R Oki Electric Industry / 6703

COVERAGE INITIATED ON: 2017.04.21 LAST UPDATE: 2018.07.27

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

Research Report by Shared Research Inc. Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2018.07.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

INDEX Executive Summary ------3 Key financial data ------5 Recent updates------6 Highlights ------6 Trends and outlook ------7 Quarterly trends and results ------7 Full-year company forecasts ------13 Initial company forecast for FY03/19 (out May 8, 2018) ------13 Medium-term strategy (as announced in May 2018) ------23 Business, market and value chain ------47 Business overview ------47 Strengths and weaknesses ------66 Historical results ------67 Financial statements ------75 Income statement ------75 Balance sheet ------79 Cash flow statement ------83 Other information ------84 Corporate governance, environmental, and CSR information (as of March 2018)------84 Top Management ------85 Dividend policy ------85 Major shareholders ------86 Employees ------86 News and topics ------86 Profile ------88

02/89 Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2018.07.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Executive Summary Core business Involved in telecommunications for over 130 years, but changing direction to target new growth Since manufacturing the first domestic telephone in 1881, when it was founded, Oki Electric Industry Co., Ltd. (OKI) has focused on developing domestic telecommunication technology instead of relying on foreign products. OKI was one of four members of the Nippon Telegraph and Telephone (NTT) family (formerly a Japanese government-owned telecommunications monopoly, privatized in 1952). Yet OKI’s sales to telecom companies have shrunk to around 15% of total sales following the privatization of NTT, the opening of the domestic telecom market, and the shift of telecom networks to IP (internet protocol) technology. In light of such developments, OKI restructured its operations in April 2016, and eliminated the former Info-Telecom Systems segment to focus on new growth areas.

ICT segment is main earnings source: developing ATMs in emerging markets; targeting high-end domestic demand in EMS segment The company’s four segments are Information and Communication Technology (ICT), Mechatronics Systems, Printers, and Electronics Manufacturing Services (EMS). Shared Research understands that ICT and EMS generate stable earnings while Mechatronics Systems and Printers are struggling. In the ICT segment––the main source of earnings–– the company provides telecom systems and solutions to a range of industries and government agencies. The ICT segment is fueled by replacement demand from major companies. In the Mechatronics Systems segment, the company has a high domestic market share of cash-recycling ATMs (machines that use deposited cash for future withdrawals) for financial institutions and retailers. It is focusing on cash-handling machines and tapping into emerging markets overseas. In the Printers segment, around 80% of segment sales are from single and multifunction printers for the office printer market, but given the company’s low market share and high fixed costs, OKI is shifting its earnings structure to focus on specialty and professional printing markets. In the EMS segment, the company offers reliable, high-end electronics manufacturing services (EMS), while maintaining segment OPM of 5%. It expects continued EMS growth on expanded production bases and sales channels via acquisitions.

Segment composition

Source: Shared Research based on company data Earnings trends The ICT and EMS segments generate stable earnings, while Mechatronics Systems and Printers tend to be more volatile. The ICT segment is driven by replacement demand, primarily from large clients in a range of industries, and the segment’s earnings structure is mostly stable, excluding occasional extraordinary demand. In FY03/17, segment profitability improved partly due to organizational reform. In the Mechatronics Systems segment, profits fell significantly in FY03/17 as OKI suspended sales to a partner in China and cut back production. Sales in China are expected to bottom out in FY03/18 and the main focus going forward will be sales in emerging markets. Helped by acquisitions, the EMS segment is steadily growing in terms of scale, production capacity, and customer base, and is maintaining relatively high profit margins for an EMS business. In the Printers segment, the medium-term plan calls for major reforms, and the accompanying expenses are expected to temporarily pull down segment profits, but Shared Research anticipates positive results from this approach.

Medium-term strategy The company is looking to sustain growth over the medium to long term by channeling more management resources into growth areas. Under its new medium-term business plan (released in May 2017), the company is looking to increase its earning

03/89 Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2018.07.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

capacity and, as key performance indicators, is targeting an operating profit margin of 6% and equity ratio of at least 30%. In terms of sales and earnings, the plan calls for sales of JPY500bn and operating profit of JPY30bn; the company is also looking to get the shareholders equity on its balance sheet up to JPY120bn and pay a stable dividend. Although the ICT segment is stable primarily due to replacement demand, the market is mature, so OKI aims to use IoT to develop social infrastructure-related areas into a growth market. In Mechatronics Systems, the company expects growth through overseas expansion, particularly in emerging markets. In EMS, OKI plans to grow by increasing the number of client companies and sectors, and improving value-added (such as adding more functions to its ATMs). In Printers, as demand in the office printer market is shrinking, OKI is reviewing its product strategy and distribution (including sales locations) to reduce fixed costs and secure earnings. The company is looking to become a unique printer company and, towards this end, plans to leverage its advanced LED head technology and shift to a niche market strategy.

04/89 Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2018.07.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Key financial data

Income statement FY03/03 FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Init. Est. Sales 585,473 654,214 688,542 680,526 716,967 719,756 544,529 442,949 432,651 423,480 455,824 483,112 540,153 490,314 451,627 438,026 450,000 ICT ------207,700 222,300 191,174 177,391 172,716 185,000 Mechatronics Systems ------95,900 130,200 113,667 100,923 93,542 83,000 Printers ------124,831 129,271 124,647 112,389 108,905 105,000 EMS ------37,111 40,308 42,354 43,165 47,677 71,000 Others ------17,569 18,067 18,471 17,756 15,185 6,000 YoY -3.2% 11.7% 5.2% -1.2% 5.4% 0.4% -24.3% -18.7% -2.3% -2.1% 7.6% 6.0% 11.8% -9.2% -7.9% -3.0% 2.7% ICT ------7.0% -14.0% -7.2% -2.6% 7.1% Mechatronics Systems ------35.8% -12.7% -11.2% -7.3% -11.3% Printers ------3.6% -3.6% -9.8% -3.1% -3.6% EMS ------8.6% 5.1% 1.9% 10.5% 48.9% Others ------2.8% 2.2% -3.9% -14.5% -60.5% Gross profit 139,763 169,759 184,202 166,043 156,777 164,710 133,791 121,302 113,858 106,541 118,417 128,477 140,506 129,064 114,233 110,576 - GPM 23.9% 25.9% 26.8% 24.4% 21.9% 22.9% 24.6% 27.4% 26.3% 25.2% 26.0% 26.6% 26.0% 26.3% 25.3% 25.2% - SG&A expenses 138,395 148,153 156,982 155,449 163,359 159,325 134,420 114,793 107,549 94,560 104,942 101,281 108,090 110,469 111,688 102,854 - YoY -2.2% 7.1% 6.0% -1.0% 5.1% -2.5% -15.6% -14.6% -6.3% -12.1% 11.0% -3.5% 6.7% 2.2% 1.1% -7.9% SG&A rat io 23.6% 22.6% 22.8% 22.8% 22.8% 22.1% 24.7% 25.9% 24.9% 22.3% 23.0% 21.0% 20.0% 22.5% 24.7% 23.5% - Operating profit 1,368 21,606 27,220 10,593 -6,582 5,385 -629 6,508 6,308 11,980 13,475 27,196 32,415 18,594 2,545 7,721 14,000 ICT ------12,700 13,500 11,627 14,385 13,513 14,000 Mechatronics Systems ------10,700 12,400 6,017 -11,818 -5,093 0 Printers ------5,125 6,720 1,426 1,033 2,729 3,500 EMS ------1,656 2,027 2,284 2,058 2,233 4,500 Others ------2,844 3,467 4,185 3,431 2,022 500 Adjustments ------5,800 -5,700 -6,946 -6,545 -7,682 -8,500 YoY - 1,479.4% 26.0% -61.1% - - - - -3.1% 89.9% 12.5% 101.8% 19.2% -42.6% -86.3% 203.4% 81.3% ICT ------6.3% -13.9% 23.7% -6.1% 3.6% Mechatronics Systems ------15.9% -51.5% - - - Printers ------31.1% -78.8% -27.6% 164.2% 28.3% EMS ------22.4% 12.7% -9.9% 8.5% 101.5% Others ------21.9% 20.7% -18.0% -41.1% -75.3% OPM 0.2% 3.3% 4.0% 1.6% - 0.7% - 1.5% 1.5% 2.8% 3.0% 5.6% 6.0% 3.8% 0.6% 1.8% 3.1% ICT ------6.1% 6.1% 6.1% 8.1% 7.8% 7.6% Mechatronics Systems ------11.2% 9.5% 5.3% -11.7% -5.4% 0.0% Printers ------4.1% 5.2% 1.1% 0.9% 2.5% 3.3% EMS ------4.5% 5.0% 5.4% 4.8% 4.7% 6.3% Others ------16.2% 19.2% 22.7% 19.3% 13.3% 8.3% Non-operating income (expenses) -9,217 -9,147 -6,052 -3,353 -7,352 -10,087 -6,599 -5,188 -5,142 -2,905 6,829 9,459 5,513 -7,228 -4,911 794 - Financial income (expenses) -6,541 -6,390 -5,402 -4,334 -5,321 -5,540 -4,827 -3,810 -3,363 -2,980 -2,353 -1,623 -1,300 -810 -613 203 - Gains (losses) on foreign exchange -1,886 -2,039 561 1,403 78 -2,481 -784 -1,251 -816 -86 8,792 11,277 7,035 -6,374 -4,764 - - Equit y in earning of affiliat es -234 109 245 161 -75 140 -347 -127 299 94 84 339 652 423 473 563 - Other non-operating income (expenses) -556 -827 -1,456 -583 -2,034 -2,206 -641 - -1,262 67 306 -534 -874 -467 -7 28 - Recurring profit -7,849 12,459 21,168 7,240 -13,934 -4,702 -7,228 1,320 1,166 9,075 20,304 36,655 37,928 11,366 -2,366 8,515 - YoY - - 69.9% -65.8% - - - - -11.7% 678.3% 123.7% 80.5% 3.5% -70.0% - - - RPM -1.3% 1.9% 3.1% 1.1% -1.9% -0.7% -1.3% 0.3% 0.3% 2.1% 4.5% 7.6% 7.0% 2.3% -0.5% 1.9% - Extraordinary gains 4,382 -10,155 -2,623 3,381 -3,601 8,825 -30,696 -3,645 -31,288 -3,482 -1,670 -4,893 -396 323 16,039 -388 - Implied t ax rat e -78.6% 36.2% 38.1% 50.4% -113.9% 98.6% -20.5% -60.5% -5.4% 61.0% 25.6% 13.3% 14.3% 54.9% 67.5% 28.8% - Non-cont rolling int erest s -367 -140 -297 -211 -274 -369 -487 -103 -68 -627 -273 -187 924 1,332 254 108 - Ne t in c o m e attributable to parent company shareholders -6,560 1,328 11,174 5,058 -37,775 -313 -46,188 -3,836 -31,809 1,555 13,599 27,359 33,091 6,609 4,691 5,891 5,000 YoY - - 741.4% -54.7% ------774.5% 101.2% 21.0% -80.0% -29.0% 25.6% -15.1% Net margin -1.1% 0.2% 1.6% 0.7% -5.3% -0.0% -8.5% -0.9% -7.4% 0.4% 3.0% 5.7% 6.1% 1.3% 1.0% 1.3% 1.1% R&D expenses 15,217 16,117 21,987 19,614 21,305 18,231 16,825 14,624 13,768 13,109 13,982 12,959 13,755 13,317 10,275 8,500 10,000 Capit al expendit ures 25,327 26,813 37,834 33,505 37,714 25,432 15,883 8,560 7,985 9,333 13,091 10,164 11,461 11,660 10,600 7,000 12,000 Depreciat ion 39,927 33,577 34,245 34,691 34,957 34,814 25,815 15,515 14,095 12,680 13,021 14,249 14,464 14,382 13,991 12,978 - Per share data FY03/03 FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Shares issued (year end; mn) 611.7 611.6 611.6 611.5 683.2 683.1 682.9 682.4 731.0 730.8 728.0 727.8 868.5 868.4 87.2 87.2 - Treasury shares 0.4 0.5 0.7 0.9 1.1 1.2 1.3 1.8 0.4 0.6 3.5 3.6 3.7 3.8 0.4 0.4 - Shares outstanding (ex. treasury shares) 611.3 611.1 610.9 610.5 682.1 681.9 681.6 680.6 730.6 730.2 724.5 724.2 864.8 864.6 86.8 86.8 - Shares outstanding (average; mn) 612.0 611.7 611.6 611.5 647.7 683.1 683.0 682.6 723.0 730.9 728.9 727.9 824.4 868.4 86.8 86.8 - Book value per share (JPY) 166 181 204 219 145 123 61 59 11 13 34 79 138 123 1,116 1,154 - EPS (JPY) -10.7 2.2 18.3 8.3 -58.3 -0.5 -67.6 -5.6 -44.0 0.3 17.2 36.2 40.0 7.6 54.0 67.9 57.8 Dividend per share (JPY) - - 3.0 3.0 ------3.0 5.0 5.0 50.0 50.0 50.0 Balance sheet (JPYmn) FY03/03 FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Current assets 382,942 379,795 375,043 379,339 409,592 378,193 276,472 262,370 269,694 273,888 246,994 278,522 293,629 277,630 231,506 230,420 Cash and cash equivalents 29,293 58,825 49,441 38,919 49,900 49,994 64,428 75,158 80,679 79,513 36,406 50,901 53,632 47,829 54,164 48,698 Accounts receivable 169,904 155,313 145,952 150,841 169,431 171,492 118,469 118,416 121,049 112,137 123,886 133,383 137,895 135,910 101,572 97,936 Inventories 157,427 138,977 149,298 166,899 167,308 138,404 80,714 64,088 65,491 68,226 74,961 85,284 86,054 79,468 62,581 60,204 Allowance for doubtful accounts -2,289 -1,986 -1,798 -1,842 -1,904 -1,585 -1,284 -8,689 -12,389 -12,325 -7,600 -8,684 -7,940 -8,314 -7,377 -132 Other current assets 28,607 28,666 32,150 24,522 24,857 19,888 14,145 13,397 14,864 26,337 19,341 17,638 23,988 22,737 20,566 23,714 T angible fixed asset s 136,355 119,662 126,470 125,223 129,696 125,788 61,170 56,155 53,134 52,592 57,829 56,193 57,176 56,691 44,783 52,048 Int angible fixed asset s 16,686 12,925 14,605 16,068 17,593 15,733 12,315 10,060 7,791 7,026 7,655 9,600 10,240 9,637 10,891 9,952 Investments and other assets 86,907 97,177 91,895 98,227 75,947 54,655 48,229 49,306 38,201 34,557 36,843 68,196 78,311 67,816 73,544 79,356 Investment securities 39,751 52,958 56,389 66,524 54,484 32,690 34,134 37,369 28,845 26,418 28,570 32,634 38,432 32,604 49,576 48,760 Others 47,156 44,219 35,506 31,703 21,463 21,965 14,095 11,937 9,356 8,139 8,273 35,562 39,879 35,212 23,968 30,596 Total assets 622,891 609,560 608,015 618,859 632,830 574,371 398,188 377,894 368,822 368,065 349,322 412,514 439,358 411,776 360,724 371,778 Current liabilit ies 307,548 311,676 313,828 295,865 333,480 325,970 217,465 241,222 240,783 214,355 197,129 242,272 211,580 199,162 176,559 186,666 Accounts payable 80,772 93,440 100,737 96,630 101,358 86,898 52,466 54,930 53,942 66,307 63,416 73,312 79,053 65,477 58,685 67,124 Short-term debt 121,922 129,761 135,295 116,078 132,809 132,734 109,161 127,430 118,063 76,635 75,192 104,478 63,329 72,692 56,882 58,958 Accounts payable-other, accrued expenses 35,304 42,375 43,727 44,350 47,339 46,133 23,379 23,213 26,214 29,758 31,666 34,956 36,060 33,265 29,499 21,952 Income taxes payable 2,156 1,820 2,327 1,182 1,749 1,810 - - - - - 2,797 5,965 - - - Ot her current liabilit ies 67,394 44,280 31,742 37,625 50,225 58,395 32,459 35,649 42,564 41,655 26,855 26,729 27,173 27,728 31,493 38,632 Fixed liabilit ies 208,410 181,645 163,369 182,770 193,428 158,262 132,313 89,064 89,179 112,457 95,567 78,322 106,362 105,228 86,949 82,967 Long-term debt 115,061 107,155 70,360 102,729 110,530 102,646 82,605 45,036 33,987 59,843 45,332 14,526 44,241 49,391 30,129 22,956 Net assets 106,931 116,238 130,816 140,222 105,921 90,138 48,408 47,607 38,859 41,251 56,625 91,918 121,414 107,384 97,215 102,144 Shareholders' equity 107,908 109,186 120,311 121,983 91,752 92,230 44,873 40,991 43,006 44,547 57,366 83,504 107,090 109,460 107,757 109,215 Treasury stock -100 -141 -217 -280 -320 -344 -362 -408 -23 -38 -399 -432 -453 -468 -477 -563 Valuation and translation adjustments -6,585 1,313 4,516 11,903 7,597 -8,495 -3,492 -458 -4,697 -3,422 -1,293 5,230 12,536 -2,726 -10,878 -9,045 Non-cont rolling int erest s 5,608 5,739 5,989 6,335 6,538 6,324 6,948 6,994 470 46 473 3,104 1,708 572 242 1,873 T ot al liabilit ies and capit al 622,891 609,560 608,015 618,859 632,830 574,371 398,188 377,894 368,822 368,065 349,322 412,514 439,358 411,776 360,724 371,778 Cash flow statement (JPYmn) FY03/03 FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Cash flow s from operat ing act ivit ies 225 92,269 59,323 14,965 16,105 42,543 18,941 51,290 1,588 22,791 -11,619 31,868 40,999 -3,573 41,967 15,578 19,000 Cash flow s from invest ing act ivit ies 4,317 -19,202 -41,514 -28,555 -34,900 -22,876 57,457 -12,992 -4,423 -9,392 -9,214 -13,977 -18,583 -13,762 7,588 -10,485 -13,000 Cash flow s from financing act ivit ies -20,077 -43,564 -26,890 774 28,130 -19,401 -59,466 -31,323 11,204 -17,535 -21,092 -4,270 -20,724 11,138 -43,985 -11,512 - Financial rat ios FY03/03 FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Interest-bearing debt 236,983 236,916 205,655 218,807 243,339 235,380 191,766 172,466 152,050 136,478 120,524 119,004 107,570 122,083 87,011 81,914 Net cash -207,690 -178,091 -156,214 -179,888 -193,439 -185,386 -127,338 -97,308 -71,371 -56,965 -84,118 -68,103 -53,938 -74,254 -32,847 -33,216 ROA (RP-based) -1.2% 2.0% 3.5% 1.2% -2.2% -0.8% -1.5% 0.3% 0.3% 2.5% 5.7% 9.6% 8.9% 2.7% -0.6% 2.3% ROE -6.2% 1.3% 9.5% 3.9% -32.4% -0.3% -73.8% -9.4% -80.7% 3.9% 28.0% 37.8% 31.8% 5.8% 4.6% 6.0% Equit y rat io 16.3% 18.1% 20.5% 21.6% 15.7% 14.6% 10.4% 10.7% 10.4% 11.2% 16.1% 21.5% 27.2% 25.9% 26.9% 26.9% Source: Shared Research based on company data Note: The company conducted a 1-for-10 reverse stock split in October 2016. Dividend forecasts take into account the reverse stock split.

05/89 Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2018.07.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Recent updates Highlights

On July 27, 2018, Oki Electric Industry Co., Ltd. (OKI) announced earnings results for Q1 FY03/19; see the results section for details.

On June 22, 2018, the company announced a change in representative director.

As of the same day, representative director and chairman of the board, Hideichi Kawasaki, became director and chairman of the board.

On the same day, Shared Research updated the report following interviews with the company.

On May 8, 2018, the company announced earnings results for full-year FY03/18; see the results section for details.

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

06/89 Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2018.07.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Trends and outlook Quarterly trends and results

Income statement FY03/16 FY03/17 FY03/18 FY03/19 FY03/17 FY03/18 FY03/19 FY03/17 FY03/18 FY03/19 YoY chg (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1H 1H 1H Est. % of 1H Cons. Cons. Init. Est. Change % of FY Q1 Sales 109,775 113,226 114,628 152,685 93,185 106,070 105,647 146,725 90,431 103,543 106,005 138,047 88,948 199,255 193,974 196,000 45.4% 451,627 438,026 450,000 +11,974 19.8% -1,483 ICT 36,450 42,461 35,177 77,100 30,274 36,589 35,995 74,533 31,241 37,265 38,668 65,542 28,778 66,863 68,506 70,000 41.1% 177,391 172,716 185,000 +12,284 15.6% -2,463 Mechatronics Systems 30,846 24,133 32,562 26,200 22,192 26,771 27,253 24,707 21,234 24,176 24,324 23,808 17,643 48,963 45,410 40,000 44.1% 100,923 93,542 83,000 -10,542 21.3% -3,591 Printers 28,897 30,187 32,832 32,731 27,486 26,769 27,729 30,405 24,860 26,960 28,368 28,717 25,195 54,255 51,820 50,000 50.4% 112,389 108,905 105,000 -3,905 24.0% +335 EMS 11,316 13,100 12,800 18,300 15,635 33,000 47.4% - - 71,000 22.0% +4,319 Others 1,778 1,695 3,000 56.5% - - 6,000 28.3% -83 EMS (old) 9,309 11,263 9,517 12,265 9,314 11,550 10,117 12,184 10,310 11,931 11,716 13,720 - 20,864 22,241 33,000 43,165 47,677 71,000 +23,323 - Ot hers (old) 4,271 5,183 4,539 4,478 3,917 4,392 4,553 4,894 2,783 3,212 2,928 6,262 - 8,309 5,995 3,000 17,756 15,185 6,000 -9,185 - YoY 10.7% -12.7% -10.5% -16.7% -15.1% -6.3% -7.8% -3.9% -3.0% -2.4% 0.3% -5.9% -1.6% -10.6% -2.7% 1.0% -7.9% -3.0% 2.7% ICT - - - - -16.9% -13.8% 2.3% -3.3% 3.2% 1.8% 7.4% -12.1% -7.9% -15.3% 2.5% 2.2% -7.2% -2.6% 7.1% Mechatronics Systems - - - - -28.1% 10.9% -16.3% -5.7% -4.3% -9.7% -10.7% -3.6% -16.9% -10.9% -7.3% -11.9% -11.2% -7.3% -11.3% Printers -7.4% -0.7% -0.2% -5.9% -4.9% -11.3% -15.5% -7.1% -9.6% 0.7% 2.3% -5.6% 1.3% -8.2% -4.5% -3.5% -9.8% -3.1% -3.6% EMS ------38.2% ------Others ------4.7% ------EMS (old) 4.2% 0.0% 5.0% 11.0% 0.1% 2.5% 6.3% -0.7% 10.7% 3.3% 15.8% 12.6% - 1.4% 6.6% 48.4% 1.9% 10.5% 48.9% Ot hers (old) 3.6% 8.7% 1.1% -4.5% -8.3% -15.3% 0.3% 9.3% -29.0% -26.9% -35.7% 28.0% - -12.1% -27.8% -50.0% -3.9% -14.5% -60.5% Gross profit 29,585 28,649 30,714 40,116 24,566 24,174 25,332 40,161 21,067 24,620 27,462 37,427 23,676 48,740 45,687 114,233 110,576 - +2,609 GPM 27.0% 25.3% 26.8% 26.3% 26.4% 22.8% 24.0% 27.4% 23.3% 23.8% 25.9% 27.1% 26.6% 24.5% 23.6% 25.3% 25.2% - +3.3pp SG&A expenses 26,040 28,600 26,807 29,022 23,891 25,496 24,285 38,016 24,931 24,882 26,166 26,875 24,490 49,387 49,813 111,688 102,854 - -441 YoY 7.9% 5.2% 0.4% -3.5% -8.3% -10.9% -9.4% 31.0% 4.4% -2.4% 7.7% -29.3% -1.8% -9.6% 0.9% 1.1% -7.9% - SG&A rat io 23.7% 25.3% 23.4% 19.0% 25.6% 24.0% 23.0% 25.9% 27.6% 24.0% 24.7% 19.5% 27.5% 24.8% 25.7% 24.7% 23.5% - -0.0pp Operating profit 3,545 49 3,906 11,094 674 -1,321 1,046 2,146 -3,864 -261 1,295 10,551 -813 -647 -4,125 -3,000 27.1% 2,545 7,721 14,000 +6,279 -5.8% +3,051 ICT 541 306 462 10,400 -168 -123 1,516 13,160 -823 924 2,599 10,813 -524 -291 101 -500 104.8% 14,385 13,513 14,000 +487 -3.7% +299 Mechatronics Systems 3,772 -310 2,419 100 1,233 90 -481 -12,660 -1,521 -1,465 -1,617 -490 -1,524 1,323 -2,986 -1,500 101.6% -11,818 -5,093 0 +5,093 - -3 Printers 198 -690 1,438 480 387 -1,160 83 1,723 -460 1,038 1,389 762 1,869 -773 578 500 373.8% 1,033 2,729 3,500 +771 53.4% +2,329 EMS 383 600 700 1,500 666 1,500 44.4% 4,500 14.8% +283 Others 139 248 - 500 49.6% +109 Adjustments -2,046 -1,202 -1,769 - -1,579 -1,552 -1,353 -2,061 -1,581 -1,866 -1,914 -2,321 -1,550 -3,131 -3,447 -3,000 51.7% -6,545 -7,682 -8,500 -818 18.2% +31 EMS (old) 130 671 323 1,160 66 651 363 978 267 472 486 1,008 - 717 739 1,500 - 2,058 2,233 4,500 +2,267 - Ot hers (old) 948 1,286 1,022 929 734 773 922 1,002 255 635 351 781 - 1,507 890 - 3,431 2,022 500 -1,522 - YoY 303.3% -99.1% -55.5% -35.0% -81.0% - -73.2% -80.7% - - 23.8% 391.7% - - - - -86.3% 203.4% 81.3% ICT ------228.1% 26.5% - - 71.4% -17.8% - - - - 23.7% -6.1% 3.6% Mechatronics Systems - - - - -67.3% ------61.8% - - - - - Printers -91.4% - -20.9% -46.8% 95.5% - -94.2% 259.0% - - 1,573.5% -55.8% - - - -13.5% -27.6% 164.2% 28.3% EMS ------73.9% ------Others ------78.4% ------EMS (old) - -12.5% -1.5% 3.2% -49.2% -3.0% 12.4% -15.7% 304.5% -27.5% 33.9% 3.1% - -10.5% 3.1% 103.0% -9.9% 8.5% 101.5% Ot hers (old) 35.4% 44.2% 15.9% -6.4% -22.6% -39.9% -9.8% 7.9% -65.3% -17.9% -61.9% -22.1% - -32.5% -40.9% - -18.0% -41.1% -75.3% OPM 3.2% 0.0% 3.4% 7.3% 0.7% -1.2% 1.0% 1.5% -4.3% -0.3% 1.2% 7.6% -0.9% -0.3% -2.1% -1.5% 0.6% 1.8% 3.1% +1.3pp +3.4pp ICT 1.5% 0.7% 1.3% 13.5% -0.6% -0.3% 4.2% 17.7% -2.6% 2.5% 6.7% 16.5% -1.8% -0.4% 0.1% -0.7% 8.1% 7.8% 7.6% -0.3pp +0.8pp Mechatronics Systems 12.2% -1.3% 7.4% 0.4% 5.6% 0.3% -1.8% -51.2% -7.2% -6.1% -6.6% -2.1% -8.6% 2.7% -6.6% -3.8% -11.7% -5.4% 0.0% +5.4pp -1.5pp Printers 0.7% -2.3% 4.4% 1.5% 1.4% -4.3% 0.3% 5.7% -1.9% 3.9% 4.9% 2.7% 7.4% -1.4% 1.1% 1.0% 0.9% 2.5% 3.3% +0.8pp +9.3pp EMS ------3.4% 4.6% 5.5% 8.2% 4.3% - - 4.5% - - 6.3% +0.9pp Others ------7.8% - - - 14.6% - - - - - 8.3% +6.8pp EMS (old) 1.4% 6.0% 3.4% 9.5% 0.7% 5.6% 3.6% 8.0% 2.6% 4.0% 4.1% 7.3% - 3.4% 3.3% 4.5% 4.8% 4.7% 6.3% +1.7pp Ot hers (old) 22.2% 24.8% 22.5% 20.7% 18.7% 17.6% 20.3% 20.5% 9.2% 19.8% 12.0% 12.5% - 18.1% 14.8% - 19.3% 13.3% 8.3% -5.0pp Non-operating income (expenses) 2,384 -3,302 -2,823 -3,487 -7,077 -1,222 3,551 -163 381 400 318 -305 -843 -8,299 781 -500 -4,911 794 -1,000 -1,794 -1,224 Financial income (expenses) 108 -406 -77 -435 59 -274 -63 -335 568 -129 -132 -104 160 -215 439 -613 203 - -408 Gains (losses) on foreign exchange 2,124 -3,191 -2,366 -2,941 -7,139 -918 3,793 -500 -183 601 190 -608 -844 -8,057 418 -4,764 - - -661 Others 152 295 -380 -111 3 -30 -179 672 -4 -72 260 407 -159 -27 -76 466 591 -155 Recurring profit 5,929 -3,253 1,083 7,607 -6,403 -2,543 4,597 1,983 -3,483 139 1,613 10,246 -1,656 -8,946 -3,344 -3,500 47.3% -2,366 8,515 13,000 +4,485 -12.7% +1,827 YoY 491.1% - -92.1% -47.8% - - 324.5% -73.9% - - -64.9% 416.7% - - - - - 52.7% RPM 5.4% -2.9% 0.9% 5.0% -6.9% -2.4% 4.4% 1.4% -3.9% 0.1% 1.5% 7.4% -1.9% -4.5% -1.7% -0.5% 1.9% 2.9% +0.9pp +2.0pp Extraordinary gains (losses) 116 -64 -33 304 -40 -2,530 -243 18,852 -704 -203 851 -332 - -2,570 -907 16,039 -388 - +704 Income taxes 3,442 -779 4,039 -290 -276 2,406 2,870 4,235 705 -217 3,434 -1,578 155 2,130 488 9,235 2,344 - -550 Implied t ax rat e 56.9% 23.5% 384.7% -3.7% 4.3% -47.4% 65.9% 20.3% -16.8% 339.1% 139.4% -15.9% -9.4% -18.5% -11.5% 67.5% 28.8% - Non-cont rolling int erest s 563 267 306 196 83 35 57 79 138 20 -31 -235 -11 118 158 -254 -108 - -149 Net income attributable to parent company shareholders 3,166 -2,271 -2,681 8,395 -6,085 -7,443 1,541 16,678 -4,753 172 -1,001 11,473 -1,824 -13,528 -4,581 -6,000 30.4% 4,691 5,891 5,000 -891 -36.5% +2,929 YoY 35,077.8% - - -42.5% - - - 98.7% - - - -31.2% - - - -29.0% 25.6% -15.1% Net margin 2.9% -2.0% -2.3% 5.5% -6.5% -7.0% 1.5% 11.4% -5.3% 0.2% -0.9% 8.3% -2.1% -6.8% -2.4% 1.0% 1.3% 1.1% -0.2pp +3.2pp EBITDA (OP before depreciation and amortization) 6,949 3,544 7,581 14,902 4,058 2,062 4,469 5,947 -738 3,108 4,446 13,883 2,085 6,120 2,370 - 16,536 20,699 - 2,823 YoY 67.0% -61.3% -39.4% -29.1% -41.6% -41.8% -41.0% -60.1% - 50.7% -0.5% 133.4% - -41.7% -61.3% -49.9% 25.2% - EBITDA margin 6.3% 3.1% 6.6% 9.8% 4.4% 1.9% 4.2% 4.1% -0.8% 3.0% 4.2% 10.1% 2.3% 3.1% 1.2% 3.7% 4.7% - +3.2pp R&D expenses 2,432 3,692 2,909 4,284 2,074 2,886 2,343 2,972 1,866 2,251 1,880 2,503 - 4,960 4,117 10,275 8,500 10,000 - -1,866 Depreciat ion and amort izat ion 3,404 3,495 3,675 3,808 3,384 3,383 3,423 3,801 3,126 3,369 3,151 3,332 2,898 6,767 6,495 13,991 12,978 - -228 EBITDA 4,446 13,883 2,085 16,536 20,699 +2,823 EBITDA margin 6.3% 3.1% 6.6% 9.8% 4.4% 1.9% 4.2% 4.1% -0.8% 3.0% 4.2% 10.1% 2.3% - - 3.7% 4.7% - +3.2pp Inventories 98,508 99,929 104,934 79,468 88,732 83,293 87,825 62,581 73,040 72,160 76,638 60,204 19,747 83,293 72,160 62,581 60,204 - -53,293 YoY -2.6% -3.5% -11.4% -7.7% -9.9% -16.6% -16.3% -21.3% -17.7% -13.4% -12.7% -3.8% -73.0% -16.6% -13.4% -21.3% -3.8% - Days in inventory 105.0 107.0 111.4 74.7 111.8 95.8 97.2 64.4 89.2 83.9 86.4 62.0 55.9 19.2 17.1 - USD/JPY 121.4 122.3 121.5 115.3 108.2 102.4 109.5 113.6 111.1 111.0 113.0 108.3 109.1 105.3 111.1 108.4 110.9 110.0 -0.9 -2.0 YoY 18.9% 17.8% 6.2% -3.2% -10.9% -16.3% -9.9% -1.5% 2.7% 8.4% 3.2% -4.7% -1.8% -13.6% 5.5% -9.8% 2.3% -0.8% USD/JPY (period end) 122.5 120.0 120.5 112.7 103.0 101.1 116.5 112.2 112.0 112.7 113.1 106.8 110.5 103.0 112.7 112.2 106.8 110.0 +3.2 -1.5 EUR/JPY 134.2 136.0 133.0 127.1 122.0 114.3 117.9 121.1 122.3 130.4 133.0 133.2 130.1 118.1 126.3 118.8 129.7 130.0 +0.3 +7.8 YoY -4.2% -1.3% -6.9% -5.1% -9.1% -16.0% -11.4% -4.8% 0.2% 14.1% 12.8% 10.0% 6.4% -12.6% 6.9% -10.4% 9.1% 0.3% EUR/JPY (period end) 137.2 134.9 131.7 127.6 114.4 113.3 122.7 119.8 128.0 132.8 135.0 131.5 127.9 114.4 132.8 119.8 131.5 130.0 -1.5 -0.1 CNY/JPY 19.6 19.3 18.9 17.6 16.5 15.3 16.0 16.6 16.2 16.6 17.1 17.0 17.1 15.9 16.4 16.1 16.7 - +0.9 YoY 19.4% 14.8% 1.8% -7.8% -15.6% -20.6% -15.4% -5.9% -1.9% 8.4% 6.8% 2.9% 5.6% -18.1% 3.1% -14.6% 3.9% - BRL/JPY 39.5 34.8 31.6 29.6 30.8 31.5 32.8 36.7 34.2 34.2 35.1 34.2 31.3 31.2 34.4 32.9 34.6 - -2.9 YoY -13.7% -24.0% -29.7% -29.1% -22.0% -9.3% 3.7% 24.0% 10.9% 8.5% 7.1% -6.7% -8.4% -16.0% 10.4% -2.7% 4.9% - EUR/USD 1.11 1.11 1.10 1.10 1.13 1.12 1.08 1.08 1.10 1.16 1.17 1.22 1.22 1.12 1.12 1.10 1.16 - +0.1 YoY -19.3% -16.1% -12.3% -2.0% 2.0% 0.3% -1.6% -2.0% -2.5% 3.7% 8.8% 13.1% 10.5% 1.2% -0.3% -0.7% 5.4% - Source: Shared Research based on company data Note: Quarterly data derived by subtracting cumulative results for previous quarter from relevant cumulative results (e.g. Q3 figures are 1H results subtracted from cumulative Q3 results).

07/89 Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2018.07.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

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

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

 Sales were roughly even YoY when excluding the impact of the consolidated fiscal period change for the Brazilian subsidiary (JPY3.3bn decrease in sales) and the consolidation of OKI Electric Cable (JPY3.1bn increase in sales) Information and Communication Technology (ICT): Lower sales from the backlash of large-scale network-related projects ▷ booked in FY03/18. Operating profit rose JPY300mn, absorbing lower sales due to the increase in the percentage of highly profitable projects Mechatronics Systems: Sales fell and operating loss was even YoY due to higher sales and lower profits from the unification of ▷ the fiscal period in the Brazilian subsidiary in FY03/18

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

 Impact of unifying fiscal period: Resulted in JPY3.3bn drop in sales and JPY500mn increase in operating profits, narrowing the overall operating loss Printers: Sales roughly even YoY if one excludes higher sales from the depreciation of the yen. Operating profit up JPY2.3bn on ▷ structural reforms and forex-related gains

 Breaking down the operating profit increase, JPY700mn was due to forex changes in the Euro market, JPY800mn was due to cutting fixed costs, including JPY300mn from structural reforms, and JPY700mn was due to temporary factors EMS: Sales up 38.2% due to the impact of consolidating OKI Electric Cable and taking over an air and space related PCB ▷ business. Operating profit up JPY300mn due to higher volume from increased sales Segment changes: Reorganized the EMS segment in Q1. Shifted some businesses included in the Other category to the EMS ▷ segment Q2 and beyond: Maintain higher than expected profits seen in Q1 in the Printers segment. Aim to surpass plan by reaping ▷ rewards of structural reforms in Mechatronics Systems from Q2 on

Quarterly performance (JPYbn)

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

(JPYbn) Sales YoY (right axis) (JPYbn) Operating profit OPM (right axis) 180 160 20% 16 16% 140 12 10.2% 12% 120 10% 9.3% 7.3% 7.6% 100 8 6.7% 6.9% 8% 80 0% 4.5% 4.4% 3.2%3.4% 4 4% 60 0.9% 1.0%1.5% 1.2% 0.0% 0.7% 40 -10% -2.5% -1.2% -0.3% 0 -0.9% 0% 20 0 -20% -4 -4% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Source: Shared Research based on company data

08/89 Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2018.07.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

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

Mechatronics Systems structural reforms In the Mechatronics Systems segment, the company has executed the following structural reforms. In Japan, in April 2018 it shuffled 115 employees within the organization as decided in FY03/18. Overseas, the company executed its strategy according to schedule, primarily in Brazil. The first set of reforms which would be cost-intensive began in July. The company plans to execute the remaining reforms in stages later. From Q2 on, the company expects segment profit to improve as reform-related costs are booked as extraordinary losses.

Q2 and beyond outlook As Q1 results were largely according to expectations, operating profit in the Printers segment was higher than forecasts. The Company aims to maintain the higher than expected profits pace in the Printers segment and see the positive impact of structural reforms in the Mechatronics Systems segment reflected in the results from Q2 on as planned. In the Printers segment, it is important to note that the temporary factors in Q1 (JPY700 increase in profits YoY due to higher sales of consumable products resulting from reorganization in North American dealers) will dissipate going forward. The following impact is expected to be felt due to forex fluctuations: 1) Sales: -JPY300mn against USD, -JPY300mn against EUR; 2) Operating profit: +JPY200mn against USD, -JPY200mn against EUR; 3) Non-operating income: -JPY150mn against USD, no impact against EUR.

Factors affecting operating profit (JPYbn)

8 8 8 -0.8 8 -0.8 7 7 0.1 0.0 7 0.3 1.5 7 6 -3.9 6 6 -3.9

5 1.0 6 2.3 5 0.0 0.0 0.5 5 4 Q1 FY03/18 Change in Price Procurement Forex Fixed cost Q1 FY03/19 5 Operating volume and changes cost impact reduction Operating -0.0 0.3 profit product mix reductions and profit 4 value Q1 FY03/18 ICT Mechatronics Printers EMS Others Adjustments Q1 FY03/19 engineering Operating profit Systems Operating profit

(JPYbn) (JPYbn)

ICT segment results

Performance

(JPYbn, %) Operating profit Sales (right axis) OPM (JPYbn) (JPYbn, %) Operating profit OPM Sales (right axis) (JPYbn) 77.1 20 74.5 80 18 222.3 240 207.7 205.0 65.5 16 191.2 185.0 15 13.2 60 177.4 172.7 14 180 42.510.4 10.8 37.3 38.7 12 10 36.5 35.2 36.6 36.0 40 30.3 31.2 28.8 10 8.1 7.8 7.6 7.8 120 8 5 20 6.1 6.1 6.1 2.6 0.5 6 0.3 0.5 1.5 0.9 60 0 0 4 -0.2 -0.1 -0.8 -0.5 2 12.7 13.5 11.6 14.4 13.5 14.0 16.0 -5 -20 0 0 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/16 FY03/17 FY03/18 FY03/19 Est. Est. Source: Shared Research based on company data

09/89 Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2018.07.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Information and Communication Technology (ICT): Lower sales from the backlash of large-scale network-related projects booked in FY03/18. Operating profit rose JPY300mn, absorbing lower sales due to the increase in the percentage of highly profitable projects For Q1 FY03/1 9, the ICT segment reported sales of JPY28.8bn and an operating loss of JPY500mn. Sales were down JPY2.5bn YoY (-7.9% YoY) and operating loss narrowed JPY300mn YoY. Sales fell YoY due to the booking of large-scale network-related projects in FY03/18, despite higher sales for transportation systems.

Operating profit was in line with forecasts as changes to the sales mix and lower costs absorbed the impact of lower sales. In FY03/19, the company plans to further strengthen the several IoT-related joint businesses with 49 companies as of May 2018 it （ ） established in FY03/18. It also is working hard to build up profits at existing businesses. Oki targets segment operating profit of JPY500mn for FY03/19, but expects the operating profit margin to drop 0.3pp to 7.4% due to upfront spending for growth businesses. Profit contributions from these growth businesses are not expected until the period covered by the next medium-term plan.

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

(JPYbn) (JPYbn) Existing markets (existing base businesses) Change (left axis) Growth markets (growth businesses) Change (left axis) 250 25 222.3 207.7 200 191.2 185.0 20.0 173.4 20 163.7 171.0 150 15 14.0 100 10 9.0 50 6.0 14.6 7.3 14.0 5.0 5.0 5 4.0 4.0 0 -9.7 -17.8 -50 -31.1 0 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/17 FY03/18 FY03/19 FY03/20 Est. Est. Est. Est. Source: Shared Research based on company data

Mechatronics Systems segment results

Performance

20 Operating profit Sales (right axis) OPM 40 Operating profit OPM Sales (old segment; right axis) Sales (new segment; right axis) 30.8 32.6 15 160 15 26.2 26.8 27.3 30 11.2% 24.1 24.7 24.2 24.3 23.8 22.2 21.2 9.5% 17.6 10 140 10 20 7.5% 5.3% 3.8 0.1 5 120 5 2.4 10 1.2 10.7 12.4 6.0 0.0% 9.0 0.1 0 0 0 100 -11.8 -5.1 0.0 -0.3 -0.5 -0.5 -1.5 -1.5 -1.6 -1.5 -5.4% -5 -10 -5 80

-10 -20 -10 -11.7% 60

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

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

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Structural reforms: Shifted domestic managerial resources in April, with additional transfers performed in stages. Reforms at overseas location starting in July, largely on schedule The company began the first wave of structural reforms to key overseas businesses in July. The company expects the impact of these reforms to be reflected in results from Q2. In FY03/18, the company booked around JPY1.5bn in operating losses between Q1 and Q3. However, the company expects for operating loss to narrow from Q2 and be eliminated for full-year results. In Q1, the number of ATM units sold (3,600 units: 700 units for domestic banks, 1,900 for domestic distributors, 300 units in China, 700 units in other locations. +900 units YoY) was in line with forecasts. The company judged the market environment harshly in the initial forecast, making it unnecessary to revise forecasts down.

Printers segment results

Performance

Operating profit Sales (right axis) OPM Operating profit Sales (right axis) 6.0 60 10 200 5.0 50 7.8 7.9 6.8 6.7 7.0 4.0 40 5.1 32.7 30.4 28.9 30.2 32.8 27.7 28.4 28.7 4.1 27.5 26.8 24.9 27.0 25.2 5 3.5 160 3.0 30 2.7 1.7 1.9 2.0 1.4 1.4 20 1.4 1.0 1.0 0.6 0.8 1.0 0.5 0.4 10 0.2 0.1 0 120 0.0 0 -1.3 -1.0 -0.7 -0.5 -10 -5 80 -2.0 -1.2 -20 -4.6 -4.3 -3.0 -30 -4.0 -40 -10 -8.8 40 (JPYbn, %)Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 FY03/19 (JPYbn) FY03/16 FY03/17 FY03/18 FY03/19 (JPYbn) Est. (JPYbn)

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

EMS segment results

Performance

(JPYbn, %) Operating profit Sales (right axis) OPM (JPYbn) (JPYbn) Operating profit OPM 9 18 7.0 6.3% 7% 15.6 8 16 5.8% 13.7 6.0 5.4% 6% 7 14 5.0% 12.3 12.2 4.7% 4.8% 4.8% 4.7% 11.6 11.9 11.7 5.0 4.3% 4.5% 4.5 5% 6 11.3 12 10.1 10.3 9.5 5 9.3 9.3 10 4.0 3.5 4% 4 8 3.0 2.3 3% 2.0 2.2 3 6 1.7 2.1 2.0 1.3 1.5 1.6 2% 2 4 1.2 1.0 1.0 1.0 1% 0.7 0.7 0.5 0.5 0.7 1 0.1 0.3 0.1 0.4 0.3 2 0 0 0.0 0% -0.2 -0.7% -1 -2 -1.0 -1% Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 FY03/20 FY03/16 FY03/17 FY03/18 FY03/19 Est. Source: Shared Research based on company data

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

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OKI Electric Cable, the company can provide one-stop production from materials to product completion. The company aims to strengthen its sales activities and improve its profitability. While higher costs have been seen in procuring materials, the company aims to improve this area as well. Segment changes: Reorganized the EMS segment in Q1. Shifted some businesses included in the Other category to the EMS segment

Other segment results

Performance

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

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

For previous quarterly earnings, see Historical performance section.

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Full-year company forecasts

FY03/16 FY03/17 FY03/18 FY03/19 Est. (JPYmn) 1H 2H FY 1H 2H FY 1H 2H FY 1H 2H FY Sales 223,001 267,313 490,314 199,255 252,372 451,627 193,974 244,052 438,026 196,000 254,000 450,000 ICT 78,911 112,263 191,174 66,863 110,528 177,391 68,506 104,210 172,716 70,000 115,000 185,000 Mechatronics Systems 54,979 58,688 113,667 48,963 51,960 100,923 45,410 48,132 93,542 40,000 43,000 83,000 Printers 59,084 65,563 124,647 54,255 58,134 112,389 51,820 57,085 108,905 50,000 55,000 105,000 EMS 20,572 21,782 42,354 20,864 22,301 43,165 22,241 25,436 47,677 33,000 38,000 71,000 Other 9,454 9,017 18,471 8,309 9,447 17,756 5,995 9,190 15,185 3,000 3,000 6,000 YoY -2.5% -14.1% -9.2% -10.6% -5.6% -7.9% -2.7% -3.3% -3.0% 1.0% 4.1% 2.7% ICT - - -14.0% -15.3% -1.5% -7.2% 2.5% -5.7% -2.6% 2.2% 10.4% 7.1% Mechatronics Systems - - -12.7% -10.9% -11.5% -11.2% -7.3% -7.4% -7.3% -11.9% -10.7% -11.3% Printers -4.1% -3.1% -3.6% -8.2% -11.3% -9.8% -4.5% -1.8% -3.1% -3.5% -3.7% -3.6% EMS 1.9% 8.3% 5.1% 1.4% 2.4% 1.9% 6.6% 14.1% 10.5% 48.4% 49.4% 48.9% Other 6.3% -1.7% 2.2% -12.1% 4.8% -3.9% -27.8% -2.7% -14.5% -50.0% -67.4% -60.5% Gross profit 58,234 70,830 129,064 48,740 65,493 114,233 45,687 64,889 110,576 - - YoY 0.6% -14.3% -8.1% -16.3% -7.5% -11.5% -6.3% -0.9% -3.2% - - GPM 26.1% 26.5% 26.3% 24.5% 26.0% 25.3% 23.6% 26.6% 25.2% - - SG&A expenses 54,640 55,829 110,469 49,387 62,301 111,688 49,813 53,041 102,854 - - YoY 6.5% -1.7% 2.2% -9.6% 11.6% 1.1% 0.9% -14.9% -7.9% - - SG&A rat io 24.5% 20.9% 22.5% 24.8% 24.7% 24.7% 25.7% 21.7% 23.5% - - Operating profit 3,594 15,000 18,594 -647 3,192 2,545 -4,125 11,846 7,721 -3,000 17,000 14,000 ICT 847 10,780 11,627 -291 14,676 14,385 101 13,412 13,513 -500 14,500 14,000 Mechatronics Systems 3,462 2,555 6,017 1,323 -13,141 -11,818 -2,986 -2,107 -5,093 -1,500 1,500 0 Printers -492 1,918 1,426 -773 1,806 1,033 578 2,151 2,729 500 3,000 3,500 EMS 801 1,483 2,284 717 1,341 2,058 739 1,494 2,233 1,500 3,000 4,500 Other 2,234 1,951 4,185 1,507 1,924 3,431 890 1,132 2,022 0 500 500 Adjustments -3,248 -3,698 -6,946 -3,131 -3,414 -6,545 -3,447 -4,235 -7,682 -3,000 -5,500 -8,500 YoY -45.3% -42.0% -42.6% - -78.7% -86.3% - 271.1% 203.4% - 43.5% 81.3% ICT - - -13.9% - 36.1% 23.7% - -8.6% -6.1% - 8.1% 3.6% Mechatronics Systems - - -51.5% -61.8% ------Printers - -29.5% -78.8% - -5.8% -27.6% - 19.1% 164.2% -13.5% 39.5% 28.3% EMS 39.3% 2.1% 12.7% -10.5% -9.6% -9.9% 3.1% 11.4% 8.5% 103.0% 100.8% 101.5% Other 40.3% 4.1% 20.7% -32.5% -1.4% -18.0% -40.9% -41.2% -41.1% -100.0% -55.8% -75.3% OPM 1.6% 5.6% 3.8% -0.3% 1.3% 0.6% -2.1% 4.9% 1.8% -1.5% 6.7% 3.1% ICT 1.1% 9.6% 6.1% -0.4% 13.3% 8.1% 0.1% 12.9% 7.8% -0.7% 12.6% 7.6% Mechatronics Systems 6.3% 4.4% 5.3% 2.7% -25.3% -11.7% -6.6% -4.4% -5.4% -3.8% 3.5% 0.0% Printers -0.8% 2.9% 1.1% -1.4% 3.1% 0.9% 1.1% 3.8% 2.5% 1.0% 5.5% 3.3% EMS 3.9% 6.8% 5.4% 3.4% 6.0% 4.8% 3.3% 5.9% 4.7% 4.5% 7.9% 6.3% Other 23.6% 21.6% 22.7% 18.1% 20.4% 19.3% 14.8% 12.3% 13.3% 0.0% 16.7% 8.3% Recurring profit 2,676 8,690 11,366 -8,946 6,580 -2,366 -3,344 11,859 8,515 -3,500 16,500 13,000 YoY -72.1% -69.3% -70.0% - -24.3% - - 80.2% - - 39.1% 52.7% RPM 1.2% 3.3% 2.3% -4.5% 2.6% -0.5% -1.7% 4.9% 1.9% -1.8% 6.5% 2.9% Net income attrib. to parent company shareholders 895 5,714 6,609 -13,528 18,219 4,691 -4,581 10,472 5,891 -6,000 11,000 5,000 YoY -91.3% -75.0% -80.0% - 218.8% -29.0% - -42.5% 25.6% - 5.0% -15.1% Net margin 0.4% 2.1% 1.3% -6.8% 7.2% 1.0% -2.4% 4.3% 1.3% -3.1% 4.3% 1.1% EBITDA 10,493 22,483 32,976 6,120 10,416 16,536 2,370 18,329 20,699 14,000 YoY -21.3% -33.0% -29.7% -41.7% -53.7% -49.9% -61.3% 76.0% 25.2% -32.4% EBITDA margin 4.7% 8.4% 6.7% 3.1% 4.1% 3.7% 1.2% 7.5% 4.7% 3.1% R&D expenses 6,124 7,193 13,317 4,690 5,585 10,275 4,117 4,383 8,500 10,000 Capit al expendit ures 11,660 10,600 7,000 12,000 Depreciat ion 6,899 7,483 14,382 6,767 7,224 13,991 6,495 6,483 12,978 - USD/JPY 121.9 118.4 120.1 105.3 111.5 108.4 111.1 110.7 110.9 110.0 YoY 18.3% 1.4% 9.5% -13.6% -5.8% -9.8% 5.5% -0.7% 2.3% -0.8% USD/JPY (period end) 120.0 112.7 112.7 101.1 112.2 112.2 112.7 106.8 106.8 110.0 EUR/JPY 135.1 130.1 132.6 118.1 119.5 118.8 126.3 133.1 129.7 130.0 YoY -2.7% -6.1% -4.4% -12.6% -8.1% -10.4% 6.9% 11.4% 9.1% 0.3% EUR/JPY (period end) 134.9 127.6 127.6 113.3 119.8 119.8 132.8 131.5 131.5 130.0 CNY/JPY 19.5 18.3 18.9 15.9 16.3 16.1 16.4 17.1 16.7 - YoY 17.0% -3.1% 6.5% -18.1% -10.8% -14.6% 3.1% 4.8% 3.9% - CNY/JPY (period end) 19.0 17.4 17.4 15.2 16.3 16.3 17.0 17.0 17.0 - BRL/JPY 37.1 30.6 33.9 31.2 34.7 32.9 34.6 34.6 34.6 - YoY -18.9% -29.4% -24.0% -16.0% 13.4% -2.7% 10.8% -0.4% 4.9% - BRL/JPY (period end) 30.4 31.3 31.3 31.1 35.7 35.7 35.6 32.8 32.8 - Source: Shared Research based on company data

Initial company forecast for FY03/19 (out May 8, 2018) Progress versus targets in the new medium-term business plan Looking back at FY03/18 In FY03/18, the first year under the company's “Medium-term Management Plan 2019,” operating profit of JPY7.7bn was JPY5.3bn below initial forecast of JPY13.0bn, mainly due to a large (JPY6.1bn) shortfall at the Mechatronics Systems segment. This reflected a JPY6.0bn operating loss for the overseas business in total, as a) in Brazil, cash-recycling ATMs business at the startup period was slower than expected and failed to offset fixed costs, such that operating losses did not narrow (FY03/18 operating loss of more than JPY4.0bn), b) in China, the ATM market is shrinking as the move toward a cashless society continues, posting an operating loss due to litigation costs, and c) competition heightened in India, which is widely viewed as a growth market as demand for ATMs in China has slowed, in addition, Oki was affected by nonperforming loan write-offs by some state-owned banks. Operating loss of over JPY1.0bn in other overseas markets was a negative factor as well.

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When reporting Q3 results, Oki said it was considering a review of longer-term strategies because the business climate overseas had departed from its expectations, and the company went into more details at the business strategy briefing held in May 2018. As is described in more details later, the changes involve a strategic review in response to changes in the operating environment (strengthening of recurring business in Japan, and decision to commence module sales overseas), and domestic and international cost structure reforms aimed at returning to profit.

Turning to the segment level (progress in parentheses is Shared Research estimate), a) at the ICT segment (generally firm), performance of existing businesses was pretty much as planned if not for some projects being pushed back, and a shift of resources to growth businesses also proceeded apace, with new businesses growing sales by JPY5.0bn and marking good progress toward the three-year sales growth target of JPY16.0bn, b) at the Mechatronics Systems segment (undershooting target), losses failed to narrow in Brazil, partly because cash recycling ATMs were slow to gain traction, while in India the company switched focus to growing market share as competition intensified, c) in the Printers segment, structural reforms are going ahead but shifting to the industry printer market is taking longer than anticipated, and d) in the EMS segment (generally firm), capacity constraints led to opportunity losses but earnings nonetheless posted solid growth, especially in PCBs for semiconductor-related equipment, while in Q4 the factory automation business was bolstered by the inclusion of Oki Electric Cable.

Position within medium-term plan Oki has positioned FY03/19, the second year under the “Mid-term Management Plan 2019,” as a year in which to: a) in the ICT segment, accelerate the shift of management resources toward growth areas, b) in the Mechatronics Systems segment, progressively change tack with a view to regaining profitability, c) in the Printers segment, strengthen business foundations and create the underpinnings for sales and profit growth in the industry printer market, and d) in the EMS segment, harness synergies with new group company Oki Electric Cable, in targeting the fast-growing FA and automotive equipment markets.

Numerical targets As shown in the preceding figure, in FY03/19 the company is projecting operating profit growth across all segments despite forecasting decreased sales at the Mechatronics Systems and Printers segments, as detailed below.

Factors affecting operating profit (by factor at left, by segment at right) (JPYbn)

20 18 18 16 2.3 -1.5 16 1.5 -0.8 1.5 -3.5 14 0.8 14 -1.0 12 12 5.1 7.5 10 10 8 0.5 8 14.0 14.0 6 6 4 7.7 4 7.7 2 2 0 0 FY03/18 Change in Price Procurement Forex Fixed cost FY03/19 FY03/18 Change in Price Procurement Forex Fixed cost Fixed cost FY03/19 Operating volume and changes cost impact reduction Operating Operating volume and changes cost impact reduction reduction Operating profit product mix reductions profit profit product mix reductions profit and value and value engineering (JPYbn) engineering (JPYbn) Source: Shared Research based on company data

ICT segment

(JPYbn, %) Operating profit Sales (right axis) OPM (JPYbn) (JPYbn, %) Operating profit OPM Sales (right axis) (JPYbn) 77.1 20 74.5 80 18 222.3 240 207.7 205.0 65.5 16 191.2 185.0 15 13.2 60 177.4 172.7 14 180 42.5 10.4 10.8 37.3 38.7 12 10 36.5 35.2 36.6 36.0 40 30.3 31.2 10 8.1 7.8 7.6 7.8 120 8 5 20 6.1 6.1 6.1 2.6 0.5 6 0.3 0.5 1.5 0.9 60 0 0 4 -0.2 -0.1 -0.8 2 12.7 13.5 11.6 14.4 13.5 14.0 16.0 -5 -20 0 0 Q1 Q3 Q1 Q3 Q1 Q3 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/16 FY03/17 FY03/18 Est. Est. Source: Shared Research based on company data

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For the ICT segment, the company is forecasting growth in both sales and profit in FY03/19, with sales rising JPY12.3bn YoY to JPY185.0bn and operating profit increasing JPY500mn YoY to JPY14.0bn. Oki projects higher sales for both existing markets (up JPY7.3bn YoY) and growth markets (up JPY5.0bn). After the operating profit margin jumped to 8.1% in FY03/17 on the back of organizational and other structural reforms that were implemented at the beginning of the fiscal year, in FY03/18 OPM fell 0.3pp to 7.8% (versus initial plan for a 0.5pp decline to 7.4%) and in FY03/19 the company is looking for OPM to drop another 0.3pp to 7.6%. The projected decline in the operating profit margin and operating profit at the segment does not reflect an expectation of a decline in efficiency but rather a planned increase (under the company's medium-term business plan) in R&D spending and other investments in new businesses that will help the company sustain growth and maintain a stable revenue and earnings stream in the years ahead. The company aims to recoup this spending (in the form of margin improvement) during the course of the next medium-term plan.

Framework of medium-term plan

Strategic direction and numerical targets under new medium-term plan: Looking to maintain stable earnings and sustain ▷ growth by creating new businesses. Targeting sales of JPY205.0bn with 8% operating profit margin

 Of targeted JPY28.0bn increase in sales, expecting JPY12.0bn from existing markets and JPY16.0bn from new markets; plans call for heavy investment spending early on with rebound in profit margin in latter half Growth strategy: Maintain business scale and profitability in existing markets while developing social infrastructure (growth ▷ market) Existing markets: Domestic market is stable (mainly due to replacement demand) but mature, so sales growth is an issue. ▷ Maintain existing markets as cash cows

 Aiming for JPY12.0bn increase in sales: After bottoming out in FY03/17, sales expected to rise steadily through final year of medium-term plan; transportation infrastructure-related demand may come on top of this

 Restructuring segments: In April 2016 OKI merged the financial and telecom divisions, and renamed the Info-Telecom System segment (one of its original businesses) the ICT segment

 Goals of restructuring: Use technology and solutions developed in each segment across all sectors, streamline use of technicians and engineers New areas: Mature domestic market overall but some growth markets drawing investment. Focusing on niche markets ▷  Social infrastructure system market: Additional ICT investment needed to help solve societal problems (rising cost of infrastructure maintenance, resource shortages); leverage sensing technology (both fiber optic and acoustic) to capture

IoT demand (such as monitoring aging infrastructure)

Progress in implementing medium-term plan

FY03/18: Broadly as expected excluding JPY9.7bn sales decline in existing markets and JPY5.0bn impact of projects being pushed ▷ back. Sales in growth markets up JPY6.0bn, as planned. Existing markets: Pretty much as expected, despite deteriorating market environment and stiff competition. Postponing projects ▷ to FY3/19 affected network business and municipal disaster prevention systems. Growth markets: Joint businesses established with 49 companies, mostly in area of transportation infrastructure. Strengthening ▷ product development in light of faster-than-projected market transformation.

 Initiatives: Increasing ICT segment participation in public projects, strengthen an initiation to offer IoT solutions for social infrastructure by accelerating fusion of information, communications, and public sector projects FY03/19 Expecting JPY7.3bn increase in sales, with contributions from projects in existing markets being pushed back from ▷ ： FY03/18. Targeting further JPY5.0bn sales increase in growth markets, by bringing in around 100 personnel from elsewhere in the

company.

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 Existing markets: Projecting sales growth, mostly in ocean acoustic technology Growth markets: Anticipating growth in sales of next-generation transportation infrastructure solutions. Looking to find ▷ private -sector applications of ocean acoustic technologies. Planning aggressive investment over course of medium-term plan and beyond

 Macro environment: Amid steady (IDC forecast of 1.3%) average annual growth in Japan’s ICT market as a whole, the company sees the domestic IoT market registering double-digit expansion.

 Transportation infrastructure: A top priority for Oki. Marketed systems for private sector by leveraging expertise the company accumulated in road and public sector projects

 Launched ITS service LocoMobi2.0, distribution verification testing of ETC2.0  Opened ITS test course at Honjo plant. Actively involved in 5G and autonomous driving technologies. Also testing cellular-V2X (5G x autonomous driving) technology in partnership with five other companies (NTT DoCoMo, Qualcomm, Continental, Nissan Motor, and Ericsson).

 Ocean acoustic technology: A core technology, in which Oki is highly competitive. The company aims to create new businesses by growing the business in three stages

 STEP 1: Leveraging existing products and technologies to foster new applications for core products. Already trialing usage in coastal security

 Existing core technologies: Underwater acoustic technology, product evaluation facilities, highly environment-resistant mounting technologies, construction and installation

 Existing products: Acoustic localization and communication devices (ALOC), sensors (optical fiber, ultrasound, acceleration, image, acoustic)

 STEP 2: Progressive rollout of marine data collection solutions, for ocean resource development, coastal surveillance, facility surveillance, etc.

 STEP 3: Establish a marine database, and use of that infrastructure to create and offer value-added solutions  Marine database: marine surveillance, maritime safety, environmental protection, fish distribution, fish catches forecasting, etc.

Existing market sales (left) and growth market sales (right) (JPYbn) (JPYbn) Existing markets (existing base businesses) Change (left axis) Growth markets (growth businesses) Change (left axis) 250 25 222.3 207.7 200 191.2 185.0 20.0 173.4 20 163.7 171.0 150 15 14.0 100 10 9.0 50 6.0 14.6 7.3 14.0 5.0 5.0 5 4.0 4.0 0 -9.7 -17.8 -50 -31.1 0 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/17 FY03/18 FY03/19 FY03/20 Est. Est. Est. Est. Source: Shared Research based on company data

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Joint initiatives (with 49 companies as of May 2018)

Category System examples Partners Category System examples Partners Transportation Runaway car detection NEXCO East Medical First visit reception system Solast o ECT2.0 demonstration experiment Marubeni Financial, SQRC® ATM without personal seal and Denso logist ics card Construction Motion mapping technology T obishima Customer traffic forecast using Beisia infrastructure, visitor count, attribute disaster measurement, visitor flow analysis prevention Housing soundness monitoring Sumitomo Forestry Manufacturing Optimization of production through Toyota Tsusho cent ralizing informat ion on product ion equipment Infrastructure inspection system Nippon Engineering Consultants Equipment maintenance and prediction FUJI (former Fuji Machine by vibration sensor and operation log Manufacturing) Source: Shared Research based on company data

Mechatronics Systems segment

20 Operating profit Sales (right axis) OPM 40 Operating profit OPM Sales (old segment; right axis) Sales (new segment; right axis) 30.8 15 160 15 32.626.2 26.8 27.3 30 11.2% 24.1 24.7 24.2 24.3 23.8 22.2 21.2 9.5% 10 140 10 20 7.5% 5.3% 3.8 0.1 5 120 5 2.4 10 1.2 10.7 12.4 6.0 0.0%0.0 9.0 0.1 0 0 0 100 -11.8 -5.1 -0.3 -0.5 -0.5 -5.4% -1.5 -1.5 -1.6 -5 -10 -5 80

-10 -20 -10 -11.7% 60

-15 -12.7 -30 -15 40 (JPYbn, %) Q1 Q3 Q1 Q3 Q1 Q3 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 FY03/20 FY03/16 FY03/17 FY03/18 (JPYbn) (JPYbn) Est. (JPYbn) Source: Shared Research based on company data

For the Mechatronics Systems segment, the company is forecasting lower sales and improved profits in FY03/19, with sales falling JPY10.5bn YoY to JPY83.0bn and operating profit rising JPY5.1bn YoY to JPY0.0bn. Sales are expected to be lower due to stiffer price competition overseas, and completion of some cash handling machine projects in Japan. The company plans to eliminate operating loss via business costs reform whose effects are expected to absorb a decrease of OP due to lower sales. In Japan, the company seeks to grow sales through an increase in equipment shipments and by increasing the weighting of recurring businesses. In FY03/19 the focus again will be on eliminating losses, by “implementing new business strategies addressing changes in the operating environment,” and “undertaking cost structure reforms.” In terms of overseas ATM shipments, the company forecasts China shipments of 3,500 units (down 100 units YoY) and sees shipments to other overseas markets increasing to 4,000 units (up 500 units YoY).

The overhaul of business costs includes: (1) a human resource shift (JPY1.0bn); shift of 180 domestic personnel to new business areas, including growth areas in the Other segment, (2) structural reform of overseas bases (JPY3.0bn, mostly in Brazil); downsizing the China operation through structural reform, while practicing business selectivity and with focus in Brazil, with optimal use of human resources, (3) lower variable costs byJPY1.0bn; reducing CoGS via design VE (value engineering) and cross-departmental procurement, and (4) a review of investment timing and content (JPY500mn). The company will embark on the human resource shift in Q1, and overseas structural reforms in Q2.

Brazil accounted for the bulk (over JPY4.0bn) of the segment’s JPY5.1bn operating loss in FY03/18, with the Brazil business booking losses of around JPY1.0bn each quarter. This was because the company kept fixed costs at a certain level in anticipation of swift uptake of its cash-recycling ATMs. Uptake was unexpectedly slow, though, resulting in a JPY1.0bn or so loss in Q1, an irregular six-month accounting period, and similar losses in Q2 and onward. The company expects this level of losses to continue in Q1 FY03/19, but in Q2 it will embark on structural reforms, the results of which it hopes will exceed losses either in Q2 or in Q3 onward. In China, the segment broke even at the operating level in FY03/18; the loss of a few hundred million yen was attributable to litigation costs and quality-related costs at the manufacturing division (factories). The company expects no such expenses in FY03/19, and aims to break even in China with the aid of structural reforms.

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Framework of medium-term plan

Strategic direction and numerical targets under new medium-term plan: Looking to put Mechatronics segment back on ▷ growth track by expanding sales in emerging markets; targeting sales of JPY120.0bn and operating profit of JPY9.0bn  Of projected JPY19.1bn increase in sales, expects only JPY700mn from domestic market versus JPY18.4bn from overseas, with sales in China down JPY6.0bn, Brazil up JPY9.0bn, India up JPY8.0bn, and other regions up JPY7.0bn Growth strategy: Expand domestic sales of cash-handling machines to distributors and retailers; for overseas, gain share in ▷ emerging markets and expand sales of cash-recycling ATMs Domestic market: Mitigate risk of falling ATM sales to financial institutions by increasing sales of cash-handling machines to ▷ distributors and retailers

Overseas markets: Lessen dependence on specific regions, develop strategies to meet regional needs; rebuild operations in ▷ China and Brazil, expand in other emerging markets

 China: Establish stable earnings base. After securing a solid foothold based on replacement demand for ATMs and ATM repair/maintenance services in urban areas, move to expand sales in rural districts

 Brazil: Ramp up previously delayed rollout of cash-recycling ATMs, expand sales and earnings  Emerging markets: Given the ample growth potential in India, aim to grow business to JPY10bn or more

 Product strategy: Roll out RG8 for emerging markets, use a single platform for ATMs to harness volume efficiency and drive profit growth Cash-handling machines: No more large projects expected in FY03/18, but aim to grow domestic sales by expanding sales of ▷ new coin changers and other types of cash-handling machines to distributors and retailers.

Progress in implementing medium-term plan

FY03/18 operating profit/loss: Overall loss of JPY5.1bn, as operating profit in Japan insufficient to offset a loss of over JPY4.0bn in ▷ Brazil, and a loss in excess of JPY1.0bn for other overseas markets

 Operating income JPY6.1bn below plan, mostly attributable to Brazil (impact of just over JPY3.0bn by Shared Research estimates), and affected more than anticipated by stiffer competition in India and quality issues with strategic products

 Changes in operating environment: reduction in new demand amid shift to cashless society (China); increased competition for ATM business overseas (emerging markets), and structural reforms in banking sector (Brazil and elsewhere)

 Challenges: Addressing changes in operating environment (reviewing strategies and taking swifter action), with view to shifting to profitability as soon as possible FY03/19: Need for strategic course correction, as deterioration in operating environment (especially in Brazil and India) has been ▷ worse than assumed in medium-term business plan Overseas business: Transition from original business model based on sale of finished products to one based on module sales and ▷ partnerships

 Mainstay products: Shift in focus from ATMs to core modules (Bill Recycle Module (BRM), recognition units, etc.) and original equipment manufacturing (OEM)

 Traditionally, the company has refrained from module sales in order to maintain credibility, but it is reviewing that strategy in view of changes in the operating environment

 Focus is on BRM sales in conjunction with appropriate local partners, also offering modules for new devices for financial transactions arising out of increase in cashless transactions, diversification of payment options

 Continuing to sell finished products in markets and regions where such products are still in demand  Sales structure: transformation from sales structure segmented by region to one based on module sales. Key lies in forging

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agreements with partners

 Production structure: Responding to decline in sales of entire ATM units by reforming three factories (Tomioka in Japan, Shenzhen in China, and Brazil) for optimal area production Domestic business: Offering not only equipment, but also recurring services including subsequent maintenance and ▷ management

Printers segment

Operating profit Sales (right axis) OPM Operating profit Sales (right axis) 6.0 60 10 200 5.0 50 7.8 7.9 6.8 6.7 7.0 4.0 40 5.1 32.7 30.4 28.9 30.2 32.8 27.7 28.4 28.7 4.1 27.5 26.8 24.9 27.0 5 3.5 160 3.0 30 2.7 1.7 2.0 1.4 1.4 20 1.4 1.0 1.0 0.6 0.8 1.0 0.5 0.4 10 0.2 0.1 0 120 0.0 0 -1.3 -1.0 -0.7 -0.5 -10 -5 80 -2.0 -1.2 -20 -4.6 -4.3 -3.0 -30 -4.0 -40 -10 -8.8 40 (JPYbn, %) Q1 Q3 Q1 Q3 Q1 Q3 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 FY03/19 (JPYbn) FY03/16 FY03/17 FY03/18 (JPYbn) Est. (JPYbn) Source: Shared Research based on company data

For the Printers segment, the company forecasts sales to fall JPY3.9bn YoY to JPY105.0bn and operating profit to increase JPY800mn to JPY3.5bn. It anticipates sales growth of roughly JPY4.0bn in mainstay non-office printers (industry printers and industry-vertical printers), but sees overall sales declining due to a JPY7.0bn or so fall in sales of office printers. By expanding sales of non-office printers, though, the company aims to ensure that segment sales bottom in FY03/19 and turn upward from FY3/20.

Industry-vertical printers: Existing hardware for offices customized to suit particular industries and applications (healthcare, logistics,

manufacturing, etc.), which is expected to contribute t sales growth with very little development expenses.

Oki expects to compensate for lower sales with a full-year contribution from structural reforms undertaken in FY03/18, and a JPY2.0bn or so reduction in fixed costs via restructuring of some overseas operations, planned for FY03/19.

Framework of medium-term plan

Strategic direction and numerical targets under new medium-term plan: Stabilize earnings with a strategy shift; look for ▷ breakeven point based on product type, market, and competitors, aiming for 7% OPM

 Numerical targets: Sales of JPY105.0bn, a JPY7.4bn decline versus FY03/17 with office printer sales down JPY16.0bn; Operating profit of JPY7.0bn, an increase of JPY6.0bn versus FY03/17 Shifting management resources from the office printer market to industry printer market (specialty and professional printing) ▷  Office printer market accounts for over 80% of sales. OKI aims for specialty and professional printer markets to account for over 50% of operating profit in the medium term

 Office printer market will remain a valuable source of earnings in near term; also investing heavily in new industrial applications to grow the business into a new revenue source

 Considering further restructuring in FY03/18, which should lead to growth from FY03/19 Structural reforms: In the office printer market, streamline structure (heavy fixed costs) by reviewing product lineup and sales ▷ organization (offices and distribution channels)

 At overseas sales company, looking to streamline operations (including downsizing to better match sales potential) and strengthen oversight; at the head office, looking to improve operational efficiency and expand product development

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 Reform is urgent due to low 2–3% global market share. OKI is considering how to balance fixed factory costs Strategic market: Aiming to increase sales of printers for specialty industrial applications and professional use; targets niche ▷ markets of small-lot production of a wide variety of printers for specialty use

Progress in implementing medium-term plan

FY03/18: Structural reform is almost completed as planned. Effects of a fixed cost cut (about JPY1.4bn in FY03/18 and a projected ▷ JPY2.0bn or so in FY03/19) have appeared FY03/19: Formation of a cost structure whereby segment can be profitable with sales of JPY100.0bn; continue shift of ▷ management resources toward non-office printers Non-office printers: rollout of new products with a view to improving marginal profit ratio; further work on adjusting and ▷ strengthening global sales organization

 Marginal profit ratio: non-office printers tend to have higher marginal profit ratio than office printers; hence the move to enhance portfolio of non-office printers

 New products: Rollout of general office printers customized for specific applications, targeting niche markets in bid to create business model whereby profit can be made on sale of printers alone

 Leverage strength in LED technology in ad hoc rollout from 2H of label printers, t-shirt printers, ticket printers, A3 color printers, etc.

 Establishing business structure: Set up an office charged with global replication of regional success stories

 Strengthening business structure: Beef up global engineering center supporting customization Office printers: Pursuit of greater sales efficiency; increase in collaboration, OEM business ▷

Sales breakdown

(JPYbn) Office Industry vertical Specialty and wide format Office Industry vertical Specialty and wide format 100% 90 16% 90% 18% 21% 23% 80 83 80% 8% 11% 70 76 13% 70% 69 17% 60 60% 50 50% 40 40% 76% 72% 66% 30 30% 60% 22 17 19 20% 20 10 10% 14 9 12 0% 0 FY03/18 FY03/19 FY03/20 FY03/21 FY03/18 FY03/19 FY03/20 FY03/21 Est. Est. Est. Est. Est. Est. Source: Shared Research based on company data

EMS segment

(JPYbn, %) Operating profit Sales (right axis) OPM (JPYbn) (JPYbn) Operating profit OPM 9 18 7.0 6.3% 7% 8 16 5.8% 13.7 6.0 5.4% 6% 7 14 5.0% 12.3 12.2 4.7% 4.8% 4.8% 4.7% 11.6 11.9 11.7 5.0 4.3% 4.5% 4.5 5% 6 11.3 12 10.1 10.3 9.5 5 9.3 9.3 10 4.0 3.5 4% 4 8 3.0 2.3 3% 2.0 2.2 3 6 1.7 2.1 2.0 1.3 1.5 1.6 2% 2 4 1.2 1.0 1.0 1.0 1% 0.7 0.7 0.5 0.5 1 0.1 0.3 0.1 0.4 0.3 2 0 0 0.0 0% -0.2 -0.7% -1 -2 -1.0 -1% Q1 Q3 Q1 Q3 Q1 Q3 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 FY03/20 FY03/16 FY03/17 FY03/18 Est. Source: Shared Research based on company data

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For the EMS segment (which as of FY03/19 includes three companies transferred from the Other business segment), the company is forecasting sales of JPY 71.0bn in FY03/19 (up JPY23.3bn) and operating profit of JPY4.5bn (up JPY2.3bn). For the segment in its original form, the company forecasts a JPY5.3bn (11%) increase in sales, from JPY47.7bn to JPY53.0bn. For Oki Electric Cable, which was added to consolidated accounts only in Q4 FY03/18 (contributing JPY3.0bn to sales and JPY100–200mn to operating profit), the company projects a full-year contribution of JPY13.0bn (up JPY10.0bn) and operating profit of JPY1.0bn or so, while for Oki Engineering (reliability testing) and Oki Techno Power Systems (power sources), it anticipates a JPY200mn increase in sales, from JPY4.8bn to JPY5.0bn. The company seeks to meet its medium-term sales target (JPY60.0bn) for the segment’s original businesses by keeping the same pace of growth (+10.5%) seen in FY03/18, with a further JPY20.0bn contribution (forecast of JPY18.0bn in FY03/19) from the three recently added companies.

While Oki expects to sustain the current level of profitability for existing EMS businesses, it anticipates that higher sales will be offset by upfront spending on expanding the work force, as well as a JPY4.0bn investment in increasing PCB production capabilities, a shortage of which led to opportunity losses in FY03/18.

Framework of medium-term plan

Strategic direction under medium-term business plan: Looking to continue expanding business targeting JPY100.0bn annual ▷ sales in the future

 Numerical targets: Sales of JPY60.0bn, a JPY16.8bn increase over FY03/17 with roughly JPY5.0bn from new acquisitions and JPY6.0bn from new markets/new customers; operating profit of JPY3.5bn, a JPY1.4bn increase over FY03/17 Continuing stable growth, high-end EMS strategy. Focusing on high-mix, low-volume manufacturing, and demand from ▷ customers who are closing factories. Considering acquisitions. High-end EMS: Specialist in high-mix, low-volume manufacturing, not mass production. Aiming to boost profitability through ▷ high quality, investments in inspection equipment and license acquisition. Customer breakdown: Around 25% of customers are from the former Info-Telecom Systems segment. Building a structure not ▷ dependent on particular industries or customers. New markets/new customers: In addition to full-scale push into aerospace market following recent acquisition, OKI plans to ▷ begin handling production of electronic parts for cars starting in FY03/18 (for a new client OKI won on its own) M&A: Acquired customers and technology through takeovers of printed circuit board (PCB) businesses of Tanaka Kikinzoku ▷ Kogyo (2012), Yokogawa Electric (2015), and Nippon Avionics (2016).

Progress in implementing medium-term plan FY03/18: Performance strong, mostly in semiconductor-related markets, but production capacity a problem. Margins squeezed ▷ by higher parts and materials costs, as well as investment in new capacity. Transfer: Three companies transferred from Other business segment. Medium-term plan targets sales of JPY60.0bn from original ▷ EMS businesses, plus JPY20.0bn contribution from three additional companies, for total of JPY80.0bn.

 Three companies: Oki Electric Cable acquired via TOB (projected sales of JPY13.0bn in FY03/19), and two other companies (JPY5.0bn) FY03/19: Seeking to hasten profit growth by further strengthening “monozukuri” capabilities and expanding production capacity, ▷ also reinforcing EMS group collaboration in sales, design, and manufacturing.

 Further strengthening “monozukuri” capabilities and expanding production capacity: Investing JPY4.0bn in FY03/19, with view to eliminating production bottlenecks (in PCBs, for example)

 Reinforcing EMS group collaboration: Incorporating three recently added companies in cross-group collaboration, including optical allocation of business resources

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 Adding factory automation (FA) to strategic areas of focus. Planning to maximize group synergies by drawing on Oki Electric Cable’s existing customer base. Sales (left), sales by product category (center), sales by market (right) (JPYbn) (JPYbn) (JPYbn) (JPYbn) ICT Measurement Three newly consolidated companies Reliability assessment 90 90 Industrial FA Existing EMS business 80.0 Design and manufacturing Medical Infrastructure 80 80 3.5 80 Aerospace, automotive, other Other 71.0 Key components 9.5 70 20.0 70 7.0 18.0 60 60 60 8.5 47.7 43.0 50 43.2 50 7.5

40 40 40 3.0 19.0 5.0 30 60.0 30 53.0 30.2 47.7 12.0 20 43.2 20 20 16.0 33.5 12.0 10 10 13.0 8.0 12.5 0 0 0 FY03/17 FY03/18 FY03/19 FY03/20 FY03/17 FY03/20 FY03/17 FY03/20 Est. Est. Est. Est. Source: Shared Research based on company data

Previous company forecasts and results

Initial Estimates versus Results FY03/13 Results FY03/14 Results FY03/15 Results FY03/16 Results FY03/17 Results FY03/18 Results (JPYmn) Cons. vs. Est. Cons. vs. Est. Cons. vs. Est. Cons. vs. Est. Cons. vs. Est. Cons. vs. Est. Sales Initial FY Est. 440,000 +3.6% 460,000 +5.0% 525,000 +2.9% 545,000 -10.0% 500,000 -9.7% 455,000 -3.7% FY Est. as of Q1 447,000 +2.0% 460,000 +5.0% 525,000 +2.9% 545,000 -10.0% 500,000 -9.7% 455,000 -3.7% FY Est. as of Q2 445,000 +2.4% 480,000 +0.6% 535,000 +1.0% 515,000 -4.8% 465,000 -2.9% 455,000 -3.7% FY Est. as of Q3 452,000 +0.8% 484,000 -0.2% 535,000 +1.0% 515,000 -4.8% 465,000 -2.9% 455,000 -3.7% Results 455,824 483,112 540,153 490,314 451,627 438,026 Operating profit Initial FY Est. 18,500 -27.2% 22,000 +23.6% 28,500 +13.7% 30,000 -38.0% 20,000 -87.3% 13,000 -40.6% FY Est. as of Q1 18,500 -27.2% 22,000 +23.6% 28,500 +13.7% 30,000 -38.0% 20,000 -87.3% 13,000 -40.6% FY Est. as of Q2 14,000 -3.8% 24,000 +13.3% 30,000 +8.1% 17,000 +9.4% 15,000 -83.0% 13,000 -40.6% FY Est. as of Q3 10,000 +34.8% 26,000 +4.6% 30,000 +8.1% 17,000 +9.4% 15,000 -83.0% 13,000 -40.6% Results 13,475 27,196 32,415 18,594 2,545 7,721 Recurring profit Initial FY Est. 15,500 +31.0% 19,000 +92.9% 25,500 +48.7% 28,000 -59.4% 18,000 -113.1% 12,000 -29.0% FY Est. as of Q1 15,500 +31.0% 19,000 +92.9% 25,500 +48.7% 28,000 -59.4% 18,000 -113.1% 12,000 -29.0% FY Est. as of Q2 11,000 +84.6% 24,000 +52.7% 29,000 +30.8% 14,500 -21.6% 6,000 -139.4% 12,000 -29.0% FY Est. as of Q3 11,500 +76.6% 34,000 +7.8% 31,000 +22.3% 14,500 -21.6% 6,000 -139.4% 12,000 -29.0% Results 20,304 36,655 37,928 11,366 -2,366 8,515 Net income Initial FY Est. 11,000 +23.6% 11,500 +137.9% 17,500 +89.1% 22,000 -70.0% 12,000 -60.9% 8,000 -26.4% attributable to FY Est. as of Q1 11,000 +23.6% 11,500 +137.9% 17,500 +89.1% 22,000 -70.0% 12,000 -60.9% 8,000 -26.4% parent company FY Est. as of Q2 6,500 +109.2% 15,000 +82.4% 21,000 +57.6% 10,000 -33.9% 3,000 +56.4% 8,000 -26.4% shareholders FY Est. as of Q3 8,000 +70.0% 25,000 +9.4% 24,000 +37.9% 10,000 -33.9% 3,000 +56.4% 8,000 -26.4% Results 13,599 27,359 33,091 6,609 4,691 5,891 Source: Shared Research based on company data

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Medium-term strategy (as announced in May 2018)

Old segment performance (left: sales, right: operating profit)

(JPYbn) ICT Printers Information (old segment) (JPYbn) Telecom (old segment) EMS Others 40 Semiconductors 740 717 689 681 30 700 654 720 605 585 20 600 545 540 483 490 456 10 500 443 433 423 0 400 300 -10 200 -20 ICT Printers Information (old segment) Telecom (old segment) -30 EMS Others 100 Semiconductors Adjustments Operating profit 0 -40 FY03/01 FY03/06 FY03/11 FY03/16 FY03/01 FY03/06 FY03/11 FY03/16

New segment performance (left: sales, middle: operating profit, right: OPM)

ICT ICT Mechatronics Systems Printers EMS Ot hers ICT Mechatronics Systems Printers EMS Mechatronics Systems 600 40 Ot hers Adjustments Printers EMS 10% 500 40.3 2.0 Consolidated total 30 37.1 42.4 1.7 6.7 8% 400 129.3 43.2 49.0 5.1 124.8 124.6 20 12.4 2.3 112.4 106.0 10.7 1.4 300 2.1 2.5 6% 130.2 6.0 1.0 1.0 95.9 113.7 105.0 10 100.9 4% 200 12.7 13.5 11.6 14.4 13.5 0 100 207.7 222.3 191.2 2% 177.4 183.0 -5.8 -5.7 -6.9 -6.5 -11.8 0 -10 0% FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYbn) Est. (JPYbn) Est. Est. Source: Shared Research based on company data

Growth strategy OKI has four segments: Information and Communication Technology (ICT), Mechatronics Systems, Printers, and Electronic Manufacturing Services (EMS). Shared Research understands that ICT and EMS form a stable earnings platform while Mechatronics Systems and Printers are struggling. The company aims for medium-term growth by concentrating its management resources in growth areas.

Growth strategy by segment ICT: Earnings stable primarily due to replacement demand but the market is mature, so use IoT to develop social infrastructure into a growth sector Mechatronics Systems: Grow through overseas expansion, primarily in emerging markets EMS: Grow through increasing client companies and sectors and improving value-added aspects Printers: Amid shrinking office printer demand, reviewing product strategy and distribution (including sales locations) to reduce fixed costs and secure earnings; its aim is to become a unique printer company, leveraging its LED head technology and shifting to a niche market strategy

Medium-term plan FY03/18 will be the first year under the company's new medium-term business plan that will guide operations through FY03/20. Under the new plan the company is looking to increase its earning capacity and, as key performance indicators, is targeting an operating profit margin of 6% and shareholders’ equity ratio of at least 30%. In terms of sales and earnings, the plan calls for FY03/20 sales of JPY500bn and operating profit of JPY30bn; the company is also looking to get the shareholders equity on its balance sheet up to JPY120bn and pay a stable dividend.

Overview of previous medium-term business plan Under the previous medium-term business plan (which ended in FY03/17), the company set its sights on an operating profit margin of 6%, an equity ratio of 30%, and a debt-to-equity ratio of less than 1.0x. For sales and earnings, the previous plan targeted FY03/17 sales of JPY560.0bn (with JPY220.0bn from overseas), operating profit of JPY34.0bn, and stable dividend

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(assuming average exchange rate of JPY95/USD and JPY120/EUR). In the end, the company met the target for its debt-to-equity ratio but finished short in other areas, despite shareholders equity ratio improving by 5pp and operating profit having surpassed the target at one point during the three-year period.

The company's success in meeting the performance targets laid out under its previous medium-term plan was clearly mixed. Overall, the company did succeed in improving its financial position, improving the profitability of its ICT business, and planting the seeds of some new growth businesses. However, the company recognizes that its efforts to improve profitability were somewhat lacking. Put another way, the company would say that it has yet to develop its earning capacity. The company attributes its failure on this front to a number of factors, including 1) sudden changes in overseas market that it failed to respond to in a timely fashion; 2) over-optimism and a lack of objectivity with regard to the strategies and management of overseas businesses; and 3) a companywide earnings model that was overly dependent on the Chinese market. In short, the company was admittedly weak on the governance of its overseas businesses.

In response to these issues, the company has made improving its earning capacity the number-one goal under its new business plan. Towards this end, the company plans to accelerate its efforts to improve the governance structure at the group level while looking to sustain growth through a combination of restructuring at existing mainstay businesses and the fostering of new growth businesses.

Still, the company can be commended for maintaining an annual dividend per share of JPY50 (JPY5 before the share consolidation) for all three years.

Overview of new medium-term business plan As mentioned previously, under the new medium-term business plan the company is targeting a 6% operating profit margin and equity ratio of 30% or higher. The company will be focusing on its operating profit margin as one of its key performance indicators because it is difficult to fund dividends and growth investments without stable earnings from operations. The central theme of the current business plan is to make OKI a company that can secure stable earnings and maintain an operating profit margin of 6%, by placing utmost focus on strengthening earning capacity and laying the foundation for sustained growth and evolution.

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

The plans for each segment under the new business plan are as follows:

ICT: to create a stable earnings base while growing new business ▷ Mechatronics Systems: to put the business back on the growth track ▷ Printers: to shift strategy with the aim of creating a more consistently profitable business ▷ EMS: to grow sales and get closer to its ultimate goal of creating a JPY100bn business ▷

Put another way, the company aims to establish a solid base for earnings with the ICT segment, work on turning around the Mechatronics Systems and Printer segments as soon as possible, then add to this by building up new growth business in areas such as social infrastructure and ATMs for emerging markets. The strategies for individual segments are outlined in the following sections.

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

Strategy: Information and Communication Technology (ICT)

Performance (left: old segments, right: new segments)

(JPYbn, %) (JPYbn) Operating profit Depreciation OPM EBITDA margin Sales (right axis) Operating profit OPM Sales (right axis) 40 373.1 400 16 222.3 240 352.7 359.0 352.5 338.0 207.7 35 350 14 303.6 304.8 191.2 302.3 293.0 177.4 183.0 30 267.4 260.7 267.2 300 12 180 25 250 25.9 10 23.8 8.1 23.4 7.4 20 200 8 120 18.7 6.1 6.1 6.1 15 150 15.8 16.5 6 15.0 14.7 10 100 10.9 4 60 8.1 5 7.1 7.0 7.7 7.4 50 5.6 5.7 5.4 2 4.2 0 3.2 -1.5 -1.7 0 12.7 13.5 11.6 14.4 13.5 2.3 0 0 -0.4 -0.5 -5 -50 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 (JPYbn) Est. (JPYbn) Source: Shared Research based on company data

Strategic direction and numerical targets under new medium-term plan: Looking to maintain stable earnings and sustain ▷ growth by creating new businesses. Targeting sales of JPY205.0bn with 8% operating profit margin

 Of targeted JPY28.0bn increase in sales, expecting JPY12.0bn from existing markets and JPY16.0bn from new markets; plans call for heavy investment spending early on with rebound in profit margin in latter half Growth strategy: Maintain business scale and profitability in existing markets while developing social infrastructure (growth ▷ market)

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Existing markets: Domestic market is stable (mainly due to replacement demand) but mature, so sales growth is an issue. ▷ Maintain existing markets as cash cows  Aiming for JPY12.0bn increase in sales: After bottoming out in FY03/17, sales expected to rise steadily through final year of medium-term plan; transportation infrastructure-related demand may come on top of this

 Restructuring segments: In April 2016 OKI merged the financial and telecom divisions, and renamed the Info-Telecom System segment (one of its original businesses) the ICT segment

 Goals of restructuring: Use technology and solutions developed in each segment across all sectors, streamline use of technicians and engineers New areas: Mature domestic market overall but some growth markets drawing investment. Focusing on niche markets ▷  Social infrastructure system market: Additional ICT investment needed to help solve societal problems (rising cost of infrastructure maintenance, resource shortages); leverage sensing technology (both fiber optic and acoustic) to capture IoT demand (such as monitoring aging infrastructure)

Growth strategy In the ICT segment the company primarily provides systems for the financial, telecom, and social infrastructure industries. Customers are mainly major companies and government agencies. OKI has been providing systems to handle counter, call center, and control operations for many years so the segment is mainly driven by replacement demand. The domestic market is mature but is somewhat cyclical and the frequency and timing of replacement varies by industry and customer, but overall the scale of the business is stable. Still, it is hard to expect much sales growth.

The growth strategy for the ICT segment are 1) maintaining existing mature markets as cash cows, and 2) in new business areas, concentrating management resources on rising-demand areas such as social infrastructure for growth. The company does not intend to enter all fields, but will instead concentrate on areas where it can leverage strengths and will seek partnerships with others where it is weak. In this manner the company aims to reduce its investment burden, generate profits, and realize an 8% operating profit margin.

Numerical targets Under the new medium-term business plan, for FY03/20, the company is targeting segment sales of JPY205.0bn (+JPY27.6bn over FY03/17; average annual growth of 4.9%), operating profit of JPY16.0bn (+JPY1.6bn; 3.6%), and OPM of 7.8% (-0.3pp). in FY03/20. Of the projected JPY27.6bn increase in sales, the company is looking to derive JPY12.0bn from existing markets and JPY16.0bn from new business areas. The company has also made expanding sales in the social infrastructure market one of its top priorities and, towards this end, plans to step up related investment spending (especially on R&D). While the front-loaded investment spending will weigh heavily on the operating profit margin during the first half of the three-year period covered by the medium-term plan, the operating profit margin is expected to start moving back up again during the latter half as earnings rebound and reach 8% by the final year of the plan (FY03/20).

After seeing demand in existing market bottom out in FY03/17 due to a combination of market cyclicality and other factors, the company is looking for sales in existing market get back on the growth track from FY03/18. The company stated the sales plan was very carefully put together. Promising new markets identified by the company include V2X (Vehicle-to-Everything)-related products and aging infrastructure-related products. The company is planning to roll out a new Cooperative Intelligent Transport System (ITS) service linking V2X communications with transportation infrastructure, and detection systems that will help identify the signs of aging in structures ranging from damns and traffic tunnels to high-rise buildings and condominiums. These plans are outlined below.

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ICT: Existing markets

Former Info-Telecom Systems segment sales (excluding mechatronics)

(JPYbn) Solutions and services Telecom systems Social systems (JPYbn) Solutions and services Telecom systems Social systems 231.8 216.2 218.1 208.7 198.3 199.2 199.2 200 58.9 80 46.2 49.4 52.6 32.0 33.4 46.1 FY03/16: end of sales for major carriers’ fixed line networks 60 76.0 77.5 75.7 88.9 82.5 80.0 68.5 100 40

20 80.0 90.4 88.3 91.1 85.5 83.9 84.6 Digitalization of disaster radio systems raised performance 0 0 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 Source: Shared Research based on company data

Domestic market is stable (mainly from replacement demand) but mature, so sales growth an issue. Maintain as cash cow The figure above shows sales performance through FY03/16, under the previous segmentation. While there are some minor fluctuations, the solutions & services business was largely stable. Segment results are usually in line with initial forecasts (see following chart for previous forecasts versus results) because demand is mostly replacement demand, and the replacement cycle (years) can be estimated fairly accurately. Further, the segment’s profitability is stable. The large sales decline in telecom systems in FY03/16 was due to sales of fixed line networks to telecom carriers coming to an end. The decline in sales and shortfall versus forecasts in the social systems business was due to the end of temporary demand for digitalizing wireless communication systems of fire departments. Excluding these factors, the telecom and social systems businesses are mainly driven by replacement demand and are therefore stable.

Strengths: business from repeat customers and system integration under to each specification type The probability that other companies will steal replacement demand from OKI is low. This is because customers’ voice and telecom systems that OKI handles require customized reliability standards, which are a hassle to deal with; in order to boost operational efficiency, it is necessary to substantially understand customers’ workflows when building systems—OKI’s specialty; and the market is mature so few companies are trying to enter it. For example, for major air traffic control systems, OKI works with major telecom companies to assemble systems. The company is able to participate because it provides a product lineup that meets customers’ needs and experience with audio technology.

While sales growth is a challenge, the company aims to maintain the existing business as a cash cow Roughly half of sales are to the public sector, and most private-sector business is with financial institutions and major transport companies. The company’s products are mainly terminals used by client companies when interacting with their customers, so as long as these interactions continue, so should demand. However, demand could wane if social changes make the company’s systems obsolete, such as operations in financial institutions and travel agency over-the-counter businesses no longer needing to staff people, the transition to a totally ticketless society, or centralization of membership point management on personal devices such as smartphones. That said, it is hard to imagine the investment amounts of customers will decline significantly, so OKI says it plans to focus management resources on new areas that are attracting investment. In businesses where it has a competitive advantage, the company intends to actively invest in growth areas and be on the lookout for good acquisition candidates.

Cyclicality Replacement demand in existing markets (depending on the combination of frequency and size of replacement) tends to be somewhat cyclical. FY03/17 corresponded to the bottom of one of those cycles, and the company is looking for replacement demand to pick up again starting FY03/18. Together with the cyclical rise in replacement demand, OKI is looking to grab a larger share of public spending on infrastructure to bring in an extra JPY12.0bn in sales over the next three years.

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Initial forecasts vs actual results in ICT segment sales

(JPYbn) Solution and service Telecom systems Social systems Solution and service Telecom systems Social systems 25% 12

20% 10 8 6.4 15% 6 10% 8% 4 2.1 2.6 3% 5% 2% 2 0.5 1% 0% 0 -0.1 -0% -2 -5% -3% -4 -3.2 -10% -6 -15% -8 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 Source: Shared Research based on company data

ICT: new growth markets In FY03/16 social infrastructure-related sales fell by 21.8% YoY as temporary demand for the digitalization of fire departments’ wireless communication systems wound down. OKI sees social infrastructure as a growth market. This is because roads and transport account for a large proportion of public sector demand, and the company can differentiate itself through the effective use of its sensing technologies (both fiber optic and acoustic) and network technologies such as multi-hop and DSRC (dedicated short-range communications, designed for automotive use).

Multi-hop: Using two or more wireless hops––intermediate connections in a string of connections linking two devices––to convey information from a source to a destination.

More specifically, OKI sees the aging transportation infrastructure as a growth area since many of Japan's bridges, traffic tunnels, and other transportation infrastructure is now more than 50 years old (having been constructed during the rapid-growth years of the early 1960s). Another new area of great interest to OKI is the V2X (Vehicle-to-Everything) market. Here, OKI is looking to roll out a Cooperative Intelligent Transport System (ITS) service that will connect the V2X networks that are needed to fully actualize Advanced Driver Assistance Systems and modernize existing transportation infrastructure systems.

Both fields will allow OKI to leverage its strengths in related technologies and its experience as a participant in government infrastructure projects. Under the medium-term business plan, OKI is looking for a JPY16.0bn rise in sales from new markets over the next three years, of which a large part will come from the social infrastructure market.

Aging social infrastructure assets: bridges over 15m (left) and tunnels (right)

(No. of bridges) (No. of tunnels) 6,000 20 years later: 300 10 years later: 20 years later: 10 years later: 103,000 (62％) Bridges 69,000 (41％) Tunnels 3,800 (38％) 5,300 (53％) 5,000 (over 15m long) 250 over 50 years old over 50 years old (% of total) (% of total) 5 years later: 5 years later: 4,000 50,000 (30％) 200 3,100 (31％)

3,000 2017: 150 2017: 30,000 (18％) 2,400 (24％) 2,000 100

1,000 50

0 0 ～1920 1930 1940 1950 1960 1970 1980 1990 2000 ～1920 1930 1940 1950 1960 1970 1980 1990 2000 Source: Shared Research based on MLIT data

Aging social infrastructure assets As of March 2013, 18% of bridges (of a total of around 400,000 bridges, excluding 300,000 bridges with unknown construction dates) were at least 50 years old and around 20% of tunnels (of a total of around 10,000 tunnels) were over 50. These ratios are expected to rise to around 43% and 34% respectively by 2023 and 67% and 50% by 2033. OKI is targeting profit growth by proposing solutions that incorporate IoT technologies.

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Infrastructure inspection demand: In 2012 ceiling plates in the Chuo Expressway’s Sasago Tunnel collapsed. Following this event, the government took measures to deal with aging infrastructure and revised the Road Act in 2013, promulgating ordinances and notifications requiring regular inspections in 2014. From July 2014, bridges, tunnels, and other road facilities were required to be inspected once every five years via close-up visual examinations. As of March 31, 2016, there were 726,000 bridges and 11,000 tunnels slated to be inspected every five years.

Solutions that incorporate IoT technologies OKI has begun offering pre-inspection solutions. In June 2016 the company launched a support service for making inspection reports of social infrastructure, a cloud service that helps streamline monitoring at tunnel inspection sites. In January 2017 the company launched a similar service for bridges. These services help increase workflow efficiency, provide a solution to the inadequate number of experienced inspectors, and help reduce costs.

In October 2016 OKI started selling bundled products incorporating IoT technology using multi-hop wireless networks, one of its strengths, with a variety of sensors including seismic, temperature, and CO2 sensors. Installing these products on aged infrastructure can prevent accidents and help identify correlations. The company sees aged infrastructure solutions as a growth area, and is proactively developing related products and services.

OKI expects the social infrastructure inspection report service to generate sales of JPY200mn from tunnels (from JPY150,000 per tunnel) in the first year and JPY1bn from bridges (from JPY150,000 per five bridges [service offered for units of five]) in FY03/20. Assuming that bridge and tunnel inspections are carried out as planned by the government, and all inspections use OKI’s services, at JPY150,000/tunnel and JPY30,000/bridge, the market would be worth JPY5.5bn in FY03/18 and JPY5.7bn in FY03/19.

Social infrastructure inspection report service (left: tunnels, middle: bridges), IoT Fast Kit (right)

Public net w ork C loud serv ices Public net w ork C loud serv ices IoT Platform such as such as (Managed Cloud EXaaS™) 3G/LTE 3G/LTE

- Display graphs based on data from various sensors Internet Internet Internet (visualization) - Data management at LTE multiple sites (tenant management) - Automatic installation of Inspect ion sit es Office Inspect ion sit es Office IoT-GW applications 920MHz band Tablets Business terminals Business terminals mult i-hop wireless Tablets network system Tablets Tablets

Wi-Fi Wi-Fi

Illuminance CO2, temperature, and Vibration sensors humidity sensors sensors Source: Shared Research based on company materials

Bridge and tunnel inspection plans (total for all road operators) and actual inspections (left); estimates of infrastructure inspection report service market (right)

FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Tunnel inspection 15% 17% 18% 19% 31% (planned) Tunnel inspection 13% 16% (actual) Tot al (*) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Bridge inspection 10% 20% 24% 24% 23% Bridges 725,907 63,719 140,814 174,218 174,218 172,939 (planned) Tunnels 11,024 1,442 1,799 1,984 2,095 3,704 Bridge inspection 9% 19% × JPY30,000/bridge (JPYmn) 1,912 4,224 5,227 5,227 5,188 (actual) × JPY150,000/tunnel (JPYmn) 216 270 298 314 556

0% 20% 40% 60% 80% 100% Total (JPYmn) 2,128 4,494 5,524 5,541 5,744 Source: Shared Research based on MLIT and company materials

Leveraging OKI’s strengths The company is working to provide solutions for next-generation social infrastructure in three layers. At the bottom is the device layer, where OKI leverages its expertise in sensing technology for acoustic analysis, image recognition, and radio wave analysis.

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The middle layer is a shared platform, which collects accurate information from the device layer and delivers this data to a service solution layer, the top layer. In the middle layer, the company offers an efficient network environment that integrates its strengths in both spec ialized wireless technologies and general-purpose telecom technologies. Data received from devices are sent over the 920 MHz band by multi-hop wireless or connected by DSRC (Dedicated Short Range Communications; an open-source protocol for wireless communication similar to wifi) technology the company developed in the former Info-Telecom Systems segment. These data are then streamlined and passed on to the general network using video compression or broadband data transmission technology. In the top layer, software measures the efficiency of business processes.

Solutions of next-generation social infrastructure

Bridges Inclines and mountain roads Tunnels Business Social Prev ent & S ecurity N ext-gen Regional Medical医療/エネル and applications infrastructure reduce (F ire & crime transport rev italization energy Service management disasters prev ention) ギー solution layer Analyt ics Machine learning and art ificial int elligence

Network (WAN, LAN, FAN, PAM) Abnormal vibration, deflection, Collapse, slides, bumps and Bolt loosening at ancillary facilities and gap in junction abnormal road temperature (jet fans, traffic signs) Shared Networks and platform platforms 920MHz DSRC Specified radio Vibration data Infrastructure management center layer 3G、LT E RFID Wi-Fi Request for visit Riv er monitor Extinguisher Drones ITS ATM Env ironment Sensors and sensors On-sit e Device C oastal Intelligent camera MFP devices (temperature, inspect ion layer humidity ) 【Sensing technologies】 sound, images, radio waves 920MHz wireless sensor network

Source: Shared Research based on company materials

V2X A good example of this is the company's Infrastructure Cooperative ITS service that will link V2X communications to existing transportation infrastructure. V2X technology is at the heart of Advanced Driver Assistance Systems and OKI is working together with government agencies and various road-related contractors to create a system on the transportation infrastructure side capable of handling it. OKI already has ITS-related core systems up and running and is planning to roll out an Infrastructure Cooperative ITS service that will provide the support infrastructure and can process all the big data needed to support Advanced Driver Assistance Systems.

Transportation infrastructure-related systems and products have generated a combined total of more than JP100bn in sales for OKI over the years. OKI is also well known for its skill in utilizing probe data (traffic flow data generated by automobiles). It has been involved in related projects led by Japan's Ministry of Land, Infrastructure and Transport, and is considered one of the leaders in probe data analysis, according to the company. The usefulness of probe data goes well beyond ADRS-related applications; it is also used to predict traffic jams and for early detection of reckless driving, vehicles travelling against traffic, car fires, and accidents. With the help of DSRC connections, OKI is also planning a range of other traffic solutions services, including a payment service. Because demand is expected to continue well after the current three-year plan is over, the company is planning to invest heavily in this area in the years ahead.

As the social infrastructure continues to age rapidly, reducing the burgeoning cost of maintaining it becomes a matter of urgency that calls for an early implementation of systems like the Infrastructure Cooperative ITS service. Due to such societal demands, the company plans to channel management resources to making the social infrastructure business a core business.

ICT: Organizational restructuring Channel management resources to focus areas and products OKI substantially restructured its business in April 2016 to support its growth strategy. The former Info-Telecom Systems segment had three businesses: solutions & services, telecommunications systems, and social systems, all with separate sales and planning departments. Under the new organization, these departments were merged in the new ICT segment, and the telecom business was eliminated. Although the telecom business was part of the company’s original identity, management seems to have been able to convince employees of the importance of changing direction to enable growth.

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Business related to fixed line networks for major telecom carriers finished in FY03/16. OKI redeployed resources from this business, including engineers, to other businesses, reducing previously outsourced processes and projects and solving the engineer shortage . As a result, segment efficiency increased and margins improved as shown in FY03/17 results. The company sees these gains coming from a number of sources, including the consistent use of best practices, optimized business processing making use of common back-office support functions, fusion of different technologies and enhanced business proposal capabilities, and personnel exchanges that boosted strength of the organization as a whole. Previous attempts had failed to show results and the company believes that getting rid of the “telecommunications” segment enabled it to successfully reallocate management resources. Having created an organization that is now working towards the same goal, OKI plans to continue allocating management resources proactively to growth areas.

ICT: Overseas expansion OKI seems to be considering expanding its social infrastructure solutions overseas. However, the company does not think it is possible to turn a profit within two or three years of entering an overseas market. Even in Japan it is difficult to succeed without robust technology and strong products. If the company can succeed in building competitive systems in Japan, as it did with ATMs, it may be able to localize these systems to expand overseas.

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Strategy: Mechatronics Systems

Performance (left: mechatronics sales in the old Info-Telecom Systems segment, right: new segment)

Japan China (JPYbn) Operating profit OPM Other overseas China ratio (right axis) Sales (old segment; right axis) Sales (new segment; right axis) 140 Domestic ratio (right axis) 70% 15 140 120.7 11.2% 9.5% 120 60% 105.7 10 120 100 50% 5.3% 85.5 100 76.9 5 1.0% 80 68.0 40% 10.7 12.4 6.0 1.0 80 62.4 0 -11.8 60 30% 60 -5 40 40 20% -10 -11.7% 20 20 10% -15 0 0 0% FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 (JPYbn) FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 Est. Source: Shared Research based on company data

Strategic direction and numerical targets under new medium-term plan: Looking to put Mechatronics segment back on ▷ growth track by expanding sales in emerging markets; targeting sales of JPY120.0bn and operating profit of JPY9.0bn

 Of projected JPY19.1bn increase in sales, expects only JPY700mn from domestic market versus JPY18.4bn from overseas, with sales in China down JPY6.0bn, Brazil up JPY9.0bn, India up JPY8.0bn, and other regions up JPY7.0bn Growth strategy: Expand domestic sales of cash-handling machines to distributors and retailers; for overseas, gain share in ▷ emerging markets and expand sales of cash-recycling ATMs Domestic market: Mitigate risk of falling ATM sales to financial institutions by increasing sales of cash-handling machines to ▷ distributors and retailers Overseas markets: Lessen dependence on specific regions, develop strategies to meet regional needs; rebuild operations in ▷ China and Brazil, expand in other emerging markets

 China: Establish stable earnings base. After securing a solid foothold based on replacement demand for ATMs and ATM repair/maintenance services in urban areas, move to expand sales in rural districts

 Brazil: Ramp up previously delayed rollout of cash-recycling ATMs, expand sales and earnings

 Emerging markets: Given the ample growth potential in India, aim to grow business to JPY10bn or more  Product strategy: Roll out RG8 for emerging markets, use a single platform for ATMs to harness volume efficiency and drive profit growth Cash-handling machines: No more large projects expected in FY03/18, but aim to grow domestic sales by expanding sales of ▷ new coin changers and other types of cash-handling machines to distributors and retailers.

Growth strategy Mechatronics Systems is one of the core businesses responsible for growth in OKI’s medium-term strategy. ATMs make up roughly 70% of the sales mix. The company’s domestic market share for ATMs is around 40%, but around 70% for the distribution and retail industry. In 1982 OKI launched the world’s first cash-recycling ATM. Its high market share is underpinned by the reliability of the machine’s bill recycling and authentication functions and stable systems that are both accurate and fast.

The strategy is to grow numbers of ATMs operating overseas in emerging markets, expand sales of cash-handling machines, and maximize scale merits by focusing on sales of its new strategic model, the RG8, in emerging markets. In existing domestic markets, the main source of demand is replacements by financial institutions, but OKI expects this demand to shrink, so it aims to maintain sales levels by expanding sales to the distribution and retail industry. The company aims to tap into emerging markets and maximize volume efficiency by focusing on a single strategic model.

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Numerical targets Under its medium-term business plan the company is targeting segment sales in FY03/20 of JPY120.0bn (+JPY19.1bn over FY03/17; annual growth of 5.9%), operating profit of JPY9.0bn (+JPY20.8bn), and OPM of 7.5%. Of the projected increase in sales, only JPY700mn is expected to come from domestic markets versus JPY18.4bn from overseas. Domestic sales are projected to drop by roughly JPY9.0bn in FY03/20 due to the downsizing of large projects the company had over the past two years up to FY03/17. The company is looking to increase sales by roughly the same amount over the next three years, with contributions coming from services (+JPY5.0bn) and cash-handling machines (JPY4.0bn).

Overseas, the company sees sales in China declining by roughly JPY6.0bn over the next three years but expects this to be offset by gains in other emerging markets, with sales in Brazil rising by roughly JPY9.0bn, sales in India by JPY8.0bn, and sales in Southeast Asia/Russia/Eastern Europe by JPY7.0bn. Even as sales in China are coming down the company will kick off business in India in FY03/18 and expects to have full-scale sales operations underway in FY03/19. As the company is also looking for operations in Brazil to get back into the black in FY03/19, the company's success in achieving medium-term plan targets for the Mechatronics segment will depend largely on what happens in FY03/19.

The operating profit target represents an increase of JPY13.4bn over FY03/17 if the large, one-time addition of JPY10.9bn to allowance for doubtful accounts made in FY03/17 is excluded. Overseas, the projected increase in operating profit over the next three years reflects a number of factors including 1) production efficiency gains stemming from high-volume sales of a strategic ATM model, 2) a more profitable sales mix as customers switch to the basic strategic model and more cash-recycling ATMs are sold, and 3) the dropout of operating losses stemming from the drop in production in FY03/17. In Japan, earnings are expected to benefit from the decline in the number of large, low-margin contracts.

Sales target under medium-term plan (left: domestic, right: overseas)

(JPYbn) 59.3 60.0 FY03/17 FY03/20 60 Southeast Asia, Southeast Asia, Terminals and Terminals and Russia, East Russia, East others others Europe 50 Europe Large contracts 4 11 Large contracts 10% 18% China 40 India Services 14 2 24% 30 Services 4% China Cash-handling 20 India Cash-handling 47% 20 10 Brazil 17% 16 10 ATM ATM 39% Brazil 25 0 41% FY03/17 FY03/20 (JPYbn) (JPYbn) Source: Shared Research based on company data

Mechatronics: Existing markets

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

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

Domestic market: Mitigate risk of falling ATM sales to financial institutions by increasing sales to distribution and retail industry In the domestic ATM market, the number of machines installed at financial institutions (banks and post offices) is trending sideways, and demand is mostly replacement demand. However, the number of new ATM installments in the distribution and

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retail sector, primarily convenience stores, is growing. The number of ATMs installed by convenience stores such as Seven-Eleven and Lawson (stores with data available) has grown roughly in line with growth in store numbers since fiscal 2010, and the number of stores is forecast to continue growing: As part of a medium-term growth plan, industry leader Seven-Eleven plans to open 1,700 stores per annum and close 800; Lawson planned for a net increase of 700 stores in FY02/17; and the core aim of the September 2016 FamilyMart and UNY Group Holdings merger was to grow the scale of the convenience store business.

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

The company is working to expand its share in mature markets. In FY03/17, OKI won new retailer customers from competitors, and plans to gradually replace competitors’ ATMs with its own models to grow market share.

Breakdown by product and services: Looking to grow sales of cash-handling machines and contract services As discussed previously, under the current medium-term business plan the company is looking to maintain the current size of its ATM business while bolstering the top-line with additional revenues from services. One particular service OKI will be actively pushing is its one-stop "Full Outsourcing Service" (FOS) that handles everything for the ATM buyer from initial installation, to daily operation and security. Encouraged by the strong demand from users for its new FOS service, OKI is looking to differentiate itself and plans to develop this market in conjunction with partner companies in security business.

OKI is also looking to introduce a new type of coin changing machine (cash-handling machine) to distributors and retailers, strengthen its alliances with POS system vendors, and work to boost sales by creating solutions for efficient cash register operations. This does not mean that OKI was behind competitors in its cash-handling machine technology, but rather that it has not conducted aggressive sales on this front thus far. Under the medium-term plan the company is looking to change this by finding partners to help it drum up new business, especially in the convenience store market.

Domestic sales

(JPYbn) Japan Overseas Domestic ratio (right axis) 140 70% 120.7 120 105.7 60% 100.9 100 50% 85.5 76.9 80 68.0 40% 62.4 60 30%

40 20% 59.3 47.5 20 40.6 41.6 39.8 42.2 34.4 10% 0 0% FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Source: Shared Research based on company data

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Mechatronics: Overseas markets

Overseas sales

FY03/17 (JPYbn) China Other overseas China ratio (right axis) ATM unit shipments in China ('000) 100 50% 86.3 80 40% 30 Other overseas 30.3 22% 58.2 60 30% 43.3 20 20.9 41.6 37.1 40 4.7 20% China 26.4 4.5 Japan 21.8 56.0 22.0 19% 3.1 10 59% 20 38.6 10% 6.0 32.6 37.3 23.3 15.8 19.6 0 0% FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 0 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 Source: Shared Research based on company data

Overseas markets: Lessen dependence on certain regions, develop strategies to meet regional needs; rebuild operations in China and Brazil, expand in other emerging markets In the Mechatronics Systems segment, the company expects rapid market growth in emerging economies. After OKI entered China in 2001, it has expanded mainly to Russia, Southeast Asia, India, and Brazil, and further stepped up expansion efforts from 2012. That said, the company's overseas expansion efforts have been struggling since FY03/15. In China, OKI’s late response to the changing market conditions and overdependence on a local partner together led to a significant decline in earnings. In Brazil, a severe downturn in the economy forced financial institutions to put off ATM upgrades, delaying sales of OKI's new cash-recycling ATMs.

Reflecting the company's resolve to not make the same mistake twice, the medium-term business plan calls for:

Regional strategy: Restructuring of operations to prevent overdependence on any one particular region; implementing ▷ measures designed to better fit the unique characteristics of individual regions Product strategy: Rollout of the RG8, the company's new strategic ATM model for emerging markets ▷ Sales strategy: A multi-channel distribution strategy that will facilitate sales growth while reducing the risks that comes from ▷ depending on a single distributor New business: Creation of new businesses including solution services to help retailers process and recycle paper money ▷

In China, OKI has made establishing a stable earnings base its top priority; in Brazil, it is looking to get the long-delayed sales of cash-recycling ATMs back on track; in India and other emerging markets, OKI is looking to start growing sales.

Overseas expansion: ATM business

2012: Starts delivery of ATMs 2014: Starts delivery of ATMs to a large bank to Alpha Bank, a large private bank Russia

2001: Establishes ATM manufacturing base China 2012: Establishes representative office in Shenzhen 2013: Starts delivery of ATMs to 2005: St art s selling AT Ms via local part ners PT Bank Central Asia Tbk, the largest private bank India Malaysia

Indonesia Brazil 2014: Starts delivery of ATMs to State Bank 2014: Acquires a local company of India, the largest bank in the country; and establishes an ATM business company Establishes an ATM sales subsidiary

Source: Shared Research based on company data

Chinese market Looking to establish stable earnings base The medium-term business plan assumes that sales in China will continue coming down and will decline by a total of JPY6.0bn over the next three years. The company has set its sights on establishing a stable earnings base in China and, towards this end, is looking to secure a profitable foothold in urban areas based on replacement demand for ATMs and ATM repair/maintenance

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services, then move to expand sales in rural districts. Earnings are not expected to be as high as they were in the past, and the company is looking to get operations in China back into the black and establish a stable earnings base.

After peaking in FY03/15, sales still coming down In the Chinese market, profits have been sluggish since peaking in FY03/15 due to a combination of company-specific and market factors: In June 2015 OKI halted sales to its former major distributor, Shenzhen Yihua Computer Industrial, and is now rebuilding its China operations, primarily through a strategic alliance with the Digital China Group entered in October 2015. In addition, Chinese financial institutions are restraining capex.

Company-specific: OKI stopped selling to its major distributor Shenzhen Yihua Computer, and the situation seems likely to continue. The company initially thought it could make up the shortfall by selling to a new partner, Digital China, but shipments were slower than expected due to a market slowdown. Then in FY03/17 OKI provisioned for the possibility that credit extended to a major buyer would be uncollectable, making a one-time addition of JPY10.9bn to allowances for doubtful accounts and pushing the Mechatronics segment deeply into the red.

Market-specific: The number of ATMs in operation in China keeps growing and has already outstripped Japan with over 700,000 ATMs in operation. Still, while penetration has progressed, the rapid spread of machines and capex restraint by financial institutions is shrinking annual demand for machines. A research company forecasts the market will reach 1.2mn units by 2020, but growth is slowing as ATMs spread in urban areas and as electronic money becomes more widespread, so OKI is slightly skeptical. Indeed, OKI believes the ATM market in China's urban districts have matured to nearly the same extent as those in developed countries and, based on this assessment, is looking to derive the bulk of future revenues in China from replacement demand and repair/maintenance services for ATMs in operation.

ATMs in operation for four major Chinese banks (left); cash dispensing machines and ATMs in operation in China (right)

('000) ('000) ('000) Bank of China ATM CD YoY 500 Industrial and Commercial Bank of China 50 700 China Construction Bank Agricultural Bank of China 600 30% Sum of the four banks (YoY change) 400 360 40 330 500 46 289 300 45 30 243 400 20% 41 100 92 200 39 81 300 200 161 30 20 129 70 92 24 81 59 69 200 10% 18 43 57 100 34 46 10 29 40 36 123 100 23 32 99 112 24 65 76 15 19 30 41 55 0 17 18 22 0 0 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2008 2010 2012 2014

ATM market share (left), money in circulation vs. GDP (right)

(CNYtn) Money supply (year end) YoY Real GDP 80 16% Diebold GRG Banking 70 14% 4% OKI 28% 5% 60 12% Eastcom 50 10% 6% 40 8%

Yihua 30 6% 11% Hitachi Omron 13% 20 4% King Teller 10 2% 11% Cashway 11% 0 0% 2000 2004 2008 2012 2016 Source: Shared Research based on each bank’s data (top left), OKI 2015 annual report (top right), GRG Banking news release (bottom left), and The People’s Bank of China data (bottom right)

In China, the number of ATMs installed per capita is roughly half of the number for advanced countries where ATMs have taken hold. In addition, in rural areas penetration is lagging behind more urban areas. As such, the company thinks that it can win market share. OKI’s market share (including as an OEM or original equipment manufacturer) is only 15% by ATMs in operation,

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but around 50% for cash-recycling ATMs. Local companies purchase key parts such as authentication and bill recycling components from Japanese companies, but their progress on in-house development could intensify the competitive environment, including price competition. OKI aims to aggressively expand in the Chinese ATM market with Digital China, its partner since October 2015. Investors should focus on whether the two companies can grow sales.

Number of ATMs in operation in China: In the urban districts of China (directly controlled municipalities plus 24 "Tier 1" cities), there are approximately 430,000 ATMs versus a population of 300mn, or 1,430 ATMs for every 1.0mn people. In contrast, in China's rural districts, there are only about 29,000 ATMs for a population of 1.0bn, or about 270 ATMs for every 1.0mn people (based on company data).

The amount of money in circulation is accelerating, and more cash in the market means that demand for cash-handling machines is likely to grow. In 2015 the company started shipping a model designed for the Chinese market leveraging its strength in bill-recycling technology. It was primarily targeting financial institutions, but in the future OKI aims to supply backyard cash-handling machines and tap into the retail industry.

Competitive environment: In cash-recycling ATMs, the reliability of the cash-recycling component is key. Previously, the company’s only competitors were Japanese companies (Hitachi-Omron Terminal Solutions and Fujitsu Frontech) or non-Japanese companies that used components manufactured by Japanese companies. According to OKI, this is because Japanese companies manufacture faster and more durable products with higher levels of reliability––such as authentication, accurate banknote counting regardless of condition, identification of banknotes unable to be recycled, and continuous operation with minimal errors. However, Korean companies are producing lower-priced versions (albeit with inferior functionality, according to the company) and Chinese products using these Korean components are starting to appear on the market. Further, China’s largest ATM company, GRG Banking, is starting to develop its own model, so the competitive climate is intensifying.

Brazil Subsidiary’s operating loss shrinking; receiving orders for cash-recycling ATMs (previously sluggish); aiming for profit in FY03/19 OKI sees the long-delayed sales of the new cash-recycling ATMS to finally pick up in earnest in FY03/19. Based on this assumption, its medium-term business plan is looking for sales in Brazil to increase by a total of JPY9.0bn over the next three years and operations moving back into the black in FY03/19.

The full-scale entry into the Brazilian market took place with the establishment in January 2014 of a new company called OKI Brasil S.A., which incorporated the automated machinery and maintenance businesses spun out from Itaútec, a company under the umbrella of the major Brazilian conglomerate ITAÚ Group (banking, chemicals, electronics, etc.). This resulted from a strategic partnership agreement entered with the conglomerate in May 2013. Unlike for other regions, OKI entered Brazil through an acquisition, as setting up a new entity was assessed to be difficult.

In Brazil there are already 160,000 ATMs in operation (OKI survey), almost all standard ATMs rather than the cash-recycling type. Itaútec’s share in the Brazilian market for CDs (cash dispensers) and ATMs is around 25%, giving it the number two position. However, the top company Diebold (around 50%) and the number three player, a local company, do not have their own cash-recycling ATM technology. OKI thus saw an opportunity to capture market share and decided to enter the market. However, due to the slowdown in the Brazilian economy, banks’ ATM investment has cooled off and profits were not growing. In FY03/15, the first year the company entered the market, the operating loss was more than JPY3.0bn. The operating loss further widened to JPY4.0bn in FY03/16, so the company wrote down its production equipment. In FY03/17, OKI's Brazilian operations lost between JPY1.5bn and JPY20.0bn. The company said it miscalculated cash-recycling ATM shipments, but the bottom was in sight.

Under the medium-term business plan, OKI is looking to narrow losses in FY03/18 and get its Brazilian subsidiary back into the black in FY03/19. Sales of cash-recycling ATMs had been sluggish due to a stale economy, but in FY03/17 OKI won orders from the largest state-owned bank, Banco do Brasil, and started to ship a recycling cash-handling machine, TCR, to the second largest state-owned bank (Caixa Econômica Federal) and a major private bank (Banco Bradesco SA). Conditions are gradually improving and the company believes that once demand starts picking up it could quickly see a rush of new orders. As things stand now, however, the company is looking for demand of cash-recycling ATMs to pick up in earnest from FY03/19.

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Operating losses at Brazilian subsidiary, Brazilian GDP

(JPYbn) Operating profit (loss) GDP YoY GDP QoQ 10% 3% 8% 2% 6% 0 4% 1% 2% 0% 0% -2% -1% -4% -2% -6% -5 -8% -3% FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Est. Est. Est. CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY10 CY11 CY12 CY13 CY14 CY15 CY16 Source: Shared Research based on company data and IBGE (Instituto Brasileiro de Geografia e Estatística) data

Brazilian ATMs (share for 2014)

Share by installed units Units held by bank ('000) Banco do Brasil Bradesco Itaú Unibanco Banco35Horas Wincor 6% Santander 9% Other 40 Perto 9% BDB 9% 23% 30

NCR Diebold TecBan 17% 45% 10% 20 CAIXA Itaú 18% 14% 10 OKI Bradesco 23% 17% 0 2010 2011 2012 2013 2014 2015 2016 Source: Shared Research based on each bank’s data

Other emerging economies The company has stepped up expansion into emerging markets outside China since 2012. While the investment phase will persist for some time, these markets are potential earnings drivers in the medium term. In India, Southeast Asia, and Russia/Eastern Europe, there were roughly 200,000–300,000 CDs and ATMs in operation in the market, and in FY03/16, the number of units shipped to these three regions combined was just slightly over 10% of shipments to China. However, there is ample potential to grow the number of ATMs installed per capita and number of withdrawals per ATM (see following figure). Further, OKI’s overseas ATM business is well structured to benefit from mass production, as sales growth in any region should contribute to profits. In particular, the company’s sales in India continue to grow rapidly at around 20% per annum. Under its medium-term business plan, OKI is looking for India to become a major sales and earnings driver starting in FY03/19.

India The company thinks that its business in India could grow to be on par with its business in China. OKI established a local sales subsidiary in India in 2014 and started supplying ATMs to the State Bank of India, the largest bank in the country. The number of units in operation has grown steadily. OKI’s market share is still low at around 1%, but there is ample room for expansion. Leveraging the experience in China, OKI is using multiple channels to sell ATMs in India and, on the maintenance service side, is establishing a hybrid structure that has it partnering with a local company. However, given the timeline seen when entering the Chinese market (presence from 2000, full-fledged entry from 2005, and peak in 2014), penetrating the Indian market is likely to take some time, as OKI only entered in 2014. Although OKI will continue upfront spending in line with sales growth for the time being, it expects to see contributions to earnings from India starting in FY03/19.

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Number of ATMs in operation by country

('000 unit) 2015 2020 Est. 6000 1 China 715 1150 2 US 433 439 5000 India 3 India 225 440 230,000 4 Japan 199 205 4000 5 Brazil 161 157 6 Russia 138 135 China UK 3000 720,000 70,000 South Korea 7 South Korea 127 130 Japan 130,000 Indonesia 200,000 8 Indonesia 101 140 Russia 2000 100,000 9 UK 71 77 Brazil140,000 10 Canada 63 69 160,000 1000 USA Canada 60,000

Markets OKI has entered Monthly withdrawal count per ATM 430,000 0 0 500 1000 1500 2000 2500 3000 ATM installed units per million people

CD/ATM markets in emerging economies (left: India, middle: Southeast Asia, right: Russia/Eastern Europe)

('000) ('000) ('000) ('000) ('000) Units in operation (OKI) Units in operation (OKI) ('000) Units in operation (OKI) 3 300 6 300 300 Units in operation (total) Units in operation (total) Units in operation (total) 5

2 200 4 200 1 200

3

1 100 2 100 100

1

0 0 0 0 0 0 2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016 Source: Shared Research based on company data

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Strategy: Printers

Performance (JPYbn)

(JPYbn) Operating profit Sales (right axis) (JPYbn) OPM USD/EUR (right axis) 10 200 8% 7.8 7.9 6.8 6.7 6% 1.4 5.1 5 4.1 160 4% 2% 1.3 1.4 0.6 1.0 1.0 0% 0 120 -2% 1.2 -1.3 -4% -5 80 -4.6 -4.3 -6% 1.1 -8% -10 -8.8 40 -10% 1.0 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17

Source: Shared Research based on company data

Strategic direction and numerical targets under new medium-term plan: Stabilize earnings with a strategy shift; look for ▷ breakeven point based on product type, market, and competitors, aiming for 7% OPM

 Numerical targets: Sales of JPY105.0bn, a JPY7.4bn decline versus FY03/17 with office printer sales down JPY16.0bn; Operating profit of JPY7.0bn, an increase of JPY6.0bn versus FY03/17 Shifting management resources from the office printer market to industry printer market (specialty and professional printing) ▷  Office printer market accounts for over 80% of sales. OKI aims for specialty and professional printer markets to account for over 50% of operating profit in the medium term

 Office printer market will remain a valuable source of earnings in near term; also investing heavily in new industrial applications to grow the business into a new revenue source

 Considering further restructuring in FY03/18, which should lead to growth from FY03/19 Structural reforms: In the office printer market, streamline structure (heavy fixed costs) by reviewing product lineup and sales ▷ organization (offices and distribution channels)

 At overseas sales company, looking to streamline operations (including downsizing to better match sales potential) and strengthen oversight; at the head office, looking to improve operational efficiency and expand product development

 Reform is urgent due to low 2–3% global market share. OKI is considering how to balance fixed factory costs Strategic market: Aiming to increase sales of printers for specialty industrial applications and professional use; targets niche ▷ markets of small-lot production of a wide variety of printers for specialty use

Growth strategy Office printer market: will remain value source of earnings in near term; also investing heavily in new industrial applications to grow the business into a new revenue source The medium-term business plan calls for a strategic shift with the aim of creating a more stable earnings base. Under the new strategy, the company is redefining its target markets as specialty (industry-use) printers and office printers. The company will still depend on the office printer market as a valuable source of revenues in the near term, but wants to shift the orientation of its printer business toward specialty printers (industry-use) as quickly as possible. In the office printer market, the company only has a 2–3% global market share, and it carries a large fixed cost burden to maintain its product lineup and sales force. By ripping up this old structure, the company hopes to make this segment into a steady earnings generator.

OKI remains highly dependent on the office printer market (84% of segment sales in FY03/17). In previous medium-term plans, the company aimed to distinguish itself with LED technology and focused on a shift from single-function printer to the growing multifunction printer market. However, it was unable to achieve significant market share in multifunction printers and still had to pay the costs of its production setup and sales and service network.

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The company's first step under the current medium-term business plan will be to extensively restructure its printer business with the aim of boosting profitability (earning capacity). More specifically, the company is looking to:

Restructure its manufacturing operations and its overseas sales companies, including major changes in its overseas sales ▷ network and the downsizing of sales operations to bring them more in line with their sales capacity Restructure head office operations, moving quickly to beef up product development while increasing operational efficiency ▷ (reduce work volume by 20%)

The budget for FY03/18 includes roughly JPY2.5bn in restructuring-related expenses. The company’s thinking is to offset the drop in sales and profits of office printers by reducing fixed costs and other expenses and, after creating a leaner and more efficient organization, OKI aims to get back on the growth track by expanding sales of specialty printers for industry. A more detailed overview of the planned restructuring is provided below.

Restructuring of overseas sales companies and head office operations By geographic region, in FY03/17 OKI's printer business derived roughly 30% of sales from Japan, 40% from Europe, 20% from the Americas, and slightly below 10% from Asia (ex-Japan). Under the new medium-term business plan the company is looking to:

Japan: Use Japan as a cash cow ▷ Europe: Increase the efficiency of sales operations in Europe by consolidating regional sales companies and strengthening ▷ oversight of the regional sales headquarter Americas: In North America, after relocating the head office and restructuring operations, expand lineup of industry-use ▷ products and strengthen sales channels with the aim of becoming profitable within the next three years; in Central and South America, revamp regional sales operations Asia: Make changes to its distribution network in small-market countries and restructure operations in China ▷ In all overseas market OKI is looking to make changes in sales territories, personnel, sales channels, and organizational structures in order to create leaner and more efficient operations and strengthen oversight.

At its head office in Japan, OKI is also looking to strengthen product development and operational efficiency. The company's goal is to decrease work volume by 20%, and shift the management resources freed up from these tasks to core businesses.

Numerical targets Under its medium-term business plan, OKI is targeting segment sales of JPY105.0 (-JPY7.4bn over FY03/17), operating profit of JPY7.0bn (+JPY6.0bn), and OPM of 6.7% (+5.7pp). The projected decline in sales reflects the company's expectation that sales of office printers will decline by roughly JPY16.0bn while sales of industry-use printers increase by JPY8.0bn. The projected increase in operating profit assumes the decline in sales of office printers will reduce operating profit by JPY4.0bn to JPY5.0bn but that this will be offset by the savings generated by the downsizing of related operations. Further, the operating profit growth at the segment is expected to come from a combination of expanded sales of specialty printers for industry and reductions in the cost of LED heads. The increase in operating profit will be capped by the heavy investment spending the company needs to grow its industry-use printer business.

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Building blocks for improving operating profit

18 16 14 7.0 12

1.0 10

8

6 FY03/16 Sales declines Sales increase Cost reductions in LED Optimization of business FY03/20 operating profit Operating profit in office-use in industry-use heads and wide format IJP size (JPYbn) Source: Shared Research based on company data

Printer market

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

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

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

Source: Shared Research based on company materials

Provide optimal printing solutions globally, to meet customer needs Office Industry vertical Industry Corporations and administration Medical and logist ics Manufacturing and logistics Designing and printing Designing and construction

Office documents Medical images and records Packages, POP materials, and T shirts Signboards, wallpapers, cloths Design drawings LED color mult ifunct ion print ers LED color printers A3 LED specialt y printers Large format color inkjet printers A1 A0 LED multifunction printers

104-inch w ide LED black and w hit e print er

64-inch w ide A1 A0 LED printers Copy slips

Dot impact printers 54-inch w ide

Source: Shared Research based on company materials

Printers: Targeting new markets OKI sees specialty printing and professional printing as target markets. These target markets require that OKI adopt a niche market strategy, which means smaller lot production of a wide variety of printers designed for specialty use. For example, the company targets specialized industries with large print runs, where the strength of its LED heads can come to the fore. For professional printing, it targets design and signage (including billboards) markets. In FY03/17, only 16% of sales were from outside the office printer market, and around half of these sales were through OKI Data Infotech. The main products of OKI Data Infotech include wide format multifunction printers for computer-aided design and wide format inkjet printers for printing signs. These products designed for professional printing are expected to play a major role in the company’s growth under the current medium-term business plan. Printing volumes in the wide format printing market are in an uptrend and environmentally friendly inks are showing particularly rapid growth, so the company plans to strengthen its lineup of relevant products and distinguish itself versus its competitors.

In specialty printing, the company aims to focus on design printing, retail, and medical markets. These are all industries with large printing volumes, and the company is proactively developing related products.

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Global wide format printer shipment value, market share (IDC) (left); growth forecasts for wide format printing market by ink type (OKI, Infotrends) (right)

Vendors Q4 2016 Q4 2016 Q4 2015 Q4 2015 Q4 2016 2015-2018 Ink (USDmn) Shipment value Market share Shipment value Market share Shipment YoY CA GR 1. HP Inc. 247 25% 237 25% 4% Toner -4% 2. Canon + Océ 120 12% 140 15% -15% UV 11%

3. Epson 75 8% 62 7% 20% Solvent -5%

4. Mimaki 56 6% 51 6% 10% Latex 12%

5. Roland 50 5% 51 5% -1% Aqueous 4%

Others 441 45% 397 42% 11% Sublimat ion 19%

T ot al 989 100% 938 100% 5% T ot al 100% Source: Shared Research based on IDC press release, company data, and Infotrends data

Strategy: Electronics Manufacturing Services (EMS)

Performance

(JPYbn) Operating profit Sales (right axis) (JPYbn) (JPYbn) Operating profit OPM 3.0 60 3.0 5.4% 6% 5.1% 2.5 5.0% 4.7% 4.8% 4.8% 2.5 2.3 50 2.5 4.3% 4.5% 2.3 2.5 5% 2.0 2.1 2.0 2.1 2.0 40 2.0 4% 1.6 1.6 1.7 1.5 1.7 1.5 1.5 30 1.5 1.3 3% 1.3 1.0 20 1.0 2%

0.5 10 0.5 1%

0.0 0 0.0 0% -0.2 -0.2-0.7% -0.5 -10 -0.5 -1% FY03/10FY03/11FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18 FY03/10FY03/11FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18 Est. Est. Source: Shared Research based on company data

Strategic direction under medium-term business plan: Looking to continue expanding business targeting JPY100.0bn annual ▷ sales in the future

 Numerical targets: Sales of JPY60.0bn, a JPY16.8bn increase over FY03/17 with roughly JPY5.0bn from new acquisitions and JPY6.0bn from new markets/new customers; operating profit of JPY3.5bn, a JPY1.4bn increase over FY03/17 Continuing stable growth, high-end EMS strategy. Focusing on high-mix, low-volume manufacturing, and demand from ▷ customers who are closing factories. Considering acquisitions. High-end EMS: Specialist in high-mix, low-volume manufacturing, not mass production. Aiming to boost profitability through ▷ high quality, investments in inspection equipment and license acquisition. Customer breakdown: Around 25% of customers are from the former Info-Telecom Systems segment. Building a structure not ▷ dependent on particular industries or customers. New markets/new customers: In addition to full-scale push into aerospace market following recent acquisition, OKI plans to ▷ begin handling production of electronic parts for cars starting in FY03/18 (for a new client OKI won on its own) M&A: Acquired customers and technology through takeovers of printed circuit board (PCB) businesses of Tanaka Kikinzoku ▷ Kogyo (2012), Yokogawa Electric (2015), and Nippon Avionics (2016).

Targeting continuous growth The company is targeting continuous growth through steady efforts in

further tapping into high-mix, low-volume production demand ▷ adding upstream processes such as design/planning to build a one-stop contract manufacturing business (including proposing ▷ plans)

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stepping in when customers close factories (including through M&A). ▷

The company has recently begun marketing proposals from the planning stage. Although sales are still non-material, the company may be able to set margins higher than normal.

M&A Growth in the EMS segment requires capacity growth in PCBs (printed circuit boards) and PCB mountings. OKI has worked to grow production capacity and strengthen its customer base through a series of M&A: the PCB business and Tsuruoka plant of Tanaka Kikinzoku Kogyo (October 2012, currently OKI Circuit Technology head plant); the PCB business and Ome plant of Yokogawa Electric (April 2015, currently OKI Printed Circuit’s Ome plant); and the PCB business of Nippon Avionics (July 2016, targeting complete business transfer by March 31, 2018).

The Tsuruoka plant has contributed to growth in production capacity and customer base (supplies large and multilayered PCBs to the aerospace industry), while the Ome plant has also boosted production capacity (+20%) and the customer base (including Yokogawa Electric). The business transfer from Japan Avionics (sales of the transferred business: JPY2.7bn) was started in 2H FY03/17. Starting with PCBs, Japan Avionics is transferring production sequentially to OKI’s EMS manufacturing subsidiaries. The company said it was acquiring production line certification for its aerospace and defense PCBs sequentially and planned to complete the business transfer once it had acquired certification for all the lines.

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

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

Numerical targets Under its medium-term business plan, the company targets segment sales of JPY60.0bn (+JPY16.8bn over FY03/17; annual growth of 11.6%), operating profit of JPY3.5bn (+JPY1.4bn), and OPM of 5.8% (+1.1pp). Of the projected JPY16.8bn increase in sales, the company is looking for JPY5.8bn to come from existing customers, JPY6.0bn from new markets/new customers, and JPY5.0 from new acquisitions.

The projected increase in sales to new customers reflects the company's expectations that ongoing efforts to increase customer satisfaction levels under existing contracts will lead to continued orders in the future as well as new orders for other processing work as capital spending adds to capacity and gives OKI the ability to handle ultra-high precision circuit boards, in some cases leading to a complete transfer of production operations from the client company to OKI.

On the new market/new customer front, at this time OKI is specifically target the aerospace industry and the electronic car parts industry. OKI plans to differentiate itself from competitors by getting the necessary certification as it makes new capital investments. Having won a direct order from a new client, OKI expects to book earnings from electronic car parts manufacturing from FY03/18. In the aerospace industry, the company will start with the client base of recently acquired Nippon Avionics but intends to step up efforts to win new business after getting fully certified by JAXA before the end of FY03/18.

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EMS sales by type (left), market (middle) and client industry (right)

(JPYbn) (JPYbn) (JPYbn) (JPYbn) FY03/17 FY03/20 FY03/17 FY03/20 Existing contracts Existing customers, existing contracts 70 New markets New 60 Infrastructure Infrastructure new customers M&A 3.0 60 5.0 5 Others 6 Others ICT 50 43 3.2 ICT 6.0 PCB PCB 12.0 8.0 40 15 13.0 17.0 Medical 5.0 30 43.2 60.0 Medical Measurement 8.0 12.0 Measurement 20 Designing and Industrial 15.0 34 Designing and Industrial manufacturing 12.0 manufacturing 14.0 10 30.2 43.0 0 (JPYbn) FY03/17 FY03/20 Source: Shared Research based on company data

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Financial strategy (company-wide)

OKI has maintained operating cash flow on the order of several tens of billions of yen. The exceptions were in FY03/13, due to the accounting improprieties at a Spanish subsidiary, and in FY03/16, due to uncollected accounts receivable from a major distributor in China. The company has focused on improving its debt/equity ratio and reducing interest-bearing debt. It currently targets an equity ratio of 30%, while maintaining a certain level of borrowings to strike a balance with growth investments.

OKI aims to keep cash on hand capped at around JPY40bn–50bn and to invest the excess in growth. Regarding operating cash flow, by collecting accounts receivable and reducing inventories, the company hopes to improve its cash conversion cycle (CCC). In FY03/17, the effects of reductions in factory and sales inventories are flowing through following a review of inventory (refer to balance sheet section). Shared Research understands that the company will continue working to strengthen its balance sheet and generate funds for investment in growth.

Interest-bearing debt, shareholders’ equity ratio, debt/equity ratio

(JPYbn) Short-term debt and CPs Long-term debt Debt/Equity ratio Net D/E ratio Equity ratio (right axis) 418 Bonds Cash and cash equivalents Net debt 4.5 45% 400 357 356 331 350 4.0 40% 291 285 300 265 268 267 3.5 35% 300 312 302 250 282 204 3.0 30% 172 200 233 235 152 229 217 136 216 122 2.5 25% 150 121 119 108 100 139 2.0 20% 50 97 71 84 74 1.5 15% 57 68 54 0 29 57 43 59 49 39 50 50 64 36 51 54 48 1.0 10% 50 75 81 80 136 100 0.5 5% 150 0.0 0% FY03/00 FY03/03 FY03/06 FY03/09 FY03/12 FY03/15 FY03/00 FY03/03 FY03/06 FY03/09 FY03/12 FY03/15 Source: Shared Research based on company data

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Business, market and value chain Business overview Over 130 years manufacturing telecom equipment in Japan. Building a sustainable growth platform via multiple restructurings. ▷ With ICT segment as the main earnings source, developing ATM markets in emerging markets overseas, capturing high-end ▷ EMS demand in Japan, and rebuilding the Printers segment.

 Information and Communication Technology (ICT): Provides telecom systems and solutions to major companies and government agencies. Stable earnings underpinned by replacement demand from large client companies.

 Mechatronics Systems: ATMs are the main product. OKI has 40% domestic share in a three-company oligopoly. Aims to grow by tapping into ATM demand in emerging markets.

 Electronics Manufacturing Services (EMS): High-end EMS maintains OPM of around 5%. Winning new customers and new orders from existing customers; actively pursuing M&A.

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

Segment performance (upper, sales; lower: operating profit)

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

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

0 FY03/01 FY03/03 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 (JPYbn) ICT Printers Information (old segment) Telecom (old segment) EMS Others Semiconductors Adjustments Operating profit 40 32.4 30 2.3 12.0 28.3 27.2 27.2 6.7 29.9 3.4 5.1 21.6 20 7.8 3.0 1.4 18.6 3.8 24.0 4.1 12.023.8 13.523.4 25.9 10 19.8 10.6 6.8 18.7 2.7 15.8 15.0 14.7 17.6 7.7 7.2 10.9 5.4 6.5 6.3 0.7 7.9 7.1 1.0 2.5 8.4 1.5 3.1 1.4 0.6 2.6 0 -1.5 -1.7 -0.6 -1.3 -4.6 -4.3 -8.2 -5.2 -8.8 -5.8 -5.7 -6.9 -6.5 -7.7 -11.5 -9.6 -10.9 -10.9 -10.3 -9.4 -6.6 -8.6 -6.5 -1.0 -6.7 -6.4 -10 -7.8 -6.1 -11.9 -10.3 -20 -9.7 -27.2 -30 FY03/01 FY03/03 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 Source: Shared Research based on company data

Over 130 years manufacturing telecommunication equipment in Japan Since producing the first made-in-Japan telephone in 1881, the company has been an integral part of Japan’s telecommunications industry, focusing on developing technology domestically despite an influx of imported products. The company’s accumulation of technology and expertise has led to a stable earnings platform in the ICT segment, although relying on domestic development is one reason the company was not able to keep up with rapid changes in the telecom industry. OKI is one of the four original members of the old Nippon Telegraph and Telephone (NTT) family (formerly a Japanese government-owned telecommunications monopoly, privatized in 1952). However, sales to the telecom sector have shrunk to around 15% of company sales following the privatization of NTT, opening of the domestic telecom market, and telecom networks shifting to IP (internet protocol) technology.

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Performance (top) and sales by region (bottom) (JPYbn) Sales Operating profit OPM (right axis) 800 748.3 764.6 8% 732.2 740.3 717.0 719.8 681.3 673.2 669.8 688.5 680.5 700 639.6 651.5 657.0 654.2 7% 604.6 585.5 600 544.5 6% 483.1 540.2 490.3 455.8 451.6 500 442.9 432.7 423.5 438.0 5% 400 4% 300 3% 200 2% 58.9 61.4 100 28.3 27.2 27.2 32.4 1% 10.1 23.2 14.5 10.1 13.8 1.4 21.6 10.6 5.4 6.5 6.3 12.0 13.5 18.6 2.5 7.7 0 0% -6.6 -0.6 -100 -23.7 -38.3 -27.2 -1% FY03/92 FY03/96 FY03/00 FY03/04 FY03/08 FY03/12 FY03/16 Source: Shared Research based on company data

(JPYbn) 740.3 717.0 719.8 688.5 680.5 Japan North America Europe China Latin America Others 700 669.8 654.2 99.0 87.4 604.6 73.5 97.2 88.7 585.5 66.9 99.6 600 85.7 544.5 75.7 98.8 102.3 540.2 94.1 43.7 67.8 75.2 81.3 483.1 490.3 59.3 53.8 56.6 34.8 500 55.1 62.1 52.7 442.9 455.8 451.6 69.4 56.6 432.7 423.5 8.3 438.0 54.9 16.4 70.5 25.5 85.3 50.6 18.5 16.2 40.2 42.5 44.1 50.7 20.7 23.3 400 38.5 49.3 53.5 56.7 29.4 16.8 77.4 61.3 46.6 53.1 45.2 43.6 46.4 19.4 22.0 22.3 20.0 22.9 20.8 17.1 17.5 17.4 300 555.5 505.9 485.5 477.4 464.4 443.0 458.8 200 441.0 427.6 364.1 337.1 341.7 302.5 308.0 310.6 329.3 326.0 320.3 320.8 100

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

ICT segment is main earnings source; developing ATM markets in emerging economies; targeting high-end EMS demand in Japan The company has four segments: ICT, Mechatronics Systems, Printers, and EMS. In ICT, the main source of earnings, the company provides a variety of telecom systems and solutions using its core audio-based technologies to companies in various industries and to government agencies. In Mechatronics Systems, with a solid domestic market base, the company aims to develop the market for cash-recycling ATMs in emerging markets. In the Printers segment, the company is aiming to transform its earnings structure (currently with heavy fixed costs) through a gradual shift to the professional printing market. In the EMS segment, the company maintains an OPM of 5% by bundling design services with manufacturing of high-end (high quality and reliability) products.

The ICT segment is supported by replacement demand from large companies in various industries. The earnings structure is stable overall, with the exception of occasional spikes in demand. In the Mechatronics Systems, the company ceased sales to a distribution partner in China, but the effect of this is winding down, and it aims to grow via direct sales and a new partner (Digital China). It also plans to spread the use of ATMs and develop the ATM markets in India and other emerging economies. Bolstered by M&A, the EMS segment is seeing steady growth in terms of scale, production capacity, and customer base. The segment has maintained high profit margins for an EMS business, and the company is targeting high-end EMS demand in the domestic market.

FY03/18 segment composition (JPYbn)

Sales Others Operating profit 15.2 Others 4% EMS EMS 2.0 47.7 8% 11% 2.2 9% ICT 172.7 Printers 39% 2.7 Printers 10% ICT 108.9 13.5 25% Mechatronics 53% Systems Mechatronics -5.1 Systems -0.2 93.5 21%

Source: Shared Research based on company data

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Performance (JPYbn)

(JPYbn) Operating profit Non-operating income (expenses) Extraordinary gains (losses) Taxes Non-controlling interests Net income 60 40 20

0

-20

-40

-60

-80 FY03/92 FY03/96 FY03/00 FY03/04 FY03/08 FY03/12 FY03/16 Source: Shared Research based on company data

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Information and Communication Technology (ICT) segment overview

Performance (left: old segments; right: new segments)

(JPYbn, %) Operating profit Depreciation OPM EBITDA margin Sales (right axis) (JPYbn) Operating profit OPM Sales (right axis) 40 373.1 400 18 222.3 240 352.7 359.0 352.5 338.0 207.7 205.0 35 350 16 191.2 304.8 185.0 302.3 293.0 303.6 177.4 278.3 14 172.7 30 267.4 260.7 267.2 266.3 300 180 12 25 250 25.9 23.8 23.4 10 8.1 20 200 7.8 7.6 7.8 120 8 18.7 6.1 6.1 6.1 15 17.6 150 15.8 15.0 14.7 6 10 100 60 10.9 4 8.1 8.4 5 7.1 7.0 7.7 7.3 50 2 5.6 5.7 5.8 12.7 13.5 11.6 14.4 13.5 14.0 16.0 4.2 -1.5 -1.7 0 3.2 2.3 2.6 3.2 0 0 0 0.9 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 -0.4 -0.5 -5 -50 Est. Est. FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 (JPYbn) (JPYbn) Source: Shared Research based on company data

Segment overview: Provides financial, telecom, and social infrastructure systems. Sales are mainly from replacement demand ▷  Integrated financial, telecom, and social systems businesses in April 2016, boosting ability to propose solutions and increasing efficiency Customers: Mainly large companies and government agencies. Stable earnings structure underpinned by replacement ▷ demand from large client companies Temporary demand: Demand for digitalization of fire departments’ wireless networks finished in FY03/16 ▷ Growth: Focusing on areas where ICT-use has been lagging, such as IoT-based solutions to handle aging infrastructure and ▷ new fields spawned from the evolution of ICT

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

ICT segment overview Segment’s earnings stability protected by large client companies The ICT (Information and Communication Technology) segment offers a variety of information and communication systems*1 and solutions to a wide range of industries, leveraging its telecom network and sensing technologies. The segment can be broadly divided into social infrastructure solutions (April 2017 reorganization), financial and corporate solutions (April 2017 reorganization), network systems (April 2017 reorganization), and IoT platform (newly established). Social infrastructure solutions serve government agencies and major telecom carriers, while financial and corporate solutions target large private companies. Both have a stable earnings structure due to the following:

The majority of client companies are repeat customers, ensuring a steady customer base ▷ Business is mainly replacement demand in mature markets ▷ Sales enjoy industry diversification, as replacement demand periods are staggered ▷

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There is little danger of losing customers because most projects are for systems where multiple companies are responsible for ▷ their respective specialty areas, not generic systems*2. Competitors include Fujitsu, NEC, and Hitachi, but in many cases OKI works with these companies on major projects such as air traffic control systems

OKI was formerly one of the three original members of the Nippon Telegraph and Telephone Public Corporation (currently NTT) family. The other two were Fujitsu (TSE 6702) and NEC (TSE 6701). Hitachi (TSE 6501) was later added to the group. In 1985 NTT was split and privatized, and foreign products entered the market under telecom market deregulation, so the company’s business gradually declined. In particular, telecom networks replaced telephone switchboards with routers, switches, and other equipment in line with the shift to IP (internet protocol) technology, accompanied by a shift to products made by overseas companies that met global standards. As a result, the company’s sales to the telecom sector shrunk to JPY68.5bn in FY03/16 compared to the JPY160bn in FY03/01. Sales to NTT withered to less than one-third (around JPY20bn) of total sales.

*1 The company offers a wide variety of systems. Examples: a) Financial institutions: Systems for branch teller counters and centralized operations systems behind the counter for foreign exchange and transfers; b) Transportation: Ticket issuing systems for train stations and automated check-in machines for airports; c) Manufacturing: ERP (enterprise resource planning) and IoT solutions that use multi-hop wireless; d) All companies: PBX (private branch exchange, a multi-line telephone system) and corporate phones, conference systems, call-center systems; e) Telecom: Telecommunications network infrastructure; f) Social infrastructure: Public-sector admin solutions including air traffic control systems, ETC/VICS (Electronic Toll Collection/Vehicle Information and Communication) systems, firefighting systems, wireless disaster management administration systems, and salary and accounting systems.

*2 Non-generic systems: Larger companies such as NEC, Fujitsu, and IBM (NYSE: IBM) tend to build systems based on general-purpose platforms, but OKI has limited management resources, so it concentrates on particular areas and industries. For air traffic control systems, for example, communications systems may be handled by a major company, while systems for the control tower and pilot voice communication may be built by a company that can provide specialized technology, such as OKI. OKI’s specialization is audio, and using knowledge built up over 130 years of handling telephones, it provides systems that leverage its core technologies such as multi-hop wireless network technology.

Source: Shared Research based on company data

Characteristics Strengths: Repeat customers and systems tailored to specifications The probability that other companies will steal replacement demand from OKI is low. This is because in the voice and telecommunications systems market where OKI operates, each system has particular reliability standards that are cumbersome for most other companies; in order to boost operational efficiency, a thorough understanding of customers’ workflows is necessary when building systems, and this is where OKI’s expertise lies; and the market is mature so few companies are trying to enter. OKI works with large ICT companies to build air traffic control systems, participating in business alliances to boost operational efficiency, and providing a product lineup and audio technology that meet customer demand. OKI also leverages its sensing technologies and short-range wireless networks to develop new products and services.

ICT segment earnings For reference, the following shows subsegment sales under the previous classifications. For telecom systems, in FY03/16 sales declined because telecom carriers’ investments in existing network equipment finished in Q1. For the social systems business, in FY03/15 demand for digitalizing fire departments’ wireless communication systems peaked (demand continued in FY03/16).

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Subsegment sales (former segment classifications)

(JPYbn) Solutions and services Telecom systems (JPYbn) Solutions and services Telecom systems Social systems Mechatronics Systems 353 120 Social systems Mechatronics Systems

304 305 293 100 300 267 261 267 120.7 76.9 85.5 105.7 80 58.7 62.4 68.0 58.9 200 49.4 52.6 60 46.2 32.0 33.4 46.1

82.5 76.0 77.5 75.7 80.0 88.9 68.5 40 100 20 80.0 90.4 88.3 91.1 85.5 83.9 84.6 Digitalization of disaster prevention radio raises business performance 0 0 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 Source: Shared Research based on company data

Temporary demand Digitizing fire departments’ wireless communication system Occasionally, technical innovations or policy developments cause a spike in demand. Sales in the social systems business were high for four years starting in FY03/13 due to demand for digitalizing fire departments’ wireless systems. The cost of digitalizing one fire department was JPY390mn (initial Ministry of Internal Affairs and Communications [MIC] estimate), for a project cost totaling JPY300bn (initial MIC estimate).

In February 2010, MIC announced an “action plan for frequency reallocation” to promote smooth reallocation of certain frequencies. The aim was to move fire departments’ wireless frequency from the 150MHz band to the 260MHz band by May 2016. The national government provided fiscal measures, starting with subsidies in the Fiscal 2011 supplementary budget, and other measures from Fiscal 2012. Under partial amendments of the Radio Law that took effect in June 2013, the scope to which radio wave usage fees apply was broadened and subsidies expanded, meaning the transition was completed as expected.

The 800MHz band used by local governments’ wireless disaster management administration systems completed the shift to digital in May 2011. MIC is urging that the 400MHz, 150MHz, and 60MHz bands be digitized and shifted to the 260MHz band as soon as possible, given the lifespan of wireless equipment.

Digitization of wireless communication networks for firefighting and disaster management

800 No. of firefighting 100% No. of firefighting departments with digitalized 60% Digitalization ratio for disaster radio systems departments with systems (YoY increase) 500 80 700 digitalized systems (a) Social system sales (right axis) 50% (a) / 750（right axis） 600 75% 400 70 40% 500 300 60 400 50% 30%

300 200 50 20% 200 25% 100 40 10% 100

0 0% 0 30 0% Mar Mar Mar Mar Mar Mar Mar Mar Mar FY03/11 FY03/13 FY03/15 Mar Mar Mar Mar Mar Mar Mar Mar Mar 2008 2009 2010 2011 2012 2013 2014 2015 2016 (JPYbn) 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Shared Research based on Ministry of Internal Affairs and Communications data

Profitability expected to climb from FY03/17 The OPM has been 6.1% since FY03/14. In the ICT segment, the company works to achieve a set profit margin on each project instead of using mass production, as it does in the Mechatronics Systems segment. However, ICT profitability has been maintained through diligent cost control, fixed-cost ratios have improved by sharing management resources within the ICT segment, and the company aims to boost margins by providing high value-added solutions.

Seasonality Due to the structure of the ICT segment, earnings tend to be concentrated in Q4––the fiscal year-end for government agencies and many companies. In Q4, sales are typically double those of Q1–Q3, and profits are concentrated in Q4 due to fixed costs.

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Also, CoGS are booked as inventories on the balance sheet in Q1–Q3, eliminated in Q4, and in the subsequent Q1, accounts receivable are collected. The ICT segment is unique in that can closely estimate sales during a specific period based on a combination of factors, including a) the fact that sales at the segment come from work under long-term contracts usually last 1.5-2.0 years and are replaced with new contracts every year, b) its ability to confirm the general schedule for system upgrades at client companies, and c) bidding and order trends.

Quarterly performance (left: segment profit; right: consolidated balance sheet)

(JPYbn) Operating profit Sales (right axis) (JPYbn) (JPYbn) Accounts receivable Inventories 14 13.2 140 140 12 10.8 120 10.4 130 10 100 120 74.5 8 77.1 65.5 80 110 6 60 42.5 100 36.5 35.2 36.6 36.0 37.3 38.7 4 30.3 31.2 40 2.6 90 1.5 2 0.9 20 80 0.5 0.3 0.5 0 0 70 -0.2 -0.1 -2 -0.8 -20 60 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY03/16 FY03/17 FY03/18 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Source: Shared Research based on company materials

Mechatronics Systems segment overview

Performance (left: old segment; right: new segment)

(JPYbn) Operating profit OPM (JPYbn) Operating profit Sales (old segment; right axis) Sales (new segment; right axis) 5 Sales (old segment; right axis) 3.8 40 Sales (new segment; right axis) 2.4 15 130.2 140 1.2 11.2% 120.0 0.1 0.1 9.5% 113.7 10 7.5% 120 0 30 100.9 -0.3 95.9 5.3% 93.5 -0.5 -0.5 100 -1.5-1.5 5 83.0 -1.6 76.9 68.0 10.7 12.4 6.0 0.0%0.0 9.0 80 -5 20 0 58.7 62.4 -11.8 -5.1 -5.4% 60 -5 -11.7% 40 -10 10 -10 20 -12.7 -15 0 -15 0 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 FY03/20 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Est. FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Source: Shared Research based on company data

Segment overview: One medium-term strategy is to grow the segment by tapping into emerging markets ▷ Sales breakdown: Roughly 80% of sales are ATM-related and 20% for cash-handling equipment. Domestic sales are about ▷ 60%; remainder is mostly from China and Brazil Market share: 40% in Japan (around 70% for retail sector). Around 15% share in China (50% for cash-recycling ATMs) and 25% ▷ in Brazil Domestic: In retail sector, OKI expects growth in sales volume and demand for additional functions, but financial institution ▷ sales shrinking; company recognizes the domestic market as mature Overseas: Earnings structure based on single platform so sales growth flows through to bottom line. In FY03/17, profits ▷ deteriorated more than sales due to production adjustments

Mechatronics Systems segment overview Medium-term strategy is to grow by tapping into emerging markets Starting in FY03/17, the Mechatronics Systems segment was spun off from a subsegment of the old Info-Telecom Systems segment. It is one of the segments responsible for growth in the company’s medium-term strategy. The Mechatronics Systems

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sales team is in charge of overseas sales operations, but the ICT sales team runs domestic sales (costs allocated between segments). ATMs account for most of sales (around 80% in FY03/15, and 60% in FY03/16), and ATM services are roughly 10%. The rest is mostly cash-handling equipment and terminals. Overseas sales (mostly of ATMs) account for roughly 40% of segment sales.

Sales breakdown (JPYbn) and domestic ATM market share

FY03/16 FY03/16 OKI's share of ATMs in Japan

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

Source: Shared Research based on company data

Competition Competitors in the ATM and CD (cash dispenser) business include Hitachi-Omron Terminal Solutions (ownership: 55% Hitachi, 45% Omron) and Fujitsu Frontech (TSE 6945) in the domestic market, and Diebold (US, NYSE: DBD), NCR (US, NYSE: NCR), and Wincor Nixdorf AG (Germany, FWB: WIN) overseas.

The domestic market is essentially an oligopoly of three companies, with OKI holding a roughly 40% share. For the domestic retail industry (such as supermarkets and convenience stores), the company is the market leader with a share of around 70%. Overseas, three companies (Diebold, NCR, and Wincor Nixdorf) together hold a global market share of around 60%. Still, circumstances vary in emerging markets where the machines are not yet widespread. In Brazil, Diebold (market leader) has around 50%, OKI is the second-largest with around 25%, and a local company ranks third. In China, OKI has a market share of around 50% for ATMs (roughly 15% when including CDs). In India, where ATMs have low penetration rates, Hitachi Omron is the market leader.

Market share

OKI's share of ATMs for logistics industry and OKI's share of cash recycling ATMs in China OKI's share of ATMs and CDs in China convenience stores OKI 15% Others 30%

Others OKI 50% 50%

OKI 70% Others 85%

Source: Shared Research based on company data

Mechatronics Systems segment earnings In the domestic market, financial institution demand for ATMs and maintenance services is generally steady. Segment earnings are impacted by temporary spikes in demand for cash-handling machines (such as in FY03/16 and FY03/17) and fluctuations in demand from the retail industry. Overseas, segment growth continued until FY03/15, driven by robust China operations, but segment operating profit has dropped since FY03/16, when sales declined as the company stopped sales to a major partner in China and cut production, and as a Brazilian subsidiary posted operating losses (refer to following figure).

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Mechatronics Systems: sales by region (left), overseas sales (middle) and Brazilian subsidiary’s operating losses (right)

(JPYbn) (JPYbn) (JPYbn) China Other overseas (JPYbn) Japan Overseas OP (right axis) Operating profit (loss) 140 14.0 100 China ratio (right axis) 50% 0 120.7 120 12.0 86.3 105.7 80 40% 100.9 100 10.0 30.3 85.5 58.2 76.9 60 30% 80 68.0 8.0 62.4 43.3 20.9 41.6 37.1 60 6.0 40 4.7 20% 26.4 4.5 40 4.0 21.8 56.0 22.0 3.1 59.3 20 6.0 38.6 37.3 10% 20 40.6 41.6 39.8 42.2 47.5 2.0 32.6 34.4 23.3 19.6 15.8 -5 0 0.0 0 0% FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/11 FY03/13 FY03/15 FY03/17 FY03/11 FY03/13 FY03/15 FY03/17 Est. Est. Est. Source: Shared Research based on company data

Profitability Domestic and overseas markets have differing business models. Overseas sales are mostly from ATMs, and production is concentrated in China, enabling the company to reap economies of scale. In the domestic market, OKI profits from services such as maintenance and monitoring rather than product sales. The domestic market (excluding temporary demand) is steady, but overseas, profits fluctuate based on sales and production volumes.

Because China operations had seen continuous growth, the company had been expanding while holding some inventory, but sales volume dropped when the company stopped selling to a major partner, and in FY03/17 it cut production. As a result, lower production weighed on profits more than the fall in sales volume. Production adjustment was expected to finish during FY03/17, so FY03/18 is likely to see benefits from production growth.

Mechatronics Systems: ATMs ATMs accounted for roughly 70% of segment sales (FY03/16), with around half of sales from overseas. The company developed AT-100, the world’s first cash-recycling ATM (reuses deposited cash for withdrawals) in 1982. Prior to this product, when a machine ran out of cash, operations had to be paused until the machine was reloaded. The development of this machine substantially reduced operating costs for financial institutions. In Japan, cash-recycling ATMs are widely used, but their spread has lagged overseas, particularly due to cultural differences in emerging economies (including the penetration of credit cards, counterfeiting problems, and security concerns), as well as high initial costs. However, the substantial potential demand is a source of medium-term growth for the company.

One of the company’s strengths is sophisticated cash-recycling technology. In 2003, targeting the Chinese market, OKI launched machines that were tailored to handle CNY banknotes (different-sized bills that are difficult to reuse due to soft paper) and deal with counterfeits and dust, starting mass production and delivery in 2005. In 2009, targeting the global market, the company was successful in developing ATMs that could deal with the various sizes, designs, and security information of the currencies of various countries around the world. In 2011 OKI expanded the number of bill varieties that could be handled by the same machine from 32 to 128, and launched sales of models with coin dispensing and contactless functions.

ATMs vs cash-recycling ATMs

Depositor + dispenser OKI cash-recycling ATM

入金 出金 入金 出金 AD CD ATM

CD ADT

Collection Refill Deposit Dispense Depositor Cash stacker stacker Recycle stacker + recy cling Dispenser Deposited cash is used for dispensing Deposited cash is used v ia collection and refill directly for dispensing Source: Shared Research based on company data

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

Domestic ATM market

Domestic sales

(JPYbn) Japan Overseas Domestic ratio (right axis) 140 70% 120.7 120 60% 105.7 100.9 100 50% 85.5 76.9 80 68.0 40% 62.4 60 30%

40 20% 59.3 42.2 47.5 20 40.6 41.6 39.8 34.4 10% 0 0% FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Source: Shared Research based on company data

ATMs usually account for around 80% of domestic sales (including maintenance services, which accounted for 10% of sales in FY03/15), and the rest is sales of cash-handling machines (such as machines used for deposits and banknote handling by tellers in financial institutions). There was a temporary spike in demand for cash-handling machines at major financial institutions in FY03/16 and FY03/17, so the ATM sales mix declined to roughly 60% in FY03/16.

ATM market trends In the domestic ATM market, the number of machines installed at financial institutions (banks and post offices) is trending sideways, so demand is mostly replacement demand. However, the number of new ATM installments in the distribution and retail sector, primarily convenience stores, is growing. The number of ATMs installed by Seven-Eleven and Lawson (stores with data available) has grown roughly in line with growth in store numbers since fiscal 2010. The number of convenience stores is forecast to continue growing: In its medium-term growth plan, industry leader Seven-Eleven has flagged the opening of 1,700 stores per annum and the closure of 800; Lawson planned for a net increase of 700 stores in FY02/17; and the core strategy in the September 2016 FamilyMart and UNY Group Holdings merger was to grow the scale of the convenience store business.

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

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

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

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Overseas markets

Overseas sales

(JPYbn) FY03/17 China Other overseas China ratio (right axis) 100 50% 86.3 Other overseas 80 40% 22% 30.3 58.2 60 30%

43.3 20.9 41.6 37.1 Japan 40 4.7 20% 4.5 China 59% 26.4 21.8 56.0 22.0 19% 3.1 20 38.6 10% 6.0 32.6 37.3 23.3 15.8 19.6 0 0% FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Source: Shared Research based on company data

Overseas, the company is concentrating management resources on developing emerging markets with prospects for future growth. China accounted for 60–70% of the company’s overseas sales of JPY58.2bn in FY03/16. Brazil accounted for 70–80% of the remainder, with 10–20% from Russia, India, and Indonesia. The company said it mainly sells ATMs and maintenance services, but it plans to also grow sales of cash-handling machines.

When OKI developed AT21S, an ATM for the Chinese market in 2003, NCR, IBM, and Diebold held the majority of the CD (cash dispenser) machine market. OKI worked to secure orders for its cash-recycling ATM to gain a foothold and in April 2005 made its first mass-produced delivery. It steadily grew its share from 8% (400 units in operation) in FY03/06––the year the product was launched––to 11% (800 units) the next year, and 50% as of FY03/16. The number of units sold annually has also grown significantly, reaching 36,000 in FY03/15 (although this number was halved in FY03/16, see later in the report for details).

OKI started supplying ATMs to a major Russian private bank (Alfa Bank) in 2012, Indonesia’s largest private bank (PT Bank Central Asia Tbk) in 2013, and India’s largest bank (State Bank of India) and major banks in Malaysia in 2014. In 2014 OKI also bought a local company in Brazil and launched an ATM business there.

Overseas expansion: ATMs

2012: Starts delivery of ATMs 2014: Starts delivery of ATMs to a large bank to Alpha Bank, a large private bank Russia

2001: Establishes ATM manufacturing base China 2012: Establishes representative office in Shenzhen 2013: Starts delivery of ATMs to 2005: St art s selling AT Ms via local part ners PT Bank Central Asia Tbk, the largest private bank India Malaysia

Indonesia Brazil 2014: Starts delivery of ATMs to State Bank 2014: Acquires a local company of India, the largest bank in the country; and establishes an ATM business company Establishes an ATM sales subsidiary

Source: Shared Research based on company data

Mass production benefits from products based on a single platform OKI operates globally, but the hardware for banknote sorting and conveying is the same no matter the region. Banknote sorting modules are produced in Japan, while assembly and other work is concentrated in the Shenzhen China plant. The company can reap mass production benefits regardless of the delivery location. In Brazil, OKI acquired a company that had its own factory, so CD machines are produced locally.

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China ATM market China has driven overseas sales growth. When the company started sales in China in 2005, it only sold about 5,000 units. By the end of 2015, there were 860,000 of OKI’s CD and ATM machines in operation (+18% YoY, source: People’s Bank of China). The market has grown substantially and continues to expand. OKI’s sales were riding this wave, but in June 2015 the company halted sales to its major distributor in China, Shenzhen Yihua Computer Industrial, due to delayed product payments (CNY1.1bn). Accordingly, in FY03/16 OKI’s sales fell sharply, and earnings were substantially affected, because roughly half of the company’s sales had been through Shenzhen Yihua Computer Industrial (the remainder were direct sales).

In light of this, OKI entered into a new partnership with Digital China Group in October 2015, and said it aims to aggressively tap into the Chinese ATM market. The company applied for arbitration proceedings related to Shenzhen Yihua Computer Industrial to the South China International Economic and Trade Arbitration Commission in November 2015. Note that the relevant amounts are accounted for as accounts receivable in the assets section on the balance sheet (as current assets until Q3 FY03/17, as fixed assets from Q4 FY03/17).

The competitive climate is getting tougher as local companies are increasing production under the Chinese government’s policies to promote local production. The company aims to exploit its cost competitiveness by exploiting its strength in basic specifications such as its ability to authenticate and convey banknotes, as well as deal with counterfeit notes and maintain high operating rates.

Cash-handling machines The company is skeptical about forecasts by a survey firm regarding market growth (from 715,000 units in 2015 to 1.2mn in 2020) due to widespread penetration in urban areas and the burgeoning use of electronic money. However, considering that penetration rates are still low in rural areas, and that cash in circulation (CNY6.5tn as of the end of September 2016) was growing faster than GDP with cash transactions increasing, the company thinks growth will continue. In light of rising demand, OKI has been focusing on cash-handling machines, a derivative of ATMs, since 2015.

ATMs in operation for four major Chinese banks, cash-dispensing machines and ATMs in operation in China

('000) Bank of China ('000) ('000) ATM CD YoY 500 Industrial and Commercial Bank of China 50 700 China Construction Bank Agricultural Bank of China 600 30% Sum of the four banks (YoY change) 374 400 360 40 330 47 500 46 289 300 45 30 100 400 20% 243 41 100 92 200 39 81 300 200 161 20 30 98 129 70 92 24 81 59 69 200 10% 18 43 57 100 34 46 10 29 40 36 123 130 100 23 32 99 112 19 24 55 65 76 15 30 41 0 17 18 22 0 0 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2008 2010 2012 2014

ATM market share, money in circulation vs. GDP

(CNYtn) Money supply (year end) YoY Real GDP 80 16% Diebold GRG Banking 70 14% 4% OKI 28% 5% 60 12% Eastcom 50 10% 6% 40 8%

Yihua 30 6% 11% Hitachi Omron 13% 20 4% King Teller 10 2% 11% Cashway 11% 0 0% 2000 2004 2008 2012 2016 Source: Shared Research based on each bank’s data (lower left), OKI 2015 annual report (upper right), GRG Banking news release (lower left), and The People’s Bank of China data (lower right)

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Brazil The company ’s full-scale entry into the Brazilian market took place with the establishment of a new company called OKI Brasil S.A., spun off from the automated machinery and maintenance service businesses of Itaútec, a company under the umbrella of the major Brazilian conglomerate ITAÚ Group (banking, chemicals, electronics etc.) This resulted from a strategic partnership agreement with the conglomerate entered in May 2013. Unlike for other regions, OKI entered Brazil through an acquisition, as setting up a new entity was assessed to be difficult.

CD machines are widespread in Brazil, and the company aims to promote the switch from CDs to ATMs. OKI’s share in the Brazilian domestic market for CDs and ATMs is around 25%, giving it the number two position. The top company Diebold (around 50%) and the number three player, a local company, do not have their own cash-recycling ATM technology, so OKI saw an opportunity to capture market share, which is why it decided to enter the market. However, due to the slowdown in the Brazilian economy, banks’ ATM investment has cooled off and profits are sluggish. In FY03/15, the year OKI entered the market, the operating loss was over JPY3bn. There was a further widening of the operating loss to around JPY4bn in FY03/16, so the company wrote down its production equipment. OKI forecasts an operating loss of around JPY2bn for FY03/17.

Operating losses at Brazilian subsidiary, Brazilian GDP

(JPYbn) Operating profit (loss) GDP YoY GDP QoQ 0 10% 3% 8% 2% 6% 4% 1% 2% 0% 0% -2% -1% -4% -2% -6% -5 -8% -3% FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Est. Est. Est. CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY10 CY11 CY12 CY13 CY14 CY15 CY16 Source: Shared Research based on company data and IBGE

Brazil’s ATM market (share is for 2014)

Share by installed units Units held by bank ('000) Banco do Brasil Bradesco Itaú Unibanco Banco35Horas Wincor 6% Santander 9% Other 40 Perto 9% BDB 9% 23% 30

NCR Diebold TecBan 17% 45% 10% 20 CAIXA Itaú 18% 10 14% Bradesco OKI 17% 23% 0 2010 2011 2012 2013 2014 2015 2016 Source: Shared Research based on each Brazilian bank’s data

Other emerging economies In the other regions where OKI operates––India, Southeast Asia, and Russia/Eastern Europe––there are roughly 200,000–300,000 CDs and ATMs in operation in total. In FY03/16, the number of units shipped to these three regions combined was slightly over 10% of the shipments to China. Still, OKI’s overseas ATM business model benefits from mass production, as sales growth in any of the regions flows through to profits. In particular, India continues to grow rapidly at around 20% per annum.

India OKI established a local sales subsidiary in India in 2014 and started supplying the State Bank of India, the largest bank in the country. Subsequently, the number of units in operation has shown steady growth. OKI’s market share is still low at around 1%, but there is ample scope for expansion. The company performs maintenance services by partnering with a local company. It

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appears that OKI will continue to make upfront expenditures to grow the business to levels on par with the Chinese business (scale of several tens of billions of yen).

CD/ATM markets in emerging economies (left: India, middle: Southeast Asia, right: Russia/Eastern Europe)

('000) ('000) ('000) ('000) ('000) ('000) Units in operation (OKI) Units in operation (OKI) Units in operation (OKI) 3 300 6 300 300 Units in operation (total) Units in operation (total) Units in operation (total) 5

2 200 4 200 1 200

3

1 100 2 100 100

1

0 0 0 0 0 0 2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016 Source: Shared Research based on company data

Number of ATMs in operation by country

('000 unit) 2015 2020 Est. 6000 1 China 715 1150 2 US 433 439 5000 India 3 India 225 440 230,000 4 Japan 199 205 4000 5 Brazil 161 157 6 Russia 138 135 China UK 3000 720,000 70,000 South Korea 7 South Korea 127 130 Japan 130,000 Indonesia 200,000 8 Indonesia 101 140 Russia 2000 100,000 9 UK 71 77 Brazil140,000 10 Canada 63 69 160,000 1000 USA Canada 60,000

Markets OKI has entered Monthly withdrawal count per ATM 430,000 0 0 500 1000 1500 2000 2500 3000 ATM installed units per million people Source: Shared Research based on company data

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Printers segment overview

Performance

(JPYbn) (JPYbn) Operating profit Sales (right axis) OPM USD/EUR (right axis) 10 200 8% 7.8 7.9 6.8 6.7 7.0 6% 1.4 5.1 4.1 4% 5 3.5 160 2.7 2% 1.3 1.4 0.6 1.0 0% 0 120 -2% 1.2 -1.3 -4% -5 80 -4.6 -4.3 -6% 1.1 -8% -10 -8.8 40 -10% 1.0 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 FY03/19 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 FY03/19 Est. Est. Source: Shared Research based on company data

Segment overview: Specializes in LED printers. Market share is only around 2% and business model has high fixed costs ▷ Struggling as the market shrinks amid a decline in printing demand Tapping into specialty and professional printing markets. Aiming to reform earnings structure so that hardware and ▷ consumables both turn a profit. Considering M&A Two production centers: Thailand and Shenzhen China. Europe accounts for around 40% of sales. EUR/USD rate has major ▷ impact on profits Historical results: Discovery of improper accounting at Spanish subsidiary (liquidation complete) caused the restatement of ▷ earnings for FY03/07–12

Printers segment overview About 80% of sales are to corporate customers. Low 2% market share. USD/EUR/USD rate impacts profits since most of sales are to Europe In the Printers segment the company sells printers and multifunction printers (MFPs), mainly to businesses (around 80% of sales). Yet office printer demand is shrinking and the competitive environment intensifying, so the company is tapping into specialty and professional printing markets and concentrating development resources on high value-added MFPs in existing markets. OKI is trying to construct a business model where it can profit from high-end (although small-scale) printer demand, rather than the general office printer market, which is large. However, the high-end market still accounts for only around 20% of overall sales, which is insufficient to maintain sales channels and factory utilization rates, so the company is accelerating the shift to professional and specialty printing.

For single-function printers, competitors include HP, Canon (TSE1: 7751), Seiko Epson (TSE1: 6724), and Brother (TSE1: 6448), while for MFPs, Ricoh (TSE1: 7752) and Xerox also compete.

OKI’s products use LEDs as a light source, rather than lasers (the industry standard). The company developed the world’s first LED printer in 1981. It developed LED technology because compared to laser printers, LED printers require a simpler structure enabling more compact devices and easier maintenance (laser printers require mirrors and focal length correcting lenses); allow for faster print speeds; and enable high definition rendering (laser printers may produce blurry images due to varying focal distances).

Printers segment earnings Segment profits have been low, particularly since FY03/09. This is because of several reasons: the company’s market share for printers is low at around 2%, fixed costs are high, and OKI was late to enter the MFP market. In FY03/14 the company improved operating profit by JPY14.0bn YoY (including JPY2.7bn in forex effects), due to a number of initiatives to cut fixed costs

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(headcount reductions primarily in sales companies and plants); improve design efficiency and lower parts procurement costs; and strengthen management systems. Still, in FY03/16, operating profit fell by JPY5.3bn YoY to JPY1.4bn. The company’s new strategic products fared well, but sales of existing products, which accounted for a bigger share of sales, fell, and there was intense price competition even at low price points, leading to a tough climate overall. This was compounded by the weakening of the euro against the US dollar.

Left: sales by region (JPYbn), middle: sales by region in local currency terms (FY03/14 = 100), right: operating profit (JPYbn)

(JPYbn) Europe Americas Japan Asia and others Europe Americas (JPYbn) Operating profit USD/EUR (right axis) 100JPY/USD 140 129.3 125 Japan Asia and others 10 1.6 124.8 124.6 120 8 1.5 120 112.4 115 6 1.4 100 110 4 1.3 80 105 2 1.2 100 0 1.1 60 95 -2 1.0 40 90 -4 0.9 85 20 -6 0.8 80 -8 0.7 0 75 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 -10 0.6 Est. (FY03/14=100 local currency basis Est. FY03/05 FY03/10 FY03/15 Source: Shared Research based on company data

Tapping into the professional printing market OKI aims to focus on the professional printing market. In October 2015, the company acquired Seiko Infotech (SII, currently OKI Data Infotech), which operates a business involving wide format printers used primarily in the sign market, a design business targeting the advertising and distribution industries, and a medical business targeting on-site use at hospitals etc. The company is in the process of building its sales channels (excluding the sign market, as its subsidiary already has sales channels). Its strategy is not to chase sales but to generate profits. It does not intend to have the same strategies, product lineup, and office locations as major competitors but instead aims to steadily grow profits by keeping investments and fixed costs appropriate for its size.

The company said that if there was an opportunity to execute an M&A transaction compatible with its mechatronics technology, such as with SII, it would do so. However, OKI already has the core technology it needs to tap into the professional printing market. It is enhancing its product development for various professional printing markets by finding new uses for its internal technology.

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

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EMS (Electronics Manufacturing Services) segment overview

Performance

(JPYbn) (JPYbn) (JPYbn) Operating profit Sales (right axis) Operating profit OPM 7.5 5.0 6.3% 7% 70 5.8% 6.5 5.4% 6% 60 4.0 5.0% 5.5 4.7% 4.8% 4.8% 4.7% 4.5 3.5 4.3% 4.5% 5% 4.5 50 4.5 3.0 4% 3.5 40 2.3 3.5 2.0 2.1 2.2 2.3 2.0 1.6 1.7 3% 2.5 2.0 2.1 2.2 30 1.3 1.5 1.5 1.6 1.7 2% 1.5 1.3 20 1.0 0.5 10 1% 0.0 -0.5 0 0% -0.2 -0.2 -0.7% -1.5 -10 -1.0 -1% FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 FY03/20 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 FY03/20 Est. Est. Source: Shared Research based on company data

Segment overview: High-end EMS maintains OPM of around 5%. Steadily winning new customers and orders from existing ▷ customers; also actively pursuing M&A

High-end: Specialist not in mass production but high-mix, low-volume manufacturing. Invests in inspection equipment and ▷ license acquisition to boost profitability through quality Customer breakdown: Around 25% of customers are in the information and communication sector. Aiming to build a business ▷ model not dependent on particular industries or customers M&A: Acquired new customers and technology through takeovers of PCB businesses of Tanaka Kikinzoku Kogyo (2012), ▷ Yokogawa Electric (2015), and Nippon Avionics (2016) Targets: Aiming for sustainable growth. Focusing on capturing high-mix, low-volume manufacturing demand, and demand ▷ from customers closing factories. Not targeting consumer demand for mass-produced products

EMS segment overview The EMS segment was launched in 2002 at the company’s Honjo (Saitama) plant. As the mother plant for telephone switchboard and transmission equipment, the Honjo plant was expanded repeatedly, but then faced a significant fall in output due to changed procurement policies at NTT. In the midst of this, OKI launched the EMS segment to capture domestic niche demand, and gradually won the trust of new customers. Since FY03/11 the segment has had a stable OPM of 4–5% while steadily expanding sales. OKI invested in increasing capacity and built up its customer base through M&A, enabling the segment to generate stable cash flows. Customers operate in telecom, industrial, measuring, and medical equipment markets.

Service flows and sales breakdown

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

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

ファームウェア 基板実装・検査装置組立・検査 品質保証検査 of

回路設計 機構設計ＡＷ設計 board 基板製造部材調達 design 試作 Measurement 計測 assurance mounting circuit ufacturing Industrial Firmware andtesting andtesting andtesting 産業 Prototyping man Artworkdesign Circuitry design Circuitry Procurement Board Quality Mechanical parts and materials and parts Equipment assembly Printed Source: Shared Research based on company data

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

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

EMS segment earnings Segment earnings have been on a steady uptrend: operating profit grew for six years in a row since FY03/11 and the OPM has been above 5% since FY03/15. Since FY03/15, sales growth has accelerated, aided by customers acquired in M&A.

Profitability OKI’s EMS segment has maintained an OPM of around 5%, a relatively high margin which is difficult for a mass production EMS business to achieve. Leveraging the company’s expertise in high-mix, low-volume production developed at the Honjo plant, it uses enhanced testing processes to ensure high reliability and quality. The company has managed to maintain a relatively high OPM because it can handle flexible schedules and reduced production costs. In order to avoid being overly influenced by particular industries and customers, OKI has diversified its customer mix. Its target is sustainable growth. However, the company does not intend to change its high-end EMS business structure, so will not mass produce consumer goods.

EBITDA and capex

(JPYbn) Change in total fixed assets Depreciation (JPYbn) Operating profit Depreciation OPM before depreciation (right axis) 1.2 1.2 1.1 7.9% 4.0 7.3% 8% 1.1 1.0 7.0% 6.9% 1.0 1.0 8.0% 3.3 1.0 3.5 7.8% 7.9% 7% 1.0 0.9 0.9 0.9 3.0 3.0 3.0 2.6 2.6 6% 0.8 2.5 2.4 1.0 0.7 0.8 0.8 0.7 0.7 2.5 4.4% 0.9 0.9 5% 2.0 1.0 0.9 4% 0.6 1.1 1.0 0.4 1.5 3% 1.0 2.3 0.4 1.0 2.0 2.1 2% 1.7 1.3 1.5 1.6 0.5 1.2 1% 0.2 0.0 -0.2 0% 0.0 -0.5 -1% FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Source: Shared Research based on company data

EMS segment sites

OKI Print ed Circuit s OKI Circuit T echnology 【Artwork design, board manufacturing】 【Artwork design, board manufacturing】

Nagano OKI OKI IDS 【Design, board mounting, equipment 【Design】 assembly】

OKI Communication Systems OKI Honjo Plant 【Design, board mounting, equipment assembly】

OKI Engineering 【Evaluat ion and test】

Source: Shared Research based on company data

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Other businesses overview

Performance (JPYbn)

(JPYbn) (JPYbn) (JPYbn) Operating profit External sales (right axis) Operating profit OPM (right axis) 5.0 20 5.0 22.7% 25% 4.2 19.2% 4.0 16 4.0 19.3% 20% 3.5 3.4 16.2% 4.2 3.0 16.1% 2.8 14.4% 3.0 2.5 12 3.0 3.5 3.4 13.3% 15% 3.0 2.0 2.8 2.0 2.0 1.5 8 2.0 9.7% 2.5 10% 8.3% 1.0 4 1.5 0.5 1.0 0.5 5%

0.0 0 0.0 0% -0.5 -0.5 -1.0 -4 -1.0 -3.4% -5% FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 FY03/20 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 FY03/20 Est. Est. Source: Shared Research based on company data

Mainly independent businesses run by subsidiaries. Products include electronic parts, power supplies, and compact precision ▷ motors. Services include reliability testing and environmental-conservation related services. Because internal sales are large, margins appear to be high. Mix of high-margin businesses (such as reed switches) and ▷ low-margin businesses.

Main consolidated subsidiaries

ICT OKI Customer Adtech Print er OKI Data Other OKI Micro Engineering OKI Softw are OKI Data Infotech OKI Techno Power Systems OKI W int ech OKI Digit al Imaging OKI Engineering Shizuoka OKI OKI Data Americas OKI Europe OKI Data Manufacturing (Thailand) Mechatronics Systems Japan Business Operations EMS Nagano OKI OKI Electric Industry (Shenzhen) OKI Print ed Circuit s OKI Banking Systems (Shenzhen) OKI Communication Systems OKI Brasil OKI Circuit T echnology OKI IDS Source: Shared Research based on company data

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Strengths and weaknesses Strengths Cash-recycling ATMs, a tool for capturing growth in emerging markets OKI’s long-term growth driver is cash-recycling ATMs. OKI was the first company in the world to develop and commercialize the product in 1982. Asian companies are working to develop similar products, but OKI and two other Japanese companies are still in a leading position due to their cash-handling machines that offer both speed and reliability in an area with no room for errors. OKI aims to develop emerging markets where ATM penetration is low, leveraging its conveyer technology (can handle various types of bills) and reliable authentication technology (based on various security information). In contrast with other overseas ATM majors, the company does not sell standard ATMs without a cash-recycling function––other than through a Brazilian subsidiary–– and its business structure enables it to directly benefit from the spread of cash-recycling ATMs.

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

Builds systems tailored to customers’ workflows and meeting various standards The ICT segment is supported by OKI’s systems that are built to suit customers’ workflows and meet various standards. OKI has developed repeat customers over many years by working with them to build suitable systems, and it has gained the experience to make workflows more efficient and deal with regulations and standards for various workplaces. As a result, the company has developed expertise in specialized areas, enabling it to participate in major projects involving numerous companies, such as air traffic control system projects. In call center systems, the company holds a domestic market share of around 30%. As a result of this expertise, the ICT segment accounts for 45% of consolidated operating profit (FY03/16) and maintains OPM of around 6%.

Weaknesses

Heavy fixed costs in Printers segment Overseas markets account for around 75% of sales in the Printers segment (roughly 40% Europe, 20% US). Roughly 80% of segment sales are to corporate customers, but OKI only has a 2–3% share of this market. Competition is fierce in the office printer market and fixed costs are high (for sales, maintenance, and development teams). The company is trying to shift its focus to professional printing, including design, advertising, distribution, and medical markets, but this will require it to review its sales channels. Further, the company’s factories in Thailand and Shenzhen China are suited to the current production levels, so a sudden adjustment in production would be difficult. Still, OKI’s medium-term plan is to focus on profits rather than chase sales, so while structural reform costs may temporarily crimp profits, Shared Research anticipates positive results from this approach.

Overseas inadequate management structures Problems remain in management structures overseas––including improper accounting at a Spanish subsidiary and substantial uncollected accounts receivable in China. Capital needs are also large as, in FY03/16, the parent had JPY71.7bn of claims to affiliates. OKI is considering countermeasures to strengthen the management structure of group companies.

Weak balance sheet Restructuring over the years (associated extraordinary losses of around JPY120bn since FY03/00 including JPY22.4bn in losses due to revising retirement benefit schemes) led the shareholders’ equity ratio to fall to as low as 10% (FY03/11, JPY38.3bn, year-end exchange rate, JPY83/USD). Subsequently, a profit recovery, yen depreciation, and the lowering of restructuring expenses saw the equity ratio improve to 25%, but the company still had JPY122.1bn in interest-bearing debt. OKI is expected to restructure the Printers segment, and has not made provisions for accounts receivable in China. Although the company’s credit rating from R&I improved to BBB-, further improvement is needed.

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Historical results

Full-year FY03/18 results (out May 8, 2018)

FY03/18: Operating profit was up JPY5.2bn, missing forecasts by JPY5.3bn due to the Mechatronics Systems segment missing ▷ forecasts by JPY6.1bn. The company plans to execute structural reforms in FY03/19 Information and Communication Technology (ICT): Sales from several government agencies were solid. However, sales fell ▷ overall because network-related projects were delayed until FY03/19

 Existing businesses in line with plan, excluding JPY5.0–6.0bn impact of project delays. Growth businesses solid, with sales up JPY5.0bn, and aims for further JPY5.0bn increase in FY03/19 Mechatronics Systems: Impacted by sluggish overseas market for ATM sales. The company plans to execute a full response in ▷ FY03/19. Profits rose YoY as temporary losses dissipated

 Brazil, China, and other overseas markets, recorded losses of over JPY4.0bn, an amount equivalent to litigation costs, and over JPY1.0bn respectively. Expects structural reforms of overseas business to boost profits by JPY3.0bn in FY03/19. Printers: In line with forecasts, partly due to higher sales from the depreciation of the yen. Operating profit up JPY1.7bn on ▷ structural reforms and forex-related gains

 Structural reforms apparently are proceeding as planned, reducing fixed costs by JPY1.4bn in FY03/18. A further JPY2.0bn or so reduction of fixed costs is expected in FY03/19, although this is likely to be partly offset by lower sales. EMS: Sales up 10.5% on strong demand for printed circuit boards (PCB) for semiconductor-related equipment. Operating ▷ profit up 8.5% due to higher volume from increase sales

 Production capability tightened, particularly for PCBs, led to some opportunity losses in FY03/18. In FY03/19 the company intends to expand PCB production capability. Recurring loss: Changes in handling of foreign currency-denominated transactions yield big payoff. Foreign exchange-related ▷ gains boost earnings by JPY5.0bn YoY as recurring profit rises JPY10.9bn YoY Topics: Company tendered offer for shares of Oki Electric Cable Co., Ltd. (formerly TSE: 5815) with aim of strengthening ▷ group revenue base by making Oki Electric Cable a wholly owned subsidiary. Oki Electric Cable was made a consolidated subsidiary from Q4

 Synergies: Close affinity between EMS business and Oki Electric Cable, with little overlap among existing customers and similar markets targeted for future development. Expenses related to Oki Electric Cable’s stock exchange listing will also drop out

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Quarterly performance (JPYbn)

(JPYbn) ICT Mechatronics Systems Printers (JPYbn) ICT Mechatronics Systems Printers EMS Others YoY (right axis) EMS Others and elimination OPM (right axis) 200 183 20% 180 165 15% 15 15% 153 10.2% 160 147 9.3% 138 10% 10 7.3% 7.6% 10% 140 130 128 6.7% 6.9% 113 114 113 115 4.5% 4.4% 1.5% 110 106 5% 3.2% 3.4% 120 106 104 106 5 -0.3% 5% 99 1.0% 1.2% 91 93 90 0.9% 0.0% 0.7% 100 0% -1.2% 0 -2.5% 0% 80 -5% 60 -5 -5% -10% -4.3% 40 -10 -10% 20 -15% 0 -20% -15 -15% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18

(JPYbn) Sales YoY (right axis) (JPYbn) Operating profit OPM (right axis) 180 160 20% 16 16% 140 12 10.2% 12% 120 10% 9.3% 7.3% 7.6% 100 8 6.7% 6.9% 8% 80 0% 4.5% 4.4% 3.2% 3.4% 4 4% 60 0.9% 1.0%1.5% 1.2% 0.0% 0.7% 40 -10% -2.5% -1.2% -0.3% 0 0% 20 0 -20% -4 -4% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Source: Shared Research based on company data

Performance overview FY03/18: Operating profit was up JPY5.2bn, missing forecasts by JPY5.3bn due to the Mechatronics Systems segment missing forecasts by JPY6.1bn. The company plans to execute structural reforms in FY03/19 For full-year FY03/18, the company reported sales of JPY438.0bn (+0.7% YoY) and operating profit of JPY7.7bn (+JPY5.2bn YoY). The dissipation of temporary losses in the Mechatronics Systems segment (JPY11.0bn) had a large impact on the YoY growth in operating profit. However, in the Mechatronics Systems segment, environmental changes in the overseas ATM market affected results as the segment booked a JPY5.1bn operating loss (over JPY4.0bn in Brazil and more than JPY1.0bn in other overseas markets and missed forecasts by JPY6.1bn. ）

The company plans to execute comprehensive structural reforms at the overseas Mechatronics Systems business, with a view to improving business performance to breakeven in FY03/19. In FY03/19, the company will focus on eliminating losses “to finish in the black by undertaking cost structure reforms while implementing new business strategies addressing changes in the operating environment.”

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Factors affecting operating profit (JPYbn)

16 14 12 10 -7.5 8 11.0 2.0 6 -2.5 2.5 4 -0.0 7.7 2 2.5 0 FY03/17 One-time loss Change in volume Price changes Procurement cost Forex impact Fixed cost reduction FY03/18 Operating profit and product mix reductions and value Operating profit engineering (JPYbn)

Factors seen affecting operating profit (JPYbn) 20 18 16 1.5 1.5 -3.5 14 -1.0 12 7.5 10 8 14.0 6 4 7.7 2 0 FY03/18 Change in volume and Price changes Procurement cost Forex impact Fixed cost reduction FY03/19 Operating profit product mix reductions and value Operating profit engineering (JPYbn) Source: Shared Research based on company data

The company executed a tender offer for Oki Electric Cable according to its plan. The company will continue to execute the remaining processes to make it a wholly-owned subsidiary in order to generate synergies with the EMS segment. The company included Oki Electric Cable in consolidated results from Q4.

Tender offer for shares of Oki Electric Cable Along with its 1H results announcement, the company announced that it was initiating a tender offer for the shares of subsidiary Oki Electric Cable Co., Ltd. (TSE: 5815). Oki Electric currently holds 36.21% of Oki Electric Cable shares directly and 1.06% indirectly. The tender offer is aimed at making Oki Electric Cable a wholly owned subsidiary. Under the tender offer, OKI is offering JPY3,650 per share for the 2,303,009 shares of Oki Electric Cable it does not already own, and intends to acquire a minimum of 1,170,800 shares. The tender offer was expected to cost approximately JPY8.4bn.

By making Oki Electric Cable a wholly owned subsidiary, OKI expects to speed up its strategic decision-making process and make better use of group personnel as part of an overall effort to increase the enterprise value of Oki Electric Cable and enhance the revenue base of the OKI group as a whole. OKI and Oki Electric Cable operate in many of the same markets. OKI's EMS business is especially strong in the areas of measuring equipment and medical equipment, and is looking to move further into the aerospace and electronic components markets. Oki Electric Cable has a strong track record in the factory automation, robotics, and medical equipment. As the two companies currently have only a few clients in common at present, management believes it will be able to start with those clients they have in common and work together to expand sales by both companies.

Specific synergies the company is expecting to realize include: 1) at its EMS business, joint initiatives to expand sales and promote business where the two companies are serving clients in similar business areas; 2) increasing value-added by strengthening collaboration in existing technologies and services (collaboration between OKI's printed circuit board business under EMS segment and Oki Electric Cable's flexible printed circuit board business); 3) combining underlying technologies to develop new business areas (for example, integrating OKI’s optical sensor technology with Oki Electric Cable's optical cable technology to make IoT a key strength of the OKI group); 4) sharing of production facilities, manufacturing technologies, and expertise to reduce production costs and create "smart factories;" and 5) make better use of resources by managing more things at the group level.

Oki Electric Cable will be included under the EMS segment, where OKI is looking to realize an operating profit margin of 5%. Oki Electric Cable will do much to help the EMS segment reach this goal, as its forecast of JPY870mn in operating profit in FY03/18 represents an operating profit margin of 7.0%. Cost savings from the dropout of expenses related to Oki Electric Cable's stock exchange listing are also expected after the merger, as are additional cost savings and efficiency gains in other areas as the two companies work more closely together going forward.

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Oki Electric Cable (JPYmn)

(JPYmn) Sales Operating profit (left axis) (JPYmn) Gross profit SG&A expenses GPM (left axis) OPM (left axis) (JPYmn) 1,200 18,000 35% 4,000 1,000 16,000 30% 3,500 800 25% 14,000 3,000 600 20% 12,000 400 15% 2,500 200 10,000 10% 2,000 0 8,000 5% -200 1,500 6,000 -400 0% 4,000 1,000 -600 -5% 500 -800 2,000 -10% -1,000 0 -15% 0 FY03/00 FY03/05 FY03/10 FY03/15 FY03/00 FY03/05 FY03/10 FY03/15 Source: Shared Research based on company data

ICT segment results

Performance

(JPYbn, %) Operating profit Sales (right axis) OPM (JPYbn) (JPYbn, %) Operating profit OPM Sales (right axis) (JPYbn) 77.1 20 74.5 80 16 222.3 240 65.5 207.7 14 191.2 15 13.2 60 177.4 172.7 12 180 42.5 10.4 10.8 38.7 10 36.5 35.2 36.6 36.0 37.3 40 10 30.3 31.2 8.1 7.8 8 120 6.1 6.1 6.1 5 20 2.6 6 0.5 0.3 0.5 1.5 0.9 4 60 0 0 -0.2 -0.1 -0.8 2 12.7 13.5 11.6 14.4 13.5 -5 -20 0 0 Q1 Q3 Q1 Q3 Q1 Q3 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/16 FY03/17 FY03/18 Source: Shared Research based on company data

Information and Communication Technology (ICT): Sales from several government agencies were solid. However, sales fell overall because network-related projects were delayed until FY03/19. Sales in growth markets grew steadily. For full-year FY03/18, the ICT segment reported sales of JPY172.7bn and an operating profit of JPY13.5bn. Sales were down JPY4.7bn YoY (-2.6% YoY) and operating profit was down JPY900mn YoY. While projects from several government agencies, social infrastructure-related projects, and construction contracts were solid, sales fell YoY due to network-related projects being postponed until FY03/19. Sales at existing businesses were down JPY9.7bn YoY, of which about JPY5.0bn was due to projects being pushed back, and the remaining JPY5.0bn or so was due to changes in the market environment. Therefore the result was broadly in line with expectations. Sales at growth businesses increased JPY5.0bn to JPY9.0bn, representing solid progress toward the target of a JPY16.0bn increase over three years, set in the medium-term plan. In response to swifter-than-expected changes in the market environment, the company says it will hasten personnel redeployment and merchandising reforms.

Operating profit was in line with forecasts as changes to the sales mix and lower costs absorbed the impact of lower sales. In FY03/19, the company plans to further strengthen the several IoT-related joint businesses with 49 companies as of May 2018 it （ ） established in FY03/18. It also is working hard to build up profits at existing businesses. Oki targets segment operating profit of JPY500mn for FY03/19, but expects the operating profit margin to drop 0.3pp to 7.4% due to upfront spending for growth businesses. Profit contributions from these growth businesses are not expected until the period covered by the next medium-term plan.

Outlook for Q4 FY03/18 and FY03/19 (as of Q3) The company commented that business conditions are favorable in Q4 and it has made progress with improving its earnings structure. With R&D expenses likely to be lower than initially expected, the company thinks full-year OP will exceed its JPY13.5bn target, and aims for sales and profit growth in FY03/19 as well. Its outlook for Q4 and FY03/19 is as follows: a) no one-time factors to impact on earnings; brisk replacement demand and no major concerns with its earnings structure; and b) expectations of a gradual increase in the number of projects for new businesses prioritized in the medium-term management plan (social infrastructure solutions and IoT-related businesses).

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Outlook as of 1H: At the time the company announced 1Q results it said sales and earnings at the ICT segment were on track to meet its 1H forecast, but 1H operating profit ended up coming in JPY500 below plan due to delays in delivering some orders. However, 1H forecast of company’s initial forecast was adjusted for the higher target to improve the business structure concentrated in 2H. The company had been expecting the segment operating profit margin to come down in 1H as a result of the heavy investment spending (mainly on R&D) needed to meet the growth targets under its medium-term business plan, but the actual spending has been slower than expected. If the same market conditions continue in 2H, this could mean higher earnings. The company also noted that most of sales in 1H came from existing customers and that it expects more business from new customers in 2H.

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

(JPYbn) (JPYbn) Existing markets (existing base businesses) Change (left axis) Growth markets (growth businesses) Change (left axis) 250 25 222.3 207.7 200 191.2 185.0 20.0 173.4 20 163.7 171.0 150 15 14.0 100 10 9.0 50 6.0 14.6 7.3 14.0 5.0 5.0 5 4.0 4.0 0 -9.7 -17.8 -50 -31.1 0 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/17 FY03/18 FY03/19 FY03/20 Est. Est. Est. Est. Source: Shared Research based on company data

Mechatronics Systems segment results

Performance

Operating profit OPM 20 Operating profit Sales (right axis) OPM 40 Sales (old segment; right axis) Sales (new segment; right axis) 30.8 15 160 15 32.626.2 26.8 27.3 30 11.2% 24.1 24.7 24.2 24.3 23.8 22.2 21.2 9.5% 10 140 10 20 5.3% 3.8 0.1 5 120 5 2.4 10 1.2 10.7 12.4 6.0 0.1 0 0 0 100 -11.8 -5.1 -0.3 -0.5 -0.5 -1.5 -1.5 -1.6 -5.4% -5 -10 -5 80

-10 -20 -10 -11.7% 60

-15 -12.7 -30 -15 40 (JPYbn, %) Q1 Q3 Q1 Q3 Q1 Q3 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/16 FY03/17 FY03/18 (JPYbn) (JPYbn) (JPYbn) Source: Shared Research based on company data

Mechatronics Systems: Impacted by sluggish overseas market for ATM sales. Aiming to break even in FY03/19, via structural reforms The Mechatronics Systems segment reported full-year sales of JPY93.5bn and an operating loss of JPY5.1bn. Sales were down JPY7.4bn YoY (-7.3% YoY) and operating loss was narrowed by JPY6.7bn YoY. The unification of fiscal periods for the Brazilian subsidiary (consolidated for 15 months) added to sales, but the impact of fewer domestic large-scale contracts for cash handling machines was even larger and ultimately led to a YoY decrease in sales. Weak ATM sales in overseas market (slow takeoff of cash-recycling ATM business in Brazil, continued slump in China, and stiffer competition in India) also contributed to the decline in sales.

Trends by region The operating loss stemmed in large part from the drop in sales volumes. The below plan results reflect a number of different factors. By region, the company pointed specifically to 1) A sharp slowdown in replacement demand for ATMs in China's urban market, due in part to the growing use of digital currencies; 2) heightened competition in India, which is widely viewed as a growth market but has become more and more competitive as demand for ATMs in China has slowed; and 3) in Brazil, a slower-than-expected adoption of its new cash-recycling ATMs and weak sales of existing products due to slow investment by customers.

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Against this backdrop, losses in China, Brazil, and other overseas markets were greater than projected in initial guidance and the medium-term plan. The company incurred losses totaling a) a few hundred million yen in China, where the business broke even at the operations level, but litigation costs and delays in rolling out the strategic ATM model RG8 owing to quality control issues arising soon after the 2017 release weighed down performance, b) more than JPY4.0bn in Brazil, where clients have been slow to adopt cash-recycling ATMs, resulting in ongoing quarterly losses in the vicinity of JPY1.0bn (Q1 [six months], Q2–Q4), and c) over JPY1.0bn for other overseas markets, where Oki incurred upfront costs associated with a partial reform of its pricing strategy, in a switch to pursuing greater sales volume amid stiffer competition.

Results improved significantly YoY as the impact of provision for doubtful accounts the company booked last year as temporary losses (JPY11.0bn) dissipated. In FY03/19, the company will conduct a strategic review of the overseas ATM business, which suffered sluggish sales. The company also aims to restore profitability by executing structural reforms.

Sales units (as of Q3): Getting down to specific numbers, the company said that for China it had been forecasting sales of 7,000 ATMs for the full year and 3,300 for 1H, but sold only about 1,200 units in 1H (including 500 units in 1Q). In cumulative Q3, the company only sold 3,300 units, well short of forecasts. The company expects sales in Q4 to slow from Q3, because Q4 is a period of low demand, and thinks it will undershoot its full-year target. The company said that cumulative Q3 sales of ATMs in India were about half of its ambitious full-year forecast. Sales were up YoY in volume terms, but flat in value terms as a result of prioritizing volume over profitability, resulting in lower operating profit. Excluding China, the number of ATMs sold overseas was between 2,900 and 3,000 units, missing the forecast of 7,000 units. At Shared Research, we were keeping an especially close eye on shipments of the ATM-Recycler G8, the new model designed by OKI specifically for emerging markets. However, the company looks unlikely to make as much profit as initially expected because of intense price competition in India. We expect the company to focus on developing lower-cost models. Domestically, the company sold 5,500 units while the forecast was at 9,500 units.

Outlook for Q4 FY03/18 and FY03/19 (as of Q3): The company expects higher operating profit in Q4 than in Q3. In China, sales declined QoQ in Q4 due to seasonal factors, but full-year profit should be close to the cumulative Q3 figure. Operating profit has not worsened YoY because of the effect of production adjustment a year earlier. In Brazil, losses are likely to expand in Q4 versus Q3, but in Japan profit is expected to improve in Q4 on higher shipment volume.

In the Q3 results conference call, OKI commented that it was considering a medium- to long-term strategy review for Mechatronics Systems in view of the demand slump in China and mounting losses in Brazil. Although profits in Japan and China previously compensated for investment in emerging economies, profits in Japan would be no longer enough to offset this investment, because in cumulative Q3, losses in Brazil accounted for roughly three-quarters (JPY3.0bn) of the company’s JPY4.6bn operating loss, while the Japanese business was profitable and China was breakeven.

The company is considering several options for a solution to its main priority of curbing losses in Brazil. We think its earnings structure policy in the longer term is as follows. a) Japan: While the company’s source of earnings is shifting to maintenance and service, also expand business with new customers and businesses (such as coin changers). b) China: Take advantage of the power of the OKI brand (50,000 ATMs installed in China) to make the shift from sales to maintenance and service, as it has done in Japan c) Emerging economies: Develop lower-cost models to reap the benefits of a growing market

We expect the company to announce an overview of its revised medium- to long-term strategy after reporting FY03/18 full-year results in May 2018.

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Printers segment results

Performance

Operating profit Sales (right axis) OPM Operating profit Sales (right axis) 6.0 60 10 200 5.0 50 7.8 7.9 6.8 6.7 4.0 32.7 40 5.1 30.2 30.4 28.9 32.8 27.7 28.4 28.7 4.1 27.5 26.8 24.9 27.0 5 160 3.0 30 2.7 1.7 2.0 1.4 1.4 20 1.4 1.0 1.0 0.6 0.8 1.0 0.5 0.4 10 0.2 0.1 0 120 0.0 0 -1.3 -1.0 -0.7 -0.5 -10 -1.2 -5 80 -2.0 -20 -4.6 -4.3 -3.0 -30 -4.0 -40 -10 -8.8 40 (JPYbn, %) Q1 Q3 Q1 Q3 Q1 Q3 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 (JPYbn) FY03/16 FY03/17 FY03/18 (JPYbn) (JPYbn)

Printers: In line with forecasts, partly due to higher sales from the depreciation of the yen. Operating profit up JPY1.7bn on structural reforms and forex-related gains The Printers segment reported full-year sales of JPY108.9bn and an operating profit of JPY2.7bn. Sales were down JPY3.5bn YoY (-3.1% YoY) and operating profit was up JPY1.7bn YoY. Sales of office printers fell as the company began shifting more business resources toward the industrial printer market. This segment is generally in line with forecasts. Segment operating profit was up YoY and surpassed forecasts, reflecting a combination of structural reforms and yen depreciation. With structural reforms (fixed cost reduction) saving about JPY1.4bn, the company thinks results were in line with plans, excluding am impact of lower sales. In FY03/19, the company will persist with structural reforms in some overseas markets, aiming for savings of about JPY2.0bn.

In order to advance structure reforms promoted in the 2019 medium-term plan, in cumulative Q3 the company booked JPY1.6bn in extraordinary losses as expenses to improve its business structure as it reorganized overseas headquarters; JPY1.2bn of this was booked in 1Q, JPY1.4bn in 1H, and the company expects to book related extraordinary losses of about JPY2.5bn for full year. The remaining will be booked in Q4. The company says the structural reforms are for the most part proceeding on schedule, including the reorganization of sales companies in the US and Europe and the downsizing of some product development centers in Asia, and will be completed by the end of the year. Associated expenses of over JPY2.5bn ended generally in line with forecasts.

Reductions to fixed costs in cumulative Q3 reflected the impact from the cutting of fixed cost. Also some of the related expenses it had originally expected to book in Q3 (to cover personnel transfers, recruiting, etc.) were pushed back. In cumulative Q3, the effects of structural reforms were about JPY1.0bn (of which structural reform effect such as personnel expense savings was less than JPY500mn). Although fixed cost reduction and other savings added JPY3.1bn to profit YoY, which is a bigger effect than that of structural reforms, this is due in part to not spending the full sales budget to cultivate the market for specialty printers for specific industries.

In the three-year medium-term plan period, while moving ahead with structural reforms, OKI aims to tap the industrial market and building up its presence. The company considers the process of foundation building to have been completed during FY03/18. In FY03/19, the company will make efforts to increase profits in the industrial market. As it is only the first year under the new medium-term business plan, it is still much too early to make any judgments about the company’s progress in this regard but Shared Research will be keeping a close eye on progress going forward.

Outlook for Q4 FY03/18 and FY03/19 (as of Q3) We expect a similar trend in Q4 as in Q3. As noted above, the company did not spend its full budget for sales investment, which is part of restructuring expenses booked as an extraordinary loss, while structural reform effects are likely to increase in Q4. In FY03/19, we look for structural reform effects, growth in the market for specialty printers for specific industries, and forex gains (euro appreciation against the dollar is a positive factor for OKI’s profits).

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EMS segment results

Performance

(JPYbn, %) Operating profit Sales (right axis) OPM (JPYbn) (JPYbn) Operating profit OPM 9 18 3.0 5.4% 6% 5.0% 8 16 4.7% 4.8% 4.8% 4.7% 13.7 2.5 4.5% 2.3 2.2 5% 7 14 4.3% 12.3 12.2 2.0 11.6 11.9 11.7 2.1 6 11.3 12 2.0 4% 10.1 10.3 1.7 9.5 1.6 5 9.3 9.3 10 1.5 1.5 1.3 3% 4 8 3 6 1.0 2% 2 4 1.2 1.0 1.0 0.5 1% 0.7 0.7 1 0.3 0.4 0.3 0.5 0.5 2 0.1 0.1 0.0 0% 0 0 -0.7% -0.2 -1 -2 -0.5 -1% Q1 Q3 Q1 Q3 Q1 Q3 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 FY03/16 FY03/17 FY03/18 Source: Shared Research based on company data

The EMS segment reported full-year sales of JPY47.7bn and an operating profit of JPY2.2bn. Sales were up JPY4.5bn YoY (+10.5% YoY) and operating profit was up JPY100mn. Sales growth was driven by strong sales of printed circuit boards for semiconductor-related equipment. Both operating profit and sales rose YoY. The company appears to be on track with its efforts to build up its EMS business in the field of electronic components heading into FY03/20. Sales in the aerospace market are also gradually increasing. In this relation, we would note that most of the company's supply agreements for electronic components have provisions covering both the sales price and cost of production, so margins will not be squeezed by rising materials prices.

The company expects the same favorable environment to continue in FY03/19, when a) it expects higher sales and profits as expansion of existing EMS businesses continues, and b) three companies including Oki Electric Cable have been shifted from the Other business segment to the EMS segment (combined sales of JPY7.8bn in FY03/18 and a projected JPY13.0bn in FY03/19).

Outlook for Q4 FY03/18 and FY03/19 (as of Q3) The company noted that operating profit is on track to attain the full-year target of JPY2.5bn. Oki Electric Cable was consolidated in Q4. As of Q3, the provisional amount of goodwill was JPY3.0bn. Although the amortization period is not known, we think this will have minimal impact on earnings in light of Oki Electric Cable’s operating profit and goodwill amortization costs. In FY03/19 we look for growth of new businesses (aerospace and electronic components) as well as established businesses such as semiconductor-related equipment. Adding production capacity is a priority to keep pace with business expansion. The company plans to maintain profitability by increasing capacity and making Oki Electric Cable a consolidated subsidiary.

Other segment results

Performance

(%) Sales (right axis) Operating profit (right axis) OPM 6.3 (JPYbn) (JPYbn, %) Operating profit OPM Sales (right axis) (JPYbn) 36.7 26 6 33.4 22.7 5.2 25 31.3 35 23 4.9 4.6 5 28.5 19.2 19.3 4.5 4.5 4.4 4.3 20 27.0 16.1 16.2 30 3.9 14.4 20 4 13.3 15 11.0 25 9.4 9.7 2.9 9.0 9.1 18.7 18.1 18.5 17 2.8 10 17.6 17.6 17.8 20 3.2 3 13.5 15.9 15.2 5 15 14 2 2.5 2.8 3.0 4.1 1.5 2.5 3.0 2.8 3.5 4.2 3.4 2.0 1.3 1.0 0 10 0.9 0.9 0.9 1.0 -1.4-0.5 11 0.7 0.8 0.6 0.8 1 0.3 0.4 -5 -3.4 5 -4.9 8 0 -10 0 Q1 Q3 Q1 Q3 Q1 Q3 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 FY03/19 FY03/16 FY03/17 FY03/18 Est. Source: Shared Research based on company data

The Other segment reported full-year sales of JPY15.2bn and an operating profit of JPY2.0bn. Reflecting the sale of subsidiary Oki Sensor Device at the end of FY03/17, sales were down JPY2.6bnYoY (-14.5% YoY) and operating profit was down JPY1.4bn YoY. Sales and operating profit include contributions of JPY3.0bn and JPY100–200mn, respectively, from Oki Electric Cable, added to consolidated accounts via TOB from Q4.

74/89 Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2018.07.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Financial statements Income statement

Income statement FY03/01 FY03/02 FY03/03 FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 740,250 604,572 585,473 654,214 688,542 680,526 716,967 719,756 544,529 442,949 432,651 423,480 455,824 483,112 540,153 490,314 451,627 438,026 YoY 10.5% -18.3% -3.2% 11.7% 5.2% -1.2% 5.4% 0.4% -24.3% -18.7% -2.3% -2.1% 7.6% 6.0% 11.8% -9.2% -7.9% -3.0% Gross profit 176,882 114,314 139,763 169,759 184,202 166,043 156,777 164,710 133,791 121,302 113,858 106,541 118,417 128,477 140,506 129,064 114,233 110,576 GPM 23.9% 18.9% 23.9% 25.9% 26.8% 24.4% 21.9% 22.9% 24.6% 27.4% 26.3% 25.2% 26.0% 26.6% 26.0% 26.3% 25.3% 25.2% SG&A expenses 148,567 141,562 138,395 148,153 156,982 155,449 163,359 159,325 134,420 114,793 107,549 94,560 104,942 101,281 108,090 110,469 111,688 102,854 Salaries 38,070 39,591 37,916 38,009 39,518 41,114 42,472 41,430 35,965 28,416 28,560 27,109 28,815 29,744 33,760 35,104 33,714 - Retirement benefit expenses and provision 6,072 6,343 8,575 9,429 5,476 4,872 4,916 4,664 4,748 4,960 4,761 3,351 3,046 2,249 1,276 - - - R&D expenses 22,830 18,444 15,217 16,117 21,987 19,614 21,305 18,231 16,825 14,624 13,768 13,109 13,982 12,959 13,755 13,317 10,275 - Others 81,595 77,184 76,687 84,598 90,001 89,849 94,666 95,000 76,882 66,793 60,460 50,991 59,099 56,329 59,299 62,048 67,699 - YoY 4.2% -4.7% -2.2% 7.1% 6.0% -1.0% 5.1% -2.5% -15.6% -14.6% -6.3% -12.1% 11.0% -3.5% 6.7% 2.2% 1.1% -7.9% Salaries 4.3% 4.0% -4.2% 0.2% 4.0% 4.0% 3.3% -2.5% -13.2% -21.0% 0.5% -5.1% 6.3% 3.2% 13.5% 4.0% -4.0% - Retirement benefit expenses and provision 213.8% 4.5% 35.2% 10.0% -41.9% -11.0% 0.9% -5.1% 1.8% 4.5% -4.0% -29.6% -9.1% -26.2% -43.3% - - - R&D expenses -1.6% -19.2% -17.5% 5.9% 36.4% -10.8% 8.6% -14.4% -7.7% -13.1% -4.8% 6.7% -7.3% 6.1% -3.2% -22.8% - Others 0.8% -5.4% -0.6% 10.3% 6.4% -0.2% 5.4% 0.4% -19.1% -13.1% -9.5% -15.7% 15.9% -4.7% 5.3% 4.6% 9.1% - SG&A expenses as % of sales 20.1% 23.4% 23.6% 22.6% 22.8% 22.8% 22.8% 22.1% 24.7% 25.9% 24.9% 22.3% 23.0% 21.0% 20.0% 22.5% 24.7% 23.5% Salaries 5.1% 6.5% 6.5% 5.8% 5.7% 6.0% 5.9% 5.8% 6.6% 6.4% 6.6% 6.4% 6.3% 6.2% 6.3% 7.2% 7.5% - Retirement benefit expenses and provision 0.8% 1.0% 1.5% 1.4% 0.8% 0.7% 0.7% 0.6% 0.9% 1.1% 1.1% 0.8% 0.7% 0.5% 0.2% - - - R&D expenses 3.1% 3.1% 2.6% 2.5% 3.2% 2.9% 3.0% 2.5% 3.1% 3.3% 3.2% 3.1% 3.1% 2.7% 2.5% 2.7% 2.3% - Others 11.0% 12.8% 13.1% 12.9% 13.1% 13.2% 13.2% 13.2% 14.1% 15.1% 14.0% 12.0% 13.0% 11.7% 11.0% 12.7% 15.0% - Operating profit 28,314 -27,247 1,368 21,606 27,220 10,593 -6,582 5,385 -629 6,508 6,308 11,980 13,475 27,196 32,415 18,594 2,545 7,721 YoY 105.1% - - 1,479.4% 26.0% -61.1% - - - - -3.1% 89.9% 12.5% 101.8% 19.2% -42.6% -86.3% 203.4% OPM 3.8% -4.5% 0.2% 3.3% 4.0% 1.6% -0.9% 0.7% -0.1% 1.5% 1.5% 2.8% 3.0% 5.6% 6.0% 3.8% 0.6% 1.8% Non-operating income (expenses) -6,074 -3,921 -9,217 -9,147 -6,052 -3,353 -7,352 -10,087 -6,599 -5,188 -5,142 -2,905 6,829 9,459 5,513 -7,228 -4,911 794 Financial income (expenses) -7,615 -6,843 -6,541 -6,390 -5,402 -4,334 -5,321 -5,540 -4,827 -3,810 -3,363 -2,980 -2,353 -1,623 -1,300 -810 -613 203 Gains (losses) on foreign exchange 1,881 2,205 -1,886 -2,039 561 1,403 78 -2,481 -784 -1,251 -816 -86 8,792 11,277 7,035 -6,374 -4,764 - Equit y in earnings of affiliat es 185 -182 -234 109 245 161 -75 140 -347 -127 299 94 84 339 652 423 473 563 Others -525 899 -556 -827 -1,456 -583 -2,034 -2,206 -641 - -1,262 67 306 -534 -874 -467 -7 28 Recurring profit 22,240 -31,168 -7,849 12,459 21,168 7,240 -13,934 -4,702 -7,228 1,320 1,166 9,075 20,304 36,655 37,928 11,366 -2,366 8,515 YoY 208.4% - - - 69.9% -65.8% - - - - -11.7% 678.3% 123.7% 80.5% 3.5% -70.0% - - RPM 3.0% -5.2% -1.3% 1.9% 3.1% 1.1% -1.9% -0.7% -1.3% 0.3% 0.3% 2.1% 4.5% 7.6% 7.0% 2.3% -0.5% 1.9% Extraordinary gains (losses) -3,749 -25,904 4,382 -10,155 -2,623 3,381 -3,601 8,825 -30,696 -3,645 -31,288 -3,482 -1,670 -4,893 -396 323 16,039 -388 Gains on disposal of fixed assets 965 - 19,689 - 1,188 2,056 258 6,786 - 10 10 - 2,783 - - 198 178 770 Gains on sale of securities 4,879 12,079 1,489 1,603 3,037 8,043 3,362 4,238 509 25 211 - 678 553 225 1,935 1,034 115 Losses on disposal of fixed assets -1,563 -2,172 -1,078 -4,859 -2,488 -1,011 -1,044 -1,569 -1,756 -1,312 -387 -663 -674 -659 -621 -503 -3,085 -2,899 Losses on valuation of inventories - -8,372 ------3,407 -10,609 ------Losses on sale of securities ------20 -132 -210 ------Losses on valuation of securities -3,041 -18,148 -7,218 -1,538 -1,193 - -2,130 - -801 -987 -2,500 -184 -225 - - - - - Losses from business restructuring -1,774 -7,625 -6,120 -7,709 -2,363 -1,442 -3,219 -1,380 -8,632 -911 -12,927 -501 -4,011 -5,152 - - - - Impa irme nt losse s ------2,973 - - - -702 -260 -97 -219 -184 - -1,059 - - Others -3,215 -1,666 -2,380 2,348 -804 -1,292 -828 4,157 -9,407 252 -15,303 -1,827 -2 549 - -248 17,912 1,626 Income taxes -10,228 23,214 -2,724 -835 -7,072 -5,352 -19,966 -4,065 -7,776 -1,407 -1,619 -3,411 -4,762 -4,214 -5,365 -6,412 -9,235 -2,344 Implied t ax rat e 55.3% - - 36.2% 38.1% 50.4% - 98.6% - - - 61.0% 25.6% 13.3% 14.3% 54.9% 67.5% 28.8% Non-cont rolling int erest s 681 -218 -367 -140 -297 -211 -274 -369 -487 -103 -68 -627 -273 -187 924 1,332 254 108 Net income attrib. to parent company shareholders 8,944 -34,077 -6,560 1,328 11,174 5,058 -37,775 -313 -46,188 -3,836 -31,809 1,555 13,599 27,359 33,091 6,609 4,691 5,891 YoY 680.5% - - - 741.4% -54.7% ------774.5% 101.2% 21.0% -80.0% -29.0% 25.6% Net margin 1.2% -5.6% -1.1% 0.2% 1.6% 0.7% -5.3% -0.0% -8.5% -0.9% -7.4% 0.4% 3.0% 5.7% 6.1% 1.3% 1.0% 1.3% Net income attributable to common shareholders 8,944 -34,077 -6,560 1,328 11,174 5,058 -37,775 -313 -46,188 -3,836 -31,809 234 12,566 26,354 33,003 6,609 4,691 5,891 YoY 680.5% - - - 741.4% -54.7% ------5,270.1% 109.7% 25.2% -80.0% -29.0% 25.6% Net margin 1.2% -5.6% -1.1% 0.2% 1.6% 0.7% -5.3% -0.0% -8.5% -0.9% -7.4% 0.1% 2.8% 5.5% 6.1% 1.3% 1.0% 1.3% Capit al expendit ures 43,761 27,752 25,327 26,813 37,834 33,505 37,714 25,432 15,883 8,560 7,985 9,333 13,091 10,164 11,461 11,660 8,700 - Depreciat ion 49,251 48,053 39,927 33,577 34,245 34,691 34,957 34,814 25,815 15,515 14,095 12,680 13,021 14,249 14,464 14,382 13,991 12,978 R&D expenses 29,842 22,571 15,217 16,117 21,987 19,614 21,305 18,231 16,825 14,624 13,768 13,109 13,982 12,959 13,755 13,317 10,275 - EPS 14.6 -55.7 -10.7 2.2 18.3 8.3 -58.3 -0.5 -67.6 -5.6 -44.0 0.3 17.2 36.2 40.0 7.6 54.0 67.9 EPS (fully dilut ed) 14.5 - - 2.2 17.9 7.8 ------12.1 26.1 38.1 - 54.0 67.8 Dividend per share 5.0 - - - 3.0 3.0 ------3.0 5.0 5.0 50.0 50.0 Payout ratio 34.2% - - - 16.4% 36.3% ------8.0% 13.0% 65.7% 92.6% 73.7% DOE 2.1% - - - 1.6% 1.4% ------5.3% 4.8% 3.8% 4.3% 4.4% Total shareholders' return ratio 34.2% -0.0% -1.3% 3.1% 17.1% 37.5% -0.1% -7.7% -0.0% -1.2% -0.1% 0.9% 2.7% 8.1% 13.0% 65.9% 92.8% 73.7% Book value per share 243.1 178.2 165.6 180.7 204.1 219.0 145.4 122.6 60.6 59.4 11.4 13.4 34.4 79.3 137.7 122.9 1,115.7 1,154.0 EBITDA 77,565 20,806 41,295 55,183 61,465 45,284 28,375 40,199 25,186 22,023 20,403 24,531 26,496 41,445 46,879 32,976 16,536 20,699 YoY 25.8% -73.2% 98.5% 33.6% 11.4% -26.3% -37.3% 41.7% -37.3% -12.6% -7.4% 20.2% 8.0% 56.4% 13.1% -29.7% -49.9% 25.2% EBITDA margin 10.5% 3.4% 7.1% 8.4% 8.9% 6.7% 4.0% 5.6% 4.6% 5.0% 4.7% 5.8% 5.8% 8.6% 8.7% 6.7% 3.7% 4.7% ROA (RP-based) 3.0% -4.5% -1.2% 2.0% 3.5% 1.2% -2.2% -0.8% -1.5% 0.3% 0.3% 2.5% 5.7% 9.6% 8.9% 2.7% -0.6% 2.3% ROE 6.1% -26.4% -6.2% 1.3% 9.5% 3.9% -32.4% -0.3% -73.8% -9.4% -80.7% 3.9% 28.0% 37.8% 31.8% 5.8% 4.6% 6.0% Net margin 1.2% -5.6% -1.1% 0.2% 1.6% 0.7% -5.3% -0.0% -8.5% -0.9% -7.4% 0.4% 3.0% 5.7% 6.1% 1.3% 1.0% 1.3% Total asset turnover 1.00 0.87 0.92 1.06 1.13 1.11 1.15 1.19 1.12 1.14 1.16 1.15 1.27 1.27 1.27 1.15 1.17 1.20 Equit y mult iplier 5.08 5.37 6.06 5.82 5.17 4.74 5.37 6.59 7.77 9.47 9.47 9.28 7.38 5.26 4.09 3.76 3.79 3.72 ROIC 3.2% -3.4% 0.2% 3.2% 4.1% 1.6% -1.0% 0.9% -0.1% 1.6% 1.8% 3.9% 4.7% 8.7% 9.5% 5.4% 0.9% 2.9% NOPAT 16,479 -15,858 796 12,575 16,144 6,283 -3,904 3,194 -373 3,860 3,741 7,105 8,353 16,859 20,863 12,446 1,760 5,338 Net assets + Interest-bearing debt 518,517 468,068 423,048 395,534 389,313 387,250 384,895 359,389 294,846 236,124 205,491 184,319 177,439 194,036 219,953 229,226 206,847 184,142 USD/JPY 110.51 124.98 121.98 113.19 107.55 113.32 116.98 114.43 100.72 92.90 85.74 79.07 82.92 100.17 109.77 120.15 108.38 110.88 YoY -1.0% 13.1% -2.4% -7.2% -5.0% 5.4% 3.2% -2.2% -12.0% -7.8% -7.7% -7.8% 4.9% 20.8% 9.6% 9.5% -9.8% 2.3% USD/JPY (year end) 123.90 133.25 120.20 105.63 107.41 117.47 118.09 100.20 98.26 93.04 83.15 82.14 93.99 102.92 120.27 112.69 112.20 106.84 EUR/JPY 100.36 110.45 120.88 132.65 135.17 137.83 150.01 161.59 144.08 131.19 113.13 109.00 106.78 134.22 138.70 132.59 118.79 129.65 YoY -13.0% 10.1% 9.4% 9.7% 1.9% 2.0% 8.8% 7.7% -10.8% -8.9% -13.8% -3.6% -2.0% 25.7% 3.3% -4.4% -10.4% 9.1% EUR/JPY (year end) 109.29 116.14 129.70 128.73 138.85 142.75 157.35 158.18 129.83 124.90 117.53 109.71 120.65 141.61 130.41 127.57 119.78 131.46 CNY/JPY 13.35 15.03 14.74 13.67 12.99 13.93 14.81 15.32 14.66 13.60 12.77 12.37 13.21 16.40 17.71 18.86 16.10 16.74 BRL/JPY 58.29 51.45 39.35 38.61 37.52 49.11 54.13 61.86 52.74 49.80 49.60 46.51 41.31 44.85 44.58 33.87 32.95 34.58 EUR/USD 0.90 0.88 1.00 1.18 1.26 1.22 1.28 1.42 1.42 1.41 1.32 1.37 1.29 1.35 1.27 1.10 1.10 1.16 Source: Shared Research based on company data

75/89 Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2018.07.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Segment performance

Income statement FY03/01 FY03/02 FY03/03 FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Sales 740,250 604,572 585,473 654,214 688,542 680,526 716,967 719,756 544,529 442,949 432,651 423,480 455,824 483,112 540,153 490,314 451,627 438,026 450,000 ICT ------207,700 222,300 191,174 177,391 172,716 185,000 Mechatronics Systems ------95,900 130,200 113,667 100,923 93,542 83,000 Printers ------124,831 129,271 124,647 112,389 108,905 105,000 EMS ------37,111 40,308 42,354 43,165 47,677 71,000 Other ------17,569 18,067 18,471 17,756 15,185 60,000 Info-Telecom (old segment) - - - - 373,132 338,048 352,728 358,983 302,311 267,397 260,708 267,179 293,034 303,600 352,505 304,841 278,314 Printers - - - - 137,710 160,483 185,283 185,841 159,590 139,344 124,978 107,425 111,379 124,831 129,271 124,647 112,389 Semiconductor - - - - 150,721 150,723 145,512 138,182 54,105 ------EMS ------22,681 31,035 31,264 32,665 37,111 40,308 42,354 43,165 Other - - - - 26,977 31,271 33,442 36,748 28,522 13,526 15,928 17,611 18,744 17,569 18,067 18,471 17,756 Information 352,418 347,429 330,383 360,308 335,805 ------Telecom 163,330 103,219 85,717 104,591 135,253 ------Semiconductor 181,978 113,642 119,224 132,151 150,721 ------Other 42,523 40,281 50,147 57,163 26,977 ------Solutions and services 80,000 90,351 88,299 91,093 85,510 83,944 84,569 - Telecom systems 82,500 75,952 77,533 75,711 79,989 88,937 68,494 - Social syst ems 46,200 32,010 33,375 49,357 52,566 58,927 46,087 - Mechatronics Systems 58,700 62,394 67,970 76,872 85,533 120,697 105,690 - YoY 10.5% -18.3% -3.2% 11.7% 5.2% -1.2% 5.4% 0.4% -24.3% -18.7% -2.3% -2.1% 7.6% 6.0% 11.8% -9.2% -7.9% -3.0% 2.7% ICT ------7.0% -14.0% -7.2% -2.6% 7.1% Mechatronics Systems ------35.8% -12.7% -11.2% -7.3% -11.3% Printers ------3.6% -3.6% -9.8% -3.1% -3.6% EMS ------8.6% 5.1% 1.9% 10.5% 48.9% Other ------2.8% 2.2% -3.9% -14.5% 295.1% Info-Telecom (old segment) ------9.4% 4.3% 1.8% -15.8% -11.5% -2.5% 2.5% 9.7% 3.6% 16.1% -13.5% -8.7% - Printers - - - - - 16.5% 15.5% 0.3% -14.1% -12.7% -10.3% -14.0% 3.7% 12.1% 3.6% -3.6% -9.8% - Semiconductor - - - - - 0.0% -3.5% -5.0% -60.8% ------EMS ------36.8% 0.7% 4.5% 13.6% 8.6% 5.1% 1.9% - Other - - - - - 15.9% 6.9% 9.9% -22.4% -52.6% 17.8% 10.6% 6.4% -6.3% 2.8% 2.2% -3.9% - Information - -1.4% -4.9% 9.1% -6.8% ------Telecom - -36.8% -17.0% 22.0% 29.3% ------Semiconductor - -37.6% 4.9% 10.8% 14.1% ------Other - -5.3% 24.5% 14.0% -52.8% ------Solutions and services ------12.9% -2.3% 3.2% -6.1% -1.8% 0.7% - - Telecom systems ------7.9% 2.1% -2.3% 5.7% 11.2% -23.0% - - Social syst ems ------30.7% 4.3% 47.9% 6.5% 12.1% -21.8% - - Mechatronics Systems ------6.3% 8.9% 13.1% 11.3% 41.1% -12.4% - - Operating profit 28,314 -27,247 1,368 21,606 27,220 10,593 -6,582 5,385 -629 6,508 6,308 11,980 13,475 27,196 32,415 18,594 2,545 7,721 14,000 ICT ------12,700 13,500 11,627 14,385 13,513 14,000 Mechatronics Systems ------10,700 12,400 6,017 -11,818 -5,093 - Printers ------5,125 6,720 1,426 1,033 2,729 3,500 EMS ------1,656 2,027 2,284 2,058 2,233 4,500 Other ------2,844 3,467 4,185 3,431 2,022 500 Adjustments ------5,800 -5,700 -6,946 -6,545 -7,682 -8,500 Info-Telecom (old segment) - - - - 15,814 10,922 -1,539 -1,714 7,054 14,990 14,733 18,709 23,815 23,416 25,920 16,533 2,567 Printers - - - - 7,761 4,146 577 7,867 6,758 -1,311 -4,574 -4,343 -8,837 5,125 6,720 1,426 1,033 Semiconductor - - - - 12,014 2,977 744 3,824 -5,216 ------EMS ------168 1,340 1,467 1,569 1,656 2,027 2,284 2,058 Other - - - - 2,530 2,814 3,028 4,051 -1,401 -458 1,544 2,535 3,014 2,844 3,467 4,185 3,431 Adjustments - - - - -10,901 -10,267 -9,393 -8,643 -7,824 -6,543 -6,734 -6,388 -6,087 -5,846 -5,719 -5,834 - Information 1,485 3,118 19,840 24,031 14,252 ------Telecom 7,200 -9,564 -8,191 3,386 7,897 ------Semiconductor 29,886 -11,858 -960 2,348 12,014 ------Other 1,246 772 1,018 2,789 2,530 ------Adjustments -11,503 -9,715 -10,339 -10,949 -10,901 ------YoY 105.1% - - 1,479.4% 26.0% -61.1% - - - - -3.1% 89.9% 12.5% 101.8% 19.2% -42.6% -86.3% 203.4% 81.3% ICT ------6.3% -13.9% 23.7% -6.1% 3.6% Mechatronics Systems ------15.9% -51.5% - - - Info-Telecom (old segment) ------31.1% -78.8% -27.6% 164.2% 28.3% Printers ------22.4% 12.7% -9.9% 8.5% 101.5% EMS ------21.9% 20.7% -18.0% -41.1% -75.3% Info-Telecom (old segment) ------30.9% - - - 112.5% -1.7% 27.0% 27.3% -1.7% 10.7% -36.2% -84.5% Printers ------46.6% -86.1% 1,263.4% -14.1% - - - - - 31.1% -78.8% -27.6% Information ------75.2% -75.0% 414.0% ------Telecom ------9.5% 7.0% 5.5% 22.4% 12.7% -9.9% Other - - - - - 11.2% 7.6% 33.8% - - - 64.2% 18.9% -5.6% 21.9% 20.7% -18.0% OPM 3.8% -4.5% 0.2% 3.3% 4.0% 1.6% -0.9% 0.7% -0.1% 1.5% 1.5% 2.8% 3.0% 5.6% 6.0% 3.8% 0.6% 1.8% 3.1% ICT ------6.1% 6.1% 6.1% 8.1% 7.8% 7.6% Mechatronics Systems ------11.2% 9.5% 5.3% -11.7% -5.4% - Printers ------4.1% 5.2% 1.1% 0.9% 2.5% 3.3% EMS ------4.5% 5.0% 5.4% 4.8% 4.7% 6.3% Other ------16.2% 19.2% 22.7% 19.3% 13.3% 0.8% Info-Telecom (old segment) - - - - 4.2% 3.2% -0.4% -0.5% 2.3% 5.6% 5.7% 7.0% 8.1% 7.7% 7.4% 5.4% 0.9% Printers - - - - 5.6% 2.6% 0.3% 4.2% 4.2% -0.9% -3.7% -4.0% -7.9% 4.1% 5.2% 1.1% 0.9% Semiconductor - - - - 8.0% 2.0% 0.5% 2.8% -9.6% ------EMS ------0.7% 4.3% 4.7% 4.8% 4.5% 5.0% 5.4% 4.8% Other - - - - 9.4% 9.0% 9.1% 11.0% -4.9% -3.4% 9.7% 14.4% 16.1% 16.2% 19.2% 22.7% 19.3% R&D expenses 22,830 18,444 15,217 16,117 21,987 19,614 21,305 18,231 16,825 14,624 13,768 13,109 13,982 12,959 13,755 13,317 10,275 - - Capit al expendit ures 43,761 27,752 25,327 26,813 37,834 33,505 37,714 25,432 15,883 8,560 7,985 9,333 13,091 10,164 11,461 11,660 8,700 - Info-Telecom (old segment) - - - - - 5,595 7,238 6,031 4,059 3,514 3,647 3,967 4,959 5,603 6,091 6,216 4,800 - Printers - - - - - 7,119 4,879 3,850 3,711 4,212 2,776 3,493 6,297 2,629 3,064 2,680 1,900 - Semiconductor - - - - - 17,659 22,062 13,143 5,601 ------EMS ------636 682 494 692 668 944 700 - Other - - - - - 3,129 3,534 2,406 2,509 832 925 1,190 1,339 1,239 1,638 1,818 1,300 - Information 10,329 7,664 7,739 7,340 9,263 ------Telecom 3,284 2,721 1,275 909 1,268 ------Semiconductor 26,919 14,788 15,248 15,445 23,119 ------Other 3,227 2,578 1,064 3,118 4,182 ------Depreciat ion 49,251 48,053 39,927 33,577 34,245 34,691 34,957 34,814 25,815 15,515 14,095 12,680 13,021 14,249 14,464 14,382 13,991 - EMS ------3,164 2,974 - Other ------3,296 3,218 - Info-Telecom (old segment) - - - - 8,218 7,622 7,532 7,163 7,428 5,157 5,173 5,057 4,913 5,365 6,254 6,461 6,192 Printers - - - - 6,210 6,632 7,291 7,501 6,314 4,533 4,211 3,267 3,921 4,771 4,236 4,120 4,063 Semiconductor - - - - 16,758 16,700 16,553 15,676 7,049 ------EMS ------1,172 1,134 980 1,014 937 935 1,048 934 Other - - - - 1,130 1,236 1,384 2,275 2,453 1,178 950 1,015 998 1,013 993 1,115 1,124 Company-wide - - - - 1,927 2,499 2,196 2,197 2,570 1,836 1,518 1,326 1,202 1,116 1,192 1,243 1,245 Information 16,080 15,019 14,173 12,530 ------Telecom 6,142 5,439 4,242 2,938 ------Semiconductor 22,972 23,371 17,795 15,222 ------Other 1,386 1,597 1,556 9 ------Company-wide 2,668 2,625 2,158 2,876 ------EBITDA 77,565 20,806 41,295 55,183 61,465 45,284 28,375 40,199 25,186 22,023 20,403 24,660 26,496 41,445 46,879 32,976 16,536 7,721 Source: Shared Research based on company data

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Factors in variations in operating profit

(JPYbn) Change in volume and product mix Price declines Procurement cost reductions and value engineering Forex Fixed costs Others Semiconductors Corrections in Printers business Operating profit 30.0 0.4 5.1 20.0 9.0 10.0 15.0 2.5 8.0 1.0 10.0 3.5 11.5 13.5 2.7 5.0 3.5 4.0 3.0 3.5 7.0 5.5 3.0 4.5 2.5 6.5 2.0 0.0 -0.5 1.5 1.5 2.5 2.5 2.5 -2.5 -3.0 -2.0 -1.0 -2.5 -2.5 -5.0 -9.0 -8.5 -2.5 -3.5 -3.0 -7.5 -15.0 -3.5 -0.4 -12.5 -4.0 -10.0 -3.5 -2.0 -2.5 -1.5 -3.0 -5.5 -6.4 -4.0 -20.0 -8.9 -30.0 -0.2 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYbn) FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Change in operating profit 12.0 -6.0 7.1 -0.2 5.7 1.5 13.7 5.2 -13.8 -16.0 5.2 Change in volume and product mix -0.5 -15.0 -8.5 - 1.5 4.5 1.5 6.5 -12.5 -5.0 -7.5 Price declines -9.0 -5.5 -3.5 -2.5 -3.0 -2.0 -2.5 -2.5 -3.0 -4.0 -2.5 Procurement cost reductions and value engineering 11.5 13.5 7.0 5.5 3.0 3.5 2.5 3.5 2.5 2.5 - Forex 2.5 - -1.5 -2.5 - -1.0 4.0 1.0 -4.0 -2.0 2.5 Fixed cost s 7.0 10.0 15.0 -3.5 5.0 -3.5 8.0 -3.0 3.0 3.5 2.0 One-time contributions Impact of Semiconductors - -8.9 5.1 ------Impact of corrections in Printers 0.4 -0.2 -6.4 2.7 -0.4 ------Operating profit -6.6 5.4 -0.6 6.5 6.3 12.0 13.5 27.2 32.4 18.6 2.5 7.7 USD/JPY (a) (FY average) 117.0 114.4 100.7 92.9 85.7 79.1 82.9 100.2 109.8 120.1 108.4 110.9 EUR/JPY (b) (FY average) 150.0 161.6 144.1 131.2 113.1 109.0 106.8 134.2 138.7 132.6 118.8 129.7 (b) ÷ (a) 1.28 1.41 1.43 1.41 1.32 1.38 1.29 1.34 1.26 1.10 1.10 1.17 Source: Shared Research based on company data

The preceding figure highlights how price declines are largely offset by lower procurement costs and VE (value engineering). It also shows that fixed and other costs are being controlled, with the exception of the Printers segment and temporary factors such as acquisitions; there were cost increases in FY03/11 (Printers segment’s increased sales expenses and normalization of remuneration amounts), FY03/13 (increased spending on printer sales and transport costs), and FY03/15 (operating loss of over JPY3bn in acquired Brazilian subsidiary). Results are sensitive to sales volume fluctuations, especially in the Mechatronics Systems segment. Below are certain key features of the income statement.

Retirement benefit expenses Several factors have reduced the company’s costs: the return of the substitutional portion of the employee pension fund in FY03/04; the sale of the semiconductor business in FY03/09; and a shift to a defined contribution fund and changes to expected rates of return in FY03/12. Since FY03/14, pension fund assets have exceeded retirement benefit liabilities. This was due largely to two factors: differences from the change in accounting standards (around JPY2.1bn) disappearing, and actuarial differences treated as expenses declined and turned around. In the past, golden handshakes were accounted for as extraordinary losses.

Service cost Interest expenses Expected return on assets Amort. of actuarial differences Amort. of past service cost Amort. of differences due to changes in accounting standards Contribution to defined contribution pension plan Others

6.4 6.0 FY03/04: Return of substitutional portion of 6.4 20.9 23.1 FY03/09: Disposal of 9.6 21.7 23.7 employee pension fund Semiconductor business FY03/12: Shifts to defined contribution 5.4 20 0.0 2.0 6.8 pension plan (past service liability incurred) 4.5 14.8 14.1 13.9 4.3 13.0 12.2 4.4 13.0 4.0 12.9 4.3 3.6 3.6 2.8 2.6 10.1 9.5 10.6 3.6 2.5 10 2.3 3.6 3.7 2.4 2.1 3.3 2.1 4.3 3.8 2.6 2.1 0.0 0.0 0.0 0.3 0 0.6 -1.7 -1.7

-10 FY03/01 FY03/03 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 Source: Shared Research based on company data

Forex Earnings are affected by forex movements, but they have had a particularly major impact on fluctuations in recurring profit (FY03/16 operating profit, JPY18.6bn; non-operating forex loss, JPY6.4bn). The company is carrying out measures, such as reviewing foreign currency transactions, to reduce non-operating forex effects.

77/89 Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2018.07.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

The impact of foreign exchange rates on operating profit is as follows: a JPY1 appreciation against the EUR decreases operating profit by around JPY300mn, and against the USD increases operating profit by around JPY300mn. If the euro and the dollar move in tandem , there is no major impact on operating profit.

Forex gains/losses

Gains (losses) on forex (JPYbn; right axis) (JPYbn) (JPYbn) 63 11.3 Loans to affiliates (parent) 40 USD/JPY YoY (year end) 12 60 57 56 EUR/JPY YoY (year end) 8.8 30 9 7.0 50 50 48 48 44 45 20 6 43 44 38 37 40 36 35 36 10 1.9 2.2 3 34 1.4 31 0.6 0.1 0.0 30 0 0 -0.1 -1.3 -0.8 -1.3 -0.8 20 -10 -1.9 -3 -2.0 -2.5

-20 -5.0 -4.8 -6 10 -6.4 -30 -9 0 FY03/99 FY03/01 FY03/03 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 FY03/00 FY03/04 FY03/08 FY03/12 FY03/16 Source: Shared Research based on company data

Affiliated companies As of March 2016, 89 of the company’s 96 subsidiaries were consolidated. The equity method is applied to five of the seven unconsolidated subsidiaries. Equity-method gains and losses are mostly impacted by OKI Electric Cable (TSE1: 5815). As of January 2017, the company had forecast net income of JPY400mn for FY03/17 (OKI’s stake: 37.3%).

In FY03/15, FY03/16, net income attributable to non-controlling interests boosted profits, but there was significant impact from losses booked by a subsidiary involved with ATM business in Brazil (OKI’s stake increased to 88.77% from 83.8% following additional acquisition in January 2017).

Equity-method gains and losses (left), net income attributable to non-controlling interests (right)

(JPYmn) (JPYmn) Equity in earnings of affiliates 652 Non-controlling interests 1,332 600 563 1,200 473 924 423 400 339 800 681 299 245 185 200 161 140 400 109 254 94 84 108 0 0

-103-68 -75 -141 -140 -187 -127 -221 -230-221 -218 -211 -200 -400 -301 -257 -297 -274 -273 -182 -369 -353 -367 -369 -234 -487 -611 -627 -400 -347 -800 FY03/01 FY03/06 FY03/11 FY03/16 FY03/92 FY03/97 FY03/02 FY03/07 FY03/12 FY03/17 Source: Shared Research based on company data Reference

R&D expenses

(JPYbn) 29.8 ICT Printers Information (old segment) Telecom (old segment) EMS Others Semiconductors 7.2 25 22.6 22.0 21.3 2.4 19.6 18.2 20 6.5 5.2 4.3 16.1 16.8 6.7 15.2 5.1 2.7 1.1 14.6 14.0 3.3 3.3 13.8 13.1 13.8 13.3 15 2.6 2.9 13.0 4.8 3.4 2.6 5.4 3.1 2.4 2.1 2.1 3.4 3.5 4.0 2.1 2.1 2.0 10.3 2.4 10 2.6 4.6 5.7 2.2 2.1 2.6 2.4 2.0 4.3 5.8 4.2 1.9 2.2 13.6 2.2 1.7 5 10.1 10.0 9.7 8.7 9.5 8.9 9.0 8.9 7.1 7.5 5.6 6.5 7.1 6.1 7.1 6.6 0 FY03/01 FY03/03 FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17 Source: Shared Research based on company data

78/89 Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2018.07.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Balance sheet

Balance sheet FY03/01 FY03/02 FY03/03 FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Current assets 433,240 369,383 382,942 379,795 375,043 379,339 409,592 378,193 276,472 262,370 269,694 273,888 246,994 278,522 293,629 277,630 231,506 230,420 Cash and cash equivalents 56,776 43,494 29,293 58,825 49,441 38,919 49,900 49,994 64,428 75,158 80,679 79,513 36,406 50,901 53,632 47,829 54,164 48,698 Accounts receivable 189,446 146,777 169,904 155,313 145,952 150,841 169,431 171,492 118,469 118,416 121,049 112,137 123,886 133,383 137,895 135,910 101,572 97,936 Inventories 155,963 148,212 157,427 138,977 149,298 166,899 167,308 138,404 80,714 64,088 65,491 68,226 74,961 85,284 86,054 79,468 62,581 60,204 Deferred tax assets 9,787 8,866 9,924 10,784 10,620 6,508 5,977 7,504 3,772 4,008 6,146 6,996 6,634 6,503 9,647 6,750 5,454 5,677 Allowance for doubtful accounts -1,597 -2,559 -2,289 -1,986 -1,798 -1,842 -1,904 -1,585 -1,284 -8,689 -12,389 -12,325 -7,600 -8,684 -7,940 -8,314 -7,377 -132 Others 22,865 24,593 18,683 17,882 21,530 18,014 18,880 12,384 10,373 9,389 8,718 19,341 12,707 11,135 14,341 15,987 15,112 18,036 Tangible fixed assets 176,731 163,844 136,355 119,662 126,470 125,223 129,696 125,788 61,170 56,155 53,134 52,592 57,829 56,193 57,176 56,691 44,783 52,048 Depreciable and leased assets 155,529 142,916 116,473 101,098 107,238 108,852 113,099 109,663 47,614 44,015 40,966 39,361 43,857 43,391 43,930 43,036 37,792 38,476 Land 20,770 20,587 19,747 18,289 18,247 15,940 15,760 15,788 12,770 12,084 12,038 12,042 12,343 12,201 12,461 13,079 6,780 13,240 Construction in progress 432 341 135 275 985 431 837 337 786 56 130 1,189 1,629 601 785 576 211 332 Intangible assets 25,859 22,777 16,686 12,925 14,605 16,068 17,593 15,733 12,315 10,060 7,791 7,026 7,655 9,600 10,240 9,637 10,891 9,952 Investments and other assets 96,651 95,576 86,907 97,177 91,895 98,227 75,947 54,655 48,229 49,306 38,201 34,557 36,843 68,196 78,311 67,816 73,544 79,356 Investment securities 70,100 45,886 39,751 52,958 56,389 66,524 54,484 32,690 34,134 37,369 28,845 26,418 28,570 32,634 38,432 32,604 49,576 48,760 Net defined benefit assets ------27,507 30,478 27,286 9,511 15,357 Allowance for doubtful accounts -2,802 -3,375 -5,767 -5,159 -5,453 -5,581 -2,712 -3,055 -3,500 -3,427 -2,492 -1,175 -936 -828 -820 -818 -11,971 -19,924 Others 29,353 53,065 52,923 49,378 40,959 37,284 24,175 25,020 17,595 15,364 11,848 9,314 9,209 8,883 10,221 8,744 26,428 35,163 Fixed assets 299,242 282,198 239,949 229,765 232,972 239,520 223,237 196,177 121,716 115,523 99,127 94,176 102,328 133,991 145,728 134,145 129,218 141,357 Total assets 732,483 651,581 622,891 609,560 608,015 618,859 632,830 574,371 398,188 377,894 368,822 368,065 349,322 412,514 439,358 411,776 360,724 371,778 Current liabilities 351,578 305,877 307,548 311,676 313,828 295,865 333,480 325,970 217,465 241,222 240,783 214,355 197,129 242,272 211,580 199,162 176,559 186,666 Accounts payable 107,303 80,218 80,772 93,440 100,737 96,630 101,358 86,898 52,466 54,930 53,942 66,307 63,416 73,312 79,053 65,477 58,685 67,124 Short-term debt and CP 117,043 107,031 103,208 86,658 80,093 79,413 98,643 98,799 83,542 66,123 73,938 53,838 56,371 55,411 44,981 50,597 56,882 58,958 Current portion of long-term debt 20,346 27,315 18,714 43,103 55,202 36,665 34,166 33,935 25,619 61,307 44,125 22,797 18,821 49,067 18,348 22,095 - - Current portion of bonds 22,443 22,500 39,877 15,000 10,000 20,000 9,500 20,000 ------Current portion of lease obligations ------349 721 2,565 2,110 1,808 2,555 2,227 2,452 - - Accrued expenses 47,331 39,981 35,304 42,375 43,727 44,350 47,339 46,133 23,379 23,213 26,214 29,758 31,666 34,956 36,060 33,265 29,499 21,952 Income taxes payable 2,714 944 2,156 1,820 2,327 1,182 1,749 1,810 - - - - - 2,797 5,965 - - - Other current liabilities 34,398 27,888 27,517 29,280 21,742 17,625 40,725 38,395 32,110 34,928 39,999 39,545 25,047 24,174 24,946 25,276 31,493 38,632 Fixed liabilities 226,678 231,322 208,410 181,645 163,369 182,770 193,428 158,262 132,313 89,064 89,179 112,457 95,567 78,322 106,362 105,228 86,949 82,967 Long-term debt 77,653 104,378 115,061 107,155 70,360 102,729 110,530 102,646 82,605 45,036 33,987 59,843 45,332 14,526 44,241 49,391 30,129 22,956 Bonds 119,188 94,577 54,500 39,500 49,500 29,500 32,000 12,000 12,000 ------Lease obligations ------414 559 1,716 3,841 3,761 3,626 4,912 4,499 5,727 7,135 8,950 Long-term accounts payable-other ------32,478 26,863 21,864 - - - - - Net defined benefit liability 23,687 23,876 30,557 32,580 37,427 42,525 45,218 40,216 34,526 39,655 16,350 18,912 19,823 20,225 22,817 24,841 26,199 28,316 Provision for directors' retirement benefits 829 843 852 822 449 371 440 671 636 620 514 294 386 368 378 462 490 502 Others 5,321 7,648 7,440 1,588 5,633 7,645 5,240 2,315 1,987 2,037 2,009 2,784 4,536 38,291 34,427 24,807 22,996 22,243 Total liabilities 578,256 537,200 515,959 493,322 477,198 478,636 526,909 484,232 349,779 330,287 329,962 326,813 292,697 320,595 317,943 304,391 263,509 269,634 Net assets 154,225 114,380 106,931 116,238 130,816 140,222 105,921 90,138 48,408 47,607 38,859 41,251 56,625 91,918 121,414 107,384 97,215 102,144 Shareholders' equity 151,243 113,818 107,908 109,186 120,311 121,983 91,752 92,230 44,873 40,991 43,006 44,547 57,366 83,504 107,090 109,460 107,757 109,215 Capital stock 67,862 67,862 67,862 67,862 67,877 67,882 76,940 76,940 76,940 76,940 44,000 44,000 44,000 44,000 44,000 44,000 44,000 44,000 Capital surplus 71,150 71,150 71,150 71,150 37,797 37,801 46,744 46,744 46,744 46,744 113,124 21,554 21,554 21,554 21,554 21,673 19,799 19,795 Retained earnings 12,231 -25,180 -31,004 -29,685 14,854 16,580 -31,612 -31,109 -78,448 -82,284 -114,094 -20,968 -7,788 18,382 41,989 44,255 44,434 45,983 Treasury stock - -14 -100 -141 -217 -280 -320 -344 -362 -408 -23 -38 -399 -432 -453 -468 -477 -563 Valuation and translation adjustments -2,400 -4,751 -6,585 1,313 4,516 11,903 7,597 -8,495 -3,492 -458 -4,697 -3,422 -1,293 5,230 12,536 -2,726 -10,878 -9,045 Valuation differences on securities 4,367 2,265 1,513 10,932 12,441 19,113 14,377 695 -593 2,095 -1,988 -1,815 2,192 4,333 8,291 4,642 5,337 6,578 Deferred gains (losses) on hedges ------368 -271 -467 -660 -983 -973 -656 -389 -72 -562 -2 34 Foreign currency translation adjustments -6,767 -7,016 -8,098 -9,619 -7,925 -7,210 -6,410 -8,920 -2,431 -1,893 -1,724 -632 -2,829 -10,358 -10,433 -12,835 -11,702 -12,203 Remeasurements of defined benefit plans ------11,644 14,750 6,028 -4,511 -3,455 Subscription rights to new shares ------32 79 79 79 79 79 79 79 79 79 94 101 Non-controlling interests 5,381 5,314 5,608 5,739 5,989 6,335 6,538 6,324 6,948 6,994 470 46 473 3,104 1,708 572 242 1,873 Total liabilities and equity 732,483 651,581 622,891 609,560 608,015 618,859 632,830 574,371 398,188 377,894 368,822 368,065 349,322 412,514 439,358 411,776 360,724 371,778 Capital expenditures 43,761 27,752 25,327 26,813 37,834 33,505 37,714 25,432 15,883 8,560 7,985 9,333 13,091 10,164 11,461 11,660 10,600 - Depreciation 49,251 48,053 39,927 33,577 34,245 34,691 34,957 34,814 25,815 13,879 12,988 11,647 12,049 13,204 13,611 13,989 13,991 12,978 R&D expenses 29,842 22,571 15,217 16,117 21,987 19,614 21,305 18,231 16,825 14,624 13,768 13,109 13,982 12,959 13,755 13,317 10,275 - Working capital 238,106 214,771 246,559 200,850 194,513 221,110 235,381 222,998 146,717 127,574 132,598 114,056 135,431 145,355 144,896 149,901 105,468 91,016 Shareholders' equity 148,844 109,066 101,323 110,499 124,827 133,887 99,351 83,735 41,381 40,534 38,310 41,126 56,073 88,735 119,627 106,733 96,879 100,170 Total interest-bearing debt 356,673 355,801 331,360 291,416 265,155 268,307 284,839 267,380 203,766 172,466 152,050 136,478 120,524 119,004 107,570 122,083 87,011 81,914 Net cash -299,897 -312,307 -302,067 -232,591 -215,714 -229,388 -234,939 -217,386 -139,338 -97,308 -71,371 -56,965 -84,118 -68,103 -53,938 -74,254 -32,847 -33,216 Accounts receivable days 87.7 101.5 98.7 90.7 79.9 79.6 81.5 86.4 97.2 97.6 101.0 100.5 94.5 97.2 91.7 101.9 96.0 83.1 Days in inventory 96.1 113.2 125.1 111.7 104.3 112.2 108.9 100.5 97.4 82.2 74.2 77.0 77.4 82.5 78.2 83.6 76.8 68.4 Accounts payable days 65.5 69.8 65.9 65.6 70.3 70.0 64.5 61.9 61.9 60.9 62.3 69.2 70.2 70.4 69.6 73.0 67.2 70.1 Working capital efficiency 118.3 144.9 157.9 136.8 113.9 121.7 125.9 125.1 132.6 118.8 112.9 108.2 101.8 109.3 100.3 112.5 105.6 81.4 Current ratio 123% 121% 125% 122% 120% 128% 123% 116% 127% 109% 112% 128% 125% 115% 139% 139% 131% 123% Fixed ratio 201.0% 258.7% 236.8% 207.9% 186.6% 178.9% 224.7% 234.3% 294.1% 285.0% 258.7% 229.0% 182.5% 151.0% 121.8% 125.7% 133.4% 141.1% Equity ratio 20.3% 16.7% 16.3% 18.1% 20.5% 21.6% 15.7% 14.6% 10.4% 10.7% 10.4% 11.2% 16.1% 21.5% 27.2% 25.9% 26.9% 26.9% Source: Shared Research based on company data

Seasonality The ICT segment accounts for around 40% of sales, and around 40% of segment sales are booked in Q4. The ICT segment generally has a one-year cycle, so inventories build up as CoGS in Q1, Q2, and Q3 before being booked as sales in Q4.

Accounts receivable Accounts receivable also have a seasonal aspect. They increase sharply at the end of the fiscal year, and collections generally take place in Q1 because the company’s customers are large companies and government agencies. Note: the South China International Economic and Trade Arbitration Commission has accepted a petition regarding CNY1.1bn in uncollected accounts receivable due from Shenzhen Yihua Computer Industrial, so the relevant amounts are recorded as accounts receivable in the current assets section on the balance sheet (JPY19.4bn at end-FY03/16 exchange rates).

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Seasonal factors

(JPYbn) Operating profit Sales (right axis) (JPYbn) (JPYbn) Accounts receivable Inventories 14 13.2 140 140 12 10.8 120 10.4 130 10 100 120 74.5 8 77.1 65.5 80 110 6 60 42.5 100 36.5 35.2 36.6 36.0 37.3 38.7 4 30.3 31.2 2.6 40 90 1.5 2 0.9 20 80 0.5 0.3 0.5 0 0 70 -0.2 -0.1 -2 -0.8 -20 60 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Source: Shared Research based on company data

Cash position As of end-FY03/16, interest-bearing debt was JPY122.1bn (excluding JPY8.2bn in lease liabilities). Accounts receivable rise sharply at the end of the fiscal year due to seasonal factors and are collected in Q1. (Rose by JPY35.4bn QoQ in Q4 FY03/16, and fell by JPY42.5bn QoQ in Q1 FY03/17.) Nonetheless, net interest-bearing debt is heavy, at JPY74.3bn.

OKI has focused on improving its balance sheet since FY03/10, and has worked to recover accounts receivable and reduce inventories. The cash conversion cycle (CCC) has improved as a result. In FY03/16, there was an impact from the uncollected accounts receivable in China, but in FY03/17, OKI has undertaken a structural review of its inventory position. As an example, the company has reduced small-scale storage locations used to hold inventories, and expanded its factory truck yards to increase direct deliveries from the factory. It has also arranged kitting locations for externally procured products. The company said that in the ICT segment it succeeded in eliminating small-scale storage locations in January 2017.

In the Printers segment, when the factories in Thailand and China ship to their destinations (Europe, US) they generate around one month of seaborne inventory. We understand that the company thinks it can reduce inventories by improving its supply chain management. In Europe, individual countries’ sales companies do not hold inventory. Inventory is managed centrally in the Netherlands warehouses.

Net debt

(JPYbn) Short-term debt and CPs Long-term debt (JPYbn, %) (JPYbn) 418 Net debt (a; right axis) Bonds Cash and cash equivalents Non-operating financial expenses (b) 400 357 356 Net debt b / a (average of beginning and end) 331 350 291 285 300 265 268 267 5 300 300 312 302 250 282 204 0 172 200 233 229 235 152 216 217 136 122 150 121 119 108 -5 200 87 82 100 139 -10 97 50 71 84 74 57 68 0 54 33 33 -15 100 29 36 57 43 59 49 39 50 50 64 51 54 48 54 49 50 75 81 80 136 -20 100 150 -25 0 FY03/00 FY03/04 FY03/08 FY03/12 FY03/16 FY03/92 FY03/96 FY03/00 FY03/04 FY03/08 FY03/12 FY03/16 Source: Shared Research based on company data

80/89 Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2018.07.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Cash conversion cycle

Accounts receivable days Days in inventory Accounts payable days Working capital efficiency 113 125 112 112 109 97 200 96 104 101 82 82 84 74 77 77 77 158 78 68 145 160 137 133 118 122 126 125 119 114 113 109 113 108 102 100 106 120 50 81 80 62 101 99 97 98 101 100 97 102 96 40 88 91 80 80 82 86 94 92 83 45 0 -34 -40 -66 -70 -66 -66 -70 -70 -65 -62 -62 -61 -62 -69 -70 -70 -70 -73 -67 -70

-80 FY03/00 FY03/02 FY03/04 FY03/06 FY03/08 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 Source: Shared Research based on company data

Allowance for doubtful accounts Allowance for doubtful accounts has skyrocketed since FY03/10, mainly due to booking provisions related to Spanish subsidiary.

(JPYbn) Allowance for doubtful accounts (current assets) Allowance for doubtful accounts (fixed assets) JPY/EUR (right axis) 20 90 100 15 110 120 10 130 140 5 150 160 0 170 FY03/00 FY03/02 FY03/04 FY03/06 FY03/08 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 Source: Shared Research based on company data

Retirement benefit assets and liabilities Under retirement benefit accounting revisions (2012), from FY03/14 deferred recognition of unrecognized liabilities on the consolidated balance sheet was abolished and replaced by immediate recognition. As a result, unrecognized actuarial differences and unrecognized prior service costs were included in retirement benefit liabilities, in addition to the existing accrued retirement benefits. Regarding unrecognized actuarial differences, the cumulative adjustment on retirement benefits was added to net assets, after adjusting for tax effects (no change to the income statement). Normally, when retirement benefit liabilities are greater (lower) than pension assets, a retirement benefit liability (asset) is recorded. In OKI’s case, these are accounted for on both sides of the balance sheet, because the company runs multiple retirement benefit plans (both fund shortfalls and surpluses).

Accounts payable In June 2011, OKI partially shifted from a lump-sum retirement payment system to a defined contribution pension plan. It planned to transfer the asset value of JPY36.6bn over eight years, accounting for funds not yet transferred as accounts payable and long-term accounts payable. As of end-FY03/11, the amount to be transferred was JPY36.6bn, and in FY03/11 the company newly recorded JPY32.5bn in long-term accounts payable. Other current liabilities rose by JPY4.4bn YoY as a result. Since FY03/12, long-term accounts payable (including other fixed liabilities since FY03/14), have contributed to the fall in other current liabilities (transfers reduce the amount outstanding).

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Pension assets and retirement payment liabilities

Unrecognized past service liability (reduction in liability) (JPYbn) Projected benefit obligation (PBO) Pension assets Unfunded PBO (JPYbn) Unrecognized actuarial gains and losses 200 150 Unsettled differences from changes in accounting standards Unfunded PBO 100 100 Net amount booked in balance sheet ("-" is liability) 16.7 7.3 7.7 2.4 50 -16.2 0 -39.0 -28.1 -85.0 -80.0 -81.9 -77.2 -73.8 0 -110.1-105.0 -100 -140.5 -50 -172.0 -193.8 -100 -200 FY03/09: Disposal of Semiconductor business -150 FY03/04: Return of substitutional portion of -300 employee pension fund -200 FY03/12: Shifts to defined contribution -400 -250 pension plan (past service liability incurred) FY03/01 FY03/06 FY03/11 FY03/16 FY03/01 FY03/06 FY03/11 FY03/16

Shareholders’ equity

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

120 30%

80 25%

40 20%

0 15%

-40 Issued preferred stock and raised JPY30bn in Dec. 10% 2010. All the preferred shares were converted to -80 common stock in FY03/15, increasing the number of 5% shares issued by 140,737,358. -120 0% FY03/00 FY03/02 FY03/04 FY03/06 FY03/08 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 Source: Shared Research based on company data

82/89 Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2018.07.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Cash flow statement

Cash flow statement FY03/00 FY03/01 FY03/02 FY03/03 FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Pre-tax profit 6,460 18,491 -57,073 -3,468 2,304 18,545 10,621 -17,534 4,122 -37,924 -2,325 -30,121 5,593 18,634 31,761 37,532 11,689 13,672 8,128 Depreciation 47,854 49,251 48,053 39,927 33,577 34,245 34,691 34,957 34,814 25,815 15,515 14,095 12,680 13,021 14,249 14,464 14,382 13,991 12,978 Impairment losses ------2,973 - - - 702 260 97 218 184 9 1,059 - - Increase (decrease) in allowances 1,043 7,361 1,662 8,870 2,449 4,576 2,765 2,024 -5,147 3,327 13,082 -11,884 2,560 -5,040 -20,352 -1,945 466 13,244 1,152 Interest and dividend income -2,625 -2,812 -1,259 -973 -1,074 -1,323 -1,837 -1,500 -1,413 -1,271 -1,109 -1,109 -1,047 -651 -900 -1,057 -1,180 -1,182 -1,762 Interest expenses 12,291 10,426 8,102 7,513 7,464 6,724 6,171 6,820 6,953 6,098 4,919 4,471 4,026 3,003 2,522 2,357 1,990 1,794 1,559 Loss (gain) on valuation of securities - 3,041 18,148 7,218 1,538 1,193 73 2,130 200 801 987 2,500 184 225 - - - - - Loss (gain) on sale of securities -8,975 -4,687 -12,079 -1,489 -1,603 -3,037 -8,043 -3,362 -4,238 -509 - -78 180 -672 -553 -224 -1,928 -1,034 - Loss on disposal of fixed assets - - - - 4,859 2,488 1,011 1,044 1,569 1,756 1,301 377 656 -2,109 634 590 305 2,907 -397 Gains on sale of fixed assets - - -173 -19,689 -228 -1,188 -2,056 -258 -6,786 ------Decrease (increase) in accounts receivable 2,436 -20,280 44,811 -24,606 10,098 13,620 -1,371 -6,461 -6,496 19,268 -692 -12,563 7,418 3,487 5,009 8,693 -8,743 30,440 5,576 Decrease (increase) in inventories 8,263 -8,889 8,696 -10,431 17,087 -9,014 -15,536 3,299 24,681 18,822 16,256 -3,478 -3,079 -1,307 -371 3,905 3,539 15,515 3,296 Increase (decrease) in accounts payable–trade 11 14,621 -28,609 1,146 12,912 7,056 -5,276 -95 -11,821 -19,249 3,475 4,046 11,018 -17,963 -3,075 -8,906 -4,784 -1,040 7,593 Increase (decrease) in accounts payable–other - - -7,589 -4,157 7,183 1,135 -633 2,340 -559 -9,945 -71 3,713 3,806 -121 586 356 -2,079 -3,684 -7,885 Others 1,593 5,186 4,590 8,153 4,996 -8,192 -1,835 -506 15,533 18,468 4,713 36,468 -16,127 -17,265 3,639 -7,903 -10,692 -39,551 -10,763 Subtotal 68,351 71,709 27,280 8,014 101,562 66,828 21,718 22,898 51,412 25,457 56,753 6,697 27,965 -6,540 33,333 47,871 4,024 45,072 19,475 Interest and dividends income received 2,573 2,708 1,307 974 1,075 1,389 1,892 1,554 1,461 1,335 1,094 1,122 1,048 653 900 1,047 1,278 1,181 1,761 Interest expenses paid -12,360 -10,697 -8,254 -7,669 -7,509 -7,123 -5,928 -6,993 -7,084 -6,137 -4,957 -4,636 -4,142 -3,040 -2,546 -2,423 -1,938 -1,842 -1,496 Income taxes paid (refunded) -2,645 -1,315 -3,406 -1,092 -2,858 -1,771 -2,717 -1,353 -3,245 -1,713 -1,599 -1,594 -2,080 -5,626 -1,396 -5,495 -6,938 -2,445 -2,176 Insurance proceeds ------2,934 1,576 - - - - Cash flows from operat ing act ivit ies 55,919 62,405 16,927 225 92,269 59,323 14,965 16,105 42,543 18,941 51,290 1,588 22,791 -11,619 31,868 40,999 -3,573 41,967 15,578

Increase (decrease) in investment securities -4,638 15,525 15,263 -575 2,511 2,394 8,788 3,002 523 -840 -3,871 2,792 2,043 3,356 946 - 2,680 3,081 - Acquisition of tangible fixed assets -28,119 -40,865 -32,583 -23,553 -24,026 -33,926 -29,153 -26,729 -25,401 -17,258 -8,043 -6,535 -8,757 -11,881 -7,771 -10,598 -11,598 -8,773 -6,801 Proceeds from sale of tangible fixed assets 2,042 1,291 312 35,497 11,117 1,895 2,808 646 9,185 - 1,368 65 74 4,053 - 319 503 5,760 2,745 Acquisition of intangible fixed assets -6,853 -4,872 -8,343 -2,825 -4,595 -6,081 -6,918 -7,152 -4,692 -3,883 -2,321 -2,237 -2,282 -2,977 -3,664 -3,931 -2,630 -5,194 -2,638 Proceeds from sale of subsidiaries' shares ------79,374 ------14,218 - Payments for transfer of business ------2,292 -328 -455 -89 ------1,973 - - Proceeds from transfer of business ------100 - - - 562 ------Other payments -5,895 14,983 -497 -4,227 -4,209 -3,504 -3,852 -4,212 -2,402 64 -687 1,492 -470 -1,765 -3,488 -4,373 -744 -1,504 -3,791 Cash flows from invest ing act ivit ies -43,463 -13,938 -25,848 4,317 -19,202 -41,514 -28,555 -34,900 -22,876 57,457 -12,992 -4,423 -9,392 -9,214 -13,977 -18,583 -13,762 7,588 -10,485

Increase (decrease) in short-term debt -23,451 -8,110 -10,436 967 -16,455 -6,843 -999 15,765 -4,899 -13,891 -15,878 8,795 -20,405 571 -2,056 -12,442 6,622 -13,360 -598 Increase (decrease) in long-term debt -18,388 33,385 1,787 12,869 -24,889 13,152 2,822 -6,408 -28,039 -2,497 -27,782 4,696 -18,542 -772 -1,177 9,288 -22,418 -18,894 Increase (decrease) in bonds -31,017 -37,018 -24,519 -22,699 -39,877 -15,000 -10,000 -20,000 -9,500 -20,000 -12,360 ------Proceeds from share issuance ------28,650 ------1,967 - Cash dividends paid - - -3,053 -4 -16 -1 -1,817 -1,817 - - - - -0 -1,321 -1,032 -4,917 -4,314 -4,317 -4,322 Proceeds from share issuance to non-controlling interests ------608 - - Others -40 -41 4,943 -128 -85 19,843 438 31,360 1,406 2,464 -588 1,541 -1,826 -1,800 -410 -2,188 -1,066 -1,923 12,302 Cash flows from financing act ivit ies -54,508 -63,557 320 -20,077 -43,564 -26,890 774 28,130 -19,401 -59,466 -31,323 11,204 -17,535 -21,092 -4,270 -20,724 11,138 -43,985 -11,512

Effect of exchange rate changes on cash and cash equivalents -1,440 497 590 -717 -759 417 714 947 -1,377 -2,350 -286 118 -87 1,368 1,084 997 -1,079 -117 -79 Increase (decrease) in cash and cash equivalents -43,492 -14,592 -8,010 -16,250 28,743 -8,664 -12,102 10,283 -1,111 14,581 6,688 8,488 -4,224 -40,558 14,703 2,688 -7,276 5,453 -6,498 Cash and cash equivalents (beginning of year) 108,501 66,776 52,885 45,445 29,294 58,075 49,411 38,419 49,800 49,846 64,428 71,156 79,645 74,996 35,894 50,866 53,598 46,322 51,980 Cash and cash equivalents (year end) 66,776 52,885 45,445 29,294 58,075 49,411 38,419 49,800 49,846 64,428 71,156 79,645 74,996 35,894 50,866 53,598 46,322 51,980 45,481

Cash flow (JPYbn)

(JPYbn) Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents (year end) 100 79.6 71.2 75.0 66.8 64.4 58.1 52.9 50.9 53.6 52.0 45.4 49.4 49.8 49.8 46.3 45.5 50 38.4 35.9 29.3 92.3 57.5 7.6 55.9 62.4 59.3 28.1 42.5 51.3 42.0 0.3 0.8 31.9 41.0 16.9 15.0 16.1 18.9 11.2 22.8 15.6 4.3 1.6 11.1 0 0.2 -4.4 -9.4 -3.6 -13.9 -20.1 -19.2 -13.0 -11.6 -14.0 -18.6 -13.8 -10.5 -25.8 -28.6 -22.9 -9.2 -4.3 -11.5 -43.5 -41.5 -34.9 -17.5 -44.0 -19.4 -59.5 -31.3 -21.1 -20.7 -63.6 -43.6 -50 -26.9 -54.5

-100 FY03/00 FY03/02 FY03/04 FY03/06 FY03/08 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 Source: Shared Research based on company data

Capex (left) and depreciation (right)

(JPYbn) (JPYbn) ICT Printers Semiconductors ICT Printers 49.3 48.1 Semiconductors EMS 50 EMS Other Depreciation 50 43.8 Others Company-wide 45 45 39.9 Capital expenditures 40 37.8 37.7 40 34.7 35.0 34.8 33.5 33.6 34.2 35 35 27.8 26.8 30 25.3 25.4 30 25.8 25 25 22.1 16.6 17.7 16.7 15.7 20 15.9 20 13.1 13.1 7.0 13.9 13.0 13.2 13.6 14.0 14.0 15 11.5 11.7 15 11.6 12.0 10.2 10.6 8.6 9.3 5.6 8.0 6.6 7.3 7.5 6.3 10 7.1 4.9 10 3.9 6.3 4.2 4.1 4.1 2.6 3.1 2.7 4.5 4.2 3.3 3.9 4.8 5 3.7 4.2 2.8 3.5 1.9 5 7.2 6.0 6.1 6.2 7.6 7.5 7.2 7.4 6.3 6.5 6.2 5.6 4.1 3.5 3.6 4.0 5.0 5.6 4.8 5.2 5.2 5.1 4.9 5.4 0 0 FY03/01 FY03/06 FY03/11 FY03/16 FY03/01 FY03/06 FY03/11 FY03/16 Source: Shared Research based on company data

83/89 Oki Electric Industry / 6703 RCoverage LAST UPDATE: 2018.07.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Other information

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

Organizat ional form Organizat ion Company with Audit & Supervisory Board and capital structure Cont rolling shareholders None Directors Number of directors (per Articles of Incorporation) 15 Directors' term of office (per Articles of Incorporation) 1 year Number of directors 7 Out side direct ors 3 Independent outside officers 3 Audit ors Existence of Audit and Supervisory Board Y Number of Audit & Supervisory Board members (per Articles of Incorporation) 5 Number of Audit & Supervisory Board members 4 Outside members of Audit & Supervisory Board 2 Independent outside officers 2 Other Foreign shareholding ratio (as of end-September 2016) Over 20%, under 30% Voluntary establishment of committee(s) corresponding to Nomination Personnel Affairs and Y Committee or Remuneration Committee Compensation Advisory Commit t ee Independent officers in the committee / total committee members 5 / 5 Disclosure of individual direct or's compensat ion None Independent officers 5 Implementation of measures regarding director incentives Performance-linked remuneration and stock option Eligible for st ock opt ion Directors, others Part icipat es in ICJ's elect ronic vot ing syst em for Other Part icipat ion t o elect ronic vot ing plat form inst it ut ional invest ors Preparation of convening notices in English Y Online disclosure Corporate takeover defenses None Environment al conservat ion act ivit ies Under OKI Group Environment Vision 2020, the company puts into practice environmental management following OKI Group Environment al Policy CSR Each of Oki's business divisions w ork on act ivit ies based on educat ion of employees on Oki group's Chart er of Corporate Conduct and Code of Conduct Activity status The company issues reports annually, available in print and online

ROE

60% ROE 12% ROA (RP-based) ROIC 37.8% 9.5% 40% 28.0% 31.8% 10% 8.7%

9.5% 8% 20% 6.1% 3.9% 3.9% 5.8% 6.0% 1.3% -0.3% 5.4% -6.2% 6% 4.7% 0% -9.4% 4.0% 3.9% 4.6% 3.1% 3.0% 2.9% -26.4% 4% -20% -32.4% 1.6% 1.6%1.8% 2% 0.9% 0.9% 0.2% -0.1% -40% -1.0% 0% -3.2% -60% -73.8% -2% -80.7% -80% -4% -100% -6% FY03/01 FY03/06 FY03/11 FY03/16 FY03/01 FY03/06 FY03/11 FY03/16 Source: Shared Research based on company data

ROIC

20% ROIC (before tax) OPM Sales / Invested capital (right axis) 3 2.6 2.5 2.5 2.4 15% 2.3 3 2.1 2.1 2.2 1.9 1.9 10% 1.8 1.8 2 1.7 1.7 1.5 1.4 5% 1.2 1.3 2 5.6% 6.0% 3.8% 4.0% 3.8% 3.3% 2.8% 3.0% 0% 1.6% 1.8% 1 0.7% 1.5% 1.5% 0.2% -0.1% 0.6% -0.9% -5% 1 -4.5% -10% 0 FY03/01 FY03/06 FY03/11 FY03/16

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(JPYbn) (JPYbn) Net assets Interest-bearing debt Operating profit (right axis) 600 32.4 40 28.3 27.2 27.2 21.6 30 500 18.6 13.5 20 10.6 12.0 7.7 400 5.4 6.5 6.3 10 1.4 2.5 356.7 -0.6 300 355.8 -6.6 0 331.4 268.3 291.4 265.2 284.8 267.4 -10 200 107.6 122.1 119.0 -27.2 203.8 172.5 87.0 81.9 -20 100 152.1 136.5 120.5 154.2 130.8 140.2 -30 114.4 106.9 116.2 105.9 90.1 91.9 121.4 107.4 97.2 102.1 48.4 47.6 41.3 56.6 0 38.9 -40 FY03/01 FY03/06 FY03/11 FY03/16 Source: Shared Research based on company data

ROE

ROE 60% 9.5 9.5 9.3 10 Net margin 37.8% 40% Total asset turnover (right axis) 31.8% 9 7.8 28.0% Financial leverage (equity multiplier; right axis) 7.4 8 20% 9.5% 6.1% 3.9% 6.6 3.9% 5.8% 4.6% 6.0% 6.1 1.3% -0.3% 7 -5.6% -6.2% 5.8 -0.9% 5.7% 0% 1.2% 1.6% 5.4 6.1% 6 5.4 0.4% 3.0% 5.3 1.3% 1.0% 1.3% 5.1 -1.1% 0.2% 5.2 0.7% -0.0% -9.4% -7.4% 4.7 -5.3% -8.5% -20% 4.1 5 -26.4% 3.8 3.8 3.7 -40% -32.4% 4 3 -60% 2 -73.8% -80.7% -80% 1 -100% 0 FY03/01 FY03/06 FY03/11 FY03/16 FY03/01 FY03/02 FY03/03 FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. ROE 6.1% -26.4% -6.2% 1.3% 9.5% 3.9% -32.4% -0.3% -73.8% -9.4% -80.7% 3.9% 28.0% 37.8% 31.8% 5.8% 4.6% 6.0% Net margin 1.2% -5.6% -1.1% 0.2% 1.6% 0.7% -5.3% -0.0% -8.5% -0.9% -7.4% 0.4% 3.0% 5.7% 6.1% 1.3% 1.0% 1.3% Total asset turnover 1.00 0.87 0.92 1.06 1.13 1.11 1.15 1.19 1.12 1.14 1.16 1.15 1.27 1.27 1.27 1.15 1.17 1.20 Financial leverage (equit y mult iplier) 5.08 5.37 6.06 5.82 5.17 4.74 5.37 6.59 7.77 9.47 9.47 9.28 7.38 5.26 4.09 3.76 3.79 3.72 ROA (RP-based) 3.0% -4.5% -1.2% 2.0% 3.5% 1.2% -2.2% -0.8% -1.5% 0.3% 0.3% 2.5% 5.7% 9.6% 8.9% 2.7% -0.6% 2.3% ROIC 3.1% -3.2% 0.2% 3.0% 4.0% 1.6% -1.0% 0.9% -0.1% 1.6% 1.8% 3.9% 4.7% 8.7% 9.5% 5.4% 0.9% 2.9% NOPAT 16,479 -15,858 796 12,575 16,144 6,283 -3,904 3,194 -373 3,860 3,741 7,105 8,353 16,859 20,863 12,446 1,760 5,338 Net assets + Interest-bearing debt 538,988 490,540 454,236 422,973 401,813 402,250 399,645 374,139 304,846 236,124 205,491 184,319 177,439 194,036 219,953 229,226 206,847 184,142 ROIC (before tax) 5.3% -5.6% 0.3% 5.1% 6.8% 2.6% -1.6% 1.4% -0.2% 2.8% 3.1% 6.5% 7.6% 14.0% 14.7% 8.1% 1.2% 4.2% OPM 3.8% -4.5% 0.2% 3.3% 4.0% 1.6% -0.9% 0.7% -0.1% 1.5% 1.5% 2.8% 3.0% 5.6% 6.0% 3.8% 0.6% 1.8% Sales / Invested capital 1.37 1.23 1.29 1.55 1.71 1.69 1.79 1.92 1.79 1.88 2.11 2.30 2.57 2.49 2.46 2.14 2.18 2.38 Source: Shared Research based on company data

Top Management

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

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

In his career of over 30 years, Mr. Kamagami has been involved in areas from technical development through marketing and business management in the Mechatronics Systems segment, with a focus on ATMs and on-the-ground operations. He uses feedback from the factory floor and promotes growth in response to changes in the business environment. He says he is working to build a business platform that enables sustainable growth.

Dividend policy

OKI says its top management priority is to increase shareholder returns while strengthening its balance sheet and retaining earnings to improve corporate value. The company says retained earnings will be directed toward R&D and capital expenditure

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vital for growth and used to strengthen the business structure and management platform. The company dividend policy prioritizes returning profits to shareholders in a stable, continuous manner, with the dividend amount depending on profits. Shareholder return FY03/03 FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. T ot al dividends a) - - 1,834 1,834 ------2,184 4,292 4,343 4,343 4,343 Total treasury stock acquired b) 86 41 76 63 40 24 17 46 18 14 361 32 21 14 8 99 c) = a) + Total returns to shareholders 86 41 1,910 1,897 40 24 17 46 18 14 361 2,216 4,313 4,357 4,351 4,442 b) Net income attributable to parent company d) -6,560 1,328 11,174 5,058 -37,775 -313 -46,188 -3,836 -31,809 1,555 13,599 27,359 33,091 6,609 4,691 5,891

Dividend payout rat io a) / d) - - 16.4% 36.3% ------8.0% 13.0% 65.7% 92.6% 73.7% Total shareholder return ratio c) / d) -1.3% 3.1% 17.1% 37.5% -0.1% -7.7% -0.0% -1.2% -0.1% 0.9% 2.7% 8.1% 13.0% 65.9% 92.8% 75.4%

Net assets available to common 101,323 110,499 124,827 133,887 99,351 83,735 41,381 40,534 8,310 9,805 25,041 57,731 119,627 106,733 96,879 100,170 shareholders (year end) Average of beginning and end of f) 105,195 105,911 117,663 129,357 116,619 91,543 62,558 40,958 24,422 9,058 17,423 41,386 88,679 113,180 101,806 98,525 year Before deducting assets available to 101,323 110,499 124,827 133,887 99,351 83,735 41,381 40,534 38,310 41,126 56,073 88,735 119,627 106,733 96,879 100,170 holders of Class A preferred shares EPS (JPY) -10.7 2.2 18.3 8.3 -58.3 -0.5 -67.6 -5.6 -44.0 0.3 17.2 36.2 40.0 7.6 54.0 67.9 Dividend per share (JPY) - - 3.0 3.0 ------3.0 5.0 5.0 50.0 50.0 DOE a) / f) - - 1.6% 1.4% ------5.3% 4.8% 3.8% 4.3% 4.4% Source: Shared Research based on company data

Major shareholders

Shareholders Shares held Shareholding (as of end of March, 2018) ('000) rat io The Master Trust Bank of Japan, Ltd. (Trust account) 4,718 5.4% MSIP CLIENT SECURITIES 3,778 4.3% Japan Trustee Services Bank, Ltd. (Trust account) 3,671 4.2% Oki Elect ric Group Employees' Shareholding Associat ion 1,864 2.1% STATE STREET LONDON CARE OF STATE STREET BANK AND TRUST, BOSTON SSBTC A/C UK 1,813 2.1% LONDON BRANCH CLIENTS-UNITED KINGDOM BNYM FOR GOLDMAN SACHS JAPAN 1,693 1.9% Japan Trustee Services Bank, Ltd. (Trust account 5) 1,552 1.8% Mizuho Bank, Ltd. 1,419 1.6% Hulic Co., Ltd. 1,407 1.6% Meiji Yasuda Life Insurance Company 1,400 1.6% Treasury shares 352 0.4% Number of shares issued 87,218 100.0% Source: Shared Research based on company data

Employees

FY03/01 FY03/02 FY03/03 FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Consolidat ed 25,626 23,597 22,520 20,960 20,410 21,175 21,380 22,640 17,415 18,111 16,697 16,736 17,459 21,090 20,653 20,190 19,464 18,978 ICT 6,838 7,023 Mechatronics Systems 4,767 4,106 Printers 4,875 4,468 EMS 1,309 1,326 Other 1,219 1,595 Company-wide 456 460 Info-Telecom (old segment) 8,975 9,027 10,244 10,103 9,923 8,889 8,464 8,688 12,729 12,405 12,013 Printers 5,684 5,758 5,924 5,782 6,653 6,085 6,522 5,564 5,059 4,963 4,917 EMS 431 419 1,104 1,244 1,284 1,306 Semiconductors 5,011 4,984 4,879 Other 1,020 1,143 1,194 1,158 1,187 1,017 1,013 1,751 1,705 1,632 1,581 Information 13,282 11,832 11,523 11,094 10,685 Telecom 4,604 3,788 2,849 2,691 2,571 Semiconductors 5,791 5,625 5,526 4,979 4,988 Other 1,692 1,873 2,093 1,744 1,642 Company-wide 257 479 529 452 524 Parent 8,217 7,393 6,067 5,379 5,389 5,496 5,579 5,313 3,182 3,170 3,103 3,373 3,678 3,788 3,881 3,914 4,063 4,024 Average age 38.7 38.4 38.4 38.9 39.5 40.0 40.4 40.8 41.2 41.3 41.2 41.8 42.1 42.5 43.0 43.3 43.5 43.6 Average years of service 17.2 16.5 16.4 16.7 17.1 17.5 16.8 18.4 19.0 19.1 19.1 19.3 19.5 19.8 20.5 19.7 19.0 21.0 Average annual salary (JPYmn) 6.12 6.43 6.14 6.31 6.51 6.77 6.78 6.74 6.65 5.80 6.00 6.63 7.04 7.09 7.33 7.52 7.20 Subsidiaries 17,409 16,204 16,453 15,581 15,021 15,679 15,801 17,327 14,233 14,941 13,594 13,363 13,781 17,302 16,772 16,276 15,401 14,954 Source: Shared Research based on company data

News and topics October 2017 On October 31, 2017, the company announced it was initiating a tender offer for the shares of Oki Electric Cable Co., Ltd. (TSE: 5815).

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May 2017 On May 26, 2017, the company announced a medium-term management plan that covers a period through FY03/20. The basic principle of the plan is for OKI to focus on its “strengths” and “bolster its ability to generate revenues,” and the company intends to achieve this in combination with partnership strategies. OKI plans to secure stable earnings with the Information and Communication Technology (ICT) segment, while restructuring the Mechatronics Systems and Printers segments and fostering growth areas. It has set forth numerical targets of 6% in OPM and over 30% in shareholders equity ratio.

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

On May 23, 2017, the company announced that it launches ATM-Recycler G8, a strategic ATM model for emerging markets. OKI plans to sell 150,000 units of this model over the next five years in emerging markets such as India and Southeast Asia, where market expansion is expected. The large volume of cash circulating in emerging markets has generated demand for increased efficiency in teller operations at financial institutions. According to the company, due to strong demand among individuals and corporate customers in these markets for automated cash deposit handling, cash-recycling ATMs are emerging as a key element of the social infrastructure. Cash-recycling ATMs can reduce the intervals of cash replenishment and collection, and enables efficient cash management.

April 2017 On April 27, 2017, the company announced that it will be releasing a new medium-term management plan on May 26, 2017.

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Profile

Company Head office

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

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

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