Nippon Sheet Glass : Medium-term Plan (MTP) Phase 2 Financial Strategy (Issuance of JPY40 billion Class Shares)

GROUP

(Issuance of JPY40 billion Class A Shares)

2 February 2017 Nippon Sheet Grass Co., Ltd.

• Summary of MTP Phase 2

• Financial Strategy

• Delivery of MTP Phase 2 Targets

• Summary

  2 February 2017

  FINANCIAL STRATEGY

  3

  Summary of MTP Phase 2

  Long-term Strategic Vision

  MTP

  • Achieve financial sustainability

  • Transform into VA Glass Company

  Sustainable

  growth

  Achieved

  • Restructuring to restore profitability

Restored profitability

• Operational efficiency improvement

• Exit from unprofitable businesses, etc.

• Increased VA ratio

  4 Key Measures

  • Drive VA No.1 Strategy

  • Establish growth drivers

  • Business culture innovation

  • Enhance global management

  Establish stable financial base

  After MTP

  • Top-line growth based on financial sustainability

    FY12-FY14 FY15-FY17 Phase 2

    FY18-FY20

    FY21-

    More focused strategy and proactive measures to ensure the delivery MTP targets

    2 February 2017 FINANCIAL STRATEGY

    4

    MTP Phase 2 Measures to Deliver Targets

    • Achieve financial sustainability

    • Start transformation into VA Glass Company

    Establish stable financial base

    Four Key Measures

    • Drive VA No.1 Strategy

    • Establish growth drivers

    • Business culture innovation

    • Enhance global management

    Issuance of Class A Shares

    Class A Shares to be issued to expedite establishment of stable financial base and execute key measures

    2 February 2017 FINANCIAL STRATEGY

    Purpose of Issuance

    • Purpose of Issuance of JPY40 billion Class A Shares

      • Enhance shareholders' equity and increase financial stability in view of volatility and uncertainty in the environment

      • Secure fund for investment to execute VA No.1 Strategy

        Drive VA shift with securing investment

        Improve financial stability and reduce interest expenses

        Purpose of Issuance

        x

        VA Shift

        Financial Sustainability

        Aiming for financial stability and profitability improvement at the same time

        2 February 2017 FINANCIAL STRATEGY

        Summary of Issuance

        • Summary

          Amount	JPY40 billion
          Planned Allottees	Japan Industrial Solutions*1 (Funding by Development Bank of Japan, Mizuho Bank, Sumitomo Mitsui Banking Corporation, Mitsubishi Tokyo UFJ Bank） UDS Corporate Mezzanine Fund*2 (Funding by Development Bank of Japan, Sumitomo Mitsui Banking Corporation ）

        • Timeline

          • Extraordinary General Meeting of Shareholders: 24 March 2017

          • Issuance of Class A Shares: 31 March 2017

            *1： Japan Industrial Solutions No.2 Limited Partnership

            *2： UDS III Corporate Mezzanine Limited Partnership UDS IV Corporate Mezzanine Limited Partnership

            Balance sheet to begin improving at the end of FY17

            2 February 2017 FINANCIAL STRATEGY

            • More detail on slide 18

              Equity Enhancement

              MTP Phase 2 (original assumption):

              • Incremental enhancement of equity with profit generation

            Share Issuance:

            • Earlier equity enhancement

            • More robust equity after class shares' redemption with cumulative

              Equity

              Ratio 20%

              Cumu- lative

              profit

              自己資本

              Class

              shares JPY40

              bn

              Cumu-

              Equity

              Ratio 20%

              Equity

              Ratio 12%

              profit JPY50-

              60bn

              比率

              12%

              Class

              shares JPY40

              JPY

              91.2bn

              bn

              lative

              profit JPY50-

              60bn

              Dec 2016

              Q4 FY17

              Outlook

              MTP

              Target

              Dec 2016

              Q4 FY17

              Outlook

              Q4 FY20

              Forecast

              JPY

              91.2bn

              Forecast after redemption

              * Equity amount excluding non-controlling interests

              Earlier equity enhancement to manage business risks

              2 February 2017 FINANCIAL STRATEGY

              Net Debt & Interest Expense

              MTP Phase 2 (original assumption):

              • Incremental debt reduction with free cash flow

            Share Issuance:

            • Earlier reduction of interest expense with debt pay-down

            • Lower spread for borrowings based on improved balance sheet

            • Redemption with free cash flow

              Class shares

              FCF

              JPY 371.7

              bn

              Less than JPY 370 bn	FCF
              	JPY300 bn or less

              JPY 371.7

              bn

              Less than JPY 330

              bn

              JPY 260

              bn or less

              JPY 300

              bn or less

              Dec 2016

              Q4 FY17

              Outlook

              MTP

              Target

              Dec 2016

              Q4 FY17

              Outlook

              Q4 FY20

              Forecast

              Forecast after redemption

              Earlier reduction in debt and interest expense. Expected borrowing spread improvement

              2 February 2017 FINANCIAL STRATEGY

              Redemption - Delivery of Phase 2

              • Objectives

                • Achieve financial sustainability

                • Start transformation into VA Glass Company

              • Financial Target (FY20)

                • ROS: 8%*

                • Net debt / EBITDA: 3x

              • Key Measures of MTP Phase 2 (FY18 - FY20)

                • Drive VA No.1 Strategy

                • Establish Growth Drivers

                • Business Culture Innovation

                  No change in MTP Targets or Key Measures, aiming for cash redemption of Class A Shares with robust delivery of MTP

                • Enhance Management Approach

                  2 February 2017 FINANCIAL STRATEGY

                  *Profit before depreciation of non-tangible assets

                  MTP Phase 2: Four Key Measures

                  Drive VA No.1 Strategy

                • Win leading position in the areas with "high growth potential" and "core strength"

                • How：

            －Focus resources on VA shift in the areas where NSG technology and brand have the biggest advantage

            －Enhance customer relationship, build strategic

            Establish Growth Drivers

            • Launch multiple, promising growth drivers

            • Target areas:

              －Architectural Glass (energy-save/generation, health, design)

              －Automotive Glass (ADAS, connected, UV/IR shield, light-weight)

              －Technical Glass (new products/applications

              alliance

              Online coating

              Vacuum glazing

              High- precision press

              with proprietary technology)

              Energy saving & generation

              VA Glass

              ADAS

              Information Communication

              Customer- oriented R&D

              & marketing

              Lean structure, manufacturing

              Company

              Rapid decision-

              making Cost

              reduction

              Business Culture Innovation

              • Build leaner business structure

              • How：

                －Optimize all work processes

                －Enhance manufacturing excellence in each region

                －Optimize global R&D with customer viewpoints

                －Strengthen customer-oriented marketing

                Enhance Global Management

            • Advance global management to achieve the Group's optimization

            • How:

            －Drive talent development, promote diversity

            －Enhance faster decision-making with flexible organization management

            －Continue to reduce cost across the Group

            2 February 2017

            FINANCIAL STRATEGY

            11

            Topline Growth in MTP Phase 2

            Topline Growth

            ・Annual revenue growth with increased VA sales  3%

            ・Annual organic growth  1%

            VA Ratio

            40+%  50% or more

            • VA growth potential in Europe/Japan

            • Energy-saving applications & high- functionality for automotive glass

            • coated glass expansion

            2 February 2017

            FINANCIAL STRATEGY

            Trading Profit & ROS Improvement

            ROS

            8% or more

            Increase profit during 3-year period of MTP Phase 2
            Improve sales mix and volume with increased VA share	70%
            Improve operational productivity, reduce overhead and direct costs	30%
            Energy cost increase & inflation

            Trading Profit

            ROS 6%

            Trading Profit

            JPY34bil

            FY17 Q4

            Outlook

            JPY

            50 -60bil

            MTP

            Target

            Profit improvement with VA ratio increase and cost reduction during MTP Phase 2

            2 February 2017 FINANCIAL STRATEGY

            Finance Expense Reduction

            • Part of issuance proceeds to be used to pay down debt for early reduction of interest expense

            • Balance sheet enhancement expected to improve borrowing terms

              • Lower spread

              • Longer borrowing term (higher stability)

              • Partial earlier refinancing in FY17 of FY18 or onward portions

            • Reduction of annual interest expense by JPY5 billion by FY20, partly based on debt reduction

            JPY bn

            20

            0

            Finance expense JPY18bn

            Debt reduction

            Lower spread

            Finance expense JPY13bn

            FY17 FY20

            Redouble finance expense reduction efforts

            2 February 2017

            FINANCIAL STRATEGY

            Investing in VA

            • Continue to maintain capital spending

            • Selectively invest in the following:

              Architectural Glass

              • To cope with growth of online-coated products (low-E glass, solar glass, TCO coated glass)

              • Processing equipment for energy-saving products (SPACIA® etc.)

              • VA improvements of furnace (low iron glass etc.) Automotive Glass

              • ADAS-related technology and production facility

              • Environmental conscious products (light-weight glass etc)

                Technical Glass

              • New products based on core technologies

                JPY20 billion of proceeds to be used for VA-related investment

                2 February 2017

                FINANCIAL STRATEGY

                15

                Summary

            • To issue JPY40 billion Class A Shares, subject to resolution at the extraordinary shareholders' meeting

            • To aim for earlier financial stability and profit improvement with expedited debt reduction and equity enhancement

            • To secure fund for VA related investment at the same time.

            • To redeem Class A Shares with cash to be generated by executing the key measures under MTP Phase 2

            2 February 2017 FINANCIAL STRATEGY

            Appendix Class A Shares Detail

            Amount (No of Shares)		JPY40 billion (40,000 shares)
            Planned Allottees (Amount & No of shares)		Japan Industrial Solutions Fund II UDS III Corporate Mezzanine Limited Partnership UDS IV Corporate Mezzanine Limited Partnership			JPY20 billion (20,000 shares) JPY10 billion ( 9,000 shares) JPY10 billion (11,000 shares)
            Voting Rights		None
            Preferred dividend rate (Cumulative)		31 March 2017 ~ 31 March 2018 1 April 2018 ~ 31 March 2020 1 April 2020 ~	4.5% 5.5% 6.5%
            Call option (Comp- any's option)	Consi- deration	Cash		Put option (Planned Allottees' option)	Consi- deration	Ordinary Shares
            	Redemp -tion	1 April 2018 or later			Redemp- tion	1 July 2020 or later, unless conversion restriction removal reason exists
            	Redemp- tion Amount per share	Paying-in amount per share + cumulative accrued dividend amount + daily prorated accrued preferred dividend amount + redemption premium			No. of Ordinary Shares to be Issued per Class A Share	(Paying-in amount per share X ordinary share redemption premium) + acquisition price
            		1 April 2018 ~ 30 June 2018 1 July 2018 ~ 30 June 2019 1 July 2019 ~ 30 June 2020 1 July 2020 ~ 30 June 2021 1 July 2021 ~ 30 June 2022 1 July 2022 ~	: 1.08 : 1.15 : 1.22 : 1.29 : 1.36 : 1.43			1 April 2017 ~ 30 June 2017 1 July 2017 ~ 30 June 2018 1 July 2018 ~ 30 June 2019 1 July 2019 ~ 30 June 2020 1 July 2020 ~ 30 June 2021 1 July 2021 ~ 30 June 2022 1 July 2022 ~	: 1.05 : 1.08 : 1.15 : 1.22 : 1.29 : 1.36 : 1.43
            Design

            • In principle, the Planned Allottees may not exercise their put option before 1 July 2020.

            • The Planned Allottees may exercise their put option for 4,000 or less Class A Shares, when the Company notifies the exercise of its call option for the entire outstanding Class A Shares.

            2 February 2017

            FINANCIAL STRATEGY

            Reference: VA related investment Online Coated Products

            Market	Application	Function / usage	Our product
            Architectural	Eco glass IGU	Low-E coat	Energy Advantage™
            Architectural	Windows, showcase	Anti-reflection view	OptiView™
            Architectural	Windows	Reflective coat	Reflite™
            Solar	PV panel	Conductive & anti-reflection	NSG TEC™
            White goods	Refrigerator	Conductive layer	NSG TEC™
            Digital signage	Touch panel	Conductive layer	NSG TEC™
            Interior	Cover on display	Half mirror	MirroView™
            Switchable	Electro chromic	Conductive layer	NSG TEC™
            Automotive	Car glazing	Low-E / energy saving	(now in R&D)
            Automotive	Car glazing	All-surface heating	(now in R&D)

            Expanding to non-architectural market applications

            2 February 2017 FINANCIAL STRATEGY

            Reference: VA related investment

            ADAS / Sensors

            • WS with camera sensor

            ADAS-related & Environment Conscious Products

            Roof advanced

            • Switchable

            • PV panel

            • Heat insulation, heat block

            Connectivity

            • Glass printed antenna (next gen ITS mode)

            Driving safety

            • Anti-fog coating

            • Hydrophobic coating

            Head-up display

            • 3 dimensional contour control = APBL

            Sophisticated design

            • Complex glass shaping

            • Glass flake products

            Electricity

            • Power design

            • AGM battery

            • LIB separator

              Human health, skin care

              • UV & IR cut coated glass

            Energy saving Heat insulation

            • Low-e glass

            Rubber-made belt for engine & power steering unit

            • Glass cord

              Body light weighting

            • PPS compound with glass flake

            • Thin glass

            Driving comfort

  • Acoustic glass

  • Heat block glass

2 February 2017 FINANCIAL STRATEGY

Note) Red: Automotive glazing Blue: Non-window products

The projections contained in this document are based on information currently available to us and certain assumptions that we consider to be reasonable. Hence the actual results may differ. The major factors that may affect the results are the economic environment in major markets (such as Europe, Japan, the U.S. and Asia), product supply/demand shifts, and currency exchange fluctuations.

Nippon Sheet Glass Co., Ltd.

2 February 2017

FINANCIAL STRATEGY

21

GROUP