Nisshinbo Holdings / 3105

COVERAGE INITIATED ON: 2015.08.06 LAST UPDATE: 2019.09.19

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 Coverage Report by Shared Research Inc. Nisshinbo Holdings / 3105 RCoverage LAST UPDATE: 2019.09.19 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

INDEX

How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report.

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 ------14 Long-term outlook ------20 Strategy ------24 Business ------27 Segments ------27 Strengths and weaknesses ------45 Historical performance ------46 Income statement ------58 Balance sheet ------60 Cash flow statement ------64 Other information ------65 History ------65 News and topics ------67 Major shareholders ------69 Shareholder returns------69 Top management ------70 Corporate philosophy ------70 Company name ------71 Company profile ------71

02/72 Nisshinbo Holdings / 3105 RCoverage LAST UPDATE: 2019.09.19 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Executive summary

Main segments: Electronics and Automobile Brakes; pursuing acquisition

Nisshinbo has six segments: Electronics (which the company plans to split into the Wireless and Communications segment and the Micro Devices segment during FY12/19), Automobile Brakes, Precision Instruments, Chemicals, Textiles, and Real Estate (sold the Papers business in April 2017). In mainstay Electronics and Automobile Brakes segments, the company expects both sales and earnings to grow as markets expand. It positions Precision Instruments, Chemicals, and Textiles as earnings-improvement segments, where it plans to improve asset turnover and profit margins. The Real Estate segment generates stable revenues.

Roots in cotton, later diversified Nisshinbo was established in 1907 as a manufacturer of cotton thread, but is now a conglomerate with a diverse portfolio of businesses.

Takeshi Sakurada, Nisshinbo’s fourth president, maintained that a company’s core was its people, not its businesses. Guided by this philosophy, Nisshinbo has been diversifying since the 1940s, when cotton spinning was still a growth industry. As a result, it has stayed in business for over 100 years—despite the decline of the cotton spinning industry in Japan. Plus, the company benefits from sound management, in line with the separation of ownership and management, and the distribution of profits. Nisshinbo has never reported a group operating loss, even in the 1990s after the Japanese economic bubble burst. Until FY03/10, the equity ratio was over 50%, and it has significant unrealized gains on real estate and investment securities.

Pushing up margins; buying growth Until the 2000s, Nisshinbo’s strategy prioritized management security and equity ratio over asset turnover and ROIC. In the 2000s, however, President Yoshikazu Sashida began stressing asset turnover, shifting management’s focus from subscription-type streams of revenue to recurring sales of products and services. When earnings faltered in the Textiles segment, the company decided to use its real estate more efficiently, closing factories and offering employees early retirement.

From the late 2000s, the company began using acquisitions to build revenues. In 2006, Takashi Iwashita was appointed president. In April that year, he announced a three-year management plan through 2008. Under his leadership, the company consolidated factories in the Textiles segment and exited unprofitable businesses in the Chemicals segment—under a strategy of “selection and concentration”, complemented by friendly acquisitions.

Earnings slumped in FY03/09, following the global financial crisis. The situation was exacerbated by an extraordinary loss on benefits for early retirement, resulting in a net loss. In April 2009, Shizuka Uzawa was appointed president. Under his leadership Nisshinbo moved to a holding company structure, and a three-year plan, Challenge 2012, was announced in March 2010. Targets included a return to profitability in Textiles, Electronics, and Precision Instruments and profit growth in Automobile Brakes. During Challenge 2012, Nisshinbo acquired Japan Radio Company Co., Ltd. (JRC) in 2010 and TMD Friction Group S.A. in 2011.

Aiming to increase profits, mainly through growth in mainstay segments In June 2013, Masaya Kawata was appointed president. The company worked to reform JRC in the Electronics segment, and respond to restrictions on the use of copper in brakes and implement initiatives to enhance TMD’s competitiveness in the Automobile Brakes segment. Nisshinbo pursued M&A aimed at complementing its businesses, such as the acquisition of Tokyo Shirts Group and Nanbu Plastics Co., Ltd. in 2015, and RICOH Electronic Devices Co., Ltd. in 2018. Nisshinbo also tightened its grip on core subsidiaries, making JRC a wholly owned subsidiary in 2017 and making similar plans for New Japan Radio Co., Ltd. (New JRC) in 2018. At the same time, the company sold off non-core businesses, completing its exit from the papers business in 2017 and from the drum brake business in 2018.

Nisshinbo is aiming for ROE of over 12% by FY12/25 as stated in its long-term vision. The company aims to boost earnings through the expansion of existing businesses, creation of new businesses, and acquisitions.

03/72 Nisshinbo Holdings / 3105 RCoverage LAST UPDATE: 2019.09.19 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Earnings performance

◤ For FY12/19, the company is forecasting sales of JPY540.0bn (+4.9% versus adjusted FY12/18), operating profit of JPY8.0bn (+67.2% versus adjusted FY12/18), recurring profit of JPY12.0bn (+38.8 versus adjusted FY12/18), and net income attributable to owners of the parent of JPY7.4bn (versus net loss attributable to owners of the parent of JPY1.4bn in adjusted FY12/18). In FY12/18 there was an irregular period of nine months due to the company changing its accounting period. Adjusted FY12/18 figures, given for reference, indicate the period from January to December 2018.

◤ Long-term, the company is aiming for ROE over 12% by FY12/25. After the conclusion of the NEXT2015 management plan in FY03/16, the company has not announced a new medium-term plan. However, Shared Research believes that the company will focus on revamping its mainstay Electronics segment. As part of this effort, in October 2017 Nisshinbo made JRC a wholly owned subsidiary through a share exchange. Further, the company plans to make New JRC a wholly owned subsidiary through a share exchange in September 2018. At the Automobile Brakes segment, a mainstay segment other than Electronics, Shared Research expects improved earnings at TMD and market share gains stemming from the company’s early move to meet regulatory restrictions on the use of copper in brakes to lead to profit growth.

Strengths and weaknesses

Shared Research believes that Nisshinbo’s strengths include its current focus on structural reform with emphasis on assets efficiency, unrealized gains on real estate and securities, and global reach of its Automobile Brakes segment. Weaknesses include loss of focus due to scattered personnel and management resources, slow speed of reforms, and businesses with a low asset turnover.

04/72 Nisshinbo Holdings / 3105 RCoverage LAST UPDATE: 2019.09.19 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Key financial data

Income statement FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 FY12/19 (JPYmn) Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Est. Sales 286,166 242,409 325,555 379,340 450,693 494,350 523,757 533,989 527,274 512,047 416,221 540,000 YoY -11.2% -15.3% 34.3% 16.5% 18.8% 9.7% 5.9% 2.0% -1.3% -2.9% - - Electronics 60,549 51,699 112,820 169,906 175,307 187,742 209,115 205,367 190,851 193,620 144,204 YoY -20.8% -14.6% 118.2% 50.6% 3.2% 7.1% 11.4% -1.8% -7.1% 1.5% - Automobile Brakes 49,229 41,045 46,118 47,450 118,849 148,699 161,886 165,037 146,061 154,204 135,007 YoY -17.7% -16.6% 12.4% 2.9% 150.5% 25.1% 8.9% 1.9% -11.5% 5.6% - Real Estate 6,433 6,297 12,436 9,081 15,366 10,567 9,246 8,357 8,083 8,405 4,236 YoY 18.1% -2.1% 97.5% -27.0% 69.2% -31.2% -12.5% -9.6% -3.3% 4.0% - Precision Instruments, Chemicals, 145,651 115,971 127,028 124,631 113,967 120,498 116,190 130,521 158,658 130,842 114,051 Textiles, and Papers YoY -6.3% -20.4% 9.5% -1.9% -8.6% 5.7% -3.6% 12.3% 21.6% -17.5% - Gr o s s pr of it 42, 309 40,783 63,487 61,806 91,229 99,266 108,149 114,587 106,664 105,978 81,177 YoY -25.0% -3.6% 55.7% -2.6% 47.6% 8.8% 8.9% 6.0% -6.9% -0.6% - GPM 14.8% 16.8% 19.5% 16.3% 20.2% 20.1% 20.6% 21.5% 20.2% 20.7% 19.5% Operating profit 407 3,569 19,842 4,170 13,393 13,175 13,744 12,617 4,890 15,085 -2,505 8,000 YoY -96.6% 776.9% 456.0% -79.0% 221.2% -1.6% 4.3% -8.2% -61.2% 208.5% - - OPM 0.1%1.5%6.1%1.1%3.0%2.7%2.6%2.4%0.9%2.9%-0.6%1.5% Electronics -3,918 -2,654 6,183 -4,111 7,788 9,351 12,703 8,318 -3,240 3,021 -4,904 YoY - - - - - 20.1% 35.8% -34.5% - - - Automobile Brakes 3,467 3,879 5,090 4,254 -4,301 -1,813 -2,068 -886 -7 6,119 -813 YoY -59.2% 11.9% 31.2% -16.4% ------Real Estate 3,340 5,983 10,190 6,742 12,289 7,780 6,669 5,795 5,811 5,067 2,681 YoY 22.7% 79.1% 70.3% -33.8% 82.3% -36.7% -14.3% -13.1% 0.3% -12.8% - Precision Instruments, Chemicals, -2,101 -1,551 1,171 405 1,269 1,774 727 3,591 6,737 5,711 4,604 Textiles, and Papers YoY - - - -65.4% 213.3% 39.8% -59.0% 393.9% 87.6% -15.2% - Recurring profit 7,150 9,548 25,268 8,680 17,686 22,171 20,650 17,034 10,556 19,700 1,566 12,000 YoY -62.2% 33.5% 164.6% -65.6% 103.8% 25.4% -6.9% -17.5% -38.0% 86.6% - - RPM 2.5%3.9%7.8%2.3%3.9%4.5%3.9%3.2%2.0%3.8%0.4%2.2% Ne t in c o me - 1 , 2 8 5 1,896 11,184 9,415 6,418 9,011 13,693 10,775 3,574 26,352 -7,182 7,400 YoY -110.5% -247.5% 489.9% -15.8% -31.8% 40.4% 52.0% -21.3% -66.8% 637.3% - - Net margin -0.4%0.8%3.4%2.5%1.4%1.8%2.6%2.0%0.7%5.1%-1.4% Per share data (JPY) Shares issued (year-end; '000) 184,098 184,098 178,798 178,798 178,798 178,798 178,798 178,798 178,798 178,799 178,835 EPS -7.1 10.4 63.3 53.8 36.7 51.6 80.3 67.9 22.5 160.6 -43.3 44.2 EPS (fully diluted) - - - - - 51.6 80.3 67.8 22.5 160.4 - Dividend per share 15.0 15.0 15.0 15.0 15.0 15.0 15.0 30.0 30.0 30.0 30.0 30.0 Book value per share 985 1,034 1,037 1,063 1,199 1,370 1,634 1,472 1,445 1,659 1,457 Balance sheet (JPYmn) Cash and cash equivalents 32,404 20,181 29,374 20,897 20,200 28,033 45,687 45,921 47,691 43,046 42,434 Total current assets 149,866 130,606 241,676 239,600 239,318 272,444 310,469 304,395 314,800 311,096 298,087 Tangible fixed assets 118,178 114,725 149,939 162,824 165,552 174,246 184,885 191,768 185,484 186,017 184,689 Investments and other assets 95,674 108,341 82,958 84,135 101,767 118,473 147,216 124,993 125,332 135,637 124,479 Intangible fixed assets 3,139 4,435 5,278 47,068 44,762 46,146 35,914 30,636 20,670 19,206 15,124 Total assets 366,858 358,109 479,852 534,583 551,933 611,310 678,486 651,793 646,288 651,958 622,381 Accounts payable 22,299 25,562 54,998 59,228 58,708 66,557 63,593 62,690 59,974 55,526 44,048 Short-term debt 60,069 24,339 25,493 26,928 28,736 48,653 71,280 55,397 48,977 46,312 65,391 Total current liabilities 120,174 94,367 156,885 168,938 188,406 203,660 226,178 219,770 206,174 208,949 218,089 Long-term debt 4,467 14,226 24,481 47,607 26,560 28,888 38,162 48,757 69,294 64,107 58,742 Total fixed liabilit ies 52,985 70,104 111,409 151,894 120,903 130,785 145,370 147,551 164,360 152,574 139,442 Total liabilities 173,159 164,471 268,295 320,833 309,309 334,445 371,548 367,321 370,535 361,524 357,531 Net assets 193,698 193,638 211,557 213,750 242,623 276,865 306,937 284,471 275,753 290,434 264,849 Total interest-bearing debt 66,921 40,827 73,627 108,859 90,025 97,861 116,076 118,833 126,041 118,095 132,190 Cash flow statement (JPYmn) Cash flows from operating activities 11,938 27,537 16,529 12,973 34,095 26,075 37,120 39,566 26,768 32,414 15,495 Cash flows from investing activities -14,393 -9,949 11,591 -57,860 -10,973 -19,862 -21,271 -22,793 -31,429 -1,797 -20,723 Cash flows from financing activities 11,939 -30,347 703 16,835 -24,072 -2,321 -6,238 -9,044 3,595 -34,784 11,935 Fina nc ia l r a t ios ROA (RP-based) 1.8% 2.6% 6.0% 1.7% 3.3% 3.8% 3.2% 2.6% 1.6% 3.0% 0.2% ROE -0.6% 1.0% 6.1% 5.1% 3.2% 4.0% 5.5% 4.4% 1.5% 10.6% -2.8% Equity ratio 52.8% 54.1% 44.1% 40.0% 44.0% 45.3% 45.2% 43.6% 42.7% 44.5% 42.6% Source: Shared Research, based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Starting with FY12/18, Nisshinbo changed its financial year end from March 31 to December 31. For this reason, FY12/18 was an irregular accounting period covering April to December 2018 for consolidated companies whose financial year previously ended in March.

05/72 Nisshinbo Holdings / 3105 RCoverage LAST UPDATE: 2019.09.19 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Recent updates

Highlights On September 19, 2019, Shared Research updated the report following interviews with Nisshinbo Holdings Inc.

On August 7, 2019, the company announced earnings results for 1H FY12/19; see the results section for details.

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

06/72 Nisshinbo Holdings / 3105 RCoverage LAST UPDATE: 2019.09.19 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Trends and outlook

Quarterly trends and results

Cumulative Adjusted FY12/18 FY12/19 FY 12/ 19 (JPYmn) Q1Q2Q1Q2% of FYFY Est. Sales 152,407 269,623 141,448 256,807 47.6% 540,000 YoY - - -7.2% -4.8% 4.9% Operating profit 8,985 7,462 4,544 929 11.6% 8,000 YoY - - -49.4% -87.6% 67.2% OPM 5.9% 2.8% 3.2% 0.4% 1.5% Recurring profit 9,741 9,978 6,127 3,718 31.0% 12,000 YoY - - -37.1% -62.7% 38.9% RPM 6.4% 3.7% 4.3% 1.4% 2.2% Net income 6,647 6,344 4,968 2,743 37.1% 7,400 YoY - - -25.3% -56.8% - Net margin 4.4% 2.4% 3.5% 1.1% 1.4% Quart erly Adjusted FY12/18 FY 12/ 19 (JPYmn) Q1Q2Q1Q2 Sales 152,407 117,216 141,448 115,359 YoY - - -7.2% -1.6% Operating profit 8,985 -1,523 4,544 -3,615 YoY - - -49.4% - OPM 5.9% - 3.2% - Recurring profit 9,741 237 6,127 -2,409 YoY - - -37.1% - RPM 6.4% 0.2% 4.3% - Net income 6,647 -303 4,968 -2,225 YoY - - -25.3% - Net margin 4.4% - 3.5% - Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Starting with FY12/18, Nisshinbo changed its financial year end from March to December. Adjusted FY12/18 figures include results of the company and all consolidated subsidiaries for the year from January to December 2018. Adjusted YoY change and Adjusted YoY (%) compares FY12/19 figures with those under adjusted comparable quarter in FY2018.

07/72 Nisshinbo Holdings / 3105 RCoverage LAST UPDATE: 2019.09.19 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Quarterly results by segment Cumulative Adjusted FY12/18 FY12/19 FY12/19 (JPYmn) Q1Q2Q1Q2% of FYFY Est. Sales 152,407 269,623 141,448 256,807 47.6% 540,000 YoY - - -7.2% -4.8% 4.9% Wireless and Communications 58,582 83,019 53,222 81,740 53.4% 153,000 YoY - - -9.1% -1.5% 5.7% Micro Devices 12,959 30,770 15,358 30,829 40.0% 77,000 YoY - - 18.5% 0.2% 15.4% Automobile Brakes 38,131 73,012 33,843 66,165 45.3% 146,000 YoY - - -11.2% -9.4% 4.2% Precision Instruments 16,880 33,199 16,237 32,484 47.8% 68,000 YoY - - -3.8% -2.2% 3.2% Chemicals 3,389 6,466 2,097 4,379 39.8% 11,000 YoY - - -38.1% -32.3% -4.9% Textiles 13,267 26,458 13,177 25,781 46.9% 55,000 YoY - - -0.7% -2.6% 2.5% Real Estate 2,945 4,314 1,326 2,648 44.1% 6,000 YoY - - -55.0% -38.6% -16.5% Operating profit 8,985 7,462 4,544 929 11.6% 8,000 YoY - - -49.4% -87.6% 67.2% Wireless and Communications 5,892 3,348 5,276 3,665 166.6% 2,200 YoY - - -10.5% 9.5% - Micro Devices 609 1,166 132 -432 - 2,200 YoY - - -78.3% - -1.5% Automobile Brakes 835 269 -1,167 -2,213 - 1,800 YoY ---- - Precision Instruments 648 1,051 222 192 11.3% 1,700 YoY - - -65.7% -81.7% 4.4% Chemicals 716 1,376 308 666 30.3% 2,200 YoY - - -57.0% -51.6% -7.6% Textiles 226 573 130 520 32.5% 1,600 YoY - - -42.5% -9.2% 22.5% Real Estate 1,360 2,226 888 1,575 58.3% 2,700 YoY - - -34.7% -29.2% -33.2% Quarterly Adjusted FY12/18 FY12/19 (JPYmn) Q1Q2Q1Q2 Sales 152,407 117,216 141,448 115,359 YoY - - -7.2% -1.6% Wireless and Communications 58,582 24,437 53,222 28,518 YoY - - -9.1% 16.7% Micro Devices 12,959 17,811 15,358 15,471 YoY - - 18.5% -13.1% Automobile Brakes 38,131 34,881 33,843 32,322 YoY - - -11.2% -7.3% Precision Instruments 16,880 16,319 16,237 16,247 YoY - - -3.8% -0.4% Chemicals 3,389 3,077 2,097 2,282 YoY - - -38.1% -25.8% Textiles 13,267 13,191 13,177 12,604 YoY - - -0.7% -4.5% Real Estate 2,945 1,369 1,326 1,322 YoY - - -55.0% -3.4% Operating profit 8,985 -1,523 4,544 -3,615 YoY - - -49.4% - Wireless and Communications 5,892 -2,544 5,276 -1,611 YoY - - -10.5% - Micro Devices 609 557 132 -564 YoY - - -78.3% - Automobile Brakes 835 -566 -1,167 -1,046 YoY ---- Precision Instruments 648 403 222 -30 YoY - - -65.7% - Chemicals 716 660 308 358 YoY - - -57.0% -45.8% Textiles 226 347 130 390 YoY - - -42.5% 12.4% Real Estate 1,360 866 888 687 YoY - - -34.7% -20.7% Source: Shared Research based on company data. Note: Figures may differ from company materials due to differences in rounding methods. Note: Starting with FY12/18, Nisshinbo changed its financial year end from March to December. Adjusted FY12/18 figures include results of the company and all consolidated subsidiaries for the year from January to December 2018. Adjusted YoY change and Adjusted YoY (%) compares FY12/19 figures with those under adjusted comparable quarter in FY2018.

08/72 Nisshinbo Holdings / 3105 RCoverage LAST UPDATE: 2019.09.19 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Results by segment (detail)

Wireless and Communications FY12/18 FY adjusted FY12/19 FY Est. YoY change 1H FY12/18 adjusted 1H FY12/19 Est. YoY change 2H FY12/18 adjusted 2H FY12/19 Est. YoY change January–June January–June July–December July–December Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Marine systems 33,210 -2,727 37,100 -900 3,890 1,827 16,225 -1,679 17,138 -985 913 694 16,985 -1,048 19,962 85 2,977 1,133 Communications equipment 16,528 1,439 16,500 1,100 -28 -339 8,422 784 8,322 680 -100 -104 8,106 655 8,178 420 72 -235 Solutions and specialized equipment 64,529 317 68,500 1,000 3,971 683 42,430 3,846 41,409 2,886 -1,021 -960 22,099 -3,529 27,091 -1,886 4,992 1,643 Mechatronics 18,328 268 17,600 200 -728 -68 9,458 182 9,218 298 -240 116 8,870 86 8,382 -98 -488 -184 Medical equipment 9,408 751 9,700 500 292 -251 5,219 420 4,333 411 -886 -9 4,189 331 5,367 89 1,178 -242 Other 2,512 -731 3,600 -100 1,088 631 1,010 -242 1,363 9 353 251 1,502 -489 2,237 -109 735 380 Eliminations 247 190 - 400 -247 210 255 37 -43 366 -298 329 -8 153 43 34 51 -119 Total 144,762 -493 153,000 2,200 8,238 2,693 83,019 3,348 81,740 3,665 -1,279 317 61,743 -3,841 71,260 -1,465 9,517 2,376

Micro Devices FY12/18 FY adjusted FY12/19 FY Est. YoY change 1H FY12/18 adjusted 1H FY12/19 Est. YoY change 2H FY12/18 adjusted 2H FY12/19 Est. YoY change January–June January–June July–December July–December Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP New Japan Radio 50,081 1,565 52,700 1,400 2,619 -165 25,451 961 21,316 202 -4,135 -759 24,630 604 31,384 1,198 6,754 594 Ricoh Electronic Devices 18,073 1,043 25,300 1,000 7,227 -43 6,039 298 10,021 -506 3,982 -804 12,034 745 15,279 1,506 3,245 761 Eliminations, other -1,418 -374 -1,000 -200 418 174 -720 -93 -508 -128 212 -35 -698 -281 -492 -72 206 209 Total 66,736 2,234 77,000 2,200 10,264 -34 30,770 1,166 30,829 -432 59 -1,598 35,966 1,068 46,171 2,632 10,205 1,564

Automobile Brakes FY12/18 FY adjusted FY12/19 FY Est. YoY change 1H FY12/18 adjusted 1H FY12/19 Est. YoY change 2H FY12/18 adjusted 2H FY12/19 Est. YoY change January–June January–June July–December July–December Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Nisshinbo Brake Inc. 56,444 3,846 55,000 2,900 -1,444 -946 30,314 2,132 25,720 644 -4,594 -1,488 26,130 1,714 29,280 2,256 3,150 542 TMD 90,593 -4,055 97,300 -300 6,707 3,755 46,399 -1,483 43,579 -2,307 -2,820 -824 44,194 -2,572 53,721 2,007 9,527 4,579 Eliminations -6,866 -707 -6,300 -800 566 -93 -3,701 -380 -3,134 -550 567 -170 -3,165 -327 -3,166 -250 -1 77 Total 140,171 -916 146,000 1,800 5,829 2,716 73,012 269 66,165 -2,213 -6,847 -2,482 67,159 -1,185 79,835 4,013 12,676 5,198

Precision Instruments FY12/18 FY adjusted FY12/19 FY Est. YoY change 1H FY12/18 adjusted 1H FY12/19 Est. YoY change 2H FY12/18 adjusted 2H FY12/19 Est. YoY change January–June January–June July–December July–December Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Precision parts processing 18,920 746 17,500 800 -1,420 54 8,809 389 7,620 17 -1,189 -372 10,111 357 9,880 783 -231 426 Plastic molding and processing 52,672 1,931 51,600 1,700 -1,072 -231 26,752 1,158 25,999 574 -753 -584 25,920 773 25,601 1,126 -319 353 Eliminations -5,671 -1,049 -1,100 -800 4,571 249 -2,362 -496 -1,135 -399 1,227 97 -3,309 -553 35 -401 3,344 152 Total 65,921 1,628 68,000 1,700 2,079 72 33,199 1,051 32,484 192 -715 -859 32,722 577 35,516 1,508 2,794 931

Chemicals FY12/18 FY adjusted FY12/19 FY Est. YoY change 1H FY12/18 adjusted 1H FY12/19 Est. YoY change 2H FY12/18 adjusted 2H FY12/19 Est. YoY change January–June January–June July–December July–December Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Environment and energy products 9,950 1,918 9,000 1,600 -950 -318 5,623 1,113 3,688 515 -1,935 -598 4,327 805 5,312 1,085 985 280 Other products 1,827 460 2,000 600 173 140 941 265 803 150 -138 -115 886 195 1,197 450 311 255 Eliminations -214 3 214 -3 -98 -2 -113 - -15 2 -116 5 113 - 229 -5 Total 11,563 2,381 11,000 2,200 -563 -181 6,466 1,376 4,379 666 -2,087 -710 5,097 1,005 6,621 1,534 1,524 529

Textiles FY12/18 FY adjusted FY12/19 FY Est. YoY change 1H FY12/18 adjusted 1H FY12/19 Est. YoY change 2H FY12/18 adjusted 2H FY12/19 Est. YoY change January–June January–June July–December July–December Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Japan 47,013 1,028 45,800 1,200 -1,213 172 23,238 487 22,279 400 -959 -87 23,775 541 23,521 800 -254 259 Overseas 22,134 684 23,300 600 1,166 -84 10,240 211 11,087 212 847 1 11,894 473 12,213 388 319 -85 Eliminations -15,494 -406 -14,100 -200 1,394 206 -7,020 -125 -7,585 -92 -565 33 -8,474 -281 -6,515 -108 1,959 173 Total 53,653 1,306 55,000 1,600 1,347 294 26,458 573 25,781 520 -677 -53 27,195 733 29,219 1,080 2,024 347 Source: Shared Research based on company data

1H FY12/19 results

▷ Sales: JPY256.8bn (-4.8% versus adjusted 1H FY2018) ▷ Operating profit: JPY929mn (-87.6%) ▷ Recurring profit: JPY3.7bn (-62.7%) ▷ Net income*: JPY2.7bn (-56.8%) * Net income attributable to owners of the parent

Starting with FY12/18, Nisshinbo changed its financial year-end from March to December. As such, the transitional period of 1H FY12/18 (consolidated) covered the six months from April to September 2018 for the company and consolidated subsidiaries that had a financial year-end of March, the seven months from March to September 2018 for consolidated subsidiaries that had a financial year-end of February, and the nine months from January to September 2018 for consolidated subsidiaries that already had a financial year-end of December. The comparative information provided for reference hereinafter uses an adjusted period (referred to as “adjusted comparable quarter”) to allow a like-for-like comparison with 1H FY12/19 (January–June 2019) for reference.

The company revised its segmentation as of Q1 FY12/19. It now has seven segments: the Wireless and Communications segment and the Micro Devices segment (which, together used to be the Electronics segment), along with the Automobile Brakes, Precision Instruments, Chemicals, Textiles, and Real Estate segments.

Overall sales were down YoY primarily on a decline in sales in the Automobile Brakes segment, which was negatively impacted by the sale of the foundation brake business and stagnation in the European and Chinese markets (negative impact of JPY4.0bn versus adjusted 1H FY2018). In addition, sales in the Micro Devices segment remained at the same level as in adjusted 1H FY2018 because, although RICOH Electronic Devices contributed after becoming a consolidated subsidiary in March 2018, sales at New JRC were down on the impact of deterioration in the market environment.

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Operating profit fell owing to lower profit in the Automobile Brakes and Micro Devices segments, as did recurring profit. Net income attributable to owners of the parent was also down in 1H due to the decline in recurring profit, despite the absence of provision for environmental measures recorded during adjusted 1H FY2018 and lower business restructuring expenses (JPY1.7bn including JPY1.5bn in business restructuring expenses for subsidiaries and JPY156mn in provision for business structure improvement).

Since sales and profit of the Wireless and Communications business are weighted toward Q1 (January‒March), when JRC books a large proportion of its equipment sales to national and local government agencies, the company’s sales and profits from Q2 to Q4 (April‒December) tend to be lower.

Q2 (April‒June 2019) sales were JPY115.4bn (-1.6% versus adjusted 1H FY2018) and operating loss was JPY3.6bn (operating loss of JPY1.5bn in adjusted 1H FY2018). In Q2, although the Wireless and Communications business’ operating loss shrank versus adjusted Q2 FY2018, operating profit declined versus adjusted Q2 FY2018 in the Micro Devices and Automobile Brakes businesses, resulting in an operating loss overall.

In terms of 1H FY12/19 progress on the company’s FY12/19 forecast, sales were at 47.6% (versus 52.4% of full-year results in adjusted 1H FY2018) and operating profit at 11.6% (versus 156.0%). Progress toward operating profit targets was under 50% in all businesses except Wireless and Communications and Real Estate. Operating profit progress was low, but Nisshinbo has left its full-year forecast unchanged. In the Micro Devices business, inventory adjustment ended in 1H, so the company believes orders bottom out in 2H and sales are recovering. Furthermore, the company is keeping expenses under control, particularly in the Wireless and Communications and Micro Devices businesses, and plans to improve profit status.

Wireless and Communications

▷ Sales: JPY81.7bn (-1.5% versus adjusted 1H FY2018) ▷ Segment profit: JPY3.7bn (+9.5%)

▷ The marine systems business generated sales of JPY17.1bn (+5.6% versus adjusted 1H FY2018) and an operating loss of JPY985mn (JPY1.7bn operating loss in adjusted 1H FY2018). Despite a drop in equipment sales targeting merchant ship retrofitting in light of stagnant aftermarket demand, equipment sales targeting new merchant ships and fishing vessels increased versus adjusted 1H FY2018. Losses narrowed on a reduction in fixed costs. ▷ Sales and profit fell in the communications equipment business, which generated sales of JPY8.3bn (-1.2% versus adjusted 1H FY2018) and operating profit of JPY680mn (-13.3% versus adjusted 1H FY2018). Intelligent transportation system (ITS) products for automobiles remained robust and sales of personal hand-phone system (PHS) devices and commercial radios increased. However, there was a drop in sales of amplifier products as shipment of optical transmission equipment for smartphone application ran its course. ▷ The solutions and specialized equipment business generated sales of JPY41.4bn (-2.4% versus adjusted 1H FY2018) and operating profit of JPY2.9bn (-25.0% versus adjusted 1H FY2018). Although sales increased for aviation and meteorological systems, overall sales and profit fell as large projects for broadcasting systems and water and river management systems ran their course, and booking of earnings for some projects was postponed until 2H. According to its full-year forecast, Nisshinbo expects Wireless and Communications to generate higher sales and profit versus adjusted FY2018. To achieve this, it aims to improve operations by controlling expenses in 2H. ▷ The mechatronics and power supply business generated sales of JPY9.2bn (-2.5% versus adjusted 1H FY2018) and operating profit of JPY298mn (+63.7% versus adjusted 1H FY2018). Sales fell largely due to lower sales in mechatronics equipment as clients adjusted their inventories, even though sales increased in the communications equipment and power supply businesses as new models were launched. Profit increased on successful cost reduction efforts. In July 2019, Nisshinbo made NJ

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Components a wholly owned subsidiary, which had taken over some business from FDK Corporation (TSE2: 6955). NJ Components develops, manufactures, and sells inductors, transformers, and other power supply equipment for various types of electric vehicle. Nisshinbo says it aims for NJ Components to generate sales of JPY10.0bn in 2025 with the cooperation of Nagano JRC. Nisshinbo has included NJ Components in consolidation starting from 2H FY12/19, and expects it to generate sales of about JPY1.0bn during 2H, but to have very little impact on profit during FY12/19. ▷ Other businesses (including JRC Mobility) and eliminations resulted in improvement in operating profit of JPY580mn versus adjusted 1H FY2018. The improvement was due to lower development expenses at JRC Mobility and correction in retirement benefit expenses.

Micro Devices

▷ Sales: JPY30.8bn (+0.2% versus adjusted 1H FY2018) ▷ Segment loss: JPY432mn (segment profit of JPY1.2bn in adjusted 1H FY2018)

This segment comprises New JRC and RICOH Electronic Devices. New JRC is strong in analog semiconductors for low-noise amplifiers and power management integrated circuits used in audio equipment, vehicles, and industrial equipment, as well as in devices for wireless communications and IoT. RICOH Electronic Devices is strong in power management integrated circuits, especially small, energy-saving, high-efficiency analog complementary metal oxide semiconductors (CMOS).

▷ New JRC generated sales of JPY21.3bn (-16.2% versus adjusted 1H FY2018) and operating profit of JPY202mn (-79.0% versus adjusted 1H FY2018), while RICOH Electronic Devices generated sales of JPY10.0bn (+65.9% versus adjusted 1H FY2018) and an operating loss of JPY506mn (operating profit of JPY298mn in adjusted 1H FY2018). RICOH Electronic Devices generated significantly higher sales but an operating loss because it was only consolidated in March 2018, so the YoY comparison is only versus April‒June 2018. ▷ For the microwave products, sales and profit declined on sluggish sales of sensor components. ▷ For electronic devices, sales increased but profit declined. RICOH Electronic Devices, made a consolidated subsidiary in March 2018, contributed to the increase in sales. Decline in profit was affected by factors such as market stagnation accompanying

the saturating smartphone market and the trade conflict between the US and China (causing a decline in sales of communications-related products, especially by US and South Korean manufacturers) and a drop in sales of industrial machinery-related products caused by stagnating facilities investment demand related to smartphones.

Automobile Brakes

▷ Sales: JPY66.2bn (-9.4% versus adjusted 1H FY2018) ▷ Segment loss: JPY2.2bn (segment profit of JPY269mn in adjusted 1H FY2018)

Main subsidiaries in this segment are Nisshinbo Brake (domestic and overseas) and TMD.

Nisshinbo Brake Nisshinbo Brake generated sales of JPY25.7bn (-15.2% versus adjusted 1H FY2018) and operating profit of JPY644mn (-69.8% versus adjusted 1H FY2018). Operating profit fell JPY1.5bn versus adjusted 1H FY2018. In terms of profit, the sale of the foundation brake business had a negative impact of JPY360mn, expenses to start up the new China plant had a negative impact of JPY200mn, and expenses to launch new copper-reduced or copper-free products had a negative impact of JPY200mn. In addition, stagnation in the China market had a negative impact of JPY790mn.

▷ In regard to Nisshinbo Brake (Japan), which generates about 30% of Nisshinbo Brake sales and 20% of operating profit, sales of standard passenger cars were favorable and sales of small, low-displacement automobiles were robust, causing car sales to rise

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versus adjusted 1H FY2018. The domestic business saw lower sales due to the sale of the foundation brake business, but profit increased thanks to the launch of new copper-reduced or copper-free products and improved productivity. ▷ In regard to Nisshinbo Brake (Overseas), which generates about 70% of Nisshinbo Brake sales and 80% of operating profit, the sale of the foundation brake business led to lower sales centered on Thailand, and profit fell across the board except for in South Korea.  At US subsidiaries the launch of new products compensated for shrinking auto sales, resulting in higher sales, but profit fell due mainly to an increase in depreciation accompanying capital expenditure.  At South Korean subsidiaries, both sales and profit were flat.  Chinese subsidiaries saw lower sales and profit as car sales fell and there was an increased expense burden for the establishment of new bases. Sales to Chinese, South Korean, and European auto manufacturers declined, but sales to Japanese auto manufacturers increased.  Thai subsidiaries saw lower sales and profit following the sale of the foundation brake business.

TMD

▷ TMD generated sales of JPY43.6bn (-6.1% versus adjusted 1H FY2018) and an operating loss of JPY2.3bn (operating loss of JPY1.5bn in adjusted 1H FY2018). Sales were down and losses widened mainly from contraction of the European auto sales

market and an increase in business restructuring expenses. ▷ The wider YoY operating loss was largely due to Q1 (January‒March 2019) results, with Q2 being essentially flat YoY. The operating loss widened in Q1 on increases in business restructuring and advertising expenses. Market share fell due to delayed

shipments of aftermarket products in FY12/18 accompanying the relocation of a product warehouse in Germany, so the company increased advertising spending in Q1 FY12/19 in an attempt to recover market share. ▷ Although shipment delays accompanying the relocation of the product warehouse in Germany caused lower sales and profit in FY12/18, Nisshinbo says those shipping issues have been remedied in FY12/19. ▷ Aiming to achieve business improvement at TMD, Nisshinbo assigned group employees from Japan to TMD’s management team in April 2018. Shared Research believes that, starting in FY12/19, Nisshinbo Brake will further strengthen its involvement

in TMD’s management and implement measures to improve product yield in order to improve TMD’s profit margins. As of August 2019, it seems the company has identified issues it needs to address to improve TMD’s productivity and efficiency.

Precision Instruments

▷ Sales: JPY32.5bn (-2.2% versus adjusted 1H FY2018) ▷ Segment profit: JPY192mn (-81.7%)

Profit fell for automotive precision parts and plastic molding and processing on the impact of a decline in the number of automobiles sold in China. ▷ The automotive precision parts business generated sales of JPY7.6bn (-13.5% versus adjusted 1H FY2018) and operating profit of JPY17mn (-95.6% versus adjusted 1H FY2018). The lower sales and profit were due to the end of some mass-produced products, the impact of a sales slump at US auto manufacturers caused by the negative impact of the US–China trade conflict on Chinese subsidiaries, and increased depreciation. ▷ The plastic molding and processing business generated sales of JPY26.0bn (-2.8% versus adjusted 1H FY2018) and operating profit of JPY574mn (-50.4% versus adjusted 1H FY2018). Sales and profit fell due to sluggish performances of consolidated subsidiary Nanbu Plastics and Thai subsidiaries.

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Chemicals

▷ Sales: JPY4.4bn (-32.3% versus adjusted 1H FY2018) ▷ Segment profit: JPY666mn (-51.6%)

Nisshinbo’s mainstay environment and energy-related products, comprising insulation materials, functional chemicals (Carbodilite), and bipolar plates for fuel cells, generated sales of JPY3.7bn (-34.4% versus adjusted 1H FY2018) and operating profit of JPY515mn (-53.7% versus adjusted 1H FY2018). ▷ Sales fell for insulation materials due to the completion of a large rigid processed goods project and lower sales from bio-carriers for wastewater treatment. Operating profit fell JPY420mn versus adjusted 1H FY2018, which had a negative impact on segment profit. ▷ Sales and profit fell for functional chemicals on lower sales of water-based modifiers in Q1. However, these lower sales were a temporary phenomenon caused by inventory adjustments. ▷ Sales and profit for bipolar plates for fuel cells also dropped as sales of products for domestic household application fell.

Textiles

▷ Sales: JPY25.8bn (-2.6% versus adjusted 1H FY2018) ▷ Segment profit: JPY520mn (-9.2%)

▷ Domestic sales were JPY22.3bn (-4.1% versus adjusted 1H FY2018) and operating profit was JPY400mn (-17.9% versus adjusted 1H FY2018). Although sales of fabrics for non-iron shirts and for uniforms were strong, sluggish sales of Nisshin Toa Iwao and Tokyo Shirts products and non-woven fabrics for cosmetic sundries led to a decline in both sales and profit. ▷ Overseas sales were JPY11.1bn (+8.3% versus adjusted 1H FY2018) and operating profit was JPY212mn (+0.5% versus adjusted 1H FY2018). Sales and profit increased YoY on strong sales at an Indonesian subsidiary. Sales at a Brazilian subsidiary were robust, but profit declined due mainly to an increase in raw material costs on a local currency basis. Upon currency translation, the strong yen caused both sales and profit to decline.

Real Estate

▷ Sales: JPY2.6bn (-38.6% versus adjusted 1H FY2018) ▷ Segment profit: JPY1.6bn (-29.2%)

The residential property lot business saw lower sales and profit versus the adjusted comparable quarter in FY2018, when the company sold a lot on the north side of the former site of JRC’s Mitaka factory (Tokyo).

For details on previous quarterly and annual results, see the Historical financial statements section.

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Full-year company forecasts

FY12/19 forecasts FY12/18 FY12/18 FY12/19 (JPYmn) Act. Act. (adjusted) FY Est. YoY change YoY Sales 416,221 514,933 540,000 25,067 4.9% Operat ing profit -2,505 4,784 8,000 3,216 67.2% OPM -0.6% 0.9% 1.5% Recurring profit 1,566 8,642 12,000 3,358 38.9% RPM 0.4% 1.7% 2.2% Net in co me -7,182 -1,366 7,400 8,766 - Net margin - - 1.4% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: FY12/18 results include domestic subsidiaries’ April–December 2018 earnings and overseas subsidiaries’ January–December 2018 earnings. Adjusted FY12/18 results include domestic subsidiaries’ January–December 2018 earnings and overseas subsidiaries’ January–December 2017 earnings.

For FY12/19, Nisshinbo forecasts sales of JPY540.0bn (+4.9% versus adjusted FY12/18), operating profit of JPY8.0bn (+67.2% versus adjusted FY12/18), recurring profit of JPY12.0bn (+38.8 versus adjusted FY12/18), and net income attributable to owners of the parent of JPY7.4bn (versus net loss attributable to owners of the parent of JPY1.4bn in adjusted FY12/18). In FY12/18 there was an irregular period of nine months due to the company changing its accounting period. Adjusted FY12/18 figures, given for reference, indicate the period from January to December 2018.

In FY12/19, the company intends to allocate management resources with a focus predominantly on the mobility field, and to implement a strategy of growth. Due to differences between the businesses operated by the Electronics segment, the company plans to divide that segment into two new segments: a Wireless and Communications segment, and a Micro Devices segment.

Nisshinbo plans to improve performance mainly by increasing profit in the Wireless and Communications and Automobile Brakes segments. In Automobile Brakes, the company plans to expand business by improving its manufacturing structures for copper-free friction material (for which global demand is expected). TMD, which has seen worsening results, will hurry to rebuild its business. In the Precision Instruments segment, the company aims to promote business integration with Nanbu Plastics and expand business.

Company forecasts for FY12/19 (by segment) Business segments FY12/18 FY12/18 FY12/19 (JPYmn) Act. Act. (adjusted) FY Est. YoY change YoY Sales 416,221 514,933 540,000 25,067 4.9% Wireless and Communications 90,427 144,762 153,000 8,238 5.7% Micro Devices 53,776 66,736 77,000 10,264 15.4% Automobile Brakes 135,007 140,171 146,000 5,829 4.2% Precision Instruments 62,219 65,921 68,000 2,079 3.2% Chemicals 8,173 11,563 11,000 -563 -4.9% Textiles 43,659 53,653 55,000 1,347 2.5% Real Estate 4,236 7,182 6,000 -1,182 -16.5% Operating profit -2,505 4,784 8,000 3,216 67.2% Wireless and Communications -6,510 -493 2,200 2,693 - Micro Devices 1,605 2,234 2,200 -34 -1.5% Automobile Brakes -813 -916 1,800 2,716 - Precision Instruments 1,690 1,628 1,700 72 4.4% Chemicals 1,664 2,381 2,200 -181 -7.6% Textiles 1,250 1,306 1,600 294 22.5% Real Estate 2,681 4,042 2,700 -1,342 -33.2% Company-wide -4,074 -5,397 -6,700 -1,303 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: FY12/18 results include domestic subsidiaries’ April–December 2018 earnings and overseas subsidiaries’ January–December 2018 earnings. Adjusted FY12/18 results include domestic subsidiaries’ January–December 2018 earnings and overseas subsidiaries’ January–December 2017 earnings.

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Company forecasts for FY12/19 (Electronics) FY 12/ 18 FY12/18 FY12/19 (JPYmn) Act. Act. (adjusted) FY Est. YoY change YoY Sales 144,204 211,498 230,000 18,502 8.7% Wireless and Communications 90,427 144,762 153,000 8,238 5.7% Marine systems 28,323 33,210 37,100 3,890 11.7% Communications equipment 12,180 16,528 16,500 -28 -0.2% Solutions and specialized equipment 28,252 64,529 68,500 3,971 6.2% Micro Devices 53,776 66,736 77,000 10,264 15.4% New Japan Radio 36,776 50,081 52,700 2,619 5.2% Ricoh Electronic Devices 18,073 18,073 25,300 7,227 40.0% Eliminations, other -1,073 -1,418 -1,000 418 - Eliminations - - - - - Operating profit -4,904 1,741 4,400 2,659 152.7% Wireless and Communications -6,510 -493 2,200 2,693 - Marine systems -1,950 -2,727 -900 1,827 - Communications equipment 1,005 1,439 1,100 -339 -23.6% Solutions and specialized equipment -5,690 317 1,000 683 215.5% Micro Devices 1,605 2,234 2,200 -34 -1.5% New Japan Radio 850 1,565 1,400 -165 -10.5% Ricoh Electronic Devices 1,043 1,043 1,000 -43 -4.1% Eliminations, other -288 -374 -200 174 - Eliminations - - - - - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: FY12/18 results include domestic subsidiaries’ April–December 2018 earnings and overseas subsidiaries’ January–December 2018 earnings. Adjusted FY12/18 results include domestic subsidiaries’ January–December 2018 earnings and overseas subsidiaries’ January–December 2017 earnings.

Company forecasts for FY12/19 (Automobile Brakes) FY 12/ 18 FY12/18 FY12/19 (JPYmn) Act. Act. (adjusted) FY Est. YoY change YoY Sales 135,007 140,171 146,000 5,829 4.2% Nisshinbo Brake Inc. 12,711 18,871 18,100 -771 -4.1% Overseas 128,166 128,166 134,200 6,034 4.7% NISB group 37,573 37,573 36,900 -673 -1.8% TMD group 90,593 90,593 97,300 6,707 7.4% Eliminations -5,870 -6,866 -6,300 566 - Operating profit -813 -916 1,800 2,716 - Nisshinbo Brake Inc. 270 367 500 133 36.2% Overseas -576 -576 2,100 2,676 - NISB group 3,479 3,479 2,400 -1,079 -31.0% TMD group -4,055 -4,055 -300 3,755 - Eliminations -507 -707 -800 -93 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: FY12/18 results include domestic subsidiaries’ April–December 2018 earnings and overseas subsidiaries’ January–December 2018 earnings. Adjusted FY12/18 results include domestic subsidiaries’ January–December 2018 earnings and overseas subsidiaries’ January–December 2017 earnings.

Company forecasts for FY12/19 (Precision Instruments) FY 12/ 18 FY12/18 FY12/19 (JPYmn) Act. Act. (adjusted) FY Est. YoY change YoY Sales 62,219 65,921 68,000 2,079 3.2% Mechatronics 15,848 18,920 17,500 -1,420 -7.5% Plastic molding and processing 51,287 52,672 51,600 -1,072 -2.0% Eliminations -4,916 -5,671 -1,100 4,571 - Operating profit 1,690 1,628 1,700 72 4.4% Mechatronics 807 746 800 54 7.2% Plastic molding and processing 1,811 1,931 1,700 -231 -12.0% Eliminations -928 -1,049 -800 249 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: FY12/18 results include domestic subsidiaries’ April–December 2018 earnings and overseas subsidiaries’ January–December 2018 earnings. Adjusted FY12/18 results include domestic subsidiaries’ January–December 2018 earnings and overseas subsidiaries’ January–December 2017 earnings.

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Company forecasts for FY12/19 (Chemicals) FY 12/ 18 FY12/18 FY12/19 (JPYmn) Act. Act. (adjusted) FY Est. YoY change YoY Sales 8,173 11,563 11,000 -563 -4.9% Fuel cells 1,081 1,490 1,400 -90 -6.0% Functional chemicals (carbodilite) 1,896 2,511 3,300 789 31.4% Insulation materials 4,004 5,949 4,300 -1,649 -27.7% Operating profit 1,664 2,381 2,200 -181 -7.6% Fuel cells 169 308 100 -208 -67.5% Functional chemicals (carbodilite) 533 690 1,100 410 59.4% Insulation materials 645 920 500 -420 -45.7% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: FY12/18 results include domestic subsidiaries’ April–December 2018 earnings and overseas subsidiaries’ January–December 2018 earnings. Adjusted FY12/18 results include domestic subsidiaries’ January–December 2018 earnings and overseas subsidiaries’ January–December 2017 earnings.

Company forecasts for FY12/19 (Textiles) FY 12/ 18 FY12/18 FY12/19 (JPYmn) Act. Act. (adjusted) FY Est. YoY change YoY Sales 43,659 53,653 55,000 1,347 2.5% Domestic 35,838 47,013 45,800 -1,213 -2.6% Nisshinbo Textile Inc. 14,982 20,129 20,400 271 1.3% Domestic subsidiaries 20,856 26,884 25,400 -1,484 -5.5% Overseas 22,134 22,134 23,300 1,166 5.3% Brazil 5,146 5,146 6,100 954 18.5% Indonesia 14,401 14,401 15,000 599 4.2% China 2,587 2,587 2,200 -387 -15.0% Eliminations -14,313 -15,494 -14,100 1,394 - Operating profit 1,250 1,306 1,600 294 22.5% Domestic 837 1,028 1,200 172 16.7% Nisshinbo Textile Inc. 174 257 400 143 55.6% Domestic subsidiaries 663 771 800 29 3.8% Overseas 684 684 600 -84 -12.3% Brazil 233 233 200 -33 -14.2% Indonesia 373 373 400 27 7.2% China 78 78 - -78 - Eliminations -271 -406 -200 206 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: FY12/18 results include domestic subsidiaries’ April–December 2018 earnings and overseas subsidiaries’ January–December 2018 earnings. Adjusted FY12/18 results include domestic subsidiaries’ January–December 2018 earnings and overseas subsidiaries’ January–December 2017 earnings.

Electronics

▷ Sales: JPY230.0bn (+8.7% versus adjusted FY12/18) ▷ Operating profit: JPY4.4bn (+152.7% versus adjusted FY12/18)

Nisshinbo expects sales and profit to rise primarily in Wireless and Communications. In Micro Devices, it expects sales to rise but profit to remain relatively flat.

Wireless and Communications

▷ Sales: PY153.0bn (+5.7% versus adjusted FY12/18) ▷ Operating profit: JPY2.2bn (versus JPY493mn operating loss in adjusted FY12/18)

Within this segment, Nisshinbo expects the marine systems business and solutions and specialized equipment business to have higher sales and profit.

Marine systems

▷ Sales: JPY371.0bn (+11.7% versus adjusted FY12/18) ▷ Operating loss: JPY900mn (versus JPY2.7bn operating loss in adjusted FY12/18)

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In terms of the business environment, Nisshinbo believes demand from the new ship market has bottomed out and will gradually recover. Continuing from FY12/18, the company will strengthen initiatives to capture aftermarket demand and demand related to small and medium-sized ships and fishing vessels, while working to expand its information services business.

Solutions and specialized equipment

▷ Sales: JPY77.0bn (+15.4% versus adjusted FY12/18) ▷ Operating profit: JPY2.2bn (-1.5% versus adjusted FY12/18)

Large projects and equipment replacement demand appear to have subsided, but Nisshinbo aims to expand orders and achieve recovery in sales related to domestic public demand and to strengthen initiatives related to overseas solutions.

In addition, sales and profit related to equipment for national and local government agencies tend to be weighted toward the period between January and March. As a result of the company having changed the financial year end from March to December in 2018, sales and profit are likely to peak during Q1 FY12/19. Shared Research believes that, starting in FY12/19, flexible cost control leading to the achievement of the company’s full-year forecasts will be possible, contingent upon strong Q1 results.

Nisshinbo says that, although order volume for large disaster-prevention systems was small in FY12/18, it expects an increase in demand for these systems in FY12/19. The peak for bids on these systems comes between the latter part of Q1 and the end of Q2, and the company expects increased demand to contribute to orders and sales.

This business has typically relied on domestic public demand, but the company aims to expand sales related to overseas demand and domestic private demand in the medium term. It expects a sizable contribution to FY12/19 performance thanks to overseas orders for meteorological radar and weather observation systems, which have been robust. Also in terms of private demand, the company says orders have been strong for the Alertmarker system for transmitting disaster prevention information to video devices. The system was launched in FY12/18 and the company expects it to factor into higher sales in FY12/19.

Micro Devices New JRC

▷ Sales: JPY52.7bn (+5.2% versus adjusted FY12/18) ▷ Operating profit: JPY1.4bn (-10.5% versus adjusted FY12/18)

New JRC is currently conducting capex in preparation for production of automobile-related products, the sales of which it plans to begin recording in 2021. For this reason, it expects depreciation expenses to increase, resulting in lower profit despite higher sales.

RICOH Electronic Devices

▷ Sales: JPY25.3bn (+40.0% versus adjusted FY12/18) ▷ Operating profit: JPY1.0bn (-4.1% versus adjusted FY12/18)

RICOH Electronic Devices became a consolidated subsidiary in April 2018, with earnings reflected in consolidated FY12/18 results (adjusted) starting in Q2. Full-year results will be consolidated in FY12/19.

Automobile Brakes

▷ Sales: JPY146.0bn (+4.2% versus adjusted FY12/18) ▷ Operating profit: JPY1.8bn (versus JPY916mn operating loss in adjusted FY12/18)

Nisshinbo aims to restore operating profit for this segment, primarily through recovery in performance at TMD.

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Nisshinbo Brake (Japan)

▷ Sales: JPY18.1bn (-4.1% versus adjusted FY12/18) ▷ Operating profit: JPY500mn (+36.2% versus adjusted FY12/18)

Overseas NISB Group

▷ Sales: JPY36.9bn (-1.8% versus adjusted FY12/18) ▷ Operating profit: JPY2.4bn (-31.0% versus adjusted FY12/18)

Impact from the sale of the foundation brake business in April 2018 will cause sales and profit to decline. In addition, Nisshinbo expects a South Korean subsidiary responsible for a large ratio of sales to have lower sales and profit due to decreased sales to client car manufacturers. Furthermore, it anticipates that factors such as increased costs for the development of friction materials in response to restrictions on copper content will contribute to a decrease in profit.

TMD

▷ Sales: JPY97.3bn (+7.4% versus adjusted FY12/18) ▷ Operating loss: JPY300mn (versus JPY4.1bn operating loss in adjusted FY12/18)

In FY12/18, TMD saw lower sales and profit due in part to decreased sales of aftermarket products (due to shipment delays accompanying the relocation of its product warehouse in Germany) and increased personnel expenses. In FY12/19, impact from these shipment delays should largely dissipate. Nisshinbo says the impact was still evident up until Q1 FY12/19, but it expects this issue to be resolved by 2H.

Precision Instruments

▷ Sales: JPY68.0bn (+3.2% versus adjusted FY12/18) ▷ Operating profit: JPY1.7bn (+4.4% versus adjusted FY12/18)

This segment comprises precision instruments and systems business and plastic molding and processing business.

▷ For precision instruments and systems, Nisshinbo expects sales of JPY17.5bn (-7.5% versus adjusted FY12/18) and operating profit of JPY800mn (+7.2% versus adjusted FY12/18). It expects a drop in sales of components for electronically controlled

braking systems in China. Despite the drop in sales, it expects higher profit on an improved product mix ▷ For plastic molding and processing, the company expects sales of JPY51.6bn (-2.0% versus adjusted FY12/18) and operating profit of JPY1.7bn (-12.0% versus adjusted FY12/18). It expects a drop in sales and profit related to one of its key products, plastic molded components of household air conditioner fans for Japanese air conditioner manufacturers

Chemicals

▷ Sales: JPY11.0bn (+3.2% versus adjusted FY12/18) ▷ Operating profit: JPY2.2bn (-7.6% versus adjusted FY12/18)

Nisshinbo expects lower sales and profit from fuel cell separators and insulation materials, but higher sales and profit from functional chemicals.

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▷ For fuel cell separators, it expects sales of JPY1.4bn (-6.0% versus adjusted FY12/18) and operating profit of JPY100mn (-67.5% versus adjusted FY12/18). In FY12/18, the company recorded temporary sales of household fuel cell separator repair parts, but these will not impact results in FY12/19, which is the primary factor contributing to lower projections for sales and profit ▷ For functional chemicals, the company expects sales of JPY3.3bn (+31.4% versus adjusted FY12/18) and operating profit of JPY1.1bn (+59.4% versus adjusted FY12/18). It anticipates an increase in demand accompanying a shift from petroleum-based resins to biodegradable plastics (plant-based resins) as part of efforts to reduce carbon dioxide emissions in light of increasing concern for the environment ▷ For insulation materials, the company expects sales of JPY4.3bn (-27.7% versus adjusted FY12/18) and operating profit of JPY500mn (-45.7% versus adjusted FY12/18). During the previous two financial years, sales of insulation panels for LNG ships contributed to earnings, but these sales will not be a factor in FY12/19, resulting in lower sales and profit

Textiles

▷ Sales: JPY55.0bn (+2.5% versus adjusted FY12/18) ▷ Operating profit: JPY1.6bn (+22.5% versus adjusted FY12/18)

Real Estate

▷ Sales: JPY6.0bn (-16.5% versus adjusted FY12/18) ▷ Operating profit: JPY2.7bn (-33.2% versus adjusted FY12/18)

Nisshinbo expects the leasing business to be central to performance in the Real Estate segment. Limited property for sale in the residential property lot business will cause a decline in sales and profit, but the company expects to increase the number of lots starting in FY12/20.

Companywide expenses

▷ Companywide expenses: -JPY6.7bn (versus -JPY5.4bn in adjusted FY12/18)

Nisshinbo expects R&D expenses to increase.

Historical forecast accuracy

Results vs. Initial Est. FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales (Initial Est.) 325,000 262,000 256,000 405,000 475,000 480,000 530,000 550,000 570,000 520,000 435,000 Sales (Results) 286,166 242,409 325,555 379,340 450,693 494,350 523,757 533,989 527,274 512,047 416,221 Results vs. Initial Est. -11.9% -7.5% 27.2% -6.3% -5.1% 3.0% -1.2% -2.9% -7.5% -1.5% -4.3% Operating profit (Initial Est.) 14,500 5,000 13,500 14,000 15,000 14,000 18,000 20,000 16,000 15,000 3,500 Operating profit (Results) 407 3,569 19,842 4,170 13,393 13,175 13,744 12,617 4,890 15,085 -2,505 Results vs. Initial Est. -97.2% -28.6% 47.0% -70.2% -10.7% -5.9% -23.6% -36.9% -69.4% 0.6% -171.6% Recurring profit (Initial Est.) 21,500 9,000 19,000 18,000 15,500 16,000 22,000 25,000 21,000 20,000 7,500 Recurring profit (Results) 7,150 9,548 25,268 8,680 17,686 22,171 20,650 17,034 10,556 19,700 1,566 Results vs. Initial Est. -66.7% 6.1% 33.0% -51.8% 14.1% 38.6% -6.1% -31.9% -49.7% -1.5% -79.1% Net income (Initial Est.) 14,000 7,000 11,000 12,000 7,000 1,000 10,000 16,000 10,000 20,000 5,000 Net income (Results) -1,285 1,896 11,184 9,415 6,418 9,011 13,693 10,775 3,574 26,352 -7,182 Results vs. Initial Est. -109.2% -72.9% 1.7% -21.5% -8.3% 801.1% 36.9% -32.7% -64.3% 31.8% -243.6% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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Long-term outlook

As a long-term vision, Nisshinbo is aiming to achieve ROE of at least 12% in FY12/25. Nisshinbo plans to boost earnings through the expansion of existing businesses, creation of new businesses, and M&A.

After the conclusion of the NEXT2015 management plan in FY03/16, the company has not announced a new medium-term plan. However, Shared Research believes the company will focus on revamping its mainstay Electronics segment. Further, at the Automobile Brakes segment, Shared Research expects improved earnings at TMD and market share gains stemming from the company’s early move to meet regulatory restrictions on the use of copper in brakes to lead to profit growth.

Stronger earnings and growth in Electronics

At the Electronics segment, the company sees earnings growth over the medium term (the three years starting in FY12/19) being driven primarily by improvements in the profitability of JRC (Wireless and Communications business), its mainstay subsidiary, with JRC ultimately moving into and staying in the black.

Over the longer term, the company plans to grow earnings by expanding sales of parts such as sensors, semiconductors, and lasers needed for the conversion to electrically powered automobiles, the networking of automobiles (connected automobiles), and Advanced Driving Assistance Systems (ADAS)* and other systems for self-driving automobiles. Outside of automotive applications, the company is also looking to expand sales in the mobility field by developing new products and services for ships, airplanes, railroads, industrial machinery, and drones.

* ADAS is a system that equips vehicles with various sensors such as radars, cameras and ultrasonic waves to provide functions such as emergency braking, autonomous cruise control (ACC), lane departure warning systems and parking assistance.

Improving profitability at JRC JRC—the company’s mainstay subsidiary in the Electronics business—has been pushing forward to restructure its businesses since September 2012, but owing to the delayed implementation of its growth strategy, earnings declined in FY03/16 and FY03/17 for two consecutive years. As a result, Nisshinbo booked an operating loss in FY03/17.

In FY03/18, Nisshinbo made JRC a wholly owned subsidiary and brought it back into the black at the operating profit level by expanding the product lineup for small and medium-sized ships at its marine systems business and cutting fixed costs at the Solutions and specialized equipment business. However, JRC still had an operating loss in adjusted FY12/18, mainly due to disappointing performance in the marine systems business and the solutions and specialized equipment business.

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JRC: Sales and earnings

FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 FY12/18 FY12/19 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Adjusted Act. Act. (adjusted) Est . Sales 107,705 99,871 109,157 113,306 132,251 125,192 142,909 142,833 88,466 90,427 144,762 153,000 YoY -3.2% -7.3% 9.3% 3.8% 16.7% -5.3% 14.2% -0.1% - 2.2% - 5.7% Marine systems 29,593 29,493 25,452 24,088 37,883 45,360 32,580 33,523 28,345 28,323 33,210 37,100 YoY 1.1% -0.3% -13.7% -5.4% 57.3% 19.7% -28.2% 2.9% - -0.1% - 11.7% Communications equipment 17,332 15,020 18,056 16,151 17,241 13,587 14,923 16,028 11,680 12,180 16,528 16,500 YoY -10.2% - 20.2% -10.6% 6.7% -21.2% 9.8% 7.4% - 4.3% - -0.2% Solutions and specialized equipment 52,482 46,892 63,600 70,820 75,196 64,145 67,367 66,116 29,839 28,252 64,529 68,500 YoY -3.8% -10.7% 35.6% 11.4% 6.2% -14.7% 5.0% -1.9% - -5.3% - 6.2% Other, adjustments 8,296 8,466 2,049 2,247 1,931 2,100 28,039 27,166 18,602 21,672 30,495 30,900 Operating profit 1,551 -2,790 3,919 7,281 7,713 3,183 -5,486 693 -5,133 -6,510 -493 2,200 YoY -48.3% - - 85.8% 5.9% -58.7% ------OPM 1.4% - 3.6% 6.4% 5.8% 2.5% - 0.5% - - - 1.4% Marine systems 1,035 -483 -845 -1,440 979 2,297 -4,836 -2,287 -1,408 -1,950 -2,727 -900 YoY -27.2% - - - - 134.6% ------OPM 3.5% - - - 2.6% 5.1% ------Communications equipment -1,515 -2,818 -492 141 28 -440 572 1,387 953 1,005 1,439 1,100 YoY - - - - -80.1% - - - - 5.5% - -23.6% OPM - - - 0.9% 0.2% - 3.8% 8.7% 8.2% 8.3% 8.7% 6.7% Solutions and specialized equipment 2,102 -310 5,346 9,054 6,909 1,776 -1,976 1,509 -4,497 -5,690 317 1,000 YoY -37.2% - - 69.4% -23.7% -74.3% - - - - - 215.5% OPM 4.0% - 8.4% 12.8% 9.2% 2.8% - 2.3% - - 0.5% 1.5% Other, adjustments -86 821 -90 -474 -203 -450 754 84 -181 125 478 1,000 Source: Shared Research, based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: JRC was included in consolidated results for Nisshinbo starting in Q4 FY03/11. Note: FY12/18 results include domestic subsidiaries’ April‒December 2018 earnings and overseas subsidiaries’ January‒December 2018 earnings. Adjusted FY03/18 results include domestic subsidiaries’ April‒December 2017 earnings and overseas subsidiaries’ January‒December 2017 earnings. Note: Adjusted FY12/18 results include domestic subsidiaries’ January‒December 2018 earnings and overseas subsidiaries’ January‒December 2017 earnings.

JRC improved earnings for three consecutive financial years (from FY03/13 to FY03/15) JRC—one of the company’s mainstay subsidiaries in Electronics—was included in Nisshinbo’s consolidated results starting in FY03/11. It announced business restructuring plans in September 2012 and implemented the following initiatives:

▷ Eliminating and combining production facilities in Japan (transferring production operations from the Mitaka Plant); ▷ Slimming down personnel (voluntary retirement from 495 employees between June and December 2013); ▷ Establishing overseas production bases; ▷ Expanding business overseas (expanding the Chinese production subsidiary of Nagano JRC in March 2013).

As a result of the above efforts, JRC’s sales grew from FY03/13 to FY03/15 and profitability improved, resulting in sales of JPY132.3bn (an increase of JPY32.4bn versus FY03/12) and operating profit of JPY7.7bn (an increase of JPY10.5bn versus FY03/12) in FY03/15.

Earnings declined for two consecutive financial years (from FY03/16) However, sales and profits were down YoY in FY03/16, owing to lower sales of disaster prevention systems and water and river management systems in the solutions and specialized equipment business. Profits were also down in FY03/17 due to lower sales in marine systems as a stagnant shipbuilding market reduced demand related to new merchant ships, and JRC booked an operating loss of JPY5.5bn.

JRC became a wholly owned subsidiary in October 2017, and finished FY03/18 in the black at the operating profit level but recorded an operating loss in adjusted FY12/18 In October 2017, Nisshinbo made JRC a wholly owned subsidiary through a share exchange to acquire the shares it did not already own (up until that time it owned 61.8% of JRC’s outstanding shares). Shared Research believes that efforts aimed at putting JRC back in the black were intensified ahead of the move to make JRC a wholly owned subsidiary.

By making JRC a wholly owned subsidiary, Nisshinbo was able to reduce management costs for the entire group through more efficient use of business resources including mutual use of Nisshinbo and JRC’s logistics bases, reorganization, and sharing of overlapping administrative divisions.

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As a result of the transition, JRC was able to log higher earnings in FY03/18 despite a decline in sales, reporting full-year sales of JPY142.8bn (-0.1% YoY) and an operating profit of JPY693mn (versus year-earlier loss of JPY5.5bn) as losses at the marine systems business were reduced and the solutions and specialized equipment business was put back into the black. Marine systems benefited from greater sales of aftermarket products and equipment for small to medium-sized ships, which allowed the company to move away from its previous dependence on products designed for large vessels to the less-volatile market for equipment for small and medium-sized vessels and narrow segment losses. At the solutions and specialized equipment business, sales were down owing to fewer sales of large-scale disaster information support systems, but earnings finished in the black thanks to companywide efforts to cut fixed costs.

However, in adjusted FY12/18 results (earnings for January‒December 2018), JRC recorded an operating loss of JPY493mn. The operating loss in marine systems widened, and solutions and specialized equipment saw a decline in profit. Sluggish sales of aftermarket products contributed to the loss in marine systems, and a continued decline in sales of large-scale disaster information support systems held back profit in solutions and specialized equipment.

Targeting earnings improvement from FY12/19 onward Nisshinbo views JRC’s business structure for its core businesses as unstable and aims to improve the structure in the medium term. Of particular concern are the fact that marine systems earnings are susceptible to changes in large vessel demand and the fact that a high ratio of solutions and specialized equipment sales are derived from domestic public demand. In marine systems, the company aims to stabilize earnings by lowering the ratio of sales related to large vessels and raising the ratio related to small to medium-sized ships. In solutions and specialized equipment, it aims to reduce its reliance on domestic public demand and increase the ratio related to domestic private demand and overseas demand, including in Southeast Asia.

Company forecasts for FY12/19 call for JRC (Wireless and Communications) to have sales of JPY153.0bn (+5.7% versus adjusted FY12/18) and operating profit of JPY2.2bn (versus JPY493mn operating loss in adjusted FY12/18), with higher sales and earnings expected in both the marine systems business and the solutions and specialized equipment business (refer to Full-year company forecasts section).

Medium- to long-term growth initiatives at the Electronics segment Over the medium to long term (2020–2025), the company is planning to focus on growing sales of parts for Advanced Driving Assistance Systems (ADAS) and other systems and devices for self-driving cars, and build a business framework to handle demand from the electric and connected car markets.

Strengthening group cohesion: JRC and New JRC become wholly owned subsidiaries, RICOH Electronic Devices becomes a subsidiary At the Electronics segment, the company made JRC a wholly owned subsidiary in October 2017 and plans to make New JRC a wholly owned subsidiary in September 2018. In March 2018 Nisshinbo acquired a majority stake in RICOH Electronic Devices, a global supplier of analog power management integrated circuits, to strengthen its business structure in the fields of semiconductors and electronic devices. The company aims to expand sales of products aimed at the self-driving, electric, and connected car markets by applying the technologies of its various subsidiaries in sensors, semiconductors, radars, and other areas, and making use of the relationships it has established with car manufacturers in the course of its Automobile Brakes and Precision Instruments businesses and its relationships with major Tier 1 automotive parts suppliers.

JRC Mobility Inc. established in April 2018 In April 2018, the company also spun off the mobility division of JRC’s communications equipment business to form a separate company, JRC Mobility. JRC Mobility will combine the company’s wireless communications technology with its electronic device technology with the aim of expanding its business reach from the automotive industry into the mobility field (ships, airplanes, railways, industrial machinery). As of February 2019, Nisshinbo projected that JRC Mobility could possibly generate more than JPY20.0bn in sales in 2025.

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Strengthening the Automobile Brakes segment

In the Automobile Brakes segment over the medium term, Shared Research thinks that profit will gradually increase. In addition to the end of goodwill amortization for TMD in FY03/17, expenses (JPY2.7bn in FY03/18 to bring TMD in line with Japanese accounting standards) will also come down over the medium term as TMD’s books are finally brought in line with Japanese accounting standards. And, because TMD has lower margins than the rest of Nisshinbo’s overseas subsidiaries, improving profitably at TMD under the lead of Nisshinbo Brake would help boost the profitability of the Automobile Brakes business as a whole. The company also sees opportunities over the long term to increase market share due to changes in regulations governing the copper content in friction materials.

Lower expense from TMD acquisition to boost profit from FY03/18 This segment’s goodwill amortization costs came to JPY5.9bn in FY03/17 (mostly related to its TMD acquisition). The expense associated with brining TMD in line with Japanese accounting standards was JPY2.7bn (amortization of intangible fixed assets, expensed R&D costs, and retirement benefits). The company booked this goodwill in FY03/12, and began amortizing in FY03/13. It will amortize over five years using the straight-line method.

In FY03/17, the amortization of goodwill from the acquisition of TMD came to an end, boosting profits by about JPY5.9bn YoY in FY03/18. The expense associated with bringing TMD in line with Japanese accounting standards was JPY2.7bn in FY03/18, but amortization of intangible fixed assets is expected to finish in FY12/20, and the recording of R&D costs as expenses is slated to end in FY12/19.

Improving profit at TMD Since making TMD a consolidated subsidiary in September 2011, the company has been working to improve profitability. Operating profit before amortization at TMD improved from an operating loss of JPY941mn in FY03/13 to an operating profit of JPY2.9bn in FY03/18 (values are before application of Japanese GAAP, which differs in aspects such as the amortization of intangible assets, handling of R&D expenses, and handling of retirement benefit expenses). However, in FY12/18, TMD had an operating loss of JPY4.1bn. Sales and profit were both down due to decreased sales of aftermarket products (caused by shipment delays accompanying the relocation of the company’s product warehouse in Germany) and increased personnel expenses.

Initiatives to improve TMD performance Shared Research believes that from the time TMD became a consolidated subsidiary through FY03/18, it was conducting its own improvement efforts. Partly because it recorded no goodwill amortization, TMD achieved an operating profit during FY03/18, but suffered an operating loss in FY12/18, indicating that TMD’s efforts to improve and stabilize performance are running behind.

At its FY12/18 results briefing in February 2019, Nisshinbo announced four priority initiatives regarding TMD to be conducted from FY12/19 onward: focus on profit over sales (growth), conduct unbiased restructuring, reform management structure with Nisshinbo in the lead, and restart strategic investment in growth areas once TMD has returned to a profit position.

With regard to TMD’s management structure, Nisshinbo already assigned group employees from Japan to TMD’s management team. Shared Research believes that, starting in FY12/19, Nisshinbo Brake will further strengthen its involvement in TMD’s management and implement measures to improve product yield in order to improve TMD’s profit margins. In addition, TMD’s new plant in Germany is set to begin operations in 2019, and the company believes that the concentration of production will improve efficiency.

Room for improvement in TMD’s OPM While OPM at the Nisshinbo Brake group was 7.7% in FY03/18 (domestic and overseas combined), the figure for TMD was only 3.2% (before application of Japanese GAAP).

According to the company, the Nisshinbo Brake group is earning a profit from supplying parts for new cars. In contrast, margins on parts sales to the new car market are low at TMD and it depends on aftermarket sales for most of its earnings. Plans call for

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improving the margins on TMD parts sales to the new car market over the medium term. In this relation, the company noted that TMD operations have been primarily managed by local staff since it became a consolidated subsidiary in 2011 until FY03/18, but that starting in FY12/18 it intends to send in more managers from Japan and begin stepping up efforts to improve profit margins.

Additionally, restructuring of manufacturing structures at TMD will continue over the medium term, and Nisshinbo will seek further improvements in production capacity and efficiency. Two production bases will be integrated at a German subsidiary by the end of 2018, and production capacity was ramped up at its Brazilian subsidiary with the construction of a new plant in FY03/18 and the transfer of production from existing plants. Shared Research thinks that these measures will begin to be reflected in TMD’s results from FY03/19 onward.

Responding to regulations restricting the use of copper in brakes As a long-term issue facing the Automobile Brakes segment, the company sees responding to copper usage regulations as a key hurdle, but also views this as an opportunity, working to respond ahead of its competitors. As of February 2019, TMD has successfully developed a friction material that uses raw steel and is free of copper, and is mass producing it in Europe. Nisshinbo Brake has also been successful in developing a copper-free friction material, and began mass production of friction materials that conform to copper usage regulations; the company is ahead of competitors in this field. According to the company, the start of mass production of cars that use friction materials that conform to copper usage regulations will peak between around 2019, and Nisshinbo expects that TMD’s global share in the market for these materials will increase as it leads the way in terms of mass production of friction materials that are compliant with regulations.

Copper usage regulations: the US state of California has passed a law, effective 2012, prohibiting the sale of new friction materials or vehicles fitted with friction materials that have a copper content of more than 5%. From 2025, the limit on copper content will be reduced to 0.5% or less.

Strategy

The Nisshinbo group sees itself as an environment and energy group. It aims to provide products and services that contribute to solving environmental problems, and make people’s lives safer and more comfortable. The company has set out strategic product categories in which it plans to grow earnings in the long term: mobility, infrastructure and safety, and life and healthcare. In addition to sales growth, the company intends to increase profitability, capital efficiency, and ROE.

Mobility field Nisshinbo aims to expand the mobility field using its proprietary technology not only for automobiles, but also for marine vessels, aircraft, and drones—that is to say, for anything that moves by land, sea, or air. It will not limit itself to the manufacture of parts and components, but will also work to provide safety and energy efficiency support businesses using device-gathered data. Specifically, Shared Research understands that the Automobile Brakes segment’s brake friction materials for automobiles are a core component of this field and that other components include the Electronics segment’s Advanced Driving Assistance Systems (ADAS).

*ADAS is a system that equips vehicles with various sensors such as radars, cameras and ultrasonic waves to provide functions such as emergency braking, autonomous cruise control (ACC), lane departure warning systems, and parking assistance.

Segments involved in mobility field

Segment Subsidiaries Products Details

Electronics JRC Advanced Driving Assistance Communication equipment, navigation New JRC System (ADAS) equipment, wireless communication technology, GPS receivers, VICS beacon receivers, ITS spot-compliant on-board units, automotive communications equipment, millimeter wave radar

New JRC Electronic devices Devices for onboard market

Automobile Brakes Nisshinbo Brake Brake friction materials for Disc pads, brake lining TMD automobiles

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Infrastructure and safety field In this field, Nisshinbo aims to promote contributions to disaster prevention and reduction (including water and river management systems and meteorological radar) and the realization of a society based on hydrogen energy (development of fuel cell components). Specifically, the solutions and specialized equipment business of the Electronics segment (Wireless and Communications) plays a primary role in this field. The company plans to expand sales of products such as navigation equipment and other marine electronics, along with disaster prevention systems and other solutions. In addition, the Chemicals segment’s fuel cell separators are also included in this field.

Segments involved in the infrastructure and safety field

Segment Subsidiaries Products Details

Electronics JRC Dam management systems Disaster prevention information systems Weather observation systems

Chemicals Fuel cell components Fuel cell separators Carbon alloy catalysts

Life and healthcare field Nisshinbo aims to create new businesses in this field using its areas of expertise, including sensors, ultrasound, and radio.

Capital efficiency

Up until the 2000s, Nisshinbo prioritized management security and high equity ratio over asset turnover and ROIC. In the 2000s, however, President Yoshikazu Sashida began emphasizing asset turnover, shifting focus from recurring revenues to streams of revenue relating to products and services.

While maintaining an equity ratio of 30–40%, Nisshinbo intends to increase asset turnover by cutting inventories, making more efficient investments, and thoroughly implementing cash flow management. The company may also offload struggling businesses.

Assuming a long-term equity ratio of 40% and an effective tax rate of 30%, ROE stands at circa 1.8x ROA (operating profit basis). So it will need to hit a ROA of 6–7% or so to achieve its long-term 12%-plus ROE goal. In FY03/18, ROA (operating profit basis) in the Automobile Brakes and Electronics segments together accounted for more than 60% of total assets (simple aggregate of segment assets, excluding companywide assets; the same applies afterward). ROA at the Automobile Brakes segment was 5.1% (after adjusting amortization of intangible fixed assets to conform to Japanese accounting standards) and 1.4% at the Electronics segment. Long term, we think the company can improve capital efficiency through sales growth and streamlining. Plus, expenses related to the acquisition of TMD will stop being an issue.

The importance of Precision Instruments, Chemicals and Textiles to ROA is declining. Together they accounted for less than 20% of total assets. On an operating profit basis, ROA was 2.3% in the Precision Instruments segment, 23.7% in the Chemicals segment, and 6.7% in the Textiles segment. In particular, Shared Research believes that Nisshinbo will work to improve Precision Instruments business to enhance capital efficiency.

Real Estate accounts for 9.5% of total assets. On an operating profit basis, ROA was a high 9.0%. But we project that segment ROA will fall to about 8% as profit from the sale of residential properties decline.

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ROA breakdown by segment (operating profit basis)

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Total segment assets 358,109 479,852 534,583 551,933 611,310 678,486 622,009 617,096 623,345 ROA (OP basis) 1.0% 4.7% 0.8% 2.5% 2.3% 2.1% 1.9% 0.8% 2.4% Automobile Brakes Segment assets 49,087 40,636 128,417 139,591 167,264 177,473 160,017 151,264 171,161 % of total assets 13.7% 8.5% 24.0% 25.3% 27.4% 26.2% 25.7% 24.5% 27.5% Segment profit 3,879 5,090 4,254 -4,301 -1,813 -2,068 -886 -7 6,119 Segment ROA (OP basis) 8.5% 11.3% 5.0% -3.2% -1.2% -1.2% -0.5% 0.0% 3.8% Segment profit (before goodw ill amort .) 3,879 5,090 4,254 2,982 7,358 8,229 8,589 8,454 8,845 Segment ROA (before goodwill amort.) 8.5% 11.3% 5.0% 2.2% 4.8% 4.8% 5.1% 5.4% 5.5% Electronics Segment assets 56,368 222,475 188,514 197,358 208,527 233,337 218,040 215,958 229,694 % of total assets 15.7% 46.4% 35.3% 35.8% 34.1% 34.4% 35.1% 35.0% 36.8% Segment profit -2,654 6,183 -4,111 7,788 9,351 12,703 8,318 -3,240 3,021 Segment ROA (OP basis) -4.5% 4.4% -2.0% 4.0% 4.6% 5.7% 3.7% -1.5% 1.4% Precision Instruments Segment assets 21,788 23,956 24,088 26,091 29,857 36,648 72,294 72,135 74,964 % of total assets 6.1% 5.0% 4.5% 4.7% 4.9% 5.4% 11.6% 11.7% 12.0% Segment profit -526 1,413 -1,069 -146 1,075 263 318 1,048 1,724 Segment ROA (OP basis) -1.9% 6.2% -4.5% -0.6% 3.8% 0.8% 0.6% 1.5% 2.3% Chemicals Segment assets 7,322 7,842 8,640 7,965 8,214 7,454 7,798 8,430 9,368 % of total assets 2.0% 1.6% 1.6% 1.4% 1.3% 1.1% 1.3% 1.4% 1.5% Segment profit -512 -294 373 132 105 396 753 1,309 2,112 Segment ROA (OP basis) -5.6% -3.9% 4.5% 1.6% 1.3% 5.1% 9.9% 16.1% 23.7% Textiles Segment assets 47,604 49,323 47,657 44,702 47,837 50,082 60,788 1,777 54,508 % of total assets 13.3% 10.3% 8.9% 8.1% 7.8% 7.4% 9.8% 0.3% 8.7% Segment profit -2,219 183 840 574 552 -357 1,778 1,777 1,875 Segment ROA (OP basis) -4.3% 0.4% 1.7% 1.2% 1.2% -0.7% 3.2% 5.7% 6.7% Real Estate Segment assets 52,905 52,029 50,394 49,608 47,273 44,368 43,280 53,761 59,459 % of total assets 14.8% 10.8% 9.4% 9.0% 7.7% 6.5% 7.0% 8.7% 9.5% Segment profit 5,983 10,190 6,742 12,289 7,780 6,669 5,795 5,811 5,067 Segment ROA (OP basis) 15.9% 19.4% 13.2% 24.6% 16.1% 14.6% 13.2% 12.0% 9.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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Business

Segments

Nisshinbo has six segments: Electronics, Automobile Brakes, Precision Instruments, Chemicals, Textiles, and Real Estate (sold the Papers business in April 2017). Dividing them into mainstay businesses, earnings-improvement businesses, and Real Estate shows how they fit into the company’s strategy. Furthermore, it should be noted that the company plans to split Electronics into the Wireless and Communications segment and the Micro Devices segment starting in FY12/19.

◤ Mainstay: Electronics and Automobile Brakes. Promising outlook for market growth, sales growth through acquisitions, and profit growth through synergies. Strategically important businesses include mobility and infrastructure and safety.

◤ Earnings improvement: Precision Instruments, Chemicals, Textiles, and Papers. Limited potential for market growth, meaning stable or declining sales. In response, Nisshinbo aims to increase margins. Although they fall under the Chemicals segment, the company positions Carbodilite and bipolar plates for fuel cells as strategically important products, with scope for long-term market growth.

◤ Real Estate: stable sales and profit from the sale of land with a low book value.

Performance trends by segment

Segment breakdown FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Adjusted Act. Sales 242,409 325,555 379,340 450,693 494,350 523,757 533,989 527,274 512,047 413,335 416,221 YoY -15.3% 34.3% 16.5% 18.8% 9.7% 5.9% 2.0% -1.3% -2.9% - 0.7% Mainstay segments 92,744 158,938 217,356 294,156 336,441 371,001 370,404 336,912 347,824 275,365 279,211 YoY -15.5% 71.4% 36.8% 35.3% 14.4% 10.3% -0.2% -9.0% 3.2% - 1.4% Electronics 51,699 112,820 169,906 175,307 187,742 209,115 205,367 190,851 193,620 126,325 144,204 YoY -14.6% 118.2% 50.6% 3.2% 7.1% 11.4% -1.8% -7.1% 1.5% - 14.2% Automobile Brakes 41,045 46,118 47,450 118,849 148,699 161,886 165,037 146,061 154,204 149,040 135,007 YoY -16.6% 12.4% 2.9% 150.5% 25.1% 8.9% 1.9% -11.5% 5.6% - -9.4% Earnings-improvement segments 115,971 127,028 124,631 113,967 120,498 116,190 130,521 158,658 130,842 113,756 114,051 YoY -20.4% 9.5% -1.9% -8.6% 5.7% -3.6% 12.3% 21.6% -17.5% - 0.3% Precision Instruments 24,907 32,020 25,190 24,520 28,655 28,607 29,525 60,687 64,918 61,215 62,219 YoY -30.0% 28.6% -21.3% -2.7% 16.9% -0.2% 3.2% 105.5% 7.0% - 1.6% Chemicals 6,308 7,283 8,258 8,150 8,810 8,138 8,285 9,482 11,285 7,895 8,173 YoY - 15.5% 13.4% -1.3% 8.1% - 1.8% 14.4% 19.0% - 3.5% Textiles 53,221 57,400 60,963 50,773 51,348 48,165 60,127 55,842 54,639 44,646 43,659 YoY -21.3% 7.9% 6.2% -16.7% 1.1% - 24.8% -7.1% -2.2% - -2.2% Real Estate 6,297 12,436 9,081 15,366 10,567 9,246 8,357 8,083 8,405 5,460 4,236 YoY -2.1% 97.5% -27.0% 69.2% -31.2% -12.5% -9.6% -3.3% 4.0% - -22.4% Operating profit 3,569 19,842 4,170 13,393 13,175 13,744 12,617 4,890 15,085 7,795 -2,505 YoY 776.9% 456.0% -79.0% 221.2% -1.6% 4.3% -8.2% -61.2% 208.5% - - Mainstay segments 1,225 11,273 143 3,487 7,538 10,635 7,432 -3,247 9,140 2,598 -5,717 YoY -371.6% 820.2% -98.7% 2338.5% 116.2% 41.1% -30.1% -143.7% -381.5% - - Electronics -2,654 6,183 -4,111 7,788 9,351 12,703 8,318 -3,240 3,021 -3,623 -4,904 YoY ----20.1%35.8%-34.5%-- -- Automobile Brakes 3,879 5,090 4,254 -4,301 -1,813 -2,068 -886 -7 6,119 6,221 -813 YoY 11.9%31.2%-16.4%------Earnings-improvement segments -1,551 1,171 405 1,269 1,774 727 3,591 6,737 5,711 5,001 4,604 YoY -26.2% -175.5% -65.4% 213.3% 39.8% -59.0% 393.9% 87.6% -15.2% - -7.9% Precision Instruments -526 1,413 -1,069 -146 1,075 263 318 1,048 1,724 1,787 1,690 YoY ------75.5%20.9%229.6% 64.5% - -5.4% Chemicals -512 -294 373 132 105 396 753 1,309 2,112 1,395 1,664 YoY - - - -64.6% -20.5% - 90.2% 73.8% 61.3% - 19.3% Textiles -2,219 183 840 574 552 -357 1,778 1,777 1,875 1,819 1,250 YoY - - 359.0% -31.7% -3.8% - - -0.1% 5.5% - -31.3% Real Estate 5,983 10,190 6,742 12,289 7,780 6,669 5,795 5,811 5,067 3,706 2,681 YoY 79.1% 70.3% -33.8% 82.3% -36.7% -14.3% -13.1% 0.3% -12.8% - -27.7% Others, company-wide, elimination -2,088 -2,792 -3,120 -3,652 -3,917 -4,287 -4,201 -4,411 -4,833 -3,510 -4,073 Source: Shared Research based on company data Note: In FY03/16, the Elastomers business was changed from the Chemicals segment to the Textiles segment. Pursuant to this change, results for FY03/15 onward have been restated to reflect to post-change segments.

Mainstay segments (70.2% of sales, operating loss of JPY2.5bn in FY12/18)

The segments’ share of total sales is based on the simple sum of each segment, before other revenues, company-wide revenues and expenses, and eliminations. The same format follows.

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Electronics and Automobile Brakes segments. Promising outlook for market growth, with sales growth through acquisitions, and profit growth through synergies. Strategically important businesses include mobility and infrastructure and safety.

Electronics (36.3% of sales, operating loss of JPY4.9bn in FY12/18) While Electronics posted an operating loss in FY12/18 and accounted for only 15.2% of operating profit in FY03/18, the segment made up over 40% of overall operating profit from FY03/13 through FY03/16.

The Electronics segment is composed primarily of consolidated subsidiary Japan Radio Co., Ltd. (JRC; responsible for the Wireless and Communications business), New Japan Radio Co., Ltd. (New JRC; responsible for the Micro devices business), and RICOH Electronic Devices.

Nisshinbo’s involvement with JRC began in the 1950s, when the company dispatched managers to JRC. The company also bought out New JRC in 2005, making it a consolidated subsidiary. In 2010, the company made JRC and Nagano Japan Radio Co., Ltd. (Nagano JRC; delisted in March 2016 via a share transfer) consolidated subsidiaries in a bid to strengthen the Electronics segment.

The company strengthened group cohesion in the late 2010s through the additional acquisition of subsidiary shares. In the wireless and communications business, in March 2016, JRC fully consolidated Nagano JRC and Ueda JRC in an effort to strengthen group synergies. In addition, in October 2017 Nisshinbo made JRC a wholly owned subsidiary through a share exchange. In the micro devices business, the company made RICOH Electronic Devices a subsidiary through a share purchase in March 2018 (bringing its holding to 80.0%). Furthermore, the company made New JRC a wholly owned subsidiary through a share exchange in September 2018.

Electronics segment performance by subsidiary

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 Act. Act. Adjusted Act. Sales 51,699 112,820 169,906 175,307 187,742 209,115 205,367 190,851 193,620 126,325 144,204 YoY -14.6% 118.2% 50.6% 3.2% 7.1% 11.4% -1.8% -7.1% 1.5% - 14.2% JRC/Wireless and communication - 49,540 99,872 109,158 113,306 132,251 125,192 142,909 142,833 88,466 90,427 YoY - - 101.6% 9.3% 3.8% 16.7% -5.3% 14.2% -0.1% - 2.2% Micro devices 40,288 45,613 40,273 36,417 42,080 45,220 47,816 48,865 51,665 37,859 53,776 YoY - 13.2% -11.7% -9.6% 15.6% 7.5% 5.7% 2.2% 5.7% - 42.0% New JRC 40,288 45,613 40,273 36,417 42,080 45,220 47,816 48,865 51,665 38,359 36,776 YoY -11.9% 13.2% -11.7% -9.6% 15.6% 7.5% 5.7% 2.2% 5.7% - -4.1% Ricoh Electronic Devices ------18,073 YoY ------Eliminations ------500 -1,073 Eliminations -74 -4,735 -11,365 -11,100 -12,694 -17,812 -16,931 -923 -878 - - Operating profit -2,654 6,183 -4,111 7,788 9,351 12,703 8,318 -3,240 3,021 -3,623 -4,904 YoY - - - - 20.1% 35.8% -34.5% - - - - JRC/Wireless and communication - 4,829 -2,791 3,919 7,281 7,713 3,183 -5,486 693 -5,133 -6,510 YoY - - - - 85.8% 5.9% -58.7% - - - - OPM - 9.7% - 3.6% 6.4% 5.8% 2.5% - 0.5% - - Micro devices -2,755 761 -4,101 1,470 2,276 2,918 3,126 1,792 2,138 1,509 1,605 YoY - - - - 54.8% 28.2% 7.1% -42.7% 19.3% - 6.4% OPM - 1.7% - 4.0% 5.4% 6.5% 6.5% 3.7% 4.1% 4.0% 3.0% New JRC -2,755 761 -4,101 1,470 2,276 2,918 3,126 1,792 2,138 1,509 850 YoY - - - - 54.8% 28.2% 7.1% -42.7% 19.3% - -43.7% OPM - 1.7% - 4.0% 5.4% 6.5% 6.5% 3.7% 4.1% 3.9% 2.3% Ricoh Electronic Devices ------1,043 YoY ------OPM ------5.8% Eliminations ------288 Eliminations 19 -285 1,307 1,205 1,170 881 679 454 190 - - Segment assets 56,368 222,475 188,514 197,358 208,527 233,337 218,040 215,958 229,694 - 229,261 Segment ROA (OP-based) -4.5% 4.4% -2.0% 4.0% 4.6% 5.7% 3.7% -1.5% 1.4% - - No. of employees 3,788 9,511 8,860 8,474 8,302 8,233 8,148 8,304 9,032 - - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: New JRC consolidated in 2H FY03/06. Nagano JRC and Ueda JRC fully consolidated by JRC in March 2016. Note: FY12/18 results include domestic subsidiaries’ April‒December 2018 earnings and overseas subsidiaries’ January‒December 2018 earnings. Adjusted FY03/18 results include domestic subsidiaries’ April‒December 2017 earnings and overseas subsidiaries’ January‒December 2017 earnings.

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Wireless and Communications business (JRC) JRC has a history of over 100 years, stretching back to the founding of the Nippon Radio Telegraph Manufacturer AA in 1915. It was placed in charge of manufacturing wireless communications equipment for Japan’s military, including developing the radio that Heihachiro Togo used when he spotted the Baltic fleet during the Russo-Japanese War of 1904–1905, according to the company. In 1949, Nagano JRC, Ueda JRC, and Suwa Japan Radio Co., Ltd. (Suwa JRC) were spun off from JRC—in line with a corporate restructuring plan drawn up at the end of World War II. As part of efforts to repurpose military technology for civilian use, Takeshi Sakurada, then president of Nisshinbo, sent some of his executive contacts to assist JRC with its restructuring.

In FY03/06, JRC booked a net loss of JPY32.1bn owing to extraordinary losses of JPY36.2bn (including losses of about JPY6.4bn on the sale of shares in an affiliated company, a JPY5.6bn write-down in the value of inventory assets, and JPY23.1bn in refunds to the Ministry of Defense*).

*Refunds to the Ministry of Defense: in December 2004, the Ministry of Defense showed that JRC had overcharged for defense equipment. JRC refunded the MOD in March 2006.

Weak earnings for JRC persisted following the 2008 global financial crisis. In 2010, Nisshinbo bought out JRC, making it a consolidated subsidiary in a bid to boost margins through synergies in the Electronics segment.

Revenue improved due to restructuring JRC has a high level of technical expertise. But while competitors have moved production overseas, it has been slow to adopt a global outlook and cut costs, meaning that sales and profits have continued to decrease.

After operating loss in FY03/12, performance improved from FY03/13 to FY03/15 thanks to restructuring Sales and profits have dropped since the 2008 global financial crisis, with JRC falling into an operating loss in FY03/12. In September 2012, it announced a plan to generate new growth by restructuring. As with New JRC—which had already announced a plan to restructure—JRC consolidated domestic factories, cut headcount, set up factories overseas, and expanded overseas businesses. As stated above, in an effort to strengthen group synergies, JRC fully consolidated Nagano JRC and Ueda JRC in March 2016.

In addition to the effects of restructuring, sales growth in the solutions and specialized equipment business led the way for a recovery in results at JRC from FY03/13 to FY03/15.

Performance worsened starting in FY03/16, and JRC became a wholly owned subsidiary in October 2017 However, sales and profits were down YoY in FY03/16, owing to lower sales of disaster prevention systems and water and river management systems in the solutions and specialized equipment business. In FY03/17, the company posted an operating loss due to lower sales and profit at the marine systems business, and worsening earnings at the solutions and specialized equipment business.

In October 2017 the company made JRC a wholly owned subsidiary through a share exchange (previously, it had owned 61.8% of JRC). In FY03/18 JRC saw sales decline but moved into the black at the operating profit level thanks to reductions in fixed costs. However, JRC saw profit decline YoY, resulting in an operating loss, in FY12/18, an irregular accounting period that did not include domestic earnings from January to March, which normally make a hefty contribution to profit. Lackluster performance of the marine systems business and the solutions and specialized equipment business were primary factors contributing to lower segment profit.

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Wireless and Communications (JRC)

Wireless and Communications (JRC) sales and operating profit by segment FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 (JPYmn) Act.Act.Act.Act.Act.Act.Act.Act.Act.AdjustedAct. Sales 111,210 107,705 99,871 109,157 113,306 132,251 125,192 142,909 142,833 88,466 90,427 YoY -9.5% -3.2% -7.3% 9.3% 3.8% 16.7% -5.3% 14.2% -0.1% - 2.2% Marine systems 29,278 29,593 29,493 25,452 24,088 37,883 45,360 32,580 33,523 28,345 28,323 YoY - 1.1% -0.3% -13.7% -5.4% 57.3% 19.7% -28.2% 2.9% - -0.1% Communications equipment 19,304 17,332 15,020 18,056 16,151 17,241 13,587 14,923 16,028 11,680 12,180 YoY - -10.2% - 20.2% -10.6% 6.7% -21.2% 9.8% 7.4% - 4.3% Solutions and specialized equipment 54,539 52,482 46,892 63,600 70,820 75,196 64,145 67,367 66,116 29,839 28,252 YoY - -3.8% -10.7% 35.6% 11.4% 6.2% -14.7% 5.0% -1.9% - -5.3% Other, adjustments 8,087 8,296 8,466 2,049 2,247 1,931 2,100 28,039 27,166 18,602 21,672 Operating profit 2,999 1,551 -2,790 3,919 7,281 7,713 3,183 -5,486 693 -5,133 -6,510 YoY 4.7% -48.3% - - 85.8% 5.9% -58.7% - - - - OPM 2.7% 1.4% - 3.6% 6.4% 5.8% 2.5% - 0.5% - - Marine systems 1,422 1,035 -483 -845 -1,440 979 2,297 -4,836 -2,287 -1,408 -1,950 YoY - -27.2% - - - - 134.6% - - - - OPM 4.9% 3.5% - - - 2.6% 5.1% - - - - Communications equipment -1,799 -1,515 -2,818 -492 141 28 -440 572 1,387 953 1,005 YoY ------80.1%--- -5.5% OPM - - - - 0.9% 0.2% - 3.8% 8.7% 8.2% 8.3% Solutions and specialized equipment 3,347 2,102 -310 5,346 9,054 6,909 1,776 -1,976 1,509 -4,497 -5,690 YoY - -37.2% - - 69.4% -23.7% -74.3% - - - - OPM 6.1% 4.0% - 8.4% 12.8% 9.2% 2.8% - 2.3% - - Other, adjustments -8 -86 821 -90 -474 -203 -450 754 84 -181 125 Source: Shared Research based on JRC data Note: Figures may differ from company materials due to differences in rounding methods. Note: JRC consolidated in Q4 FY03//11. Note: FY12/18 results include domestic subsidiaries’ April–December 2018 earnings and overseas subsidiaries’ January–December 2018 earnings. Adjusted FY03/18 results include domestic subsidiaries’ April–December 2017 earnings and overseas subsidiaries’ January–December 2017 earnings.

Wireless and Communications (JRC) comprises marine systems, communications equipment, solutions and specialized equipment, and others. Solutions and specialized equipment makes a significant contribution to both sales and operating profit.

Marine systems

Maritime satellite communications equipment, marine communications equipment, marine radars, fishing devices, electronic chart display systems, integrated bridge systems, and VHF radiotelephone equipment for merchant ships and fishing vessels. The segment includes Alphatron Marine Beheer B.V., which was consolidated in December 2013 (51% Nisshinbo ownership stake).

Sales to the new merchant shipbuilding market accounted for about 40% of segment sales (parent level) in FY03/14, with work boat* demand at about 30% and retrofit demand around 20% of sales in the same year. The main clients are shipyards and shipping companies. Competitors include Furuno Electric Co., Ltd. (TSE1: 6814) and SAM Electronics GmbH (under L-3 Marine Systems International [unlisted]).

*Work boats: Vessels that provide support operations and transport the people and materials needed for offshore oil development project work (drilling, production).

Previously, the bulk of sales were from products designed for large vessels, but from about FY03/18, Nisshinbo has been promoting the expansion of its line of products for small and medium-sized ships (where demand is less volatile than for large vessels), and sales of aftermarket products and equipment for small to medium-sized ships are trending upward.

Communications equipment

Commercial radios, intelligent transportation system (ITS) products, personal handy-phone system (PHS) devices, and GPS receivers. Commercial radios are a mainstay product, at 20–30% of parent-level segment sales in FY03/14. Clients of commercial radios are the operators of taxi services. Competitors include Panasonic Corporation (TSE1: 6752) and Fujitsu Ten Ltd. (owned by Fujitsu Ltd. [TSE1: 6702]).

ITS products are the second major revenue generator, making up roughly 20% of parent-level segment sales in FY03/14. Competitors for ITS products are auto manufacturers. Competitors include Mitsubasankowa Corporation (owned by Mitsuba Corporation [TSE1: 7280]), Panasonic, and Mitsubishi Electric Corporation (TSE1: 6503).

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Solutions and specialized equipment

Water and river management systems, broadcasting systems, regional and municipal disaster prevention systems, road information systems, and aviation and meteorological systems for government and municipal offices, and local authorities. Competitors include Fujitsu, Toshiba Corporation (TSE1: 6502), and Mitsubishi Electric, NEC Corporation (TSE1: 6701), and Panasonic.

JRC’s share of the solutions and specialized equipment market

(JPYbn) Market JRC sales Market share Major client

Water and river management 50 18 30–40% MLIT, MAFF, Cabinet Office, local governments, electric power systems suppliers

Broadcasting systems 20 7.5 about 30% MLIT, Cabinet Office, electric power suppliers

Regional and municipal 160 16 about 10% Local governments disaster prevention systems

Road information systems 30 5.9 about 20% MLIT, Cabinet Office, NPA, local governments Source: Shared Research based on company data Note: Market size based on company estimates; market share based on sales figures for FY03/14.

Micro Devices Key subsidiaries in the Micro Devices business are New JRC and RICOH Electronic Devices.

New JRC New JRC was established in 1959 as a subsidiary of JRC. It mainly makes and sells electronic components (microwave tubes and radar components, microwave application products, and electronic devices).

In December 2005, Nisshinbo acquired 19.8mn shares in New JRC (50.49% of shares outstanding) held by JRC in a tender offer, making it a consolidated subsidiary. Nisshinbo made New JRC a wholly owned subsidiary in September 2018.

Earnings improved due to restructuring Formerly, most production was domestic, despite overseas sales making up about 50% of the total. As a result, costs were high and New JRC was vulnerable to exchange rates. Post the 2008 global financial crisis, earnings dropped as domestic semiconductor demand stalled and New JRC faced fierce global development and price competition. In this context, it booked operating losses in FY03/09, FY03/10, and FY03/12.

To combat weakening earnings, in August 2011, the company announced a restructuring plan—New JRC consolidated factories, cut unprofitable products, and streamlined its organization and personnel. With these restructuring efforts, New JRC built a framework for securing profits, albeit at a low growth rate. It consolidated domestic factories, moved production to a subsidiary in Thailand, and offered employees voluntary redundancy. Thus fixed costs (personnel, D&A, and overheads) fell by JPY5.4bn YoY in FY03/13, and New JRC moved into the black despite a decline in sales, and has remained in the black.

New JRC performance

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Adjusted Act. Sales 40,287 45,613 40,272 36,417 42,080 45,220 47,816 48,865 51,665 38,359 36,776 YoY -11.9% 13.2% -11.7% -9.6% 15.6% 7.5% 5.7% 2.2% 5.7% - -4.1% Operating profit -2,755 761 -4,101 1,469 2,276 2,918 3,126 1,792 2,138 1,509 850 YoY -39.2% -127.6% -638.9% -135.8% 54.9% 28.2% 7.1% -42.7% 19.3% - -43.7% Net income -10,011 494 -9,098 1,721 2,561 4,580 2,496 616 2,520 -- YoY 260.0% -104.9% -1941.7% -118.9% 48.8% 78.8% -45.5% -75.3% 309.1% - - Net assets 11,324 11,580 2,408 4,521 7,455 10,708 10,666 11,192 14,056 -- Equity ratio 27.3% 27.9% 7.2% 12.7% 20.1% 27.4% 26.5% 27.7% 31.2% -- ROE -61.3% 4.3% -130.1% 49.7% 42.8% 58.8% 23.4% 5.6% 20.0% -- Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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New JRC sales and operating profit by segment

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Sales 40,287 45,613 40,272 36,417 42,080 45,220 47,816 48,865 51,665 YoY -11.9% 13.2% -11.7% -9.6% 15.6% 7.5% 5.7% 2.2% 5.7% Microwave products 5,702 6,271 6,099 5,727 6,209 5,814 6,342 6,066 7,499 YoY -24.0% 10.0% -2.7% -6.1% 8.4% -6.4% 9.1% -4.4% 23.6% Electronic devices 34,585 39,341 34,172 30,688 35,870 39,406 41,474 42,798 44,165 YoY -9.5% 13.8% -13.1% -10.2% 16.9% 9.9% 5.2% 3.2% 3.2% Operating profit -2,755 761 -4,101 1,469 2,276 2,918 3,126 1,792 2,138 YoY - - - - 54.9% 28.2% 7.1% -42.7% 19.3% Microwave products 339 596 355 547 982 691 1,054 552 1,382 YoY - 75.8% -40.4% 54.1% 79.5% -29.6% 52.5% -47.6% 150.4% Electronic devices 810 2,123 -2,705 2,360 2,768 3,745 3,637 2,972 2,525 YoY - 162.1% - - 17.3% 35.3% -2.9% -18.3% -15.0% Other, adjustments -3,904 -1,958 -1,751 -1,438 -1,474 -1,518 -1,564 -1,732 -1,769 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Nisshinbo is working to develop new business. Since 03/14, sales have grown for new businesses based on passive components previously not handled by the firm such as SAW (surface acoustic wave) and MEMS (micro electro mechanical systems). From 03/15, the name of this segment was changed from “Semiconductors” to “Electronic devices.” Further, in FY03/17, the company integrated the microwave tube and radar components segment and microwave application products segment into the microwave products segment.

New JRC has two segments: Microwave products, and electronic devices.

▷ Microwave products: Electron tubes for government and municipal offices and manufacturers, and satellite communications components for telecoms companies ▷ Electronic devices: New JRC manufactures general-purpose semiconductors based on analog technology, including operational amplifiers and integrated circuits (ICs) for batteries. It sells to manufacturers of a range of products, including audio systems, automobile devices, industrial equipment, and communications equipment. In addition to semiconductors, the company is also selling passive components such as SAW and MEMS

Sales to its main client, Mitsubishi Electric Corporation (TSE1: 6503), totaled JPY4.3bn (-2.6% versus FY03/17) in FY03/18 and accounted for 8.3% of sales (versus 9.0% in FY03/17).

Competitors include Rohm Co., Ltd. (TSE1: 6963), Seiko Instruments Inc. (subsidiary of Seiko Holdings Corp. [TSE1: 8050]), Mitsumi Electric Co., Ltd. (TSE1: 6767), the US-based Texas Instruments Inc. (NASDAQ: TXN), and Switzerland-based STMicroelectronics N.V. (BIT: STM).

New JRC market Performance in Electronic Devices is strongly correlated to the analog IC market (in yen). Following a 10.8% YoY increase in the analog IC market (in US dollars) in 2018, the World Semiconductor Trade Statistics (Autumn 2018) forecast growth of 3.8% YoY in 2019.

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New JRC electronic devices segment sales versus the analog IC market

(JPYmn) (JPYbn) 55,000 6,500

6,000 50,000

5,500 45,000 5,000

40,000 4,500

35,000 4,000

3,500 30,000 3,000

25,000 New JRC electronic devces sales Analog IC market (JPY based; right axis) 2,500

20,000 2,000 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

Source: Shared Research based on World Semiconductor Trade Statistics Note: New JRC data for the financial year ending in March; WSTS data for the calendar year.

RICOH Electronic Devices In March 2018, Nisshinbo acquired an 80% stake (160 shares) in RICOH Electronic Devices Co., Ltd. from Ricoh Company, Ltd., making RICOH Electronic Devices a consolidated subsidiary.

In the Micro Devices business, in contrast to New JRC, which is strong in analog semiconductors for low-noise amplifiers and power management integrated circuits used in audio equipment, vehicles, and industrial equipment, as well as in devices for wireless communications and IoT, the strength of RICOH Electronic Devices lies in power management integrated circuits, especially small, energy-saving, high-efficiency complementary metal-oxide-semiconductor (CMOS) analog semiconductors.

By bringing together the bipolar technology of New JRC and the CMOS technology of RICOH Electronic Devices, the Nisshinbo group is seeking to strengthen its business by responding to a wider range of needs in the automotive and IoT fields. RICOH Electronic Devices and New JRC can also be expected to have a cooperative and complementary relationship when it comes to the various processes of semiconductor fabrication. More specifically, for front-end processing the two companies will be able to make use of the manufacturing facility owned by RICOH Electronic Devices, and for back-end processing they will be able to make use of the facilities operated by New JRC subsidiaries Saga Electronics Co., Ltd. and Thai NJR Co., Ltd. This will serve to strengthen the group’s business foundation by lowering costs and increasing its price competitiveness.

In FY03/17 (the last financial year before RICOH Electronic Devices became a consolidated subsidiary of Nisshinbo), it reported sales of JPY23.1bn and an operating profit of JPY451mn. During the nine months of FY12/18, RICOH Electronic Devices generated sales of JPY18.1bn and operating profit of JPY1.0bn.

Medium/long-term growth initiatives at the Electronics business Over the medium to long term (2020–2025), the company is planning to focus on growing sales of parts for Advanced Driving Assistance Systems (ADAS) and other systems and devices for self-driving cars, and build a business framework to handle demand from the self-driving, electric, and connected car markets.

Restructuring: JRC and New JRC become wholly owned subsidiaries, RICOH Electronic Devices becomes a subsidiary Nisshinbo made JRC a wholly owned subsidiary in October 2017 and New JRC a wholly owned subsidiary in September 2018. In March 2018 Nisshinbo acquired a majority stake in Ricoh Electronic Devices, a manufacturer of analog power management integrated circuits, to help build up its product lineup in semiconductors and electronic devices. The company aims to expand sales of products aimed at the self-driving, electric, and connected car markets by applying the technologies of its various subsidiaries in sensors, semiconductors, lasers, and other areas, and making use of the relationships it has established with car

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manufacturers in the course of its brake and precision instruments businesses and its relationships with major Tier 1 automotive parts suppliers.

Establishment of JRC Mobility In April 2018, the company also spun off the mobility division of JRC’s communications equipment business to form a separate company, JRC Mobility. JRC Mobility will combine the company’s wireless communications technology with its electronic device technology with the aim of expanding its business reach from the automotive industry into the mobility field (ships, airplanes, railways, industrial machinery).

Automobile Brakes (34.0% of sales, operating loss of JPY813mn in FY12/18) This segment accounted for 58.4% of group operating profit in FY03/12, prior to the consolidation of TMD. Return on assets (operating profit basis) was 11.3% in FY03/11. Then, due to the burden of goodwill amortization after the consolidation of TMD, the segment posted operating losses from FY03/13 through FY03/17. In FY03/18, the Automobile Brakes segment finally posted an operating profit as goodwill amortization stemming from the TMD acquisition came to an end. However, the segment recorded an operating loss in FY12/18 as TMD’s performance deteriorated.

Automobile Brakes segment performance (JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 Act. Act. Act. Act. Act. Act. Act. Act. Act. Adjusted Act. Sales 41,045 46,118 47,450 118,849 148,699 161,886 165,037 146,061 154,204 149,040 135,007 YoY -16.6% 12.4% 2.9% 150.5% 25.1% 8.9% 1.9% -11.5% 5.6% - -12.4% Operating profit 3,879 5,090 4,254 -4,301 -1,813 -2,068 -886 -7 6,119 6,221 -813 YoY 11.9% 31.2% -16.4% ------OPM 9.5% 11.0% 9.0% - - - - - 4.0% 4.2% - OP before goodw ill amort izat ion 3,879 5,090 4,254 2,982 7,358 8,229 8,589 8,454 8,845 - - and JGAAP adjustements for TMD YoY 11.9% 31.2% -16.4% -29.9% 146.7% 11.8% 4.4% -1.6% 4.6% - - Segment assets 49,087 40,636 128,417 139,591 167,264 177,473 160,017 151,264 171,161 - 152,528 Segment ROA (OP-based) 8.5% 11.3% 5.0% -3.2% -1.2% -1.2% -0.5% 0.0% 3.8% -- Segment ROA (OP-based) before 8.5% 11.3% 5.0% 2.2% 4.8% 4.8% 5.1% 5.4% 5.5% -- goodwill amortization Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: In FY03/10, ABS systems were incorporated into the Mechatronics segment (formerly in the Automobile Brakes segment). To ensure like-for-like comparison, ABS sales and operating profit have been excluded from figures for FY03/09 and earlier. Note: Expenses incurred to bring TMD in conformance to Japanese accounting standards include amortization of intangible fixed assets, treatment of R&D expenditures, and treatment of retirement benefits.

Products Nisshinbo is a global supplier of assembly products, including drum and disc brakes, and friction materials (a core component of braking systems). There are two types of automobile brake: disc and drum. Disc brakes stop car wheels by gripping a metal disc attached to the wheel between pads of friction material. Drum brakes press a brake lining made of friction material against the inside of a cylindrical drum attached to the wheel.

Disc brakes provide a stable braking force, with excellent heat dissipation. They are easy to clean and are particularly effective for high-speed braking. Drum brakes have more braking force with a self-applying effect and cost less, but they do not disperse heat well. As a result, many cars have disc brakes on the front wheels and drum brakes on the rear wheels, although high-end cars often have disc brakes on both the front and rear wheels.

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Automobile Brakes segment products

Source: Company data

Nisshinbo’s entry into the brake business: Nisshinbo began producing friction materials for automobile brakes after the end of World War II, as an alternative use for its textile spinning technology. Prewar Japan relied mainly on asbestos from Canada for braking plates for all types of machinery. Yet as its relations with the US and the UK worsened, Japan was forced to develop technology to process domestic asbestos, which was of lower quality. Nisshinbo thus entered the brake business because its technology for textile spinning—twisting and weaving fibers—could be utilized to process asbestos (the company no longer uses asbestos, owing to environmental and health concerns).

In the 1950s, Nisshinbo began supplying brake lining to Toyota Motor Corp. (TSE1: 7203). Its production of brake lining increased with growth in Japan’s automotive industry. As Japanese manufacturers adopted technology from US and European companies in the 1960s, Nisshinbo introduced friction materials technology from Small and Parks Limited (now the TMD Friction Group S.A.) to improve the quality and performance of its products. As a result, Nisshinbo began supplying friction materials to a range of major auto manufacturers, for everything from passenger vehicles to commercial vehicles.

In the 1990s, auto manufacturers moved production overseas. In response, Nisshinbo expanded outside Japan, establishing Nisshinbo Automotive Corporation (NAC) in Detroit in 1995 and Nisshinbo Automotive Manufacturing Inc. (NAMI) near Atlanta in 1997.

Nisshinbo became the global market leader in 2012, following its 2011 acquisition of TMD Friction Group S.A., Europe’s largest manufacturer of friction materials for automobile brakes.

Competitors According to the company, the friction materials market for braking systems is worth about JPY700bn. Nisshinbo holds about 20% of the market, making it the global market leader. Second is the Federal-Mogul Holdings Corporation (NASDAQ: FDML), then Akebono Brake Industry Co., Ltd. (TSE1: 7238) and ITT Corporation (NYSE: ITT).

Nisshinbo counts its independence from auto manufacturers a strength, in addition to its ability to supply a range of auto components and world-class development capabilities made possible by rich data and expertise on materials, and modern testing equipment.

According to the company, the acquisition of TMD has sharpened its competitive edge—namely its global reach and range of technology. Together, the factories of Nisshinbo Brake group and TMD now cover most major auto manufacturing countries. Since the late 1990s, Japanese auto manufacturers have produced and sold key global models in countries around the world, so when they choose suppliers, they consider candidates’ production and supply structures in the countries where the car is manufactured.

Friction materials are divided into three types, depending on the steel fiber content. The Nisshinbo Brake group specializes in the NAO (Non-Asbestos Organic) type, while TMD focuses on low steel friction material. The acquisition of TMD thus means Nisshinbo can meet a wider range of needs from its clients.

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Types of brake friction materials

Region Road conditions Required performance Main friction material Steel fiber content

Europe Expressways such as autobahns with Powerful braking capabilities Low-steel materials 5-10% no speed limits

Japan Expressways with speed limits of Smooth braking with no squealing NAO materials 0% US 100mph in the US; 100km/h in Japan or vibration durability Semi-metal materials 20-50% Source: Shared Research based on company data

Business model In addition to auto manufacturers, the disc pad and brake lining markets also include original equipment manufacturers (OEM) and replacement parts suppliers. Nisshinbo mostly supplies parts to auto manufacturers and tier one manufacturers (manufacturing and selling brakes and brake systems directly to auto manufacturers).

Clients Domestic clients include Toyota Motor Corp. (TSE1: 7203), Hino Motors, Ltd. (TSE1: 7205), Honda Motor Co., Ltd. (STSE1: 7267), Suzuki Motor Corp. (TSE1: 7269), Advics Co., Ltd. (unlisted), Nissin Kogyo Co., Ltd. (TSE1: 7230), and other Japanese auto manufacturers.

Overseas subsidiaries of Nisshinbo Automobile Brakes sell to the local production units of Japanese auto manufacturers, plus European and South Korean auto manufacturers. TMD’s clients are mostly European auto manufacturers, and Tier one manufacturers, including the Volkswagen Group (FWB: VOW), Audi AG (FWB: NSU), Daimler AG (FWB: DAI), TRW Automotive (NYSE: TRW), and Continental AG (FWB: CON).

Friction materials for brake systems differ according to vehicle type. About two or three years before new models and full model makeovers of existing models (about once every five years) are due to be sold, auto manufacturers select suppliers based on competing bids and needs. Once a supplier has won the contract, the auto manufacturer generally sticks with that supplier until the next model change or discontinuation.

Volumes and prices As stated above, excluding sports cars, most cars have disc brakes on the front wheels and drum brakes on the rear. According to the company, global auto production is around 97mn vehicles per year. Including TMD, Nisshinbo holds about 20% of the market—meaning it supplies friction materials for roughly 19mn vehicles per year (Shared Research estimates).

Materials costs, marginal profit ratio Raw materials make up the bulk of manufacturing costs for friction materials (the company does not release details). Marginal profit ratios differ depending on car type, but Shared Research assumes they are around 20–30%. Ongoing cost cutting by auto manufacturers means product prices for a given model will fall YoY, but the company protects margins by increasing yields and cutting its own costs.

Automobile Brakes Nisshinbo’s subsidiaries, Nisshinbo Brake, the NISB Group, and TMD Group manufacture and sell the products. Earnings for each subsidiary are listed in the following table.

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Automobile Brakes segment performance breakdown

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 Act. Act. Act. Act. Act. Act. Act. Act. Act. Adjusted Act. Sales 41,045 46,118 47,450 118,849 148,699 161,886 165,037 146,061 154,204 149,040 135,007 YoY -16.6% 12.4% 2.9% 150.5% 25.1% 8.9% 1.9% -11.5% 5.6% - -9.4% Nisshinbo Brake Inc. 23,965 26,856 27,680 27,434 27,991 28,008 25,272 25,058 25,134 18,973 12,711 YoY -12.7% 12.1% 3.1% -0.9% 2.0% 0.1% -9.8% -0.8% 0.3% - -33.0% Overseas 18,559 23,591 23,804 95,794 125,956 139,932 145,486 126,932 137,011 137,011 128,166 YoY -27.6% 27.1% 0.9% 302.4% 31.5% 11.1% 4.0% -12.8% 7.9% - -6.5% NISB group - 23,591 23,804 27,806 37,164 41,287 45,699 40,509 44,493 44,493 37,573 YoY - - 0.9% 16.8% 33.7% 11.1% 10.7% -11.4% 9.8% - -15.6% TMD group - - - 67,988 88,792 98,645 99,787 86,423 92,518 92,518 90,593 YoY - - - - 30.6% 11.1% 1.2% -13.4% 7.1% - -2.1% Eliminations -1,479 -4,329 -4,034 -4,379 -5,248 -6,054 -5,721 -5,929 -7,941 -6,944 -5,870 Operating profit 3,879 5,090 4,254 -4,301 -1,813 -2,068 -886 -7 6,119 6,221 -813 YoY 11.9%31.2%-16.4%------Nisshinbo Brake Inc. 2,738 2,751 2,615 1,732 1,836 1,950 1,142 1,486 870 777 270 YoY 165.3% 0.5% -4.9% -33.8% 6.0% 6.2% -41.4% 30.1% -41.5% - -65.3% OPM 11.4% 10.2% 9.4% 6.3% 6.6% 7.0% 4.5% 5.9% 3.5% 4.1% 2.1% Overseas 1,135 2,279 1,788 -1,329 3,815 4,605 5,700 5,663 6,242 6,242 -576 YoY -52.8% 100.8% -21.5% - - 20.7% 23.8% -0.6% 10.2% - - OPM 6.1% 9.7% 7.5% - 3.0% 3.3% 3.9% 4.5% 4.6% 4.6% - NISB group - 2,279 1,788 2,158 4,824 5,267 5,722 5,045 4,492 4,492 3,479 YoY - - -21.5% 20.7% 123.5% 9.2% 8.6% -11.8% -11.0% - -22.6% OPM - 9.7% 7.5% 7.8% 13.0% 12.8% 12.5% 12.5% 10.1% 10.1% 9.3% TMD group - - - -3,487 -1,009 -662 -22 618 1,750 1,750 -4,055 YoY ------183% -- OPM ------0.7%1.9%1.9%- Eliminations 6 61 -149 -4,704 -7,464 -8,623 -7,728 -7,156 -993 -798 -507 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: In FY03/10, ABS systems were incorporated into the Mechatronics segment (formerly in the Automobile Brakes segment). To ensure like-for-like comparison, ABS sales and operating profit have been excluded from figures for FY03/09 and earlier. Note: In April 2010, Nisshinbo Brake merged with Nisshinbo Brake Sales. To ensure like-for-like comparison. Nisshinbo Brake sales and operating profit have been excluded from domestic figures for FY03/10 and earlier.

Japan: Nisshinbo Brake Inc. Nisshinbo Brake supplies friction materials mainly to domestic auto manufacturers and tier one automotive component manufacturers. In the domestic friction materials market for auto manufacturers, Nisshinbo Brake holds about 25% of the disc pad market, 65% of the brake lining market for passenger cars, and 35% of the brake lining market for commercial vehicles. Earnings are strongly correlated to domestic automobile production.

Nisshinbo Brake sales versus domestic auto production

(JPYmn) ('000)

32,000 Nisshinbo Brake sales 12,000

Domestic auto production units (right axis) 11,500 30,000 11,000 28,000 10,500

26,000 10,000

9,500 24,000 9,000 22,000 8,500

20,000 8,000 Mar. 2007 Mar. 2008 Mar. 2009 Mar. 2010 Mar. 2011 Mar. 2012 Mar. 2013 Mar. 2014 Mar. 2015 Mar. 2016 Mar. 2017 Mar. 2018

Source: Shared Research based on Japan Automobile Manufacturers Association, Inc.

Overseas: NISB (Nisshinbo Brake Inc.) Group The NISB Group comprises subsidiaries in South Korea, the US, Thailand, and China.

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Overseas subsidiaries overview

Subsidiary Clients Contribution to NISB Group overseas earnings in FY03/18

Saeron Automotive Corporation (South Korea) Hyundai Motor Co., Sales: about 50% (Nisshinbo stake: 65.0%) Kia Motors Corp. OP: about 40%

Saeron Automotive Beijing Co., Ltd. (China) Japanese, European and South Korean auto (Nisshinbo stake: 65.0%) manufacturers

Japanese auto manufacturers Nisshinbo Automotive Manufacturing Inc. (US) Sales: about 20% Volkswagen (wholly owned) OP: about 10% Ford Motor

Nisshinbo Somboon Automotive Co., Ltd. (Thailand) Japanese auto manufacturers (passenger vehicles) Sales: about 20% (Nisshinbo stake: 97.1%) OP: about 30% Nisshinbo Commercial Vehicle Brake Ltd. (Thailand) Japanese auto manufacturers (commercial vehicles)

Nisshinbo Saeron Changshu Automotive Corporation (China) Sales: about 5% Japanese auto manufacturers (wholly owned) OP: about 10% Note: Nisshinbo Commercial Vehicle Brake Ltd. (Thailand) is no longer included in consolidated results following the sale of the group’s foundation brake business in April 2018. TMD TMD has more than 135 years of experience as a manufacturer of brake friction materials. Earnings fell after the global financial crisis of 2008, leading Pamplona Capital Management to buy and restructure TMD in April 2009. Nisshinbo made TMD a consolidated subsidiary in September 2011. According to the company, TMD’s OPM was about 5% before earnings slumped in 2008.

According to the company, TMD is Europe’s largest manufacturer of friction materials for brakes, with 16 factories across 10 countries (three in UK, four in Germany, one in Romania, one in France, one in Spain, two in China, one in Mexico, one in Brazil, one in South Africa, and one in the US). It has a strong presence in Europe, China, and South America, and manufacturing only overlaps with Nisshinbo Brake group in China.

The Nisshinbo Brake group’s clients are mostly Japanese and South Korean auto manufacturers, while TMD’s main clients are European auto manufacturers and tier one component manufacturers, such as Volkswagen, Audi, Daimler, TRW Automotive, and Continental. It also supplies the friction materials for Bugatti Veyron, the world’s fastest sports car, according to TMD. 30% of sales come from steel pipe components for new cars, 30% from components for repairs, and 40% from commercial products. Profit margins are higher for commercial products than for those used in new cars. According to the company, car owners in Europe often replace brake pads when putting on snow tires for the winter, so mild winters hurt sales of commercial brake pads, as fewer car owners switch to snow tires. Consequently, the results of TMD are also affected negatively.

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Global auto sales and production Global auto production grew 32.8% between 2007 and 2017 (avg. 100,000 annual growth 2.9%). It fell in 2008 and 2009 following the global Units produced financial crisis, but has risen since as demand in Asia and Africa has Units sold 90,000 grown.

80,000

70,000

60,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ('000) Source: OICA

Domestic auto production, sales Domestic auto sales fell 1.3% between 2007 and 2017 (avg. annual 12,000 growth of -0.1%). The downward trend is due to rising populations 10,000 in large cities with access to public transport, Japan’s aging society,

8,000 and declining car ownership among young people.

6,000 Domestic auto production fell 16.4% between 2007 and 2017 (avg. 4,000 Units produced annual growth of -1.8%). In addition to declining domestic sales, 2,000 Units sold Japanese auto manufacturers are also moving production overseas, 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 resulting in lower exports. ('000) Source: OICA

South Korean auto production, sales South Korean auto sales grew 40.7% between 2007 and 2017 (avg.

6,000 annual growth of 3.5%). South Korean auto production grew 0.7% between 2007 and 2017 (avg. annual growth of 0.1%). Auto production in South Korea significantly exceeds auto sales volume 4,000 because it includes exports to the US, Europe, India, and elsewhere. Units produced

2,000 Units sold

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ('000) Source: OICA

US auto production, sales US auto sales increased 6.8% between 2007 and 2017 (avg. annual 20,000 growth of 0.7%). Auto sales slumped in 2008 and 2009 following the global financial crisis, but are recovering as the economy picks 15,000 up. Long-term, auto sales are trending upward in line with a

10,000 growing population. US auto production increased 3.8% between 2007 and 2017 (avg. annual growth of 0.4%). Imports account for

5,000 Units produced about 30–40% of auto sales. Units sold 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ('000) Source: OICA

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Thai auto production, sales Thai auto sales grew by 38.4% between 2007 and 2017 (avg. 3,000 annual growth of 3.3%), while auto production increased 54.5% Units produced (avg. annual growth 4.4%) over the same period. Auto sales Units sold

2,000 declined in 2014 following the military coup, and also decreased in 2015 and 2016.

1,000 However, the market is trending upward overall, in line with economic growth and a lack of access to public transportation. 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Growth in auto production has outstripped that of auto sales ('000) Source: OICA because Thailand exports cars to countries in the region.

Chinese auto production, sales Sales of automobiles in China exceed that of the United States in 30,000 2009, making it the world’s largest market. The number of Units produced 25,000 automobiles sold in China during 2017 represents 30% of all global Units sold 20,000 sales.

15,000 Chinese auto sales grew 231.3% between 2007 and 2017 (avg. 10,000 annual growth of 12.7%), while auto production increased 226.7% 5,000 (avg. annual growth of 12.6%) over the same period. Economic 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 growth and rising auto sales have resulted in higher production. ('000) Source: OICA

European auto production, sales European auto sales account for more than 20% of global auto 25,000 sales. Auto sales in Europe fell 9.1% (avg. annual growth of -0.9%) Units produced Units sold between 2007 and 2017, while auto production fell 4.9% (avg. annual growth of -0.5%).

20,000 Sluggish sales in the wake of the global financial crisis of 2008 and the economic crisis in Greece meant it was a long time before auto sales bottomed out. Production bottomed in 2012, while sales 15,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 bottomed in 2013. ('000) Source: OICA

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Earnings-improvement segments (28.7% of sales, operating profit of JPY4.6bn in FY12/18)

Precision Instruments, Chemicals, and Textiles (sold the Papers business in April 2017). Sales may rise and fall for individual products, but on the whole, there is limited scope for growth. Nisshinbo thus intends to increase margins as sales remain steady or decline.

Precision Instruments (15.7% of sales, operating profit of JPY1.7bn in FY12/18)

Precision Instruments segment performance

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 Act. Act. Adjusted Act. Sales 24,907 32,020 25,190 24,520 28,655 28,607 29,525 60,687 64,918 61,215 62,219 YoY -30.0% 28.6% -21.3% -2.7% 16.9% -0.2% 3.2% 105.5% 7.0% - 1.6% Precision instruments and systems 13,942 19,050 13,659 12,043 14,388 15,080 14,283 14,996 14,047 12,297 15,848 YoY -27.7% 36.6% -28.3% -11.8% 19.5% 4.8% -5.3% 5.0% -6.3% - 28.9% Plastic molding and processing 13,469 15,777 15,489 15,678 18,078 18,167 18,464 49,081 53,526 50,817 51,287 YoY -28.9% 17.1% -1.8% 1.2% 15.3% 0.5% 1.6% 165.8% 9.1% - 0.9% Eliminations -2,504 -2,807 -3,958 -3,201 -3,811 -4,640 -3,222 -3,390 -2,655 -1,899 -4,916 Operating profit -526 1,413 -1,069 -146 1,075 263 318 1,048 1,724 1,787 1,690 YoY ------75.5% 20.9% 229.6% 64.5% - -5.4% OPM - 4.4% - - 3.8% 0.9% 1.1% 1.7% 2.7% 2.9% 2.7% Precision instruments and systems -563 718 -1,632 -790 218 -509 -88 808 576 891 807 YoY ------28.7% - -9.4% OPM - 3.8% - - 1.5% - - 5.4% 4.1% 7.2% 5.1% Plastic molding and processing 62 681 546 689 949 853 448 1,204 2,039 1,665 1,811 YoY -85.2% 998.4% -19.8% 26.2% 37.7% -10.1% -47.5% 168.8% 69.4% - 8.8% OPM 0.5% 4.3% 3.5% 4.4% 5.2% 4.7% 2.4% 2.5% 3.8% 3.3% 3.5% Eliminations -25 14 17 -46 -92 -81 -42 -964 -891 -769 -928 Segment assets 21,788 23,956 24,088 26,091 29,857 36,648 72,294 72,135 74,964 - 76,604 Segment ROA (OP-based) -1.9% 6.2% -4.5% -0.6% 3.8% 0.8% 0.6% 1.5% 2.3% -- No. of employees 1,872 1,887 1,904 1,783 1,719 1,862 3,093 3,161 3,253 - - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: PV cell manufacturing equipment sales and operating profit figures based on interviews with management.

Nisshinbo entered this business in the 1940s, turning its core spinning machine technology to manufacturing machine tools to adapt to changing domestic conditions. The segment comprises the precision instruments and systems business and plastic molding and processing business, accounting for 23.6% and 76.4% of segment sales respectively in FY12/18. As the company made Nanbu Plastics, a plastic parts manufacturer, a subsidiary in October 2015, sales and profits increased sharply in FY03/17.

Precision instruments and systems In the precision instruments and systems business, the company mainly sells automotive precision components.

In the automotive precision components business, Nisshinbo manufactures and supplies aluminum housing and other products mainly to Germany’s Continental Automotive Corp.

Plastic molding and processing In the plastic molding and processing business, the company manufactures and supplies plastic molded components for household air-conditioner fans to Japanese air-conditioner manufacturers such as Daikin Industries, Ltd. (TSE1: 6367). Margins are not high, but the business is growing.

Further, the company converted Nanbu Plastics, a plastic parts manufacturer, to a subsidiary in October 2015.

Nanbu Plastics In October 2015, the company acquired all of the shares of Nanbu Plastics and converted the company to a subsidiary. Nanbu Plastics focuses on plastic parts for automobile wire harnesses and headlamps, and Nisshinbo aims to expand its automotive business by including Nanbu Plastics under its umbrella. Nisshinbo hopes to expand into the automotive field, which is expected to see growth in demand.

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Chemicals (2.1% of sales, operating profit of JPY1.7bn in FY12/18)

Chemicals segment performance

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 142909 FY03/18 FY03/18 FY12/18 Act. Act. Act. Act. Act. Act. Act. Act. Act. Adjusted Act. Sales 6,308 7,283 8,258 8,150 8,810 8,138 8,285 9,482 11,285 7,895 8,173 YoY - 15.5% 13.4% -1.3% 8.1% - 1.8% 14.4% 19.0% - 3.5% Insulation materials - - -- 3,966 3,771 3,765 4,982 6,083 4,138 4,004 YoY ------4.9%- 0 32.3% 22.1% - -3.2% Fuel cells - -- 828 1,016 1,139 1,166 1,040 1,310 901 1,081 YoY - - -- 22.7% 12.1% 0 -10.8% 26.0% - 20.0% Functional chemicals (Carbodilite) - -- 1,520 1,702 1,716 1,834 2,248 2,466 1,851 1,896 YoY - - -- 12.0% 0.8% 0 22.6% 9.7% - 2.4% Electric double-layer capacitors - -- 281 301 440 - - - - - Operating profit -512 257 373 132 105 396 753 1,309 2,112 1,395 1,664 YoY - - 45.1% -64.6% -20.5% - 90.2% 73.8% 61.3% - 19.3% OPM - 3.5% 4.5% 1.6% 1.2% 4.9% 9.1% 13.8% 18.7% 17.7% 20.4% Insulation Materials and Others - - -- 665 478 507 689 845 570 645 YoY ------28.1% 0 35.9% 22.6% - 13.2% OPM - - - - 16.8% 12.7% 13.5% 13.8% 13.9% 13.8% 16.1% Insulation materials - -- -264 -290 -201 -107 -169 255 116 169 YoY ------45.7% OPM ------19.5% 12.9% 15.6% Functional chemicals (Carbodilite) - -- 181 126 180 236 578 627 470 533 YoY - - - - -30.4% 42.9% 0 144.9% 8.5% - 13.4% OPM - - - 11.9% 7.4% 10.5% 12.9% 25.7% 25.4% 25.4% 28.1% Electric double-layer capacitors - -- -678 -621 -129 - - - - - Segment assets 7,322 7,842 8,640 7,965 8,214 7,454 7,798 8,430 9,368 - 9,056 Segment ROA (OP-based) -7.0% 3.4% 4.5% 1.6% 1.3% 5.1% 9.9% 16.1% 23.7% -- No. of employees 319 325 321 334 335 327 280 276 - - - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

This segment has its roots in the development of raw materials derived from the Automobile Brakes business. It primarily comprises the insulation materials unit, fuel cell unit, and functional chemicals unit, accounting for 49.0%, 13.2% and 23.2% of segment sales respectively in FY12/18.

Insulation materials Insulation materials are supplied for LNG tanks, LNG tankers, and households. The company holds about 10% of the market. Nisshinbo does not project growth in the market, but it is a profitable business, with an OPM of over 10%.

Fuel cells Carbon separator Fuel cells generate electricity through a chemical reaction between hydrogen and the oxygen in the air. This is clean energy, and does not generate carbon dioxide. Nisshinbo manufactures and supplies carbon bipolar plates, a component in fuel cells. Carbon bipolar plates are light and can be produced for lower cost than metal ones in large quantities.

As of February 2019, Nisshinbo’s carbon separators are used in fuel cell cogeneration systems (ENE-FARM fuel cells for household use). Competitors include Hitachi Chemical Company, Ltd. (TSE1: 4217) and Kyocera Corporation (TSE1: 6971), but Nisshinbo enjoys about 90% market share. The company is conducting joint development with auto manufacturers into automotive applications for carbon bipolar plates. The long-term aim: to leverage the advantages offered by carbon bipolar plates in fuel cell vehicles. As part of its effort to break into the automotive market, in October 2015, Nisshinbo acquired a 2.5% stake for JPY600mn in Ballard Power Systems, a major Canadian fuel cell company.

Carbon alloy catalyst In fuel cell-related areas, in September 2017 the company announced that it had developed a carbon alloy catalyst for commercial use. The company is the first in the world to develop a commercial use for carbon alloy catalysts, a platinum-free catalyst used in polymer electrolyte fuel cells. This technology is able to match the power generation capabilities of platinum catalysts in portable fuel cells. Fuel cells extract electricity from hydrogen via electrochemical reactions, and electrodes having a catalytic role is used to accelerate the reaction. Platinum catalysts, because they require use of the rare metal platinum, are one of the reasons fuel cell costs are so expensive. Nisshinbo’s carbon alloy catalyst uses carbon as its key material. This facilitates a stable supply for industrial production and, because this carbon alloy catalyst can be used in place of a platinum catalyst, it will help to

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bring down the cost of fuel cells. Nisshinbo’s carbon alloy catalyst is currently being used in the portable fuel cells manufactured by Ballard Power Systems (NASDAQ: BLDP).

Functional chemicals (Carbodilite) Carbodilite refers to a group of products containing polycarbodiimides—a high-performance polymer. It is used as a modifier to increase the durability of biodegradable plastic and as a cross-linking agent (in polymer chemistry, this is a chemical substance that changes the physical and chemical properties of polymers by linking them together) in water soluble resins for paint.

Biodegradable plastic has the functionality and physical properties of plastic, but it can be decomposed under certain conditions by microorganisms found in nature until nothing remains but carbon dioxide and water.

To reduce carbon dioxide emissions, the market is moving from petrochemical-based plastics to biodegradable plastics (plant-derived). The company thus expects demand for Carbodilite to increase, as it can increase the durability of biodegradable plastics. Competitors include BASF Polyurethanes GmbH (BASF subsidiary) and Rhein Chemie Additives (part of Lanxess AG [FWB: LXS]). Carbodilite, however, has a competitive edge because its toxicity is low.

Textiles (11.0% of sales, operating profit of JPY1.3bn in FY12/18)

Textiles segment performance

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 Act. Act. Act. Act. Act. Act. Act. Act. Act. Adjusted Act. Sales 53,221 57,400 60,963 50,773 51,348 48,165 60,127 55,842 54,639 44,646 43,659 YoY -21.3% 7.9% 6.2% -16.7% 1.1% - - -7.1% -2.2% - -2.2% Domestic 59,296 58,097 60,211 49,896 47,844 42,217 52,667 50,206 47,387 36,211 35,838 YoY -16.0% -2.0% 3.6% -17.1% -4.1% - - -4.7% -5.6% - -1.0% Nisshinbo Textile 25,619 26,934 28,163 22,293 22,360 22,552 23,410 20,935 19,519 14,371 14,982 CHOYA 8,370 7,019 7,114 6,394 6,067 2,822 - - - - - Other domestic subsidiaries 25,307 24,684 24,934 21,209 19,417 16,843 31,884 29,271 27,868 21,840 20,856 Overseas 12,116 15,184 18,387 15,763 19,601 21,676 21,046 20,222 20,222 21,491 22,134 YoY -18.2% 25.3% 21.1% -14.3% 24.3% - - -3.9% 0.0% - 3.0% Brazil 4,939 4,647 3,929 4,600 4,870 3,886 4,488 5,400 5,400 5,146 Indonesia 7,509 10,888 9,500 12,016 14,038 14,701 13,609 13,653 13,653 14,401 China 2,736 2,852 2,334 2,985 2,768 2,459 2,125 2,438 2,438 2,587 Eliminations -14,657 -15,881 -17,635 -14,886 -16,097 -16,532 -16,210 -14,586 -14,239 -13,056 -14,313 Operating profit -2,219 183 840 574 552 -357 1,778 1,777 1,875 1,819 1,250 YoY - - 359.0% -31.7% -3.8% - - -0.1% 5.5% - -31.3% OPM - 0.3% 1.4% 1.1% 1.1% - 3.0% 3.2% 3.4% 4.1% 2.9% Domestic -2,516 -800 847 287 -41 -1,086 1,672 1,790 1,209 1,130 837 YoY - - - -66.1% - - - 7.1% -32.5% - -25.9% OPM - - 1.4% 0.6% - - 3.2% 3.6% 2.6% 3.1% 2.3% Nisshinbo Textile -2,011 -687 438 -11 237 -40 291 469 314 231 174 CHOYA -908 -611 30 -83 -489 -1,074 - - - - - Other domestic subsidiaries 403 498 379 381 211 28 1,381 1,321 895 899 663 Overseas 302 822 76 126 689 606 423 351 916 916 684 YoY -64.6% 172.2% -90.8% 65.8% 446.8% -12.0% -30.2% -17.0% 161.0% - -25.3% OPM 2.5% 5.4% 0.4% 0.8% 3.5% 2.8% 2.0% 1.7% 4.5% 4.3% 3.1% Brazil 821 -578 284 371 299 105 132 555 555 233 Indonesia -23 610 -175 291 308 328 213 322 322 373 China 24 44 17 27 -1 -10 6 39 39 78 Eliminations 84 161 -83 161 -96 5 -317 -364 -250 -227 -271 Segment assets 47,604 49,323 47,657 44,702 47,837 50,082 61,947 56,660 54,508 - 55,138 Segment ROA (OP-based) -4.3% 0.4% 1.7% 1.2% 1.2% -0.7% 3.2% 3.0% 3.4% -- No. of employees 3,656 3,634 3,411 3,813 3,649 2,870 3,425 3,466 3,297 - - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Overview Nisshinbo has sold textiles since its founding.

In Japan, the company mostly sells—through subsidiaries or a trading house—products supplied by its Indonesian subsidiary. Products include shirt fabric (8.5% of segment sales in FY03/14) and uniform fabric (9.5% of segment sales in FY03/14). Main

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clients are manufacturers of shirts and uniforms, including subsidiaries. In Indonesia, Brazil, and China, subsidiaries produce products for the company’s Japanese operations, and sell textile products overseas.

It is focusing on its APOLLOCOT brand of non-iron shirts (FY03/14 sales: about JPY1.5bn), one of few 100% cotton, non-iron products on the market. This product has realized grade 4 wash & wear properties.

W&W (wash & wear properties): Ranking (1 to 5) of the degree of wrinkles on clothes after washing based on judgements using replicas of six types of post-washing wrinkle conditions. A higher ranking indicates fewer wrinkles.

Restructuring In the late 1990s, Nisshinbo restructured its domestic operations and shifted manufacturing overseas as the domestic textile industry shrunk. In FY03/11, the company once again restructured under its three-year plan, Challenge 2012. It consolidated two spinning factories into one, downsized its processing plants, and cut headcount by 150. Overseas, the company added to its spinning, dyeing, and shirt sewing capacity in Indonesia, Brazil, China, and India. As of February 2019, its main factory is at an Indonesian subsidiary.

Nisshinbo sold CHOYA Co., Ltd., which produces and sells shirts, in February 2015, and converted Tokyo Shirts Co., Ltd., which sells shirts at 190 direct stores in Japan (end of February 2017), to a subsidiary in May 2015. As a result, in FY03/16 the company improved YoY operating profit at the Textile segment.

Real Estate (1.1% of sales, operating profit of JPY2.7bn in FY12/18)

Real Estate segment performance

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 Act. Act. Act. Act. Act. Act. Act. Act. Act. Adjusted Act. Sales 6,297 12,436 9,081 15,366 10,567 9,246 8,357 8,083 8,405 5,460 4,236 YoY -2.1% 97.5% -27.0% 69.2% -31.2% -12.5% -9.6% -3.3% 4.0% - -22.4% Operating profit 5,983 10,190 6,742 12,289 7,780 6,669 5,795 5,811 5,067 3,706 2,681 YoY 79.1% 70.3% -33.8% 82.3% -36.7% -14.3% -13.1% 0.3% -12.8% - -27.7% OPM 95.0% 81.9% 74.2% 80.0% 73.6% 72.1% 69.3% 71.9% 60.3% 67.9% 63.3% Source: Shared Research based on company data Note: Operating profit in the leasing business based on leasing gains (losses) as reported under real estate for rent in the company’s securities filings. Note: Operating profit in the property sales business based on the difference between operating profit in the Real Estate segment and leasing operating profit.

In Real Estate, the company uses the sites of former spinning factories. The segment comprises leasing and sales units. The leasing business was the core, but since around FY03/10 Nisshinbo has focused on land sales.

Leasing The company leases shopping centers, offices, and other real estate. This business generates stable operating profit of about JPY3.0bn per year. Unrealized gains in real estate held for leasing purposes amounted to JPY52.7bn as of the end of FY03/18 (unrealized gains of JPY55.5bn in FY03/17) (see Balance sheet section).

Sales The company divides up and sells individual properties for detached housing, and much of the land is regional, including sites of former spinning factories. The company has alliances with Mitsubishi Estate Co., Ltd. (TSE1: 8802) and Toyota Housing Corporation (a Toyota Motor Corporation subsidiary). As the lots are former factory sites, they tend to be large, at over 10,000sqm. Added value is significant owing to their urban locations close to stations. Nisshinbo can sell these properties at a low price compared with other similar properties, because land book value is low.

According to the company, recording of profit in this segment varies depending upon when the sale of property is recorded. On an annual basis, operating profit is generally between JPY4.0bn and JPY5.0bn, comprised of JPY3.0bn from rental properties and JPY1.0-2.0bn from sale of individual properties. Although the sale of property will cause profit to shrink in property sales over the long term, redevelopment of the Miai Office (Okazaki, Aichi Prefecture) will begin to contribute from FY03/20 onward, and the company can assume recording of property sales until at least CY2025.

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Strengths and weaknesses

Strengths

◤ Efforts to improve returns: Since the late 2000s, Nisshinbo has been shifting management’s focus from subscription-type streams of revenue to recurring sales, and restructuring—exiting and streamlining unprofitable businesses, and making acquisitions to fortify growth businesses—in a bid to increase sales and improve asset efficiency. We think these efforts are set to continue as it works toward its long-term target of ROE of over 12%.

◤ Big unrealized gains: As of March 31, 2018, unrealized gains on rental properties were JPY52.7bn, and the company also possessed latent assets, such as land for redevelopment and investment securities. These unrealized gains may cover costs related to improving returns on capital through acquisitions, exiting unprofitable businesses, further structural reform, and rebuilding its business portfolio.

◤ Global reach in Automobile Brakes segment: The acquisition of TMD in Sept. 2011 has sharpened Nisshinbo’s competitive edge in Automobile Brakes, giving it a longer global reach and more technology. Together, the factories of Nisshinbo Brake group and TMD cover most major auto manufacturing hubs (particularly Japan and Europe). As mentioned, suppliers’ production and supply structures in the countries where cars come off the production line are vital in winning component-supply contracts.

Weaknesses

◤ Scattered personnel and management resources: Nisshinbo has six segments, each with an array of products and divisions. Shared Research thinks that this diversifies risk but may mean that resources—personnel and cash—are spread thinly, crimping overall growth.

◤ Slow structural reform: As with previous efforts to restructure in the Electronics, Textiles, and Precision Instrument segments, Nisshinbo only began cutting headcount and consolidating factories after sales fell and losses appeared, causing Shared Research to see a trend in which the company only tackles issues at later stages. It may need to accelerate reforms if it is to improve ROE enough to achieve the 12%-plus ROE target by 2025.

◤ Businesses with low asset turnover: Nisshinbo’s FY03/18 ROE of 10.6% (1.5% in FY03/17) surpassed the average ROE of 8.6% for TSE1-listed companies (statistics for earnings results posted by TSE1-listed companies for FY03/17; average ROE in FY03/16 was 7.6%). However, Shared Research thinks that the higher ROE was due in large part to the large, one-time extraordinary gain of JPY20.8bn (including a JPY11.7bn gain on the sale of affiliated companies). To achieve its long-term target for ROE of greater than 12%, Nisshinbo will have to improve ROIC at the Electronics segment, which managed a poor 1.4% return on operating assets. Under its plan to improve the profitability of the Electronics segment, the company made the mainstay subsidiary, JRC, into a wholly owned subsidiary in FY03/18 and made New JRC a wholly owned subsidiary in FY12/18.

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Historical performance

Q1 FY12/19 results Overview

▷ Sales JPY90.4bn (-7.2% versus adjusted comparable quarter in FY2018) ▷ Operating profit JPY4.5bn (-49.4%) ▷ Recurring profit JPY6.1bn (-37.1%) ▷ Net income* JPY5.0bn (-25.3%) * Net income attributable to owners of the parent

Starting with FY12/18, Nisshinbo changed its financial year-end from March to December. As such, the transitional period of Q1 FY12/18 (consolidated) covered the three months from April to June 2018 for the company and consolidated subsidiaries that had a financial year-end of March, the four months from March to June 2018 for consolidated subsidiaries that had a financial year-end of February, and the six months from January to June 2018 for consolidated subsidiaries that already had a financial year-end of December. The comparative information provided for reference hereinafter uses an adjusted period (referred to as “adjusted comparable quarter”) to allow a like-for-like comparison with Q1 FY12/19 (January–March 2019) for reference.

The company revised its segmentation as of Q1 FY12/19. It now has seven segments: the Wireless and Communications segment and the Micro Devices segment (which, together used to be the Electronics segment), along with the Automobile Brakes, Precision Instruments, Chemicals, Textiles, and Real Estate segments.

Although the Micro Devices segment benefited from the consolidation of subsidiary RICOH Electronic Devices, overall sales were down due to sales drop in the Wireless and Communications and Automobile Brakes businesses.

Operating profit fell owing to lower sales. Profits were down for all segments compared to the adjusted comparable quarter in FY2018 centered on the Automobile Brakes business, which earned lower profits by JPY2.0bn YoY.

Recurring profit also fell due to the decline in operating profit. Net income attributable to owners of the parent was also down due to the decline in recurring profit despite the absence of a provision for environmental measures recorded during the adjusted comparable quarter in FY2018.

Results for Q1 FY12/19 showed reduced sales and profits YoY. However, results remained in line with full-year forecasts made at the start of the financial year which factored in lower profits in the Automobile Brakes business in Q1. Progress versus FY12/19 company forecasts was 26.2% for sales, 56.8% for operating profit, and 67.1% for net income attributable to owners of the parent. Since sales and profit of the Wireless and Communications business are weighted toward Q1 (January‒March), when JRC books a large proportion of its equipment sales to national and local government agencies, the company’s sales and profits from Q2 through Q4 (April‒December) tend to be lower. Shared Research recognizes this creates a trend toward substantial progress versus full-year forecasts in Q1.

Wireless and Communications Sales: JPY53.2bn (-9.2% versus adjusted comparable quarter in FY2018) Segment profit: JPY5.3bn (-10.5%)

Sales and profits declined versus adjusted comparable quarter in FY2018 for the segment as a whole from a slump in the solutions and specialized equipment business. The company expects a recovery in earnings in Q2 from winning orders.

▷ In the marine systems business, sales increased and losses narrowed as ProNav AS (consolidated subsidiary since June 2018) contributed to results and equipment sales targeting new merchant ships finished flat versus the adjusted comparable quarter in FY2018.

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▷ Sales and profit fell in the communications equipment business, as the robust performance of intelligent transportation system (ITS) products for automobiles was not enough to offset the drop in sales of amplifier products as shipment of optical transmission equipment for mobile phone and smartphone application bottomed out. ▷ In the solutions and specialized equipment business, although sales increased for aviation and meteorological systems, overall sales and profit fell as large projects for broadcasting systems and road information systems ran their course. Nisshinbo intends to finish bidding for projects to be completed in FY12/19 at the end of Q2. The company expects this will lead to increased orders for the quarter. ▷ In the mechatronics and power supply business, sales fell largely due to lower sales in mechatronics and information-processing equipment, but profit increased on successful cost reduction efforts.

Micro Devices Sales: JPY15.4bn (+18.5% versus adjusted comparable quarter in FY2018) Segment profit: JPY132mn (-78.2%)

Sales grew YoY thanks to contributions from the addition of RICOH Electronic Devices as a consolidated subsidiary in March 2018. Meanwhile, profit fell due to market stagnation stemming from the US-China trade conflict.

▷ Among the microwave products, although sales were robust for satellite communication components, both sales and profit declined as the sales of electron tubes to the Ministry of Defense was postponed to Q2. ▷ For electronic devices, sales increased thanks to the addition of RICOH Electronic Devices as a consolidated subsidiary in March 2018. However, profit fell, affected by factors such as the saturating smartphone market and the trade conflict between the US and China, which has caused market stagnation leading to a slump in sales for high-priced products. On the other hand, sales of low-priced products seemed to be recovering.

Automobile Brakes Sales: JPY33.8bn (-11.2% versus adjusted comparable quarter in FY2018) Segment loss: JPY1.2bn (segment profit of JPY835mn in adjusted comparable quarter in FY2018)

Sales dropped owing to the sale of the foundation brake business. Profit fell, affected by disappointing performance from TMD on top of the sale of the foundation brake business.

▷ In Japan, the impact of the release of new models ran its course, causing car sales to fall versus the adjusted comparable quarter in FY2018. The domestic business saw lower sales due to the sale of the foundation brake business, but profit increased thanks to the launch of new copper-reduced or copper-free products and improved productivity. ▷ Overseas, the sale of the foundation brake business led to lower sales centered on Thailand. Profit fell across the board except for in South Korea.

 In US subsidiaries the launch of new products had a positive impact on sales, but profit fell due mainly to an increase in depreciation accompanying capital expenditure. The launch of new copper-reduced or copper-free products continued to be tied to higher sales in the US as well as Japan.  South Korean subsidiaries saw sales and profit rise on the back of new product launch and cost reduction efforts.  Chinese subsidiaries saw lower sales and profit as car sales fell.  Thai subsidiaries saw lower sales and profit following the sale of the foundation brake business.

▷ At TMD, although sales were flat on a local-currency basis, losses widened mainly from increases in business restructuring and sales promotion expenses. Q1 FY12/18 results came in before shipment delays of aftermarket products accompanying the relocation of its product warehouse in Germany. In contrast, Q1 FY12/19 saw a substantial drop in profit YoY due to increased

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sales promotion expenses aimed at recovering reduced market share from these shipment delays. The drop in sales of aftermarket products due to the shipment delays led to lower profit in FY12/18; however, the shipment confusion seems to be improving as of April 2019.

Precision Instruments Sales: JPY16.2bn (-3.8% versus adjusted comparable quarter in FY2018) Segment profit: JPY222mn (-65.6%)

Profit fell for both automotive precision parts and the plastic molding and processing business as automobile sales fell in China.

▷ Sales of automotive precision parts were up thanks to strong performance of the company’s domestic subsidiaries, but profit declined due to higher depreciation resulting from capital expenditure at the Chinese subsidiaries. ▷ Sales and profit fell due to sluggish performances of Nanbu Plastics and Thai subsidiaries.

Chemicals Sales: JPY2.1bn (-38.1% versus adjusted comparable quarter in FY2018) Segment profit: JPY308mn (-56.9%)

▷ Sales and profit fell for insulation materials due to the completion of a large rigid processed goods project. ▷ Sales and profit fell for functional chemicals on lower sales of water-based modifiers. However, the company predicts sales to recover in Q2 since the lower sales of water-based modifiers was a temporary phenomenon caused by inventory adjustments. ▷ Sales and profit for bipolar plates for fuel cells also dropped as sales of products for domestic household application fell.

Textiles Sales: JPY13.2bn (-0.7% versus adjusted comparable quarter in FY2018) Segment profit: JPY130mn (-42.2%)

▷ Although sales of fabrics for non-iron shirts were strong in the domestic market, sluggish sales of Tokyo Shirts products and non-woven fabrics for cosmetic sundries, along with the lackluster results of Nisshin Toa Iwao’s fabrics exports to the Middle

East led to a decline in both sales and profit. ▷ Overseas, sales and profit increased YoY on strong sales at an Indonesian subsidiary. Sales at a Brazilian subsidiary were robust, but profit declined due mainly to an increase in raw material costs.

Real Estate Sales: JPY1.3bn (-55.0% versus adjusted comparable quarter in FY2018) Segment profit: JPY888mn (-34.7%)

▷ The residential property lot business saw lower sales and profit versus the adjusted comparable quarter in FY2018, when the company sold a lot on the north side of the former site of JRC’s Mitaka factory (Tokyo).

Full-year FY12/18 results Overview Starting with FY12/18, Nisshinbo changed its financial year end from March to December. FY12/18 is an irregular period, covering the nine months from April to December 2018 for the company and consolidated subsidiaries that had a financial year end of March, the 10 months from March to December 2018 for consolidated subsidiaries that had a financial year end of February, and the 12 months from January to December 2018 for consolidated subsidiaries that already had a financial year end of

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December. For this reason, comparative information hereinafter uses the same periods as in FY12/18 (“adjusted FY17”) for reference.

▷ Sales: JPY416.2bn (+JPY2.9bn, +0.7% versus adjusted FY17) ▷ Operating loss: JPY2.5bn (versus operating profit of JPY7.8bn in adjusted FY17) ▷ Recurring loss: JPY1.6bn (-JPY11.1bn, -87.6% versus adjusted FY17) ▷ Net loss*: JPY7.2bn (versus net income* of JPY20.5bn in adjusted FY17) *Net income/loss attributable to owners of the parent.

FY12/18, sales were up slightly. Although sales in the Automobile Brakes business fell due to the impact of the sale of the foundation brake business in April 2018 (impact on sales of -JPY12.4bn), the Electronics business benefited from the consolidation of subsidiary RICOH Electronic Devices in March 2018 (impact on sales of +JPY18.1bn).

The company posted an operating loss due to the impact of the sale of the foundation brake business (impact on profit of -JPY739mn) and a decline in TMD’s sales of aftermarket products in the Automobile Brakes business (impact on profit of -JPY5.8bn). It posted a recurring loss due to a drop in operating profit, and a net loss attributable to owners of the parent caused in part by the recurring loss, the absence of the gain on the sale of stock related to the exit from the Papers business (JPY11.7bn) and gain on the sale of fixed assets in the Real Estate business booked in adjusted FY17 (JPY5.5bn).

Since sales and profit of the Electronics business are weighted toward the January‒March period, when JRC books a large proportion of its equipment sales to national and local government agencies, the company’s sales and profits during the remaining months (April‒December) tend to be lower.

Electronics

▷ Sales: JPY144.2bn (+14.2% versus adjusted FY17) ▷ Segment loss: JPY4.9bn (segment loss of JPY3.6bn in adjusted FY17)

The Electronics segment comprises the wireless and communications business, which is centered on JRC and develops social infrastructure-related products (including disaster prevention systems and monitoring systems) and mobile communications devices for ships and automobiles, and the micro devices business, which is handled by New JRC and RICOH Electronic Devices and develops microwave products and electronic device products including analog semiconductors and surface acoustic wave (SAW) filters.

Wireless and communications

▷ Sales: JPY90.4bn (+2.2% versus adjusted FY17)

 Marine systems: JPY28.3bn (-0.1% versus adjusted FY17)  Communications equipment: JPY12.2bn (+4.3% versus adjusted FY17)  Solutions and specialized equipment: JPY28.3bn (-5.3% versus adjusted FY17)

▷ Segment profit/loss: Segment loss of JPY6.5bn (segment loss of JPY5.1bn in adjusted FY17)

 Marine systems: Segment loss of JPY2.0bn (segment loss of JPY1.4bn in adjusted F17)  Communications equipment: Segment profit of JPY1.0bn (+5.5% versus adjusted FY17)  Solutions and specialized equipment: Segment loss of JPY5.7bn (segment loss of JPY5.1bn in adjusted FY17)

In the wireless and communications business, sales increased. Although performance was poor for aftermarket equipment in the Marine systems business and for large disaster-prevention systems in the solutions and specialized equipment business,

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performance was robust for information-processing and office equipment in the mechatronics and power supply business and intelligent transportation system (ITS) products for automobiles in the communications equipment business. On the earnings front, losses widened due to increased fixed costs.

Micro devices

▷ Sales: JPY53.8bn (+42.0% versus adjusted FY17)

 New JRC: JPY36.8bn (-4.1% versus adjusted FY17)  RICOH Electronic Devices: JPY18.1bn

▷ Segment profit: JPY1.6bn (+6.4% versus adjusted FY17)

 New JRC: JPY850mn (-43.7% versus adjusted FY17)  RICOH Electronic Devices: JPY1.0bn

▷ New JRC had lower sales and profit. Sales of marine satellite communications components were robust, but sales of semiconductors for smartphones were sluggish ▷ RICOH Electronic Devices became a consolidated subsidiary in March 2018, so its performance from April to December 2018 was reflected in consolidated earnings

Automobile Brakes

▷ Sales: JPY135.0bn (-9.4% versus adjusted FY17)

 Nisshinbo Brake (Japan): JPY12.7bn (-33.0% versus adjusted FY17)  Nisshinbo Brake (Overseas): JPY37.6bn (-15.6% versus adjusted FY17)  TMD: JPY90.6bn (-2.1% versus adjusted FY17)

▷ Segment profit/loss: Segment loss of JPY813mn (versus segment profit of JPY6.2bn in adjusted FY17)

 Nisshinbo Brake (Japan): Segment profit of JPY270mn (-65.3% versus adjusted FY17)  Nisshinbo Brake (Overseas): Segment profit of JPY3.5bn (-22.6% versus adjusted FY17)  TMD: Segment loss of JPY4.0bn (segment loss of JPY1.8bn in adjusted FY17)

▷ The sale of the foundation brake business in April 2018 caused sales to fall by JPY18.1bn and operating profit by JPY739mn ▷ Nisshinbo Brake (Japan) had lower sales and profit. Although new product launches had a positive impact on sales, the domestic business saw lower sales and profit due to the impact of the transfer of the foundation brake business ▷ Nisshinbo Brake (Overseas) had lower sales and profit. In addition to impact from the sale of the foundation brake business, all regions suffered sales declines and, with the exception of the South Korea subsidiary, all subsidiaries (US, China, Thailand) saw profit declines. At US subsidiaries, robust car sales and the launch of new products had a positive impact on sales, but sales fell and profit narrowed on changes in the product mix (with sedans comprising a reduced proportion of sales in the North American market). South Korean subsidiaries saw lower sales due to declining sales at client auto manufacturers, but posted profit growth on reduced expenses. Chinese subsidiaries saw lower sales and profit on the impact of reduced car sales. Thai subsidiaries saw lower sales and profit following the transfer of the foundation brake business ▷ TMD suffered both a decline in sales and a loss. This was caused by decreased sales of products for the aftermarket as a result of delays to shipments following relocation of its product warehouse in Germany, decreased sales of products for new cars as a result of lower new car production in Europe, and increased personnel expenses

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Precision Instruments

▷ Sales: JPY62.2bn (+1.6% versus adjusted FY17) ▷ Segment profit: JPY1.7bn (-5.4% versus adjusted FY17) ▷ Sales of automotive precision parts were up as the company’s Chinese subsidiaries expanded business, but profit at the subsidiaries was down on an increase in depreciation accompanying capex ▷ Sales and profit rose at the plastic molding and processing business on higher sales and profit at Nanbu Plastics as automotive products performed favorably and on higher sales at the Chinese and Indian subsidiaries

Chemicals

▷ Sales: JPY8.2bn (+3.5% versus adjusted FY17) ▷ Segment profit: JPY1.7bn (+19.3% versus adjusted FY17) ▷ Sales fell for insulation materials due to the completion of a large rigid processed goods project, but profit increased due to a rising proportion of high-value-added products ▷ Sales and profit increased YoY for functional chemicals on robust sales of powder modifiers ▷ Sales and profit for bipolar plates for fuel cells increased, due to increased sales for overseas installed and automotive applications.

Textiles

▷ Sales: JPY43.7bn (-2.2% versus adjusted FY17) ▷ Segment profit: JPY1.3bn (-31.3% versus adjusted FY17) ▷ In the domestic market, sales and profit declined. Although sales of fabrics for non-iron shirts, fabrics for uniforms, and non-woven fabrics for cosmetic sundries increased, and shirt sales at Tokyo Shirts were robust, they could not offset sluggish sales of fabrics for spandex for overseas, and apparel at Nisshin Toa Iwao ▷ Overseas, sales and profit increased YoY on strong sales at an Indonesian subsidiary. Sales at a Brazilian subsidiary were robust, but a steep rise in the price of raw cotton led to higher sales but lower profit on a local currency basis; both sales and profit were down after currency translation due to the stronger yen

Real Estate

▷ Sales: JPY4.2bn (-22.4% versus adjusted FY17) ▷ Segment profit: JPY2.7bn (-27.7% verses adjusted FY17) ▷ The residential property lot business saw lower sales and profit, since lots on the site of a former factory in Kawagoe (Saitama Prefecture) have almost all been sold ▷ The leasing business booked lower sales and profit under the impact of having sold large commercial facilities

1H FY12/18 results Overview Starting with FY12/18, Nisshinbo changed its financial year end from March to December. 1H FY12/18 is an irregular period, covering the six months from April to September 2018 for the company and consolidated subsidiaries that had a financial year end of March, the seven months from March to September 2018 for consolidated subsidiaries that had a financial year end of February, and the nine months from January to September 2018 for consolidated subsidiaries that already had a financial year end

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of December. For this reason, comparative information hereinafter uses the same periods in 2017 (“adjusted 1H FY17”) for reference.

1H FY12/18 sales were JPY291.0bn (+1.3%, +JPY3.8bn versus adjusted 1H FY17). Although sales in the Automobile Brakes business fell due to the impact of the sale of the foundation brake business, the Electronics business benefited from the consolidation of subsidiary RICOH Electronic Devices. The sale of the foundation brake business caused an JPY8.1bn drop in sales, and consolidation of RICOH Electronic Devices caused a JPY12.3bn rise.

The company posted an operating loss of JPY868mn (operating profit of JPY2.7bn in adjusted 1H FY17) due to a decline in TMD’s sales of aftermarket products in the Automobile Brakes business. The sale of the foundation brake business caused a JPY456mn drop in profit, and consolidation of RICOH Electronic Devices caused a JPY685mn rise.

Recurring profit was JPY1.9bn (-65.4% or -JPY3.7bn YoY) on a drop in operating profit. Net loss attributable to owners of the parent was JPY83mn (net income of JPY17.0bn in adjusted 1H FY17) due to the absence of the JPY11.7bn gain on the sale of stock related to the exit from the Papers business, JPY5.4bn gain on the sale of fixed assets in the Real Estate business, and business structure improvement expenses (downsizing, etc.) booked by TMD in adjusted 1H FY17.

Since sales and profit of the Electronics business are weighted toward the January‒March period, when JRC books a large proportion of its equipment sales to national and local government agencies, the company’s sales and profits during the remaining months (April‒December) tend to be lower.

Electronics Sales: JPY91.9bn (+12.8% versus adjusted 1H FY17) Segment loss: JPY3.9bn (segment loss of JPY4.4bn in adjusted 1H FY17)

The Electronics segment comprises the wireless and communications business, which is centered on JRC and develops social infrastructure-related products (including disaster prevention systems and monitoring systems) and mobile communications devices for ships and automobiles, and the micro devices business, which is handled by New JRC and RICOH Electronic Devices and develops microwave products and electronic device products including analog semiconductors and surface acoustic wave (SAW) filters.

In the wireless and communications business, sales were JPY55.7bn (-1.5% versus adjusted 1H FY17) and segment loss was JPY5.0bn (improvement of JPY237mn versus adjusted 1H FY17). Although sales of information-processing and office equipment in mechatronics and power supply business and intelligent transportation system (ITS) products for automobiles in the communications equipment business were robust, sales of marine systems and solutions and specialized equipment declined, resulting in the booking of a loss. In the marine systems business, sales were JPY19.5bn (-1.5% versus adjusted 1H FY17) and operating loss was JPY1.2bn (versus operating loss of JPY1.4bn for adjusted 1H FY17). In large vessels, which account for about half of marine systems sales, recovery in demand from the new ship market was delayed and sales of aftermarket equipment declined. In the solutions and specialized equipment business, sales were JPY14.1bn (-17.1% versus adjusted 1H FY17) and operating loss was JPY4.6bn (versus operating loss of JPY4.2bn for adjusted 1H FY17). Sales of large disaster prevention systems declined.

In the micro devices business, sales were JPY36.2bn (+45.1% versus adjusted 1H FY17) and segment profit was JPY1.1bn (+26.7% versus adjusted 1H FY17). New JRC had sales of JPY24.6bn (+2.9% YoY) and operating profit of JPY589mn (-33.7% YoY). Semiconductors for smartphone-related use were sluggish, but sales of marine satellite communications components were robust. RICOH Electronic Devices, which was consolidated early in 2018, had sales of JPY12.3bn and operating profit of JPY685mn, helping the segment to achieve higher sales and profits.

In the Electronics segment, the company made New JRC a wholly owned subsidiary in September 2018.

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Automobile Brakes Sales: JPY103.6bn (-5.9% versus adjusted 1H FY17) Segment profit: JPY657mn (-83.4%)

The decline in segment profit was largely due to lower profits at TMD. The handover of the foundation brake business in April 2018 at the domestic and overseas NISB Group contributed to lower sales and profits. In adjusted 1H FY17, the foundation brake business had sales of about JPY8.1bn and operating profit of about JPY456mn.

▷ In Japan, auto sales were JPY8.3bn (-32.3% versus adjusted 1H FY17) and operating profit was JPY95mn (-80.0% versus adjusted 1H FY17). Total new autos sold was flat YoY. Sales of small, low-displacement automobiles (“kei cars”) remained robust, but sales of cars other than kei cars declined as the impact of the release of new models ran its course. Although launch of new products had a positive impact on sales, the domestic business saw lower sales and profit due to the handover of the foundation brake business ▷ Overseas, the NISB Group had sales of JPY28.6bn (-13.9% versus adjusted 1H FY17) and operating profit of JPY2.8bn (-10.9% versus adjusted 1H FY17). US subsidiaries saw lower sales but higher profit on changes in the product mix. South Korean subsidiaries saw lower sales due to declining sales at client auto manufacturers, but posted profit growth on reduced expenses.

Chinese subsidiaries saw lower sales and profit on the impact of products falling out of use. Thai subsidiaries saw lower sales and profit following turnover of the foundation brake business ▷ At TMD, sales were JPY70.9bn (+2.0% versus adjusted 1H FY17) and operating loss was JPY1.8bn (versus operating profit of JPY830mn in adjusted 1H FY17). Sales fell and losses widened on a local currency basis, but sales were up, although losses expanded, on currency translation gains caused by a weaker yen. Sales of aftermarket products decreased. The warehouse in Germany was relocated to improve distribution operations, but shipment confusion caused by inadequate employee training

and system bugs led to lower profit. Nisshinbo says the distribution-related issues had been resolved as of November 2018, but the targeted effects of streamlining had yet to appear. The company assigned domestic NISB employees to TMD’s management team in April 2018. The current revenue structure of TMD is largely dependent on component sales for the

aftermarket, but with the change in management, Nisshinbo aims to reform TMD’s management structure so it can improve the profitability of components for new automobiles and raise earnings

Precision Instruments Sales: JPY45.6bn (+3.9% versus adjusted 1H FY17) Segment profit: JPY1.4bn (+34.1% versus adjusted 1H FY17)

▷ Sales of automotive precision parts were JPY10.8bn (+34.4% versus adjusted 1H FY17) and operating profit was JPY637mn (+28.7% versus adjusted 1H FY17). The company’s Chinese subsidiaries expanded business, but profit at the subsidiaries was down slightly on an increase in depreciation accompanying capex ▷ At the plastic molding and processing business, sales were JPY38.0bn (+3.2% versus adjusted 1H FY17) and operating profit was JPY1.4bn (+33.6% versus adjusted 1H FY17). Sales and profits rose on higher sales and profit at Nanbu Plastics as automotive products performed favorably and on higher sales at the Chinese and Indian subsidiaries

Chemicals Sales: JPY5.5bn (+13.9% versus adjusted 1H FY17) Segment profit: JPY1.1bn (+53.9% versus adjusted 1H FY17)

▷ Sales of insulation materials were JPY2.8bn (+11.8% versus adjusted 1H FY17) and operating profit was JPY485mn (+36.6% versus adjusted 1H FY17), driven in large part by higher sales of rigid blocks and rigid processed goods

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▷ Sales of functional chemicals were JPY1.2bn (-0.8% versus adjusted 1H FY17) and operating profit was JPY300mn (+4.5% versus adjusted 1H FY17). Sales and profit were flat on robust sales of water soluble cross-linking agents and powder modifiers ▷ Sales of bipolar plates for fuel cells were JPY711mn (+34.4% versus adjusted 1H FY17) and operating profit was JPY131mn (versus operating loss of JPY30mn in adjusted 1H FY17). Sales increased, facilitating a move back into the black, due to growth in sales of household and installed fuel cells, cost reduction measures, and revised methods for distributing R&D expenses

Textiles Sales: JPY29.3bn (-5.1% versus adjusted 1H FY17) Segment profit: JPY585mn (-44.1% versus adjusted 1H FY17)

▷ In the domestic market, sales were JPY23.3bn (-3.3% versus adjusted 1H FY17) and operating profit was JPY354mn (-39.1% versus adjusted 1H FY17). Although shirt sales at Tokyo Shirts and sales of non-woven fabrics for cosmetic sundries were robust, they could not offset sluggish sales of fabrics for uniforms, spandex for overseas, and sports clothing at Nisshin Toa Iwao, and sales and profit declined ▷ Overseas, sales were JPY16.0bn (+0.9% versus adjusted 1H FY17) and operating profit was JPY422mn (-32.0% versus adjusted 1H FY17). Sales and profit were flat YoY on strong sales at Indonesian subsidiary. Sales at the Brazilian subsidiary were robust, but a steep rise in the price of raw cotton led to higher sales but lower profit on a local currency basis; both sales and profit

were down after currency translation due to the stronger yen

Real Estate Sales: JPY2.9bn (-23.1% versus adjusted 1H FY17) Segment profit: JPY1.9bn (-30.1% verses adjusted 1H FY17)

▷ The residential property lot business saw lower sales and profit, since lots on the site of a former factory in Kawagoe (Saitama Prefecture) have almost all been sold ▷ The leasing business booked lower sales and profit under the impact of having sold large commercial facilities

Q1 FY12/18 results Overview Starting with FY12/18, Nisshinbo changed its financial year end from March to December. Q1 FY12/18 is an irregular period, covering the three months from April to June 2018 for the company and consolidated subsidiaries that had a financial year end of March, the four months from March to June 2018 for consolidated subsidiaries that had a financial year end of February, and the six months from January to June 2018 for consolidated subsidiaries that already had a financial year end of December. For this reason, comparative information hereinafter uses the same periods in 2017 (“adjusted Q1 FY17”) for reference.

Q1 FY12/18 sales were JPY170.9bn (+3.1%, +JPY5.1bn versus adjusted Q1 FY17). Although sales in the Automobile Brakes business fell due to the impact of the sale of the foundation brake business, the Electronics business benefited from the consolidation of subsidiary RICOH Electronic Devices.

Operating profit was JPY171mn (-77.9%, -JPY603mn versus adjusted Q1 FY17). In the Electronics business, JRC shrank its operating loss, but in the Automobile Brakes business, TMD’s sales of aftermarket products declined. Recurring profit was JPY2.9bn (-7.7%, -JPY242mn) on an increase in investment gain on equity-method affiliates. Net income attributable to parent company shareholders was JPY528mn (-97.0%, -JPY17.1bn). This decline was due to there being no bookings similar to the year-earlier bookings of gain on the sale of stock related to the exit from the Papers business and gain on the sale of fixed assets in the Real Estate business.

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Since sales and profit of the Electronics business are weighted toward the January‒March period, when JRC books a large proportion of its equipment sales to national and local government agencies, the company’s sales and profits during the remaining months (April‒December) tend to be lower.

Electronics Sales: JPY46.5bn (+17.8% versus adjusted Q1 FY17) Segment loss: JPY2.1bn (JPY998mn improvement versus adjusted Q1 FY17)

The Electronics segment comprises the wireless and communications business, which is centered on JRC and develops social infrastructure-related products (including disaster prevention systems and monitoring systems) and mobile communications devices for ships and automobiles, and the micro devices business, which is handled by New JRC and RICOH Electronic Devices and develops microwave products and electronic device products including analog semiconductors and surface acoustic wave (SAW) filters.

In the wireless and communications business, sales were JPY28.7bn (+4.4% versus adjusted FY Q1) and segment loss was JPY2.7bn (improvement of JPY603mn versus adjusted FY Q1). Although JRC’s sales of marine systems aftermarket equipment and solutions and specialized equipment’s large disaster prevention systems declined, sales of communications equipment’s intelligent transportation system (ITS) products for automobiles increased. In addition, increased sales of products for information-processing equipment in the mechatronics and power supply business helped to raise sales YoY and shrink the segment loss. On the earnings front, the company was able to narrow losses thanks to continued impact of cost reduction measures implemented in the previous financial year. The company expects a reactionary increase in losses as the impact of cost reduction measures wear down from Q2 onward.

In the micro devices business, sales were JPY17.8bn (+48.4% versus adjusted FY Q1) and segment profit was JPY556mn (+245.3% versus adjusted FY Q1). New JRC reported sales of JPY12.1bn (+0.2% YoY) and operating profit of JPY333mn (+105.6% YoY). Sales of New JRC’s semiconductors for smartphone-related use were sluggish, but sales of marine satellite communications components were robust. RICOH Electronic Devices, which was consolidated in 2018, logged sales of roughly JPY6.0bn and operating profit of about JPY300mn.

In the Electronics segment, the company plans to make New JRC a wholly owned subsidiary in September 2018.

Automobile Brakes Sales: JPY67.8bn (-4.5% versus adjusted Q1 FY17) Segment profit: JPY372mn (-83.8% versus adjusted Q1 FY17)

The decline in segment profit was largely due to lower profits at TMD. The handover of the foundation brake business in April 2018 at the domestic and overseas NISB Group contributed to lower sales and profits. The foundation brake business reported full-year sales of JPY17.3bn and operating profit of JPY1.1bn in the previous financial year. In Q1 FY12/18, sales and profit fell by roughly one fourth of its previous full-year results.

▷ In Japan, there was a decline in total new autos sold. Sales of small, low-displacement automobiles (“kei cars”) remained robust,

but sales of other than kei cars declined as the effect of the release of new models ran its course and issues related to improper

testing persisted. The domestic business saw lower sales and profit due to the decline in total new autos sold and the handover

of the foundation brake business

▷ Overseas, US subsidiaries saw lower sales but higher profit on robust automobile sales, the launch of new products, and changes

in the product mix. Korean subsidiaries saw lower sales and profit due to declining sales at client auto manufacturers. Chinese

subsidiaries saw lower sales and profit on the impact of products falling out of use. Thai subsidiaries saw lower sales and profit on

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a local currency basis following turnover of the foundation brake business, even with strong auto sales and the launch of new

products, but sales were down and profit up on currency translation gains caused by a weaker yen ▷ At TMD, sales and profit fell on a local currency basis, but sales were up and profit down on currency translation gains caused by a weaker yen. The company relocated its warehouse to improve delivery operations, but a system error occurred during the process, causing shipments confusion. This, in addition to a decline in sales of products for the aftermarket, led to lower profits. According to the company, delivery errors were resolved by the latter half of Q1. Further, in April 2018, the company assigned domestic NISB employees to TMD’s management team. The current earnings structure of TMD is largely dependent on product sales for the aftermarket, but with the change in management, Nisshinbo aims to reform TMD’s management structure so that it can improve profitability of parts for new automobiles and improve earnings

Precision Instruments Sales: JPY29.5bn (+7.3% versus adjusted Q1 FY17) Segment profit: JPY1.1bn (+184.2% versus adjusted Q1 FY17)

▷ Sales of automotive precision parts were up as the company’s subsidiary that manufactures products for electronically controlled braking systems in China expanded its business, but profit was down slightly on an increase in depreciation

accompanying capex ▷ Sales and profit rose at the plastic molding and processing business on higher sales and profit at consolidated subsidiary Nanbu Plastics as automotive products performed favorably and on higher sales at the Chinese and Indian subsidiaries. Nanbu

Plastics saw lower profit in the same quarter the previous year due to an increase in outsourced processing expenses to handle orders exceeding its production capacity. However, Nanbu Plastics boosted its production capacity in 2H, and higher sales in Q1 FY12/18 contributed to higher profits

Chemicals Sales: JPY3.1bn (+35.8% versus adjusted Q1 FY17) Segment profit: JPY660mn (+146.4% versus adjusted Q1 FY17)

▷ Sales and earnings rose for insulation materials, driven in large part by higher sales of rigid blocks and rigid processed goods ▷ Sales and profit fell for functional chemicals on lower sales of water soluble cross-linking agents and powder modifiers ▷ Sales of bipolar plates for fuel cells increased, facilitating a move back into the black, due to growth in sales of household and installed fuel cells, cost reduction measures, and revised methods for distributing R&D expenses

Textiles Sales: JPY16.5bn (-4.7% versus adjusted Q1 FY17) Segment profit: JPY517mn (-35.8% versus adjusted Q1 FY17)

▷ In the domestic market, sales and profit declined. Sales of non-woven fabrics for cosmetic sundries increased, but sales of shirt fabric and spandex for overseas were sluggish, and shirt sales at Tokyo Shirts were poor ▷ Overseas, sales and profit were down. Sales at the Brazilian subsidiary were robust, but a steep rise in the price of raw cotton hurt profit. Sales outside the group by the Indonesian subsidiary were sluggish

Real Estate Sales: JPY1.4bn (-28.5% versus adjusted Q1 FY17) Segment profit: JPY865mn (-36.1% versus adjusted Q1 FY17)

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▷ The residential property lot business saw lower sales and profit, since lots on the site of a former factory in Kawagoe (Saitama Prefecture) have almost all been sold ▷ The leasing business booked lower sales and profit under the impact of having sold large commercial facilities

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Income statement

Income statement FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 (JPYmn) Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons. Sales 242,409 325,555 379,340 450,693 494,350 523,757 533,989 527,274 512,047 416,221 YoY -15.3% 34.3% 16.5% 18.8% 9.7% 5.9% 2.0% -1.3% -2.9% - Cost of goods sold 201,625 262,067 317,533 359,463 395,083 415,608 419,401 420,609 406,069 335,043 Gross profit 40,783 63,487 61,806 91,229 99,266 108,149 114,587 106,664 105,978 81,177 GPM 16.8% 19.5% 16.3% 20.2% 20.1% 20.6% 21.5% 20.2% 20.7% 19.5% SG&A expenses 37,214 43,645 57,635 77,836 86,091 94,405 101,970 101,773 90,892 83,683 SG&A ratio 15.4% 13.4% 15.2% 17.3% 17.4% 18.0% 19.1% 19.3% 17.8% 20.1% Operating profit 3,569 19,842 4,170 13,393 13,175 13,744 12,617 4,890 15,085 -2,505 YoY 776.9% 456.0% -79.0% 221.2% -1.6% 4.3% -8.2% -61.2% 208.5% - OPM 1.5% 6.1% 1.1% 3.0% 2.7% 2.6% 2.4% 0.9% 2.9% - Non-operating income 7,578 6,799 7,021 8,002 12,030 9,315 8,010 9,741 8,965 7,855 Non-operating expenses 1,598 1,373 2,511 3,709 3,034 2,409 3,593 4,075 4,350 3,783 Recurring profit 9,548 25,268 8,680 17,686 22,171 20,650 17,034 10,556 19,700 1,566 YoY 33.5% 164.6% -65.6% 103.8% 25.4% -6.9% -17.5% -38.0% 86.6% - RPM 3.9% 7.8% 2.3% 3.9% 4.5% 3.9% 3.2% 2.0% 3.8% 0.4% Extraordinary gains 1,637 4,659 2,436 2,966 1,691 7,186 7,772 6,143 20,808 2,016 Extraordinary losses 5,850 9,392 8,084 3,767 9,345 9,877 2,626 9,983 7,021 7,063 Income taxes 7,279 7,092 -3,319 6,290 3,643 -2,846 7,839 4,883 6,900 2,075 Implied tax rate 136.4% 34.5% -109.5% 37.3% 25.1% -15.8% 35.3% 72.7% 20.6% -59.6% Net income attributable to non-controlling interests -3,840 2,258 -3,064 4,177 1,861 7,111 3,564 -1,741 234 1,627 Net income 1,896 11,184 9,415 6,418 9,011 13,693 10,775 3,574 26,352 -7,182 YoY -247.5% 489.9% -15.8% -31.8% 40.4% 52.0% -21.3% -66.8% 637.3% - Net margin 0.8% 3.4% 2.5% 1.4% 1.8% 2.6% 2.0% 0.7% 5.1% - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Starting with FY12/18, Nisshinbo changed its financial year end from March 31 to December 31. For this reason, FY12/18 was an irregular accounting period covering April to December 2018 for consolidated companies whose financial year previously ended in March.

Non-operating revenue Dividends received Dividend yield is around 2–3%, calculated by dividing dividends received by total investment securities held (excluding shares in listed and non-listed affiliates).

Dividends received and dividend yield

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 Dividend income 1,364 1,144 1,308 1,239 1,756 2,116 2,368 2,142 2,307 2,055 Investment securities 98,925 67,624 68,858 86,046 98,234 119,460 97,880 100,514 108,111 95,287 Shares in affiliates 38,493 9,767 12,208 14,088 16,215 16,846 17,698 20,038 22,293 23,979 Investment securities excluding shares in affiliates 60,432 57,857 56,650 71,958 82,019 102,614 80,182 80,476 85,818 71,308 Dividend yield 2.4% 1.9% 2.3% 1.9% 2.3% 2.3% 2.6% 2.7% 2.8% 3.5% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: For FY12/18, nine-month dividend yield was adjusted on a twelve-month base.

Equity in earnings of affiliates Continental Automotive and Continental Automotive Corporation (LYG) make a significant contribution to equity in earnings of affiliates. They are joint ventures established by Continental AG (FWB: CON) and Nisshinbo to develop, design, manufacture, and sell automobile brake systems in Japan and China.

Equity in earnings of affiliates and results at Continental Automotive and Continental Automotive Corporation (LYG)

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 Equity in earnings of affiliates 3,886 3,348 3,502 3,075 4,899 3,280 2,873 4,405 4,375 3,942 Continental Automotive Sales 52,449 73,055 66,270 67,647 79,070 94,686 95,636 86,776 103,571 119,940 Net income 2,796 5,670 5,909 5,642 8,926 6,330 5,250 6,789 7,062 6,916 Nisshinbo stake 49.0% 49.0% 40.0% 40.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% Equity in earnings of Continental Automotive 1,370 2,778 2,364 2,257 3,124 2,216 1,838 2,376 2,472 2,421 Continental Automotive Corporation (LYG) Sales ------38,713 - - Net income ------3,621 - - Nisshinbo stake ------40.0% 40.0% 35.0% Equity in earnings of Continental Automotive ------1,448 - - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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Non-operating expenses Interest expenses Interest tends to be about 0.7–2.0%. It rose in FY03/13 with the consolidation of TMD, which increased interest on corporate bonds. In FY03/14, the company bought and retired bonds, resulting in lower interest.

Interest paid and interest on interest-bearing debt

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 Interest expenses 815 832 1,099 2,240 1,578 1,024 1,007 969 862 888 Interest rate on interest-bearing debt 1.5% 1.5% 1.2% 2.3% 1.7% 1.0% 0.9% 0.8% 0.7% 0.7% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Income taxes and minority interests Net income attributable to non-controlling interests In the past, net income attributable to non-controlling interests primarily reflected income attributable to minority shareholders of listed subsidiaries JRC and New JRC. However, with JRC having become a wholly owned subsidiary in FY03/18 and New JRC having become a wholly owned subsidiary in FY12/18, net income attributable to non-controlling interests will no longer reflect these values.

Net income attributable to non-controlling interests

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 Net income attributable to non-controlling interests -3,840 2,258 -3,064 4,177 1,861 7,111 3,564 -1,741 234 1,627 JRC net income 2,322 1,921 1,844 9,245 2,310 14,342 1,661 1,559 - - Stake 34.1% 64.3% 64.3% 64.3% 64.3% 64.3% 61.8% 61.8% 100.0% 100.0% Net income attributable to non-controlling interests Non-cons. 686 658 3,301 825 5,122 634 595 - - New JRC net income -10,011 494 -9,098 1,721 2,561 4,580 2,496 616 2,520 - Stake 59.6% 59.6% 59.6% 59.7% 59.7% 59.6% 59.6% 59.6% 63.6% 100.0% Net income attributable to non-controlling interests -4,040 199 -3,672 694 1,033 1,848 1,007 249 917 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Net income attributable to non-controlling interests for JRC and New JRC are each calculated by multiplying net assets x (1 – the company’s interest).

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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 FY12/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Assets Cash and deposits 20,181 29,374 20,897 20,200 28,033 45,687 45,921 47,691 43,046 42,434 Notes and accounts receivable–trade 60,204 112,527 124,541 130,124 144,690 146,800 137,956 135,261 136,348 106,403 Electronically recorded monetary claim - - - - 4,540 6,129 9,162 14,011 15,802 15,404 Inventories 41,026 73,096 80,647 78,996 88,237 92,893 95,192 99,768 105,367 118,990 Deferred tax assets 3,982 3,057 5,296 2,831 3,019 7,758 7,215 6,000 4,878 - Other 5,213 23,622 8,219 7,167 3,925 11,202 8,949 12,069 5,655 14,856 Total current assets 130,606 241,676 239,600 239,318 272,444 310,469 304,395 314,800 311,096 298,087 Buildings and structures 50,453 55,685 58,505 58,623 60,020 67,725 69,088 73,179 68,358 67,842 Machinery and vehicles 31,806 31,362 39,300 44,910 49,332 57,123 55,093 51,796 55,090 58,933 Land 27,643 56,194 54,972 51,791 52,226 45,653 47,679 39,215 37,811 36,890 Construction in progress 1,549 2,247 3,417 2,389 4,192 4,490 7,345 9,129 12,649 9,909 Other fixed assets 3,274 4,451 6,630 7,839 8,476 9,894 12,563 12,165 12,109 11,115 Total tangible fixed assets 114,725 149,939 162,824 165,552 174,246 184,885 191,768 185,484 186,017 184,689 Investment securities 98,925 67,624 68,858 86,046 98,234 119,460 97,880 100,514 108,111 95,287 Deferred tax assets 4,595 5,236 5,394 5,883 8,831 9,525 12,161 9,744 9,240 6,159 Other 4,821 10,098 9,883 9,838 11,408 18,231 14,952 15,074 18,286 23,033 Investments and other assets 108,341 82,958 84,135 101,767 118,473 147,216 124,993 125,332 135,637 124,479 Goodwill 616 1,224 25,341 23,002 23,378 16,013 14,607 8,077 8,945 7,130 Other 3,819 4,053 21,727 21,760 22,768 19,900 16,029 12,593 10,261 7,993 Total intangible assets 4,435 5,278 47,068 44,762 46,146 35,914 30,636 20,670 19,206 15,124 Total fixed assets 227,503 238,175 294,028 312,081 338,866 368,016 347,398 331,487 340,861 324,293 Total assets 358,109 479,852 534,583 551,933 611,310 678,486 651,793 646,288 651,958 622,381 Liabilities Accounts and notes payable 25,562 54,998 59,228 58,708 66,557 63,593 62,690 59,974 55,526 44,048 Electronically recorded obligations - - - - 4,827 7,264 9,500 12,457 16,419 20,260 Short-term debt 24,339 25,493 26,928 28,736 48,653 71,280 55,397 48,977 46,312 65,391 Commercial paper 22,000 25,000 27,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 Current portion of bonds payable - - 2,019 11,133 ------Current portion of long-term debt 2,262 23,653 18,211 23,596 20,320 6,634 14,679 7,770 7,676 8,057 Other 20,204 27,741 35,552 36,233 33,303 47,407 47,504 46,996 53,016 50,333 Total current liabilities 94,367 156,885 168,938 188,406 203,660 226,178 219,770 206,174 208,949 218,089 Bonds payable - - 14,094 ------Long-term debt 14,226 24,481 47,607 26,560 28,888 38,162 48,757 69,294 64,107 58,742 Deferred tax liabilities 15,914 26,835 26,971 34,409 41,321 43,971 34,274 30,741 25,246 16,825 Retirement benefit liabilities 20,717 41,479 43,009 40,854 43,062 42,494 47,085 49,180 48,031 50,269 Other 19,247 18,614 20,213 19,080 17,514 20,743 17,435 15,145 15,190 13,606 Total fixed liabilities 70,104 111,409 151,894 120,903 130,785 145,370 147,551 164,360 152,574 139,442 Total liabilities 164,471 268,295 320,833 309,309 334,445 371,548 367,321 370,535 361,524 357,531 Net assets Capital stock 27,587 27,587 27,587 27,587 27,587 27,587 27,587 27,587 27,587 27,609 Capital surplus 20,400 20,400 20,400 20,400 20,403 20,401 17,598 17,587 26,719 20,396 Retained earnings 129,583 133,229 140,213 143,955 150,346 161,791 168,824 167,598 189,186 177,545 Treasury stock -6,052 -2,591 -3,522 -3,533 -3,552 -23,478 -23,156 -23,089 -24,610 -11,035 Accumulated other comprehensive income 11,471 3,753 1,053 20,964 44,445 72,608 42,833 39,751 49,888 35,100 Subscription rights to shares 155 202 246 282 264 221 168 162 151 160 Non-controlling interests 10,491 28,973 27,771 32,966 37,369 47,805 50,613 46,155 21,510 15,071 Total net assets 193,638 211,557 213,750 242,623 276,865 306,937 284,471 275,753 290,434 264,849 Working capital 75,668 130,625 145,960 150,412 166,370 176,100 170,458 175,055 186,189 181,345 Total interest-bearing debt 40,827 73,627 108,859 90,025 97,861 116,076 118,833 126,041 118,095 132,190 Net debt 20,646 44,253 87,962 69,825 69,828 70,389 72,912 78,350 75,049 89,756 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Assets Nisshinbo’s main assets are notes and accounts receivables, inventories, tangible fixed assets, and investment securities.

Notes and accounts receivable Notes and accounts receivable have trended upward as sales have increased, accounting for 17.1% of total assets in FY12/18. The turnover rate of accounts receivable has generally run between 3x and 4x. Accounts receivable turnover has fallen from FY03/11 with the consolidation of JRC. In FY03/17, accounts receivable at JRC totaled JPY63.3bn—about 50% of the group total—and turnover was 2.3x. This is significantly less than its consolidated turnover.

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Accounts receivable turnover

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY 12/ 18 Accounts receivable turnover 4.1 3.8 3.2 3.5 3.6 3.6 3.8 3.9 3.8 - Days in accounts receivable 89.7 96.8 114.1 103.1 101.5 101.6 97.3 94.6 96.8 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Inventories Inventories have also trended upward as sales have increased, accounting for 19.1% of total assets in FY12/18. Inventory turnover is stable at around 4.0–5.0x.

Inventory turnover

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY 12/ 18 Inventory turnover 4.5 4.6 4.1 4.5 4.7 4.6 4.5 4.3 4.0 - Days in inventory 80.3 79.5 88.4 81.1 77.2 79.5 81.8 84.6 92.2 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Tangible fixed assets Tangible fixed assets totaled JPY184.7bn in FY12/18 (29.7% of total assets). This includes headquarters (book value of JPY24.4bn in FY03/18), manufacturing facilities at subsidiaries, and leased real estate (book value of JPY20.6bn).

Of the total tangible fixed assets, depreciable assets stood at JPY137.9bn, about half of which was buildings and structures, and about 40% of which was machinery, equipment, and vehicles. The straight-line method is used for depreciation of tangible fixed assets, with a useful life of 2–60 years for buildings and structures, and 2–20 years for machinery, equipment, and vehicles. In FY03/18, depreciation costs totaled JPY22.2bn.

In FY03/18, leased real estate had a balance sheet value of JPY20.6bn (rental real estate in FY03/17 amounted JPY22.0bn), against a market value of JPY73.2bn at the end of the year (market value of JPY77.5bn at the end of FY03/17)—spelling unrealized gains of JPY52.7bn (unrealized gains in FY03/17 were JPY55.5bn). This real estate includes rental shopping centers and office buildings (and the land) in Tokyo and elsewhere.

Goodwill In FY12/18, goodwill amortization totaled JPY1.9bn, with total goodwill outstanding at the end of the year at JPY7.1bn. With the Automobile Brakes segment having completed goodwill amortization in FY03/17, amortization charges came down in FY12/18. As of the end of FY12/18, unamortized goodwill in the Electronics segment totaled JPY3.4bn and in the Precision Instruments segment came to JPY3.4bn, with these two segments together accounting for the vast majority of goodwill carried on Nisshinbo’s balance sheet. The unamortized goodwill at the Electronics segment reflects JRC’s acquisition of Alphatron Marine Beheer B.V. in FY03/17 and the making of RICOH Electronic Devices a wholly owned subsidiary in FY03/18. The unamortized goodwill at the Precision Instruments segment reflects its acquisition of Nanbu Plastics and its nine subsidiaries in FY03/16.

Investment securities In FY03/18, Nisshinbo reported investment securities of JPY100.5bn, of which JPY74.8bn (JPY67.6bn in FY03/17) in 73 different security names (80 in FY03/17) was held for reasons other than pure investment. Trading securities, held-to-maturity investments, securities other than shares of related companies were JPY80.5bn (JPY78.1bn for those with market cap, JPY2.4bn for unlisted companies, etc.) For example, the company holds shares in Toyota Motor Corp., Shikoku Chemicals Corporation, and Hino Motors to create and strengthen relationships.

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Notable share holdings (as of FY12/18)

Stock Name FY12/18 FY03/18 Shares Balance sheet value Shares Balance sheet value

(JPYmn) (JPYmn)

Toyota Motor Corp. 5,099,841 32,669 5,249,841 35,830

Shikoku Chemicals Corp. 5,580,752 5,748 5,580,752 8,767

Hino Motors Ltd. 4,209,250 4,377 4,209,250 5,762

Teijin Ltd. 1,953,258 3,431 1,953,258 3,908

The Japan Wool Textile Co., Ltd. 2,763,000 2,285 2,763,000 2,884

Nisshin Seifun Group Inc. 977,680 2,220 977,680 2,061

RANE HOLDINGS LIMITED 541,125 1,168 541,125 2,187

Mizuho Financial Group 6,576,870 1,120 6,576,870 1,258

Central Glass Co., Ltd. 424,800 920 424,800 1,052

AOYAMA TRADING Co., Ltd. 344,000 901 344,000 1,441

Ballard Power Systems, Inc. 3,322,479 881 3,322,479 1,253 Source: Shared Research based on company data

Liabilities Notes and accounts payable Notes and accounts payable made up 12.3% of total liabilities in FY12/18. Accounts payable turnover dropped in FY03/11 with the consolidation of JRC. In FY03/17, accounts payable at JRC totaled JPY26.8bn—about 50% of all group notes and accounts receivable. Turnover was 5.2x, significantly less than consolidated turnover.

Accounts payable turnover

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY 12/ 18 Accounts receivable turnover 4.1 3.8 3.2 3.5 3.6 3.6 3.8 3.9 3.8 - Days in accounts receivable 89.7 96.8 114.1 103.1 101.5 101.6 97.3 94.6 96.8 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Interest-bearing debt In FY12/18, interest-bearing debt totaled JPY132.2bn. Subtracting interest-bearing debt from cash and deposits leaves net debt of JPY89.8bn.

Interest-bearing debt increased in FY03/11 and FY03/12. In FY03/11, Nisshinbo made JRC a consolidated subsidiary, adding JPY21.4bn to the current portion of long-term loans payable, JPY3.0bn to commercial paper, and JPY10.3bn to long-term loans payable. In FY03/12, the company made TMD a consolidated subsidiary, adding JPY2.0bn to commercial paper, JPY16.1bn to corporate bonds, and JPY23.1bn to long-term loans payable.

FY03/18 net debt to EBITDA: 1.9x. We understand the company can repay its debt, as it has investment securities of JPY108.1bn and unrealized gains on real estate for leasing.

Net assets Shareholders’ equity Shareholders’ equity is impacted by changes in retained earnings because of net income and the distribution of surplus (dividends), as well as by the company repurchasing treasury shares. In FY03/11, retained earnings decreased by JPY5.4bn as the company cancelled treasury stock. The capital surplus declined in FY03/16 due to the transfer of shares in subsidiaries, but increased in FY03/18 after JRC was made a wholly owned subsidiary through a share exchange.

Nisshinbo made New JRC a wholly owned subsidiary through a share exchange in FY12/18, causing a decline in capital surplus and treasury shares. In addition, retained earnings decreased with the payment of dividends and because of a net loss.

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Total other comprehensive income In FY12/18, total other comprehensive income stood at JPY35.1bn. This mainly comprised other valuation differences on investment securities of JPY34.0bn (unrealized gains) and foreign currency translation adjustment of JPY5.3bn, from the translation into yen of the balance sheets of overseas subsidiaries.

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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 FY12/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cash flows from operating activities (1) 27,537 16,529 12,973 34,095 26,075 37,120 39,566 26,768 32,414 15,495 Cash flows from investing activities (2) -9,949 11,591 -57,860 -10,973 -19,862 -21,271 -22,793 -31,429 -1,797 -20,723 Free cash flow (1+2) 17,588 28,120 -44,887 23,122 6,213 15,849 16,773 -4,661 30,617 -5,228 Cash flows from financing activities -30,347 703 16,835 -24,072 -2,321 -6,238 -9,044 3,595 -34,784 11,935 Depreciation and amortization (A) 12,719 13,024 14,589 23,893 28,070 30,434 29,759 30,526 23,871 21,705 Capital expenditures (B) -13,250 -10,391 -14,580 -19,488 -18,902 -32,508 -24,727 -29,218 -29,567 -26,992 Working capital changes (C) -8,579 54,957 15,335 4,452 15,958 9,730 -5,642 4,597 11,134 -4,844 Simple FCF (NI + A + B - C) 9,944 -41,140 -5,911 6,371 2,221 1,889 21,449 285 9,522 -7,625 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Cash flows from operating activities Impacted by changes in net income, D&A and goodwill amortization, and working capital. Operating cash flow rose from FY03/13 through FY03/17 as the consolidation of TMD pushed goodwill amortization above JPY5.0bn per annum. Goodwill amortization dropped to JPY1.7bn in FY03/18.

Cash flows from investing activities Significantly affected by M&A and the acquisition of tangible fixed assets.

During the previous 10-year period, changes in this cash flow item from factors other than acquisition of tangible fixed assets were prominent in FY03/11, FY03/12, and FY03/18.

▷ In FY03/11, Nisshinbo acquired additional shares in JRC, turning this company from an equity-method affiliate to a consolidated subsidiary. As a result, the company received an inflow of JPY12.5bn from the acquisition of this subsidiary’s shares, resulting in an investment cash flow of JPY11.6bn. ▷ In FY03/12, the company acquired TMD. As a result, the company booked an outflow of JPY43.4bn from the acquisition of this subsidiary’s shares, resulting in an investment cash flow of minus JPY57.9bn (outflow). ▷ In FY03/18, the company sold its Papers business, receiving JPY21.1bn from the sale of shares of related subsidiaries and affiliates. This led to a negative JPY1.8bn in cash flow from investing activities.

Cash flows from financing activities Significantly affected by acquisitions, changes in interest-bearing debt, dividend payments, and purchase of treasury shares.

Changes in interest-bearing debt and dividends paid

Cash flows from financing activities FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cash flows from financing activities -30,347 703 16,835 -24,072 -2,321 -6,238 -9,044 3,595 -34,784 11,935 Change in interest-bearing debt (A) -26,094 32,800 35,232 -18,834 7,836 18,215 2,757 7,208 -7,946 14,095 Dividends paid (B) -2,755 -2,671 -2,629 -2,620 -2,619 -2,619 -3,568 -4,762 -4,764 -4,999 Purchase of treasury shares (C) -5,037 -30 -11 -12 -32 -20,031 -26 -2 -20,010 -5 Total (A + B + C) -33,886 30,099 32,592 -21,466 5,185 -4,435 -837 2,444 -32,720 9,091 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

For the past ten financial years, periods with significant changes in interest-bearing debt, dividends paid, and purchase of treasury shares were FY03/11 and FY03/12.

▷ Interest-bearing debt rose in FY03/11 with the consolidation of JRC. Still, the company booked a positive financial cash flow (inflow) of JPY703mn overall, as overall change in cash flow from borrowing and the repayment of interest-bearing debt came to an inflow of JPY3.4bn. ▷ In FY03/12, interest-bearing debt increased with the acquisition of TMD. Again the company booked a positive financial cash flow (inflow) of JPY16.8bn overall, as cash flow from the repayment of interest-bearing debt and borrowing came to an inflow of JPY20.8bn.

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Other information

History 1907: Nisshin Cotton Spinning founded to mass produce cotton thread In February 1907, 76 people, including leading figures from finance, established Nisshin Cotton Spinning Co., Ltd. One of those 72 founders was Momosuke Fukusawa, son-in-law of Yukichi Fukuzawa, the thinker and founder of Keio University. The new company used modern cotton spinning machinery to compete with quality cotton thread from overseas.

Yet the young company struggled to increase earnings compared with more established competitors. In 1914, Seijiro Miyajima was appointed managing director. He embarked upon a set of reforms, cutting costs, streamlining the workforce, optimizing procurement prices, and repairing production equipment. These efforts paid off with a recovery in earnings in 1915. In 1919, Seijiro Miyajima was appointed president, before stepping up to the role of chairman in 1940.

1940s–1960s: capitalizing on post-war demand for goods In 1945, Takeshi Sakurada was appointed president. Under his leadership and belief that a company’s resources lay in its people, the company began diversifying, entering non-textile businesses in 1946. As Japan recovered after the war and embarked on a period of rapid economic growth, non-textile businesses—Automobile Brakes, Paper, and Chemicals—expanded, accounting for over 10% of sales by 1960. The company ramped up efforts to diversify, expanding new, non-textile businesses and nurturing related businesses.

Late 1960s–1980s: growing brake business as car ownership spreads As cars became more popular, the Automobile Brakes segment grew, accounting for more than 10% of group sales by 1988. The company also invested in plant and equipment for other non-textile businesses such as Precision Instruments and Chemicals.

1990s: diversification; expansion overseas As the yen strengthened from 1985, Japan shifted from an export-led to an import-led textile industry. Apparel demand also fell as the economy weakened after the bubble burst and the company was pushed to restructure. It expanded overseas in both textile and non-textile operations, in a bid to further diversify and develop new businesses. In 1990, non-textile units accounted for more than 50% of total sales, for the first time.

2000s: focusing on electronics To increase corporate value, Nisshinbo accelerated its shift toward overseas manufacturing. As Japan became an information society, the company positioned the Electronics segment as its core strategic business. In 2006, it acquired New JRC, making it a consolidated subsidiary. As a result, non-textile businesses accounted for 73.5% of all sales by FY03/08.

As the economy slumped following the global financial crisis of 2008, Nisshinbo booked an operating profit of JPY407mn in FY03/09 (-96.6% YoY) and a net loss of JPY1.3bn. In April 2009, Shizuka Uzawa became president. He reorganized the group into a holding company structure, with Textiles, Automobile Brakes, Papers, Precision Instruments, and Chemicals spun off into five separate units. The name was changed to Nisshinbo Group Holdings Inc.

2010s: Electronics, Automobile Brakes become core businesses In 2010, Nisshinbo made JRC and Nagano JRC subsidiaries, meaning the Electronics segment accounted for almost 40% of group sales. In the Automobile Brakes segment, the company brought European friction materials manufacturer TMD Friction Group S.A. into the group in 2011, making Nisshinbo one of the world’s leading suppliers of friction materials. This segment now accounted for more than 30% of total sales.

In addition, the company has been actively moving toward focusing on core businesses and selling off non-core businesses. It sold its Papers business, a non-core business, in April 2017. In terms of core businesses, in October 2017, Nisshinbo made JRC a wholly owned subsidiary through a share exchange. In March 2018, it made RICOH Electronic Devices a subsidiary through a

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share purchase (bringing its holding to 80.0%), and in September 2018, it made New JRC a wholly owned subsidiary through a share exchange. These measures aimed at improving group cohesion have largely focused on the mainstay Electronics segment.

Corporate timeline

1907 Established Nisshin Cotton Spinning Co., Ltd. Established Toa Jitsugyo Co., Ltd. 1940 (name changed to Nisshin Toa Inc. in 1990)

Established Nihon Koubunshikan Co., Ltd. 1958 (name changed to Nippon Koubunshi Co., Ltd. in 1986) (acquired by Nisshinbo Mechatronics Inc. in 2010)

1962 English-language name of company changed to Nisshin Spinning Co., Ltd.

1972 Established Nisshinbo Do Brasil Industria Textil LTDA. (Brazil) Acquired Nissin Denim Inc. 1985 (acquired by Nisshinbo Textile Inc. in 2014)

1989 Established Kohbunshi (Thailand) Ltd. (Thailand) Established Pudong Kobunshi (Shanghai) Co., Ltd. (China) 1993 (name changed to Nisshinbo Mechatronics (Shanghai) Co., Ltd. in 2010)

Established Nisshinbo Automotive Corporation (US) 1995 (merged with Nisshinbo Automotive Manufacturing Inc. in 2009) Established Nisshinbo Urban Development Co., Ltd.

1996 Established Nisshinbo Somboon Automotive Co., Ltd. (Thailand)

1997 Established Nisshinbo Automotive Manufacturing Inc. (US) Established PT. Gistex Nisshinbo Indonesia (Indonesia) 1998 (name changed to PT. Nisshinbo Indonesia in 2010)

1999 Established Saeron Automotive Corporation (South Korea) Bought additional shares in PT. Nikawa Textile Industry (Indonesia) 2000 Established Continental Teves Co., Ltd. through merger with Continental Teves AG & Co. oHG (name changed to Continental Automotive Co., Ltd. in 2007)

Bought all shares in Iwao & Co., Ltd. 2002 Established Nisshinbo (Shanghai) Co., Ltd. (China)

2003 Established Saeron Automotive Beijing Corporation (China) Established Continental Teves Corporation (Lian Yun Gang) (China) 2004 (name changed to Continental Automotive Corporation (LYG) Co., Ltd. in 2013)

2005 Added New Japan Radio Co., Ltd. as consolidated subsidiary

2006 Acquired additional shares in Japan Radio Co., Ltd. and Nagano Japan Radio Co., Ltd. Acquired all shares of Nisshinbo Brake Sales Co., Ltd. (acquired by Nisshinbo Brake Inc. in 2010) 2008 Established Jiangsu Yawei Nisshinbo Precision Instruments & Machinery Co., Ltd. through merger with Jiangsu Yawei Machine-Tool Co., Ltd. (China) (name changed to Nisshinbo-Yawei Precision Instruments & Machinery (Jiangsu) Co., Ltd. in 2010)

Spun off five businesses—Textiles, Automobile Brakes, Papers, Mechatronics and Chemicals—and converted to holding company; corporate name changed to Nisshinbo Holdings Inc. 2009 Established Taiwan Nisshinbo Photovoltaic Co., Ltd. (Taiwan) Established US Nisshinbo Photovoltaic Co., Ltd. (US)

Established Nisshinbo Textile Changzhou Co., Ltd. (China) 2010 Added Japan Radio Co., Ltd. and Nagano Japan Radio Co., Ltd. as consolidated subsidiaries

Established Nisshinbo Saeron (Changshu) Automotive Co., Ltd. (China) 2011 Established Nisshinbo Singapore Pte. Ltd. (Singapore) Acquired all shares of TMD Friction Group S.A. (Luxemburg)

2012 Established Nisshinbo Business Management (Shanghai) Co., Ltd. (China)

2013 Established Nisshinbo Commercial Vehicle Brake Ltd. (Thailand)

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2014 Established Nisshinbo-Continental Precision Machining (Yangzhou) Co., Ltd (China) Acquired all shares of Tokyo Shirts Group 2015 Acquired all shares of Nanbu Plastics Co., Ltd.

2016 JRC fully consolidates Nagano JRC and Ueno JRC Sold the Papers business, operated by Nisshinbo Paper Products Inc., to Daio Paper Corporation 2017 Decided to make JRC a wholly owned subsidiary via a share exchange

2018 Decided to make New Japan Radio Co., Ltd. a wholly owned subsidiary through a share exchange

News and topics February 2019 On February 14, 2019, the company announced an acquisition of treasury stock.

Details of the acquisition

▷ Type of shares to be acquired: Ordinary shares of the company ▷ Number of shares to be acquired: 5mn shares (2.92% of total shares outstanding excluding treasury shares) ▷ Total price of shares to be acquired: JPY5bn ▷ Acquisition period: February 18, 2019–April 19, 2019 ▷ Acquisition method: Market purchase on the Tokyo Stock Exchange

January 2019 On January 31, 2019, the company announced a revision to its FY12/18 earnings forecasts.

Revised full-year FY12/18 earnings forecasts

▷ Sales: JPY416.0bn (previous forecast: JPY426.0bn) ▷ Operating loss: JPY2.5bn (JPY2.0bn) ▷ Recurring profit: JPY1.5bn (JPY2.0bn) ▷ Net loss*: JPY7.2bn (JPY5.5bn) ▷ EPS: -JPY43.36 (-JPY33.12) *Net loss refers to net loss attributable to owners of the parent.

Reasons for the revision The company expects sales, operating profit, and recurring profit to fall short of previous forecasts. The decrease in sales and earnings mainly comes from the Automobile Brakes business, which saw a drop in sales of friction materials for new cars at TMD Friction Group S.A. (TMD) as car sales fell in Europe. The company also expects net loss attributable to owners of the parent to widen versus previous forecast due to the decrease in recurring profit and the reversal of deferred tax assets resulting from worsening business performance at TMD. The forecasts are based on assumed exchange rates of JPY110/USD and JPY130/EUR.

On the same day, the company announced a change in representative directors.

Change in representative directors (effective resolution at the general meeting of shareholders to be held in late March 2019)

Name New title Current title

Masaya Kawata Representative director, chairman Representative director, president

Masahiro Murakami Representative director, president Representative director, vice president; Chief of the corporate strategy center; In charge of the property management department

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Reason for the change By rejuvenating its top management, the company aims to improve business management on a group-wide and global basis and achieve growth as an “Environment and Energy Company” group.

October 2018 On October 31, 2018, the company announced a revision to its FY12/18 earnings forecasts.

Revised full-year FY12/18 earnings forecasts

▷ Sales: JPY426.0bn (previous forecast: JPY435.0bn) ▷ Operating loss: JPY2.0bn (operating profit of JPY3.5bn) ▷ Recurring profit: JPY2.0bn (JPY7.5bn) ▷ Net loss*: JPY5.5bn (net income* of JPY5.0bn) ▷ EPS: -JPY33.12 (JPY30.10) *Net income/loss attributable to owners of the parent.

Reasons for the revision The company expects sales, operating profit, and recurring profit to fall short of its previous forecasts. The decreases are mainly due to the relocation of TMD Friction Group S.A. (TMD)’s product warehouse in Germany, which caused shipment delays that led to decreased sales of aftermarket products and increased personnel expenses at TMD in the Automobile Brakes business. Additionally, the company expects net income attributable to owners of the parent to finish lower than the previous forecast, due to a fall in recurring profit and a rise in extraordinary losses resulting from business structure improvement expenses (downsizing, etc.) recorded by TMD. The company’s forecasts are based on assumed exchange rates of JPY110/USD and JPY130/EUR.

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Major shareholders

Shares held Shareholding Top shareholders ('000) ratio The Master Trust Bank of Japan, Ltd. (Trust account) 24,640 14.4% Japan Trustee Services Bank, Ltd. (Trust account) 11,613 6.8% Fukoku Mutual Life Insurance Company 9,000 5.3% Teijin Ltd. 6,028 3.5% The Master Trust Bank of Japan, Ltd. (Teijin Ltd. retirement benefit 4,700 2.7% trust account ) Trust & Custody Services Bank, Ltd. (Security investment trust 3,314 1.9% account) Japan Trustee Services Bank, Ltd. (Trust account 9) 3,139 1.8% Shikoku Chemicals Corporation 2,600 1.5% Mizuho Bank, Ltd. 2,481 1.4% Trust & Custody Services Bank, Ltd. (Investment trust account received as 2,373 1.4% collateral) SUM 69,888 40.7% Source: Shared Research based on company data As of end December 2018

Shareholder returns

The company’s policy is to pay steady and continuous dividends. Specifically, it plans to pay both interim and annual dividends, targeting a consolidated payout ratio of around 30%. The company also has a policy of aggressively pursuing shareholder returns, including share buybacks, provided it has secured sufficient internal reserves needed to implement its future growth strategy, and while carefully considering management stability. Its stance, in principle, is to cancel repurchased shares, but is open to using such shares for share exchanges as part of M&A activities that could contribute to shareholder value.

In FY12/19, the company plans to pay a full-year dividend per share of JPY30.0 (JPY15.0 interim dividend and JPY15.0 year-end dividend), equivalent to a payout ratio of 67.9%.

In addition, the company announced the acquisition of treasury stock in February 2019 (acquisition period: February 18, 2019– April 19, 2019; total price of shares to be acquired: maximum of JPY5.0bn; number of shares to be acquired: 5mn).

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Top management

Chairman: Masaya Kawata

▷ Apr 1952 Born ▷ 1975 Joined Nisshinbo ▷ Apr 2007 Deputy head of accounting ▷ Jun 2007 Executive officer and director ▷ Apr 2008 Deputy head of Business Support Center ▷ Apr 2009 President of Nisshinbo Brake Inc. ▷ Jun 2010 Managing executive officer ▷ Jun 2011 Head of Business Support Center, head of new business development, and president of Nisshinbo Chemical ▷ Jun 2012 Senior managing executive officer and president of Nisshinbo Mechatronics ▷ Jun 2013 Appointed president of Nisshinbo ▷ Mar 2019 Appointed chairman of Nisshinbo (effective upon passage of resolutions at the general meeting of shareholders to be held in late March 2019 and at a meeting of the board of directors held thereafter)

President: Masahiro Murakami

▷ Sep 1958 Born ▷ 1982 Joined Nisshinbo ▷ Jan 2007 Director of Secretarial Division of General Affairs Headquarters ▷ Apr 2008 Director, head of Corporate Governance Office of Corporate Strategy Center, head of Human Resources and General Affairs Office at Business Support Center (concurrent), director of Real Estate (concurrent) ▷ Apr 2009 Deputy head of Business Support Center, head of Corporate Strategy Office of Corporate Strategy Center (concurrent), head of Financial Information Office of Business Support Center (concurrent) ▷ Jun 2010 Executive officer and director, head of Business Support Center ▷ Jan 2012 Head of Real Estate (present post) ▷ Jun 2012 Managing executive officer, deputy head of Corporate Strategy Center (concurrent) ▷ Jun 2014 Head of Corporate Strategy Center (present post) ▷ Jun 2015 Senior managing executive officer ▷ Jun 2016 Representative director and senior managing executive officer ▷ Jun 2018 Vice-president of Nisshinbo ▷ Mar 2019 Appointed president of Nisshinbo (effective upon passage of resolutions at the general meeting of shareholders to be held in late March 2019 and at a meeting of the board of directors held thereafter)

Corporate philosophy

Nisshinbo’s corporate philosophy centers on public entity, consistent integrity, and innovation.

◤ Public entity: the company considers itself a public entity, and aims to create a sustainable society by offering products and services that address global environmental problems.

◤ Consistent integrity: Nisshinbo intends to conduct fair and sincere business activities while carrying itself with pride as a corporate citizen and respecting the diverse cultures and customs of the world, and biodiversity.

◤ Innovation: the company aims to create an affluent future with its stakeholders, while maintaining a spirit of challenge.

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Company name

The word nisshin was in widespread use at the time of Nisshinbo’s founding. In Japanese, it refers to both Japan and China, or Sino–Japanese (ni refers to Japan, shin to China, specifically the Qing dynasty). The word had a progressive image of maintaining friendly relations with China and mutual prosperity through trade.

Company profile

Company name Head office Nisshinbo Holdings Inc. 2–31–11, Ningyo-cho, Nihonbashi, Chuo-ku, Tokyo 103–8650 Phone Listed on

Tokyo Stock Exchange First Section Established Exchange listing February 5, 1907 May 1949 Website Financial year end https://www.nisshinbo.co.jp/english/ir/index.html December

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