Sanyo Trading / 3176

R Sanyo Trading / 3176

COVERAGE INITIATED ON: 2021.07.27 LAST UPDATE: 2021.08.06

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. Sanyo Trading / 3176 R LAST UPDATE: 2021.08.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage

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 ------6 Recent updates ------7 Highlights ------7 Trends and outlook ------8 Quarterly trends and results ------8 Business ------17 Business model ------17 Segment overview ------19 Profitability analysis ------34 Market and value chain------35 Trends in related industries ------35 Competitors ------37 Strengths and weaknesses ------39 Historical performance and financial statements ------41 Income statement ------41 Balance sheet ------43 Cash flow statement ------45 Historical performance ------46 Other information ------51 History ------51 News and topics ------52 Corporate governance and top management ------52 Dividend policy ------53 Major shareholders ------54 Number of employees and consolidated to parent ratio ------54 Profile ------55

02/56 Sanyo Trading / 3176 R LAST UPDATE: 2021.08.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage

Executive summary

Business overview

Sanyo Trading Co., Ltd. (TSE 1: 3176) is a trading company with combined specialization in chemicals and machinery. It ◤ exports, imports, and sells rubber, chemicals, machinery and equipment, auto parts, scientific instruments, and various other products. It does more importing than exporting, and its customers are mainly Japanese companies. The majority of its employees come from technological backgrounds, which enables the company to customize imported goods to Japanese specifications as well as troubleshoot technical issues on its own. Four of the company’s subsidiaries have the expertise to manufacture products (assembly, production, repair, and maintenance) and conduct R&D in the field of medical equipment.

The breakup of the former Mitsui zaibatsu (predecessor of present-day Mitsui & Co., Ltd. [TSE1: 8031]) led to the ◤ establishment of Sanyo Trading in May 1947. In 1952, the company became Japan’s first importer of synthetic rubber as the sole distributor for Canada’s Polysar Limited. Sanyo Trading has expanded its product offerings from automobile tires and rubber hoses, belts, and antivibration rubber for internal combustion engines to genuine-leather seats, seat heaters, and other car seat and interior upholstery and trimmings. Leveraging its status as a non-keiretsu company, it has amassed an auto- industry customer base covering essentially all of the major Japanese automakers. As Japan’s automotive industry began gaining more international market penetration, the company responded by expanding its own global presence. The company supplies customers in industries including automotive (roughly 40% of sales, with the Toyota [TSE1: 7203] and Mazda [TSE1: 7261] groups being the largest customers), non-automotive chemicals, office automation and home electronics, paint and ink, livestock feed, biomass, plastics, and others. The company has been implementing sustainable ESG management by focusing on renewable energy (wood biomass and geothermal) and life sciences (medical equipment, pharmaceuticals) and handling merchandise with a low environmental footprint.

The company’s business portfolio consists of four segments: Chemicals, Machinery & Industrial Products, Overseas ◤ Subsidiaries, and Other. The Machinery & Industrial Products segment accounts for around 60% of operating profit. In FY09/20, the Chemicals segment had sales of JPY30.5bn (40.1% of total sales) and an OPM of 4.1% (segment sales were split evenly between the Rubber Business Unit and the Chemical Business Unit). The Machinery & Industrial Products segment generated sales of JPY27.2bn (35.8%) and an OPM of 12.1% (segment sales come from three business units: 70% Industrial Products, 20% Machinery & Environmental, and 10% Scientific Instruments). The Overseas Subsidiaries segment had sales of JPY18.2bn (24.0%) and an OPM of 4.2%. The company handles rubber, chemicals, and industrial products. In FY09/20, companywide sales of products and services broke down to rubber products 21.3%, chemical products 32.9%, machinery and environment-related products 8.0%, industrial products 34.7%, and others (scientific instruments and other products and services) 3.2%.

The company’s FY09/20 OPM of 6.3% was substantially higher than the most recent fiscal year figures of 1–3.5% for the nine ◤ major chemicals trading companies and 2–4% for the five major machinery trading companies. The company’s FY09/20 segment profit margins were 4.1% in Chemicals, 12.1% in Machinery & Industrial Products, and 4.2% in Overseas Subsidiaries. Business unit profit margins were the highest in Scientific Instruments, followed in descending order by Machinery & Environmental, Industrial Products, Rubber, and Chemical. Because the Scientific Instruments Business Unit entails repair and maintenance services and the Machinery & Environmental Business Unit deals in consumables, these two business units have higher profit margins than other business units that depend on merchandise sales. In the Industrial Products Business Unit, the company takes part in the new vehicle development process right from the outset, making design suggestions, and participating in function development and upgrades. In the Chemicals segment (Rubber Business Unit and Chemical Business Unit), rather than low-priced bulk merchandise, the company specializes in high-value-added fine chemicals such as plasticizers (a general term for additive chemicals that are added to thermoplastic synthetic resins to improve flexibility and weather resistance).

To prevent supplier conflicts, as a general rule, the company purchases each individual product line from a different ◤ manufacturer (the “one item, one supplier” rule). It also narrows down the number of items it handles to primarily high- performance and custom-spec items (it normally handles a few thousand out of the nearly 20,000 total items on the market). As a result, the company has attained niche top status (such as its over 80% market share in feed pellet mills), and has built

03/56 Sanyo Trading / 3176 R LAST UPDATE: 2021.08.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage

the kind of fiduciary relationships with its suppliers to sustain long-term business relationships of 30 to 40 years (and 70 years in the longest-lasting case).

The regional breakdown of sales in FY09/20 was Japan 65.5%, and overseas 34.5% (US 11.5%, China 10.4%, other regions ◤ 12.6%). Other regions include Mexico, Thailand, Vietnam, Indonesia, and India, among others.

The company’s cost structure (for FY09/20) included a cost of sales ratio of 81.3% and an SG&A expense ratio 12.4%. It fully ◤ hedges the effects of forex fluctuations with forward exchange contracts. Forex fluctuations translate into changes in purchase costs and selling prices, and the impact of forex is neutral. However, in terms of accounting, yen appreciation drives down the cost of imports and leads to higher gross profit; it also causes forex losses in non-operating accounts.

The Sanyo Trading group consists of the company, 13 consolidated subsidiaries, and six non-consolidated subsidiaries. Since ◤ 2004, the company has been fortifying and expanding its business on synergies via M&A and globalization. In FY09/20, sales and operating profit per employee worked out to JPY177mn and JPY11mn, respectively. Annual salary averaged JPY9,437,000 (for FY09/20, parent company), one of the highest among specialist trading companies.

Earnings trends

The company recorded 1H FY09/21 sales of JPY45.5bn (+11.1% YoY), operating profit of JPY3.6bn (+23.3 YoY), recurring ◤ ％ profit of JPY4.0bn (+26.2% YoY), and net income attributable to owners of the parent of JPY2.7bn (+26.1% YoY). Progress toward the company’s up-revised full-year forecast was 51.7% for sales, 60.6% for operating profit, 63.8% for recurring profit, and 63.5% for net income.

The company’s FY09/21 full-year forecast calls for sales of JPY88.0bn (+15.7% YoY), operating profit of JPY6.0bn (+25.2% YoY), ◤ recurring profit of JPY6.3bn (+19.5% YoY), and net income attributable to owners of the parent of JPY4.2bn (+39.4% YoY). The company’s initial forecast was extremely cautious calling for sales growth but profit decline as it was formulated in the — — middle of the COVID-19 crisis and it followed the company’s first-ever forecast downgrade in May 2020. Following its Q2 earnings announcement, however, the company upgraded its forecast for substantial sales and profit growth. The forecast was unchanged after the announcement of Q3 results. With earnings driven by robust recovery in demand from the automotive industry, the company’s upgraded forecast anticipates new record-highs in sales and all profit categories for the first time in two fiscal years. The company also raised its annual DPS forecast from JPY37.5 to JPY38.0, anticipating a continuation of the upward trend in dividends.

The numerical targets of the company’s current VISION 2023 five-year plan (to be achieved by FY09/23) are consolidated ◤ recurring profit of JPY7.5bn, an ROE of 15%, and a sales CAGR of 10% at overseas subsidiaries. The company previously downgraded its two-year plan objectives for FY09/20 and FY09/21, but with the upward revisions made following its Q2 earnings announcement, the company is now close to achieving its initial targets for profits. The main reasons for the downward revisions were the drastic cutbacks in automobile production caused by the impact of the COVID-19 pandemic, intensified competition, and the rise in prices of imported products. The company has not changed its five-year plan objectives for FY09/23 as it is more than two years away. The company avoids high-volume, low-margin bulk merchandise and instead focuses on high-value-added products, consumables, and repair and maintenance. It therefore prioritizes maximizing profit over sales growth. Furthermore, since Sanyo Trading is an import-focused trading company and the effects of forex fluctuations are felt at cost of sales and non-operating income/expenses levels, it uses recurring profit rather than operating profit as its main metric.

Strengths and weaknesses Strengths Participation in projects from the early stages of customers’ development planning, and the skills to customize imports to ◤ Japanese specifications and solve technical problems on its own have supported high profitability.

Reliable, long-term importation of high-performance products and custom-spec products that no other companies handle, ◤ and ability to maintain continuous business with domestic customers

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Unconstrained by obligations to any specific keiretsu group, the company has a high degree of freedom in selecting suppliers ◤ and customers; in the automotive industry, it does business with nearly all of the major Japanese automakers.

Weaknesses The company’s nature as an import-focused trading company limits its ability to serve customers seeking to source directly ◤ from overseas suppliers as they move to offshore production.

Typical “stovepipe” business organization hinders organic growth in existing domestic business fields. ◤ Skewed personnel mix and delayed human resources cultivation due to previous headcount reductions and restraints on new ◤ graduate recruitment

05/56 Sanyo Trading / 3176 R LAST UPDATE: 2021.08.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage

Key financial data

Income statement FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 FY09/21 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Sales 48,791 48,070 51,075 58,618 60,672 59,909 67,738 78,450 83,230 76,087 88,000 YoY 2.8% -1.5% 6.3% 14.8% 3.5% -1.3% 13.1% 15.8% 6.1% -8.6% 15.7% Gross profit 7,319 7,460 7,672 8,659 9,451 10,017 12,264 13,411 14,884 14,206 YoY 7.1% 1.9% 2.8% 12.9% 9.1% 6.0% 22.4% 9.3% 11.0% -4.6% Gross profit margin 15.0% 15.5% 15.0% 14.8% 15.6% 16.7% 18.1% 17.1% 17.9% 18.7% Operating profit 2,182 2,249 2,441 3,179 3,606 4,053 4,938 5,263 5,872 4,792 6,000 YoY 11.4% 3.1% 8.5% 30.2% 13.5% 12.4% 21.9% 6.6% 11.6% -18.4% 25.2% Operating profit margin 4.5% 4.7% 4.8% 5.4% 5.9% 6.8% 7.3% 6.7% 7.1% 6.3% 6.8% Recurring profit 2,293 2,366 2,772 3,517 4,111 4,274 5,271 5,576 6,076 5,272 6,300 YoY 10.0% 3.2% 17.2% 26.9% 16.9% 4.0% 23.3% 5.8% 9.0% -13.2% 19.5% Recurring profit margin 4.7% 4.9% 5.4% 6.0% 6.8% 7.1% 7.8% 7.1% 7.3% 6.9% 7.2% Ne t in c o me 1,020 1,138 1,475 1,983 2,794 2,758 3,351 3,635 4,019 3,013 4,200 YoY 25.3% 11.5% 29.7% 34.4% 40.9% -1.3% 21.5% 8.5% 10.5% -25.0% 39.4% Net margin 2.1% 2.4% 2.9% 3.4% 4.6% 4.6% 4.9% 4.6% 4.8% 4.0% 4.8% Per-share data (split-adjusted; JPY) Shares issued (year-end; '000) 12,775 12,775 14,504 14,504 14,504 14,504 14,504 14,504 14,504 29,008 Treasury shares ('000) 1,300 1,300 0 200 200 197 195 188 188 366 EPS 44.5 49.6 51.6 68.9 97.7 96.4 117.1 127.0 140.4 105.2 146.6 EPS (fully diluted) - - - 68.8 97.4 96.0 116.5 126.3 139.5 104.5 Dividend per share 9.0 12.5 15.0 17.0 24.5 24.5 29.5 32.0 37.0 37.5 38.0 Book value per share 477 517 514 574 657 711 832 923 1,011 1,069 Balance sheet (JPYmn) Cash and cash equivalents 2,315 1,739 1,819 3,494 3,205 3,712 2,636 2,469 4,549 10,419 Total current assets 17,615 18,740 20,038 24,624 24,833 26,290 31,401 33,913 36,376 39,492 Tangible fixed assets 2,001 2,065 2,101 2,122 1,984 1,985 2,007 2,143 2,195 2,676 Investments and other assets 2,338 2,168 2,970 3,230 3,409 3,325 4,396 4,375 4,269 3,856 Intangible assets 318 231 72 75 59 855 1,184 1,176 891 1,208 Total assets 22,271 23,205 25,182 30,051 30,285 32,455 38,988 41,607 43,731 47,231 Short-term debt 1,857 2,471 782 1,344 1,038 800 1,560 1,863 1,246 4,374 Total current liabilities 9,307 10,014 8,692 11,884 9,649 10,349 12,876 13,628 13,228 14,860 Long-term debt 715 51 50 115 62 61 107 66 80 169 Total fixed liabilities 1,745 1,018 1,151 1,213 1,241 1,152 1,512 1,223 1,159 1,332 Total liabilities 11,052 11,032 9,843 13,098 10,891 11,501 14,388 14,850 14,388 16,192 Shareholders' equity 10,936 11,862 14,899 16,433 18,796 20,349 23,806 26,417 28,955 30,629 Total net assets 11,219 12,173 15,339 16,953 19,394 20,955 24,600 26,756 29,343 31,038 Total liabilities and net assets 22,271 23,205 25,182 30,051 30,285 32,455 38,988 41,607 43,731 47,231 Total interest-bearing debt 2,572 2,522 832 1,459 1,100 861 1,667 1,930 1,326 4,543 Cash flow statement (JPYmn) Cash flows from operating activities 1,444 60 1,212 2,106 909 2,997 178 1,584 5,088 6,186 Cash flows from investing activities -79 -349 -229 -385 -196 -1,202 -1,359 -409 -1,057 -2,189 Cash flows from financing activities -1,096 -290 -961 -83 -1,047 -1,221 -16 -1,297 -1,958 1,834 Financial ratios ROA (RP-based) 10.3% 10.4% 11.5% 12.7% 13.6% 13.6% 14.8% 13.8% 14.2% 11.6% ROE 9.7% 10.0% 11.0% 12.7% 15.9% 14.1% 15.2% 14.5% 14.5% 10.1% Equity ratio 49.1% 51.1% 59.2% 54.7% 62.1% 62.7% 61.1% 63.5% 66.2% 64.8% Total asset turnover 219.3% 211.4% 211.1% 212.3% 201.1% 191.0% 189.6% 194.7% 195.1% 167.3% Net margin 2.1% 2.4% 2.9% 3.4% 4.6% 4.6% 4.9% 4.6% 4.8% 4.0% Capital expenditures 293 287 541 455 126 895 Depreciation 230 221 165 170 174 185 201 192 352 383 Amortization of goodwill 142 105 80 4 5 75 149 163 163 320 R&D expenses 8 19 Employee metrics (JPYmn) FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. No. of employees (ex. temporary workers) 240 244 252 256 260 295 326 349 368 413 No. of temporary workers 26 26 17 15 15 19 25 27 40 39 Sales per employee 186 179 193 218 222 202 202 215 209 177 Operating profit per employee 8 8 9 12 13 14 15 14 15 11 Parent Parent Parent Parent Parent Parent Parent Parent Parent Parent Parent Sales 33,621 34,124 37,105 42,096 44,198 45,435 48,886 55,483 61,216 52,349 Operating profit 1,502 1,815 1,790 2,258 2,514 3,164 3,527 3,693 4,314 3,407 Recurring profit 1,811 2,047 2,233 2,769 3,022 3,465 4,209 4,714 4,987 4,272 Net income 916 1,076 951 1,670 2,249 2,387 2,946 3,314 3,460 2,377 No. of employees (ex. temporary workers) 152 151 166 164 177 188 193 211 224 234 No. of temporary workers 18 18 9 8 9 11 17 20 29 27 Sales per employee 197 201 222 243 246 235 236 250 248 204 Operating profit per employee 9 11 11 13 14 16 17 17 18 13 Average age 41.84 41.55 40.94 40.51 40.56 40.34 40.25 40.17 40.46 40.28 Average years of service 13.87 13.15 12.56 11.70 11.10 10.84 10.74 10.36 10.18 9.92 Average annual salary (JPY'000) 8,925 8,821 8,804 8,750 9,050 8,920 9,330 9,637 9,963 9,437 Cons./Parent (times) Sales 1.45 1.41 1.38 1.39 1.37 1.32 1.39 1.41 1.36 1.45 Operating profit 1.45 1.24 1.36 1.41 1.43 1.28 1.40 1.43 1.36 1.41 Recurring profit 1.27 1.16 1.24 1.27 1.36 1.23 1.25 1.18 1.22 1.23 Net income 1.11 1.06 1.55 1.19 1.24 1.16 1.14 1.10 1.16 1.27 No. of employees (ex. temporary workers) 1.58 1.62 1.52 1.56 1.47 1.57 1.69 1.65 1.64 1.76 No. of temporary workers 1.44 1.44 1.89 1.88 1.67 1.73 1.47 1.35 1.38 1.44 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Sales (or operating profit) per employee (Shared Research estimates) = sales (or operating profit) / (average of the number of employees at the end of the current and preceding fiscal year + average number of temporary workers)

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Recent updates

Highlights

On August 6, 2021, Sanyo Trading Co., Ltd. announced earnings results for Q3 FY09/21.

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

07/56 Sanyo Trading / 3176 R LAST UPDATE: 2021.08.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage

Trends and outlook Quarterly trends and results Cumulative FY09/19 FY09/20 FY09/21 FY09/21 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 % of Es t . FY Es t . Sales 22,495 43,298 64,105 83,230 21,178 40,977 57,373 76,087 21,610 45,526 68,426 77.8% 88,000 YoY 18.2% 9.0% 8.1% 6.1% -5.9% -5.4% -10.5% -8.6% 2.0% 11.1% 19.3% 15.7% Gross profit 4,034 7,827 11,504 14,884 4,113 7,757 10,834 14,206 4,131 8,463 12,422 YoY 19.0% 12.6% 13.3% 11.0% 1.9% -0.9% -5.8% -4.6% 0.4% 9.1% 14.7% Gross profit margin 17.9% 18.1% 17.9% 17.9% 19.4% 18.9% 18.9% 18.7% 19.1% 18.6% 18.2% SG&A expenses 2,240 4,376 6,602 9,012 2,538 4,809 7,013 9,415 2,409 4,828 7,339 YoY 8.3% 10.7% 12.1% 10.6% 13.3% 9.9% 6.2% 4.5% -5.1% 0.4% 4.7% SG&A ratio 10.0% 10.1% 10.3% 10.8% 12.0% 11.7% 12.2% 12.4% 11.1% 10.6% 10.7% Operating profit 1,794 3,451 4,903 5,872 1,575 2,948 3,822 4,792 1,722 3,635 5,084 84.7% 6,000 YoY 35.8% 15.1% 14.8% 11.6% -12.2% -14.6% -22.0% -18.4% 9.3% 23.3% 33.0% 25.2% Operating profit margin 8.0% 8.0% 7.6% 7.1% 7.4% 7.2% 6.7% 6.3% 8.0% 8.0% 7.4% 6.8% Recurring profit 1,821 3,628 5,097 6,076 1,781 3,185 4,205 5,272 1,837 4,018 5,628 89.3% 6,300 YoY 29.7% 18.5% 14.8% 9.0% -2.2% -12.2% -17.5% -13.2% 3.1% 26.2% 33.8% 19.5% Recurring profit margin 8.1% 8.4% 8.0% 7.3% 8.4% 7.8% 7.3% 6.9% 8.5% 8.8% 8.2% 7.2% Net income 1,198 2,450 3,440 4,019 1,113 2,115 2,742 3,013 1,226 2,668 3,791 90.3% 4,200 YoY 30.3% 23.5% 16.1% 10.5% -7.1% -13.7% -20.3% -25.0% 10.1% 26.1% 38.3% 39.4% Net margin 5.3% 5.7% 5.4% 4.8% 5.3% 5.2% 4.8% 4.0% 5.7% 5.9% 5.5% 4.8% Quarterly FY09/19 FY09/20 FY09/21 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Sales 22,495 20,803 20,807 19,125 21,178 19,800 16,395 18,715 21,610 23,916 22,900 YoY 18.2% 0.6% 6.3% -0.2% -5.9% -4.8% -21.2% -2.1% 2.0% 20.8% 39.7% Gross profit 4,034 3,793 3,678 3,379 4,113 3,645 3,077 3,372 4,131 4,332 3,959 YoY 19.0% 6.4% 14.7% 3.9% 1.9% -3.9% -16.3% -0.2% 0.4% 18.9% 28.7% Gross profit margin 17.9% 18.2% 17.7% 17.7% 19.4% 18.4% 18.8% 18.0% 19.1% 18.1% 17.3% SG&A expenses 2,240 2,136 2,226 2,410 2,538 2,272 2,203 2,402 2,409 2,419 2,510 YoY 8.3% 13.3% 15.1% 6.6% 13.3% 6.4% -1.0% -0.3% -5.1% 6.5% 14.0% SG&A ratio 10.0% 10.3% 10.7% 12.6% 12.0% 11.5% 13.4% 12.8% 11.1% 10.1% 11.0% Operating profit 1,794 1,657 1,452 969 1,575 1,373 874 970 1,722 1,913 1,449 YoY 35.8% -1.2% 14.2% -2.4% -12.2% -17.2% -39.8% 0.1% 9.3% 39.4% 65.8% Operating profit margin 8.0% 8.0% 7.0% 5.1% 7.4% 6.9% 5.3% 5.2% 8.0% 8.0% 6.3% Recurring profit 1,821 1,807 1,469 979 1,781 1,403 1,021 1,066 1,837 2,182 1,610 YoY 29.7% 9.0% 6.5% -13.8% -2.2% -22.3% -30.5% 9.0% 3.1% 55.5% 57.7% Recurring profit margin 8.1% 8.7% 7.1% 5.1% 8.4% 7.1% 6.2% 5.7% 8.5% 9.1% 7.0% Net income 1,198 1,252 990 579 1,113 1,002 627 272 1,226 1,441 1,123 YoY 30.3% 17.6% 1.1% -13.8% -7.1% -20.0% -36.7% -53.0% 10.1% 43.9% 79.3% Net margin 5.3% 6.0% 4.8% 3.0% 5.3% 5.1% 3.8% 1.5% 5.7% 6.0% 4.9% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Seasonality The company’s quarterly earnings tend to be concentrated in Q1 (October–December). This has to do with the number of working days of its client manufacturers that are affected by the Chinese New Year (in Q2), the May Golden Week in Japan (in Q3), and Japan’s obon holiday in August (in Q4). As a general rule, the company’s sales are recorded on a shipping basis.

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By segment (cumulative) FY09/19 FY09/20 FY09/21 FY09/21 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 % of Es t . FY Es t . Total sales 22,495 43,298 64,105 83,230 21,178 40,977 57,373 76,087 21,610 45,526 68,426 77.8% 88,000 YoY 18.2% 9.0% 8.1% 6.1% -5.9% -5.4% -10.5% -8.6% 2.0% 11.1% 19.3% 15.7% Chemicals 9,011 17,181 25,619 33,651 8,466 16,527 25,791 32,681 8,110 17,119 26,259 YoY 5.4% 0.2% -0.7% -0.7% -6.0% -3.8% 0.7% -2.9% -4.2% 3.6% 1.8% Machinery & Industrial Products 8,598 16,888 25,864 33,402 8,570 17,163 20,602 27,543 8,715 17,897 26,492 YoY 28.4% 10.5% 18.7% 17.9% -0.3% 1.6% -20.3% -17.5% 1.7% 4.3% 28.6% Overseas Subsidiaries 5,978 11,545 16,060 20,522 5,347 9,564 14,245 19,822 6,144 13,328 19,869 YoY 20.2% 15.1% 3.1% -2.8% -10.6% -17.2% -11.3% -3.4% 14.9% 39.4% 39.5% Operating profit 1,794 3,451 4,903 5,872 1,575 2,948 3,822 4,792 1,722 3,635 5,084 84.7% 6,000 YoY 35.8% 15.1% 14.8% 11.6% -12.2% -14.6% -22.0% -18.4% 9.3% 23.3% 33.0% 25.2% Chemicals 513 880 1,275 1,578 412 729 1,039 1,354 426 922 1,514 YoY -6.1% -17.2% -18.4% -20.2% -19.7% -17.2% -18.5% -14.2% 3.3% 26.4% 45.7% Machinery & Industrial Products 1,138 2,325 3,356 4,020 1,024 2,055 2,606 3,334 1,149 2,374 3,364 YoY 43.5% 20.4% 31.2% 28.6% -10.1% -11.6% -22.4% -17.1% 12.3% 15.5% 29.1% Overseas Subsidiaries 293 572 770 880 268 512 676 840 365 714 933 YoY 89.8% 52.9% 7.6% 0.1% -8.3% -10.6% -12.2% -4.7% 35.8% 39.6% 38.0% By segment (quarterly) FY09/19 FY09/20 FY09/21 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Total sales 22,495 20,803 20,807 19,125 21,178 19,800 16,395 18,715 21,610 23,916 22,900 YoY 18.2% 0.6% 6.3% -0.2% -5.9% -4.8% -21.2% -2.1% 2.0% 20.8% 39.7% Chemicals 9,011 8,170 8,437 8,033 8,466 8,061 9,263 6,891 8,110 9,009 9,140 YoY 5.4% -5.1% -2.4% -0.7% -6.0% -1.3% 9.8% -14.2% -4.2% 11.8% -1.3% Machinery & Industrial Products 8,598 8,289 8,977 7,538 8,570 8,593 3,439 6,941 8,715 9,182 8,595 YoY 28.4% -3.5% 38.1% 15.1% -0.3% 3.7% -61.7% -7.9% 1.7% 6.9% 149.9% Overseas Subsidiaries 5,978 5,567 4,515 4,463 5,347 4,217 4,681 5,577 6,144 7,184 6,542 YoY 20.2% 10.1% -18.7% -19.3% -10.6% -24.3% 3.7% 25.0% 14.9% 70.4% 39.8% Operating profit 1,794 1,657 1,452 969 1,575 1,373 874 970 1,722 1,913 1,449 YoY 35.8% -1.2% 14.2% -2.4% -12.2% -17.2% -39.8% 0.1% 9.3% 39.4% 65.8% Chemicals 513 367 394 303 412 317 310 314 426 496 592 YoY -6.1% -28.9% -20.9% -27.0% -19.7% -13.6% -21.4% 3.8% 3.3% 56.4% 90.9% Machinery & Industrial Products 1,138 1,187 1,030 664 1,024 1,031 551 728 1,149 1,224 990 YoY 43.5% 4.2% 64.8% 16.8% -10.1% -13.2% -46.5% 9.6% 12.3% 18.8% 79.7% Overseas Subsidiaries 293 279 197 111 268 243 164 164 365 350 218 YoY 89.8% 27.1% -42.1% -32.7% -8.3% -12.9% -16.9% 47.6% 35.8% 43.8% 33.1% Source: Shared Research based on company data Note: Due to the change in business classifications made in Q1 FY09/21, YPTECH, which was previously included in the Chemicals segment, has been moved to the Machinery & Industrial Products segment. For the YoY comparison, year-ago figures have been reclassified into the new segmentation. Note: Figures may differ from company materials due to differences in rounding methods.

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Cumulative Q3 FY09/21 results Overview Cumulative Q3 results (first nine months) Cumulative Q3 sales were JPY68.4bn (+19.3% YoY), operating profit was JPY5.1bn (+33.0% YoY), recurring profit was JPY5.6bn (+33.8% YoY), and net income was JPY3.8bn (+38.3% YoY). Profits were up in all segments: JPY1.5bn (+45.7% YoY) for Chemicals, JPY3.4bn (+29.1% YoY) for Machinery & Industrial Products, and JPY933mn (+38.0% YoY) for Overseas Subsidiaries.

Q3 results (three months) Q3 (April–June 2021) sales were JPY22.9bn (+39.7% YoY), operating profit was JPY1.4bn (+65.8% YoY), recurring profit was JPY1.6bn (+57.7% YoY), and net income was JPY1.1bn (+79.3% YoY). The recovery trend of 1H (October 2020–March 2021) continued in Q3. Quarterly sales increased YoY for the third quarter in a row, and operating profit grew YoY for the fourth consecutive quarter.

FY09/21 forecast: No change to previous forecast. The company maintained its forecast that calls for sales of JPY88.0bn (+15.7% YoY), operating profit of JPY6.0bn (+25.2% YoY), recurring profit of JPY6.3bn (+19.5% YoY), and net income of JPY4.2bn (+39.4% YoY).

Shared Research plans to update the details after the scheduled interview with the company.

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FY09/21 full-year forecast

The company’s FY09/21 full-year forecast is outlined below. The company’s initial forecast was extremely cautious calling for — sales growth but profit decline as it was formulated in the middle of the COVID-19 crisis and it followed the company’s first- — ever forecast downgrade in May 2020. Following its Q2 earnings announcement, however, the company upgraded its forecast for substantial sales and profit growth. Strong recovery in demand from automotive manufacturers is driving the company’s performance.

Sales: JPY88.0bn (+15.7% YoY; +JPY6.0bn vs. initial target) ▷ Operating profit: JPY6.0bn (+25.2% YoY; +JPY2.0bn vs. initial target) ▷ Recurring profit: JPY6.3bn (+19.5% YoY; +JPY2.1bn vs. initial target) ▷ Net income attributable to owners of the parent: JPY4.2bn (+39.4% YoY; +JPY1.5bn vs. initial target) ▷ FY09/19 FY09/20 FY09/21 YoY (JPYmn) 1H A ct. 2H A ct. FY A c t . 1H A ct. 2H A ct. FY A c t . 1H A ct. 2H Est. FY Es t . FY Es t . Sales 43,298 39,932 83,230 40,977 35,110 76,087 45,526 42,474 88,000 15.7% Cost of sales 35,471 32,875 68,347 33,220 28,661 61,881 37,063 - - Gross profit 7,827 7,057 14,884 7,757 6,449 14,206 8,463 - - Gross profit margin 18.1% 17.7% 17.9% 18.9% 18.4% 18.7% 18.6% - - SG&A expenses 4,376 4,636 9,012 4,809 4,605 9,415 4,828 - - SG&A rat io 10.1% 11.6% 10.8% 11.7% 13.1% 12.4% 10.6% - - Operating profit 3,451 2,421 5,872 2,948 1,844 4,792 3,635 2,365 6,000 25.2% Operating profit margin 8.0% 6.1% 7.1% 7.2% 5.3% 6.3% 8.0% 5.6% 6.8% Recurring profit 3,628 2,447 6,076 3,185 2,087 5,272 4,018 2,282 6,300 19.5% Recurring profit margin 8.4% 6.1% 7.3% 7.8% 5.9% 6.9% 8.8% 5.4% 7.2% Ne t in c o me 2,450 1,569 4,019 2,115 898 3,013 2,668 1,532 4,200 39.4% Net margin 5.7% 3.9% 4.8% 5.2% 2.6% 4.0% 5.9% 3.6% 4.8% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

With this upward revision, sales, which had been expected to increase even before the revision, will increase further, reaching a record high for the first time in two fiscal years (significantly exceeding JPY83.2bn posted in FY09/19). In addition, the company expects operating profit, recurring profit, and net income which went from a forecast for decline to a forecast for growth to — — reach record highs for the first time in two fiscal years. As with sales, each profit category peaked in FY09/19. The outlook for 2H reflects certain risk factors that the company anticipates, such as the stagnation of production activities caused by semiconductor shortages. Therefore, Shared Research thinks that there is a good chance that the company will review its outlook again toward the end of the fiscal year.

Compared to the cautious initial outlook, the three major segments of Chemicals, Machinery & Industrial Products, and Overseas Subsidiaries all outperformed initial targets, mainly supported by the recovery of automobile production. We infer that among the businesses that make up each segment, although there were some discrepancies in the details, there were no factors that caused significant underperformance versus initial targets for any of these businesses. The details of upward revisions for each segment are as follows.

Chemicals

Rubber Business Unit: Demand surged for rubber products used in automobiles driven by recovery in automobile production. ▷ Demand from office automation and construction machinery applications also grew rapidly. On the other hand, supply seems to be tight due to reduced production at suppliers and disruption in logistics.

Chemical Business Unit: With the recovery of production activities, the growing demand for raw materials in a wide range of ▷ industries has been a tailwind. In addition, Sanyo Life Material, which deals in food additives, also has performed well.

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Machinery & Industrial Products

Industrial Products Business Unit: This business unit substantially benefited from recovering automobile production and ▷ ongoing production ramp-ups. Even considering that the initial plan was cautious, it appears to have made the greatest contribution to upgrade the initial forecast. The company fully incorporated risk factors in Q3 and beyond into its outlook, such as a temporary weakening of automobile production due to semiconductor shortages. This business unit seems to have an ample room for further upward revision.

Machinery & Environmental Business Unit: Generally performing well, but there does not seem to be any big change ▷ compared to the initial target.

Scientific Instruments Business Unit: The company initially anticipated opportunity losses stemming from the cancellation of ▷ demonstrations and exhibitions. However, results exceeded initial targets owing to the establishment of non-contact delivery methods using the internet. In addition, strong demand for equipment related to COVID-19 countermeasures also contributed.

Overseas Subsidiaries

Thanks to the rapid recovery in overseas production by Japanese automakers, the company expects earnings will significantly ▷ exceed its conservative initial targets. Growing demand for raw materials in a wide range of industries also contributed. This segment seems to be the second largest contributor to the upward revision following the Industrial Products Business Unit in the Machinery & Industrial Products segment.

The company has not released earnings forecast by business segment. However, considering the 1H results and the contribution to the upward revision, we infer that the Machinery & Industrial Products segment, which benefits the most from the recovery in automobile production, is the largest driving force, followed by the Overseas Subsidiaries segment and the Chemicals segment. Shared Research thinks the Machinery & Industrial Products and Overseas Subsidiaries segments are likely to break previous record highs.

Results vs. Initial Est. FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 FY09/21 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Sales (Initial Est.) 53,562 55,500 62,000 64,000 67,000 74,300 85,000 94,500 82,000 Sales (Results) 51,075 58,618 60,672 59,909 67,738 78,450 83,230 76,087 - Results vs. Initial Est. -4.6% 5.6% -2.1% -6.4% 1.1% 5.6% -2.1% -19.5% - Operating profit (Initial Est.) 2,293 2,700 3,300 4,050 4,200 4,950 5,600 6,000 4,000 Operating profit (Results) 2,441 3,179 3,606 4,053 4,938 5,263 5,872 4,792 - Results vs. Initial Est. 6.4% 17.7% 9.3% 0.1% 17.6% 6.3% 4.9% -20.1% - Recurring profit (Initial Est.) 2,399 2,850 3,600 4,250 4,350 5,150 5,750 6,200 4,200 Recurring profit (Results) 2,772 3,517 4,111 4,274 5,271 5,576 6,076 5,272 - Results vs. Initial Est. 15.6% 23.4% 14.2% 0.6% 21.2% 8.3% 5.7% -15.0% - Net income (Initial Est.) 1,299 1,560 2,100 2,600 2,790 3,310 3,900 4,200 2,700 Net income (Results) 1,475 1,983 2,794 2,758 3,351 3,635 4,019 3,013 - Results vs. Initial Est. 13.6% 27.1% 33.1% 6.1% 20.1% 9.8% 3.0% -28.3% - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Historically, when comparing actual results with the company’s initial forecasts, there is a tendency for the company to conservatively forecast profits. Even when sales fell short of initial targets by a few percent, profits exceeded initial targets. However, in FY09/20 sales were nearly 20% lower than the initial forecast, and profits also fell below the initial forecasts by about 20% owing to the impact of the COVID-19 pandemic among other factors. We infer that, based on these circumstances, at the beginning of FY09/21, the company’s forecast was more conservative than usual.

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Medium-term management plan Current five-year management plan VISION 2023 Numerical targets Sanyo Trading achieved the numerical targets of the previous five-year management plan VISION 2020 (announced in November 2015) ahead of schedule in FY09/17. In November 2018, the company formulated and announced its current five-year management plan VISION 2023. Numerical targets for the final year of the plan (FY09/23) are listed below. The company avoids high-volume, low-margin bulk merchandise and instead focuses on high-value-added products, consumables, and repair and maintenance. It therefore prioritizes maximizing profit over sales growth. Furthermore, since Sanyo Trading is an import-focused trading company and the effects of forex fluctuations are felt at cost of sales and non-operating income/expenses levels, it uses recurring profit rather than operating profit as its main performance metric.

Consolidated recurring profit of JPY7.5bn ▷ ROE of 15% ▷ Sales CAGR of 10% at overseas subsidiaries ▷

Progress on numerical targets The company has three types of numerical targets: five-year, two-year, and single-year targets. It attained its single-year plan (initial forecast) for FY09/19, but revised down its single-year plan for FY09/20 during the fiscal year. The company again downgraded its single-year plan for FY09/21 from the figures set out in the two-year plan, but it revised up its targets following Q2 earnings announcement, bringing them in line with initial targets for profits. The main factors behind the downward revisions were the drastic cutbacks in automobile production caused by the impact of the COVID-19 pandemic, intensified competition, and the rise in prices of imported products. The company has not changed its five-year targets for FY09/23, as it is more than two years away.

Five-year plan VISION 2023 (five years through FY09/23), two-year plan, and single-year plan

FY09/19 FY09/20 FY09/21 FY09/23 (JPYmn) Act. MTP Rev. Est. Act. MTP Est. Targets Sales 83,230 94,500 75,500 76,087 102,000 88,000 - YoY 6.1% 13.5% -9.3% -8.6% 34.1% 15.7% - Gross profit 14,884 16,000 13,300 14,206 17,500 - - YoY 11.0% 7.5% -10.6% -4.6% 23.2% - - Gross profit margin 17.9% 16.9% 17.6% 18.7% 17.2% - - Operating profit 5,872 6,000 4,700 4,792 6,500 6,000 - YoY 11.6% 2.2% -20.0% -18.4% 35.7% 25.2% - Operating profit margin 7.1% 6.3% 6.2% 6.3% 6.4% 6.8% - Recurring profit 6,076 6,200 4,800 5,272 6,700 6,300 7,500 YoY 9.0% 2.0% -21.0% -13.2% 27.1% 19.5% - Recurring profit margin 7.3% 6.6% 6.4% 6.9% 6.6% 7.2% - Net income 4,019 4,200 3,300 3,013 4,500 4,200 - YoY 10.5% 4.5% -17.9% -25.0% 49.3% 39.4% - Net margin 4.8% 4.4% 4.4% 4.0% 4.4% 4.8% - ROE 14.5% 10.1% 15.0% Sales growth at overseas subsidiaries 10.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Basic strategies VISION 2023 has two basic policies: strengthening the company’s corporate structure and strengthening its earnings base. The company set out seven strategies (A to G) to support the basic policies.

Basic strategy 1: Strengthening the company’s corporate structure

Strategy A (Challenging itself to find the best solution): Build a corporate structure that aligns with the five-year plan’s slogan, ▷ “Challenging ourselves for the BEST solution,” based on the management mission, business mission, and code of conduct.

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Strategy B (Strengthening the company’s corporate base): Adhere to a free and open corporate culture, flexible organization, ▷ compliance with laws and regulations, and promote IT utilization, ESG compliance, and strengthening of the company’s financial base. Strategy C (Investing in human resources): Strengthen investment in human resources by enhancing employee education and ▷ training, promoting job fulfillment as well as safety and health of employees, and utilizing flexible and diverse human resources.

Basic strategy 2: Strengthen the company’s earnings base

Strategy D (Enhancing business in specific fields): In addition to the main business domains, pursue and cultivate high-value- ▷ added business in niche fields by harnessing the company’s strengths.

Strategy E (Developing new businesses): Launch projects to promote new businesses that can be realized by 2023. ▷ Strategy F (Accelerating global expansion): Accelerate global expansion with bases in the US, China, and Thailand as hubs, and ▷ aim for a sales CAGR of 10% at overseas subsidiaries.

Strategy G (Advancing new investment projects): Actively work on investment projects that are related to the company’s ▷ business domains and that satisfy the following: have synergistic effects with existing businesses, have future growth potential, and contribute to global expansion. Specific examples of basic strategies for VISION 2023

Strengthening Strengthening Basic policies Specific examples corporate structure earnings base

A. Challenging itself to find D. Enhancing business in Shifting from an area system to a market the best solution specific fields system (chemicals) Strengthen relationships with automakers and Tier 1 companies B. Strengthening corporate E. Developing new New business projects are in the fourth year base businesses Strategies 44 projects are in progress (FY09/20) C. Investing in human F. Accelerating global Made the Mexico subsidiary a consolidated resources expansion subsidiary (FY09/19) (Establishment of Human The cosmetics business (Thailand) and the Resources Dept.) auto parts business (India) are growing G. Advancing new Acquisitions and subsidiary mergers (FY09/20) investment projects Source: Shared Research based on company data Target business portfolio Focus areas (domains) The company has set its four focus markets and target business portfolio as focus areas (domains) in VISION 2023.

The auto parts domain in the mobility market is a major pillar that generates around half of the company’s earnings. The ▷ company believes that demand for seat-related interior parts will not decline even if automobiles shift from internal combustion engine vehicles to electric vehicles.

The company is focusing on fine chemicals and life sciences as the next pillar. It is working to strengthen its corporate structure ▷ through the reorganization of consolidated subsidiaries (including Sort and Sanyo Life Material) that joined the group through M&A.

Sustainability is also an area of focus for the company, and it is working in the fields of wood biomass and geothermal power ▷ generation that leverage pellet mill technology.

In the livestock field, the company continues striving to expand sales of pellet mill machines as a field that contributes to ▷ Japanese food culture, food safety, and supply. At the same time, it is developing a functional additives business for feed.

In scientific analytical instruments, the company has introduced advanced technologies and products from overseas to public ▷ offices and private companies in Japan and put in place a detailed support system.

In FY09/20, the company established the New Business Development Department covering all business units under the direct ▷ control of the president, and began full-scale efforts to discover new promising fields.

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Four focus markets Markets Fields Objectives Deliver added value through products and services in order to embody Mobility Mobility of all kinds transportation known as "mobility," and the future of industry 10 years from now (2030).

Contribute to advancement in the field of materials by supplying functional materials, ingredients, and new naturally derived materials. Through these Fine chemicals Rubber, paints, inks, coatings supplies, provide reliable supply, technological innovation, and environmental solutions for various industrial fields including rubber, paint, ink, and coating.

Renewable energy (biomass, Promote sustainable society through wood biomass, geothermal, and Sustainability geothermal, ocean energy), oceanic renewable energies, and by contributing to food safety and quality livestock feed improvements in the livestock field. Home medical care, cosmetics, Provide a full array of products and services related to daily living and Life science food, scientific instruments, medical care as a means of adapting to Japan's inevitable future as an electrical materials elderly-dominated society as well as to the new post-COVID society. Source: Shared Research based on company data

Five-year management plan VISION 2023 (target business portfolio by domain)

Enhancing business in specific fields

Corresponding Specific fields Focus domains Background business units or (niche products) subsidiaries Interior upholstery and Supply vehicle interior upholstery and other Industrial Products Auto parts materials to Japanese automakers to create a trimming materials pleasant traveling environment. Rubber materials Rubber High-performance Contribute to industry development by handling Chemical Fine chemicals high-performance materials, additives, and other chemicals high-value-added chemicals. Rubber additives Rubber Pharmaceutical Chemical Contribute to human health by handling medical intermediates Life science devices, pharmaceutical intermediates, and Medical devices Nihon Rufuto healthcare products. Rubber materials Rubber Promote local production for local consumption Machinery & Wood biomass Environmental and improve the state of renewable energy in Environmental sustainability Japan through wood biomass and geothermal Geothermal power Cosmos Shoji power generation. generation Machinery & Contribute to Japanese cuisine, food safety, and Pellet mill machines Livestock Environmental supply. Livestock feed Chemical Contribute to the advancement of technological Scientific analytical Advanced measurement research in Japan by handling the latest Scientific Instruments instruments and analysis measuring and analytical equipment. Promising new fields Source: Shared Research based on company data

By focus domain, the company’s FY09/23 consolidated recurring profit target of JPY7.5bn breaks down to 42 auto parts, 17% ％ fine chemicals, 13% life science, 11% environmental sustainability, 8% livestock, 6% scientific analytical instruments, and 4% promising new fields. (Shared Research note: These composition ratios do not faithfully reflect the actual numerical targets.)

ESG initiatives The company has focused on wood biomass equipment and geothermal development equipment for years. In addition, it is aggressively shifting from petroleum-derived chemical raw materials to alternatives such as environmentally friendly materials and naturally derived raw materials. The company is committed to reducing environmental impact and sustaining the ecosystem through providing new products.

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Eco-friendly products ESG/SDG initiatives

Mesamoll, a plasticizer without phthalic Highly purified carbon black acid (possible endocrine disruptor) derived 100% from biomass

Materials for UV ink/UV coating, Fine powder PTFE wax with considerably contributing to reducing volatile less PFOA (an endocrine disruptor) organic compounds (VOCs)

Source: Company data Source: Company data

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Business Business model Company overview

Sanyo Trading is a trading company with combined specialization in chemicals and machinery. It exports, imports, and sells ▷ rubber, chemicals, machinery and equipment, auto parts, scientific instruments, and various other products. It does more importing than exporting. It focuses on high-performance and custom-spec items, consumables, and repair and maintenance. The majority of its employees come from technological backgrounds.

Its business segments consist of Chemicals, Machinery & Industrial Products, Overseas Subsidiaries, and Other. Machinery & ▷ Industrial Products contribute around 60% of operating profit.

The company’s FY09/20 OPM of 6.3% was substantially higher than the most recent fiscal year figures of 1 3.5% for the nine ▷ – major chemicals trading companies and 2 4% for the five major machinery trading companies. Automotive products, which – account for about 40% of sales, are a major earnings driver.

The company supplies customers in industries including automotive (major Japanese automakers), non-automotive chemicals, ▷ office automation and home electronics, paint and ink, livestock feed, biomass, plastics, and others. It also focuses on renewable energy (wood biomass) and life sciences, and has been implementing ESG management.

The Sanyo Trading group consists of the company, 13 consolidated subsidiaries, and six non-consolidated subsidiaries. The ▷ company has strengthened and expanded its business through M&A.

Chemicals (sales of JPY30.5bn [40.1% of total] and OPM of 4.1% in FY09/20): Rubber Business Unit and Chemical Business Unit Consolidated subsidiaries: Chem-Inter (intermediates for pharmaceuticals and dyes, electronic equipment), Sanyo Life Material (pharmaceuticals, chemicals)

Main product portfolio: Synthetic rubber, synthetic resin, thermoplastic elastomers, rubber special chemicals, auxiliary materials for rubber, natural rubber, medical materials, plasticizers, recycled rubber, adhesives, various rubbers, resin moldings, rubber compounds, industrial rubber processing and testing machines, rubber process oils, additives (for paints, inks, and plastics), industrial gas, agrochemicals, absorbent polymers, ceramics, various films, pigments, fragrances, various industrial chemicals, surfactants, brominated flame retardants, automobile wheels, livestock feed, soil conditioners, livestock materials, adhesive-related equipment, paperwork machines, paint-related equipment, dyes, container and packaging materials, solvents, pet care products, contract filling services, dyeing pigments, synthetic resin processing machines, precision electronic parts processing machines, building materials, non-ferrous metals, active pharmaceutical ingredients (APIs), pharmaceutical intermediates, phase conversion catalysts, benzyl alcohol and its derivatives, functional raw materials and additives for breeding

Machinery & Industrial Products (sales of JPY27.2bn [35.8% of total] and OPM of 12.1% in FY09/20): Industrial Products Business Unit, Machinery & Environmental Business Unit, and Scientific Instruments Business Unit Consolidated subsidiaries: Sanyo Machinery (pellet feed production machines and biomass-related equipment), Cosmos Shoji (natural resource and energy development equipment), Nihon Rufuto (medical equipment, laboratory equipment), Freeman (Japan) (auxiliary materials for precision casting, mold materials), YPTECH (functional raw materials for livestock feed)

Main product portfolio: Automotive-related products, parts, and equipment, furniture, welding-related materials, ultrafine bubble generators, soil conditioners, high-performance coaxial cable for semiconductor inspection equipment, automobile disassembly data and operation software, auxiliary materials for precision casting and mold materials, fertilizer-related equipment, environment-related equipment, biomass-related equipment, analytical instruments, testing instruments, environmental measuring instruments, physical quantity and property measuring instruments, industrial measuring instruments, experimental equipment, semiconductor inspection equipment, semiconductor electronic parts, animal experiment equipment, medical equipment, drilling equipment for oil, natural gas, and geothermal, seabed resource development equipment

Overseas Subsidiaries (sales of JPY18.2bn [24.0% of total] and OPM of 4.2% in FY09/20): Handles rubber, chemicals, and industrial products Consolidated subsidiaries: Sanyo Corporation of America, Sanyo Trading (Shanghai) Co., Ltd., Sanyo Trading Asia Co., Ltd., Sanyo Trading Asia (Viet Nam) Co., Ltd., Sun Phoenix Mexico, S.A. de C.V., PT. Sanyo Trading Indonesia

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Sales by product and service In FY09/20, rubber products accounted for 21.3% of total sales, chemical products 32.9%, machinery and environment-related products 8.0%, industrial products 34.7%, and other products 3.2%.

Sales by region In FY09/20, 65.5% of total sales came from Japan and 34.5% from overseas with the US contributing 11.5%, China 10.4%, and — other regions 12.6%. Other regions include Mexico, Thailand, Vietnam, Indonesia, and India.

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Segment overview

Segments FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Total sales 48,791 48,070 51,075 58,618 60,672 59,909 67,738 78,450 83,230 76,087 YoY 2.8% -1.5% 6.3% 14.8% 3.5% -1.3% 13.1% 15.8% 6.1% -8.6% Chemicals 26,248 25,222 24,358 26,092 26,225 26,857 29,403 33,882 33,651 32,681 YoY 2.7% -3.9% -3.4% 7.1% 0.5% 2.4% 9.5% 15.2% -0.7% -2.9% % of total sales 50.8% 49.6% 45.0% 41.6% 40.4% 42.2% 40.8% 40.6% 38.4% 40.8% Machinery & Industrial Products 7,313 8,810 12,684 15,935 17,893 19,363 21,853 28,340 33,402 27,543 YoY -12.1% 20.5% 44.0% 25.6% 12.3% 8.2% 12.9% 29.7% 17.9% -17.5% % of total sales 14.1% 17.3% 23.4% 25.4% 27.6% 30.4% 30.3% 33.9% 38.1% 34.3% Overseas Subsidiaries 10,869 9,124 10,474 13,820 13,648 11,891 16,384 21,111 20,522 19,822 YoY 23.4% -16.1% 14.8% 31.9% -1.2% -12.9% 37.8% 28.9% -2.8% -3.4% % of total sales 21.0% 17.9% 19.3% 22.0% 21.0% 18.7% 22.8% 25.3% 23.4% 24.7% Domestic Subsidiaries 7,023 7,460 6,393 6,601 6,844 5,323 4,109 - - - YoY -3.0% 6.2% -14.3% 3.3% 3.7% -22.2% -22.8% - - - % of total sales 13.6% 14.7% 11.8% 10.5% 10.5% 8.4% 5.7% 0.0% 0.0% 0.0% Other 253 255 257 268 264 266 259 175 149 151 YoY -5.4% 0.7% 0.8% 4.1% -1.4% 0.7% -2.5% -32.3% -15.0% 1.4% % of total sales 0.5% 0.5% 0.5% 0.4% 0.4% 0.4% 0.4% 0.2% 0.2% 0.2% Adjustments -2,916 -2,801 -3,092 -4,098 -4,202 -3,791 -4,270 -5,059 -4,495 -4,110 Total sales (external customers) 48,791 48,070 51,075 58,618 60,672 59,909 67,738 78,450 83,230 76,087 YoY 2.8% -1.5% 6.3% 14.8% 3.5% -1.3% 13.1% 15.8% 6.1% -8.6% Chemicals 24,608 23,594 22,696 24,110 23,598 24,483 26,703 30,703 31,093 30,509 YoY 3.2% -4.1% -3.8% 6.2% -2.1% 3.8% 9.1% 15.0% 1.3% -1.9% % of total sales 50.4% 49.1% 44.4% 41.1% 38.9% 40.9% 39.4% 39.2% 37.4% 40.1% Machinery & Industrial Products 7,113 8,634 12,487 15,735 17,697 19,104 21,614 27,955 32,994 27,205 YoY -12.2% 21.4% 44.6% 26.0% 12.5% 8.0% 13.1% 29.3% 18.0% -17.5% % of total sales 14.6% 18.0% 24.4% 26.8% 29.2% 31.9% 31.9% 35.7% 39.7% 35.8% Overseas Subsidiaries 9,880 8,209 9,384 12,602 12,354 10,751 15,094 19,611 18,950 18,228 YoY 22.3% -16.9% 14.3% 34.3% -2.0% -13.0% 40.4% 29.9% -3.4% -3.8% % of total sales 20.2% 17.1% 18.4% 21.5% 20.4% 18.0% 22.3% 25.0% 22.8% 24.0% Domestic Subsidiaries 6,946 7,392 6,278 5,949 6,789 5,294 4,093 - - - YoY -3.3% 6.4% -15.1% -5.2% 14.1% -22.0% -22.7% - - - % of total sales 14.2% 15.4% 12.3% 10.1% 11.2% 8.8% 6.0% - - - Other 244 241 233 234 231 232 222 145 122 115 YoY -3.4% -0.9% -3.5% 0.6% -1.6% 0.8% -4.3% -34.6% -15.9% -6.3% % of total sales 0.5% 0.5% 0.5% 0.4% 0.4% 0.4% 0.3% 0.2% 0.1% 0.2% Adjustments 0 0 -3 -12 4 43 12 36 72 31 Operating profit 2,182 2,249 2,441 3,179 3,606 4,053 4,938 5,263 5,872 4,792 YoY 11.4% 3.1% 8.5% 30.2% 13.5% 12.4% 21.9% 6.6% 11.6% -18.4% Operating profit margin 4.5% 4.7% 4.8% 5.4% 5.9% 6.8% 7.3% 6.7% 7.1% 6.3% Chemicals 1,150 1,091 1,058 1,054 1,104 1,264 1,642 1,976 1,578 1,354 YoY 21.4% -5.1% -3.0% -0.4% 4.8% 14.4% 30.0% 20.4% -20.2% -14.2% Operating profit margin 4.4% 4.3% 4.3% 4.0% 4.2% 4.7% 5.6% 5.8% 4.7% 4.1% % of total OP 42.9% 40.0% 35.2% 29.4% 25.4% 27.8% 29.5% 33.0% 24.1% 24.2% Machinery & Industrial Products 613 984 1,095 1,519 1,962 2,211 2,524 3,126 4,020 3,334 YoY 5.9% 60.6% 11.2% 38.8% 29.2% 12.7% 14.1% 23.8% 28.6% -17.1% Operating profit margin 8.4% 11.2% 8.6% 9.5% 11.0% 11.4% 11.6% 11.0% 12.0% 12.1% % of total OP 22.9% 36.1% 36.4% 42.4% 45.0% 48.7% 45.4% 52.2% 61.4% 59.5% Overseas Subsidiaries 393 226 357 358 503 367 727 880 880 840 YoY -3.7% -42.5% 57.7% 0.3% 40.5% -27.0% 98.2% 21.0% 0.1% -4.7% Operating profit margin 3.6% 2.5% 3.4% 2.6% 3.7% 3.1% 4.4% 4.2% 4.3% 4.2% % of total OP 14.7% 8.3% 11.9% 10.0% 11.5% 8.1% 13.1% 14.7% 13.5% 15.0% Domestic Subsidiaries 385 274 355 495 637 585 540 - - - YoY -2.7% -28.7% 29.3% 39.5% 28.7% -8.1% -7.7% - - - Operating profit margin 5.5% 3.7% 5.5% 7.5% 9.3% 11.0% 13.1% - - - % of total OP 14.4% 10.1% 11.8% 13.8% 14.6% 12.9% 9.7% - - - Other 140 151 142 157 150 114 129 7 65 73 YoY 18.1% 7.8% -6.0% 10.6% -4.5% -24.1% 12.8% -94.2% 767.3% 12.0% Operating profit margin 55.5% 59.4% 55.3% 58.8% 56.9% 42.9% 49.6% 4.3% 43.6% 48.2% % of total OP 5.2% 5.5% 4.7% 4.4% 3.4% 2.5% 2.3% 0.1% 1.0% 1.3% Adjustments -499 -478 -566 -404 -750 -489 -624 -726 -671 -808 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Segmentation was changed in FY09/18 (the Domestic Subsidiaries segment was reclassified to the Chemicals and Machinery & Industrial Products segments).

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Sales by product/service FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Rubber 15,960 14,851 14,679 16,013 16,176 15,343 17,839 18,628 18,916 16,192 YoY - -6.9% -1.2% 9.1% 1.0% -5.1% 16.3% 4.4% 1.5% -14.4% % of total 32.7% 30.9% 28.7% 27.3% 26.7% 25.6% 26.3% 23.7% 22.7% 21.3% Chemical 19,516 18,495 17,645 17,493 17,344 16,974 19,495 21,622 21,757 24,998 YoY - -5.2% -4.6% -0.9% -0.9% -2.1% 14.9% 10.9% 0.6% 14.9% % of total 40.0% 38.5% 34.5% 29.8% 28.6% 28.3% 28.8% 27.6% 26.1% 32.9% Machinery & environmental - - 4,946 6,064 7,121 6,094 5,318 6,588 7,528 6,090 YoY - - - 22.6% 17.4% -14.4% -12.7% 23.9% 14.3% -19.1% % of total 0.0% 0.0% 9.7% 10.3% 11.7% 10.2% 7.9% 8.4% 9.0% 8.0% Industrial products 6,827 7,815 11,044 15,746 18,057 19,585 22,587 28,848 32,443 26,382 YoY - 14.5% 41.3% 42.6% 14.7% 8.5% 15.3% 27.7% 12.5% -18.7% % of total 14.0% 16.3% 21.6% 26.9% 29.8% 32.7% 33.3% 36.8% 39.0% 34.7% Other 6,488 6,910 2,761 3,303 1,975 1,913 2,499 2,765 2,586 2,425 YoY -86.3% 6.5% -60.0% 19.6% -40.2% -3.1% 30.6% 10.6% -6.5% -6.2% % of total 13.3% 14.4% 5.4% 5.6% 3.3% 3.2% 3.7% 3.5% 3.1% 3.2% Total sales 48,791 48,070 51,075 58,618 60,672 59,909 67,738 78,450 83,230 76,087 YoY 2.8% -1.5% 6.3% 14.8% 3.5% -1.3% 13.1% 15.8% 6.1% -8.6% Sales by region FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Japan 30,633 30,998 33,581 38,547 39,232 41,311 44,108 48,648 54,623 49,834 YoY -22.2% 1.2% 8.3% 14.8% 1.8% 5.3% 6.8% 10.3% 12.3% -8.8% % of total 62.8% 64.5% 65.7% 65.8% 64.7% 69.0% 65.1% 62.0% 65.6% 65.5% US 5,223 4,983 5,319 6,081 7,533 6,209 7,552 8,348 8,003 8,782 YoY 30.1% -4.6% 6.7% 14.3% 23.9% -17.6% 21.6% 10.5% -4.1% 9.7% % of total 10.7% 10.4% 10.4% 10.4% 12.4% 10.4% 11.1% 10.6% 9.6% 11.5% China - - 5,017 7,384 6,099 5,615 7,014 9,835 8,332 7,880 YoY - - - 47.2% -17.4% -7.9% 24.9% 40.2% -15.3% -5.4% % of total 0.0% 0.0% 9.8% 12.6% 10.1% 9.4% 10.4% 12.5% 10.0% 10.4% Other 12,934 12,089 7,158 6,607 7,809 6,773 9,064 11,618 12,273 9,591 YoY 218.6% -6.5% -40.8% -7.7% 18.2% -13.3% 33.8% 28.2% 5.6% -21.9% % of total 26.5% 25.1% 14.0% 11.3% 12.9% 11.3% 13.4% 14.8% 14.7% 12.6% Total sales 48,791 48,070 51,075 58,618 60,672 59,909 67,738 78,450 83,230 76,087 YoY 2.8% -1.5% 6.3% 14.8% 3.5% -1.3% 13.1% 15.8% 6.1% -8.6% Overseas sales 18,157 17,072 17,494 20,072 21,440 18,598 23,630 29,802 28,608 26,253 YoY 124.8% -6.0% 2.5% 14.7% 6.8% -13.3% 27.1% 26.1% -4.0% -8.2% % of total 37.2% 35.5% 34.3% 34.2% 35.3% 31.0% 34.9% 38.0% 34.4% 34.5% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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Chemicals segment Overview: Sales to external customers of JPY30.5bn (40.1% of total) and OPM of 4.1% (in FY09/20) The Chemical s segment consists of the Rubber Business Unit and the Chemical Business Unit (whose sales contributions are split evenly). Rather than low-priced bulk merchandise, the company specializes in high-value-added fine chemicals such as plasticizers (a general term for additive chemicals that are added to thermoplastic synthetic resins to improve flexibility and weather resistance). In this segment, the company is strengthening its business through M&A.

Chemicals segment: Sales and operating profit

Chemicals (JPYmn) FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 Sales 26,248 25,222 24,358 26,092 26,225 26,857 29,403 33,882 33,651 32,681 YoY 2.7% -3.9% -3.4% 7.1% 0.5% 2.4% 9.5% 15.2% -0.7% -2.9% % of total sales 50.8% 49.6% 45.0% 41.6% 40.4% 42.2% 40.8% 40.6% 38.4% 40.8% Sales to external customers 24,608 23,594 22,696 24,110 23,598 24,483 26,703 30,703 31,093 30,509 YoY 3.2% -4.1% -3.8% 6.2% -2.1% 3.8% 9.1% 15.0% 1.3% -1.9% % of total sales (external) 50.4% 49.1% 44.4% 41.1% 38.9% 40.9% 39.4% 39.2% 37.4% 40.1% Operating profit 1,150 1,091 1,058 1,054 1,104 1,264 1,642 1,976 1,578 1,354 YoY 21.4% -5.1% -3.0% -0.4% 4.8% 14.4% 30.0% 20.4% -20.2% -14.2% Operating profit margin 4.4% 4.3% 4.3% 4.0% 4.2% 4.7% 5.6% 5.8% 4.7% 4.1% % of total OP 42.9% 40.0% 35.2% 29.4% 25.4% 27.8% 29.5% 33.0% 24.1% 24.2% Source: Shared Research based on company data Note: In FY09/17 and earlier, domestic subsidiaries’ earnings were recorded in the Domestic Subsidiaries segment. (Since FY09/18 when segmentation was changed, part of results of domestic subsidiaries have been included in the Chemicals segment.)

Rubber Business Unit (examples of trading products and their end products) Chemical Business Unit (examples of trading products and their end products)

Source: Company data Source: Company data Rubber Business Unit (roughly 50% of Chemicals segment sales and operating profit) Overview Rubber is used in all industrial fields including automobiles (such as tires, belts, hoses, rollers, and seals) and IT-related equipment. In 1952, the company became the sole distributor for Polysar Limited in Canada, which was one of the world’s leading synthetic rubber manufacturers at that time. Since then, the Rubber Business Unit has introduced various synthetic rubbers of Polysar and its processing technology to Japan, contributing to the development of Japan’s rubber industry. In 1990, world-renowned Bayer AG of Germany acquired the rubber division of Polysar. In 2004, Bayer AG established Lanxess, a manufacturer of rubber and fine chemicals. At Sanyo Trading, the Rubber Business Unit supplies a wide range of quality synthetic rubber to the market, including halogenated butyl rubber used for industrial rubber parts, regular butyl rubber, nitrile rubber with high oil resistance, hydrogenated acrylonitrile butadiene rubber (NBR) with high oil and heat resistance, and ethylene propylene diene monometer (EPDM) rubber with high weather resistance.

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As a sales agent of major Japanese chemical manufacturers, including Mitsui Chemicals (TSE1: 4183), Toray Industries (TSE1: 3402), Tosoh (TSE1: 4042), Kuraray (TSE1: 3405), 3M Japan, and Osaka Soda (TSE1: 4046), the Rubber Business Unit plays a role in supplying a wide range of rubber from general-purpose rubber (such as EPDM rubber, silicone rubber, polychloroprene rubber, polyisoprene rubber, fluorine rubber, and epichlorohydrin rubber) to high-performance rubber. In addition, the company imports and sells overseas products to the rubber industry in Japan. Examples of such imported products include kaolin clay from KaMin, hard clay from Kentucky Tennessee Clay, alkylphenol resin from SI Group, and liquid polybutadiene from Cray Valley.

Features

Imported first synthetic rubber to Japan in 1952 as the sole distributor for Polysar; handles a wide range of products for the ▷ rubber industry.

Business partners cover almost all of the Japanese tire manufacturers and major manufacturers of industrial rubber products. ▷ Handles general raw materials such as synthetic rubber and fillers, as well as various other products including special polymers ▷ and compounding agents.

Technical support and joint development services by technical sales staff also available. ▷ Long track record and experience in the field of logistics that support stable supply. ▷ Has a network that can respond to overseas expansion of the company’s customers among Japanese manufacturers. ▷

Main trading products, customer industries, applications, and focus areas

Main customer Main trading products Main applications Focus areas industries Synthetic rubber (butyl rubber, NBR, silicone rubber) Tires, auto parts Rubber Business Rubber fillers (heat dissipation agents, special clays, (interior/exterior parts, anti-vibration Unit Automotive, flame retardants) rubber, hoses, oil seals) International tie-ups information devices Plasticizers, thermoplastic elastomers, resins Printer parts (various rubber rollers) Medical-related products Source: Shared Research based on company data

Main suppliers, product lines, and features

Main suppliers Main product lines Features World's leading manufacturer of synthetic rubber; stable supply of a wide Arlanxeo/Lanxess Synthetic rubber, plasticizers Rubber Business range of products Strategic products that deliver both higher performance and reduced cost Unit KaMin Special clays for tires and industrial rubber parts Superior heat resistance, widely used in printing rubber rollers, auto parts, Dow Toray Silicone rubber and medical components Source: Shared Research based on company data

Local subsidiaries in charge Global expansion of production bases is progressing in all industries, and demand for various raw materials is increasing in regions around the world. In addition to the existing local subsidiaries in New York and Bangkok, the company established two subsidiaries in China Sanyo Trading (Shanghai) Co., Ltd. in December 2003 and Sanyo-Touchi (Shanghai) Rubber Co., Ltd. in — October 2004. (It sold all shares in Sanyo-Touchi on April 9, 2021.) The company established local subsidiaries in Ho Chi Minh City in 2010 and in New Delhi and Hong Kong in 2012.

Chemical Business Unit (roughly 50% of Chemicals segment sales and operating profit) Overview The Chemical Business Unit imports, sells, and exports high-value-added chemicals. In addition, it trades chemical products over three countries. In recent years, this business unit has been working to develop chemical products in growth fields, including medical care, energy, and the environment. It also strives to expand business in emerging countries such as Vietnam and India. In imports, it handles various high-performance resins, additives, and other functional chemicals, and sells them to manufacturers of paints, inks, floor polishes, textiles, papermaking, adhesives, and leather. It has close and strong relationships with dozens of

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chemical manufacturers in North America, Europe, and Asia, and imports various fine chemical products while providing customers with information on overseas technology development and market trends obtained from those suppliers.

In Japan, it handles distinctive products from dozens of major domestic manufacturers, and is active in a wide range of fields such as paints, inks, plastics, sanitary products, textiles, papermaking, and adhesive bonding. In exports, it sells various industrial chemicals, special resins, processing aids, additives, and plastic films to North America, European countries, Oceania, and Southeast Asian countries.

Features

Handles high-value-added fine chemicals. ▷ Also handles life science products for medical care, energy, and the environment, including pharmaceutical intermediates, ▷ active pharmaceutical ingredients (APIs), solar cell-related products, and environmentally friendly products.

In addition to logistics services and inventory sales based on logistics expertise, the company provides detailed technical ▷ services.

Sales staff trained at overseas suppliers put forward high-value-added products, develop applications, and provide technical ▷ support.

Main trading products, customer industries, applications, and focus areas

Main customer Main trading products Main applications Focus areas industries Additives for paints and inks Chemical Business Various resins Chemicals, building Unit materials, Paints, inks, plastics, films, UV ink raw materials, high- High-performance films automotive, pharmaceuticals performance films Pharmaceutical Intermediates, APIs electronic devices Electronic materials Source: Shared Research based on company data

Main suppliers, product lines, and features

Chemical Business Main supplier Main product lines Features Unit Shamrock Technologies Waxes of various types High-performance waxes for inks and paints Source: Shared Research based on company data

Local subsidiaries in charge

Chem-Inter: Export and sales of intermediates for pharmaceuticals and dyes, and electronic equipment ▷ Sanyo Life Material: Import and sales of pharmaceuticals and chemicals; Azzurro and NKS Corporation merged to form Sanyo ▷ Life Material

Global Trading: Export and sales of chemical products centered on raw materials for health food and cosmetics; merged and ▷ absorbed in April 2021

Machinery & Industrial Products segment Overview: Sales to external customers of JPY27.2bn [35.8% of total] and OPM of 12.1% (in FY09/20) The Machinery & Industrial Products segment consists of the Industrial Products No. 1 and No. 2 Business Units, the Machinery & Environmental Business Unit, and the Scientific Instruments Business Unit (respectively contributing 70%, 20%, and 10% to sales). The segment generates roughly 60% of companywide operating profit (surpassing the Chemicals segment in operating profit in FY09/13). Sales expansion of high-performance parts for automobile seats (such as genuine leather for seats, seat heaters, lumbar supports, and seat sensors) in particular is a growth driver for the segment.

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Machinery & Industrial Products segment: Sales and operating profit

Machinery & Industrial Products (JPYmn) FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 Sales 7,313 8,810 12,684 15,935 17,893 19,363 21,853 28,340 33,402 27,543 YoY -12.1% 20.5% 44.0% 25.6% 12.3% 8.2% 12.9% 29.7% 17.9% -17.5% % of total sales 14.1% 17.3% 23.4% 25.4% 27.6% 30.4% 30.3% 33.9% 38.1% 34.3% Sales to external customers 7,113 8,634 12,487 15,735 17,697 19,104 21,614 27,955 32,994 27,205 YoY -12.2% 21.4% 44.6% 26.0% 12.5% 8.0% 13.1% 29.3% 18.0% -17.5% % of total sales (external) 14.6% 18.0% 24.4% 26.8% 29.2% 31.9% 31.9% 35.7% 39.7% 35.8% Operating profit 613 984 1,095 1,519 1,962 2,211 2,524 3,126 4,020 3,334 YoY 5.9% 60.6% 11.2% 38.8% 29.2% 12.7% 14.1% 23.8% 28.6% -17.1% Operating profit margin 8.4% 11.2% 8.6% 9.5% 11.0% 11.4% 11.6% 11.0% 12.0% 12.1% % of total OP 22.9% 36.1% 36.4% 42.4% 45.0% 48.7% 45.4% 52.2% 61.4% 59.5% Source: Shared Research based on company data Note: In FY09/17 and earlier, domestic subsidiaries’ earnings were recorded in the Domestic Subsidiaries segment. (Since FY09/18 when segmentation was changed, part of results of domestic subsidiaries have been included in the Machinery & Industrial Products segment.)

Industrial Products No. 1 and No. 2 Business Units (examples of trading Machinery & Environmental Business Unit (examples of trading products) products)

Scientific Instruments Business Unit (examples of trading products)

Source: Company data

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Industrial Products No. 1 and No. 2 Business Units (roughly 70% of Machinery & Industrial Products segment sales and operating profit) Overview The Industrial Products Business Unit is engaged in sales of high-performance parts for automobile seats. The main products it handles cover a wide range, including genuine leather made by GST Auto Leather (US), lumbar supports made by L&P Automotive Group companies Schukra (Canada) and L&H (China), suspension mats made by Pullmaflex (Belgium), seat adjuster motors made by L&V (China), cables made by L&C (China), seat motors, air conditioning systems, and electronic control units (ECUs) made by Gentherm (US), and seatbelt reminders, occupant detection systems, and various sensors made by IEE (Luxembourg). The use of genuine leather for seats started with domestic luxury sports cars, and from there spread to many other luxury car seats used by Japanese automakers. The company takes part in the new vehicle development process right from the outset, making design suggestions, and participating in function development and upgrades. Gentherm is a supplier of seat heaters for automobiles, but the company also procures nichrome wire rods used for seat heaters from Japanese companies and sells them to Gentherm.

In recent years, among new products, the company also handles benchmark data utilizing full-color CAD model of Caresoft Global (US), vital sign sensors made by Carea Corporation (Japan), anti-spatter welding sprays and large water-cooling fans made by Funabori (Japan), and ultra-fine bubble generators made by Shibata (Japan).

Features

Takes part in the new vehicle development process from the early stage, making design suggestions and participating in ▷ function development and upgrades.

Has assembled a system for end-to-end handling of orders, development, start-up, mass production management, and supply ▷ of old-model products.

Has a close relationship with automakers and Tier 1 companies. ▷ Meets the strict delivery standards for seats mounted on Japanese OEM vehicles. ▷ Once it obtains a contract, sales can be easily predicted during the production period. ▷

Main trading products, customer industries, applications, and focus areas

Main customer Main trading products Main applications Focus areas industries Industrial Products Genuine leather for car seats No. 1 Business Unit Industrial Products Seat heaters Automotive interior parts Sensing device for airbags, ventilated Automotive No. 2 Business Unit Lumbar supports (mainly for luxury cars) seats (hot/cold air) Sensors Source: Shared Research based on company data

Main suppliers, product lines, and features

Main suppliers Main product lines Features Industrial Products Collaborative development with automakers involved from the design No. 1 Business Unit GST Seton Autoleather Genuine leather for automobiles stage Industrial Products Gentherm Seat heaters Dominates the market for carbon fiber seat heaters No. 2 Business Unit L&P Automotive Group Lumbar supports Major global market share thanks to advanced technological capabilities Source: Shared Research based on company data

Main customers Automotive companies including Toyota Motor, Mazda, Honda Motor (TSE1: 7267), Nissan Motor (TSE1: 7201), Subaru (TSE1: 7270), Suzuki (TSE1: 7269), Isuzu Motors (TSE1: 7202), Mitsubishi Motors (TSE1: 7211), and other Japanese OEMs and Tier 1 companies

Local subsidiaries in charge Freeman (Japan): Import and sales of auxiliary materials for precision casting and mold materials

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Machinery & Environmental Business Unit (roughly 20% of Machinery & Industrial Products segment sales and operating profit) Overview Powder processing In the powder processing market, the company mainly deals with feed pellet granulators for livestock and aquafarming. It handles various processing machines, notably those from CPM, a manufacturer specializing in granulators. The company also handles automatic bag filling machines that pack powders into bags for powder handling processes. The company has a history of more than 50 years as the sole distributor in Japan for CPM’s feed pellet mills, and has a domestic market share of over 80%.

Biomass The Biomass Group imports and sells granulators that produce biomass pellets from unused timber produced in Japan, wood pellet gasifiers with combined heat and power systems, and other granulating equipment. A total of 32 cogeneration systems have been delivered (by end-FY09/20), and the total delivered systems are slated to number 38 (by end-FY09/21). There is a strong desire to install them, mainly among local governments, since they can be used even in the event of a disaster. In addition, through the sale of granulators specifically for municipal waste and various recycled products, the company is active on environmental improvement, including resource recycling and fuel conversion (such as production of refuse-derived fuel and refuse-derived paper and plastic densified fuel).

Features CPM’s pellet mills

History of more than 50 years as the sole distributor in Japan ▷ Over 80% market share in feed pellet mills ▷ Maintenance and inspection system in place provided by a professional maintenance team ▷ Achieves differentiation from other companies’ imported products by developing and customizing software for automatic ▷ control devices

Wood biomass equipment

Made by Germany’s Burkhardt, which has a track record of delivering more than 200 units in Germany; good potential for ▷ synergistic effects with wood pellets

Local production for local consumption model that makes effective use of domestic unused timber ▷ Utilizes renewable energy, can be used even in the event of a disaster, and contributes to regional development ▷

Main trading products, customer industries, applications, and focus areas

Main customer Main trading products Main applications Focus areas industries Feed, energy Feed production, solid fuel (pellet) Machinery & Pellet mills and related parts Environmental recycling production Wood pellet gasifiers with combined Business Unit Local public Wood biomass equipment Combined heat and power generation heat and power systems organizations Livestock-related materials Livestock Livestock Source: Shared Research based on company data

Main suppliers, product lines, and features

Main suppliers Main product lines Features Machinery & Achieves automatic feeding using solidified feed, delivers savings on CPM Pellet mills Environmental storage and transportation costs Business Unit Wood pellet gasifiers with Burkhardt Renewable energy used in cogeneration combined heat and power systems Source: Shared Research based on company data

Subsidiaries in charge

Cosmos Shoji: Import and sales of natural resource and energy development equipment ▷

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YPTECH: Import and sales of functional raw materials for livestock feed ▷ Sanyo Machinery: Assembly of pellet feed production machines and biomass-related equipment, and manufacture and sales of ▷ parts ; has expertise to manufacture its own products

Scientific Instruments Business Unit (roughly 10% of Machinery & Industrial Products segment sales and operating profit) Overview The Scientific Instruments Business Unit imports various analytical and testing instruments from overseas manufacturers with advanced technology and sells them in Japan to laboratories and quality control divisions of government offices, universities, and companies in the chemical, petrochemical, pharmaceutical, food, machinery, automotive, and energy industries. It also provides technical support. To respond to the diverse needs of customers, sales engineers and application specialists with specialized knowledge are available to provide consultation on basic handling methods and detailed instruction on analytical and testing instruments.

The business unit handles a wide range of scientific instruments such as tribology-related equipment (testing instruments and analyzers for maintenance), weathering testers, surface measuring instruments, luminescence analyzers, wavelength-scanned cavity ring-down spectroscopy (WS-CRDS) analyzers (to measure gas concentration and isotope ratio), bioprocessing sensors, sun protection factor (SPF) analyzers, infrared- and Raman-related analytical instruments, and vacuum-related instruments.

Sanyo Technos was established to undertake maintenance services, equipment modifications, and manufacturing of custom-spec equipment, centering on equipment handled by the Scientific Instruments Business Unit. It has a support system that enables it to respond quickly and flexibly to the diverse needs of its customers.

Features

Rather than in specific fields, has customers in a wide range of fields, from government agencies to private companies ▷ Imports top-notch products from numerous overseas manufacturers with advanced technology, and sells them in Japan ▷ Has a subsidiary specializing in maintenance services (Sanyo Technos) ▷ Adept at developing its own brand products and customizing imported equipment ▷

Main trading products, customer industries, applications, and focus areas

Main customer Main trading products Areas of focus Focus areas industries National laboratories, the Scientific Inspection and testing equipment (friction testers, Ministry of Defense, Instruments metal analyzers, gas analyzers, weathering testers, academia, R&D, quality control, recognition, crisis Business Unit Bioreactors, medical devices bioprocessing sensors, surface property testers), petroleum, management and medical equipment chemical, automotive, pharmaceutical Source: Shared Research based on company data

Main suppliers, product lines, and features

Main suppliers Main product lines Falex Friction testers Lubricating oil degradation SPECTRO diagnostic equipment Scientific Non-destructive oxygen Instruments PreSens concentration meters Business Unit Q-Lab Weathering testers Greenhouse gas and isotope Picarro analyzers ASI Secondary ion mass spectrometer Source: Shared Research based on company data

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Subsidiaries in charge

Nihon Rufuto: Development, manufacture, and sales of medical equipment such as oxygen concentrators; import and sales of ▷ medical equipment and laboratory equipment; has expertise to manufacture its own products (carries out OEM production, assembly, installation, repair, and maintenance as well as research and development of medical equipment)

Sanyo Technos: Maintenance service, equipment modification, manufacture and assembly of custom-spec equipment such as ▷ tubes and tube roller pumps made by Furue Science; has expertise to manufacture its own products

Shin-Toyo Kikai Kogyo: Manufacture, sales, and maintenance of various industrial pumps such as corrosion-resistant lining ▷ pumps; has expertise to manufacture its own products

The facilities of Sanyo Technos and Shin-Toyo Kikai Kogyo were integrated into the Sanyo Technical Center (four-storied facility in Kawaguchi, Saitama Prefecture), which was completed in May 2021. The center aims to improve the efficiency of the manufacturing and assembly process by consolidating the company’s manufacturing expertise and utilizing new equipment.

Overseas Subsidiaries segment Overview: Sales to external customers of JPY18.2bn (24.0% of total) and OPM of 4.2% (in FY09/20) In January 1954, seven years after its founding in May 1947, the company opened a New York representative office. The office was later reorganized into Sanyo Corporation of America in February 1961. Since then, the company has continued to pursue globalization with a focus on North America and Asia. It opened representative offices in Ho Chi Minh City in October 1992, Bangkok in June 2003, and New Delhi in October 2010. It also established a joint venture in Shanghai in October 2004 and local subsidiaries in Hong Kong in February 2012, Mexico in June 2013, and Indonesia in August 2014. The company acquired a local company in Singapore and made it a subsidiary in July 2015, and opened a representative office in Germany in March 2017.

Under its new five-year management plan VISION 2023 (announced on November 6, 2018), the company aims to accelerate global expansion and achieve a sales CAGR of 10% at overseas subsidiaries. The company’s Overseas Subsidiaries segment’s sales to external customers have in fact surged 40.4% YoY in FY09/17 and 29.9% YoY in FY09/18. Sales to external customers fell 3.4% YoY in FY09/19 as a result of a temporary fallback in sales in China and the impact of the US–China trade conflict. Sales to external customers fell 3.8% YoY in FY09/20, affected by a significant drop in automobile production amid the COVID-19 pandemic.

Overseas Subsidiaries segment: Sales and operating profit

Overseas Subsidiaries (JPYmn) FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 Sales 10,869 9,124 10,474 13,820 13,648 11,891 16,384 21,111 20,522 19,822 YoY 23.4% -16.1% 14.8% 31.9% -1.2% -12.9% 37.8% 28.9% -2.8% -3.4% % of total sales 21.0% 17.9% 19.3% 22.0% 21.0% 18.7% 22.8% 25.3% 23.4% 24.7% Sales to external customers 9,880 8,209 9,384 12,602 12,354 10,751 15,094 19,611 18,950 18,228 YoY 22.3% -16.9% 14.3% 34.3% -2.0% -13.0% 40.4% 29.9% -3.4% -3.8% % of total sales (external) 20.2% 17.1% 18.4% 21.5% 20.4% 18.0% 22.3% 25.0% 22.8% 24.0% Operating profit 393 226 357 358 503 367 727 880 880 840 YoY -3.7% -42.5% 57.7% 0.3% 40.5% -27.0% 98.2% 21.0% 0.1% -4.7% Operating profit margin 3.6% 2.5% 3.4% 2.6% 3.7% 3.1% 4.4% 4.2% 4.3% 4.2% % of total OP 14.7% 8.3% 11.9% 10.0% 11.5% 8.1% 13.1% 14.7% 13.5% 15.0% Source: Shared Research based on company data

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Overseas Subsidiaries segment: Main trading products, regions of operation, and subsidiaries

Industrial Rubber Chemical products Sanyo Corporation of America (US) North America Sun Phoenix Mexico S.A. de C.V. (Mexico)

Sanyo Trading (Shanghai) Co., Ltd. (China)

Sanyo Trading Asia Co., Ltd. (Thailand) Asia Sanyo Trading (Viet Nam) Co., Ltd. (Vietnam)

P.T. Sanyo Trading Indonesia (Indonesia)

Source: Shared Research based on company data

Main trading products

Rubber (rubber raw materials for automobiles, rubber auxiliary materials) ▷ Chemical (chemicals, high-performance films, superabsorbent polymers [for disposable diapers]) ▷ Industrial products (automotive interior parts) ▷

Regions of operation

North America (US, Mexico) ▷ Asia (China, Thailand, Vietnam, Indonesia, India, and other countries) ▷

Main subsidiaries Sanyo Trading (Shanghai) Co., Ltd. (China)

Main business: Import, export, and sales of automotive interior parts and chemicals ▷ Focus areas: Lithium battery materials, industrial adhesives ▷ Sanyo Trading (Shanghai)’s sales account for roughly 10% of the company’s total sales. In FY09/18, the subsidiary had sales of JPY9.7bn (12.4% of total sales) and a recurring profit margin of 3.6%.

Sanyo Trading Asia Co., Ltd. (Thailand)

Main business: Import, export, and sales of rubber raw materials for automobiles, automotive interior parts, and chemicals ▷ Focus areas: High-performance additives for electronic materials, collaboration with multiple Asian subsidiaries ▷

Sanyo Corporation of America (US)

Main business: Import, export, and local sales of high-performance films, superabsorbent polymers, automotive interior parts, ▷ and rubber auxiliary materials

Focus areas: High-value-added films, collaboration with local subsidiary in Mexico ▷ Sanyo Corporation of America (SCOA)’s sales account for over 10% of the company’s total sales. In FY09/20, the subsidiary produced sales of JPY9.4bn (12.3% of total sales) and a recurring profit margin of 1.6%. Since SCOA handles superabsorbent polymers (for disposable diapers), which is the company’s only low-margin, high-selling bulk product, it has a persistently low recurring profit margin. SCOA is highly independent and requires no parent company guarantee on its transactions (other overseas subsidiaries do require parent company guarantee).

Sanyo Trading (Viet Nam) Co., Ltd. (Vietnam) PT. Sanyo Trading Indonesia (Indonesia)

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Other segment Overview: Sales to external customers of JPY115mn (0.2% of total) and OPM of 48.2% (in FY09/20) In this segment, the company leases a portion of its head office building.

Sales by product and service, region, and major customers Sales by product and service (share of sales within the segment) and profit margin ranking by business unit By product and service, rubber products accounted for 21.3% of total sales (in FY09/20), chemical products 32.9%, machinery and environment-related products 8.0%, industrial products 34.7%, and other products (scientific instruments and real estate leasing) 3.2%. In FY09/20, sales of chemical products grew thanks to the contribution of higher sales of superabsorbent polymers to North America and the consolidation of YPTECH. Meanwhile, owing to poor performance in rubber products, the sales weighing of rubber and chemical products changed from 50:50 to 40:60. The company says that, going forward, the ratio will return to 50:50 in the Chemicals segment, reflecting strong sales of rubber and chemical products. In the Machinery & Industrial Products segment in FY09/20, the sales share of industrial products rose slightly because the company did not record sales associated with biomass equipment and there were no large-scale projects involving offshore drilling at Cosmos Shoji (both categorized under machinery and environment-related products). (Within the Machinery & Industrial Products segment, the sales share is typically 70% for industrial products, 20% for machinery and environment-related products, and 10% for scientific instruments.)

The order of individual business units by profit margin (in descending order) is Scientific Instruments, Machinery & Environmental, Industrial Products, Rubber, and Chemical. Since products handled by the Scientific Instruments Business Unit entails repair and maintenance, and products handled by the Machinery & Environmental Business Unit includes consumables, their profit margins are higher than those of other business units that mainly purchase and sell products.

Sales by region By region, sales in Japan accounted for 65.5% of total (in FY09/20) and overseas 34.5% the US accounted for 11.5%, China — 10.4%, and other regions 12.6%. Other regions include Mexico, Thailand, Vietnam, Indonesia, and India. Overseas sales are mainly to local subsidiaries of Japanese companies. The company says it has launched business for Maruti Suzuki in India, where the population continues to grow.

Sales by major customers Sales weighing (in descending order) by customer industry is automotive (roughly 40% of total sales), non-automotive chemicals, office automation and home electronics, paint and ink, livestock feed, biomass, plastics, and others. The company sells to almost all Japanese automakers, with top-ranking customers including Toyota group companies such as Toyota Boshoku (TSE1: 3116) and Toyota Motor, as well as Mazda group companies such as Delta Kogyo, Toyo Seat, and Mazda (source: financial results briefing materials for FY09/18; non-consolidated basis). Other customers in top 10 were NHK Spring (TSE1: 5991), Gentherm, KYB, and Sumitomo Riko (TSE1: 5191). Gentherm is a supplier of seat heaters for automobiles, but the company also procures nichrome wire rods used for seat heaters from Japanese companies and sells them to Gentherm.

Group companies

The Sanyo Trading group consists of the company, 13 consolidated subsidiaries, and six non-consolidated subsidiaries. Although the company is an import-focused trading company, it is committed to after-sales care for its domestic customers. The company has established Sanyo Machinery (assembly of pellet feed production machines and biomass-related equipment, and manufacture and sales of parts) and Sanyo Technos (maintenance service, equipment modification, manufacture and assembly of custom-spec equipment) to manufacture, assemble, repair, and maintain the products its handles. Four subsidiaries have the expertise to manufacture products: Sanyo Machinery, Nihon Rufuto, Sanyo Technos (non-consolidated), and Shin-Toyo Kikai Kogyo (non-consolidated).

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Stake Consolidated subsidiary Location Main businesses Relationship (%)

Isehara, Kanagawa Assembly of pellet feed production machines and biomass- Consignment of technical services for machines; Sanyo Machinery Co., Ltd. 100.0 Prefecture related equipment; manufacture and sales of parts purchase of products; lease of equipment Import and sales of natural resource and energy development Sales of the company's products; lease of Cosmos Shoji Co., Ltd. Chiyoda-ku, Tokyo 100.0 equipment equipment; management of funds Export and sales of intermediates (for pharmaceuticals and Sales of the company's products and delivery of Chem-Inter Corporation Chiyoda-ku, Tokyo 76.8 dyes) and electronic equipment products to the company; management of funds Development, manufacture, and sales of medical equipment; Consignment of sales of the company's products; Nihon Rufuto Co., Ltd. Chiyoda-ku, Tokyo import and sales of medical equipment and laboratory 100.0 lease of equipment; lending of funds equipment Sales of the company's products and delivery of Sanyo Life Material Co., Ltd. Chiyoda-ku, Tokyo Import and sales of pharmaceuticals and chemicals 100.0 products to the company Midori-ku, Yokohama, Import and sales of auxiliary materials for precision casting and Freeman (Japan) Co., Ltd. 100.0 Delivery of products to the company Kanagawa Prefecture mold materials YPTECH Co., Ltd. Chiyoda-ku, Tokyo Import and sales of functional raw materials for livestock feed 100.0 Sales of the company's products; lending of funds Import, export, and local sales of high-performance films, Sales of the company's products in the US and absorbent polymers, automotive interior parts, and rubber Sanyo Corporation of America New York, USA 100.0 delivery of US products to the company; debt auxiliary materials; focus on high-value-added films and guarantee; lending of funds collaboration with subsidiary in Mexico Import, export, and sales of automobile-related products, 100 Sales of the company's products in Mexico; debt Sun Phoenix Mexico, S.A. de C.V. Irapuato, Mexico parts, and equipment and synthetic rubber （5.0） guarantee Import, export, and sales of automotive interior parts and Sales of the company's products in China and Sanyo Trading (Shanghai) Co., Ltd. Shanghai, China chemical products; focus on lithium battery materials and 100.0 delivery of Chinese products to the company industrial adhesives Import, export, and sales of rubber raw materials for Sales of the company's products in Thailand and automobiles, automotive interior parts, and chemicals; focus 100 Sanyo Trading Asia Co., Ltd. Bangkok, Thailand delivery of Thai products to the company; debt on high-performance additives for electronic materials and （0.1） guarantees collaboration with multiple Asian subsidiaries Sales of the company's products in Vietnam and Import, export, and sales of rubber products, chemical Sanyo Trading (Viet Nam) Co., Ltd. Ho Chi Minh City, Vietnam 100.0 delivery of Vietnamese products to the company; products, and auto parts lending of funds Import, export, and sales of rubber products, chemical Sales of the company's products in Indonesia; debt PT. Sanyo Trading Indonesia Jakarta, Indonesia 100.0 products, and auto parts guarantees Source: Shared Research based on company data

Subsidiary (over 10% of cons. sales) FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 Sanyo Corporation of America Sales 5,937 8,012 9,052 9,390 % of cons. sales 12.2% 11.8% 11.5% 12.3% Recurring profit 104 209 254 154 Recurring profit margin 1.8% 2.6% 2.8% 1.6% Net income 69 121 175 115 Net margin 1.2% 1.5% 1.9% 1.2% Net assets 359 819 1,284 1,333 Total assets 1,204 2,543 2,776 3,702 Sanyo Trading (Shanghai) Co., Ltd. Sales 9,719 % of cons. sales 12.4% Recurring profit 355 Recurring profit margin 3.6% Net income 259 Net margin 2.7% Net assets 1,335 Total assets 2,440 Chem-Inter Corporation Sales 4,879 % of cons. sales 10.1% Recurring profit 136 Recurring profit margin 2.8% Net income 74 Net margin 1.5% Net assets 692 Total assets 1,189 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. M&A After taking a stake in Cosmos Shoji in January 2004, the company has since strengthened and expanded its business through synergies generated by M&A and globalization. In particular, since 2015, the company has been conducting M&A almost every year. Under the company’s basic M&A policy, a company qualifies for M&A if it meets any one of the following three conditions (included in the five-year management plan VISION 2020 formulated in 2014): (1) generates synergistic effects, (2) facilitates overseas expansion, and (3) has growth potential. Further, the target company should be a non-keiretsu company (not

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belonging to a conglomerate) that is not in competition with the company’s suppliers or customers. Looking at the company’s M&A track record, the company has focused on companies that fall under the Chemical Business Unit, the Scientific Instruments Chemical Business Unit, or the Machinery & Environmental Business Unit, with only one acquisition (Freeman [Japan]) in the Industrial Products Business Unit. In the Scientific Instruments Business Unit, the company previously acquired Aloman (wholesale of ICs, semiconductor electronic components, and electronics-related products; mainly handling used products for disasters), but sold it a few years later because it turned out to be not a good fit with the company’s business format. In the Scientific Instruments Business Unit, the company mainly targets companies handling medical devices. In the Chemical Business Unit, the company’s M&A activity covers companies in a wide range of industries from fine chemicals to pharmaceuticals and food products. In the Machinery & Environmental Business Unit, natural resource exploration, geothermal and other renewable energy-related equipment, and functional raw materials for livestock feed are the target fields.

While making acquired companies consolidated subsidiaries, the company conducts flexible reorganization as well, including mergers between subsidiaries (Azzurro and NKS Corporation merged and adopted the new name Sanyo Life Material) and absorption into Sanyo Trading itself (it absorbed Sort and Global Trading).

According to the company, its M&A budget to date has been less than JPY2.0bn per case, but considering the company’s financial strength and financing ability, acquisition of about JPY10.0bn should be possible. Based on goodwill amortization figures, it appears that the company has acquired companies at relatively low valuations. Most of the companies that Sanyo Trading has acquired are as profitable or more profitable than the company, and even after acquisition, they continue to contribute to the company’s business performance without downsizing.

Timeline of key M&A cases, joint ventures, subsidiaries, mergers, and tie-ups

A cquisitions, joint ventures, subsidiaries, Date Business domain Segment (business unit) mergers, alliances Import and sales of natural resource and energy development Machinery & Industrial Products January 2004 Acquires Cosmos Shoji Co., Ltd. equipment (Machinery & Environmental) Establishes joint venture Sanyo-Touchi (Shanghai) October 2004 Import and export of rubber materials; rubber compound business Chemicals (Rubber) Rubber Co., Ltd. Manufacture, sales, repair and maintenance of laboratory equipment Machinery & Industrial Products April 2006 Establishes Sanyo Technos Co., Ltd. and instruments (Scientific Instruments) Export and sales of intermediates (for pharmaceuticals and dyes) and October 2006 Acquires Chem-Inter Corporation Chemicals (Chemical) electronic equipment Wholesale of ICs, semiconductor electronic components, and Machinery & Industrial Products February 2015 Sells Aloman Co., Ltd. to Takumi Shoji Co., Ltd. electronics-related products (Scientific Instruments) June 2015 Establishes Singapore Sanyo Trading Pte. Ltd. Forays into special films field Overseas Subsidiaries September 2015 Chem-Inter acquires Comstar Japan Import and sales of indust rial cleaning agent s Chemicals (Chemical) February 2016 Acquires Sort Co., Ltd. Import and sales of UV inks and photopolymers Chemicals (Chemical) Development, manufacture, and sales of medical equipment; import Machinery & Industrial Products July 2016 Acquires Nihon Rufuto Co., Ltd. and sales of medical and laboratory equipment (Scientific Instruments) Machinery & Industrial Products February 2017 Sanyo Technos acquires Furue Science Co., Ltd. Manufacture and sales of laboratory equipment (Scientific Instruments) Import and sales of auxiliary materials for precision casting and mold Machinery & Industrial Products July 2017 Acquires Freeman (Japan) Co., Ltd. materials (Industrial Products) October 2017 Acquires Azzurro Co., Ltd. Sales of imported chemicals centered on pharmaceutical raw materials Chemicals (Chemical) April 2018 Merges and absorbs Sort Import and sales of UV inks and photopolymers Chemicals (Chemical) Machinery & Industrial Products August 2018 Establishes joint venture Fuji Oyama Power Energy Management and operation of wood biomass power plant (Machinery & Environmental) Machinery & Industrial Products May 2019 Acquires Shin-Toyo Kikai Kogyo Co., Ltd. Manufacture, sales, and maintenance of various industrial pump units (Scientific Instruments) Machinery & Industrial Products October 2019 Acquires YPTECH Co., Ltd. Import and sales of functional raw materials for livestock feed (Machinery & Environmental) Sales of imported chemicals centered on food additives and industrial March 2020 Acquires NKS Corporation Chemicals (Chemical) chemicals Merges Azzurro and NKS Corporation into a new June 2020 Import and sales of pharmaceuticals and chemicals Chemicals (Chemical) company, Sanyo Life Material Co., Ltd. Export and sales of chemical products centered on health food raw November 2020 Acquires Global Trading Co., Ltd. Chemicals (Chemical) materials and cosmetic raw materials Machinery & Industrial Products December 2020 Sanyo Technos acquires Test Materials Co., Ltd. Sales of pure metals, alloys, and non-metals for research (Scientific Instruments) Export and sales of chemical products centered on health food raw April 2021 Merges and absorbs Global Trading Chemicals (Chemical) materials and cosmetic raw materials April 2021 Sells Sanyo-Touchi (Shanghai) Rubber Import and export of rubber materials; rubber compound business Chemicals (Rubber) Source: Shared Research based on company data

FY09/09 FY09/10 FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Amortization of goodwill 115 144 142 105 80 4 5 75 149 163 163 320 Source: Shared Research based on company data

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Sales (and profits) and assets of acquired companies (three years preceding M&A, JPYmn)

Test Materials FY09/18 FY09/19 FY09/20 Dec. 2020 Sales 90 78 81 Acquired by a Net asset 12 13 16 subsidiary Total assets 27 31 32 Global Trading FY06/18 FY06/19 FY06/20 Nov. 2020 Sales 796 658 426

Operating profit - - 18 Merged after Recurring profit - - 33 acquisition (A pr. Net asset 131 86 120 2021) Total assets 336 238 225 NKS Corporation FY03/17 FY03/18 FY03/19 Mar. 2020

Sales 389 498 518 Merged with a Net asset 32 35 41 subsidiary after Total assets 152 227 245 acquisition YPTECH FY03/17 FY03/18 FY03/19 Oct. 2019 Sales 2,270 2,519 2,796 Net asset 170 259 415 A cquired Total assets 779 944 1,089 Shin-Toyo Kikai Kogyo FY12/16 FY12/17 FY12/18 May 2019 Sales 270 313 412 Net asset 20 29 72 A cquired Total assets 288 327 371 Azzurro FY08/15 FY08/16 FY08/17 Oct. 2017 Sales 664 583 522 Merged with a subsidiary after Net asset 87 78 69 acquisition (Jun. Total assets 165 162 209 2020) Sort FY03/15 FY03/16 FY03/17 Feb. 2016 Sales 1,736 - 1,703

Operating profit - - 234 Merged after Recurring profit - - 225 acquisition (A pr. Net asset 306 - 303 2018) Total assets 749 - 845 Freeman (Japan) FY02/15 FY02/16 FY02/17 Jul. 2017 Sales 634 617 600 Net asset 662 672 697 A cquired Total assets 695 705 740 Nihon Rufuto FY08/13 FY08/14 FY08/15 Jul. 2016 Sales 637 664 620 Net asset 282 335 353 A cquired Total assets 493 546 528 A loman FY09/12 FY09/13 FY09/14 Feb. 2015 Sales 1,210 615 569 Operating profit 30 -5 -14 A cquired but sold Recurring profit 33 2 -9 later Net asset 395 373 357 Total assets 486 410 394 Source: Shared Research based on company press releases

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Profitability analysis

Profit margins FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Gross profit 7,319 7,460 7,672 8,659 9,451 10,017 12,264 13,411 14,884 14,206 Gross profit margin 15.0% 15.5% 15.0% 14.8% 15.6% 16.7% 18.1% 17.1% 17.9% 18.7% Operating profit 2,182 2,249 2,441 3,179 3,606 4,053 4,938 5,263 5,872 4,792 Operating profit margin 4.5% 4.7% 4.8% 5.4% 5.9% 6.8% 7.3% 6.7% 7.1% 6.3% EBITDA 2,412 2,470 2,605 3,348 3,780 4,238 5,140 5,455 6,224 5,175 EBITDA margin 4.9% 5.1% 5.1% 5.7% 6.2% 7.1% 7.6% 7.0% 7.5% 6.8% Net margin 2.1% 2.4% 2.9% 3.4% 4.6% 4.6% 4.9% 4.6% 4.8% 4.0% Financial ratios ROA (RP-based) 10.3% 10.4% 11.5% 12.7% 13.6% 13.6% 14.8% 13.8% 14.2% 11.6% ROE 9.7% 10.0% 11.0% 12.7% 15.9% 14.1% 15.2% 14.5% 14.5% 10.1% Total asset turnover 2.19 2.11 2.11 2.12 2.01 1.91 1.90 1.95 1.95 1.67 Working capital 8,776 10,168 10,457 12,296 13,429 14,373 19,186 21,297 21,951 20,300 Current ratio 189.3% 187.1% 230.5% 207.2% 257.4% 254.0% 243.9% 248.8% 275.0% 265.8% Quick ratio 141.7% 134.8% 159.7% 146.9% 169.8% 169.4% 152.9% 149.9% 166.3% 171.6% OCF / Current liabilities 0.16 0.01 0.13 0.20 0.08 0.30 0.02 0.12 0.38 0.43 OCF / Total liabilities 0.13 0.01 0.12 0.16 0.08 0.26 0.01 0.11 0.35 0.38 Cash conversion cycle (days) 26.1 30.2 30.3 26.6 27.3 29.9 32.3 34.8 33.2 32.6 Change in working capital 295 1,393 289 1,839 1,133 944 4,813 2,110 655 -1,651

FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 Accounts receivable turnover (times) 4.6 4.3 4.3 4.5 4.5 4.5 4.4 4.5 4.7 4.7 Days in accounts receivable 79.5 85.2 84.4 80.4 81.0 81.3 82.2 81.2 77.8 78.2 FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 Inventory turnover 10.2 9.3 8.8 8.6 7.4 6.6 6.1 5.9 5.6 4.9 Days in inventory (times) 35.8 39.3 41.5 42.6 49.4 55.5 59.9 62.0 65.3 74.0 FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 Accounts payable turnover (times) 6.8 6.6 6.7 6.8 6.8 7.1 7.3 7.9 8.2 8.0 Days in accounts payable 53.4 55.1 54.2 53.8 53.7 51.4 49.9 46.4 44.6 45.6 FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 Tangible fixed asset turnover (times) 22.6 23.6 24.5 27.8 29.6 30.2 33.9 37.8 38.4 31.2 Days in tangible fixed assets 16.1 15.4 14.9 13.1 12.4 12.1 10.8 9.7 9.5 11.7 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

The company’s OPM improved by 1.8pp in nine years from 4.5% (FY09/11) to 6.3% (FY09/20). This mainly reflected the improvement in GPM (up 3.7pp from 15.0% to 18.7% during the same period). ROE improved from 9.7% (FY09/11) to around 15% between FY09/15 and FY09/19 (it was 10.1% in FY09/20 when profit declined in the wake of the COVID-19 pandemic).

Since the company is an import-focused trading company, if its business is strong, accounts receivable and inventories tend to expand, which makes it difficult for operating cash flow to remain stable, in Shared Research’s view. Accounts receivable turnover tends to be shorter in the long run, but the cash cycle tends to be slightly longer due to longer inventory turnover and shorter accounts payable turnover. Shared Research infers that longer inventory turnover reflects growth in inventories that build up in anticipation of product sales to customers, as the company functions as an inventory buffer for its customers.

According to the company, inventories and borrowings tend to increase (its balance sheet swells) when business performance (its income statement) is strong, and inventories and borrowings tend to decrease (its balance sheet slims down) when business performance (its income statement) is weak. The company’s policy is to pay cash to suppliers at the end of the month and use its trading company financial functions when collecting receivables from customers. The company attaches great importance to long-term and continuous transactions with suppliers and customers, and customers also appreciate the role that the company bears in foreign exchange risk, raw material price fluctuation risk, and inventory risk, and conduct business at a fair price. The company says that, basically, it handles many products that have no substitutes, meaning margins are relatively fixed. Suppliers and customers are aware of this, so prices are decided based on the fiduciary relationships between the two parties. The company has ample cash and deposits and does hardly any transactions by letter of credit.

Since the company has a relatively long lead time for imported products (lead times for made-to-order products are several months), inventories tend to swell when sales are strong. When sales are sluggish, inventories decrease, and collection on previous sales to customers up till then progresses, and this leaves the company with ample cash.

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Market and value chain Trends in related industries Vehicle production output Japanese automakers’ overseas vehicle production output exceeded domestic production volumes for the first time in 2007. Since 2015, the ratio of overseas to domestic vehicle production has been roughly 2:1. Sanyo Trading has also expanded its business by adapting to the globalization of Japanese automakers by strengthening its overseas bases in earnest starting in 2010 (it continuously achieved record-high profits from FY09/10 to FY09/19). Japanese automakers, which had to cut production significantly in the wake of the COVID-19 pandemic, have been recovering rapidly since the October–December 2020 quarter. The company does not expect the impact of electrification of automobiles in the move toward carbon neutrality will affect its business performance. This is because, in contrast to the decrease in demand for internal combustion engine-specific components such as fuel hoses, the company anticipates growing demand for interior and other components that cater to passenger comfort in vehicles.

Japanese automakers’ annual vehicle production output and the company’s Japanese automakers’ annual vehicle production output (Japan and overseas) sales and recurring profit

(units) Sales Recurring profit Car production (total) (JPYmn) (units) Production (Japan) Production (overseas)

35,000,000 90,000 35,000,000

80,000 30,000,000 30,000,000

70,000 25,000,000 25,000,000 60,000

20,000,000 20,000,000 50,000

15,000,000 40,000 15,000,000

30,000 10,000,000 10,000,000 20,000 5,000,000 5,000,000 10,000 0 0 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Shared Research based on Japan Automobile Manufacturers Association Source: Shared Research based on Japan Automobile Manufacturers Association data data Domestic naphtha prices The price of chemical products is based on the price of naphtha (crude gasoline; chemical compound that comes out first when crude oil is distilled and separated by an atmospheric distillation apparatus; boiling point of 30–180°C), which is a crude raw material. It is determined by adding production costs, additive costs, and margins to the price of naphtha, and by taking into account supply and demand. The difference between the price of naphtha and product (resin) prices is called spread. Spreads fluctuate depending on supply and demand, but in many cases, the previous spread is added to the new naphtha price to close contracts. About 60% of naphtha in Japan is imported from overseas. The price of imported naphtha is linked to crude oil market conditions. Therefore, the profit of a trading company increases when the price of naphtha rises and decreases when the price of naphtha falls (although there is actually a time lag).

Industrial production index and sales in the chemical wholesale business While Japan’s industrial production index has been flat since 2010, sales in the chemical wholesale business have been trending downward. This could conceivably be due to the fall in naphtha prices, but Shared Research infers the main reason is that companies that procure intermediate chemicals have been moving overseas. When measured by size (100 or more employees versus up to 100 employees), the ratio of larger wholesalers is increasing. Shared Research believes that, as automotive, electronic appliance, and precision machinery companies move their production overseas, customers are selecting trading companies based on their ability to arrange international logistics as well as their sensitivity to information.

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Quarterly trends in domestic naphtha prices and the company’s sales Annual trends in chemical wholesale sales in Japan and industrial production index

(JPY/kl) Sanyo Trading quarterly sales Domestic naphtha price (JPYmn)

(JPYbn) 60,000 25,000 Small and medium wholesalers Large wholesalers Industrial production index (right axis) 30,000 140.0 50,000 20,000

25,000 120.0 40,000 15,000 100.0 20,000 30,000 80.0 10,000 15,000 20,000 60.0 10,000 5,000 40.0 10,000 5,000 20.0

0 0 2017 2018 2019 2020 2021 0 0.0 Jan– Apr– Jul– Oct– Jan– Apr– Jul– Oct– Jan– Apr– Jul– Oct– Jan– Apr– Jul– Oct– Jan– Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Source: Shared Research based on Ministry of Finance trade statistics Source: Shared Research based on Indices of Industrial Production and Yearbook of the Current Survey of Commerce by the Ministry of Economy, Trade and Industry

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Competitors The company’s OPM far outpaces its competitors Sanyo Trading is a trading company with combined specialization in chemicals and machinery. It exports, imports, and sells rubber, chemicals, machinery and equipment, auto parts, scientific instruments, and various other products. It does more importing than exporting, and its customers are mainly Japanese companies. To prevent supplier conflicts, as a general rule, the company purchases each individual product line from a different manufacturer (the “one item, one supplier” rule). It also narrows down the number of items it handles to primarily high-performance and custom-spec items (it normally handles a few thousand out of the nearly 20,000 total items on the market). As a result, the company has attained niche top status (such as its over 80% market share in feed pellet mills), and has built the kind of fiduciary relationships with its suppliers to sustain long-term business relationships of 30 to 40 years (and 70 years in the longest-lasting case). Competitors in the company’s rubber business are Japanese synthetic rubber manufacturers such as JSR (TSE1: 4185) and Zeon (TSE1: 4205). In 1952, the company became Japan’s first importer of synthetic rubber as the sole distributor for Canada’s Polysar (currently Arlanxeo), and it continues to do business with Arlanxeo today.

Rather than low-priced bulk merchandise, the company specializes in high-value-added fine chemicals such as plasticizers. It also handles machinery and environment-related products and scientific instruments that require consumables, repair, and maintenance. The company’s FY09/20 OPM of 6.3% was substantially higher than the most recent fiscal year figures of 1–3.5% for the nine major chemicals trading companies and 2–4% for the five major machinery trading companies.

Top 10 chemicals trading companies

Company Ticker Sales OP OPM Description Leading trading company specializing in chemicals such as dyes and synthetic resins. Also handles pharmaceutical intermediates. Acquired Hayashibara, a bankrupt biotech company. 1 Nagase & Co. 8012 799,559 19,167 2.4% Sales composition: Functional Materials 21, Advanced Materials & Processing 34, Electronics 15, Mobility & Energy 15, Life & Healthcare 15, other 1 Trading company specializing in chemicals. Sumitomo Chemical affiliate, but also traits of Inabata 2 Inabata & Co. 8098 600,312 13,229 2.2% owner as well. IT & Electronics and Plastics are main business lines. Broad expansion in Asia. Sales composition: IT & Electronics 36, Chemicals 12, Life Industry 6, Plastics 45, other 0 Medium-sized trading company mainly dealing in chemicals and resins. High market share in carbon products and flame retardant aids. Also has strengths in selling lubricating oil in China. 3 Meiwa 8103 137,036 1,483 1.1% Sales composition: battery materials 20, petroleum products 28, chemicals and construction materials 50, automotive parts-related 2, other 0 Core trading company of the Showa Denko group. Business lines include chemicals, synthetic resins, 4 Shoko 8090 100,726 1,297 1.3% metals, electronic materials, and semiconductor manufacturing equipment. Sales composition: chemicals 30, plastics 29, metals 35, other 7 Trading company specializing in chemicals for soda products. The largest provider of caustic soda in 5 Soda Nikka 8158 99,749 1,030 1.0% Japan. Focus on functional materials, environmental businesses, and Asia. Sales composition: chemicals 75, functional materials 23, other 2 Trading company specializing in light packaging materials for food. Over 50% of business from the food processing industry. Operates mainly in the Tohoku and greater Tokyo regions and also pursues 6 Kohsoku 7504 88,588 3,137 3.5% corporate acquisitions. Sales composition: food containers 36, film, laminating film 20, paper products and labels 14, machinery and equipment materials and consumables 19, corrugated cardboard 6, other 5 Sumitomo Electric Industries affiliated trading company specializing in metal and chemical products. Leader in screw sales in Japan. Makes use of subcontractor factories to pursue high-value-added 7 Techno Associe 8249 78,954 2,219 2.8% products. Sales composition: electronics 30, automotive 36, regional sales 35 General trading company based in the Hokuriku region. Business lines include chemicals, information systems, housing equipment, and petroleum. Also manufactures active pharmaceutical ingredients 8 Mitani Sangyo 8252 77,595 2,534 3.3% (APIs). Sales composition: chemicals 42, air conditioner installation 14, information systems 10, resins and electronics 10, energy 8, housing equipment 16, other 2 Trading company mainly dealing in rubber and chemicals. Has expertise to manufacture products as well, with 40% of the sales staff from technological background. Main line of 9 Sanyo Trading 3176 76,087 4,792 6.3% business is in automotive. Fortifying business overseas. Sales composition: Chemicals 40, Machinery & Industrial Products 36, Overseas Subsidiaries 24, Other 0 Sojitz affiliated trading company specializing in synthetic resin raw materials. Sells to end-product 10 Pla Matels 2714 59,246 1,132 1.9% manufacturers and plastic product molders. Sales offices throughout Asia. Sales composition: raw plastic materials 85, plastics 12, other 3 Source: Shared Research based on company data Note: Fiscal years end in December for Shoko, September for Sanyo Trading, and March for all others. Note: Figures may differ from company materials due to differences in rounding methods.

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Top six machinery trading companies

Company Ticker Sales OP OPM Description In addition to industrial machinery, engages in various businesses, including steel trading, 1 Okaya & Co. 7485 760,443 13,584 1.8% semiconductors, non-ferrous metals, vital automobile components, interior and exterior materials, housing-related parts, and food products. Time-honored trading company founded in 1666. Expanding sales of machine tools to locally owned 2 Yuasa Trading 8074 491,348 11,871 2.4% businesses overseas. Active in a wide range of fields such as industrial equipment, air conditioning, and building materials. Has bases in the Americas, Europe, China, Southeast Asia, and India, and is deploying a global strategy 3 Daiichi Jitsugyo 8059 161,476 6,998 4.3% with a global four-axis system. Business lines include plant equipment for markets in Japan and overseas, as well as domestic sales, import, and export of machinery and equipment. Has close relations with Mitsubishi Heavy Industries, and engages in sales, import, and export of 4 Seika 8061 140,677 2,809 2.0% various plants, machinery and equipment, environmental preservation equipment, and IT systems devices. Mainstay business consists of Mitsubishi Power products, but the company is focusing on renewable energy, and has a collaborative agreement with the Democratic Republic of Madagascar on ODA for an 5 Tokyo Sangyo 8070 98,604 2,696 2.7% infrastructure project, and has established of a new base in Malaysia to scout out biomass fuel suppliers. Trading company mainly dealing in rubber and chemicals. Has expertise to manufacture products as well, with 40% of the sales staff from technological background. Main line of 6 Sanyo Trading 3176 76,087 4,792 6.3% business is in automotive. Fortifying business overseas. Sales composition: Chemicals 40, Machinery & Industrial Products 36, Overseas Subsidiaries 24, Other 0 Source: Shared Research based on company data Note: Fiscal years end in February for Okaya & Co., September for Sanyo Trading, and March for all others. Note: Figures may differ from company materials due to differences in rounding methods.

Distribution of the top 10 chemicals trading companies by OPM and sales Distribution of the top six machinery trading companies by OPM and sales

7.0% 7.0%

Sanyo Trading Sanyo Trading 6.3% 6.0% 6.0% 6.3%

5.0% 5.0%

Daiichi Jitsugyo 4.3% 4.0% Kohsoku 4.0% 3.5%

Mitani Sangyo 3.0% 3.3% 3.0% Techno Associe Tokyo Sangyo 2.7% Yuasa Trading Pla Matels 2.8% Nagase & Co Okaya & Co. Operating profit marginprofit Operating

Operating profit marginprofit Operating Inabata & Co. 2.4% 1.9% 2.4% Seika 1.8% 2.0% 2.2% 2.0% Shoko 2.0% 1.3% Meiwa 1.0% 1.1% 1.0% Soda Nikka 1.0% 0.0% 0.0% 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 Sales (JPYmn) Sales (JPYmn) Source: Shared Research based on company data

Sanyo Trading Nagase Inabata 3176 8012 8098 FY09/18 FY09/19 FY09/20 FY03/18 FY03/19 FY03/20 FY03/18 FY03/19 FY03/20 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 78,450 83,230 76,087 783,933 807,755 799,559 621,137 634,740 600,312 Gross profit 13,411 14,884 14,206 102,675 105,441 104,901 44,854 47,257 46,259 SG&A expenses 8,147 9,012 9,415 78,557 80,215 85,734 38,892 33,226 33,030 Operating profit 5,263 5,872 4,792 24,118 25,226 19,167 5,962 14,031 13,229 Recurring profit 5,576 6,076 5,272 25,982 26,643 19,083 6,374 14,309 14,211 Net income 3,635 4,019 3,013 17,175 20,136 15,144 6,744 12,896 11,415 ROE 14.5% 14.5% 10.1% 5.8% 6.6% 4.9% 4.7% 8.5% 7.4% ROA (RP-based) 13.8% 14.2% 11.6% 4.7% 4.7% 3.2% 1.8% 4.0% 4.1% Gross profit margin 17.1% 17.9% 18.7% 13.1% 13.1% 13.1% 7.2% 7.4% 7.7% SG&A rat io 10.4% 10.8% 12.4% 10.0% 9.9% 10.7% 6.3% 5.2% 5.5% Operating profit margin 6.7% 7.1% 6.3% 3.1% 3.1% 2.4% 1.0% 2.2% 2.2% Total assets 41,607 43,731 47,231 569,456 567,346 611,477 352,741 366,514 322,848 Shareholders' equity 26,417 28,955 30,629 303,636 307,674 305,322 141,403 162,973 145,924 Equit y rat io 63.5% 66.2% 64.8% 53.3% 54.2% 49.9% 40.1% 44.5% 45.2% Operating CF 1,584 5,088 6,186 21,013 17,375 33,074 5,960 12,510 10,690 Investing CF -409 -1,057 -2,189 -14,442 -7,325 -49,208 5,086 743 -525 Financing CF -1,297 -1,958 1,834 -3,161 -8,909 24,334 -4,901 -19,546 -7,273 Cash and deposits 2,469 4,549 10,419 42,857 44,017 50,471 29,235 23,011 25,480 Interest-bearing debt 1,930 1,326 4,543 66,173 65,620 105,974 73,130 58,610 55,166 Net debt -539 -3,223 -5,876 23,316 21,603 55,503 43,895 35,599 29,686 Source: Shared Research based on company data Note: ROE, shareholders’ equity, and equity ratio are based on figures shown on the first page of each company’s financial report. Note: Figures may differ from company materials due to differences in rounding methods.

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Strengths and weaknesses Strengths Participation in projects from the early stages of customers’ development planning, and the skills to customize imports to Japanese specifications and solve technical problems on its own have supported high profitability The company’s FY09/20 OPM of 6.3% was substantially higher than the most recent fiscal year figures of 1–3.5% for the nine major chemicals trading companies and 2–4% for the five major machinery trading companies. Since its Scientific Instruments Business Unit entails repair and maintenance services and its Machinery & Environmental Business Unit has customization functions and deals in consumables, the two business units have higher profit margins than the other business units that depend on merchandise sales. In the Industrial Products Business Unit, the company takes part in the new vehicle development process right from the outset, making design suggestions, and participating in function development and upgrades. In the Chemicals segment (Rubber Business Unit and Chemical Business Unit), rather than low-priced bulk merchandise, the company specializes in high-value-added fine chemicals such as plasticizers. Not merely limited to wholesale of purchased products, the company excels in customizing imported products to Japanese specifications as well as troubleshooting technical issues on its own. In addition, four of the company’s subsidiaries have the expertise to manufacture products (assembly, production, repair, and maintenance) and are also conducting research and development on medical equipment. In Shared Research’s assessment, the strength of the company is that, through strategies focusing on value-added products and services, it is able to secure a relatively high profit margin as a trading company by making a clear distinction from other specialized trading companies that mainly sell wholesale products.

Reliable, long-term importation of high-performance products and custom-spec products that no other companies handle, and ability to maintain continuous business with domestic customers To prevent supplier conflicts, as a general rule, the company purchases each individual product line from a different manufacturer (the “one item, one supplier” rule). It also narrows down the number of items it handles to primarily high- performance and custom-spec items (it normally handles a few thousand out of the nearly 20,000 total items on the market). As a result, the company has attained niche top status (such as its over 80% market share in feed pellet mills), and has built the kind of fiduciary relationships with its suppliers to sustain long-term business relationships of 30 to 40 years (and 70 years in the longest- lasting case). In addition, Shared Research believes that the company’s technical support capabilities, maintenance and repair system, and function as an inventory buffer for its customers (the company bears foreign exchange and market fluctuation risks, and contributes to supply and price stability) have the advantage of building reliable relations with domestic customers and enabling continuous transactions.

Unconstrained by obligations to any specific keiretsu group, the company has a high degree of freedom in selecting suppliers and customers; in the automotive industry it does business with nearly all of the major Japanese automakers Since it is unconstrained by obligations to any specific keiretsu group (not belonging to a conglomerate), the company has a high degree of freedom in selecting suppliers and customers. Automotive customers, which account for more than half of the company’s sales, cover nearly all of the major Japanese manufacturers. Japanese automakers have auto parts manufacturers and trading companies among their keiretsu affiliates, and they typically depend on affiliated companies for parts procurement. Companies like Sanyo Trading are rare; it does business with any and all automotive manufacturers without being constrained by keiretsu ties. In addition, the company focuses on renewable energy (wood biomass and geothermal power generation) and life science (medical equipment and pharmaceuticals), and has customers in a wide range of fields from local public organizations to private companies.

Weaknesses

The company’s nature as an import-focused trading company limits its ability to serve customers seeking to source directly from local overseas suppliers as they move to offshore production Sanyo Trading is an import-focused trading company that mainly imports products for sale to corporate customers in the chemical, machinery, and industrial products fields. As more and more client companies relocate their domestic production bases overseas in the wake of globalization, client companies are more frequently choosing to procure products directly overseas.

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The company has responded to automakers by expanding its own overseas bases, but it is constrained in its response to customers in other industries. Constraints include securing human resources and bases that can handle trilateral transactions overseas, management ability when overseas companies come under the Sanyo Trading umbrella, and capability to function as an investment bank in a similar manner to general trading companies.

Typical “stovepipe” business organization hinders organic growth in existing domestic business fields Since the 2010s, the company has driven sales growth by switching to an aggressive M&A strategy. Put another way, Shared Research infers that business has been limited by the lack of growth in new lines of business from existing domestic fields, causing sluggish sales. The nature of that limitation is that due to the company’s vertically divided business unit configuration, human resource development and business development have gone no further than business unit boundaries, and synergistic effects between business units have not been fully demonstrated. In fact, it appears that managers and officers of the company are often promoted only within the same business unit. The company only recently (in October 2020) established its New Business Development Department, a trans-divisional organization under the direct control of the president that covers all business units. The New Business Development Department will be responsible for selecting and nurturing new projects, but its effectiveness remains to be seen.

Skewed personnel mix and delayed human resources cultivation due to previous headcount reductions and restraints on new graduate recruitment Around 2000, the company undertook a major business transformation and withdrew from or reduced its timber, tobacco, agriculture and fisheries, and agrochemical businesses. Its workforce, which exceeded 300 employees at the parent company around 1975, was reduced to less than half that number around 2010. At that time, the company also refrained from hiring new graduates, consequently skewing its personnel mix, with about 80% of employees in their 30s being mid-career hires (about 20% are employees who joined the company as new graduates). In line with the goal of its five-year management plan VISION 2023 to “invest in human resources to strengthen its corporate structure,” the company established a Human Resources Department in October 2020. In other words, Shared Research infers that the company’s human resource development has not kept pace with the increase in mid-career recruitment stemming from globalization and M&A since 2010. The company has also started work style reforms such as the shift to remote working in the wake of the COVID-19 outbreak. Annual salary averages JPY9,437,000 (for FY09/20, parent company), one of the highest among specialist trading companies. The company also has a generous employee shareholding program, but its compensation follows a one-size-fits-all formula, and it appears to lack the competitiveness and sense of purpose that would otherwise be engendered by performance-based compensation.

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Historical performance and financial statements Income statement Income statement FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 48,791 48,070 51,075 58,618 60,672 59,909 67,738 78,450 83,230 76,087 YoY 2.8% -1.5% 6.3% 14.8% 3.5% -1.3% 13.1% 15.8% 6.1% -8.6% Cost of sales 41,472 40,610 43,403 49,959 51,222 49,891 55,474 65,039 68,347 61,881 Cost ratio 85.0% 84.5% 85.0% 85.2% 84.4% 83.3% 81.9% 82.9% 82.1% 81.3% Gross profit 7,319 7,460 7,672 8,659 9,451 10,017 12,264 13,411 14,884 14,206 Gross profit margin 15.0% 15.5% 15.0% 14.8% 15.6% 16.7% 18.1% 17.1% 17.9% 18.7% SG&A expenses 5,137 5,211 5,231 5,481 5,844 5,965 7,326 8,147 9,012 9,415 SG&A ratio 10.5% 10.8% 10.2% 9.3% 9.6% 10.0% 10.8% 10.4% 10.8% 12.4% Operating profit 2,182 2,249 2,441 3,179 3,606 4,053 4,938 5,263 5,872 4,792 YoY 11.4% 3.1% 8.5% 30.2% 13.5% 12.4% 21.9% 6.6% 11.6% -18.4% Operating profit margin 4.5% 4.7% 4.8% 5.4% 5.9% 6.8% 7.3% 6.7% 7.1% 6.3% Non-operating income 208 203 413 419 576 278 391 382 269 542 Interest income 3 5 8 8 7 6 7 10 12 22 Dividend income 41 42 44 67 71 80 86 67 77 82 Foreign exchange gains 71 95 271 218 333 99 219 186 106 322 Other 93 62 91 126 164 93 78 118 75 115 Non-operating expenses 97 86 82 80 71 57 59 69 66 62 Interest expenses 56 39 17 50 38 15 16 36 23 20 Sales discounts 20 16 13 11 10 11 12 12 10 9 Other 21 31 52 20 24 31 30 21 33 33 Recurring profit 2,293 2,366 2,772 3,517 4,111 4,274 5,271 5,576 6,076 5,272 YoY 10.0% 3.2% 17.2% 26.9% 16.9% 4.0% 23.3% 5.8% 9.0% -13.2% Recurring profit margin 4.7% 4.9% 5.4% 6.0% 6.8% 7.1% 7.8% 7.1% 7.3% 6.9% Extraordinary gains 20 54 28 34 12 2 365 18 1 Gain on sale of securities 19 235 1 1 Compensation income 18 Other - 20 35 28 34 12 2 130 - - Extraordinary losses 219 145 95 65 133 34 25 171 31 383 Loss on valuation of securities 26 26 40 Impairment losses 179 25 128 Loss on v aluation of inv estments in capital of affiliates 75 35 107 255 Loss on disaster 10 31 Other 14 35 95 65 33 34 25 64 0 0 Income taxes 1,003 1,064 1,167 1,424 1,127 1,432 1,760 1,941 2,005 1,856 Implied tax rate 48.4% 47.5% 42.7% 40.9% 28.1% 33.7% 33.5% 33.6% 33.1% 38.0% Net income attributable to non-controlling interests 50 38 89 72 90 62 137 194 40 21 Net income attributable to owners of the parent 1,020 1,138 1,475 1,983 2,794 2,758 3,351 3,635 4,019 3,013 YoY 25.3% 11.5% 29.7% 34.4% 40.9% -1.3% 21.5% 8.5% 10.5% -25.0% Net margin 2.1% 2.4% 2.9% 3.4% 4.6% 4.6% 4.9% 4.6% 4.8% 4.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

SG&A expenses FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. SG&A expenses 5,137 5,211 5,231 5,481 5,844 5,965 7,326 8,147 9,012 9,415 SG&A ratio 10.5% 10.8% 10.2% 9.3% 9.6% 10.0% 10.8% 10.4% 10.8% 12.4% Freight 303 302 302 338 363 386 454 515 519 616 Warehousing expenses 331 369 394 442 520 540 597 639 726 851 Compensations, salaries, and allowances 2,040 2,134 2,205 2,292 2,368 2,414 2,886 3,138 3,330 3,609 % of sales 4.2% 4.4% 4.3% 3.9% 3.9% 4.0% 4.3% 4.0% 4.0% 4.7% % of SG&A expenses 39.7% 40.9% 42.1% 41.8% 40.5% 40.5% 39.4% 38.5% 37.0% 38.3% Retirement benefit expenses 72 77 91 146 103 121 96 100 123 129 Statutory welfare expenses 313 327 350 368 385 394 480 512 572 582 Entertainment expenses 124 138 151 190 201 212 246 299 351 213 Travel and transportation expenses 287 282 309 345 393 379 491 540 609 324 Rents 179 181 182 181 190 178 235 279 309 356 Depreciation 169 165 106 102 102 100 108 122 281 289 Amortization of goodwill 142 105 80 4 5 75 149 163 163 320 Other 1,177 1,131 1,061 1,073 1,214 1,166 1,584 1,839 2,029 2,125 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

(JPYmn) FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 Interest-bearing debt 2,572 2,522 832 1,459 1,100 861 1,667 1,930 1,326 4,543 Interest expenses 56 39 17 50 38 15 16 36 23 20 Interest rate on interest-bearing debt 1.8% 1.5% 1.0% 4.3% 3.0% 1.5% 1.2% 2.0% 1.4% 0.7% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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Overview The company’s sales increased 1.56x in nine years from JPY48.8bn (FY09/11) to JPY76.1bn (FY09/20), and its operating profit grew by 2.20x from JPY2.2bn (FY09/11) to JPY4.8bn (FY09/20). Most of cost of sales is purchasing costs and customs clearance costs.

The company’s OPM improved by 1.8pp in nine years from 4.5% (FY09/11) to 6.3% (FY09/20). This mainly reflected the improvement in GPM (up 3.7pp from 15.0% to 18.7% over the same period). The GPM growth was driven by the sharp increase in sales in the high-margin Machinery & Industrial Products segment (especially automobile-related products) during this period, which became on par with sales in the Chemicals segment. During the same period, the SG&A expense ratio remained relatively stable from at around 10% to just under 11.0% (12.4% for FY09/20, which had a decline in sales due to the impact of the COVID- 19 pandemic). Personnel expenses consist of compensations, salaries, and allowances (which are SG&A expenses), and in FY09/20 were JPY3.6bn (4.7% as a ratio of sales; 38.3% of SG&A expenses).

ROE has improved from 9.7% (FY09/11) to around 15% between FY09/15 and FY09/19 (it was 10.1% in FY09/20 when profit fell amid the COVID-19 pandemic).

The company’s interest rate on interest-bearing debt, which is interest expenses divided by interest-bearing debt, was around 1.0% (FY09/19–FY09/20), thus benefiting from low interest rates.

Influence of forex fluctuation As a general rule, the company conducts transactions in local currency and fully hedges the effects of forex fluctuations with forward exchange contracts. Yen appreciation will drive down the cost of imports and lead to higher gross profit, but it will also cause forex losses in non-operating accounts. The reverse is also true. The company typically issues a purchase order (P.O.) three months in advance and at the same time enters a forward exchange contract using a spot rate to cover the full amount of the transaction. For make-to-order production, the timeframe is extended by five to six months. In the case of make-to-stock sales, the company makes forward exchange contracts for portion of transactions each month because it has inventories, but it also shoulders a certain amount of forex risk.

In trading company transactions, when the price of raw materials shoots up or the yen depreciates sharply and the import cost consequently rises, in principle, it is common to negotiate a price increase with the customer to pass that cost on to the selling price (and vice versa). The recently soaring price of rubber raw materials has led to a persistent price hike rush and caused fierce competition, but the company does not plan on piggybacking on price hikes. The company is circumspect regarding price hikes and price cut negotiations as it seeks to maintain long-term and stable transactions with suppliers and customers. The company says that, basically, it handles many products that have no substitutes, meaning margins are relatively fixed. Suppliers and customers are aware of this, so prices are decided based on the fiduciary relationships between the two parties. The company has ample cash and deposits and does hardly any transactions by letter of credit.

The company records forex gains/losses and some forex trading gains/losses as non-operating items, and for the 10 years through FY09/20, it recorded forex gains.

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Balance sheet

Balance sheet (JPYmn) FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. ASSETS Cash and deposits 2,315 1,739 1,819 3,494 3,205 3,712 2,636 2,469 4,549 10,419 Notes and accounts receivable 10,776 11,674 11,751 13,519 12,567 12,857 15,903 17,133 16,441 14,158 Electronically recorded monetary claims 208 332 502 766 994 880 1,039 956 Merchandise and finished goods 4,066 4,672 5,196 6,465 7,408 7,746 10,456 11,637 12,808 12,276 Work in process 6 3 2 1 2 9 6 2 10 6 Raw materials and supplies 1 1 1 1 2 1 3 2 3 3 Inventories 4,073 4,675 5,198 6,467 7,412 7,756 10,465 11,641 12,820 12,285 Deferred tax assets 115 101 121 136 136 201 175 Other 358 563 962 696 1,036 1,007 1,248 1,845 1,560 1,709 Allowance for doubtful assets -22 -12 -21 -20 -25 -9 -19 -55 -32 -35 Total current assets 17,615 18,740 20,038 24,624 24,833 26,290 31,401 33,913 36,376 39,492 Buildings and structures 1,513 1,411 1,561 1,482 1,371 1,294 1,246 1,378 1,311 1,271 Machinery, equipment, and vehicles 166 144 124 200 173 213 184 152 130 238 Land 252 437 361 349 341 341 415 415 415 748 Other 70 73 55 90 100 137 162 198 340 419 Total tangible fixed assets 2,001 2,065 2,101 2,122 1,984 1,985 2,007 2,143 2,195 2,676 Goodwill 236 139 6 9 8 663 595 432 270 723 Other 82 92 67 67 51 193 589 743 621 484 Total intangible assets 318 231 72 75 59 855 1,184 1,176 891 1,208 Investment securities 1,471 1,423 2,251 2,476 2,711 2,573 3,537 3,528 3,262 2,975 Long-term loans receivable 51 43 85 46 1 1 36 4 Deferred tax assets 213 161 31 12 24 77 125 147 98 114 Other 632 574 630 719 679 681 766 665 906 770 Allowance for doubtful assets -29 -34 -26 -23 -5 -7 -32 -0 -1 -3 Investments and other assets 2,338 2,168 2,970 3,230 3,409 3,325 4,396 4,375 4,269 3,856 Total fixed assets 4,656 4,464 5,144 5,427 5,452 6,165 7,587 7,694 7,355 7,739 Total assets 22,271 23,205 25,182 30,051 30,285 32,455 38,988 41,607 43,731 47,231

LIA BILITIES Notes and accounts payable 6,074 6,181 6,700 8,021 7,052 7,006 8,175 8,358 8,348 7,099 Short-term debt 1,857 2,471 782 1,344 1,038 800 1,560 1,863 1,246 4,374 Short-term borrowings 355 1,707 731 1,341 985 730 1,556 1,806 1,189 4,369 Current portion of long-term borrowings 1,487 760 50 50 66 50 50 Current portion of lease obligations 16 4 1 3 3 4 4 7 7 5 Accounts payable–other 179 227 234 313 335 568 452 554 414 543 Income taxes payable 553 596 650 860 754 967 884 898 1,104 817 Provision for bonuses 14 14 12 13 11 20 23 22 22 52 Other 631 525 315 1,333 460 988 1,782 1,933 2,094 1,975 Total current liabilities 9,307 10,014 8,692 11,884 9,649 10,349 12,876 13,628 13,228 14,860 Long-term debt 715 51 50 115 62 61 107 66 80 169 Long-term borrowings 710 50 50 100 50 50 100 50 70 160 Long-term lease obligations 5 1 15 12 11 7 16 10 9 Deferred tax liabilities 187 214 237 134 422 270 105 80 Provision for retirement benefits 506 512 544 Provision for directors' retirement benefits 237 82 24 - 42 Retirement benefit liability - - 605 682 739 768 765 848 893 Long-term deposits received 234 237 238 239 239 210 213 98 101 120 Other 54 136 108 40 22 6 2 23 26 30 Total fixed liabilities 1,745 1,018 1,151 1,213 1,241 1,152 1,512 1,223 1,159 1,332 Total liabilities 11,052 11,032 9,843 13,098 10,891 11,501 14,388 14,850 14,388 16,192 NET A SSETS Capital stock 639 639 1,007 1,007 1,007 1,007 1,007 1,007 1,007 1,007 Capital surplus 428 428 428 427 426 405 405 404 Retained earnings 11,007 11,938 12,909 14,460 16,627 18,699 21,271 24,033 27,113 29,058 Treasury stock -493 -493 -0 -192 -192 -189 -187 -181 -181 -176 Total shareholders' equity 11,153 12,084 14,344 15,702 17,870 19,943 22,517 25,264 28,344 30,293 Accumulated other comprehensive income -217 -222 556 731 927 406 1,290 1,153 611 336 Valuation difference on marketable securities 81 57 566 594 693 519 1,175 1,049 721 534 Foreign currency translation adjustments -297 -279 -10 137 233 -112 115 104 -110 -197 Share subscription rights 18 36 48 64 73 95 1,048 Non-controlling interests 283 310 439 502 562 557 729 266 293 301 Total net assets 11,219 12,173 15,339 16,953 19,394 20,955 24,600 26,756 29,343 31,038 Total liabilities and net assets 22,271 23,205 25,182 30,051 30,285 32,455 38,988 41,607 43,731 47,231 Working capital 8,776 10,168 10,457 12,296 13,429 14,373 19,186 21,297 21,951 20,300 Total interest-bearing debt 2,572 2,522 832 1,459 1,100 861 1,667 1,930 1,326 4,543 Net debt 257 783 -987 -2,035 -2,105 -2,851 -969 -539 -3,223 -5,876 Net debt-to-equity ratio 0.02 0.06 -0.07 -0.13 -0.12 -0.14 -0.04 -0.02 -0.11 -0.20 Dependency on interest-bearing debt 11.5% 10.9% 3.3% 4.9% 3.6% 2.7% 4.3% 4.6% 3.0% 9.6% Equity ratio 49.1% 51.1% 59.2% 54.7% 62.1% 62.7% 61.1% 63.5% 66.2% 64.8% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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Assets The company has the expertise to manufacture products within its group, but its main business is trading. Since trading company operations require no large-scale equipment, it has a lower ratio of tangible fixed assets, while it has a higher ratio of working capital such as accounts receivable and inventories, which are current assets. Looking at how things have gone over the past 10 years, we can see that inventories have increased. This is due to the expansion of the company’s business and sales growth. Its business has grown to include functions to work as an inventory buffer for its customers as well as the expertise to manufacture products as a result of M&A. Fixed assets are mainly investment securities for the purpose of acquiring commercial rights.

The increase in cash and deposits in FY09/19 and FY09/20 was a result of the progress in collection of accounts receivable during that period. This was particularly prominent in FY09/20, when sales and profit declined due to impact of the COVID-19 pandemic. According to the company, inventories and borrowings tend to increase (its balance sheet swells) when business performance (its income statement) is favorable, and inventories and borrowings tend to decrease (its balance sheet slims down) when business performance (its income statement) is weak. The company’s policy is to pay cash to suppliers at the end of the month and use its trading company financial functions when collecting receivables from customers. The company attaches great importance to long-term and continuous transactions with suppliers and customers, and customers also appreciate the role that the company bears in foreign exchange risk, raw material price fluctuation risk, and inventory risk, and conduct business at a fair price. The company says that, basically, it handles many products that have no substitutes, meaning margins are relatively fixed. Suppliers and customers are aware of this, so prices are decided based on the fiduciary relationships between the two parties. Since the company has a long lead time for imported products (lead times for made-to-order products are several months), inventories tend to swell when sales are strong. When sales are sluggish, inventories decrease, and collection on previous sales to customers up till then progresses, and this leaves the company with ample cash.

Liabilities The company was in a net debt position until FY09/12, but has been in a net cash position since FY09/13, and has become virtually debt-free. Dependency on interest-bearing debt (interest-bearing debt divided by total assets) also remained at a low 3–4% from FY09/13 to FY09/19, down from 10.9% in FY09/12. It did rise to 9.6% in FY09/20, but nevertheless remained below 10%. We infer that interest-bearing debt consists mainly of short-term borrowings, most of which are raised for short-term working capital. The company is keen on M&A, holds a large amount of cash and deposits, and is in a position to take advantage of low interest rates to engage in flexible borrowing.

Net assets The company has a stable financial base and its net assets are steadily increasing. Its equity ratio was 64.8% (FY09/20), which was higher than 49.9% of Nagase (FY03/20) and 45.2% of Inabata (FY03/20). The company has set an ROE of 15% as a numerical target in its five-year management plan, and along with increasing net income, effective use of funds is also an issue.

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Cash flow statement

Cash flow statement FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cash flows from operating activities (1) 1,444 60 1,212 2,106 909 2,997 178 1,584 5,088 6,186 Pre-tax profit 2,074 2,240 2,731 3,480 4,011 4,252 5,248 5,770 6,064 4,890 Depreciation 230 221 165 170 174 185 201 192 352 383 Impairment losses 25 128 Gains (losses) on sale of fixed assets -35 -4 Change in working capital -364 -1,371 29 -1,667 -1,133 -772 -4,267 -2,071 -380 2,204 Change in accounts receivable -434 -873 22 -1,696 835 -572 -2,855 -1,126 498 2,882 Change in inventories -72 -592 -327 -1,166 -897 -185 -2,371 -1,136 -925 789 Change in accounts payable 142 94 334 1,195 -1,071 -16 959 191 47 -1,467 Cash flows from investing activities (2) -79 -349 -229 -385 -196 -1,202 -1,359 -409 -1,057 -2,189 Purchase of int angible/t angible fixed asset s -34 -292 -287 -195 -92 -196 -646 -453 -355 -818 Proceeds from sale of intangible/tangible fixed assets 108 17 17 1 Free cash flow (1+2) 1,365 -288 983 1,721 713 1,795 -1,181 1,175 4,031 3,997 Cash flows from financing activities -1,096 -290 -961 -83 -1,047 -1,221 -16 -1,297 -1,958 1,834 Net increase in short-term borrowings -433 1,345 -994 574 -407 -487 866 247 -942 3,189 Net increase in long-term borrowings -460 -1,388 -710 - - -17 -84 - 20 -206 Proceeds from long-term borrowings 200 100 50 50 50 50 70 90 Repayments of long-term borrowings -660 -1,488 -760 -50 -67 -134 -50 -296 Proceeds from issuance of, and redemption of, bonds ------Proceeds from issuance of bonds Redemption of bonds Dividends paid -161 -207 -504 -432 -615 -687 -773 -873 -1,016 -1,060 Depreciation and amortization (A) 230 221 165 170 174 185 201 192 352 383 Capital expenditures (B) Change in working capital (C) -364 -1,371 29 -1,667 -1,133 -772 -4,267 -2,071 -380 2,204 Simple FCF (NI + A + B - C) 1,614 2,730 1,611 3,820 4,101 3,716 7,820 5,899 4,751 1,193 Other (change in forex, other) Change in cash and cash equivalents 218 -576 93 1,676 -290 511 -1,147 -133 2,023 5,818 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

The company’s cash flow situation in FY09/20 was as follows:

Cash flows from operating activities Net cash provided by operating activities totaled JPY6.2bn, up JPY1.1bn YoY. This was due to a significant decrease in accounts receivable and the recording of pre-tax profit, which offset a decline in accounts payable and cash outflows resulting from income tax and other payments.

Cash flows from investing activities Net cash used in investing activities amounted to JPY2.2bn, up JPY1.1bn YoY. This primarily reflected payments to acquire land and construct a factory and expenditures related to the acquisition of shares in consolidated subsidiaries.

Cash flows from financing activities Net cash provided by financing activities was JPY1.8bn, up JPY3.8bn YoY. This was mainly the result of the increase in borrowings from financial institutions.

The company’s free cash flow is basically positive every year. Operating cash flows always exceed investing cash flows, and pre- tax profit exceeds the increase in working capital, thus the company maintains sound financial condition.

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Historical performance 1H FY09 /21 results Overview

Sales: JPY45.5bn (+11.1 YoY), progress toward revised full-year company forecast: 51.7% ▷ Operating profit: JPY3.6bn (+23.3% YoY), 60.6% ▷ Recurring profit: JPY4.0bn (+26.2% YoY), 63.8% ▷ Net income attributable to owners of the parent: JPY2.7bn (+26.1% YoY), 63.5% ▷ The company has revised up its full-year forecast from sales growth and profit decline initially, to sharp growth in sales and profit. In 1H, progress rates against the revised company forecast exceeded 60% for all profit categories, and we infer that the forecast leaves some spare capacity in 2H. The company also lifted its dividend forecast from JPY37.5 to JPY38.0 per share.

For the three months of Q2 (January–March 2021), sales were JPY23.9bn (+20.8% YoY), operating profit was JPY1.9bn (+39.4 ％ YoY), recurring profit was JPY2.2bn (+55.5 YoY), and net income was JPY1.4bn (+43.9% YoY). Profit growth rates surged over ％ the meager growth seen in Q1 (October–December 2020), driving robust results in 1H and upward revisions to full-year projections.

Performance by segment Due to the change in business classifications made in Q1 FY09/21, YPTECH, which was previously included in the Chemicals segment, has been moved to the Machinery & Industrial Products segment. The following YoY comparisons were made by reclassifying the figures for the same period of the previous year into the new segmentation.

Chemicals

Sales to external customers: JPY15.4bn (+0.5% YoY) ▷ Segment profit (operating profit): JPY922mn (+26.4% YoY) ▷ Rubber products saw a revival in demand from industries including automotive, office automation, medical, and construction machinery. Among new products, sales of functional fillers for heat dissipation used in electronic equipment were robust. In chemical products, mainstay polymerization initiators and other UV ink raw materials performed well, and exports of electronic materials to South Korea and films to North America recovered.

Machinery & Industrial Products

Sales to external customers: JPY17.6bn (+3.4% YoY) ▷ Segment profit (operating profit): JPY2.4bn (+15.5% YoY) ▷ In industrial products, demand for mainstay seat peripheral parts surged as Japanese automakers maintained high production levels. As for machinery and environment-related products, deliveries of mainstay feed granulators were strong, and consumables and maintenance services also remained brisk. In the wood biomass business, the company did not record sales associated with biomass equipment, but consumables and maintenance services performed well. In scientific instruments, the company made deliveries of products that had been delayed in the wake of the pandemic, and there was active demand for inhaler testing equipment as a countermeasure against COVID-19.

Overseas Subsidiaries

Sales to external customers: JPY12.5bn (+45.6% YoY) ▷ Segment profit (operating profit): JPY714mn (+39.6% YoY) ▷ At Sanyo Corporation of America, sales of superabsorbent polymers and rubber products were strong, but operating profit declined slightly due to additional tariffs on auto parts made in China and an increase in SG&A expenses. Sanyo Trading (Shanghai) Co., Ltd. performed strongly overall, with significant growth in auto parts thanks to the rapid recovery of the

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automobile market. At Sanyo Trading Asia Co., Ltd. in Thailand, sales and profit grew, driven by strong sales of chemicals and auto parts centered on rubber items. At Sanyo Trading (Viet Nam) Co., Ltd., sales of paints and inks were robust. Sales grew but profit fell at Sun Phoenix Mexico, S.A. de C.V., reflecting the impact of soaring marine transportation costs for products shipped from China, although sales of automobile-related parts were strong. Starting in FY09/21, PT. Sanyo Trading Indonesia has been included in the scope of consolidation.

Q1 FY09/21 results Overview

Sales: JPY21.6bn (+2.0% YoY), progress toward full-year company forecast: 26.4% ▷ Operating profit: JPY1.7bn (+9.3% YoY), 43.0% ▷ Recurring profit: JPY1.8bn (+3.1% YoY), 43.7% ▷ Net income attributable to owners of the parent: JPY1.2bn (+10.1% YoY), 45.4% ▷ Since the company’s full-year forecast is extremely conservative, in Q1 the progress rate on recurring profit was a high 43.7%.

Performance by segment Due to the change in the business classifications made in Q1 FY09/21, YPTECH, which was previously included in the Chemicals segment, was moved to the Machinery & Industrial Products segment. The following YoY comparisons were made by reclassifying the figures for the same period of the previous year into the new segmentation.

Chemicals

Sales to external customers: JPY7.2bn (-8.1% YoY) ▷ Segment profit (operating profit): JPY425mn (+12.5% YoY) ▷ In rubber products, sales and profit declined YoY due to slow recovery in demand. In chemical products, sales fell as a result of reclassifying the livestock-related business to other segment, but sales of the mainstay paints and inks remained strong, and the newly launched Sanyo Life Material also contributed to earnings.

Machinery & Industrial Products

Sales to external customers: JPY8.6bn (+1.0% YoY) ▷ Segment profit (operating profit): JPY1.1bn (+8.7% YoY) ▷ Sales of industrial products were firm thanks to the recovery in production by Japanese automakers. Machinery and environment- related products held steady, centered on consumables and maintenance services, although the company did not record sales associated with large-scale projects. Cosmos Shoji posted favorable sales of drilling equipment for geothermal power generation, but profit did not reach the level achieved in Q1 FY09/20 when large-scale projects were recorded. YPTECH’s feed additives for livestock sold well and cargo movements were active, but profit declined due to an increase in overseas transportation costs caused by the shortage of containers, in addition to a rise in expenses associated with the transfer of the business. Sales of scientific instruments grew, as client companies completed the inspections of delivered products that had been delayed in the face of the COVID-19 pandemic, but profitability deteriorated and profit fell.

Overseas Subsidiaries

Sales to external customers: JPY5.8bn (+20.8% YoY) ▷ Segment profit (operating profit): JPY364mn (+35.8% YoY) ▷ Sanyo Corporation of America had strong sales of superabsorbent polymers, auto parts, and rubber products. Sanyo Trading (Shanghai) Co., Ltd. performed strongly overall, as sales of auto parts grew sharply amid a rapid recovery of the automobile market and offset sluggish sales of rubber products. Sales and profit grew at Sanyo Trading Asia Co., Ltd. in Thailand, aided by robust sales of rubber products, chemicals, and auto parts, coupled with a decrease in SG&A expenses. Sales at Sun Phoenix

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Mexico, S.A. de C.V. expanded thanks to strong shipments of auto parts, but operating profit declined YoY due to rising distribution costs and other factors. Starting in FY09/21, PT. Sanyo Trading Indonesia has been included in the scope of consolidation.

Full-year FY09/20 results Overview

Sales JPY76.1bn (-8.6% YoY) ▷ ： Operating profit: JPY4.8bn (-18.4% YoY) ▷ Recurring profit: JPY5.3bn (-13.2% YoY) ▷ Net income attributable to owners of the parent: JPY3.0bn (-25.0% YoY) ▷

New investments (acquisitions)

Livestock: YPTECH (trading company specializing in importing functional raw materials and additives for livestock feed) ▷ Life science: NKS Corporation (import and sales of food additives and industrial chemicals) ▷

Performance by segment The company reviewed its allocation standard for amortization of goodwill, and starting in FY09/20 it has allocated goodwill amortization to each business segment to better reflect the performance of the reportable segment.

Chemicals

Sales to external customers: JPY30.5bn (-1.9% YoY) ▷ Operating profit: JPY1.4bn (-14.2% YoY) ▷ In rubber products, shipments of synthetic rubber and auxiliary materials used in automobiles, consumer electronics, and information equipment were weak. Exports of these products also dropped. In chemical products, high-value-added products such as mainstay paints and inks performed well in 1H, but were stagnant after the summer. Sales of semiconductor-related products and adhesives were weak, and exports to Asia were slow. YPTECH, which became a consolidated subsidiary, contributed to earnings, but segment profit declined YoY due in part to the one-off expenses for the acquisition of the subsidiary.

Machinery & Industrial Products

Sales to external customers: JPY27.2bn (-17.5% YoY) ▷ Operating profit: JPY3.3bn (-17.1% YoY) ▷ In industrial products, sales of automotive interior parts were negatively affected by the sharp drop in production activities of Japanese automakers. As for machinery and environment-related products, feed processing equipment performed well, but results fell YoY nevertheless, as there were no new large-scale projects that generated sales in the wood biomass business. In scientific instruments, sales of bio-related equipment were strong, but sales of elemental analysis and particle dispersion equipment were sluggish. In products related to natural resource development, geothermal development equipment performed well, while sales of ocean development equipment were lackluster in the absence of the large-scale projects recorded in FY09/19.

Overseas Subsidiaries

Sales to external customers: JPY18.2bn (-3.8% YoY) ▷ Operating profit: JPY839mn (-4.7% YoY) ▷ At Sanyo Corporation of America, sales of rubber products and films were sluggish, but sales of high-performance resins were strong. Sanyo Trading (Shanghai) Co., Ltd. was adversely impacted by the COVID-19 pandemic, but automobile-related products and rubber products performed well thanks to the early recovery of economic activity in China. At Sanyo Trading Asia

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Co., Ltd. in Thailand, sales of automotive interior parts and rubber products dropped, hurt by the slump in the automobile industry. At Sanyo Trading (Viet Nam) Co., Ltd., sales of chemicals and automotive products were weak. Sales of automotive products were sluggish at Sun Phoenix Mexico, S.A. de C.V.

Financial condition Assets Current assets increased by JPY3.1bn from end-FY09/19 to JPY39.5bn due to a sharp rise in cash and deposits, while accounts receivable decreased on lower sales. Fixed assets increased by JPY383mn from end-FY09/19 to JPY7.7bn as a result of the acquisition of land for factory construction and the recording of goodwill following the acquisition of YPTECH, which offset declines stemming from losses on valuation of investment in non-consolidated subsidiaries and the impairment of fixed assets. As a result, total assets at end-FY09/20 amounted to JPY47.2bn, up JPY3.5bn from end-FY09/19.

Liabilities Current liabilities increased by JPY1.6bn from end-FY09/19 to JPY14.9bn, mainly due to an increase in borrowings from financial institutions. Fixed liabilities increased by JPY173mn from end-FY09/19 to JPY1.3bn, primarily as a result of increases in long-term borrowings and retirement benefit liability, and provision for directors’ retirement benefits at consolidated subsidiaries. Consequently, total liabilities at end-FY09/20 stood at JPY16.2bn, up JPY1.8bn from end-FY09/19.

Net assets Accumulated other comprehensive income declined, reflecting decreases in valuation difference on marketable securities and foreign currency translation adjustment, while retained earnings grew due to the recording of net income attributable to owners of the parent. As a result, net assets at end-FY09/20 totaled JPY31.0bn, up JPY1.7bn from end-FY09/19.

Cash flows At end-FY09/20, cash and cash equivalents rose by JPY5.9bn from end-FY09/19 to JPY10.4bn (+129.1% YoY).

Cash flows from financing activities Net cash provided by financing activities was JPY1.8bn, up JPY3.8bn YoY. This was mainly the result of the increase in borrowings from financial institutions.

Cumulative Q3 FY09/20 results Overview

Sales: JPY57.4bn (-10.5% YoY) ▷ Operating profit: JPY3.8bn (-22.0% YoY) ▷ Recurring profit: JPY4.2bn (-17.5% YoY) ▷ Net income attributable to owners of the parent: JPY2.8bn (-20.3% YoY) ▷

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Performance by segment Chemicals

Sales to external customers: JPY24.0bn (+1.6% YoY) ▷ Segment profit (operating profit): JPY1.1bn (-14.5% YoY) ▷ In rubber products, shipments of mainstay synthetic rubber and auxiliary materials for automobiles were sluggish, and the situation was tough on the earnings front. In addition, sales of rubber products were weak compared to FY09/19 when exports were strong. In chemical products, high-value-added products related to mainstay paints and inks performed steadily, and YPTECH, which became a consolidated subsidiary, contributed to earnings. Nevertheless, overall sales of chemical products were down YoY due to sluggish growth in semiconductor-related products and adhesives, a drop in exports to Asia, and the lump sum recording of acquisition costs.

Machinery & Industrial Products

Sales to external customers: JPY20.4bn (-20.3% YoY) ▷ Segment profit (operating profit): JPY2.6bn (-23.9% YoY) ▷ In industrial products, sales of seat and other automotive interior parts were negatively affected by the sharp drop in production activities of Japanese automakers. Sales of machinery and environment-related products plummeted YoY, as there were no new large-scale projects that generated sales in the wood biomass business. Scientific instruments saw strong sales of mainstay friction and wear testing machines as well as bio-related equipment. In products related to natural resource development, geothermal development equipment performed well, while sales of ocean development equipment were weak in the absence of the large- scale projects recorded in FY09/19.

Overseas Subsidiaries

Sales to external customers: JPY12.9bn (-12.8% YoY) ▷ Segment profit (operating profit): JPY675mn (-12.2% YoY) ▷ Sanyo Corporation of America’s operating profit grew YoY thanks to lower SG&A expenses, although rubber product sales were sluggish. Sanyo Trading (Shanghai) Co., Ltd. was affected by the temporary suspension of operations of major customers, including those related to automobiles, in the wake of the COVID-19 pandemic. At Sanyo Trading Asia Co., Ltd. in Thailand, both sales and profit fell sharply as there was no end in sight to the slump in the automobile market in the nation and the decline in exports caused by the baht appreciation. At Sanyo Trading (Viet Nam) Co., Ltd., business performance was sluggish, reflecting lackluster sales of chemicals and automobile-related products. At Sun Phoenix Mexico, S.A. de C.V., sales of automobile-related products were also sluggish, but operating profit was slightly up YoY owing to a decrease in SG&A expenses.

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Other information

History

Date Description May 1947 Following breakup of the former Mitsui zaibatsu, members of its Kobe branch form Sanyo Trading Co., Ltd. headquartered in Kobe with capital of JPY195,000. Jan. 1954 Opens representative office in New York (later reorganized into Sanyo Corporation of America in February 1961) Jan. 1973 Establishes Sanyo Machinery Co., Ltd. Jan. 2004 Acquires all outstanding shares in Cosmos Shoji Co., Ltd. (currently a consolidated subsidiary) Oct. 2004 Establishes Sanyo-Touchi (Shanghai) Rubber Co., Ltd. through joint investment with Touchi Co., Ltd. Apr. 2006 Establishes Sanyo Technos Co., Ltd. Oct. 2006 Acquires shares in Chem-Inter Corporation, making it a subsidiary Feb. 2012 Establishes Sanyo Trading International (Hong Kong) Co., Ltd. Oct. 2012 Lists on Tokyo Stock Exchange, Second Section Jun. 2013 Establishes Mexico subsidiary Sun Phoenix Mexico S.A. de C.V. Oct. 2013 Stock listing transferred to Tokyo Stock Exchange, First Section Aug. 2014 Establishes Indonesia subsidiary PT. Sanyo Trading Indonesia Jul. 2015 Establishes Singapore subsidiary Singapore Sanyo Trading Pte. Ltd. Oct. 2015 Establishes Thailand subsidiary Sanyo Trading (Thailand) Co., Ltd. Feb. 2016 Acquires all shares in Sort Co., Ltd., making it a subsidiary Jul. 2016 Acquires all shares in Nihon Rufuto Co., Ltd., making it a subsidiary Mar. 2017 Opens representative office in Dusseldorf Jul. 2017 Acquires all shares in Freeman (Japan) Co., Ltd., making it a subsidiary Oct. 2017 Acquires all shares in Azzurro Co., Ltd., making it a subsidiary May 2019 Acquires all shares in Shin-Toyo Kikai Kogyo Co., Ltd., making it a subsidiary Oct. 2019 Acquires all shares in YPTECH Co., Ltd., making it a subsidiary Mar. 2020 Acquires all shares in NKS Corporation, making it a subsidiary Oct. 2020 Merges Azzurro and NKS Corporation into a new company, Sanyo Life Material Co., Ltd. Nov. 2020 Makes Global Trading Co., Ltd. a subsidiary Dec. 2020 Sanyo Technos acquires Test Materials Co., Ltd. Apr. 2021 Merges and absorbs Global Trading Apr. 2021 Sells Sanyo-Touchi (Shanghai) Rubber Co., Ltd.

Source: Shared Research based on company data

The breakup of the former Mitsui zaibatsu led to the establishment of Sanyo Trading in Kobe, Japan in May 1947. In 1952, the company became Japan’s first importer of synthetic rubber as the sole distributor for Canada’s Polysar (currently Arlanxeo). Sanyo Trading opened a New York representative office in January 1954. The office was later reorganized into Sanyo Corporation of America in February 1961. The Bangkok representative office was opened in June 1988, and after that, overseas bases were expanded to major cities in Southeast Asian countries, as well as to China, India, Europe, and Mexico.

Around 2000, the company undertook a major business transformation and withdrew from or reduced its timber, tobacco, agriculture and fisheries, and agrochemical businesses. Its workforce, which exceeded 300 employees at the parent company around 1975, was reduced to less than half that number around 2010. At that time, the company also refrained from hiring new graduates, consequently skewing its personnel mix, with about 80% of employees in their 30s being mid-career hires (about 20% are employees who joined the company as new graduates).

After taking a stake in Cosmos Shoji in January 2004, the company has since actively pursued M&A. Its basic policy is to acquire 100% ownership. While making acquired companies consolidated subsidiaries, the company conducts flexible reorganization as well, including mergers between subsidiaries (Azzurro and NKS Corporation merged and adopted the new name Sanyo Life Material) and absorption into Sanyo Trading itself (it absorbed Sort and Global Trading).

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Japanese automakers are the company’s main customers, and their overseas vehicle production output exceeded domestic production volumes for the first time in 2007. Since 2015, the ratio of overseas to domestic vehicle production has been roughly 2:1. The company has also expanded its business by adapting to the globalization of Japanese automakers by strengthening its overseas bases in earnest starting in 2010. It continuously achieved record-high profits from FY09/10 to FY09/19.

The company was listed on the Second Section of the Tokyo Stock Exchange on October 23, 2012, and its listing was transferred to the First Section of the market on October 23, 2013.

Sanyo Trading’s sales and net income since its founding (consolidated, parent)

(JPYmn) Consolidated sales Consolidated net income Parent sales Parent net income 100,000

90,000

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: Shared Research based on company data Note: FY09/74 (October 1973–September 1974) was when the company changed fiscal years (from April initially). Note: FY09/21 figures are company forecasts.

News and topics

Corporate governance and top management Top management President & CEO Masanobu Shintani (born June 28, 1958) March 1982 Graduates from Waseda University, School of Science and Engineering April 1982 Joins Sanyo Trading October 2008 General Manager of Tokyo Rubber Business Unit 3 October 2010 General Manager, assistant to Operational Headquarters January 2012 President of Sanyo Corporation of America October 2012 Executive Officer of Sanyo Trading and President of Sanyo Corporation of America December 2013 Director, Executive Officer, and General Manager of Operational Headquarters Chairman of Sanyo Trading (Shanghai) Co., Ltd. December 2014 Director, Executive Officer, and General Manager of Corporate Strategy Department December 2018 President & CEO (current position) Source: Shared Research based on company data

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Four of the company’s six internal directors have backgrounds as “home-grown” employees (the other two are from banks). Of the four, two are from the technological backgrounds, including CEO Masanobu Shintani. In addition, three out of the four were presidents of the US subsidiary Sanyo Corporation of America and have a wealth of overseas experience. CEO Shintani is also Chairman of Sanyo Trading (Shanghai) Co., Ltd. and has deep insight into Western Europe and Asia. While Shintani was the president of the US subsidiary, he established the Mexican subsidiary Sun Phoenix Mexico S.A. de C.V. Shintani plays the role of CEO, but the company does not have an officer in the position of CFO. The company’s structure is such that officers in charge of business units are basically promoted vertically within the same business unit.

Corporate governance

Form of organization and capital structure Form of organization Company with Audit & Supervisory Committee Controlling shareholder and parent company None Directors and Audit & Supervisory Committee members Number of directors under Articles of Incorporation 14 Number of directors 9 Directors' terms under Articles of Incorporation 1 Chairman of the Board of Directors President Number of outside directors 3 Number of independent outside directors 3 Number of members of Audit & Supervisory Committee 3 Number of outside members of Audit & Supervisory Committee 2 Number of independent outside members of Audit & Supervisory Committee 2 Other Participation in electronic voting platform Yes Providing convocation notice in English None Implementation of measures regarding director incentives Yes Eligible for stock option Yes Disclosure of individual director's compensation None Policy on determining amount of compensation and calculation methodology In place Corporate takeover defenses None Source: Shared Research based on company data

The company’s Board of Directors consists of six directors who are not Audit and Supervisory Committee members (including one outside director) and three directors who are Audit and Supervisory Committee members (including two outside directors). The company has also adopted an executive officer system (a total of nine officers, including five directors), and holds a monthly executive officer meeting. In terms of compensation-type stock options, the company issues stock acquisition rights to directors and executive officers (excluding outside directors and Audit and Supervisory Committee members).

In May 2020, the company established a discretionary Nomination and Compensation Committee, which serves as an advisory body to the Board of Directors, in the aim of strengthening the independence, objectivity, and accountability of the functions of the Board of Directors. Such functions pertain to the appointment and dismissal of representative directors and executive directors, nomination of director candidates, and appropriateness of remuneration for directors (excluding directors who are Audit and Supervisory Committee members).

Dividend policy

Dividends FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 FY09/21 (JPY) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. EPS 51.6 68.9 97.7 96.4 117.1 127.0 140.4 105.2 146.6 Dividend per share 15.0 17.0 24.5 24.5 29.5 32.0 37.0 37.5 38.0 Book value per share 513.7 574.4 657.1 711.2 831.9 922.7 1,011.3 1,069.4 - Payout ratio 29.1% 24.7% 25.1% 25.4% 25.2% 25.2% 26.4% 35.6% 25.9% DOE 2.9% 3.1% 4.0% 3.6% 3.8% 3.6% 3.8% 3.6% - Source: Shared Research based on company data Note: After adjusting for stock split Note: Figures may differ from company materials due to differences in rounding methods.

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The company’s dividend policy is based on the basic stance of paying stable dividends over the long term. The company’s dividend payout ratio has held steady at around 25% (FY09/14–FY09/19), and even in FY09/20 when profit declined, the company nevertheless raised its dividend (for a payout ratio of 35.6%).

Major shareholders

Shares held Shareholding Top shareholders ('000) ratio Custody Bank of Japan, Ltd. (Trust account) 2,911 10.16% The Master Trust Bank of Japan, Ltd. (Trust account) 1,523 5.32% Toagosei Co., Ltd. 1,497 5.23% Susumu Tamaki 1,150 4.01% MUFG Bank, Ltd. 1,137 3.97% Sumitomo Mitsui Banking Corporation 1,137 3.97% Sumitomo Mitsui Trust Bank, Ltd. 1,136 3.96% BOT Lease Co., Ltd. 1,128 3.94% Mitsui Sumitomo Insurance Co., Ltd. 743 2.59% Meiji Yasuda Life Insurance Company 675 2.36% SUM 13,041 45.51% Source: Shared Research based on company data

Toagosei (TSE1: 4045) has a history of establishing a joint venture with the company, and has become a stable shareholder while maintaining amicable relationships as players involved in the same chemical industry. Mr. Susumu Tamaki, an individual, is a relative of the founder and has retired from the company. The foreign ownership ratio is less than 5%.

Number of employees and consolidated to parent ratio

Employee metrics (JPYmn) FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. No. of employees (ex. temporary workers) 240 244 252 256 260 295 326 349 368 413 No. of temporary workers 26 26 17 15 15 19 25 27 40 39 Sales per employee 186 179 193 218 222 202 202 215 209 177 Operating profit per employee 8 8 9 12 13 14 15 14 15 11 Parent Parent Parent Parent Parent Parent Parent Parent Parent Parent Parent Sales 33,621 34,124 37,105 42,096 44,198 45,435 48,886 55,483 61,216 52,349 Operating profit 1,502 1,815 1,790 2,258 2,514 3,164 3,527 3,693 4,314 3,407 Recurring profit 1,811 2,047 2,233 2,769 3,022 3,465 4,209 4,714 4,987 4,272 Net income 916 1,076 951 1,670 2,249 2,387 2,946 3,314 3,460 2,377 No. of employees (ex. temporary workers) 152 151 166 164 177 188 193 211 224 234 No. of temporary workers 18 18 9 8 9 11 17 20 29 27 Sales per employee 197 201 222 243 246 235 236 250 248 204 Operating profit per employee 9 11 11 13 14 16 17 17 18 13 Average age 41.84 41.55 40.94 40.51 40.56 40.34 40.25 40.17 40.46 40.28 Average years of service 13.87 13.15 12.56 11.70 11.10 10.84 10.74 10.36 10.18 9.92 Average annual salary (JPY'000) 8,925 8,821 8,804 8,750 9,050 8,920 9,330 9,637 9,963 9,437 Cons./Parent (times) Sales 1.45 1.41 1.38 1.39 1.37 1.32 1.39 1.41 1.36 1.45 Operating profit 1.45 1.24 1.36 1.41 1.43 1.28 1.40 1.43 1.36 1.41 Recurring profit 1.27 1.16 1.24 1.27 1.36 1.23 1.25 1.18 1.22 1.23 Net income 1.11 1.06 1.55 1.19 1.24 1.16 1.14 1.10 1.16 1.27 No. of employees (ex. temporary workers) 1.58 1.62 1.52 1.56 1.47 1.57 1.69 1.65 1.64 1.76 No. of temporary workers 1.44 1.44 1.89 1.88 1.67 1.73 1.47 1.35 1.38 1.44 Source: Shared Research based on company data Note: Sales (or operating profit) per employee (Shared Research estimates) = sales (or operating profit) / (average of the number of employees at the end of the current and preceding fiscal year + average number of temporary workers) Note: Figures may differ from company materials due to differences in rounding methods.

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Consolidated, Parent FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16 FY09/17 FY09/18 FY09/19 FY09/20 No. of employees by segment 240 244 252 256 260 295 326 349 368 413 Chemicals 57 55 60 61 61 71 68 77 80 114 Machinery & Industrial Products 63 65 74 77 87 109 118 123 140 137 Overseas Subsidiaries 36 42 44 53 59 60 79 88 95 100 Domestic Subsidiaries 44 43 33 29 13 12 15 15 Company-wide 40 39 41 36 40 43 46 46 53 62 No. of temp. workers (average) 26 26 17 15 15 19 25 27 40 39 Chemicals 2 3 2 1 4 7 5 10 11 Machinery & Industrial Products 19 18 9 8 9 8 10 15 22 21 Overseas Subsidiaries 1 1 1 0 0 0 Domestic Subsidiaries 1 1 1 1 1 2 1 1 Company-wide 4 4 4 4 5 5 6 6 8 7 Sales per employee 334 179 193 218 222 202 202 215 209 177 Chemicals 807 400 381 392 387 350 349 396 351 282 Machinery & Industrial Products 141 105 159 188 194 180 175 206 215 171 Overseas Subsidiaries 549 210 213 255 221 181 214 235 207 186 Domestic Subsidiaries 302 166 161 186 309 365 282 - - - Operating profit per employee 15 8 9 12 13 14 15 14 15 11 Chemicals 38 18 18 17 18 18 21 26 18 13 Machinery & Industrial Products 12 12 14 18 22 21 20 23 26 21 Overseas Subsidiaries 22 6 8 7 9 6 10 11 10 9 Domestic Subsidiaries 17 6 9 15 29 40 37 - - - Company-wide -21 -11 -13 -10 -17 -11 -12 -14 -12 -13 No. of employees (parent) 152 151 166 164 177 188 193 211 224 234 Chemicals 57 55 60 61 61 68 65 77 73 76 Machinery & Industrial Products 55 57 65 67 76 77 82 88 98 96 Company-wide 40 39 41 36 40 43 46 46 53 62 No. of temp. workers (avg.; parent) 18 18 9 8 9 11 17 20 29 27 Chemicals 2 3 2 1 4 7 5 10 11 Machinery & Industrial Products 12 11 3 3 4 2 4 9 11 9 Company-wide 4 4 4 4 5 5 6 6 8 7 Source: Shared Research based on company data Note: Sales (or operating profit) per employee (Shared Research estimates) = sales (or operating profit) / (average of the number of employees at the end of the current and preceding fiscal year + average number of temporary workers) Note: Figures may differ from company materials due to differences in rounding methods.

Profile

Company Name Head Office Sanyo Trading Co., Ltd. 2-11 Kanda Nishiki-cho, Chiyoda-ku, Tokyo, Japan Phone Listed On +81-3-3518-1111 First Section of the Tokyo Stock Exchange Established Exchange Listing October 23, 2012 (Second Section) May 1947 October 23, 2013 (First Section) Website Fiscal Year-End https://www.sanyo-trading.co.jp/english/ September IR Contact IR Web +81-3-3518-1103 https://www.sanyo-trading.co.jp/english/ir/

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Current Client Coverage of Shared Research Inc. Advance Create Co., Ltd. Dream Incubator Inc. KI-Star Real Estate Co., Ltd. RESORTTRUST, INC. ADJUVANT COSME JAPAN CO., LTD. Earth Corporation KLab Inc. ROUND ONE Corporation Aeon Delight Co., Ltd. Edion Corporation Kondotec Inc. RYOHIN KEIKAKU CO., LTD. Aeon Fantasy Co., Ltd. Elecom Co., Ltd. Kumiai Chemical Indust ry Co., Lt d. SanBio Company Limit ed Ai Holdings Corporat ion en Japan Inc. Lasertec Corporation SANIX INCORPORATED AI inside Inc. Estore Corporation. Locondo, Inc. Sanrio Company, Ltd. AirTrip Corp. euglena Co., Ltd. LUCKLAND CO., LTD. Sanyo Trading Co., Ltd. ALINCO INCORPORATED FaithNetwork Co., Ltd. Marumae Co., Ltd. SATO HOLDINGS CORPORATION and factory, inc. Ferrotec Holdings Corporation MATSUI SECURITIES CO., LTD. SBS Holdings, Inc. ANEST IWATA Corporation FIELDS CORPORATION Media Do Co., Ltd. Seikagaku Corporation AnGes Inc. Financial Products Group Co., Ltd. Medical System Network Co., Ltd. Seria Co.,Ltd. Anicom Holdings, Inc. First Brothers Co., Ltd. MEDINET Co., Ltd. Serverworks Co.,Ltd. Anritsu Corporation FreeBit Co., Ltd. MedPeer,Inc. SHIFT Inc. Apaman Co., Ltd. Gamecard-Joyco Holdings, Inc. Mercuria Holdings Co., Ltd. Shikigaku Co., Ltd. ARATA CORPORATION GameWith, Inc. Metaps Inc. SHIP HEALTHCARE HOLDINGS, INC. Artspark Holdings Inc. GCA Corporation Micronics Japan Co., Ltd. SIGMAXY Z Inc. AS ONE CORPORATION Good Com Asset Co., Ltd. MIRAIT Holdings Corporation SMS Co., Ltd. Ateam Inc. Grandy House Corporation Monex Goup Inc. Snow Peak, Inc. Aucfan Co., Ltd. GiG Works Inc. MORINAGA MILK INDUSTRY CO., LTD. Solasia Pharma K.K. AVANT CORPORATION Hakuto Co., Ltd. Mortgage Service Japan Limited. SOURCENEXT Corporation Axell Corporat ion Hamee Corp. MRT Inc. Space Value Holdings Co., Ltd. Azbil Corporat ion Happinet Corporation NAGASE & CO., LTD Star Mica Holdings Co., Ltd. AZoom, Co., Ltd. Harmonic Drive Systems Inc. NAIGAI TRANS LINE LTD. Stream Media Corporation Base Co., Ltd HENNGE K.K. NanoCarrier Co., Ltd. Strike Co., Ltd. BEENOS Inc. Hoosiers Holdings NEC Networks & System Integration Corporation Sunnexta Group Inc. Bell-Park Co., Ltd. Hosokawa Micron Corporation Net Marketing Co., Ltd. SymBio Pharmaceut icals Limit ed Benefit One Inc. Hope, Inc. Net One Systems Co.,Ltd. Synchro Food Co., Ltd. B-lot Co.,Ltd. HOUSEDO Co., Ltd. Nichi-Iko Pharmaceut ical Co., Lt d. TAIYO HOLDINGS CO., LTD. Broadleaf Co., Ltd. H2O Ret ailing Corporat ion NIHON CHOUZAI Co.,Ltd. Takashimaya Company, Limited CanBas Co., Ltd. IDOM Inc. Nihon Denkei Co., Ltd. Take and Give Needs Co., Ltd. Canon Marketing Japan Inc. IGNIS LTD. Nippon Commercial Development Co., Ltd. TEAR Corporation Career Design Center Co., Ltd. i-mobile Co.,Ltd. Nippon Koei Co., Ltd. Tenpo Innovation Inc. Carna Biosciences, Inc. Inabata & Co., Ltd. NIPPON PARKING DEVELOPMENT Co., Ltd. 3-D Matrix, Ltd. CARTA HOLDINGS, INC Infocom Corporation NIPRO CORPORATION The Hokkoku Bank,Ltd. CERES INC. Infomart Corporation Nisshinbo Holdings Inc. TKC Corporation Chiyoda Co., Ltd. Int elligent W ave, Inc. Nisso Corporation TKP Corporation Chori Co., Ltd. ipet Holdings CO., Ltd. NS TOOL CO., LTD. Tsuzuki Denki Co., Ltd. Chugoku Marine Paints, Ltd. Itochu Enex Co., Ltd. OLBA HEALTHCARE HOLDINGS,Inc. TOCALO Co., Ltd. cocokara fine Inc. ItoKuro Inc. OHIZUMI MFG. CO., LTD. TOKAI Holdings Corporation COMSYS Holdings Corporation JAFCO Co.,Ltd. Oisix ra daichi Inc. Tokyu Construction Co., Ltd. COTA CO.,LTD. JMDC Inc. Oki Electric Industry Co., Ltd. TOYOBO CO., LTD. CRE, Inc. JSB Co., Ltd. ONO SOKKI Co., Ltd. Toyo Ink SC Holdings Co., Ltd. CREEK & RIVER Co., Ltd. JTEC Corporation ONWARD HOLDINGS CO.,LTD. Toyo Tanso Co., Ltd. Daiichi Kigenso Kagaku Kogyo Co., Ltd. J Trust Co., Ltd Pan Pacific Int ernat ional Holdings Corporat ion Tri-Stage Inc. Daiki Axis Co.,Lt d. Japan Best Rescue System Co., Ltd. PARIS MIKI HOLDINGS Inc. T SURUHA Holdings Daiseki Co., Ltd. JINS HOLDINGS Inc. PCA CORPORATION VISION INC. Daiwabo Holdings Co.,Ltd. JP-HOLDINGS, INC. PIGEON CORPORATION VISIONARY HOLDINGS CO., LTD. Demae-Can CO., LTD. KAMEDA SEIKA CO., LTD. Premium W at er Holdings V-cube,Inc. DIC Corporation Kanamic Network Co., LTD. P3, inc. World Holdings Co., Ltd. Digit al Art s Inc. KANEMATSU CORPORATION QB Net Holdings Co., Ltd. WOW WORLD Inc. Digit al Garage Inc. kaonavi, inc. RACCOON HOLDINGS, Inc. YELLOW HAT LTD. Doshisha Corporation KFC Holdings Japan, Ltd. Raysum Co., Ltd. YOSHINOYA HOLDINGS CO., LTD. ZAPPALLAS, INC.

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