Nippon Sheet Glass : NSG Group Medium-term Plan (MTP) Update at FY17 Q2

GROUP

28 October 2016 Nippon Sheet Glass Co., Ltd.

• Key Message

• MTP Progress Assessment

• Key Measures to Achieve MTP Targets

• Summary

28 October 2016

MTP Update @ FY17 Q2 2

• The Group has continuously improved its operating profit since the

  start of the MTP

• However, an additional two years to the original MTP period (FY15- FY18) is needed to achieve the MTP financial targets (ROS: 8%*; Net debt/EBITDA: 3x) due to:

  • Significant changes in the business environment of growth drivers, especially in Display and South America

  • Disparity among the regions in the speed of profitability

    improvement

• The original MTP financial targets remain unchanged; the Group will designate the three years from FY18 to FY20 as MTP Phase 2 to execute measures to achieve the targets

• During MTP Phase 2, the Group will drive the "VA No.1 Strategy", "Establishment of Growth Drivers", "Business Culture Innovation" and "Enhancement of Global Management" to achieve the MTP targets as well as to continue to improve its financial position and

accelerate growth

• ROS: return on sales (Operating Profit before amortization and exceptionals)

  28 October 2016 MTP Update @ FY17 Q2 3

  Long-term Strategic Vision

  Long-term Strategic Vision:

  Transform into "VA Glass Company"

  Strategic Intent

  • Transform the whole Group structure into "VA-ready" while

    increasing the VA ratio in the Group's sales

    Objectives

  • Consolidate our trusted reputation as a glass specialist

  • Work closely with customers worldwide to offer unique value through our products and services

  • Transform business structure from a traditional model to a value- added model

* VA: Value-added

28 October 2016 MTP Update @ FY17 Q2

Announced 15 May 2014 4

Long-term Strategic Vision

Achieved

• Our restructuring programs over the past two years have restored profitability

MTP

• Establishing a sound financial position is the main objective

• Continue to maintain focus on profit improvement

• Increase VA ratio

  After MTP

• Financial sustainability will establish basis for top-line growth

  Profitability Restored Financial Sustainability Sustainable Growth

  FY12-FY14 FY15-FY18 FY19 -

  28 October 2016 MTP Update @ FY17 Q2

  Announced 15 May 2014 5

  MTP: Targets and Action Plan

  • Target

    • Achieve financial sustainability

    • Start transformation into VA Glass Company

      • Net debt / EBITDA: 3x

        • ROS: 8%*

  • Action Plans to achieve targets

    • Increase value-added product share

    • Maximize utilization of existing assets

  • Approach

    • Architectural + Automotive: improve profitability

    • Technical Glass: grow with existing businesses and new products, focus on R&D

*Operating Profit before amortization and exceptionals

Establish financial sustainability and start transformation into VA Glass Company

28 October 2016 MTP Update @ FY17 Q2

Announced 15 May 2014 6

Accelerating VA shift

VA ratio in total sales

Architectural Glass + Automotive Glass (OE) + Technical Glass

Approximately

1/3

(FY14)

VA ratio

Aiming for

or greater

(FY19-)

Steady increase in VA ratio

28 October 2016 MTP Update @ FY17 Q2

Announced 15 May 2014 7

Target Net debt/EBITDA: 3x

EBITDA expansion

Capex

Free cash flow increase

Net debt

decrease

Finance cost reduction

Selected asset disposals

Working capital reduction

Positive spiral leads to achievement of targets

Improve financial position

28 October 2016 MTP Update @ FY17 Q2

Announced 15 May 2014 8

Despite some upsides, significant downsides

28 October 2016 MTP Update @ FY17 Q2 9

VA shift progressing on plan but regional difference in profitability and balance sheet challenges remain

28 October 2016 MTP Update @ FY17 Q2 10

Achievements and Challenges by Region & Business

Arch: Improved demand/supply Auto: Steady AGR; delayed productivity improvement

Arch: Delayed VA shift Auto: Progress in VA shift & productivity improvement

Arch: Progress in VA shift Auto: Delayed productivity improvement

Display: worsened market Glass cord, etc: steady

Arch: Progress in VA shift Auto: SA market slowdown

MTP actions moving forward despite challenges in regions

28 October 2016 MTP Update @ FY17 Q2 11

Approximately

1/3

(Pre-MTP)

VA ratio

Over

40%

(Present)

VA ratio

Aiming for

1/2

or greater (FY19-)

VA ratio increasing steadily

28 October 2016 MTP Update @ FY17 Q2 12

[KPI trend]

Progress made with all KPIs

[Return on Sales (ROS) by business]

Mixed progress among businesses

Despite mixed progress among businesses, progress being made towards targets

28 October 2016

MTP Update @ FY17 Q2 13

Improvement since the MTP launch but two additional years needed for target delivery

28 October 2016 MTP Update @ FY17 Q2 14

• Continuously improved operating profit

• Capacity utilization improved as planned

• The VA ratio increasing steadily

• Uneven results between regions and businesses

• Priority: Shift into a business structure to enable stable generation of profits

28 October 2016 MTP Update @ FY17 Q2 15

Long-term Strategic Vision

• Establishing a sound financial position is the main objective

• Continue to maintain focus on profit improvement

• Increase VA ratio

Achieved

Restructuring over past two years have restored profitability

• Improved operational efficiency of existing facilities

• Divested unprofitable businesses

• Increased VA ratio

  • 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

    Restored Profitability

    Achieve Financial Sustainability

    Shift Business toward VA SustainableGrowth

    FY12-FY14 FY15-FY17 Phase 2

    FY18 - FY20

    FY21-

    28 October 2016

    MTP Update @ FY17 Q2 16

    MTP Phase 2: Basic Strategy

    Positioning of MTP Phase 2

    • MTP's main objectives - achieving financial sustainability and developing the Group further toward VA Glass Company - remain unchanged, as the basic conditions for achieving the Long-term Strategic Vision of "Transformation into VA Glass Company"

    • In light of the MTP progress and changes in business environment, the Group will take more focused approach and proactive measures to ensure the achievement of the MTP financial targets

      Basic Policy

    • Accelerate and evolve the VA strategy to build a robust profit base for sustainable growth

    • Review each work process to develop a leaner business structure

Financial Targets (unchanged): to be achieved in FY20

• ROS: 8% or above

• Net debt / EBITDA: 3x

28 October 2016 MTP Update @ FY17 Q2 17

1. Drive VA No.1 Strategy

   • Focus resources on VA shift in the areas with "high growth potential" and "NSG's core strength" to aim for a leading market position

   • Build stronger relationship with customers and speed up

actions while considering strategic alliances

28 October 2016 MTP Update @ FY17 Q2 18

Technical:

Become No.1 or "only one" in global niche areas with NSG's core strength

Technical

Automotive

Architectural

Architectural & Automotive:

Capture expanding customer needs, respond with proprietary technology

28 October 2016

MTP Update @ FY17 Q2 19

1. Establish Growth Drivers

   Accelerate generation of new profitable growth with focus & selection

   Architectural: Realize high VA in energy saving/generation, health/hygiene and design/visibility

   ・Solar glass, coated products SPACIA®

   Automotive: Deliver new values in automated driving & connected cars, UV/IR block and light weight

   ・Complex shape, camera/sensor ready light weight, HUD, heat wave reflection

   wired HWS, anti-fog, glass antennas

   Technical: Generate new businesses in advanced thin glass, communication devices, high-strength glass cord and super glass paper for separator

   Cover glass Communication devices Glass cord Battery separators

   28 October 2016 MTP Update @ FY17 Q2 20

   MTP Phase 2: Key Measures (3)

2. Business Culture Innovation

   • Continue to optimize each work process towards a leaner

     business structure

     • Enhance "monozukuri" - manufacturing excellence

     • Optimize global R&D structure based on customer viewpoints

     • Strengthen customer-oriented marketing

3. Enhance Global Management

   • Advance global management to achieve the Group's optimization

     • Drive talent development, promote employee diversity

     • Enhance faster decision-making with flexible organizational management

     • Continue to reduce cost across the Group

28 October 2016 MTP Update @ FY17 Q2 21

MTP Phase 2: Enhance Business in Regions

Japan
Auto	Arch

Europe
Auto	Arch

Arch: Drive VA Auto: Improve

manufacturing efficiency

North America
Auto	Arch

Arch: Drive VA Auto: Advanced

automotive glazing Arch: Continue growth Auto: Improve manufacturing efficiency

Other (SA/Asia)
Auto	Arch

Technical
Display, Communication devices	Glass cord, Separators

Display: Expand glanova® sales Information devices: Develop market Glass cord: Continue growth Separators: Develop market

Arch: Continue growth Auto: Continue AGR growth, reduce cost

Keep positive momentum in well-performing regions and

businesses, establish and expand new growth drivers

28 October 2016 MTP Update @ FY17 Q2 22

Summary

• An additional two years to the original MTP period is needed to achieve the MTP financial targets

• The original MTP financial targets remain unchanged; the Group will designate the three years from FY18 to FY20 as MTP Phase 2 to execute measures to achieve the targets

• During MTP Phase 2, the Group will drive the "VA No.1 Strategy," "Establishment of Growth Drivers", "Business Culture Innovation" and "Enhancement of Global Management"

• Drive for No.1 position in VA, including coated products and solar glass in Architectural, advanced automotive glazing in Automotive, and glanova®, glass cord and battery separators in Technical to achieve the MTP targets and continue to improve its financial position

28 October 2016 MTP Update @ FY17 Q2 23

GROUP