd. (OKI) has focused on developing domestic telecommunication technology instead of relying on foreign products. OKI was one of four members of the Nippon Telegraph and Telephone (NTT) family (formerly a Japanese government-owned telecommunications monopoly, privatized in 1952). OKI’s sales within the NTT family have shrunk following the privatization of NTT, the opening of the domestic telecom market, and the shift of telecom networks to IP (internet protocol) technology, but the company has successfully built a customer base spanning national and local government bodies to general corporations by leveraging its audio technology in the telecom field.

◤ In the ICT segment, the company provides telecom systems and solutions to a range of industries and government agencies. The ICT segment is fueled by replacement demand from major companies. In the Mechatronics Systems segment, the company has a high domestic market share of cash-recycling ATMs (machines that use deposited cash for future withdrawals) for financial institutions and retailers. It is focusing on cash-handling machines and tapping into emerging markets overseas. In the Printers segment, key products are single and multifunction printers for the office printer market, but given the company’s low market share and high fixed costs, OKI is shifting its earnings structure to focus on specialty and professional printing markets. In the EMS segment, the company offers reliable, high-end electronics manufacturing services (EMS), while maintaining segment OPM of 5%. It expects continued EMS growth on expanded production bases and sales channels via acquisitions. While the ICT segment is the main earnings source, the company is stepping up efforts to expand the ATM business in emerging markets and pursue high-end domestic demand in the EMS segment.

◤ The company’s four segments are Information and Communication Technology (ICT), Mechatronics Systems, Printers, and Electronics Manufacturing Services (EMS). Oki works to further develop the ICT and EMS segments where the earnings base is stable, while simultaneously advancing structural reforms in the Mechatronics Systems and Printers segments.

Earnings trends

◤ By segment, ICT and EMS generate stable earnings, while Mechatronics Systems and Printers tend to be more volatile. In FY03/19, OKI had sales of JPY441.5bn (+0.8% YoY), operating profit of JPY17.5bn (+126.9% YoY), recurring profit of JPY15.5bn (+81.8% YoY), and net income attributable to owners of the parent of JPY8.4bn. Lower sales in Mechatronics Systems and Printers were balanced by higher sales in the ICT and EMS segments. In the ICT segment, sales related to social infrastructure and telecom carriers were robust, along with sales to some government agencies. In the EMS segment, sales were helped by the consolidation of OKI Electric Cable (delisted from TSE1 on March 2018). Operating profit improved YoY in all segments except the Other segment. In particular, structural reforms supported the Mechatronics Systems segment’s move into the black while improvements in fixed cost structure and impact from exchange rates contributed largely to improved operating profit in Printers.

◤ For FY03/20, the company forecasts sales of JPY450.0bn (+1.9% YoY), operating profit of JPY18.5bn (+5.6% YoY), recurring profit of JPY17.0bn (+9.8% YoY), and net income attributable to owners of the parent of JPY14.0bn (+66.6% YoY). The forecast for improvement in operating profit is based on increased profitability due to restructuring of the Mechatronics Systems and Printers segments.

Medium-term strategy

◤ The company is looking to sustain growth over the medium to long term by channeling more management resources into growth areas. Under its new medium-term business plan (released in May 2017), the company is looking to increase its earning capacity and, as key performance indicators, is targeting an operating profit margin of 6% and equity ratio of at least 30%. In terms of sales and earnings, the plan calls for sales of JPY500bn and operating profit of JPY30bn; the company is also looking to get the shareholders equity on its balance sheet up to JPY120bn and pay a stable dividend. Although the ICT segment is stable primarily due to replacement demand, the market is mature, so OKI aims to use IoT to develop social

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infrastructure-related areas into a growth market. In Mechatronics Systems, the company expects growth through overseas expansion, particularly in emerging markets. In EMS, OKI plans to grow by increasing the number of client companies and sectors, and improving value-added. In Printers, as demand in the office printer market shrinks, OKI aims to shift to a business structure with a lighter fixed cost burden. The company is looking to become a unique printer company and, toward this end, plans to leverage its advanced LED head technology and shift to a niche market strategy.

Strengths and weaknesses

Shared Research views the company’s strength as its diversified customer base in the ICT segment, its system construction tailored to customers’ workflows and designed to meet various standards, and its cash-recycling ATMs, which allow it to stand out in ATM markets in developing countries. As for its weaknesses, Shared Research thinks these are high fixed costs in the Printers segment, past inadequate management structures overseas, and a weak balance sheet.

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Key financial data

Income statement FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Sales 432,651 423,480 455,824 483,112 540,153 490,314 451,627 438,026 441,452 450,000 YoY -2.3% -2.1% 7.6% 6.0% 11.8% -9.2% -7.9% -3.0% 0.8% 1.9% Gross profit 113,858 106,541 118,417 128,477 140,506 129,064 114,233 110,576 118,827 YoY -6.1% -6.4% 11.1% 8.5% 9.4% -8.1% -11.5% -3.2% 7.5% GPM 26.3% 25.2% 26.0% 26.6% 26.0% 26.3% 25.3% 25.2% 26.9% Operating profit 6,308 11,980 13,475 27,196 32,415 18,594 2,545 7,721 17,522 18,500 YoY -3.1% 89.9% 12.5% 101.8% 19.2% -42.6% -86.3% 203.4% 126.9% 5.6% OPM 1.5% 2.8% 3.0% 5.6% 6.0% 3.8% 0.6% 1.8% 4.0% 4.1% Recurring profit 1,166 9,075 20,304 36,655 37,928 11,366 -2,366 8,515 15,477 17,000 YoY -11.7% 678.3% 123.7% 80.5% 3.5% -70.0% -120.8% -459.9% 81.8% 9.8% RPM 0.3% 2.1% 4.5% 7.6% 7.0% 2.3% -0.5% 1.9% 3.5% 3.8% Net income -31,809 1,555 13,599 27,359 33,091 6,609 4,691 5,891 8,405 14,000 YoY - -104.9% 774.5% 101.2% 21.0% -80.0% -29.0% 25.6% 42.7% 66.6% Net margin - 0.4% 3.0% 5.7% 6.1% 1.3% 1.0% 1.3% 1.9% 3.1% Per share data (JPY) Shares issued (year-end; '000) 731.0 730.8 728.0 727.8 868.5 868.4 87.2 87.2 87.2 EPS -44.0 0.3 17.2 36.2 40.0 7.6 54.0 67.9 98.3 161.8 EPS (fully diluted) ------97.0 Dividend per share - - - 3.0 5.0 5.0 50.0 50.0 50.0 50.0 Book value per share 11.4 13.4 34.4 79.3 137.7 122.9 1,115.7 1,154.0 1,155.3 Balance sheet (JPYmn) Cash and cash equivalents 80,679 79,513 36,406 50,901 53,632 47,829 54,164 48,698 29,730 Total current assets 269,694 273,888 246,994 278,522 293,629 277,630 231,506 230,420 223,206 Tangible fixed assets 53,134 52,592 57,829 56,193 57,176 56,691 44,783 52,048 49,393 Intangible fixed assets 7,791 7,026 7,655 9,600 10,240 9,637 10,891 9,952 10,457 Investments and other assets 38,201 34,557 36,843 68,196 78,311 67,816 73,544 79,356 82,446 Total assets 368,822 368,065 349,322 412,514 439,358 411,776 360,724 371,778 365,503 Accounts payable 53,942 66,307 63,416 73,312 79,053 65,477 58,685 67,124 67,465 Short-term debt 120,628 78,745 77,000 107,033 65,556 75,144 56,882 58,958 48,880 Total current liabilities 240,783 214,355 197,129 242,272 211,580 199,162 176,559 186,666 176,194 Long-term debt 37,828 63,604 48,958 19,438 48,740 55,118 37,264 31,906 41,599 Total fixed liabilities 89,179 112,457 95,567 78,322 106,362 105,228 86,949 82,967 89,108 Total liabilities 329,962 326,813 292,697 320,595 317,943 304,391 263,509 269,634 265,302 Total liabilities and net assets 368,822 368,065 349,322 412,514 439,358 411,776 360,724 371,778 365,503 Total interest-bearing debt 158,456 142,349 125,958 126,471 114,296 130,262 94,146 90,864 90,479 Cash flow statement (JPYmn) Cash flows from operating activities 1,588 22,791 -11,619 31,868 40,999 -3,573 41,967 15,578 6,364 Cash flows from investing activities -4,423 -9,392 -9,214 -13,977 -18,583 -13,762 7,588 -10,485 -12,099 Cash flows from financing activities 11,204 -17,535 -21,092 -4,270 -20,724 11,138 -43,985 -11,512 -12,971 Financial ratios ROA (RP-based) 0.3% 2.5% 5.7% 9.6% 8.9% 2.7% -0.6% 2.3% 4.2% ROE -80.7% 3.9% 28.0% 37.8% 31.8% 5.8% 4.6% 6.0% 8.4% Equity ratio 10.4% 11.2% 16.1% 21.5% 27.2% 25.9% 26.9% 26.9% 27.3% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods. Note: The company conducted a 1-for-10 reverse stock split in October 2016. Dividend forecasts take into account the reverse stock split.

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Recent updates Highlights

On July 26, 2019, Oki Electric Industry Co., Ltd. (OKI) announced earnings results for Q1 FY03/20; see the results section for details.

On July 4, 2019, Shared Research updated the report following interviews with the company.

On June 6, 2019, the company announced the transfer of shares accompanying the sale of certain businesses of its consolidated subsidiary OKI Brasil.

On the same day, the company announced that it will sell the financial, retail, and IT service businesses of consolidated subsidiary, OKI Brasil Indústria e Comércio de Produtos e Tecnologia em Automação S.A. (OKI Brasil), to the Brazilian subsidiary of NCR Corporation, NCR Brasil Ltda. Neither OKI’s manufacturing operation nor its printing business in Brazil is included in the scope of this sale.

The company’s overseas strategy for its Mechatronics Systems business entails focusing on supplying modules to partner companies. Accordingly, the company plans to continue supplying NCR Corporation with ATM modules for the Brazilian market after the subject transaction.

The selling price remains undisclosed. While the share transfer is slated for December 2019, the company does not expect this transaction to have a material impact on its FY03/20 earnings forecasts.

On May 9, 2019, the company announced earnings results for full-year FY03/19; see the results section for details.

For previous releases and developments, please refer to the News and topics section.

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Trends and outlook Quarterly trends and results

Cumulative FY03/18 FY03/19 FY 03/ 20 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1 Sales 90,431 193,974 299,979 438,026 88,948 193,576 299,316 441,452 107,617 YoY -3.0% -2.7% -1.6% -3.0% -1.6% -0.2% -0.2% 0.8% 21.0% Gross profit 21,067 45,687 73,149 110,576 23,676 50,560 79,971 118,827 25,167 YoY -14.2% -6.3% -1.2% -3.2% 12.4% 10.7% 9.3% 7.5% 6.3% GPM 23.3% 23.6% 24.4% 25.2% 26.6% 26.1% 26.7% 26.9% 23.4% SG&A expenses 24,931 49,813 75,979 102,854 24,490 49,754 74,983 101,305 24,091 YoY 4.4% 0.9% 3.1% -7.9% -1.8% -0.1% -1.3% -1.5% -1.6% SG&A ratio 27.6% 25.7% 25.3% 23.5% 27.5% 25.7% 25.1% 22.9% 22.4% Operating profit -3,864 -4,125 -2,830 7,721 -813 805 4,987 17,522 1,075 YoY - - - 203.4% - - - 126.9% - OPM - - - 1.8% - 0.4% 1.7% 4.0% 1.0% Recurring profit -3,483 -3,344 -1,731 8,515 -1,656 -849 2,802 15,477 149 YoY ------81.8%- RPM - - - 1.9% - - 0.9% 3.5% 0.1% Net income -4,753 -4,581 -5,582 5,891 -1,824 -2,579 -1,558 8,405 -369 YoY ---25.6%---42.7%- Net margin - - - 1.3% - - - 1.9% - Quarterly FY03/18 FY03/19 FY 03/ 20 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1 Sales 90,431 103,543 106,005 138,047 88,948 104,628 105,740 142,136 107,617 YoY -3.0% -2.4% 0.3% -5.9% -1.6% 1.0% -0.2% 3.0% 21.0% Gross profit 21,067 24,620 27,462 37,427 23,676 26,884 29,411 38,856 25,167 YoY -14.2% 1.8% 8.4% -6.8% 12.4% 9.2% 7.1% 3.8% 6.3% GPM 23.3% 23.8% 25.9% 27.1% 26.6% 25.7% 27.8% 27.3% 23.4% SG&A expenses 24,931 24,882 26,166 26,875 24,490 25,264 25,229 26,322 24,091 YoY 4.4% -2.4% 7.7% -29.3% -1.8% 1.5% -3.6% -2.1% -1.6% SG&A ratio 27.6% 24.0% 24.7% 19.5% 27.5% 24.1% 23.9% 18.5% 22.4% Operating profit -3,864 -261 1,295 10,551 -813 1,618 4,182 12,535 1,075 YoY - - 23.8% 391.7% - - 222.9% 18.8% - OPM - - 1.2% 7.6% - 1.5% 4.0% 8.8% 1.0% Recurring profit -3,483 139 1,613 10,246 -1,656 807 3,651 12,675 149 YoY - - -64.9% 416.7% - 480.6% 126.3% 23.7% - RPM - 0.1% 1.5% 7.4% - 0.8% 3.5% 8.9% 0.1% Net income -4,753 172 -1,001 11,473 -1,824 -755 1,021 9,963 -369 YoY - - - -31.2% - - - -13.2% - Net margin - 0.2% - 8.3% - - 1.0% 7.0% -

Source: Shared Research based on company data Note: Quarterly data derived by subtracting cumulative results for previous quarter from relevant cumulative results (e.g. Q3 figures are 1H results subtracted from cumulative Q3 results).

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Quarterly sales Quarterly operating profit

(JPYmn) (JPYmn) 500,000 20,000 17,522 18,500 438,026 441,452 450,000

400,000 15,000 138,047 142,136 7,721 12,535 300,000 10,000 106,005 105,740 10,551 200,000 5,000 4,182 103,543 104,628 1,618 1,295 1,075 100,000 0 -813 90,431 88,948 107,617 -3,864 -261 0 -5,000 FY03/18 FY03/19 FY03/20 FY03/18 FY03/19 FY03/20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Source: Shared Research based on company data

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Q1 FY03/20 results (out July 26, 2019)

Q1 FY03/20 results (April 2019 through June 2019)

▷ Sales: JPY107.6bn (+21.0% YoY)

▷ Operating profit: JPY1.1bn (operating loss of JPY813mn in Q1 FY03/19)

▷ Recurring profit: JPY149mn (recurring loss of JPY1.7bn in Q1 FY03/19)

▷ Net loss: JPY369mn (net loss of JPY1.8bn in Q1 FY03/19)

▷ Background behind increase in sales: The Information and Communication Technology (ICT) segment drove overall sales and operating performance. Meanwhile, sales decreased in the Mechatronics Systems, Electronics Manufacturing Services (EMS), and Printers segments. Network buildout for telecom carriers, select government-related business, and increased adoption of the percentage of completion method in projects contributed to strong segment performance.

▷ Background behind increase in operating profit: The biggest contributing factor was strong ICT sales growth, resulting in profits at the operating level. Additionally, restructuring efforts centering around foreign subsidiaries reduced operating losses

at the Mechatronics segment.

Quarterly performance

(JPYbn) ICT Mechatronics Systems Printers (JPYbn) ICT Mechatronics Systems Printers EMS Others YoY (right axis) EMS Others and elimination OPM (right axis) 200 183 30% 15 15% 153 7.6% 147 142 20% 9.3% 150 138 8.8% 130128 10 6.9% 7.3% 10% 113115 4.4% 4.0% 110 106106 106 106 108 3.2% 3.4% 1.5% 99 104 105 10% 5 5% 93 0.9% 0.7% 1.0%1.5% 1.2% 1.0% 90 89 0.0% -0.3% 100 -1.2% 0 0% 0% -4.3% -0.9% -5 -5% 50 -10% -10 -10%

0 -20% -15 -15% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYbn) Sales YoY (right axis) (JPYbn) Operating profit OPM (right axis)

20% 16 16% 150 12 12% 10% 9.3% 8.8% 7.3% 7.6% 100 8 6.9% 8% 0% 4.4% 3.2% 3.4% 4.0% 40.9% 4% 1.5% 0.7%1.0%1.5% 1.2% 1.0% 50 -0.3% -10% 0.0% 0 -1.2% -0.9% 0%

0 -20% -4 -4% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Source: Shared Research based on company data

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Results by segment ICT segment

Earnings performance

(JPYbn, %) Operating profit Sales (right axis) OPM (JPYbn) 20 77.1 74.5 75.2 80 65.5

15 13.2 52.8 60 11.4 42.510.4 10.8 38.7 39.540.8 10 36.5 35.2 36.636.0 37.3 40 30.3 31.2 28.8

5 20 2.6 2.5 2.5 0.5 0.3 0.5 1.5 0.9 1.4 0 0 -0.2 -0.1 -0.8 -0.5 -5 -20 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Source: Shared Research based on company data

▷ Q1 FY03/20 sales (sales to external clients; also applies to figures below): JPY52.8bn (+83.5% YoY)

▷ Operating profit: JPY2.5bn (loss of JPY524mn in Q1 FY03/19)

▷ Factors contributing to sales growth: The number of telecom carrier network buildout projects and select government-related projects increased. Additionally, wider adoption of the percentage of completion method (for project management) resulted in increased sales. Q1 sales increased by JPY8.6bn and operating profit by JPY1.8bn as a result of the change in method.

▷ Factors contributing to profit growth: The strong increase in sales resulted in increased profits.

Sales in existing markets (left) and growth markets (right)

(JPYbn) (JPYbn) Existing markets (existing base businesses) Change (left axis) Growth markets (growth businesses) Change (left axis) 250 25 222.3 207.7 200 191.2 185.0 20.0 173.4 20 163.7 170.3 150 15 14.0 100 10 9.0 50 14.6 14.7 6.0 6.6 5.0 5.0 5 4.0 4.0 0 -9.7 -17.8 -50 -31.1 0 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/17 FY03/18 FY03/19 FY03/20 Est. Est. Source: Shared Research based on company data

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Mechatronics Systems segment

Performance

20 Operating profit Sales (right axis) OPM 40 30.8 32.6 15 26.2 26.827.3 30 24.1 24.7 24.224.323.8 23.0 22.2 21.2 20.821.2 10 17.6 16.7 20

3.8 0.1 5 2.4 10 1.2 1.3 0.1 0.5 0 0 -0.3 -0.5 -0.5 -0.2 -1.5 -1.5 -1.6 -1.5 -0.7 -5 -10

-10 -20

-15 -12.7 -30 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYbn, %) (JPYbn) Source: Shared Research based on company data

▷ Q1 FY03/20 sales: JPY16.7bn (-5.2% YoY)

▷ Operating loss: JPY696mn (loss of JPY1.5bn in Q1 FY03/19)

▷ Factors contributing to sales decline: Sales fell back as the company had a large scale domestic cash handling machine project in Q1 FY03/19.

▷ Factors contributing to improvement in profitability: Operating losses narrowed as a result of restructuring efforts in foreign subsidiaries during FY03/19.

Printers segment

Performance

Operating profit Sales (right axis) OPM 8.0 40 32.7 30.232.8 30.4 6.0 28.9 27.7 28.428.7 27.526.8 27.0 30 24.9 25.225.625.925.9 22.9 4.0 20 1.7 1.9 1.4 1.4 1.6 2.0 1.0 1.1 1.2 0.50.4 0.8 0.5 0.2 0.1 10 0.0 -0.5 -0.7 0 -2.0 -1.2

-4.0 -10 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYbn, %) (JPYbn)

Source: Shared Research based on company data

▷ Q1 FY03/20 sales: JPY22.9bn (-9.2% YoY)

▷ Operating profit: JPY529mn (-71.7% YoY)

▷ Factors contributing to sales decline: The segment saw a temporary increase in consumable items sales to overseas distributors during Q1 FY03/19, which did not happen in Q1 FY03/20.

▷ Factors contributing to profit decline: Decline in sales of consumable items and stronger yen contributing to lower sales in Europe.

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EMS segment

Performance

(JPYbn, %) Operating profit Sales (right axis) OPM (JPYbn) 9 16.8 16.7 18 15.6 16.0 8 16 13.7 13.8 7 14 12.3 12.2 11.6 11.911.7 6 11.3 12 10.1 10.3 5 9.3 9.5 9.3 10 4 8 3 6

2 1.2 1.2 4 1.0 1.0 0.9 1.0 1 0.7 0.7 0.5 0.5 0.7 2 0.1 0.3 0.1 0.4 0.3 0.2 0 0 -1 -2 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Source: Shared Research based on company data

▷ Q1 FY03/20 sales: JPY13.8bn (-13.2% YoY)

▷ Operating profit: JPY227mn (-65.0% YoY)

▷ Factors contributing to sales decline: Mainly due to sluggish factory automation and semiconductor related sales.

▷ Factors contributing to profit decline: Lower volume as a result of sales decline.

Other segment

Performance

(%) Sales (right axis) Operating 6.3profit (right axis) OPM (JPYbn) 26 6

5.2 4.9 23 5 4.5 4.5 4.6 4.3 4.4 3.9 20 4

2.9 17 2.8 3 3.2 1.9 14 1.7 1.8 2 1.3 1.3 1.4 0.9 1.0 0.9 0.91.0 11 0.7 0.8 0.6 0.8 1 0.4 0.4 0.3 0.2 0.2 0.1 0.2 8 0 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 FY03/16 FY03/17 FY03/18 FY03/19 Source: Shared Research based on company data

▷ Q1 FY03/20 sales: JPY1.4bn (-0.1% YoY)

▷ Operating profit: JPY181mn (-31.7% YoY)

For previous quarterly earnings, see Historical performance section.

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Full-year company forecasts

▷ For FY03/20, the company forecasts sales of JPY450.0bn (+1.9% YoY), operating profit of JPY18.5bn (+5.6% YoY), recurring profit of JPY17.0bn (+9.8% YoY), and net income attributable to owners of the parent of JPY14.0bn (+66.6% YoY). No changes were made to the forecast as of the end of Q1 FY03/20.

▷ The forecast for improvement in operating profit is based on increased profitability due to restructuring of the Mechatronics Systems and Printers segments.

Income statement FY03/18 FY03/19 FY03/19 FY03/20 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Cons.Cons. Est. Sales 90,431 103,543 106,005 138,047 88,948 104,628 105,740 142,136 441,452 450,000 ICT 31,241 37,265 38,668 65,542 28,778 39,505 40,810 75,193 184,286 203,000 Mechatronics Systems 21,234 24,176 24,324 23,808 17,643 20,836 21,216 23,036 82,731 72,000 Printers 24,860 26,960 28,368 28,717 25,195 25,620 25,874 25,865 102,554 104,000 EMS 11,316 13,100 12,800 18,300 15,635 16,753 16,035 16,744 65,167 67,000 Others 1,778 2,071 1,695 1,914 1,804 1,299 6,712 4,000 YoY -3.0% -2.4% 0.3% -5.9% -1.6% 1.0% -0.2% 3.0% 0.8% 1.9% ICT 3.2%1.8%7.4%-12.1% -7.9% 6.0% 5.5% 14.7% 6.7% 10.2% Mechatronics Systems -4.3% -9.7% -10.7% -3.6% -16.9% -13.8% -12.8% -3.2% -11.6% -13.0% Printers -9.6% 0.7% 2.3% -5.6% 1.3% -5.0% -8.8% -9.9% -5.8% 1.4% EMS - - - - 38.2% 27.9% 25.3% -8.5% 36.7% 2.8% Others -----4.7% -7.6% -- -55.8% -40.4% Gross profit 21,067 24,620 27,462 37,427 23,676 26,884 29,411 38,856 118,827 118,827 GPM 23.3% 23.8% 25.9% 27.1% 26.6% 25.7% 27.8% 27.3% 26.9% 26.4% SG&A expenses 24,931 24,882 26,166 26,875 24,490 25,264 25,229 26,322 101,305 101,305 YoY 4.4% -2.4% 7.7% -29.3% -1.8% 1.5% -3.6% -2.1% -1.5% -1.5% SG&A ratio 27.6% 24.0% 24.7% 19.5% 27.5% 24.1% 23.9% 18.5% 22.9% 22.5% Operating profit -3,864 -261 1,295 10,551 -813 1,618 4,182 12,535 17,522 18,500 ICT -823 924 2,599 10,813 -524 1,359 2,468 11,365 14,668 14,500 Mechatronics Systems -1,521 -1,465 -1,617 -490 -1,524 -223 482 1,347 82 1,000 Printers -460 1,038 1,389 762 1,869 1,050 1,630 1,191 5,740 7,000 EMS 383 600 700 1,500 666 874 1,195 970 3,705 4,000 Others 139 463 248 358 150 121 877 - Adjustments -1,581 -1,866 -1,914 -2,321 -1,550 -1,797 -1,743 -2,462 -7,552 -8,000 YoY - - 23.8% 391.7% - - 222.9% 18.8% 126.9% 5.6% ICT - - 71.4% -17.8% - 47.1% -5.0% 5.1% 8.5% 7.3% Mechatronics Systems ------Printers - - 1,573.5% -55.8% - 1.2% 17.4% 56.3% 110.3% 22.0% EMS - - - - 73.9% 45.7% 70.7% -35.3% 65.9% 79.1% Others ----78.4%-22.7% -- -56.6% - OPM -4.3% -0.3% 1.2% 7.6% -0.9% 1.5% 4.0% 8.8% 4.0% 4.1% ICT -2.6% 2.5% 6.7% 16.5% -1.8% 3.4% 6.0% 15.1% 8.0% 7.1% Mechatronics Systems -7.2% -6.1% -6.6% -2.1% -8.6% -1.1% 2.3% 5.8% 0.1% 1.4% Printers -1.9% 3.9% 4.9% 2.7% 7.4% 4.1% 6.3% 4.6% 5.6% 6.7% EMS 3.4%4.6%5.5%8.2%4.3%5.2%7.5%5.8% 5.7%6.0% Others 7.8% 22.4% - - 14.6% 18.7% 8.3% 9.3% 13.1% - Non-operating income (expenses) 381 400 318 -305 -843 -811 -531 140 -2,045 -1,500 Financial income (expenses) 568 -129 -132 -104 160 -127 -148 -119 -- Gains (losses) on foreign exchange -183 601 190 -608 -844 -652 10 206 - - Others -4 -72 260 407 -159 -32 -393 53 -2,045 Recurring profit -3,483 139 1,613 10,246 -1,656 807 3,651 12,675 15,477 17,000 YoY -- -64.9% 416.7% - 480.6% 126.3% 23.7% 81.8% 9.8% RPM -3.9% 0.1% 1.5% 7.4% -1.9% 0.8% 3.5% 8.9% 3.5% 3.8% Extraordinary gains (losses) -704 -203 851 -332 - -725 173 -3,907 -4,459 - Income taxes 705 -217 3,434 -1,578 155 831 2,794 -1,195 -2,585 -2,585 Implied tax rate -16.8% 339.1% 139.4% -15.9% -9.4% 1,013.4% 73.1% -13.6% -23.5% -15.2% Non-controlling interests 138 20 -31 -235 -11 -8 -9 1 -27 -27

Ne t inc o me attributable to parent company shareholders -4,753 172 -1,001 11,473 -1,824 -755 1,021 9,963 8,405 14,000 YoY ----31.2% ----13.2% 42.7% 66.6% Net margin -5.3% 0.2% -0.9% 8.3% -2.1% -0.7% 1.0% 7.0% 1.9% 3.1% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.

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Medium-term strategy (as announced in May 2017) Medium-term Business Plan 2019 announced in FY03/18 OKI’s three-year Medium-term Business Plan 2019, which started in FY03/18, reflects on issues observed under the previous medium-term business plan, and sets improved earning capacity as its goal. As key performance indicators, OKI is targeting an operating profit margin of 6% and equity ratio of at least 30%. Performance targets for the final year of the plan (FY03/20) are sales of JPY500.0bn and operating profit of JPY30.0bn. The company is also looking to get the shareholders equity on its balance sheet up to JPY120.0bn and pay a stable dividend. The essential features of the plan as of the time of announcement were as follows.

▷ Key indicator is OPM: The company will be focusing on its operating profit margin as one of its key performance indicators because it is difficult to fund dividends and growth investments without stable earnings from operations. The central theme of the current business plan is to make OKI a company that can secure stable earnings and maintain an operating profit margin of 6%, by placing utmost focus on strengthening earning capacity and laying the foundation for sustained growth and evolution.

▷ Earning stability: A company that can secure stable earnings, in OKI’s definition, is a company that can handle changes in the business environment. This requires not only a well-balanced portfolio of profitable businesses, but also the ability to create next growth-drivers, the strength to endure adverse environment, and a system of corporate governance that is capable of playing offense as well as defense. Whether or not the company achieves these goals during the medium-term plan will be key

in the qualitative assessment of OKI’s progress.

▷ The plans for each segment are as follows: in ICT, to create a stable earnings base while growing new business; in Mechatronics Systems, to put the business back on the growth track; in Printers, to shift strategy with the aim of achieving stable profitability; in EMS, to grow sales and get closer to its ultimate goal of creating a JPY100bn business. Put another way, the company aims to establish a solid base for earnings with the ICT segment, work on turning around the Mechatronics

Systems and Printers segments as soon as possible, and then add to this by building up new growth business in areas such as social infrastructure and ATMs for emerging markets.

When OKI released its FY03/19 earnings results in May 2019, it also announced forecasts for FY03/20 (final year of the Medium-term Business Plan 2019), which included downward revisions to the FY03/20 sales and operating profit targets of the medium-term plan, indicating that these targets now appear difficult to achieve. In the May 2019 announcement, the company projected an OPM of 4.1% for the final year versus its initial goal of 6%. That said, OKI has improved the earnings structure of both the Mechatronics Systems and Printers segments, achieving an operating profit for the former in FY03/19 and more than doubling operating profit YoY for the latter, putting OP for Printers back in the JPY5.0bn range for the first time in four financial years.

Although achieving the targets for the final year of the medium-term plan currently appears difficult, Shared Research understands the company is approaching the earning stability it has been striving to achieve. It will be worth watching whether OKI will be able to realize a stable earnings structure from FY03/20 onward, with its mainstay business ICT segment at the core.

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Medium-term plan Income statement FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/20 (JPYmn) Cons. Cons. Cons. Cons. Init. Est. Target Vs. FY03/17 Sales 483,112 540,153 490,314 451,627 455,000 500,000 +48,373 ICT 207,700 222,300 191,174 177,391 183,000 205,000 +27,609 Mechatronics Systems 95,900 130,200 113,667 100,923 105,000 120,000 +19,077 Printers 124,831 129,271 124,647 112,389 106,000 105,000 -7,389 EMS 37,111 40,308 42,354 43,165 49,000 60,000 +16,835 Other 17,569 18,067 18,471 17,756 12,000 10,000 -7,756 YoY 6.0% 11.8% -9.2% -7.9% 0.7% 4.8% 3.4% ICT - 7.0% -14.0% -7.2% 3.2% 5.8% 4.9% Mechatronics Systems - 35.8% -12.7% -11.2% 4.0% 6.9% 5.9% Printers -3.6%-3.6% -9.8% -5.7% -0.5% -2.2% EMS - 8.6% 5.1% 1.9% 13.5% 10.7% 11.6% Other - 2.8% 2.2% -3.9% -32.4% -8.7% -17.4% Operating profit 27,196 32,415 18,594 2,545 13,000 30,000 +27,455 ICT 12,700 13,500 11,627 14,385 13,500 16,000 +1,615 Mechatronics Systems 10,700 12,400 6,017 -11,818 1,000 9,000 +20,818 Printers 5,125 6,720 1,426 1,033 1,000 7,000 +5,967 EMS 1,656 2,027 2,284 2,058 2,500 3,500 +1,442 Other 2,844 3,467 4,185 3,431 1,500 -5,500 -2,386 Adjustments -5,800 -5,700 -6,946 -6,545 -6,500 YoY 101.8% 19.2% -42.6% -86.3% 410.8% 51.9% 127.6% ICT - 6.3% -13.9% 23.7% -6.2% 8.9% 3.6% Mechatronics Systems - 15.9% -51.5% - - 200.0% - Printers - 31.1% -78.8% -27.6% -3.2% 164.6% 89.2% EMS - 22.4% 12.7% -9.9% 21.5% 18.3% 19.4% Other - 21.9% 20.7% -18.0% -56.3% -- OPM 5.6% 6.0% 3.8% 0.6% 2.9% 6.0% +5.4pp ICT 6.1% 6.1% 6.1% 8.1% 7.4% 7.8% -0.3pp Mechatronics Systems 11.2% 9.5% 5.3% -11.7% 1.0% 7.5% +19.2pp Printers 4.1% 5.2% 1.1% 0.9% 0.9% 6.7% +5.7pp EMS 4.5% 5.0% 5.4% 4.8% 5.1% 5.8% +1.1pp Other 16.2% 19.2% 22.7% 19.3% 12.5% R&D expenditures 12,959 13,755 13,317 10,275 11,500 45,000 in 3 years Capit al expenditures 10,164 11,461 11,660 8,700 12,500 45,000~55,000 in 3 years Depreciation 14,249 14,464 14,382 13,991 EBITDA 41,445 46,879 32,976 16,536 Source: Shared Research based on company data

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Business, market and value chain Business overview

Long-established company integral to the telecom industry in Japan

▷ Since OKI’s inception in 1881 when it produced the first made-in-Japan telephone, for over 130 years the company has been an integral part of Japan’s telecommunications industry, as it focused on developing technology domestically to avoid dependence on imported products. The accumulation of technology and expertise in this field has led to a stable earnings platform in its ICT segment, although relying on domestic development is one reason the company was not able to keep up with rapid changes in the telecom industry.

▷ OKI is one of the four original members of the former NTT family*, but rather than being involved with mainframes like Fujitsu (TSE1: 6702) and NEC (TSE1: 6701), it established a position in the field of terminals for data transmission. However, with changes in the business environment, including the privatization of NTT, the opening of the domestic telecom market, and the shift of telecom networks to IP, sales within the family are shrinking. OKI has therefore expanded from ICT system terminal technologies to network construction and peripheral devices.

▷ OKI’s specialization is audio technology underpinned by over 130 years of expertise beginning with telephones as well as systems that leverage its core technologies such as multi-hop wireless network technology**.

*NTT family: The Japanese government established Nippon Telephone and Telegraph Public Corporation (currently NTT Group) in 1952 to promote the spread of telephones. The public corporation worked to develop the infrastructure needed for Japan’s landlines, and a group of manufacturers with exclusive rights to supply various equipment and terminals came to be known as the NTT family. In telecom equipment, members of the NTT family other than OKI were NEC, Hitachi (TSE1: 6501), and Fujitsu. In the telecom networks space, which was OKI’s mainstay, the application of IP (internet protocol) technology in routers and switches brought about a transition to switchboards made by overseas companies that met international standards. As a result, OKI’s sales to the telecom sector shrank to JPY68.5bn in FY03/16 compared to JPY160bn in FY03/01. Sales to NTT withered to less than one-third (around JPY20bn) of total sales.

**Multi-hop wireless network: This is a wireless network that not only enables direct communication between terminals, but also allows data to be relayed across multiple terminals, making the communication area expandable. With this sort of wireless network, users are not associated with a certain cell, but can access multiple base stations. Since various wireless devices make up the networks by autonomously determining different communication routes, multi-hop wireless networks are considered to be highly reliable and can be used in smart meter networks, various sensor networks, and emergency networks in times of disaster. OKI was the first company in Japan to develop a wireless telecom unit for use in the 920MHz band. This frequency band is considered suitable for constructing networks because its high diffractiveness makes it less susceptible to obstacles.

Developed new businesses in manufacturing-related areas while generating earnings from the ICT segment

▷ In addition to ICT, OKI operates in the Mechatronics Systems, Printers, and Electronics Manufacturing Services (EMS) segments.

 Information and Communication Technology (ICT): Provides diverse telecom systems and solutions to a range of industries, with customers including major companies and government agencies. Stable earnings underpinned by replacement demand from large client companies.

 Mechatronics Systems: ATMs are the main product. OKI has 40% domestic share in a three-company oligopoly. Aims to develop new markets for and increase uptake of cash-recycling ATMs by tapping into ATM demand in emerging markets.

 Printers: Challenges are low market share in office printer market but high fixed costs. Shifting to specialty and professional printing markets.

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 Electronics Manufacturing Services (EMS): High-end contracted EMS is a high-quality, highly reliable one-stop service from design and development through production. The segment maintains OPM of around 5%. Winning new customers and new orders from existing customers; actively pursuing M&A.

New segment classifications In FY03/17 the former Info-Telecom Systems segment was split into the ICT segment and the Mechatronics Systems segment. Of the four subsegments (finance, telecom, social systems, and mechatronics systems) comprising the former Info-Telecom Systems segment, the mechatronics systems subsegment was made an independent segment, and the three remaining subsegments formed the new ICT segment. These three subsegments were also merged structurally from April 2016. The integration was necessary to move from the legacy industry-based approach to one where the company can offer all customers the technology and solutions developed in the finance, telecom, and social infrastructure divisions. For example, solutions for settlement operations can be applied not just to financial institutions but in a variety of industries including distribution and retail.

Sales by segment

(JPYbn) 740 ICT Printers Information (old segment) Telecom (old segment) EMS Others Semiconductors 689 717 720 700 654 681 182 605 585 146 138 151 600 132 151 545 540 33 37 43 114 483 490 119 27 31 54 18 500 57 443 456 40 452 441 40 29 433 423 18 18 438 163 50 138 185 186 14 19 37 42 18 7 105 160 23 16 18 33 129 43 15 400 103 31 31 48 65 86 160 125 125 139 111 112 300 125 107 109 103

200 352 347 360 373 353 359 353 330 338 302 304 305 267 261 267 293 278 266 267 100

0 FY03/01 FY03/03 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 FY03/19 Operating profit by segment

(JPYbn) ICT Printers Information (old segment) Telecom (old segment) EMS Others Semiconductors Adjustments Operating profit 40

30 2.3 12.0 32.4 28.3 27.2 29.9 3.4 27.2 20 21.6 3.0 18.6 17.5 3.8 13.5 24.0 12.0 23.8 23.4 25.9 10 19.8 10.6 18.7 17.6 15.8 15.0 6.5 14.7 6.3 7.7 14.8 7.2 10.9 0.7 5.4 7.1 8.4 3.1 1.4 2.6 2.5 0 1.5 -1.5 -1.7 -0.6 -8.2 -5.2 -5.8 -5.7 -6.9 -6.5 -7.7 -7.6 -11.5 -9.6 -10.9 -10.9 -10.3 -9.4 -6.6-8.6 -6.5 -1.0 -6.7 -6.4 -10 -7.8 -6.1 -11.9 -10.3 -20 -9.7 -27.2 -30 FY03/01 FY03/03 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 FY03/19 Sales by region

(JPYbn) 740.3 717.0 719.8 688.5 680.5 Japan North America Europe China Latin America Others 669.8 654.2 99.0 87.4 604.6 73.5 97.2 88.7 585.5 66.9 99.6 600 85.7 75.7 102.3 544.5 540.2 94.1 43.7 98.8 75.2 67.8 81.3 14.3 490.3 56.6 483.1 59.3 53.8 52.7 455.8 11.6 34.8 15.0 451.6 69.4 55.1 62.1 442.9 432.7 438.0 56.6 423.5 16.4 8.3 70.5 25.5 18.5 54.9 85.3 50.6 16.2 40.2 42.5 44.1 50.7 20.7 23.3 400 38.5 49.3 53.5 56.7 29.4 16.8 77.4 61.3 46.6 53.1 45.2 43.6 46.4 19.4 22.0 22.3 20.0 22.9 20.8 17.1 17.5 17.4 555.5 505.9 464.4 485.5 458.8 477.4 200 441.0 427.6 443.0 364.1 341.7 302.5 308.0 310.6 329.3 337.1 326.0 320.3 320.6

0 FY03/00 FY03/02 FY03/04 FY03/06 FY03/08 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 Source: Shared Research based on company data

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FY03/19 segment composition (JPYbn)

Sales Others Operating profit Others 6.7 0.9 1% 3% EMS EMS 65.2 3.7 15% 15%

ICT ICT 184.3 14.7 Printers 42% Printers 59% 102.6 5.7 23% 23%

Mechatronics Mechatronics Systems Systems 82.7 0.1 19% 0%

Source: Shared Research based on company data

Capex Depreciation R&D expenses

(JPYmn)

18,000

16,000 14,464 14,095 14,249 14,382 13,991 14,000 13,021 12,680 12,978 12,000 12,000 11,600

10,000

8,000

6,000

4,000

2,000

0

Source: Shared Research based on company data

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Business segments

Information and Communication Technology (ICT)

Segment performance

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Sales 267,397 260,708 267,179 293,034 303,600 352,505 191,174 177,391 172,716 184,286 203,000 YoY -11.5% -2.5% 2.5% 9.7% 3.6% 16.1% - -7.2% -2.6% 6.7% 10.2% % of total 60.4% 60.3% 63.1% 64.3% 62.8% 65.3% 39.0% 39.3% 39.4% 41.7% 45.1% Operating profit 14,990 14,733 18,709 23,815 23,416 25,920 11,627 14,385 13,513 14,668 14,500 YoY 113.5% -1.7% 27.0% 27.3% -1.7% 10.7% - 23.7% -6.1% 8.5% -1.1% % of total 230.3% 233.6% 156.2% 176.7% 86.1% 80.0% 62.5% 565.2% 175.0% 83.7% 78.4% OPM 5.6%5.7%7.0%8.1%7.7%7.4%6.1%8.1%7.8%8.0%7.1% Source: Shared Research based on company data Note: In FY03/17, Mechatronics Systems, which was previously a part of the former Info-Telecom Systems segment, was split off as an independent segment. Sales declined in FY03/16 because telecom carriers’ investments in existing network equipment finished in Q1. Segment overview

▷ The ICT segment is the company’s core business, with a customer base built up since the time of the company’s establishment. With its base of sensing, network, and data handling technologies cultivated since automatic switchboards were first made in Japan, OKI offers a range of solutions supporting social infrastructure, along with related products and services. It provides

customized telecom equipment (terminals) and networking for each customer.

▷ Segment businesses involve social infrastructure systems; financial, transportation, and logistics systems; defense-related systems; and IoT-related systems. The company also provides maintenance and peripheral services related to these various systems. OKI has not released a breakdown by business area, but says that no particular business area stands out from the others. However, since most of these systems have a relatively long life by their very nature, Shared Research postulates that

the maintenance and peripheral services businesses generate a relatively large proportion of earnings.

▷ As the segment covers a wide range of services and solutions, we have provided concrete examples for various industries hereunder. OKI’s businesses can be roughly categorized as those associated with public sector demand (transportation-related, national and local government-related, and defense-related solutions) and private sector demand (financial, transport, and retail-related solutions).

(1) Transportation-related solutions (including intelligent transport systems such as air traffic control systems, ETC, and VICS, and railside systems)

Air traffic control desk (communication control unit) Electronic toll collection (ETC) system

Communication control units are indispensable for realizing voice ETC systems allow vehicles on highways and toll roads to pass through communication between air traffic controllers and between controllers toll gates without stopping. An ETC system integrates a wireless and pilots. Air traffic control desks developed by OKI are installed at antenna, vehicle detection sensor, toll bar, roadside display, and lane major airports around Japan and all four Area Control Centers of the monitoring camera. There are systems for making toll booths Ministry of Land, Infrastructure, and Transport. unmanned and for monitoring and controlling multiple toll booths at the same time. Source: Company website

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(2) Solutions for national and local governments (statistics and weather forecast systems, fire department command and municipal disaster prevention radio systems)

Automated gate system River monitoring system

This unmanned, compact and ergonomically designed By using ultrasound sensors that can operate on PV power together with immigration control system confirms traveler identity using multi-hop wireless power-saving technology, water-level gauges can be fingerprints (personal identification information) when travelers installed without the need for power source installation or wiring work, enter or leave Japan. They have been installed at Narita permitting the real-time tracking of river water levels. A monitoring center International Airport (Terminals 1 and 2), Tokyo International wirelessly collects data from water-level gauges and other sensors installed at (Haneda) Airport, Chubu Centrair International Airport, and various points along rivers, and the data can be used to provide information to Kansai International Airport (North and South). neighboring residents, guide evacuations, and support other disaster prevention measures. Source: Company website

(3) Defense-related solutions (including submarine sonar systems, outdoor telecom systems, and sonobuoys) OKI has not provided information on practical applications in the area of defense. However, the core maritime and acoustics technologies the company has cultivated over many years in the telecom and defense businesses are being applied not just in defense, but also in other business areas. A range of sensors (including ultrasound, acoustic, acoustic positioning, and fiber-optic sensors) based on those maritime and acoustic technologies are being used in marine vessel IoT, coastal monitoring, maritime resource development, maritime civil engineering and construction, and disaster prevention. In recent years, there has been growing need for measures to detect the incursion of suspicious objects or people both on and under the water in order to prevent poaching in coastal fisheries and provide stronger anti-terrorism measures for critical coastal facilities (including facilities for electricity generation, airports, harbors, and oil/LNG depots). OKI is conducting trials in cooperation with companies and national and local governments to realize monitoring services using its underwater acoustics technologies and sensors.

Coastal monitoring (maritime self-defense, security/crime prevention) There is growing need for measures to detect the incursion of suspicious objects or people both on and under the water in order to prevent poaching in coastal fisheries and provide stronger anti-terrorism measures for critical coastal facilities (including facilities for electricity generation, airports, harbors, and oil/LNG depots). OKI’s underwater acoustic sensors use passive sonar to pick up sounds emitted by possible offenders, allowing 24-hour monitoring of marine vessels and divers for possible poaching by detecting engine and screw sounds and divers’ breathing. OKI is conducting trials in cooperation with companies and national and local governments to realize monitoring services using its underwater acoustics technologies and sensors. Source: Company website

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(4) Financial-related solutions (sales office, administration, and call center systems, fintech solutions)

Call center system Share of domestic call center market

Contact center system: Since the CTstage series was launched in 1996, OKI has Some of the companies adopting call center systems are steadily incorporated user requests to arrive at its latest CTstage 6Mi model and kabu.com Securities, STNet, JB Service, Asahi Kasei Pharma, the cheaper edition CTstage 6Mi Lite, along with a cloud version. The design of FM, and Chiba Bank. these products condenses the company’s expertise in Japanese contact centers. CTstage contains required functionality in an all-in-one format, so there is smooth linkage between functions, and additions can be made even after installation. It can also be run on single or multiple server configurations, offering users a high degree of freedom. Users can also adjust configuration to suit user and site counts. Source: Company website Source: Company website (Excerpted from IDC Japan’s August 2018 Domestic Unified Communications and Collaboration Market Share)

(5) Transport and retail (rail ticket machines, airline staff operation systems, automated baggage check machines)

VisIoT store business improvement support solution Service supporting efficient, improved environments in logistics business

Using OKI’s in-store image IoT system AISION, which contains image An onboard terminal (or smartphone) collects positional and dynamic sensing technology, together with proprietary AI and analytics state data, which is transmitted in packets to OKI’s Cloud Center, technologies contained in OKI’s managed cloud service EXaaS, users where the system displays current position and travel history on a can coordinate information on how many customers are waiting at digital map in an online service in order to improve the efficiency of registers with POS data to determine how many registers should be logistics operations. With the aim of improving the environment for open at a particular time to avoid waste. In addition, by estimating the delivery operations, a system function can output various forms number of registers needed based on past performance, users can including daily reports and display digital maps showing where sudden optimize the scheduling of staff shifts, forecast the number of braking and other signs of close calls occurred. customers who will approach registers based on characteristics and shopping times, and successively calculate appropriate times for the opening and closing of registers. This data can then be sent to a manager’s smartphone. Source: Company website

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Segment characteristics and profitability

▷ Segment characteristics: In the ICT segment, there is a largely fixed clientele, and OKI constructs systems suited to the business flows of its customers and in compliance with various standards. Much of the demand in this segment is replacement demand and we understand the company faces little danger of losing customers to competitors. This is because: in the voice and telecommunications systems market where OKI operates, each system has particular reliability standards that are cumbersome for most other companies; in order to boost operational efficiency, a thorough understanding of customers’ workflows is necessary when building systems, and OKI stands out for its accumulation of pertinent data; and the market is mature so few companies are trying to enter. For example, in large collaborative projects with ICT majors such as the construction of air traffic control systems, OKI is chosen for its strengths in audio technology and for its products, which can boost operational efficiency and respond to detailed customer needs. OKI also uses its sensing technologies and short-range wireless networks to develop new products and services.

▷ Seasonality: Due to the structure of the ICT segment, earnings tend to be concentrated in Q4—the fiscal year-end for government agencies and many companies in Japan. In Q4, sales are typically double those of Q1–Q3. Because of the burden of fixed costs, profits are also concentrated in Q4. COS is booked as inventories on the balance sheet in Q1–Q3, but are eliminated from assets in Q4 when sales are recorded; in the subsequent Q1, accounts receivable are collected.

▷ Lead time: In the ICT segment, projects are typically completed in a year to a year and a half. OKI says it can fairly accurately forecast the timing for booking sales on systems replacement. This is because it can approximate the customer’s replacement need at the time it receives an initial order, and makes plans to conduct bidding or work to secure orders accordingly.

▷ Profitability: Business scale and operating profit are both fairly stable. Shared Research believes this is because: most client companies are repeat customers, ensuring a steady customer base; business is mainly replacement demand in mature markets;

sales enjoy industry diversification, and replacement demand periods are staggered; and there is little danger of losing customers because most projects are for systems where multiple companies are responsible for their respective specialty areas, not generic systems. Competitors include members of the old NTT family—Fujitsu, NEC, and Hitachi.

Market trends and focus areas Existing markets: Domestic market is stable (mainly due to replacement demand) but mature, so sales growth is an issue. Maintain existing markets as cash cows

▷ Stable growth: Segment sales show slight fluctuations but appear largely stable once the impact of changes in segmentation has been excluded. There is also little deviation from the company’s initial forecasts for the financial year. The main reasons for this are that the business mainly targets a mature domestic market, primarily involving replacement demand, and the update cycle (number of years) can be forecast fairly accurately because of the fixed customer base.

▷ Cash cows: Roughly half of sales are to the public sector including the area of public transportation, and most private sector business is with financial institutions and major transport companies. The company’s products are mainly terminals used by client companies when interacting with their customers, so as long as these interactions continue, so should demand. The scale of investment also seems unlikely to shrink significantly in the private sector, except in cases where large technological changes occur, making OKI’s systems obsolete (i.e. shift to unmanned operations, establishment of a completely ticketless society, and centralization of membership and point management on personal devices such as smartphones). In the current market, demand for its systems remains stable, serving as an important earnings base for the company. In businesses where it

has a competitive advantage, OKI intends to actively invest in growth areas and be on the lookout for good acquisition candidates.

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Growth market: Growth in social infrastructure, IoT, and co-creation businesses

▷ OKI sees social infrastructure as a growth area. This is because roads and transport account for a large proportion of public sector demand, and the company can differentiate itself through the effective use of its sensing technologies (both fiber optic and acoustic) and network technologies such as multi-hop and DSRC (dedicated short-range communications, designed for automotive use).

▷ Social infrastructure demand: Currently in Japan, the deterioration of social infrastructure built soon after World War II has become an issue, and replacement demand is beginning to increase not just in the field of civil engineering, but also in the field of information and communication technology (ICT). OKI believes such demand represents a business opportunity and is prepared to actively capture ICT-related demand in association with increasing sophistication and use of IT in social infrastructure.

▷ Deterioration of social infrastructure: The Ministry of Land, Infrastructure, Transport and Tourism says the ratio of bridges, tunnels, rivers, sewerage works, ports, and other facilities in Japan for which at least 50 years have elapsed since construction is rapidly increasing. As of March 2018, about 25% of bridges (of a total of around 730,000 bridges with a length of two meters or more, excluding 230,000 with unknown construction dates), about 20% of tunnels (of a total of around 11,000 tunnels, excluding about 400 with unknown construction dates), and about 32% of river management facilities (of a total of about

10,000 facilities managed on the national level, excluding about 1,000 with unknown construction dates), were over 50 years old. These ratios are expected to rise to about 63%, 42%, and 62% respectively by March 2033. As the ratio of deteriorated facilities is only going to grow in the next 20 years or so, OKI aims to expand business by proposing solutions for the social

infrastructure field that involve IoT technologies.

▷ In addition to the aging transportation infrastructure, another new area of great interest to OKI is the V2X (Vehicle-to-Everything) market. Here, OKI is looking to roll out, for example, an infrastructure-coordinated Intelligent Transport System (ITS) service that will connect the V2X networks that are needed to fully actualize Advanced Driver Assistance Systems and modernize existing transportation infrastructure systems. Both being areas where OKI can leverage its strengths, the

company has already participated in related government-driven projects.

Image of V2X advocated by OKI

Source: Shared Research based on company data

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▷ Solutions that incorporate IoT technologies: In June 2016 the company launched a support service for making inspection reports of social infrastructure, a cloud service that helps streamline monitoring at tunnel inspection sites. In January 2017 the company launched a similar service for bridges. These services help increase workflow efficiency, provide a solution to the inadequate number of experienced inspectors, and help reduce costs. In October 2016 OKI started selling bundled products incorporating IoT technology using multi-hop wireless networks, one of its strengths, with a variety of sensors including

seismic, temperature, and CO2 sensors. Installing these products on aged infrastructure can prevent accidents and help identify correlations. The company sees aged infrastructure solutions as a growth area, and is proactively developing related products and services.

▷ Systematic social infrastructure initiatives: The company is working to provide solutions for next-generation social infrastructure in three layers. At the bottom is the device layer, where OKI leverages its expertise in sensing technology for acoustic analysis, image recognition, and radio wave analysis. The middle layer is a shared platform, which collects accurate information from the device layer and delivers this data to a service solution layer, the top layer. In the middle layer, the company offers an efficient network environment that integrates its strengths in both specialized wireless technologies and general-purpose telecom technologies. Data received from devices are sent over the 920 MHz band by multi-hop wireless or connected by DSRC (Dedicated Short-Range Communications; an open-source protocol for wireless communication similar to Wi-Fi) technology

the company developed in the former Info-Telecom Systems segment. These data are then streamlined and passed on to the general network using video compression or broadband data transmission technology. In the top layer, software measures the efficiency of business processes.

Solutions of next-generation social infrastructure

Source: Shared Research based on company materials

▷ Infrastructure-coordinated ITS service: A good example is the company’s infrastructure-coordinated ITS service that will link V2X communications to existing transportation infrastructure. V2X technology is at the heart of Advanced Driver Assistance Systems and OKI is working together with government agencies and various road-related contractors to create a system on the transportation infrastructure side capable of handling it. OKI already has ITS-related core systems up and running and is planning to roll out an infrastructure-coordinated ITS service that will provide the support infrastructure and can process all the big data needed to support Advanced Driver Assistance Systems. Transportation infrastructure-related systems and products, one of OKI’s strengths, have generated a combined total of more than JP100bn in sales for the company over the years. OKI is also well known for its skill in utilizing probe data (traffic flow data generated by automobiles). It has been involved in related projects led by Japan's Ministry of Land, Infrastructure and Transport, and is considered one of the leaders in probe data analysis, according to the company. The usefulness of probe data goes well beyond ADRS-related applications; it is also used to predict traffic jams and for early detection of reckless driving, vehicles travelling against traffic, car fires, and accidents. With the help of Dedicated Short-Range Communication technology (DSRC; wireless system that allows two-way, short-range

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communication between onboard devices and roadside devices [several meters to about 30 meters]), OKI is also planning a range of other traffic solutions services, including a payment service.

▷ Social infrastructure solutions business overseas: This is a business OKI wants to enter in the future. However, the company does not think it is possible to turn a profit within two or three years of entering an overseas market. Even in Japan it is difficult to succeed without robust technology and strong products.

Mechatronics Systems

Segment performance

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Sales ------113,667 100,923 93,542 82,731 72,000 YoY ------11.2% -7.3% -11.6% -13.0% % of total ------23.2% 22.3% 21.4% 18.7% 16.0% Operating profit ------6,017 -11,818 -5,093 82 1,000 YoY------1119.5% % of total ------32.4% - - 0.5% 5.4% OPM ------5.3% -11.7% -5.4% 0.1% 1.4% Source: Shared Research based on company data Note: In FY03/17, Mechatronics Systems, which was previously a part of the former Info-Telecom Systems segment, was split off as an independent segment.

Sales by region

(JPYbn) Japan Overseas Domestic ratio (right axis) 140 75% 80% 120.7 120 65% 65% 61% 105.7 59% 100.9 60% 52% 93.5 100 49% 85.5 82.7 76.9 45% 80 68.0 62.4 40% 60 29%

40 20% 59.3 61.1 61.7 47.5 20 40.6 41.6 39.8 42.2 34.4 0 0% FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Source: Shared Research based on company data Segment overview

▷ ATMs are main product: Starting in FY03/17, the Mechatronics Systems segment was spun off from the old Info-Telecom Systems segment. The Mechatronics Systems sales team is in charge of overseas sales operations, but the ICT sales team runs domestic sales (costs allocated between segments). ATMs (including related services) accounted for about 60% of segment sales in FY03/19. The rest was mostly cash-handling machines, change machines, and other terminals. Overseas sales (mostly of ATMs) accounted for 25% of segment sales in FY03/19.

▷ Cash-recycling ATMs: The company developed AT-100, the world’s first cash-recycling ATM (reuses deposited cash for withdrawals) in 1982. Prior to this product, when a machine ran out of cash, operations had to be paused until the machine was reloaded. The development of this machine substantially reduced operating costs for financial institutions. In Japan, cash-recycling ATMs are now widely used, but their spread has lagged overseas, particularly due to cultural differences in emerging economies (including the penetration of credit cards, counterfeiting problems, and security concerns), as well as high initial costs. One of the company’s strengths is its cash-recycling technology accumulated over many years. In 2003, targeting the Chinese market, OKI launched machines that were tailored to handle CNY banknotes (different-sized bills that are

difficult to reuse due to soft paper) and deal with counterfeits and dust, starting mass production and delivery in 2005. In 2009, targeting the global market, the company was successful in developing ATMs that could deal with the various sizes, designs, and security information of the currencies of various countries around the world. In 2011 OKI expanded the number of bill

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varieties that could be handled by the same machine from 32 to 128, and launched sales of models with coin dispensing and contactless (IC) functions. The company’s ATMs continue to evolve.

ATMs vs cash-recycling ATMs

Source: Shared Research based on company data

The growth strategy for ATMs includes maintaining existing markets, growing the number of ATMs in operation in emerging markets, expanding sales of cash-handling machines, and maximizing volume effects.

Segment characteristics and profitability

▷ Impact of demand trends: The main customers for ATMs are financial institutions and retail companies such as convenience stores both inside and outside Japan. In the domestic market, financial institution demand for ATMs and maintenance services is generally steady. Segment earnings are impacted by temporary spikes in demand for cash-handling machines (such as in

FY03/16 and FY03/17) and fluctuations in demand from the retail industry. Overseas, segment growth continued until FY03/15, driven by robust China operations, but segment operating profit has dropped since FY03/16, when sales declined as the company stopped sales to a major partner in China and cashless payments became more common in the Chinese market. As a

result, sales to China in FY03/19 dropped to about half of their peak. In addition, as OKI is manufacturing and selling ATMs through a subsidiary it acquired in Brazil, the business environment and economic conditions in Brazil must also be considered.

▷ Difference between domestic and overseas business models: Domestic and overseas markets have differing business models. As production systems are concentrated in China, the benefits of mass production easily appear. In the domestic market, OKI profits from services such as maintenance and monitoring rather than product sales. The domestic market (excluding

temporary demand) is steady, but overseas, profits are directly linked to sales and production volumes. For example, because China operations had seen continuous growth, the company had been expanding while holding some inventory, but sales volume dropped when the company stopped selling to a major partner (in FY03/16; details follow), and in FY03/17 it cut production.

Sales breakdown (JPYbn) and domestic ATM market share FY03/16 FY03/16 OKI's share of ATMs in Japan

Other overseas 7 Cash-handling machines 6% 25 Brazil 20 22% 18% OKI 40% ATM-related services 10 9% ATM China Japan Others 79 17 70 60% 69% 15% 61%

Source: Shared Research based on company data

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Market trends and focus areas Domestic market: Enhanced sales activities in the retail field and expansion of solutions business

▷ Competition: Competitors in the ATM and CD (cash dispenser) business include Hitachi-Omron Terminal Solutions (ownership: 55% Hitachi, 45% Omron (TSE1: 6645) and Fujitsu Frontech (TSE2: 6945). The domestic market is essentially an oligopoly of three companies, with OKI holding a roughly 40% share. For the domestic retail industry (such as supermarkets and convenience stores), the company is the market leader with a share of around 70%.

▷ Position: In the domestic ATM market, the number of machines installed at financial institutions (banks including Japan Post Bank) is trending sideways, so demand is mostly replacement demand. At the four major convenience stores chains (Seven-Eleven, FamilyMart, Lawson, and Ministop), there was a net increase of just 40 stores. This number was down YoY as all four chains put more energy into relocating unprofitable stores than into expanding.

▷ Business strategy: With a market share of roughly 70%, OKI is in an advantageous position for selling to the retail industry, but is not optimistic regarding the overall domestic market. The company sees declining sales to financial institutions as a risk, and aims to maintain sales by increasing sales to the retail industry. Retailers are looking for ATMs with other functions in addition to financial transactions, so OKI plans to increase the value-added aspects of its products.

▷ New business strategy in response to changes in environment: OKI will not only be providing ATMs, but will be actively pushing its one-stop "Full Outsourcing Service" (FOS) that handles everything for the ATM buyer from initial installation, to daily operation and security. Encouraged by the strong demand from users for its new FOS service, OKI is looking to

differentiate itself and plans to develop this market in conjunction with partner companies in security business.

▷ OKI is also looking to introduce a new type of coin changing machine (cash-handling machine) to retailers, strengthen its alliances and other connections with POS system vendors, and work to boost sales by creating solutions for efficient cash register operations.

Number of ATMs installed in domestic market (left: by industry, middle: three retailers, right: installed machine and store count for Seven-Eleven and Lawson)

（'000 unit） Seven Bank ATM units / Seven Eleven store count Financial institutions (excl. Japan Post Bank) （'000 unit） Seven Bank LAWSON AEON Bank Japan Post Bank 45 120 41 LAWSON ATM units / LAWSON and Natural LAWSON Convenience stores 39 40 37 120% store count 35 6 100 6 35 31 6 5 100% 28 30 3 80 26 11 11 23 2 11 25 21 2 10 80% 20 2 10 60 2 9 20 16 1 9 15 7 14 6 15 6 60% 40 11 4 4 4 23 8 21 22 10 3 18 20 6 15 17 40% 20 3 13 14 15 10 11 12 5 2 8 4 5 0 0 20% 1984 1988 1992 1996 2000 2004 2008 2012 FY00 FY05 FY10 FY15 FY00 FY05 FY10 FY15 Source: Shared Research based on each company’s data

Overseas markets: Escaping dependence on certain regions and strengthening sales in emerging markets OKI operates globally, but the hardware for banknote sorting and conveying is the same no matter the region. Banknote sorting modules are produced in Japan, while assembly and other work is concentrated in the Shenzhen China plant. With the company’s business model, it can reap mass production benefits regardless of the delivery location. In Brazil, OKI acquired a company that had its own factory, so CD machines are produced locally.

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Overseas expansion: ATMs

Source: Shared Research based on company data

Market share OKI's share of ATMs for logistics industry and OKI's share of cash recycling ATMs in China OKI's share of ATMs and CDs in China convenience stores

OKI 15% Others 30%

Others OKI 50% 50%

OKI 70% Others 85%

Source: Shared Research based on company data

▷ Competition: Competitors include Diebold (US, NYSE: DBD), NCR (US, NYSE: NCR), and Wincor Nixdorf AG (Germany, FWB: WIN) overseas. Overseas, three companies (Diebold, NCR, and Wincor Nixdorf) together hold a global market share of around

60%. Still, circumstances vary in emerging markets where the machines are not yet widespread. In Brazil, Diebold (market leader) has around 50%, OKI is the second-largest with around 25%, and a local company ranks third. In China, OKI has a market share of around 50% for ATMs (roughly 15% when including CDs). In India, where ATMs have low penetration rates,

Hitachi Omron is the market leader.

▷ Sales ratios by region: Overseas, the company is concentrating management resources on developing emerging markets with prospects for future growth. China accounts for the bulk of the company’s overseas sales. Emerging markets such as Brazil, Russia, India, and Indonesia accounted for the rest. The company said it mainly sells ATMs and maintenance services, but it plans also to focus on growing sales of cash-handling machines.

▷ China market status: When OKI developed AT21S, an ATM for the Chinese market in 2003, NCR, IBM, and Diebold held the majority of the CD (cash dispenser) machine market. OKI worked to secure orders for its cash-recycling ATM to gain a foothold and in April 2005 made its first mass-produced delivery. Thereafter, it steadily grew its share to 36,000 in FY03/15. However, in June 2015 the company halted sales to its major distributor in China, Shenzhen Yihua Computer Industrial, due to delayed product payments (CNY1.1bn) and was forced to revise its sales strategy. (Roughly half of the company’s sales had been through Shenzhen Yihua Computer Industrial, with the remainder being direct sales. In November 2015, OKI applied for mediation by the South China International Economic and Trade Arbitration Commission, and in FY03/17 booked JPY10.9bn in provision for doubtful accounts.) In light of this issue, in October 2015, OKI entered a new strategic alliance regarding the Chinese ATM business with Digital China Group (Shenzhen A: 000555). Thereafter, competition intensified as Chinese companies (including GRG Banking Equipment Co., Ltd. [Shenzhen A: 002152] and Cashway Fintech Co., Ltd. [Shanghai A: 603106]) began catching up as a result of the Chinese government’s promotion of Chinese-made products. This and progress on the shift to cashless payments blunted growth.

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▷ Markets other than China: OKI started supplying ATMs to a major Russian private bank (Alfa Bank) in 2012, Indonesia’s largest private bank (PT Bank Central Asia Tbk) in 2013, India’s largest bank, State Bank of India (partnering with a local company for maintenance services), and major banks in Malaysia in 2014. In FY03/19, about 75% of ATMs OKI sold overseas went to markets other than China.

▷ Brazil subsidiary: The company’s full-scale entry into the Brazilian market took place with the establishment of a new company called OKI Brasil S.A., spun off from the automated machinery and maintenance service businesses of Itaútec, a company under the umbrella of the major Brazilian conglomerate ITAÚ Group (banking, chemicals, electronics, etc.) This resulted from a strategic partnership agreement with the conglomerate entered in May 2013. Unlike for other regions, OKI entered Brazil through an acquisition, as setting up a new entity was assessed to be difficult. In the Brazil market, CD machines are more widespread than ATMs, and the top company Diebold (around 50%) and the number three player, a local company, do not have their own cash-recycling ATM technology, so OKI saw an opportunity to capture market share, which is why it decided to enter the market. However, due to the slowdown in the Brazilian economy, banks’ ATM investment has cooled off and profits turned sluggish. In FY03/15, the year OKI entered the market, the operating loss was over JPY3bn. There was a further widening of the operating loss to around JPY4bn in FY03/16, so the company wrote down its production equipment. There

was an operating loss of around JPY1.5‒2.0bn in FY03/17, but the Brazil subsidiary came close to moving into the black in FY03/19 after OKI won orders in FY03/17 from the largest state-owned bank, Banco do Brasil, and started to ship a recycling

cash-handling machine, TCR, to the second largest state-owned bank (Caixa Econômica Federal) and a major private bank (Banco Bradesco SA). Both improvement in the top line and restructuring focused on cost reductions contributed. In June 2019,OKI announced that it will sell the financial, retail, and IT services businesses of OKI Brasil to the Brazilian subsidiary of

competitor NCR Corporation.

Operating losses at Brazilian subsidiary

(JPYmn)

0

-5 FY2015 FY2016 FY2017 FY2018 FY2019

Source: Shared Research based on company data and IBGE

▷ Revision of business strategy: OKI is revising its business strategy for overseas markets to move away from its dependence on China, to focus more on emerging markets, and to supply modules to partner companies. The aforementioned sale of some of its Brazil businesses is also part of this new strategy. OKI aims to develop emerging markets such as India, which have ample room for growth, by injecting strategic models suited to market circumstances in those countries.

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Printers

Segment performance

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Sales 140,344 125,012 107,425 111,379 124,831 129,271 124,647 112,389 108,905 102,554 104,000 YoY -12.7% -10.9% -14.1% 3.7% 12.1% 3.6% -3.6% -9.8% -3.1% -5.8% 1.4% % of total 31.7% 28.9% 25.4% 24.4% 25.8% 23.9% 25.4% 24.9% 24.9% 23.2% 23.1% Operating profit 6,136 165 -4,343 -8,837 5,125 6,720 1,426 1,033 2,729 5,740 7,000 YoY -20.9% -97.3% - - - 31.1% -78.8% -27.6% 164.2% 110.3% 22.0% % of total 94.3% 2.6% - - 18.8% 20.7% 7.7% 40.6% 35.3% 32.8% 37.8% OPM 4.4% 0.1% -4.0% -7.9% 4.1% 5.2% 1.1% 0.9% 2.5% 5.6% 6.7% Source: Shared Research based on company data Segment overview About 70% of sales are to corporate customers. Low 2% market share. EUR/USD rate impacts profits since most of sales are to Europe

▷ In FY03/19, about 70% of sales were office printers and about 30% industrial.

▷ Wide format printers: In October 2015, the company acquired Seiko Infotech (SII, currently OKI Data Infotech) to enhance business involving wide format printers used primarily in the sign market, design business targeting the advertising and distribution industries, and medical business targeting on-site use at hospitals.

▷ Lineup: OKI makes a broad range of printers, including LED color multifunction printers (MFPs) for office documents, LED color printers for medical imaging and electronic medical records, LED monochrome printers, special A3 LED printers for packaging

and point-of-purchase displays in manufacturing and retail, wide format color inkjet printers for signboards and wallpaper, and

A0‒A1 LED MFPs for engineering diagrams and other uses.

▷ Office printer demand is shrinking and the competitive environment intensifying, so the company is tapping into specialty and professional printing markets and concentrating development resources on high value-added MFPs in existing markets.

▷ OKI is trying to construct a business model where it can profit from high-end (although small-scale) printer demand, rather than the general office printer market, which is large. However, the high-end market still accounts for only around 20% of overall sales, which is insufficient to maintain sales channels and factory utilization rates, so the company is accelerating the

shift to professional and specialty printing.

Segment characteristics and profitability

▷ LED printers: OKI’s products use LEDs as a light source, rather than lasers (the industry standard). The company developed the world’s first LED printer in 1981. LED printers are superior to laser printers for a number of reasons.

▷ Superiority of LEDs: LED printers require a simpler structure enabling more compact devices and easier maintenance (laser printers require mirrors and focal length correcting lenses); allow for faster print speeds; and enable high definition rendering (laser printers may produce blurry images due to varying focal distances). OKI aims to use its LED technology to stand out from the competition. The company shifted from single function printers (SFPs) to the growth area of multifunction printers (MFPs), but has been unable to capture a significant share of the MFP market, leaving it with the burden of supporting production systems and sales and service networks.

▷ Structural reform: In FY03/14, OKI achieved double-digit growth in sales and moved to an operating profit position (+JPY14.0bn YoY including JPY2.7bn in forex effects), as it implemented a number of initiatives to cut fixed costs (headcount reductions primarily at distributors and plants); improved design efficiency and lowered parts procurement costs; and strengthened management systems. Still, in FY03/16, operating profit fell by JPY5.3bn YoY to JPY1.4bn. The company’s new strategic products fared well, but sales of existing products, which accounted for a large share of sales, fell, and there was

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intense price competition even at low price points, leading to a tough market environment overall. This was compounded by the weakening of the euro against the US dollar.

▷ Restructuring under Medium-term Business Plan 2019: The company's first step under the current medium-term plan has been to extensively restructure its printer business with the aim of boosting profitability (earning capacity). More specifically, the company is looking to restructure its manufacturing operations and its overseas distributors, including reducing indirect labor in the US, reorganizing distributors in Europe, and reducing indirect labor at Chinese distributors in Asia. It will also work to restructure head office operations, moving quickly to beef up product development while increasing operational efficiency (reduce work volume by 20%). The company’s thinking is to offset the drop in sales and profits of office printers by reducing fixed costs and other expenses and, after creating a leaner and more efficient organization, OKI aims to get back on the growth track by expanding sales of specialty printers for industrial use.

Sales by region (JPYbn)

Europe Americas Japan Asia and others (JPYmn) 140 129.3 124.8 124.6 120 112.4 108.9 102.6 100

80

60

40

20

0 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19

Source: Shared Research based on company data Market trends and focus areas

▷ Office printer market: Segment results have been low for the past ten years. This is because of several reasons: the company’s market share for printers is low at around 2%, fixed costs are high, and OKI was late to enter the MFP market.

▷ Competitors: For printers in general, competitors include HP (NYSE: HPQ), Canon (TSE1: 7751), Seiko Epson (TSE1: 6724), and Brother (TSE1: 6448), while for MFPs, Ricoh (TSE1: 7752) and Xerox (NYSE: XRX) also compete. Competitors in wide

format inkjet printers include Roland DG (TSE1: 6789), Mimaki (TSE1: 6638), and HP.

▷ Revision of basic stance: OKI is revising its basic stance and moving from chasing sales to generating profits. It does not intend to have the same strategies, product lineup, and office locations as major competitors but instead aims to steadily grow profits from both hardware and supplies by keeping investments and fixed costs appropriate for its size.

▷ Moving from office printing to industrial printing: OKI sees high-profitability and industry-specific specialty printing, and professional printing as target markets. These target markets require that OKI adopt a niche market strategy, which means smaller lot production of a wide variety of printers designed for specialty use. For example, the company targets specialized industries with large print runs, including design printing, retail, and medical facilities, where the strength of its LED heads can come to the fore. For professional printing, it targets design and signage (including billboards) markets. The main products of OKI Data Infotech include wide format multifunction printers for computer-aided design and wide format inkjet printers for printing signs. These strategic products designed for professional printing are expected to play a major role in the company’s growth. Printing volumes in the wide format printing market are in an uptrend and environmentally friendly inks are showing particularly rapid growth, so the company plans to strengthen its lineup of relevant products and distinguish itself versus its competitors.

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Printer market

(Unit: sheets) Professional printing High speed, Approx. 10,000 market industry-use models Approx. 8,000 Office solution Color labels

Earnings model Earnings market Special color toners Approx. 5,000 Approx. 4,500 MFP Office printing market Approx. 2,500

Low end models Direction of business domain Designing and Logistics, retail, Offices Medical Others printing services institutions

Source: Shared Research based on company materials

Source: Shared Research based on company materials

Vendor share Shipment volume-based Shipment value-based (USDmn)

1. HP Inc. 34.8% 25.0%

2. Canon + Océ 22.1% 12.1%

3. Epson 13.6% 7.6%

4. Mimaki 3.0% 5.7%

5. Roland 2.7% 5.1%

Others 23.8% 44.6%

Total 100.0% 100.0%

Source: Shared Research based on company data, IDC press release, and Infotrends

EMS (Electronics Manufacturing Services)

Segment performance FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Sales 22,681 31,035 31,264 32,665 37,111 40,308 42,654 43,165 55,488 65,167 67,000 YoY - 36.8% 0.7% 4.5% 13.6% 8.6% 5.8% 1.2% 28.5% 17.4% 2.8% % of total 5.1% 7.2% 7.4% 7.2% 7.7% 7.5% 8.7% 9.6% 12.7% 14.8% 14.9% Operating profit -168 1,340 1,467 1,569 1,656 2,027 2,284 2,058 3,305 3,705 4,000 YoY - - 9.5% 7.0% 5.5% 22.4% 12.7% -9.9% 60.6% 12.1% 8.0% % of total - 21.2% 12.2% 11.6% 6.1% 6.3% 12.3% 80.9% 42.8% 21.1% 21.6% OPM -0.7% 4.3% 4.7% 4.8% 4.5% 5.0% 5.4% 4.8% 6.0% 5.7% 6.0%

Source: Shared Research based on company data Segment overview

▷ Background: The EMS segment was launched in 2002 at the company’s Honjo (Saitama) plant. As the mother plant for telephone switchboard and transmission equipment, the Honjo plant was expanded repeatedly, but then faced a significant

fall in output due to changed procurement policies at NTT. In the midst of this, OKI launched the EMS segment, developing

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capacity in printed circuit board (PCB) production and mountings, and winning the trust of customers. The company aims to expand operations by steadily capturing domestic demand.

▷ Business expansion through M&A: OKI has been working to grow production capacity and strengthen its customer base through a series of M&A. It took over the PCB business and Tsuruoka plant of Tanaka Kikinzoku Kogyo (October 2012; unlisted, currently OKI Circuit Technology head plant); the PCB business and Ome plant of Yokogawa Electric (April 2015; TSE1: 6841, currently OKI Printed Circuit’s Ome plant); and the PCB business of Nippon Avionics (TSE2: 6946; July 2016, business transfer completed at end March 2018; obtained line certification from Japan Aerospace Exploration Agency (JAXA), a customer of PCBs for the aerospace and defense industries). In FY03/19, OKI made OKI Electric Cable (delisted on March 28, 2018) a wholly owned subsidiary. Customers operate in telecom, industrial, measuring, and medical equipment markets.

Service flows and sales breakdown

Serviceサービスフロー flows Sales売上構成 breakdown

医療 Medical 情報通信 One-stop設計⼀貫受託 DMS One-stop⽣産⼀貫受託 EMS IC T

フムウア 基板実装・検査装置組⽴・検査 品質保証検査 回路設計 機構設計ＡＷ設計 基板製造部材調達 試作 Measurement 計測

Industrial

Firmware 産業 and testing and and testing and and testing and Prototyping manufacturing Artworkdesign Circuitry design Circuitry Procurement of Board mounting Quality assurance Mechanical design parts and materialsand parts Printed board circuit assembly Equipment Source: Shared Research based on company data

Segment characteristics and profitability

▷ High-end EMS: The company incorporates DMS (design manufacturing services) into traditional contracted EMS, so it offers a one-stop service from design and development through production. It acts as a factory for customers that do not own their own plants, providing them high-end EMS services. Advantages for OKI’s customers: speed up product development and

improve cash flows by concentrating development resources on core businesses such as product planning and marketing; create high value-added products with a fusion of OKI’s proprietary technologies and production expertise with customers’ own technologies and ideas; turning factory expenses such as fixed assets and capex into variable costs, to blunt the impact of

the risk of sales fluctuations.

According to the company, Tanaka Kikinzoku Kogyo sold its PCB business in light of the changing industry environment, namely shrinking domestic PCB market, and the need for business restructuring. Further, it rated OKI’s EMS business highly for its future growth potential. Yokogawa Electric said that PCB production and mountings required ongoing capital expenditures. Also, it was positive toward OKI’s EMS business potential and technological capabilities that ensure high reliability as well as its track record in multi-product manufacturing.

Japan Avionics had numerous products including ultra-multilayer printed circuit boards for industrial use and high-reliability PCBs for the aerospace and defense industries, which demand top-notch environmental resistance performance. It judged that OKI was the ideal company for the business transfer in light of its track record in relevant areas, sufficient business scale, and PCB manufacturing history in terms of technology and quality control capabilities. Japan Avionics said it was working to ensure the transfer of technology and expertise proceeded smoothly.

▷ Sales and profit trending upward: The business is continuing to grow. Operating profit has been up YoY in each year but FY03/17. Segment earnings have been on a steady uptrend: operating profit grew for six years in a row since FY03/11 and the

OPM has been above 5% since FY03/15. Since FY03/15, sales growth has accelerated, aided by customers acquired in M&A.

▷ Maintaining/increasing profitability: OKI’s EMS segment has maintained an OPM of around 5%, a relatively high margin which is difficult for a mass production EMS business to achieve. Leveraging the company’s expertise in high-mix, low-volume

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production developed at the Honjo plant, it uses enhanced testing processes to ensure high reliability and quality. The company has managed to maintain a relatively high OPM because it can handle flexible schedules and reduced production costs. In order to avoid being overly influenced by particular industries and customers, OKI has diversified its customer mix. Its target is sustainable growth. However, the company does not intend to change its high-end EMS business structure, so will not mass produce consumer goods.

EMS segment sites Contract manufacturing overview

Source: Shared Research based on company data

Other businesses

Segment performance FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Sales 13,526 15,928 17,611 18,744 17,569 18,067 18,471 17,756 7,374 6,712 4,000 YoY -52.6% 17.8% 10.6% 6.4% -6.3% 2.8% 2.2% -3.9% -58.5% -9.0% -40.4% % of total 3.1% 3.7% 4.2% 4.1% 3.6% 3.3% 3.8% 3.9% 1.7% 1.5% 0.9% Operating profit -458 1,544 2,535 3,014 2,844 3,467 4,185 3,431 988 877 0 YoY - - 64.2% 18.9% -5.6% 21.9% 20.7% -18.0% -71.2% -11.2% -100.0% % of total - 24.5% 21.2% 22.4% 10.5% 10.7% 22.5% 134.8% 12.8% 5.0% 0.0% OPM -3.4% 9.7% 14.4% 16.1% 16.2% 19.2% 22.7% 19.3% 13.4% 13.1% 0.0%

Source: Shared Research based on company data

▷ Mainly independent businesses run by subsidiaries. Products include electronic parts, power supplies, and compact precision motors. Services include reliability testing and environmental-conservation related services.

▷ Because internal sales are large, OPM appears high, but there is a mix of high-margin businesses and low-margin businesses.

Main consolidated subsidiaries ICT OKI Customer Adtech Printer OKI Data Other OKI Micro Engineering OKI Software OKI Data Infotech OKI Techno Power Systems OKI W int ech OKI Digit al Imaging OKI Engineering Shizuoka OKI OKI Data Americas OKI Europe OKI Data Manufacturing (Thailand) Mechatronics Systems Japan Business Operations EMS Nagano OKI OKI Electric Industry (Shenzhen) OKI Printed Circuits OKI Banking Systems (Shenzhen) OKI Communication Systems OKI Brasil OKI Circuit Technology OKI IDS Source: Shared Research based on company data

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Strengths and weaknesses

Strengths

ICT segment generates operating profit of around JPY10bn due to a diversified customer base The ICT segment generates steady earnings, with an OPM of around 6%. This is underpinned by a diverse customer base of major companies and government agencies. The segment generates operating profit of over JPY10bn, which is an important source of funds for future growth. Excluding the temporary demand for digitalizing fire departments’ wireless communication systems, the company has reduced its dependence on specific industries, and replacement demand is likely to continue.

Builds systems tailored to customers’ workflows and meeting various standards The ICT segment is supported by OKI’s systems that are built to suit customers’ workflows and meet various standards. OKI has developed repeat customers over many years by working with them to build suitable systems, and it has gained the experience to make workflows more efficient and deal with regulations and standards for various workplaces. As a result, the company has developed expertise in specialized areas, enabling it to participate in major projects involving numerous companies, such as air traffic control system projects. In call center systems, the company holds a domestic market share of around 30%. As a result of this expertise, the ICT segment accounts for over 40% of consolidated operating profit (FY03/19) and maintains OPM of 6–8%.

Cash-recycling ATMs, a tool for standing out in emerging markets OKI’s long-term growth driver is cash-recycling ATMs. OKI was the first company in the world to develop and commercialize the product in 1982. Asian companies are working to develop similar products, but OKI and two other Japanese companies are still in a leading position due to their cash-handling machines that offer both speed and reliability in an area with no room for errors. OKI aims to develop emerging markets where ATM penetration is low, leveraging its conveyer technology (can handle various types of bills) and reliable authentication technology (based on various security information).

Weaknesses

Heavy fixed costs in Printers segment Overseas markets account for around 75% of sales in the Printers segment (roughly 40% Europe, 20% US). Roughly 70% of segment sales are to corporate customers, but OKI only has about 2% share of this market. Competition is fierce in the office printer market and fixed costs are high (for sales, maintenance, and development teams). The company is focusing on profits rather than chasing sales and is trying to shift its focus to professional printing, including design, advertising, distribution, and medical markets, but this will require it to review its sales channels. Further, the company’s factories in Thailand and Shenzhen China are suited to the current production levels, so a sudden adjustment in production would be difficult.

Overseas inadequate management structures Problems remain in management structures overseas––including improper accounting at a Spanish subsidiary and substantial uncollected accounts receivable in China. In addition, the number of affiliates has increased both inside and outside Japan as the company works to expand operations, causing the amount of loans and other debt to increase 50% YoY in FY03/19. OKI is considering countermeasures to strengthen the management structure of group companies.

Weak balance sheet Restructuring over the years (associated extraordinary losses of around JPY120bn since FY03/00 including JPY22.4bn in losses due to revising retirement benefit schemes) led the shareholders’ equity ratio to fall to as low as 10% in FY03/11. Subsequently, earnings recovery, yen depreciation, and the lowering of restructuring expenses saw the equity ratio improve to 27% in FY03/19, but the company still had more than JPY90.0bn in interest-bearing debt. It expects further capital demands to expand businesses and reorganize the Printers segment.

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Historical results and financial statements Income statement

Income statement FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 442,949 432,651 423,480 455,824 483,112 540,153 490,314 451,627 438,026 441,452 YoY -18.7% -2.3% -2.1% 7.6% 6.0% 11.8% -9.2% -7.9% -3.0% 0.8% Cost of sales 321,646 318,793 316,939 337,406 354,635 399,647 361,250 337,393 327,450 322,624 Gross profit 121,302 113,858 106,541 118,417 128,477 140,506 129,064 114,233 110,576 118,827 YoY -9.3% -6.1% -6.4% 11.1% 8.5% 9.4% -8.1% -11.5% -3.2% 7.5% GPM 27.4% 26.3% 25.2% 26.0% 26.6% 26.0% 26.3% 25.3% 25.2% 26.9% SG&A expenses 114,793 107,549 94,560 104,942 101,281 108,090 110,469 111,688 102,854 101,305 SG&A ratio 25.9% 24.9% 22.3% 23.0% 21.0% 20.0% 22.5% 24.7% 23.5% 22.9% Operating profit 6,508 6,308 11,980 13,475 27,196 32,415 18,594 2,545 7,721 17,522 YoY -1134.7% -3.1% 89.9% 12.5% 101.8% 19.2% -42.6% -86.3% 203.4% 126.9% OPM 1.5%1.5%2.8%3.0%5.6%6.0%3.8%0.6%1.8%4.0% Non-operating income (expenses) 1,109 1,108 1,046 9,442 12,176 8,092 1,180 1,181 3,564 2,419 Non-operating expenses 6,170 5,287 4,112 3,003 2,522 2,357 8,364 6,558 2,770 4,464 Recurring profit 1,320 1,166 9,075 20,304 36,655 37,928 11,366 -2,366 8,515 15,477 YoY -118.3% -11.7% 678.3% 123.7% 80.5% 3.5% -70.0% -120.8% -459.9% 81.8% RPM 0.3%0.3%2.1%4.5%7.6%7.0%2.3%-0.5%1.9%3.5% Extraordinary gains 474 10888 4346 3461 1102 225 2134 21602 2512 2396 Extraordinary losses 4119 42176 7828 5131 5995 621 1811 5563 2900 6855 Income taxes 1407 1619 3411 4762 4214 5365 6412 9235 2344 2585 Implied tax rate -60.5% -5.4% 61.0% 25.6% 13.3% 14.3% 54.9% 67.5% 28.8% 23.5% Minority interests 103 68 627 273 187 -924 -1,332 -254 -108 27 Net income -3,836 -31,809 1,555 13,599 27,359 33,091 6,609 4,691 5,891 8,405 YoY -91.7% 729.2% -104.9% 774.5% 101.2% 21.0% -80.0% -29.0% 25.6% 42.7% Net margin -0.9% -7.4% 0.4% 3.0% 5.7% 6.1% 1.3% 1.0% 1.3% 1.9% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.

▷ Large drops in sales in FY03/16 and FY03/17: In FY03/16, in Mechatronics Systems, OKI faced difficulty collecting accounts receivable from a Chinese partner distributing ATMs, and in FY03/17, it booked JPY10.9bn in provision for doubtful accounts,

causing the segment to fall into the red.

▷ Operating profit up in FY03/18: Operating profit increased on the success of restructuring in the various segments. Particularly helpful were the move to end dependence on China and expand operations in emerging markets, along with restructuring of Mechatronics Systems to optimize business scale.

Factors in variations in operating profit

(JPYbn) Changes in volume and product mix Price declines Procurement cost reductions and value engineering Forex Fixed costs Others Semiconductors Corrections in Printers business Operating profit

30.0

5.1 20.0

15.0 1.0 2.7 8.0 10.0 3.5 3.5 5.0 3.5 4.0 1.0 3.0 3.5 3.5 7.0 5.5 3.0 4.5 2.5 6.5 2.0 0.0 1.5 1.5 2.5 2.5 2.5 2.0 -2.5 -3.0 -2.0 -2.5 -2.5 -0.4 -1.0 -5.0 -8.5 -2.5 -3.5 -3.0 -7.5 -3.5 -12.5 -4.0 -2.5 -10.0 -3.5 -2.0 -1.5 -3.0 -6.4 -4.0 -20.0

-30.0 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Source: Shared Research based on company data

▷ Forex impact: Mechatronics Systems and Printers are particularly susceptible to forex fluctuations. The impact of foreign exchange rates on operating profit is as follows: a JPY1 appreciation against the EUR decreases operating profit by around JPY300mn, and against the USD increases operating profit by around JPY300mn. If the euro and the dollar move in tandem, the impact is essentially canceled out.

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Balance sheet

Balance sheet FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. ASSETS Cash and deposits 57,844 45,959 45,193 29,904 46,901 53,632 47,829 54,164 48,698 29,730 Notes and accounts receivable 118,324 113,729 112,137 123,886 133,383 137,895 135,910 101,572 97,936 106,672 Operational investment securities Inventories 62,825 64,943 68,226 74,961 85,284 86,054 79,468 62,581 60,204 64,607 Others 26,704 43,437 53,661 19,209 15,135 14,341 15,987 15,112 18,037 22,454 Allowance for doubtful accounts -1,588 -1,150 -12,325 -7,600 -8,684 -7,940 -8,314 -7,377 -132 -257 Total current assets 268,117 273,064 273,888 246,994 278,522 293,629 277,630 231,506 224,743 223,206 Total tangible fixed assets 56,155 53,134 52,592 57,829 56,193 57,176 56,691 44,783 52,048 49,393 Total intangible fixed assets 10,060 7,791 7,026 7,655 9,600 10,240 9,637 10,891 9,952 10,457 Investment securities 37,369 28,845 26,418 28,570 32,634 38,432 32,604 49,576 48,760 43,621 Long-term loans Others 15,364 11,848 9,314 9,209 36,390 40,699 36,030 35,939 50,930 58,201 Allowance for doubtful accounts -3,427 -2,492 -1,175 -936 -828 -820 -818 -11,971 -19,924 -19,376 Investments and other assets 49,306 38,201 34,557 36,843 68,196 78,311 67,816 73,544 79,766 82,446 Total fixed assets 115,523 99,127 94,176 102,328 133,991 145,728 134,145 129,218 141,768 142,296 Total assets 383,640 372,192 368,065 349,322 412,514 439,358 411,776 360,724 366,512 365,503 LIA BILITIES Notes and accounts payable 54,930 53,923 66,307 63,416 73,312 79,053 65,477 58,685 67,124 67,465 Short-term debt 127,430 118,063 76,635 75,192 104,478 63,329 72,692 56,882 58,958 48,880 Income taxes payable Others 47,405 51,123 71,413 58,521 64,482 69,198 60,993 60,992 60,579 59,849 Total current liabilities 229,765 223,109 214,355 197,129 242,272 211,580 199,162 176,559 186,661 176,194 Long-term debt 45,036 37,828 63,604 48,958 19,438 48,740 55,118 37,264 31,906 41,599 Deferred tax assets 0 0 0 1,942 18,307 19,340 13,742 14,683 11,782 9,945 Others 44,028 51,351 48,853 44,667 40,577 38,282 36,368 35,002 34,017 37,564 Total fixed liabilities 89,064 89,179 112,457 95,567 78,322 106,362 105,228 86,949 77,705 89,108 Total liabilities 318,829 312,288 326,813 292,697 320,595 317,943 304,391 263,509 264,367 265,302 Net assets Capital stock 76,940 44,000 44,000 44,000 44,000 44,000 44,000 44,000 44,000 44,000 Capital surplus 46,744 113,124 21,554 21,554 21,554 21,554 21,673 19,799 19,795 19,057 Retained earnings -63,534 -90,536 -20,968 -7,788 18,382 41,989 44,255 44,434 45,983 51,785 Treasury stock -408 -23 -38 -399 -432 -453 -468 -477 -563 -997 Shareholders' equity 59,742 66,565 44,548 57,367 83,504 107,090 109,460 107,756 109,215 113,845 Valuation difference on marketable securities 2,095 -1,988 -1,815 2,192 4,333 8,291 4,642 5,337 6,578 2,816 Foreign currency translation adjustments -3,440 -4,238 -632 -2,829 -10,358 -10,433 -12,835 -11,702 -12,203 -10,884 Others -1,926 -7,132 -3,343 -1,215 5,310 12,616 -2,648 -10,783 -8,944 -13,771 Minority Interests 6,994 470 46 473 3,104 1,708 572 242 1,873 126 Total net assets 64,810 59,903 41,251 56,625 91,918 121,414 107,384 97,215 102,144 100,200 Total liabilities and net assets 383,640 372,192 368,065 349,322 412,514 439,358 411,776 360,724 366,512 365,503 Working capital 126,219 124,749 114,056 135,431 145,355 144,896 149,901 105,468 91,016 103,814 Total interest-bearing debt 172,466 155,891 140,239 124,150 123,916 112,069 127,810 94,146 90,864 90,479 Net debt 114,622 109,932 95,046 94,246 77,015 58,437 79,981 39,982 42,16660,749 Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.

▷ Asset scale: Sales expanded from FY03/13 to FY03/15 on contributions from Mechatronics Systems. Excluding FY03/14‒ FY03/16, when that impact was felt, total assets have been stable in the JPY350–400bn range.

▷ Working capital: OKI has focused on improving its balance sheet since FY03/10, and has worked to recover accounts receivable and reduce inventories. The cash conversion cycle (CCC; number of days between procurement and receipt of cash from sales) has improved as a result. In FY03/16, there was an impact from the uncollected accounts receivable in China, after which in FY03/17, OKI undertook a structural review of its inventory position. As an example, the company has reduced small-scale storage locations used to hold inventories, and expanded its factory truck yards to increase direct deliveries from the factory. It has also arranged kitting locations for externally procured products. In the Printers segment, shipment of products from factories in Thailand and China ship to their destinations (Europe, US) causes around one month of seaborne inventory, so OKI is working to reduce inventories through improvement in supply chain management. In FY03/19, as sales expanded, working capital increased, allowing it to cover costs with funds in hand.

▷ Allowance for doubtful accounts: In FY03/17, OKI provisioned for an allowance for doubtful accounts to cover the uncollected accounts receivable at Yihua Computer Industrial; since that time the level of allowance for doubtful accounts has remained unchanged.

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▷ Interest-bearing debt: OKI has been shrinking its debt for the past 10 years. Until about FY03/13, it maintained net debt of about JPY100.0bn, but from FY03/16 onward, OKI raised the pace of restructuring efforts and changed its focus from expanding operations to profitability. In FY03/19, making OKI Electric Cable a wholly owned subsidiary was a factor for debt increase, but basically OKI is focusing on cultivating the market for the ICT segment, while also searching for a direction for Mechatronics Systems and Printers in light of paperless and cashless trends.

Net debt

(JPYbn) (JPYbn) Short-term debt and CPs Long-term debt Net debt (a; right axis) Cash and cash equivalents Net debt Non-operating financial expenses (b) 200 172 b / a (average of beginning and end of year) 300 152 5 150 136 121 119 122 108 106 78 87 90 100 83 82 0 64 64 71 200 63 30 23 42 50 66 74 54 56 55 45 51 57 59 49 -5 0 30 100 36 51 54 48 54 49 75 80 50 81 -10

100 -15 0

Source: Shared Research based on company data

Cash conversion cycle

Accounts receivable days Days in inventory Accounts payable days Working capital efficiency 360 320 280 71 240 68

200 82 77 82 84 74 78 77 70 76 160 77 119 113 108 109 113 120 102 100 106 81 79 80 40 98 101 100 94 97 92 102 96 83 85 0 -40 -61 -62 -69 -70 -70 -70 -73 -67 -80 -120 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19

Source: Shared Research based on company data

Shareholders’ equity

(JPYbn) Capital stock Capital surplus Retained earnings Treasury stock Foreign currency translation adjustments Remeasurements of defined benefit plans Other valuation and translation adjustments Shareholders' equity Equity ratio (right axis) 200 35% 160 30% 120 25% 80 40 20%

0 15% -40 Issued preferred stock and raised JPY30bn in Dec. 10% -80 2010. All the preferred shares were converted to 5% -120 common stock in FY03/15, increasing the number of shares issued by 140,737,358. -160 0% FY03/10 FY03/12 FY03/14 FY03/16 FY03/18

Source: Shared Research based on company data

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Cash flow statement

Cash flow statement FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cash flows from operating activities (1) 51,290 1,588 22,791 -11,619 31,868 40,999 -3,573 41,967 15,578 6,364 Pretax profit -2,325 -30,122 5,593 18,634 31,762 37,532 11,689 13,673 8,128 11,018 Depreciation 15,515 14,095 12,680 13,021 14,249 14,464 14,382 13,991 12,978 12,367 Increase (decrease) in accounts receivable -692 -12,563 7,418 3,487 5,009 8,693 -8,743 30,440 5,576 -6,823 Increase (decrease) in inventories 16,256 -3,478 -3,079 -1,307 -371 3,905 3,539 15,515 3,296 -4,529 Increase (decrease) in accounts payable 3,475 4,046 11,018 -17,963 -3,075 -8,906 -4,784 -1,040 7,593 -418 Cash flows from investing activities (2) -12,992 -4,423 -9,392 -9,214 -13,977 -18,583 -13,762 7,588 -10,485 -12,099 Purchase of tangible fixed assets -8,043 -6,535 -8,757 -11,881 -7,771 -10,598 -11,598 -8,773 -6,801 -9,486 Purchase of intangible fixed assets -2,321 -2,237 -2,282 -2,977 -3,664 -3,931 -2,630 -5,194 -2,638 -3,908 Purchase, sale, and redemption of investment securities -895 797 2,552 4,809 446 319 2,680 3,081 229 670

Increase (decrease) in loans (net; short- and long-term) Free cash flow (1+2) 38,298 -2,835 13,399 -20,833 17,891 22,416 -17,335 49,555 5,093 -5,735 Cash flows from financing activities -31,323 11,204 -17,535 -21,093 -4,270 -20,724 11,138 -43,985 -11,512 -12,971 Change in short-term debt -15,878 8,795 -20,405 571 -2,056 -12,442 6,622 -13,360 -598 -6,896 Change in long-term debt -2,497 -27,782 4,696 -18,542 -772 -1,177 9,288 -22,418 -3,894 2,899 Acquisition of treasury stock 0000000000 Dividends paid 0 0 0 -1,321 -1,032 -4,917 -4,314 -4,317 -4,322 -2,601 Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.

▷ Expansion of Mechatronics Systems: In FY03/13 free cash flows declined, but this was due to a decrease in operating cash flows brought on by efforts to expand the Mechatronics Systems business around that time. In FY03/15, the Brazilian subsidiary was newly consolidated.

▷ Impact of ATM business in China: In FY03/16, Oki’s ATM business in China became unsettled when the company faced difficulty collecting accounts receivable from a major Chinese distributor Yihua Computer Industrial. In the ICT segment, there

was a drop off in demand for existing carrier networks and for fire department wireless digitalization, and operating cash flows fell as performance stagnated. Operating cash flows recovered in FY03/17 as the company provisioned for doubtful accounts associated with the ATM business in China in FY03/16.

▷ Structural reform largely completed for now: Since FY03/18, the ICT business has been solid, particularly in Japan, and the structural reform of Mechatronics Systems and Printers has proceeded, so operating cash flows have been robust. In FY03/19, OKI made OKI Electric Cable a wholly owned subsidiary, increasing the cash flows used in investing activities.

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Historical results

Full-year FY03/19 results (out May 9, 2019)

FY03/19 results (April 2018 through March 2019)

▷ Sales: JPY441.5bn (+0.8% YoY)

▷ Operating profit: JPY17.5bn (+126.9% YoY)

▷ Recurring profit: JPY15.5bn (+81.8% YoY)

▷ Net loss: JPY8.4bn (+42.7% YoY)

▷ Background behind increase in sales: Higher sales in the Information and Communication Technology (ICT) and Electronics Manufacturing Services (EMS) segments covered for sluggishness in the Mechatronics Systems and Printers segments, and resulted in a slight increase in overall sales. Strong performance in social infrastructure-related sales and sales to telecom carriers and some government agencies drove overall sales increase in the ICT segment while the consolidation of OKI Electric Cable contributed to the EMS segment’s rise in sales. On the other hand, the difference in consolidated financial periods between the company and its Brazilian subsidiary and business area revisions due to structural reforms caused sales to drop in the Mechatronics Systems segment while the impact of large projects from FY03/18 caused a reactionary decline in sales in the Printers segment.

▷ Background behind increase in operating profit: Operating profit improved YoY in all segments except for the Other segment. In particular, structural reforms supported the Mechatronics Systems segment’s move into profitable territory while improvements in fixed cost structure and positive impact of exchange rates contributed largely to improved operating profit in the Printers segment.

Quarterly performance

(JPYbn) ICT Mechatronics Systems Printers (JPYbn) ICT Mechatronics Systems Printers EMS Others YoY (right axis) EMS Others and elimination OPM (right axis) 200 183 20% 180 165 15% 15 15% 153 147 10.2% 160 138 142 9.3% 8.8% 10% 10 7.3% 7.6% 10% 140 130128 6.7% 6.9% 113114 110113115 4.5% 4.4% 1.5% 4.0% 120 106106 104106 105106 5% 5 3.2% 3.4% 5% 99 1.0% -0.3%1.2% 1.5% 91 93 90 89 0.9% 0.0% 0.7% 100 0% -1.2% -0.9% 0 -2.5% 0% 80 -5% 60 -5 -5% -10% -4.3% 40 -10 -10% 20 -15% 0 -20% -15 -15% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYbn) Sales YoY (right axis) (JPYbn) Operating profit OPM (right axis) 180 160 20% 16 16% 140 12 10.2% 12% 120 10% 9.3% 8.8% 7.3% 7.6% 100 8 6.7% 6.9% 8%

80 0% 4.5% 4.4% 4.0% 3.2%3.4% 4 4% 60 0.9% 1.0%1.5% 1.2% 1.5% 0.0% 0.7% 40 -10% -2.5% -1.2% -0.3% 0 -0.9% 0% 20 0 -20% -4 -4% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Source: Shared Research based on company data

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Results by segment ICT segment

Earnings performance

(JPYbn, %) Operating profit Sales (right axis) OPM (JPYbn) (JPYbn, %) Operating profit OPM Sales (right axis) (JPYbn) 20 77.1 74.5 75.2 80 20 222.3 240 207.7 65.5 205.0 191.2 184.3 15 60 177.4 172.7 13.2 15 180 11.4 42.5 10.4 10.8 38.7 39.5 40.8 10 36.5 35.2 36.6 36.0 37.3 40 30.3 31.2 28.8 10 120 8.1 7.8 8.0 7.8 5 20 2.6 2.5 6.1 6.1 6.1 0.5 0.3 0.5 1.5 0.9 1.4 5 60 0 0 -0.1 -0.2 -0.8 -0.5 12.7 13.5 11.6 14.4 13.5 14.7 16.0 -5 -20 0 0 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/16 FY03/17 FY03/18 FY03/19 Est. Source: Shared Research based on company data

▷ FY03/19 sales (sales to external clients; also applies to figures below): JPY184.3bn (+6.7% YoY)

▷ Operating profit: JPY14.7bn (+8.5% YoY)

▷ Factors contributing to sales growth: The company saw growth in social infrastructure projects, sales to telecom carriers, and in some government agency projects.

▷ Factors contributing to profit growth: Profit grew due to changes in sales mix and more efficient management of development projects

Sales in existing markets (left) and growth markets (right)

(JPYbn) (JPYbn) Existing markets (existing base businesses) Change (left axis) Growth markets (growth businesses) Change (left axis) 250 25 222.3 207.7 200 191.2 185.0 20.0 173.4 20 163.7 170.3 150 15 14.0 100 10 9.0 50 14.6 14.7 6.0 6.6 5.0 5.0 5 4.0 4.0 0 -9.7 -17.8 -50 -31.1 0 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/17 FY03/18 FY03/19 FY03/20 Est. Est. Source: Shared Research based on company data

Mechatronics Systems segment

Performance

20 Operating profit Sales (right axis) OPM 40 Operating profit OPM Sales (old segment; right axis) Sales (new segment; right axis) 30.8 32.6 15 160 15 26.2 26.8 27.3 30 11.2% 24.1 24.7 24.2 24.3 23.8 23.0 22.2 21.2 20.8 21.2 9.5% 17.6 10 140 10 20 7.5% 5.3% 3.8 0.1 5 120 5 2.4 10 1.2 1.3 10.7 12.4 6.0 0.1% 9.0 0.1 0.5 0 0 0 100 -11.8 -5.1 0.1 -0.3 -0.5 -0.5 -0.2 -1.5 -1.5 -1.6 -1.5 -5.4% -5 -10 -5 80

-10 -20 -10 -11.7% 60

-15 -12.7 -30 -15 40 (JPYbn, %)Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 FY03/13 FY03/15 FY03/17 FY03/19 FY03/16 FY03/17 FY03/18 FY03/19 (JPYbn) (JPYbn) (JPYbn) Source: Shared Research based on company data

▷ FY03/19 sales: JPY82.7bn (-11.6% YoY)

▷ Operating profit: JPY82mn (shift to profitability)

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▷ Factors contributing to sales decline: Absence of positive sales impact from the year-ago unification of financial periods at its Brazilian subsidiary and business overhaul accompanying structural reform

▷ Factors narrowing the operating loss: Reduction of fixed cost

Printers segment

Performance

Operating profit Sales (right axis) OPM Operating profit Sales (right axis) 8.0 40 10 200 32.7 7.8 7.9 30.2 32.8 30.4 7.0 28.9 27.7 28.4 28.7 6.8 6.7 6.0 27.5 26.8 27.0 25.9 25.9 30 5.7 24.9 25.2 25.6 5.1 4.1 5 160 4.0 20 2.7 1.4 0.6 1.0 1.7 1.9 1.6 2.0 1.4 1.4 1.2 10 0 120 1.0 0.8 1.1 0.5 0.4 0.2 0.1 0.0 0 -1.3 -0.5 -5 80 -0.7 -4.6 -4.3 -2.0 -1.2 -10

-4.0 -20 -10 -8.8 40 (JPYbn, %)Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 FY03/19 (JPYbn) (JPYbn) FY03/16 FY03/17 FY03/18 FY03/19 (JPYbn) Source: Shared Research based on company data

▷ FY03/19 sales: JPY102.6bn (-5.8% YoY)

▷ Operating profit: JPY5.7bn (+110.3% YoY)

▷ Factors contributing to sales decline: Absence of large projects recorded during the same period a year earlier

▷ Factors contributing to profit growth: Improvement in fixed cost structure, positive impact of exchange rates

EMS segment

Performance

(JPYbn, %) Operating profit Sales (right axis) OPM (JPYbn) (JPYbn) Operating profit OPM 9 16.8 16.7 18 7.0 7% 15.6 16.0 8 16 5.7% 5.8% 6.0 5.4% 6% 13.7 5.0% 7 14 4.7% 4.8% 4.8% 12.3 12.2 11.9 4.5% 4.7% 11.3 11.6 11.7 5.0 4.3% 5% 6 10.3 12 10.1 3.7 5 9.3 9.5 9.3 10 4.0 3.5 4% 4 8 3.0 2.3 3% 2.0 2.2 3 6 1.7 2.1 2.0 1.3 1.5 1.6 2% 2 1.2 1.2 4 1.0 1.0 0.9 1.0 1.0 1% 1 0.7 0.7 0.5 0.5 0.7 2 0.1 0.3 0.1 0.4 0.3 0 0 0.0 0% -0.2 -0.7% -1 -2 -1.0 -1% Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 FY03/20 FY03/16 FY03/17 FY03/18 FY03/19 Est. Source: Shared Research based on company data

▷ FY03/19 sales: JPY65.2bn (+36.7% YoY)

▷ Operating profit: JPY3.7bn (+65.9% YoY)

▷ Factors contributing to sales growth: Mainly consolidation of OKI Electric Cable

▷ Factors contributing to profit growth: Higher volumes accompanying sales growth

▷ Ongoing reorganization among businesses in the EMS segment and Other segment since Q1

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Other segment

Performance

(%) Sales (right axis) Operating profit (right6.3 axis) OPM (JPYbn) (JPYbn, %) Operating profit OPM Sales (right axis) (JPYbn) 26 6 36.7 40 33.4 22.7 5.2 25 31.3 35 23 4.9 19.2 19.3 4.5 4.6 5 28.5 4.3 4.5 4.4 20 27.0 16.1 16.2 30 14.4 3.9 13.3 13.1 20 4 15 11.0 25 9.4 9.0 9.1 9.7 18.7 18.1 18.5 17.8 2.9 10 17.6 17.6 20 17 2.8 3 13.5 15.9 15.2 3.2 5 15 2.5 2.8 3.0 4.1 1.5 2.5 3.0 2.8 3.5 4.2 3.4 2.0 0.9 1.9 1.8 14 1.7 2 0 10 1.3 1.3 -1.4-0.5 6.7 0.9 1.0 0.9 0.9 1.0 -5 5 11 0.7 0.8 0.6 0.8 1 -3.4 0.4 0.4 -4.9 0.3 0.2 0.2 0.1 -10 0 8 0 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 FY03/19 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 FY03/16 FY03/17 FY03/18 FY03/19 Source: Shared Research based on company data

▷ FY03/19 sales: JPY6.7bn (-55.8% YoY)

▷ Operating profit: JPY877mn (-56.6% YoY)

▷ Ongoing reorganization among businesses in the EMS segment and Other segment since Q1

Q3 FY03/19 results (out February 1, 2019) Earnings summary Cumulative Q3 FY03/19 results (April-December 2018)

▷ Sales: JPY299.3bn (-0.2% YoY)

▷ Operating profit: JPY5.0bn (turned to black)

▷ Recurring profit: JPY2.8bn (turned to black)

▷ Net loss*: JPY1.6bn (loss narrowed from Q3 FY03/18)

* Net income (loss) refers to net income (loss) attributable to owners of the parent.

In cumulative Q3 FY03/19, sales were roughly flat YoY at JPY299.3bn (-0.2% YoY). EMS segment benefited from consolidation of OKI Electric Cable and ICT segment saw sales growth, offsetting lower sales in Mechatronics Systems and Printers segments. Operating profit improved significantly on better earnings in ICT due to changes in the sales mix, lower fixed costs accompanying structural reform in Mechatronics Systems and Printers, and the depreciation of the yen versus the euro.

In light of cumulative Q3 results and latest developments, OKI revised its full-year FY03/19 forecasts. Specifically, it lowered its sales forecast by JPY10.0bn to JPY440.0bn and raised its operating profit forecast by JPY1.0bn to JPY15.0bn. The downward revision to sales was to take into account developments in the EMS, ICT and Mechatronics Systems segments, while the upward revision to operating profit was to reflect progress of structural reforms in the Printers segment. These revisions show OKI is taking a cautious outlook on the EMS business amid growing uncertainty over demand in the FA industry, its main market.

Segment overview ICT segment

▷ Cumulative Q3 sales: JPY109.1bn (+1.8% YoY)

▷ Operating profit: JPY3.3bn (+22.3% YoY)

The marginal increase in sales (+1.8% YoY) was owing to strong growth in some public sector projects and steady growth in certain private sector projects, such as for call centers, offsetting a decline in social infrastructure projects and construction

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projects for existing customers. The uptrend in operating profit through to Q2 was sustained in Q3, reflecting a better sales mix from an increase in projects for which OKI has a track record, and more efficient management of development projects.

At the same time as announcing Q3 FY03/19 results, OKI made downward revision to its full-year sales forecast in this segment by JPY3.0bn, but left its operating profit forecast unchanged.

Mechatronics Systems segment

▷ Cumulative Q3 sales: JPY59.7bn ( -14.4% YoY)

▷ Operating loss: JPY1.3bn (loss narrowed YoY)

The fall in sales (-14.4% YoY) in cumulative Q3 FY03/19 was primarily owing to the absence of the positive sales impact from the year-ago unification of financial periods at its Brazilian subsidiary and a reduction of business as a result of business continuity issues amid business overhaul through structural reforms. The narrowing of the operating loss was attributable to progress in reducing fixed costs. It is taking time, however, to completely clear the operating loss because of minor delays to restructuring in Brazil, the disposal of surplus inventory born out of restructuring, and stiff competition in the ATM business in emerging markets.

At the time of announcing results, OKI made downward revision to its full-year forecasts for this segment by JPY2.0bn for sales and JPY1.0bn for operating profit. It expects to record an operating loss of JPY1.0bn for the full-year.

Printers segment

▷ Cumulative Q3 sales: JPY76.7bn (-4.4% YoY)

▷ Operating profit: JPY4.5bn (+131.1% YoY)

Sales fell 4.4% YoY in cumulative Q3 FY03/19. Restructuring has been completed in the Printers segment and a benefit appeared to be emerging over the reported period. The decline in sales was owing to the absence of the previous year’s large projects, in addition to shifting its strategy to focus on clients in certain industries. The considerable increase in operating profit was thanks to an improved fixed cost structure and yen depreciation.

At the time of announcing Q3 results, OKI left unchanged its full-year sales forecast in this segment, but revised up the segment operating profit forecast by JPY2.0bn.

EMS segment

▷ Cumulative Q3 sales: JPY48.4bn (+30.1% YoY) ▷ Operating profit: JPY2.7bn (+59.7% YoY)

The 30.1% YoY increase in sales in cumulative Q3 FY03/19 was primarily owing to the new consolidation of OKI Electric Cable. Higher volumes accompanying growth in sales was the reason for the increase in operating profit. The reorganization of businesses between the EMS segment and Other segment since Q1 FY03/19 is ongoing.

At the same time as announcing Q3 results, OKI made downward revision to its full-year forecasts for both sales and profit in this segment by a respective JPY5.0bn and JPY500mn. The company appears to factor in a business impact from Q4 from a correction in demand in the semiconductor and FA industries. The company also takes a conservative outlook on earnings for Q4 onward at newly consolidated OKI Electric Cable because its main customers operate in the FA industry.

Other segment

▷ Cumulative Q3 sales: JPY5.4bn (-4.6% YoY)

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▷ Operating profit: JPY756mn (-1.0% YoY)

The reorganization of businesses between the EMS segment and Other segment since Q1 FY03/19 is still ongoing. Full-year forecasts were reiterated for this segment at the time of announcing Q3 results.

1H FY03/19 results (out October 31, 2018)

▷ 1H: Operating profit was up JPY4.9bn. Profits grew in each segment, with a significant improvement in Printers (+JPY2.3bn YoY) and Mechatronics Systems (+JPY1.2bn YoY). Results exceeded forecasts

 Special factors: The consolidation of OKI Electric Cable (JPY3.1bn increase in sales) partly offset the impact of the consolidated financial period change for the Brazilian subsidiary (JPY3.3bn decrease in sales)

 Versus plan: The company revised up its forecasts for each profit item on October 23. The slight decline in sales reflects changes in ratio of certain sales projects

▷ Information and Communication Technology (ICT): Higher sales from projects in social infrastructure, its focal area. Operating profit rose JPY700mn due to successful profit-conscious project management

 Project management: Awareness of quotations and profit management and prompt response held down additional costs. The company expects improved profitability in Q4, which typically brings higher sales

▷ Mechatronics Systems: The effects of structural reforms raised profit by JPY1.2bn, improving operating loss to JPY200mn. The company expects restored profitability in Q3 and year-long contributions from Mechatronics Systems in FY03/20

 Structural reforms: Shifted domestic managerial resources in April, with additional transfers performed in stages. Reforms at overseas location starting in July, largely on schedule

 Effects of structural reforms at overseas bases centering on Brazil (JPY3.0bn for the full year) are likely to appear incrementally from Q2

 Impacts of unifying financial periods at the Brazilian subsidiary: Resulted in JPY3.3bn drop in sales and JPY500mn increase in operating profit, narrowing the overall operating loss

▷ Printers: Operating profit was up JPY2.3bn on structural reforms and forex-related gains. The company expects to maintain the earnings model and level of Q2 in 2H

▷ EMS: Sales up 33% due to the impact of consolidating OKI Electric Cable and taking over an air and space related PCB business. Operating profit up JPY600mn due to the newly consolidated business and increased sales

▷ Segment changes: Reorganized the EMS segment in Q1. Shifted some businesses included in the Other category to the EMS segment

▷ FY03/19: OKI left full-year forecasts unchanged due to concerns over the trade friction between the US and China. However, thanks to solid performance of ICT and Printers, the company thinks it can pursue above-forecast results

Performance overview 1H: Operating profit was up JPY4.9bn. Profits grew in all segments, with a significant improvement in Printers (+JPY2.3bn) and Mechatronics Systems (+JPY1.2bn); finished 1H above plan For 1H FY03/19, the company reported sales of JPY193.6bn (-JPY400mn or -0.2% YoY) and an operating profit of JPY800mn (improvement of JPY4.9bn compared with 1H FY03/18). Narrower operating loss reflected yen depreciation and lower fixed costs in Printers, and the impact of structural reform in Q2 in Mechatronics Systems in particular (operating loss narrowed by JPY1.2bn YoY). In Information and Communication Technology (ICT), segment profit increased by JPY700mn YoY thanks to a higher ratio of

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high margin projects in the sales mix and improvement operating efficiency. With segment profit growth in EMS (+JPY600mn YoY) and Other (+JPY100mn YoY), profits in all segments were up in 1H FY03/19. Segment profits overshoot targets in all segments except Mechatronic Systems (JPY200mn below plan). OKI posted consolidated operating profit of JPY800mn, versus the initial forecast for an operating loss of JPY3bn (the company announced an upward revision to its 1H profit forecast on October 23).

Structural reforms at Mechatronic Systems (for reference, as of Q2) In the Mechatronics Systems segment, the company has executed the following structural reforms. In Japan, in April 2018 it shuffled 115 employees within the organization as decided in FY03/18 (plan was to shuffle 180 for the full year, so the remaining 65 will be transferred by end FY03/19). Overseas, the company executed its strategy according to schedule, primarily in Brazil. The first set of reforms which would be cost-intensive began in July (implemented from July to September and approximately 80% complete). The company plans to execute the remaining reforms in stages later. Structural reforms appear to be proceeding steadily as of the end of 1H. The Brazilian subsidiary recorded more than JPY1.0bn in operating loss in Q1, but improved this figure to just a small operating loss in Q2 and posted profit on a monthly basis in September. In Q3, the company plans to execute additional reforms, due to which it will incur the remaining 20% of expenses, but also expects the effects from Q2 reforms to contribute in full. The company booked JPY1.6bn in expenses related to structural reforms as an extraordinary loss in Q2 (mostly in Mechatronics Systems) and expects to record similar amounts (including inventory disposals) in Q3 and beyond, along with improvements in segment profit.

In May 2018, OKI announced an overhaul of business expenses, to include expenses related to the shifting of resources (an expected full-year effect of JPY1.0bn), structural reform of overseas bases (JPY3.0bn), measures related to variable costs (JPY1.0bn), and a review of investment timing and content (JPY500mn). OKI states that excluding expenses related to measures for variable costs accompanying rising sales volume, the overhaul is proceeding as planned.

2H forecast OKI stated that in 1H it made steady progress with policies for FY03/19, posted results that exceeded numerical targets in both Information and Communication Technology (ICT) and Printers, and made steady progress with structural reforms in Mechatronics Systems. The company commented that it not only feels confident it can reach its full-year targets for FY03/19, but also believes it is capable of aiming for results that surpass these targets.

In ICT, the company aims to raise profitability during the demand season by managing projects proficiently as it did in 1H. At Mechatronics Systems, the company anticipates contributions from additional structural reforms at overseas subsidiaries centered on the Brazilian subsidiary and looks to secure periods of demand in the already-solid domestic market. As for Printers, the company aims to maintain its Q2 earnings model and develop new products for industrial use in preparation for FY03/20. Finally, in EMS, the company expects to secure strong growth for all businesses, including OKI Electric Cable, after having increased investment. In Q3, the degree to which the company can secure and restore profitability in ICT and Mechatronics Systems, respectively, will be worthy of attention.

Outlook for Q2 and beyond (for reference, as of Q1) As Q1 results were largely according to expectations, operating profit in the Printers segment was higher than forecasts. The company aims to maintain the higher than expected profits pace in the Printers segment and see the positive impact of structural reforms in the Mechatronics Systems segment reflected in the results from Q2 on as planned. In the Printers segment, temporary factors in Q1 (JPY700 increase in profits YoY due to higher sales of consumable products resulting from reorganization in North American dealerships) will dissipate going forward. However, Q1 consumable product sales derived from both actual demand and inventory increases accompanying the reorganization, and the company believes demand will be in line with its forecasts from Q2 onward, but does not expect any reactionary falloff from inventory adjustment.

OKI says ICT segment results are in line with plan (JPY500mn operating loss in 1H and JPY14.0bn operating profit for full year) and initiatives related to growth markets are steadily proceeding. In the EMS segment, the company expects the effects of sales development leveraging OKI Electric Cable’s customer assets to begin appearing by the end of FY03/19.

The following impact is expected to be felt due to forex fluctuations: 1) Sales: -JPY300mn against USD, -JPY300mn against EUR; 2) Operating profit: +JPY200mn against USD, -JPY200mn against EUR; 3) Non-operating income: -JPY150mn against USD, no impact against EUR.

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ICT segment Information and Communication Technology (ICT): Higher social infrastructure-related sales, operating profit up JPY700mn due to higher ratio of profitable projects and improved efficiency The ICT segment reported sales of JPY68.3bn (-JPY200mn or -0.3% YoY) and an operating profit of JPY800mn (+JPY700mn YoY). Despite an increase in transportation system projects for airports in mainstay social infrastructure-related field, sales fell due to the falloff of large network-related projects for existing customers in FY03/18 (which impacted Q1 sales). Operating profit finished above plan, as changes in the sales mix and profit-conscious project management absorbed the impact of lower sales.

Profit-conscious project management OKI is engaged in many new development projects related to the Internet of Things (IoT) for which thorough project management is important. Previously, the company often incurred unexpected costs for these types of projects. From the general manager down, staff involved in project management worked on paying attention to quotations and profit management at all times and taking quick and proactive measures. Such efforts began to pay off in FY03/19, holding down expected additional costs in Q1 and Q2, leading to the booking of sales and profit.

Following the announcement of Q1 results, OKI made no particular changes to its earnings model and stated that Q1 results were mostly in line with 1H forecasts (operating loss of JPY500mn). 1H results seemed to indicate that the company’s effort to improve project management was bearing fruit. Operating profit for 1H exceeded initial forecasts by JPY1.3bn, finishing at JPY800mn. The positive impact of OKI’s project management seemed to have accounted for the most of this JPY1.3bn excess. The impact of project management varies from project to project, but the company anticipates similar positive effects in Q3 and beyond. Sales for the ICT segment tend to be higher in Q4 than in other quarters due to seasonal factors. Hence, progress in Q3 will be worthy of attention in terms of predicting profitability during the demand season.

Medium-term initiatives In FY03/19, the company plans to further strengthen the several IoT-related joint businesses (with 49 companies as of May 2018) it established in FY03/18. It also is working hard to build up profits at existing businesses. OKI has not released a specific breakdown for existing and growth businesses, but it considers the aforementioned transportation systems and network-related projects to be existing businesses. The large network-related projects in FY03/18 resulted in one-time bookings of sales rather than leading to replacement projects, so they will not lead to further sales from Q2 onward. Furthermore, although there were some projects in existing businesses that were pushed back from FY03/18 to FY03/19 (as part of regrouping), the projects will be conducted from Q1 to Q4 and appear likely to be weighted toward Q4. Although there were no significant earnings during Q1 or Q2 due to the nature of the businesses, growth businesses are making steady progress, including joint development initiatives. The company expects to book sales in Q4.

Mechatronics Systems segment Mechatronics Systems: Operating profit rose JPY1.2bn thanks to structural reform despite higher sales and lower profit factor from the unification of the financial period in the Brazilian subsidiary in FY03/18 The Mechatronics Systems segment reported sales of JPY38.5bn (-JPY6.9bn or -15.3% YoY) and an operating loss of JPY1.7bn (a JPY1.2bn improvement YoY). Sales fell due to the impact of unifying financial periods (six months in Q1 FY03/18, three months in Q1 FY03/19) at the Brazilian subsidiary (pushed down sales by JPY3.3bn) and selection and focus strategy of structural reforms. Q1 operating loss of JPY1.5bn represented an actual loss of JPY500mn YoY, when excluding the impact of financial period unification that boosted profits by JPY500mn. However, losses in Q2 totaled JPY200mn, contracting by JPY1.2bn YoY, as structural reforms started having their predicted effects. Structural reforms at the overseas business seemed to have started bearing fruit as forecasted.

For 2H, OKI forecasts a move into the black in Q3 and aided by increased demand in Japan, structural reforms in China, and accumulated effects of remaining reforms at the Brazilian subsidiary in Q4, aims to recover 1H losses, breaking even for the whole year. Q4 hurdles may be high, but the company maintains that it will aim to achieve the targets. Even if the company finishes

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slightly below targets in the Mechatronics Systems segment, it believes it can absorb the shortfall on the consolidated level with strong performance at the ICT and Printers segments.

Structural reforms: Shifted domestic managerial resources in April, with additional transfers performed in stages. Reforms at overseas locations started in July are largely on schedule and starting to bear fruit The company began the first wave of structural reforms to key overseas businesses in July. The predicted impact of these reforms began to show in Q2 results. In FY03/18, the company booked around JPY1.5bn in operating losses between Q1 and Q3 (including losses at the Brazilian subsidiary of about JPY1.0bn in each of the four quarters: Q1 [six months] and Q2–Q4). Losses contracted to JPY200mn in Q2, and the company predicts further improvement in 2H, with a move into the black in Q3 and a complete recovery of losses by the end of the year.

The Brazilian subsidiary suffered an operating loss of more than JPY1.0bn in Q1 but moved into the black in July and September, albeit only slightly, finishing Q2 only slightly in the red. Systems for banks which had been posting large losses moved out of the red thanks to the effects of structural reforms, maintenance services narrowed its losses on efforts to improve efficiency spanning four years, and although still small in scale, systems for retailers began contributing to profit. As in 1H, the company does not appear to anticipate demand for cash-recycling ATMs in 2H but does predict a move into the black in Q3 and year-long contribution in FY03/20, thanks to an improved earnings model.

Steady progress in areas other than measures to lower variable costs The overhaul of business expenses as part of structural reforms announced in May 2018 included the following:

▷ Human resource shift (JPY1.0bn): Shift of 180 domestic personnel to new business areas, including growth areas in the Other segment

▷ Structural reforms at overseas bases (JPY3.0bn, mostly in Brazil): Downsizing the China operation through structural reforms, while implementing the select and focus strategy at the Brazilian subsidiary with optimal use of human resources

▷ Lower variable costs by JPY1.0bn: Reducing COS via design value engineering (VE) and cross-departmental procurement

▷ Review of investment timing and content (JPY500mn)

In 1H, the company shifted 115 employees to other businesses within the organization as decided in FY03/18 with plans to shuffle remaining 65 by the end of FY03/19 proceeding steadily. Regarding structural reforms at overseas basis, the company began the first set of reforms in July as planned (to last through September). Phase two will start in Q3 and further reforms will be conducted in stages, with the effects likely to appear in increments from Q2 onward. The company’s attempts to lower variable costs produced an approximate effect of JPY200mn in Q1 despite low sales volume. However, due to sluggishness in overseas sales volume, the measures to lower variable costs are not expected to contribute significantly either in 1H or 2H. It appears that the company made only a marginal investment (initial forecast predicted concentrated R&D expenses in 2H). Overall, progress seems largely in line with plan.

Supplementary information (number of ATMs sold, regional progress) In Q1, the number of ATM units sold was up 900 units YoY to 3,600 units (700 units for domestic banks, 1,900 for domestic distributors, 300 units in China, 700 units in other locations). In Q2, 7,300 ATM units were sold (1,300 for domestic banks, 3,400 for domestic distributors, 700 units in China, 1,900 units in other locations; +800 units YoY). In Japan, cash handling machines and ATMs performed favorably. In addition to an increase in orders for convenience stores, OKI received orders for recurring services, including ATM maintenance and management, from several regional banks as it progressed with efforts to improve its earnings model. Cash handling machines and recurring services, both medium-term initiatives of the company, saw increases in both sales and profit in 1H. This trend is expected to continue in 2H. In terms of emerging markets, although the competition in India remains intense, no further price drop has occurred. No significant development is observed in Brazil.

Quarterly loss at overseas subsidiaries: The Brazilian subsidiary was responsible for about JPY4.0bn of the JPY5.1bn operating loss for the segment in FY03/18. There were losses of about JPY1.0bn in each of the four quarters. Q1 encompassed six months, but there was a loss of about JPY500mn in both the January to March period and the April to June period. The Chinese subsidiary was right around the breakeven point, with a profit in Q3 on an

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increase in the number of units sold and slight losses in Q1, Q2, and Q4. No particular quarterly trends were seen in emerging markets, but in India the company booked a loss on efforts to secure market share. In Q1 FY03/19, Brazil saw a loss of over JPY1.0bn, China a slight profit, and emerging markets a loss due to marketing expenses.

During Q2 FY03/19, the Brazilian subsidiary improved its losses to the extent that it is only slightly in the red. China also posted a slight loss, and emerging markets finished in the minus range as in Q1 partly due to marketing expenses.

Printers segment Printers: Sales down 2% YoY despite the positive impact of yen depreciation. Operating profit up JPY2.3bn on structural reforms and forex-related gains The Printers segment reported sales of JPY50.8bn (-JPY1.0bn or -1.9% YoY) and an operating profit of JPY2.9bn (+JPY2.3bn YoY). Operating profit finished 1H JPY500mn above the forecast, maintaining its above-forecast performance. Q2 profit was also slightly above plan. Breaking down the JPY2.3bn operating profit increase, JPY1.0bn was due to forex changes, primarily in the Euro market, JPY1.0bn to reduced fixed costs, including JPY500–600mn from structural reforms, and JPY700mn to temporary factors (Q1 only); there was also a negative impact of JPY300mn attributable to variances in hardware product mix. Among the temporary factors, profits were greatly affected by dealers strategically increasing consumable good inventories due to the reorganization (consolidation) of North American dealerships. However, these practices should return to normal from Q2. Demand for cartridges produced in China increased due to concerns regarding the trade friction between the US and China (one-time demand hike due to trepidation in the face of possible tariff increases). This rise in demand contributed modestly to the profit increase, but a reactionary falloff is a possibility, making the situation worthy of attention. In 2H, the company wants to maintain its earnings model and earnings levels in the same way it did during Q2.

Effects of structural reforms Structural reforms conducted in FY03/18 produced an effect of some JPY1.4bn for FY03/18, and OKI anticipates a further effect of approximately JPY2.0bn (+JPY600mn YoY) in FY03/19. The effects of the reforms gradually increased during the course of FY03/18, so although Q1 FY03/19 had a YoY increase in effect of JPY300mn, the difference will likely diminish from Q2 onward. As of 1H, these reforms are steadily progressing, accounting for JPY500–600 in profit increase.

Breakdown by market, other By market, office printers did not fall as sharply as expected, but the startup of the non-office (industry) printer market has been somewhat more sluggish than forecasted. Excluding consumable products, office printers remained mostly flat YoY in the face of business selectivity, thanks to contributions from the domestic market which steadily expanded sales and profit. The non-office (industry) printer market appears to have accounted for a somewhat larger ratio of sales during 1H thanks to contributions from products with specified uses in areas such as the logistics industry. OKI plans to launch new products whose sales it believes will increase gradually in 2H. Shared Research would also like to keep an eye on continued growth in the industry printer market.

The impact of forex accounted for a JPY500mn jump in sales and a JPY1.0bn rise in operating profit in 1H, versus increases of JPY600mn and JPY700mn, respectively, in Q1.

EMS segment EMS: Sales up 33% due to the impact of consolidating OKI Electric Cable and taking over an air and space related PCB business. Operating profit up JPY600mn thanks to new consolidation and increased sales The EMS segment reported 1H sales of JPY32.4bn (+JPY8.0bn or +32.7% YoY) and an operating profit of JPY1.5bn (+JPY600mn YoY). Even excluding the impact of consolidating OKI Electric Cable (+JPY3.3bn in Q1 sales, +JPY6.0bn for 1H sales), the segment continued to grow as taking over an air and space related PCB business also contributed to sales growth. The company also maintained profit growth, even excluding the impact of consolidating OKI Electric Cable (contributed to a profit increase of about JPY400mn). OKI appears to be steadily increasing its profit while proceeding with investments in capacity expansion.

By consolidating OKI Electric Cable, the company can provide one-stop production from material procurement to product completion. The company aims to improve its profitability and strengthen its sales activities (proposing production outsourcing [EMS] to customers of OKI Electric Cable). It hopes to improve earnings by no later than Q4. While higher costs have been seen

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in procuring materials, the company aims to improve this area as well with countermeasures it began in FY03/18. There does not appear to be any particular contribution from the automotive equipment market. However, the company is steadily expanding its EMC contracting services for on-board equipment for ADAS (the company has 13 anechoic chambers for EMC testing; the company can provide consignment testing services compliant with international standards, which is a distinguishing feature) and its selection of testing services, including sulfur gas corrosion testing services for on-board equipment. Additionally, the expansion of air- and space-related technology into other areas of the EMS segment is continuously creating synergy.

Segment changes: Reorganized the EMS segment in Q1. Shifted some businesses included in the Other category to the EMS segment

Other segment The Other segment reported sales of JPY3.6bn (-JPY200mn or -6.2% YoY) and an operating profit of JPY600mn (+0.8% YoY). Sales were down JPY200mnYoY (-6.2% YoY). From Q1, the company has been reorganizing this segment and the EMS segment.

Q1 FY03/19 results (out July 27, 2018)

▷ Q1: Operating profit was up JPY3.1bn. Profits grew in each segment, with the exception of Mechatronics Systems (even YoY). Improved results in Printers (+JPY2.3bn) greatly contributed to higher profits

 Sales were roughly even YoY when excluding the impact of the consolidated financial period change for the Brazilian

subsidiary (JPY3.3bn decrease in sales) and the consolidation of OKI Electric Cable (JPY3.1bn increase in sales)

 Versus plan: Basically in line with plan, but higher demand for consumable products (causing profit increase)

accompanying reorganization of printer dealerships was not included in initial forecasts

▷ Information and Communication Technology (ICT): Lower sales from the backlash of large network-related projects booked in FY03/18. Operating profit rose JPY300mn, absorbing lower sales due to the increase in the percentage of highly profitable projects

▷ Mechatronics Systems: Sales fell and operating loss was even YoY due to higher sales and lower profits from the unification of the financial period in the Brazilian subsidiary in FY03/18

 Structural reforms: Shifted domestic managerial resources in April, with additional transfers performed in stages. Reforms at overseas location starting in July, largely on schedule

 Effects of structural reform of overseas bases centering on Brazil (JPY3.0bn for the full year) are likely to appear incrementally from Q2

 Impact of unifying Brazil financial period: Resulted in JPY3.3bn drop in sales and JPY500mn increase in operating profits, narrowing the overall operating loss

▷ Printers: Sales roughly even YoY if one excludes higher sales from the depreciation of the yen. Operating profit up JPY2.3bn on structural reforms and forex-related gains

 Breaking down the operating profit increase, JPY700mn was due to forex changes in the Euro market, JPY800mn was due to cutting fixed costs, including JPY300mn from structural reforms, and JPY700mn was due to temporary factors

▷ EMS: Sales up 38.2% due to the impact of consolidating OKI Electric Cable and taking over an air and space related PCB business. Operating profit up JPY300mn due to higher volume from increased sales

▷ Segment changes: Reorganized the EMS segment in Q1. Shifted some businesses included in the Other category to the EMS segment

▷ Q2 and beyond: Maintain higher than expected profits seen in Q1 in the Printers segment. Aim to surpass plan by reaping rewards of structural reforms in Mechatronics Systems from Q2 on

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Performance overview Q1: Operating profit up JPY3.1bn. Profits grew in each segment, except in Mechatronics Systems (even YoY). Improved results in Printers (+JPY2.3bn) greatly contributed to higher profits For Q1 FY03/19, the company reported sales of JPY88.9bn (-1.6% YoY) and operating loss of JPY800mn (improvement of JPY3.1bn compared with Q1 FY03/18). Operating loss narrowed YoY due to significant profit growth (+JPY2.3bn) from reducing fixed costs and yen depreciation in Printers. If one excludes the flat YoY operating loss in Mechatronics Systems (profits fell if one excludes the impact of unifying the financial period in the Brazilian subsidiary), all other segments saw higher profits.

Mechatronics Systems structural reforms In the Mechatronics Systems segment, the company has executed the following structural reforms. In Japan, in April 2018 it shuffled 115 employees within the organization as decided in FY03/18 (plan is to shuffle 180 for the full year, so the remaining 65 will be transferred by end FY03/19). Overseas, the company executed its strategy according to schedule, primarily in Brazil. The first set of reforms which would be cost-intensive began in July (to be implemented from July to September). The company plans to execute the remaining reforms in stages later. From Q2 on, the company expects segment profit to improve as reform-related costs are booked as extraordinary losses.

In May 2018, OKI announced an overhaul of business costs, to include the shifting of resources (JPY1.0bn planned full-year effect), structural reform of overseas bases (JPY3.0bn), measures related to variable costs (JPY1.0bn), and a review of investment timing and content (JPY500mn). OKI says the overhaul is proceeding as planned.

Outlook for Q2 and beyond As Q1 results were largely according to expectations, operating profit in the Printers segment was higher than forecasts. The company aims to maintain the higher than expected profits pace in the Printers segment and see the positive impact of structural reforms in the Mechatronics Systems segment reflected in the results from Q2 on as planned. In the Printers segment, temporary factors in Q1 (JPY700 increase in profits YoY due to higher sales of consumable products resulting from reorganization in North American dealerships) will dissipate going forward. However, Q1 consumable product sales derived from both actual demand and inventory increases accompanying the reorganization, and the company believes demand will be in line with its forecasts from Q2 onward, but does not expect any reactionary falloff from inventory adjustment.

OKI says ICT segment results are in line with plan (JPY500mn operating loss in 1H and JPY14.0bn operating profit for full year) and initiatives related to growth markets are steadily proceeding. In the EMS segment, the company expects the effects of sales development leveraging OKI Electric Cable’s customer assets to begin appearing by the end of FY03/19.

The following impact is expected to be felt due to forex fluctuations: 1) Sales: -JPY300mn against USD, -JPY300mn against EUR; 2) Operating profit: +JPY200mn against USD, -JPY200mn against EUR; 3) Non-operating income: -JPY150mn against USD, no impact against EUR.

ICT segment Information and Communication Technology (ICT): Lower sales from the backlash of large network-related projects booked in FY03/18. Operating profit rose JPY300mn, absorbing lower sales due to the increase in the percentage of highly profitable projects For Q1 FY03/19, the ICT segment reported sales of JPY28.8bn and an operating loss of JPY500mn. Sales were down JPY2.5bn YoY (-7.9% YoY) and operating loss narrowed JPY300mn YoY. Sales fell YoY due to the booking of large network-related projects in FY03/18, despite higher sales for transportation systems. Operating profit was in line with forecasts as changes to the sales mix and lower costs absorbed the impact of lower sales.

In FY03/19, the company plans to further strengthen the several IoT-related joint businesses (with 49 companies as of May 2018) it established in FY03/18. It also is working hard to build up profits at existing businesses. OKI has not released a specific breakdown for existing and growth businesses, but it considers the aforementioned transportation systems and network-related projects to be existing businesses. The large network-related projects in FY03/18 resulted in one-time bookings of sales rather

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than leading to replacement projects, so they will not lead to further sales from Q2 onward. Furthermore, although there were some projects in existing businesses that were pushed back from FY03/18 to FY03/19 (as part of regrouping), the projects will be conducted from Q1 to Q4 and appear likely to be weighted toward Q4. Although there were no significant earnings during Q1 due to the nature of the businesses, growth businesses are making steady progress, including joint development initiatives.

There have been no particular changes to the profit structure, and progress was essentially in line with the 1H plan (JPY500mn operating loss). OKI targets segment operating profit of JPY500mn for FY03/19, but expects the operating profit margin to drop 0.3pp to 7.4% due to upfront spending for growth businesses. Profit contributions from these growth businesses are not expected until the period covered by the next medium-term plan.

Mechatronics Systems segment Mechatronics Systems: Sales fell and operating loss was even YoY due to higher sales and lower profits from the unification of the financial period in the Brazilian subsidiary in FY03/18 The Mechatronics Systems segment reported Q1 sales of JPY17.6bn and an operating loss of JPY1.5bn. Sales were down JPY3.6bn YoY (-16.9% YoY) and operating loss was roughly even YoY. Sales of cash-handling machines for the Japanese market increased. When removing the impact of lower sales (JPY3.3bn) from unifying the financial periods for the Brazilian subsidiary (six month Q1 in previous year, three month Q1 this year), sales were roughly even YoY. Meanwhile, operating profit fell in real terms excluding the impact of period unification that boosted profits by JPY500mn. Q1 profits were roughly in line with forecasts, despite the impact of structural reforms in the overseas business having not yet emerged.

Structural reforms: Shifted domestic managerial resources in April, with additional transfers performed in stages. Reforms at overseas locations started in July are largely on schedule The company began the first wave of structural reforms to key overseas businesses in July. It expects the impact of these reforms to be reflected in results from Q2. In FY03/18, the company booked around JPY1.5bn in operating losses between Q1 and Q3 (including losses at the Brazilian subsidiary of about JPY1.0bn in each of the four quarters: Q1 [six months] and Q2–Q4). However, the company expects operating loss to narrow from Q2 and be eliminated for full-year results.

The overhaul of business costs as part of structural reforms announced in May 2018 includes: (1) a human resource shift (JPY1.0bn); shift of 180 domestic personnel to new business areas, including growth areas in the Other segment, (2) structural reforms of overseas bases (JPY3.0bn, mostly in Brazil); downsizing the China operation through structural reform, while practicing business selectivity and with focus in Brazil, with optimal use of human resources, (3) lower variable costs by JPY1.0bn; reducing COS via design VE (value engineering) and cross-departmental procurement, and (4) a review of investment timing and content (JPY500mn).

Progress on these measures in Q1 included: (1) shift of 115 employees to other businesses within the organization as decided in FY03/18, with plans to shuffle remaining 65 by the end of FY03/19; (2) the first set of reforms began in July as planned (to last through September) and as these reforms are being implemented in phases, the effects are likely to appear in increments from Q2 onward; (3) effect of about JPY200mn has appeared despite low volume, and this effect is set to increase from Q2 onward; and (4) it appears little investment has been conducted. Progress seems largely according to plan.

In Q1, the number of ATM units sold (3,600 units: 700 units for domestic banks, 1,900 for domestic distributors, 300 units in China, 700 units in other locations. +900 units YoY) was in line with forecasts. The company judged the market environment harshly in the initial forecast, making it unnecessary to revise forecasts down. Domestically, cash handling machines and ATMs performed favorably, and OKI received orders for recurring services, including ATM maintenance and management, from several regional banks as efforts to improve the company’s earnings base proceeded. In terms of emerging markets, although the competition in India remains intense, no further price drop has occurred. In other emerging markets, bidding has proven more successful than anticipated at the beginning of FY03/19, resulting in a fair number of units being sold.

Quarterly loss at overseas subsidiaries: The Brazilian subsidiary was responsible for about JPY4.0bn of the JPY5.1bn operating loss for the segment in FY03/18. There were losses of about JPY1.0bn in each of the four quarters. Q1 encompassed six months, but there was a loss of about JPY500mn in both the January to March period and the April to June period. The Chinese subsidiary was right around the breakeven point, with a profit in Q3 on an

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increase in the number of units sold and slight losses in Q1, Q2, and Q4. No particular quarterly trends were seen in emerging markets, but in India the company booked a loss on efforts to secure market share. In Q1 FY03/19, the Brazilian subsidiary saw a loss of over JPY1.0bn, China a slight profit, and emerging markets a loss due to marketing expenses.

Printers segment Printers: Sales roughly even YoY if one excludes higher sales from the depreciation of the yen. Operating profit up JPY2.3bn on structural reforms and forex-related gains The Printers segment reported Q1 sales of JPY25.2bn and an operating profit of JPY1.9bn. Sales were up JPY300mn YoY (+1.3% YoY) and operating profit was up JPY2.3bn YoY. Operating profit ended higher that forecasts. Excluding the impact of forex changes (+JPY600mn), sales were roughly even YoY. Breaking down the JPY2.3bn operating profit increase, JPY700mn was due to forex changes, primarily in the Euro market, JPY800mn was due to cutting fixed costs, including JPY300mn from structural reforms, and JPY700mn was due to temporary factors. Among the temporary factors, profits were greatly affected by dealers strategically increasing consumable good inventories due to the reorganization (consolidation) of North American dealerships. However, these practices should return to normal from Q2.

Structural reforms conducted in FY03/18 produced an effect of some JPY1.4bn for FY03/18, and OKI anticipates a further effect of approximately JPY2.0bn (+JPY600mn YoY) in FY03/19. The effects of the reforms increased during the course of FY03/18, so although Q1 FY03/19 had a YoY increase in effect of JPY300mn, the difference will likely diminish from Q2 onward. In addition, the impact of dealership reorganization included both actual demand and inventory increases in Q1. OKI expects further actual demand to arise from Q2 onward and does not anticipate a reactionary falloff to the Q1 inventory increases.

Even in the midst of business selectivity, the office printer market, excluding consumable products, was flat YoY on the contribution of steadily increasing sales and profit in the domestic market. The non-office (industry) printer market was also flat in Q1, with new products planned for release in 2H. OKI expects growth in the industry market in 2H.

EMS segment EMS: Sales up 38.2% due to the impact of consolidating OKI Electric Cable and taking over an air and space related PCB business. Operating profit up JPY300mn due to higher volume from increased sales The EMS segment reported Q1 sales of JPY15.6bn and an operating profit of JPY700mn. Sales were up JPY4.3bn YoY (+38.2% YoY) and operating profit was up JPY300mn. Even excluding the impact of consolidating OKI Electric Cable (+JPY3.3bn in sales), the segment continued to grow as taking over an air and space related PCB business also contributed to results.

By consolidating OKI Electric Cable, the company can provide one-stop production from materials to product completion. The company aims to improve its profitability and strengthen its sales activities (proposing production outsourcing [EMS] to customers of OKI Electric Cable). It hopes to improve earnings by no later than Q4. While higher costs have been seen in procuring materials, the company aims to improve this area as well with countermeasures it began in FY03/18. There does not appear to be any particular movement in the automotive equipment market.

Segment changes: Reorganized the EMS segment in Q1. Shifted some businesses included in the Other category to the EMS segment

Other segment The Other segment reported Q1 sales of JPY1.7bn and an operating profit of JPY200mn. Sales were down JPY100mnYoY (-4.7% YoY) and operating profit was up JPY100mn YoY. From Q1, the company has been reorganizing this segment and the EMS segment.

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Other information

News and topics April 2019 On April 26, 2019, the company announced revisions to its FY03/19 forecasts.

Revised forecasts for full-year FY03/19

▷ Sales: JPY441.0bn (previous forecast: JPY440.0bn)

▷ Operating profit: JPY17.5bn (JPY15.0bn)

▷ Recurring profit: JPY15.5bn (JPY13.0 bn)

▷ Net income*: JPY8.5bn (JPY5.0bn)

▷ EPS: JPY98.26 (JPY57.81)

* Net income attributable to owners of the parent

Reasons for the revisions

▷ Although OKI booked an extraordinary loss, it still projects that operating profit and recurring profit will finish above previous forecasts. As it expects to absorb the impact of the extraordinary loss at these profit levels, the company also forecasts that net

income attributable to owners of the parent will exceed previous forecast.

▷ Extraordinary loss: In light of the decline in profitability from certain business assets, including manufacturing facilities in the Mechatronics Systems segment, the company recorded an impairment loss of JPY2.9bn based on the Accounting Standard for Impairment of Fixed Assets.

▷ Strong business performance: In the ICT segment, the company expects results to surpass previous forecasts thanks to reduced outflow costs and an improvement in profitability for some projects (mainly those involving network and IoT). In the Mechatronics Systems segment, it expects the progress of cost structure improvement in Japan and China to offset the partial

delay in structural reforms mainly for its Brazilian business.

October 2018 On October 23, 2018, the company announced upward revisions to 1H FY03/19 forecasts (all profit categories).

Forecast revisions FY03/18 FY03/19 Revised Est. FY03/19 Init. Est. Difference (JPYmn) 1H2HFY1H2HFY1H2HFY1H Sales 193,974 244,052 438,026 193,500 256,500 450,000 196,000 254,000 450,000 -2,500 YoY -2.7% -3.3% -3.0% -0.2% 5.1% 2.7% 1.0% 4.1% 2.7% Operating profit -4,125 11,846 7,721 800 13,200 14,000 -3,000 17,000 14,000 3,800 YoY - 271.1% 203.4% - 11.4% 81.3% - 43.5% 81.3% OPM -2.1% 4.9% 1.8% 0.4% 5.1% 3.1% -1.5% 6.7% 3.1% Recurring profit -3,344 11,859 8,515 -800 13,800 13,000 -3,500 16,500 13,000 2,700 YoY - 80.2% - - 16.4% 52.7% - 39.1% 52.7% RPM -1.7% 4.9% 1.9% -0.4% 5.4% 2.9% -1.8% 6.5% 2.9% Net in co me attrib. to parent company shareholders -4,581 10,472 5,891 -2,500 7,500 5,000 -6,000 11,000 5,000 3,500 YoY - -42.5% 25.6% - -28.4% -15.1% -5.0%-15.1% Net margin -2.4% 4.3% 1.3% -1.3% 2.9% 1.1% -3.1% 4.3% 1.1% Source: Shared Research based on company data

Reasons for revisions For 1H FY03/19, while the company expects sales to fall short of the initial target by 1.3%, it has revised up forecasts for all profit categories. Reasons for the upward revisions include improved earnings in the Printers segment due to restructuring efforts and robust performance of all businesses, including improved sales mix, in the Information and Communication Technology (ICT) segment. Non-operating loss is expected to widen in 1H FY03/19 (expected loss of JPY1.6bn) compared with the previous

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forecast for a loss of JPY500mn, but this is mainly due to forex losses as was the case in Q1. The company has not revised its full-year FY03/19 forecasts, but will promptly make announcements should the need for revision arises.

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Corporate governance, environmental, and CSR information (as of March 2018)

Organizational form Organization Company with Audit & Supervisory Board and capit al st ruct ure Cont rolling shareholders None Directors Number of directors (per Articles of Incorporation) 15 Directors' term of office (per Articles of Incorporation) 1year Number of directors 7 Outside directors 3 Independent outside officers 3 Auditors Existence of Audit and Supervisory Board Y Number of Audit & Supervisory Board members (per Articles of Incorporation) 5 Number of Audit & Supervisory Board members 4 Outside members of Audit & Supervisory Board 2 Independent outside officers 2 Other Foreign shareholding ratio (as of end-September 2016) Over 20%, under 30% Voluntary establishment of committee(s) corresponding to Nomination Personnel A ffairs and Y Committee or Remuneration Committee Compensation Advisory Committee Independent officers in the committee / total committee members 5 / 5 Disclosure of individual direct or's compensat ion None Independent officers 5 Implementation of measures regarding director incentives Performance-linked remuneration and stock option Eligible for st ock opt ion Directors, others Part icipat es in ICJ's elect ronic vot ing syst em for Other Participation to electronic voting platform inst it ut ional invest ors Preparation of convening notices in English Y Online disclosure Corporate takeover defenses None Environment al conservat ion act ivit ies Under OKI Group Environment Vision 2020, the company puts into practice environmental management following OKI Group Environment al Policy CSR Each of Oki's business divisions w ork on act ivit ies based on educat ion of employees on Oki group's Chart er of Corporate Conduct and Code of Conduct Activity status The company issues reports annually, available in print and online ROE and ROA/ROIC

ROA (RP-based) ROIC 60% 12% 37.8% 31.8% 40% 28.0% 10% 9.6% 9.5%

20% 8.4% 3.9% 5.8% 4.6% 6.0% 8% 8.7% 8.9% 6.5% 0% -9.4% 6% 5.4% 4.7% -20% 3.9% 4% 5.7% 2.9% -40% 4.2% 1.6% 1.8% 2% 2.5% 2.7% -60% 0.9% 2.3% 0.3% 0.3% -80% 0% -80.7% -0.6% -100% -2% FY03/10 FY03/13 FY03/16 FY03/19 FY03/10 FY03/13 FY03/16 FY03/19

ROIC

20% ROIC (before tax) OPM Sales / Invested capital (right axis) 3 2.6 2.5 2.5 2.4 2.3 2.4 2.2 2.1 2.1 15% 14.7% 14.0% 1.9 2

10% 9.4% 8.1% 7.6% 6.5% 1 5% 5.6% 6.0% 4.2% 3.1% 2.8% 3.8% 4.0% 2.8% 3.0% 1.2% 0% 1.5% 1.5% 1.8% 0 FY03/10 FY03/13 FY03/160.6% FY03/19

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(JPYbn) (JPYbn) Net assets Interest-bearing debt Operating profit (right axis) 250 40

32.4 35 200 27.2 30 107.6 122.1 150 119.0 25 87.0 81.9 90.5 172.5 18.6 17.5 20 120.5 152.1 136.5 100 13.5 12.0 15

121.4 102.1 10 6.5 6.3 107.4 50 91.9 97.2 100.2 56.6 7.7 5 47.6 38.9 41.3 0 2.5 0 FY03/10 FY03/13 FY03/16 FY03/19 Source: Shared Research based on company data

ROE

ROE Net margin Total asset turnover (right axis) Financial leverage (equity multiplier; right axis) 60% 10 9.5 9.5 9.3 37.8% 9 40% 28.0% 31.8% 7.4 8 20% 8.4% 3.9% 5.8% 4.6% 6.0% -9.4% 7 0% -7.4% -0.9% 5.7% 6.1% 6 0.4% 3.0% 5.3 1.3% 1.0% 1.3% 1.9% -20% 5 4.1 3.8 3.8 3.7 3.7 -40% 4 3 -60% 2 -80% -80.7% 1 -100% 0 FY03/10 FY03/13 FY03/16 FY03/19

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. ROE -9.4% -80.7% 3.9% 28.0% 37.8% 31.8% 5.8% 4.6% 6.0% 8.4% Net margin -0.9% -7.4% 0.4% 3.0% 5.7% 6.1% 1.3% 1.0% 1.3% 1.9% Total asset turnover 1.14 1.16 1.15 1.27 1.27 1.27 1.15 1.17 1.20 1.20 Financial leverage (equity multiplier) 9.47 9.47 9.28 7.38 5.26 4.09 3.76 3.79 3.72 3.68 ROA (RP-based) 0.3% 0.3% 2.5% 5.7% 9.6% 8.9% 2.7% -0.6% 2.3% 4.2% ROIC 1.6% 1.8% 3.9% 4.7% 8.7% 9.5% 5.4% 0.9% 2.9% 6.5% NOPAT 3,860 3,741 7,105 8,353 16,859 20,863 12,446 1,760 5,338 12,157 Net assets + Interest-bearing debt 236,124 205,491 184,319 177,439 194,036 219,953 229,226 206,847 184,142 187,369 ROIC (before tax) 2.8% 3.1% 6.5% 7.6% 14.0% 14.7% 8.1% 1.2% 4.2% 9.4% OPM 1.5% 1.5% 2.8% 3.0% 5.6% 6.0% 3.8% 0.6% 1.8% 4.0% Sales / Invested capital 1.88 2.11 2.30 2.57 2.49 2.46 2.14 2.18 2.38 2.36 Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.

Top Management

Director and chairman of the board: Hideichi Kawasaki (Born: January 10, 1947, shares held as of March 31, 2018: 16,000) Joined OKI in April 1970; April 2001, appointed executive officer; April 2004, senior vice president; April 2005, general manager, marketing promotion division; June 2005, director; April 2008, general manager, financial business division; April 2009, senior executive vice president and member of the board; June 2009, president, representative director; April 2016, chairman of the board, representative director; June 2018, chairman of the board, director.

President: Shinya Kamagami (Born: February 9, 1959, shares held as of March 31, 2018: 6,700) In April 1981, joined company; April 2011, appointed executive officer, general manager, systems hardware business division; April 2012, senior vice president; April 2014, chief technology officer; April 2015, general manager, corporate planning division, chief compliance officer; April 2016, president, representative director.

In his career of over 30 years, Mr. Kamagami has been involved in areas from technical development through marketing and business management in the Mechatronics Systems segment, with a focus on ATMs and on-the-ground operations. He uses

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feedback from the factory floor and promotes growth in response to changes in the business environment. He says he is working to build a business platform that enables sustainable growth.

Dividend policy

OKI says its top management priority is to increase shareholder returns while strengthening its balance sheet and retaining earnings to improve corporate value. The company says retained earnings will be directed toward R&D and capital expenditure vital for growth and used to strengthen the business structure and management platform. The company dividend policy prioritizes returning profits to shareholders in a stable, continuous manner, with the dividend amount depending on profits.

Shareholder return

FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. EPS -44.0 0.3 17.2 36.2 40.0 7.6 54.0 67.9 98.3 161.8 Dividend per share - - - 3.0 5.0 5.0 50.0 50.0 50.0 50.0 Payout ratio - - - 8.0% 13.0% 65.7% 92.6% 73.7% 50.9% 30.9% DOE - - -5.3%4.8%3.8%4.3%4.4%4.3%- Source: Shared Research based on company data

Major shareholders

Shares held Shareholding Top shareholders ('000) ratio Japan Trustee Services Bank, Ltd. (Trust account) 4,575 5.3% The Master Trust Bank of Japan, Ltd. (Trust account) 3,854 4.5% MSIP CLIENT SECURITIES 3,778 4.4% Oki Electric Group Employees' Shareholding Association 1,888 2.2% Japan Trustee Services Bank, Ltd. (Trust account 9) 1,827 2.1% STATE STREET LONDON CARE OF STATE STREET BANK AND TRUST, BOSTON SSBTC A/C UK 1,699 2.0% LONDON BRANCH CLIENTS-UNITED KINGDOM Japan Trustee Services Bank, Ltd. (Trust account 5) 1,636 1.9% Mizuho Bank, Ltd. 1,419 1.6% Hulic Co., Lt d. 1,407 1.6% Meiji Yasuda Life Insurance Company 1,400 1.6% SUM 23,487 27.2% Source: Shared Research based on company data (as of September 30, 2018)

Employees

FY03/01 FY03/02 FY03/03 FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Consolidated 25,626 23,597 22,520 20,960 20,410 21,175 21,380 22,640 17,415 18,111 16,697 16,736 17,459 21,090 20,653 20,190 19,464 18,978 ICT 6,8387,023 Mechatronics Systems 4,7674,106 Printers 4,8754,468 EMS 1,3091,326 Other 1,2191,595 Company-wide 456460 Info-Telecom (old segment) 8,9759,02710,24410,1039,9238,8898,464 8,688 12,729 12,405 12,013 Printers 5,6845,7585,9245,7826,6536,0856,5225,5645,0594,9634,917 EMS 4314191,1041,2441,2841,306 Semiconductors 5,0114,9844,879 Other 1,0201,1431,1941,1581,1871,0171,0131,7511,7051,6321,581 Information 13,28211,83211,52311,09410,685 Telecom 4,6043,7882,8492,6912,571 Semiconductors 5,7915,6255,5264,9794,988 Other 1,6921,8732,0931,7441,642 Company-wide 257479529452524 Parent 8,217 7,393 6,067 5,379 5,389 5,496 5,579 5,313 3,182 3,170 3,103 3,373 3,678 3,788 3,881 3,914 4,063 4,024 Average age 38.7 38.4 38.4 38.9 39.5 40.0 40.4 40.8 41.2 41.3 41.2 41.8 42.1 42.5 43.0 43.3 43.5 43.6 Average years of service 17.2 16.5 16.4 16.7 17.1 17.5 16.8 18.4 19.0 19.1 19.1 19.3 19.5 19.8 20.5 19.7 19.0 21.0 Average annual salary (JPYmn) 6.12 6.43 6.14 6.31 6.51 6.77 6.78 6.74 6.65 5.80 6.00 6.63 7.04 7.09 7.33 7.52 7.20 Subsidiaries 17,409 16,204 16,453 15,581 15,021 15,679 15,801 17,327 14,233 14,941 13,594 13,363 13,781 17,302 16,772 16,276 15,401 14,954 Source: Shared Research based on company data

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Profile

Company Head office

Toranomon First Garden Oki Electric Industry Co., Ltd. 1-7-12 Toranomon, Minato-ku, Tokyo

Phone Listed on +81-3-3501-3111 Tokyo Stock Exchange 1st Sections Established Exchange listing November 1, 1949 November 22, 1951 (predecessor founded 1881) Auditor Financial year-end PricewaterhouseCoopers Aarata LLC March HP IR Web http://www.oki.com/en/ http://www.oki.com/en/ir/ IR e-mail IR Contact General Affairs 03-3501-3764 (individual investors) [email protected] Corporate Planning, IR Office 03-3501-3836 (institutional investors, analysts)

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