NGK SPARK PLUG CO., LTD.
Integrated Report 2020

NGK SPARK PLUG CO., LTD.
14-18 Takatsuji-cho, Mizuho-ku, Nagoya 467-8525

https://www.ngkntk.co.jp/english/
Public Relations Dept., Corporate Strategy Gr.
Phone: 81-52-872-5896 Fax: 81-52-872-5951

NGK SPARK PLUG CO., LTD.

Integrated Report 2020
Year ended March 31, 2020

CONTENTS
03

Corporate Message

07

Message from the Chairman

11

Message from the President

1 Morimura Group17

Morimura Group

2 Stories for Value Creation
21
23
25
27
29

History of Challenges and Transformations
Value Creation Process
Businesses Developed over the Years
Assets Built over the Years
Performance Data

3 Growth Strategies
33

Looking Back on Years under the Long-termManagement Plan “NITTOKU SHINKARON”

35

Risks and Opportunities in the External Environment

New Long-term Management Plan
37
43
45

2030 Long-term Management Plan NITTOKU BXNGK SPARK PLUG’s Innovation
The Finance Officer Outlines the Financial Strategy

4 Business Infrastructure to
Support Sustainable Growth
51
55
57
61
65
66
67

Sustainability at NGK SPARK PLUG
Priority Issues
Response to Climate Change and Environmental
Management
Human Resources Development to Ensure
Sustainable Growth
Respect for Human Rights
Proper Procurement
Stakeholder Engagement

Corporate Governance
68
71
75
82
84
85
87

Editorial Policy
NGK SPARK PLUG has been issuing an annual integrated report since 2017 with a view to helping all stakeholders deepen their understanding of its mediumto long-term value creation efforts. This year’s report has been edited with a focus on introducing our newly established long-term plan and vision—2030

5 Business Strategy

Long-Term Management Plan NITTOKU BX and 2040 Vision: “Change drastically beyond the current way”—particularly describing approaches toimplementing and realizing them from financial and non-financial viewpoints.

91
93
95
97

This publication is also intended to serve as a tool to respond to various opinions and inquiries we receive from stakeholders through our business andIR activities throughout the year. We look forward to receiving frank opinions from many people.
Scope and Period Covered
Period covered : FY2019 (From April 1, 2019 to March 31, 2020)
Also includes some information about our FY2020 activities.
Scope covered : NGK SPARK PLUG Group
Also includes some non-consolidated information about NGKSPARK PLUG.

NGK SPARK PLUG Communication
Summary

Guidelines for Reference
The International Integrated Reporting Framework, theInternational Integrated Reporting Council (IIRC);Guidance for Integrated
Corporate Disclosure and Company-Investor Dialogues for Collaborative
Value Creation, the Ministry of Economy, Trade and Industry

DetailAutomotive Components Group Plug business
Automotive Components Group Sensor businessTechnical Ceramics Group
Other businesses

NGK SPARK PLUG Integrated Report

Securities
ReportShareholder Newsletter

Corporate Governance
ReportBusiness Results Briefing
Presentation Materials

CSR website andSustainability Data Book

Financial information

99 Financial Results Highlights for the Past 11 Years
101 Consolidated Statement of Financial Position
102 Consolidated Statement of Profit or Loss
Consolidated Statement of Comprehensive Income
103 Consolidated Statement of Changes in Equity
104 Consolidated Statements of Cash Flows
105 Notes to Consolidated Financial Statements
151 Independent Auditor’s Report
153 Global Network
155 Corporate Profile and Stock Information
156 Independent Verification ReportNon-financial information

https://www.ngkntk.co.jp/english/
This report focuses on the information that is essential for the enhancement of ourcorporate value. For details of our technologies, products and financial affairs, please visit
our website. For detailed information about our corporate social
responsibility (CSR), please refer to the webpages on our CSR activities as well as to our
CSR reports and the Sustainability Data Books.

Forward-looking statements
This report contains forward-looking statements regarding NGK SPARK PLUG’s
future plans, strategies and performance. Please understand that actual results
may differ substantially from these statements.

Interview with Outside Directors
Management System
Corporate Governance System
Risk Management
Information Security
Measures against COVID-19
Compliance

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02

Maintain Our Strengths
The Nittoku Way
The Nittoku Way refers to a set of philosophies based on business mottos cherished by Morimura Gumi,
the founding company of the Morimura Group. The philosophies set forth values to be shared by the entire NGK SPARK PLUG
Group and a guide to actions to be taken in line with the values.
About the Morimura Group, see ⇒ P.17

Corporate Philosophy
Corporate
Philosophy

Corporate Message

CSR andSustainability CharterLong-termManagement
Plan

IGNITE Your drive, dreams and SPIRIT

Medium-termManagement
Plan

Corporate
Code of
Conduct

At NGK SPARK PLUG, we aim to contribute to people all over the world bylinking people to technologies and delivering new values. As a truly global
corporation, we want to build stronger ties not only with customers andcommunities, but also with the local and global environments. We are always
working to make our corporate philosophy and our commitments a reality.

Three elements constitute our corporate philosophy.

CSR
Basic Policy

SloganCorporate philosophy

NGK SPARK PLUG has been a leader in manufacturing for 80 years.

Qualityproducts

Our desire is to live in a healthier and more beautiful world where all our dreams can come true.

Our mission is to continue to make the world a better place.
We will pursue future opportunities and improve
NGK SPARK PLUG’s unique and advanced technologies.

Involvementby allBasic Traits

Every day, we continue to ignite the passion in our hearts and spark new ideas in our minds
to focus on achieving our goals for the future.

DokuritsuJiei

ShiseiShinjitsu
SoshiKantetsu

Shikai-Keitei

Shared Values

Our diverse workforce will ignite our company to create new products andto be a leader in innovation.
We will enhance our competitive advantage by understanding and adapting to global changes.
Fueled and motivated by our own drive, NGK SPARK PLUG will continue to
IGNITE YOUR SPIRIT, instill passion in your hearts, and deliver cutting-edge
solutions as a leading manufacturer in the world.

With established trust andconfidence inside and outside
the company, we aim to contributeto the peoples of the world bycreating and putting at theirdisposal new values
for the future.

Shared Values
The Four Shared Values of
the Nittoku Way
Shisei-Shinjitsu

Sincerely
do our very best.

Dokuritsu-Jiei

Believe in one’s own ability,
and take actions by oneself.

Shikai-Keitei

Unite efforts with the peopleof the world, and utilize eachother’s differences.

Soshi-Kantetsu

Have cherished desires,and carry it through till
the end.

2

1

3

We offer a working environment inwhich each one of us is encouraged tomake full use of his or her personality
and capabilities. With all our power weare dedicated to pursuing management
based on trust and confidence.

With full use of the most suitable
technology and our accumulated
experience, we continue striving to offer
new values to the peoplesof the world.

Ever onward!
Always mindful of what is the best
course, we swiftly put it into action.

CSR and Sustainability Charter
We contribute to developing a sustainable society, thereby improving
our corporate value.
We build
relations of trust with
our stakeholders
while making highly
transparent decisions
and actions.

We cocreate andprovide new value tosolving social
issues.

We are committed to delivering new value to people all over the world and contributing to society,as expressed in our corporate philosophy.
This commitment is associated with our concept of sustainability, which is to help solve social
issues through business activities.
The CSR and Sustainability Charter presents a summary of this concept.

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0304

Pursue Transformation

2040 Vision

Change drastically beyond
the current way
2030 Long-term Management Plan
Delivering new value in the face of an ever-changing future.
To meet large-scale global environmental
changes, we too must change.
Creating an organization comprised of passionate
individuals working together
to face challenges head-on in order to a better society.
We are transcending imagination with technologythat transcends boundaries.
We are more than just a ceramics
and we are going in new directions.

2030 Strategies and Initiatives

About the new long-term management plan, ⇒ P.37

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06

Message from the Chairman

From Competition to
Cocreation
Our goal is to achieve sustainability in boththe company’s growth and society through unselfish
commitments to helping solve social issues
Representative Director
Chairman of the Board

The “NITTOKU SHINKARON,” our long-term management plan that envisioned the next 10 years for NGK SPARKPLUG from FY2010, ended in FY2019. In this section, Chairman of the Board Shinichi Odo talks about how thecompany evolved during the last decade and how it will adapt to changes brought about by the COVID-19 pandemic.

Impact of “NITTOKU SHINKARON” on the company’s culture
The NGK SPARK PLUG Group, established in 1936 with thechallenging mission of creating Japan’s first spark plugs, hasbeen pursuing the possibilities of ceramics under our
principles of “Involvement by all” and “Quality products,”
which we believe are the foundation of Monozukuri(innovative and quality manufacturing). Through these efforts
over many years, we have contributed to social development
and built trust with our customers. Our growth has been
centered on the core business of automotive internal
combustion engine products, such as spark plugs andsensors, based on our technologies featuring a level ofsophistication that no one else can match and against the
backdrop of the economic development and spread of
motorization in Japan and other nations.
However, the automobile industry, within which we havebeen continuously challenging and reinventing ourselves inorder to establish a competitive advantage, is now at a major
turning point with the electrification of automobiles, such as
electric vehicles (EVs) and plug-in hybrid vehicles (PHVs).
This comes against the background of a movement toward
decarbonization and the rapid progress of technologicalinnovation.
The “NITTOKU SHINKARON”, our long-term
management plan that illustrated a vision of what thecompany should be in 10 years, was formulated in 2010 inline with these changes with the aim of returning to our basic
principles of Monozukuri put forward at the time of ourestablishment and reshaping the company’s culture by
maintaining the good and eliminating the bad. To achieve thisaim, I assumed the position of President in 2011 and tookcharge of business execution, while also encouraging
employees, who are major players in the implementation of

the plan, to discuss across the company what they should
do as members of the Nittoku family.
In FY2016, ended March 2017, we also developed theseventh medium-term management plan for the period toMarch 2021. I served as both Chairman of the Board andPresident from FY2016 to undertake both the management
and business execution of the company. However, as I
recognized an urgent need for swift decision-making to yield
good results amid the rapidly changing external environment,
the functions of management and business execution wereseparated in April 2019, with the former assumed by me as
Chairman of the Board and the latter by President Kawai.
With regard to the results of the “NITTOKUSHINKARON” as of 2020, I am not fully satisfied with theachievement level of the goal of offering “Real Value” to all
our stakeholders, particularly in terms of the businessperformance target. However, I feel that we have seen
progress in the achievement of the initial objective of theplan—changing the corporate culture.
We have been focusing specifically on strengthening
existing businesses, unprofitable businesses and new
businesses. As regards existing businesses, we haveestablished an overwhelmingly powerful position in the marketof spark plugs, our core product, and achieved the world’s
highest share for exhaust gas sensors. We have constructedvalue chains that deliver “Real Value” as a Monozukuri
company to our customers the world over. For unprofitablebusinesses, we have advanced the structural reform of thesemiconductor business and completed the consolidation of
production bases, resulting in boosted productivity.
However, when it comes to the creation of new
businesses, although we sowed seeds for new businesses,

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08

Message from the Chairman

We are also implementing a plan to appropriately transfer
the authorities and responsibilities of the global headquarters(GHQ) (head office) to the regional headquarters (RHQ)
overseas. Under this plan, we have defined key performanceindicator criteria that need to be met by—and reinforced thesystem to monitor the governance of—the RHQ. We are alsoplanning to reorganize the divisions into internal companies
under the next long-term management plan. With these plans,
the culture of “taking action by oneself” is expected to befurther fostered in line with the shared value of Dokuritsu-Jiei
set out in The Nittoku Way.
To promote the development of the next generation of
global management-class human resources, we launched the
HAGI Program in 2016 to identify talent from across all of theGroup companies and develop these individuals into future
management-class personnel. The program provides such
employees with an opportunity to receive training and be
eligible for promotion regardless of nationality and is alreadybeginning to produce workers who are filling core positions
with a strong sense of mission and great enthusiasm to serve
the Group. We have also opened the Nittoku Business Schoolfor selected personnel in section chief-class positions, which
are slightly below the level qualified to join the HAGI Program.
The school provides education designed to lay a leadershipfoundation and is beginning to send forth leaders to supervise
worksites.
President Kawai and I have also divided up the task ofhuman resources development, with President Kawai taking
charge of the Nittoku Business School and myself taking
charge of the HAGI Program and women’s empowerment. In
terms of company management, President Kawai executes all
everyday management operations as the chief executive, andthe two of us exchange opinions whenever there is any issue
that I want to raise as Chairman of the Board or when heconsults me regarding any issue, in order to ensure that thecompany is managed in a timely and appropriate manner.

such as founding venture labs and investment in venture capitalfunds, these efforts did not result in forming and presenting any
specific vision for the expansion of our businesses. One reason
behind this is that the automotive market, for better or worse,grew more than expected, which meant we had to allocate alarger share of business resources to the automotive
components business than to new businesses.
This is something that I feel is a very regrettable result.
Nevertheless, we have established ourselves as a Monozukuri
company and a highly profitable one at that, both of which werea part of the vision the company sought to achieve by 2020. We
also stipulated The Nittoku Way in 2017, which defines the basic
principles that need to be observed by every member of the
Nittoku family and that are essential for NGK SPARK PLUG toremain a progressive organization with a sound governancesystem that increases our corporate value and a company thatvalues its employees as precious assets. Because of these andother efforts, in my view, we were able to make some progressin shifting the corporate culture and mindset of employees
toward facilitating the creation of new businesses.
To enhance governance and transparency and acceleratebusiness decision-making, the number of directors has been
decreased from 25 to no more than 13. The Employee
Corporate Officer System has also been adopted to make itpossible to actively appoint young employees as officers, andthis system, together with the abolishment of senior managing
and managing officer positions, is driving forward theelimination of the hierarchy of executive officers. The DIAMOND
Project, launched to promote women’s empowerment in 2013,has helped increase the number of women in managerial
positions from three initially to 18 (as of the end of March
2020). This effort led the company to be granted by thegovernment and the Tokyo Stock Exchange the Nadeshiko
Brand designation in FY2018, which recognizes outstanding
listed companies in terms of supporting women to play activeroles in the workplace.

Shift in management perspective necessitated by the COVID-19 crisis

need to think of the remaining 95% of the population whenplanning new businesses. We are aiming to expand businessin the area of medical care as part of the next 2030 LongTerm Management Plan “NITTOKU BX”, but even if we cancreate advanced medical technologies, they will bemeaningless unless they are easily accessible to people
around the world. I hope that discussions of this kind will help
employees develop into management-class personnel
capable of finding optimum solutions.

age in which expansion was the only goal of business
operators and the winning-is-everything mentality prevailed
has gone, and we are now at a turning point where we canchange our approach to corporate management.
I once had a discussion with employees at the Nittoku
Business School regarding what our company can do forsociety at a time when we have to coexist with COVID-19.
While the employees were proposing various business plans,
one thing I suggested to them was that, as the richest top
5% of people own more than 80% of global wealth, there is a

Addressing social issues by transforming ourselves, rather than through mere reforms
adopting an altruistic stance. Japanese automakers have been
expanding their market and have become some of the world’s
most successful companies, but to maintain their sustainablegrowth, contribute to solving social issues and increase
productivity, they also should consider the need for thetransformation of their supply chains across the entire industry.
We are now entering an age when we need to shift our focus
from competition to cocreation in our challenge to help build asustainable society.
The process of drastic transformation, needless to say, will
require dogged determination and may be even accompanied
by pain. But I believe that this process is indispensable forpassing on the Monozukuri technologies and artisanship thatJapan is so proud of to future generations.
Moving forward, as expectations mount for our even moreenvironmentally considerate, efficient and high-performance
spark plugs and sensors created based on our proud ceramics
technologies, we at NGK SPARK PLUG will continue cultivating
new businesses with a view to the popularization of EVs. We
will share and cocreate a better future with shareholders and allother stakeholders and take on wide-ranging challenges totackle social issues. I would appreciate your understanding
toward a new NGK SPARK PLUG along with your continued
support.

Management of ESG risks is also facing a turning point.
Companies, especially manufacturers, were previously focusing
on cost reduction and efficiency and consolidating theirfactories. However, some companies concentrating theirfactories in Wuhan, China, were hit hard by the outbreak of
COVID-19 as their supply chains were cut off. Our damage
was fortunately minimal, but the result would have been very
different if our production bases in China were located inplaces seriously affected by the virus.
It has long been pointed out for the dispersion of risks that
there is a trade-off between security and costs. But this tradeoff can be solved if digital transformation (DX)—which entailschanges in production, such as remote control and production
management in the cloud—progresses and leads to reduced
costs and labor. In Japan, the delay in digitization, particularly
at production sites, has been cited as an issue. Our company
will promote DX as one of the targets of the “NITTOKU BX” tospeed up management decision-making. However, what wereally need to ensure business continuity is not stopgap
reforms, which would not help us survive the current criticalsituation confronting us. We must transform ourselves radicallyand in a manner that can overturn traditional norms.
We are seeing values shift, with less emphasis on
generating profit for the company and more emphasis on

Looking back at our history, since its founding thecompany has undertaken many challenges and undergone
many changes to help solve social issues. Carrying on thisspirit and continuing to create products and services that willcontribute to various social issues is our mission. Turning oureyes to the rest of the world, while we are now seeing eachnation setting their own targets to achieve the Sustainable
Development Goals (SDGs) and taking action accordingly, the
COVID-19 crisis and unprecedented climate change areposing a question as to how we can strike a balance
between capitalism and social responsibility—a question that
represents an extremely high hurdle for everyone, including,
to my regret, me.
Needless to say, companies must keep increasing sales
and profits for sustainable growth. The question of how tobalance corporate growth and social commitment, which too
often ends up a trade-off, is not easy to answer. However, theWe have also been actively working on environmental, socialand governance (ESG) issues by making it our mission to
help solve social issues and achieve a sustainable society. We
are developing, in response to social needs, spark plugs,
oxygen sensors and other automotive components incompliance with environmental regulations, as well as taking
specific actions, such as the reduction of CO2 emissions tocombat climate change, in line with the corporate philosophy
and The Nittoku Way, which define how we, as members of
the Nittoku family, should behave.
During this term, we have established the Sustainability
Promotion Department within the Corporate Strategy Groupto promote more comprehensive measures. To strengthen
sustainable management, however, I strongly feel that weneed a new perspective and approach in light of changes insociety and the economic structure, as well as in people’svalues, brought about by the spread of COVID-19.

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Message from the President

Constantly looking to“Something New”tobuild a strong, agile and flexible organization that can“change drastically beyond thecurrent way”
Representative Director President
Chief Operating Officer

In FY2020, as a new long-term management plan that follows on from the “NITTOKU SHINKARON”, NGK SPARKPLUG has formulated the 2030 Long-term Management Plan “NITTOKU BX”. Under this plan, made by backcastingfrom its 2040 vision, what does the company aim to achieve by FY2030 on the way to making unprecedentedly
drastic changes? President Takeshi Kawai talks about the strategies and measures.

Generating innovation out of conflictgather together and exchange opinions from different
viewpoints. This fiscal year, we established the Global
Innovation Div. as a team tasked with searching for seeds for
new businesses and a non-Japanese engineer was
appointed to head up this division. This marked the first
appointment of a foreign national to lead a head officedivision in the long history of the company.
Diversifying an organization will inevitably spur conflicts
among its members, and this is exactly what I have intended.
If we were going to continue to do business in a conventionalway, we would need to foster teamwork and harmony, but inorder to find “Something New” from new viewpoints, we need
to be skeptical of conventional wisdom and frankly express
opinions that may go against it.
I have thus proposed that employees find “Something
New” (for which, as mentioned above, there is no rightanswer) as a key phrase for our business model and haveinspired them by adding diversity to the workforce. As aresult, existing employees are gradually showing signs ofchange in terms of their mindsets, words and behaviors. By
tending the sprouts of “Something New” until they develop
larger and thicker trunks, we can build a new business pillar
through which we can also contribute to the solution of social
issues. Beyond attaining this target, we will be able tobecome a corporate group that can make steadycontributions to future development.

Over its history of more than 80 years, NGK SPARK PLUG
has built a stable revenue base by building on the company’s
core ceramics technology to tirelessly advance and improve
its products used in internal combustion engines (ICEs),
mainly spark plugs and sensors. However, due to the rapid
progress of technological innovation, as represented by EVs,
the economic and industrial structures themselves areundergoing huge changes, necessitating that we too makedramatic progress and reinvent ourselves to move to a newstage.
The automobile industry is going through a once-in-acentury shift, and in response we need to remind ourselves ofour company’s founding spirit, “Challenges andTransformations” toward the solution of social issues, whileconstantly looking to “Something New” as our new mindset.
There are no right answers to what “Something New”
means. But one thing is clear: We cannot find “Something
New” if we continue to do business in a conventional manner.
For the past one year, I have been working to build a
corporate culture that encourages employees to think what
“Something New” means to them in a proactive manner andnot based on the technologies already accumulated by thecompany and available to them.
One example of the measures that I have been leading
to this end is the employment and utilization of a morediverse workforce. In order to foster innovation, it is necessary
to follow a process in which people with various backgrounds

Commitment to be fulfilled by going “Beyond ceramics”
For the creation of new businesses that support the future of
our company, we formulated the 2030 Long-termManagement Plan “NITTOKU BX” (hereinafter, “NITTOKU
BX”) as a roadmap that shows the specific details of

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Message from the President

make a plan for 2040—even though we do not know what
the right plan for the future of 20 years from now is—and wehave thus decided to “change drastically beyond the current
way” as our vision for 2040.
We used to develop a new business by thinking about“What ceramics can do” or what we can do by using ourexisting core technology.
However, in order to “change drastically beyond thecurrent way,” we need to embrace the challenge ofdeveloping solutions and services with technology thattranscends boundaries. While continuing to center ourbusiness on ceramics, we must expand by gradually breaking
the hard mold and forge the future by transcending
imagination. In “NITTOKU BX,” we therefore take theapproach of backcasting from our 2040 vision and showwhat kind of preparations we will make and what things wewill try during the next decade to 2030.

measures to be taken to attain the goal. The plan targets
2030 as the milestone year toward 2040.
First, under the plan, we aim to “change drasticallybeyond the current way” as our vision for 2040 and upholdthe slogan “Beyond ceramics, eXceeding imagination” as aresult of a series of discussions by six teams made up ofyoung employees, mostly aged in their 30s.
It is impossible for anyone to precisely predict the future
20 years from now. However, according to the forecasts forsales volume of new automobiles and the numbers ofautomobiles owned by people around the world, the numberof those equipped with ICEs, in which our core products
such as spark plugs and sensors are used, will peak in the
middle of the 2030s and then begin to decrease.
In response, what measures do we need to implement?
It would be too late to make a new growth plan after demand
has peaked in the 2030s. Therefore, right now, we need to

Aiming to transform our business portfolio
new businesses from current income and the investment
results in our quarterly financial reports and will invite
feedback, even reprimands, from our shareholders.
In order to secure a source of funding to makeinvestments in new businesses, we absolutely need to makeprofit in the ICE-related businesses, which provides us with arevenue base. Some are worried about the impact of
COVID-19, but its impact on our business performance isrelatively small. Demand for repair parts has recovered fasterthan expected, and global demand for our spark plugs andsensors will continue for at least the next 10 years.
As for the emergence of EVs, demand for highperformance hybrid vehicles, which are more eco-friendly,
might further increase, depending upon the progress made in
the development of batteries. Demand for eco-friendly
products, for which we have a technological advantage, willcontinue as environmental regulations are becoming stricter
in developing and emerging economies alike.

As the specific target for 2040, we will invest the earnings
from the automotive components business, which is
expected to remain steadily profitable, in new and growthbusinesses, aiming to increase the proportion of non-ICE
business in our total net sales from the current 20% to 60%,
thereby transforming our business portfolio. To this end,
under “NITTOKU BX,” which targets 2030 as the milestone
year in the lead-up to 2040, we will decrease the proportionof ICE-related businesses to 60% and increase that of nonICE-related businesses to 40%.
For the creation of new businesses, which was also
upheld in the previous long-term management plan,“NITTOKU SHINKARON,” we clearly show in “NITTOKU BX,”
as an important point of the plan, the numerical targets forthe proportion of new and growth businesses in the total
amount of investments that we will make in our businesses,
in addition to the numerical targets set for their share of total
net sales. We will announce how much we have invested in

Introducing an in-house company system that embodies “Dokuritsu Jiei”
cost at our administrative departments, such as those incharge of general affairs, personnel affairs and accounting,including the introduction of the concept of “shared service”
to the back office departments.
For Clarification of Responsibilities and Authority, we will
implement measures to transform our organizations into
those that embody “Dokuritsu Jiei” as upheld in the Nittoku
Way, including the introduction of an in-house company
system.
We will set KPIs and KGIs in the medium-term

Along with the public announcement of the amount ofinvestment that we have made in each of our new businesses
and the investment results, we will foster the following three
to promote the transformation of our business portfolio withspeed: Management Innovation, Clarification of
Responsibilities and Authority, and Willful Cultural Change.
For Management Innovation, we will build a small, strong
and agile head office and speed up investments in cloudsystems and digitization, thereby expediting management
decisions. We will also foster digitization to save labor andterms of their achievement, cost and budgeting, andenhancing their governance.
For Willful Cultural Change, we must reform ourcorporate culture from a “defensive” to an “offensive” culture
to “change drastically beyond the current way.” To this end
we need to promote diversity and have upheld “Change withWill” as a new guiding principle. Specifically, with a strong
commitment (“Will”), we must foster “Change” for coexistencewith society and people.

management plan made for each in-house company basedon the long-term management plan. The in-house companies
will also adopt performance-based rewards and evaluation
systems in consideration of their respective level ofachievement and business environment, thereby securing
excellent human resources. Further, we will mandate eachin-house company to make quarterly performance reports toensure the transparency of management while building asystem for the in-house companies to monitor each other inTransforming the “conservative” corporate culture into one with a “progressive spirit”
the challenge of solving these issues as our basic corporate
attitude. In this world of uncertainty about the future, we needto build up a flexible and robust system in order to respond tochanges and work to solve social issues. To this end, weshould immediately embark on a reform, and I will play aleading role in helping the company to fulfill this mission.
We cannot ensure our business continuity without thesustainable development of society. Accordingly, in order tocontribute to the creation of a sustainable society, we signed
the United Nations Global Compact in November 2016,
supporting its 10 principles set in four areas. Going forward,
we will conduct a range of activities as a good corporate
citizen, thereby contributing to society at large under our
corporate philosophy, expressed in our slogan, “Withestablished trust and confidence inside and outside thecompany, we aim to contribute to the peoples of the world bycreating and putting at their disposal new values for the
future.”I hope that our stakeholders will pay close attention to
how we implement our new long-term management plan
“NITTOKU BX” and look forward to receiving your feedback,including advice and opinions.

In our transformation process, we will reform ourorganizations for the first four years under the new long-term
management plan, upholding the slogans, “Break to change”
and “Change to create.” Needless to say, we cannot avoid
failure when taking on challenges, but in the transformation
process we cannot go back to the conventional businessmodel even if we do encounter failure, and so we must
“Break to change.”
In order to shift from “Break to change” to “Change tocreate,” we must embrace challenges boldly and have newexperiences during the remaining one year under the seventh
medium-term management plan and the first four years under
the next medium-term plan. By engaging in trial and error to
make new findings at this stage in the transformation
process, we can take another step forward to move to thenext stage, or the next five years, for which we have upheld
the slogan, “Extend for the future. Spread out to exceed.” By
engaging in trial and error at these two stages, we will create
a new business culture to ensure the sustainability of ourcompany going forward.
As the most important point to be noted for oursustainable growth, we are required to give consideration to
ESG and the SDGs, face social issues squarely, and take on

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1

CONTENTS
17

Morimura Group

Morimura GroupThe origins of NGK SPARK PLUG can be traced
back to Morimura Gumi, which was founded by two
brothers, Ichizaemon and Toyo Morimura, in 1876 andbuilt a foundation of business that later grew into theworld’s largest ceramics conglomerate. The brothers’
sincere attitudes toward business have formed thebasis of our corporate DNA, passed down over 140
years to this day.

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Morimura Group

Morimura GroupThe origin of the Morimura Group, the foremost
ceramics conglomerate in Japan, dates back to
1876, when the Morimura brothers, Ichizaemon andToyo, founded Morimura Gumi*1 to launch apioneering foreign trade business in the country.
The Group’s involvement in the ceramics
industry began in 1904, when the founders ofMorimura Gumi formed Nippon Toki Gomei
Kaisha*2, from which the sanitary ware division andinsulator division were subsequently spun off into
TOYO TOKI Co., Ltd.*3 (1917) ,NGK INSULATORS,
LTD.*4 (1919) and Okura Toen*5 (1919), respectively.
After that, in October 1936, the spark plug
division of NGK INSULATORS, LTD. was spun off,and NGK SPARK PLUG was established, forming
the foundation of the Morimura Group today.

Stories for Value Creation

Business Infrastructure
to Support Sustainable Growth

Growth Strategies

Business Strategy

Timeline from Morimura Gumi to
NGK SPARK PLUG

Notes: 1. Currently, Morimura BROS., INC.; 2. Later, Nippon Toki K.K., andcurrently, NORITAKE CO., LIMITED; 3. Currently, TOTO LTD.; 4. Currently,
NGK INSULATORS, LTD.; 5. Currently, OKURA ART CHINA, INC.;

1937:

Ichizaemon Morimura in 1863

Morimura Group’s
Background

1876:

1919:

Ichizaemon Morimura VI and his
brother Toyo found Morimura Gumi inTokyo, with Toyo starting an imported
variety business in the US

1881:

Nippon Toki’s insulator division
spun-off into NGK INSULATORS,
LTD.; Okura Toen established

1921:

NGK INSULATORS starts
research on manufacturing of
spark plugs

Morimura brothers established.
Found potential porcelain exports.

Ichizaemon Morimura(Right side) and Toyo in 1889

1936:
1897:

Morimura Bank established(Merged with Mitsubishi Bankin 1929)

Morimura Gumi

1930:

（March 1876）

1917:

Nippon Toki
Gomei Kaisha

Morimura
Bank

Okura Toen
（May 1919）

Morimura Gumi
Co., Ltd.
（April 1918）

TOYO TOKI
Co., Ltd.
（May 1917）

Nippon Toki
K.K.
（July 1917）

Nippon Toki converted into a joint
stock company (Nippon Toki K.K.);
its sanitary ware division spun-off into
TOYO TOKI Co., Ltd.

NGK INSULATORS’ spark
plug division spun-off into NGKSPARK PLUG CO., LTD.

NGK INSULATORS puts spark
plugs on the market

1904: Nippon Toki Gomeikaisha
established.

（January 1904）（June 1897）

NGK SPARKPLUG starts
manufacturing
spark plugs

NGK
INSULATORS,LTD.
（May 1919）

In New York, Morimura Brothers Broadway 539, around 1893

Merged with
Mitsubishi
Bank（1929）OKURA ARTCHINA, INC.

（Reorganized in
April 1950）

MORIMURA
BROS., INC.
（Renamed inJuly 1946）

TOTO LTD.

（Renamed in
May 2007）NORITAKE CO.,LIMITED（Renamed in
April 1981）NGKINSULATORS,LTD.

（Written namechangedin May 1986）

NGK SPARK
PLUG
CO., LTD.

（October 1936）

Nippon Toki Gomeikaisha in 1904

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2

CONTENTS
21

History of Challenges andTransformations

23

Value Creation Process

25

Businesses Developed
over the Years

27

Assets Built over the Years

29

Performance Data

Stories for Value Creation
Since its founding in 1936, NGK SPARK PLUG has
been exploring the possibilities of ceramics anddemonstrating a commitment to its basic policyof “quality products” and “involvement by all”
as a manufacturer, while also contributing to thedevelopment of society and earning trust from
customers.
This tradition of pursuing challenges and trust
has been and will continue to be the driving force
pushing us toward new frontiers. We will enhance
our activities to be able to achieve the sustainable
development of society and our business alike.

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Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

History of Challenges and Transformations
Over the course of its history, NGK SPARK PLUG has made progress in response to the changing times, taking on thechallenge of solving social issues. Demonstrating a commitment to quality, our corporate DNA inherited from
Morimura Gumi, we are continuously working to meet the challenge of creating new value.

1936

1937

NGK SPARK PLUG founded

Production of NGK Spark Plugs
startedby NGK SPARK PLUG

Challenges embraced

NGK SPARK PLUG was establishedthrough the spin-off of the spark plug
division of NGK INSULATORS.
The founding business of producing
spark plugs has grown to make thecompany the world’s top manufacturerof the product.

In 1930, we released NG Spark Plugs,
Japan’s first domestically produced spark
plug, and began producing NGK Spark
Plugs in 1937.

Magoemon Ezoe, first president

1967

1989

2000-

Production of ceramic substrates
and IC packages started

Sales of electrostatic chucks
startedBuilding new business pillars

In the late 1960s, the silicon
semiconductor integrated circuit (IC)became a mainstream standard and its
mass production began in Japan andthe US. Following this trend, we started
manufacturing ceramic substrates andIC packages by applying our ceramics
technologies.

In the late 1980s, requirements for higher
integration and lower cost of semiconductor
elements intensified, which gave rise to ashift to ceramic components, characterized
by the material’s excellent heat and abrasion
resistance, to be used for semiconductor
production equipment. In response, we
promptly introduced ceramic electrostatic
chucks, and commenced
mass production of the
product in the 2000s toexpand sales.

Under the NITTOKU SHINKARON
long-term management plan started
in FY2010, we accelerated efforts
to establish new business pillars,
including hydrogen leak detection
sensors and the solid oxide fuel cell
(SOFC), by applying our core ceramics
technologies. We continue with thesechallenging efforts, seeking out every
possible new field.

NGK Spark Plug

Electrostatic chuck

1949

IC packages

1982

Production of NTK Technical Ceramics started
After the post-war confusion had settled down and spark plug production was stabilized, we began
applying ceramics to develop new technologies and products for the diversification of our business.
The new segment development was promoted under the brand name of NTK. Following this, we
gradually broadened our ceramic product range to include those for industrial and environmental uses.

Production of oxygen sensors forautomobiles started

1958

1959

Ceramic cutting tools developed

Overseas business expansion

The importance of ceramic industrial
tools increased, particularly in relation
to electricity, automobiles, chemicalengineering and machinery, and wedeveloped ceramic cutting tools for cutting
hard materials to be put on sale in 1958.

Japan entered the high economic growth period,
boosting exports. Driven by this trend, weestablished our first overseas base in Brazil,
Ceramica e Velas de Ignicao NGK do Brasil, in
1959, and began to promote overseas
advancement ahead of competitors to build strong
global networks.

Cutting tools

In Japan in the 1960s, as the full-scale
motorization of society progressed,
environmental degradation such as air
pollution became a social issue. In
response, exhaust gas regulations weremade stricter. To help related industries
ensure regulatory compliance, we began
developing various sensors, primarily inassociation with exhaust gas, such as
zirconia oxygen sensors and wide-range
oxygen sensors.

1999

Hydrogen leak

Solid oxide fuel cell (SOFC)

detection sensor

Sales of medical oxygen
concentrators started
We started research on the possibility of
medical applications of bioceramics inthe 1970s, looking to future opportunities
afforded by the progress of population
aging. Related results included the rolloutof the bone prosthesis Ceratite in 1990
and oxygen concentrators for medical
use in 1999.

Medical-use oxygen
concentrator
Temperature sensors
for automobiles
Ceramica e Velas de Ignicao NGK do Brasil

Startup period (from 1930)

Growth period (from 1940)

Oxygen sensors forautomobiles

Establishment period (from 1960)

Development period(from 1990)

Historical context /Social issues

Domestic automobile industry depending on imports

Automobile production growing rapidly

Impact of high economic growth

Tackling new social challenges

In Japan in the 1920s, when the domestic automobile
industry was still in its infancy, the supply of automobiles waslimited almost entirely to imports from the U.S. and Europe,and automotive parts, including spark plugs, were also
imported. The first president, Magoemon Ezoe, decided to
produce plugs using ceramics, a specialty product of Japan,
and led initiatives to launch domestic plug
manufacturing.

In the 1940s, domestic automobile production rose to
46,000 cars, as automobile and related parts manufacturing
developed into a major industry. Accordingly, demand forplugs also increased. After WWII, Japan ushered in a periodof high economic growth in the late 1950s, when the country
was rapidly becoming motorized.

From the late 1960s, pollution problems were
emerging as a negative effect of the higheconomic growth, and the automobile
industry was particularly called on to urgently
address air pollution problems. Looking tofulfill needs related to such problems as well
as resource conservation, we started research
to develop new products that would help
meet exhaust gas regulations. These
regulations were made more stringent by theyear, pushing up demand for highperformance plugs and sensors.

From the 1990s, automakers began to focus on thedevelopment of electric vehicles, hybrid vehicles and fuelcell vehicles, as part of efforts to address environmental
and energy issues. Those years also saw the explosive
growth of information communication technologies
bringing about significant changes in many people s
lifestyle. In order to provide products that would meet
new needs related to these societal trends, we
promoted research and development based on our
technologies built over long years.

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From present to future
Development period (from 1990)
Aiming to create a sustainable society

Our business environment is undergoing an
enormous change brought about by a number offactors, such as AI and IoT-driven digitization, theonce-in-a-century transformation of the automobile
industry led by the concepts of CASE and MaaS,and mounting concerns over climate change and
ESG-related issues. Recognizing this situation, weare striving to reduce our dependence on the
production of automotive components for internal
combustion engines, which account for 80% of our
net sales, while creating new business projects
aimed at achieving a sustainable society.

Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

Value Creation Process

Managerial
resources
FY2019External environment

Refer to “Assets Built overthe Years” on ⇒ P.29

Global environmental issues

Financial
capitalinternational issues
Established of a society where
economic development andresolution of social issues arecompatible

Cash flows from operating activities

Technologies

Business

Model

Value chain toPlanning and R&D

ProcurAutomotive Components Group
Supporting global motorization, ourproduct lineup is mainly composed ofplugs, sensors and other components
for internal combustion engines.

59.8billion yen

About risks and opportunities

Manufacturing
capitalrelated to external environment, see ⇒ P.37

Capital expenditures

51.0billion yen
Number of production bases: 4(NGK SPARK PLUG plants);
13(subsidiaries in Japan); 21(subsidiaries outside Japan)
Business issues

28.3billion yen

Expanding demand forsemiconductors

ement

Production and quality
management

Logistics and sales

Operating income

48.4

billion yen

Semiconductor business

Ceramics business

Our semiconductor packages
and substrates, developed byapplying our ceramics layering
techniques, are adopted invarious products, such ascommunication equipment andsmart devices.

We supply a range of ceramic
products for industry use,
including cutting tools andcomponents for semiconductor
production equipment, whichhave been developed so as tomake useful properties of thematerial available.

Operating income ratio

Overseas sales ratio

85.5％

11.4

ROIC

%

6.2

%

Dividend payout ratio

42.9

Annual sales volume of spark plugs
About

850

million units

Cutting tools

Value provided to society

Semiconductor IC packages
Glow plugs

Contribution to environmental issues
Cleaner automotive exhaust gas
Components for semiconductor

Higher fuel economy

production equipment

Contribution for a hydrogenenergy-based society

Number of employees

Social capital

426.0

billion yen

Technical Ceramics Group

Humancapital16,430people
Rate of overseas employees 44.9%

FY2019Net sales

Spark plugs

R&D expenses

Next-generation energy

Creation of corporate value

gain competitive advantage%

Intellectual
capitalReform of the automobile industry

Aged society and extending
healthy life expectancy

Capitalizing on Ceramics

Reduction of environmental
pollutants

Sensors

Seventhmedium-term
management plan
“Evolution” to “Real Value”
Accelerating current &new businesses

Growth strategies

Improvement of information
infrastructure

Ceramic products for industrial use

Higher performance ofelectronic devices

We aim to deliver “Real Value”
to all stakeholders in 2020.

Reduction of lead time atmanufacturing facilities
Effective use of equipment

Higher safety
FY2016

Safety in automobile driving

FY2020Development of medical technologies

About Corporate Philosophy& The Nittoku Way
See ⇒P.04

About Priority issues to be addressedin relation to ESG
About Corporate GovernanceHigher QOL
Safety in surgical operations

See ⇒P.55

Refer to “Priority Business Areas” on ⇒ P.39

See ⇒P.68

Refer to “Business Strategy” on ⇒ P.89

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Morimura Group

Stories for Value Creation

Business Infrastructure
to Support Sustainable Growth

Growth Strategies

Business Strategy

Businesses Developed over the Years
The 80-year history of NGK SPARK PLUG started with the production of plugs. Then, applying its coreceramics technologies, the company developed a number of businesses, which are currently organized into two
major segments: the Automotive Components Group and the Technical Ceramics Group. We are also putting all our

Revenueefforts in building new business projects.

52.2
Operating income ratio

Automotive
Components Group

14.8

%

Technical Ceramics
Groupbillion yen

12.3%
Operating income ratio

81.8

%

Revenue

348.7

billion yen

−

0.9

%

Components for semiconductor production equipment

Ceramic products for industrial use

Electro-static chucks

Piezoelectric ceramic components

We offer electrostatic chucks,
an indispensable item for semiconductor
manufacturing, by making use of theelectrostatic property of ceramics.

Ceramics generate electricity when force isapplied to them, while expanding/contracting
when voltage is applied. By making use ofthis property, we manufacture and supply
piezoelectric elements for use in sounders
and fluid sensors.

Plugs

Spark plug

Glow plug

In an internal combustion engine, acts asa “lighter” to ignite the mixture of gasoline
and air.

Assists with the startup of a diesel engine.

Semiconductor packages and substrates
We offer IC packages suitable for electronicand smart devices as well as substrates
used in probe cards for semiconductor wafer
inspection.

Cutting tools
Indispensable for the processing of
automotive, industrial, aircraft and othercomponents. We offer a wide lineup of
products, including ceramic tools and thosemade of new materials.

Sensors

Zirconia oxygen sensor

NOx sensor

Used to measure the exhaust gas oxygen
concentration for air-fuel ratio control.

Used to precisely measure the concentration ofNOx gas, a regulated substance, to ensurecompliance with the NOx regulations, which haverecently been tightened. Can be used toconcurrently measure the concentration ofoxygen.

Wide-range oxygen sensor

Temperature sensor

Paired with a dedicated interface, used
for wide-range air-fuel ratio control tomaximize output according to the exhaustgas oxygen concentration level.

Used to monitor the exhaust gas temperature forthe protection of exhaust systemcomponents and for the optimal control of theexhaust gas aftertreatment system, thereby
contributing to cleaner exhaust gas and higher fuelefficiency.

Medical products
By making use of our ceramic materials,
we manufacture medical products, such asbone prostheses and oxygen concentratorsfor medical use.

Solid Oxide Fuel Cell (SOFC)

OthersGenerates electricity and heat throughelectrochemical reaction. We are developing
an SOFC stack for power generation. SOFCs
are highly energy efficient fuel cells and are
expected to be downsized and provided atlower cost.

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Morimura Group

Stories for Value Creation

Business Infrastructure
to Support Sustainable Growth

Growth Strategies

Assets Built over the YearsBusiness Strategy

Financial capital
Cash flows from operating activities

While pursuing challenges and undergoing transformations, NGK SPARK PLUG has built up both financial and

59.8

non-financial assets. Of particular note, our capital grew remarkably during the 10 years ended March 2020 underbillion yen

the “NITTOKU SHINKARON” long-term management plan. We will work to bolster this capital through continuingbusiness while investing it to create new possibilities for future growth.

To ensure sustainable growth and increase corporate value, ongoing capital investment and
R&D is indispensable. We have boosted the capacity to generate cash fromoperating activities, a source of investment funds for further business growth.

Manufacturing capital
Financial capital

Capital expenditures

51.0
4
13
21

Cash flows from operating activities

34.3

billion yen

billion yen

Production bases(NGK SPARK PLUG plants);

Manufacturing capital
Capital expenditures

11.0
4(subsidiaries in Japan);(subsidiaries outside Japan)

Anticipating an increase in sales of the automotive components, we have massively expanded
capital expenditures. Major investments were made in the increased number of production basesin and outside of Japan to build structures enabling a timely response to customer needs.

billion yen

Production bases

9(NGK SPARK PLUG plants)；

16Intellectual capital(subsidiaries in Japan)；R&D expenses(subsidiaries outside Japan)
FY2009Intellectual capital(J-GAAP)R&D expenses

13.9(IFRS)

11,795

Human capital
Number of employees

Ratio of overseas employees

30.8

people%16,430

Ratio of overseas employees

44.9

%

We have increased the number of employees in accordance with our businessexpansion. The rate of overseas employees has risen notably as we set up more bases
outside of Japan and implemented international M&A projects.

Social capitalSocial capital

Overseas sales ratio

78.1

billion yen

R&D expenses have increased as we made upfront investments in R&D
projects, seeking to reform our business portfolio. Investments have been
diversified in different projects targeting commercialization in relation to element
technologies, new materials and process technologies, among others.

billion yen

Human capital
Number of employees

28.3

FY2019Overseas sales ratio

85.5

%

%

The overseas sales ratio has increased as a result of expanded sales ofplugs and sensors to overseas markets, mainly in China and otheremerging economies that have enjoyed steady growth andin developed economies facing tightened
fuel efficiency requirements
and environmental regulations.
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Morimura Group

Stories for Value Creation

Business Infrastructure
to Support Sustainable Growth

Growth Strategies

Business Strategy

Performance Data
Financial Highlights
Profit/return on equity (ROE) attributableto owners of the parent

Net sales/Operating income/Operating income ratio
J-GAAP(Millions of yen)

IFRS

（%）

(Millions of yen)30

60,000500,000
400,000 383,272
300,000

372,91917.3

409,912425,013

66,284

67,27953,595

10.9

58,385

11.4

10

■

20,000Net sales ■ Operating income

2017

IFRS

(%)

25,602

Number of employees at work/
percentage of overseas employees(Number of patents)(Number of persons)

1,000

12

10.9
42,638

Number of new patents published7.7
30,116

8.4

750

8

33,698

397

500
4

0

( Fiscalyear )

2019

250

Operating income ratio■

We recorded an increase in revenue due to increased sales of automotive
exhaust gas sensors but recorded a decline in profits, influenced by thesuspension of automakers’ operations caused by the spread of the novel
coronavirus.

2016

2017

Profit attributable to owners of the parent

2018( Fiscalyear )

2019

ROE attributable to owners of the parent

ROE decreased by 2.5% year on year due to a decrease in the profit
attributable to owners of the parent.

411

419

270

542

436

20,000692

15,000

222

545

2016

2017

2018

2019

In Japan ■ Outside Japan( Fiscalyear )J-GAAP(%)

IFRSJ-GAAP

(%)

100

12

11.4

■

The number of patents published in Japan has slightly decreased as aresult that we adjusted the number of patent applications filed in Japan.
Since patents filed outside Japan are published sequentially, the numberof patents published outside Japan stayed at a specific level.

60

64.3

62.5

63.4

60.2

59.7

40

8.5

8.2
6.2

4

6.2

32.57

2015

2016

2017

2018

( Fiscalyear )

2019

2015

Equity ratio attributable to owners of the parent decreased year on year as
tangible fixed assets increased through capital investment made toenhance existing businesses and create new businesses and also
because of borrowing and retirement of treasury stock.

Earnings per share
J-GAAP

(Yen)

IFRS

2016

2017

2018

141.60100.00J-GAAP

163.06

90

30

29.7

28.7

70

60

42

50

42.9

30

15

20
10

2018

(

2019

Fiscal
year

)

34

36

37

39
34

22

24

26

2015

2016

2017

41
39

0

2016

2017

2018

2019

CO2 emissions( Fiscalyear )

70

Precious metal plugs

2018

2019

Wide-range oxygen sensors/NOx sensors( Fiscalyear )

150

30

70

2016

Cash dividends per share

2017

2018

(

2019

Dividend payout ratio

123

113

102

13.6
133

12

60

50

4

20

0

0

0

10

95

2015
■

12.5

80

40

100

)

11.7

10.7

16

8

20

Fiscalyear

9.9(Number of persons)

(%)

200

0

2015
■

(Number of persons)

40

34.2

35.2

42

（%）

IFRS

48.0

0

0

2017

Percentage of overseas employees( Fiscalyear )Cash dividends per share/Dividend payout ratio
(Yen)

60

2016

2019

Number of employees who took childcare leave;
percentage of employees who returned to work
after taking childcare leave (non-consolidated)

50.00

2015

2018

Percentage of female/foreign-national/mid-career
employees in managerial posts (non-consolidated)

120

119.44

Total number of employees

2017

We have specified these items as environmentally friendly products inline with one of our Priority Issues, Providing Environmentally Friendly
Products. We aim to raise the sales percentage of each category to atleast 50% of the total.

204.74145.720

2016

As a goal of one of our Priority Issues, Responding to Climate Change,
we are striving to reduce greenhouse gas emissions, a factor contributing
to climate change. We aim at reducing CO2 emissions by 30% by FY2030
from the FY2018 level.

150

200.00

10

20

2015
■

30

We have adopted ROIC as a management indicator since April 2016 andset our goal in FY2020 at 13%. In FY2019, ROIC decreased by 2.0% year
on year due to a decrease in operating income.

250.00209.37( Fiscalyear )

2019

40

20

40

0

0

16,430

50

31.38

5

0

150.00

28.63

31.48

31.17

10

20

15,994

Sales percentage of precious metal plugs andwide-range oxygen sensors/NOx sensors

25

8

15,322(%)

35
30

14,92650

Against the background of M&As in and outside Japan, etc., theconsolidated number of employees tended to increase.

(10,000 tons)

10.0

80

64.4

IFRS

14,5242015

CO2 emissions

ROIC: Operating income after tax/Invested capital

40.6

5,000

470

Return on invested capital (ROIC)
Equity ratio attributable to owners of the parent

42.5

44.9

0

2015
■

41.3

43.2

10,000

0

0

2015

815
479

(%)

25,000

953

915

816

48,44746,4442018

44,335

7.4

40,000

0

2016

12.0

9.1

0

2015

J-GAAP

30,81513.7

200,000
100,000

426,073
20

16.4

14.4

426,207

Non-financial Highlights

2016

2017

2018

2019

Number of female/foreign-national/mid-career employees in managerial posts
Percentage of female/foreign-national/mid-career employees in managerial posts( Fiscalyear )

100

(%)

96

95

100

48

50

58
48

100

96

80

58

60
40
20
0

2015

2016

2017

2018

2019 ( Fiscal
year )

Earnings per share decreased year on year due to a decrease in the profit
attributable to owners of the parent.

We are aiming at providing stable dividends, with the goal of a payout
ratio of 30% or more. In FY2019, the interim cash dividend was 35 yen
per share and the year-end cash dividend was 35 yen per share; therefore,
the full-year cash dividend was 70 yen per share. The payout ratio cameto 42.9%.

As a goal of one of our Priority Issues, Global Human Resource Management,
we are promoting the diversity of management personnel, raising thepercentage of women, foreign nationals and mid-career employees inmanagerial posts. We have set a target of increasing the percentage to 25%.

A total of about 50 employees, male and female employees combined,take childcare leave every year. The return-to-work rate has remained
consistently high over the years.

Capital expenditures/depreciation

R&D expenses

Number of paid-leave days used (non-consolidated)

Number of reports from whistleblowers

J-GAAP(millions of yen)

60,000IFRS

40,00020,00030,00056,587
48,77145,33936,328
16,83751,00437,591

19,601

20,92023,97930,18623,123

31,952

0

2015
■

2016

Capital expenditures ■ Depreciation

2017

2018

J-GAAP(Millions of yen)

2019

( Fiscalyear )

23,41625,28328,072

28,797

IFRS(Number of days)

28,31530

20,00020

10,000

10

0

0

2015

2016

2017

2018

2019

( Fiscalyear )

Our ratio of R&D expenses to sales had traditionally been approximately
5% to 6%. It reached 6.6% in FY2019.

Capital expenditures for the past five years have totaled 200 billion yen in anticipation ofincreased sales of the automobile components business. Depreciation has increased overthis period accordingly.

73.39

75.64

78.52

14.42

14.85

15.41

2015
Number of paid-leave days used
*Fiscal year starts October.
■

(%)

2016

84.36

100

80

80

60

60

40

40

20

20

0

0

16.56

2017

2018

Rate of paid-leave days used

(Number of reports)

100( Fiscalyear )■*Fiscal year starts October.

50

54

2015

2016

Number of reports from whistleblowers

65

2017

73

2018

80

2019

( Fiscalyear )We are promoting the Corporate Ethics Helpline, an internal reporting
system, on an ongoing basis, mainly by holding seminars, creating
posters and distributing pocket-size cards. As a result, the number ofreports received has been on the rise.

The management and labor cooperate in encouraging use of paid leave,
and the number of paid-leave days used is increasing, as a result. The
total annual number for FY 2018 averages 19.63 days per person.

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30

3

CONTENTS
33

Looking Back on Years under the Long-termManagement Plan “NITTOKU SHINKARON”

35

Risks and Opportunities in the External
Environment

Growth Strategies
NGK SPARK PLUG formulated its long-term
management plan “NITTOKU SHINKARON” in FY2010
and subsequently worked to achieve “Our Ideal Image

New Long-term Management Planin the Year 2020.” Having reached the year 2020, we

372030 Long-term Management
Plan “NITTOKU BX”

have now formulated the 2030 Long-term Management

43

NGK SPARK PLUG’s Innovation

plan for 2030, which we regard as a milestone year for

45

The Finance Officer Outlines the
Financial Strategy

our growth over the next 20 years.

Plan “NITTOKU BX” as our new long-term management

We will implement new strategies under this newplan, while at the same time looking back over the past
10 years to identify and solve any remaining issues.

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32

Morimura Group

Stories for Value Creation

Business Infrastructure
to Support Sustainable Growth

Growth Strategies

Business Strategy

Looking Back on Years under the Long-termManagement Plan “NITTOKU SHINKARON”
The “NITTOKU SHINKARON” is NGK SPARK PLUG’s long-term management plan with the final year set as FY2019.

Achievements made for “Our Ideal Image in the Year 2020”

Under this plan, through the 3-year phases of “Delving,” “Renovating” and “Evolving,” we have been seeking toUnique core technology

become the No. 1 leading “Monozukuri” company that delivers real value to customers across the world, a highly
profitable company, a progressive company and a human “asset” company toward the goal of delivering “RealMonozukuri
Company

Optimum quality created by all-employee participation andmanufacturing/technological innovation
The No. 1 leading company delivering “Real Value”

Value” to all our stakeholders by 2020. In the following we will look back on the 10 years that we spent under the plan.
Long-term Management
Plan: NITTOKU SHINKARON (FY2010 to FY2019)

Global manufacturing and sales networks

HighlyProfitable
Company

Seventh medium-term management plan(for FY2016 to FY2020)

Speedy, flexible business development capable of adapting
to change
Sustained growth through strategic investment
Corporate governance system for elevating corporate value

NGK existing

Spark business
Plug

Renovating

Delving

Evolving

FY2010 to 2012

FY2013 to 2015

FY2016 to 2018

Delve into existing
business and seek
new business

Launch new products
or new business

Develop existing and new
businessat an accelerated rate

Operations that will support the development of society

269,232
10.7
2010
Sales revenue (millions of yen)

15.7

8.6
24,47828,770347,63617.9

329,758

7.8
23,7542011

51,661

2012

Operating income (millions of yen)

2013

62,1962014

Evolving

17.3
66,284
2015

2016
(FY)

Operating income ratio (%)

BasicpolicyEstablish footing for a strong business foundation and further
development

Make maximum use of management resources, implementing boldchallenges in new business areas and sectors toward “Evolution”(1)Restructure and solidify current businesses via stronger“Monozukuri” abilities(2)Develop new products for the next generation via new R&D
structure(3)Strengthen organizational abilities via strategic use of personnel
resources(1)Provide new value in promising new areas via strategic marketing
activities(2)Not only strengthen current core competencies, but also develop
new core competencies(3)Recognize that human “assets” are what will “Renovate” thecompany and accelerate the renovation of the company via
designating and achieving our own commitments

To enhance our “Monozukuri” abilities, we established a Monozukuri
center to make profound use of our competitive strength in plugs
across all our businesses. We also separated technologicaldevelopment and new business development functions to takespeedier actions under the direct control of the president, whilereforming the personnel system on a global basis. We also reduced
the number of directors to enhance the governance and transparencyof management and to speed up managerial decisions.

Before launching new businesses, we discontinued the production of
the organic package, transferred the dielectric business and made anasset transfer in the business of ceramic tubes for vacuum circuit
breakers for the “selection and concentration” of our businesses.
Meanwhile, we acquired all shares of NIHON CERATEC (presently NTK
CERATEC), put BIDEMICS on the market as a new cutting tool,
established a division for fuel cells and released hydrogen leakdetection sensors. We thus created a range of new businesses andproducts.

2010 • Founded the CSR Committee
2011 • Established the CSR Policy
2012 • Decreased the upper limit of the number of directors from 25
to 13 introduced the corporate officer system

2013 • Appointed an outside director• Launched DIAMOND (Women’s Empowerment) Project• Began holding global personnel conferences
2014 • Increased the number of outside directors to two
2015 • Formulated the criteria for the appointment of independent
directors• Began assessing the effectiveness of the Board of Directors• Established the working style reform committee• Examination of the direction for the structural reform of thesemiconductor business• Strengthen technical ceramics divisions• Strengthen control functions and globalization of headquarters
divisions• Thorough CSR• Improve organizational abilities• Break away from 80%-plus reliance on internal combustion engines• Share and strengthen internal technologies; and establish
a commercialization promotion structure• Create new businesses• Strengthen management foundations toward business growth• Improve organizational abilities

RemainingissuesSales revenue (millions of yen)

Target520,000

Target
20% or more

426,207
10.9

Target46,44458,38520172018

Operating income (millions of yen)2019

100,000
2020(FY)

Operating income ratio (%)*Foreign exchange rates (for 1 dollar/1 euro)
FY2016 (108 yen/119 yen) FY2017 (111 yen/130 yen) FY2018 (111 yen/128 yen) FY2019 (109 yen/121 yen) FY2020 (115 yen/120 yen) *Rates as of April 2016, when the announcement was made.
*We started to apply IFRS from FY2020; however, Japanese GAAP was applied for the above FY2019 and FY2020 figures.

Accelerating Current & New Businesses

Renovating

Delve into existing business and seek new businessESG
measures

Real Value (FY2016 to FY2020)

67,27953,595

Concept

Achievements• Formulated the Nittoku Way
The Nittoku Way refers to the values of the NGK SPARK PLUG Group
that all employees commit to sharing and passing down to the next
generation.

425,01313.7

409,912
16.4

372,919
14.4*FY2010: 86 yen/113 yen; FY2011: 79 yen/109 yen; FY2012: 83 yen/107 yen; FY2013: 100 yen/135 yen; FY2014: 110 yen/139 yen; FY2015: 118 yen/132 yen

Issues to
focus on• Fostered discussions including those with outside directors andenhanced governance• Conducted strategic M&As and formed JVs(WELLS, Japan MDM, NTK CERATEC, CAIRE, MORIMURA SOFCTECHNOLOGY, CECYLLS)Net sales, operating income and operating income ratio (FY2016 to FY2020)

383,272*Foreign exchange rates (for 1 dollar/1 euro)

Delving• Achieved an operating income ratio of about 15% on average for fiveyears
• Increased the overseas production rate from 30% to 40%• Launched the RHQ system for empowerment and enhanced theGroup’s abilities

Looking back on the years under the seventh medium-term management plan

Sales revenue, operating income and operating income ratio (FY2010 to FY2015)
302,798

Framework that allows people to be autonomous,
challenging and active
High professional pride and company loyalty

Renovating (FY2013 to FY2015)

284,746

Fair corporate culture in which diverse personnel can further
excel

Human Asset
Company

Looking back on the Delving and Renovating years

Delving (FY2010 to FY2012)

Assertive dialogue with stakeholders and contribution topeople around the world

Progressive
Company

Real
Value

• Established an overwhelmingly strong position for spark plugs• Took the top spot in the exhaust gas sensor market

Delivering “Real Value” to all stakeholders in FY2020

Launch new products or new business1

Establishing new
business pillars

23Strengthening current
businesses

Establishing strong
business infrastructure

FY2016FY2017FY2018FY2019Substantially increased shipment for both plugs
and sensors and boosted profit by streamlining
production and reducing the cost (but profit
nonetheless decreased year on year due tostrong yen). Made progress with the structuralreform of the semiconductor business,“selection and concentration” of products
and rationalization including personnel
reduction, thereby greatly increasing revenue
in the business. To solidify the managementfoundation, launched new organizations andprograms with a focus on human resources.

Successfully implemented the strategy for the
Chinese market, as upheld in the seventh plan,
thereby expanding sales and profit. Increased
operating income by rationalization and cost
reduction for productivity improvement. In the
structural reform of the semiconductor business,completed the consolidation of production
bases for higher productivity. Also improved
the product mix by expanding the shipmentof packages for smartphones. For speedierdecision-making, fostered the GHQ-RHQ plan
and localization.

Increased shipment for plugs and sensors
as well as the ratio of high value-added
products, thereby improving the productmix. However, unable to cover increases inthe expenses incurred outside the scope ofexisting businesses, such as the packaging& transportation cost, new business-related
cost and SG&A expenses for infrastructure
improvement. Fostered the building of asystem to establish a global supply chain as acore issue identified in the three-year Evolving
stage, and began conducting tests for thesystem in Europe.

Due to COVID-19, the automobile industry, alongwith others, faced economic stagnation on a global
basis. Despite this, NGK SPARK PLUG promoted
sales of high value-added plugs and sensors,
and as a result sales increased year on year in
the automotive components business, excluding
the impact of foreign exchange rate fluctuations.
In the semiconductor business, we achieved thetarget of recording profit on a yearly basis for
FY2019, which we set in the seventh mediumterm management plan. As for new businessdevelopment, we established a new company forsolid oxide fuel cells.

•Increased the number of outside directors
to three•Joined the UN Global Compact•Began a program to develop the next
generation of global business leaders•Founded the Working Styles Reforming Office•Formulated the “Global Eco Vision 2020”•Established the Nomination and Remuneration
Committees•Introduced the performance-linked stock
remuneration system•Turned overseas bases into regional
headquarters (RHQ)•Designated as ESG investment stock•Certified as Bronze Class at the SustainabilityAward 2017
•Certified as one of the Excellent Enterprises
of Health and Productivity Management 2018(“White 500”)•Certified as one of the New Diversity
Management Selection 100 companies•Established the Diversity Promotion Section•Full compliance with the revised Corporate
Governance Code•Included in the DJSI Asia Pacific Index for two
consecutive years•Certified as a Nadeshiko Brand company•Concluded with Komaki City a cooperationagreement to assist people who need special
medical care for home oxygen therapy•Certified as one of the Excellent Enterprises
of Health and Productivity Management 2019(“White 500”)•Published the Sustainability Data Book
•Certified as BRONZE CLASS in the Overall
Category and as SILVER CLASS in the
Industries Category (Glass and Ceramics
Products) at the SUSTAINA ESG AWARDS
2019•Certified as one of the Excellent Enterprises
of Health and Productivity Management 2020(“White 500”)•Response to contraction in the use of internal combustion engines and movement toward EVs and electrification: We are conducting examinations about products for EVs in cooperation with external partners, thoughdemand for ICE engines is still growing.
•Development of new businesses: We have sown seeds, which now have to be grown.
•Fair corporate culture that allows for diverse individuals to reach their potential: While the number of female managers increased and a foreign national was appointed to the position of corporate officer in the Evolving
phase, the rates should be further increased, and it will take more time for the establishment of such a corporate culture.
•Enrichment of corporate governance: While measures were taken to ensure compliance with the revised Corporate Governance Code, there remain issues regarding the implementation of rules at the GHQ and RHQ.

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34

Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

Risks and Opportunities in the External Environment
The markets surrounding NGK SPARK PLUG are entering a transitional phase, and our businesses are facing
significant changes.
We aim to identify short- to medium-term and long-term risks and opportunities, and to maximize profit inexisting businesses, while also turning risks into chances and boldly embarking on the challenge of creating new
businesses that look to the future.

NGK SPARK PLUG’s viewpoint

Decline in the number of internal combustion engine vehicles

External environment

NGK SPARK PLUG’s measures

Risks and opportunities

Optimize production and increase competitiveness to expand market share

Risk

Stricter environmental regulations

Opportunity

Increase market shares of high-performance plugs and sensors

Expanding demand for automobiles in emerging economies

Opportunity

Improve the production systems of local plants

Opportunity

Enhance marketing, provide maintenance services that meet individual lifestyles, increase electrical efficiency by the use of ceramiccomponents, and offer MaaS to meet specific needs

Effective use of renewable energy

Opportunity

Store electricity and energy derived from renewable energy sources ⇒Develop SOECs and all-solid-state batteries

Distributed power sources, and local production and local consumptionof energy

Opportunity

Develop devices for distributed power supply ⇒Develop and commercialize fuel cell batteries and all-solid-state batteries

Information &communication

Expansion of demand for semiconductors due to theenhancement of communication performance

Opportunity

Develop 5G and 6G high-speed communication devices and related components

Medical treatment andhealthcare

Expanded demand for devices for optimal treatment, disease
prevention, health management and recuperation

Opportunity

Conduct the respirator business, provide artificial bones and derivative products by applying ceramic materials and offer
non-invasive treatment and disease prevention devices/services by the use of ultrasound technology

Sensing

Expansion of the sensing field

Opportunity

Make use of sensing IoT technology to foster automation, optimization and generalization for higher business efficiency

Mobility
Global environmental issues

Climate change
Decarbonized society
Environmental destruction

International issues

Protectionism
Emerging economies
Disparities in society

Change in people’s preferences regarding transportation means andconsumption

EnergyRisk

Human rights

Establishment of a society
where economic development andresolution of social issues
are compatible

Robots, automation,
labor saving
Artificial intelligence (AI)Sensing IoTNanotechnology
Biotechnology
Aging society with adecreasing birthrate
Diversity
Pandemic
Earthquakes
Work-life balance

Environment

Society

Introduce environmental technologies ⇒ Introduce energy-saving equipment and renewable energy

Reduction of greenhouse gas emissions for a carbon-neutral society

Risk

Stricter regulations on hazardous chemical substances

Risk

Effective use of water resources

Risk

Diversification of human resources

Risk

Opportunity

Secure professionals through mid-career employment, implement educational programs for manager candidates, reemploy
employees reaching the mandatory retirement age and encourage the employment of foreign nationals

Diversification of work styles and values

Risk

Opportunity

Diversify work styles and provide work-life balance support systems (telecommuting, shorter working hours)

Promotion of employees’ safety and health

Risk

Opportunity

Foster health and productivity management and promote anti-pandemic measures

Respect for human rights

Risk

High-quality products and services

Risk

Opportunity

Adhere to the “Quality Product” principle, and build and develop an even stronger quality management system

Diversification of managerial human resources

Risk

Opportunity

Diversify managerial experiences and skills in response to changes in the management environment ⇒Increase the ratios of outside directors, female directors and non-Japanese directors

Opportunity

Foster DX ⇒ Foster digitization and visualization at plants and offices and in logistics, accounting and personnel operations

Speedier managerial decisions

Opportunity

Replace hazardous chemical substances used in products with alternatives and spread the use of lead-free piezoelectricmaterials
Reduce water use at high-risk bases

Identify the impact of our business and implement measures

Governance
Measures for information security

Risk

Strengthen CSIRTs and incident-response organizations and foster awareness-raising activities

Earthquakes and disasters caused by climate change

Risk

Make BCPs and enhance the supply chain

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36

Morimura Group

Stories for Value Creation

Business Infrastructure
to Support Sustainable Growth

Growth Strategies

Business Strategy

New Long-term Management Plan

2030 Long-term Management Plan “NITTOKU BX”
NGK SPARK PLUG has formulated the 2030 Long-term Management Plan “NITTOKU BX”, deeming 2030 as a2030 Long-term Management Plan

milestone year for the growth of the company over the next two decades. We will provide an overview of this plan.

Changes in the external business environment

2040
VisionChange drasticallybeyond the current way
Delivering new value in the face of an ever-changing future.

To meet large-scale global environmental changes, we too must change.
Creating an organization comprised of passionate individuals working together
to face challenges head-on in order to a better society.
We are transcending imagination with technology that transcends boundaries.
We are more than just a ceramics andAccording to these graphs, which forecast
the sales volume of new automobiles andthe numbers of automobiles owned bypeople around the world, the number of
those equipped with internal combustion
engines will continue to increase until
around 2030. However, in the middle ofthe 2030s, the number will peak and begin
to go down. We therefore need to shift
to a business structure that does not relyon the sales of products used in internal
combustion engines by the middle of the2030s.

Millions of units

Millions of units

140

2,500

120

2,000

100
1,500

80
60

1,000

40
500

20
0
2015

2020

2025

2030

2035

2040

2045

0
2015

2050

Worldwide sales of new automobiles
■

FCEV

■

BEV

■

Diesel

■

PHEV

■

FHEV

2020

2025

2030

2035

2040

2045

2050

Number of automobiles owned by people around the world
■

MHEV

■

Spark Ignition ICE

Equipped with internal combustion engines

Source: Forecasts made by NGK SPARK PLUG based on data provided by IHS Markit Automotive through its “Mobility and Energy Future” service

we are going in new directions.

Transformation of the business portfolio

2040 Vision and the Long-term Management Plan
For the solution of various social issues, we need to search for a new way of doing business by thinking beyond “What ceramics
can do.” We aim to meet the challenge of going “beyond ceramics” and “exceeding the imagination” of society and ourselves,
thereby changing “drastically beyond the current way” in 2040. We have created the 2030 Long-term Management Plan
“NITTOKU BX” by backcasting from the 2040 Vision. We regard 2030 as a milestone year to ensure we are on the right pathheading into 2040.

NGK SPARK PLUG is currently doing business with a focus on internal combustion engines (ICE), but in the future, we need to
be involved in more than ICE business and embrace the challenge of starting new businesses to transform our business structure.
Specifically, as the 2040 targets, we aim to decrease
Sales revenue composition
the proportion of ICE business in our total Sales
revenue from the current 80% to 40% while raising thatof non-ICE business from the current 20% to 60%,
Non-ICE business
60%
thereby transforming our business portfolio. To achieve
40%
these targets, we will decrease the ratio to 60% and4,262billion yen
increase the ratio to 40% for ICE business and non20%
ICE business, respectively, as milestone targets for2030 under the 2030 Long-term Management Plan
60%
ICE business
40%“NITTOKU BX”.
80%

2020

2030

2040

Structure of the 2030 Long-term Management Plan “NITTOKU BX”
The 2030 Long-term Management Plan “NITTOKU BX” is a plan composed of three medium-term management plans: theseventh medium-term management plan (the last year of which is the first year of the long-term management plan), a four-year
medium-term management plan and a five-year medium-term management plan. We will further concretize this 10-year plan.

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38

(FY)

Morimura Group

Stories for Value Creation

Business Infrastructure
to Support Sustainable Growth

Growth Strategies

Business Strategy

New Long-term Management Plan
2030 Long-term Management Plan NITTOKU BX

Guiding principle

Strategy:

We have upheld “Change with Will” as the guiding
principle for the 2030 Long-term Management Plan.
Specifically, with a strong commitment (“Will”), we
will foster “Change” for coexistence with society
and people. We aim to reform our organizations
and business structure with speed to make ourcompany one that can coexist with stakeholders
from a global perspective. We will instill this guiding
principle in our employees for the achievement of
the targets set in the plan.

Business fields to focus on
We are focused on both existing and new businesses in four fields: Environment & Energy, Mobility, Medical, and Communication.
Our core competence includes ceramic materials technology, sensing technology and a global production/sales system. We will
add “Something New” to these to create new value and foster “Open Innovation” both internally and externally, thereby achieving
further growth in the four fields.

“Business Portfolio Transformation” for Growth

As the mainstay of the Long-term Management Plan, we will foster “business portfolio transformation.” As for ICE-related
business, we will be able to expand revenue and operating income until 2030 in line with an increase in the number of
ICE-equipped automobiles. In anticipation of the business environment in 2040, we will pursue rationalization, higher
efficiency and selection and concentration. For the “Environment & Energy,” “Medical” and “Information” businessdomains, which are new to us and are not currently contributing to our profit, we will expand sales and profitability ineach in the lead-up to 2030, aiming to turn these businesses into our profit pillars in 2040, although their operating
income margin may be still low in that year. We will increase efficiency in our ICE-related business with a focus on
making profit, use the cash gained in that business for the growth businesses and achieve a profit growth rate that ishigher than the market growth rate for the businesses. For new businesses, we will strictly screen the business themes
to be continued, thereby promoting the “metabolism” of the businesses.
In order to promote this kind of business portfolio transformation, it is essential to achieve the following three aims:
management innovation, clarification of responsibilities and authority, and willful cultural change. We will break ourdependence on ICE-related business based on this recognition.
Sales revenue composition

Secure profit while transforming
the business portfolio

ICE business

Mobility To a mobile societythat is fun and convenient

Environment Energy To anenergyefficient andenvironmentally friendly society

Growth businesses

1%

New businesses

17%•Providing maintenance services

ICE business

30%

according to your lifestyle•Using sensing technology improving
industrial efficiency•Stable supply of regenerated energy

10%•Improving electricity by ceramicSuper-high efficiency and cash generation

components•MaaS Providing services to fit
special needs

Environment &EnergyMobility

Growth businesses
82%

Dramatic development exceeding themarket growth rate60%

New businesses“Metabolism” of themes andcommercialization of cutting-edge themesCore
Competence*
FY2019 (Result)

FY2029 (Forecast)*Numerical targets considered before the COVID-19 outbreak

Medical To bring advanced
medical care to people all over
the world

MedicalCommunication•Applied ceramic materials to artificial
bone•Non-invasive diagnosis and treatment,
provision of preventive equipment andservices using ultrasound technology

Communication A highspeed communicationsociety where virtual andreality are connected•Supporting high-speed
communication, provision of
infrastructure parts

Specific measures

1

Management
Innovation

2

Clarification of
Responsibilities
and Authority

3

Willful Cultural
Change•Small, strong and agile head office to support business portfolio transformation•Quick management decisions supported by DX⇒P.41•Strong authority and strict responsibilities to promote portfolio transformation•Build an optimized structure and system for each business⇒P.41•Undertake culture reform and strengthen the Group’s abilities⇒P.42*Ceramic material technology, application technology in harsh environments, disparate material bonding technology, sensing technology, rapid high-temperature heating technology, andglobal production and sales system

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Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

New Long-term Management Plan
2030 Long-term Management Plan NITTOKU BX

1

3Management Innovation

Create a strong, small, and agile head office. Supporting to speed up management
decisions, and business portfolio transformation
As a tool to speed up, we have invested digital infrastructures. Organically connecting , and producing the information necessary
for management decisions that were not seen before.

As a tool to speed up management decisions, we will organi-

Global HR

Cloud

Factory

Connected to

Revamped

databasesystemdigitizationeach baseconference system

Willful Cultural Change

Change the company, strengthen the Group, and achieve “change beyond recognition”
In order to foster management innovation and clarification of responsibilities and authority as explained above, it is important toraise the awareness of both the management team and employees alike. Each group needs to think about the meaning of theirrespective duties, being well aware of the guiding principle “Change with Will” as well as the need to “change drastically beyond
the current way” and add “Something New” to increase their own value. This will help NGK SPARK PLUG to change from a“defensive company” to an “offensive company.” We will also press forward with reforms for diverse and flexible work styles/
lifestyles and to make our company one that can coexist with others by accepting mutual diversity.

cally foster DX investments tomake invisible information visible.

Inventory database2

Logistic
systemInventory
tracking

Accounting system

Strengthened
security

Clarification of Responsibilities and Authority

We will speed up management operations even more. Specifically, in addition to proactively appointing external human resources toassume core positions, we also think it necessary to introduce performance-based rewards and evaluation systems that are suitablefor each type of business, including growth businesses, stable businesses and those that need to be fundamentally reformed.
We are also conducting specific examinations with a view to introducing an in-house company system and performing a spin-off.
Moreover, based on the 2040 Vision, we will consider changing our corporate name in the future.

Promotion of culture
reformFrom conservative to progressive
culture Pursue“IGNITE YOUR SPIRIT”
Foster common values and think
optimally for all

Promotion of work styleand lifestylereforms

Promoting diversity

Promote work outside the company, Promote the employment of women,
including telecommuting Flexibility offoreign nationals and mid-career
working hours and multiple shifts
hires (ratio of these to the total
Productivity improvement (30%number of managers: 25%) Proactive
improvement from FY2019)use of external human resources

Management target
Purpose•Recruiting people suitable fora field and position
Concrete measures•Promotion of appointment to
key positions

PurposeAdapting
Achievements,
Rewards & Evaluation
System to eachbusiness

Activeappointment of
external humanresources

Concrete measures•Establishing organizational
design, empowerment
according to business field

Concrete measures•Construction of the system thatis suitable for each business

Purpose•Accelerating “Dokuritsu Jiei
(take actions by oneself)”•Adapted compensation &evaluation system to eachbusiness and secure excellent
human resources.

PurposeChange Division
System toCompany System
or Holdings

Company namechange•“Break, to change" astatement of determination

Concrete measures

The 2030 Long-term Management Plan “NITTOKU BX” shows the midway milestone for our 2040 Vision. Under this plan, we
will strive for business portfolio transformation, clarification of responsibilities and authority and investment in new businesses. Inline with the guiding principle, “Change with Will,” which should be followed by all employees, we will achieve “Beyond ceramics,
eXceeding imagination.” For the management targets for FY2029, we aim to achieve an operating income ratio of 15% or more,
ROE of 12% or more, and ROIC of 10% or more.

Operating income ratio

15or% more(FY2019: 10.9%)

ROE

12

ROIC

or

% more(FY2019: 8%)•Unification of Japanese andEnglish•Names Rebuilding of a brandsystem, etc.

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42

10

or

% more(FY2019: 7.7%)

Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

New Long-term Management PlanNGK SPARK PLUG’s Innovation
Flow to the launch of a new business
Incubation

Broadening of the scope and expansion of the area

Check

Check

Business ideas

Launch of a new business

Check

Break the Old Mold to Speedily
Develop a New Business for
the Solution of Social Issues

New business
Lots of ideas are screened to speedily
make a development plan

Verification using a simplified sample
Plan for the launch of a new business

Launch of the business and expansion of the area

Representative Director, Member of the Board, Executive
Vice President

Toru Matsui

Inputting resources intensively, targeting eight themes
technologies and sales networks. For the resources that we
do not own, we will gain access to them through M&A andpartnerships with other companies.

As described in the new long-term management plan, we will
intensively input resources targeting the following eight themes.
We can achieve most of the targets by using our existing

Establishing the Global Innovation Division to enhance the system
As for the fields to be focused on, we will input resources
intensively into specific fields within the following large businessdomains: “Environment & Energy,” “Mobility,” “Medical” and“Information.” At the same time, we will create new businesses
in fields at the periphery of our major business fields, thereby
expanding our markets and developing multiple businesses
through one breakthrough.
The challenge that we should meet now is to reform
our mindset. For example, we have been listening to ourcustomers’ opinions in our marketing activities, but we are notgood at leading the creation of a market. Also, we are strongly
committed to searching for seeds and technologies and goodat conducting extensive research into the seeds. However, I
am afraid that we are poor at hitting on new ideas to turn theseeds into products.
Concerning these issues, we will work to uncoversolutions, but not by sticking to our conventional methods.
I have long experience in sales activities in the automotive
components business but am an “amateur” in thedevelopment of new businesses. However, because ofthis lack of experience, I think I will be able to address therelated issues from a new viewpoint and not be trapped byconventional ideas.

In April 2020, NGK SPARK PLUG established the Global
Innovation Division to accelerate its measures for new
businesses. The automobile industry is going through a oncein-a-century period of change, and our existing business with
the industry will reach its peak in the middle of the 2030s andthen begin to trend downward. Based on this assumption,
we have been working tirelessly to create a new business in aproactive manner.
It is, however, not easy to create a new business. You can doit successfully only a handful of times out of 1,000 attempts.
It also takes time to make a new business sustainable, andso we need to buckle down for the long haul to develop a
new business.
NGK SPARK PLUG has been searching for new businessseeds by taking all possible approaches and making a concerted
effort on a firm-wide basis and across all divisions, not just at
the R&D departments, such as the Engineering R&D Group andthe Business Development Division. For the future, we need to
conduct activities to create and grow new businesses in a rangeof fields while moving in the same direction as a whole. To thisend, we established the Global Innovation Division. Its mission
is to establish new profit pillars to support the company in andafter 2030.

For the speedy launch of a new businessbusiness development: solution-based development
and technology-based development. Technology-based
development represents our traditional development method,
but we have added a new aspect to it. When developing
a new business, we used to aim for the supply of a newcomponent as the goal, but now we aim to propose
applications and offer related services in addition tocommercializing a new product.

Concerning the flow to the launch of a new business, wewill adopt the “agile development*” method when applying
existing technologies for the development of a new business,thereby shortening the lead time. NGK SPARK PLUG did nothave enough experience in the agile development method
and so we appointed Mr. Dirk Schapeler to head up the
Global Innovation Division, as he has abundant expertise
regarding the method and new business development.
We have also adopted a two-pronged approach to new

Energy-efficient and environmentally friendly society•Use sensing technology that improves industrial
efficiency•Stable supply of renewable energy

Mobile society that is fun and convenient
Environment &EnergyMobility•Provide maintenance services tailored to users’
lifestyles•Improve electrical efficiency with ceramic components•MaaS to meet special needs

Society that brings advanced
medical care to people all over the world•Apply ceramic materials to artificial bones•Non-invasive diagnosis and treatment, and provisionof preventive equipment and services using
ultrasound technology

MedicalCommunication

High-speed communication society
where virtual and reality are connected•Support high-speed communication and its
infrastructure

Toward the creation of value that only NGK SPARK PLUG can provide
We are already looking to “Something New.” As aresult of promoting the use of external human resources,
employees are now getting more inspiration from one
another. There are some young employees who are
working with mindfulness. I would like to change thecorporate culture under the leadership of these individuals.
I feel that employees are otherwise confining themselvesto their field of specialization and tend to have a narrowperspective. I would like to get them out of their shells.
As mentioned above, NGK SPARK PLUG appointed aforeign national to serve as head of the Global Innovation
Division as the first appointment of a foreign national tolead a head office division in the history of the company.
When working to develop a new business, we mightface uncertainties and a chaotic situation. However, wehave human resources who are ready to tackle suchsituations and are actually doing it with autonomy. We
will make use of the power of these human resources tofoster innovation. Looking ahead to the next term, we canalready see the light.

Last May, I had an opportunity to participate in an
exhibition held with the participation of startup companies.
Through the event I learned that startups were launchinga range of businesses with passion and a strong
commitment to solving social issues for the creation of asustainable society. It helped me reaffirm that innovation
starts with a commitment to sustainability.
There are many companies besides startups thatwork for the solution of social issues. For NGK SPARK
PLUG, as one such company, to make contributions inthis field, it is important that we have value that only we
can provide. We need to offer uniqueness through our
products if we want to sell them, and if we cannot sell
our products, we cannot make contributions to society
through them. We need to meet this great challenge ofbuilding competitiveness with uniqueness.
I think we can address specific issues by combining
technologies that are relatively robust, if not absolutely soHowever, because we view things in a limited manner, ourproduct lineup is also limited. I think we need to take abroader view of things to broaden the lineup.

* Agile development: Development method designed to shorten the lead time

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Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

New Long-term Management Plan

The Finance Officer Outlines the
Financial Strategy

Distributing the cash gainedin ICE business in a balancedmanner to multiple businesses,
including new and growthbusinesses, while maintaining
a robust financial structure

by increasing the sales of high value-added products, suchas precious-metal plugs and wide-range oxygen sensors.
We have great earning power in ICE business andcan increase our profitability even more. Based on our
technological advantages and global sales channels, wewill continue to maintain high profitability. Also, for capital
investment, we have already completed large investments
in ICE-related business and will make only minor
investments in the future, specifically to repair or replace
our existing equipment. This will make it easier for us tomaintain high profitability.
By maximizing our performance in the coreautomotive components business, we will achieve an
operating income margin of 15% or more, which is one of
the targets set in “NITTOKU BX”.

Sales revenue composition
ICE business
Growth businesses
New businesses

1%
17%

10%

30%

82%
60%

Member of the Board Executive Officer
Corporate Administration Group

Kenji IsobeFY2019 (Results)

FY2031 (Forecast) *Operatingincome margin

10.9%

15% or more

ROIC

6.2%

10% or more

7.7%

12% or more

ROE

*Numerical targets considered before COVID-19 outbreak

Secure profit while transforming thebusiness portfolio

Recent features of our financial strategy
opportunity. I therefore think it essential to make investments
as needed. We thus continued to make investments also
when our sales were stagnant, which increased the ratioof SG&A expenses to revenue.
For R&D, I believe that the value of our company lies increating new products as a manufacturer with coretechnologies for ceramics and the ratio of R&D cost to
revenue has been high for years. We need to make R&D
investments on a continual basis for the 10 years targeted
under the 2030 Long-term Management Plan “NITTOKU BX”,
which we launched in FY2020 as our new long-term
management plan.
For the second reason, corporate expenses increased
as social demands for corporate governance and others
expanded. In order to meet such social demands, we mademore investments to build governance and compliancesystems as the management foundation, which increased
SG&A expenses. However, these investments are necessary
for sustainable corporate growth.

We are now in the final year of the seventh medium-term
management plan, which ends in FY2020. Recently, thegrowth rate of the cost of sales and SG&A expenses has
been exceeding that of sales, and there are two reasons forthis tendency.
For the first reason, we have been proactively making
capital and R&D investments. Anticipating an expansionof sales in the automotive components business, we haveinvested around 200 billion yen in equipment over the last five
years, while also investing in R&D as an upfront investment todevelop new businesses to transform our business portfolio
in light of the fact that sales of internal combustion engines
are predicted to reach a long-term peak.
For capital investment, the automobile industry attributes
importance to quality, and it therefore takes time to for us tocomplete the process from making a capital investment to
the release of a new product in the market. Accordingly,
we need to make investments earlier in the automotive
components business than in other businesses. Around thetime of the collapse of Lehman Brothers, we hesitated tomake capital investments and as a result missed a business

Balanced allocation of cash with a focus on growth investment
Specifically, we plan to allocate 20%, 25%, 20%, 10% and
25% of the cash to ICE business, growth businesses, newbusinesses, M&A and other development projects, andshareholders respectively.

As for the usage of earned cash, I think it is important to use
it in a balanced manner. For the next decade, we will allocate
the cash gained through ICE-related business in a balancedmanner to the SPE, medical, fuel cell and other growth andnew businesses, to M&A projects, and to shareholders.

Cash allocation for the period from FY2020 to FY2029 (on a cash-flow basis)

Shareholders

ICE business

25%

20%

M&A and otherdevelopment projects

Making better use of the earning power for higher profitability
a precondition for this, we need to secure profit steadily in
ICE-related business, which we expect to grow further until
FY2029. Even if the automobile market does not expand as
expected, we will be able to increase our revenue and profit

Toward FY2029, which is the last year of “NITTOKU BX”, we
aim to transform our business portfolio so that ICE-related
business and the growth and new businesses will accountfor 60% and 40% of our revenue, respectively. However, as

10%Growthbusinesses

New businesses

25%

20%
Proactively allocate cash to new andgrowth businesses

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Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

New Long-term Management Plan
The Finance Officer Outlines the Financial Strategy

Maintaining the rating and reinforcing corporate resilience based on a strong financial structure
60%. The appropriate capital adequacy ratio differs bycompany, but if we can maintain the rate of 60%, we will beable to continue to receive a stable high investment-grade
rating going forward.
In the future, we might face changes in our external
environment more frequently than before, with factors thatmight affect our business management including infectious
diseases such as COVID-19 as well as natural disasters andother risks that cannot be predicted in advance, along withlarge economic fluctuations. Based on this recognition, we
will continue to maintain a capital adequacy ratio of 60%
and a strong financial basis so that we can receive a highrating on a continual basis.

While the spread of COVID-19 is having an impact oncompanies, their resilience against the crisis seems todepend on the strength of their financial structures. The
impact of the infectious disease on our company is relatively
small, because we have a strong financial structure.
COVID-19 has also changed the ideas of shareholders andinvestors. “Before coronavirus,” we received many comments
calling on us to make growth investments and return profit toshareholders rather than retaining earnings within the company.
Now, however, the number of those who want this seems tohave decreased somewhat.
However, our capital adequacy ratio has been showing
a tendency to decrease recently and has dropped to about

Promoting ROIC management from a long-term viewpoint
is increased inventory. For OEM products to be supplied
to manufacturers, we need to have enough inventory
for immediate supply at all times as the basic rule. Due
to COVID-19, our sales volume temporarily decreased
for OEM products and so we should have cut down
the amount of raw materials that we ordered for the
manufacture of these products. However, we did not infact reduce the amount for the purpose of maintaining
the sustainability of the supply chain and the sustainablegrowth of the whole industry, and also in consideration of
the impact on suppliers of the materials. As a result, theinventory of raw materials expanded.
However, this is a temporary phenomenon andif the sales level returns to normal, the issue will be
resolved. For ROIC, we need to view it from a long-term
perspective. By using the ROIC tree more carefully and at
grassroot levels on-site, we need to link the ROIC target
upheld by the company with the ROIC target set by onsite employees.
We are facing these challenges and are still only
halfway to the goal for ROIC management. In the nextterm we will restructure the organization and introduce
an in-house company system, but we will continue topromote and enhance the use of ROIC as a performanceindicator.

In FY2016, when we launched the seventh medium-term
management plan, we introduced ROIC as a business
management indicator with an eye to eliminating thecorporate culture of attributing importance to PL.
Recently ROIC has been showing a downward
tendency at our company, and one of the causes of thisReturning profit to shareholders with a focus on the dividend payout ratio
allocate 25% of profit gained to shareholders on a cashout basis, with the dividend payout ratio at around 40%.
We will decide on the dividend payout ratio annually, in
consideration of the business environment for the year.
When we make profit, we will return it appropriately toshareholders but when we do not make profit, we will limit
the return. I believe that we can gain the understandingof shareholders and investors about this policy on thepayment of dividends.

NGK SPARK PLUG has been upholding the stablepayment of dividends as its policy on shareholder return,while continuing to review this policy on an ongoing basis.
In the society of the future, uncertainties will increase,and the economic cycle will become shorter. Amid thissituation, how should we return profit to our shareholders?
We have had repeated discussions on this question andhave changed our policy to focus on the dividend payout
ratio in and after FY2020. Over the decade to FY2029,
which is the period set for “NITTOKU BX”, we plan to

Steadily implementing the financial strategy to attain the targets
organization in the next term and launch new businesses,
we expect that we will be able to optimize our tax payment
through this consolidation when we have both profitable andunprofitable companies within the Group.
We will steadily implement these initiatives and thefinancial strategy for the achievement of the targets set in“NITTOKU BX”.

In FY2019 we introduced the International Financial ReportingStandards (IFRS) to the company, as we conduct businesson a global basis and nearly 30% of our shareholders areforeign nationals. By making financial reports based on the
IFRS, I think we can further increase the corporate value of
our company.
We also began making consolidated tax payment in April
2020. In consideration of the fact that we will restructure our

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4

Business Infrastructure
to Support Sustainable Growth
CONTENTS
51

Sustainability at
NGK SPARK PLUG

Corporate Governance55

68Interview with Outside Directors

Priority Issues

57

71

Management System

Response to Climate Change
and Environmental
Management

75

Corporate Governance System

82

Risk Management

Human Resources
Development to Ensure
Sustainable Growth84

Information Security

85

Measures against COVID-19

87

Compliance

61

65

Respect for human rights

66

Proper procurement

67

Stakeholder
Engagement

We have promoted internal reform to establish strong
business infrastructure as a key initiative set forth in theseventh medium-term management plan ending FY2020.
We will continue with reform efforts under the 2030
Long-Term Management Plan “NITTOKU BX”, started
FY2020, to enhance the Group’s organizational capacityand develop strong business infrastructure, with the aimof ensuring sustainable growth.

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Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

NGK SPARK PLUG’s Sustainability

Sustainability Adds to
the Company’s Strength
Linking Business to Social
Responsibility
Member of the Board
Executive Officer
Corporate Strategy Group

Mikihiko Katoare not aware will lead to achieving the SDGs.
To eliminate this gap between what employees do andtheir awareness, the Sustainability Promotion Department isshowing them examples of how the SDGs are incorporated
into their everyday operations in order to renew theirawareness of these global goals. It is expected that thisactivity of the department will encourage employees to see
the SDGs as an issue more relevant to them, realize that they
can do something, and explore what activities they canpromote, leading to the expansion of their initiatives for thegoals. While employee sensitization on issues of CSR has
been conducted since before the department wasestablished, I feel that the initiative by the department has
facilitated the implementation of such awareness-raising
activity.
The renewed promotion framework has helped thesenior management and employees begin to see the SDGs,
sustainability, and other key issues as something moreconnected to them, understand that the issues are clearly athand, and motivate them to advance CSR efforts.

Sustainability promotion framework
CSR and Sustainability Committee
Sustainability Promotion
Dept.

From “defensive CSR” to “aggressive CSR”

Risk Management
Committee

Our CSR activities have been conducted mainly by twoorganizations: The CSR Promotion Dept. and the CSR
Committee, both established in 2010. At the beginning, theactivities were based on the concept of “corporate social
responsibility = legal compliance” and thereby focusing
primarily on compliance issues—particularly the then hot
issue of prevention of unfair competition. This stance is what
is so-called “defensive CSR.”
In the meantime, in our business activities, we have beendeveloping spark plugs, oxygen sensors, and other productsthat meet environmental regulations in response to social
demand. While doing so, we began to realize that thesebusiness activities can also be considered as CSR activities ina broader sense. We also became aware that our daily
business practices must incorporate social responsibility,
such as the use of packaging of spark plugs, sensors, andother products designed not just to reduce costs andincrease usability, but also to minimize the environmental
impact upon disposal by customers. Thus, for us, CSR
activities now encompass a wide range of business practices,
including the development of new products that contribute tosolving social issues.
This change in our way of looking at CSR has coincidedwith a major social movement to spotlight the Sustainable
Development Goals (SDGs). In response to these internal andexternal trends, we have decided to clarify our shift in stancetoward “aggressive CSR” and renew our structure
accordingly.
More specifically, we have established the Sustainability
Promotion Dept. within the Corporate Strategy Group. The
CSR Committee has been renamed the CSR and
Sustainability Committee, and task force committees that
focus on various areas have also been reorganized.
Furthermore, the CSR and Sustainability Charter has beendeveloped to complement the Corporate Philosophy.
The CSR and Sustainability Committee is chaired by
Board directer. Committee meetings are held regularly twice ayear, attended by all the board directors including outside
directors and chairs of task force committees in areas
relevant to the meeting subject (environment, safety andhealth, quality, etc.).
In the meetings, the participants discuss the priority
issues set for each fiscal year and the chairs of task force
committees report on their activities. Company-wide CSR
activities are also evaluated and proposed, and this is when
the committee’s activities are most directly connected to thecompany’s management.
The Sustainability Promotion Dept., established within
the Corporate Strategy Group, works on diverse issues
including the SDGs in close connection with the senior
management and plays the role of a bridge between insideand outside the company. One of the major duties performed
as part of this bridging role is to communicate opinions andrequests from stakeholders outside the company—whichhave been increasing in number and variety recently—to thecompany’s senior management and, when necessary, explain
the company’s view and response to the stakeholders. The
department also serves a public relations function to actively
disseminate information on the company’s contribution to the
SDGs and news related to the company’s sustainability andCSR activities.
Another important role of the Sustainability Promotion
Dept. is to raise employees’ awareness of how their activities
lead to achieving the SDGs.
Even when employees are engaging in activities
associated with the SDGs, it is not necessarily the case thatthey are aware of it. As a matter of fact, there are many
activities currently underway at the company that employees

Compliance
Committee

Quality
Committee

Information Security
Committee

Environment
Committee

Safety and HealthCommittee

Corporate Philosophy and The Nittoku Way—the basis of our sustainability
The purpose of our existence, or what we are committed to,is stated in the Corporate Philosophy established in 1996.
Although the word “sustainability” is not mentioned, theprinciples lead to sustainability.
The Nittoku Way, on the other hand, provides our sharedvalues and manners in which we should act. It is a set ofprinciples structured and organized by tracing back thecompany’s history to Morimura Gumi, its roots, and byreflecting on its corporate mission with fresh eyes.
In 2017, when The Nittoku Way was drawn up, we wereexpanding our business vigorously through overseas M&As
and the creation of new business lines, which brought about
the rapid diversification of human resources and their values
at our Group. To consolidate the unity of the Group while
continuing the diversification of human resources, even during
such a transitional period for the Group, we established The
Nittoku Way, which clarifies our strengths, values and stance.

When we intend to change ourselves, we also need tothink about what should remain unchanged. This is where the
Corporate Philosophy and The Nittoku Way become
important. They contribute to our sustainable development.
We share these principles in training for new recruits anddifferent levels of employees and repeatedly tell employeesthat they are valuable for the company and must be
adhered to.
Corporate Philosophy, The Nittoku Way

Page 4

Another important guidepost for us is “Change with
Will!!,” action guidelines set out in our new Long-Term
Management Plan. “The key words with” (coexistence) and“Will” in the guidelines share underlying principles with the
Corporate Philosophy and The Nittoku Way, and “Change”
expresses our need to change on the foundation of thoseprinciples. We will ensure that employees will also become
familiar with this meaning of the guidelines.
Long-Term Management Plan

Page 37

Identification of Priority issues
Because stakeholders are diverse and their thoughts
vary, a key to effectively selecting the right priority issues withhigh materiality for stakeholders is to maintain objectivity. For
future selection, we, therefore, need a system that allows us
to objectively determine the level of materiality for each issue,
such as scoring each check item and prioritizing issues in

To formulate the new Long-Term Management Plan, we
identified material sustainability issues to which priority mustbe given. These issues were selected from the following two
perspectives: materiality for stakeholders and materiality forour company.
Priority issues

Page 55

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Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

NGK SPARK PLUG s Sustainability

accordance with the total scores.
When it comes to the materiality for our company, on theother hand, we have issues, such as compliance, that havealready been dealt with profoundly for many years and forwhich a management structure exists, as well as issues forwhich a management structure has yet to be put in place.
These two types of issues have been clearly distinguished,
and consensus has been reached within the company withregard to their order of priority.
We will work first and foremost on these issues with highmateriality selected from the two perspectives. Needless tosay, we will set key performance indicators for each check
item to accurately monitor the progress of our efforts.
Let me explain from the next paragraph how we willaddress some of the priority issues identified, for which
particular attention is required.

As we thus initiated the process of enhancing our risk
management and risk management awareness was risingamong employees, we were able to respond swiftly to theoutbreak of COVID-19 with the safety and health of employees foremost in our mind.
The COVID-19 pandemic also gave us an opportunity togain risk management experience. Such experience includes
the revision of the guidelines prepared at the time of outbreakof severe acute respiratory syndrome (SARS) several years
ago and the modification of parts of the guidelines that are
unfeasible to implement, as well as the verification of ourcontingency framework.
It is difficult to make perfect contingency plans by predicting what will happen in a crisis in normal times. We willcontinue examining and modifying the infection response
guidelines. We will, needless to say, also enhance preparedness against various other risks, including earthquakes andother natural disasters, through conducting drills and by othermeans.

Response to climate change
Climate change is a serious threat that may severely damage
the entire Earth in the future. If the climate changes radically,
its impact will go far beyond affecting the economy. Climatechange is already hitting many places so severely that wecannot remain indifferent to the issue. We have been fully
aware of the importance of the climate change issue andworking on various environmental tasks based on the Global
Eco Vision 2020, such as the reduction of CO2 emissions,
under the initiative of the Environment & Safety Management
Dept. We also declared our support for the recommendationsof the FSB Task Force on Climate-related Financial
Disclosures (TCFD) in July 2020.
In the next Global Eco Vision initiative starting fromFY2021, we will raise the bar on our efforts by replacing thecurrent targets on a basic unit basis with those on an
absolute value basis. Since our production is expected toincrease, setting targets on an absolute value basis can besaid to be very challenging. To achieve these targets, weneed some structural changes. We are planning toaccomplish the targets through the use of a combination ofmultiple measures, such as those for creating new energy
sources and turning sustainability efforts into new business
opportunities.
Climate change is not an issue that can be solved withina short period by one company alone. We will start to seetangible progress only when a large number of small waves
made by each company join together to create a big wave.
To be a part of such a big wave, we will move ahead withwhat we can do step by step.

Information security
Similarly to infection and natural disasters, information
security is also an issue with risks that need to be addressed
properly, including cyberattacks and other increasingly
complex and sophisticated network intrusion attacks. With
the aim of countering such threats, the Computer Security
Incident Response Team (CSIRT) has been formed to handle
any incidents that occur, as well as to provide education toand raise awareness of employees globally.
Information security is also a task that automakers andother customers expect us to fulfill. We have a system inplace that enables us to meet customers’ stringent
requirements and will beef up our efforts to prevent securityrelated incidents from occurring.

Global human resources management
At NGK SPARK PLUG Group, foreign employees account for
about 40% of the total. As the need for overseas business
management is increasing, and with a view to the future
expansion of our business domains, we must continue tomanage diverse employees. We have been shifting ourapproach to HR management from an “administrative” to a“strategic” approach. The establishment of the Strategic
Human Resources Department in April 2017 is one example
of such efforts. We now know about almost every employee
working with us globally.
Our global HR development program (“HAGI Program”)
has always included several foreign trainees. The program ismeaningful for trainees as it provides them with such adiverse learning environment, and an increasing number offormer trainees are joining the management of the company.
The third term of the program will start in FY2020. In
addition to this program, we will also provide a different
educational opportunity for those of younger generations
including foreign employees.

Risk management
Risk management is also another important priority issue forus. We established the Risk Management Committee in April
2020 as a task force committee focusing on this issue. The
task force committee will compile a company-wide risk map
and assess the impact of each risk based on the map toprioritize them.

someone’s personality you don’t like, if such a view or
personality is his/her strength, we need to fully leverage thatstrength. This is, in my view, what diversity is. We will proceedwith measures to maximize the potential of our personnel,
including women and foreign employees, from this kind ofbroad perspective.
With regards to the issue of participation of women, we
aim to raise the ratio of women in managerial positions. But I
personally feel uncomfortable about simply achieving thetarget number. Making continuous efforts to raise the ratio of
women in managerial positions itself should lead tostrengthening the company in the long-term.
I myself have been involved in many HR development
projects. What I felt from this experience is that the “seewhat-I-do-and-learn-from-that” approach does not work.
Instead, those in higher positions must acknowledge it to be
their duty to nurture their staff to become full-fledged
managers. Human resources must be developed with a clear
intention. Supervisors need to be prepared to do what needs
to be done, even as far as to expose both of their strengths
and weaknesses and tell their staff to become a better
manager than them. This is the way they can contribute to
the long-term growth of the company.

We also have launched a new program called the Nittoku
Business School, which can be described as the NGKSPARK PLUG version of a business school. Evolving out ofand replacing the HAGI Program, which was designed forcandidates of next officers (M1 HAGI) and candidates of next
general managers (M2 HAGI), the Nittoku Business School istargeted at personnel in section chief-class positions.
Our basic education policy was previously based on theidea of providing education to everyone equally, but this has
been changed to focus more on providing intensive education
to those selected. As a matter of fact, many trainees of the
Nittoku Business School rate the program as “verystimulating and motivating.”
When these personnel of new generations who received
our education have grown, more solid global HR
management will become possible.
When we talk about diversity, we tend to pay attention to
the participation of women and foreign personnel. But this is
not all that diversity is about.
Our company has not been able to fully take advantage
of our human resources with a particular strength andpersonality. But, to embark on something new, we should
maximize human resources who may have some weaknesses
but who really excel at something. Instead of focusing on
someone’s view that is different from yours or parts ofDisseminating our efforts to contribute to society through our business
NGK SPARK PLUG has up to now been focusing on thedevelopment and production of components of internal
combustion engines. We have been developing anddelivering products that meet ever tighter regulations, which
we believe has been a great social contribution.
However, when a new technology that replaces theinternal combustion engine is developed, we must cultivate
new businesses that go beyond the existing scope of ouroperations to further promote our social contribution. Oxygen
concentrators, which are our main products in the medical
business, and lead-free piezoelectric products are some ofthe examples that are expected to contribute to solving social
issues as well as to help expand our business domains.
We are thus making many efforts to expand the range of
our socially responsible businesses. But, as I said at the
beginning, we need to link our business activities to the SDGs
and other global sustainability goals and disseminate ourefforts both inside and outside the company. This will lead our
employees and the stakeholders associated with ourbusiness to become aware of the importance of fulfillingsocial responsibility and thereby create a wider network ofsocial contribution.

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54

Morimura Group

Stories for Value Creation

Business Infrastructure
to Support Sustainable Growth

Growth Strategies

Business Strategy

Priority Issues
CSR and Sustainability Charter
We are committed to contributing to the realization of a sustainable society, thereby aiming to increase ourcorporate value. To this end, we first need to accurately understand the issues facing society, and then define

We contribute to developing a sustainable society,s ociety

thereby improving our corporate value.

priority issues (materiality) to be addressed by our group in reference to ESG (Environmental, Social, andGovernance) factors and set appropriate goals from medium- to long-term perspectives.
Taking the above-stated steps, we have identified eight priority issues for the three ESG areas, and various
initiatives aimed at realizing a sustainable society have been set in association with each issue. To implement these
initiatives, progress will be monitored by the CSR and Sustainability Committee and reviews will be conducted in
response to changes in the business environment, stakeholders’ expectations and activity conditions.

We build
relations of trust

We cocreate andwith our stakeholders

provide new value towhile making highly

help solve socialtransparent decisions

issues.

G overnanceand actions.

E nvironment

Steps to define priority issues

Priority issues

Identify societal requirements (issues) inreference to the United Nations Globa
Compact, SDGs, ISO 26000, GRI
Standards, ESG surveys, industry
guidelines and other companies’
benchmarks.

1

STEP

Identify issues

2

STEP

Analyze and prioritize
issuesEnvironment

E

Conduct materiality assessment for
stakeholders in reference to internationalguidelines and ESG surveys used in Step
1, and for our company in considerationof past activities and future management
plans, and create a map to present
assessment results.

Society3

STEP

Select priority issues

S

Using the map made in Step 2, selecthigher materiality items as priority
issues, which will be established after
approval by the CSR and Sustainability
Committee, which includes outside
directors as members.

Goals and Outputs

Reduction of CO2 emissions

Providing environmentallyfriendly products

Dissemination and expansion ofenvironmentally friendly products

Development oftechnologies, products, andbusinesses for contributing
to the resolution of social
issuesDevelopment of fuel cells

Popularization of high-efficiency distributed power
supply systems with an eye on the use of CO2-freehydrogen fuelDevelopment of lead-freepiezoelectric materials

Facilitating substitution for lead-based piezoelectricmaterials

Development of sensing IoT business

Improving operational efficiency through automation,
optimization and generalization

Hiring of female, foreign
national and mid-career employees

Percentage of female, foreign national and mid
career executives: at least 25%

Examination of new personnel systems

Improved results of employee
satisfaction surveys

Increasing the percentage offemale and foreign national directors

Percentage of female and foreign national directors:
at least 30%

Increasing the percentage of outside directors

Percentage of outside directors: at least one-third

Risk management

Business impact analysis(creation of risk maps) and responses

Disclosure of risk identification processes andresponses

Compliance

Awareness surveys and continuous education for
executives and employee

Conducting compliance questionnaires anddisclosing results

Information security

Maintenance and enhancement of thecomputer security incident response
team (CSIRT) system

Strengthening activities through establishment ofdedicated committees

Global human resourcesmanagement

Corporate governanceImportance to stakeholders
MediumMajor Initiatives

Responding to climatechangeHigh

Priority

Contribution to SDGs

CO2 emissions: 30% reduction from the FY2018
level by FY2030

Sales ratio of precious metal plugs:
at least 50%
Sales ratio of wide-range oxygen sensors and NOx
sensors: at least 50%

GovernanceissuesG

Importance to our company

High

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56

Morimura Group

Stories for Value Creation

Business Infrastructure
to Support Sustainable Growth

Growth Strategies

Business Strategy

Response to Climate Change and Environmental Management
Response to Climate Change

Environmental Policy
As a globally developing core manufacturing corporation, we are aiming to simultaneously realize environmental
preservation and corporate growth, based on the participation of all our employees, in order contribute to theconstruction of a sustainable society.
Action Guidelines• We strive to utilize our unique technology to develop and offer environmentally friendly products.
• Through all of our business activities, we make particular efforts to prevent global warming, ensure efficient use of resources, and control
chemical substances, in order to conserve the environment.
• We strive to raise the awareness of the environment among our employees to ensure that they all make positive efforts to conserve theenvironment.
• We observe the laws, ordinances, and agreements concerning environmental conservation.
• We aim to substantiate our information disclosure and communication activities, and also carry out environmental contribution activities
aimed at coexistence with the regional community.
• In order to achieve these targets, we will strive to make ongoing improvements to our environmental management system.

NGK SPARK PLUG Group set its per-unit CO2 emissions reduction target in its Global Eco Vision 2020 as part of efforts to
reduce greenhouse gas emissions, a factor contributing to climate change. To attain this target, we are striving to diminish
our energy usage.
In FY2019, we posted per-unit CO2 emissions of 1.15 tons/million yen for Group companies in Japan (with integrated
certification), which fell short of the target of 1.13 tons/million yen for the year (down 13% from the FY2015 level). This wasprimarily related to the need to keep factory lines running even when production of our major products decreased as theglobal economy slowed due to an impact of US-China trade friction. To make up for the delay in achieving the target,
additional efforts were exerted chiefly through improving compressed air and air conditioning usage, but only to the extent
that it was almost successful. The Group’s total CO2 emissions decreased year on year to 310,000 tons in FY2019.
We will continue promoting various measures toward a new target set under the next Eco Vision starting FY2021 toreduce CO2 emissions by 30% from the FY2018 level by FY2030.
CO2 emissions from energy use(10,000 tons-CO2)

40

30

Global Eco Vision 2020
To promote environmental conservation activities, we set a medium-term Eco Vision. The ongoing Global Eco Vision 2020
was started in FY2016 and set forth four priority issues related to “natural resources,” “global warming,” “toxic, hazardous
chemicals” and “key quality (development of environmentally friendly products).” We are tackling these issues throughbusiness activities, creating platforms for education (awareness raising), compliance and open communication, and aiming
to enhance our manufacturing capabilities, increase our brand value and promote the sustainable development of ourbusiness as well as society at large.
We are preparing the next Eco Vision to start in FY2021.

1.30

1.27

28.63

20

10

31.17

1.18

1.15

1.15

31.48

32.57

31.38

5.03
1.51

5.37
1.29

6.06

3.69
1.29

1.36

5.29
1.27

23.65

24.63

24.82

25.15

24.82

Africa
1.4%
Asia
40.7%

Regional
compositionof emissions
outside Japan

Europe9.8%

NorthAmerica
19.0%

For purchased electricity,
the CO2 emission
coefficient specified foreach country under the
GHG Protocol is used; forfuel, coefficients used inJapan are applied.

South America
29.1%

0

2015

2016

2017

2018

2019 (Fiscal year)■ Group companies in Japan (with integrated certification) ■ Group companies in Japan (without integrated certification)■ Group companies outside Japan

Per-unit (Group companies in Japan with integrated certification)

Environmental activity promotion organizations
Environmental Administrator(President)

Support for the TCFD Recommendations

Central Environmental
Committee Chairman
Chief Central Environmental
Administrator

Central Environmental Committee
Regional
Regional environmental
environmental
administrator
administrator

Environmental
ISO Bureau

Internal
Environmental Auditor

Environmental
Environmental
Committee
Committee

Each region
Note: “Each region” refers to regionsin Japan where the
Headquarters, Komaki,
Miyanojo and Ise plants, andGroup companies are locatedHead of theworking group

Head of the division
Divisions

Working groups

Divisions and Groups establishedin the Headquarters

Cross-divisional specialized task
forces to carry out surveys andmeasures regarding energy
conservation and hazardous
substances management

In July 2020, NGK SPARK PLUG Group announced its support
for the Task Force on Climate-related Financial Disclosures (TCFD)
recommendations. As such, we will examine the impact of climate change
on our Group’s business, strategies and finance within the company-widerisk management framework, and these topics will be discussed at the Risk Management Committee and the CSR
and Sustainability Committee attended by the entire board of directors. We will also promote voluntary and proactive
disclosure of information in accordance with the recommendations.

Environmental Action Plan
Major item

Globalwarming

Minor item

Production

Logistics

Depletion of
resources

Waste
Water

Hazardous
chemical
substances

Results for FY2019

Target: Reduce per-unit CO2 emissions by 13.0% relative to FY2015
Result: Reduced per-unit CO2 emissions by 12.8% relative to FY2015
We continued to conduct cross-departmental activities under the leadership of theenergy conservation working group.

Reduce per-unit CO2 emissions by 15% relative to FY2015** We revised the target upwardly on April 1, 2018.

Increase efficiency for logistics

Carried out company-wide activities to increase logistics operations efficiency.

Reduce defective products to reduce waste

Decreased waste by reducing defective products in each process.

Design products in consideration of waste reduction
Use water more efficiently

Increased water usage efficiency by improving operational conditions of facilities using water.

Design products in consideration of the saving of raw materials

Promoted reduction of raw materials input by redesigning products and processes.

—

Build an environment-friendly product certification system and expand
the lineup of such products

・Implemented measures to enhance the environment-friendly product lineup by developing
next-generation products and improving the efficiency of existing products.
・Started to develop a company-wide environment-friendly product certification system.

—

Ensure compliance with ELV, RoHS, REACH and other regulations

Promoted cross-departmental information sharing and measures to meet regulations under
the leadership of the chemical substances management working group.

—

Foster the replacement of substances of concern with substitutes

Replaced phthalic acid, which will be prohibited by RoHS from 2019, with a substitute.

—Totally discontinue the use of HCFCs

Continued the replacement of air conditioners in which fluorocarbon R22 was used
as a refrigerant.

Raw materials

Environmentallyfriendly products

Targets for FY2020

Development of Environmentally Friendly Products
We design, develop and provide environmentally friendly products so as to reduce the environmental impact of products on a life
cycle basis. Specifically, when developing new products and changing specifications, we ensure that no substance of concern
will be included and energy- and resource-saving design standards are met, and take appropriate measures as necessary.
Such efforts have been pursued over the years to offer a broad lineup of environmentally friendly products. To promoteand expand the lineup, we have started new initiatives, including: setting out to create our own environmentally friendly productcertification system; setting new targets up to FY2030 for spark plugs and automotive oxygen sensors that contribute to higher
fuel efficiency and cleaner exhaust gas, our foremost environmentally friendly products and target items selected in association
with our Priority Issues; and establishing the goal of facilitating adoption of our proprietary lead-free piezoelectric ceramics toreplace conventional lead-based equivalents that are commonly used in many consumer appliances and are thus giving rise toconcerns over the material’s adverse effects on the environment and human health.

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Morimura Group

Stories for Value Creation

Business Infrastructure
to Support Sustainable Growth

Growth Strategies

Business Strategy

Response to Climate Change and Environmental Management

Environmental burdens from business activities (FY2019)

Conservation of water resources

Scope covered*1

Group
companies
overseas*3

OUTPUTGroup
companies
in Japan*2

NGK SPARK
PLUG

Group
companies
overseas*3

Groupcompanies
in Japan*2

NGK SPARK
PLUG

INPUT

Scope covered*1

Total water used in FY2019 declined 4.0% year on year to 1.48 million m3, mainly owing to changes in production.
We will continue to review our operations to promote the efficient use of water.
Water usage(10,000 m3)

200

Ceramic and metal materials purchased

53,000tons

◯

◯

◯

Electricity
Used in offices and plants

454,180MWh

◯

◯

◯

Suppliers

Output into water

Raw materials

Wastewater

Ceramic and metal materials

Released into sewerage systems and public
waters (consumption volume of tap water
and well water)

◯

◯

◯

1,480,000㎥

28
4

163
38

154
38

5

130

50

◯

124

34

5

120

Africa
0.5%

148
36

4

100

Chemical substances (PRTR)
Released into waters andnotification given by sites

167

162
150

4

113

Asia
58.6%

110

North America
4.8%

Regional
compositionof usageoutside Japan◯

Europe0.3%

01.7tons

2015

2016

2017

2018

South America
35.8%

2019 (Fiscal year)

Group companies in Japan (with integrated certification)
国内グループ（統合認証） ■ 国内グループ（統合認証外） ■ 海外グループ
Group companies in Japan (without integrated certification) Group companies outside Japan■

City gas
Used in offices and plants

11.34million m◯◯

Greenhouse gas emissions◯

Energy-based and non-energy-based
greenhouse gas emissions

3

EnergyUsed in offices and plants and for testing,travel and transportation

◯

◯

◯

7,253tons

Output into air

LPG

Research,
Design,Manufacturing,
Sales

◯

◯

◯

310,000tons-CO₂

The total amount of waste generated in FY2019 increased 2.0% year on year to 21,874 tons, mainly due to an increase in wastefrom manufacturing processes related to preparation for expanded production of some products.
We will continue to improve our operational processes, in an effort to reduce waste and promote recycling.

Chemical substances (PRTR)
Released into air and notification given
by sites

Reduction of Waste◯◯

Waste output

86tons(tons)

◯

◯

◯

Total

◯

◯

Products

Waste

280MWh◯21,874tons

10,000595

5,000

10,823

Effectively used(including waste sold)

19,212tons

◯

◯

700

773

11,993

21,874

21,451

8,240

6,134

(and treated on commission)

Renewable energy
Generated by solar power generators andsmall hydroelectric generators

7,829

15,000Waste generated

8,234kL (crude oil equivalent)

19,966

17,552Other fuels
Used in offices and plants and for testing,travel and transportation

20,52220,00010,953

8,662

9,276

Africa
1.0%

667

681

Asia
27.1%

12,122

11,917

Europe
11.2%

◯
0

2015

2016

2017

2018

Regional
compositionof outputs
outside Japan

North America
22.5%South America
38.2%

2019 (Fiscal year)

Group companies in Japan (with integrated certification)
国内グループ（統合認証） ■ 国内グループ（統合認証外） ■ 海外グループ
Group companies in Japan (without integrated certification) Group companies outside Japan

■

Water

Tap water, well water,river water
Tap water, groundwater and river water used

Not effectively used◯◯

2,662tons◯

1,480,000㎥

PRTR
Handled and notification given by sites

766tons

Logistics

Fuels used for transportation(outsourced)
Used for transportation by trucks, ships andaircraft

965kL (crude oil equivalent)◯◯

Logistics

Chemical substances

Logistics

CO2 emitted by externaltransporters
CO2 emissions due to externallycommissioned transportation

Hazardous Chemical Substances Management◯◯

2,567tons-CO₂
Product shipment◯◯
Customers

Customers*1The covered scope of each amount reported in INPUT and OUTPUT is indicated with ○.
*2 Group companies in Japan: (subject to integrated certification) NITTOKU ALFA SERVICE CO., LTD., CERAMIC SENSOR CO., LTD., NTK CERAMIC CO., LTD., CERAMIC SENSOR NAKATSUGAWA CO.,LTD., NANSEI CERAMIC CO., LTD., KAMIOKA CERAMIC CO., LTD., Spark Tec WKS CO., LTD., NICHIWA KIKI CO., LTD., Spark Tech TONO CO., LTD.; (not subject to integrated certification) NITTOKUDENSHI CO., LTD., NTK CERATEC CO., LTD.
*3 Group companies overseas: (manufacturing & sales organization) NGK SPARK PLUG (SHANGHAI) CO., LTD., CHANGSHU NGK SPARK PLUG CO., LTD., NTK TECHNICAL CERAMICS KOREA CO., LTD.,NGK SPARK PLUGS (THAILAND) CO., LTD., SIAM NGK SPARK PLUG CO., LTD., NGK SPARK PLUGS (ASIA) CO., LTD., NGK SPARK PLUGS MALAYSIA BERHAD, PT NGK BUSI INDONESIA, NGKSPARK PLUGS (INDIA) PVT. LTD., NGK SPARK PLUGS (U.S.A.), INC., Wells Vehicle Electronics, L.P., CERAMICA E VELAS DE IGNICAO NGK DO BRASIL LTDA., NGK SPARK PLUGS (FRANCE) S.A.S.,
NGK SPARK PLUGS SA (PTY) LTD; (sales organization) TAIWAN NGK SPARK PLUG CO., LTD., NGK SPARK PLUGS (VIETNAM) CO., LTD., NGK SPARK PLUGS (PHILIPPINES), INC., NGK SPARK PLUG(AUSTRALIA) PTY. LTD., NTK TECHNOLOGIES, INC., NGK SPARK PLUGS CANADA LIMITED, BUJIAS NGK DE MEXICO S.A. DE C.V., NGK SPARK PLUG EUROPE GmbH, NGK SPARK PLUGS (UK)
LTD., LIMITED LIABILITY COMPANY NGK SPARK PLUGS (EURASIA), NGK SPARK PLUG MIDDLE EAST FZE.

To ensure compliance with Hazardous Chemical substances regulations, which are becoming increasingly strict in recent years,
we have introduced a hazard ranking system. Hazardous Chemical substances are ranked according to the level of regulation andtoxicity, with handling standards set for each rank. To ensure that our products will contain no substance of concern, suppliers’
involvement is essential. Thus, we ask our suppliers to avoid restricted chemical substances listed in our green procurement
guidelines. Also, we appropriately respond to inquiries from our customers regarding chemical substances contained in products,
with participating in surveys and submitting a declaration of non-use of restricted chemical substances along with relevant data.
We will reduce the use of such chemicals by replacing them with alternative substances while reinforcing management ofmaterials used in products in order to ensure legal compliance and meet the requirements of customers.

Biodiversity conservation
Recognizing the conservation of biodiversity as a critical global challenge, NGK SPARK PLUG Group identifies it as a material
environmental issue for us to address, along with global warming mitigation and resources recycling. Based on this view, weestablished the NGK SPARK PLUG Group Biodiversity Action Guidelines in April 2013. Using the guidelines as a guide, we areworking to remain aware of the fact that our activities, particularly involving energy and resource usage, are inevitably causing
impacts on biodiversity, and are taking appropriate measures to reduce such impacts throughout our business operations, incooperation with business partners and external groups.

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Morimura Group

Stories for Value Creation

Business Infrastructure
to Support Sustainable Growth

Growth Strategies

Business Strategy

Human Resources Development for Sustainable Growth
Promoting empowerment of women

Human Resource Policy
We acknowledge that employees are the most important management resources. In light of this, we respect thediversity and individuality of our employees and promote the cultivation of physically and mentally healthy human beings,
striving to promote the further development of our group as a whole.
Action Guidelines•We secure and foster human resources who help pass down our “Quality Product” and “Participation by all” principles to the following
generations. To this end, we provide learning opportunities and other programs to support the career development of all employees.
• We strive to nurture a corporate culture that ensures that people with different qualities can fully realize their own capabilities within our group.

Continuous education and training activities
Based on the Four Shared Values of the Nittoku Way (Shisei-Shinjitsu, Dokuritsu-Jiei, Shikai-Keitei and Soshi-Kantetsu) and on
the “Quality Product” and “Participation by all” principles, we conduct education and training activities in a planned manner tocontinuously develop employees who can boldly deal with challenging internal and external changes as well as those with highlevels of expertise.
Our education and training activities consist mainly of OJT (on-the-job training), through which employees can acquire
technologies and knowledge through their hands-on work. We also offer OFF-JT (off-the-job training), providing employeeswith new technologies, knowledge and skills outside their respective workplaces. We have a wide range of OFF-JT programs
that include training by organizational level and role to provide necessary knowledge and skills, product quality education,
environment and safety & health education, manufacturing education, education in global business, and career development
support. In FY 2019, a total of 8,192 employees received OFF-JT.
Level-specific education

Proportion of female employees
(%)

20

15

15.4

14.2

14.2

14.7

14.8

2.87

2.77

2.49

2.28

2.94

10

5

Generalists

Happy Life Seminar

Correspondence education and e-learning

Training in product knowledge by division

Acquisition of legal knowledge for business

Quality and TPM education

As designated by the dept./selected by employees themselves

Environment and safety & health education

Education for
newemployees

Compliance education

CSR and sustainability education

Intellectual property education

Manufacturing education

Business skills training

TOEIC Institutional Program Test

GeneralGlobal education

Education
on corporate
philosophy(The Nittoku Way)

employees

Mandatory•Granted Kurumin certification (for FY2020)•Selected to be a Nadeshiko Brand company (for FY2018)•Certified by Aichi Prefecture as an “Aichi Josei Kagayaki Company (Company
Supporting Aichi Women’s Career Success) (for FY2018)•Included in “New Diversity Management Selection 100” by the Ministry of
Economy, Trade and Industry (for FY2017)•Granted Eruboshi two-star certification based on the Act on Women’sParticipation and Advancement in the Workplace (for FY2016)•Granted the 2015 Japan Productivity Center Incentive Award Empowerment
Grand Prix for Activities by Women•Received the 2014 Excellence Award, Nagoya City Accreditation andCommendation System for Companies that Promoted Increased Roles for Women

0Managers

Level-specificeducation

External commendation for the empowerment of women

Lifelongeducation

Professional education

Selective training
for managerial
candidates

the growth of the participating female employees.
We have also held lectures and training seminars for
all managers so that they can deepen their understandingof diversity management. Moreover, across NGK SPARKPLUG and Group companies in Japan, the departmental
heads led the formulation of action plans appropriate for
their own departments and the departments that excelled in
implementing the plans received incentive awards. The actionplans target measures for diversity in general, not limited tothose for the empowerment of women. We are also working
to expand our systems to provide workplaces where female
employees can work with greater comfort.
In addition, as a positive action, we are providing
special education to female employees who aim to become
managers, including mentoring by executives.
Going forward, we will implement more measures toincrease the percentage of female managers.

Since 2013, as our first step toward diversity promotion, we
have been putting effort in creating working environment
across the company where women can truly thrive and play
active roles. We are trying to change the mindset of bothmanagers and female employees themselves, regarding theempowerment of women as a driver for the reform of ourcorporate culture.
For example, we implemented a training program tohelp female employees develop their careers with higher
motivation. In the program, these employees were pairedwith managers able to advise them as they sought to meetthe challenge of fulfilling certain tasks with a higher level ofdifficulty than their routine assignments, thereby supporting

0.84

1.05

1.24

1.53

1.83

2015

2016

2017

2018

2019

Section Chiefs

FYManagers

Providing workplaces where employees can continue to exert their abilities
The growth of employees leads to the sustainable growth ofthe company. Based on this recognition, we are working toprovide employees with workplaces where they can choose
the right career for themselves, enhance their expertise andskills, and continue to make a meaningful contribution.
For example, we launched the Platinum Project targeting

employees who are aged 60 and above, also known as the“platinum generation,” to ensure that employees who wish toremain in the workforce after reaching the retirement age cancontinue to use their skills.
In the Platinum Project, we hold various seminars andprovide information through an e-zine.

Establishment of a career consultation helpline
As designated selectively by the dept.

As selected by employees themselves

Through this contact, employees who have a national qualification for career consulting respond to calls for advice about career vision, work motivation, life events,
etc. The career consultants do not provide solutions but instead help the questioners find answers for themselves.

Promoting the use of “My Career”

Employee satisfaction survey
In order to grasp the Group’s situation and challenges and make improvements, we have been conducting an employee
satisfaction survey targeting employees of NGK SPARK PLUG and Group companies in Japan.
For the FY2019 survey, the response rate reached 90.9% and the satisfaction rate 54.1%. Each departmental head is working
on improvement based on the understanding of the department’s situation and challenges indicated by the survey results.

As a tool to help employees to look back on their past, set their future vision and commit themselves to achieving the vision, we use “My Career.” Employees biannually
input information about their career to date and their future aspirations into “My Career,” which their managers then refer to in interviewing them to support their careerdevelopment.

Diversification of the work styles of the platinum generation
Some employees in the platinum generation are eager to work but do not have confidence in their physical stamina. In response, at some of our plants we have begun
to exempt such employees from the night shift upon request, with other employees working at night instead.

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Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

Human Resources Development for Sustainable Growth

Putting focus on the employment of new graduates with foreign nationality

Development and management of managerial human resources

We are promoting the employment of foreign nationals in our effort to adapt to the rapid progress of globalization in the areaof human resources. For new graduates, we have been employing at least three foreign nationals every year, recently with a
special focus on the employment of foreign nationals who have studied the Japanese language at overseas universities andwant to work in Japan, in addition to those who have studied in Japan. We are also fostering the mid-career employment offoreign nationals and employed a foreign national to head the Global Innovation Div., which we newly established in FY2020.
With these non-Japanese employees, including both engineers and office personnel, demonstrating their abilities at our
workplaces, we can increase our diversity awareness across the company.

As we expanded our business globally, in 2016, we started a program to find and develop the next generation of global
managerial human resources, targeting all Group companies.
This program is intended to facilitate the employment and promotion of candidates regardless of nationality and toprovide them with opportunities and environments that allow them to demonstrate their abilities. It was named the “HAGIProgram” after Hagi City in Yamaguchi Prefecture, where the Shoka Sonjuku school developed diverse human resourcesat the end of the Edo period. Chairman Shinichi Odo serves as the head of the program. Under the program, seminars
have been held on a continuous basis to provide employees with opportunities to learn together with a focus on gaining a
big picture view encompassing the entire company. We are thereby developing leaders with the will and sense of mission
required to take the NGK SPARK PLUG Group into the future.
Targeting human resources in Japan, we run Nittoku Business School classes for employees who are almost qualified
to participate in the HAGI Program. For these classes we have prepared a curriculum that helps participants develop logicalthinking and acquire knowledge and skills regarding management strategies, marketing and presentations. It also includes
case studies based on actual examples and is intended to help participants to develop the spirit, techniques and physicalstamina required of leaders.
Employees who have completed the HAGI Program and the Nittoku Business School curriculum have already been
making contributions in core positions within the Group.
We have also established a selective human resources development program for each of North America, Europe, Asiaand other regions and implement the program four times a year for the local development of business leaders.
Moreover, in order to visualize the personal histories and skills of employees who are candidates to become businessleaders, we have collected information about NGK SPARK PLUG’s managers and executives of overseas Group companies
for input into our human resource databank, which is used in discussions by the Human Resources Committee. This
committee is composed of the members of the management team and has been meeting monthly since FY2018. At themeeting the members discuss personnel affairs regarding core positions and work to place the right person in the right job
for total optimization.

Work style reforms
Our work style reforms used to be operational reforms, and in FY2019 we began making examinations for “genuine work
style reforms.” At present we define “genuine work style reforms” as those that lead to higher productivity of individuals, forwhich we deem it necessary to enhance three elements: willingness to work (motivation and comfortable workplaces); ability(knowledge and experience); and methodology (management by objectives and by time). Also, we think it is necessary toreview the entire human resources system, including the organization, evaluation and management, and, accordingly, we are
implementing extensive measures not limited to those to provide employees with more work style options.
As for telecommuting, the necessity of which has been reaffirmed amid COVID-19 crisis, we have already introduced awork from home system and satellite offices, and are further improving the environment for telecommuting while reviewing
our past work methods, aiming to make our workplaces even more adaptive to changes in society and the environment.

Efforts to maintain and improve employees’ health
NGK SPARK PLUG regards the health of employees as one of its important managerial resources
for sustainable corporate growth and is fostering the health of individual employees for “health andproductivity management.” In December 2017, we made a declaration on health and productivity
management as the entire NGK SPARK PLUG Group and are implementing preventive and othermeasures against lifestyle-related diseases, mental disorders and passive smoking to proactively
support the health of employees.

Development of managers
For the development of managers, we provide them with opportunities to review their past management approaches andobserve the situation of their respective workplaces in an objective manner.

Implementation of a 360-degree survey
Prevention of lifestyle-related diseases
To help employees maintain and promote their health, we task industrial physicians, medical doctors andnurses with following up with employees who have been found to have problems as a result of undergoinghealth checkups. Such employees are also referred to appropriate medical institutions as needed. Moreover,
we provide employees with a smartphone app, which is linked with the internal health management system,and employees are using the various functions of the app to promote their health.

We implemented a 360-degree survey targeting departmental managers and those in higher positions in FY2018, and we will expand the survey target to includesectional managers and those in higher positions in FY2020.
In the survey, we examine leadership qualities of the respondents, including progressiveness, intelligence and sense of responsibility, as well as negative
attributes that might hinder them from demonstrating their leadership, such as being avoidant. The survey results reveal the gaps between what the surveyed
individuals think about themselves and what others think about them. We give feedback to the respondents to help them become aware of the importance of“observing” themselves.

Enhancing mental healthcare

Use of an indicator to visualize workplace engagement

We carry out stress checks on employees to prevent them from suffering mental disorders due to stress. Based on the results, we analyze the influence work
environments have on employees in our effort to provide them with safe and comfortable workplaces.

Along with the “one-on-one meeting,” which we introduced on a trial basis in FY2019 to foster dialogue between managers and their subordinates for the developmentof workers able to work autonomously, we have also introduced a quantitative indicator as a tool to visualize workplace engagement. This engagement indicator
numerically shows the level of employees’ eagerness to contribute to their organizations and jobs, and is designed for use by line managers to check the managementlevel of their workplaces.

Prevention of passive smoking
NGK SPARK PLUG has declared that it will totally ban smoking on the premises of all its sites in and after April 2023. Toward this goal we have been gradually limiting
smoking hours as well as giving support to those who want to quit smoking, such as by referring them to smoking cessation clinics.

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Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

Respect for Human Rights

Proper procurement

Human Rights Policy

Procurement Policy

Based on the Universal Declaration of Human Rights, the ILO Declaration on Fundamental Principles and Rights at
Work, the UN Global Compact, and the UN Guiding Principles on Business and Human Rights, we understand the needto respect the human rights of all people who are affected by our business activities and will make our best effort toprotect the dignity of these people.

We aim to realize globally optimal procurement based on our quality products principle. To this end, we focus on
strengthening cooperation with suppliers and promoting our CSR efforts throughout our supply chain system, while atthe same time striving to carry out proper purchasing transactions when procuring materials and parts, based on thefollowing guidelines.

Action Guidelines

Action Guidelines• We do not discriminate against people or infringe upon their human rights based on race, ethnicity, religion, nationality, place of birth,social status, belief, age, disabilities, physical features, gender, sexual orientation and others.
• We do not use child labor or forced labor.
• We do not engage in harassment including sexual harassment and power abuse.
• We identify the negative impact that we could have on human rights through our business activities and try to prevent or reduce suchimpact.
• In the event of direct or indirect violation of human rights, we protect the victims through appropriate investigations and responses.
• We promote education and enlightenment so that this policy is understood and implemented throughout our business activities.

• We conduct rational transactions based on fair, transparent, and open competition.
• We comply with procurement-related laws and regulations and foster responsible procurement. We select suppliers based oncomprehensive assessment of product quality, technology, prices, deliveries, CSR initiatives, and efforts to continuously make
improvements.
• Aiming to procure more eco-friendly products, we strive to promote our green supplier system.
• We enhance mutual trust with our suppliers, who are good partners for us, and strive to realize mutual development.

Promoting responsible procurement
NGK SPARK PLUG Group is fostering the responsible procurement of materials and others, giving due consideration tohuman rights and the environment across its supply chain.

Efforts to protect human rights
In 2012 we issued the Compliance Guidebook to set out our guidelines on respecting human rights and prohibitionof harassment and have since been distributing copies to employees and others to educate them about compliance.
Subsequently, in 2016, we signed the UN Global Compact and since then we have been creating more opportunities toprovide education and information on human rights to our employees to raise their awareness. We have recently included
LGBT-related issues in the items covered in our human rights-related training and are also monitoring the occurrence of
racial problems around the world.
Harassment at the workplace can include harassment related to pregnancy, childbirth, childcare leave and long-termcare leave, bullying, and mobbing, as well as sexual harassment including that directed against people of the same genderand in relation to sexual orientation or identity. We have set measures to prevent these types of harassment and the rules tobe followed by all employees and others and are working for prevention based on labor-management cooperation.
We offer consultation services to people facing harassment through the contact point jointly established by labor andmanagement at each of our plants and via the Corporate Ethics Helpline. We also conduct a compliance survey in order tograsp the situation at our workplaces. The details of consultations held and the issues reported through the contacts arepromptly examined and the facts checked by the Anti-Harassment Committee, which then takes corrective action and gives
instructions as needed.
Moreover, to ensure respect for human rights across our supply chain, we ask suppliers to prohibit child labor, forcedlabor, harassment and discrimination and to make appropriate responses to conflict minerals through our CSR Procurement
Guidelines.
Corporate Ethics Helpline

environmentally hazardous substances.

Promoting CSR-oriented procurement
To foster CSR measures across the supply chain, we issued our CSR

Measures against conflict minerals

Procurement Guidelines and have been distributing copies to suppliers, asking

There are concerns that some mineral resources mined in the Democraticthem to comply with the rules set in the Guidelines for the following seven

Republic of the Congo and surrounding countries provide a source of funding

areas: human rights and labor; occupational health and safety; environment;

to local armed forces, thereby promoting conflicts and infringements of humanfair trading and ethics; product quality and safety; information security; andrights. This issue of conflict minerals is recognized as a serious social issue incontribution to society.

relation to the procurement of resources and materials.
Accordingly, we annually conduct surveys on the use of conflict minerals

Ensuring green procurement
In order to reduce our environmental impact throughout the supply chain, wetargeting the upstream section of our supply chain and avoid the use of any

issued the Green Procurement Guidelines to request that suppliers buildwith related risks.

environmental management systems and ensure the strict management of

Activities to support suppliers
By conducting activities to help suppliers enhance their business foundation and engaging in follow-up activities after our
regular evaluation of them, we make joint efforts for improvement with suppliers, thereby building greater trust.

P.87

1 Activities to help suppliers enhance their business foundation (through classroom seminars and practical seminars held on-site)

Participation in the United Nations Global Compact
NGK SPARK PLUG Group participated in the UN Global Compact in November 2016.

For suppliers, we organize classroom seminars on themes such as process improvement, QC, occupational health & safety and the environment and also hold

The Global Compact sets out the voluntary action principles to be followed by companies. This initiative was proposed by Kofi

practical seminars at their own manufacturing facilities to foster improvements. We have been conducting these activities to help suppliers develop their workers

Annan, the then secretary-general of the United Nations, in 1999 to address various issues facing the world, such as global

in order to build a more robust business foundation. In FY2019 we held a total of 34 such seminars. We are thus implementing our “Quality Product” policy andwarming, environmental problems and disparities in society. It was officially launched at the UN Headquarters in July 2000. In

improving our manufacturing abilities in cooperation with suppliers.

order to contribute to creating a sustainable society, the Group will conduct a range of activities as a good corporate citizen,
supporting the Global Compact’s 10 principles set in the four areas of “human rights,” “labor,” “environment” and “anticorruption.”

2 Follow-up activities conducted after the regular evaluation of suppliers
We annually conduct evaluation on some suppliers and inform them of the results. For suppliers that require follow-up activities, we visit them to provide targeted advice and inspect their sites in order to work with them in thinking about how to rectify any weak points.

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Morimura Group

Relationship with Stakeholders

Stories for Value Creation

Corporate Governance

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

Interview with Outside Directors

Communication with stakeholders
To deepen mutual understanding, we are fostering dialogue with our stakeholders through various opportunities.
Stakeholder

Shareholders
andinvestors

Customers

Suppliers

Local
communities

Communication

Major activities in FY2019

We disclose information in compliance with the law
and also disclose information promptly via the media
and at our website.

Frequency & no. of participants per year

Organization of the ordinary general meeting of shareholders

Jun.

Dialogue with institutional investors and securities analysts

336 times

Organization of briefings on our technologies for institutional
investors and securities analysts

Not held

Organization of briefings on the company for personal investors

Three times (900 people in total)

Publication of the newsletters for shareholders

We offer information meaningful to customers at our
website and through exhibitions so that they canpurchase and use our products and services withpeace of mind.
We are working to build relationships of trust with
suppliers as their sound partner and achieve growth
together. To this end we conduct activities across the
supply chain, such as holding briefing sessions on our
corporate policies.

We respect the local culture and customs at eachof our bases located across the world and work
for smooth communication with local communities.
We also participate in various social contribution
activities to help create a comfortable society as acorporate citizen.

Once

Publication of an annual integrated reportAug.

Provision of information via the website

From time to time

Communication through sales activities

From time to time

Provision of information via the website (on products, events, etc.)

From time to time

Explanation about products and technologies at exhibitions

From time to time

Communication at venues of events, such as racing events

From time to time

Communication through daily procurement activities

From time to timeMay

Organization of briefings on the corporate principles

34 seminars

Organization of seminars on practical issues
Communication through social meetings and events

From time to time

Participation in local events such as festivals

From time to time

Local cleanup activity

From time to time at each plant (931 people in total)

Hosting environment-related plant tours

From time to time at each plant (867 people in total)

Social meetings on the environment

From time to time at each plant (302 people in total)

Communication through cultural and sport events
Cancelled due to COVID-19· 2020 NGK SPARK PLUG Suzuka 2&4 Race
· NGK SPARK PLUG FC Gifu football class for children

Jun.

· Musical for families held in the NTK Hall

Dec.
Mar.

· Marathon Festival Nagoya Aichi
Provision of information via the website (environmental information, etc.)

From time to time

Communication through daily operations and at workplaces

From time to time

Publication of an in-house magazine

Employees

To maintain safe and sound workplaces and help
employees work with vigor, the management
team proactively visits work sites to havedialogues with on-site employees.

Eight times in a printed form
and from time to time on the website

Organization of various labor-management meetings

From time to time

Utilization of the corporate ethics helpline (for employees)

80 calls received

Organization of various training sessions
Employee satisfaction survey

A total of 8,192 participants
All employees in Nov.

Outside Directors

Outside Directors

Outside Directors

Outside Directors

Morihiko Otaki

Kanemaru Yasui

Mackenzie Donald Clugston

Miwako Doi

We will cocreate innovations by leveraging
workers with diverse backgrounds and driving
company-wide efforts to meet new challenges
Q. How is the diversity of the Board of Directors?
needs of the global market differ significantly between
developed countries and emerging markets. I will continue
supporting the company’s technological strength and actively
present a perspective different from that of the Japanese
directors.

Otaki I have experience as a member of senior
management at Japanese and foreign companies, and Mr.
Yasui is an accountant. We also welcomed Mr. Clugston to
the board last fiscal year, which made me feel that thediversity of the board got a tremendous boost. NGK SPARKPLUG earns about 80% of its sales overseas and foreign
shareholders account for nearly 30%. To leverage ourstrengths accumulated in the course of expanding our global
market presence in the automotive components business fordeveloping new businesses, we need a broad global
perspective. In this sense, because of Mr. Clugston’s career
as a diplomat, his view of the market from the standpoint of acitizen, and his values and way of thinking that differ fromthose of Japanese people, he can consistently provide us
with fresh and valuable input.

Doi Meetings of the Board of Directors have an atmospherethat promotes the free and easy exchange of frank opinions. I
visited the company’s plants and, as a tech person myself,
was fascinated by this very rare company that has beendelivering a variety of components and operating business—both of which are centered around its core ceramics
technologies—globally for more than 80 years. I think thecompany has great future possibilities. I’m looking forward to
discussing with you at meetings how we can capitalize on thestrengths of existing businesses to create innovation.

Yasui Ms. Doi, who has a background as a researcher,joined the board this fiscal year, improving the balance indiversity even further. If the technical knowledge andexperience of the four of us were mapped on a skill matrix, it
would demonstrate that NGK SPARK PLUG is one of only a
few companies that has a board composed of diverse
individuals with different expertise.

Inclusion in SRI Indexes
NGK SPARK PLUG Group is included in the following socially responsible investment (SRI) indexes:(As of July 31, 2020)*The inclusion of NGK SPARK PLUG CO., LTD. in any MSCI index, and the use of MSCI logos, trademarks, service marks or index names herein, does not constitute a sponsorship, endorsement
or promotion of NGK SPARK PLUG CO., LTD. by MSCI or any of its affiliates. The MSCI indexes are the exclusive property of MSCI. MSCI and the MSCI index names and logos are trademarks
or service marks of MSCI or its affiliates.

Clugston Inside and outside directors are well-balanced in
number. I have been an outside director of NGK SPARKPLUG for the past one and a half years, expressing my
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Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

Corporate GovernanceInterview with Outside Directors

Q. What is your view on the 2030 Long-term Management Plan NITTOKU BX?

Q. How do you evaluate NGK SPARK PLUG’s ESG efforts?
environmental issues is generally high. But one suggestion I
want to make is that there should be a movement that, say,encourages employees to be more actively involved in
nonprofits and other social contribution activities outside thecompany. The company has a somewhat inward-focused
culture, so we could, for instance, encourage employees totake a volunteering holiday and actively participate in activities
outside the company to hone their perspective.

like a blockbuster* drug. As our company is to make inroads
into new business domains, it may not always be the casethat we can keep winning like a Yokozuna (top-ranking sumo
wrestler). We may have to barely “hang in there” and survive
with eight wins and seven losses. But we must continue on
our challenging journey to produce a hit. What we must aim
at is to build on small successes through trial and error andtranslate them into a big business over the medium and longterm. To nurture a culture that encourages employees toengage in generating innovation, we also need to advancethe diversity of our workforce as well as promote a shift in themindset of existing personnel.

Doi From the viewpoint of accelerating ESG efforts andpursuing a more outward-focused culture, I suggest that thecompany publicize its unique emissions cleaning technologies
more actively. Such active publicity campaigns may include
emphasizing how strongly the company is committed tosocial and environmental responsibility by showing on its
website a car or cars equipped with its oxygen sensors in acountry with severe emissions problems. By making what
NGK SPARK PLUG does and how it contributes to society
widely known, we can not only boost the company’s public
profile but also motivate young employees with a strong “Will”
to help solve social issues through their work.

*blockbuster : A new drug with epoch-making medicinal properties, which has overwhelming
sales compared to other products released in the corresponding disease area.

Yasui While the strengthening of existing businesses andthe creation of new businesses were set as objectives in theprevious NITTOKU SHINKARON long-term management plan
ended in March 2020, the current NITTOKU BX plan clearlysets out numerical targets for the sales portfolio andinvestment in new and growth businesses. It is significant thatthe company has made it transparent how much it is going toinvest in what and what results can be expected. To achievethese targets, the new plan aims at “establishing strong
business infrastructures” as did the NITTOKU SHINKARON,
but this time the plan entails “clarification of responsibilities
and authority” and even a shift to an internal company
system. The plan is so bold that I asked management, “Do
you really need to go this far?” I felt the strong determinationof management to achieve Dokuritsu-Jiei (take actions by
oneself), a shared value manifested by The Nittoku Way, foreach internal company and change the business portfolio in
which internal combustion engine business currently
represents 80% of total sales.

Clugston I agree. The company has specified fourbusiness areas on which it plans to focus. But under thecurrent situation where we don’t know what will be a
success, the company needs structural changes that will
support bottom-up initiatives to take on wide-ranging
challenges. To develop such a structure it is important, as
stated in the NITTOKU BX, to adopt a rewards and evaluation
system appropriate for the business environment. We should
offer incentives to attract and actively hire talented
researchers and other human resources from both Japan andabroad. Making the stance of “high rewards, highperformance” a part of the corporate culture will also lead tothe first step in the process of changing the organization forthe better.

Clugston The company is leveraging its technological anddevelopment capabilities to contribute to solving social
issues. One such example is the development of spark plugs,
oxygen sensors and other products in compliance withenvironmental regulations, which leads to cleaner emissions
and higher fuel efficiency of automobiles. These efforts areworthy of esteem. With regard to governance, increased
diversity among outside directors, the plan to transfer theauthorities and responsibilities of the global headquarters(GHQ) to the regional headquarters (RHQ) overseas and otherinitiatives demonstrate that the company has a culture open
to diverse ideas and debate and that its challenge function is
working. I feel that the company’s governance system is quiteadvanced compared with other Japanese companies.
Otaki

Doi To broaden the perspective in the expansion of theexisting, highly profitable internal combustion engine
business, it may be effective for the company to send
personnel to emerging market countries with strong potential
for demand growth so that they can feel out opportunities for
new businesses there. Emerging markets, such as India,
Brazil and African nations, differ greatly from each other interms of lifestyles, growth models and needs. Drawing afuture picture of NGK SPARK PLUG in various countries will
give employees and the company a new perspective onmarketing, with which we can explore the needs of not justB-to-B customers but also end consumers in post COVID-19
world and translate these needs to new businesses, and willthus be great asset to employees and the company alike.

Otaki All the rest is depending on how much each
employee can share the determination to achieve “change
beyond recognition” themselves. The key is how they canbreak away from the mindset of an “ever-victorious” company
with overwhelmingly dominant sources of revenue, namely
spark plugs and sensors. The pharmaceutical industry, where
I was working before, is said to have a high-risk high-return
structure where drug development may result in failure toachieve expected results, no matter how much money andtime are invested, or may turn out to lead to a big hit productYasui As the Sustainability Promotion Department wasestablished this fiscal year, I expect that the company’s
initiatives will cover ESG issues more comprehensively andinvolve more employees, producing more specific results. As
regards the reinforcement of governance, how we canmonitor each internal company after the internal company
system is introduced will become a new issue that needs tobe addressed.

NGK SPARK PLUG’s level of consciousness about

Q. What is your expectation for the NGK SPARK PLUG of the future? Please also tell us whatyou, as an outside director, aspire to do?
Otaki First and foremost, I want to see at least one new
business come to fruition as soon as possible. It doesn’t haveto be a huge success. Size isn’t everything. More important
than size is impact on society and meaningfulness. I want thecompany to establish such a business. I want to make themost of the experience gained from my former jobs to assist
the company, particularly in its efforts to foster a culture ofwillingness to meet new challenges.

we can allow the company to take risks and when thecompany should stop a project and return it back to thestarting point in case it goes awry. If a new business does notturn profitable, we don’t call it a failure as long as thecompany can exit from the business in a predefined manner. I
want to assist the company in the development of the kind ofsystem that allows young employees to make many attempts
without fearing failure.

Clugston Japanese people tend to fear failure. But there isno success without failure. We directors will also actively
express our opinions without fearing failure to serve as achallenge function to vitalize debate.

Yasui From that point of view just mentioned, one of themain roles we are expected to play is to monitor the progressof the company’s management plans and, if there is any
factor that inhibits the plans, pose a question—from an
objective standpoint as a third party—as to whether thecompany is taking any measure to eliminate such factor. Thisis an important role, and I want to fulfill it and contribute to
the transformation of the company.

Doi It is also important to set an “exit” plan when taking
risks and trying to expand into new business domains. As
outside directors, we need to closely and objectively watch
the company’s R&D projects and determine to what extent

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Morimura Group

Stories for Value Creation

Business Infrastructure
to Support Sustainable Growth

Growth Strategies

Business Strategy

Corporate GovernanceManagement System
Directors (as of June 24, 2020)

Representative Director Chairman of the
Board

Shinichi Odo

Representative Director President

Member of the Board (Outside Director)

Member of the Board (Outside Director)

Chief Operating Officer

Morihiko Otaki

Kanemaru Yasui

Takeshi Kawai

April 1977:
February 2003:

Joined our company
General Manager of Overseas Aftermarket Sales & Marketing Dept.,
Sales and Marketing Div., Automotive Components Gr.

April 1987:
February 2011:

July 2005:
June 2007:
June 2010:
June 2011:
April 2012:
April 2016::

President, NGK SPARK PLUGS (U.S.A.), INC.
Member of the Board,
Member of the Board (Managing Director)
President
President & CEO
Representative Director & Chairman of the Board
President & Chief Executive Officer
Representative Director Chairman of the Board (up to today)

April 2012:
April 2015:
June 2015:
April 2016:
April 2019:

April 2019:

Joined our company
General Manager of Sensor Engineering Dept. II, Sensor Div., Automotive
Components Gr.
Corporate Officer
Managing Officer
Member of the Board, Managing Officer
Member of the Board, Senior Managing Officer
President & Chief Operating Officer (up to today)

Member of the Board Executive Officer,
Corporate Strategy

Assistant of President Global innovation Div.

Gr. General Manager, Tokyo Branch Office

Toru Matsui

Mikihiko Kato

Joined our company
President of NGK SPARK PLUG EUROPE GmbH
General Manager of OEM Sales & Marketing Dept., Sales and Marketing Div.,
Automotive Components Gr.
December 2014: President of NGK SPARK PLUG (SHANGHAI) CO., LTD.
April 2015:
Corporate Officer,
July 2016:
President of NGK SPARK PLUG (SHANGHAI) TRADING CO., LTD.
April 2018:
Managing Officer,
June 2018:
Member of the Board, Managing Officer
April 2019:
Member of the Board Executive Vice President
April 2020:
Representative Director Member of the Board Executive Vice President(up to today)
April 1984:
April 2011:
October 2013:

April 1985:
February 2012:
August 2012:
October 2015:
April 2016:
June 2017:
April 2019:

Joined our company
General Manager, Corporate Planning Dept.,
President of CERAMICA E VELAS DE IGNICAO NGK DO BRASIL LTDA.
General Manager, Corporate Planning Dept.,
Corporate Officer
Member of the Board, Corporate Officer
Member of the Board Executive Officer (up to today)

Member of the Board ExecutiveOfficer
Corporate R&D Gr.

Member of the Board Executive Officer
Corporate Administration Gr. Secretarial Office

Medical Div.

Plant Manager of Nagoya
President of NGK SPARK PLUGS (U.S.A.) HOLDING, INC.

Takio Kojima

April 2012:
October 2013:
April 2014:
April 2018:
June 2018:
April 2019:

June 2016:
August 2016:
June 2018:
June 2020:

President & CEO, JOHNSON & JOHNSON K.K. VISION CARE COMPANY
Vice Chairman of the Board, PASONA INC.
Member of the Board (Outside Director), NGK SPARK PLUG CO., LTD.
(up to today)
Director, Henry Schein Japan K.K. (up to today)
Vice Chairman, PASONA INC.
Outside Director, GIGA PRIZE CO., LTD. (up to today)
Outside Director, FP Corporation (up to today)*March 1981:
April 1999:
August 2007:
June 2008:
June 2013:
July 2013:
June 2014:* Assumed the position on June 25, 2020

Representative Director Member of the Board Executive
Vice President,

April 1984:
February 2011:

August 1996:
August 2011:
June 2013:

Registered as a Certified Public Accountant
Representative Partner, Central Audit Corporation
Representative Partner, AZSA & Co. (currently KPMG AZSA LLC.)
Managing Partner, Director of Nagoya Branch, AZSA & Co.
(currently KPMG AZSA LLC.)
Retired from KPMG AZSA LLC.
Director, Yasui Certified Public Accountant Office (up to today)
Outside Director, NICHIHA Corporation Member of the Board (Outside
Director), NGK SPARK PLUG CO., LTD. (up to today)

Member of the Board (Outside Director)

Mackenzie Donald
Clugston
Joined Department of Foreign Affairs and International Trade of theCanadian Government
August 2000:
Canadian Consul General in Osaka
August 2003:
Minister, Embassy of Canada in Japan
August 2009:
Ambassador of Canada to Indonesia, Timor-Leste and the ASEAN
November 2012: Ambassador of Canada to Japan

June 2016:
Outside Director, KAMEDA SEIKA CO., LTD. (up to today)
September 2016: Professor, Kwansei Gakuin University (up to today)
June 2017:
Outside Director, Idemitsu Kosan Co., Ltd. (up to today)
March 2018:
Outside Director, Sapporo Holdings Limited (up to today)
June 2019:
Member of the Board (Outside Director), NGK SPARK PLUG CO., LTD.
(up to today)

June 1982:

Member of the Board (Outside Director)

Miwako Doi

Kenji Isobe

Joined our company
General Manager, of Next Generation Product Project, Product Planning
Center, Engineering R&D Gr.
General Manager, of Next Generation Product Project, New Business
Advancement Gr.
Deputy General Manager of R&D Center,
Corporate Officer
Managing Officer
Member of the Board Managing Officer
Member of the Board Executive Officer (up to today)

Joined our company
General Manager, of Accounting & Finance Dept.,
General Manager, of Corporate Planning Dept. and Public Relations
Office,December 2015: General Manager, of Accounting & Finance Dept., Corporate Administration Group. and General Manager, of Public Relations Office
April 2016:
Corporate Officer
June 2018:
Member of the Board, of Corporate Officer,
April 2019:
Member of the Board Executive Officer (up to today)
April 1986:
July 2011:
April 2013:

Member of the Board Executive Officer
Business Planning Management Div.
Technology Evaluation Office Manager

April 1979:
July 2005:
July 2008:
April 2014:

June 2015:
April 2017:
June 2019:
April 2020:
June 2020:
June 2020:

Joined Tokyo Shibaura Electric Co., Ltd. (currently Toshiba Corporation)
Senior Fellow, Corporate Research & Development Center, Toshiba
Corporation
Chief Fellow, Corporate Research & Development Center, Toshiba
Corporation
Auditor, National Institute of Information and Communications Technology,
an Incorporated Administrative Agency (currently, a National Researchand Development Agency) (up to today)
Outside Director, Nomura Research Institute, Ltd.
Executive Director, Nara Institute of Science and Technology (up to today)
Outside Director, Isetan Mitsukoshi Holdings Ltd. (up to today)
Vice President, Tohoku University (up to today)
Outside Director, Subaru Co., Ltd. (up to today)
Member of the Board (Outside Director), NGK SPARK PLUG CO., LTD.
(up to today)

Hiroyuki Maeda
April 1986:
February 2012:
April 2012:
April 2013:
April 2014:

April 2016:
April 2019:
June 2019:

Joined our company
General Manager of Planning Control Dept., Sensor Div., Automotive
Components Group.
General Manager of Sensor Engineering Dept. II, Sensor Div., Automotive
Components Group.,
General Manager of Procurement Dept., Procurement Div.
Deputy General Manager of Procurement Div., General Manager ofSupplier Relations & Development Office, General Manager ofProcurement Dept.
Corporate Officer
Executive Officer
Member of the Board Executive Officer (up to today)

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Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

Corporate Governance

Audit & Supervisory Board Members (As of June 24, 2020)

Executive/Corporate Officers (As of June 24, 2020)

Audit & Supervisory Board, Standing

Audit & Supervisory Board Member, Standing

Yasuhiko Hotta

Yoshihiro Matsubara

Executive Officer

Executive Officer

Executive Officer

Noboru Ishida

Masaki Sumiya

Hiroyuki Tanabe

Corporate Quality Control Div.

Procurement Div.

Product Technology Div.

Fuel Cell Business

Facility Engineering Div.

President of CECYLLS CO., LTD.
April 1980:
Joined our company
February 2008: General Manager, Accounting & Finance Dept.
November 2008: General Manager, Semiconductor Components Div., Communication
Media Components Gr.
June 2009:
General Manager, Planning Dept., Communication Media
Components Gr.
February 2011: General Manager, Information Systems Dept.
July 2011:
Senior General Manager
April 2016:
Senior General Manager, Working Styles Reforming Office, Corporate
Strategy Gr.
June 2017:
Audit & Supervisory Board Member, Standing (up to today)

April 1983:
February 2012:
April 2012:
February 2014:
April 2014:
April 2019:
June 2019:

Joined our company
General Manager, Production Engineering Dept., Spark Plug Div.,
Automotive Components Gr.
General Manager, Spark Plug Production Engineering Dept, Production
Engineering Center, Production Engineering Gr.
General Manager, Equipment Dept., Production Engineering Center,
Production Engineering Gr.
Corporate Officer
Corporate Adviser, Standing
Audit & Supervisory Board Member, Standing (up to today)

Plant Manager of Komaki

Executive Officer

Executive Officer

Executive Officer

Hiroyasu Ogura

Akiyoshi Kato

Koji Suzuki

SCM Div.

Spark Plug Div.

Automotive Components Sales & Marketing Div.

Regional President ASEAN, India

Plant Manager of Miyanojo

Aftermarket Div.

Executive Officer

Executive Officer

Executive Officer

Yoshiyuki Takayanagi

Osamu Shinkai

Kazunobu Hasegawa

Medical Div.

Industrial Ceramics Div.

Regional President China

Semiconductor Production Equipment Div.

President of NGK SPARK PLUG

President of NTK CERATEC CO., LTD.

(SHANGHAI) TRADING CO., LTD.

Plant Manager of Ise

President of NGK SPARK PLUG

President of NGK SPARK PLUGS (ASIA) CO., LTD.

Audit & Supervisory Board Member

Audit & Supervisory Board Member

Fumiko Nagatomi

Akihiko Minato(SHANGHAI) CO., LTD.

Executive Officer
April 1981:
April 1989:
May 2006:
June 2016:
June 2017:

Registered as an attorney
Opened Nagatomi Law Firm (up to today)
Outside Auditor, UCS CO., LTD.
Audit & Supervisory Board Member (Outside Corporate Auditor), Chubu
Electric Power Co., Inc. (up to today)
Audit & Supervisory Board Member, NGK SPARK PLUG CO., LTD.
(up to today)

Joined The Mitsubishi Bank, Ltd.
Executive Officer, The Bank of Tokyo-Mitsubishi, Ltd.
Managing Executive Officer, The Bank of Tokyo-Mitsubishi UFJ, Ltd.
(currently MUFG Bank, Ltd.)
June 2009:Managing Director, MARUNOUCHI YOROZU Co., Ltd. Outside Audit &Supervisory Board Member, The Nanto Bank, Ltd.
June 2010:
Representative Director and Vice President, Mitsubishi UFJ Research andConsulting Co., Ltd.
June 2012:
Outside Audit & Supervisory Board Member, Mitsubishi Materials
Corporation
September 2016: Chairman, MST Insurance Service Co., Ltd.
June 2018:
Audit & Supervisory Board Member, NGK SPARK PLUG CO., LTD.
(up to today)
April 1976:
June 2003:
May 2007:

Keiji Suzuki
Sensor Div.
Global Innovation Div.

Corporate Officer

Corporate Officer

Corporate Officer

Michael Alan Schwab

Damien Germès

Takeshi Mitsuoka

Regional President PAMA

Regional President EMEA

Global Innovation Div.

President of NGK SPARK PLUGS (U.S.A.), INC.

President of NGK SPARK PLUG EUROPE GmbH

Corporate Officer

Corporate Officer

Corporate Officer

Masakazu Ota

Kazuyoshi Terashita

Shigeki Mori

Cutting Tools Div.

Global Group Governance Headquarters

Product Technology Div.

Corporate Officer

Corporate Officer

Corporate Officer

Tsunejiro Tajima

Shingo Arimi

Tomohiro Yamaguchi

Semiconductor Production

Facility Engineering Div.

Corporate Strategy Gr.

Equipment Div.

General Manager, Strategic HR & Corporate

President of NTK

Planning Dept.

Technologies, INC.

Executive Officers and Corporate Officers who are not directors

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Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

Corporate GovernanceCorporate Governance System
Corporate Governance System Chart (as of June 24, 2020)

1

General meeting of shareholders

Board of Directors

The Board of Directors is composed of 11 directors,
four of whom are outside directors. The Board meetsregularly once a month and as required for deliberationand determination of issues as prescribed in applicablelaws and regulations or articles of incorporation as
well as other key managerial issues. The Board alsosupervises business execution, receiving reports fromdirectors. Multiple independent
outside directors have been invited to join to theBoard to enhance its supervisory function and ensure
management transparency.

3

3

1

2

Nomination Committee

Board of Directors
Advising/reporting

Audit & Supervisory
Board

Audit

Appointment/
dismissal
Appointment/
dismissal/supervision

Advising/
reporting4

Mutual cooperation

Remuneration Committee

Business execution

Accounting
audit

5

Corporate Management
Committee
2

Advisory body of the Board of Directors. Majorityof its members are independent outside directors
so as to ensure transparency and rationality for thenomination of director candidates. Consulted by the
Board of Directors, this committee deliberates on theappointment of directors and corporate auditors thatwill be proposed at the general meeting of shareholders
as well as on the evaluation of corporate performanceand the results-based evaluation of the management
team. The deliberation results are reported to the Boardof Directors.

Appointment/
dismissal

Appointment/
dismissal

Audit & Supervisory Board

Deliberation

Corporate Officers’
Meeting

4

Independent auditor

To ensure reasonableness and transparency with regard to
director nomination, a Remuneration Committee, in which amajority of the members are independent outside directors,
was established as advisory bodies to the Board of Directors.
Based on the Board of Directors’ request for opinion,
the Remuneration Committee deliberates on matters,
including proposals on the appointment of directors andAudit & Supervisory Board members to be submitted to theGeneral Meeting of Shareholders, the Company’s
performance evaluations and, based on such evaluations,evaluation of the management’s performance, and thendelivers its opinions to the Board of Directors.

Mutual cooperation

Reporting

Mutual cooperation

Corporate Officers

Deliberation

Instruction

Internal Auditing OfficeInstruction
Audit

Internal

CSR and Sustainability

OutsideCommittee
Risk Management
Committee
Compliance5

Business Operating Section/Group Companies

Members of the Nomination and Remuneration Committees

Basic information
Auditors

FY2020

Remuneration
Committee

Shinichi Odo
Takeshi Kawai
Toru Matsui
Mikihiko Kato
Takio Kojima
Kenji Isobe
Hiroyuki Maeda
Morihiko Otaki
Kanemaru Yasui

〇

〇

〇

〇

〇

〇

Mackenzie Donald Clugston

Miwako Doi

Name

FY2020Name

Yasuhiko Hotta
Yoshihiro Matsubara
Fumiko Nagatomi
Akihiko Minato

Nomination
Committee

Remuneration
Committee

〇

〇

〇

〇

Organizational design

As of June 24, 2020

Company with an Audit &Supervisory Board

No. of directors

11

No. of outside directors among
total no. of directors

4

Term of directors

6

4
2

〇

〇

Outside auditors among total no.
of auditors

〇

〇

〇

〇

Independent auditor〇〇

Corporate Officers’ Meeting

We adopt the corporate officer system to foster
business execution based on the policies set by the
Board of Directors and clarify responsibility for the
execution results. Corporate officers are selected by
the Board and meet monthly to report on their businessexecution and to share information and exchange
opinions in a cross-sectional way.

1year

No. of corporate auditors

Corporate Management Committee

Composed of the representative directors, otherdirectors and some of the executive officers, thiscommittee discusses the important issues to bereported to the Board of Directors. It also meets todiscuss and grasp in advance business challenges tobe addressed and any possible risk that involves thecompany, thereby building a system to make prompt
responses to changes in the business environment.

Committee, etc.

Nomination
Committee

Remuneration Committee

President and CEO
Instruction

6

The Audit & Supervisory Board is composed of four
corporate auditors, two of whom are outside
auditors. The Board audits the directors’ businessexecution as an independent organization on thebehalf of shareholders. Full-time auditors carry out
audits based on their business experience in thecompany and outside auditors from a neutral andprofessional viewpoint, thereby ensuring soundbusiness management.

Directors

Nomination Committee

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Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

Corporate Governance

Roles and Structure of the Board of Directors

Basic Philosophy
In line with the corporate philosophy expressed in the slogan, “With established trust and confidence inside and outside
the company, we aim to contribute to the peoples of the world by creating and putting at their disposal new values for the
future,” we are enhancing the corporate governance system that we built to foster business management that will increase
our corporate value on a medium- to long-term basis. Our basic philosophy on corporate governance is to promote fair andhighly transparent management for our stakeholders, including shareholders, customers, suppliers, employees and local
communities, and build relationships of trust with them, and to operate and further improve our management and internal
control systems to achieve sustainable growth through efficient and sound management.
2020

Chronological table of measures taken for corporate governance2016•Increased the numberof outside directors tofour•Increased thenumber ofoutsidedirectors to
three

2014
•Increased thenumber of outside
directors to two•Founded the CSR
Committee

foster discussions from multifaceted viewpoints andensure the transparency and objectivity of its decisionmaking. For the sustainable growth of the company
and medium- to long-term increase of its corporate
value, we regard it as important that the Board becomprised of a diverse group of individuals withdifferent backgrounds (expertise, experience, etc.) andchoose the members in a balanced manner from those
who have abundant experience, tremendous insightand a high degree of professionalism in consideration of
the current business environment, while also ensuring
diversity in terms of gender, international caliber andother attributes. We select members regardless ofrace, ethnicity, nationality, country of origin and cultural
background.

•Deliberates and makes decisions on the basic
management policies, medium- to long-term
management strategies and other important managerial
issues•Builds and improves the environment to help the
management team take risks appropriately•Supervises the management team in a highly effective
manner from an independent and objective standpoint

The Board of Directors is composed of 11 directors,
and includes four independent outside directors to

Evaluation of the Effectiveness of the Board of Directors

2012

2010

The Board of Directors plays the following roles to help
the company achieve sustainable growth and increase its
corporate value on a medium- to long-term basis, thereby
increasing its profitability, capital efficiency and others:•Decreased the upper
limit of the number of
directors from 25 to 13•Introduced thecorporate officer
systemThe company conducted an evaluation on the effectiveness of the Board of Directors. An overview of this evaluation
for FY2019 is as follows.
1 Method of evaluation
Evaluation was conducted by the Board of Directors based on a survey of directors and Audit & Supervisory Board members.

2005

2017

•Changed the term ofservice of a director
from two years to one
year•Established theNomination andRemuneration
Committees•Introduced theperformance-linked
stock remuneration
system

2 Overview of evaluation results
It was judged that the effectiveness of the Board of Directors of the company is sufficiently ensured for the following reasons:1) The Board of Directors consists of appropriate members who collectively have sufficient knowledge, abilities, experience anddiversity to fulfill their roles and responsibilities.
2) It has been confirmed that the management team is working to steadily increase the corporate value by making appropriate
responses to sustainability-related issues including social and environmental problems.
3) The Board of Directors has set the basic policies regarding the internal control system for the entire Group and appropriately
supervises the establishment and management of the system.
4) The Board of Directors conducts appropriateness examinations on an individual basis for the stocks owned by the company for

2013

2019

•Appointed an
outside director•Partially revised theperformance-linked stock
remuneration system•Introduced the Employee
Corporate Officer System•Eliminated and consolidated
the hierarchy of executive
officers

2011•Established the CSR
Policy2008•Established the Internal Auditing
Office•Abolished the retirement
allowance system for officers

2015•Issued the Corporate Governance
Report•Formulated the criteria for theappointment of independent
officers•Began assessing the effectivenessof the Board of Directors

reasons other than pure investment purposes, considering the capital cost and comparing the risks and returns of holding thestocks over the medium and long term.

As for the issues pointed out in the FY2018 effectiveness evaluation, the following facts have been confirmed in theevaluation made for FY2019: both qualitative and quantitative improvements were made regarding the referencematerials utilized by the Board of Directors; and the renewal of the activities and management system of the
CSR Committee, which is in charge of promoting risk management, has begun with a view to raising the level ofsophistication of the risk management system.
In the FY2019 survey, the following issues were pointed out as issues to be addressed to enhance theeffectiveness of the Board of Directors: need to advance the deliberations on business management and strategies
and enhance training for executives. We will implement measures for the issues to maintain and further increase theBoard’s effectiveness.

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Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

Corporate Governance

Roles and Independence of Outside Directors and Audit & Supervisory Board Members

Remuneration for Officers

Outside directors play supervisory roles in positions independent from business operations, including expressing theiropinions by taking a broad view at important meetings, such as Board of Directors meetings. Outside Audit & Supervisory
Board members fulfill auditing functions by drawing on their expertise to carry out audits from multifaceted viewpoints andexpress their opinions at important meetings, such as Board of Directors meetings.
We appoint independent outside directors and Audit & Supervisory Board members in line with our own selection
criteria as well as the criteria set by the securities exchanges to ensure that candidates for independent positions haveno special relationships with the management team or major shareholders and that they have no conflicts of interest withgeneral shareholders.

Basic policy
Remuneration for officers is paid based on the policy ofproviding them with additional motivation to contributeto improving the company’s business performance on a
medium- to long-term basis and growing the corporate value,
while ensuring they have a shared interest with shareholders
by holding company shares themselves. The remunerationconsists of fixed remuneration paid in the form of cash;
bonus, which is linked with the company’s single-yearbusiness performance, etc.; and performance-linked stock
remuneration paid in accordance with each person’s positionand level of achievement against the performance targets set
in the medium-term management plan and others. For Audit &Supervisory Board members and outside directors, only fixed
remuneration is paid.
Our Remuneration Committee acts as an advisory
body to the Board of Directors. It deliberates the policies,
procedures, details of the remuneration system and theappropriateness of the amount of remuneration planned tobe paid to each director, and submits the results to the Boardof Directors to ensure the rationality and transparency of thedecisions made concerning the remuneration of directors. In
FY2019, the committee met once.

Appointment reasons for outside directors and Audit & Supervisory Board Members
NGK SPARK PLUG deems it essential that the Board of Directors be composed of individuals with different backgrounds(knowledge, expertise, etc.) for the company to achieve sustainable corporate growth and increase the corporate value on a
medium- to long-term basis. We also attribute importance to having multiple outside directors on the Board who can provide
external viewpoints, thereby enhancing the Board’s supervisory function and ensuring the transparency of its decision-making.
Title

Name

Reason for appointment

Frequency of attendanceOutsidedirector

Morihiko
Otaki

He has a wealth of experience in global companies and expertise as an executive and is
expected to supervise management in an appropriate manner.

Attended all 12 Board of Directors meetings
held during FY2019

Outsidedirector

Kanemaru
Yasui

He is expected to make recommendations to management by using his expertise andexperience gained over the course of his long career as a certified public accountant.

Attended all 12 Board of Directors meetings
held during FY2019

Outsidedirector

Mackenzie
DonaldClugston

As a diplomat, he has a great deal of global experience and expertise in international
affairs and trade and is expected to supervise the execution of business by the
management team and provide them with advice.

After assuming his post on June 25, 2019,attended 8 of 10 Board of Directors meetings
held during FY2019

Outsidedirector

MiwakoDoi

She has an abundance of experience and an outstanding record as a researcher in thefield of information and communication and has been engaging in advanced researchboth in academia and in the private sector.
She is expected to supervise the execution of business by the management team andprovide advice to it, particularly regarding products and business strategies.

—

Audit &
supervisoryboard member

FumikoNagatomi

She is expected to use the expertise and knowledge that she has accumulated during herlong career as an attorney for the company.

Attended 11 of 12 Board of Directors
meetings held during FY2019

Audit &
supervisoryboard member

Akihiko
MinatoHe has served in important posts at financial institutions and is expected to use hisabundant expertise and knowledge regarding finance and corporate management for the
benefit of the company.

After assuming his post on June 25, 2018,attended all 12 Board of Directors meetings
held during FY2019

Succession PlanNGK SPARK PLUG’s Board of Directors engages in the formulation and implementation of the succession plan,
which includes programs such as that to develop global managerial human resources (“HAGI Program”), such as futureCEOs and other business leaders. The members of the Board see to it that sufficient time and resources are committed todevelop their successors in a planned manner.

Specific involvement by the Board of Directors
Representative directors as well as outside directors proactively participate in the development of managerial humanresources, including serving as lecturers for the HAGI Program.

Details of human resource development for CEO candidates
We are implementing the HAGI Program and a training program in which all directors and corporate officers participate.
These programs are designed to develop future CEO candidates in a planned and strategic manner by devoting adequate
time and resources to the task.

Basic policy on the payment of performance-linked stock
remuneration
At the 117th general meeting of shareholders held on June 29,
2017, targeting its directors and corporate officers (excluding
outside directors and corporate officers who maintainemployment agreements with the company; here in after called“directors, etc.”), NGK SPARK PLUG made a resolution to
introduce a performance-linked stock remuneration system asa system that is closely linked with the corporate performanceand is highly transparent and objective, with a view to further
improving its medium- to long-term business performance andincreasing its corporate value. The system is to be implemented
for four fiscal years from FY2017 to FY2020.
In line with the Board Incentive Plan (BIP) adopted under
the system, points are given to directors, etc.according totheir position and level of achievement against the targets set
in the medium-term management plan, etc. After the end of
the period set for the system, shares of the company andmoney in the amount equivalent to the value of the shares will
be given to directors, etc. according to the points granted tothem. The indicators for the level of achievement made against
the targets are set based on the single-year and medium-term
performance targets.
The single-year performance targets are consolidated net
sales and consolidated operating income, which reflect theresults of sales activities. For FY2019, the numerical targets
set for these were 471.6 billion yen and 64.2 billion yen,respectively, and the actual results were 426.2 billion yen and46.4 billion yen, respectively.
The medium-term performance targets are consolidated
net sales, consolidated operating income and ROIC set in
the medium-term management plan. ROIC indicates whether
the company has made profit efficiently or not through capital
investment. For FY2020, which is the final year of the mediumterm management plan, we set the following as targets forconsolidated net sales, consolidated operating income and
ROIC: 520 billion yen, 100 billion yen and 13.0% or more.

Policy on the payment of bonus

As for bonuses, in addition to the base amount set
for each position, an amount to be decided as follows
is paid to each person: decided comprehensively
in consideration of the quantitative targets set forcorporate performance such as consolidated net sales
and operating income ratio, which reflect the results ofsales activities, and based on the qualitative evaluationof the individual performance of the person.
For FY2019, the numerical targets set for
consolidated net sales and operating income ratio were471.6 billion yen and 13.6%, and the actual results were426.2 billion yen and 10.9%.

Total amount of remuneration, etc. paid to officers, total payment amount by remuneration type,
and the number of recipients (for FY2019)
Total payment amount by remuneration type (millions of yen)

Number of recipients(persons)

Category

Total amount of remuneration
paid (millions of yen)

Directors (excluding outside directors)

476

334

90

52

8

50

50

ー

ー

3

42
28

42
28

ー
ー

ー
ー

4
2

Audit & Supervisory Board Members(excluding outside members)
Outside directors
Outside Audit & Supervisory Board Members

Fixed remuneration

Performance-linked remuneration
Stock remuneration
Bonus*1:The following limits are set on the remuneration paid to directors according to the resolution made at the 117th general meeting of shareholders held on June 29, 2017.
Total amount of remuneration (excluding bonus): 60 million yen or below per month
Total amount of bonus: 180 million yen or below per year
According to the resolution made at the 117th general meeting of shareholders, a performance-linked stock remuneration system is to be implemented for four fiscal years from FY2017 toFY2020, targeting the company’s directors and corporate officers, with the upper limit on the total payment amount set at 1,000 million yen.
*2: The following limits are set on remuneration paid to Audit & Supervisory Board members:
Total amount of remuneration (excluding bonus): 10 million yen or below per month
Total amount of bonuses: 10 million yen or below per year
*3:The data shown in the table include those for one outside director who passed away (and is deemed to have resigned) on May 2, 2019 and one director and one Audit & Supervisory Board
member who resigned at the end of the 119th general meeting of shareholders held on June 25, 2019.
*4: For the bonus and stock remuneration shown in the table, they were recorded as expenses for FY2019.

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Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

Corporate GovernanceRisk Management

Audit & Supervisory Board Members and Measures to Strengthen Their Functions
The Audit & Supervisory Board is composed of four members, two of whom are outside members to ensure that timely andappropriate opinions are expressed by the Board from external as well as internal viewpoints. None of the outside members
have interests in NGK SPARK PLUG, such as conducting transactions with the company, or belong to any organizations thathave interests in it.
Furthermore, one staff member is appointed to support the operations of the Audit & Supervisory Board in accordancewith its members’ request, and this staff member engages in internal communication, investigation and other supporting
operations. In addition, the Internal Auditing Office and the accounting auditor conduct investigations and make reports in
response to requests from Audit & Supervisory Board members, and the respective organizations strive to enhance thequality of audits and work together.

Risk Management Policy
We adapt from a global viewpoint to changes in the management environment surrounding our group and to
the diversification of risks and will foster risk management to reduce or avoid the loss of managerial resources,
thereby improving our corporate value.
Action Guidelines• We identify the risks that might hamper the achievement of our management targets from a global and long-term viewpoint and strive
to prevent the actualization of these risks in a planned and organization-based manner.
• In the event that such a risk materializes, we strive to minimize the impact on our stakeholders, maintain their trust and prevent therecurrence of similar incidents.

Internal Control

Promotion system

NGK SPARK PLUG formulated its basic policy on internal control and has been implementing it for the sustainablegrowth of the company and medium- to long-term increase of its corporate value, while ensuring the appropriatenessof its business operations. In line with the policy, we will also fulfill our fiduciary responsibilities to shareholders as well
as responsibilities to stakeholders.

For risk management, we have appointed the President as “Chief Administrator” and the Director in charge of the Risk Management
Dept. as “Promotion Manager” and are making efforts to improve our risk management system and its operation.
Moreover, we have established the Risk Management Committee, which is chaired by the director appointed by the
Chief Administrator. This committee regularly makes improvements on the risk management system and monitors its
operation. The effectiveness of the system is also regularly reviewed and reported to the CSR and Sustainability Committee
for its confirmation.

Stocks Held for Reasons Other than Pure Investment Purposes

Criteria for the exercise of voting rights
For the exercise of voting rights for the stocks owned by our company, we will decide whether to exercise the rights for each
item of the agenda, considering whether it will contribute to increasing the corporate value of the investee company and of
our own company. In particular for the selection of directors, appropriation of retained earnings and other items that have alarge impact on shareholder value, we will exercise the voting rights according to the criteria set for the rights.

In order to identify and limit those risks that could have serious impacts on our business continuity and on the achievementof our targets, we follow the risk management process as described below. We will also evaluate the ESG-related risks
including those concerning climate change and human rights.

Risk
recognition

Risk analysis

Risk evaluation

Enhancement of Group Governance
NGK SPARK PLUG has corporate officers who were locally recruited at its regional headquarters (RHQs) for the Americas,
EMEA and Asia, in order to ensure that speedy and accurate managerial decisions are made at bases closer to the markets
they serve in view of the company’s globally expanding business environment. We have also formed unique governanceteams at the RHQs to build an optimal decentralized system on a group-wide basis and enhance corporate governance as
the entire Group.
Moreover, we have newly established the Global Group Governance Headquarter as an organization that audits theeffectiveness of the Group’s governance as an entity that is separate from its business execution. This organization will
formulate and implement measures to carry out audits on the management of Group companies and RHQs and on the corebusiness operations of each department. It will also formulate and implement measures to enhance internal control acrossthe Group and will thus play an important role for the enhancement of the Group’s governance.

Selection ofpriority risks
Planning,
implementing andmonitoring of
measures

Review

Identify risks
List the related risks for each operational process

Analyze the impact of risks, probability of their materializationand how measures are taken against themMake analysis based on the evaluation results provided by the Risk
Management Dept. and other departments in charge of the risks
Evaluate and prioritize the risks based on the analysis results
Based on the risk analysis results, select the candidates forpriority risks
Select particularly significant risks (priority risks) anddepartments in charge of the risks
The Risk Management Committee selects the priority risks and thedepartments in charge of the risks.
Plan, implement and monitor priority risk reduction activities
The departments in charge of the risks plan and conduct risk
reduction activities and the Risk Management Dept. monitors theactivities.
Evaluate the risk reduction activities to give instructions for
improvement as needed
The results of the risk reduction activities are reported to the Risk
Management Committee, which evaluates the level of achievement
and gives instructions for improvement as needed.

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Level of impact

Policy on the stocks held for reasons other than pure investment purposes
NGK SPARK PLUG holds the stocks of its suppliers and others basically to maintain and enhance stable business
relationships with them, when the company decides that holding the stocks will help increase its corporate value after
verifying the economic rationality from medium- to long-term viewpoints. The Board of Directors annually checks whether it
is rational and useful in terms of enhancing its corporate value to keep the stocks individually for each of the investee
companies, in consideration of the capital cost and comparing the related risks and returns on a medium- to long-termbasis. When the Board decides that the company should not continue to hold any of the stocks, the company will sell themas appropriate, in consideration of the market trend.

Process to identify priority risks

Probability of risk materialization

Countermeasures
AnalysisPriority risks

Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

Corporate GovernanceRisk Management

Information Security

Business Continuity Management (BCM)（Business Continuity Management：BCM）

Information Security Policy

In preparation against possible earthquakes and other large-scale disasters, we are conducting BCM activities. Specifically,
we are making business continuity plans and working on disaster control and reduction in a group-wide basis to minimize
damage in the event of a large-scale disaster and resume production as soon as possible if operation is suspended, thereby
helping customers maintain their supply chains.
We are also implementing measures against infectious diseases. To deal with COVID-19, we expanded our work athome system and reviewed work shifts in line with the internal guidelines, thereby continuing to operate our business while
preventing infection. We will verify the results to make more preparations against infectious diseases.
Measures against COVID-19

P.85

We regard all of our own information assets as one of our management resources. Through the proper protection and effective use of our information assets, we pursue healthy maintenance and development of ourbusiness.
Action Guidelines• We establish rules that clearly define the system and responsibilities for the protection and management of all information assets including
the information we keep for our customers, the know-how and intellectual properties owned by our group, and personal information.
• We comply with laws, ordinances, and regulations regarding information security.
• We educate all executives and employees who handle information assets about the importance of information security, and about specificitems to be observed.

Major initiatives related to business continuity plans (BCPs)
We have made a BCP for each of our departments. Each plan defines the initial response to be made and recovery procedures to befollowed in case of emergency.

• We continuously update the information infrastructure for the maintenance and improvement of the confidentiality and stability of all
information assets.
• We promote measures to prevent accidents in order to address the risks of information security breaches associated with the continuous

IT departments

Business departments

advancement and sophistication of information technology. Should an accident occur, we will strive to minimize the damage and takeTo ensure our business continuity, we are continuously working to minimize
the damage that might be caused to our IT systems in the event of a disasterand speed up the time required for recovery.
To minimize such damage, we have been gradually transferring ourInternet platform and operating environment established for our businesssystem to a highly robust data center. Also, to shorten the recovery time, weare shifting to cloud backups so that we can recover and restart the systems
by using undamaged backups.
We also plan to integrate the IT systems of our domestic Group
companies by using an integrated server infrastructure so that all companies
can take BCP measures on the same level.
Moreover, we are regularly providing more specific and practicaleducation and training so that employees can make better responses in caseof a disaster.

In the BCP made for each department, we set a limit for the recovery timerequired for our major products. We also formulate action plans for therecovery teams to achieve early recovery.

preventive measures against recurrence.

BCP training
We conduct BCP training every December for the purpose of resuming
business as soon as possible in the event of a disaster. BCP training isdesigned to improve the effectiveness of BCPs by formulating recovery plans
for the major businesses, organizing recovery teams and implementing
recovery activities. To prepare for a situation where our internal network is
unavailable, we conduct training on communicating with the emergency
headquarters using IP wireless equipment and sharing information via theInternet.

Procurement departments

The director in charge of the Information System Dept. serves as the Chief Administrator to ensure information security. We
also have our Information Security Committee chaired by the Chief Administrator with an eye to increasing the effectivenessof our information security management and reducing security risks regarding the NGK SPARK PLUG Group’s information
assets through the concerted effort of the management team and on-site workers. We will continue to foster appropriate
measures by checking how information security activities are conducted across the Group.
For confidentiality management, we have a working group on confidentiality management that reports to the Risk
Management Committee. The working group is tasked with identifying and reducing the risks related to the management ofconfidential information and protection of personal information.

Security measures

We are fostering BCP measures for key procurement items such as materials
and parts, including purchasing from multiple suppliers. In view of the fact that
we need a range of materials and parts to manufacture our products, we havebuilt up a system to implement BCP measures across the supply chain incooperation with suppliers.

Promotion system

Building damage diagnosis training using a drone

Group training of emergency personnel

We are continuously implementing measures to deal with the types of information security risks that pose a threat tocompanies and other organizations.
In response to the recent increase of damage caused by cyberattacks, we have established a Computer Security
Incident Response Team (CSIRT).
We are thus working to improve the level and sophistication of our information security with a focus on both preventive
and follow-up measures.

Major disaster control and disaster reduction activities
Implementation of the joint disaster prevention drill

Raising employees’ awareness of disaster prevention

In anticipation of a Nankai Trough Megathrust Earthquake, we are
implementing the Company-wide Disaster Prevention Drill as a joint drill fordomestic Group companies. The drill includes training for evacuation,
confirmation of employees’ safety, incipient stage firefighting, and inspectionof damage caused to facilities and equipment and is designed for earlyrecovery in the event of an emergency.

In order to enhance the disaster response capabilities of our employees andfoster our business continuity, we distribute to employees copies of thebooklet titled “NGK Spark Plug Disaster Prevention,” which shows the action
guidelines to be followed in the event of a disaster.

Confidentiality management

Measures against storm and flood damage

The working group on confidentiality management annually inspects the company-wide status of confidentiality management
based on the confidentiality management rules set by the company. The inspection includes self-inspection by eachdepartment and mutual inspection between departments. The inspection items are reviewed according to the broader
progress of informatization in society for the enhancement of the checking function.
Furthermore, in addition to the rules on the in-house handling of confidential information, we have also established ruleson the use of confidential information outside the company in order to prevent the leaking of such information, including ruleson the use of portable computers and cloud services, and we monitor compliance with the rules.

Recently, climate change has been causing more extensive storm and flood
damage. In response we annually check the hazard maps of the areas where

Protection of personal information

our sites are located and implement measures as necessary.
Training for secondary evacuation

Stretcher transport training

As exemplified by the General Data Protection Regulation (GDPR) enforced in Europe, measures to protect personal
information have been enhanced globally. In response, the NGK SPARK PLUG Group has set a range of internal rules toappropriately protect, manage and handle the personal information of its customers and employees.

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84

Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

Measures against COVID-19
We are implementing measures against COVID-19, which is spreading globally, giving first priority to the safety andhealth of NGK SPARK PLUG Group employees and all those related to the Group.

Global measures
NGK SPARK PLUG Group has bases across the world, and the situation concerning the spread of COVID-19 and related
restrictions imposed on the public, such as lockdowns, differ by country and region. Accordingly, we give priority to
implementing measures in accordance with the local situation speedily and appropriately at each of our bases. The local
operational situation and status of infection is reported by each of the bases to the head office, which provides support tothem as necessary.

Responses to infected employees and those who have had close contact with infected people
We made a flow chart to clearly show theguidelines to be followed by employees if either
they or members of their household become
infected.

Major details•Infected employees are prohibited from commuting to their workplaces until they are
diagnosed as having become well enough to do so.
•Employees who have had close contact with infected people and could potentially be
infected themselves should stay at home.
•Those who have had close contact with infected people need to stay at home for 14 days
after their last contact with such people.

Ensuring safety of stakeholders
Measures taken in Japan to prevent the spread of infection
In the middle of January 2020, the first case of COVID-19 infection was confirmed in Japan, giving rise to public concern. Then aseries of new cases were reported and the Japanese government established its response headquarters on January 29. Almost
concurrently, we also launched our anti-novel COVID-19 headquarters, manned by the President, who serves as the head of the
HQ, as well as the Executive Officer of the Corporate Strategy Group and the Executive Officer of the Corporate Administration
Group. Since then we have implemented a range of measures to control the infection.
Business operations, business trips and meetings
Prohibiting business trips in principle
We initially prohibited employees from visiting the countries and regions
where the infection was spreading, but subsequently the infection
began to spread also in Japan. We therefore prohibited employees frommaking any business trips, including visits between factories, from April
to June 2020.
Holding meetings and training seminars online in principle
In order to avoid the so-called three Cs (closed spaces, crowded places,
and close-contact settings), we encourage employees to hold meetings
and training seminars online and are using online tools also formeetings with those outside the company.
Establishment of satellite offices (decentralization of workplaces)
From April to May 2020, we used the auditorium and meeting rooms as
satellite offices, thereby preventing employees from working in crowded
workspaces.
Social distancing at the canteen
We increased the number of shifts at the canteen and decreased thenumber of people working on the same shift. We have also reduced thenumber of seats available at the canteen and ensure that employees
will not be seated face to face. We also ask employees to refrain fromtalking when they are eating at the canteen.

Work system
Encouraging employees to work from home
We have expanded our existing work from home system to deal withthe spread of COVID-19 by extending it to also include those working
shorter hours and those continuing to work after reaching theretirement age. We are encouraging employees to work from home tothe extent that they can continue to perform their duties.
For the period from April to May 2020, we asked employees
engaging in jobs that can be performed at home to work from home inprinciple, and 50% to 60% of the targeted employees did work from
home.
Fostering staggered commuting
We are fostering staggered commuting so that employees can avoid
crowds when commuting.
Allowing employees to drive to their workplaces on a temporarybasis
In order to prevent the risk of employees becoming infected while
commuting via public transportation, we allowed them to drive to theirworkplaces on a temporary basis.
Health management
Disinfection, ventilation and mask-wearing
We encourage employees to wash their hands and use disinfectants
frequently and increase ventilation. We also strongly recommend thatthey wear masks.
Daily health screening at workplaces
At all our workplaces, we check whether there are employees who havesymptoms of cold or are suspected of infection and whether there are
any signs of the spread of infection at the workplaces.
Measures for employees returning to Japan from overseas
We respond appropriately in line with the government’s policies andallow returnees to enter our premises only after we confirm that theirhealth observation results indicate no problems and the occupational
physician gives permission for their entry.

We give first priority to employees’ safety and health in
implementing infection control measures. We fostered
telecommuting also from the viewpoint of work style reforms
and implemented special measures for employees whoneeded to commute to their workplaces, such as promoting
staggered commuting and working at satellite offices.
We will continue to implement appropriate measures inconsideration of the situation at each point in time.
Executive Officer, Corporate Administration GroupWe have been proactively holding meetings online in consideration of the safety of our stakeholders, including shareholders,investors, customers and suppliers. We also determine whether to cancel or postpone events to which we generally invite
many people according to COVID-19 situation at each point in time.

In preparation for a resurgence of the pandemic and new infectious diseases
We were able to take adequate measures against the spread of COVID-19 but some of the guidelines that we had previously
formulated against new infectious diseases were not practically useful to deal with the pandemic. Also, we encouraged
employees to work from home to prevent the spread of infection, but our IT environment was insufficient to allow large
numbers of employees to adopt remote working, making it necessary that we improve our IT capability. In response, we will
review the guidelines to prepare for a resurgence of the pandemic as well as for new infectious diseases.

Activities as a corporate citizen
We are also working to contribute to society by supporting activities conducted to control COVID-19.

Providing medical institutions with masks as well as eye shields made by NGK SPARK PLUG
We donated about 52,000 masks kept in storage by NGK SPARK PLUG tomedical institutions located in the same areas as the Group’s bases.
Moreover, we made eye shields by using our 3D printers and injection
molding machines and donated them to medical institutions in need of such
equipment.

Joining the IP Open Access Declaration against COVID-19
NGK SPARK PLUG has joined this declaration, deciding not to assert anyof its intellectual property rights (patent, utility model, design and copyright)
for a limited time period without any consideration or compensation for acts
aimed at ending the spread of COVID-19, including the diagnosis,
prevention, containment and treatment of the infection.
Website about the Intellectual Property (IP) Open Access Declaration against COVID-19:

https://www.gckyoto.com/covid19

Kenji IsobeNGK SPARK PLUG CO., LTD. Integrated Report 2020

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85

86Morimura Group

Stories for Value Creation

Growth Strategies

Business Infrastructure
to Support Sustainable GrowthBusiness Strategy

CompliancePrevention of corruption

Compliance Policy
With recognition that our company is a member of society, we enhance corporate ethics and understand the spirit andmeaning of laws, company regulations, international rules, and social norms in order to appropriately meet social demandand become a company trusted by the international community.
Action Guidelines• We not only comply with laws and regulations, but also act in good faith with common sense and responsibility as a member of society.
• We regularly educate and raise the awareness of all our employees to impart a high level of ethics and correct knowledge, with which
they can act voluntarily to prevent a violation.
• Should a violation occur, we will promptly investigate the causes and take remedial actions. We will strive to take appropriate
countermeasures to prevent recurrence and fulfill our accountability.

Promotion system
In order to enhance compliance, we established the Compliance Committee chaired by the Representative Director. This
committee conducts activities to prevent noncompliance issues. It will also give instructions about the measures to be takenin the event of a noncompliance incident and monitor the implementation of the measures. Moreover, it provides complianceeducation and conducts awareness-raising activities targeting both executives and employees while also providing related
information and raising employees’ compliance awareness through designated compliance facilitators at each department.
Compliance promotion system
Board of Directors
Committee activities

CSR and Sustainability Committee

Consultation and reporting

Disciplinary Committee
Recommendation

Internal Auditing Office
Audit

Compliance Committee

Corporate Ethics Helpline(Inside and outside the company)

Reporting

Chairperson of Compliance
Committee
ReportingConsultation
and reporting

ReportingPlant liaison staff and division in
charge of laws and regulations

Anti-Harassment Committee(Personnel and Labor Relations and labor union)

Consultation
and reporting

Consultation

Suppliers

Implementation of compliance

Cooperation

Chairperson of Expert Committee
Educational tools
Education and training
Awareness survey

Compliancecheck

We are striving to prevent corruption in line with the statement made in our Corporate Code of Conduct: “We shall promote
fair, transparent, free competition and sound trade. We shall also ensure that our relationships and contacts with government
agencies and political bodies are of a sound and proper nature.”
We issued the Compliance Guidebook in 2012, in which we set the rules concerning the prevention of corruption,
including the prohibition of involvement in political contributions or bribery, and made employees aware of these rules.
Subsequently, in 2013, we issued the Conduct Guidelines Concerning the Giving and Receiving of Gifts and Entertainment
to raise employees’ awareness of the issues and prevent them from becoming involved in misconduct. Further, in 2016, we
signed the UN Global Compact, openly reaffirming our commitment to preventing corruption.
We are thus working to prevent corruption in line with the guidelines and others. We respond to any violations of theanti-corruption rules mainly through the Compliance Committee. Our overseas Group companies are also taking action toprevent corruption, especially to prohibit and prevent bribery of civil servants, including providing employees with related
education and conducting surveys on local laws. We also request that suppliers refrain from acts of bribery through our CSR
Procurement Guidelines. In FY2019, there were no violations of related laws and regulations across the Group.

Activities concerning competition laws
Taking seriously our violation of the Anti-Monopoly Act of Japan, as uncovered in FY2014, we have established a system topromote compliance with competition laws and to ensure legal compliance both within and outside the country.
In Japan, we formulated the Anti-Monopoly Act Compliance Manual and distributed copies to employees while holding a
range of related seminars internally for both executives and employees. Moreover, we have introduced an in-house e-mailinspection system to monitor and prevent recurring violations of the competition law.
Our overseas Group companies are required to report the activity status regarding compliance with competition laws to
NGK SPARK PLUG on a regular basis. In addition, the company’s teams in charge of affairs concerning competition laws andcompliance visit the Group companies, where they audit the companies’ compliance systems and implementation status andcheck whether local employees are sufficiently aware of the related rules. Seminars featuring guest speakers are also held.
We will continue our education and auditing activities to ensure compliance with competition laws both in Japanand abroad.

Consultation

NGK SPARK PLUG

Export control

Group companies

Corporate Ethics Helpline
We have established the Corporate Ethics Helpline as an internal reporting system available to employees and suppliers seeking consultationand making reports regarding compliance. We have worked to improve user convenience by establishing channels not only inside the company
but also via an external expert service provider and enabling employees and suppliers to seek consultation and make reports also outside work
hours and on holidays. This service can be used anonymously.
Regarding consultations and reports received, facts are investigated with discretion so that the reporting employee or supplier isneither identified nor feels uncomfortable, and if problems are confirmed, they are dealt with promptly.
In FY2019, there were 80 consultations and reports, including those from employees of Group companies and those related tolabor affairs and internal regulations, and we promptly took corrective actions for the identified problems.
We are continuously working to make the helpline service widely known by measures such as introducing it in training, putting up
related posters and distributing carrying cards describing the service.

Anti-Harassment Committee
Labor and management are cooperating to prevent all kinds of harassment in their effort to protect the human rights of employees. The
Anti-Harassment Committee closely examines and verifies reports and consultations received by the harassment consultation desks set
up in each of the factories and provides guidance for correction as necessary. The details of this committee’s activities are reported to
the Compliance Committee.

Efforts to protect human rights

In order to ensure compliance under the multilateral export control regime (MECR) established for international peace andsafety, we have established related internal rules and an in-house export control organization. We also conduct awarenessraising and inspection activities targeting departments engaged in export control, thereby ensuring and enhancing our export
control in compliance with the related laws and regulations.

Compliance education and awareness raising
To raise employees’ awareness and knowledge regarding compliance, we are continuing to educate them by using theCompliance Guidebook, which summarizes the rules concerning companies and society, and the Compliance Newsletter,
which provides specific examples of compliance issues that could arise in our daily operations, in addition to holding levelspecific and theme-specific training.
Moreover, in order to check employees’ level of understanding about the corporate rules and systems and to examine
the corporate culture and identify compliance risks, we conduct a questionnaire survey on compliance targeting employees
and then give feedback to their workplaces to foster improvements.

P.65

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88

FY2019

Automotive Components Group

348.7

Revenuebillion yen

Operating income

IFRS

19.6

22.0

17.2
18.2

322.9

318.1

356.7

348.2

14.6

14.8

349.1

348.7

Automotive
Components Group

133.2

125.1

137.0

142.6

141.1

207.8

189.7

193.1

211.2

214.1

208.0

141.0

2015
■

2016

2017

Plug business ■ Sensor business

FY2019

2018

(FY)

2019

Operating income ratio

16.5

billion yen

Operating income

J-GAAP

19.4

17.9

17.1

16.5

16.5

2015

Semiconductorbusiness

3.3

3.9 %

△9.1

△14.4
△24.9

2016

Sales revenue

2017

2019

2018

(FY)

Operating income ratio

FY2019Technical Ceramics Group Ceramics business

35.7

Revenuebillion yen

Operating loss

1

billion yen

Revenue composition

Revenue (billions of yen) and operating income ratio (%)
IFRS

J-GAAP

9.6

7.4
32.8

6.9
30.0

40.7

37.7

35.5

35.7

△3.4

△2.8

Ceramics business

8.4 %

1.9

2015
■

billion yen

IFRS

0.2

△29.9

0.5

Revenue composition

Revenue (billions of yen) and operating income ratio (%)
23.8

81.8 %

Technical Ceramics Group Semiconductor business

Revenue■billion yen

Revenue composition

Revenue (billions of yen) and operating income ratio (%)
J-GAAP

51.7

2016

Sales revenue

FY2019
Revenue

Operating loss

2017

2018

2019

5

Business Strategy
This section explains the results of each business(FY)

in FY2019 and their medium-term prospects.

Operating income ratio

Other businesses

25.1
2.8

CONTENTS
Revenue composition

billion yen

Other businesses

billion yen

5.9 %

91

Automotive Components Group
Plug business

93

Automotive Components Group
Sensor business

95

Technical Ceramics Group97

Other businesses

NGK SPARK PLUG CO., LTD. Integrated Report 2020

NGK SPARK PLUG CO., LTD. Integrated Report 2020

8990Morimura Group

Stories for Value Creation

Business Infrastructure
to Support Sustainable Growth

Growth Strategies

Plug businessSensor businessBusiness Strategy

Technical Ceramics Group

Other businesses

Overview of FY2019
WeightBusiness
Strategy

Although revenue of the plug business was stagnant,particularly in the Chinese market, due to the decelerated
growth in the spark plug market in the first half of the term
stemming from the US-China trade frictions as well as to theimpact of the COVID-19 pandemic from the fourth quarter,
the revenue increased year on year (disregarding the effects
of exchange rates). This is attributable to the favorable sales
trend in the North American repair market and the expansionof sales seen until the third quarter in the Chinese market.
While the global market environment deteriorated, with
automobile production decreasing by 9.8% year on year,
we managed to limit the year-on-year decrease in the sales
volume of our spark plugs to 2.3%, a rate outperforming themarket average. In China in particular, the sales volume ofour spark plugs for the OEM market and repair market roseby 1.5% and 8.6%, respectively, as a result of the expanded
sales network and our efforts to drive our brand penetration.

01

Automotive Components Group

Plug business

Sales volume of spark plugs by region

Global automobile year on year -9.8%
production(spark plug: -2.3%)

A spark plug is a component installed in the

combustion chamber of an engine to serve asa “lighter” that will electrically

ignite the fuel-air mixture. The component isrequired to demonstrate high thermal
conductivity, mechanical strength andinsulation resistance in a harsh

EuropeChina

North America

OEM △5.1％
AM △5.2％

OEM ＋1.5％
AM ＋8.6％

OEM △5.5％
AM ＋2.3％* Automobile
production in
Europe: -7.6%
year on year

* Automobile
production in
China: -16.9%
year on year

* Automobile
production in
North America: -6.0%
year on year

Normal reach

WeightLong reachThread diameterOEM △1.9％
AM △3.9％

to drastic temperature and pressure changes
as well as high voltage.

* Automobile productionin the ASEAN region: -12.7%
year on year

Strengths of the businessMeeting complex technological needs
In recent years, the automobile industry has been focusing
on achieving higher fuel efficiency and lower environmental
emissions as well as on downsizing engines, in whichspark plugs are installed, to secure sufficient space in theengine bay. This trend is amplifying the demand for thinnerand longer spark plugs, but advanced technologies andprolonged R&D efforts are required to reduce the thickness of
their ceramic insulation parts.
Because our business covers the entire process ofceramics production right from the development of materials,
we can respond meticulously to the market’s need for higher

Long reachLong reach

Downsizing of spark plugs

performance and more demanding specifications.
Because our customer base includes almost all
automakers, we are also in an advantageous position tokeep an eye on the latest technological trends and develop
technologies that meet the market demand.

precious-metal plugs that meet increasingly complex
performance requirements. In response to this demand, we
will promote technological development for high-performanceplugs and make strategic investments to offer high valueadded products, thereby continuing to meet market needs.

Expanding sales networks
Spark plugs are consumables and need to be replaced
regularly. We have production and sales bases in 21 countries
and have built our own sales channels. We provide technicalsupport locally while meeting the needs of the global repair
market. Our advanced technology and reliability have earned
us the top share in the world spark plug market.

Outlook for the future
The spread of COVID-19 has forced automakers aroundthe world to suspend or decrease production, which,in turn, is having an impact on us as well. As long as
this production adjustment continues, it will affect thesales of spark plugs for new automobiles significantly.
However, the Chinese market has recovered relatively
quickly and—although there is a time lag between the tworegions in terms of the outbreak of the infection and policy
practices—the North American and European markets will
likewise recover sooner or later.
Our goal in terms of spark plug production is toincrease annual production volume by about 20% over thefive years up to FY2020, and this goal is expected to beachieved. As regards our capital investment policy, we willrevise our plan for increasing production output according
to the demand recovery trend, as well as also maintain our
stance of focusing on high value-added precious-metal
plugs.
Since COVID-19 may become an important factor
that accelerates the transformation of the automobile
industry, we will take not just a short-term perspective,
but also a medium- to long-term perspective in collecting
and analyzing industry information and reflecting theresults in our business plans.

ASEAN

environment, in which it is exposed

WeightRisks and opportunities of the business
The automobile industry is in the midst of a once-in-a-century
period of radical transformation, with automakers developing
electric vehicles (EVs). The impact of EVs on us will be minor
on a five- to 10-year medium-term basis, but over the longer
term the proportion of pure internal combustion engine
vehicles (ICEVs) on the road will decrease, and we
acknowledge this as an issue that needs to be faced.
Conventional and hybrid ICEVs, however, are expected
to continue selling well from a medium-term perspective, andthe demand for spark plugs is expanding. In addition, thenumber of conventional and hybrid ICEVs owned—whichconstitute the repair market, for which approximately 75%
of our spark plugs by units sold are headed—is projected tocontinue increasing. Amid these trends, we, as the world’s
top-share spark plug manufacturer, are responsible for
ensuring a stable supply of our products. As environmental
regulations are becoming stricter, demand is rising for

NGK SPARK PLUG CO., LTD. Integrated Report 2020

NGK SPARK PLUG CO., LTD. Integrated Report 20209192Morimura Group

Stories for Value Creation

Plug business

Overview of FY2019
As in the case of spark plugs, the market environment
deteriorated, with automobile production decreasing
Nevertheless, the sales volume of our exhaust gas oxygen
sensors increased in the Chinese, European and ASEAN
regions and, despite the year-on-year decline in sales volumeof 6.8% in North America, increased by 2.5% overall Productwise, the sales volume of Wide-range oxygen sensor showedsignificant growth in Europe and, particularly, China, where theintroduction of the China 6 emission standards is accelerating
the shift from oxygen sensors to Wide-range oxygen sensor.
The demand for oxygen sensors for motorcycles also expanded
due to the adoption of BS6 emission norms in India. Driven bystrong demand and growth in our market share stemming fromtightened environmental regulations, these Wide-range oxygen
sensor and oxygen sensors for motorcycles, as well as NOx
sensors, sold well, with their sales volume outperforming that of
FY2018. This resulted in increased Sales revenue year on year
(disregarding the effects of exchange rates).
On the other hand, the operating income of the Automotive
Components Group decreased for both sensors and plugs owing
to the effect of the strong yen and increased depreciation cost.

02

Automotive Components Group

Sensorbusiness

Sales volume of exhaust gas sensors by region
RegionTo make automobile exhaust gas cleaner, it isimportant to monitor various driving

△6.8％

China

+10.5%

Europe

+9.4%

ASEAN

+0.6%

Overall+2.5%

and temperature of exhaust gas, and makeadjustments based on the data collected. We
develop a wide variety of sensors that takeadvantage of certain properties of ceramics

FY2019 year-on-year results

North America

conditions, such as oxygen concentration

Sales volume of sensors by productin order to contribute to cleaner exhaust gas.

Sensor businessBusiness Strategy

Technical Ceramics Group

Other businesses

Regulatory trends, element technologies and corresponding products
2016

Business
Strategy

Business Infrastructure
to Support Sustainable Growth

Growth Strategies

Product

FY2019 year-on-year results

Oxygen sensor for automobiles△11.1%

Oxygen sensor for motorcycles+32.4%

Wide-range oxygen sensor+24.3%

Temperature sensor△16.3%

Knock sensor△2.5%

NOx sensor

+6.8%

2017

2018

2019

Eu6d temp
WLTP/RDE

Expansion of demand for exhaust gas sensors
Since the 1990s, when European nations, the United Statesand other developed countries started to introduce automobile
exhaust gas regulations, the strict control of exhaust gas
emissions has become a global trend, with emerging economies
also tightening their regulations in recent years. In the meantime,
the target of regulations has expanded to include emissions frommotorcycles in addition to those from automobiles, boosting

2021

2022

2023

2024

Regulatory trends

WLTP/RDE
Regulations by
China 6aRegulations by
India BS6
Spread of HEVs

Gasoline

Forced induction gasoline
Imbalance detection

Diesel2025

LEV4(Undecided)
Eu7(Undecided)

Eu6d

Quick activation

Spread of
48V systems

Regulations by China 6b
WLTP/RDE
Expansion of operating range =Higher heat resistance
Enhancement of regulations(Review of postprocessing process)Enhancement of regulations in China(Need for GPFs)

Spread of PHEVs

NOx reduction(Improved EGR)

Higher fuel efficiency
Complex postprocessing due toenhanced regulations

Enhancement of regulations(Review of postprocessing process)

Trends of technologicalrequirements for vehicles

Development of sensors
by NGK SPARK PLUGZFAS-U3
CTAS-T1.1
CTAS-T2(wide-range oxygen sensor)（temperature sensor）（temperature sensor）

ZFAS-S3(oxygen sensor)

Improvement of ZFAS-U3(wide-range oxygen sensor)

Improvement of ZFAS-S3(oxygen sensor)

Next-type(wide-range oxygen sensor)

Next-type(NOx sensor)

Next-type(oxygen sensor)

volume growth rate of sensors, we also view the tightening of
exhaust gas regulations around the world as an opportunity thatwill lead to the expansion our businesses for Wide-range oxygen
sensor, NOx sensors and oxygen sensors for motorcycles—
products for which growing sales volume can be expected.
Exhaust gas regulations are likely to become increasingly
stringent. We will respond to this movement with ourtechnological capabilities. We will actively invest in high valueadded products while keeping an eye on ever- tightening
emissions control standards and contribute to solving
environmental issues by reducing CO2 emissions.

demand for exhaust gas control sensors. The need for sensors
with higher performance that can assure compliance withstandards is mounting. Such sensors are more technologicallyadvanced than the current mainstream oxygen sensors andinclude Wide-range oxygen sensor capable of measuringoxygen concentration in exhaust gas more precisely as well as
NOx sensors capable of measuring nitrogen oxide.

Technological capabilities that can address stringent
requirements
We have a competitive advantage in the technologicaldevelopment of ceramics for use as detector elements. Our
oxygen sensors are rated particularly highly amongautomakers for their quick activation after engine start-up,
which is an important requirement for sensors. We haveshortened the time required for our sensors to be activated toas little as around five seconds, helping customers meet strict
exhaust gas emission standards. Our capability to develop
products that provide required performance and put them on
the market in a timely manner is our strength.

Outlook for the future
Production adjustments by automakers amid the spread of
COVID-19 will affect our sales and profits significantly. As in
the OEM market for plugs, the sales of sensors are also
expected to pick up when automakers resume production,
but we assume that the impact of the infection will linger until
at least the end of this year.
To increase our production efficiency, we will expand thecapacity of our main production bases in China, India andThailand, while accelerating the transfer of production overseas. We will also promote the streamlining of productionlines, redesign of production layouts and utilization of robots
to reduce manpower and costs.
Capitalizing on the trust we have earned based on our
technological capabilities, we will continue our efforts toincrease the sales volume and market share of products that
help customers meet exhaust gas emission requirements,
while also accelerating the input of resources into the Global
Innovation Division, a new unit whose mission is to create
new businesses.

Risks and opportunities of the business
Strengths of the business

2020

Tier3
LEV3

Amid the recent trend in which both developed and emerging
economy countries are tightening their exhaust gas emissions
control, the demand for higher value-added exhaust gas
sensors is expanding among automakers. The stringency levelof environmental regulations in China and India in particular is
becoming increasingly high, boosting the demand for exhaustgas sensors, whether for automobiles or motorcycles, in thetwo countries. While we are well aware that the shift to pure
electric vehicles is posing a risk of diminished demand for internal
combustion engine vehicles and will thereby slow down the sales

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94

Morimura Group

Stories for Value Creation

Growth Strategies

Plug businessBusiness
Strategy

03

Technical
Ceramics GroupWe develop products that take advantage
of high heat- and corrosion-resistance,electrical insulation and other properties ofceramics in order to help enrich both industry
leverage our long-accumulated material andSPE business

Overview of FY2019

Overview of FY2019

Since FY2016, the first year of the seventh medium-term
management plan, we have been pursuing the policies ofspinning off the business as an independent subsidiary,
encouraging external participation in the management of thebusiness, promoting selection and concentration of products,
and reviewing the production bases, with the aim ofrevitalizing the business. One of our goals was to get thebusiness out of the deficit that had persisted since the financial
crisis by FY2019. We met this goal as planned by achieving a fullyear surplus, mainly through the reduction of fixed costs.

Sales revenue were expected to pick up in or after the second halfof FY2019, but because of the slowdown of the semiconductor
production equipment market we revised downward Sales
revenue when the first-half results were published. Sales revenue
for FY2019 were almost the same as the revised forecast.
Although our ceramic products were newly adopted
for customers’ advanced processes and made a positive
contribution to overall sales, operating income decreased
year on year because sales decreased in other segments andthe product mix turned adverse.

Strengths of the business

Strengths of the businessWe develop high-quality products by leveraging our superior
manufacturing technology and precision and implementing strict
quality control. Our strength lies in our capability to meet theneeds for complex 3D structures, cavity structures and single- to
multi-layered structures; to offer a range of plating options suchas electrolytic, electroless, gold, silver and copper plating; and tosupport small-lot and short lead time orders. We can also maketailored proposals, after IC chips are designed, on the structureand design of ceramic packages based on each customer’s
application and basic requirements.

Demand is rising for electrostatic chucks and ceramiccomponents for semiconductor production equipment thatmeet the requirements of “uniform surface temperature” and“low particle generation.” We are manufacturing electrostatic
chucks using the sheet layering technology developed inour semiconductor business. This technology can be usedvery effectively in the manufacture of semiconductor devices
having narrow wiring pitches. We also have a technologythat can effectively remove particles in the final stage of wafer
processing. With these technologies as our competitive
strengths, we will actively approach semiconductor
production equipment manufacturers.

Outlook for the future

process technologies to deliver high valueadded products needed for the coming age.

As we have achieved a full-year surplus for the business, wewill shift our focus from measures for “survival” to those for“winning,” which will generate revenues. More specifically,
we will promote the sales of ceramic packages for STFs
and other products with a high degree of competitive
advantage created based on our technological strengths andincrease their share in our total sales, with a view to building
a business structure that does not rely on semiconductor
packages for smartphones. We will also focus ontechnological development for the communications domain,
including 5G, which is considered a growing market.

Probe card substrates

Sensor businessTechnical Ceramics Group

Business Strategy

Other businesses

about by future brisk demand by committing ourselves to,

Semiconductor businessand everyday life. We will continue toBusiness Infrastructure
to Support Sustainable Growthamong other efforts, “enhance quality and stabilize theproduction system” and “promote development to meet new
demand and acquire orders.”

Cutting tool business

Overview of FY2019
Although sales of products for aircraft increased, they
were not able to make up for the decrease in sales in theautomobile segment stemming from the downturn of the
global auto market. This resulted in a year-on-year decline in
Sales revenue.
Operating income also fell year on year due to theimpact of the strong yen and decreased sales.

Strengths of the businessOur ceramic cutting tools for metal processing have been
maintaining a large market share for many years. Our BIDEMICS
cutting tool for aircraft engine component processing has been
adopted by many customers for its high productivity.

BIDEMICS

Industrial ceramics business

Overview of FY2019

Electrostatic chucks

Sales revenue and operating income decreased year on year.
This was because although sales were robust for oscillatorsfor medical applications, which are one of our piezoelectric
products, the sales of other product groups declined.

Outlook for the future
The demand for semiconductors is expected to expand against
a backdrop of the advance and spread of technologies suchas 5G, AI and IoT, bringing a recovery in market conditionsin 2020. Given this projection, we anticipate that the SPE
business will improve significantly in terms of profitability.
However, because we had been focusing on increasing our
production capacity of electrostatic chucks in anticipation of
an increase in demand for semiconductors, our depreciation
cost increased in FY2019, resulting in a drop in profit. Moving
forward, we will be ready to seize every opportunity broughtStrengths of the business
We undertake the whole process from the development ofmaterials to the manufacture of products, and this integrated
production enables us to supply products, including silicon
nitride balls, piezoelectric elements and oscillators, that are
fabricated meticulously in response to customers’ requests.

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96Morimura Group

Stories for Value Creation

Growth Strategies

Plug businessBusiness
Strategy04

Otherbusinesses

Fuel cell business

Future direction

Future direction

Our medical business provides products for implant andhealthcare applications based on our ceramics and sensing
technologies developed in the plug and sensor businesses. In
the implant business, we have been focusing on developing
and marketing artificial bones used to replace missing partsof damaged bones and their related products. We will expand
our product lineup to include orthopedic implant products inaddition to ceramic artificial bones to expedite business growth.
In the healthcare business, we manufacture and sell oxygen
concentrators for patients with respiratory problems, such as
chronic obstructive pulmonary disease (COPD). In December
2018, we acquired the shares of CAIRE, the oxygen concentrator
business arm of the Chart Group in the United States, andstarted expanding our sales channels overseas. CAIRE’s lineup
covers all types of oxygen concentrators—portable, movable,
and stationary—and the collaboration with CAIRE will enable us
to further expand the business. Moving forward, we will utilize oursensing technologies to develop products that will help increase
the value of medical care and other industries.

We have been developing solid oxide fuel cells (SOFCs)
since 1999 by mobilizing our know-how and technologies,
including multilayering and metal-ceramics bonding technologies,
which have been built up through many years of experience inmanufacturing spark plugs, automotive oxygen sensors andsemiconductor packages. Because SOFCs are more energy
efficient than other fuel cells and considered effective in reducing
CO2 and other greenhouse gas emissions, they are expected

Challenges

relying on spark plugs, oxygen sensors andother automotive components for more than
80% of its sales, one of the most important

As an aging population is becoming an issue not only in Japanbut also in the United States, Europe and China, the medical
business potentially has a large market. Respiratory diseases
are particularly prominent in China and India, and these twocountries are considered huge prospective markets. Oneof our challenges is how we can shorten the time required
to obtain regulatory approval and licenses for our medical
devices, which is normally a time-consuming process, in orderto put them on the market in a timely manner. A solution tothis in our healthcare business is the acquisition of CAIRE,
which has allowed us to expand our sales channels overseas.
Similarly, we also intend to expand the implant businessthrough such means as forming partnerships with overseas
companies. The optimization of our product lineup is anotherchallenge. We will tap into new areas of business to which we
can apply our sensing technologies as well as find new needs
and seeds to develop new products.

priorities is to create new businesses in order
to diversify our business portfolio for longterm sustainable growth. We will actively
cultivate new business domains byleveraging our long-accumulated strengths.

Sensor businessTechnical Ceramics Group

Business Strategy

Other businesses

reduce costs. Through the development of ceramics power

Medical business

For NGK SPARK PLUG, which has been

Business Infrastructure
to Support Sustainable Growth

generation technology, we intend to promote thepopularization of fuel cells and further contribute toenvironmental protection.

5G products
We will make inroads into a new business for 5G
networks in the millimeter-wave range (28 GHz band),
which are expected to be put into full operation in around2025, as well as Beyond 5G and 6G networks. We are
currently working on the development of products for thisbusiness by combining our core technologies for sheet
lamination, ceramics materials development and highfrequency design. The main target markets are mobile
communication applications (such as mobile phones
and automotive onboard equipment), communication
infrastructure applications (base stations and optical andsatellite communication systems, which support data
communication and processing from behind the scenes) andlocal 5G network applications (data communication systems
for use within a limited area, such as a factory or farm).

to become an important source of clean energy. The heatgenerated in the chemical reaction process can also be used forthe supply of hot water. Although the market size for hydrogenfuel cells is still small, it is expected to substantially expand
toward 2030. The market of stationary fuel cells in particular,
which our group companies are developing, is predicted to growat a stable rate. Our group companies are working hard toward
the commercialization of SOFCs and becoming a fuel-cell stackmaker that offers a comprehensive lineup of fuel-cell stacks forindustrial, commercial and household use.

Challenges
While fuel cells, which generate electricity through a chemical
reaction between hydrogen and oxygen, are expected tospread in the future as a power generation system that isclean and can be miniaturized, they have disadvantages
in terms of cost and durability at present. Our challenge,
therefore, is to increase the precision of each technology
employed and enhance power-generating efficiency to

Antenna module for 5G mmWave

TOPICS

Commencement of operation by MORIMURA SOFC TECHNOLOGY CO., LTD.
MORIMURA SOFC TECHNOLOGY CO., LTD., a joint company belonging to NORITAKE
CO., LIMITED., TOTO LTD., NGK INSULATORS, LTD. and NGK SPARK PLUG, commenced
its operation in December 2019. The new company brings together the SOFC-related
technologies and know-how of the four partners and integrates their management resourcesto achieve the common goal of commercializing SOFCs as soon as possible.
About the Morimura Group, see ⇒ P.17

Establishment of CECYLLS Co., Ltd.
NGK SPARK PLUG and Mitsubishi Power, Ltd.* established their joint company, CECYLLSCo., Ltd., in January 2020. The new company will combine Mitsubishi Power’s technology
to design cylindrical cell stacks, which feature a long life and efficient heat utilization
capabilities, with our ceramics mass production technology to produce and sell highquality cylindrical cell stacks in mass volumes.
* Former Mitsubishi Hitachi Power Systems, Ltd. The name was changed on September 1, 2020.
Bioceramics

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Financial Results Highlights for the Past 11 Years
J-GAAPIFRS(Millions of yen)

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2019

Revenue

243,914269,232

284,746

302,798

329,758

347,636

383,272

372,919

409,912425,013426,207426,073

Operating income (loss)

10,683

28,77024,47823,754

51,661

62,196

66,28453,59567,27958,38546,444

48,447

Ordinary income(loss)

10,75827,37923,74027,67454,96067,90764,48355,55969,09459,25844,249—Profit(loss))attributable to owners of the parent

13,50923,68025,52420,90932,70436,75330,81525,60244,33542,63830,116

33,698

Capital expenditures

10,9778,767

14,00424,012

41,03436,37245,33936,32837,591

56,587

48,77151,004

Depreciation

18,825

16,646

15,438

12,798

11,567

13,337

16,834

19,601

20,92023,97930,186

31,952R&D expenses

13,907

15,763

16,036

17,10019,40021,337

23,123

23,41625,28328,072

28,79728,315

Cash flows from operating activities

34,25535,39821,07926,19454,69736,59356,46549,76465,70743,70457,28559,787

Cash flows from investing activities△17,270△20,412△15,850△15,442△61,148△12,865△82,331△53,410△26,422△48,380

52,325△52,926

Free cash flows

27,83430,684

8,507

8,456

3,541

13,995△25,866

6,335

29,636△21,356

2,704

4,627

Dividend payout

1,198

3,594

4,789

4,788

5,223

7,181

8,487

9,055

10,823

14,601

14,601

14,435

Total equity

207,006

218,159

235,613

268,309302,793343,380

341,044354,710388,115

401,505

389,795

399,737

Total assets

331,476

337,318

340,295

366,489

458,148

485,497

526,103563,801

599,972

629,417641,300

663,374

Interest bearing debt

39,81436,69737,39927,41857,33946,15380,212

99,275

98,115

110,755

147,393

152,946(Fiscal year)(Yen)

Earnings (losses) per share

62.01

108.71117.2596.06

150.26168.88141.60119.44209.37204.74145.72163.06Equity attributable to owners of the parent per share

942.41994.36

1,075.24

1,223.41

1,381.38

1,566.80

1,557.16

1,660.06

1,837.46

1,917.04

1,897.79

1,946.10

Cash dividends per share

11.00

22.00

22.00

22.00

28.00

36.00

42.00

42.00

60.00

70.00

70.00

70.00

Operating income ratio (%)

4.4

10.7

8.6

7.8

15.7

17.9

17.3

14.4

16.4

13.7

10.9

11.4

Return on Sales revenue (%)

5.5

8.8

9.0

6.9

9.9

10.6

8.0

6.9

10.8

10.0

7.1

7.9

Gross profit on sales (%)

21.0

27.4

25.1

24.2

32.6

35.8

35.6

33.0

34.6

33.8

31.5

31.4

ROE (Return on equity) (%)

7.0

11.2

11.3

8.4

11.5

11.4

9.1

7.4

12.0

10.9

7.7

8.4

ROA (Return on assets) (%)

4.4

7.1

7.5

5.9

7.9

7.8

6.1

4.7

7.6

6.8

4.7

5.1

ROIC (Return on invested capital) (%)

3.2

8.0

6.5

5.8

11.0

11.6

11.4

8.5

10.0

8.2

6.2

6.2

Equity ratio (%)

61.9

64.2

68.8

72.7

65.6

70.2

64.4

62.5

64.3

63.4

60.2

59.7

Total asset turnover (%)

0.8

0.8

0.8

0.9

0.8

0.7

0.8

0.7

0.7

0.7

0.7

0.8

Dividend payout ratio (%)

17.7

20.2

18.8

22.9

18.6

21.3

29.7

35.2

28.7

34.2

48.0

42.9

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100

Consolidated Statement of Financial Position

Consolidated Statement of Profit or LossNGK SPARK PLUG CO., LTD. and Consolidated Subsidiaries
Date of transition, March 31, 2019 and 2020

NGK SPARK PLUG CO., LTD. and Consolidated Subsidiaries
For the years ended March 31, 2019 and 2020
Millions of yen

Notes

Date of transition(April 1, 2018)2019

Thousands of U.S. dollars

2020

2020

AssetsMillions of yen

Revenue

Notes

2019

2020

2020

4,24

¥ 425,109¥ 426,073$ 3,908,927(285,007)(292,292)(2,681,578)

140,101

133,781

1,227,349(84,597)(87,292)(800,844)

Cost of sales

Current assets
Cash and cash equivalents

6¥ 87,479¥ 74,404¥ 86,092$ 789,835

Trade and other receivables

7

96,736

100,31192,604

849,578

Other financial assets

14

29,533

9,423

5,897

54,101Inventories

8

97,746

115,735

116,720

1,070,826

Other current assets

8,745

11,862

13,189121,000

Total current assets

320,241

311,737

314,505

2,885,367

Noncurrent assets
Property, plant and equipment

9206,510238,012251,0102,302,844

Goodwill and intangible assets

10

6,699

15,67815,774

144,716

Right-of-use assets

12

7,587

8,591

9,541

87,532

Investments accounted for using theequity method

13

13,054

13,17913,615

124,908

Other financial assets

14

60,47052,54743,557

399,606

Deferred tax assets

28

10,137

10,603

14,296

131,156

Other noncurrent assets

2,132

1,579

1,073

9,844

Total noncurrent assets

306,592

340,192

348,869

3,200,633

626,833

651,929

663,374

6,086,000

Total assets
Liabilities and Equity
Liabilities

Gross profit
25

Selling, general and administrative expenses

Thousands of U.S. dollars

4,13

497

1,135

10,413

Other income

26

1,989

1,542

14,147

Other expenses

26(2,670)(718)(6,587)

Share of profit of investments accounted for using the equity method

455,321

48,447444,468

Finance income

27

3,351

3,068

28,147

Finance expenses

27

Operating profit(2,023)(6,766)(62,073)

56,64944,749410,541(15,826)(11,118)(102,000)

40,823

33,631

308,541

40,51533,698309,156

Profit before income taxes
28

Income tax expenses
ProfitProfit (loss) attributable to
Owners of the parent¥

Noncontrolling interests

308

¥

(67)

Yen

Notes

$

(615)
U.S. dollars

2019

2020

Basic earnings per share¥194.55¥163.06$1.50

Diluted earnings per share

—

—

—

2020

29

Earnings per share

Current liabilities
Trade and other payables

15

44,71949,04943,681

400,743

Bonds and borrowings

16

44,79336,46645,257415,202

Other financial liabilities

17

Income taxes payable
18

Other current liabilities

2,096

2,281

3,126

28,67912,209

8,456

2,240

20,55034,06933,332

31,176

286,018

137,889

Total current liabilities

129,586

125,481

Consolidated Statement of Comprehensive Income
NGK SPARK PLUG CO., LTD. and Consolidated Subsidiaries
For the years ended March 31, 2019 and 2020
Millions of yen

Notes

1,151,202

16

50,126

72,194

97,406

893,633

Net defined benefit liabilities

19

25,04327,19929,494

270,587

Other financial liabilities

17

10,326

9,164

8,038

73,743

Deferred tax liabilities

28

3,024

568

24

220

Other noncurrent liabilities

18

2,811

3,225

3,191

29,27591,333112,352

138,155

1,267,477

Share of other comprehensive income of investments
accounted for using the equity method

229,222

241,938

263,6362,418,679

Total of items that will not be reclassified to profit or loss

Total noncurrent liabilities
Total liabilities
EquityFinancial assets measured at fair value through othercomprehensive income
Remeasurements of defined benefit plans¥ 33,631$ 308,541

30(5,594)(7,535)(69,128)

30

(781)

(710)

(6,514)

13,30

(20)

(5)

(46)

(6,395)(8,251)(75,697)30(3,252)(11,975)(109,862)

13,30

(54)

(576)

(5,284)(3,306)(12,551)(115,147)(9,702)(20,803)(190,853)¥31,120¥ 12,828$ 117,688

Items that may be reclassified subsequently to profit or loss
21

47,86947,86947,869439,165

Exchange differences on translation of foreign operations

Capital surplus

21

54,756

54,83554,791

502,670

Retained earnings

21

267,089284,228

291,1222,670,844

Share of other comprehensive income of investments
accounted for using the equity method

Treasury stock21(6,422)(1,741)(1,602)(14,697)

21

Other components of equity
Total equity attributable to owners of the parent
Total equity¥40,823

Items that will not be reclassified to profit or loss

Capital stock

Total liabilities and equity

2020

Other comprehensive income (net of tax effects)

Bonds and borrowings

Noncontrolling interests

2020

ProfitNoncurrent liabilities

Thousands of U.S. dollars

2019

31,73922,235

3,696

33,908395,032

407,427

395,876

3,631,890

2,578

2,564

3,861

35,422

Total of items that may be reclassified subsequently to profit or loss
Total other comprehensive income (net of tax effects)
Comprehensive income
Comprehensive income attributable to397,611

409,991

399,737

3,667,312

Owners of the parent

30,893¥626,833¥651,929¥663,374$6,086,000

Noncontrolling interests¥

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101

102

227

13,119¥(291)

120,358$(2,670)Consolidated Statement of Changes in Equity

Consolidated Statements of Cash FlowsNGK SPARK PLUG CO., LTD. and Consolidated Subsidiaries
For the Years Ended March 31, 2019 and 2020

NGK SPARK PLUG CO., LTD. and Consolidated Subsidiaries
For the Years Ended March 31, 2019 and 2020
Millions of yen

Millions of yen

Equity attributable to owners of the parent

Notes

Other components of equity

Notes

Balance as at April 1, 2018

Capitalstock

CapitalsurplusRetainedearnings

Treasury
stock

Financial assets
measured atfair value
through othercomprehensive
income¥47,869¥54,756¥267,089¥ (6,422)¥31,739

Exchangedifferenceson translationof foreign
operations¥

Remeasurements ofdefinedbenefit plans

—

—

—

¥ —

Cancellation of treasury stock
Dividends

22

Share-based remunerationtransactions

23$ 410,541
293,138

Total

Total equity

Depreciation and amortization

26,624

31,952¥2,578¥397,611

Impairment losses

1,675

—

—

—

40,515308

40,823410

2,873

26,358(19,881)(783)(9,622)(9,622)(80)(9,702)(783)(9,622)30,893

227

31,120(5,002)—(5,002)(5,002)

(0)

35

—

35

35

(9,647)

9,647

—

—

—

(13,610)

—

78

78

783

118

—

—

78
(118)

¥ 44,749¥395,032(13,610)

Transfer from other components ofequity to retained earnings¥ 56,649

Total(3,226)—

2020¥31,739(3,226)

Purchase of treasury stock
Sales of treasury stock

Profit before income taxes(5,612)40,5152020

Noncontrollinginterests(5,612)Other comprehensive income
Total comprehensive income

2019

Cash flows from operating activities

40,515

ProfitThousands of U.S. dollars

(664)

—
(242)

(13,852)

Foreign exchange loss

(2,410)(2,167)

Interest expenses

767

899

8,248

Share of profit of investments accounted for using the equity
method(497)(1,135)(10,413)Interest and dividends income

910

637

5,844

Decrease (increase) in trade and other receivables(1,705)

2,716

24,917

Increase in inventories(15,526)(6,560)(60,183)

(56)

4,401

40,376

1,052

1,867

17,128Loss on disposal of noncurrent assets

Total transactions with owners—

78(23,376)

4,680

(664)

—

783

118

(18,498)(242)(18,741)

Increase (decrease) in trade and other payables

Balance as at March 31, 201947,86954,835284,228(1,741)

25,462(3,226)—22,235

407,4272,564

409,991

Increase in net defined benefit liabilities

Balance as at April 1, 201947,86954,835284,228(1,741)

25,462(3,226)—22,235

407,4272,564

409,991—

33,698(67)

33,631Other, net(2,284)(4,041)(37,073)(20,803)

Subtotal

65,61076,191

699,000

1,683

1,689

15,495

Profit33,698Other comprehensive income
Total comprehensive income——

33,698Purchase of treasury shares
Sales of treasury stock
Cancellation of treasury stock(10,164)

Dividends

22

Share-based remunerationtransactions

23(7,541)(12,327)(710)(20,578)(20,578)(224)(7,541)(12,327)(710)(20,578)

13,119(291)

12,828Dividends received(10,074)—(10,074)(10,074)

Interest received

778

989

9,073

49

—

49

49

10,164——

Interest paid

(709)

(766)

(7,028)—(14,601)

Income taxes paid

(20,932)(18,316)(168,037)—

48

Net cash provided by operating activities

46,43059,787548,505—(14,601)
48

Changes in ownership interests in
subsidiaries

(92)

—

(92)

710

2,039

—

—
(254)

(14,855)
48

1,843

1,751

Cash flows from investing activities
(290)

2,288

20,991

Net (increase) decrease in short-term investment securities

16,981

(54)

(495)

Purchase of property, plant and equipment(50,786)(50,629)(464,486)

433

225

2,064

(3,208)(2,931)(26,890)(13,842)——

Purchase of investment securities(1,498)(1,575)(14,450)

Proceeds from sale and redemption of investment securities

3,424

363

3,330

(95)

(613)

(5,624)(48,883)(52,926)(485,560)

Net decrease (increase) in time deposits

Transfer from other components ofequity to retained earnings(2,039)1,329—

Total transactions with owners

—

(44)

(26,804)

139

1,329

—

710

2,039

(24,670)

1,588(23,081)

Balance as at March 31, 2020

¥47,869¥54,791¥291,122¥ (1,602)¥19,250¥(15,553)¥ —¥ 3,696¥395,876¥3,861¥399,737

Proceeds from sale of property, plant and equipment
Purchase of intangible assets

Thousands of U.S. dollars

Purchase of shares of subsidiaries resulting in change in scope of
consolidation

Equity attributable to owners of the parent
Other components of equity

Notes

Balance as at April 1, 2019

Capitalstock

CapitalsurplusRetainedearnings$439,165 $503,073 $2,607,596

ProfitTreasury
stock

Financial assets
measured atfair value
through othercomprehensive
incomeExchangedifferences ontranslation offoreign
operations$233,596$ (29,596)$(15,972)

Total comprehensive income——

309,156

Purchase of treasury shares
Sales of treasury stock
Cancellation of treasury stock(93,248)

Dividends

22

Share-based remunerationtransactions

23

—

—

Total

Total

$ 203,991 $3,737,862
309,156(615)

308,541(113,092)(6,514)(188,789)(188,789)(2,055)(190,853)(69,183)(113,092)(6,514)(188,789)

120,358(2,670)117,688

Other, net
Net cash used in investing activities
Cash flows from financing activities
Net (decrease) increase in short-term loans payable31

15,722(16,404)(150,495)

31

10,10030,000275,229(92,422)—(92,422)(92,422)

Proceeds from long-term loans payable

450

—

450

450

Repayments of long-term loans payable31(9,962)(9,924)(91,046)

93,248———Proceeds from issuance of bonds

31

19,892

29,852

273,872

Redemption of bonds

31(25,000)——

Repayments of lease liabilities

31(2,231)(2,637)(24,193)

Purchase of treasury stock21(5,002)(10,074)(92,422)

Dividends paid to owners of the parent

22(13,604)(14,596)(133,908)—(133,954)

—

440

(844)

—

(844)

18,706—

18,706(226,330)(18,706)(404)

Total equity$23,523 $3,761,385—

440Transfer from other components ofequity to retained earnings—

Noncontrollinginterests(69,183)(133,954)

Changes in ownership interests in
subsidiaries

Balance as at March 31, 2020$

309,156

Other comprehensive income

Total transactions with owners

Remeasurements ofdefinedbenefit plans

5

12,1936,514(245,908)

1,275

12,193—$439,165 $502,670 $2,670,844$(14,697)$176,606$(142,688)

6,514
$

—

$ 33,908 $3,631,890(2,330)(136,284)440

16,90816,064—

14,569(211,752)$35,422 $3,667,312

(242)

(254)

(2,330)Capital contribution from noncontrolling interests

—

1,470

13,486

Other, net

35

—

—

Dividends paid to noncontrolling interests

Net cash provided by (used in) financing activities(10,291)

7,432

68,183(330)(2,605)(23,899)(13,075)

11,687

107,220

Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period

687,47974,404

682,606

Cash and cash equivalents at the end of the period

6¥ 74,404¥ 86,092$ 789,835

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Notes to Consolidated Financial Statements
NGK SPARK PLUG CO., LTD. and Consolidated Subsidiaries

1. Reporting Entity
NGK Spark Plug Co., Ltd. (hereafter, “the Company”) is a company domiciled in Japan. Information on the address of its registered head
office and main business offices is presented on the Company’s website (https://www.ngkntk.co.jp/).
The consolidated financial statements of the Company, as of March 31, 2020, are composed of the financial statements of the Company
and its consolidated subsidiaries (hereafter, “the Group”) and its interests in associates.
The Group is primarily engaged in manufacturing and sale of automotive components and technical ceramics consisting ofsemiconductor and ceramics components.

Assuming that this effect will be generally contained in the fiscal year ending March 31, 2021, the Group made accounting estimates for
impairment of non-financial assets and recoverability of deferred tax assets during the current consolidated fiscal year. There areuncertainties in this assumption, and if the effect is prolonged, it could affect the financial condition and operating results of the Group forthe next consolidated fiscal year.
3. Significant Accounting Policies
The significant accounting policies of the Group are as follows and are applied continuously to all periods presented in the consolidated
financial statements, unless otherwise stated.

2. Basis of Preparation(1) Basis of consolidation(1) Statement of compliance with IFRSNo items to report.

The consolidated financial statements of the Group include financial statements of the Company and its consolidated subsidiaries, and interests inassociates that are accounted for using the equity method.
1) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it has power over the entity, is exposed to variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
The financial statements of the subsidiaries are included in the consolidated financial statements from the date on which control is
obtained until the date on which control is lost. In the event that the Group disposes of a portion of its ownership interest in a subsidiary
while control is retained, the change in ownership interest of the Group is accounted for as an equity transaction, and the difference
between the adjustment of noncontrolling interests and the fair value of the consideration is directly recognized in equity as equity
attributable to owners of the parent. If control is lost, any gain or loss arising from the loss of control is recognized in profit or loss.
The consolidated financial statements include investments in subsidiaries with different fiscal year-ends from that of the Company andfor which it is impracticable to align fiscal year-ends due to laws and regulations of the location where the subsidiaries operate that requiredifferent fiscal year-ends from that of the parent. For such subsidiaries, financial statements prepared with a provisional closing date set on
the same date as that of consolidated financial statements are used.
Where the accounting policies applied by a subsidiary are different from those applied by the Group, adjustments are made asnecessary to the relevant subsidiary’s financial statements. Intra-group balances of payables and receivables and intra-group transactions,as well as unrealized gains or losses arising from intra-group transactions, are eliminated on consolidation.
2) Associates
Associates are entities over which the Group has significant influence over financial and operating policy decisions, but not control or joint
control. Investments in associates are accounted for using the equity method.
Investments in associates are initially recognized at cost. The Company’s investments include goodwill recognized on acquisition. The
Group’s share in the profit or loss and other comprehensive income of its associates is recognized as changes in the Group’s investments
in associates from the date significant influence is acquired until the date significant influence ceases.
The consolidated financial statements include investments in associates whose fiscal year-end is different from that of the Company,as it is impracticable to align the dates due to relationships with other shareholders or other factors. For such associates, financial
statements prepared with a provisional closing date set in line with the consolidated fiscal year-end are used.
If the Group’s share of losses of an associate exceeds its interest in the associate, the carrying amount of the investment is reduced tozero and no further losses are recognized unless the Group has incurred obligations or made payments on behalf of the associate.
If an associate uses accounting policies that differ from those of the Group, the associate’s financial statements are adjusted as necessary.

(5) New standards and interpretations not yet adopted by the Group(2) Business combinations

None of the new standards and interpretations not yet adopted have a material impact on the Group’s consolidated financial statements.

Business combinations are accounted for using the acquisition method. Noncontrolling interests are measured at the proportionate share in
the fair value of the acquiree’s identifiable assets and liabilities.
Where the aggregate of the consideration transferred, the amount of any noncontrolling interest in the acquiree and, in a businesscombination achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree exceeds the net
amount of identifiable assets acquired and liabilities assumed at the date of acquisition, the excess is recognized as goodwill. Conversely, if
this aggregate consideration is less than the net amount of the identifiable assets acquired and liabilities assumed, the difference isrecognized as a gain in profit or loss.
Acquisition-related costs of business combinations are accounted for as expenses when incurred, except for costs of issuing debt orequity securities.
If the initial accounting treatment of a business combination is not completed by the end of the fiscal year in which the businesscombination took place, provisional amounts for the items for which accounting is incomplete are reported. In the event the Company
obtained new information about facts and circumstances which were in existence at the acquisition date that, if known, would have affected
the measurement of the amounts recognized on the acquisition date, and that such information was obtained during the period in which it islikely to have affected the measurement of the amounts recognized (hereafter, the “measurement period”), the provisional amounts
recognized on the acquisition date are adjusted retrospectively to reflect such information. The new information may require additionalrecognition of assets and liabilities. The measurement period shall not exceed one year.
Business combination under common control is a business combination involving entities or businesses in which all the combining
entities or businesses are ultimately controlled by the same party or parties both before and after the business combination and that control is
not transitory. Such transaction continues to be accounted for using carrying amounts.

As the Company meets all the requirements of “Specified Company Complying with Designated International Accounting Standards”
stipulated in Article 1-2 of the Ordinance on Consolidated Financial Statements, it prepares its consolidated financial statements inaccordance with IFRS pursuant to the provisions of Article 93 of the Ordinance.
The Group adopted IFRS for the first time in the consolidated fiscal year ended March 31, 2020, and the date of transition to IFRS
(hereafter, “date of transition”) is April 1, 2018. The impact of the transition to IFRS on the Group’s financial position, business performanceand cash flows as of the date of transition and comparative year are described in “Note 36: First time adoption.”With the exception of IFRSs that are not early adopted and exemptions permitted under the provisions of IFRS 1 “First-time Adoption ofInternational Financial Reporting Standards” (hereafter, “IFRS 1”), the Group’s accounting policies comply with IFRS effective as of March 31,
2020.
The Group’s consolidated financial statements for the fiscal year ended March 31, 2020 were approved by Takeshi Kawai, Representative
Director, President and Chief Operating Officer, on June 24, 2020.
(2) Basis of measurement
The consolidated financial statements of the Group have been prepared on a historical cost basis, except for financial instruments, etc.,
measured at fair value as stated in “Note 3: Significant Accounting Policies.”(3) Functional currency and presentation currency
The consolidated financial statements of the Group are presented in Japanese yen, which is the functional currency of the Company. All
financial information presented in Japanese yen is rounded down to the nearest million.
The translation of the Japanese yen amounts into U.S. dollar amounts is included solely for the convenience of readers outside Japan,
using the approximate exchange rate prevailing as at March 31, 2020, which was ¥109 to U.S. $1.00. The translation should not be
construed as a representation that the Japanese yen amounts have been, could have been or could in the future be converted into U.S.
dollars at this or any other rate of exchange.
Certain comparative figures have been reclassified to conform to the current year’s presentation.
(4) Early adoption of new standards(6) Use of estimates and judgments
The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgments, estimates andassumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual
results could differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period
in which the estimates are revised and in future periods when these revisions have an impact.
Information regarding judgments made in applying accounting policies that have a significant effect on the amounts recognized in the
consolidated financial statements is contained in the notes below.
• Accounting treatment of agreements that include lease contracts – “Note 3: Significant accounting policies (9) Leases” and “Note 12:
Leases.”
The following notes contain information about assumption and estimation uncertainties that may have a significant risk of resulting inmaterial adjustment to the carrying amounts of assets and liabilities in the fiscal year ending March 31, 2021.
• Impairment losses on non-financial assets – “Note 3: Significant accounting policies (10) Impairment losses of non-financial assets” and“Note 11: Impairment losses of non-financial assets.”• Measurement of defined benefit obligations – “Note 19: Employee benefits”• Recoverability of deferred tax assets – “Note 3: Significant accounting policies (18) Income taxes” and “Note 28: Income taxes”• Measurement of financial instruments – “Note 20: Financial instruments”
Regarding the impact of COVID-19, there is no unified view on when it will be fully contained, so there is uncertainty regarding the future
impact on the Group.

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Notes to Consolidated Financial Statements(3) Foreign currency translation
1) Foreign currency-denominated transactions
Foreign currency-denominated transactions, namely transactions in currencies other than the functional currency of each company, aretranslated into the functional currency using the exchange rates in effect on the dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies are translated into the functional currency at the exchange rate of the fiscal year-end date. Non-monetary
assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency using the exchange rate
at the date when the fair value was determined. Exchange differences arising from the translation are recognized in profit or loss.
Non-monetary items denominated in a foreign currency that are measured at historical cost are translated using the exchange rate ineffect on the date of the transaction.
2) Foreign operations
Assets and liabilities of foreign operations (consolidated subsidiaries and branch offices) are translated into the presentation currency atthe exchange rate as of the fiscal year-end date. Profit or loss and cash flows are translated into the presentation currency at theexchange rates of the transaction dates or the average exchange rate for the period that approximates the exchange rates of thetransaction dates. Translation differences arising as a result are recognized in other comprehensive income.
In the event of disposal of the entire ownership interest in a foreign operation or a part of the interest that results in a loss of control,
the cumulative amount of the exchange differences of the foreign operation that were recognized in other comprehensive income arereclassified to profit or loss in the period when the disposal occurred.
(4) Financial instruments
1) Non-derivative financial assets(i) Initial recognition and measurement
Stocks and bonds are initially recognized on the trade date. All other financial assets are initially recognized on the date on which theGroup becomes a party to the contractual provisions of these instruments.
At initial recognition, a financial asset is classified either as financial asset measured at amortized cost or that measured at fairvalue, as follows.
(a) Financial assets measured at amortized cost
A financial asset is classified as financial asset measured at amortized cost if both of the following two conditions are met.
• The financial asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows.
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal andinterest on the principal amount outstanding.
(b) Financial assets measured at fair value
Financial assets other than those measured at amortized cost described above are classified as financial assets measured at fairvalue through profit or loss or other comprehensive income.
For debt instruments, these are classified as debt instrument asset measured at fair value through other comprehensive income
if the following conditions are met.
• The financial asset is held within a business model whose objective is to hold assets in order to collect contractual cash flow orsell financial assets.
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal andinterest on the principal amount outstanding.
With respect to investments in equity instrument for purposes other than sale, the option is available at initial recognition to
make an irrevocable election to present subsequent fair value changes in other comprehensive income. The Group makes suchdesignation for individual assets.
Except for financial assets that are classified as financial assets measured at fair value through profit or loss, financial assets areindividually measured at fair value plus transaction costs that are directly attributable to the asset.
Trade receivables that do not contain a significant financial component are measured at transaction price.
For financial assets that are measured at fair value through profit or loss, transaction costs are recognized in profit or loss when incurred.
(ii) Subsequent measurement(a) Financial assets measured at amortized cost
These are recognized at amortized cost calculated by the effective interest method, and interest income is recognized as “Financeincome” in profit or loss.
(b) Financial assets measured at fair value
For financial assets measured at fair value through profit or loss, changes in fair value are recognized in profit or loss.
For debt instrument assets measured at fair value through other comprehensive income, changes in fair value, other than
impairment gains or losses and foreign currency gains or losses, are recognized as other comprehensive income until derecognition orchange in classification. When the financial asset is derecognized, the gains or losses recognized in the prior years are reclassified fromother comprehensive income to profit or loss.
For equity instruments for which the Group elected to designate as financial assets measured at fair value through othercomprehensive income, changes in fair value are recognized as other comprehensive income. Cumulative gains or losses arereclassified to retained earnings on derecognition or if there is a significant decrease in fair value. Dividends, however, arerecognized in profit or loss as “Finance income.”(iii) Impairment of financial assets
With respect to financial assets measured at amortized cost and debt instrument assets measured at fair value through othercomprehensive income, the Group recognizes allowance for doubtful accounts in an amount equal to lifetime expected credit loss if
credit risk on the financial asset has increased significantly since initial recognition. If credit risk of a financial asset has not increased
significantly since initial recognition, an amount equal to 12-month expected credit loss is recognized as allowance for doubtful
accounts. Assessment on whether credit risk of a financial asset has increased significantly since initial recognition is described in “Note
20: Financial instruments (2) Financial risk management 4) Credit risk.”
However, for trade receivables, allowance for doubtful accounts is always recognized at an amount equal to lifetime expected credit
loss. Estimates of expected credit losses of financial instruments are measured in a manner that reflects the following:(a) An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes(b) Time value of money(c) Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events,
current conditions and forecasts of future economic conditions
The amount associated with the above measurement is recognized in profit or loss.
(iv) Derecognition of financial assets
The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or when theGroup assigns the financial asset whereby substantially all the risks and rewards of ownership of the financial asset are transferred.
2) Non-derivative financial liabilities(i) Initial recognition and measurement
Financial liabilities are classified as amortized cost. A financial liability is initially recognized at amortized cost on the trade date on which
the Group becomes a party to the contractual provisions of the instrument.
A financial liability measured at amortized cost is initially recognized at fair value less transaction costs directly attributable to its
issuance.
(ii) Subsequent measurement
A financial liability is recognized at amortized cost calculated by the effective interest method, and interest is recognized as “Financeexpenses” in profit or loss.
(iii) Derecognition of financial liabilities
A financial liability is derecognized when it is extinguished, which is when the obligation specified in the contract is either discharged,
cancelled or expires.
3) Derivatives
The Group uses derivative transactions, including foreign exchange forward contracts, interest rate and currency swaps, and currency
options, to hedge currency and interest rate fluctuation risks.
Derivatives are initially recognized at fair value. After initial recognition, the fair value is remeasured and changes are recognized in
profit or loss.
4) Offsetting financial assets and financial liabilities
Financial assets and financial liabilities are offset and presented as a net amount only when the Group has a legally enforceable right to set
off the recognized amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
(5) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits, and short-term, highly liquid investments with a maturity of 3 months
or less that are readily convertible to cash and subject to insignificant risk of changes in value.
(6) Inventories
Inventories are measured at the lower of acquisition cost and net realizable value. The acquisition cost of inventories is mainly calculated by
the moving average method and includes all costs of purchasing and processing, as well as other costs incurred in bringing the inventories totheir present location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less the estimatedcosts of completion and the estimated costs necessary to make the sale.
(7) Property, plant and equipment
Property, plant and equipment are measured using the cost model and are stated at cost less accumulated depreciation and accumulated
impairment losses.
The cost of property, plant and equipment includes costs directly attributable to the acquisition of property, plant and equipment;
estimated costs of dismantling and removing the asset and restoring the site; and borrowing costs that satisfy the requirements forcapitalization. If the useful life of each component of an item of property, plant and equipment varies, it is accounted for as a separate item ofproperty, plant and equipment.
Property, plant and equipment, except for land and construction in progress, are depreciated using the straight-line method over theestimated useful life of each asset from the date when it has become available for use. The estimated useful lives of major assets are as follows.
Buildings and structures: 8 to 50 years
Machinery, equipment and vehicles: 4 to 10 years
The depreciation method, residual values and useful lives are reviewed annually and adjusted where necessary.
Items of property, plant and equipment are derecognized on disposal or when no future economic benefit is expected from theircontinued use or disposal. The gain or loss arising from derecognition is recognized in profit or loss at the time of derecognition of the relevant
item of property, plant and equipment.

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Notes to Consolidated Financial Statements(8) Goodwill and intangible assets
1) Goodwill
Goodwill is not amortized and is allocated to an asset, a cash-generating unit or a group of cash-generating units that are identified
according to location and type of business. It is tested for impairment at the same time every year or when an indication of impairment is
identified. Impairment loss on goodwill is recognized in profit or loss and no reversal is made.
After initial recognition, goodwill is stated at cost less accumulated impairment losses.
2) Capitalization of development cost
Expenditures on research activities to gain new scientific or technical knowledge are expensed when incurred. Expenditures ondevelopment activities are capitalized only if the Company can demonstrate that all of the following requirements are met.
(a) The technical feasibility of completing the intangible asset so that it will be available for use or sale(b) Its intention to complete the intangible asset and use or sell it(c) Its ability to use or sell the intangible asset(d) How the intangible asset will generate probable future economic benefits(e) The availability of adequate technical, financial and other resources to complete the development and use or sell the intangible asset(f) Its ability to measure reliably the expenditure attributable to the intangible asset during its development
The amount initially recognized for internally generated intangible asset is the sum of expenditures incurred from the time when theintangible asset first meets all the recognition criteria listed above to the completion of the development phase. This is amortized using
the straight-line method for the expected period when the costs incurred for development would be recovered. Cost at initialrecognition less accumulated amortization and accumulated impairment losses is recognized in the consolidated statement of financial
position.
Development cost that does not meet the above requirements for capitalization is recognized in profit or loss when incurred.
3) Other intangible assets
Intangible assets are measured at cost less accumulated amortization and accumulated impairment losses.
Intangible assets acquired separately are measured at cost at the time of initial recognition. Intangible assets acquired in businesscombinations are measured at fair value as of the date of the business combination.
Acquisition and development costs of software for internal use are accounted for as intangible asset if it is probable that the future
economic benefits that are attributable to the asset will flow to the Group.
Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives. The estimateduseful lives of major intangible assets are as follows.
Software: 5 years
Development assets: 5 to 10 years
Customer-related assets: 8 years
Amortization method, residual value and residual useful life are reviewed annually and adjusted where necessary.
Intangible assets are derecognized on disposal or when no future economic benefit is expected from their continued use or disposal.
The gain or loss arising from derecognition of an intangible asset is recognized in profit or loss at the time of derecognition of the asset.

An individual asset or cash-generating unit on which impairment tests are performed is the smallest unit (or group of units) which, basedon management accounting categories, generates independent cash flows. Corporate assets are allocated to individual cash-generating
units where a reasonable and consistent allocation method can be identified. Idle property is grouped for each individual asset.
The recoverable amount of an individual asset or a cash-generating unit is the higher of its value in use and its fair value less costs ofdisposal. In calculating value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate thatreflects the time value of money and the risks specific to the asset. For the calculation of fair value less costs of disposal, an appropriate
valuation model is used that is supported by available fair value indicators.
If the carrying amount of an asset or a cash-generating unit exceeds the recoverable amount, an impairment loss is recognized in profit
or loss, and the carrying amount of the asset is reduced to the recoverable amount. Impairment loss recognized in relation to a cashgenerating unit is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit, and then to the otherassets in the unit proportionately to the carrying amount of each asset in the unit.
In calculating the recoverable amount, certain assumptions are made regarding the estimated future cash flows and discount rates, etc.
These assumptions may be affected by future uncertain economic conditions, such as long-term effects of COVID-19. If it is necessary torevise these assumptions because of these future uncertain economic conditions, it could have a significant impact on the recoverable
amounts recognized in the following fiscal years’ consolidated financial statements.
Impairment loss on goodwill is not reversed. For impairment loss on non-financial assets other than goodwill, the recoverable amount of
the asset is estimated if there is an indication that the impairment loss may no longer exist or may have decreased, and the impairment loss isreversed if the recoverable amount exceeds the carrying amount net of depreciation or amortization. Reversal of the impairment loss on anasset is recognized in profit or loss only to the extent that the carrying amount of the asset does not exceed the carrying amount that would
have been determined had no impairment loss been recognized in prior years.
(11) Employee benefits
1) Post-employment benefits
The Company and certain consolidated subsidiaries have defined benefit-type corporate pension plans and lump-sum retirement benefit
plans, while certain overseas consolidated subsidiaries have defined contribution plans.
i) Defined benefit plans
The present value of defined benefit obligations as well as related current and past service costs are determined using the projected
unit credit method.
The discount rate is determined by reference to market yields at the fiscal year end on high-quality corporate bonds for thecorresponding discount period that is set based on the period up to the expected future benefit payment dates in every fiscal year.
Asset and liability associated with post-employment benefit plans are recognized at the present value of defined benefit obligation
less the fair value of plan assets. Service cost and net interest on the net defined benefit liability are recognized in profit or loss.
Gains and losses arising from remeasurement of defined benefit plans are recognized in full in other comprehensive income in thefiscal year that these are incurred and immediately transferred to retained earnings. All past service costs are recognized in profit or loss
when incurred.
ii) Defined contribution plans
For defined contribution plans, the contribution payable to the plan is recognized as an expense when the related service is rendered by
the employees.

(9) Leases
1) Lessee
The Group assesses whether an arrangement is or contains a lease at the inception of the arrangement.
Lease liability in a lease transaction is measured on the commencement date of the lease at the discounted present value of the lease
payments over the lease term that are not yet paid. A right-of-use asset is initially measured at cost, consisting of the amount of the leaseliability at the initial measurement, with adjustments made for initial direct costs, any lease payments made before or at thecommencement date, etc., restoration obligations required under the lease agreement and other costs. The right-of-use asset isdepreciated systematically over the lease term. The lease term includes the periods covered by an option to extend or an option toterminate if the Group is reasonably certain to exercise the extension option or not exercise the termination option on the basis of pastpractice relating to the period over which the underlying asset has been used and the economic reasons for doing so.
Lease payments are allocated between finance expenses and repayable portion of the remaining balance of lease liability, to produce
a constant periodic rate of interest on the remaining balance of the lease liability. Finance expenses are shown in the consolidated
statement of profit or loss separately from the depreciation charge for the right-of-use asset.
For leases with the lease terms of 12 months or less, and leases for which the underlying assets are of low value, lease payments forsuch leases are recognized as expenses on either a straight-line basis or some other systematic basis over the lease term.
2) Lessor
The Group classifies a lease as a finance lease if substantially all of the risk and rewards incidental to ownership of the underlying asset aretransferred to the lessee. All other lease contracts are classified as operating leases.
In operating lease transactions, lease payments are recognized as revenue over the lease term using the straight-line method.
(10) Impairment losses of non-financial assets
For non-financial assets, excluding inventories and deferred tax assets, an assessment is made at the end of each fiscal year as to whether
there is any indication that an asset may be impaired for each asset or cash-generating unit to which an asset is allocated. If such indication
exists, an impairment test is performed.

2) Short-term employee benefits
For short-term employee benefits, the undiscounted amount of benefits is recognized as an expense when the related service is rendered.
With respect to bonus payments and paid leave costs, the expected amount to be paid under relevant arrangements is recognized asliability when the Group has legal or constructive obligation to make such payments and a reliable estimate of the expected obligations
can be made.
3) Other long-term employee benefits
The obligations with respect to long-term employee benefits other than post-employment benefits are measured at the estimated future
benefits that employees have earned in return for their services rendered in the current and prior fiscal years, discounted to the present
value.
(12) Share-based payments
The Company has adopted equity-settled share-based payment plans for its directors (excluding outside directors) and executive officers in
the form of Board Incentive Plan Trust (hereafter, “BIP Trust”) and Employee Stock Ownership Plan Trust (hereafter, “ESOP Trust”). Shares of
the Company held by the two trusts are recognized as treasury shares. Compensation for services received is measured with reference to thefair value of the Company’s shares as of the date of grant, and is recognized as an expense over the vesting period. The same amount isrecognized as an increase in equity.
(13) Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, when it is probable that an
outflow of economic resources would be required to settle the obligation and a reliable estimate can be made of the amount of such
resources outflow.
When the impact of the time value of money is material, provisions are measured by the present value of estimated expenditure required tosettle the obligation. The present value is measured by discounting using a pre-tax rate that reflects the time value of money and the specificrisks of the liability. The increase in the provision reflecting the effects arising from the passage of time is recognized as finance expenses.

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Notes to Consolidated Financial Statements(14) Shareholders’ equity(19) Earnings per share

1) Ordinary sharesWith respect to equity instruments issued by the Company, the proceeds are recorded in capital stock and capital surplus, and costs
directly attributable to issue of the shares (net of tax effects) are recognized as a deduction from capital surplus.

Basic earnings per share are calculated by dividing profit for the year attributable to owners of the parent by the weighted-average number ofordinary shares outstanding during the fiscal year, adjusted for the number of treasury shares.

2) Treasury shares
Treasury shares are measured at acquisition cost and recognized as a deduction from equity. Gains or losses from purchase, sale anddisposal of treasury shares are not recognized. The difference between the carrying amount and the consideration received from disposal isrecognized as capital surplus.
(15) Revenue
The Group recognizes revenue based on the following five-step approach.
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the entity satisfies a performance obligation
The Group engages mainly in the sale of spark plugs, glow plugs, various automotive sensors, ceramic engine parts and otherautomotive components, IC packages and other semiconductor components, and cutting tools for machine tools and ceramics products forindustrial use. Revenue from the sale of these goods is recognized when control of the goods is passed to the customer and performanceobligation is satisfied. Revenue is measured at the amount of the consideration promised under the contract with the customer, less rights ofreturn, discounts, rebates, etc.

4. Segment Information(1) Summary of reportable segments
The reportable segments of the Group are the business units for which the Group is able to obtain separate financial statements in order for
the Board of Directors to conduct periodic reviews to determine allocation of management resources and evaluate business results.
The Group has its business units identified by product. Each business unit plans its comprehensive domestic and overseas strategies for
its own products and conducts its own business activities. Therefore, the Group is composed of business units, identified by products
organized in segments.
For the purpose of this reporting, several business segments are grouped together in consideration of the product nature, markets andother similarities, to present the two reportable segments of “Automotive components” and “Technical ceramics” consisting of“Semiconductor” and “Ceramics” subsegments.
“Automotive components” is a segment that manufactures and sells primarily spark plugs, exhaust gas sensors, and other automotive
components. The “Semiconductor” subsegment, which is the “Technical ceramics” segment, manufactures and sells semiconductors, IC
packages for various devices, multilayer circuit boards, and other products. The “Ceramics” subsegment manufactures and sells cutting
tools, industrial ceramics and products for semiconductor manufacturing equipment.
(2) Segment revenue and results
Fiscal year ended March 31, 2019 (from April 1, 2018 to March 31, 2019)
Millions of yen(16) Government grants

Reportable segments

A government grant is recognized at fair value when there is reasonable assurance that all the conditions attached to the grant are compliedwith and the grant will be received.
Government grant associated with revenue is recognized in profit or loss on a systematic basis over the period that the related costs forwhich it is intended to compensate are recognized.
For government grant associated with assets, the asset’s carrying amount is measured by deducting the grant amount from theacquisition cost of the asset.
(17) Finance income and finance expenses
Finance income consists mainly of interest income, dividend income, and foreign exchange gain. Interest income is recognized when incurred
using the effective interest method. Dividend income is recognized when the Group’s right to receive payment is established.
Finance expenses consist mainly of interest expense and foreign exchange loss. Interest expense is recognized when incurred using theeffective interest method.
(18) Income taxes
Income tax expense is stated as the total of current taxes and deferred taxes.
Current taxes are measured at the expected amount of taxes payable to or recoverable from tax authorities, using tax rates enacted or
substantively established by the fiscal year-end date. These are recognized in profit or loss for the fiscal year, except for those related tobusiness combinations and items that are recognized either in other comprehensive income or directly in equity.
Deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the fiscal year when the asset isrealized or the liability is settled, based on tax rates that have been enacted or substantively enacted by the end of the fiscal year. Deferred tax
assets and deferred tax liabilities are measured based on temporary differences between their carrying amounts for accounting purposes andtax base amounts, and tax loss carryforwards and tax credit carryforwards. A deferred tax asset is recognized for deductible temporary
difference, tax loss carryforward and tax credit carryforward only to the extent it is probable that future taxable profit will be available against
which the deductible temporary difference, tax loss carryforward or tax credit carryforward can be utilized.
The expected amount of taxable income in the future will fluctuate depending on the business performance at that time, so it may beaffected by uncertain future economic conditions such as the prolongation of COVID-19. When factors that have a significant effect on thestatus of taxable income in the following years emerge, the amount recognized in the following fiscal years’ consolidated financial statements
may be materially affected.
Deferred tax assets and deferred tax liabilities are not recognized for temporary difference arising from initial recognition of an asset or
liability in a transaction that is not a business combination and which affects neither accounting income nor taxable income at the time oftransaction. Furthermore, deferred tax liabilities are not recognized if the taxable temporary difference arises from initial recognition of goodwill.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in consolidated subsidiaries andassociates. However, deferred tax liabilities are not recognized if it is possible to control the timing of the reversal of the temporary differences
and probable that the temporary differences will not be reversed in the foreseeable future. Deferred tax assets arising from deductible
temporary differences associated with investments in consolidated subsidiaries and associates are recognized only to the extent that it isprobable that the temporary difference will reverse in the foreseeable future and taxable profit will be available.
Deferred tax assets and deferred tax liabilities are offset only when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when these relate to income taxes levied on the same taxable entity by the same tax authority.

Technical ceramics

Revenue
External customers
Inter-segment
Total
Segment profit (loss)
Finance income
Finance expenses
Profit before income taxes
Other material items
Depreciation and amortization
Share of profit (loss) of investments
accounted for using the equity method
Impairment losses

Automotive
components

Semiconductor

Ceramics

Total

Total

Other (Note 1)

Total¥356,422—¥356,422¥ 59,296¥17,089—¥17,089¥ (3,258)¥41,010—¥41,010¥ 3,069¥58,100—¥58,100¥ (188)¥414,522—¥414,522¥ 59,108¥10,586—¥10,586¥ (3,786)¥425,109—¥425,109¥ 55,321————¥425,109—¥425,109¥ 55,321¥ 3,351¥ (2,023)¥ 56,649¥ 21,582¥ 1,283¥ 2,904¥ 4,187¥25,769¥854¥ 26,624—¥ 26,624¥—¥ 1,675———¥ 1,675¥(69)¥ 1,675

¥

567
—

¥
¥

—
—

¥
¥

(69)
—

497
1,675

Adjustments

Consolidated(Note 2)

497
1,675

Fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020)
Millions of yen
Reportable segments
Technical ceramics

Revenue
External customers
Inter-segment
Total
Segment profit (loss)
Finance income
Finance expenses
Profit before income taxes
Other material items
Depreciation and amortization
Share of profit of investments accounted
for using the equity method
Impairment losses

Automotive
components

Semiconductor

Ceramics

Total

Total

Other (Note 1)

Total¥348,711—¥348,711¥ 51,757¥16,517—¥16,517¥ 538¥35,702—¥35,702¥ (1,014)¥52,220—¥52,220¥ (475)¥400,931—¥400,931¥ 51,281¥25,141—¥25,141¥ (2,834)¥426,073—¥426,073¥ 48,447————¥426,073—¥426,073¥ 48,447¥ 3,068¥ (6,766)¥ 44,749¥ 25,820¥ 1,045¥ 3,487¥ 4,533¥ 30,353¥ 1,598¥ 31,952—¥ 31,952

—
—

—
—

—
—

¥502
—

¥632
—

¥

—
—

¥

¥

502
—

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112

1,135
—

Adjustments

Consolidated(Note 2)

1,135—

Notes to Consolidated Financial Statements

Thousands of U.S. dollars
Reportable segments
Technical ceramics
Automotive
components

Revenue
External customers$3,199,183
Inter-segment—
Total$3,199,183
Segment profit (loss)$ 474,835
Finance income
Finance expenses
Profit before income taxes
Other material items
Depreciation and amortization$ 236,881
Share of profit of investments accounted
for using the equity method$
4,606
Impairment losses
—

Total

Total

Other (Note 1)

Ceramics$151,532—$151,532$ 4,936$327,541—$327,541$ (9,303)$479,083 $3,678,266——$479,083 $3,678,266$ (4,358) $ 470,468$230,651 $3,908,927——$230,651 $3,908,927$ (26,000) $ 444,468

—
—
—
—

$3,908,927—$3,908,927$ 444,468$ 28,147$ (62,073)$ 410,541

$

9,587

$ 31,991$ 41,587$ 278,468$ 14,661$ 293,138—$ 293,138

—
—

—
—

—
—

$

$

$

—
—

$

4,606
—

5,798
—

Total

10,413—Adjustments

Consolidated(Note 2)

Semiconductor(3) Information on products and services
Disclosure is omitted as the same information is presented in “(1) Summary of reportable segments” and “(2) Segment revenue and results.”(4) Information by geographical region as of and for the years ended March 31, 2019 and 2020 are as follows.
1) Revenue from external customers
Thousands of U.S. dollars

2019

2020

2020

Japan

¥ 89,401¥ 81,408$ 746,862

United States

114,803117,786

1,080,606

Germany

83,48587,503

802,780

Other

137,419

139,375

1,278,670¥425,109¥426,073$3,908,927

Total(Note) Revenue is classified based on the location of the Company and its consolidated subsidiaries.

2) Noncurrent assets
Millions of yen

Thousands of U.S. dollars

Date of transition(April 1, 2018)

2019

2020

2020

Japan

¥173,820¥194,358¥204,395$1,875,183

Asia

22,17632,90038,706355,101

Other

26,93236,60334,297

314,651¥222,929¥263,862¥277,399$2,544,945

Total(2) Breakdown of fair value of assets acquired, liabilities assumed and consideration transferred at the date of acquisition
Millions of yen

10,413—(Notes) 1. “Other” represents new businesses such as medical, environmental and energy-related products, as well as material sales and welfare program service, which are not included inreportable segments.
2. Segment profit (loss) is reconciled to operating profit in the consolidated financial statements.

Millions of yen

3) Date of acquisition
December 20, 20184) Legal form of the business combination
Share acquisition
5) Name of the acquired companies after the combination
Chart BioMedical Limited and Chart BioMedical (Chengdu) Co., Ltd. were renamed as CAIRE Medical Limited and CAIRE Medical
Technology (Chengdu) Co., Ltd., respectively.
6) Ratio of voting rights acquired
100%7) Main grounds for deciding on the acquiring company
The Company acquired 100% of the voting rights through share acquisition with cash paid as consideration.

(5) Information on principal customers

Initial provisional
fair value

Fair value of assets acquired and liabilities assumed
Cash and cash equivalents
Trade and other receivables
Inventories
Property, plant and equipment
Intangible assets
Other assets
Trade and other payables
Other liabilities
Fair value of assets acquired and liabilities assumed, net
Goodwill
Total
Fair value of consideration transferred
CashAmount payable (Note 5)
Total¥ 2,271
2,177
6,382
1,340
1,697
1,068
(1,845)(2,496)
10,596
5,517
16,113
16,113—¥16,113Subsequentadjustments¥

Adjusted fair
value

—
—
349
—
3,021
(2)
—
(918)
2,449
(2,349)100¥ 2,271
2,177
6,731
1,340
4,719
1,065
(1,845)(3,414)
13,046
3,168
16,214—100
100

16,113100¥16,214¥(Notes) 1. Acquisition-related costs of ¥756 million arising from the business combination was recorded in “Selling, general and administrative expenses.”
2. Goodwill arising from the business combination represents future excess earnings power expected from future business development, and no part of it is tax deductible.
3. Face value of trade and other receivables acquired was ¥2,313 million, and their fair value was ¥2,177 million. Estimated unrecoverable amount was ¥135 million.
4. Purchase price allocation, which was provisionally made as of March 31, 2019, has been adjusted retrospectively as allocation was completed during the fiscal year ended March 31, 2019.
5. This represents the amount that was payable as of March 31, 2019 resulting from price adjustments after share acquisition.

(3) Cash flows arising from the acquisition
Millions of yen

Cash and cash equivalents used for the acquisition¥16,113

Cash and cash equivalents held by the acquired companies at the time of acquisition(2,271)

Total¥13,842(4) Effects on business performanceThis information is omitted because no single customer accounts for 10% or more of the revenue presented in the consolidated statement of
profit or loss.
5. Business Combinations
Fiscal year ended March 31, 2019 (from April 1, 2018 to March 31, 2019)(Business combination by acquisition)(1) Outline of the business combination
1) Names and business description of the acquired companies
Names of the acquired companies CAIRE Inc.
Chart BioMedical Limited
Chart BioMedical (Chengdu) Co., Ltd.
Description of business
Manufacture and sale of oxygen concentrators
2) Main reasons for the business combination
The Company plans to further expand the oxygen concentrator business in the medical field given its growth potential. By acquiring thebusinesses of the acquired companies that are engaged in the oxygen-related business on a broad front with focus on their corebusiness of oxygen concentrators and that possess a wide range of product groups, the Company aims to expand its business scope
and acquire new sales channels and customers.

Revenue generated after the date of acquisition was ¥4,863 million. Profit for the year is omitted because its effect is insignificant. Disclosure
is omitted with respect to information on revenue and profit for the year assuming that the business combination took place at the beginningof the fiscal year as it is difficult to obtain accurate pre-acquisition financial information.
Fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020)
No items to report.
6. Cash and Cash Equivalents
The components of cash and cash equivalents as of the date of transition, March 31, 2019 and 2020 are as follows. The balance of “Cashand cash equivalents” in the consolidated statement of financial position at the date of transition, March 31, 2019 and 2020, agree with therespective balances in the consolidated statement of cash flows.
Millions of yen

Cash and deposits

2019

2020

2020

¥46,779¥39,704¥49,892$457,725

Short-term investments
Total

Thousands of U.S. dollars

Date of transition(April 1, 2018)40,70034,70036,200332,110¥87,479¥74,404¥86,092$789,835(Note) Cash and cash equivalents are classified as financial assets measured at amortized cost.
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Notes to Consolidated Financial Statements

Thousands of U.S. dollars

7. Trade and Other Receivables
The components of trade and other receivables as of the date of transition, March 31, 2019 and 2020 are as follows.
Millions of yen

Notes and accounts receivable — trade

Date of transition(April 1, 2018)

2019

2020

2020

¥92,639¥95,805¥87,940$806,789

Other accounts receivable
Total

Thousands of U.S. dollars

4,097

4,506

4,664

42,789¥96,736¥100,311¥92,604$849,578(Note) Trade and other receivables are classified as financial assets measured at amortized cost.

The components of inventories as of the date of transition, March 31, 2019 and 2020 are as follows.
Millions of yen

Thousands of U.S. dollars

Date of transition(April 1, 2018)

2019

2020

2020

Finished goods¥51,260¥ 60,642¥ 59,997$ 550,431

Work in progress

32,374

34,46532,779300,725

Total

14,111

20,62723,943

219,661¥97,746¥115,735¥116,720$1,070,826

2019
Amount of write-downs

2020

¥947

$ 235,092$ 44,477$2,183,596
422,734

Acquisitions

0

2,147

7,459

411,385

1,725

—

—

—

—

—

—

Depreciation (Note 1)—(55,404)(176,752)—(14,211)(246,376)

Impairment losses (Note 2)

—

—

—

—

—

—

Sales or disposals(83)(1,440)(5,697)

(9)

(156)

(7,404)(47,376)(2,248)(9,092)(26,991)(7,330)(1706)

Other (Note 3)807

97,073

343,734(463,624)

19,670(2,312)

March 31, 2020

$254,440$688,119$1,134,963$ 175,505$ 49,798$2,302,844(Notes) 1. Depreciation of property, plant and equipment is included in “Cost of sales” and “Selling, general and administrative expenses” in the consolidated statement of profit or loss.
2. Impairment losses of property, plant and equipment are included in “Cost of sales” and “Selling, general and administrative expenses” in the consolidated statement of profit or loss.
3. Transfers from construction in progress account to each line item are included in “Other.”
4. The amounts of government grants deducted to measure the carrying amounts of property, plant and equipment were ¥93 million and ¥1 million ($9 thousand) for the fiscal years ended
March 31, 2019 and 2020, respectively.

April 1, 2018Land

Buildings andstructures

Machinery,equipment andvehiclesAcquisition cost

¥27,830¥ 171,814¥ 293,572

Accumulated depreciation
Carrying amount

Other

Total

¥11,027¥ 14,775¥ 519,019(43)(103,250)(198,505)—(10,709)(312,509)¥27,787¥ 68,563¥ 95,066¥11,027¥ 4,065¥ 206,510

Construction inprogress

Other

Total

¥25,625¥ 16,432¥ 558,659

March 31, 2019Land

Buildings andstructures

Machinery,equipment andvehiclesAcquisition cost

¥27,943¥ 176,607¥ 312,051

Accumulated depreciation

Changes in the carrying amounts of property, plant and equipment are as follows.

Carrying amountMillions of yen

Land

Buildings andstructures

Machinery,equipment andvehicles¥27,787¥68,563¥ 95,066¥ 11,027¥4,065¥206,510

Acquisitions

41

75

645

55,958182

56,902Acquisitions through business combinations

114

723

426

16

60

1,340

Depreciation (Note 1)—(5,510)(16,095)—(1,224)(22,830)

Construction inprogress

Construction inprogress

Millions of yen(1) Changes(43)(105,230)(203,790)—(11,583)(320,647)¥27,900¥ 71,376¥ 108,261¥25,625¥ 4,848¥ 238,012

Millions of yen
Other

Total

Impairment losses (Note 2)——(1,675)——(1,675)

Sales or disposals

(73)

(282)

(910)

—

(64)

(1,330)Foreign currency exchange differences

30

91

(263)

(52)

(27)

(221)

Other (Note 3)

(0)

7,716

31,067(41,324)

1,857

(683)

March 31, 2019¥27,900¥71,376¥108,261¥ 25,625¥4,848¥238,012

Acquisitions

0

234

813

44,841

188

46,078Acquisitions through business combinations

—

—

—

—

—

—
(26,855)

Depreciation (Note 1)—(6,039)(19,266)—(1,549)Impairment losses (Note 2)

—

—

—

—

—

—

Sales or disposals

(9)

(157)

(621)

(1)

(17)

(807)

(245)

(991)

(2,942)

(799)

(186)

(5,164)

Other (Note 3)88

10,581

37,467(50,535)

2,144

(252)

March 31, 2020

¥27,734¥75,005¥123,711¥ 19,130¥ 5,428¥251,010

Foreign currency exchange differences$ 993,220$8,6889. Property, Plant and Equipment

April 1, 2018

Total

$654,826

Millions of yen

Thousands of U.S. dollars

2020

¥590

Other

$255,963

Construction inprogress(2) Opening and closing balances of acquisition cost, accumulated depreciation (aggregated with accumulated impairment losses) andcarrying amountThe amounts of inventories recognized as expenses and included in cost of sales for the fiscal years ended March 31, 2019 and 2020
were approximately the same as “Cost of sales” amounts in the consolidated statement of profit or loss.
The amounts of write-downs of inventories that were included in cost of sales and recognized as expenses are as follows.
Millions of yen

Buildings andstructures

Acquisitions through business combinations

Foreign currency exchange differences

8. Inventories

Raw materials and supplies

March 31, 2019

Land

Machinery,equipment andvehiclesMarch 31, 2020

Land

Buildings andstructures

Machinery,equipment andvehiclesConstruction inprogress

Other

Total

Acquisition cost

¥27,777¥ 184,766¥ 334,502¥19,130¥ 17,830¥ 584,007

Accumulated depreciation
Carrying amount(43)(109,761)(210,790)—(12,401)(332,996)¥27,734¥ 75,005¥ 123,711¥19,130¥ 5,428¥ 251,010

Land

Buildings andstructures

Machinery,equipment andvehiclesConstruction inprogress

Other

Total

$254,835$ 1,695,101$ 3,068,826$175,505$ 163,578$ 5,357,862

Thousands of U.S. dollars

March 31, 2020

Acquisition cost
Accumulated depreciation
Carrying amount(394)$254,440$(1,006,982)(1,933,853)—(113,771)(3,055,009)

688,119$ 1,134,963$175,505$ 49,798$ 2,302,844(3) Commitments
Contractual commitments to acquire property, plant and equipment are as follows.
Millions of yen

Commitments to acquire property, plant and equipment

Thousands of U.S. dollars

Date of transition(April 1, 2018)

2019

2020

2020

¥11,785¥17,755¥20,749$190,358

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Notes to Consolidated Financial Statements

Millions of yen

10. Goodwill and Intangible Assets

Intangible assets(1) Changes

March 31, 2020

Changes in the carrying amounts of goodwill and intangible assets are as follows.

Acquisition cost
Carrying amount

Goodwill

Development assets¥ 4,551¥1,836

—

2,676

—

Acquisitions
Additions through internal development
Acquisitions through business combinations

Software

¥ 307
—

—

Other (Note 2)¥¥ 6,699

8

2,684

—

523

3,168

—

—

4,719

7,887

—

(1,432)

(363)

(147)

(1,943)

Amortization (Note 1)
Sales or disposals

—

(6)

—

—

(6)

Foreign currency exchange differences

(45)

(27)

—

(68)

(141)

Other

—

(42)

—

16

(26)

March 31, 2019

¥3,430¥ 5,718¥1,996¥4,532¥15,678

Acquisitions

—

2,495

—

11

2,506

Additions through internal development

—

—

424

—

424

Acquisitions through business combinations

—

—

—

—

—

Amortization (Note 1)—(1,791)

(359)

(599)

(2,750)

Sales or disposals

—

(8)

—

—

(8)

Foreign currency exchange differences

(60)

(72)

—

(89)

(222)

Other

—

(88)

—

234

145

¥3,369¥ 6,253¥2,061¥4,089¥15,774

March 31, 2020

Software$31,468$ 52,459$18,312$41,578$143,835

Acquisitions—

22,890—101

22,991Other (Note 2)

Total

Additions through internal development

—

—

3,890

—

3,890

Acquisitions through business combinations

—

—

—

—

—

Amortization (Note 1)—(16,431)(3,294)(5,495)(25,229)

Sales or disposals

—

(73)

—

—

(73)

(550)

(661)

—

(817)

(2,037)

—

(807)

—

2,147

1,330

$30,908$ 57,367$18,908$37,514$144,716(Notes) 1. Amortization of intangible assets is included in “Cost of sales” and “Selling, general and administrative expenses” in the consolidated statement of profit or loss.
2. “Other” includes customer-related assets, etc.

(2) Opening and closing balances of acquisition cost, accumulated amortization (aggregated with accumulated impairment losses) andcarrying amountMillions of yen
Intangible assets
April 1, 2018

Acquisition cost

Goodwill

Accumulated amortization
Carrying amount

Software¥307

Development assets¥10,843¥ 2,860—(6,292)(1,024)¥307¥ 4,551¥ 1,836

Other

Total

¥ 1,830¥15,842(1,826)(9,142)4¥ 6,699¥

Millions of yen
Intangible assets
April 1, 2019

Acquisition cost
Accumulated amortization
Carrying amount

Goodwill

SoftwareDevelopment assets¥ 29,023(9,058)(1,575)(2,615)(13,249)¥ 6,253¥ 2,061¥ 4,089¥ 15,774

Thousands of U.S. dollars
Intangible assets
March 31, 2020

Goodwill

SoftwareAcquisition cost

$30,908$140,477

Accumulated amortization
Carrying amount

Development assets$ 33,367

Other$ 61,505

Total$ 266,266—(83,101)(14,450)(23,991)(121,550)$30,908$ 57,367$ 18,908$ 37,514$ 144,716(3) Research and development costs
Research and development costs for the years ended March 31, 2019 and 2020 are as follows.
Millions of yen

Research and development costs

Thousands of U.S. dollars

2019

2020

2020

¥5,252¥6,249$57,330

11. Impairment Losses of Non-financial Assets
The components of assets for which impairment losses are recognized, by asset class, are as follows.
Impairment losses are recorded in “Cost of sales” and “Selling, general and administrative expenses” in the consolidated statement of
profit or loss.
Thousands of U.S. dollars

2020

2020

Property, plant and equipment

Goodwill

March 31, 2020

Total

¥ 6,704

Millions of yen

March 31, 2019

Other

Other

—

2019

Intangible assets

Foreign currency exchange differences¥ 3,637¥3,369Thousands of U.S. dollars
Development assets

Development assets¥15,312

Total

4

523

Software¥3,369

Accumulated amortization

Millions of yen
Intangible assets

April 1, 2018

Goodwill

Other

Total

¥ 26,567¥3,430¥13,336¥ 3,212¥ 6,588—(7,617)(1,215)(2,055)(10,888)¥3,430¥ 5,718¥ 1,996¥ 4,532¥ 15,678

Machinery, equipment and vehicles
Total impairment losses¥1,675¥—$—¥1,675¥—$—(1) Cash-generating units
The Group has its business assets grouped based on the segmentation in its management accounts. Idle assets are grouped individually.
(2) Impairment losses
For the fiscal year ended March 31, 2019, impairment losses of ¥1,675 million were recognized in the semiconductor segment due to the decline ofrevenue projection and other factors, which resulted in the estimated value of discounted cash flow to fall below the carrying amounts of the assets.
The recoverable amount of the assets was measured at the value in use, which was estimated using a discount rate of 8.9% being
pre-tax weighted-average capital cost.
(3) Impairment tests of goodwill
The Group performs impairment tests on goodwill each fiscal year and whenever there is any indication of impairment.
Goodwill arising from business combinations is allocated on the acquisition date to the cash-generating unit or group of cash-generating
units to which the future benefits from the business combination were expected to be generated.
The carrying amount of goodwill by cash-generating unit as of the date of transition, March 31, 2019 and 2020 are as follows.
Millions of yen

Date of transition(April 1, 2018)
NTK CERATEC CO., LTD.

¥307

Thousands of U.S. dollars

2019

2020

2020

¥ 307

¥ 307

$ 2,817CAIRE Inc.

—

3,123

3,062

28,092

Total

¥307

¥3,430¥3,369$30,908

Goodwill that is of significance was a consequence of the Company’s acquisition of all the shares of CAIRE Inc., CAIRE Medical Limited and
CAIRE Medical Technology (Chengdu) Co., Ltd. (hereafter, CAIRE) which, together with their five subsidiaries, became subsidiaries of the Company.
In impairment tests, the recoverable amount is calculated based on the value in use. The value in use is calculated as estimated future cash
flows discounted to the present value, based on the three-year business plan approved by the Board of Directors and the growth rate. The
growth rate used in estimation for the period subsequent to the approved business plan is determined based on the average long-term growthrate of the markets to which the cash-generating units belong. The growth rates used to measure the value in use were 2.0% and 1.8% for the
fiscal years ended March 31, 2019 and 2020, respectively. The discount rates used were 17.7% and 14.8% for the fiscal years ended March
31, 2019 and 2020, respectively. As a result of impairment tests, no impairment losses have been recognized with respect to the said goodwill.
Even if the major assumptions used in the impairment tests were to change within a reasonable range, the Group deems the possibility to
be low that the cash-generating unit would incur significant impairment losses.

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Notes to Consolidated Financial Statements

12. Leases

14. Other Financial Assets

LesseeThe Group deems that an arrangement is or contains a lease if it conveys the right to control the use of a specific asset for a period of time inexchange for consideration, and recognizes a right-of-use asset and a lease liability at the commencement date of the lease. Principal leasetransactions are in leases of office buildings, warehouse, vehicles and metal dies.
Lease transactions mentioned above contain contracts with an option for the lessee to extend or terminate the lease in order to notably
secure flexibility for the Group’s business offices.
The option to extend the lease will be exercised if it is deemed necessary to do so by taking into consideration all relevant facts andcircumstances which include the need for the underlying asset in the execution of business, the degree of difficulty in acquiring an alternative
asset, and conditions for exercising the option. The Group considers that it cannot be reasonably certain to exercise the option given theextreme difficulty to conclude, at the commencement of a lease, whether or not the option would be exercised in the future. Consequently,
the period covered by the option is not included in the lease period, and lease payment for the said period is not included in measuring leaseliability. The period covered by an extension option and lease payment associated with the period covered by the option are normally thesame or similar to the initial contract period and lease payment.
The option to terminate the lease allows early termination primarily when a party so notifies the other party a certain period in advance ofthe end date of the lease.
The Group reassesses as necessary whether it can be reasonably certain to exercise an extension option or not to exercise a termination
option. The financial impact of such reassessment for the fiscal year ended March 31, 2020 was insignificant.
Contracts entered into by the Group that include variable lease payments or residual value guarantees and leases committed but not yet
commenced do not have materiality.
The components of right-of-use assets are as follows.

The components of other financial assets as of the date of transition, March 31, 2019 and 2020 are as follows.
Millions of yen

Date of transition(April 1, 2018)

Thousands of U.S. dollars

2019

2020

2020

Items classified as financial assets measured at amortized cost
Bonds, etc.

¥19,206

Time deposits

9,567

9,088

5,462

50,110

440

607

1,078

9,890

Other

¥

—

¥

—

$

—

Items classified as financial assets measured at fair value
through profit or loss
Bonds, etc.

¥

Derivative assets

—

¥

554

¥

54

$

495

693

—

50

459

Stocks¥60,096¥51,720¥42,809$392,743

Total¥90,004¥61,970¥49,454$453,706

Of which, current assets¥29,533¥ 9,423¥ 5,897$ 54,101

Of which, noncurrent assets¥60,470¥52,547¥43,557$399,606

Items classified as financial assets measured at fair value
through other comprehensive income

Millions of yen
Category of underlying assets

15. Trade and Other Payables

Buildings andstructures

Machinery,equipment andvehiclesTools, furnitureand fixtures

April 1, 2018

¥5,565¥1,479

¥154

¥356

¥31

¥7,587

March 31, 2019

¥6,741¥1,452

¥200

¥177

¥20

¥8,591March 31, 2020

¥7,180¥1,970

¥145

¥240

¥ 4

¥9,541

Land

Software

Total

Millions of yen

2019

2020

2020

¥32,495¥34,839¥31,892$292,587

Accounts payable
Total

Category of underlying assets

Thousands of U.S. dollars

Date of transition(April 1, 2018)
Other payables

Thousands of U.S. dollars

March 31, 2020

The components of trade and other payables as of the date of transition, March 31, 2019 and 2020 are as follows.

12,223

14,21011,788108,147¥44,719¥49,049¥43,681$400,743(Note) Trade and other payables are classified as financial liabilities measured at amortized cost.

Buildings andstructures

Machinery,equipment andvehiclesTools, furnitureand fixtures$65,872$18,073$1,330Land

Software$2,202

Total$37$87,532

16. Bonds and Borrowings
The components of bonds and borrowings as of the date of transition, March 31, 2019 and 2020 are as follows.

Changes in the amounts of right-of-use assets, lease-related expenses and cash outflows for the years ended March 31, 2019 and 2020are as follows.
Millions of yen

2019

Thousands of U.S. dollars

2020

2020

2020

Term ofpayment

Short-term loans payable with interest rate of 2.80%¥10,113¥ 27,587¥ 10,931$ 100,284—

Current portion of long-term loans payable withinterest rate of 0.18%

9,693

8,879

4,353

39,936—¥1,270$11,651

522

625

5,734

Current portion of bonds (Note 3)

24,987—

29,971

274,963—

Long-term loans payable (except portion due
within one year) with interest rate of 0.11%

20,211

22,351

47,633437,000

from 2021
to 2026

With tools, furniture and fixtures as underlying assets

126

138

1,266

With land as underlying asset

175

186

1,706

With software as underlying asset

10

16

147

¥1,822¥2,237$20,523

Interest on lease liabilities

¥

¥

$

Short-term lease expenses¥ 755

Expenses associated with leases for which the underlying assets are of low value

2019

¥ 987

With machinery, equipment and vehicles as underlying assets

Total depreciation of right-of-use assets

Thousands of U.S. dollars

2020

Depreciation of right-of-use assets
With buildings and structures as underlying assets

Millions of yen

Date of transition(April 1, 2018)

¥

96
11

82

¥ 761
¥

24

752

$ 6,982$

220

Variable lease payments not included in the measurement of lease liabilities

—

—

—

Income from subleases

—

—

—

Gains or losses arising from sale and leaseback transactions

Bonds (Note 3)

29,91549,842

49,722456,165—¥94,920¥108,661¥142,663$1,308,835—

Of which, current liabilities¥44,793¥ 36,466¥ 45,257$ 415,202—

Of which, noncurrent liabilities¥50,126¥ 72,194¥ 97,406$ 893,633

—

Total

(Notes) 1. Bonds and borrowings are classified as financial liabilities measured at amortized cost.
2. Interest rates shown are weighted-average interest rates for the outstanding balance as at March 31, 2020.
3. The issuing terms of the bonds are as follows.
Thousands of
U.S. dollars

Millions of yen
Date of transition(April 1, 2018)

—

—

—

Cash outflow related to lease¥2,997¥3,423$31,404

0.391% unsecured bonds due September 11, 2018

September 11, 2013

¥25,000

Changes in the carrying amount of right-of-use assets¥2,859¥3,650$33,486

0.296% unsecured bonds due October 27, 2020

October 27, 2015

30,00030,00030,000275,2290.110% unsecured bonds due June 14, 2023

June 14, 2018—

10,00010,00091,7430.370% unsecured bonds due June 14, 2028

June 14, 2018—

10,00010,00091,7430.110% unsecured bonds due June 20, 2024

June 20, 2019——

20,000183,4860.270% unsecured bonds due June 20, 2029

June 20, 2019

Maturity analysis of lease liabilities is presented in “Note 20: Financial instruments”.

13. Investments Accounted for Using the Equity Method

Name of bond

Total

Date of issuance

—

2019

¥

2020

—

¥

2020

—

$

—

—

—

10,00091,743¥55,000¥50,000¥80,000$733,945

Investments accounted for using the equity method are all related to associates and individually immaterial.
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Notes to Consolidated Financial Statements

Millions of yen

17. Other Financial Liabilities
The components of other financial liabilities as of the date of transition, March 31, 2019 and 2020 are as follows.
Millions of yen

Date of transition(April 1, 2018)

Thousands of U.S. dollars

Fair value of plan assets
2019

2020

2020

Items classified as financial liabilities measured at amortized cost
Other

¥

Lease liabilities

143
8,993

¥

96
9,678

¥

5
10,283

$

46

2020

2020

¥50,181¥49,870$457,523

42,30542,923

41,904384,440¥ 5,906¥ 7,258¥ 7,965$ 73,073

Present value of unfunded retirement benefit obligations

19,136

19,941

21,528

197,505

Net defined benefit liabilities or assets¥25,043¥27,199¥29,494$270,587

Amounts recognized in the consolidated statement offinancial position
3,286

1,670

876

8,037

¥12,423¥11,445¥11,165$102,431

Of which, current liabilities¥ 2,096¥ 2,281¥ 3,126$ 28,679

Of which, noncurrent liabilities¥10,326¥ 9,164¥ 8,038$ 73,743

Total

Subtotal

2019¥48,212

94,339Items classified as financial liabilities measured at fair value
through profit or loss
Derivative liabilities

Present value of funded retirement benefit obligations

Retirement benefit liability
Net amount

25,04327,19929,494

270,587¥25,043¥27,199¥29,494$270,587

2) Reconciliation of fair value of defined benefit obligations
Changes in the present value of defined benefit obligations for the years ended March 31, 2019 and 2020 are as follows.
Millions of yen

18. Other Liabilities

Millions of yen

Thousands of U.S. dollars

2020

2020

¥67,349¥70,122$643,321

Current service cost

3,443

3,572

32,771

Interest expenses

593

544

4,991

Remeasurement

1,368

276

2,532

(41)

118

1,083

1,023

290

2,661

386

(133)

(1,220)Date of transition(April 1, 2018)

2019

2020

2020

Accrued expenses¥13,684¥10,951¥10,552$ 96,807

Accrued bonuses

9,589

9,538

8,664

79,486

Actuarial gains and losses arising from changes in financial assumptions

Accrued paid leave

7,488

8,008

8,134

74,624

Actuarial differences arising from revisions to results

Actuarial gains and losses arising from changes in demographic assumptions

6,117

8,059

7,016

64,367¥36,880¥36,557¥34,367$315,294

Benefits paid

Of which, current liabilities¥34,069¥33,332¥31,176$286,018

Other (Note 2)

Of which, noncurrent liabilities¥ 2,811¥ 3,225¥ 3,191$ 29,275

Closing balance of present value of defined benefit obligations (Note 1)

Total

Thousands of U.S. dollars

2019
Opening balance of present value of defined benefit obligations (Note 1)

The components of other liabilities as of the date of transition, March 31, 2019 and 2020 are as follows.

Other

Thousands of U.S. dollars

Date of transition(April 1, 2018)

Past service cost

7

36

330

(2,799)(3,065)(28,119)

160

(87)

(798)

¥70,122¥71,398$655,028(Notes) 1 The weighted-average durations of defined benefit plans at the date of transition, in the fiscal year ended March 31, 2019 and in the fiscal year ended March 31, 2020 were 15.5 years,
15.2 years and 14.5 years, respectively.
2 “Other” includes translation differences of defined benefit obligations of overseas consolidated subsidiaries.

19. Employee Benefits
The Company and certain consolidated subsidiaries have a defined benefit plan and a lump-sum retirement benefit plan, while certain
overseas consolidated subsidiaries have a defined contribution plan. Retirement benefits trust is established on the Company’s defined
benefit plan. In the defined benefit plan, the amount of benefits is calculated based on the accumulated number of points earned by
employees each year during their period of service, the number of their service years and other conditions.
The Company and certain consolidated subsidiaries have instituted a contract-type pension plan based on pension provision. The
Company and certain consolidated subsidiaries have established corporate pension provisions which, by agreement with their employees,
stipulate the contents of the pension plan such as eligibility requirements, contents and method of payments, and burden of contributions.
The pension provisions have obtained the approval of the Minister of Health, Labour and Welfare. Administration of the pension plans,
including payment of contributions and management of accumulated funds, is undertaken by insurance companies, trust banks and otherinstitutions with which contracts have been signed. In addition to the administration and management of pension assets, these companies
also perform actuarial calculation and payments of annual and lump-sum benefits.
The Company and certain consolidated subsidiaries are required to comply with the dispositions and provisions issued by the Minister of
Health, Labour and Welfare pursuant to laws and regulations, and to faithfully perform their duties for the benefit of plan participants, etc.
They are prohibited from entering into any contract for administration and management of the assets for the purpose of pursuing their own
interests or the interests of third parties other than the participants, and from giving instructions for specific methods concerning managementof the pension reserves.

3) Reconciliation of the fair value of plan assets
Changes in the fair value of plan assets for the years ended March 31, 2019 and 2020 are as follows.
Millions of yen

Opening balance of fair value of plan assets

Thousands of U.S. dollars

2019

2020

2020

¥42,305¥42,923$393,789

Interest income

373

325

2,982

Remeasurement

244

(535)

(4,908)

244

(535)

(4,908)Contributions from the employer

Return on plan assets (excluding interest income)

1,823

1,129

10,358Benefits paid

(1,937)(1,915)(17,569)

Other (Note)

113

(23)

(211)

¥42,923¥41,904$384,440

Closing balance of fair value of plan assets(Note) “Other” includes translation differences of defined benefit assets of overseas consolidated subsidiaries.

The Group plans to contribute ¥2,664 million ($24,440 thousands) in the fiscal year ending March 31, 2021.

(1) Defined benefit plan
1) Reconciliation of defined benefit obligations and plan assets
The relationships between defined benefit obligations and plan assets, and net defined benefit liabilities and assets recorded in the
consolidated statements of financial position are as follows.

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Notes to Consolidated Financial Statements

4) Components of plan assets by category
The fair value of plan assets by category as of the date of transition, March 31, 2019 and 2020 are as follows.

currency options for trade receivables denominated in foreign currencies, and interest rate and currency swap arrangements as derivativetransactions for borrowings denominated in foreign currencies, in conformity with internal control regulations within the scope of actual demand.

Millions of yen

Date of transition(April 1, 2018)
Quoted market prices
in active markets
Yes

Thousands of U.S. dollars

2019

Total

No

Quoted market prices
in active markets
Yes

FY 2019(March 31, 2020)

2020
Quoted market prices
in active markets

Total

No

Yes

Quoted market prices
in active markets

Total

No

Yes

Total

No

Shares¥ 7,466 ¥— ¥ 7,466 ¥ 5,286 ¥— ¥ 5,286 ¥ 5,796 ¥— ¥ 5,796 $ 53,174 $— $ 53,174

Bonds

16,504—

16,504

16,461—

16,461

15,654—

15,654— 143,615

General account—11,182

11,182—

11,333

11,333—

11,614

11,614— 106,550 106,550

Alternatives (Note)

—

2,198

2,198

—

2,776

2,776

—

3,397

3,397

—

31,16531,165

3,020

1,934

4,954

3,592

3,473

7,066

3,683

1,758

5,441

33,78916,12849,917

Other
Total

143,615¥26,990 ¥15,315 ¥42,305 ¥25,340 ¥17,582 ¥42,923 ¥25,134 ¥16,770 ¥41,904 $230,587 $153,853 $384,440

Currency sensitivity analysis
The following table represents the Group’s sensitivity analysis and shows the impact that a 1% change in the rate of Japanese yen against therelevant currencies would have on profit or loss and equity. The analysis does not include the impact of translation, from functional currency
into yen, of financial instruments as well as assets and liabilities, revenue and expenses of foreign operations. Furthermore, it assumes that
other variable factors (balances, interest rates, etc.) are constant.
Millions of yen

2019

Thousands of U.S. dollars

2020

2020

U.S. dollar

¥203

¥113

$1,037

Euro

¥ 39

¥ 46

$ 422

Chinese yuan

¥ 76

¥102

$ 936

Thai baht

¥ 98

¥171

$1,569(Note) Alternatives represent primarily investments in private debt and infrastructure funds.

Management of plan assets aims to secure total return in the long term within the acceptable range of risks, which is necessary to ensurestable payments of pension benefits, lump-sum benefits and other payments in the future.
To this end, the Group seeks to maintain a portfolio of assets that represents optimal asset allocation in the years ahead with due
consideration to expected rate of return of investment assets, risks and other factors.
5) Significant actuarial assumption
Significant actuarial assumption used in the calculation is as follows.
Percentage

Discount rate

Date of transition (April 1, 2018)

FY 2018 (March 31, 2019)

FY 2019 (March 31, 2020)

0.7

0.6

0.6

In addition to the above, actuarial assumptions include future salary increases, the mortality rate and the expected retirement rate.
6) Sensitivity analysis
The table below shows the effect of a 0.5% change in the discount rate used in actuarial calculations on the present value of defined
benefit obligations. This analysis assumes that all other assumptions remain constant. In actuality, however, the sensitivity analysis may beaffected by changes in other assumptions.
Millions of yen

Date of transition(April 1, 2018)20192) Interest rate fluctuation risk
The Group is exposed to interest rate fluctuation risk as it has foreign currency-denominated borrowings with floating interest rates. In
order to avoid interest rate fluctuation risks, the Group uses interest rate and currency swap arrangements as derivative transactions inconformity with its internal control regulations within the scope of actual demand.
Through these measures, the Group deems its exposure to interest rate fluctuation risk to be limited and the impact of interest rate
fluctuations to be insignificant.
3) Market price fluctuation risk
The Group is exposed to the risk of fluctuations in the stock prices of equity instruments (stocks). Equity instruments that the Group holds
are for the purpose of maintaining and strengthening continuous and stable relationships with its customers and other counterparties. No
equity instruments are held for trading purposes. The Group regularly checks the fair value of the stocks and the financial status of theissuing companies.
Price sensitivity analysis
The following table represents the Group’s sensitivity analysis showing the impact on equity that would result from a 1% change in the market
prices of equity instruments that the Group holds as of the end of the fiscal year. The analysis assumes that other variable factors are constant.
Millions of yen

Thousands of U.S. dollars

2020

2020

0.5% increase in the discount rate¥(4,469)¥(4,726)¥(5,127)$(47,037)

0.5% decrease in the discount rate

¥ 4,968¥ 5,213¥ 5,643$ 51,771(2) Defined contribution plan
The amount recognized as an expense in relation to the defined contribution plan was ¥366 million and ¥631 million ($5,789 thousand) for the
fiscal years ended March 31, 2019 and 2020, respectively.
(3) Employee benefit cost
In the consolidated statement of profit or loss, the total of employee benefit cost included in “Cost of sales” and “Selling, general andadministrative expenses” was ¥112,739 million and ¥111,078 million ($1,019,064 thousand) for the fiscal years ended March 31, 2019 and2020, respectively.
20. Financial Instruments(1) Capital risk management policy
The Group’s capital management aims to achieve sustainable growth and maximization of corporate value while maintaining a balance
between financial soundness and capital efficiency.
To achieve financial soundness, the Group strives to maintain solid financial strength and high credit rating to ensure low-cost financing.
To achieve capital efficiency, the Group strives to make effective use of financing while maintaining a balance with financial soundness,and thereby reduce overall cost of capital.
The Group is not subject to any significant capital restrictions.
(2) Financial Risk Management
The Group is exposed to financial risks in the course of conducting its business activities and performs risk management to mitigate such risks.
Financial risks mainly include currency fluctuation risk, interest rate fluctuation risk, market price fluctuation risk, credit risk and liquidity risk.
1) Currency fluctuation risk
As the Group is engaged in operations globally, it is exposed to risks from currency fluctuations arising from transactions denominated incurrencies other than its functional currency. In order to avoid such currency risks, the Group uses forward exchange contracts and interest

2019
Equity¥328

Thousands of U.S. dollars

2020
¥264

2020
$2,4224) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty (which includes financial institutions, etc.) fails to meet its
contractual obligations due to deterioration in credit risk, bankruptcy or other causes. The Group manages its credit risk by setting credit
limits on its counterparties in accordance with its credit management rules, etc.
For derivative transactions, the Group only deals with financial institutions, etc. with high credit rating in order to reduce counterparty
risks. Therefore, the Group believes that the effect of a credit risk is limited.
The Group has neither significant credit risk exposure to any particular customer, nor excessive concentration of credit risk that
requires special management.
The carrying amount, after impairment losses, of financial assets presented in the consolidated financial statements represents the
maximum exposure of the Group’s credit risk, without considering the appraised value of the related collateral.
(i) Credit risk management practices
The Group determines whether credit risk has increased significantly with reference to such information as internal and external ratings.
Objective evidence showing significant increase in credit risk includes default or delinquency, and indications of borrower insolvency.
The Group assesses a financial asset to be in default if the borrower has, or is highly probable to have, significant financial difficulty
and its credit to be impaired when bankruptcy or other reorganization proceedings have commenced with respect to the borrower.
For trade receivables, allowance for doubtful accounts is always measured at an amount equal to the lifetime expected credit losses.
Expected credit losses are measured by multiplying the amount of receivables by the provision rate that is based on historical credit loss rate.
For receivables other than trade receivables, etc., allowance for doubtful accounts is in principle recorded at an amount equal to the 12-month
expected credit losses. However, if the credit risk has increased significantly since the initial recognition, allowance for doubtful accounts isrecorded at an amount equal to the lifetime expected credit losses. If it is assessed that the credit risk has not increased significantly, theexpected credit loss for such receivables is calculated by multiplying the amount of receivables by the provision rate that is based on historicalcredit loss rate. With respect to assets whose credit risk has been assessed to have increased significantly, and receivables, etc. that aretreated as credit-impaired financial assets, the expected credit losses are measured by taking into account such factors as the debtor’s
financial condition, estimated realizable collateral value, compensation by guarantee deposits and repayment schedule.
When there are no reasonable expectations that a financial asset will be recoverable in its entirety or a portion thereof, the carrying
amount of the financial asset is directly written off.

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124

Notes to Consolidated Financial Statements(ii) Changes in allowance for doubtful accounts and underlying assets
Changes in allowance for doubtful accounts are as follows.

Other payables and other financial assets
Millions of yen

Date of transition(April 1, 2018)

Allowance for doubtful accounts
Measured at lifetime expected credit losses

Balance as at April 1, 2018¥—

Credit-impaired
financial assets¥119

Trade receivables

¥—

¥ 424

Not past due

Total

¥ 543

Increase during the fiscal year

—

—

—

38

38

Decrease during the fiscal year

—

—

—

(86)

(86)

Other

—

—

—

120

120

¥—

¥119

¥—

¥ 496

¥ 616

—

—

—

98

98
(140)

Balance as of March 31, 2019
Increase during the fiscal year
Decrease during the fiscal year

—

—

—

(140)

Other

—

—

—

(28)

(28)

¥—

¥119

¥—

¥ 425

¥ 545

Balance as at March 31, 2020

2019

2020

2020

Measured at an amount equal to 12-month expectedcredit losses

Millions of yen
Measured at 12-month Financial assets that
expected credit losses are not credit impaired

Thousands of U.S. dollars¥4,511¥5,069¥5,718

Past due

13

31

12

110

Total

¥4,525¥5,100¥5,730$52,569

Millions of yen

Date of transition(April 1, 2018)$52,459

Thousands of U.S. dollars

2019

2020

2020

Lifetime expected credit losses(financial assets that are not credit impaired)
Not past due

¥132

¥132

¥132

Past due

—

—

—

—

Total

¥132

¥132

¥132

$1,211$1,211Thousands of U.S. dollars
Measured at lifetime expected credit losses
Measured at 12-month Financial assets that
expected credit losses are not credit impaired

Balance as of March 31, 2019$—

Credit-impaired
financial assets$1,092$—Millions of yen

Trade receivables

Total$ 4,550$ 5,651

Increase during the fiscal year

—

—

—

899

899

Decrease during the fiscal year

—

—

—

(1,284)(1,284)

Other

—

—

—

(257)

(257)

$—

$1,092$—$ 3,899$ 5,000

Balance as at March 31, 2020

Carrying amounts
Millions of yen
Measured at lifetime expected credit losses

Date of transition (April 1, 2018)¥33,299

Thousands of U.S. dollars

2019

2020

2020

Lifetime expected credit losses(credit-impaired financial assets)
Not past due

¥—

¥—

¥—

Past due

—

—

—

—

Total

¥—

¥—

¥—

$—

$—

(Note) Of financial assets that are measured at amortized cost and debt instrument assets that are measured at fair value through other comprehensive income, financial instruments with clearly
low credit risk, such as time deposits that are held with major financial institutions, are not included in the above chart as no expected credit losses are recorded.

The aggregate carrying amounts of financial assets held are as follows.

Measured at 12-month Financial assets that
expected credit losses are not credit impaired

Date of transition(April 1, 2018)

Credit-impaired
financial assets

¥132

¥—

Trade receivables

Total¥93,063¥126,494

FY 2018 (March 31, 2019)¥14,189¥132¥—¥96,301¥110,623

FY 2019 (March 31, 2020)¥11,193¥132¥—¥88,365¥ 99,691

5) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting its repayment obligations and not be able to pay on the payment
due date of its financial liabilities.
Trade and other payables, borrowings and other financial liabilities are exposed to liquidity risk. The Group manages these risks
through measures that include development and revisions of finance plans as appropriate, and establishment of committed lines of credit
with financial institutions.
Maturity analysis
The balance of major financial liabilities (including derivatives) by contractual maturities are as follows.

Thousands of U.S. dollars
Millions of yen

Measured at lifetime expected credit losses
Measured at 12-month Financial assets that
expected credit losses are not credit impaired

FY 2019 (March 31, 2020)$102,688

Credit-impaired
financial assets$1,211$—

Trade receivables

Total$810,688$914,596(iii) Risk profile
The components of credit risk profile based on due date as of the date of transition, March 31, 2019 and 2020 are as follows.
Trade receivables
Millions of yen

Date of transition(April 1, 2018)2019

Thousands of U.S. dollars

2020

2020

Lifetime expected credit losses
Not past due¥90,045¥90,709¥78,587$720,982

Up to 30 days past due

1,746

3,421

5,912

54,239Over 30 days past due

232

809

2,277

20,890Over 60 days past due

178

422

488

4,477

Over 90 days past due

859

940

1,098

10,073¥93,063¥96,301¥88,365$810,688

Total

Later than 1
year, not later
than 2 years

Later than 2
Later than 3
Later than 4
years, not later years, not later years, not later
than 3 years
than 4 years
than 5 years

Carrying
amountContractual
cash flows

Not later than
1 yearTrade and other payables¥ 44,719¥ 44,719¥44,719

¥

—

¥ —

¥

—

Borrowings¥ 40,017¥ 40,139¥19,858¥ 8,530¥ 4,265¥7,486

¥ —

¥

—

Bonds

¥ 54,902¥ 55,315¥25,137¥88¥30,088

—

¥ —

¥

—

Lease liabilities

¥

8,993

¥

9,979

¥ 2,195¥ 2,016¥ 1,802¥1,221¥909¥1,833Forward exchange contracts,
currency options

¥

—

¥

—

¥

—

¥

—

¥

¥

¥ —

¥

—

Interest rate and currency
swaps

¥

3,286

¥

3,286

¥

—

¥

—

¥ 2,906

¥ 379

¥ —

¥

—

¥10,635¥39,063¥9,086¥909¥1,833

Date of transition (April 1, 2018)

Later than
5 years

Non-derivative financial liabilities
—

¥

—

¥

Derivative financial liabilities

Total¥151,919¥153,440¥91,911NGK SPARK PLUG CO., LTD. Integrated Report 2020

NGK SPARK PLUG CO., LTD. Integrated Report 2020

125

126

—

—

Notes to Consolidated Financial Statements

Millions of yen
Later than 1
year, not later
than 2 years

Later than 2
Later than 3
Later than 4
years, not later years, not later years, not later
than 3 years
than 4 years
than 5 years

Carrying
amountContractual
cash flows

Not later than
1 yearTrade and other payables¥ 49,049¥ 49,049¥49,049

¥

—

¥

—

¥

—

¥

Borrowings¥ 58,818¥ 58,886¥36,497¥ 4,454¥7,822

¥

3

¥

103

¥10,006

Bonds¥ 49,842¥ 50,578¥

136¥30,136¥¥

48¥10,042¥10,166

Lease liabilities

¥

9,678

¥ 10,244¥ 2,394¥ 2,229¥1,522¥1,135¥658¥2,303Forward exchange contracts,
currency options

¥

55

¥

55

¥

55

¥

—

¥

—

¥

—

¥

—

¥

—

Interest rate and currency
swaps

¥

1,614

¥

1,614

¥

54

¥

—

¥

—

¥

—

March 31, 2019

Later than
5 years

Non-derivative financial liabilities
—

¥

48

—

Derivative financial liabilities

Total¥169,059—¥ 1,559¥¥88,134¥38,380¥9,447

Not later than
1 yearLater than 1
year, not later
than 2 years¥170,429¥1,187¥10,804¥22,475

March 31, 2020

Contractual
cash flows(ii) Fair value hierarchy
The fair value hierarchy in the measurement of financial instruments categorizes the inputs as follows.
Level 1: Fair value measured by quoted prices in active markets
Level 2: Fair value measured by inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly
Level 3: Fair value measured using valuation techniques that include unobservable input
Major financial instruments measured at amortized cost

Millions of yen
Carrying
amount

The fair values of derivative and similar transactions are measured based on observable market inputs such as interest rates andforeign exchange rates obtained from financial institutions with which the Group has relationship, etc. These are classified as Level 2 astheir fair values are measured using observable market data.
(Bonds and borrowings)
The fair values of bonds are measured by the quotes obtained from financial institutions with which the Group has a relationship.
The fair values of short-term borrowings are based on their carrying amounts as the fair values are considered to approximate theircarrying amounts.
The fair values of long-term borrowings are measured by the sum of the principal and interest discounted by an interest rateapplicable to new borrowings under the same conditions. Both bonds and borrowings use observable market inputs to measure their fairvalues. These are all classified as Level 2.

Later than 2
Later than 3
Later than 4
years, not later years, not later years, not later
than 3 years
than 4 years
than 5 years

Millions of yen
Later than
5 years

Non-derivative financial liabilities
Trade and other payables¥ 43,681¥ 43,681¥43,681

¥

—

¥

—

¥

—

¥

—

¥

Borrowings¥ 62,919¥ 63,443¥15,351¥7,725

¥

59

¥

159

¥

59

¥40,088

Bonds¥ 79,743¥ 80,897¥30,185¥¥97¥10,091¥20,075¥20,251

Lease liabilities¥ 10,283¥ 10,786¥ 2,624¥1,865¥1,500¥ 1,095¥¥ 3,004

97

696

—

Fair value

Date of transition (April 1, 2018)

Carrying amount

Level 1

Total

Bonds

¥54,902¥—¥55,143¥—

Borrowings

29,904—29,978—¥55,143
29,978

Total¥84,807¥—¥85,122¥—¥85,122

Millions of yen

Interest rate and currency
swaps

¥

Total

¥197,504

876

¥

876

¥

¥199,585

602

¥ 273

¥

—

¥92,445¥9,962¥1,656¥—¥¥11,346—¥¥20,831—¥63,343

Thousands of U.S. dollars
Carrying
amountContractual
cash flows

Not later than
1 year$ 400,743 $ 400,743$400,743

March 31, 2020

Later than 1
year, not later
than 2 years

Later than 2
Later than 3
Later than 4
years, not later years, not later years, not later
than 3 years
than 4 years
than 5 years

Later than
5 years

Fair value

March 31, 2019

Carrying amount

Level 1

Level 2

Level 3

Total

Liabilities
Bonds¥49,842¥—¥50,196¥—

Borrowings

31,230—31,290—31,290

Total¥81,073¥—¥81,486¥—¥81,486

Non-derivative financial liabilities
Borrowings

Level 3Liabilities

Derivative financial liabilities

Trade and other payables

Level 2¥50,196

Millions of yen$ 577,239 $ 582,046$140,835$—$70,872

Bonds$ 731,587 $ 741,257$276,927$

Lease liabilities$$ 24,073$17,110

94,339 $98,954

890

$
$
$

—
541

$
$

—
1,459

$
$

—
541

$

$367,780

March 31, 2020

Liabilities890$ 92,578$184,174$185,789$13,761$ 10,046$$ 27,560

6,385

Derivative financial liabilities
Interest rate and currency
swaps

$

Total

$1,811,963 $1,831,055

8,037 $

8,037

$

5,523

$ 2,505$—$848,119$91,394$15,193$—$104,092$—$191,110Fair value

—

$

Bonds

Carrying amount

Level 1

Level 2

Level 3

Total

¥ 79,743¥—¥ 79,804¥—

Borrowings

51,987—51,992—¥ 79,804
51,992

Total¥131,731¥—¥131,796¥—¥131,796—
Thousands of U.S. dollars$581,128

Fair value

March 31, 2020

(3) Fair value(i) Fair value measurement methodology
The fair values of financial instruments are measured in the following manner.
(Cash and cash equivalents, trade and other receivables, other financial assets, trade and other payables, other financial liabilities)
For instruments that are settled in the short term, the carrying amount is a reasonable approximation of fair value. For other
instruments, the present value of future cash flows, discounted by an interest rate that takes into account remaining maturity and credit
risk, is mainly used to measure the fair value. The above are classified as Level 2 of the fair value measurement.
(Other financial assets, other financial liabilities)
The fair values of listed stocks are based on their market prices at the end of the fiscal year. These are classified as Level 1. The fairvalues of bonds and similar instruments are measured by referencing quotes obtained from financial institutions with which the Group hasa relationship, using reasonable valuation methods based on available information. These are classified as Level 2 or 3. The fair values ofunlisted stocks, etc. are measured primarily by the net asset value method. These are classified as Level 3. Measurement of the fair value
for financial instruments classified as Level 3 is performed in accordance with relevant internal regulations. In the measurement of the fairvalue, the Group uses the valuation method and inputs that most appropriately reflect the nature, characteristics and risks of the financial
instrument being measured. Results of the fair value measurement are reviewed by the senior management.
For financial instruments classified as Level 3, no significant change in the fair value will result even if unobservable inputs werechanged to reasonably possible alternative assumptions.

Carrying amount

Level 1

Level 2

Level 3

Total

Liabilities
Bonds$731,587$—$732,147$—

Borrowings

476,945—476,991—

476,991

Total$1,208,541$—$1,209,138$—$1,209,138(Notes) 1. Bonds and borrowings include balance of instruments to be redeemed or repaid within one year.
2. Short-term financial assets and financial liabilities are not included in the above table as their carrying amounts approximate their fair values.

NGK SPARK PLUG CO., LTD. Integrated Report 2020

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127

128

$732,147

Notes to Consolidated Financial Statements

Financial instruments that are measured at fair value on a recurring basis

Thousands of U.S. dollars
Fair value

Millions of yen

Date of transition (April 1, 2020)

Fair value

Date of transition (April 1, 2018)

Carrying amount

Level 1

Level 2

Level 3

Total

Stocks¥60,096¥56,961693¥60,790¥—¥3,135¥60,096

—

693

—

693

¥56,961¥ 693¥3,135¥60,790

Financial assets measured at fair value
through profit or loss:
Derivative assets
Liabilities

Total¥ 3,286¥—¥3,286¥—¥ 3,286¥ 3,286¥—¥3,286¥—¥ 3,286

Carrying amount

Level 1

Level 2

Level 3

¥51,720¥47,291¥—¥4,428¥51,720

Financial assets measured at fair value
through profit or loss:
554

Derivative assets

495

—

—

495

495

459

—

459

—

459

$393,697$349,972$ 459$43,257$393,697

Total

Derivative liabilities
Total$8,037

$

—

$

8,037

$8,037

$

—

$

8,037

—

—

—

¥52,275¥47,291—¥

554

Thousands of U.S. dollars

2019

2020

2020

Opening balance¥3,135¥ 4,983$ 45,716

Total gains (losses)(17,771)180(1,937)

Profit (loss) (Note 1)

11

(11)

(101)

Other comprehensive income (Note 2)168(1,926)(17,670)
15,275

554

—

—

Other

(28)

4

37

¥4,983¥ 4,715$ 43,257

—

—

—

—

¥4,983¥52,275

Closing balance(Notes) 1. Gains and losses included in profit or loss relate to financial assets measured at fair value through profit or loss as of the end of the fiscal year. These gains and losses are presented in“Finance income” and “Finance expenses” in the consolidated statement of profit or loss.
2. Gains and losses included in other comprehensive income relate to financial assets measured at fair value through other comprehensive income as of the end of the fiscal year. Thesegains and losses are presented in “Financial assets measured at fair value through other comprehensive income” in the consolidated statement of comprehensive income.

¥ 1,670¥—¥1,670¥—¥ 1,670¥ 1,670¥—¥1,670¥—¥ 1,670

Carrying amount

Level 1

Level 2

Level 3Total

(4) Equity instruments
For investments in equity instruments that are made with the objective of maintaining and strengthening business relationships, the Group
classifies such equity instruments as financial assets measured at fair value through other comprehensive income, in view of the objective ofholding these instruments.
Of these financial assets, the names and fair values of the major stocks that are traded in an active market are as follows.
Millions of yen

AssetsFinancial assets measured at fair value
through other comprehensive income:¥42,809¥38,147¥ —¥4,661¥42,809

Bonds, etc.

54

—

—

54

54

Derivative assets

50

—

50

—

50

¥42,913¥38,147¥ 50¥4,715¥42,913

Liabilities
Financial liabilities measured at fair value
through profit or loss:

Thousands of U.S. dollars

Date of transition(April 1, 2018)

2019

2020

2020

Toyota Motor Corporation¥11,820¥11,235¥11,259$103,294

TOTO Ltd.

14,291

11,9609,158

84,018Honda Motor Co., Ltd.

11,292

9,240

7,518

68,972

Mitsubishi UFJ Financial Group, Inc.

7,204

5,068

3,714

34,073NGK INSULATORS, LTD.

1,774

1,556

1,371

12,578

Yamaha Motor Co., Ltd.

1,993

1,361

819

7,514

968

1,113

722

6,624

Nissan Motor Co., Ltd.

1,744

1,435

563

5,165

Suzuki Motor Corporation

1,022

874

461

4,229

574

451

447

4,101

Stock nameFinancial assets measured at fair value
through profit or loss:

Total

—
—

1,665

Fair value

Derivative liabilities

$
$

(2)

Millions of yen

Total

8,037
8,037

1,698

Financial liabilities measured at fair value
through profit or loss:

Stocks$$

Disposals

Liabilities

Date of transition (April 1, 2020)$392,743

Bonds, etc.

Acquisitions

Bonds, etc.

Total

$42,761

Millions of yen

Financial assets measured at fair value
through other comprehensive income:

Derivative liabilities—

Derivative assets

Total

Assets

Total$

Financial assets measured at fair value
through profit or loss:

Reconciliation from the opening balances to the closing balances of financial instruments classified as Level 3 are as follows.

Fair value

Stocks$349,972

Total

Financial liabilities measured at fair value
through profit or loss:

Millions of yen

Date of transition (April 1, 2019)$392,743

Level 3Liabilities

Financial liabilities measured at fair value
through profit or loss:
Derivative liabilities

Level 2Financial assets measured at fair value
through other comprehensive income:Financial assets measured at fair value
through other comprehensive income:

Total

Level 1

AssetsAssetsStocksCarrying amount

Noritake Co., Ltd.

¥

876

¥

—

¥876

¥

—

¥

876

Rinnai Corporation

¥

876

¥

—

¥876

¥

—

¥

876

(Note) Financial assets that do not have an active market are primarily investments in new businesses such as environment/energy, medical, and next-generation automobiles. The fair value ofinvestments in new businesses as of the date of transition, March 31, 2019 and March 31, 2020 were ¥1,965 million, ¥3,082 million and ¥3,078 million ($28,239 thousand), respectively.

Equity instruments are sold as appropriate, paying attention to market trends, if the Group judges it is no longer appropriate to continue
holding the instrument upon assessment of the effects from the point of view of the rationality of holding the stocks and enhancement ofcorporate value, based on a comparison of capital cost with medium-term to long-term risk and return, and other factors. The fair value ofstocks sold during the fiscal year, as of the date of sale, and cumulative gains or losses recognized in other components of equity (before tax
effects) are as follows.

NGK SPARK PLUG CO., LTD. Integrated Report 2020

NGK SPARK PLUG CO., LTD. Integrated Report 2020

129

130

Notes to Consolidated Financial Statements

Millions of yen

2019

Thousands of U.S. dollars

2020

2020

Fair value at the time of sale

¥1,425¥363$3,330

Cumulative gains (before tax effects)

¥ 960

¥118

$1,083(5) Offsetting financial assets and financial liabilities
For some of the financial assets and financial liabilities, the Group has a legally enforceable right to set off the recognized amounts of a financial
asset and financial liability, and has the intention to settle on a net basis or realize the asset and settle the liability simultaneously. Accordingly,
these financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position.
Of financial assets and financial liabilities recognized to the same counterparty, the breakdown of the amount offset and the amountrecognized in the consolidated statement of financial position are as follows.
Millions of yen

Date of transition (April 1, 2018)

Gross amount offinancial assets

Trade and other receivables¥99,194
Gross amount offinancial liabilities

Trade and other payables

Gross amount of financial
liabilities set off in the
consolidated statement offinancial position¥2,458Gross amount of financial
assets set off in the
consolidated statement offinancial position¥47,177¥2,458

Net amount of financial
assets presented in the
consolidated statement offinancial position

March 31, 2019

Trade and other receivables

Gross amount offinancial assets¥102,760
Gross amount offinancial liabilities

Trade and other payables¥2,449Gross amount of financial
assets set off in the
consolidated statement offinancial position¥51,498¥2,449¥44,719

March 31, 2020

Trade and other receivables

Gross amount offinancial assets¥95,350
Gross amount offinancial liabilities

Trade and other payables¥2,745Gross amount of financial
assets set off in the
consolidated statement offinancial position¥46,426¥2,745

Net amount of financial
assets presented in the
consolidated statement offinancial position¥100,311
Net amount of financial
liabilities presented in the
consolidated statement offinancial position¥49,049

Net amount of financial
assets presented in the
consolidated statement offinancial position

March 31, 2020

Trade and other receivables$874,771
Gross amount offinancial liabilities

Trade and other payables

Gross amount of financial
liabilities set off in the
consolidated statement offinancial position$25,183
Gross amount of financial
assets set off in the
consolidated statement offinancial position$425,927$25,183

Date of transition (April 1, 2018)
Changes during the fiscal year (Note 2)
March 31, 2019
Changes during the fiscal year (Note 2)
March 31, 2020

March 31, 2019
Changes during the fiscal year (Note 2)
March 31, 2020

Number of authorizedshares (shares)

Number of issued
shares (shares)

Capital stock(Millions of yen)

Capital surplus(Millions of yen)

390,000,000

212,544,820¥47,869¥54,756—(3,633,200)—78

390,000,000

208,911,620¥47,869¥54,835—(4,736,300)

—

(44)

390,000,000

204,175,320¥47,869¥54,791

Number of authorizedshares (shares)

Number of issued
shares (shares)

Capital stock(Thousands of
U.S. dollars)

Capital surplus(Thousands of
U.S. dollars)

390,000,000

208,911,620$439,165$503,073—(4,736,300)

—

(404)

390,000,000

204,175,320$439,165$502,670(2) Retained earnings
The Act stipulates that one-tenth of the dividends of retained earnings shall be accumulated as capital reserve or legal reserve until theaggregate amount of the capital reserve and legal reserve equals one-fourth of the capital stock. The accumulated legal reserve may beappropriated to reduce a deficit. The Act also states that the legal reserve may be used by a resolution at a general meeting of shareholders.
(3) Treasury stock
The Act stipulates that a company may acquire its treasury stock upon determination of the number of shares to be acquired, the total
amount to be delivered in exchange for the acquisition and other factors, which must be within the amount available for distribution to its
shareholders and approved by a resolution at a general meeting of shareholders. Furthermore, a company may purchase its treasury stock by
a resolution of the Board of Directors if such a transaction is undertaken in the market or through a tender offer pursuant to its Articles ofIncorporation and within the requirements stipulated in the Act.
Changes in the number and outstanding balance of treasury stock are as follows.

¥92,604
Net amount of financial
liabilities presented in the
consolidated statement offinancial position¥43,681

Thousands of U.S. dollars

Gross amount offinancial assets

The Companies Act of Japan (hereafter, the “Act”) stipulates that one-half or more of the proceeds from share issue shall be credited tocapital stock and the remainder shall be credited to capital reserve included in capital surplus. The Act also stipulates that, by resolution of ageneral meeting of shareholders, capital reserve may be transferred to capital stock.
Changes in the number of authorized shares, number of issued shares and balance of capital stock, etc. are as follows.

(Notes) 1. All the shares issued by the Company are non-par-value ordinary shares with no restrictions on rights, and all issued shares are fully paid.
2. The decrease of issued shares is due to the cancellation of treasury stock.

Millions of yen
Gross amount of financial
liabilities set off in the
consolidated statement offinancial position(1) Capital stock and capital surplus¥96,736
Net amount of financial
liabilities presented in the
consolidated statement offinancial position

Millions of yen
Gross amount of financial
liabilities set off in the
consolidated statement offinancial position

21. Equity and Other Components of Equity

Net amount of financial
assets presented in the
consolidated statement offinancial position$849,578
Net amount of financial
liabilities presented in the
consolidated statement offinancial position$400,743(6) Hedge accounting
The Group is exposed to currency fluctuation risks associated with foreign currency-denominated trade receivables and the repayment andinterest payment of foreign currency-denominated borrowings. The Group uses forward exchange contracts, currency options and interest
rate and currency swaps for the purpose of hedging transactions against currency fluctuation risk, but does not apply hedge accounting.

Number of shares (shares)

Date of transition (April 1, 2018)

2,655,888

Amount(Millions of yen)Amount(Thousands of U.S. dollars)¥ 6,422

Increase

1,733,576

5,002

Decrease(3,650,107)(9,683)

March 31, 2019739,357¥ 1,741

Increase

4,774,736

10,07492,422

Decrease(4,759,494)(10,213)(93,697)

March 31, 2020

754,599¥ 1,602$ 14,697$ 15,972(Note) The Company’s shares held by the BIP Trust and the ESOP Trust are included in the number of treasury stock. The number of shares included was 433,200, 416,402, and 430,908 as ofthe date of transition, March 31, 2019 and 2020, respectively.

(4) Other components of equity
Exchange differences on translation of foreign operations
These are exchange differences arising from the process of consolidating financial statements of foreign operations prepared in foreign
currencies.
Financial assets measured at fair value through other comprehensive income
These are valuation differences in the fair values of equity instruments measured at fair value through other comprehensive income.
Cumulative gains or losses that were previously recognized in other comprehensive income have been reclassified to retained earnings in thefiscal year in which those equity instruments were derecognized or significant decrease in the fair value was recorded.
Remeasurements of defined benefit plans
Remeasurements of defined benefit plans consist of actuarial gains and losses as well as the return on the plan assets, excluding amounts
included in net interest on the net defined benefit liability. These are recognized in the aggregate amount of other comprehensive income as
they occur and transferred immediately to retained earnings.

NGK SPARK PLUG CO., LTD. Integrated Report 2020

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131

132

Notes to Consolidated Financial Statements

2019

2020

Share price¥2,563¥2,115 ($19.40)
32.4%

22. Dividends
The Company distributes retained earnings within the amount available for distribution to the shareholders calculated in accordance with theprovisions of the Act. The amount available for distribution to the shareholders is calculated based on the amount of retained earnings on the
Company’s accounting books prepared in accordance with the Japanese accounting standards.
Dividend payments are as follows.
Fiscal year ended March 31, 2019 (from April 1, 2018 to March 31, 2019)
Total amount of dividends

Dividends per share

Record date

Effective date

Board of Directors’ meeting held on
April 27, 2018 (Note 1)

Resolution date

¥6,309 million¥30

March 31, 2018

June 5, 2018

Board of Directors’ meeting held on
October 29, 2018 (Note 2)¥7,300 million¥35

September 30, 2018

November 30, 2018

36.3%
3.3 years

2.3 years

Expected dividend yield

2.3%

3.3%

Risk-free rate(0.1)%(0.2)%(Note) The expected volatility is calculated based on historical price performance over the expected remaining period.

(2) Employee Stock Ownership Plan (ESOP) Trust(Notes) 1. The total amount of dividend payments based on the resolution of the Board of Directors’ meeting held on April 27, 2018 includes ¥12 million of dividends on the Company’s shares
held by the Directors’ Compensation BIP Trust.
2. The total amount of dividends paid based on the resolution of the Board of Directors’ meeting held on October 29, 2018 includes ¥14 million of dividends on the Company’s shares heldby the Directors’ Compensation BIP Trust.

Fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020)
Resolution date

Expected volatility (Note)
Expected remaining term

Total amount of dividends

Dividends per share

Record date

Effective date

Board of Directors’ meeting held on
April 26, 2019 (Note 1)¥7,300 million($66,972 thousand)¥35($0.32)

March 31, 2019

June 4, 2019

Board of Directors’ meeting held on
October 28, 2019 (Note 2)¥7,300 million($66,972 thousand)¥35($0.32)September 30, 2019

November 29, 2019

(Notes) 1. The total amount of dividend payments based on the resolution of the Board of Directors’ meeting held on April 26, 2019 includes ¥14 million ($128 thousand) of dividends on the
Company’s shares held by the Directors’ Compensation BIP Trust.
2. The total amount of dividend payments based on the resolution of the Board of Directors’ meeting held on October 28, 2019 includes ¥15 million ($138 thousand) of dividends on the
Company’s shares held by the Directors’ Compensation BIP Trust and the ESOP Trust.

Dividends with an effective date in the following fiscal year are as follows.
Fiscal year ended March 31, 2019 (from April 1, 2018 to March 31, 2019)
Resolution date

Source of dividends

Total amount ofdividends

Board of Directors’ meeting held on
April 26, 2019

Retained earnings¥7,300 million

Dividends per share

Record date

Effective date

¥35

March 31, 2019

June 4, 2019

The Company has adopted the ESOP Trust for its employment-type corporate officers (hereafter, “eligible persons”), with the aim of infusing
among the eligible persons a sense of belonging to the Company and a sense of management participation, and raising their motivation andmorale to contribute to the long-term enhancement of the Group’s performance and rise in the stock price.
This is a performance-linked share-based payment plan, under which the Company’s shares are acquired through the ESOP Trust using
the funds provided by the Company and, based on the number of points granted (1 point = 1 share) to the eligible persons in accordancewith the Company’s share delivery rules, shares of the Company are delivered, and an amount of money equivalent to the conversion value of
the Company’s shares is paid, to the respective eligible persons.
Vesting conditions require, in principle, that the eligible persons must have been in service retaining the eligibility from the grant date to
the vesting date.
In the plan, no exercise price is set as the Company’s shares are granted, and the amount of money equivalent to the conversion value of
the Company’s shares is paid, both through the ESOP Trust.
The weighted-average fair value of the ESOP Trust as of the grant date in the fiscal year ended March 31, 2020 was ¥1,762 ($16.17).
(Not applicable to the fiscal year ended March 31, 2019.) These fair values are measured by reference to the fair values calculated using theBlack-Scholes model.
Assumptions used in the model are as follows.
2019

2020

Share price—¥1,908 ($17.50)

Expected volatility (Note)

—

33.2%

Expected remaining term—

2.2 years

Expected dividend yield

—

3.7%

Risk-free rate—(0.2)%(Note) The expected volatility is calculated based on the historical price performance over the expected remaining period.

(Note) The total amount of dividend payments includes ¥14 million of dividends on the Company’s shares held by the Directors’ Compensation BIP Trust.

24. Revenue
Fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020)
Resolution date

Board of Directors’ meeting held on
May 25, 2020

Source of dividends

Total amount ofdividends¥7,134 million
Retained earnings ($65,450 thousand)(1) Revenue recognized from contracts with customers
Dividends per share

Record date

Effective date¥35($0.32)

March 31, 2020

June 17, 2020

(Note) The total amount of dividend payments includes ¥15 million ($138 thousand) of dividends on the Company’s shares held by the Directors’ Compensation BIP Trust and the ESOP Trust.

The components of “revenue” in the consolidated statement of profit or loss in the years ended March 31, 2019 and 2020 are as follows.
Millions of yen

Revenue recognized from contracts with customers

2020

2020

¥424,929¥425,798$3,906,404

Revenue recognized from other sources

23. Share-based Payments

Total

The Company has in place equity-settled share-based payment plans for its directors and executive officers.
Expenses recorded in association with the share-based payment plans were ¥136 million and ¥113 million ($1,037 thousand) in the fiscal
years ended March 31, 2019 and 2020, respectively.
(1) BIP (Board Incentive Plan) Trust scheme
The Company has adopted a scheme called “BIP Trust” for its directors and executive officers (hereafter, the “Directors, etc.”), with the aim offurther raising their awareness to contribute to the Group’s medium- to long-term performance and improvement of corporate value.
This is a performance-linked share-based payment plan, under which the Company’s shares are acquired through the BIP Trust, using
cash contributed by the Company, and based on the number of points granted (1 point = 1 share). In accordance with the Company’s sharedelivery rules, shares of the Company are delivered, and an amount of money equivalent to the conversion value of the Company’s shares ispaid, to the respective Directors, etc.
Vesting conditions require, in principle, that the Directors, etc. must have served continuously in the position of Directors, etc. from the
grant date to the vesting date.
In the plan, no exercise price is set as the Company’s shares are granted, and the amount of money equivalent to the conversion value of
the Company’s shares is paid, both through the BIP Trust.
The weighted-average fair value of the BIP Trust as of the grant date was ¥2,371 and ¥1,959 ($17.97) in the fiscal years ended March
31, 2019 and 2020, respectively. These fair values are measured by reference to the fair values calculated using the Black-Scholes model.
Assumptions used in the model are as follows.

Thousands of U.S. dollars

2019
179

274

2,514

¥425,109¥426,073$3,908,927(Note) Revenue recognized from other sources includes revenue from lease contracts as defined under IFRS 16.

(2) Disaggregation of revenue
Revenue recognized from contracts with customers is disaggregated by segment based on contracts with customers. The Group iscomposed of business units identified by business-unit-based products as the Group is able to obtain separate financial information and theBoard of Directors conduct periodic reviews to determine the allocation of management resources and evaluate business results. The
relationship between disaggregated revenue and segment revenue is as follows.
Fiscal year ended March 31, 2019 (from April 1, 2018 to March 31, 2019)
Millions of yen

Automotive components¥356,422

Plugs

213,778

Sensors

142,644

Technical ceramics¥ 58,100

Semiconductor

17,089Ceramics

41,010Other¥ 10,586

Total¥425,109(Note) The table above includes “revenue recognized from contracts with customers” and “revenue recognized from other sources.”

NGK SPARK PLUG CO., LTD. Integrated Report 2020

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134

Notes to Consolidated Financial Statements

Fiscal year ended March 31, 2020 (April 1, 2019 to March 31, 2020)

26. Other Income and Expenses
Millions of yen

Thousands of U.S. dollars

Automotive components¥348,711$3,199,183

Plugs

207,752

1,905,982

Sensors

140,959

1,293,202

Technical ceramics

The components of other income for the years ended March 31, 2019 and 2020 are as follows.
Millions of yen

Gain on sale of property, plant and equipment¥ 52,220$ 479,083

Semiconductor

16,517

151,532

Insurance income

Ceramics

35,702

327,541

Other¥ 25,141$ 230,651¥426,073$3,908,927

Other
Total

Total

Thousands of U.S. dollars

2019

2020

¥ 354

¥

2020
39

$

358

255

57

523

1,380

1,445

13,257¥1,989¥1,542$14,147

The components of other expenses for the years ended March 31, 2019 and 2020 are as follows.

(Note) The table above includes “revenue recognized from contracts with customers” and “revenue recognized from other sources.”

Millions of yen

The “Automotive components” segment principally manufactures and sells automotive components, and consists of two subsegments:“Plugs” is engaged in spark plugs and glow plugs; and “Sensors” is engaged in exhaust gas sensors and other types of automotive sensors.
The “Technical ceramics” segment has two subsegments: “Semiconductor,” which manufactures and sells semiconductors, IC packages forvarious devices, multilayer circuit boards, and other products; and “Ceramics,” which manufactures and sells cutting tools, ceramic products
for industrial use, components for semiconductor manufacturing equipment and other products.
In the sale of these products, revenue is recognized at a point in time when the control of the product is passed to the customer; that is,when the product is shipped to a location specified by the customer, and is delivered to and accepted by the customer, upon which the legal
title to and the physical possession of the product, as well as the significant risks and rewards of ownership of the product transfer to thecustomer. No significant financing component is included in the consideration promised by the customer obligations as, following recognitionof the revenue, it is received within one year after the performance obligations are satisfied.
There are instances when the products of the “Automotive components” segment are sold with variable considerations including rebatesthat are conditional upon achievement of certain targets such as sales targets in terms of volume and amount (hereafter, “achievement
rebates”). In such cases, the transaction price is measured at the amount of consideration promised in the contract with the customer, lessthe estimated amount of achievement rebate or other variable consideration. Achievement rebates are estimated using the most likely amountmethod, which is based on past results and other data, and revenue is recognized only to the extent that it is highly probable that no
significant reversal of recognized revenue will occur.

2019
Product compensation expenses

Total

2020

¥1,072

¥187

254

—

—

1,343

531

4,872

¥2,670¥718$6,587

Environment expenses
Other

Thousands of U.S. dollars

2020$1,716

27. Finance Income and Finance Expenses(1) Finance income
The components of finance income for the years ended March 31, 2019 and 2020 are as follows.
Millions of yen

Thousands of U.S. dollars

2019

2020

2020

¥ 920

¥ 675

$ 6,193

1,489

1,492

13,688Gain on valuation of derivatives

922

843

7,734

Other

19

56

514

¥3,351¥3,068$28,147

Interest income
Financial assets measured at amortized cost
Dividend income(3) Contract liabilities
Contract liabilities relate primarily to payments received from customers in advance. The balance of contract liabilities as of the date oftransition, March 31, 2019 and 2020 is as follows.
Millions of yen

Date of transition(April 1, 2018)
Contract liabilities

2019

¥501

Thousands of U.S. dollars

2020

¥405

¥342

2020
$3,138The amounts of all contract liabilities relating to the respective fiscal years ended March 31, 2019 and 2020 included in the opening
balance were recognized as revenue for the fiscal years ended March 31, 2019 and 2020.

Financial assets measured at fair value through other comprehensive
income (Note)

Total(Note) Dividend income includes income from financial assets measured at fair value through other comprehensive income that were derecognized during each fiscal year. This income fromfinancial assets is not presented as a separate component as the amount is immaterial.

(2) Finance expenses
The components of finance expenses for the years ended March 31, 2019 and 2020 are as follows.
Millions of yen

25. Selling, General and Administrative Expenses

Thousands of U.S. dollars

2019

2020

2020

¥ 767

¥ 899

$ 8,248

1,223

5,833

53,514

32

33

303

¥2,023¥6,766$62,073

Interest expense
The components of “Selling, general and administrative expenses” in the consolidated statement of profit or loss for the years ended March
31, 2019 and 2020 are as follows.
Millions of yen

Depreciation and amortization

Thousands of U.S. dollars

2019

2020

2020

¥ 4,370¥ 5,509$ 50,541

Retirement benefit costs

1,009

1,184

10,862

Director compensation and employee salaries and allowances

32,33834,262

314,330

Packaging and transportation expenses

10,9558,580

78,716Advertising expenses

6,389

5,612

51,486

Other

29,53332,142294,881¥84,597¥87,292$800,844

Total

Financial liabilities measured at amortized cost (Note)
Foreign exchange loss (net)
Other
Total
(Note) Interest expense associated with lease liabilities is stated in “Note 12: Leases.”NGK SPARK PLUG CO., LTD. Integrated Report 2020

NGK SPARK PLUG CO., LTD. Integrated Report 2020

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136

Notes to Consolidated Financial Statements

Fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020)

28. Income Taxes

Thousands of U.S. dollars(1) Deferred tax assets and deferred tax liabilities
Balance as at
April 1, 2019

The components of major causes of deferred tax assets and deferred tax liabilities are as follows.

¥ 1,599

Retirement benefit liabilities

Recognized throughprofit or loss

Operating loss carryforwards$ 13,560$ (541)—$ 4,321$ 17,339

Retirement benefit liabilities

72,679

4,294

927

(523)

77,376

Property, plant and equipment, andintangible assets

19,248

5,954

—

(18)

25,183

Accrued expenses

37,743(2,147)—(358)

35,229

7,922

Inventories

26,642

183

—

(385)

26,431

2,098

Unrealized gains

54,936(1,853)——53,083

Other

39,661

(55)

5,706

(1,239)44,073$264,495$ 5,826$ 6,642$ 1,761$278,743

¥

612

—
342

Property, plant and equipment, andintangible assets

2,172

Accrued expenses

3,955

155

—

Inventories

2,486

412

Unrealized gains

5,343

645

Other

4,391

(80)

¥26,931¥1,342Retained earnings of affiliates

3,357

Valuation differences on securities

14,039Property, plant and equipment, andintangible assets

2,114

Total

Other (Note)

Balance as at
March 31, 2019

¥ 208

¥ 1,478

(74)

—

(16)
0

4,114

—

5

2,904

Deferred tax liabilities

—

—

5,988

Retained earnings of affiliates

35,679972——

36,651

—

12

4,323

Valuation difference on securities

103,266

73(25,101)—

78,248342¥ 213¥28,830

Property, plant and equipment, andintangible assets

30,073771—(1,688)29,147

531

—

—

3,889

0

(2,783)—

11,256

430

—

733

3,278

¥

Total

Other
Total
Net deferred tax assets (liabilities)

3,404

477

—

(138)

3,752

$172,440$ 2,303$(25,101)$(1,835)$147,807$ 92,055$ 3,523$ 31,743$ 3,606$130,936(Note) Foreign currency translation differences are included in “Other.”

Other
Total
Net deferred tax assets (liabilities)

308

(14)

—

78

371

¥19,819¥ 948¥(2,783)¥ 811¥18,796¥ 7,112¥ 394¥ 3,125¥(598)¥10,034

Deferred tax assets and deferred tax liabilities in the consolidated statement of financial position as of the date of transition, March 31,
2019 and 2020 are as follows.
Millions of yen(Note) Foreign currency translation differences are included in “Other.”

Fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020)

Deferred tax assets

Millions of yen
Balance as at
April 1, 2019

Recognized throughprofit or loss

Recognized throughother comprehensive
incomeDeferred tax liabilities
Other (Note)

Balance as at
March 31, 2020

—

¥ 471

¥ 1,890

Deferred tax assets
Operating loss carryforwards¥ 1,478¥ (59)

Retirement benefit liabilities

7,922

468

101

(57)

8,434

Property, plant and equipment, andintangible assets

2,098

649

—

(2)

2,745

Accrued expenses

4,114

(234)

—

(39)

3,840

Inventories

2,904

20

—

(42)

2,881

Unrealized gains

5,988

(202)

—

—

5,786

Other

4,323

(6)

¥28,830¥ 635

Retained earnings of affiliates

3,889

Valuation difference on securities
Property, plant and equipment, andintangible assets

¥

622

(135)

4,804

724

¥ 192

¥30,383

106

—

—

3,995

11,256

8(2,736)

—

8,529

3,278

84

—

(184)

3,177

¥

Deferred tax liabilities

Other
Total
Net deferred tax assets (liabilities)$

3

Deferred tax liabilities

Total

Balance as at
March 31, 2020

Recognized throughother comprehensive
income¥ (329)

6,983

Other (Note)

Millions of yen

Deferred tax assets
Operating loss carryforwards

Recognized throughother comprehensive
incomeDeferred tax assets

Fiscal year ended March 31, 2019 (from April 1, 2018 to March 31, 2019)

Balance as at
April 1, 2018

Recognized throughprofit or loss

371

52

¥18,796¥ 251¥10,034¥ 384—

Net deferred tax assets

Thousands of U.S. dollars

Date of transition(April 1, 2018)

2019

2020

2020

¥10,137¥10,603¥14,296$131,156

3,024

568

24

220

¥7,112¥10,034¥14,272$130,936

Deductible temporary differences, tax loss carryforwards and tax credit carryforwards for which no deferred tax assets were recognized
as of the date of transition, March 31, 2019 and 2020 are as follows.
Millions of yen

Thousands of U.S. dollars

Date of transition(April 1, 2018)

2019

2020

2020

Deductible temporary differences¥18,773¥18,451¥ 9,762$ 89,560

Tax loss carryforwards and tax credit carryforwards¥10,490¥12,539¥16,165$148,303

The expiration schedule of tax loss carryforwards and tax credit carryforwards for which no deferred tax assets were recognized as of thedate of transition, March 31, 2019 and 2020 is as follows.
Millions of yen

Date of transition(April 1, 2018)
First year

¥ 1,605

Thousands of U.S. dollars

2019

2020

¥

¥

215

2020
14

$

128

Second year

38

—

1

9

—

—

—

—

(15)

409

Third year¥(2,736)¥(200)¥16,111

Fourth year

¥ 3,460¥ 393¥14,272

Fifth year and beyond
Total

—

—

—

—

8,847

12,323

16,148148,147¥10,490¥12,539¥16,165$148,303

NGK SPARK PLUG CO., LTD. Integrated Report 2020

NGK SPARK PLUG CO., LTD. Integrated Report 2020

137

138

Notes to Consolidated Financial Statements

Taxable temporary differences associated with investments in consolidated subsidiaries and associates for which no deferred tax liabilities
were recognized as of the date of transition, March 31, 2019 and 2020 are as follows.
Millions of yen

Date of transition(April 1, 2018)
Total of taxable temporary differences associated withinvestments in consolidated subsidiaries and associates

Thousands of U.S. dollars

2019

¥70

2020

¥62

2020

¥39

(2) Income tax expenses
The components of income tax expenses for the years ended March 31, 2019 and 2020 are as follows.

Current tax expense

Fiscal year ended March 31, 2019 (from April 1, 2018 to March 31, 2019)
Millions of yen

Thousands of U.S. dollars

Amount arisingduring the fiscal year

Reclassification
adjustments

Before tax
effects

Amount of tax
effects

Net of tax
effects¥ (8,084)¥—¥ (8,084)¥2,489¥(5,594)(1,123)—(1,123)

342

(781)

Items that will not be reclassified to profit or loss
Financial assets measured at fair value through othercomprehensive income
Remeasurements of defined benefit plans
Share of other comprehensive income of investments
accounted for using the equity method

(26)

—

(26)

6

(20)

Total of items that will not be reclassified to profit or loss

¥ (9,234)¥—¥ (9,234)¥2,838¥(6,395)

Items that may be reclassified subsequently to profit or loss

2019

2020

2020

Exchange differences on translation of foreign operations(3,252)—(3,252)—(3,252)¥16,220¥11,502$105,523

Share of other comprehensive income of investments
accounted for using the equity method

—

(54)

Deferred tax expense (Note)
Total

The components of other comprehensive income and their tax effects (including noncontrolling interests) for the years ended March 31, 2019and 2020 are as follows.

$358

The Company does not recognize deferred tax liabilities for taxable temporary differences associated with investments in consolidated
subsidiaries other than undistributed earnings that are expected to be distributed at the end of the fiscal year. This is because it is highly
probable that the Group will be able to control the timing of the reversal of the temporary differences and that the taxable temporary
differences will not reverse in the foreseeable future.

Millions of yen

30. Other Comprehensive Income

(394)

(384)

(3,523)¥15,826¥11,118$102,000(Note) Deferred tax expense includes the amount of previously unrecognized temporary differences of a prior period. Accordingly, deferred tax expense decreased by ¥1,849 million ($16,963
thousand) in the fiscal year ended March 31, 2020.

(3) Reconciliation of combined statutory tax rate

(54)

—

(54)

Total of items that may be reclassified subsequently to
profit or loss

¥ (3,306)¥—¥ (3,306)¥—¥(3,306)

Total of other comprehensive income¥(12,541)¥—¥(12,541)¥2,838¥(9,702)

Fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020)

Reconciliation of combined statutory tax rate and average effective tax rate for the years ended March 31, 2019 and 2020 are as follows.

Millions of yen

Percentage

2019

2020

30.6

30.6

Permanently non-deductible expenses

0.3

0.9

Permanently non-taxable income

(0.9)

(0.4)

Tax credits for experimental research costs, etc.

(3.5)

Differences in statutory tax rates of overseas consolidated subsidiaries

Combined statutory tax rate

Amount arisingduring the fiscal year

Reclassification
adjustments

Before tax
effects

Amount of tax
effects

Net of tax
effects¥(10,863)¥—¥(10,863)¥3,328¥ (7,535)

(812)

—

(812)

101

(710)

Items that will not be reclassified to profit or loss
Financial assets measured at fair value through othercomprehensive income(Reconciliation)

Remeasurements of defined benefit plans(3.3)

Share of other comprehensive income of investments
accounted for using the equity method

(5)

—

(5)

—

(5)

(0.8)

(0.9)

Total of items that will not be reclassified to profit or loss¥(11,681)¥—¥(11,681)¥3,430¥ (8,251)

The reassessment of the recoverability of deferred tax assets

1.3

(1.5)

Items that may be reclassified subsequently to profit or loss

Retained earnings of associates

0.9

0.3

Exchange differences on translation of foreign operations(11,975)—(11,975)—(11,975)

Other

0.0

(0.9)

27.9

24.8

Share of other comprehensive income of investments
accounted for using the equity method

(576)

—

(576)

—

(576)

Average effective tax rates(Note) The Company is subject to Japanese corporate tax, inhabitant tax and business tax, and the combined statutory tax rates calculated based on these for the fiscal years ended March 31,
2019 and 2020 were both 30.6%. Overseas consolidated subsidiaries are subject to income taxes at their respective locations.

Total of items that may be reclassified subsequently to
profit or loss¥(12,551)¥—¥(12,551)¥—¥(12,551)

Total of other comprehensive income¥(24,233)¥—¥(24,233)¥3,430¥(20,803)

29. Earnings per Share
Fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020)(1) Per share information

Thousands of U.S. dollars
Yen

Basic earnings per share

U.S. dollar

2019

2020

¥194.55¥163.06

2020
$1.50

Financial assets measured at fair value through othercomprehensive income(2) The basis for the calculation of basic earnings per share for the years ended March 31, 2019 and 2020 is as follows.

Remeasurements of defined benefit plans

Yen

U.S. dollar

2019

2020

2020

Profit attributable to owners of the parent¥40,515¥33,698$309,156

Thousands of shares

Weighted-average number of ordinary shares during the year

2019

2020

208,255

206,665(Note) In the calculation of basic earnings per share, the Company’s shares held by the BIP Trust and the ESOP Trust are deducted from the weighted-average number of ordinary shares.

Reclassification
adjustments

Before tax
effects

Amount of tax
effects

Net of tax
effects$ (99,661)$—$ (99,661)$30,532$ (69,128)(7,450)—(7,450)927(6,514)

Items that will not be reclassified to profit or loss

(Note) Diluted earnings per share information is omitted because the Company does not have dilutive potential ordinary shares.

Item

Amount arisingduring the fiscal year

Share of other comprehensive income of investments
accounted for using the equity method

(46)

—

(46)

—

(46)

Total of items that will not be reclassified to profit or loss$(107,165)$—$(107,165)$31,468$ (75,697)

Exchange differences on translation of foreign operations(109,862)—(109,862)—(109,862)

Share of other comprehensive income of investments
accounted for using the equity method—(5,284)

Items that may be reclassified subsequently to profit or loss

(5,284)—(5,284)

Total of items that may be reclassified subsequently to
profit or loss$(115,147)$—$(115,147)$—$(115,147)

Total of other comprehensive income$(222,321)$—$(222,321)$31,468$(190,853)

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140

Notes to Consolidated Financial Statements

31. Changes in Liabilities Arising from Financing Activities

34. Contingencies(1) Guarantee obligations

Changes in liabilities arising from financing activities for the years ended March 31, 2019 and 2020 are as follows.

The Group provides guarantees for borrowings from financial institutions taken by the Group’s employees, as follows.

Fiscal year ended March 31, 2019 (from April 1, 2018 to March 31, 2019)

Millions of yen

Millions of yen

Date of transition(April 1, 2018)

Non-cash changes

April 1, 2018

Cash flows

Foreign currency
exchangedifferences

Short-term loans payable¥ 10,113¥15,722¥ 431

Long-term loans payable

29,904138

Bonds

54,902(5,107)

Lease liabilities

8,993¥103,913

Total

Changes arisingfrom acquisitionof control insubsidiaries

New lease
contracts¥

Guarantees of employees’ obligations
Other

March 31, 2019—

¥1,319

¥ —

1,183

—

—

4

31,230

—

—

—

47

49,842(2,231)

(113)

2,893

146

(10)

9,678

¥ 8,522¥1,502¥2,893¥1,466¥ 41¥118,339

Total

March 31, 2019

Thousands of U.S. dollars

March 31, 2020

March 31, 2020

¥11

¥8

¥5

$46

¥11

¥8

¥5

$46

¥ 27,587

Fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020)(2) Litigation, etc.
The Group is subject to investigations by foreign authorities on alleged antitrust violations in relation to certain past transactions in theautomotive components business. In connection with the investigations, discussions are ongoing with some customers on compensation fordamages while for other customers, civil lawsuits have been filed. Currently, no provision is recognized as the provision criteria are not met. In
accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets,” detailed description of the legal proceedings, etc. is notdisclosed to avoid putting the Group at a disadvantage.

Millions of yen

35. Subsequent Events

Non-cash changes
Foreign currency
exchangedifferences

Changes arisingfrom acquisitionof control insubsidiaries

New lease
contracts

There are no items to report.

April 1, 2019

Cash flows

Short-term loans payable¥ 27,587¥(16,404)¥(250)—¥—¥ —¥ 10,931

Long-term loans payable

31,23020,076

787

—

—

(106)

51,987

Bonds

49,842

29,852

—

—

—

48

79,743

Lease liabilities
Total

¥

Other

March 31, 2020

9,678

(2,637)

(296)

3,453

—

83

10,283¥118,339¥ 30,887¥ 240¥3,453¥—¥ 25¥152,946

Thousands of U.S. dollars
Non-cash changes
Foreign currency
exchangedifferences

April 1, 2019

Cash flows

Short-term loans payable$ 253,092$(150,495)$(2,294)

Long-term loans payable

286,514

184,183

Bonds

457,266

273,872

Lease liabilities

88,789$1,085,679

Changes arisingfrom acquisitionof control insubsidiaries

New lease
contracts

$

Other

March 31, 2020

—

$—

$ —

$ 100,284

7,220

—

—

(972)

476,945

—

—

—

440

731,587(24,193)(2,716)

31,679—761

94,339$ 283,367$ 2,202$31,679$—$ 229$1,403,174

The Company’s major subsidiaries are mentioned on the Company’s website (https://www.ngkntk.co.jp/).
33. Related parties(1) Transactions with related parties
This information is omitted as neither material related-party transactions nor material outstanding balances of receivables and payables were noted.
(2) Compensation to key management personnel
Compensation to key management personnel for the years ended March 31, 2019 and 2020 are as follows.
Millions of yen

Total

Thousands of U.S. dollars

2019

2020

2020

¥1,033¥ 901$8,266

136

113

1,037

¥1,169¥1,014$9,303

Share-based payments

In principle, IFRS requires an entity adopting IFRS for the first time to apply IFRS retrospectively. However, IFRS 1 establishes certain
exemptions from retrospective application of the standards, consisting of mandatory exceptions and optional exemptions. The effect ofapplying these exemption provisions is adjusted through retained earnings or other components of equity as of the date of transition to IFRS.
The main optional exemptions that the Company applied are the following.
• Business combinations
IFRS 1 allows the option not to apply IFRS 3 “Business Combinations” retrospectively to past business combinations. If retrospective
application is chosen, all subsequent business combinations should be restated in accordance with IFRS 3.
The Group has decided not to apply IFRS 3 retrospectively to business combinations that occurred prior to the date of transition.
As a result, no adjustment is made to goodwill arising from business combinations that occurred prior to the date of transition, which isstated at the carrying amount recognized in accordance with Japanese GAAP. For such goodwill, irrespective of whether an indicationof impairment existed, an impairment test was conducted at the date of transition.
• Deemed cost
For property, plant and equipment, IFRS 1 allows the use of fair values at the date of transition as deemed cost as of the same date.
The Group has applied this exemption for certain items of property, plant and equipment, and uses their fair values at the date oftransition as deemed cost as of the same date.

32. Major Subsidiaries

Remuneration and bonuses

The consolidated financial statements for the fiscal year ended March 31, 2020 are the first set of financial statements prepared in conformity
with International Financial Reporting Standards. The most recent consolidated financial statements prepared in accordance with thegenerally accepted accounting principles in Japan (hereafter, “Japanese GAAP”) are those for the fiscal year ended March 31, 2019. The dateof transition from Japanese GAAP to IFRS was April 1, 2018.
(1) Exemptions under IFRS 1

Fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020)

Total

36. First-time Adoption (disclosure relating to transition to IFRS)(Notes) 1. Key management personnel are the Company’s directors and executive officers working in the fiscal years ended March 31, 2019 and 2020.
2. The amounts of share-based payments are the amounts expensed in the fiscal years ended March 31, 2019 and 2020.

• Exchange differences on translation of foreign operations
IFRS 1 allows cumulative exchange differences on translation of foreign operations at the date of transition to be reset to zero. The
Group has decided to reset the cumulative exchange differences on translation of foreign operations to zero at the date of transition,with the differences recognized as retained earnings.
• Designation of financial instruments that were recognized prior to the date of transition
IFRS 1 allows an entity to designate financial assets in accordance with IFRS 9 “Financial Instruments” based on the facts andcircumstances existing at the date of transition. The Group has designated financial instruments in its holding based on thecircumstances existing at the date of transition.
• Leases
IFRS 1 allows an entity to determine whether or not an arrangement contains a lease at the date of transition. The Group has assessed
whether or not an arrangement contained a lease on the basis of facts and circumstances existing at the date of transition. Additionally,
IFRS 1 permits an entity to measure right-of-use assets at the date of transition at an amount equal to the lease liability after
adjustments for prepaid lease payments, etc. that is recognized in the consolidated statement of financial position for the fiscal year
immediately preceding the date of transition. The Group measured right-of-use assets at the date of transition at an amount equal to
the lease liability after adjustments for prepaid lease payments, etc.

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Notes to Consolidated Financial Statements(2) Mandatory exceptions to retrospective application of IFRS 1

Millions of yen

IFRS 1 prohibits retrospective application of some items of IFRS including “estimates,” “derecognition of financial assets and financial
liabilities,” “noncontrolling interests” and “classification and measurement of financial assets.” For these items, the Group is applying IFRS
prospectively from the date of transition.
(3) Reconciliation
Reconciliations required under IFRS 1 are as follows. Items that do not affect retained earnings and comprehensive income are presented in“Reclassifications,” and items that affect retained earnings and comprehensive income are presented in “Differences in recognition andmeasurement.”
Note that on December 20, 2018, the Group acquired all of the shares of CAIRE Inc., CAIRE Medical Limited and CAIRE Medical
Technology (Chengdu) Co., Ltd. (hereafter, “CAIRE”), which, together with its five subsidiaries, became the Group’s subsidiaries. Because
allocations of the acquisition costs had not been completed, a provisional treatment of these transactions was made in the fiscal year ended
March 31, 2019. This accounting was finalized in the fiscal year ended March 31, 2020. The final numbers are reflected in the reconciliation ofequity as of March 31, 2019 (the most recent closing date of the consolidated financial statements prepared in accordance with JapaneseGAAP), and in the reconciliation of profit or loss and other comprehensive income relating to the fiscal year ended March 31, 2019 (from April
1, 2018 to March 31, 2019) (the most recent fiscal year for which the consolidated financial statements were prepared under Japanese GAAP).

Accounts underJapanese GAAP

Japanese
GAAP

Differences inrecognition and
Reclassifications measurement

IFRS

Liabilities

Liabilities

Current liabilities

Current liabilities

Accounts payable — trade¥ 32,407¥ 12,050¥

261¥ 44,719

Short-term loans payable¥ 10,113¥ 34,962¥(281)¥ 44,793

Current portion of bonds payable¥ 25,000¥(25,000)——

Current portion of long-term loans payable

¥

9,962

¥ (9,962)——

Lease obligations

¥

43

—

¥ 2,053

Income taxes payable¥ 13,040

¥

(831)

—

¥ 12,209

Other¥ 39,641¥(11,219)¥ 5,647¥ 34,069

Total current liabilities¥130,208—¥ 7,681¥137,889¥ 30,000¥ 22,886¥ (2,759)¥ 50,126¥

2,096

Trade and other payables
B

Bonds and borrowings

C, P

Other financial liabilities
Income taxes payable

K

Bonds payable
Millions of yen

Accounts underJapanese GAAP

Japanese
GAAP

Differences inrecognition and
Reclassifications measurement

IFRS

Accounts
under IFRS

Notes

Other current liabilities
Total current liabilities

Noncurrent liabilities

Reconciliation of equity at the date of transition (April 1, 2018)

Accounts
under IFRS

Notes

Noncurrent liabilities

Long-term loans payable¥ 22,886¥(22,886)

Lease obligations¥¥

Net defined benefit liabilities¥ 27,443

111

B

Bonds and borrowings

—

—

236

¥ 9,978¥ 10,326

B, C, P—¥ (2,399)¥ 25,043

L

Net defined benefit liabilities

Other financial liabilities

AssetsAssetsProvision for stock benefits

¥

92

¥

(92)

—

Current assets

Current assets

Deferred tax liabilities

¥

169

¥

837

¥ 2,017

¥

3,024

I

Deferred tax liabilities

2,811

K

Other noncurrent liabilities—

Cash and deposits equivalents¥ 56,235¥ 31,143¥

101¥ 87,479

O

Cash and cash

Other

¥

945

¥

(143)

¥ 2,010¥Notes and accounts receivable — trade¥ 93,615¥ 5,806¥ (2,686)¥ 96,736A

Trade and other receivables

Total noncurrent liabilities¥ 81,648¥

837¥ 8,847¥ 91,333

Total noncurrent liabilities

Short-term investment securities¥ 59,905¥(30,829)¥457¥ 29,533

B, O, P

¥211,856¥

837¥ 16,528¥229,222

Total liabilities

Inventories¥ 94,953—¥ 2,792¥ 97,746A

Inventories

Other¥ 15,076¥ (6,871)¥¥

C

Other current assets

Allowance for doubtful accounts

¥

¥

—

¥ 47,869

Capital stock

Total current assets¥319,035

Capital surplus

(751)

541

8,745

751

—

—

—

¥ 1,205¥320,241

Total current assets

Intangible assets
Investment securities¥195,102
¥

¥

(211)

¥11,619¥206,510—

Capital surplus¥ 54,639

—

¥

116

¥ 54,756¥278,374—¥(11,285)¥267,089——¥ (6,422)

D, F

Property, plant and equipment

Total accumulated other comprehensive
income¥ 11,200—¥ 20,539¥ 31,739¥385,661—¥ 9,371¥395,032

Total equity attributable toowners of the parent¥¥

Noncontrolling interests

¥

(257)

¥ 1,842

¥

6,699

H

¥

468

¥ 7,118

¥

7,587

C

Right-of-use assets¥¥ 13,054

Other components of equity

2,454

—

¥

—

¥ 9,495¥397,611

Total equity

Total liabilities and net assets¥599,972

837¥ 26,024¥626,833

Total liabilities and equity¥837¥ 1,627¥ 10,137

I

Deferred tax assets

Other

¥

1,487

¥

(495)

¥ 1,141

¥

2,132

C

Other noncurrent assets

Allowance for doubtful accounts

¥

(119)

¥ 59,827¥

763¥ 60,470

J, P

Other financial assets

Total noncurrent assets¥280,936¥

837¥24,818¥306,592

Total noncurrent assets¥599,972¥

837¥26,024¥626,833

Total assets¥

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143

144

2,578

L, M

¥388,115

7,672

124

Retained earnings
Treasury stock

Total net assets¥

Noncontrolling interests

M, N

Investments accounted forusing the equity method

Deferred tax assets

Total assets¥ 47,869¥ (6,422)—

704

EquityCapital stock
Retained earnings

5,114¥(59,331)

Net assets

Treasury stock

Goodwill and intangible
assets¥ 71,680

Total liabilities

Noncurrent assets

Noncurrent assets
Property, plant and equipment

Other financial assets

Notes to Consolidated Financial Statements

Reconciliation of equity as of March 31, 2019

Millions of yen
Millions of yen

Accounts underJapanese GAAP

Japanese
GAAP

Differences inrecognition and
Reclassifications measurement

IFRS

Accounts
under IFRS

Notes

AssetsAssetsCurrent assets

Current assets

Accounts underJapanese GAAP

Japanese
GAAP

Differences inrecognition and
Reclassifications measurement

IFRS

Liabilities

Liabilities

Current liabilities

Current liabilities

Accounts payable — trade¥ 34,957¥ 14,169¥(77)¥ 49,049

Cash and deposits¥ 48,639¥ 25,611¥

154¥ 74,404

O

Cash and cash equivalents

Short-term loans payable¥ 27,587¥ 9,924¥ (1,044)¥ 36,466

Notes and accounts receivable — trade¥ 96,834¥ 6,120¥ (2,643)¥100,311A

Trade and other receivables

Current portion of long-term loans payable

¥

9,924

¥ (9,924)——¥

Short-term investment securities¥ 34,921¥(25,498)

—

9,423

O, P

Other financial assets

Lease obligations¥

52

Inventories¥113,124—¥ 2,611¥115,735A

Inventories

Income taxes payable

¥

9,126

Other

¥ 18,423¥ (7,075)¥

515¥ 11,862

C

Other current assets

Other¥ 40,734¥(13,543)¥ 6,141¥ 33,332

Allowance for doubtful accounts

¥

¥

—

—

Total current liabilities¥122,382—¥ 7,203¥129,586

Total current assets¥311,100¥

636¥311,737¥(867)¥ 72,194

—

—

(841)

841
—

Total current assets

Noncurrent assets
Property, plant and equipment
Intangible assets

Investment securities

¥

55

¥

(681)

¥ 2,173
¥

10

¥

2,281

¥

8,456

Trade and other payables
B

Bonds and borrowings

C, P

Other financial liabilities

K

Other current liabilities

Income taxes payable
Total current liabilities

Noncurrent liabilities

Noncurrent liabilities

Noncurrent assets

Bonds payable¥ 50,000¥ 23,062

Property, plant andequipment

Long-term loans payable¥ 23,062¥(23,062)¥

B

Bonds and borrowings¥228,720¥(234)¥ 9,526¥238,012

D, E, F

¥

¥

(234)

¥ 2,253¥ 15,678

G, H

Goodwill and intangible
assetsLease obligations¥ 13,658

Net defined benefit liabilities¥30,254—¥468¥ 8,123¥

C

Right-of-use assets

Provision for stock benefits

¥

201

¥

(201)

—

¥

618

¥ (1,875)¥ 1,825¥

G

Investments accounted forusing the equity method

Deferred tax liabilities
Other

¥

1,262

¥

(96)

¥ 2,059¥

Total noncurrent liabilities¥105,528¥ (1,875)¥ 8,698¥112,352

Total noncurrent liabilities¥227,911¥ (1,875)¥ 15,902¥241,938

Total liabilities

Capital stock¥ 47,869——¥ 47,869

Capital surplus¥ 54,639

—

¥

195

¥ 54,835

Retained earnings¥297,754—¥(13,526)¥284,228

Treasury stock¥ (1,741)——¥ (1,741)

Total accumulated other comprehensive
income¥551—¥ 21,683¥ 22,235¥399,074—¥ 8,353¥407,427

Total equity attributable toowners of the parent

¥

—

¥

¥

Noncontrolling interests¥ 63,310¥(51,198)¥ 1,067

8,591¥ 13,179

Deferred tax assets¥ 11,235¥ (1,875)¥ 1,242¥ 10,603

I

Deferred tax assets

Other

¥

1,510

¥

(616)

¥

685

¥

1,579

C

Other noncurrent assets

Allowance for doubtful accounts

¥

(119)

¥ 51,814¥852¥ 52,547

J, P

Other financial assets

Total noncurrent assets¥318,316¥ (1,875)¥23,751¥340,192

Total assets

Accounts
under IFRS

Notes

¥629,417¥ (1,875)¥24,388¥651,929

Total noncurrent assets
Total assets

Total liabilities

129

298

¥ 8,736¥—¥ (3,054)¥ 27,199

9,164

B, C, P

Net defined benefit liabilities

568

I

Deferred tax liabilities

3,225

K

Other noncurrent liabilities—

Net assets

Noncontrolling interests

Other financial liabilities

L

Equity

2,431

132

2,564

Capital stock
Capital surplus
M, N

Retained earnings
Treasury stock

L, M

Other components of equity

Total net assets¥401,505—¥ 8,485¥409,991

Total equity

Total liabilities and net assets¥629,417¥ (1,875)¥ 24,388¥651,929

Total liabilities and equity

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146

Notes to Consolidated Financial Statements

Reconciliation of profit or loss and comprehensive income for the fiscal year ended March 31, 2019

Notes on reconciliation as of the date of transition (April 1, 2018) and for the fiscal year ended March 31, 2019

Millions of yen
Accounts underJapanese GAAP

Japanese
GAAP

Differences inrecognition and
Reclassifications measurement

IFRS

Accounts
under IFRS

Notes

Net sales¥ 425,013¥ (397)¥493¥ 425,109

Cost of sales¥(281,458)¥(1,193)¥(2,356)¥(285,007)

Gross profit¥ 143,555¥(1,591)¥(1,862)¥ 140,101

Gross profit

Selling, general and administrative expenses¥ (85,169)

¥

322

¥

250

¥ (84,597)

Selling, general andadministrative expenses

—

¥

139

¥

358

¥

—

¥ 2,080

¥

(90)

¥

1,989

Q

Other income—¥(2,669)

¥

(0)

¥

(2,670)Q

Other expenses

497

RevenueE

Q

Cost of sales

Share of profit of investments
accounted for using theequity method

Operating income¥ 58,385¥(1,718)¥(1,344)¥ 55,321

Non-operating income

¥

4,294

¥ 1,201¥(2,143)¥

3,351

B, J, Q

Finance income

Non-operating expenses¥(3,421)¥260¥ 1,136¥(2,023)

B,Q

Finance expenses

Extraordinary income

¥

1,314

¥(1,314)

—

—

Q

¥

(1,530)¥ 1,530Q

Extraordinary loss

Operating profit——

Profit before income taxes¥ 59,042¥(41)¥(2,351)¥ 56,649

Profit before income taxes

Income taxes — current¥ (16,613)

¥

542

¥

244

¥ (15,826)

Income tax expenses

Income taxes — deferred¥501¥ (501)——

Profit¥ 42,930—¥(2,106)¥ 40,823

Other comprehensive income

E, G, J, K Profit
Other comprehensive income
Items that will not bereclassified to profit or loss

Valuation differences on available-for-salesecurities¥(6,321)

—

¥

726

¥

(5,594)

Financial assets measured atfair value through othercomprehensive income

Remeasurements of defined benefit plans¥(1,025)

—

¥

244

¥

(781)

Remeasurements of defined
benefit plans

(12)

¥

(8)

¥

(20)

Share of other comprehensive
income of investments
accounted for using theequity method—¥

Items that may be reclassified
subsequently to profit or loss
Foreign currency translation adjustments¥(3,299)

Share of other comprehensive income ofassociates accounted for using the equity
method¥(80)

Total other comprehensive income
Comprehensive income

—

¥

47

¥

(3,252)

12

¥

13

¥

(54)

¥ (10,727)—¥1,024¥(9,702)¥ 32,202—¥(1,081)¥ 31,120¥

Exchange differences ontranslation of foreign
operations
Share of other comprehensive
income of investments
accounted for using theequity method
Total other comprehensive
income (after tax effects)

A. Chargeable subcontracting transactions
The Group conducts transactions whereby components, etc. are provided with charge to suppliers for processing and subsequently
repurchased at a gross price that includes processing and related costs (hereafter, “chargeable subcontracting transactions”). In achargeable subcontracting transaction, under Japanese GAAP, extinguishment of the items supplied was recorded and accounts
receivables were recognized at the time of provision to the supplier. Under IFRS, the transaction is a financial transaction in which
extinguishment of the items supplied is not recognized, and the inventories of supplied items that remain with the suppliers at fiscal year
end are recognized as financial liability. With respect to financial assets and financial liabilities associated with chargeable subcontracting
transactions, under Japanese GAAP, the total amounts were presented for transactions that would be settled on a net basis, under IFRS,
in instances where the Group has a legally enforceable right to set off the balance or has the intention to settle on a net basis or realize theasset and settle the liability simultaneously, the financial assets and financial liabilities are set off and the net amount is presented in the
consolidated statement of financial position.
As a result, at the date of transition, “Trade and other receivables” decreased by ¥2,458 million and “Inventories” increased by ¥2,458
million. As of March 31, 2019, “Trade and other receivables” decreased by ¥2,449 million and “Inventories” increased by ¥2,449 million.
B. Interest rate and currency swaps
Under Japanese GAAP, interest rate and currency swaps that met certain hedging criteria for integrated treatment (special treatment ofinterest rate swaps and allocation treatment of currency swaps) were measured in their entirety. However, as such treatment is not allowed
under IFRS, they are translated using the fiscal year-end rates applicable to foreign currency-denominated borrowings being hedged.
Interest rate and currency swaps are measured at fair value through profit or loss.
As a result, at the date of transition, “Other financial assets” in current assets increased by ¥446 million, “Bonds and borrowings” incurrent liabilities decreased by ¥262 million, “Bonds and borrowings” in noncurrent liabilities decreased by ¥2,649 million, and “Other
financial liabilities” in noncurrent liabilities increased by ¥3,286 million.
As of March 31, 2019, “Bonds and borrowings” in current liabilities decreased by ¥1,036 million, “Bonds and borrowings” innoncurrent liabilities decreased by ¥692 million, “Other financial liabilities” in noncurrent liabilities increased by ¥1,614 million, and “Financeincome” and “Finance expenses” decreased by ¥1,183 million and ¥1,225 million, respectively.
C. Leases as lessee
Under Japanese GAAP, a lease in a transaction as lessee was classified as either finance lease or operating lease, and an operating lease
was accounted for in the same manner as an ordinary lease transaction. Under IFRS, lease is no longer classified as finance or operatingleases. Instead, a lease transaction in lessee accounting is accounted for both as right-of-use asset (lease asset) and lease liability (leaseobligation). Adjustment for the relevant prepaid lease payments is made in measuring a right-of-use asset (lease asset).
As a result, at the date of transition, “Other current assets” increased by ¥507 million, “Right-of-use assets” increased by ¥7,190
million, “Other noncurrent assets” increased by ¥1,140 million, “Other financial liabilities” in current liabilities increased by ¥2,053 million,and “Other financial liabilities” in noncurrent liabilities increased by ¥6,785 million.
As of March 31, 2019, “Other current assets,” “Right-of-use assets,” “Other noncurrent assets,” “Other financial liabilities” in current
liabilities and “Other financial liabilities” in noncurrent liabilities increased by ¥512 million, ¥8,193 million, ¥683 million, ¥2,173 million, and¥7,323 million, respectively.
D. Reversal of impairment losses
Under Japanese GAAP, reversal of impairment losses is not allowed. Under IFRS, an impairment loss recognized in prior years shall bereversed if it is assessed that profitability has recovered.
With respect to some items of property, plant and equipment for which impairment losses were recognized in prior years due to not
being utilized or other reasons, reversal of impairment losses was recognized at the date of transition given improved operation throughuse in other businesses, etc.
As a result, “Property, plant and equipment” increased by ¥9,859 million at the date of transition, and by ¥9,450 million as of March
31, 2019.

Total comprehensive income

E. Recognition of impairment losses
Under Japanese GAAP, where there is an indication of impairment, the carrying amount of an asset or cash-generating unit is comparedwith the sum of undiscounted estimated future cash flows, and if and only if the sum of estimated undiscounted future cash flows falls
below the carrying amount, an impairment loss is recognized to the extent of the recoverable amount based on the sum of the discounted
estimated future cash flows. Under IFRS, if an indication of impairment exists, the carrying amount of an asset or cash-generating unit iscompared with the recoverable amount that is based on the sum of discounted future cash flows, and if the recoverable amount is lessthan the carrying amount, an impairment loss is recognized to the extent of the recoverable amount. This resulted in the need to recognize
impairment under IFRS with respect to some items of property, plant and equipment for which impairment indicators existed in the fiscal
year ended March 31, 2019 but impairment was assessed to be unnecessary under Japanese GAAP. Accordingly, a reduction was madeto the carrying amounts of the relevant items of property, plant and equipment as of March 31, 2019.
As a result, “Property, plant and equipment” decreased by ¥1,675 million, “Cost of sales” increased by ¥1,675 million, and “Profit”
decreased by ¥1,675 million as of March 31, 2019.

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148

Notes to Consolidated Financial Statements

F. Deemed cost
The Group has decided to apply the exemption provided in IFRS 1 and measured certain items of property, plant and equipment at fairvalue at the date of transition, and recognized the same as deemed cost. The carrying amount under Japanese GAAP of the items ofproperty, plant and equipment for which the deemed cost was used, and their fair value, were ¥149 million and ¥1,370 million,
respectively.
As a result, at the date of transition, “Property, plant and equipment” increased by ¥1,220 million, and the difference arising from thereconciliation is included in “retained earnings.” As of March 31, 2019, “Property, plant and equipment” increased by ¥1,238 million.
G. Goodwill
Under Japanese GAAP, goodwill was amortized on a straight-line method over the period in which the economic benefits of the goodwill
were reasonably expected to be realized. Under IFRS, goodwill arising from business combinations is not amortized and impairment tests
are performed periodically.
As a result, “Goodwill and intangible assets” increased by ¥251 million, “Investments accounted for using the equity method”
increased by ¥350 million, and “Profit” increased by ¥601 million as of March 31, 2019.
H. Intangible assets (or development expenses)
Some items of development expenses that were expensed under Japanese GAAP are recognized as “Intangible assets” under IFRS, as
they meet the requirements of “intangible assets” stipulated in IAS 38.
As a result, “Goodwill and intangible assets” at the date of transition and at March 31, 2019 increased by ¥1,836 million and ¥1,996
million, respectively.
I. Deferred tax assets and deferred tax liabilities
Under Japanese GAAP, deferred tax assets relating to unrealized gains from intra-group inventory transactions were calculated using theeffective tax rates of the selling entity. Under IFRS, these are calculated using the effective tax rates of the acquiring entity. Furthermore,deferred tax assets and deferred tax liabilities are recognized for temporary differences arising from reconciliation of the differences inconnection with transition to IFRS.
As a result, at the date of transition, “Deferred tax assets” and “Deferred tax liabilities” increased by ¥1,627 million and ¥2,017 million,
respectively.
As of March 31, 2019, “Deferred tax assets” and “Deferred tax liabilities” increased by ¥1,242 million and ¥1,825 million, respectively.
J. Equity instruments
Under Japanese GAAP, non-marketable equity instruments were recognized at their acquisition costs. Under IFRS, in accordance withIFRS 9 “Financial instruments,” these instruments are classified as equity instruments measured at fair value through other comprehensive
income and measured at fair value irrespective of their marketability. Under Japanese GAAP, gains and losses on sale of equity
instruments were recognized in profit or loss. Under IFRS, for equity instruments that the Group has designated as financial instruments
measured at fair value through other comprehensive income, changes in the fair value are recognized in “other comprehensive income.”
As a result, “Other financial assets” in noncurrent assets increased by ¥762 million at the date of transition.
As of March 31, 2019, “Other financial assets” in noncurrent assets increased by ¥851 million, while “Finance income” and “Profit”
decreased by ¥960 million and ¥664 million, respectively.
K. Paid leave payable
Japanese GAAP has no specific requirements for accounting treatment of unused paid leave and special leave that are granted based on
the years of service. Under IFRS, this is recognized as a liability.
As a result, at the date of transition, “Other current liabilities” and “Other noncurrent liabilities” increased by ¥4,437 million and ¥2,083
million, respectively.
As of March 31, 2019, “Other current liabilities” and “Other noncurrent liabilities” increased by ¥4,875 million and ¥2,142 million,
respectively, and “Profit” decreased by ¥343 million.

M. Exchange differences on translation of foreign operations
In adopting IFRS, the Group applied exemptions as provided in IFRS 1 with respect to cumulative exchange differences on translation offoreign operations, and decided to deem these differences to be zero as of the date of transition, which are recognized in retained earnings.
As a result, at the date of transition, the entire amount of losses in foreign currency translation adjustments of ¥16,737 million wastransferred from accumulated other comprehensive income to “Retained earnings.”
N. Adjustments to retained earnings
The effect on retained earnings arising from the adjustments described above is as follows (figures in parentheses indicate losses).
Millions of yen

Reversal of impairment losses (see Note D)
Recognition of impairment losses (see Note E)
Deemed cost (see Note F)
Goodwill (see Note G)

Date of transition(April 1, 2018)2019¥8,684¥8,400—(1,675)

1,220

1,184

—

601

Intangible assets (or development expenses) (see Note H)

1,274

1,385

Paid leave payable (see Note K)(4,594)(4,938)Post-employment benefits (see Note L)(1,540)(2,077)(16,737)(16,737)

Exchange differences on translation of foreign operations(See Note M)
Other
Adjustments to retained earnings

407

331

¥(11,285)¥(13,526)

Reclassifications in the consolidated statement of financial position
The main reclassifications made to comply with IFRS provisions are as follows.
O. Under Japanese GAAP, short-term investments maturing within 3 months from the date of acquisition were included in “Short-term
investment securities.” Under IFRS, these are included in “Cash and cash equivalents.”
P. Other financial assets and other financial liabilities are presented separately.
Reclassifications in the consolidated statement of profit or loss
The main reclassifications made to comply with IFRS provisions are as follows.
Q. For income and expense items presented under Japanese GAAP as “Non-operating income,” “Non-operating expenses,”“Extraordinary income” and “Extraordinary expenses,” under IFRS, those related to finance are presented as “Finance income” or“Finance expenses,” and all other items are included in “Other income” or “Other expenses.” Under Japanese GAAP, “Share of the
profit of investments accounted for using the equity method” is presented as “Non-operating income.” Under IFRS, this is separately
stated and included in operating income.
Reconciliation of the consolidated statement of cash flows for the year ended March 31, 2019
The differences between the consolidated statement disclosed under Japanese GAAP and that disclosed under IFRS are mainly
attributable to the adoption of IFRS 16 “Leases,” which resulted in adjustment of lease payments for operating leases. This item, which
was included in cash flow from operating activities under Japanese GAAP, has been included in cash flows from financing activities ascash outflow for repayment of lease liabilities under IFRS.

L. Post-employment benefits
Under Japanese GAAP, service costs, interest expense and expected return on plan assets associated with post-employment benefits
under the defined benefit plans were recognized in profit or loss. Furthermore, actuarial differences arising from the plans and the portionof past service costs that was not expensed were recognized in accumulated other comprehensive income and subsequently recognizedin profit or loss over a certain period.
Under IFRS, current service costs and past service costs associated with post-employment benefits under the defined benefit plans
are recognized in profit or loss. Net interest expense is recognized in profit or loss in the amount obtained by multiplying the net defined
benefit asset (liability) by a discount rate. Remeasurement of net defined benefit liability (asset) is recognized in other comprehensive
income, and is transferred from other components of equity directly to retained earnings when incurred without being recognized in profit
or loss. This remeasurement comprises actuarial gains and losses related to defined benefit obligations and return on plan assets(exclusive of interest income).
Because there are variances in actuarial assumptions used including discount rates, etc. between Japanese GAAP and IFRS,
actuarial valuation was conducted in accordance with the provisions of IAS 19, and adjustments were made to net defined benefit
liabilities and assets.
As a result, losses of ¥3,273 million and ¥4,293 million were transferred from accumulated other comprehensive income to “Retained
earnings” at the date of transition and March 31, 2019, respectively. “Net defined benefit liability” decreased by ¥2,399 million and ¥3,054
million at the date of transition and March 31, 2019, respectively.
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Independent Auditor’s Report

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Global Network
Global Network

Global Network (As of March 31, 2020)

NGK SPARK PLUGS (THAILAND) CO., LTD.
SIAM NGK SPARK PLUG CO., LTD.
NGK SPARK PLUG EUROPE GmbHNGK SPARK PLUGS (ASIA) CO., LTD.

EUROPE TECHNICAL CENTERNGK SPARK PLUGS (UK) LTD.

CHANGSHU NGK SPARK PLUG CO., LTD.
NTK TECHNICAL CERAMICS
KOREA CO., LTD.

LLC NGK SPARK PLUGS(EURASIA)NGK SPARK PLUGS(FRANCE)
S.A.S. (Headquarters)

NGK SPARK PLUGS (U.S.A.),
INC. (Headquarters)

WOOJIN INDUSTRY
CO., LTD.
WOOJIN TECHNICALCENTERNGK SPARK PLUG
MIDDLE EAST FZEU.S.A. TECHNICAL CENTERNGK SPARK PLUGS CANADA LIMITEDNTK TECHNOLOGIES, INC.

NGK SPARK PLUGS(INDIA) PVT. LTD.

NGK SPARK PLUGS(FRANCE)
S.A.S. (France Factory)

Wells Vehicle Electronics, L.P.

NGK SPARK PLUGS (U.S.A.)
HOLDING, INC.

HEADQUARTERS

NGK SPARK PLUG (SHANGHAI)
TRADING CO., LTD.
TAIWAN NGKNGK SPARK PLUGSPARK PLUG
(SHANGHAI) CO., LTD.
CO., LTD.

NGK SPARK PLUGS (U.S.A.), INC.
(West Virginia Factory)
CAIRE Inc.

BUJIAS NGK DE MEXICO S.A. DE C.V.,NGK SPARK PLUGS MALAYSIA BERHAD

Headquarters
PT NGK BUSI INDONESIA

Manufacturing & salesorganization

NGK SPARK PLUGS(PHILIPPINES), INC.

Sales organization
Technical center

NGK SPARK PLUGS (VIETNAM) CO., LTD.

Holding company

CERAMICA E VELAS
DE IGNICAO NGK DO
BRASIL LTDA.
NGK SPARK PLUGS SA (PTY) LTD

NGK SPARK PLUG (AUSTRALIA) PTY. LTD.

BRASIL TECHNICAL CENTER

Domestic Network
SAPPORO SALES OFFICE

Domestic Network (As of March 31, 2020)

NTK CERATEC CO., LTD.

NAGANO LIAISON OFFICESENDAI SALES OFFICE

KAMIOKA CERAMIC CO., LTD.
CS NAKATSUGAWA CO., LTD.

Spark Tech TONO CO., LTD.
UTSUNOMIYA LIAISON OFFICEKOMAKI PLANT

SAITAMA LIAISON OFFICECERAMIC SENSOR CO., LTD.
Spark Tec WKS CO., LTD.
NTK CERAMIC CO., LTD.

TOKYO BRANCHMORIMURA SOFCTECHNOLOGY CO., LTD.
CECYLLS CO., LTD.

ATSUGI LIAISON OFFICEHAMAMATSU LIAISON OFFICEHIROSHIMA SALES OFFICE

HEADQUARTERS & NAGOYA PLANTFUKUOKA SALES OFFICENICHIWA KIKI CO., LTD.

MIYANOJO PLANT

ISE PLANTNITTOKU DENSHI CO., LTD.

Headquarters/Plant

NANSEI CERAMIC CO., LTD.

NITTOKU ALPHA SERVICE CO., LTD.

Sales office

OSAKA SALES OFFICENITTOKU SMILE CO., LTD.
SHARING FACTORY CO., LTD.

Group company

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Corporate Profile and Stock Information /Independent Verification Report
Corporate data (As of March 31, 2020)

Breakdown of shareholders by type (As of March 31, 2020)

NGK SPARK PLUG CO., LTD.

Treasury Stock
0.16%(324 Thousand Shares)

Headquarters 14-18 Takatsuji-cho, Mizuho-ku,Nagoya 4678525, Japan

Established

October 1936

Number of
employees

Non-consolidated: 5,883Consolidated: 16,430

Individuals andOthers in Japan
9.96%(20,330 Thousand Shares)

Financial Institutions
26.20%(53,487 Thousand
Shares)Trust Services
25.39%(51,844 Thousand
Shares)Breakdown ofshareholders

Foreign Corporations
and Individuals(59,084 Thousand Shares)

Number of employees at work (consolidated) (As of March 31, 2020)

by typeSecurities Companies
2.32%(4,728 Thousand
Shares)Other Corporations in Japan
(14,378 Thousand Shares)(Number of employee)

Independent Verification Report

20,00015,00014,524

14,92615,322

16,43015,994

Major shareholders (As of March 31, 2020)

10,000Name of shareholder

5,000

Number ofshares held
(thousand)Ownership ratio (%)

Meiji Yasuda Life Insurance Company

16,794

8.23

The Dai-ichi Life Insurance Company, Limited

16,752

8.21

The Master Trust Bank of Japan, Ltd.
(trust account)

16,298

7.99

Japan Trustee Services Bank, Ltd.
(trust account)

8,136

3.99

Total number of authorized shares 390,000,000

National Mutual Insurance Federation of Agriculture
Cooperatives

7,964

3.90

Total number of issued shares

204,175,320

MUFG Bank, Ltd.

4,380

2.14

Tokyo Stock Exchange and Nagoya

The Nomura Trust and Banking Co., Ltd. (investment
trust account)

4,118

2.02

The Master Trust Bank of Japan, Ltd.
(for Toyota Motor Corporation)

3,929

1.92

3,659

1.79

3,563

1.74

0

2015

2016

2017

2018

2019

(FY)

Number of shares and shareholders (As of March 31, 2020)
Paid-in capital

Listed market

47,869 million yen

Stock Exchange (First Section)
Mitsubishi UFJ Trust and Banking Cor-

Shareholder registry administrator poration
Accounting auditor

KPMG AZSA LLC

Japan Trustee Services Bank, Ltd.
(trust account 9)

Number of shareholders

17,484

Nippon Life Insurance Company

Note: Ownership ratio above is calculated excluding treasury stock.

Stock price and trading volume (As of September 30, 2020)
The Nikkei 225

Stock price of NGK SPARK PLUG

(Yen)

(Yen)

4,000

25,0003,200

20,0002,400

15,0001,600

10,000

800

5,000

0

0

■

Trading volume(Million shares)

50
40
30
20
10
0
10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9
2017
2018
2019
2020
2014 20152016(Year)

Note: Trading volume above does not include data for trading via the ToSTNet system.

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