Bridge Report:（3110）NITTO BOSEKI Fiscal Year 2021

Representative and Chief Executive Officer Yuichi Tsuji	NITTO BOSEKI CO., LTD. (3110)

Company Information

Stock Information

*The share price is the closing price on May 24. Each value is based on the financial results of the Fiscal Year ended March 2022.

Earnings Trend

*Unit: million yen, yen. Net profit is net profit attributable to shareholders of the parent company. The same as below. Units are rounded down.

This report introduces an overview of earnings results for Fiscal Year 2021 etc. of NITTO BOSEKI CO., LTD.

Table of Contents

Key Points
1. Company Overview
2. Results for the Fiscal Year 2021
3. Forecast for the Fiscal Year 2022
4. Conclusion
<Reference1: [Big VISION 2030] and The New Mid-Term Business Plan (FY 2021-FY 2023)>
<Reference2: Regarding Corporate Governance>

（※）The amounts (100 million yen) and percentages in the text are rounded to the nearest unit.

Key Points

• In the Fiscal Year 2021, sales increased 6.8% year on year to 84.1 billion yen. Although the impact of the COVID-19 remained, sales increased except for glass fiber for industrial materials. Operating profit increased 21.9% year on year to 7.3 billion yen. The company continued to invest in strengthening the foundation, and the increased sales of flat fibers, Special Glass, and in vitro diagnostic reagents as well as the structural reforms in the composite materials and Textiles Businesses contributed to the overall sales growth. Net profit decreased 19.5% year on year to 6.5 billion yen. Profit decreased due to the reaction to the gain on sales of noncurrent assets and investment securities in the previous fiscal year. Both sales and profit exceeded the forecasts announced in February 2022. On a quarterly basis, sales are recovering steadily, but operating profit is flat.

   

• In the Fiscal Year 2022, sales are expected to rise 14.2% year on year to 96 billion yen, operating profit to increase 0.4% year on year to 7.3 billion yen, and ordinary profit to decrease 0.8% year on year to 8 billion yen. Amidst the uncertain outlook for global energy prices due to the Russia/Ukraine issue, lockdowns in China, semiconductor shortages, and supply chain disruptions, the company expects to see the full impact of higher electric fuel costs in composite materials and Glass Fiber for Industrial Materials Businesses. Sales of Special Glass and in vitro diagnostic reagents are forecasted to contribute to operating profit. Despite the full-scale rise in raw fuel costs, due to cost reductions, sales price adjustment, and the yen depreciation, overall operating profit is predicted to be almost the same level as that in the previous fiscal year. The company plans to pay a dividend of 45.00 yen/share like in the previous fiscal year. The expected dividend payout ratio is 23.3%.

   

• Although the business environment had many negative factors, such as the shortage of semiconductors and soaring prices of raw materials, the company's earnings in Fiscal Year 2021 exceeded the forecasts. Net sales and operating profit are expected to increase in the Fiscal Year 2022, and the company plans to grow sales into the second half. Although there are still many uncertainties, Investment Bridge would like to keep an eye on whether the company can steadily achieve the forecasted figures. Investment Bridge would also like to pay attention to the progress of the Mid-Term Business Plan.

   

1. Company Overview

The company succeeded in the first industrialization of glass fiber in Japan through technologies of the textiles business which is its original business. It provides products for a wide range of applications, such as electronic materials and industrial materials, with consistent coverage from yarn manufacturing to glass fiber cloth processing.
Among them, Special Glass (NE-glass, T-glass) which achieves low dielectric and low thermal expansion by special composition is used in server base station and precision material for electronic devices such as smartphone and has high competitiveness. Furthermore, for “in vitro diagnostic reagents” in the Life Science Business, have the top share in more than 10 items in Japan.

1-1 Corporate History

“Koriyama Kenshi Boseki Co., Ltd” founded in Koriyama, Fukushima Prefecture in 1898, is the predecessor. The company has a history of 120 years.
Nitto Boseki Co., Ltd. was established in 1923 when Fukushima Boshoku Co., Ltd. (formerly Fukushima Seiren Seishi Co., Ltd.) acquired the ownership of the Iwashiro Spinning Plant of Katakura Seishi (formerly Koriyama Kenshi Boseki Co., Ltd) in 1918.
In 1938, it succeeded in industrialization (mass production) of glass fiber for the first time in Japan. In the world, Owens Corning Glass Fiber of the United States has achieved the industrialization of glass fiber around the same time.
In 1949, it began manufacturing glass wool for the first time in Japan.
In 1969, the company began manufacturing glass fiber cloth for printed wiring board. In 1982, it began manufacturing test reagents for blood coagulation factors. And in 1983, it succeeded in industrializing functional polymers “PAA®” for the first time in the world. As such, the company has continued to challenge new fields and expanded its business fields.
In February 2021, the company announced the ideal way that Nittobo Group aspires to be in 2030 [Big VISION 2030] and the “New Mid-Term Business Plan (FY 2021 to 2023)” for achieving sustainable growth, and engages in various activities, including business strategies, to attain environmental goals.

1-2 Management Philosophy

Its management philosophy is as follows.
“Nittobo Group will, as a corporate group, enhance its significance by striving to create healthy and comfortable lifestyles, and thereby continue to contribute to the realization of prosperous communities.”

Furthermore, under the following Nittobo Declaration, it is aiming to be society’s “best partner” in collaboration with all stakeholders.

Nittobo Declaration

(From the company’s website)

1-3 Business Description

(1)Business description
The company’s business can be largely divided into three categories, namely, the “Glass Fiber Business” which manufactures and sells various products using glass fiber, Life Science Business,” which is composed of the Medical business for manufacturing and selling in-vitro diagnostic reagents and the Beverage business for producing and bottling beverages, “Textiles Business”, which manufactures and sells textile products for clothing.
As for the reporting segments, the “Glass Fiber Business” is divided into three categories, namely, the “Glass Fiber Yarn Business,” “Glass Fiber Cloth Business,” and “Glass Fiber for Industrial Materials Business.” Together with the “Life Science Business” and “Textiles Business,” there are a total of 5 reporting segments. In addition, there is a category called “Others” which consists of the service business that are not included in the reporting segment.

① Glass Fiber Business
The company succeeded in the first industrialization of glass fiber in Japan. It provides products for a wide range of applications with consistent coverage from yarn manufacturing to glass fiber cloth processing.
Especially, Special Glass (NE-glass, T-glass) has low dielectric and low thermal expansion characteristics due to its special composition. It is employed as a precision material for electronic devices such as base stations, high-performance servers and smartphones, and is highly competitive.

In addition, micron-level super ultra-thin glass fiber cloth is used in smartphones and other devices that are becoming smaller, lighter, and more sophisticated, and is highly regarded for its quality.
The company also spearheaded the manufacturing of glass wool in Japan to be used as insulation for housing and is regarded as the pioneer of heat insulation materials with its unique technologies. In particular, high performance glass wool contributes to an energy-saving society as heat insulation materials for very airtight and highly heated insulating houses.

(Major uses)

<What is glass fiber?>
Glass fiber is a product for which glass raw material is melted at a high temperature of 1,300℃ or higher and stretched to be fibrous.
The company succeeded in the industrialization of glass fiber for the first time in 1938 in Japan, and it developed rapidly thereafter.
Its characteristics include strength, heat resistance, non-flammability, electrical insulation and chemical resistance, and it is used for various purposes such as printed wiring boards, FRP, and building materials. For its excellent characteristics, it is being used in a wide range of industries.

(Composition, property)
As described earlier, it has characteristics such as strength, heat resistance, non-flammability, and electrical insulation. Especially for electronic materials related to high-speed high-volume communications, the product needs to have high levels of strength, elasticity, low-dielectric property, etc.

(Manufacturing method)
After raw materials of glass are melted at a high temperature of 1,300 to 1,600℃, they pass through a spinning nozzle and are reeled up to form a filament. A very precise control technique is required.The thinness of the glass fiber, which is a glass base pulled out from the machine at high speed, is 3.5 to 24 μm in diameter. (*The thinness of a human hair is about 50 to 100 μm.)
The spun glass fiber is processed into product forms according to the application.

(Major product forms)
◎Glass fiber yarn
Glass fiber yarns (twisted yarns) include a single yarn which is a strand composed of several hundred filaments that are simultaneously spun and twisted in the same direction and a twisted yarn which is made by twisting several single yarns.

The “E-glass yarn,” a single yarn made of twisted strands mainly composed of filaments of 3.5 to 7.4μm, has excellent electrical insulation, heat resistance, tensile strength, and dimensional stability, and is generally used for printed wiring boards. In addition, it is highly compatible with resins due to its unique surface treatment technology for industrial materials. It is highly evaluated as a base material with good workability.

◎Glass fiber cloth
Glass fiber cloth, which is fabric (cloth form) made of glass fiber yarns, is used for a wide range of applications such as printed wiring boards, damping materials, tent films, and road reinforcement materials.
Among them, the glass fiber cloth used for printed wiring boards and electronic parts is the company’s flagship product that it boasts worldwide.

【Glass fiber cloth for printed wiring boards】
A printed wiring board is formed of the fine wiring of metals such as copper on the surface of a base body such as resin, and components including resistors, capacitors and IC chips are fixed by soldering on the wiring. It is an important part that influence the performance of all electronic facility, including PC, smartphones, servers, medical facility, industrial robots, automobiles, and aircraft.

Glass fiber cloth, which has characteristics of high insulation, high strength, heat resistance, and dimensional stability, is thought to be the most suitable material for a printed wiring board.
Along with remarkable development of digital technologies, electronic devices such as PC and smartphones are becoming lighter, thinner, smaller and more sophisticated, and the need for the improvement of glass fiber cloth performance is increasing.
In response to such needs, the company developed highly functional glass fiber cloth products, such as “low dielectric glass cloth (NE-glass),” “Low thermal expansion glass cloth (T-glass),” and “ultra-thin glass fiber cloth,” by utilizing the forte of the maker that manufactures yarns and even cloth based on its original technologies for glass composition development, glass fiberization, and weaving, and has a significant market share.

“Low dielectric glass fiber cloth (NE-glass)”
Higher speed transmission with higher frequency is becoming more common, and low dielectric materials that reduce transmission loss is required for printed wiring boards.
To address the need, the company has developed the “NE-glass” that is excellent in low dielectric constant and dissipation factor with the same characteristics as “E-glass” by lowering the component ratio of alkaline-earth elements (CaO, MgO) as compared with the conventional “E-glass” while enhancing the component ratio of boric acid (B2O3).
It is mainly used for electronic boards for data centers and base station servers.

“Low thermal expansion glass fiber cloth (T-glass)”
“T-glass” has the higher component ratio of silica (SiO2) and alumina (Al2O3) compared with the standard “E-glass” and provides significantly advanced mechanical and thermal performance of glass fiber.
Utilizing its low thermal expansion characteristics and high tensile elasticity, it realizes excellent dimensional stability and increased rigidity, and it is used as an electronic substrate for semiconductor packages mainly mounted on smartphones, high-performance servers as a high-performance electronic material. Like carbon fiber and aramid fiber, it also works well as a reinforcing material for advanced composite materials, so it is used by itself or as a hybrid material with carbon fiber in the fields of aviation, space and sports.

“Ultra-thin glass fiber cloth”
Demand for thinner glass fiber cloth is increasing as a material to respond to the trend of making lighter, thinner and smaller printed wiring boards with high density packaging. In addition to its thinness, the company’s ultra-thin glass fiber cloth has superb capacities to process fine holes both for laser and drill processing and offers great dimensional stability and surface smoothness as a laminated plate.

The product forms and uses by segment in the glass fiber business are as follows.

(Source: the company)

② Life Science Business
It is composed of the Medical business, the Specialty chemicals business, and the Beverage business.

The Medical business manufactures and sells in vitro diagnostics reagents used for blood and urine tests and specialty chemicals products centered on functional polymers.
The company is achieving high quality and stable supply of the “in vitro diagnostic reagents” that are used in health checkups and thorough physical examinations to examine health status using blood or urine, by integrally manufacturing them from the antisera as the raw material to the diagnostic reagents as the final product within the Group.
The products’ high quality has been recognized, and they are supplied in medical fields globally. In Japan, the company is winning the top share with more than 10 items.
As for the Specialty chemicals business, the company develops products, and sells unique functional polymers (polyallylamine and polyamine series). The characteristics of this business are R&D together with chemical products/pharmaceutical manufacturers and research institutes and product proposals that capture customer needs. The company is strong in niche markets and is actively expanding the business not only in Japan but also in the global market.

In the Beverage business, centered on the private brands, it is working on development of plastic bottles, beverage production and bottling, using the technologies that have been cultivated over many years.

（Source: the company）

③ Textiles Business
The company provides products utilizing its unique technologies to meet the diversifying needs of customers, such as Dan-Reine, an adhesive interlining for women that has been boasting a high market share, and Nittobo New Dishcloth, which won the Good Design Long Life Design Award 2015.

(Source: the company)

(2)Research and development (R&D)
Since its founding, the Group has been actively promoting R&D and delivering unique products to the world.
R&D will continue to be a source of enhancing the company’s competitiveness and corporate value.

In recent years, while the needs of customers are becoming more sophisticated and diversified, global competition is intensifying. Under these circumstances, the company established new research and development site in 2017 to provide products and services with high value-added and strong originality in a timely manner with its characteristics and strengths, and to promote R&D toward the future.
The Group will continuously work on R&D from the viewpoint of expertise in each business division. At the same time, it will promote cross-sectional management by the research laboratory to pursue synergy among businesses with a focus on speed.
Furthermore, in each field, in order to accelerate research speed and expand the perspectives, the company is actively promoting joint research on industry, government and academia from the viewpoint of open innovation.

In July 2018, the satellite laboratory “NI-Tech” was opened at the Innovation Center of Nano Medicine in Kawasaki City as a new research and development site to strengthen the Life Sciences Business.
In order to further strengthen company-wide R&D capabilities, the company decided to construct a new building called “NI-CoLabo,” in Koriyama City, Fukushima Prefecture, and the construction was completed in April 2020. In addition to consolidating R&D divisions of each business segment into one location, it will enhance collaboration with external users. The building will be a symbol of the company’s R&D system.

1-4 Characteristics and Strengths

◎ Supply products by accurately grasping needs of the times
In addition to succeeding in the industrialization of glass fiber for the first time in Japan, the company began manufacturing glass wool for the first time in Japan. As such, the company has been always leading the global and Japanese markets in the field of glass fiber. In the history of over ninety years, it has always been capturing the changes and needs of the world accurately and developing and supplying various products centered on glass fiber.
Since the company’s product is not the final product, people do not see the company’s products directly. However, it supplies many materials that are indispensable to the world and supports our lives behind the scenes.

◎ High competitiveness by unique technologies
Among many manufacturers of glass fiber in the world, it is almost the only company that realized excellent low dielectric constant and low dielectric loss tangent (NE-glass) and high dimensional stability and higher rigidity (T-glass) in the field of glass fiber cloth for electronic materials and has established a system that can stably supply sufficient volume.
In addition, having acquired the top share in Japan for more than 10 items with in vitro diagnostic reagents in the Medical Division also shows its high competitiveness with its unique technologies.

1-5 ROE Analysis

*Rounded to the nearest unit.

The rise in ROE in the Fiscal Year 2020 is attributable to the increase in net profit due to the posting of a gain on the sale of investment securities of 6.5 billion yen and an insurance amount received of 2.7 billion yen as extraordinary profit. As a result, ROE declined in the Fiscal Year 2021. It is hoped that the ROE will continue to improve.

2. Results for the Fiscal Year 2021

(1) Consolidated business results

*Unit: million yen. Revision forecast ratio is the increase/decrease of actual results compared to the forecasts announced in February 2022.

Sales and profit grew, exceeding the forecast.
Sales increased 6.8% year on year to 84.1 billion yen. Although the impact of the COVID-19 remained, sales increased except for glass fiber for industrial materials. Operating profit increased 21.9% year on year to 7.3 billion yen. The company continued to invest in strengthening the foundation, and the increased sales of flat fibers, Special Glass, and in vitro diagnostic reagents as well as the structural reforms in the composite materials and Textiles Businesses contributed to the overall sales growth. Net profit decreased 19.5% year on year to 6.5 billion yen due to the reaction to the gain on sales of noncurrent assets and investment securities in the previous fiscal year. Both net sales and operating profit exceeded the forecasts announced in February 2022. On a quarterly basis, net sales are recovering steadily, but operating profit is flat.

(2) Trend by segments

*Unit: million yen. Total sales mean sales to external clients.
*Ratio to sales: For sales, ratio in total sales. For profit, operating profit margin.

①Glass Fiber Yarn Business
Sales grew, but profit declined.
Composite materials for reinforced plastics, such as those for PCs and automobiles, sold well.
Profit decreased due to transient factors such as periodic repairs of large scale melting furnaces in Japan.

②Glass Fiber Cloth Business

Sales grew, and profit increased.
The sales of Special Glass fiber cloth for electronic materials grew year on year due to strong sales of those for data centers and semiconductor packaging. Profit increased despite the rise in foundation enhancement costs, such as an increase in head office expenses.

③Glass Fiber for Industrial Materials Business
Sales and profit declined.
The sales of insulation materials for residential use increased steadily year on year, but the sales of glass fiber cloth for equipment and construction materials declined due to the COVID-19.

④Life Science Business
Sales and profit increased.
*Medical
Sales of in vitro diagnostic reagent recovered to levels exceeding those before the COVID-19 pandemic, both in Japan and overseas
*Beverages
Although the effects of changes in consumer purchasing practices such as the establishment of telework remained, consigned production of beverages improved.

⑤Textiles Business
Sales grew, and loss shrank.
The harsh environment continues, but market conditions are improving with the increasing opportunities to go out. Interlining sales increased year on year. Nittobo Advantex Co., Ltd., a new subsidiary that integrally manages the development, manufacture, and sales of adhesive interlinings, started business operations in July 2021, and structural reforms progressed as planned. As a result, profits improved.

(3) Financial standing and cash flows

◎Balance Sheet

*Unit: million yen

Total assets increased 2.6 billion yen from the end of the previous fiscal year to 187.3 billion yen, due to the increase in tangible assets.
Total liabilities decreased 3.6 billion yen from the end of the previous fiscal year to 76.7 billion yen, due to the decline in income taxes payable. Net assets rose 6.2 billion yen from the end of the previous fiscal year to 110.6 billion yen, as retained earnings increased.
As a result, capital-to-asset ratio rose 2.8 points from the end of the previous fiscal year to 56.5%.

◎Cash Flows

*Unit: million yen

Operating CF shrank year on year due to a decrease in net profit before taxes and other adjustments. The revenues from sale of investment securities and non-current assets decreased, and investing CF and free CF turned negative. Cash position declined.

(4) Topics

◎ Complying with the TCFD recommendations
In May 2022, the company announced its agreement with the recommendations of the TCFD (Task Force on Climate-related Financial Disclosures).
The company disclosed vital information on climate change regarding the four items recommended by TCFD as follows.

1.Governance.
In April 2021, the Nittobo Group established the Sustainability Committee, chaired by the Director, Representative and Chief Executive Officer, to promote efforts to tackle climate change. The Sustainability Committee meets quarterly to formulate activity plans and manage their progress on gathering information on climate change issues, assessing risks, developing countermeasures, and promoting in-house education and awareness programs. Important matters discussed by the Sustainability Committee will be reported to the Board of Directors and discussed, as necessary.

2.Strategy (opportunity and risk)
The company will analyze the climate change's impact on all projects by 2030 with reference to scenarios drawn by specialized agencies such as the IPCC (Intergovernmental Panel on Climate Change) and the IEA (International Energy Agency). The risks posed by climate change can be divided into the risks associated with transitioning to a low-carbon society (transition risk) and the physical impact (physical risk). Assuming a scenario in which the earth's average temperature rise is less than 1.5℃ or 4℃ from the period before the Industrial Revolution, the items that are considered to have a high impact on opportunities and risks are identified.

（Source: the company）

Details of the scenario analysis can be found in "Initiatives in Support of the TCFD Recommendations" on the company's website.
Initiatives in Support of the TCFD Recommendations
https://www.nittobo.co.jp/eng/environment/tcfd.htm

3. Risk management
The Sustainability Committee and the Risk Management Committee formulate plans and manage the progress of CO2 emission reduction across the group.
Opportunities and risks due to climate change are identified and analyzed to determine and assess the impact of climate change on businesses. Based on that, the Sustainability Committee and the Board of Directors take appropriate action as necessary.

4. Indicators and goals
The Nittobo Group has set "supplying products and services that help resolve energy and environmental issues" and "adapting to climate change and a resource-recycling society" as social issues that are prioritized through corporate activities and is working to reduce the business activity impact on climate change and prevent global warming by improving productivity, promoting energy-saving activities, efficiently using energy through recycling, and utilizing solar power generation. To achieve carbon neutrality in 2050, the company will promote efforts to contribute to the decarbonization of society as a whole by the supply chain through all measures.
<Reduction of CO2 emissions>
FY2050 Goal: Achieve carbon neutrality
FY2030 Goal: Reduce CO2 emissions by 30% (compared to FY2013)

3. Forecast for the Fiscal Year 2022

(1) Earnings forecast

*Unit: million yen. The forecasted values were provided by the company.

Net sales and operating profit are estimated to increase
Net sales are expected to rise 14.2% year on year to 9.6 billion yen, operating profit is projected to increase 0.4% year on year to 7.3 billion yen and ordinary profit is forecast to decrease 0.8% year on year to 8.0 billion yen.
Amid uncertainties such as rising global energy prices due to the Russia/Ukraine issue, lockdowns in China, semiconductor shortages, and supply chain disruptions, the company expects the full impact of higher electric fuel costs in composite materials and Glass Fiber for Industrial Materials businesses to be felt. Operating profit is expected to remain mostly unchanged from the previous year overall, thanks to cost reductions and sales price, as well as the effect of yen depreciation in the foreign exchange market, although higher sales of Special Glass and in vitro diagnostic reagent will contribute to the full impact of higher raw material and fuel costs.
The company plans to pay a dividend of 45.00 yen per share, unchanged from the previous fiscal year. The expected payout ratio is 23.3%.

(2) Forecast by Segment

Business Environment Outlook for the FY 2022

（Source: the company）

*Unit: million yen. Total sales mean sales to external clients.
*Ratio to sales: For sales, ratio in total sales. For profit, operating profit margin.

Net sales are expected to increase year on year except for textiles business.
Sales of glass fiber yarn business are predicted to improve, but profits will decrease.
Sales and profits of glass fiber cloth will increase by double digits in this term as well.
Sales and profits will also grow in the life science business.

(3) Progress of the Mid-Term Business Plan

①Initiatives for the Fiscal Year 2021
The following are the Mid-Term Business Plan's priority strategies and initiatives.

In Fiscal Year 2021, the following progress was made in each of the key strategies.

*Growth Strategy Implementation
Steady progress is being made in laying the groundwork for high value-added products, with the new NE-glass Yarn factory in Taiwan began operations in 2021, and plans to increase glass fiber’s capacity for semiconductor package substrates in Japan, as well as to expand the U.S. base for medical products in 2022.
In terms of strengthening the development of next-generation Special Glass, customers are currently conducting final evaluations of next-generation low-dielectric glass, and mass production is scheduled to begin in the near future.
Customer solution activities were promoted, including the expansion of regular technical meetings.

*Management Foundation Reinforcement
Structural reforms are yielding results. In the composite materials business, while the Fukushima Factory’s facilities were downsized, the Fuji Fiber Glass facilities were expanded, resulting in improved productivity and cost reductions. In Textiles Business, the company promoted cost structure reforms, including the withdrawal from the Niigata Factory and the spin-off of the Itami Factory.
Task force activities were promoted to reinforce cost reduction.
In the area of DX promotion, the company started literacy training mainly for young engineers, and also began preparations for implementation in electric furnaces.

*Actions for Environment Issues
The promotion system was strengthened.
The Sustainability Committee, chaired by the Director, Representative and Chief Executive Officer has begun its activities. The committee has centralized the planning and formulation of initiatives to solve environmental issues and their progress management. The TCFD will work on specific themes such as reducing CO2 emissions, promoting recycling and reuse, and developing environmentally friendly products.
The committee expressed its support for the TCFD recommendations.

*Human Resources Development
With regard to human resource development, efforts were made to improve internal communication, including the institutionalization of monthly 1-on-1 meetings between supervisors and subordinates.
Regarding the promotion of diversity and inclusion, the ratio of female managers increased.
In addition, the company promoted work-life balance by introducing telework.

②Major Growth Investments
Major growth investments from the previous fiscal year to the current fiscal year are as follows.
*Increased production of T-glass yarn at factories in Fukushima City and Koriyama City. Conversion of composite gas furnace to Special Glass electric furnace.
*Expansion of Special Glass production capacity by launching a new plant at NITTOBO ASIA Glass Fiber Co. Ltd.
Expanded ultra-thin and Special Glass weaving capacity at Baotek, Taiwan, and promoted value-added production.
Constructed a new building at Nittobo America Inc. in the U.S.

③ Segment Profit Outlook
As a result of the implementation of these growth strategies and structural reforms, the company aims to achieve an overall operating profit of 14 billion yen in the Fiscal Year 2023.

＊Unit: billion yen. Change and CAGR are comparisons between FY2020 actual and FY2023 target. CAGR was calculated by Investment Bridge Co., Ltd.

④ Future Initiatives
Future initiatives and policies are as follows.
-As the sophistication of communication infrastructure and edge equipment accelerates, the company will continue to grow the fields where it can utilize the Nittobo Group's strengths in the medium to long term.
-Will be flexible on the priority of measures according to the current business environment, but the policy for establishing a medium- to long-term growth base remains unchanged.
-The Nittobo Group will strive to have the largest share in the global niche market to achieve medium- to long-term growth.

4. Conclusion

Although the business environment was characterized by many negative factors, such as a shortage of semiconductors and soaring raw material prices, the company achieved better-than-expected results in Fiscal Year 2021.
In Fiscal Year 2022, the company expects both sales and profit to increase for the full year, and plans to increase sales in the second half of the year.
Although there are still many uncertainties, we will keep a close eye on the company's ability to steadily achieve these figures. We would like to keep an eye on the Mid-Term Business Plan initiative progress in this field, too.

＜Reference1：[Big VISION 2030] and The New Mid-Term Business Plan (FY 2021-FY 2023)＞

【1　Big VISION 2030】

Aiming for sustainable growth and the realization of a prosperous society as a corporate group that creates a healthy and comfortable living culture for the next 100 years while responding to the rapid changes in the business environment, Nittobo Group set the [Big VISION 2030], which defines the group’s vision for 2030.

Nittobo Group’s vision in 2030 [Big VISION 2030]

Addressing various issues relating to the business environment, such as global warming, the aggravation of environmental problems, the arrival of an ultra-smart society (acceleration in communication and evolution of AI technology), and problems relating to social structure (decreasing birthrate, aging population, and other population problems), they offer products and services that contribute to “Environment/Energy,” “Digital Society,” and “Healthy/Security/Safety,” which help realize a sustainable society. They aim to continue to produce No.1 products in the global niche market, so that the group will be recognized as worthwhile by all stakeholders.

The No.1 positions the company aims to achieve are as follows.
＊To be the No. 1 sensitive company by listening to, grasping and responding swiftly to the demands of the market
＊To be the No. 1 company providing high value-added products that match the market needs by refining and tempering its own technology

In detail, they have refined their core competence regarding each business and set the following goals.

【2 New Mid-Term Business Plan (FY 2021 – FY 2023)】

(1) Positioning
The New Mid-Term Business Plan will be the first stage for executing long-term strategies for actualizing the ideal state in 2030 [Big VISION 2030], while following the policy set in the previous Mid-Term Business Plan for the Fiscal Year 2023, which will mark the 100th anniversary of business start-up. As a milestone, the company disclosed concrete measures and financial goals for 3 years from FY 2021 to FY 2023.
In addition, they announced measures for addressing environmental issues as social issues and set environmental goals toward 2030.

(2) Basic strategies for 2030
Basic strategies for each stage leading up to [Big VISION 2030] are as follows.

(3) Priority strategies and initiatives in the New Mid-Term Business Plan
The following four items were stated.

（4）Financial goals
◎Overall

＊Unit: billon yen. CAGR was calculated by Investment Bridge Co., Ltd.
＊Figures were rounded to the closest unit.

◎Segments

＊Unit: billion yen. CAGR was calculated by Investment Bridge Co., Ltd.

(5) Detailed Strategies in the New Mid-Term Business Plan
① Growth Strategy Implementation
【Glass Fiber】
◎ Growth Strategy
In response to the expanding 5G market, the company aims to expand the sales for glass fiber, which is its leading high value-added product.

With the rise in demand for 5G, the demand for NE-glass (with low dielectric properties) is increasing.
Currently, facility for infrastructures such as data centers, NE-glass cloth has been adopted for antenna modules of 5G terminals, and it has also begun to be deployed in edge devices connected to the Internet, such as smartphones and tablets.
Furthermore, the demand for T-glass (with low thermal expansion properties) cross is increasing for semiconductor packages such as CPUs for servers and GPUs for AI, and the company will rigorously take in these demands related to high-speed communications.

◎ Responding to 5G Roadmap
With the growing needs for the high-speed communications from cellphones to cars and industrial fields, 5G devices are expected to become even more high-functioning.
The company is one of the few self-contained manufacturers in the world that designs and develops glass compositions, and manufactures yarns and cloths all by itself. By taking advantage of this strength, the company can continuously develop the next-generation products that are needed to advance the communication technologies.
The New Mid-Term Business Plan aims to develop these next-generation low-dielectric glass and put it in mass production.

◎ Adding higher values to production bases
The company expects demands to remain high during the New Mid-Term Business Plans, and will continue to expand its production capacity of Special Glass. The company will increase the production ratio of high value-added products by adding the Special Glass melting furnaces and installing mass production facilities for the next-generation Special Glass to the surplus spaces generated by optimizing the production systems as part of the structural reforms of composite materials. In addition, by establishing an integrated yarn-to-cloth production system of Special Glass in Taiwan – the hub for electronic materials – and establishing the Special Glass production sites in Japan and Taiwan, the company plans to enhance the value-added product composition in Taiwan while strengthening its response capacity to risks such as natural disasters and improving competitiveness.

◎ Boosting sales for high value-added products
The company plans to increase the production capacity of Special Glass (NE-glass yarn, T-glass yarn) by about 90% over three years compared to the end of Fiscal Year 2020, and increase the ratio of high value-added products such as Special Glass, ultrafine, ultra-thin, and flat fibers in the Glass Fiber Yarn Business and Glass Fiber Cloth Business.
The company plans to double the sales for the Special Glass yarn and cloth products compared with Fiscal Year 2020.
In addition, the New Mid-Term Business Plan will witness the input from the next-generation Special Glass to begin, which will contribute to the expansion of high value-added products.

【Life Science (in-vitro diagnostic reagents)】
As a long-term goal, the company plan to make this area the second pillar after glass fiber.
On the back of its aggressive investments over the past four years, the company aims to become the world No. 1 company in the field of immune system plasma protein diagnostics, taking advantage of global vertical integration from antisera to reagent manufacturing and sales.

The company’s specific development and sales strategies are as follows.

In order to strengthen its global marketing strategies, the company set up the Marketing Strategy Department under the direct control of the General Manager of the Medical Division on January 1, 2021. The new department’s key mission is to promote sales in the growing Asian market, and specifically, the company will strengthen its capacities to find new themes, create strategic business growth opportunities, and build new business models.

【R&D System】
The digital and environmental technologies are the main pillars of R&D in the New Mid-Term Business Plan.
The company will strengthen its company-wide and long-term initiatives with its new research site Ni-CoLabo completed in April 2020 at the core.

The “DX-Strategy Office” was established to promote the use of digital technology through the company.
Its aim is to analyze the big data obtained from the company operations as well as improving productivity through AI utilization and the company plans to implement them in the operation of glass melting furnaces within three years

The “Environment Technology Strategy Office”, established to adopt and evaluate environmental technologies, provides technical support mainly under the “Sustainability Committee” chaired by the CEO, including the introduction of new technologies and the search for the use of external technologies, with the aim of achieving the goals of CO2 reduction and recycling promotion.

The company also set up the “Medical SC Newtech Strategy Office” to explore the new regions in the medical field.

Other areas on which the company will focus include: the development of company-wide technical human resources, intellectual property strategies utilizing IP (intellectual property) landscapes, and the promotion of science and technology to the local youths.

The company plans to spend a total of 7.2 billion yen over three years on R&D during the New Mid-Term Business Plan, mainly for Glass Fiber and Life Sciences.

② Management Foundation Reinforcement
◎ Structural reforms in the composite materials business
The company’s basic strategies are “optimizing the production structure and improving cost competitiveness” and “Develop the use of high value-added products and focus on developing new product development (upgrading product composition).”

• Optimizing production structure and improving cost competitiveness
The company will reduce its composite materials facilities at the Fukushima Factory and expand the production system at the Fuji Fiber Glass in order to streamline the business management based on the appropriate capacity of its composite materials business. The company is considering adding a Special Glass melting furnace to the surplus space generated at the Fukushima Factory.

• Develop the use of high value-added products and focus on new product development (upgrading product composition)
The company will focus on expanding the use of high value-added products (FF etc.) through the utilization of external marketing organizations and the expansion of its product lineup, and drive market expansion.
As for specific product applications, the company believes that this is an area where the opportunities will increase as the weight-reduction trend of cars and aircrafts continues from the global environmental perspectives such as energy saving and CO2 emissions reduction, and the company will push on with developing its unique new products and expansion of applications of existing high value-added products by accurately grasping the market’s needs.
The company will also accelerate R&D for the development of high-function resins (super engineering plastics).

◎ Structural reforms in the Textiles Business
The company’s basic strategies are “restructure the interlining business” and “withdraw from the raw yarn business.”
• Restructure the interlining business”
Since the company owns the unique, core technical capabilities in its interlining business and currently has a relatively high domestic market share, it was deemed that the business can continue if the company can establish the system which can respond positively and flexibly to customer needs. The company will convert its adhesive interlining business into the “adhesive materials business” and develop products for industrial and living materials as well as clothing utilizing its own adhesive technologies.
In order to give management even more mobility, the interlining business was separated from the Nittobo main body and transferred to “Nittobo Advantex Co., Ltd. (NAT)”, a subsidiary established in April 2021. The employees in the interlining business were transferred to a new subsidiary accordingly.

• Withdraw from the raw yarn business
The company made the decision to withdraw from this business area as it had become increasingly difficult to generate profits due to the intensified competition from overseas products as well as the aging factory buildings and facility. Accordingly, Nittobo Niigata Co., Ltd. (NNK) was dissolved at the end of Fiscal Year 2021.
The manufacturing and sales for “Nittobo’s dishcloth” will be transferred to the newly established subsidiary that inherits the interlining business.

◎ Improving capital efficiency
The company aims to improve capital efficiency by using ROE and ROIC as KPIs, while working to “improving profitability/efficiency” and “securing financial soundness.”

To “improving profitability and efficiency,” the company will increase operating profit/EBITDA, earn operating CF that can cover investments, generate CF from past investments, and reduce costs and working capital. The company is looking to achieve a surplus in the 3-year total of Free CF.
By “improving profitability and efficiency,” the company will create further business growth through high value-added products.

To “securing financial soundness,” the company focuses on financial discipline, reduce assets, and strengthening its cash management capabilities, thereby suppressing in interest-bearing debts.
The company aims to evolve into a lean business entity (secure resiliency) by “securing financial soundness.”

③ Shareholder Return Policy
Currently, the company is implementing shareholder returns with an emphasis on stable growth, but in the medium term, the company will move to a payout rate of 30% as a guide on steady earnings from Fiscal Year 2023, when the company are on a profit growth trajectory.

④ Actions for Environment Issues
The company takes its responsibility to address environmental issues seriously.
To ensure its environmental targets are being met, the company will set up the Sustainability Committee in order to understand and promote its initiatives to solve environmental issues and make decisions quickly as a whole.

Specific initiatives and goals are as follows.

⑤ Human Resources Development
The company will “improve employee engagement” by fostering an organizational culture in which employees can work in a positive environment and achieve results through “foster human resources for innovation” and “facilitate diversity and inclusion,” which are the foundations to secure technological innovations and business growths.

The company aims to improve employee engagement by more than 30% in the 2023 score index compared to 2019.

⑥ Corporate Governance
The form of organization is a company with nominating committees, which comprises seven persons, including four external directors.
In addition to holding a prior reporting session of the Board of Directors to deepen the understanding of pressing issues and further enhance deliberations, the company is further improving the oversight function of the Board of Directors and strengthening its corporate governance system by introducing an effectiveness evaluation of the Board of Directors.

The Board of Directors is composed of internal directors with the knowledge of individual businesses and the general management, and the majority external directors who can offer discussions from multifaceted perspectives. One of the four external directors is female. They are respectively a person with management experience, a public accountant, a tax accountant and a lawyer, whose choice reflects the diversity awareness of the company, and helps to deepen their discussions on management policies, long-term strategies, and other issues from wider perspectives.

<Reference2: Regarding Corporate Governance>

◎Organization type, Directors, and Auditors

◎Corporate Governance Report
Updated on October 4, 2021

<Basic Policy>
Our Group aims to establish a fair and transparent management system in order to conduct business activities that put importance onto social trust from our stakeholders including shareholders and investors and undertake constant review of corporate governance.
Our company introduced an executive officer system in June 2003 with the intention to make the Board of Directors more effective and expedite decision-making. As a result, a system which maximizes the effect of consolidated management has been established. Since June 2008, the business has been operated with further clarification of functions and responsibilities for business administration and business execution. Having received an approval at the ordinary general meeting of shareholders on June 26, 2014, our company has shifted to a company with committees (currently, a company with nominating committee, etc.). In the new form, our company clearly separates supervising and business execution even further and aims at “supervisory functions reinforcement and transparent business administration” and “swift execution of business and improvement of management mobility.” Our company has also built functional systems, which allow us to respond more effectively to expectations of our stakeholders including our customers, shareholders, business partners, and employees and promotes further improvement of the corporate value.

<Reasons for Non-compliance with the Principles of the Corporate Governance Code>
All Principles of the Corporate Governance Code that were revised in June 2021 are implemented.

<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>

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