NGK SPARK PLUG CO., LTD.
Integrated Report 2021

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

https://www.ngkntk.co.jp/english/
Corporate Communication Dept. HR Communication Company
Phone: 81-52-872-5896 Fax: 81-52-872-5951

NGK SPARK PLUG CO., LTD.

Integrated Report 2021
Year ended March 31, 2021

Our Value to Society
Environment & Energy

Mobility

MedicalCommunication

To an energy efficient and

To a mobile society that is

To bring advanced medical care

A high-speed communication society

environmentally-friendly society

fun and convenient

to people all over the world

where virtual and reality are connected

Using sensing technology to improve

Providing maintenance services according

Apply ceramic materials to artificial bone

Provide infrastructure parts to support

industrial efficiency

to your lifestyleNon-invasive diagnosis and treatment,

high-speed communication

Stable supply of regenerated energy

Improving electricity using ceramic

provision of preventive equipment andcomponents

services using ultrasound technology

Providing MaaS (Mobility as a Service) to fit
special needs

NGK SPARK PLUG CO., LTD. Integrated Report 2021

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CONTENTS

Introduction
Our Value to Society

05

Message from the Chairman

09

Message from the President

3 Foundation for Value Creation

57

Environment

59

Responding to Climate Change

63

Global Human Resources Management

67

Respect for Human Rights

68

Proper Procurement

69

Measures against COVID-19

70

Intellectual Propertysocial issues as we strive to enhance our71

Risk Management

corporate value.

73

Compliance75

Information Security76

Stakeholder Engagement77

Corporate Governance

88

Interview with Outside Directors

93

Automotive Components Group95

Ceramics Group96

New Businesses

We view sustainability issues as key issues forourselves as a company. In the Foundation for
Value Creation section, we explain the
management foundation that sees us address

1 Our Business
Based on the principles of “quality products”
and “involvement by all,” which form thestarting points for our manufacturing
activities, we have nurtured our businessduring a history of continuous challenge forthe development of society, as described inthis Our Business section.

2

15

Our Thoughts

17

Morimura Group

19

History of Value Creation

21

Value Creation Process

23

Nurtured Businesses

25

Proven Track Record

4 Segment Highlights

Medium-term Growth Strategies

29

NGK SPARK PLUG Group’s Sustainability

322030 Long-term Management Plan “NITTOKU BX”

In the Medium-term Growth Strategies
section, we discuss the strategy of our
New Medium-term Management Plan,
which we have formulated for the purposeof pursuing our 2040 Vision and the 2030
Long-term Management Plan “NITTOKU
BX,” with the latter constituting a milestone
on the way to achieving the former.

35

Risks/Opportunities and Materiality

the FY2020 performance and actions of each

39

Looking back on the Years under the Management Planbusiness, and future prospects.

New Medium-term Management Plan
41

New Medium-term Management Plan

45

The Finance Officer Outlines the Financial Strategy

47

Business Strategy

52

Editorial Policy

In the Segment Highlights section, we report on

5 Financial/Corporate Information

NGK SPARK PLUG Group’s Innovation

FY2020 (From April 1, 2020 to March 31, 2021) *Also includes some information about
our FY2021 activities.

Scope Covered

151

Global Network

153

Corporate Profile and Stock Informationon our financial performance and present our155

Independent Verification Report

corporate profile and stock information.

156

Editorial Note

SummaryThis report focuses on the information that is essential for the

NGK SPARK PLUG Integrated Reportenhancement of our corporate value. For details of ourtechnologies, products and financial affairs, please visit our

Guidelines for Reference

Shareholder Newsletter

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

https://www.ngkntk.co.jp/english/

NGK SPARK PLUG Communication

NGK SPARK PLUG Group *Also includes some non-consolidated information about
NGK SPARK PLUG CO., LTD.

Forward-looking Statements

Financial Results Highlights for the Past 11 Years
Independent Auditor’s Report

In the Financial/Corporate Information, we report

Period Covered

NGK SPARK PLUG has been issuing an annual integrated report since 2017 with a view to helping all
stakeholders deepen their understanding of its medium- to long-term value creation efforts. Based on the
key strategic theme of pursuing business beyond ceramics while keeping ceramics at the core of ouroperations, we have been aiming to “change drastically beyond the current way” as our 2040 Vision anduphold the slogan “Beyond ceramics, eXceeding imagination” along with the major strategic theme oftransforming our business portfolio that centers on the Automotive Components Group. And last year, NGKSPARK PLUG formulated the 2030 Long-term Management Plan “NITTOKU BX,” deeming 2030 as amilestone year. This year, to achieve the Long-term Management Plan, we have formulated a new
medium-term management plan, implementation of which will end in FY2024. This report provides an
explanatory overview of these plans, and its theme is getting readers to understand what sort of value theGroup is delivering.
This publication is also intended to serve as a tool to respond to various opinions and inquiries we
receive from stakeholders through our business and IR activities throughout the year. We look forward toreceiving frank opinions from many people.

99
143

Corporate Governance Reportwebsite. For detailed information about our sustainability
initiatives, please refer to our sustainability website and the

Securities Report
DetailFinancial information

Business Results Briefing

Sustainability website

Presentation Materials

Sustainability Data Book

Non-financial information

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Sustainability Data Book.

Message from the Chairman
With societal issues that threaten the sustainability of society appearing one after another, what is the reason
for existence of corporations, and how can an ideal society be realized? We asked Chairman of the Board

Sharing values and reaching fora sustainable society

with our stakeholders

Shinichi Odo about how corporations should strive for new heights with a future orientation.

An era in which the value of corporate existence is being re-assessed
The NGK SPARK PLUG Group, established in 1936 asJapan’s first manufacturer of spark plugs, has been
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, suchas spark plugs and sensors, based on the cumulative
effects of such efforts and on our technologies, which
no one else can match and against the backdrop of theeconomic development in Japan and other nations.
However, the automotive components business, which
we have grown with together during our more than 80
years of history, now faces a major turning point due toglobal moves toward a decarbonized society and rapid
progress with technological innovations such as electricvehicles (EVs).
And the societal issues are not only environmental
ones. Various other problems have come to light, such as
issues with supply-chain labor and approaches tocorporate governance, the latter of which have led tocorporate scandals. In addition, in FY2020 the sustainabilityof society found itself facing the unprecedented threat
posed by the novel coronavirus (COVID-19).
The world is divided, and protectionism and trade
clashes among the major advanced countries, which havebeen issues for some time, have become more obvious asa result of slogans such as “nationalism.” On the other
hand, global supply chains mean that companies havebecome increasingly closely connected, and we are now inan era in which risks facing one country/territory can sendhuge ripples across the world.
Furthermore, whether one likes it or not, people’s
lifestyles, ways of thinking, and values are also undergoingchanges, and the companies that supply them withproducts and services around the world are thus also being
forced to change.
How should we face and respond to the challenges
faced by us, our industry, and the world? How should
one change oneself? Societal issues that had been left
aside as something that could be dealt with later havecome to the fore as a result of the COVID-19 pandemic,
and I think we’re in transition phase in which companies
will have to not only transform their business models but
also rethink the very fundamentals of what their role insociety is and what the value of their existence is.

Corporate management needs to adopt an altruistic perspective

Representative Director
Chairman of the BoardIn April 2020 we established our CSR and Sustainability
Charter, and we are now taking action based on theCharter, which declares that we will endeavor to increase
our enterprise value by contributing to the realization of asustainable society. This gives rise to the question of whatcompanies should do in order to grow. Needless to say,companies must keep increasing sales and profits forsustainable growth and to resolve societal issues.
But that in itself is not enough. I do not think that a
prerequisite for the resolution of societal issues bycorporations is expansion in terms of scale. The world will
no longer accept companies whose fundamental values
consist solely of the pursuit of sales and profits.
So what path should we take? How should companies
grow? It’s not going to be easy to come up with the correct
answer, but in a nutshell, I think that we need to adopt a
spirit of cocreation to replace the competition of the past.
Self-interest, characterized by the “I’m alright, Jack”
approach, runs counter to the global trend toward
contributing to the sustainability of society, and I feel thatit’s becoming increasingly important to think and act, atleast on occasion, based on an altruistic spirit, and to joinhands with like-minded others who share the same thevalues and work together with them to create a betterworld.
Take the problem of climate change, for example.
Unless the whole world tackles it, a fundamental solution
will not be found. Japan, Western countries, and China
have all declared a goal of becoming carbon neutral byachieving net-zero CO2 emissions by 2050 in the case of
the former two and by 2060 in the case of China, and aresharing their progress as they take action toward achieving
these goals. With regard to that point, the auto industry will
not bring about a decarbonized society just by switching toEVs. It is essential to build a charging infrastructure, and tojoin voices with the government to promote the supply ofclean energy further up the supply chain.
And with action in the realm of ESG (environment,social, and governance) accelerating, the world also needs
to show a united front in stemming the growing gap
between rich and poor and tackling human-rights and labor
issues. As the highlighting of the issues with the Uighurs

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Message from the Chairman

has shown, problems on supply chains affect the entire
world. Though they may be occurring in distant places,
they can’t be treated as a “fire on the other side of theriver,” as an old Japanese saying goes. Instead, they must
be recognized as business risks and given attention.
Otherwise, the company concerned could be shunned byboth the markets and customers, even if its financial
performance is solid. That’s the kind of era we’re in now.
As concrete guidelines for behavior, our CSR and
Sustainability Charter states that we will conductbusiness in a highly transparent manner, while building

relationships of trust with stakeholders and cocreating
and delivering new value that contributes to theresolution of societal issues. In auto industry, thechallenge is how to safeguard the jobs of the 5.5 million
people employed by the sector as we enter thistransition period, and how to pass on the technologythat Japan has amassed over the years. We are
therefore thinking and taking action in ways that go
beyond organizational boundaries. I believe that
expanding this sphere of activity will lead to therealization of the kind of society that we are aiming for.

Creating new businesses from the viewpoint of resolving societal issues
Regarding consideration for ESG, it has been pointed outthat at the global level interest is high among the so-called
Millennials, who were born in the 1980s or later, andamong members of the even-younger Generation Z, whowere born in the 1990s or later, there is a higher degreeof interest in the question of how to be useful, and thistrumps money among this age group. To create the worldthat we consider to be ideal, and to respond to the valuesof the young generation, who will comprise the consumersof the future, I believe that it is vital that we nurture young
talent on a long-term time horizon, that we trust them,and that we put them in positions of responsibility.
As we look ahead to beyond the peak for internal
combustion engine (ICE) vehicles, we are currently
focusing on the creation of new businesses andsolutions that are not dependent on the Automotive
Components Group. And looking through the proposals
from our young employees, my eyes are drawn to ideas
aimed at resolving societal issues not through theconventional product-out method, but instead throughthe market-in approach.
For example, as part of a project to launch a new
business, the “GOOD MORNING COLOR” web app wasborn as a result of an internal idea-soliciting drive. It’s acommercial product designed to promote self-care byworking people and enhance workplace communication.
The app incorporates elements from the field of color
therapy, which involves using color to analyze a person’smental state. After arriving at work, each individual
chooses from 21 colored circles displayed on their PC
screen. They pick the color that best matches theirmood, and this allows them to view their own mental
condition and that of their colleagues. It is a tool for the
purpose of deepening mutual understanding among
co-workers. In December 2020 we launched a company(ignArt CO., LTD.) to market the app, and we are aiming
to provide services that encourage people to express
themselves and understand others in fields such as
education, nursing care, and medical care.
Of course, it is important for ideas to have social
significance, but it is also critical to generate profits as abusiness on an ongoing basis. That in itself is a trial inwhich the correct answer cannot be seen, but I view as
a positive, hopeful development the fact that the era ischanging from one in which we focused on
manufacturing to one in which new ideas thatincorporate hints from outside the company are
emerging.

Work Style Reform Declaration we formulated in January
2021, we are focusing on the development of “selfdisciplined” human resources, namely people who arecapable of organizing themselves and their work, bypromoting diverse work styles such as remote working.
They will be coming up with their own ideas forworking more efficiently, and use the time that thisefficiency frees up to take part in seminars or perform
community services so as to enhance their own value.
Developing such self-disciplined human resources will
enhance not only the value of the employees themselves,
but also that of the company. I also think it will enable us toevolve into a corporation boasting personnel who canmake a contribution to society.
Initiatives like these, namely the introduction of the
in-house company system and the promotion of work stylereforms, are methods of strengthening the organization’scentrifugal force, and some people will no doubt beconcerned about possible governance problems that impair
the company’s centripetal force. But nurturing diverse
values and generating new ideas will entail the challenge of
replacing rigid organizational systems with free and flexible
organizations.
There are numerous ways of strengthening governanceusing systems, but I believe that the most important thingis to nurture leaders. Leaders should utilize the authority
they are given to take on risk and properly discharge theduties they are supposed to fulfill. If leaders like that areplaced in positions at the top of the company, centrifugal
force will come into play. They will think and act freely, but ifthey go too far, centripetal force will come into play. With
regard to this point, programs that I have been involved

with for many years, such as the HAGI Program fordeveloping the next generation of global executives and the
DIAMOND Project for promoting the success of women in
the workplace, which identify personnel with the potential
to become the executives of the future, have been steadily
nurturing young leaders, and I hope that they will continue
to grow going forward.
The key to developing self-disciplined human resources
will be the establishment of an evaluation system thatproperly reflects achievements. I would like small successes
by individuals to be recognized, and for them to accumulate
and be translated into big success for the company,
services that contribute to broader society, and thedevelopment of our business.
And they cannot only be evaluated based on metrics
like sales and profits. There will need to be new parameters
for evaluation. We have established our Eco Vision 2030 as
we endeavor to become carbon neutral by 2050, and weare taking action to meet numerical targets. As part of these
efforts, in June 2021, we partially revised our performancelinked stock remuneration system for directors, etc., adding
the rate of reduction of CO2 emissions as a non-financial
evaluation indicator. By including CO2 emissions reduction in
the KPIs for the officers’ stock remuneration plan, we would
like to send a clear message to the world that we arecommitted to working with our stakeholders to realize adecarbonized society.
We will share and cocreate a better future with all
stakeholders and take on wide-ranging challenges torealize sustainability for society. I would appreciate yourunderstanding toward our future challenges along with yoursupport.

Developing self-disciplined human resources and contributing to broader society
The relationship between corporations and their employees
should be re-examined.
Until now, companies have, in a sense, “captured”
employees by using financial incentives such as salary,bonuses, and retirement benefits, which are aimed atsecuring top-flight talent. But amid the COVID-19
pandemic, the traditional work style, where “going to theoffice (or factory)” was the norm has been replaced by adiverse range of work styles, and there has been a hugevalue shift in how people view ways of working.
The traditional Japanese lifetime employment system
made sense only because of the system of age-based
promotions and pay increases that was established against
the backdrop of an ever-growing economy. The premises
upon which it stands have almost completely crumbled
away, so forms of employment ought to be changed. We

need to shift from the old approach, where people basicallyjoined a company for life, to a job-based system in which
job content, scope, and responsibilities are clearly definedand people are evaluated based on their achievements. If
that happens, employees will be able to independently
select ways of working that are motivating for them
personally, instead of just putting up with their situations
and clinging to the company like their lives depended on it.
Corporations are regarded by many as “public institutions”
responsible for nurturing the next generation, and I thinkthat we may need to adopt an approach of promoting
fluidity in connection with human resources.
In our case, we introduced an in-house company
system and spun off some businesses in April 2021 withthe aim of clarifying the responsibilities and authority ofeach business and each individual. And in line with the

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Message from the President

Break to change.
Change to create.

Overcoming the pain of change anddelivering new corporate value tosociety

Shift to work styles suited to the new normal accelerating
Over its history of more than 80 years, NGK SPARK PLUG
has built a stable revenue base by building on thecompany’s core ceramics technology to advance andimprove its products used in internal combustion engines(ICEs), such as spark plugs and sensors. However, therapid progress of new technologies such as electricvehicles (EVs) is leading to a massive transformation in thevery structure of the industry, and we are hurtling into an
era in which we will need to embrace challenges that
surpass conventional commonsense and imagination.
Furthermore, with a shift to a management style thatconsiders ESG (environment, social, and governance),
which encompasses climate change, becoming necessary,
FY2020 saw the sustainability of society on a global scalefacing the threat posed by COVID-19.
A retreat by economies and markets became
inevitable, and this also affected our performance in
FY2020, with our first quarter earnings plummeting.
Fortunately, however, the situation improved, with brisk

sales of plugs for the aftermarket during the second quarter
onwards. Sales rebounded, and while materials prices
soared and shipping costs climbed, revenue ended on apar with the previous year’s.
Although the COVID-19 pandemic has inflicted pain ofvarious kinds, it has also provided an impetus for taking a
fresh look at traditional business practices, beliefs, andstyles.
In January 2021 we formulated the Work Style Reform
Declaration, and since then we have been recommending
a diverse range of ways of working. Remote working,which was presented as good example, has become more
and more popular, and even tasks that people used tobelieve had to be conducted face to face, like businessnegotiations or the commencement of equipment
operations, are now being completed speedily online,
which has boosted operational efficiency. In addition,
alongside the cost reductions, the most positive changethat I have seen is that employees have not only personally

Representative Director Presiden
Chief Operating Officer

In April 2021 we began implementing our New Medium-term Management Plan, which was formulated in 2020 andis a component of a breakdown of the 2030 Long-term Management Plan “NITTOKU BX.” “Break to change.
Change to create.” With this as our slogan, what changes are we going to make to enhance our corporate value?
Representative Director, President Takeshi Kawai provides an answer to this question and talks about theoverview and relevant initiatives.

acquired an attitude of “we have to change,” but also adesire to turn that attitude into action right away.
In 2020, we formulated the 2030 Long-termManagement Plan “NITTOKU BX,” the primary thrust ofwhich is new business creation, and our goal for 2040
is to “change drastically beyond the current way,” while
our vision is the slogan “Beyond ceramics, eXceeding
imagination.” Employees must never fear change.

Instead, they must always be conscious of the concept
of “Change (transformation) with (co-existence) Will
(will)!!,” which is set forth in the Action Guidelines. And
by thinking and taking action, they must establish thefoundations for new businesses through the resolutionof societal issues. I am promoting this approach withthe awareness that I am the top executive in thecompany.

Making investment decisions about new businesses from the viewpoint of “Why Nittoku?”
Of course, it’s impossible for anyone to look ahead 10-20
years and accurately predict what sorts of businesses aregoing to be needed. But what is certain is that while stabledemand for products for internal combustion engines(ICEs) is expected to continue for about the next 10 years,
in the 2030s the number of vehicles with ICEs is projected

to begin to decline, so we need to switch to a businessstructure that is not reliant on products for ICEs. Under“NITTOKU BX,” we will decrease the proportion of ICE
business to 60% and increase that of non-ICE business to
40% by 2030 by transforming our business portfolio.

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Message from the President

production. We are also pursuing dozens of projects on a
trial-and-error basis, with the aim of staking a presence in
new markets. The fields are diverse, but when we aredeciding whether to invest in a new business, the criteriathat we employ as major premises are these: “Why should
we invest in that business?” and “Why Nittoku?”
We are aiming to contribute to higher quality of life
(QOL) for people around the world by utilizing our coreassets, pursuing linkages with the high-quality
manufacturing operations (tangibles) and services(intangibles) that we have long prided ourselves on, anddeveloping never-before-seen new businesses that
demonstrate the “Nittoku spirit.”
From that perspective, the direction that I am
considering for investment is to invest in M&A deals or
technologies that offer investment efficiency. We will not be
investing just because of the market’s great needs. Rather,
we intend to invest in fields in which we can demonstrate
our strengths as a company. It is also important to take into
account the perspective of sustainability. As a long-term
conceptual stance, we are exploring investment in domains
in which our technologies can contribute to the realizationof carbon neutrality. Specifically, we are focusing on thedevelopment of “e-fuel,” a new fuel synthesized through acatalytic reaction between carbon dioxide (CO2) andhydrogen (H2).
Going forward, it has to be said that even if the shift to
EVs gathers pace in order to comply with ever tighter
environmental regulations, unless rapid progress is madewith the construction of battery-charging infrastructure, itwill be tough to clear environmental regulatory hurdles with
EVs alone. But with e-fuel, which is produced fromrenewable energy, the infrastructure already in place can beused, so it offers huge advantages on the road to making
the entire world a decarbonized society. Althoughnumerous issues remain in terms of costs and otheraspects of economic rationality, to achieve our goal of“mobility for everyone,” we are going to be refining our coretechnologies and pursuing initiatives from a long-term
viewpoint.

To that end, it is imperative that we expand thegeneration of cash from ICE business, allocate that cash toinvestment in new businesses, and accelerate ourinvestment activities. We must follow a two-wheeled
approach to management, where we see ourselves as abicycle, with current businesses as the front wheel andnew businesses as the rear wheel. Each wheel isindependent of the other, but we rely on both to move
forward.
Specifically, new businesses include, most notably, thefuel cell business (SOFC), which has already started mass

may become edgy at times. But as the New Medium-termManagement Plan declares, “Break to change. Change tocreate.” As this slogan makes clear, change is always
accompanied by pain. I think that we needed to take a new
direction and make real change while the ICE business isstill performing well, as if we fail, we still have leeway toemploy trial and error and try again.

their responsibilities with respect to investment
effectiveness and investment responsibility will become
clearer. We also expect internal companies to introduce
performance-related pay, such that salaries and bonuses
are linked to profitability.
Employees will be exposed to the harsh realities ofmarket competition, and the atmosphere in the workplace

Promotion of “Carbon Neutral as a service”
One of these projects is to develop SOFCs and
SOECs (next-generation water electrolysis devices),
which employ ceramic solid electrolytes. This project isalready underway at our plants, and going forward, with
“Carbon Neutral as a service” as our vision, we will beaiming to offer solutions for using SOFCs as distributed
power supplies and using SOECs to manufacturehydrogen from renewable energy so as to cut CO2
emissions.
Partly with the goal of generating a source offinancing for investment in “Carbon Neutral as aservice,” we have introduced an in-house carbon pricing
system whereby each internal company incurs amonetary cost based on its CO2 emissions. And to get
the project moving forward rapidly, we are thinking
about teaming up and collaborating with start-up firmsthat boast top-class technology to develop the businessas one of our key new businesses and thereby lead tothe realization of a decarbonized society.

The COVID-19 pandemic has once again highlighted
concerns about socioeconomic uncertainties, and calls
for companies to adopt sustainability management, i.e.
consider the sustainability society when conducting
their operations, are growing louder by the day.
Taking this on board, last fiscal year we launched
the Sustainability Promotion Dept. and endorsed theTask Force on Climate-Related Financial Disclosures(TCFD). And with respect to our responding to climatechange, we have, in line with “NITTOKU BX,” beenworking to reduce CO2 emissions as one of our priority
tasks. In addition, we set out our Eco Vision 2030 in
April 2021 that presupposes the achievement of carbon
neutrality in 2050, as pledged in our New Medium-termManagement Plan. The Vision includes such goals as a
30% CO2 emissions reduction by 2030 (compared to
FY2018 levels), and we are taking action to reach thatgoal.
And also with the aim of achieving carbon neutrality,
we intend to be proactive in developing technologies
and solutions that can benefit not only ourselves, butalso society at large.

Getting back to “Dokuritsu-Jiei” and “Ichigyo-Issha”
Clarification of responsibilities and authority through the introduction of an in-house company system
the maximization of the profits of operating companies, andto that end, it will need to offer high added-value services
that are competitive in the market place. By improving theiroperational efficiency and enhancing the sophistication of
the services they provide, we will transform them into a
profit center. Existing divisions will also be endeavoring toboost their ability to adapt to change through theintroduction of systems and frameworks that reflect theirrespective market environments, and will be charged withhitting KPI and KGI targets set by the internal companies.
There are two key objectives for this reorganization.
The first is to achieve clarification of responsibilities andauthority, which had been vague in the past, through theswitch to the in-house company system. The second isensure that each internal company is allocated internal
capital and takes responsibility for its balance sheet,income statement, and cash flow statement. By making
each internal company independent in terms of profitability,

As we look ahead to the transformation of our businessportfolio, we have set about reorganization aimed at
ramping up the value of businesses in line with theirpositions. This move is as described in the New Mediumterm Management Plan, implementation of which began in
April 2021. In short, the reorganization involves theintroduction of an in-house company system.
The previous headquarters has been split into two:
Global Strategy Headquarters and Business Partners (BPs)/ Companies. The former has been assigned a small
number of elite strategic staff, and charged with such tasks
as devising strategy for the entire company, pushing
forward with portfolio transformation through the optimal
allocation of management resources, and exercising
governance over each business.
BPs / Companies, meanwhile, handle corporate
functions such as procurement, accounting, personnel/
labor affairs, and PR. The aim is for them to contribute to

To promote sustainability management, creating anenvironment that employees find comfortable to work in isvital. In line with the Work Style Reform Declaration, we aregoing to establish an environment aimed at enabling at least
70% of employees to work remotely, and will also be investingin DX (digital transformation) to facilitate that. Remote work
serves to protect employees from infection, boost productivity,and develop their ability to control themselves (i.e. become
self-disciplined personnel). We will have employees
acknowledge each other’s diverse work styles, pool the powerthat comes from diverse values, and translate this into newvalue creation.
This promotion of sustainability management in thisway and the consideration of ESG absolutely does not

imply a trade-off with financial performance. To pursue
sustainable businesses and initiatives, and to benefit all our
stakeholders, I believe that it is crucial that we act
strategically to raise our value as an enterprise.
Since the days when we were Morimura Gumi, thefounding company of the Morimura Group, we havedeclared our commitment to “Dokuritsu-Jiei” and “IchigyoIssha.” We are going to return to that DNA, and with a freshmindset, be constantly on the lookout for “Something
New,” as we strive to develop our business and society in asustainable way. I hope that our stakeholders will pay close
attention to how the new challenges we are taking on
actually play out, and look forward to receiving yourfeedback, including advice and opinions.

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1
Our Business

CONTENTS
15

Our Thoughts

17

Morimura Group

19

History of Value Creation

21

Value Creation Process

23

Nurtured Businesses

25

Proven Track Record

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Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

Our Thoughts

The Nittoku Way

Corporate Message

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 Nittoku Way refers to the values of the NGK SPARK PLUG Group that all employees commit to sharing and passing down to the next generations.

About the Morimura Group, see

IGNITE Your drive, dreams and SPIRIT

Corporate Philosophy
Corporate
Philosophy
CSR andSustainability Charter

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

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

Long-termManagement
Plan

Corporate
Code of
Conduct

Medium-termManagement
Plan

At NGK SPARK PLUG, we aim to contribute to people all over the world by linking
people to technologies and delivering new values.
As a truly global corporation, we want to build stronger ties not only with customers
and communities, 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

Qualityproducts

Involvementby all

Our mission is to continue to make the world a better place.

Our diverse workforce will ignite our company to create new products and to 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.

DokuritsuJiei

ShiseiShinjitsu
SoshiKantetsu

Shikai-Keitei

Shared Values

Shared Values

Management
PolicyDokuritsu-Jiei

Shikai-Keitei

Soshi-Kantetsu

contribute to the peoples of the world byActionGuidelines

creating and putting at their proposal newvalues for the future.

Commitment

2

1

3

We offer a working environment in which eachone of us is encouraged to make full use of
his or her personality and capabilities. With all
our power we are dedicated to pursue
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 thepeoples of the world.

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

CSR and Sustainability Charter

The Four Shared Values of the Nittoku Way
Shisei-ShinjitsuWith established trust and confidence insideand outside the company, we aim to

Basic Traits
We will pursue future opportunities and improve NGK SPARK PLUG’s unique and advanced technologies.

⇒ P.17

We contribute to developing a sustainable society, thereby improving our corporate value.

Sincerely, do our very

We build relations

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

of trust with our

We cocreate andstakeholders whileprovide new value tomaking highly

help solve

transparent decisions

social issues.

and actions.

Unite efforts with the people of the world,
and utilize each other’s differences.
Have cherished desires, andcarry it through till the end.

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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Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

Morimura Group

Timeline from Morimura Gumi to NGK SPARK PLUGIn New York,Ichizaemon Morimura in 1863

Morimura Brothers Broadway 539, around 1893

1876

1897

1917

1919

1930

1937

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

Morimura Bank established (merged with
Mitsubishi Bank in 1929).

Nippon Toki converted into a joint
stock company (Nippon Toki, Ltd.); itssanitary ware division spun-off into
Toyo Toki Co., Ltd.

Nippon Toki’s insulator division spun off into NGKInsulators, Ltd.; Okura Art China establishedNGK Insulators put spark plugs on
the market.

NGK SPARK PLUG started
manufacturing spark plugs.

1881

1904

1921

1936

Morimura Brothers established. Identified
potential in porcelain exports.

Nippon Toki Gomei Kaisha
established.

NGK Insulators started research on
manufacturing of spark plugs.

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

Nippon Toki Gomei Kaisha in 1904

Morimura Group’s Background

Morimura Gumi
(March 1876)

Ichizaemon Morimura (right side) and Toyo in 1889

The origin of the Morimura Group, the foremost ceramics
conglomerate in Japan, dates back to 1876, when the Morimurabrothers, Ichizaemon and Toyo, founded Morimura Gumi*1 tolaunch a pioneering foreign trade business in the country.
The Group’s involvement in the ceramics industry began in
1904, when the founders of Morimura 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) and NGK Insulators, Ltd.*4 (1919), respectively.
Okura Art China*5 was also established in 1919.
After that, in October 1936, the spark plug division of NGK
Insulators, Ltd. was spun off, and NGK SPARK PLUG wasestablished, forming the foundation of the Morimura Group today.
Notes: 1.Currently, Morimura Bros., Inc.; 2. Later, Nippon Toki, Ltd., and currently, Noritake Co., Limited;

Nippon Toki
Gomei Kaisha

Morimura Bank
(June 1897)(January 1904)

Okura Art China(May 1919)

Morimura Gumi
Co., Ltd.

Toyo TokiCo., Ltd.

Nippon Toki,Ltd.

NGK Insulators,
Ltd.

(April 1918)(May 1917)(July 1917)(May 1919)

TOTO Ltd.

Noritake Co.,NGK Insulators,

Limited

Ltd.

(Renamed in
April 1981)(Written namechanged in May 1986)

Merged with
Mitsubishi Bank

Okura Art
China. Inc.

Morimura
Bros., Inc.

(1929)(Reorganized in April 1950)(Renamed in July 1946)(Renamed in
May 2007)

3. Currently, TOTO Ltd.; 4. Currently, NGK Insulators, Ltd. 5. Currently, Okura Art China. Inc.

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18

NGK SPARKPLUG CO., LTD.
(October 1936)

Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

History of Value Creation

Challenges embraced by NGK SPARK PLUG
Over the course of its history, NGK SPARK PLUG has made progress in response to the changing times, taking on the challenge 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

1949

NGK SPARK PLUG founded

Production of NTK Technical Ceramics started

NGK SPARK PLUG wasestablished through the spin-offof the spark plug division of NGK
Insulators. The founding
business of producing spark
plugs has grown to make thecompany the world’s top
manufacturer of the product.

After the post-war confusion had settled down andspark 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 toinclude those for industrial and environmental uses.

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

Production of NGK Spark Plugs started
In 1930, we released NG Spark
Plugs, Japan’s first domestically
produced spark plug, and began
producing NGK Spark Plugs in1937.

Production of ceramic substrates
and IC packages started

Sales of electrostatic chucks started

Building new business pillars

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 andabrasion resistance, to be used forsemiconductor production equipment. In
response, we promptly introduced ceramicelectrostatic 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 businesspillars.
The 2030 Long-term Management Plan
“NITTOKU BX” also started in FY2020, aiming
to transform our business portfolio by 2040.
We continue with these challenging efforts,
seeking out every possible new field byapplying our core ceramics technologies
including hydrogen leak detection sensors andthe solid oxide fuel cell (SOFC).

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

Electrostatic chucks

Ceramic cutting tools developed

1937

1989

IC packages

1958

Magoemon Ezoe, first president

2000〜

1967

Cutting tools

1982

1999

Production of oxygen sensors
for automobiles started

Sales of medical oxygen
concentrators started

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 were made stricter. To help relatedindustries ensure regulatory compliance, webegan developing various sensors, primarily inassociation with exhaust gas, such as zirconia
oxygen sensors and wide range oxygen sensors.

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

Hydrogen Leak Detection
SensorSolid Oxide Fuel Cell
(SOFC)

1959
NGK Spark Plug

Overseas business expansion
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 LTDA, in 1959, and began to promote
overseas advancement ahead of competitors tobuild strong global networks.

Revenue trend

Medical-use oxygen
concentrator

Temperature sensors
for automobiles

CERAMICA E VELAS DE
IGNICAO NGK DO BRASIL LTDA

Oxygen sensors forautomobiles

H is t o r i c a l b a c k g ro u n d a n d s o c i a l is s u e sStartup period (from 1930)

Growth period (from 1940)

Establishment period (from 1960)

Development period (from 1990)

From present to future

Domestic automobile industry depending on imports

Automobile production growing rapidly

Impact of high economic growth

Tackling new social challenges

Aiming to create a sustainable society

In Japan in the 1920s, when the domestic automobile industry was still in
its infancy, the supply of automobiles was limited 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
automobiles and related parts manufacturing developed into a majorindustry. Accordingly, demand for plugs also increased. After WWII, Japan
ushered in a period of 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 to fulfill needs
related to such problems as well as resource
conservation, we started research to develop
new products that would help meet exhaustgas regulations. These regulations were mademore stringent year by year, pushing up
demand for high-performance plugs andsensors.

From the 1990s, automakers began to focus on
the development of electric vehicles, hybrid
vehicles and fuel cell 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 productsthat would meet new needs related to thesesocietal trends, we promoted research anddevelopment based on our technologies built
over long years.

Our business environment is undergoing an
enormous change brought about by a numberof factors, such as AI and IoT-driven digitization,
the once-in-a-century transformation of theautomobile industry led by the concepts of
CASE and MaaS, and mounting concerns overclimate change and ESG-related issues.
Recognizing this situation, we are 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.

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Our Business

Value Creation Process

Medium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

Response tosocial issues

External environment

Business ModelManagerial capital
Financial capital

Change drasticallybeyond the current way

Cash flows from operating activities

63.3
A+
AA-

Priority issues

billion yen(Materiality)（R&I）

Rating:E (Environment)

（JCR）

58.2

Capital adequacy ratio:

Responding to climate change⇒ P.41: New Medium-term Management Plan, P.93: Segment Highlights

en

onm

portfolio

Effective use of equipment

Contribution to MaaS

Development of medical technologies

Application technology in harsh environments
Sensing technology

Higher QOL

Rapid high-temperature heating technology

Safety in surgical operationsca

Global production and sales system

di

ca

ni

million yen

6,433

l

Co

mm

u

Generated results/
Outputs
FY2020

Human capitalBusiness infrastructure

Revenue

427.5⇒ P.56: Foundation for Value Creation

Consolidated number of employees:

16,391

G (Governance)

Action against Priority Issues

Ratio of overseas employees:

45.7

Corporate governance

140

Electricity:MWh

51,000Medium-term Management

Medium-term Management

Management Plan

Plan (four years)

Plan (five years)

tons

Dokuritsu-Jiei

Shikai-Keitei

Soshi-Kantetsu

The Nittoku Way

Input of water resources:

1,680,000⇒ P.35: Risks/Opportunities and Materiality

5.5%

Satisfaction rate:

46.2

%

CO2 emissions

Seventh Medium-term

Shisei-Shinjitsu

Input of raw materials:

Information security⇒ ⇒P.32: 2030 Long-term Management Plan “NITTOKU BX,” P.41: New Medium-term Management Plan

2030 Long-term Management Plan
“NITTOKU BX”

Natural capital

450,522billion yen

Employee satisfaction survey

Management Strategies

Number of countries where
our products are sold: about

Compliance

ROIC

Corporate Governance%Social capital
Risk management

Improvement of information infrastructure

Disparate material bonding technology

Number of patents:

Global human resources management

Contribution for a hydrogen energy-based society

Safety in automobile drivingMe26,115oCeramic material technology

R&D expenses:

Development of technologies, products, and businesses
for contributing to the resolution of social issues

M

Core
CompetenceEnvirbases outside Japanyyof business

nerg

lit

S

Transformation

bases in JapanEt&Intellectual capital(Society)

Higher fuel economy

Reduction of lead time at manufacturing facilities

bi

39
46

Cleaner automotive exhaust gas

Higher performance of electronic devices%

Manufacturing capital

Providing environmentally friendly products

Contribution to environmental issues

Reduction of environmental pollutants

Business Fieldsn⇒ P.35: Risks/Opportunities and Materiality

Value to be provided to society
into the future/Outcome

2040 Vision

FY2020tio

Global environmental issues
international issues
Establishment of a society
where economic development
and resolution of social issues
are compatible

m3
Enforcement ofManagerial Capital

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22250,000

tons

Proportion of non-ICE businesses

20.8

%

vs. previous FY
+
%

0.3

vs. previous FY%

0.8

vs. previous FY%

14.6

vs. previous FY%

5.1

vs. previous FY
+
%

1.6

Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

Nurtured Businesses
The 80-year history of NGK SPARK PLUG started with the production of plugs. Then, applying its core ceramics
technologies, we developed a number of businesses, and are currently accelerating business development in
the Ceramics and the New Businesses to transform the business portfolio, while maintaining high profitability

Ceramics

in the core Automotive Components.
Revenue

Automotive Components

63.7

79.2

%

338.6

billion yen

Operating income ratio

16.7
Plugs
Spark plug

Glow plug

In an internal combustion engine, acts as a

Assists with the startup of a diesel engine.

14.9

%

Operating income ratio

1.0
Revenuebillion yen%

Components for semiconductor production equipment

Industrial ceramics productsElectrostatic chucks

Piezoelectric ceramic components

Semiconductor packages and substrates

Cutting tools

We offer IC packages suitable for electronicand smart devices as well as substrates usedin probe cards for semiconductor wafer
inspection.

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.

We offer electrostatic chucks, anindispensable 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.

%“lighter” to ignite the mixture of gasoline andair.

Medical products
By making use of our ceramic materials, wemanufacture medical products, such as bone
prostheses and oxygen concentrators for
medical use.

Sensors
Zirconia oxygen sensor

NOx sensor

Used to measure the exhaust gas oxygen

Used to precisely measure the concentration

concentration for air-fuel ratio control.

of NOx gas, a regulated substance, to ensurecompliance with the NOx regulations, which

New Businesses

have recently been tightened. Can be used toconcurrently measure the concentration ofoxygen.

Wide range oxygen sensor

Temperature sensor

Paired with a dedicated interface, used for

Used to monitor the exhaust gas temperature

wide-range air-fuel ratio control to maximize

for the protection of exhaust system

output according to the exhaust gas oxygen

components and for the optimal control of theconcentration level.

exhaust gas aftertreatment system, thereby

4.7

Revenue

19.9%

Operating income ratio

billion yen

-

52.4

%

Solid Oxide Fuel Cell (SOFC)

contributing to cleaner exhaust gas and higher

SOFCs generate electricity and heat

fuel efficiency.

through electrochemical reaction. SOFCs
are highly energy-efficient fuel cells andare expected to be downsized andprovided at lower cost.
* Disclosure standards in FY2020

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24

Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

Proven Track Record
Financial Highlights

Non-financial Highlights
Profit/return on equity (ROE)
attributable to owners of the parent

Revenue/Operating income/Operating income ratio
500,000
400,000 372,919
300,000
200,000
100,000IFRS

J-GAAP(Millions of yen)

425,013409,91216.4

14.4

67,27953,595426,073(%)(Millions of yen)30

80,000427,546

13.7

11.4

58,385

11.1

48,44710

20,00047,389
0

2016

2017

Revenue ■ Operating income

2018

7.4

(%)

8.4
44,33542,63825,602

9.1

33,698■

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

1,000

2017

Profit attributable to owners of the parent

2018

2019

815
411

479

38,36725,000

953

915

750

8
4

250

222

545

15,000

305

470

42.5

40.6

14,92615,32244.9

45.7

15,994

16,43016,391

50
40
30
20

5,000

10

404

0

2016
■

(%)

43.2

10,00002020 (Fiscal year)

ROE attributable to owners of the parent

542

436

20,000

709

692

270

500

0

2016

Operating income ratio

Number of new patents published
12

10.9

0

2020 (Fiscal year)

2019

12.0

40,0000■60,00020IFRS

J-GAAP

2017

2018

2019

2020 (Fiscal year)

0

2016

In Japan ■ Outside Japan

■

2017

Total number of employees

2018

2019

2020 (Fiscal year)

Percentage of overseas employees

While affected by the spread of COVID-19, our revenue for the current fiscal
year increased year on year due to a recovery from the second quarter ofthe year. Our profits slightly decreased due to an appreciation of yen, an
increase in transportation costs, and soared unit prices of precious metals.

ROE increased by 0.7% year on year due to an increase in the profit
attributable to owners of the parent.

The number of patents published in Japan has stayed at a specific level as aresult of our adjustment of the appropriate number of patent applications filedin Japan. The number of patents published outside Japan has also stayed ata specific level in line with the number of patent applications filed in Japan.

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

Equity ratio attributable to owners of the parent

Return on invested capital (ROIC) ROIC: Operating income after tax/Invested capital

CO 2 emissions

Sales percentage of precious metal plugs and wide range oxygen sensors(10,000 tons)

(%)

IFRS

J-GAAP

(%)

100

12

80
60

62.5

64.3

63.4

59.7

8

58.2

40

IFRS

J-GAAP

(%)

8.5

35
30
25
20
15
10
5
0

10.0
8.2
6.3

5.5

4

20
0

0

2016

2017

2018

2019

2020 (Fiscal year)

2016

2017

2018

2019

While we set our ROIC goal for FY2020 at 13%, we ended up at 5.5%due to an increase in depreciation cost driven by an increase inautomobile-related investment and a decrease in gross profit driven by adelay in launching new businesses.

28.08

28.42

26.30

40

24.97

36

39

37

30
20
10

22

22

2016

2017

39

41

34

37

2019

2020 (Fiscal year)

27

0

2016

2020 (Fiscal year)■

Equity ratio attributable to owners of the parent decreased year on year
due to bank borrowings in order to secure liquidity on hand, affected by
the spread of COVID-19.

50

28.20

2017

2018

2019

2020 (Fiscal year)

CO 2 emissions

Precious metal plugs

CO2 emissions as a cause of climate change has been on a declining
trend due to our CO2 reduction efforts and a decline in the CO2 emissions
conversion factor of electric power. As a priority issue to tackle, we aim at
reducing CO2 emissions by 30% by FY2030 from the FY2018 level.

2018

Wide range oxygen sensors

The sales percentage of precious metal plugs and wide range oxygen
sensors has gradually increased as environmentally friendly products.

* Calculated based on the CO2 emissions conversion factors of respective fiscal years.

Earnings per share
250.00209.37200.00150.00100.00IFRS

J-GAAP(Yen)

204.74

150
120

42.9
35.2

90

119.44

60
30

50.00
0

IFRS

J-GAAP(Yen)

188.59163.06

42

34.2
28.7
60

70

31.8
70

60

50

(Number of employee)

2017

2018

2020 (Fiscal year)

2019

20

Cash dividends per share

2017

2018

2020 (Fiscal year)

2019

■

Capital expenditures/depreciation

R&D expenses

60,00056,58740,000 36,328
20,000IFRS

19,601

23,41633,44434,70031,95237,591
20,92030,00051,004IFRS

J-GAAP(Millions of yen)

25,28328,072

28,315

26,115

113

123

13.6
133

96

146

12

60

58

4

20

0

0

0

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

2017

2018

2019

75.64

78.52

14.85

15.41

84.36
16.56

85.60
16.70

2017

2018

2019

2020 (Fiscal year)

0

Capital expenditures ■ Depreciation

2016

Capital expenditures significantly decreased year on year due to theexamination of investment associated with increased production and thereview of investment timing centering around automobile-related
investment, under the influence of COVID-19.

Our ratio of R&D expenses to sales has been in the range of 5% to 6%. It
reached 6.1% in FY2020.

■

Number of paid-leave days used

2017

2018

0

2017

2018

2019

2020 (Fiscal year)

Number of employees who took childcare leave
Percentage of employees who returned to work after taking childcare leave

Rate of paid-leave days used

100

100

80

80

60

60

40

40

20

20

0

0

54

2016

2019 (Fiscal year)*Fiscal year starts October.

■

The management and labor cooperate in encouraging the use of
paid leave, and the number of paid-leave days used is increasing
year by year.

60

20(Number of reports)

30
20

2016

2020 (Fiscal year)

49

Number of reports from whistleblowers

(%)

100
80

58

(Number of days)

0

2016

50

94

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

10

■

48

(%)

96

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.

10,000

0

■

100

40

2016

2020 (Fiscal year)95

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%.

20,00023,979

12.5

80

50

2016

While affected by COVID-19 in the current fiscal year, we increased theyear-end cash dividend from 25 yen to 35 yen following the recovery of
our performance from the second quarter, and ended up with the full-year
cash dividend at 60 yen per share and the payout ratio at 31.8%.

J-GAAP

102

11.7

16

40

Dividend payout ratio

Earnings per share increased year on year due to an increase in the
profit attributable to owners of the parent.

(Millions of yen)

10.7

(Number of employee)

14.5

8

100

0

2016
■

150

30

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

200

40

10

0

2016

(%)

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

Cash dividends per share/Dividend payout ratio

65

2017

73

2018

80
63

2019

2020 (Fiscal year)

Number of reports from whistleblowers

Regarding the Corporate Ethics Helpline, an internal reporting system, weare creating an environment where employees feel comfortable in consulting
and reporting, by promoting the system on an ongoing basis throughholding seminars, creating posters and distributing pocket-size cards.

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2

Medium-term Growth Strategies
CONTENTS29

NGK SPARK PLUG Group’s Sustainability

322030 Long-term Management Plan “NITTOKU BX”

35

Risks/Opportunities and Materiality

39

Looking back on the Years under the Management Plan

New Medium-term Management Plan
41

New Medium-term Management Plan

45

The Finance Officer Outlines the Financial Strategy

47

Business Strategy

52

NGK SPARK PLUG Group’s Innovation

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Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

NGK SPARK PLUG’s Sustainability

We will deepen our activities toachieve carbon neutrality, andcontribute to the establishment

Tackling climate change through business activities

of a sustainable society.
Mikihiko Kato,
Member of the Board Executive Officer,
Strategic Human Resources and Sustainability Promotion

Policy for attaining carbon neutrality determined

Introduction of internal carbon pricing system

In response to the Paris Agreement, which was concluded
in 2015, the Intergovernmental Panel on Climate Change(IPCC) put together its Special Report: Global Warming of
1.5°C in 2018. The report set a target of limiting the global
average rise in temperatures compared to pre-industrial
levels to 1.5°C, and to achieve this target, called for CO2
emissions to be reduced to net zero by 2050. Alongside
this establishment of an international framework for tacklingclimate change, individual nations, and developed countries
in particular, have been stepping up their efforts to bringabout carbon neutrality. In Japan, too, the government has
been ramping up its activities following the issuance ofCarbon Neutral Declaration in October 2020.
And against the backdrop of this worldwide trend, ourown awareness of the need to take action on
environmental issues has also increased. 2030 Long-termManagement Plan “NITTOKU BX,” which we formulated in
2020, presented eight ESG-related tasks to be tackled as“priority issues,” and one of them was “Responding toclimate change.” We set a goal of cutting CO2 emissions
by 30% by FY2030 compared to FY2018 levels, and are
now pursing initiatives to meet that goal. In July 2020,
meanwhile, we endorsed the recommendations of the Task
Force on Climate-related Financial Disclosures (TCFD), andare disclosing information about the risks and opportunities
that climate change is creating. We also formulated our
Eco Vision 2030, and began taking action to achieve it in
April 2021. Eco Vision 2030 shows the vision (or goal) of
what we want to be by 2030 and the vision of what we will
pursue until 2040 as we aim for our ultimate goal of carbon
neutrality in 2050.
We are not positioning this series of initiatives as
merely environmental activities. Rather, they constitute a
component of our corporate management, and we intend
to pursue them steadfastly so that we can contribute tosolving social challenges through our business operations.

In conjunction with the introduction of the in-housecompany system in April 2021, we launched theSustainability Promotion Dept. It is even closer to corporate
management than its previous incarnation was, and we arepositioning it as an organization for promoting sustainability
as part of the company-wide strategies while maintaining
links with personnel, financial, and management strategies.
The Sustainability Promotion Dept. has started byinitiating the SX (Sustainability Transformation) Project andputting together a framework that includes, among otherthings, an internal carbon pricing system.
With the introduction of internal carbon pricing, thevolume of CO2 being emitted by each internal company
and the impacts of those emissions are made visible in theform of a monetary amount, which serves as an indicatorthat can be used when making decisions concerning
decarbonization-related capital expenditures and resource
allocations. Ultimately, we plan to further improve ourinternal carbon pricing as part of our efforts to abate Scope
3 emissions.
Until now, even when certain departments have called
for “reductions in the CO2 emissions of the Group as awhole,” each business entity has tended to take the issue
as irrelevant. But in the wake of the government’s
declaration, awareness of activities for tacklingenvironmental issues has heightened. There is a culture
within our company whereby everyone, right down to thelevel of individual employees, takes proper action once
internal rules are set, as exemplified by the internal carbon
pricing. And although being certified by external bodies is
not the goal, we intend to go deep by taking multiple
actions to the point that we are worthy of receiving suchcertifications.
Establishment of carbon
pricing business coefficient, etc.
Consideration of taxation schemes,
maximum investment amount,and monetary rewards

The sustainability concept provides a variety a hints
when coming up with business ideas.
For example, one of these is Carbon Neutral as a service(CNaaS), which refers to services for a recycling-basedsociety that employs hydrogen, the realization of which is oneof our new corporate goals. CNaaS involves the generationof energy through the utilization of a technology called“methanation,” which is the synthesis of methane fromhydrogen and CO2. Because the bulk of Japan’s energy is
produced from fossil fuels, the generation of energy fromhydrogen and CO2 should make a big contribution to therealization of carbon neutrality. The idea for CNaaS originally
emerged out of the concept of sustainability.
If every one of our employees is willing to share their
wisdom, various other ideas are certain to be generated.
Recently, it’s become possible to make statements via social
media, and we intend to take advantage of such media, whileskillfully following new ideas and turning them into actual
businesses.

We demonstrate leadership in working to reduce CO2
emissions along our entire supply chain. For example, wedemand that suppliers set targets for cutting CO2 emissions
and take action to achieve them.

Production of value
chain map
Environmental
fundsInternal environmental
financial indicators
Environmental businessassessment standards

Revision of value chain map
and formulation of vision
Activities to tackle Scope 3 emissions

Revision ofcarbonpricing

Regarding the question of how we can contribute toresolving the issue of climate change, we believe that thefirst thing we must do is reduce the absolute amount of our
CO2 emissions. As such, from this fiscal year we haveswitched from controlling per-unit emissions to controlling
absolute emissions, and as mentioned earlier, we havebeen working on the reduction by setting targets of cutting
CO2 emissions by 30% compared to FY2018 levels by
FY2030, and achieving net zero in 2050.
We also view the provision of more eco-friendly
products as another important task.
For example, our precious metal type spark plugs,
which are our showpiece eco-friendly products, enable fuelefficiency to be improved by 2% when they are used toreplace conventional nickel type plugs. Recently, electricvehicles (EV) have tended to attract the most attention, but
it isn’t the case that all automobiles can be replaced
immediately. There are said to be over a billion automobiles
with internal combustion engines (ICEs) on the world’s
roads at present, and if, during the period of transition toEVs, our highly-fuel-efficient plugs can be installed in large
numbers of ICE vehicles, this will result in a huge reduction
in CO2 emissions. This would also constitute a great
contribution to the earth’s environment, so we want to get
our plugs into more automobiles around the world.
And looking ahead to the supply of new forms ofenergy, we have been pursing R&D related to fuel cells forabout 20 years. We have been developing powergeneration devices that employ the same ceramics and thesame principles seen in the exhaust gas oxygen sensors
we have manufactured for so many years. We are poolingthe wisdom of the companies in the Morimura Group, andhave finally put together a structure to market the devices
as a new business, part of which will be launched during
this fiscal year. Hydrogen, which is a clean form of energy,
can be used as fuel, and the only by-product fromcombustion is water. It is suited to the concept of smallscale “local production for local consumption,” which willbe the dominant mode of electricity going forward, and cancontribute to the establishment of a future hydrogen-basedsociety. We hope that it will grow to become a truly ecofriendly, decarbonization-oriented business.

Ensuring effectiveness even under the in-house company system
We sometimes use the terms centrifugal force andcentripetal force to explain things. The former refers to eachorganization being proactive in dealing with the outside
world, while the latter is about bringing us all together as
one company. Of the two, until now we have probably been
weaker in terms of centrifugal force, so in recent years
we’ve been working to bolster that. At the same time,
though, we must also ensure that our centripetal force,
which is represented by the human resources side andcore parts of the company such as governance, functions
properly. Striking a balance between these two forces is ofgreat importance.
With the in-house company system, for example,
organizations are divided up, and authority is delegated tothe company presidents, who are left to administer theirbusinesses as they see fit. This boosts the speed ofdecision making and execution, so can be said to be formof corporate restructuring that strengthens centrifugal force.
To effectively promote sustainability under such astructure, ensuring a balance between the centrifugal andcentripetal forces is vital, and both a short-term viewpoint
and long-term sustainability are required. Frameworks suchas internal carbon pricing, meanwhile, can be said to begood mechanisms for achieving a long-term/short-termbalance.
And as for the remuneration of senior managers,
including corporate officers, we have introduced a systemthat reflects the degree of goal attainment in order toincrease motivation to take action. This is another of theways we are making measures more effective.

Also applying a sustainability viewpoint to new businesses
Positioning “sustainability” at the foundation of all our overall
administration is vital for the long-term development of ourbusiness. We believe that we are able to pursue new
business pillars precisely because of that foundation.

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Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

2030 Long-term Management Plan “NITTOKU BX”

NGK SPARK PLUG’s Sustainability

Promoting heightened awareness of ESG

Matching activities like this are already being
conducted by some internal companies, where personnel
are being assigned to areas that suit their skills andstrongpoints. There are also other initiatives in progress,
such as putting together teams after considering the
combination of attributes of the members and utilizing
external personnel to complement the attributes of internal
personnel. Going forward, we intend to roll out suchactivities, which have begun in parts of the company,
across the entire company.

The Sustainability Promotion Dept. publishes a weeklyinternal e-mail newsletter. It now features articles onsuch themes as marine plastics and gender, andexplains the latest buzzwords in an easy-to-understandmanner. Thanks to improvements like this, its readershiphas doubled.
We also provide various programs of online
sustainability education and training, with each program
geared specifically to a different level of personnel, e.g.
senior managers, middle managers, and rank-and-file staff.
The training for regular staff includes presentations featuring
videos from foreign staff members who are pursuingenvironmental activities overseas, and the program hasearned high marks from participants, whose level ofunderstanding has improved dramatically as a result of the
training. Thanks to such internal initiatives, the awarenessof sustainability of each employee seems to haveincreased. There is no set goal for such initiatives, but I feelthat there’s been a massive improvement compared to ayear ago.
Among staff, it seems that those in their 20s and 30s
are highly conscious of the importance of contributing tosociety in general, and they tend to see it as somethingthat is relevant to them. Another characteristic of thisyounger generation is that they have clear ideas about
workstyles that suit them and work that they want to do. If
their high degree of social awareness spreads naturally,
and the corporate culture and levels of motivation startmoving in the right direction, the result could be an upturnin business and higher profits. We’re hoping to see a
virtuous cycle like that.

In FY2020, NGK SPARK PLUG has formulated the 2030 Long-term Management Plan “NITTOKU BX,” deeming 2030
as a milestone year for the growth of the company over the next two decades. We, as a company, work together toachieve 2040 Vision.
2040
VisionC h a n g e d r a s t i c a l l y b e y o n d t h e c u r re n t w a yContinuing with work style reforms to create new value
The spread of COVID-19 has had a major impact in various
areas of society. We have been reminded that our economy
and society is built on the assumption that it is natural for
people to live normal, everyday lives.
With there still being no end to the COVID-19
pandemic in sight, we too have asked our employees towork from home or other remote locations. But even
before the outbreak, we had already introduced thesemodes of working as part of our work style reforms. We
faced a tough battle in getting them to take root, but lastyear we needed to rapidly halt the spread of COVID-19,
and because of that, these working modes suddenly
proliferated and became popular, especially among
employees from administrative departments.
The concept of “work style reforms” that we had
initially been promoting was not limited to working fromhome. Rather, the basic principle was to “allow employees
to work where they can do so most efficiently andcomfortably.” That should improve operational efficiency,
and lead to an increase in employees’ free time. In the
future, we’d like to enable them to use this time to work asideline.
As we become a super-aged society, the working
population of Japan will gradually decline, so in addition toassigning personnel after considering the individual
attributes of each employee, we will also endeavor to
improve their productivity and work-life balance. I am
confident that doing so will make us more sustainable, andalso lead to technologies, products, and businesses that
help address social challenges.

Allocating personnel in a way that enables
employees to leverage their attributes
As we endeavor to develop global human resources, weare taking a fresh look at what sort of personnel should be
assigned where, what skills those employees should
possess, and how they can best be utilized. And thiscovers all employees, both in Japan and overseas.
This is because identifying the diversity, individuality,and potential of each employee will also lead to the growthof both the individual and the company.
Employees each have their own strong areas andweak areas, and the work they’re currently engaged in may
not actually match their attributes. Also, everyone hassomething that they want to do more than anything else, ora field that they are interested in and hope to experience. It
might be difficult to enable every employee to work where
they want and in the job they want, but in the case of new
businesses/operations in particular, I think that we should
do our utmost to assign personnel who are highly
motivated to perform the task concerned. This is good
both for the individual themselves and for the company,
and should allow the organization to function well.

Beyond ceramics, eXceeding imagination
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 “Whatceramics can do.” We aim to meet the challenge of going “beyond ceramics” and “exceeding the imagination” ofsociety and ourselves, thereby changing “drastically beyond the current way” in 2040. We have created the 2030 Longterm Management Plan “NITTOKU BX” by backcasting from the 2040 Vision. We regard 2030 as a milestone year toensure we are on the right path heading into 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 was 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.

Shisei-Shinjitsu⇒ P.41

Dokuritsu-Jiei

Shikai-Keitei

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Soshi-KantetsuOur BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

2030 Long-term Management Plan “NITTOKU BX”

2030 Long-term Management Plan “NITTOKU BX”

Strategy
Millions of units

Millions of units

140

Changes in the external business environment
According to these graphs, which forecast the sales volume of
new automobiles and the numbers of automobiles owned bypeople around the world, the number of those equipped withinternal combustion engines will continue to increase until around2030. However, in the middle of the 2030s, the number will peak
and begin to go down. We therefore need to shift to a businessstructure that does not rely on the sales of products used ininternal combustion engines by the middle of the 2030s.

2,500

120

2,000

100
80

1,500

60

1,000

40

500

20
0
2015 2020 2025 2030 2035 2040 2045 2050

02015 2020 2025 2030 2035 2040 2045 2050

Worldwide sales of new automobiles

Number of automobiles owned by people around the world

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■ FCEV ■ BEV ■ Diesel ■ PHEV ■ FHEV ■ MHEV ■ Spark Ignition ICE

Transformation of the business portfolio
NGK SPARK PLUG is currently doing business with a focus oninternal combustion engines (ICE), but in the future, we need to be
involved in more than ICE business and embrace the challenge ofstarting new businesses to transform our business structure.
Specifically, as the 2040 targets, we aim to decrease the proportionof ICE business in our total sales revenue from the current 80% to
40% while raising that of non-ICE business from the current 20%
to 60%, thereby transforming our business portfolio. To achievethese targets, we will decrease the ratio to 60% and increase theratio to 40 % for ICE business and non-ICE business, respectively,
as milestone targets for 2030 under the 2030 Long-termManagement Plan “NITTOKU BX.”

Sales revenue composition

750.0 billion yen■ Non-ICE business(Forecast)60%

426.2 billion yen

40%

20%
80%
2020

(when preparing Long-term Management Plan)

60%

40%

■ ICE business

2040

2030

(Year)As the mainstay of the Long-term Management Plan, we will foster “business portfolio transformation.” As for ICErelated business, we will be able to expand revenue and operating income until 2030 in line with an increase in thenumber of ICE-equipped automobiles. However, in anticipation of the business environment in 2040, we need topursue rationalization, higher efficiency and selection and concentration. As part of this initiative, we have shifted to
an in-house company system in April 2021, while some departments were spun off. With more clarification of
responsibilities and authorities, we will transform ourselves with speed. In new businesses, we aim to achieve abusiness value of 200 billion yen by 2030, working to achieve growth in each area in terms of sales and profitability.
We aim 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 gainedin that business for the growth businesses and achieve a profit growth rate that is higher than the market growth rate
for the businesses. For new businesses, we will strictly screen the business themes to be continued, thereby
revitalizing the new businesses. In order to promote this kind of business portfolio transformation, it is essential toachieve the following three aims: management innovation, clarification of responsibilities and authority, and willful
cultural change. We will break our dependence on ICE-related business based on this recognition.
Sales revenue composition■

ICE business■

Growth business■New business

Secure profit while transforming the business portfolio

1%

Guiding principle

10%

17%

In our Long-term management plan, we have upheld “Changewith Will !!” as the guiding principle, meaning “with a strong
commitment (‘Will’), we will foster ‘Change’ for coexistence withsociety and people”. We aim to reform our organizations andbusiness structure with speed to make our company one thatcan coexist with stakeholders from a global perspective.

30%

FY2019FY2029(Forecast)

82%

ICE
business

Super efficiency and cash generation

Growthbusiness

Drastic development exceeding the market growth rateNewbusiness

Selecting and choosing theme and commercializing cutting-edge themes

60%

Business fields to focus on
We are focused on both existing and new businesses in four fields: Environment & Energy, Mobility, Medical, and Communication. Our corecompetence 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.

To an energy efficient and environmentally-friendly society

To a mobile society that is fun and convenient

Specific measures

1

Management target

Using sensing technology to improve industrial efficiency

Providing maintenance services according to

Small, strong and agile head office to support business portfolio transformation

Stable supply of regenerated energy

your lifestyle

Quick management decisions supported by DX

Environment& Energy

Mobility

Improving electricity using ceramiccomponents
Providing MaaS (Mobility as a Service) to fit
special needsCore
Competence*
To bring advanced medical care topeople all over the world

MedicalCommunication

Apply ceramic materials to artificial bone

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.
In line with the guiding principle, Change with Will !! whichshould be followed by all employees, we will achieve Beyond
ceramics, eXceeding imagination to be reborn as a new NGKSPARK PLUG Group.
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.

Management Innovation

2 Clarification of Responsibilities and Authority
Strong authority and strict responsibilities to promote portfolio transformation

A high-speed communication society
where virtual and reality are connected
Provide infrastructure parts to support high-speed communication

Non-invasive diagnosis and treatment,
and provision of preventive equipment
and services using ultrasound technology

Operating income ratio

Build an optimized structure and system for each business

3

ROE

Willful Cultural Change
ROIC

Undertake culture reform and strengthen the Group’s abilities*Ceramic material technology, application technology in harsh environments, disparate material bonding technology, sensing technology, rapid high-temperature heating technology, and global production and sales system

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15
12
10

% or more (FY2020: 11.1%)% or more (FY2020: 9.1%)% or more (FY2020: 5.5%)

Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

Risks/Opportunities and Materiality
We are committed to contributing to the realization of a sustainable society, thereby aiming to increase ourcorporate value. Amid the industrial environment around us marking a tipping point, we first need to accurately
understand the risks which affect our sustainable growth as well as opportunities, and then define priority issues(materiality) to be addressed by the Group in reference to ESG (Environmental, Social, and Governance) factors andset appropriate goals from medium- to long-term perspectives.

Taking the above-stated steps, we have identified eight priority issues for each ESG area after taking risks andopportunities into consideration, and various initiatives aimed at realizing a sustainable society have been set inassociation 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 the changes in the business environment, stakeholders’expectations and activity conditions.

Responses to risks and opportunities

Risks and opportunities related to businesses
Decline in the number of internal combustion engine vehicles

G l o b a l e n v i ro n m e n t a l i s s u e s

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 ofceramic components, and offer MaaS to meet specific needs

Effective use of renewable energy

Opportunity

Store renewable electricity and energy

Distributed power sources, and local production and consumption of energy

Opportunity

Develop devices for distributed power supply

Efficient use of CO2 for a decarbonized society

Opportunity

Develop methanation and carbon recycling solutions

Communication

Expanding demand for semiconductors due to the enhanced communication performance

Opportunity

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

Medical treatment
and healthcare

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

Opportunity

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

Expansion of the sensing field

Opportunity

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

Mobility

Climate change

Change in people’s preferences regarding transportation means and consumption

Decarbonized society
Environmental destruction

EnergyInternational issues
Protectionism
Emerging economies

Sensing

Disparities in society
Human rights

Environment

Establishment of a society where
economic development and resolutionof social issues are compatible
Robots, automation, labor saving

Society

Artificial intelligence (AI)Sensing IoTNanotechnology
Biotechnology
Aging society with a decreasing
birthrate/Population explosion
Diversity
Pandemic

Optimize production and increase competitiveness to expand market share

Risk

Risk

Earthquakes
Work-life balance

Develop and commercialize fuel cell batteries and solid-state batteries

Declare carbon neutrality and introduce environmental technologies
energyIntroduce energy-saving equipment and renewable

Reduction of greenhouse gas emissions

Risk

Stricter regulations on hazardous chemicals

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

Identify the impact of our business and implement measures

Stable procurement of raw materials

Risk

Promote multi-sourcing and reinforce alliance with suppliers

High-quality products and services

Risk

Opportunity

Adhere to the “producing quality products,” and build and develop an even stronger quality management system

Diversification of management personnel

Risk

Opportunity

Diversify management experience and skills in response to changes in the management environment
percentage of outside directors, female directors and foreign national directors

Opportunity

Foster DX

Speedier business decisions

Governance

Develop SOECs and solid-state batteries

Opportunity

Replace hazardous chemicals used in products with alternatives and spread the use of lead-free piezoelectric materials
Reduce water use at high-risk bases

Increase the

Foster digitization and visualization in plants and offices and in logistics, accounting and human resources

Implementation of compliance

Risk

Provide compliance education for officers and employees and establish Corporate Ethics Helpline

Measures for information security

Risk

Strengthen the CSIRT and the incident response organization and foster awareness-raising activities

Earthquakes and disasters caused by climate change

Risk

Make a BCP and enhance the supply chain

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Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

Risks/Opportunities and Materiality

Steps to define priority issues

Priority issues

1

STEP

Responding to climate

Environment

Identify issues
Identify social requirements (issues) in reference
to the United Nations Global Compact, SDGs,
ISO 26000, GRI Standards, ESG surveys,
industry guidelines and other companies’
benchmarks.

changeProvidingenvironmentallyfriendly products

Major Initiatives

Reduction of CO2
emissions
Dissemination andexpansion ofenvironmentally friendly
products
Development of fuelcells

Goals and Outputs

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

Progress in FY2020

Reduced by 12% (249,700 tons)

Sales ratio of precious metal plugs: at least 50%

41%

Sales ratio of wide range oxygen sensors: at least 50%

37%

Dissemination of high-efficiency distributed power supply

Started mass production of SOFC cell stacks for

systems with an eye on the use of CO2-free hydrogen fuelcommercial and industrial use

Promoting substitution for lead-based piezoelectricContinued to introduce and propose lead-freematerials

piezoelectric materials

Development of2

technologies, products,

STEP

and businesses

Analyze and prioritize issues

contributing to theDevelopment of leadfree piezoelectricmaterials

resolution of social issues
Development of sensing
IoT businessSociety

Conduct materiality assessment for stakeholders
in reference to international guidelines and ESG
surveys used in Step 1, and for our company inconsideration of past activities and future
management plans, and create an assessment
results map.

Global human resources

Recruitment of female,foreign national and midcareer employees

Improving operational efficiency through automation,
optimization and generalization

Percentage of female/foreign national/mid-career
employees in managerial posts: at least 25%

Completed the development of the water quality
sensing system and preparing a showroom for sales
promotion

14.5%

management
Development of new
personnel system

3

STEP

Select priority issues
Using the map made in Step 2, select higher
materiality items as priority issues, with approvalby the CSR and Sustainability Committee, which
includes outside directors as members.

Corporate governance

Increasing thepercentage of female
and foreign national
directors
Increasing thepercentage of outside
directors

Improved results of employee satisfaction surveys

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

Satisfaction level: 46% (response rate: 88%)

18% (2 out of 11 directors)

Percentage of outside directors: at least one-third

36% (4 out of 11 directors)

Establishing a risk management system that contributes to

Identified key risks on a risk map and promoted

management decision making

countermeasures

Conducting compliance questionnaire surveys andConducting compliance questionnaire surveys indisclosing the results

FY2021High

GovernanceImportance to stakeholders
MediumPriority
issuesImportance to our company

Risk management

Management of signs ofserious incidents andprevention of theiroccurrence

Compliance

Awareness surveys andcontinuous education for
officers and employees

Information security

Maintenance and enhancementof the incident responseorganization and establishmentof a prevention system

Establishing an information security management
systemObtained the TISAX certificationHigh

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Contribution to SDGs

Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

Looking back on the Years under the Medium-term Management PlanIn FY2021, we formulated a new four-year Medium-term Management Plan ending in FY2024. In the following, we
will look back on the achievements and challenges over the five years of the seventh Medium-term Management
Plan, which concluded in FY2020.

Previous Medium-term Management Plan (from FY2016 to FY2020)
Net sales (revenue), operating income and operating income ratio (FY2016 to FY2020)
372,919

IFRS

16.4

14.4

10.9

13.7
67,27953,595
2016

58,3852017■ Net sales (revenue) (millions of yen) ■ Operating income (millions of yen)

427,546426,207425,013409,9122018

11.1
47,38946,4442019

2020(Fiscal year)

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

SloganBasic framework
Delivering “Real Value” to all stakeholders in FY2020

1
2016

2017

FY

Achievements

ESG
initiatives

FY

Significantly increased sales of both plugs
and sensors and boosted profit bystreamlining production and reducing thecost (but profit decreased year on year due
to strong yen). Made progress with thestructural reform of the semiconductorbusiness, through “selection andconcentration” of products and streamlining
including personnel reduction, thereby
greatly increasing revenue year on year.
Launched new organizations and programswith a focus on human resources, to solidify
the management foundation.
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
OfficeFormulated the “Global Eco Vision
2020”

Remainingissues2018

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 a core issue identified in the three-year
Evolving stage, and began conducting
tests for the system in Europe.

Established the Nomination andRemuneration Committees
Introduced the performance-linked
stock remuneration system
Turned overseas bases into regional
headquarters (RHQ)
Selected as a DJSI Asia Pacific Index
component for the first time
Certified as “Bronze Class” at the
RobecoSAM Sustainability Award 2017
Certified as one of the Excellent Enterprises of Healthand 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 acooperation agreement to assist
people who need special medical carefor home oxygen therapy
Certified as one of the Excellent
Enterprises of Health and Productivity
Management 2019 (“White 500”)

Establishing strong
business infrastructure

2020

FY

FY

Due to COVID-19, the automobile industry, along withothers, faced economic stagnation on a global basis.
Despite this, NGK SPARK PLUG promoted sales of highvalue-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, weachieved the target of recording profit on a yearly basis
for FY2019, which we set in the seventh medium-term
management plan. As for new business development,
we established a new company for solid oxide fuel cells.

Although the global economic stagnation caused by the spread of COVID-19 had an
impact on our sales, the situation recovered in the second quarter and thereafter. As aresult, for the full year, revenue was almost at the same level as the previous year. On
the other hand, although we have continued to implement cost reduction measures,operating income decreased slightly from the previous fiscal year due to changes in theexternal environment, such as the strong yen, increased transportation costs, and therapid rise in the prices of precious metals.

Published the Sustainability Data Book

Selected as a constituent stock of the SOMPO Sustainability Index

Certified as BRONZE CLASS in the Overall Category

Endorsed the recommendations of the Task Force on Climate-related Financial

and as SILVER CLASS in the Industries Category

Disclosures (TCFD)(Glass and Ceramics Products) at the SUSTAINA ESG

Published the Sustainability Data Book

AWARDS 2019

Granted Kurumin Certification

Certified as one of the Excellent Enterprises of HealthReceived an overall rating of 4 starts in the fourth NIKKEI Smart Work Management

and Productivity Management 2020 (“White 500”)

SurveyReceived an overall rating of 4 starts in the second NIKKEI SDGs Management Survey
Selected as a DJSI Asia Pacific Index component for the fourth consecutive year
Obtained certification as a company promoting work-life balance in Nagoya City

Response to contraction in the use of internal combustion engines and movement toward EVs and electrification: We are

Enrichment of corporate governance: While measuresconducting examinations about products for EVs in cooperation with external partners, though demand for ICE engines is still

were taken to ensure compliance with the revised

growing.

Corporate Governance Code, there remain issues

Development of new businesses: We have sown seeds, which now have to be grown.

regarding the implementation of rules at the global

Fair corporate culture that allows for diverse individuals to reach their potential: While the number of female managers increased

headquarters (GHQ) and the overseas regional

and a foreign national was appointed to the position of corporate officer in the Evolving phase, the rates should be further

headquarters (RHQ).

increased, and it will take more time for the establishment of such a corporate culture.

3

Strengthening
current businesses

2019

FY

Successfully implemented the strategy for the
Chinese market, as upheld in the seventh
Medium-term Management Plan, thereby
expanding sales and profit. Increased
operating income by improved productivity
through streamlining and cost reduction. In
the structural reform of the semiconductorbusiness, completed the consolidation of
production bases for higher productivity. Also
improved the product mix by expanding theshipment of packages for image sensors. For
speedier decision making, fostered the
GHQ-RHQ plan and localization.

2

Establishing new
business pillars

Establishing new business pillars: Although we planted the seeds such as the acquisition of CAIRE in the
medical business and the establishment of two Group companies in the fuelcell business, we were unable to show a vision for growth in new markets,partly because we concentrated our investments in existing businesses.
Strengthening current businesses: We expanded our share of the spark plug market, especially in the
Chinese market, which was a key market for us. We also captured theincrease in demand due to stricter exhaust gas regulations, thereby
establishing the top position in the global market for exhaust gas sensors.
Strengthening business infrastructure: We have tried to speed up management decision-making bypromoting localization through the introduction of regional
headquarters (RHQ) as well as the introduction of a corporate officer
system. However, we have not been able to establish the business
infrastructure strong enough to transform our business portfolio andto penetrate ROIC management that leads to the evaluation of the
return on investment of businesses and subsequent decision-making.

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Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

New Medium-term Management Plan
In our New Medium-term Management Plan, we will work on zero-based reforms to achieve our 2040 Vision and the2030 Long-term Management Plan “NITTOKU BX,” which will be the milestone for the vision. Here we explain theoverview of our New Medium-term Management Plan.

Set and implement sustainable business operation goals.
The modern society in which we live is faced with global environmental changes represented by climate change and increasingly
complex social issues. These issues are expected to become more complex in the future. In the 2030 Long-term Management Plan

VisionAchieving change beyond the current way

Specific target

Each company ensures its competitive advantage and practice Dokuritsu-Jiei
Transform business portfolio“NITTOKU BX,” we have incorporated responding to climate change as one of our priority issues. In addition, we aim to reducegreenhouse gas emissions from all of our businesses to virtually zero by 2050, thereby helping to realize a decarbonized society.

Run on two wheels while current and new businesses operate independently

PolicyIntroduce individual systems and performance-based compensation systems that match the business environment

Promote investment in non-ICE business and PF conversion of human resources
Achieve accelerated business growth

Measures

Further strengthen earning power through ROIC management
Maximize the cash-generating capacity of the plug and sensor businesses

Break down the barriers of conventional thinking with NITTOKU DX

Value creation

Transform all aspects of Nittoku culture, including management decisions, business domains, work styles, and corporate climate

Improve business activities and start new businesses to realize asustainable recycling society

Contribution tosociety to beaccomplished

Set and implement sustainable business operation goals

Key Initiatives
To achieve the business portfolio transformation, we will maximize cash generation in current businesses andproactively allocate management resources optimally to growth and new businesses.

Business Strategy

Environment and energy field: Carbon neutrality through the use of hydrogen

Cross-company operations

Current
businesses

Determine an appropriate business scale
and maximize cash generation throughultra-efficiency

Growthbusinesses

Achieve business growth that exceeds theNewbusinesses

Realize new businesses pillars and shorten

An example of our goals

Vision: Carbon Neutral as a service

Invest in non-ICE business
Promote transformation of human resources portfolio
Strengthen earning power through ROIC management

We are developing SOFCs and SOECs based on ceramic solid electrolytes.
In the future, we will aim to provide solutions to reduce CO2 emissions using SOFC as a distributed power source and hydrogenproduction from renewable energy sources using SOEC.

market growth rate

the business creation cycle

Performance Goals
We aim to achieve revenue of 600

FY2020

FY2024…FY2029

billion yen and operating income

Revenue (billions of yen)

427.5

600.0

750.0

of 100 billion yen in the fiscal year

Operating income (billions of yen)

47.4

100.0

—

ending March 31, 2025, the final

Sales composition
ICE: Non-ICE

79%:21%

75%:25%60%:40%year of our 2025 Medium-term

Operating income ratio

11.1%

17%

15% or moreManagement Plan.

ROIC

5.5%

10%*

10% or more

ROE

9.1%

13%*

12% or more

* Calculated based on the current business plan (excluding additional M&A during the medium-term plan period)* Currently working with Mitsubishi Power, Ltd. on SOFCNGK SPARK PLUG CO., LTD. Integrated Report 2021

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42

Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

New Medium-term Management Plan

Business continuity/withdrawal examination flow

Specific efforts
Efforts to improve
capital efficiency

Efforts to transformthe business portfolio

Cash flow planning

Shareholder return
policyThe Finance Officer Outlines the Financial Strategy

P.45

Business strategy
Business Strategy

P.47

We newly established the Business Transformation Division in order to judge as to whether to continue or withdraw from an unprofitable business.
The Business Transformation Division formulates and implements plans for the “business revitalization” of an unprofitable business or “withdrawal
or business sale, etc.” In the event that a company comes under the organization of the Business Transformation Division, a revitalization plan will
be formulated under the new company manager. Simultaneously, the Business Transformation Division formulates another revitalization planunder different point of view. Finally, the Global Strategy Headquarters assesses them in respect of probability, thereby enabling us to implement
the best business strategy from multiple perspectives. The Board of Directors, Business Transformation Division and Global Strategy
Headquarters have all been strengthened with outside human resources to establish a system that enables a rational decision-making.

Efforts to improve capital efficiency

Target ofMedium-term plan10%

Operating

ROIC
improvement drivers

Key initiatives for
improvement

Cost of sales
ratioMarket share increase inhigh value-added products
Improvement of equipment
and labor productivity

income ratio
SGA ratio

Cost reduction in indirect
departments

ROIC

Revenue

Return on invested

Working capitalturnover (%)

capital (%)

Focus points during the period of the Medium-term Management Plan

Reduction of inventories by
optimizing the supply chain

Fixed asset
turnover (%)

Reduction of fixed assets
in the ICE businessMessage from the President

DomainDivisions

Business Partner (BP) / Company

Business department

Business company/spin-off

Planning of company-wide strategies

Plan A

Business Company

Formulation of business plan
Plan B

Business

Continuous
monitoring interms of bothquantitative andqualitative
aspects

Reconstruction plan by M&A

Transformation Division

Study of business sale, internal
restructuring and withdrawal

Management audit of business plan

Business Partner (BP) / Company aims at providing high-value-added services that are market-competitive in order to contribute toenhancement of the business companies’ profitability. By introducing the in-house company system, we were able to visualize the costsof each organization and its contribution to the business, which have been difficult to come to surface. Also, the services will not be
evaluated based on internal standards, and will be compared with those of market. By grasping the service levels of other companies
and identifying areas for improvement, we will improve the quality of our services step by step, and at the same time, we will expedite
cost reduction by separating services with high added value from those that should pursue higher efficiency.

Business Partner (BP) / Company Aims

Enhancement of global governance

Promotion of business portfolio transformation through optimal allocation of management resources

Business withdrawal/continuity governanceContribution to the maximization of company-wide earning capacity

Cost reduction through efficiency improvement

Advancement of the services provided

Improvement of company-wide earning capacity contributed by Business Partners (BP) / Companies

P.44

Improvement of the ability to adapt to changes by introducing systems and structure tailored to each market environment. Achievement of KPI and KGI at each company

Providing market-competitive, high-value-added services
Implementation process

Procurement / Accounting / Human Resources / Labor / IT / Public Relations / General Affairs / Intellectual Property Management / Quality Control / Environmental Safety

Business portfolio management
Investment efficiency

We will strengthen business portfolio
management by setting hurdle rates foreach business segment. Assessing thebusinesses using the two axes of growthpotential and investment efficiency, we
determine the future direction. KGI and KPI
are set for each company after defining
expected roles based on rating inaccordance with each company’s positionin the market.

Business plan formulation and evaluation

P.9

Roles

Business support department

Examining businessdirection

Improvement of company-wide profitability by introducing Business Partners (BP) system

New organizations from April 2021
Global Strategy Headquarters

Decision and rating to join theBusiness Transformation Division
Appointment of new company manager

Board of Directors

Headquarters

As part of our initiatives to transform the business portfolio, we introduced an in-house company system in April 2021. We haveintroduced this system not only for business departments but also for functions at headquarters. The organization that used to be a partof the headquarters or functional headquarters has been reorganized into the Global Strategic Headquarters and Business Partner /Company, and a small number of strategic staff are assigned to the Global Strategy Headquarters. The organizational structure isdesigned to position each business and function as an independent pseudo-company. Through this organizational change, eachcompany receives internal capital allocated by the headquarters, and will be responsible not only for PL, but also for BS and CF, thereby
clarifying responsibility for return on investment as well as a decision to invest. In addition, the responsibilities and authorities, whichwere ambiguous in the past under the division system, will be clearly defined by for example optimizing the structure and rules to matchthe standards of the industry to which each company belongs. The Global Strategic Headquarters will promote global groupmanagement and accelerate the maximization of the business value according to its business position under the policy of Dokuritsu-Jiei.

Corporate division

Business plan decision

Global Strategy

Introduction of an in-house company system

Corporate

Monitoring target

Review of unprofitable businesses by
setting rules for business withdrawal

Efforts to transform the business portfolio

Traditional organization

Unprofitable businesses

Judgment of business withdrawal/continuation

Regarding the ROIC management that was not fully in placethroughout the Group during the period of the previous
Medium-term Management Plan, we have identified priority
measures that should be undertaken to improve theinvestment efficiency. We will achieve 10% ROIC by
subdividing the challenges and responsibilities that must be
undertaken at individual business and monitoring KPIs. We
will continue to work on increasing our market share in highvalue-added products, improving equipment and laborproductivity as well as reducing fixed assets in the internal
combustion engine business over the medium to long term.
In particular, during the period of the medium-term
management plan, we will focus on the following priority
measures: Cost reduction in indirect departments, review of
unprofitable businesses by setting rules for businesswithdrawal, and reduction of inventories by optimizing the
supply chain.

Disclosure segments

Generation of
FCF

Revenue expansion
Achieve higher profitability(Investment minimization)(Enhanced Investment)

Withdrawal
Revenuestructure reform

Revenue expansion(Ascertainment of
future direction)

ICE
business

Automotive
components

GrowthCeramics
businesses

FY2021

Medium- to long-term direction
Enhance cash generation and aim foreven higher profits
Build a profitable structure that isresilient to changes in the external
environment and expand sales
Business scale growth exceeding themarket growth rate and improvementof profitability

Improvement ofexpertise

Growth potential

Business continuity/withdrawal examination flow

NewNewbusinesses businesses

Discover new businesses that will be
the pillars of new businesses andbuild scenarios for commercialization

Cost reduction

FY2022

FY2023

FY2024

Grasp

ChangeImprovement

Expansion

Understanding the current situation

Business improvement

Improving the quality of service

Expansion of range

Recognize the current situation ofyour department, comparing withthe service level of other companies
and make improvements

Improve professional skills byStart preparing for external sales

Achieving both maximization of

educating employees

Improve professional skills by

operational efficiency andeducating employees

improvement of quality

Raise BP’s awareness of being a

Identify problems and implement

Continuation of businessprofit center by watching its own

countermeasures

evaluation and improvement

Consideration and implementation of drastic
measures in the event that service improvement
and cost reduction cannot be achieved during
the medium-term management plan period

income statement

P.44

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Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

New Medium-term Management Plan

The Finance Officer Outlines the Financial Strategy

Introducing the in-house company systemahead of the transformation of the businessportfolio to boost the value of our businesses
Member of the Board, Executive Officer
Business Management and Financial Strategy

Kenji IsobeFY2020 performance on a par with the previous year’s

one for each of the internal companies. After putting
together an ROIC tree for each internal company, we broke
down ROIC into its constituent indicators and also
determined targets for those. We have also established
KPIs. Through this mechanism, we will ensure that action is
also taken on the frontlines so that ROIC becomes firmly
entrenched.

From the beginning of FY2020, COVID-19 started showing
signs of spreading all over the world, and we wereconcerned that our own business would also be heavily
impacted.
And sure enough, as the world economy ground to ahalt in the first quarter, we also saw a large drop in
earnings. Furthermore, a shortage of semiconductor chips
led to a reduction in output by automakers in the fourth
quarter. On the cost side, a global shortage of shipping
containers pushed up transportation costs, while raw
materials prices soared as a result of apparent speculative
moves.
Despite all that, the automotive components businesswitnessed a rapid recovery in demand from the second
quarter onwards, and with efforts to reduce expenses
bearing fruit, our earnings for the full fiscal year were on apar with the previous year’s.

Efforts to improve capital efficiency

P.43

Further raising the value of the Automotive Components
The switch to the in-house company system has two
primary aims. The first is to spin off small-scale current
businesses and new businesses from the Automotive
Components, which accounts for around 80 percent ofsales, and based on the spirit of Dokuritsu-Jiei (selfreliance), administer each of them in a way that suits the
position of the business. And the second is to pursue
further growth and greater efficiency through theindependent administration of the Automotive Components,
which already boasts high earning capacity.
Of course, a disadvantage of the in-house company
system is that we have to bear costs involved in
intracompany transactions. Conversely, however, byboosting investment efficiency, growing the business, andgenerating bigger profits, we are aiming to generateearnings that exceed the increase in costs.
The Automotive Components requires an especiallyhigh level of investment efficiency. In the auto industry, theshift to EVs is accelerating, which means that thebusinesses related to internal combustion engines (ICEs)
tend to be described as declining sectors, but we don’t
see things that way. Both our Long-term Management Planand Medium-term Management Plan position the
Automotive Components as a business that will continue toexpand in the future.
Furthermore, as the Automotive Components is a
cash-cow business for us, we demand the automotive
components related companies to set a target for cash
generation and produce cash efficiently using less invested
capital by, for example, reducing inventory and curtailingthe amount or enhancing the efficiency of capex. As such,
we will not allow ourselves to be spoiled by the highprofitability of this business. Rather, we will be aiming for aneven higher level of profit.

Although the Automotive Components performed
strongly, ROIC fellWith the aim of freeing ourselves from an overemphasis on
profit and loss, and switching to a business style thatstresses the efficiency with which invested capital isemployed, we have adopted ROIC as a management
control indicator.
Our seventh Medium-term Management Plan, which
covered the period from FY2016 to FY2020, set 13% as atarget for ROIC, but the actual figure in FY2020 ended up
at 6%. The impact of COVID-19 has obviously been afactor, but despite proclaiming a commitment to ROICoriented management, the news hasn’t really reached thefrontlines, and I think we’ve probably failed to achieve achange in attitudes in the true sense of the expression.
That’s something I’m reflecting on.
Another reason we failed to meet our target is that for
about the past five years, demand for automotive
components such as plugs and sensors has been
expanding at a faster pace than we anticipated, so wehave been placing priority on the Automotive Components
Group when investing for growth, and have also built up
inventory levels. As a result, invested capital has swelled,which has reduced ROIC.

Aiming for ROIC penetration under the in-house company system
However, we are still going to be emphasizing ROIC going
forward. The New Medium-term Management Plan, which
we began executing this fiscal year, calls for us to further
strengthen our earning power through ROIC-oriented
management, and sets a target for ROIC of 10%.
Besides this company-wide target, we have also set

Deliberations concerning growth investments by the Investment Committee
Alongside the switch to the in-house company system, we
have delegated authority to the presidents of the internal
companies, and have newly established the Investment
Committee. The previous incarnation, which existed until

last year, was chiefly a forum for deliberating on capital
expenditures, but the purpose of the new committee is tomaximize investment effectiveness by viewing investmentsfrom the viewpoints of both NGK SPARK PLUG as a whole
and the internal companies. As we execute our businessgrowth strategies, we will be making investments after
deliberating on investments as a whole, which means not
only capex, but also M&A and inventory accumulation.
The criteria for making investment decisions varydepending on whether decisions are related to current
businesses or new businesses. Decisions on newinvestment in current businesses are based on growthpotential and profitability, and compared with new businesspillars, the period for recouping the money invested is set
shorter.

is the cash allocation approach of our Medium-termManagement Plan.

Besides investment efficiency, environmental aspects also assessed

Investment for
further growth

While maintaining our financial soundness, we will be moving toward thetransformation of our business portfolio by allocating the cash generated
by the ICE business to investment in growth and new businesses.
Cash inflows

Cash outflows(Billions of yen)

M&A
Operatingcash flow

Investingcash flow

410.0

ROIC is an indicator of investment efficiency from an
economic perspective. Although we are publicly committed
to ROIC-oriented management, on a forward-looking basisthat will not be the only thing we should consider. We
believe that it will become necessary to incorporate thedegree of contribution to society in our investment decision
making, and this will encompass ESG factors.
To discharge our social responsibilities, for example,
we may invest in inventory to avert logistics risks or invest
in renewable energy to reduce CO2 emissions, even if suchinvestments lead to a lowering of ROIC. In this way, we aregoing to be viewing economic value and our obligation to
fulfill our social responsibilities as two sides of the same
coin as we make investment decisions.
Eco Vision 2030 presents targets of cutting CO2
emissions in 2030 by 30% compared with FY2018 levels
and achieving carbon neutrality by 2050. These targets arevery close to the roadmap published by the government.
However, as is the case with ROIC, simply stating targets israrely enough to get people taking action. So as amechanism for spurring people into action, we are planningto employ the in-house carbon pricing system.
During meetings of the Investment Committee, we aregoing to be checking not only the typical economic
calculations and investment efficiency of capital
expenditures, but also how much of a CO2 reduction canbe achieved as a result of the investment. And we will beusing the in-house carbon pricing system as an indicator ofthat.
We are also going to be employing business profit lesscarbon price when assessing each business.
Furthermore, we are thinking about producing
something like “environmental financial statements,” namely
an income statement and a balance sheet that show how
much we are contributing to CO2 emissions reduction.
Figuring out how to increase economic value, including
ROIC, is also important, but for a company to grow in asustainable fashion, it is crucial that it also consider how to
fulfill its responsibility to protect the environment and tackle
issues that society requires that it do so. So I hope that wewill be able to institute the in-house carbon pricing systemand disclose such information in environmental financial
statements.

New Growth

390.0

Borrowings, etc. 80.0

ICE

Shareholder return(dividend payout ratio: 40%)

100.0

If there are retained earnings due to cash not being
used in the manner described above or due to more cash
being generated than expected, we will return the cash toshareholders, and this could be by means of purchases oftreasury stock.
We have made a substantial change to our shareholder
return policy compared with FY2020. In the past, ourdeclared aim was “a dividend payout ratio of 30% or
more,” and we also promised to keep dividends stable. But
we have now changed our policy to one of “a payout ratioof 40%, with dividends linked solely to performance.” Inother words, when we have performed well and made aprofit, we will be able to pay out a big dividend, but if our
profit is small, we will pay a lower dividend.
Policy under New Medium-term Management Plan
Basic
policyDividend
policyWe will be pursuing the optimal balance between future-oriented growth investment andfinancial soundness, and our basic position will be to expand returns to shareholders.
We will also consider acquiring treasury stock in light of our optimal medium-term capital level
Dividends will be linked solely to performance
The annual dividend will be basedon a payout ratio of 40%

Annual dividend per share (yen)70

Dividend payout ratio (%)

74

70

60

60

42
35.2
FY201628.7
FY201734.2
FY201842.9

FY201931.8

40.4

FY2020 FY2021 forecast

40.0

FY2024** Projection based on successful implementation of New Medium-term Management Plan

In the future, we will continue endeavoring to expand
the value of our business, while integrating that with oursocial responsibilities, and aim to further increase ourcorporate value.

Investing the cash obtained from the ICE business in new
businesses and for growth; changes to shareholder return policy
The Automotive Components, our mainstay business, haslong generated large quantities of cash. The notion oftaking this cash produced by the ICE business anddeploying it for investment in growth and new businesses

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Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

New Medium-term Management Plan

Business Strategy

Automotive Components Group
KGI

Operating income ratio
Free cash flows

With decarbonization progressing rapidly, non-ICE vehicles as aproportion of new cars sold are increasing, but when one considers
that number of vehicles currently owned, it is clear that ICE vehicles

are not about to disappear overnight. We will fulfill our responsibility tosupply as the world’s top supplier of spark plugs for ICEs, andcontinue striving to contribute to Well-to-Wheel CO2 reduction.

Projected ICE demand
Annual average growth rate:times(compared with the amount for FY2020)

2,500
Conventional oxygen sensor

Number of 4W automobiles held globally

FCV

2,000

BEV

MHEV

1,000

Market share increase in high value-added products
Spark Ignition ICE

500

ICE

Curtailing of investment thanks to productivity improvement
Increase in capital efficiency thanks to inventory reduction

0
2020

2025

Spark Ignition ICE

External environment

2030
Diesel

2035
MHEV

2040
FHEV

2045

2050 (Year)

PHEV

BEV

Next-generation oxygen sensor

Precious metal type2020 21 22 23 24 25 26 27 28 29 30 (Year) 2020

FCV

SPE

Sales of our spark plugs have been increasing in recent years,
especially in the Chinese market, and we have secured the leading
market share. This is because we perform every step from thedevelopment of ceramic materials to manufacturer, and we arecapable of meeting the demanding performance requirements andspecifications required by the market, so we have earned the trust ofcustomers. Another big factor is that we have established our own
sales channels, and have responded to the needs of the repair parts
market while providing technical support at the local level.
We have also been expanding our share of the market forexhaust gas oxygen sensors, for which demand has been growing in
response to a global tightening of environmental regulations. The
expansion of regulatory scope to cover not only automobiles but also
motorcycles has resulted in a particularly large jump in demand forsensors for controlling the quantity of fuel injected. Demand for thesesensors for both autos and motorcycles has been rising. The need forsensors with higher performance that can assure compliance withstandards is mounting. Such sensors are more technologicallyadvanced than the typical oxygen sensors that have been mainstream
until now, and include wide-range oxygen sensors capable ofmeasuring oxygen concentration in exhaust gas more precisely as wellas NOx sensors capable of measuring nitrogen oxide.
However, the importance of tackling climate change has
increased substantially during the past few years, and governments
around the world have been moving swiftly to become decarbonizedsocieties. The automobile industry is in the midst of a once-in-acentury period of radical transformation, with automakers developing
electric vehicles (EVs) as nations move with greater speed toward
electrification in order to reduce CO2 emissions. Amid this trend, theelectrification of power trains is occurring even faster than waspredicted just a few years ago. HEVs (hybrid vehicles) are expected toproliferate over the medium term, while ZEVs (zero-emission vehicles)
look set to dominate over the long term.

ROIC

35.0
17%

billion yen

Key tasks
Differentiation through proprietary technologythat meets customer requirements

Establishment of production structure that is resilient to market changes
Inventory optimization, increase in capacity utilization
rates, increase in labor productivity, etc.

VisionAgainst the backdrop of these rapid moves toward decarbonization,
the need for electrically-powered vehicles that offer high levels of fuelefficiency, such as HEVs and PHVs, is increasing. Our range of spark
plugs include the regular nickel type as well as precious metal types,
which are highly fuel efficient. The precious-metal spark plugs are said
to offer fuel efficiency that is around 2% higher than the regular types.
Precious-metal spark plugs already account for around 40% of sales,
and by replacing regular nickel spark plugs with them, it would bepossible to achieve a significant improvement in fuel efficiency. Byselling precious-metal spark plugs, which help boost fuel efficiency, we
will meet the needs of the market.
Like spark plugs, exhaust gas oxygen sensors now need to behigh-value added products with a stronger environmental contribution.

Compared with regular oxygen sensors, our next-generation oxygen
sensors and wide-range oxygen sensors can contribute to reduced
CO2 emissions through more precise measurement of oxygen
concentrations, and they therefore allow compliance with strict
environmental regulations.
By concentrating investment on high-value added products likethese spark plugs and exhaust gas oxygen sensors, maximizing
investment effectiveness, pursuing ultra-efficiency, and expanding ourshare of the market for high-profit-margin products, we will maximize
cash generation. We will curb increases in inventory by raisingproductivity, identify supply chain issues on a cross-organizational
basis encompassing procurement, manufacturing, logistics, and sales,
clarify responsibilities, and endeavor to trim inventories.

Wide-range oxygen sensor

21 22 23 24 25 26 27 28 29 30 (Year)

Ceramics business

KGI

Revenue

High-value added plug

ICE +electric

Nickel type

Areas in which we contribute

PHEV
FHEV

Diesel

Key tasks

Electric

Main indicators

Annual average growth rate of revenue:

12% or more

Labor productivity improvement:

30

improved by％(compared to FY2020)

VisionWith the new high-speed telecommunications standard (5G)
proliferating and lifestyles changing as a result of the impact of
COVID-19, demand for chips for use in IoT and AI is increasing, andtotal sales of production equipment for upstream semiconductor
fabrication processes are expected to grow at a rate of 5% per year
until 2025. Regarding market needs, the memory market requires
high-rise 3D NAND devices, and what is important for these is theformation of minute yet deep memory holes, which is possible withhigh-power plasma. In other words, the etching process is important.
As a result, the etching device market is expanding, and we intend to
supply ceramic material technology that can withstand high-power

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48

High-value added sensor

1,500

EV

1.5

1%

Volume trend with high-value added products(Millions of units)Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

New Medium-term Management Plan Business Strategy

Outlook for semiconductor production equipment market

plasma. And in the logic market, demand for etching devices is also
increasing as result of multi-patterning technology, which breaks downlines produced with a single exposure into even finer, multiple patterns.
We plan to employ ceramic sheet lamination technology to contributeto technology for in-plane temperature homogenization, low particles,
and wide-ranging surface temperatures.
Going forward, we will be establishing a production structure thatis resilient to market changes, deploying proprietary technology toachieve differentiation in terms of social value and business value overthe medium term, and responding to cutting-edge needs. In this way,
we will be aiming to establish ourselves as the top supplier in thesemiconductor production equipment field.

(USD billion)

Assumes
5% annual
growth80

60

Industrial ceramics
20

FY2020

FY2021

FY2022

FY2023

FY2024

Medical respiratory related business
KGI

Operatingincome ratio

The market for cutting tools is expected to continue to grow in the future in connection with the development of various industries. Within thismarket, we will be continuously pursuing innovation in ceramic grades, which are suited to cutting components made of hard-to-cut materials suchas highly heat resistant materials for aircraft jet engines and power generators of various types, and in grades for machining small parts, which aresuited to the manufacture of precision components, thereby expanding the business through cutting tools that satisfy the market needs. And byoffering grades for high-speed machining that are suited to workpieces as well as dry-processing solutions that do not require the use of cutting oil,
we will make it possible to perform cutting in ways that are kind to the earth and have minimal impact on the environment.

40

0

Revenue

Cutting tools

Key tasks

30.0
18%

Main indicators

Development of new oxygen

billion yen

concentrators

Launch of new products(FY2024)

Diversification of sales channels
and sales regions

Revenue from Chinese market
Annual average growth rate:25% or more

Looking ahead, we will be strengthening our development
structure along with CAIRE Inc., which we acquired in FY2018, andplan to develop new stationary and portable oxygen concentrators,
demand for which is expected to increase in the North American andChinese markets in the future. As we expand sales globally, we arestrengthening our sales capabilities in sales channels that are suited to
expansion in the Chinese market and for the needs of each region.
To help improve the quality of life (QOL) of patients around theworld, we aim to achieve growth by leveraging synergies with CAIRE
to expand our product line-up and our sales channels.

The global market for oxygen treatment is expected to continue toexpand as the population ages and the number of COPD sufferers
increases, such that the projected size of the market in 2025 is 200
billion yen. In regional terms, the North American market is currently
the biggest, and the number of patients is expected to continue rising,
and we believe that demand for portable oxygen concentrators, inparticular, will rise. And in the Chinese market, an increase in thenumber of people with COPD is expected to lead to higher demand
for stationary oxygen concentrators, and the market is forecast to
grow at a faster rate than the U.S. market.

We offer a varied line-up of industrial-use ceramics, including ultrasonic transducers, which are used for ultrasonic scalpels, and products forsemiconductor production equipment. Among them, sales of ultrasonic transducers are expected to continue to see growth as the ultrasonic scalpel
market expands, and products for semiconductor production equipment are also expected to rise in conjunction with the expansion of the etchingmarket. Because we both develop and manufacture materials in house, we are able to supply the world with a wide range of ceramic products thatmeet various customer needs. Going forward, we will endeavor to provide society with new products, mainly in the medical and IT fields, but also in
new business domains.
As one such new business, we are currently developing lead-free piezoelectric products, which do not contain lead. Partly because of growing
awareness of the SDGs, demand for lead-free piezoelectric products has been climbing, and the market is expected to continue to expand in the
future. We plan to begin mass-producing lead-free piezoelectric products, and are aiming to book sales of 4 billion yen over the next five years.

Semiconductor packages
Much like the semiconductor production equipment market, the semiconductor market is expected to grow 5 to 10% or more annually thanks to thegrowing demand for semiconductors in line with the AI and IoT-driven digitalization in society. We plan to steadily grow this business by focusing onmarket segments characterized by a variety of small lot, high value-added products such as industrial ICs and probe cards rather than going for thehighly price competitive crystal market segment.
By further leveraging the ceramic firing technology we have cultivated over many years, we will work hard to develop products to make inroads
into a business for 5G networks in the millimeter-wave range (28 GHz band), which are expected to be put into full operation in around 2025.

Strategy for creation of new business pillars

New businesses

We are doing business with a focus on internal combustion engines(ICE), but if we are to transform our business portfolio in the future, weneed to be involved in more than the ICE business and embrace thechallenge of starting new businesses to transform our businessstructure. To that end, we need to search for a new way of doing
business by thinking beyond “What ceramics can do.” We aim to meetthe challenge of going “beyond ceramics,” thereby changing“drastically beyond the current way” in 2040.
The new business pillars we are going to be focusing on in the
future will comprise three domains: Decentralized Utilities, Smart
Mobility, and Smart Health. These are domains that can be expected
to exhibit sustained and rapid growth over the medium to long term,
which means that we will able to tackle social challenges by providing
high value-added system solutions that take full advantage of our corecompetencies.
Among the new business pillars we are currently building, thebiggest one right now is the fuel cell business. In 2019, we establisheda joint venture called MORIMURA SOFC TECHNOLOGY Co., Ltd.
along with three other companies: Noritake Co., Limited, TOTO Ltd.,and NGK Insulators, Ltd. And in 2020 we launched another joint
venture (CECYLLS Co., Ltd.) with Mitsubishi Power, Ltd. MORIMURA
SOFC TECHNOLOGY manufactures planar cell stacks, while
CECYLLS produces cylindrical cell stacks, and we plan to offer a fullline-up with products for residential, commercial, and industrial use.
Until now, there have been issues with costs and making the stacks
smaller, and it has been difficult to achieve proliferation of fuel cells.

Oxygen therapy needs on the riseHigh growth rate due to increase
in COPD sufferers

EuropeNorth
America

China
Japan

200-billion-yen

Increase in COPD sufferers
Rising demand for stationary and portable models

market in 2025

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50

Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

New Medium-term Management PlanNGK SPARK PLUG Group’s Innovation

New Medium-term Management Plan Business Strategy: New Businesses

and cheaper products that can be purchased anywhere at any time.
Besides fuel cells, we are planning to launch multiple projects
during this term, covering such themes as making water-quality
information visible, integration of biometric information from cameras,
on-land aquaculture total solutions that combine Big Data analysis,
disinfection devices that use ozone gas to deactivate viruses, andconnected maintenance services that utilize auto dealer networks.
Going forward, we will be re-shuffling and re-pivoting projects on an
ongoing basis with a goal of achieving around four launches every
year. In this domain, we also want to aim for synergies by proactively
investing in startups and venture capital firms, and as the department
in charge of other new business pillars, we are targeting at least a twofold increase in the value of our businesses by 2030, compared withthe total amount invested, including through M&A.

However, with the world undergoing the shift to a decarbonizedsociety, fuel cells are expected to become more popular, as they will
be products that offer a CO2 reduction effect of approximately 30% in
relation to grid power, and can thus play a role in contributing to thecreation of a sustainable society. The target markets for industrial-use
SOFCs are Japan, South Korea, Europe, and North America. As alatecomer to the market, we intend to take advantage of the long life,
high efficiency, and heat usage of Mitsubishi Power’s fuel cells and put
together a business model based on superiority in terms of lifecycle
cost. In the case of residential- and commercial-use SOFCs,
meanwhile, for the time being we will only be targeting the Japanesemarket. Our aim is to leverage the potential for ultra-high efficiency andthe high degree of design freedom to develop and complete nextgeneration stacks that are even cheaper, smaller, and lighter than now.
Working with system vendors, we will be striving for smaller, lighter,

Domains of new business pillars we will be focusing on
Decentralized
Utilities

Smart Mobility

Smart Health

We will leverage our strengths tocreate new businesses and contributeto the resolution of social challenges.
Toru Matsui
Representative Director, Member of the Board,
Executive Vice President, Business Creation Company

SOFC rollout

Land-based aquaculture
Air and water purification
Energy management
Green plant management

For both companies, CO2 reduction effect of approximately 30% in relation to grid power

Mobility Service PlatformxEV systems
Energy converter
Charging solutions

Residential use

Commercial use

Industrial use

Home health monitoring
Wound healing
Rehabilitation
0.7-2kW2-10kW

20-100kW

100kW or more

Establishment of CVC fund to accelerate creation of new business pillars
To step up the creation of new business pillars, we believe that it isessential to cooperate with startups that possess leading-edge
technologies, business models, and ideas, so along with Pegasus
Tech Ventures, in April 2021 we set up a CVC (corporate venture
capital) fund for the purpose of investing in startups around theworld. With this move, we will be ramping up the creation of new
business pillars through the provision of cash to and the forging ofbusiness alliances with startups from countries all over the worldthat possess advanced technology.
We have traditionally been investing in such startups indirectly
through venture capital firms, and have established a network
comprising numerous partners. Yet when we began actuallycollaborating with them, we realized we had issues with skills thatare necessary, such as those related to coordinating activities withcompanies, making investments, and pursuing M&A. But this new
CVC fund will not only help to further increase our network ofstartups, but will also allow us to make up for our weaknesses on
the skills side. We have therefore completed the establishment of
an investment structure for new business pillars. From now on, we
will accelerate the creation of new business pillars as we press
forward with investments that are in line with our strategy.

Determination of three areas as directions for
new businesses

plasma reactors, which are used to purify automobile

In 2030 Long-term Management Plan “NITTOKU BX”

exhaust gas, to the purification of air in people’s living

which we announced in FY2020, we defined priority issues

spaces. The generator is effective in suppressing airborne

technology we built up through the development of ceramic(materiality) in order to achieve sustainable growth, andviruses by drawing in ambient air and producing ozone gas

decided that we would focus on four business fields:

to maintain an appropriate ozone concentration. Advantages

Environment & Energy, Mobility, Medical, andof the product include the fact that it supplies enough ozone

Communication. So we will be taking action in these fourto suppress viruses, but at safe concentrations.

business fields going forward, and the Business Creation

Maintenance costs are also low, as it doesn’t contain any

Company* (BCC), which is in charge of creating newparts that need to be replaced. To serve as the next modelbusiness pillars, has settled on the three areas offollowing the new product to be launched in FY2021, we are

Decentralized Utilities, Smart Mobility, and Smart Health ascurrently developing a product that uses an ozone sensor to

directions for the development of new business pillars.

control indoor ozone concentration more optimally.

New businesses

Small equity stakes

Doctor Link, meanwhile, is a service that employs our⇒ P.50global network, which is one of our strengths and also one
We selected these three areas after analyzing ourof our assets. It utilizes connected technology to propose

technologies and assets in view of long-term changes in

the optimal timing and content of maintenance to automobile

society and considering what kind of contribution we canmaintenance shops based on data on automobile usage

make in which areas. Within these areas, we will identify

and maintenance history. Car users can enjoy such benefits

potential, and there is a vision for the businessand pursue fields and business models in which we canas continuing to drive the same beloved car with peace of

There is a high degree of affinity with our new business pillars, and the startup possesses

provide even greater value, and link these to the provisiona business, technology, and human resources that will complement/expand our portfolio

mind and actually increasing the value of their car. We planof our unique products and services.

to utilize our sales network to drive sales of this service.

Expected no. of transactions Approx. five each year
Stages targeted Seed capital to Series A funding
Sizes of equity stakes Several tens of millions of yen to several hundreds of million yen, 10 billion yen over six years
Investment criteria
The startup matches our portfolio of new business pillars,
the business domain targeted is broad, the business has

The startup possesses technology, intellectual property, and skilled people or teamsof the like we are lacking as we endeavor to establish our new business pillars*Global Innovation Division, launched in 2020. Renamed the Business Creation Company inWater quality sensing is a product that utilizes our core

conjunction with the shift to the in-house company system in April 2021.

sensing technology to contribute to the improvement of

M&A
Stages targeted From Series A funding and onwards
Sizes of equity stakes 50 billion yen over four years
Purpose of investment
To acquire a business, technology, intellectual property, customer base, or human

productivity of the aquaculture industry by measuring the

Projects producing results

concentration of substances that affect water quality, such as

As a result of BCC’s efforts over the previous year, weammonia, nitric acid, and nitrous acid, as well as water

resources that matches, complements, and expands our portfolio of new business pillars

expect several new products and services to be launchedtemperature, and controlling them appropriately in land-based

To acquire technology, intellectual property, a customer

during FY2021. They include an ozone gas generator,

Partner:base, or skilled human resources of the like we are lacking

aquaculture. It also helps to control the administration of

Pegasus Tech Ventures

for our portfolio of new business pillars or for our projects

Doctor Link, and water quality sensing.

chemicals and antibiotics in aquatic products, thus contributing

To expand our business portfolio and achieve rapid commercialization

We developed the ozone gas generator by applying

to ensuring the safety of aquatic products as food. Based onin business domains with a high degree of affinity with our projects

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52

Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

New Medium-term Management Plan NGK SPARK PLUG Group’s Innovation

the results of this spring’s demonstration tests, we will proceedable to make the entire system function efficiently overall.

Investing in startups with potential for synergies

or withdraw from the investment, and we formulate our own

with sales, starting with land-based shrimp farms in Japan.

Putting this mechanism in place, we would like to provide

For several years now, we have been investing in startup

criteria based on the type and nature of the business.

the solution that can be used even in relatively small facilities.

companies, and have established a “venture lab” in Silicon

Furthermore, based on the business plan developed

stable operation, we will begin to consider launching new

The key to the realization and success of this newValley as a base for this, building the connections necessaryfor each project, we discuss the success or failure of thebusinesses that are similar or closely related to them inbusiness is to collaborate with other companies. We would

for investment. In April 2021, we joined forces with Pegasus

project at each milestone.

order to achieve synergies in peripheral fields.

like to work with other companies on modularization andTech Ventures in the U.S. to establish a corporate venturesystemization involving various technologies, so as tocapital (CVC) in order to further increase the speed andspeed up development and thereby become able toprobability of success. We made this decision as we felt

provide even better solutions.

that we needed an organization that understood ourIn addition, once the aforementioned projects are in

Providing new services that contribute to carbon
neutrality
As for new initiatives other than those mentioned above, we

Emphasis on design thinking and humancentered design

strategy and that would work solely for us by continuously

At BCC, we incorporate concepts such as design thinking andproviding a full range of services including M&A.

human-centered design into our business development efforts.

are considering providing services that contribute to carbon

Another Decentralized Utilities initiative

neutrality in Decentralized Utilities, one of the three fields.

Another specific product that we are actively trying tobillion yen. With an understanding of our assets such as ourin response to specific requests from large corporate

develop into a business is solid-state batteries.

technology, intellectual property, and sales network, as wellcustomers such as automobile manufacturers. But to

The ones we are working on are unsintered oxide

as our priority areas and direction, it searches for startup

speedily develop new businesses and make themmaterials industry to the downstream processing industry,solid-state batteries. We have succeeded in developing thefirms that are aligned with our direction and have new

successful, we must discover end-user needs that havethere are many companies with processes that generatehighest energy density (300Wh/L) and capacity (10Wh) as

technologies and skills that we do not have. It then draws up

not yet become apparent, and create products andCO2 on the frontline, and they need to take some action.

an oxide solid-state battery by utilizing ceramic material

a list of them. We pick out companies from the list, and after

services from scratch to meet those needs.

To tackle such tasks, we are considering offeringand lamination technologies that we have cultivated overassessing their suitability for investment, we start investing in

Carbon neutrality is an important goal that the wholeworld needs to work together on. From the upstream

Up to now, many of our businesses have been realized

CVC is a venture investment fund of approximately 10.0

Therefore, we start with end-users in mind, which is

Carbon Neutral as a service. We would collect CO2

the years. Compared to sulfide solid-state batteries, oxidethem, initially with a small amount. Eventually, we would likecommon to both design thinking and human-centeredgenerated in gas furnaces at factories and convert it to fuelsolid-state batteries are safer, as they do not emit toxic

to expand our business by combining the assets of ourdesign, and strive to understand the latent needs byby combining it with hydrogen. We would then return thegases and are not susceptible to breakage, rupture, or

collaborators with our own assets to create huge synergies.

observing their behavior and speech. In addition, we design

fuel to the furnace for recycling through recombustion,

ignition. In addition, they can be used in a wider range ofWe are currently considering investments in several

thereby contributing to carbon neutrality. It would betemperatures, from -30°C to 105°C, compared to thecandidates, and have already invested in one startup. Thisactually use them, receive feedback, and makeprovided either as a standalone system or as a service thatupper limit of 60°C for conventional liquid lithium-ion

startup that we have already invested in possesses

improvements over and over again. By adopting theseand create prototypes at an early stage, have people

also encompasses operation of the system. With the goal ofbatteries. In the future, we will proactively pursue marketing

excellent electronics technology, and we feel that our

unconventional methods, we will accelerate the development

not only providing the service to our own plants but also

and sales activities for applications with harsh operating

ceramic technology could be combined with it to furtherof new businesses to a greater extent than ever before.

selling it to other companies, we have now commenced

conditions and for which safety is essential, such as inenhance the performance of EVs and other target products.

development, launching a cross-functional team comprising

space, for distributed and backup power supplies for

We would like to utilize this technology in the areas of Smartmembers from the R&D department, BCC, and theautomobiles, for marine equipment, for transportation IoT,

Mobility and Decentralized Utilities to develop our business.

Sustainability Promotion Dept. Although more and more

and for equipment that requires explosion protection. We

Innovation which is all the more essential in thetime of uncertainty

major companies are also working on this idea, most of

are also participating as a corporate partner in a

Recently, it is said that we are in the “VUCA” era. VUCA is anthem are focused on solutions for the large-scale material

commercial lunar exploration program, named “Hakuto-R”

production or primary material processing, such as steel andacronym that stands for volatility, uncertainty, complexity, andbeing pursued by ispace, inc. With this collaboration, weDevelopment of new businesses based on
business plansambiguity. I believe that the aforementioned design thinking

cement production, which emit large amounts of CO2.

are planning to conduct the world’s first demonstration test

BCC views itself as an internal venture capital company thatand human-centered design are a good match for this era.

However, it is highly likely that measures will also becomeof a solid-state battery on the surface of the moon in 2022.

receives equity capital from the headquarters, and controls

This is because in the VUCA era, a multitude of new needs

essential for dispersed processing after secondary

We have already completed the trial production of a flightthe balance between investment and return by setting its

and challenges are emerging, and it is more likely that theseprocessing, such as casting and molding, even though themodel battery that has passed various environmental tests,

own goal of increasing the average investment multiple toneeds and challenges will be different in the future from how

CO2 emissions from such processes are relatively small. Our

including vacuum, vibration, and thermal cycle tests for

twofold or more, i.e. getting our money back twice. The

they have been until now. The only way to explore new needs

solution involves combining technology for efficiently

space, and are smoothly preparing for the launch.

speed of business development varies depending on theand challenges is to go out into the market. You can’t just sit

In parallel, we will speed up development in collaboration

project, but a relatively large number of our business plans

in a chair in a lab. The only method is to follow the process indevices that feature ceramics with CO2 capture andwith other companies in areas where even higher output andare designed to become profitable two or three years afteran agile manner while watching the reactions of the end-users.

methanation technology, and also with methane combustion

capacity are required, such as main batteries for EVs.

the start of the project, with all the money invested being

generating hydrogen using lightweight and compact SOEC

control using sensors, which are our specialty. By using therecouped after four or five years. Several years after the startdevices to make good use of the heat generated, we will beof the project, we make a decision on whether to continue

Through these efforts, we will contribute to addressing
social challenges by creating new businesses.

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54

3

Foundation for Value Creation
CONTENTS
57

Environment

59

Responding to Climate Change

63

Global Human Resources Management

67

Respect for Human Rights

68

Proper Procurement

69

Measures against COVID-19

70

Intellectual Property

71

Risk Management

73

Compliance75

Information Security76

Stakeholder Engagement77

Corporate Governance

88

Interview with Outside Directors

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56

Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Environment
Results of Efforts to Achieve Global Eco Vision 2020

Environmental Policy
As a globally developing core manufacturing corporation, we aim to promote environmental conservation
activities linked with corporate management maintaining a good balance with corporate growth, based on“Involvement by all” in order to contribute to the construction of a sustainable society.

The Global Eco Vision 2020, which ended in FY2020, set forth four priority issues related to “natural resources,” “global
warming,” “toxic, hazardous chemicals” and “key quality (development of environmentally friendly products).” We tackled
these issues through business activities, creating platforms for education (awareness raising), compliance and open
communication, and aimed to promote the sustainable development of our business as well as society at large.
As a result, we have largely achieved the Global Eco Vision 2020.

Action Guidelines
Through all of our business activities, we make particular efforts to reduce CO2 emissions toward a decarbonized society, conserve
water resources, manage waste, and develop, offer and expand environmentally friendly products.
We strive to conserve the ecosystem through the control of chemical substances that place a burden on the environment.
We strive to raise environmental awareness among our employees to ensure that they all positively participate in activities.
We observe the laws, ordinances, and agreements concerning environmental conservation.
We aim to substantiate information disclosure to stakeholders and communication activities, and also conduct activities forcoexistence with the regional community.
In order to achieve these targets, we will strive to make ongoing improvements to our environmental management system.

Major item

Minor item

Targets for FY2020

Looking back on the Global Eco Vision 2020
Result: Reduced per-unit CO2 emissions by 6.1% relative to FY2015

Reduce per-unit CO2 emissions by 15%

Per-unit CO2 emissions improved and reduced by 12% as of FY2019 thanks to the effects

Production relative to FY2015*

Globalof productivity improvements by Group companies that had newly commenced operations.
However, per-unit emissions deteriorated in the first half of FY2020 due to production*We revised the target upwardly on April 1, 2018.

warming

adjustments caused by COVID-19. This resulted in an eventual reduction of 6.1%.
Logistics Increase efficiency for logistics

Promoted efficient logistics by carrying out activities with a focus on streamlining our domestic logistics operations.

Reduce defective products to reduce waste
Waste

Promotion system

resources

Water
Raw materials

Environmentallyfriendly products――
Hazardous

Environmental ISO Bureau

Internal Environmental Auditor

chemical
substances

Use water more efficiently

Water consumption intensity improved consistently through process optimization in Japan.

Design products in consideration of theWorked on reduction of raw materials input primarily through process improvementsaving of raw materials

and streamlining as well as on environmentally friendly design.

Build an environment-friendly product certification

Built a system to certify the Group’s environmentally friendly products “Nittoku

system and expand the lineup of such products

Green Products” and evaluated three products to certify them as model cases.

Foster the replacement of substances of concern with substitutes―

Totally discontinue the use of HCFCs

The milestone to be achieved in 2030
CO emissions: 30% reduction from the

Implementing activities toward realization of a decarbonized society

FY2018 level*Aiming for carbon neutrality by 2050

Expanding Environmentally Friendly Products

Expand Nittoku Green Products

All products contribute to the improvement of the global environment and contribute to making sustainable society come true

Conserving Water Resources Water consumption intensity: Keep below FY2018 level Implementing sustainable business operations in response to global water risks
Achieve over 95% effective utilization rate
Reduce at least 1% of waste intensity compared to FY2018

Contribute to a global recycle-oriented society by promoting zero emission

Promote 3R (reduce, reuse, recycle) activities

Other Eco Vision 2030 issues

Completed the discontinuation of use of HCFCs at domestic production facilities in FY2020. The discontinuation
at other domestic facilities is scheduled to complete in FY2022 and is under planning for overseas facilities.

Water usage

Waste output(10,000 m3)(tons)

35

1.4

1.18

1.15

1.15

1.22

1.2
1.0

28.20

28.08

28.42 26.30

24.97

200

25,000

167

163

150

154

166

168

20,000 20,522 19,966

21,451 21,874

20,237

15,000

0.8
100

15

0.6

10

0.4

5

0.2

10,000
50
5,000

0

0

2016
■

2017

2018

CO2 emissions

20192020 (FY)

Per-unit emissions

0

0

2016

2017
■

2018

2019

2020 (FY)

Water usage

2016

2017
■

2018

2019

2020 (FY)

Waste output

Our vision for 2040

Responding to Climate
ChangeWaste Management

Fostered the replacement of substances of concern, such as phthalates, with substitutes.

(10,000 tons-CO2)20

2

investigations. No products containing controlled substances were put on the market.

―

25

4 important issues

regulatory information, such as on RoHS and REACH, and responded to

REACH and other regulations

CO2 emissions

30

On the premise of aiming for carbon neutrality in 2050, we have established “Eco Vision 2030,” which shows the vision (orgoal) of what we want to be by 2030 and the vision of what we will pursue until 2040.
For Eco Vision 2030, the impacts that our businesses and products would have on society and our company wereanalyzed, and 13 issues that would have a large impact were selected. Among them, the four issues that were considered tohave a greater impact – “Responding to Climate Change,” “Expanding Environmentally Friendly Products,” “Conserving
Water Resources,” and “Waste Management” - were positioned as the four important issues, and numerical goals were set
for them. Through the practice of Eco Vision 2030, our group will work together to contribute to the realization of global
carbon neutrality and zero emissions.

Established the chemical substances management working group and shared

Ensure compliance with ELV, RoHS,

1.27

Eco Vision 2030

reuse waste oil.

waste reduction

Depletion of

Our group has a matrix-type structure includinginternal companies and respective regions,
Environmental activity promotion organizations
promoting environmental activities while having
Environmental Administrator (President)
individual roles clarified.
Each internal company manages its own
Central Environmental Committee Chairman
Central Environmental Committee
targets on items relevant to business activities for
Chief Central Environmental Administrator
the practice along with its business. Meanwhile,
Regional environmental administrator
Company president
Head of the working groupwe conduct such activities as compliance ofEnvironmental Committee
Internal companies
Working groups
regulations, raising environmental awareness, andHeadquarters of each
Cross-divisional specializedEachregioncommunication with local society mainly on the“Each region” refers to regions ininternal company
task forces to carry out surveys
regional basis in accordance with action plans.
Japan where the Headquarters,
and measures regarding energy
Komaki and Ise plants, andconservation and hazardous
Various working groups are set up as crossGroup companies are located.
substances management
functional teams across the internal companies
for promoting activities.
The Central Environmental Committee,
attended by President, directors, company presidents, regional environmental administrators, and heads of the working
groups, confirms the progress toward the targets and issues in relation to each activity, for continuous improvement.

Waste intensity improved consistently through efforts to improve yield in Japan and

Design products in consideration of⇒ https://www.ngkntk.co.jp/english/sustainability/environmental/eco_vision.html

Biodiversity conservation
Recognizing the conservation of biodiversity as a critical global challenge, NGK SPARK PLUG Group identifies it as amaterial environmental issue for us to address, along with global warming mitigation and resources recycling. Based on
this view, we established the NGK SPARK PLUG Group Biodiversity Action Guidelines in April 2013. Using the guidelines
as a guide, we are working 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, in cooperation with business partners and external groups.

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Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Responding to Climate Change
In July 2020, the NGK SPARK PLUG Group announced its support for the
Task Force on Climate-related Financial Disclosures (TCFD)
recommendations.
Based on the TCFD recommendations, we disclose important information
related to climate change as outlined below.

Risk item

Business impact (risk)

Assessment

Timing of(impact)

the impact

Small Medium Large Short term Medium term Long term

Carbon tax
Carbon bordertax

If a carbon border tax is introduced, taxes will be levied on products to be

Regulations oncarbon emissions

The achievement of GHG reduction targets will be required, resulting in increases in the costs of, forSale of gasolinepowered vehicles

In countries that ban the sale of gasoline-powered vehicles, OEM

Proliferation of energy-saving andrenewable-energy technologies

The introduction of new energy-saving and renewable-energy technologies

Development of new technologies

Expenditures on the research and development of new technologies will increase.

MarketOur group is aware that climate change and other environmental issues are serious business issues.
Our management direction related to climate change is reviewed and monitored at the CSR and Sustainability
Committee chaired by the President, which is held twice a year with the attendance of all directors, including outside
directors.
For detailed activities, the Environmental Committee (twice a year), which is subordinated to the CSR and
Sustainability Committee, checks progress towards the targets and confirms issues to be addressed in order to makecontinuous improvement.
Furthermore, risks associated with climate change are assessed in light of company-wide risk management at the
Risk Management Committee (twice a year).

Shift in customer
preferences

2°C scenario

Risks related to thetransition to alower-carbon
economycosts, resulting in a rise in the costs of energy and raw materials.

Technology

Policy and legal

Governance

If a carbon tax is introduced, taxes levied on fuel will increase procurement

exported, resulting in the reduction in the cost competitiveness of the products.

example, making capital investments and purchasing electricity generated from renewable energy sources.

demand will disappear, resulting in a decrease in sales.

will increase the cost related to, for example, capital investments.

After the 2030s, the number of people who choose ZEVs even as used cars will increase,

Promotion system

resulting in a decline in demand for spark plug replacement and eventually a decrease in sales.
Products that emit less CO2 in their life cycle will be chosen, resulting in a decrease in the salesof conventional products.

CSR and Sustainability Committee
Reputation

Sustainability Promotion Dept.

Compliance
Committee

Quality
Committee

Information Security
Committee

Environment
Committee

Safety and HealthCommittee

Examples of what was discussed and determined in terms of climate change

Approval of the priority issue (materiality): “CO2 emissions: 30% reduction from the FY2018 level by FY2030” (CSR and Sustainability Committee in March 2020)

Investors’ opinions will turn against internal combustion engines,

Shifts in job-seekers’
preferences

Job seekers’ opinions will turn against internal combustion engines.

Increased severityof extreme weather
eventsTyphoons and other extreme weather events will cause damage to plants and other

Sea level rise

Risks related to thephysical impacts ofclimate change

Approval of “Eco Vision 2030” (Environmental Committee in March 2021)
Approval of “Aiming for carbon neutrality in 2050” (CSR and Sustainability Committee in March 2021)

resulting in divestments.

Accordingly, job seekers will not choose us as their place to work.

facilities, resulting in shutdown or a decrease in production. Furthermore, additional costs
will be incurred to restore equipment. Non-life insurance premiums will also increase.
Rising sea levels will increase the risk of flooding and storm surges. Plants and

4°C scenariotransport infrastructure located in coastal areas will be damaged and supply
chains will be broken, resulting in the extra costs of addressing these problems.

Chronic

Endorsement of the TCFD recommendations (Corporate Management Committee in July 2020)

Acute

Risk Management
Committee

Shift in investor
preferences

Changes in precipitation
patterns and variability
in weather patterns

Plants in areas facing severe water shortage will be forced to shut or slow down

Rising mean
temperatures

Employees who work in extreme heat will frequently get heat stroke. To reduce their increased

operations due to limitations on water usage, resulting in the cost of shifting
production to other plants, increased transportation costs and the like.

physical burden, the cost of dealing with extreme heat and labor costs will increase.

Strategy (risks & opportunities)
Climate-related opportunities
Climate-related risks
With regard to climate-related risks, we examined the following risks according to the TCFD risk categories: risks
related to the transition to a lower-carbon economy, which may emanate mainly in the course of a 2°C scenario; andrisks related to the physical impacts of climate change, which may emanate under a 4°C scenario without achieving
global targets for reducing CO2 emissions.
The three terms used below, “short term,” “medium term” and “long term,” have the following meanings:

Short termWith regard to climate-related opportunities, we examined, according to the TCFD categories, opportunities for
management reform to be accomplished through efforts to mitigate and adapt to climate change.
AspectResource efficiency

The increasing adoption of new energy-saving and renewable-energy technologies will reduce energy costs.

Energy source

The increased demand for hydrogen as a fuel exempt from carbon tax will provide new opportunities in the hydrogen energy market.

until around 2025 in line with the target year of our Medium-term Management Plan

Medium term

until around 2030 in line with the target year of our Long-term Management PlanLong term

until around 2040 in line with the vison of our Long-term Management Plan

To conform to fuel efficiency regulations, demand for high value-added products will increase.

Products and

The hydrogen energy market is expected to grow due to mandatory reduction of GHG emissions. Increased demand for hydrogenservices

technologies and SOFCs will provide business opportunities.
In disaster preparedness, local consumption of locally-produced energy (distributed power generation) will receive attention, resulting in increased demand for SOFCs.

Markets
Main scenarios and projections used in the study
2°C scenario: IPCC RCP2.6, IEA ETP 2DS, etc.

Resilience

4°C scenario: IPCC RCP8.5, IHS Markit Automotive “Mobility and Energy Future” service data, etc.

Major opportunity

The development of new climate-related technologies that meet social needs will provide business opportunities.
In disaster preparedness, the continuous reinforcement of the BCM and BCP of our group, including our supply chain, will help enhance
our resilience.

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Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Responding to Climate Change

Business risks, opportunities and responses under the climate-related scenarios

Risk management

To further clarify climate-related risks and opportunities, we examined business environments and responses bybusiness type under both 2°C and 4°C scenarios.
As a result of our examination, no existential impact from physical risks has been identified.
With regard to our business related to internal combustion engines, whose sales revenue makes up 80% of thetotal at present, we are facing a major change. On the other hand, geared toward the realization of a decarbonizedsociety, hydrogen-related and other new needs and markets are expected to arise. Therefore, in the 2030 Long-termManagement Plan “NITTOKU BX,” we take up “Environment & Energy” as one of the business fields to focus on. Toward
2040, we will push forward with a business portfolio transformation (40% ICE business, 60% non-ICE business).

Conducting business globally in many fields, our group faces various risks and opportunities in each type of business.
Therefore, we grasp and respond to risks and opportunities on a business company basis. We respond to climaterelated risks and opportunities in the same way.
The Risk Management Committee conducts a risk assessment from a company-wide perspective in terms ofwhether or not the risk will have great impact on our business activities. A risk assessed as a key risk is considered apriority risk. For such a risk, a responsible department is assigned to check the status of measures against the risk.
Meanwhile, the CSR and Sustainability Committee checks key opportunities. The Committee incorporates, whennecessary, these opportunities into our management strategy and priority issues (materiality).
Risk Management

Examined business

Product

Responses to future business risks and opportunities

Financial impact⇒ P.71

Revenue target in our Longterm Management Plan

Metrics and targets

Under the 2°C scenario, sales of internal combustion engine
parts are expected to decline in the future due to stricter
regulations on vehicles with internal combustion engines. On

Automotive

Spark plugs, GlowComponents

plugs, Sensors

the other hand, opportunities will arise in the electric vehicle
market and other new markets.

Impact on part of therevenue of 338.6 billion yen

Under a 4°C scenario, further energy conservation and450 billion yen(FY2029)(FY2020)

toxic-gas-emission control will be required in terms of internal
combustion engines. Therefore, we will take measures toimprove the performance of internal combustion engine parts.
Under either a 2°C or 4°C scenario, demand for non-fossil

In the 2030 Long-term Management Plan “NITTOKU BX,” which was announced in FY2020, our group has set theRisks/Opportunities and Materiality⇒ P.35
goal: “CO2 emissions: 30% reduction from the FY2018 level by FY2030.”
Meanwhile, to enhance environmental conservation activities from a long-term perspective, we formulated Eco
Vision 2030 in April 2021. It stipulates the achievement of carbon neutrality by 2050 as a long-term goal.
Furthermore, we are also working to reduce CO2 emissions throughout the supply chain. We ask our business
partners (suppliers) to set a target for reducing CO2 emissions and work toward achieving the target. We also offer
support for them as deemed appropriate.

energy sources is expected to grow. Therefore, we will continue

Fuel cellbusiness

Fuel cells

to enhance our measures taken in the relevant markets.
Under a 2°C scenario, the proliferation of hydrogen
infrastructure is expected. Therefore, the market may grow at
an increasing rate.

businesses

oxygenconcentrators,
cutting tools,

300 billion yen(FY2020)

SPE, packages,

Other

Impact on part of therevenue of 83.6 billion yen(FY2029)

For more information on Eco Vision 2030 and detailed environmental data, please visit our website.

Eco Vision 2030

Under either a 2°C or 4°C scenario, the impact on risks andSustainability Data Book

opportunities is small.

bearing balls, etc.

For the Automotive Components, under the 2°C scenario, sales are expected to decline in the future due to stricter regulations.
Therefore, a business portfolio transformation is required.
For other business types, under either a 2°C or 4°C scenario, we will conduct business flexibly and strategically while keeping a2030 Long-term Management Plan “NITTOKU BX”

https://www.ngkntk.co.jp/
resource/pdf/
sustainability2021e.pdf

https://www.ngkntk.co.jp/english/sustainability/
environmental/eco_vision.html

close watch on market trends. Thus, we have high resilience in terms of both medium- and long-term perspectives.

⇒ P.32NGK SPARK PLUG CO., LTD. Integrated Report 2021

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Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Global Human Resources Management
Work style reforms

Human Resource Policy
We acknowledge that employees are the most important management resources. In light of this, we respect
the diversity 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 Products” and “Involvement 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.

To improve productivity and develop self-disciplined human resources, we have formulated Work Style Reform Declaration
based on two pillars: promoting comfortable remote work and creating new value with tools responding to change.
We are working to put in place a remote access environment and introduce a telephone extension system even available
for employees working remotely or on business trips to realize the work style reforms.
We are also promoting the creation of working environment where employees can more easily work remotely by
eliminating a requirement for attendance (clock-in time), offering a remote work allowance, putting in place satellite offices
and sharing information on ingenious approaches for remote work taken at workplaces.
We will review the modality of organization as well as our business management through the promotion of remote work,and create self-disciplined human resources who are not tied down to tradition and capable of creating new value.
Work Style Reform Declaration
We recommend “diversified work styles” in order to create an “organization comprised of passionate individuals working together” of NITTOKU BX.
Promote comfortable remote work to employees ⇒ Create an environment with a goal of a remote work rate of 70% or more.
Prepare tools that respond to change and create new value ⇒ To that end, we will invest in digital solutions.

Diversity and inclusion

And we want you to find the best for yourself from the many options and become a “self-disciplined human resource who can continue to add value.”
The NGK SPARK PLUG Group respects each person’s values and aspirations.

We consider diversity and inclusion to be one of our most important management strategies as we believe that diversity andinclusion are essential for companies to attain sound growth and ensure happiness for all employees.
We acknowledge and accept different people regardless of their gender, age, disabilities or nationality as well as of theirlifestyles or personality. Then, we utilize new values and ideas coming from an employee-friendly workplace that accepts
such people by combining different “knowledge.”** Combining different knowledge means combining human resources with different attributes, values or ideas.

Efforts for gender equality (promoting empowerment of women)
Since 2013, as our first step toward diversity promotion, we have been putting effort in creating working environment acrossthe company where women can truly thrive and play active roles. We are trying to change the mindset of both managers andfemale employees themselves, regarding the empowerment of women as a driver for the reform of our corporate culture.
For example, we implemented a training program to support female employees in developing their careers with higher
motivation. In the program, these employees were paired with managers able to advise them as they sought to meet thechallenge of fulfilling certain tasks with a higher level of difficulty than their routine assignments, thereby supporting the
growth of the participating female employees.
We have also held lectures and training seminars for all managers so that they can deepen their understanding ofdiversity management. Moreover, across NGK SPARK PLUG 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 theplans received incentive awards. The action plans target measures for diversity in general, not limited to those for theempowerment of women. We are also working to expand our systems to provide workplaces where female employees canwork 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 to increase the percentage of female managers.

Providing workplaces where employees can continue to exert their abilities
The growth of employees leads to the sustainable growth of the 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 to remain in the workforce after reaching the retirement age cancontinue to use their skills.
In the Platinum Project, we hold various seminars and provide information through an internal e-mail newsletter.
Establishment of a career consultation helpline
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”
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 annually 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 career development.

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 someof our plants we have begun to exempt such employees from the night shift upon request, with other employees working at night instead.

External commendation for the empowerment of women
Signed the Women’s Empowerment Principles (WEPs)
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 and Commendation
System for Companies that Promoted Increased Roles for Women

Proportion of female employees

Putting focus on the employment of new graduates with foreign nationality

（％）

20

15

14.7

14.2

14.8

15.4

16.0

10

5

0

2.77

2.49

2.28

2.94

1.05

1.24

1.53

1.83

2.99
2.60

2017

2018

2019

2020

Section Chiefs

Managers

2016
Generalists

FY

We are promoting the employment of foreign nationals in our effort to adapt to the rapid progress of globalization andencourage diverse talent to play active roles.
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 and want to work inJapan, in addition to those who have studied in Japan.
In order to help newly-hired foreign national employees smoothly adapt to life in Japan, we offer them various supports,
including a help site Nittokupedia created by their senior colleagues, a work buddy program to work with Japanese peers,
teaching of Japanese language and cross-cultural training.
With non-Japanese new graduates and mid-career employees, including both engineers and office personnel,
demonstrating their abilities at our workplaces, we can increase our diversity awareness across the company.

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Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Global Human Resources Management

Continuous education and training activities

Development and management of managerial human resources

Based on the Four Shared Values of The Nittoku Way (Shisei-Shinjitsu, Dokuritsu-Jiei, Shikai-Keitei and Soshi-Kantetsu) andon the “Quality Products” and “Involvement by all” principles, we conduct education and training activities in a planned
manner to continuously develop employees who can boldly deal with challenging internal and external changes as well as
those with high levels 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.
Due to the spread of COVID-19, we were forced to cancel some training programs in FY2020. Even so, we tookthorough measures to prevent infection, for example, switching the training style from group training to online training, and as
a result, a total of 3,706 employees received OFF-JT.

Efforts to maintain and improve employees’ health
NGK SPARK PLUG regards the health of employees as one of its important managerial resources forsustainable 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.

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 resources atthe end of the Edo period. Chairman of the Board 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 toparticipate 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.

Development of managers

Declaration on health and productivity management
I. The NGK SPARK PLUG Group declares that we will support the health of each and every employee and promote Kenkokeiei (health andproductivity management) by viewing the health of our employees as one of the most important management resources in order to realize
sustainable growth.

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.

II. We will respect the diversity and individuality of each employee and promote the creation of a workplace in which each employee can fully
demonstrate his or her abilities as well as work energetically.
III. We will work together with the labor and health insurance unions to actively engage in health promotion activities that include employees’
families from a long-term perspective.

Takeshi Kawai
Representative Director President
Chief Operating Officer* Kenkokeiei is a registered trademark of NPO Kenkokeiei.

Implementation of a 360-degree survey
We implemented a 360-degree survey targeting departmental managers and those in higher positions in FY2018, andexpanded the survey target to include sectional 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.

Use of an indicator to visualize workplace engagement
Along with the one-on-one meeting, which we introduced on a trial basis in FY2019 to foster dialogue between managers

Prevention of lifestyle-related diseases
To help employees maintain and promote their health, we task industrial physicians, medical doctors and nurses with following
up with employees who have been found to have problems as a result of undergoing health checkups. Such employees arealso referred to appropriate medical institutions as needed.

and their subordinates for the development of 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.

Enhancing mental healthcare
We carry out stress checks on employees to prevent them from suffering mental disorders due to stress. Based on the results, weEmployee satisfaction survey

analyze the influence work environments have on employees in our effort to provide them with safe and comfortable 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.

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 FY2020 survey, the response rate and satisfaction rate dropped from the previous fiscal year to 88.0% and46.2%, respectively. The survey results of each individual department were fed back to the departmental head. Eachdepartmental head is working on improvement based on the understanding of the department’s situation and challenges
indicated by the results. The personnel department is also working to offer a much better working environment for employees
by identifying issues to be resolved through interviews with young employees at each workplace.

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Our BusinessRespect for Human Rights

Medium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Proper procurement

Human Rights Policy

Procurement Policy

Based on the Universal Declaration of Human Rights, the ILO Declaration on Fundamental Principles andRights at Work, the UN Global Compact, and the UN Guiding Principles on Business and Human Rights, weunderstand the need to respect the human rights of all people who are affected by our business activities andwill make our best effort to protect 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 at the same time striving to carry out proper purchasing transactions when procuring materials
and parts, based on the following 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 on comprehensive
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
Taking recent social and environmental issues related to supply chain seriously, we foster the responsible procurement ofmaterials and others, giving due consideration to human rights and the environment, in addition to complying with the related
laws and regulations including the Subcontract Act.

Efforts to protect human rights
In 2012 we issued the Compliance Guidebook to set out our guidelines on respecting human rights and prohibition ofharassment 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 increased
our focus on enlightenment about gender equality and LGBT-related issues through our human rights-related training andinternal e-mail newsletter, 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 and
Sustainability Procurement Guidelines.
Corporate Ethics Helpline, Anti-Harassment Committee

Promoting CSR and sustainability-oriented procurement

systems and ensure the strict management of environmentallyhazardous substances.

We have issued our CSR and Sustainability Procurement
Guidelines and are distributing copies to our suppliers.
We are requesting suppliers to survey the status of
implementation with a checklist every two years, providing
feedback on the evaluation results. In the survey implemented
in FY2019, 98% of the targeted suppliers responded to thesurvey. For some suppliers, we requested to improve identified
issues through follow-up interviews with their management,
etc.

Measures against conflict minerals

There are concerns that some mineral resources mined in the
Democratic Republic of the Congo and surrounding countries
provide a source of funding to local armed forces, thereby
promoting conflicts and infringements of human rights. Thisissue of conflict minerals is recognized as a serious social
issue in relation to the procurement of resources andmaterials.
Accordingly, we annually conduct surveys on the use of
conflict minerals targeting the upstream section of our supply
chain and avoid the use of any with related risks.

Ensuring green procurement

In order to reduce our environmental impact throughout the
supply chain, we issued the Green Procurement Guidelines torequest that suppliers build environmental management

Activities to support suppliers⇒ P.73

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.
NGK SPARK PLUG Group participated in the UN Global Compact in November 2016.
The Global Compact sets out the voluntary action principles to be followed by companies.

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

This initiative was proposed by Kofi Annan, the then secretary-general of the United Nations, inFor suppliers, we organize classroom seminars on themes such as process improvement, QC, occupational health & safety and the1999 to address various issues facing the world, such as global warming, environmental problems

environment and also hold practical seminars at their own manufacturing facilities to foster improvements. We have been conducting

and disparities in society. It was officially launched at the UN Headquarters in July 2000. In orderthese activities to help suppliers develop their workers in order to build a more robust business foundation. In FY2020, we held ato contribute to creating a sustainable society, the Group will conduct a range of activities as agood corporate citizen, supporting the Global Compact’s 10 principles set in the four areas of“human rights,” “labor,” “environment” and “anti-corruption.”

total of 24 such seminars including the introduction of online seminars. We are thus implementing our “Quality Products” policy andimproving our manufacturing abilities in cooperation with suppliers.

2 Follow-up activities conducted after the regular evaluation of suppliers
Takeshi Kawai
Representative Director President
Chief Operating Officer

We annually conduct evaluation on some suppliers and inform them of the results. For suppliers that require follow-up activities, wevisit them to provide targeted advice and inspect their sites in order to work with them in thinking about how to rectify any weak
points. We also commend suppliers for excellent results.

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Our BusinessMedium-term Growth Strategies

Measures against COVID-19

Intellectual Property

We are implementing measures against COVID-19, which is spreading globally, giving first priority to the safety andOur policy for intellectual property

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

health of NGK SPARK PLUG Group employees and all those related to the Group.
We appropriately create, protect, manage, and utilize intellectual property in close coordination with related

Global measures

departments, internal companies, and Group companies, under our policy to honor intellectual property including
patents, designs, trademarks, copyrights, and trade secrets.

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 situationand status of infection is reported by each of the bases to the head office, which provides support to them as necessary.

Measures taken in Japan to prevent the spread of infection
Following the spread of infection in Japan, in January 2020, we 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 theinfection. Placing safety as the top priority, we will continue our business activities toward the solution of social issues while
implementing necessary measures in accordance with the guidelines issued by the government and local municipalities.

Create intellectual property, aiming to further improve our corporate value.
Honor intellectual property rights of third parties.
Comply with laws and regulations regarding intellectual property in individual countries.

Intellectual property activities according to the management strategy outlinedin the 2030 Long-term Management Plan “NITTOKU BX”
We have formulated the medium-term management tasks regarding intellectual property, and are promoting various measures
for the tasks, positioning intellectual property activities as an important element in our management strategy.
1. Protect new technologies and inventions from the development stage to the mass-production stage, and create intellectual property.
2. Search patents utilizing AI, and deploy high-value-added patent information within a company.

Work system

Measures for employees returning to Japan from overseas

Strongly encouraging employees to work from home

We respond appropriately in line with the government’s

While we have promoted work from home or remote work

policies and allow returnees to enter our premises only

as part of our work style reforms since before the spread of

after we confirm that their health observation results

the infection, we now strongly encourage employees toindicate no problems and the occupational physician gives

work from home in view of preventing the spread of thepermission for their entry.

infection. For workplaces where remote work can be

3. Negotiate and manage complicated contract clauses regarding intellectual property based on legal knowledge.
4. Protect our brands, and detect and eliminate counterfeit goods, in coordination with customs offices and government agencies of the countries throughout the world.
5. Develop regulations and management rules which comply with laws and regulations of individual countries.
6. Lay the groundwork for the promotion of efficient intellectual property strategy, such as response to DX, compliance with working styles that meet the needs of the times, and remote work.

Incentive system for inventions at work

Business operations, business trips and meetings

applied, we have taken measures to achieve the remote

Prohibiting business trips in principle

work ratio of 70%. We have also striven to lay the

We prohibit both domestic and international business trips

groundwork for work from home or remote work including

in principle.

putting in place a remote access environment, theHolding meetings and training seminars online in principle

elimination of requirements for employees’ attendance in

In order to avoid the so-called three Cs (closed spaces,

offices when using remote work options, and thecrowded places, and close-contact settings), we

introduction of work from home allowance.

We started a new incentive system for inventions at work in April 2021. We have expanded the incentive system to further
accelerate the creation of superior inventions by our employees, with improving incentives for inventors of patents whencontribution to our business is recognized in the patents; the patents are with innovative content; or the patents will be applied
to our new products.

Promotion of education regarding intellectual property

encourage employees to hold meetings and training

Fostering staggered commuting

seminars online and are using online tools also for meetings

We are fostering staggered commuting so that employeeswith those outside the company.

can avoid crowds when commuting.

Establishment of satellite offices (decentralization of workplaces)

Allowing employees to drive to their workplaces on a

We effectively utilize satellite offices to avoid the three Cs in

temporary basis

workplaces.

In order to prevent the risk of employees becoming infectedSocial distancing at the canteen

while commuting via public transportation, we allowed

We increased the number of shifts at the canteen andthem to drive to their workplaces on a temporary basis.

decreased the number of people working on the same

Health management
Disinfection, ventilation and mask-wearing
We encourage employees to wash their hands and use

Basic course in intellectual property and introduction to research (Level 1): For those who are in thestage of being only interested in developing their technologies
Intermediate course in intellectual property and research mapping (Level 2): For those who are advanced

shift. We have also reduced the number of seats available

to the stage of recognizing the needs to protect technologies they have developed

at the canteen and ensure that employees will not be

Advanced course in intellectual property (Level 3): For those who are in the stage of being interested inseated face to face. We also ask employees to refrain fromthe success as a businesstalking when they are eating at the canteen.

disinfectants frequently and increase ventilation. We also

We implement a wide range of education regarding intellectual property for employees including engineers who may be
involved in intellectual property rights; new employees; employees in managerial posts and executives; and employees ofaffiliates in and outside Japan.

strongly recommend that they wear masks.

Training on trademarks: Learn the treatment of names and logos used in business in relation to trademarks
Intellectual property seminars: Invite lecturers from other companies, and learn about intellectual property

Physical condition management

activities of these companies. (Integration of management strategy and intellectual property strategy)

We encourage employees to manage their physicalcondition, paying attention to their diet, exercise, rest, andsleep.
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Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Risk Management
Business Continuity Management (BCM)

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.

For risk management, we have appointed the President as “Chief Administrator” and the Director in charge of the Business
Management as “Promotion Manager,” and are making efforts to improve and operate our risk management system that
integrates the risk management to prevent risks and the crisis management to handle risks when they become obvious.

Company-wide risk management
In order to identify and limit those risks that could have serious impacts on our business continuity and on the achievement of ourtargets, we follow the risk management process as described below. We also evaluate the ESG-related risks including thoseconcerning climate change and human rights.
Identify risks
List the related risks for each operational process

Make analysis based on the evaluation results provided by the Business
Management Dept. and other departments in charge of the risks

Risk evaluation

Based on the risk analysis results, select the candidates forpriority risks

Evaluate and prioritize the risks based on the analysis results

Probability of risk materialization

priority risks

Planning, implementing andmonitoring of measures⇒ P.69The departments in charge of the risks plan and conduct risk reduction
activities and the Business Management Dept. monitors the activities.

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.

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

Establishment of emergency headquarters forrecovery of business departments

The Risk Management Committee selects the priority risks
and the departments in charge of the risks.
Plan, implement and monitor priority risk reduction activities

Buildings and facilities departments
We conduct earthquake countermeasures for our buildings andfacilities, in anticipation of a Nankai Trough Megathrust Earthquake.
We are promoting training for diagnose of buildings at each site,with developing a checklist for swift diagnosis of buildings on the
spot in case of earthquakes. After the diagnosis, recovery teams
implement recovery activities according to the set priorities, after
inspecting infrastructure, supplemental facilities of buildings, andother facilities.

Business departments
In the BCP made for each department, we set a limit for therecovery time required for our major products. We also formulateaction plans for the recovery teams to achieve early recovery.

Select particularly significant risks (priority risks) and departments in charge of the risks

Countermeasures
Analysis

Evaluate the risk reduction activities to give instructions for improvement as needed

Review

IT departments
To ensure our business continuity, we are continuously working tominimize the damage that might be caused to our IT systems in
the event of a disaster and speed up the time required for recovery.
To minimize such damage, we have been graduallytransferring operating environment established for our businesssystem to a highly robust data center where we have transferred
our Internet platform. Also, to shorten the recovery time, we areshifting to cloud backups so that we can recover and restart thesystems by using undamaged backups.
We also plan to integrate the IT systems of our domestic
Group companies by using an integrated server infrastructure sothat all companies can take BCP measures on the same level.
Moreover, we are regularly providing more specific andpractical education and training so that employees can makebetter responses in case of a disaster.
Procurement departments
We are fostering BCP measures for key procurement items such as
materials and parts, including purchasing from multiple suppliers. Inview of the fact that we need a range of materials and parts to
manufacture our products, we have built up a system to implement
BCP measures across the supply chain in cooperation with suppliers.

Level of impact

Analyze the impact of risks, probability of their materialization and how measures are taken against them

Risk analysis

Selection of

Measures against COVID-19

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 andrecovery procedures to be followed in case of emergency.

Promotion system

Risk recognition

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 the COVID-19 infection, we have expanded
our work at home system and reviewed work shifts in line with the internal guidelines, thereby continuing to operate ourbusiness while preventing infection. We will verify the results to make more preparations against infectious diseases.

Priority risks

Response in the event of crisis
When risks become obvious and may have a serious impact on our business continuity, we will respond by swiftly setting up
the risk management team.

Training for facility inspection

Major disaster control and disaster reduction activities
Implementation of the joint disaster prevention drill
In anticipation of a Nankai Trough Megathrust Earthquake, we
are implementing the company-wide Disaster Prevention Drill asa joint drill for domestic Group companies. The drill includes
training for evacuation, confirmation of employees’ safety,
incipient stage firefighting, and inspection of damage caused tofacilities and equipment and is designed for early recovery in
the event of an emergency.

Raising employees’ awareness of disaster prevention
In order to enhance the disaster response capabilities of ouremployees and foster our business continuity, we distribute toemployees copies of the booklet titled “NGK Spark Plug
Disaster Prevention,” which shows the action guidelines to befollowed in the event of a disaster.

Measures against storm and flood damage
Recently, climate change has been causing more extensive
storm and flood damage. In response we annually check thehazard maps of the areas where our sites are located andimplement measures as necessary.
Training for emergency aid

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Training for evacuation

Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

CompliancePrevention of corruption

Compliance Policy
With recognition that our company is a member of society, we enhance corporate ethics and understand thespirit and meaning of laws, company regulations, international rules, and social norms in order to appropriately
meet social demand and 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.

We are striving to prevent corruption in line with the statement made in our Corporate Code of Conduct: “We shallpromote 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 andEntertainment 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
to prevent corruption, especially to prohibit and prevent bribery of civil servants, including providing employees withrelated education and conducting surveys on local laws. We also request that suppliers refrain from acts of bribery
through our CSR and Sustainability Procurement Guidelines. In FY2020, there were no violations of related laws andregulations across the Group.

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 betaken in 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)
Consultation
andreportingConsultation
andreporting

ReportingCompliance Committee
ReportingAnti-Harassment Committee(Personnel Labor Dept. and labor union)

ReportingPlant liaison staff and division in
charge of laws and regulations

Consultation

Suppliers

Implementation of compliance

Cooperation

Expert Committee
Educational tools
Education and training
Awareness survey

Compliancecheck

Consultation

NGK SPARK PLUG

Group companies

Activities concerning competition laws
Taking seriously our violation of the Anti-Monopoly Act of Japan, as uncovered in FY2014, we have established a system
to promote 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-mail inspection 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 concerningcompetition laws and compliance visit the Group companies, where they audit the companies’ compliance systems andimplementation status and check 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.

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

Corporate Ethics Helpline
We have established the Corporate Ethics Helpline as an internal reporting system available to employees and suppliers seeking
consultation and 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 andmake 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 FY2020, there were 63 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.
We have also created a system for consultations and reports at Group companies outside Japan, establishing channels at
respective companies.

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 toholding level-specific 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.

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⇒ P.67NGK SPARK PLUG CO., LTD. Integrated Report 2021

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Our BusinessInformation Security

Medium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Stakeholder Engagement
Communication with stakeholders

Information Security Policy
We regard all of our own information assets as one of our management resources. Through the proper protectionand effective use of our information assets, we pursue healthy maintenance and development of our business.

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

Communication

Major activities in FY2020

Frequency & no. of participants per year

Organization of the ordinary general meeting of shareholders

Action Guidelines

Jun.

Dialogue with institutional investors and securities analysts

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
specific items to be observed.
We continuously update the information infrastructure for the maintenance and improvement of the confidentiality, integrity, andavailability of all information assets.
We promote measures to prevent accidents in order to address the risks of information leakages associated with the continuous
advancement and sophistication of information technology. Should an accident occur, we will strive to minimize the damage and takepreventive measures against recurrence.

Shareholders
and investors

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

We offer information meaningful tocustomers at our website and throughCustomers

exhibitions so that they can purchase andSuppliers

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 effectiveness of
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 are fostering 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.

Information security management system

Cancelled due to COVID-19

Organization of briefings on the company for personal investors

Twice (411 people in total)

Publication of the newsletters for shareholders

Once

Publication of an annual integrated report

Oct.

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
From time to time

Communication at venues of events, such as racing events

From time to time

We are working to build relationships of trust with suppliers

Communication through daily procurement activities

From time to time

Organization of briefings on the corporate principles

Jun. (held online)

as their sound partner and achieve growth together. To thisend we conduct activities across the supply chain, such as

Organization of seminars on practical issues

holding briefing sessions on our corporate policies.

24 seminars

Communication through social meetings and events

From time to time

Participation in local events such as festivals
Local cleanup activity
We respect the local culture and customs
at each of our bases located across the

Localcommunities

world and work for smooth

Hosting environment-related plant tours

From time to time at each plant (71 people in total)

Social meetings on the environment

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

Communication through cultural and sport events

We also participate in various social

・2020 NGK SPARK PLUG Suzuka 2&4 Race

Cancelled due to COVID-19

・NGK SPARK PLUG FC Gifu football class for children

Cancelled due to COVID-19

Security measures
To maintain safe and sound workplaces
management team proactively visits worksites to have dialogues with on-site
employees.

・Musical for families held in the NTK Hall

Dec. (downsized due to COVID-19)

・Marathon Festival Nagoya Aichi

Mar. (downsized due to COVID-19)

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

and help employees work with vigor, theEmployees

From time to time
From time to time at each plant (464 people in total)

communication with local communities.

comfortable society as a corporate citizen.

We are establishing an information security management system. In 2020, we obtained accreditation for the Trusted Information
Security Assessment Exchange (TISAX), the assessment standard of information security for the supply chain of the automobile
industry.

Confidentiality management

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

Explanation about products and technologies at exhibitions

contribution activities to help create a

We are continuously implementing measures to deal with the types of information security risks that pose a threat to companies
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 andfollow-up measures.

Four times (242 people in total)of mind.

use our products and services with peace

Promotion system

197 times

Conference call for institutional investors and securities analysts

Four 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)
Organization of various training sessions

63 calls received
From time to time (primarily held online)

Employee satisfaction survey

All employees from Oct. to Nov.

Inclusion in SRI Indexes

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 progressof informatization in society for the enhancement of the checking function.

NGK SPARK PLUG Group is included in the following socially responsible investment (SRI) indexes:

Protection of personal information
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 to appropriately
protect, manage and handle the personal information of its customers and employees.

(As of July 31, 2021)*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.

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Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Corporate GovernanceIn line with the corporate philosophy expressed in the slogan, “With established trust and confidence insideand outside the company, we aim to contribute to the peoples of the world by creating and putting at their
proposal new values for the future.” we are enhancing the corporate governance system that we built tofoster business management that will increase our corporate value on a medium- to long-term basis. Ourbasic philosophy on corporate governance is to promote fair and highly 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.

3

Corporate governance system

Corporate Governance System Chart (as of July 1, 2021)

In order to secure transparency, healthiness, and efficiencyof management, we have established respective
organizations under the framework of a company with an
Audit & Supervisory Board. To that end, we have adopted
the following system, aiming for the enforcement ofsupervision & audit function and decision-making function
as well as for swift business execution.
1

Appointment/dismissal
3

Nomination Committee

12Advising/reporting

5

Deliberation

Corporate Officers andCompany Presidents
Meeting

Reporting

6

President and CEO

Instruction

Internal Auditing Office

Corporate Officers
Audit

Committee ,Instruction

etc.

5

Basic information

Audit & Supervisory Board members

FY2021
Nomination Committee

Remuneration Committee

Shinichi Odo〇〇

Yoshihiro Matsubara

Takeshi Kawai〇〇

Fumiko Nagatomi

Name

〇

Mikihiko Kato

FY2021
Nomination Committee〇

Organizational design

Remuneration Committee〇

No. of directors
No. of outside directors among total no. of directors

Akihiko Minato〇〇

Term of directors

Chiharu Takakura〇〇

No. of Audit & Supervisory Board members

Takio Kojima

No. of outside Audit & Supervisory Board members among

Kenji Isobe

total no. of Audit & Supervisory Board members

Hiroyuki Maeda
Kanemaru Yasui〇〇

Mackenzie Donald Clugston〇〇

Miwako Doi〇〇

Independent Audit & Supervisory Board member

Corporate Management Committee

Composed of the representative directors, other directors andsome of the executive officers, this committee discusses theimportant issues to be reported to the Board of Directors. It
also meets to discuss and grasp in advance businesschallenges to be addressed and any possible risk thatinvolves the company, thereby building a system to makeprompt responses to changes in the business environment.

Business Operating Section (Corporate functions,Internal Companies, Headquarters)/Group Companies

Members of the Nomination and Remuneration Committees〇

Remuneration Committee

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, theRemuneration Committee deliberates on matters related todirector remuneration, including the appropriateness ofpolicies, procedures, and systems, as well as theappropriateness of the proposed remuneration for eachdirector, and then delivers its opinions to the Board of
Directors.

Instruction
6

Compliance

The Audit & Supervisory Board is composed of four corporate
Audit & Supervisory Board members, three of whom areoutside Audit & Supervisory Board members. The Board
audits the directors’ business execution as an independent
organization on the behalf of shareholders. Full-time Audit &Supervisory Board members carry out audits based on theirbusiness experience in the company and outside Audit &Supervisory Board members from a neutral and professional
viewpoint, thereby ensuring sound business management.

Corporate Management
Committee

Deliberation

Committee〇

4Business execution

Risk Management

Morihiko Otaki

Accounting audit

Audit & Supervisory
Board OfficeMutual cooperation

Advising/
reporting

Mutual cooperation

Remuneration Committee

Audit

4

Audit & Supervisory Board〇

Audit & Supervisory Board

Appointment/
dismissal/supervision

Committee

Toru Matsui

Appointment/
dismissal
Mutualcooperation Independent auditor

Audit

CSR and Sustainability

Name

Advisory body of the Board of Directors. Majority of its
members are independent outside directors so as to ensuretransparency and rationality for the nomination of director
candidates. Consulted by the Board of Directors, thiscommittee deliberates on the appointment of directors andAudit & Supervisory Board members, which will be proposedat the general meeting of shareholders as well as on theevaluation of corporate performance and the results-based
evaluation of the management team. The deliberation results
are reported to the Board of Directors.

Appointment/dismissal

Board of Directors

Board of Directors

Directors

OutsideGeneral meeting of shareholders

The Board of Directors is composed of 11 directors, four ofwhom are outside directors. The Board meets regularly oncea month and as required for deliberation and determination ofissues as prescribed in applicable laws and regulations orarticles of incorporation as well as other key managerial
issues. The Board also supervises business execution,
receiving reports from directors. Multiple independent outside
directors have been invited to join to the Board to enhance its
supervisory function and ensure management transparency.

2

Internal

Nomination Committee

As of June 25, 2021

Company with an Audit & Supervisory Board
11

6

4
1year
4

Corporate Officers, Corporate Officers
and Company Presidents Meeting

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

3
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Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Corporate GovernanceDirectors (as of June 25, 2021)

Representative Director, President, Chief Operating Officer

Representative Director,
Chairman of the Board

Shinichi Odo

Digital Transformation and Global Group

Member of the Board (Outside Director)

Member of the Board (Outside Director)

Governance Headquarters

Morihiko Otaki

Kanemaru Yasui

Takeshi Kawai
April 1987:
Joined our company
February 2011: General Manager of Sensor Engineering Dept. II, Sensor
Div., Automotive Components Gr.
April 2012:
Corporate Officer
April 2015:
Managing Officer
June 2015: Member of the Board, Managing Officer
April 2016:
Member of the Board, Senior Managing Officer
April 2019:
President & Chief Operating Officer (up to today)

April 1977:
Joined our company
February 2003: General Manager of Overseas Aftermarket Sales & Marketing Dept., Sales and Marketing Div., Automotive Components Gr.
July 2005:
President, NGK SPARK PLUGS (U.S.A.), INC.
June 2007:
Member of the Board
June 2010:
Member of the Board (Managing Director)
June 2011:
President
April 2012:
President & CEO
April 2016:
Representative Director & Chairman of the Board
President & Chief Executive Officer
April 2019:
Representative Director Chairman of the Board (up to today)
May 2020:
Chairman, Japan Auto Parts Industries Association (up to today)

Member of the Board, Executive Officer,
Strategic Human Resources andRepresentative Director, Member of the Board,
Executive Vice President, Assistant to President,

Sustainability Promotion, Gr. General Manager,
Tokyo Branch OfficeBusiness Creation Company

Toru Matsui

Mikihiko Kato

April 1984:
Joined our company
April 2011:
President of NGK SPARK PLUG EUROPE GmbH
October 2013: 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 1985:
Joined our company
February 2012: General Manager, Corporate Planning Dept.
August 2012: President of CERAMICA E VELAS DE IGNICAO NGK DO BRASIL
LTDA.
October 2015: General Manager, Corporate Planning Dept.
April 2016:
Corporate Officer
June 2017:
Member of the Board, Corporate Officer
April 2019:
Member of the Board, Executive Officer (up to today)

March 1981: Registered as a Certified Public Accountant
April 1999:
Representative Partner, Central Audit Corporation
September 2006: Partner, Misuzu Audit Corporation
August 2007: Representative Partner, AZSA & Co. (currently KPMG AZSA LLC.)
Managing Partner, Director of Nagoya Branch, AZSA & Co. (currently KPMG AZSA LLC.)
June 2008:
June 2013:
Retired from KPMG AZSA LLC.
July 2013:
Director, Yasui Certified Public Accountant Office (up to today)
June 2014:
Outside Director, NICHIHA Corporation
Member of the Board (Outside Director), NGK SPARK PLUG CO., LTD. (up to today)

August 1996: President & CEO, JOHNSON & JOHNSON K.K. VISION CARECOMPANY
August 2011: Vice Chairman of the Board, PASONA INC.
June 2013:
Member of the Board (Outside Director), NGK SPARK PLUG
CO., LTD. (up to today)
June 2016:
Director, Henry Schein Japan K.K. (up to today)
August 2016: Vice Chairman, PASONA INC.
June 2018:
Outside Director, GIGA PRIZE CO., LTD. (up to today)
June 2020:
Outside Director, FP Corporation (up to today)

Member of the Board (Outside Director)

Mackenzie Donald
Clugston
Joined Department of Foreign Affairs and International Trade of
the Canadian 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 theASEAN
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.
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, Executive Officer, Business
Management and Financial Strategy, Secretarial

Member of the Board, Executive Officer,
Corporate R&D Group

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

Takio Kojima

Kenji Isobe
April 1986:
Joined our company
July 2011:
General Manager of Accounting & Finance Dept.
April 2013:
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, Corporate Officer
April 2019:
Member of the Board, Executive Officer (up to today)

April 1984:
Joined our company
February 2011: General Manager of Next Generation Product Project, Product Planning Center, Engineering R&D Gr.
April 2012:
General Manager of Next Generation Product Project, New Business Advancement Gr.
October 2013: Deputy General Manager of R&D Center
April 2014:
Corporate Officer
April 2018:
Managing Officer
June 2018:
Member of the Board, Managing Officer
April 2019:
Member of the Board, Executive Officer (up to today)

Member of the Board (Outside Director)

Miwako Doi

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

Member of the Board, Executive Officer,
Corporate Strategy and BusinessTransformation Div.

June 2015:
April 2017:

Hiroyuki Maeda

June 2019:
April 2020:
June 2020:

April 1986:
Joined our company
February 2012: General Manager of Planning Control Dept., Sensor Div.,
Automotive Components Group
April 2012:
General Manager of Sensor Engineering Dept. II, Sensor Div.,
Automotive Components Group
April 2013:
General Manager of Procurement Dept., Procurement Div.
April 2014:
Deputy General Manager of Procurement Div., General Manager of Supplier
Relations & Development Office, General Manager of Procurement Dept.
April 2016:
Corporate Officer
April 2019:
Executive Officer
June 2019:
Member of the Board, Executive Officer (up to today)

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, aNational Research and Development Agency) (up to today)
Outside Director, Nomura Research Institute, Ltd.
Executive Director, Nara Institute of Science and Technology (upto 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)

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Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Corporate Governance

Audit & Supervisory Board Members (As of June 25, 2021)

Executive/Corporate Officers (As of June 25, 2021)

Executive Officer

Executive Officer

Executive Officer

Noboru Ishida

Masaki Sumiya

Hiroyuki Tanabe

Audit & Supervisory Board Member, Standing

Outside Audit & Supervisory Board Member

Fuel Cell Office

Company President, Global Procurement

Company President, Production Engineering Company

Yoshihiro Matsubara

Fumiko Nagatomi

President of CECYLLS Co., Ltd.

Company

Plant Manager of Komaki

Executive Officer

Executive Officer

Executive Officer

Hiroyasu Ogura

April 1983:

Joined our company

February 2012: General Manager, Production Engineering Dept., Spark Plug Div.,
Automotive Components Gr.
April 2012:

General Manager, Spark Plug Production Engineering Dept.,
Production Engineering Center, Production Engineering Gr.

February 2014: General Manager, Equipment Dept., Production Engineering
Center, Production Engineering Gr.
April 2014:

Corporate Officer

April 2019:

Corporate Adviser, Standing

June 2019:

Audit & Supervisory Board Member, Standing (up to today)

April 1981:

Registered as an attorney and joined Hachisuka Law Firm

March 1989:

Left Hachisuka Law Firm

April 1989:

Opened Nagatomi Law Firm (up to today)

May 2006:

Outside Auditor, UCS CO., LTD.

June 2016:

Audit & Supervisory Board Member (Outside Corporate Auditor),
Chubu Electric Power Co., Inc. (up to today)

June 2017:

Outside Audit & Supervisory Board Member, NGK SPARK PLUG
CO., LTD. (up to today)

Outside Audit & Supervisory Board Member

Outside Audit & Supervisory Board Member

Akihiko Minato

Chiharu Takakura

April 1976:

Joined The Mitsubishi Bank, Ltd.

April 1983:

Joined the Ministry of Agriculture, Forestry and Fisheries

June 2003:

Executive Officer, The Bank of Tokyo-Mitsubishi, Ltd.

May 1992:

Obtained an MBA from Georgetown University (U.S.A)

May 2007:Managing Executive Officer, The Bank of Tokyo-Mitsubishi UFJ, Ltd.
(currently MUFG Bank, Ltd.)

August 1993: Consultant, Sanwa Research Institute Corp.

June 2009:Managing Director, MARUNOUCHI YOROZU Co., Ltd.

October 2006: General Manager of Human Resources Department, Human

July 1999:

Outside Audit & Supervisory Board Member, The Nanto Bank,

June 2012:

July 2014:

Representative Director and Vice President, Mitsubishi UFJ
Research and Consulting Co., Ltd.

Company President, IGNITE Company

Regional President ASEAN, India

Plant Manager of Satsuma

Company

Executive Officer

Executive Officer

Executive Officer

Yoshiyuki Takayanagi

Osamu Shinkai

Kazunobu Hasegawa

Business Management Dept., Company

Company President, Advanced Ceramics Company

Regional President China

President, Business Support Company

President of NTK CERATEC CO., LTD.

President of NGK SPARK PLUG (SHANGHAI) CO., LTD.

Plant Manager of Nagoya

Plant Manager of Ise

President of NGK SPARK PLUG (SHANGHAI) TRADING CO., LTD.

Executive Officer

Executive Officer

Executive Officer

Keiji Suzuki

Kazuyoshi Terashita

Tomohiro Yamaguchi

Company President, Sensor Beyond Company

Financial Strategy Dept., Company President,

Strategic Human Resources Dept. and Sustainability

FP & A Company

Promotion Dept., Company President, HR Communication

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

Company, General Manager, HR Development Dept.

Planning Manager, Human Resources Division, Pfizer Japan Inc.

Corporate Fellow, General Manager, Global Human Resources
Dept., Ajinomoto Co., Inc.

Outside Audit & Supervisory Board Member, Mitsubishi Materials
Corporation

April 2020:

HR Advisor, ROHTO Pharmaceutical Co., Ltd.

June 2020:

Director, Head of Well-being Management Promotion Division,
ROHTO Pharmaceutical Co., Ltd. (up to today)

September 2016: Chairman, MST Insurance Service Co., Ltd.
June 2018:

Koji Suzuki
Company President, Mobility BusinessResources and Communication Division, Novartis Pharma K.K.

Ltd.
June 2010:

Akiyoshi Kato

Company President, SCM Solutions & Services Company

June 2021:

Outside Audit & Supervisory Board Member, NGK SPARK PLUG
CO., LTD. (up to today)

Outside Audit & Supervisory Board Member, NGK SPARK PLUG

Corporate Officer

Corporate Officer

Michael Alan Schwab

Damien Germès

Takeshi Mitsuoka

Regional President PAMA

Regional President EMEA

R&D Group

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

President of NGK SPARK PLUG EUROPE

President of NGK SPARK PLUGS CANADA LIMITEDGmbH

Corporate Officer

Corporate Officer

Masakazu Ota

Shigeki Mori

Tsunejiro Tajima

Company President, Machining Technology

Digital Transformation Dept., Company

Vice President of NTK CERATEC CO., LTD.

Company

President, IT Systems Company

President of NTK Technologies, INC.

Corporate Officer

Corporate Officer

Shingo Arimi

Yoshitaka Suzuki

Deputy Company President, Production

Business Transformation Div.

Corporate Officer

CO., LTD. (up to today)

Corporate Officer

Engineering Company

Executive Officers and Corporate Officers who are not directors

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Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Corporate Governance

Basic Philosophy on Corporate GovernanceIn line with the corporate philosophy expressed in the slogan, “With established trust and confidence insideand outside the company, we aim to contribute to the peoples of the world by creating and putting at their
proposal 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 and highly 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.

As for the issues pointed out during the FY2019 effectiveness evaluation, we took measures to enhancedeliberations on business management and strategies by the continuous discussion with a view to preparing mediumand long-term management and business strategies and by delegation the authority to the executives. With regard to
the enhancement of training for executives, we confirmed good progress in the on-boarding program for newly
appointed officers. However, further improvement on continuing training after taking office should be necessary;
therefore we continue to work on it.
In the FY2020 evaluation, the following issues were pointed out as issues to be addressed to enhance theeffectiveness of the Board of Directors: advanced supervisory function driven by introducing an in-house company
system, and enhanced monitoring on non-financial management indicators. Going forward, we strive to maintain andenhance the effectiveness of the Board of Directors by tackling those issues.

Roles and Independence of Outside Directors and Audit & Supervisory Board Members
Roles and structure of the Board of Directors
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:
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 foster
discussions from multifaceted viewpoints and ensure the transparency and objectivity of its decision-making. For thesustainable growth of the company and medium- to long-term increase of its corporate value, we regard it as important thatthe Board be comprised of a diverse group of individuals with different backgrounds (expertise, experience, etc.) and choose
the members in a balanced manner from those who have abundant experience, tremendous insight and a high degree ofprofessionalism in consideration of the current business environment, while also ensuring diversity in terms of gender,international caliber and other attributes. We select members regardless of race, ethnicity, nationality, country of origin andcultural background.

Evaluation of the effectiveness of the Board of Directors
The company conducted an evaluation on the effectiveness of the Board of Directors. An overview of this evaluation for FY2020 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.

2 Overview of evaluation results
We confirmed that the effectiveness of the Board of Directors has been sufficiently secured, and more specifically we haveOutside 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 also fulfill auditing functions by drawing on their expertise to carry out audits from multifaceted viewpoints
and express their opinions at important meetings, such as Board of Directors meetings.
We appoint all the independent outside directors and Audit & Supervisory Board members as independent officers. In
order to ensure that candidates have neither special relationships with the management team and major shareholders nor
conflicts of interest with general shareholders, we designate those who meet all the followings as independent officers: ourown criteria for the appointment of independent officers; the requirement of independent officers set by the Companies Act;and the rules and regulations stipulated by the financial instruments exchanges.
Appointment reasons for outside directors and Audit & Supervisory Board Members
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.

Name

Outsidedirector

Morihiko
Otaki

He has a wealth of experience in global companies and expertise as an executive. As an
outside director, he oversees business execution by the Company’s management team andprovides advice to the team, and we have selected him as an outside director with the
expectation that he will continue to fulfill his role.

12/12

ー

Outsidedirector

Kanemaru
Yasui

He has a wealth of expertise and experience developed through the long-term career as acertified public accountant. As an outside director, he oversees business execution by theCompany’s management team and provides advice to the team, and we have selected him as
an outside director with the expectation that he will continue to fulfill his role.

12/12

ー

Outsidedirector

Mackenzie
DonaldClugston

As a diplomat, he has a great deal of global experience and expertise in international affairs andtrade. As an outside director, he oversees business execution by the Company’s management
team and provides advice to the team, and we have selected him as an outside director withthe expectation that he will continue to fulfill his role.

11/12

ー

Outsidedirector

MiwakoDoi

She has an abundance of experience and an outstanding record as a researcher in the field of
information and communication and has been engaging in advanced research both inacademia and in the private sector. As an outside director, she oversees business execution by
the Company’s management team and provides advice to the team, and we have selected her
as an outside director with the expectation that she will continue to fulfill her role.

10/10*ーOutside Audit& Supervisory
Board
memberFumikoNagatomi

She has the expertise and abundant experience that she has accumulated during her longcareer as an attorney. Based on her career, we have selected her as an outside Audit &Supervisory Board member in the belief that she will continue to execute proper auditing of theCompany’s overall management.

12/12

13/13

Outside Audit& Supervisory
Board
memberAkihiko
MinatoHe has served in important posts at financial institutions and has abundant expertise andknowledge regarding finance and corporate management as an executive. Based on his career,
we have selected him as an outside Audit & Supervisory Board member in the belief that he willcontinue to execute proper auditing of the Company’s overall management.

12/12

13/13

Chiharu
Takakura

After receiving an MBA degree, she worked as a consultant in organization building and humanresources development before taking up successive important positions with several global
companies, including international pharmaceuticals companies. As such, she has a wealth ofexperience and knowledge concerning organizational development and human resources
development. Based on her career, we have selected her as an outside Audit & Supervisory
Board member in the belief that she will continue to execute proper auditing of the Company’s
overall management.

ーー

confirmed that the effective measures are being taken in the following areas:
1) The Board of Directors consists of appropriate members who collectively have sufficient knowledge, experience, abilities anddiversity to fulfill their roles and responsibilities.
2)

All the directors share how important it is to reinforce the supervisory function of the Board of Directors and how outside
directors should act therein.

3)

The Board of Directors understands the company’s cost of capital, and appropriately supervises the optimization of thebusiness portfolio of the entire Group and the proper allocation of managerial resources.

4)

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.

5)

The Board of Directors periodically verifies that the management identifies the risks the company face and the effective
process to evaluate the potential effect of those risks is established.

6)

The Nomination Committee and the Remuneration Committee act as advisory bodies to the Board of Directors to ensure thesuitability and transparency of the director nomination and remuneration decisions.

FY2020 Frequency of attendance

Title

Outside Audit& Supervisory
Board
memberReason for appointment

Board of Directors Audit & Supervisory Board* After taking office as an outside director on June 24, 2020.

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Segment Highlights

Financial / Corporate Information

Corporate Governance

Succession Plan

Example of remuneration payment

NGK 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 future CEOs andother business leaders. The members of the Board see to it that sufficient time and resources are committed to developing
their successors in a planned manner.

In the case of 100% achievement ofSpecific 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.

Policy on the payment of bonus

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.

Training for officers
We provide the directors and Audit & Supervisory Board members with sufficient assistance to fulfill their expected roles andresponsibilities where applicable. For the directors, we encourage them to take external seminars to acquire additional
knowledge to meet their obligations, while all the directors and corporate officers are required to attend an executive training
session to share the managerial issues and seek out the solution. In order for the outside directors to deepen understanding of
the Group, each department explains the businesses and operations in addition to providing them with opportunities to visit
major sites of the businesses.
The Audit & Supervisory Board members periodically take external sessions to gain understanding of what roles the Audit &Supervisory Board members fulfill, the audit methods, the relevant laws and regulations, and financial accounting knowledge required
for the accounting audit. We also provide them with opportunities to visit our factories and subsidiaries to enhance theirunderstanding of the company.

Remuneration for Officers
Basic policy
Remuneration for officers is paid based on the policy of providing them with additional motivation to contribute to 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 remuneration consists of fixed
remuneration paid in the form of cash; bonus, which is linked with the company’s single-year business performance, etc.;
and performance-linked stock remuneration paid in accordance with each person’s position and level of achievement against
the performance targets set in the medium-term management plan and others. For Audit & Supervisory Board members andoutside 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 the appropriateness of the amount of remuneration planned to be paid to eachdirector, and submits the results to the Board of Directors to ensure the rationality and transparency of the decisions madeconcerning the remuneration of directors. In FY2020, the committee met four times.
Type and details of remuneration for officers
Fixed remuneration

Details of
remuneration

Indicators against
which theachievement of theperformance targets
is assessed
How to determine
payment
Recipients

Bonus

Fixed remuneration is determined
holistically according to theposition and responsibilities, by
taking into account peers’ levels,the company performance, andthe level of employee salaries,
and then paid monthly.

Performance-linked stock remuneration

Bonus is determined based on a
The Board Incentive Plan (BIP) is adopted, where thecomprehensive consideration of thecompany shares and money in the amount equivalent tobase amount for each position, by taking the value of the shares of the company are given or
into account quantitative targets for the granted to directors at the end of the period set for the
degree of achievement of Company
system, based on their positions and level of achievement
performance goals as well as qualitative against the targets set in the Medium-term Management
evaluations of individual performance,
Plan, etc.
and is paid at a certain time each year.
Performance goals for the year:

Consolidated revenue,
consolidated operating income
Performance goals for the medium-term: Consolidated revenue, consolidated
operating income, ROIC
Non-financial measures goals:
Sales from non-ICE business, rateof reduction of CO2 emissions

ーConsolidated revenue,
Consolidated operating income
ratio

ー

Payment is determined within the
The ratio of the fixed portion to the performance-linked
range of 0% to 175% based on the portion is set to be 3:7, in the case of 100% achievement
achievement of the companyof each indicator. Performance-linked portion is determined
performance target and assessment within the range of 0% to 200%, according to theof individual performance.
achievement of each indicator.

Directors, Audit & Supervisory Board members Directors (excluding outside directors)

Directors (excluding outside directors)

key performance indicators (KPIs)

Fixed remuneration
60%

Bonus
25%

Performance-linked
stock remuneration
15%

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 for corporate performance such as consolidated revenue
and consolidated operating income ratio, which reflect the results of sales activities, and based on the qualitative evaluation of theindividual performance of the person. For FY2020, the numerical targets for consolidated revenue and consolidated operating
income ratio were 405.0 billion yen and 8.1%, while the actual results were 427.5 billion yen and 11.1%.
Performance-linked stock remuneration system
We introduced the performance-linked stock remuneration for directors (excluding outside directors) and corporate
officers (excluding employment-type corporate officers) to further clarify the link between the compensation of
directors and the value of the Company’s stock, and to have them share interests with shareholders, so as toincentivize them to contribute to the improvement of the Company’s medium- to long-term performance and toincreasing corporate value. Under the system, the Board Incentive Plan (BIP) is adopted, where points are given to
directors based on their position and the level of achievement against the targets set in the Medium-term Management
Plan. Points are calculated according to the method stipulated in share granting regulations, which were determinedby the Board of Directors after the deliberation of the Remuneration Committee. After the end of the period, shares of
the company and money in the amount equivalent to the value of the shares are to be given or granted based on
granted points.
In 2021, we added non-financial measures (such as sales from non-ICE business and reduction of CO2 emissions)to indicators against which the achievement of the performance targets is assessed, with a view to facilitating thetransformation of the business portfolio and sustainability initiatives raised in the Long- and Medium-termManagement Plan. Given the revision, we continue to adopt the performance-linked stock remuneration system over
the New Medium-term Management Plan from FY2021 to FY2024.

Total amount of remuneration, etc. paid to officers, total payment amount by remuneration type, and the number of recipients (for FY2020)
Total amount of
Category

Total payment amount by remuneration type (millions of yen)
Number of recipients

remuneration paid
(millions of yen)Fixed remuneration

Bonus

Performance-linked(persons)

stock remuneration

Directors (excluding outside directors)

522

342

124

55

7

Audit & Supervisory Board members (excluding outside members)

49

49

ー

ー

2

Outside directors

54

54

ー

ー

4

Outside Audit & Supervisory Board members

28

28

ー

ー

2

(Notes)*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. The number of directors as of the end of the 117th general meeting of shareholders was 10 (including 3 outside directors).
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 held on June 29, 2017, a performance-linked stock remuneration system isimplemented separately for four fiscal years from FY2018 to FY2021, targeting the company’s directors (excluding outside directors) and corporate officers, withthe upper limit on the total payment amount set at 1,000 million yen. The number of directors (excluding outside directors) and corporate officers (excluding
directors) as of the end of the 117th general meeting of shareholders was 7 and 12, respectively.
*2: The following limits are set on the remuneration paid to Audit & Supervisory Board members according to the resolution made at the 106th general meeting ofshareholders held on June 29, 2006. The number of Audit & Supervisory Board members as of the end of the 106th general meeting of shareholders was 4(including 2 outside Audit & Supervisory Board members).
Total amount of remuneration (excluding bonus): 10 million yen or below per month
Total amount of bonus:
10 million yen or below per year
*3: For the bonus and performance-linked stock remuneration shown in the table, they were recorded as expenses for FY2020.

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Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Interview with Outside Directors

Corporate Governance

Audit & Supervisory Board Members and Measures to Strengthen Their Functions
The Audit & Supervisory Board is composed of four members, three of whom are outside members.The Audit & Supervisory
Board offers timely and appropriate opinions including external viewpoints. None of the outside members have interests in
NGK SPARK PLUG, such as conducting transactions with the company, or belong to any organizations that have interests in
it. In addition, the Audit & Supervisory Board strives to improve the effectiveness of audits by close alignment and interactive
communication on audit policies, audit plans, and audit implementation status through the regular or ad-hoc meetings withthe accounting auditor and the Internal Auditing Office.
Previously, we dedicated a staff to assist the Audit & Supervisory Board members in response to their request. In July
2021, the Audit & Supervisory Board Office with three full-time personnel was newly established to reinforce the function of
Audit & Supervisory Board members.

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

Stocks Held for Reasons Other than Pure Investment Purposes
Policy on the stocks held for reasons other than pureinvestment purposes
NGK SPARK PLUG holds the stocks of its suppliers andothers basically to maintain and enhance stable business
relationships with them, when the company decides thatholding the stocks will help increase its corporate value
after verifying the economic rationality from medium- tolong-term viewpoints. The Board of Directors annuallychecks whether it is rational and useful in terms ofenhancing its corporate value to keep the stocks
individually for each of the investee companies, inconsideration of the capital cost and comparing the relatedrisks and returns on a medium- to long-term basis. Whenthe Board decides that the company should not continue
to hold any of the stocks, the company will sell them asappropriate, in consideration of the market trend.

Stocks Held for Reasons Other than Pure Investment Purposes (listed stocks)
Reducing the stocks held for reasons other than pure investment purposes steadily,considering capital cost as well as risks and rewards for the medium- to long-term(Billions of yen)

Sold all the shares of sevenissues and partially sold sharesof one issue, total proceeds
are about 8.0 billion yen

100
80

40

29

30

20

20
10

0

0

FY2017FY2018Amount

FY2019Outside Director

Miwako Doi

Supporting challenge aimed at the transformationof business portfolio, the co-creation of innovation,and risk taking by executive departments

40

20

FY2016

Outside Director

Mackenzie Donald Clugston

50

27

40

Outside Director

Kanemaru Yasui(Number of issues)

33
60

Outside Director

Morihiko Otaki

FY2020

Number of issues*The amount represents market capitalization.

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.

Enhancement of Group Governance
NGK SPARK PLUG has corporate officers who were locally recruited at its regional headquarters (RHQs) for the Americas
and EMEA 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 governance teams at
the RHQs to build an optimal decentralized system on a group-wide basis and enhance corporate governance as the entire
Group.
Moreover, the Global Group Governance Headquarter is in place as an organization that audits the effectiveness of theGroup’s governance as an entity that is separate from its business execution. This organization formulates and implements
measures to carry out audits on the management of Group companies and RHQs and on the core business operations ofeach department. It also formulates and implements measures to enhance internal control across the Group and thus plays
an important role for the enhancement of the Group’s governance.

We’d like to hear your opinions about the transformation of the business portfolio.
Clugston It’s said that engine-powered cars equippedwith plugs, the company’s mainstay products, are probably
going to be replaced by electric vehicles (EVs) and fuel cellvehicles (FCVs) over the next 20 to 30 years. The 2030
Long-term Management Plan “NITTOKU BX” presents aframework for responding to these major changes in ouroperating environment, and progress has been made withpreparations for the transformation of the businessportfolio. Right now, we’re at the stage of exploring
possible options. The potential of the new technologies
and businesses within the Group is great, and we should
also explore opportunities in terms of M&A and business
partnerships in order to speed things up.

Although a framework is in the process of being put
together, a concrete vision for the businesses that aregoing to be born out of that still hasn’t come into view. Thatbeing said, I think the executive departments are thinking
really hard and moving things forward.
Doi In parallel to the methodology discussions, thecompany also has to develop new businesses to drive thebusiness portfolio transformation, doesn’t it? But it takes along time, 10 years or 20 years, for a new business to
begin to flourish. We outside directors will strongly push forthe establishment of a new organizational structure to
generate innovations that can serve as buds for new
businesses.

Yasui That’s right. At the Board of Directors meetings, wehave looked back on the previous Medium-termManagement Plan, and all the directors realize that atransformation of the business portfolio is necessary, so wehave lively discussions based on that common
understanding. Although we still haven’t got to specifics, asthese will come later, lots of topics come up not only aboutbusiness, but also about methodology. These topics coverthings like personnel evaluation systems, bringing in talentfrom outside the company, and changing the name of thecompany.
Otaki Progress has already been made with the reform oforganizational structure, which encompasses things likehiring outside talent and promoting foreign nationals, andthe reforms have already started to produce results.

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Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Interview with Outside Directors

Please tell us about issues for NGK SPARK PLUG’s sustainability (ESG).
think it’s important to avoid adopting the simplistic
viewpoint that international combustion engines (ICEs) arebad. Rather, I believe it vital that after considering the big
picture, which encompasses the energy mix, the company
clarify its position, namely its commitment to contributing to
CO2 emissions reduction through the development and saleof high-function products, and communicate that externally.

generate new products will cease to function properly. I
think DX (digital transformation) is urgently needed, andthat it should include the creation of a digital platform tocompensate for this problem.

naturally and been absorbed by the employees.” On theother hand, if each internal company is completely
independent, like a vehicle component, the human network
required to combine the company’s technology andClugston Change is crucial, but it is also important toconvey an image that shows what sort of company NGKSPARK PLUG is. For example, in commercials from Americancompanies, the style has shifted from one of “Please buy thisproduct or service” to one of “We’re this wonderful company.”
Expressions like that are being used more and more often. It is
increasingly difficult to achieve differentiation through products
and services, so consumers and society are looking for value
in the future stories that companies tell. And of course, thissort of corporate branding is also effective for hiring personnel.
It is important for the company to establish a structure forproperly transmitting to the outside world the message that
this is a place where fresh graduates would like to work.

Otaki To reduce the environmental burdens, themanufacturing sector needs to go one step further to cut
CO2 emissions. For example, companies could consider
utilizing renewable energy, even if it means incurring costs.
From the viewpoint of philanthropic activity, however, it’s ashame that we don’t see activities that give us the feelingthat employees think that philanthropy is something thatconcerns them personally. If an employee-centricorganization were created, and employee-participationdriven philanthropic activity, whereby employees take thelead, were conducted, we’d likely see far better results.

Yasui The opinion statement published following themeeting of the Council of Experts Concerning the Followup of Japan’s Stewardship Code and Japan’s Corporate
Governance Code that was held on April 6, 2021
recommended that sustainability initiatives be regarded notjust as risks, but also as profit-earning opportunities. Even
now, the company is planning to invest a considerable
amount of money in ESG measures, but from theindependent standpoint of an outside director, I would liketo get involved in the question of how these measures areleading to the enhancement of corporate value.

Clugston I’m interested in an aspect that’s different to
the environment and philanthropy, as I’m focusing on
diversity. The promotion of foreigners and women to
managerial and executive posts has been increasing, and I
myself am one of the beneficiaries of that. When it comesto this immense managerial task of transformation of thebusiness portfolio, I think it will be important to revisit
longstanding practices and bring change to the corporate
climate. Of course, you can’t change such things overnight,
but increasing the number of employees from a variety ofbackgrounds can be expected to speed up the creation of
new business pillars.

Doi Automobiles employing our Group’s precious metal
plugs emit less CO2 than ones employing conventional
plugs. I think that ESG measures based on products likethis could be made more visible. Looking at the earth as awhole, EVs do not emit CO2 directly, but if the electricity
they run on is generated thermally, CO2 is emitted at thatstage. And hydrogen is produced using electrolysis. So I

An in-house company system was introduced in April 2021.
Please tell us about issues that have occurred and how they have been dealt with.
Yasui The opinion statement I mentioned earlier
recommended that the Internal Auditing Office shift awayfrom direct reporting to the CEO and move in the directionof working with directors and Audit & Supervisory Board
members. I agree with the recommendation, and because
the Board of Directors can’t be expected to keep a close
eye on every internal company, I think cooperation with theInternal Auditing Office should be considered for the sakeof the governance of the internal companies.

Please tell us about the aspects of NGK SPARK PLUG’s governancethat you would like to strengthen going forward.
Clugston What’s worthy of note with regard to ourGroup’s governance is that from the perspective of
nurturing CEO and senior management successors, thecompany has established a system whereby the
Nomination and Remuneration Committees have eachcorporate officer candidate give a presentation, after which
they ask the candidate questions, assign them a score,deliberate on the results, and finally decide whether topromote them. There’s an open atmosphere, and outside
directors have an opportunity to meet directly face to facewith the candidates, and the deliberation on the results ofthe scoring is highly transparent, so decisions cannot bemade arbitrarily. Even now the in-house company system
has been introduced, I intend to take advantage of thismechanism to play a part in the nurturing of successors
from the standpoint of an outside director.

further. This is because the timing of technology and market
development as well as the market environment, which
includes moves by rival companies, differs for each internal
company, so each will behave more dynamically and will bein a hurry to grow. There is therefore a danger of the seedsof wrongdoing being impossible to see. My feeling is thatthe company has entered a new phase, during which it will
strengthen governance even more through the sharing ofvalues that bind the Group together and the heightening ofawareness of ethics and compliance.
Yasui Until now, the NGK SPARK PLUG Group has
approached things with a sense of unity, with “everyone
singing from the same hymn sheet,” and has succeeded in
expanding and growing its business. But going forward, as it
develops and nurtures new business pillars, the executive
departments are going to need to make the right decisions
about what to select and focus on, and they are going toneed to make these decisions rapidly. Amid such anenvironment, it is essential that we outside directors provide
support in selecting and focusing as well as in taking on risk,so that the executive departments do not wither and atrophy.

transformation of our Group’s business portfolio. However,among the measures taken independently by each internal
company, some might not be aligned with the Group’s
overall strategy or policy. I want to do whatever I can toenable the company to grow into an organization that will
nurture a new corporate culture by overcoming such issues
related to partial optimization and total optimization.
Doi Transmitting messages from senior management topersonnel within the Group is another of the roles of theintroduction of the in-house company system. “The Groupis endeavoring to change. And it has to change.” These
sentences describe the sense of crisis and the pressure felt
by senior management, and it has probably trickled down

Otaki I have big expectations for the introduction of the
in-house company system. This is because each internal
company is delegated authority and responsibilities, which
will increase the speed of decision making and reinforce the

Doi Certainly, breaking away from the notion of “everyone
singing from the same hymn sheet” is the mission of ours
as outside directors in promoting the transformation of thebusiness portfolio. In the field of ceramic materials, theGroup can expect to enjoy the potential for expansion in
the development of new businesses by making its tacitknowledge, as exemplified by the notion of “everyone
singing from the same hymn sheet,” visible, such as byintroducing materials informatics. I also want to proactively
support this sort of risk taking by the R&D departments,
too.

Otaki With the introduction of the in-house company
system, the Group’s governance ought to be improved

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4

S egment Highlights

CONTENTS
93

Automotive Components

95

Ceramics

96

New Businesses

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Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Segment Highlights

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

Revenue

338.6

Automotive
Components

16.7

16.2

billion yen

16.6

344.4

338.6

140.9

133.4

203.5

205.3

396.5

Revenue composition

156.4

79.2

Operating income ratio

16.7

%

2019
■

%

240.1

2020

(Fiscal year)

2021

Plug business ■ Sensor business(Forecast)Foreign currency shipments by product (year-on-year change)

Overview of FY2020

Plugs

Although revenue of the plug business for the first quarter was stagnant in all regions except China due to the impact of the
COVID-19 pandemic, the revenue increased year on year and hit a record high, driven by a strong recovery in demand,
especially for aftermarket parts, from the second quarter onward. In China, our long-standing efforts to build a sales network
paid off and resulted in strong sales of spark plugs for both new automobiles and the aftermarket.
While the global market environment deteriorated, with automobile production decreasing by 7.0% year on year, wemanaged to limit the year-on-year decrease in the sales volume of our spark plugs to 1.0%, a rate outperforming the market
average. In China in particular, the sales volume of our spark plugs for new automobiles and the aftermarket rose by 26.6%
and 27.3%, respectively, as a result of the expanded sales network and our efforts to drive our brand penetration.

Sensors
Year-on-year percentage change in foreign currency shipments

Spark plug
Year-on-year percentage change in foreign currency shipments
(%)

(%)

170

170

150

150

China
130

130

China

110

North
America70
Europe90

Outlook for the future
Although the COVID-19 pandemic is expected to come to an end, the market environment uncertainty is likely to continue,
against the backdrop of factors including a shortage of automotive semiconductors. Under such circumstances, we expectthat sales will increase again in FY2021 based on the anticipation that strong demand will return once automobile production
starts to recover.
Further, price hikes of some platinum group metals are expected to put downward pressure on profit. To cope with sucha situation, we are planning to take concurrent measures to mitigate the impact on profit by passing on increased costs toselling prices of spark plugs for both new automobiles and the aftermarket and switching to alternative materials.

Previous fiscal year’s average

110

North
America90

Previous fiscal year’s average

70

50

50

30

30

Europe
1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

FY3/21

FY3/21

FY3/21

FY3/21

FY3/21

FY3/21

FY3/21

FY3/21

Changes in sales volumes of automotive products by region
Sales volume (FY3/20 vs FY3/21)

GlobalSpark plug: -1.0 % Exhaust gas oxygen sensors: -9.2 %Sensors

Overview of FY2020
As in the case of spark plugs for new automobiles, the market environment deteriorated, particularly with automobile
production decreasing in the first quarter, and the sales of our exhaust gas sensors decreased. The sales volumes of our
exhaust gas oxygen sensors in North America, Europe and ASEAN countries decreased year on year by 20.8%, 11.8% and29.1%, respectively. However, 23.8% sales volume increase in China limited the overall decline to just 9.2%. Product-wise,
tightened environmental regulations boosted sales increase, especially of high value-added products. In China, sales of wide
range oxygen sensors rose due to the shift from oxygen sensors to wide range oxygen sensors driven by the introduction of
the China 6 emission standards. The demand for oxygen sensors for motorcycles also expanded due to the adoption of BS6
emission norms in India. Moreover, the demand for temperature sensors increased as the delivery of sensors for GPF
equipped vehicles had started in China.

(Global automobile production: -7.0%)

EuropeChina

North America(Market: -18.7%)(Market: +22.8%)

Spark plug

Spark plug

(Market: -18.7%)

Spark plug

OEM: -12.6% AM: -2.3%

OEM: +26.6% AM: +27.3%

OEM: -14.7% AM: +9.8%

Exhaust gas oxygen sensors

Exhaust gas oxygen sensors

Exhaust gas oxygen sensors-11.8%+23.8%-20.8%

ASEAN(Market: -28.8%)

Outlook for the future
Despite the uncertainty about the impact of the shortage of automotive semiconductors on sales as in the plug business, thesales of sensors are expected to pick up when automakers resume production.
Capitalizing on the trust we have earned based on our strong 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 Business Creation Company, a new internal company whose mission is tocreate new businesses.

Spark plug
OEM: -25.0% AM: -1.3%
Exhaust gas oxygen sensors-29.1%* The figures for spark plugs include those for motorcycles.

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94

(Reference) Percentage sales volume increase of oxygen
sensors for motorcycles in ASEAN countries
and India: +40.1%

Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Segment Highlights

Ceramics

New Businesses

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

Revenue

63.7

billion yen

57.0
17.8
12.7

1.0

-2.6
2019

Revenue composition

24.8

20.7

Operating income ratio

%

19.9

84.4
63.7

5.8

22.9
1.0
9.8
2020

14.9

6.2

2021

(Forecast)

20.6

-52.4

(Fiscal year)■ Medical business ■ SPE business ■ Industrial ceramics business ■ Cutting tool business19.9

billion yen

Operating income ratio%

0.0

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

Revenue%

Revenue composition

7.2

-25.0

-52.4

2019

2020
■

4.7

%

-216.72021(Forecast)(Fiscal year)

Revenue from new businesses*1. The semiconductor business has been transferred from the new businesses segment to the ceramics segment from the FY2021 forecast.
*2. The medical segment has been consolidated into the ceramics segment from the FY2021 forecast.

Overview of FY2020■ SPE business...The demand for semiconductors for PCs and data centers has grown due to an increase in work fromhome amid the COVID-19 pandemic. The demand in the semiconductor production equipment market has also beenstrong, stemming from growth in capital investments due to the shortage of semiconductors caused by the US-China
trade frictions. Revenue and operating income in the SPE business increased year on year against a backdrop of suchstrong demands.
■ Medical business...Revenue from the respiratory-related business in the medical business increased year on year as thedemand for stationary home oxygen concentrators rose due to the tight bed availability at medical facilities caused by the
spread of COVID-19. Meanwhile, operating income decreased year on year, reflecting the impact of a rise in components
procurement costs due to the stronger demand.
■ Cutting tool business...The cutting tool business saw year-on-year decreases in both revenue and operating income
due to declines in sales for the automobile and aircraft industries affected by COVID-19.
■ Industrial ceramics business...Despite the impact of COVID-19, revenue and operating income in the industrial
ceramics business increased year on year due to a gradual recovery in sales of silicon nitride balls as well as our ongoing
efforts for cost reduction.

ColumnOutlook for the future■ SPE business...The demand for semiconductor production equipment is expected to expand, stemming from strong
demand for uses in 5G smartphones, PCs and data center servers, as well as active investments in latest technologies by
Taiwanese foundries. Moreover, we are looking ahead to further growth in profit by promoting inventory optimization andcapacity utilization improvement to increase productivity.
■ Medical business...We expect a decrease in revenue from the respiratory-related business in the medical business alongwith the prevalence of COVID-19 vaccines. On the other hand, we estimate an increase in operating income as more
profitable portable oxygen concentrators are expected to be more widely used.
■ Cutting tool business...Revenue and operating income in the cutting tool business are expected to be back on therecovery path along with a recovery in automobile production.
■ Industrial ceramics business...In the industrial ceramics business, the recovery in demand for products used inultrasonic scalpels has been delayed with a decrease in surgeries performed due to the impact of COVID-19. However,
we expect a rise in sales, given the buoyant state of the semiconductor production equipment market and recovery in the
demand for silicon nitride balls used in machine tools. On the other hand, operating income is expected to decrease year
on year due to an increase in R&D expenses for new businesses, such as lead-free piezoelectric products and silicon
nitride balls.

Overview of FY2020
We have been developing solid oxide fuel cells (SOFCs) since 1999 by mobilizing our know-how andtechnologies, including multilayering and metal-ceramics bonding technologies, which have been built up throughmany years of experience in manufacturing spark plugs, automotive oxygen sensors and semiconductor
packages. Because SOFCs are more energy efficient than other fuel cells and considered effective in reducing
CO 2 and other greenhouse gas emissions, they are expected to become an important source of clean energy.
The heat generated in the chemical reaction process can also be used for the supply of hot water. Although themarket size for hydrogen fuel cells is still small, it is expected to substantially expand toward 2030.
In March 2021, MORIMURA SOFC TECHNOLOGY launched the mass production of SOFC cell stacks, whichplay a central role in SOFC power generation systems for commercial and industrial uses. MORIMURA SOFCTECHNOLOGY has been working on the development of planar cell stacks for residential, commercial andindustrial uses, with a focus on SOFC, which has high power generation efficiency among fuel cells. The
simultaneous pursuit of reducing size and weight and achieving high power density has long been an issue to beresolved for SOFCs. The SOFC cell stacks for commercial and industrial uses, for which mass production has
recently been stared, have resolved this issue and achieved lower costs. As such, we expect further adoption not
only for commercial and industrial uses but also for various uses including residential use.

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 resources to achieve the common goal ofcommercializing SOFCs as soon as possible.
NGK SPARK PLUG and Mitsubishi Power, Ltd. established theirjoint company, CECYLLS Co., Ltd., in January 2020. The newcompany will combine Mitsubishi Power’s technology to design
cylindrical cell stacks, which feature a long life and efficient heatutilization capabilities, with our ceramics mass production technology
to produce and sell high-quality cylindrical cell stacks in mass volumes.

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Financial/Corporate Information

CONTENTS
99 Financial Results Highlights for the Past 11 Years
101 Global Network
103 Corporate Profile and Stock Information
105 Independent Verification Report
106 Editorial NoteNGK SPARK PLUG CO., LTD. Integrated Report 2021

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98

Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

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

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Revenue

269,232

284,746

302,798

329,758

347,636

383,272

372,919

409,912425,013426,073427,546

Operating income (loss)

28,77024,47823,754

51,661

62,196

66,28453,59567,27958,38548,44747,389Ordinary income (loss)

27,37923,74027,67454,96067,90764,48355,55969,09459,258——

Profit (loss) attributable to owners of the parent

23,68025,52420,90932,70436,75330,81525,60244,33542,63833,69838,367

Capital expenditures

8,767

14,00424,012

41,03436,37245,33936,32837,591

56,58751,00433,444

Depreciation

16,646

15,438

12,798

11,567

13,337

16,834

19,601

20,92023,97931,952

34,700R&D expenses

15,763

16,036

17,10019,40021,337

23,123

23,41625,28328,072

28,315

26,115

Cash flows from operating activities

35,39821,07926,19454,69736,59356,46549,76465,70743,70459,78763,397

Cash flows from investing activities(20,412)(15,850)(15,442)(61,148)(12,865)(82,331)(53,410)(26,422)(48,380)(52,926)(42,523)

Free cash flows

30,684

8,507

8,456

3,541

13,995(25,866)

6,335

29,636(21,356)

4,627

41,398Dividend payout

3,594

4,789

4,788

5,223

7,181

8,487

9,055

10,823

14,601

14,435

12,230Total equity

218,159

235,613

268,309302,793343,380

341,044354,710388,115

401,505

399,737

451,626

Total assets

337,318

340,295

366,489

458,148

485,497

526,103563,801

599,972

629,417663,374

771,293

Interest bearing debt

36,69737,39927,41857,33946,15380,212

99,275

98,115

110,755

152,946

197,194(Fiscal year)(Yen)

Earnings (losses) per share

108.71117.2596.06

150.26168.88141.60119.44209.37204.74163.06188.59Equity attributable to owners of the parent per share994.36

1,075.24

1,223.41

1,381.38

1,566.80

1,557.16

1,660.06

1,837.46

1,917.04

1,946.10

2,206.18

Cash dividends per share

22.00

22.00

22.00

28.00

36.00

42.00

42.00

60.00

70.00

70.00

60.00

Operating income ratio (%)

10.7

8.6

7.8

15.7

17.9

17.3

14.4

16.4

13.7

11.4

11.1

Return on Sales revenue (%)

8.8

9.0

6.9

9.9

10.6

8.0

6.9

10.8

10.0

7.9

8.8

Gross profit on sales (%)

27.4

25.1

24.2

32.6

35.8

35.6

33.0

34.6

33.8

31.4

30.5

ROE (Return on equity) (%)

11.2

11.3

8.4

11.5

11.4

9.1

7.4

12.0

10.9

8.4

9.1

ROA (Return on assets) (%)

7.1

7.5

5.9

7.9

7.8

6.1

4.7

7.6

6.8

5.1

4.9

ROIC (Return on invested capital) (%)

8.0

6.5

5.8

11.0

11.6

11.4

8.5

10.0

8.2

6.3

5.5

Equity ratio (%)

64.2

68.8

72.7

65.6

70.2

64.4

62.5

64.3

63.4

59.7

58.2

Total asset turnover (%)

0.8

0.8

0.9

0.8

0.7

0.8

0.7

0.7

0.7

0.8

0.6

Dividend payout ratio (%)

20.2

18.8

22.9

18.6

21.3

29.7

35.2

28.7

34.2

42.9

31.8

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100

Consolidated Financial Statements

Our Business

Consolidated statement of financial position

Medium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Consolidated statement of profit or loss

March 31, 2020 and 2021

For the fiscal years ended March 31, 2020 and 2021
Millions of yen

Notes

2020

Thousands of U.S. dollars

2021

Millions of yen

Notes

2020

2021

2021

4,24

¥ 426,073¥ 427,546$ 3,851,766

Cost of sales(292,292)(297,331)(2,678,658)

Gross profit

133,781130,214

1,173,099

25(87,292)(83,871)(755,595)

2021

Assets

Revenue

Current assets

Thousands of U.S. dollars

Cash and cash equivalents

6¥ 86,092¥139,520$1,256,937

Trade and other receivables

7

92,604111,339

1,003,054

Other financial assets

14

5,897

26,266236,631

4,13

1,135

1,088

9,802

Inventories

8

116,720

126,837

1,142,676

Other income

26

1,542

1,644

14,811Other expenses

26

(718)

(1,686)(15,189)

4

48,44747,389426,928

Finance income

27

3,068

5,679

51,162Finance expenses

27

Other current assets

13,18911,903

107,234

Total current assets

314,505

415,868

3,746,559

Noncurrent assets

Selling, general and administrative expenses
Share of profit of investments accounted for using the equity method

Operating profit

Property, plant and equipment

9251,010251,230

2,263,333

Goodwill and intangible assets

10

15,774

16,440148,108

Right-of-use assets

12

9,541

8,992

81,009Investments accounted for using the equity method

13

13,61515,081

135,865

Other financial assets

14

43,55754,310489,279

Profit (loss) attributable toDeferred tax assets

28

Profit before income taxes
Profit14,296

8,438

76,018

Owners of the parent

Other noncurrent assets

1,073

930

8,378

Noncontrolling interests

Total noncurrent assets

348,869

355,424

3,202,018

663,374

771,2936,948,586

Total assets

28

Income tax expenses

Current liabilities
Trade and other payables

15

43,681

52,264

470,847

Bonds and borrowings

16

45,25746,759421,252

Other financial liabilities

17

Income taxes payable
18

Other current liabilities
Total current liabilities

3,126

3,217

28,982

2,240

9,316

83,92831,17632,598

293,676

125,481

144,157

1,298,712

For the fiscal years ended March 31, 2020 and 2021
Millions of yen

29,494

23,836

214,739

Other comprehensive income (net of tax effects)

17

8,038

7,025

63,288Deferred tax liabilities

28

24

491

4,423

Other noncurrent liabilities

18

3,191

3,377

30,423

138,155

175,509

1,581,162

Remeasurements of defined benefit plans
Share of other comprehensive income of investments
accounted for using the equity method

Capital surplus

21

54,791

54,856494,198

Retained earnings

21

291,122

325,187

2,929,613

Treasury stock21(1,602)(1,554)(14,000)

Other components of equity

21

3,696

22,473

202,459

395,876

448,8314,043,523

3,861

2,794

25,171

399,737

451,626

4,068,703¥663,374¥771,293$6,948,586

Total equity attributable to owners of the parent
Noncontrolling interests
Total equity
Total liabilities and equity

2021

Consolidated statement of comprehensive income

19431,252

U.S. dollars

2021

—

Other financial liabilities

47,869(7,081)$1.70

Net defined benefit liabilities

47,8692020

345,649
$

—

Notes

21

(786)

¥188.59

ProfitCapital stock¥—

133,144

Equity38,367(67)¥163.06

140,779

2,879,874

338,559

Diluted earnings per share

97,406319,666(129,910)

37,580

Basic earnings per share

16

263,636(14,420)

33,63129

Bonds and borrowings

Total liabilities(11,118)

Yen

Noncurrent liabilities

Total noncurrent liabilities(9,613)
468,477

33,698

Earnings per share

Liabilities(1,067)52,001¥

Notes
Liabilities and equity(6,766)44,749Thousands of U.S. dollars

2020

2021

2021

¥ 33,631¥37,580$338,559

30(7,535)

13,243

119,306

30

(710)

3,950

35,586

13,30

(5)

2

18

(8,251)

17,196

154,91930(11,975)

9,091

81,901

13,30

(576)

627

5,649

(12,551)

9,718

87,550Items that will not be reclassified to profit or loss
Financial assets measured at fair value through othercomprehensive income

Total of items that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Share of other comprehensive income of investments
accounted for using the equity method
Total of items that may be reclassified subsequently to profit or loss
Total other comprehensive income (net of tax effects)
Comprehensive income(20,803)

26,915

242,477¥ 12,828¥64,495$581,036

Comprehensive income attributable to13,119Owners of the parent¥

Noncontrolling interests

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102

(291)

65,073586,243¥$ (5,198)(577)

Our Business

Consolidated Financial Statements

Consolidated statement of changes in equity

Medium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Consolidated statement of cash flows

For the fiscal years ended March 31, 2020 and 2021

For the fiscal years ended March 31, 2020 and 2021
Millions of yen

Millions of yen

Equity attributable to owners of the parent

Notes

Balance as at April 1, 2019

CapitalStock

CapitalsurplusRetainedearnings

Treasury
stock

Financial assets
measured atfair value
through othercomprehensive
income¥47,869¥54,835¥284,228¥(1,741)¥25,462

2021

2021

¥ 44,749¥ 52,001$ 468,477

31,952

34,700312,613

—

464

4,180

Foreign exchange (gain) loss

2,873

(2,019)(18,189)

Interest and dividends income(2,167)(1,613)(14,532)

899

850

7,658

(1,135)(1,088)(9,802)

637

1,220

10,991(Increase) decrease in trade and other receivables

2,716(12,706)(114,468)

Increase in inventories(6,560)(4,859)(43,775)

Increase in trade and other payables

4,401

406

3,658

Cash flows from operating activities
Exchangedifferenceson translationof foreign
operations¥ (3,226)

Total

Total

Noncontrollinginterests

Total equity

Depreciation and amortization¥¥ 22,235¥407,427¥2,564¥409,991

Impairment losses—

33,698(67)

33,631(20,803)—(7,541)(12,327)(710)(20,578)(20,578)(224)(7,541)(12,327)(710)(20,578)

13,119(291)(10,074)—(10,074)(10,074)

49

—

49

49

10,164———(14,601)

48

—

48

(92)

—

(92)

Other comprehensive income—

Total comprehensive income—

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

Cancellation of treasury stock
Dividends

22

Share-based remunerationtransactions

23—(14,601)

Changes in ownership interests in
subsidiaries(2,039)Transfer from other components ofequity to retained earnings
Total transactions with owners

—

(44)

(26,804)

Balance as at March 31, 2020

47,86954,791

Balance as at April 1, 2020

47,86954,791

Profit

1,329

—

—

—

—

710

2,039

(24,670)

1,588(23,081)(1,602)

19,250(15,553)—

3,696

395,876

3,861(1,602)

19,250(15,553)—

3,696

395,876

3,861—

38,367

(786)

(0)
22

Share-based remunerationtransactions

23(2,198)399,737

19,739399,737

Subtotal

76,191

69,303624,351

37,580

Dividends received

1,689

1,442

12,991

209

26,915

13,246

9,508

3,950

26,70565,073(577)

64,495

—

(7)
55

51

—

51

14

—

14

(7,928)

—

7,928

(244)
2,191

26,705(12,231)Transfer from other components ofequity to retained earnings

1,867

26,705—(3,978)(3,950)Total transactions with owners—

65(4,302)47(3,978)—

Balance as at March 31, 2021

¥47,869¥54,856¥325,187¥(1,554)¥28,518¥ (6,044)(3,950)¥—(55)

Interest received

989

618

5,568

(7)

Interest paid

(766)

(804)

(7,243)

55

Income taxes paid

(18,316)(7,162)(64,523)

Net cash provided by operating activities

59,78763,397571,1442,288(2,524)(22,739)(12,286)
51(433)

Loss on disposal of noncurrent assets(4,041)

3,950—

Share of profit of investments accounted for using the equity
methodOther, net

9,508

55

Interest expenses(Decrease) increase in net defined benefit liabilities

13,246(12,231)

Changes in ownership interests in
subsidiaries—

291,122

—

1,751

2,039

(7)

Dividends

1,843

291,122

38,367(14,855)
48

1,329

Purchase of treasury stock
Sales of treasury stock

—
(254)

139

Other comprehensive income

12,828710

38,367

Total comprehensive income

Profit before income taxes

Remeasurements ofdefinedbenefit plans

33,698

Profit(419)—(7,928)(12,118)(489)(12,607)¥ 22,473¥448,831¥2,794¥451,626

Cash flows from investing activities
Net (increase) decrease in time deposits
Purchase of property, plant and equipment

Notes

Balance as at April 1, 2020

CapitalsurplusRetainedearnings$431,252 $493,613 $2,622,721

ProfitTreasurystock—

Dividends

22

Share-based remunerationtransactions

23

Total transactions with owners
Balance as at March 31, 2021

(8,991)(1,575)(403)(3,631)73,865

363

8,199
348

3,315

(52,926)(42,523)(383,090)$173,423$(140,117)$(14,432)

Remeasurements ofdefinedbenefit plans$—

Noncontrollinginterests

Total

Total

$33,297 $3,566,450

Net cash used in investing activities
Total equity$34,784 $3,601,234

345,649(7,081)

338,559

Net increase (decrease) in short-term loans payable31(16,404)

17,916

161,405

Proceeds from long-term loans payable31

30,00060,747547,270

Repayments of long-term loans payable31(9,924)(4,962)(44,703)

Proceeds from issuance of bonds

31

29,852——

Redemption of bonds

31—(30,000)(270,270)

Repayments of lease liabilities

31(2,637)(2,825)(25,450)

Purchase of treasury stock

21(10,074)

(7)

(63)

Dividends paid to owners of the parent

22(14,596)(12,228)(110,162)

Dividends paid to noncontrolling interests

(254)

(55)

(495)

Capital contribution from noncontrolling interests

1,470

—

—

—

(419)

(3,775)

7,432

28,166

253,748

119,333

85,65835,586

240,586

240,586

1,883

242,477

119,333

85,65835,586

240,586

586,243(5,198)581,036

(63)

—

(63)

(63)

—

495

495

—

(110,189)

459

—

459

126

—

126

(35,838)(38,757)423(35,838)—$431,252 $494,198 $2,929,613$(14,000)$256,919$ (54,450)(35,586)(71,423)—(35,586)(71,423)(109,171)$—

Cash flows from financing activities

—

495

586

(23,432)

(998)

(613)

71,423—(2,601)—Other, net(0)Transfer from other components ofequity to retained earnings(2,931)

Proceeds from sale and redemption of investment securities(110,189)

Changes in ownership interests in
subsidiaries

3,856

Exchangedifferences ontranslation offoreign
operations—

Sales of treasury stock

428

Financial assets
measured atfair value
through othercomprehensive
income345,649

Purchase of treasury stock(242,991)

225

Other components of equity

Other comprehensive income—(162,162)(26,972)

5

Purchase of investment securities

345,649

Total comprehensive income(18,000)

Proceeds from sale of property, plant and equipment
Payments for acquisition of business

Equity attributable to owners of the parent(54)(50,629)

Net increase in short-term investment securities

Purchase of intangible assets
Thousands of U.S. dollars

Capitalstock

Thousands of U.S. dollars

2020

Other components of equity

Notes

Financial / Corporate Information$202,459 $4,043,523(495)(110,685)
459(3,901)(3,775)—(4,405)(113,577)$25,171 $4,068,703

Other, net
Net cash provided by financing activities
Effect of exchange rate change on cash and cash equivalents(2,605)

4,388

39,532

Net increase (decrease) in cash and cash equivalents

11,68753,427481,324

Cash and cash equivalents at the beginning of the period

674,40486,092775,604

Cash and cash equivalents at the end of the period

6¥ 86,092¥139,520$1,256,937

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Our Business

Consolidated Financial Statements

Medium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information[Notes to Consolidated Financial Statements](1) Basis of consolidation

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/english/).
The consolidated financial statements of the Company, as of March 31, 2021, 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, ceramics components, medical products and new
businesses products.
2. Basis of Preparation(1) Statement of compliance with IFRSAs 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’s consolidated financial statements for the fiscal year ended March 31, 2021 were approved by Takeshi Kawai, Representative
Director, President and Chief Operating Officer, on July 29, 2021.
(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, 2021, which was ¥111 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

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 inassociates from the date significant influence is acquired until the date significant influence ceases.
The consolidated financial statements include investments in associates with different fiscal year-end from that of the Company, as it isimpracticable 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 on the same date as that of consolidated financial statements 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 applies accounting policies that differ from those of the Group, the associate’s financial statements are adjusted asnecessary.
(2) Business combinations

No items to report.
(5) New standards and interpretations issued but not yet adopted by the Group
None of the new standards and interpretations issued but not yet adopted have a material impact on the Group’s consolidated financial
statements.
(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 inwhich the estimates are revised and in the future periods in which these revisions have an impact.
The following notes contain information about assumption and estimation uncertainties that may have a significant risk of resulting in material
adjustment to the carrying amounts of assets and liabilities in the next fiscal year.
• Impairment loss on nonfinancial assets – “Note 3: Significant Accounting Policies (10) Impairment loss on nonfinancial assets” and “Note
11: Impairment Loss on Nonfinancial Assets.”• Possibility of future outcome of litigation associated with the violation of antitrust law – “Note 34: Contingencies”
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.
With the assumption that the effect of COVID-19 will be generally contained in the fiscal year ending March 31, 2022, the Group madeaccounting estimates for the impairment of nonfinancial assets and the recoverability of deferred tax assets during the current fiscal year.
There are uncertainties in this assumption, and if the effects are prolonged, it could affect the financial position and operating results of theGroup for the next 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.

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.
When 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 the accounting is incomplete are reported. In the event the Company
obtained new information about the facts and circumstances which were in existence at the acquisition date that, if known, would haveaffected the measurement of the amounts recognized on the acquisition date and that such information was obtained during the period inwhich it is likely 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 the additionalrecognition of assets and liabilities, and the measurement period shall not exceed one year.
Business combinations under common control are 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 in which thecontrol is not transitory. Such transaction continues to be accounted for using carrying amounts.
(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. Nonmonetary
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.
Nonmonetary 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.

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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) Nonderivative 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 whenincurred.
(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, are recognized 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

Medium-term Growth Strategies

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Segment Highlights

Financial / Corporate Information(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) Nonderivative 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 loss.
The cost of property, plant and equipment includes costs directly attributable to the acquisition of the property, plant and equipment;
estimated costs of dismantling and removing the assets and restoring the site; and borrowing costs that satisfy the requirements forcapitalization. If the useful life of a 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 became 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
As part of the depreciation method, residual values and useful lives are reviewed annually and adjusted when 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.
(8) Goodwill and intangible assets
1) Goodwill
Goodwill is not amortized but 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.

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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 an internally generated intangible asset is the sum of the expenditures incurred from the time theintangible asset first meets all the recognition criteria listed above to the completion of the development phase. This amount isamortized using the straight-line method over the asset’s estimated useful life. The cost at initial recognition less accumulated
amortization and accumulated impairment loss 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 loss.
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
As part of the amortization method, residual values and useful lives are reviewed annually and adjusted when 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.
(9) Leases
1) Lessee
The Group assesses whether a contract is or contains a lease at the inception of the contract.
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 statementof 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 loss on nonfinancial assets
For nonfinancial assets, excluding inventories and deferred tax assets, an assessment is made at the end of each fiscal year for each asset or
cash-generating unit to which an asset is allocated to determine whether there is any indication that an asset may be impaired. If such
indication exists, an impairment test is performed.
An individual asset or cash-generating unit on which impairment test is performed is the smallest unit (or group of units) which, based on
management accounting categories, generates independent cash flows. Corporate assets are allocated to individual cash-generating units
for which a reasonable and consistent allocation method can be identified. Idle property is grouped by 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 the costs ofdisposal. In calculating value in use, the estimated future cash flows are discounted to their present value using a pretax discount rate thatreflects the time value of money and the risks specific to the asset. For the calculation of fair value less the 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. For individual assets, the carrying amount of the asset is reduced to the recoverable amount. When impairment loss is recognized in

Medium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

relation to a cash-generating unit, it is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit, andthen to the other assets 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 the long-term effects of COVID-19. A revision of theseassumptions because of the future uncertain economic conditions could have a significant impact on the recoverable amounts recognized in
the next fiscal year’s consolidated financial statements.
Impairment loss on goodwill is not reversed. For impairment loss on nonfinancial 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. A reversal of an 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 obligations
less the fair value of plan assets. Service cost and net interest on the net defined benefit liabilities 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.
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 stock. 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 will be required to settle the obligation and a reliable estimate can be made of the amount of the resources
outflow.
When the impact of the time value of money is material, provisions are measured by the present value of the estimated expenditure
required to settle the obligation. The present value is measured by discounting using a pretax rate that reflects the time value of money and thespecific risks of the liability. Any increase in the provision reflecting the effects arising from the passage of time is recognized as financeexpenses.
(14) Shareholders’ equity
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.

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2) Treasury stock
Treasury stock is measured at acquisition cost and recognized as a deduction from equity. Gains or losses from purchase, sale andcancellation of treasury stock are not recognized. The difference between the carrying amount and the consideration received from disposal isrecognized as capital surplus.

Medium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

4. Segment Information(1) Summary of 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.

The reportable segments of the Group are the business units for which the Group is able to obtain separate financial information in order for
the Board of Directors to conduct periodic reviews to determine the allocation of management resources and evaluate business results.
The Group has its business units identified by product. Each business unit plans 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 organizedin 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 four reportable segments of Automotive components, Ceramics, Medical and New businesses.
Automotive components is a segment that manufactures and sells primarily spark plugs, exhaust gas sensors, and other automotive
components. Ceramics is a segment that manufactures and sells cutting tools, industrial ceramics and products for semiconductor
manufacturing equipment. Medical is a segment that manufactures and sells artificial bones and oxygen concentrators. New businesses is asegment that manufactures and sells products related to new businesses such as the environmental and energy businesses.
Due to the change of the Company’s constitution as of April 1, 2020, the reportable segments, which used to be Automotive
components and Technical ceramics consisting of Semiconductor and Ceramics, were converted into the four reportable segments ofAutomotive components, Ceramics, Medical and New businesses. New businesses such as that for environmental and energy related
products, which used to be included in Other in the previous reportable segments, is now included in New businesses. Semiconductorbusinesses, which used to be included in Technical ceramics in the previous reportable segments, was reorganized into the organization
concentrating upon the development of new products. Therefore, semiconductor business is also transferred from Technical ceramics to New
businesses. Expecting growth in the coming years, Medical business, which used to be included in Other in the previous reportable segments
has become a new reportable segment. Due to the newly organized segment of New businesses, how to allocate research and development
expenses associated with the new businesses has changed.
Accordingly, the segment information for the fiscal year ended March 31, 2020 is made and reported based on the reportable segments
for the fiscal year ended March 31, 2021.

(17) Finance income and finance expenses(2) Segment revenue and results

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.

Fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020)(18) Income taxes

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(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 and other automotive components; cutting
tools for machine tools, ceramics products for industrial use and products for semiconductor manufacturing equipment; products for medicaluse, including artificial bones and oxygen concentrators, and IC packages; and other semiconductor components. Revenue from the sale ofthese goods is recognized when control of the goods is transferred to the customer and the performance obligation is satisfied. Revenue ismeasured at the amount of the consideration promised under the contract with the customer, less rights of return, discounts, rebates, etc.
(16) Government grants

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 to business 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 theasset is realized 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 foraccounting purposes and tax base amounts, and tax loss carryforwards and tax credit carryforwards. A deferred tax asset isrecognized 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
be affected by uncertain future economic conditions such as the prolongation of COVID-19. When factors that have a significant effecton the status of taxable income in the following years emerge, the amount recognized in the next fiscal year’s 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 anasset or liability in a transaction that is not a business combination and which affects neither accounting income nor taxable income at
the time of transaction. Furthermore, deferred tax liabilities are not recognized if the taxable temporary difference arises from initialrecognition of goodwill.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in consolidated subsidiaries
and associates. 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 fromdeductible temporary differences associated with investments in consolidated subsidiaries and associates are recognized only to theextent that it is probable 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.

Millions of yen
Reportable segments
Automotive
components

Ceramics

MedicalNew
businesses

Total¥344,398—¥344,398¥ 55,689¥36,311—¥36,311¥ (1,106)¥20,671—¥20,671¥ (427)¥20,630—¥20,630¥ (5,158)¥422,012—¥422,012¥ 48,996¥4,060—¥4,060¥ (549)¥426,073—¥426,073¥ 48,447————¥426,073—¥426,073¥ 48,447¥ 3,068¥ (6,766)¥ 44,749¥ 25,600¥ 3,530¥982¥ 1,838¥ 31,951¥

1¥ 31,952—¥ 31,952

—
—

¥

638
—

¥

¥

¥

(6)
—

¥

—
—

¥

¥

484
—

18
—

1,141
—

Other
(Note 1)

Total

1,135
—

Adjustments

Consolidated(Note 2)

1,135—

Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021)
Millions of yen
Reportable segments

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

Ceramics

MedicalNew
businesses

Total¥338,612—¥338,612¥ 56,633¥38,915—¥38,915¥ 1,849¥24,805—¥24,805¥ (1,184)¥ 19,905—¥ 19,905¥(10,434)¥422,238—¥422,238¥ 46,863¥5,307—¥5,307¥ 526¥427,546—¥427,546¥ 47,389————¥427,546—¥427,546¥ 47,389¥ 5,679¥ (1,067)¥ 52,001¥ 27,085¥ 3,978¥ 1,094¥ 2,541¥ 34,699¥0¥ 34,700—¥ 34,700

¥
¥

¥

4
—

¥
¥

—
—

¥
¥

¥

475
—

—
—

¥
¥

608
464

—
—

1,083
464

(19) Earnings per share
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 stocks.

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112

Other
(Note 1)

Total

1,088
464

Adjustments

Consolidated(Note 2)

1,088
464

Our Business

Consolidated Financial Statements

Thousands of U.S. dollars
Reportable segments
Automotive
components

Revenue
External customers$3,050,559
Inter-segment—
Total$3,050,559
Segment profit (loss)$ 510,207
Finance income
Finance expenses
Profit before income taxes
Other material items
Depreciation and amortization$ 244,009
Share of profit (loss) of investments
accounted for using the equity method $4,279
Impairment losses—

Ceramics

MedicalNew
businesses$350,586—$350,586$ 16,658$223,468—$223,468$ (10,667)$179,324 $3,803,946——$179,324 $3,803,946$ (94,000) $ 422,189$ 35,838$

9,856$ 22,892

—
—

$
$

5,477
4,180

—
—

Total

Other
(Note 1)

Total

$47,811—$47,811$ 4,739$3,851,766—$3,851,766$ 426,928

Adjustments

—
—
—
—

Consolidated(Note 2)

$3,851,766—$3,851,766$ 426,928$ 51,162$(9,613)$ 468,477$ 312,604$0$ 312,613—$ 312,613

$
$

$

36
—

$
$

—
—

$
$

9,757
4,180

9,802
4,180

9,802
4,180

(Notes) 1. “Other” represents businesses such as material sales and welfare program service, which are not included in reportable segments.
2. Segment profit (loss) is reconciled to operating profit in the consolidated financial statements.

(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
1) Revenue from external customers for the fiscal years ended March 31, 2020 and 2021 were as follows.
Millions of yen

Thousands of U.S. dollars

Medium-term Growth Strategies

Foundation for Value Creation

Financial / Corporate Information

3) Date of acquisition
June 2, 2020
4) Method of obtaining control of acquiree
A consolidated subsidiary of the Company acquired the business of acquiree with cash paid as consideration.
(2) Breakdown of fair value of assets acquired, liabilities assumed and consideration transferred at the date of acquisition
Millions of yen

Thousands of
U.S. dollars

Fair value

Fair value of assets acquired and liabilities assumed
Cash and cash equivalents
Trade and other receivables
Inventories
Intangible assets
Trade and other payables
Borrowings
Fair value of assets acquired and liabilities assumed, net
Goodwill
Total
Fair value of consideration transferred
Cash and cash equivalent
Total

¥

2
2
11
813
(64)
(86)
678
322
1,000

$

18
18
99
7,324
(577)
(775)
6,108
2,901
9,009

1,000
¥1,0009,009$9,009(Notes) 1. Acquisition-related costs of ¥78 million ($703 thousand) 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.

2020

2021

2021

Japan

¥ 81,408¥ 79,739$ 718,369

United States

117,786

117,015

1,054,189

Germany

87,50380,733

727,324

China

42,077

61,638555,297

Cash and cash equivalents used for the acquisition

Other

97,29788,418796,559

Cash and cash equivalents held by the acquiree at the time of acquisition¥426,073¥427,546$3,851,766

Total

Segment Highlights(3) Cash flows arising from the acquisition

Total

Millions of yen

Thousands of
U.S. dollars¥1,000$9,009

(2)

(18)

¥ 998

$8,991(Note) Revenue is classified based on the location of the Company and its consolidated subsidiaries.

(4) Effects on business performance2) Noncurrent assets as of March 31, 2020 and 2021 were as follows.
Millions of yen

Japan

Thousands of U.S. dollars

2020

2021

2021

¥204,395¥201,588$1,816,108

Asia

38,70642,241

380,550(Thailand)(27,113)(29,292)(263,892)

Other
Total

34,29733,764

304,180¥277,399¥277,594$2,500,847

Loss generated after the date of acquisition on acquiree was ¥432 million ($3,892 thousand) and revenue generated after the date ofacquisition on acquiree was omitted because its effect was insignificant. Disclosure was omitted with respect to information on revenue andprofit for the year with the assumption that the business combination took place at the beginning of the fiscal year as it was insignificant.
6. Cash and Cash Equivalents
The components of cash and cash equivalents as of March 31, 2020 and 2021 were as follows. The balance of “Cash and cash equivalents”
in the consolidated statement of financial position at March 31, 2020 and 2021, agree with the respective balances in the consolidated
statement of cash flows.
Millions of yen(5) Information on principal customers
This information is omitted because no single customer accounts for 10% or more of the revenue presented in the consolidated statement of
profit or loss.

Cash and deposits
Short-term investments
Total

5. Business Combinations

Thousands of U.S. dollars

2020

2021

2021

¥49,892¥ 73,020$ 657,838

36,20066,500599,099¥86,092¥139,520$1,256,937(Note) Cash and cash equivalents are classified as financial assets measured at amortized cost.

Fiscal year ended March 31, 2020
No items to report.
Fiscal year ended March 31, 2021
(Business combination by acquisition)(1) Outline of the business combination
1) Name and description of business of the acquiree
Spirosure, Inc.
Development, manufacture and sale of asthma monitors
2) Main reasons for business combination
The Company implemented the business combination to improve the line of products in the treatment of asthma patients incombination with the oxygen concentrators for COPD patients handled by the Company and subsidiary CAIRE Inc. to expand therespiratory business by incorporating the asthma diagnostic equipment handled by the acquiree into the Group.

7. Trade and Other Receivables
The components of trade and other receivables as of March 31, 2020 and 2021 were as follows.
Millions of yen

Notes and accounts receivable — trade
Other accounts receivable
Total

Thousands of U.S. dollars

2020

2021

2021

¥87,940¥105,335$ 948,964

4,664

6,004

54,090¥92,604¥111,339$1,003,054(Note) Trade and other receivables are classified as financial assets measured at amortized cost.

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Consolidated Financial Statements

Medium-term Growth Strategies

Foundation for Value Creation

The components of inventories as of March 31, 2020 and 2021 were as follows.

Millions of yen
Millions of yen

Thousands of U.S. dollars

2020

2021

2021

Finished goods¥ 59,997¥ 65,778$ 592,595

Work in progress

32,77934,241

308,477

Raw materials and supplies

23,943

26,817

241,595¥116,720¥126,837$1,142,676

Total

The amounts of inventories recognized as expenses and included in cost of sales for the fiscal years ended March 31, 2020 and 2021
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 were as follows.
Millions of yen

2020
Amount of write-downs

Thousands of U.S. dollars

2021

¥947

2021

¥609

$5,486

April 1, 2019Land

Buildings andstructures

Machinery,equipment andvehiclesAcquisition cost

¥27,943¥ 176,607¥ 312,051

Accumulated depreciation
Carrying amount

Other

Total

¥25,625¥ 16,432¥ 558,659(43)(105,230)(203,790)—(11,583)(320,647)¥ 71,376¥ 108,261¥25,625¥ 4,848¥ 238,012

Construction inprogress

Other

Total

¥19,130¥ 17,830¥ 584,007Millions of yen

March 31, 2020

Land

Buildings andstructures

Machinery,equipment andvehiclesAcquisition cost

¥27,777¥ 184,766¥ 334,502

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

Construction inprogress

Other

Total

¥18,284¥ 18,484¥ 606,434

Millions of yen(1) Changes
Changes in the carrying amounts of property, plant and equipment were as follows.
Millions of yen

March 31, 2021

Land

Buildings andstructures

Machinery,equipment andvehiclesAcquisition cost

¥28,164¥ 188,062¥ 353,438

Accumulated depreciation

Land

Buildings andstructures

Machinery,equipment andvehicles¥27,900¥71,376¥108,261¥ 25,625¥ 4,848¥238,012

Acquisitions

0

234

813

44,841

188

46,078Depreciation (Note 1)—(6,039)(19,266)—(1,549)(26,855)

Sales or disposals

(9)

(157)

(621)

(1)

(17)

(807)

Construction inprogress

Carrying amount
Other

(43)

(115,995)(225,925)—(13,240)(355,204)¥28,120¥ 72,066¥ 127,513¥18,284¥ 5,244¥ 251,230

Land

Buildings andstructures

Machinery,equipment andvehiclesConstruction inprogress

Other

Total

$253,730$ 1,694,252$ 3,184,126$164,721$ 166,523$ 5,463,369

Total

(245)

(991)

(2,942)

(799)

(186)

(5,164)

Other (Note 2)

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

Acquisitions

—

682

565

27,511

78

28,838Depreciation (Note 1)—(6,221)(21,758)—(1,607)(29,587)

Sales or disposals

(31)

(47)

(1,363)—(162)(1,605)

Foreign currency exchange differences

288

726

1,760

156

58

2,991

Other (Note 2)

129

1,921

24,598(28,514)

1,448

(416)

March 31, 2021

¥28,120¥72,066¥127,513¥ 18,284¥ 5,244¥251,230

Land

Buildings andstructures

Machinery,equipment andvehiclesConstruction inprogress

Other

Total

$249,856$675,721$1,114,514$ 172,342$ 48,901$2,261,351

Thousands of U.S. dollars

March 31, 2021

Acquisition cost
Accumulated depreciation
Carrying amount(387)$253,333$(1,045,000)(2,035,360)—(119,279)(3,200,036)

649,243$ 1,148,766$164,721$ 47,243$ 2,263,333(3) Commitments
Contractual commitments to acquire property, plant and equipment were as follows.
Millions of yen

Commitments to acquire property, plant and equipment

Acquisitions

—

6,144

5,090

247,847703

259,802

Depreciation (Note 1)—(56,045)(196,018)—(14,477)(266,550)

Sales or disposals

(279)

(423)

(12,279)—(1,459)(14,459)

Foreign currency exchange differences

2,595

6,541

15,856

1,405

523

26,946

Other (Note 2)

1,162

17,306

221,604(256,883)

13,045(3,748)March 31, 2021

$253,333$649,243$1,148,766$ 164,721$ 47,243$2,263,333

Thousands of U.S. dollars

2020

2021

2021

¥20,749¥11,312$101,910

Thousands of U.S. dollars

March 31, 2020

Construction inprogress¥27,900

9. Property, Plant and Equipment

Foreign currency exchange differences

Financial / Corporate Information(2) Opening and closing balances of acquisition cost, accumulated depreciation (aggregated with accumulated impairment losses) andcarrying amount

8. Inventories

April 1, 2019

Segment Highlights(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. Transfers from construction in progress account to each line item are included in "Other.”
3. The amounts of government grants deducted to measure the carrying amounts of property, plant and equipment for the fiscal years ended March 31, 2020 and 2021 were ¥1 millionand ¥150 million ($1,351 thousand), respectively.

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Consolidated Financial Statements

Medium-term Growth Strategies

Foundation for Value Creation

Intangible assets(1) Changes

March 31, 2021

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

Acquisition cost
Accumulated amortization

Millions of yen

Carrying amount

Intangible assets
Goodwill

SoftwareDevelopment assets

Other (Note 3)¥ 5,718¥1,996¥4,532¥15,678

—

2,495

—

11

2,506

—

424

Additions through internal development—

Acquisitions through business combinations

—

—

—

—

—

Amortization (Note 1)—(1,791)

(359)

(599)

(2,750)—424

Sales or disposals

—

(8)

—

—

(8)

Foreign currency exchange differences

(60)

(72)

—

(89)

(222)

Other

—

(88)

—

234

145

March 31, 2020

¥3,369¥ 6,253¥2,061¥4,089¥15,774

Acquisitions

—

2,193

—

64

2,257

Additions through internal development

—

—

343

—

343

Acquisitions through business combinations

322

—

—

813

1,135

Amortization (Note 1)—(1,786)

(244)

(645)

(2,676)

(317)

—

—

(146)

(464)

Sales or disposals

—

(54)

—

—

(54)

Foreign currency exchange differences

48

62

—

63

174

Other

—

(92)

—

42

(50)

¥3,422¥ 6,576¥2,161¥4,281¥16,440

March 31, 2021

Intangible assets
SoftwareDevelopment assets

Other (Note 2)

Total

March 31, 2020

$30,351$ 56,333$18,568$36,838$142,108

Acquisitions—

19,757—577

20,333

Additions through internal development

—

—

3,090

—

3,090

2,901

—

—

7,324

10,225Acquisitions through business combinations
Amortization (Note 1)—(16,090)(2,198)(5,811)(24,108)(2,856)——(1,315)(4,180)

Sales or disposals

—

(486)

—

—

(486)

Foreign currency exchange differences

432

559

—

568

1,568

Other

—

(829)

—

378

(450)

$30,829$ 59,243$19,468$38,568$148,108

Impairment losses (Note2)

March 31, 2021

(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. Impairment losses on goodwill and intangible assets are included in “Selling, general and administrative expenses” in the consolidated statement of profit or loss.
3. “Other” includes customer-related assets, etc.
4. The aggregate amounts of research and development expenditure recognized as an expense for the fiscal years ended March 31, 2020 and 2021 are ¥28,250 million and ¥26,115
million ($235,270 thousand), respectively. They are included in “Cost of sales” and “Selling, general and administrative expenses” in the consolidated statement of profit or loss.

(2) Opening and closing balances of acquisition cost, accumulated amortization (aggregated with accumulated impairment losses) andcarrying amountMillions of yen
Intangible assets
April 1, 2019

Acquisition cost

Goodwill

Other

Total

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

Accumulated amortization
Carrying amount

SoftwareDevelopment assets

Millions of yen
Intangible assets
March 31, 2020

Acquisition cost
Accumulated amortization
Carrying amount

Goodwill

Software¥3,369Development assets¥15,312¥ 3,637

Software¥3,754Development assets¥17,303¥ 3,981

Other

Total

¥ 7,768¥ 32,807(331)(10,727)(1,820)(3,487)(16,366)¥3,422¥ 6,576¥ 2,161¥ 4,281¥ 16,440

Thousands of U.S. dollars
Intangible assets
March 31, 2021

Goodwill

SoftwareAcquisition cost

$33,820$155,883

Accumulated amortization
Carrying amount

Development assets$ 35,865

Other

Total

¥ 6,704¥ 29,023—(9,058)(1,575)(2,615)(13,249)¥3,369¥ 6,253¥ 2,061¥ 4,089¥ 15,774

Other

Total

$ 69,982$ 295,559(2,982)(96,640)(16,396)(31,414)(147,441)$30,829$ 59,243$ 19,468$ 38,568$ 148,108

11. Impairment Loss on Nonfinancial Assets(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 loss
The components of assets for which impairment loss is recognized, by asset class, were as follows.
Impairment loss is recorded in Selling, general and administrative expenses in the consolidated statement of profit or loss.
Millions of yen

2020

Thousands of U.S. dollars

2021

2021

Goodwill and intangible assets
Goodwill¥—¥317$2,856

Other

¥—

¥146

$1,315¥—¥464$4,180Total impairment loss

Thousands of U.S. dollars
Goodwill

Goodwill

Total¥3,430Acquisitions

Impairment losses (Note2)

Financial / Corporate Information

Millions of yen

10. Goodwill and Intangible Assets

April 1, 2019

Segment Highlights

For the fiscal year ended March 31, 2021, impairment loss was recognized in a part of a cash-generating unit in the Medical segment,
including goodwill as a result of an impairment test in which the carrying amount exceeded the recoverable amount.
The recoverable amount of the cash-generating unit was measured at the value in use, which was estimated using a market growth rateof 3.0% and discount rate of 33.5%, representing the pretax weighted-average capital cost.
(3) Impairment tests
1) Other than goodwill
For the fiscal year ended March 31, 2021, the Group performed an impairment test as there was an indication of impairment in a partof a cash-generating unit in the Ceramics segment, including property, plant and equipment and intangible assets which had a finite
useful life in the amount of ¥2,219 million ($19,991 thousand) because of consecutive years of operating losses in this segment due toa decrease in orders from major customers as a result of COVID-19 and issues in the product mix, etc.
The recoverable amount of the cash-generating unit was measured at the value in use, which was estimated using a discount rateof 9.3%, representing the pretax weighted-average capital cost. As a result of the impairment test, the Group determined that therecoverable amount exceeded the carrying amount. Therefore, no impairment loss was recognized with respect to this cash-generating
unit. The estimated future cash flows used in the measurement of the value in use were based on the mid-term business plan which
was predicted on the assumptions that the demand would recover and the product mix would improve by an increase in sales to major
customers with an introduction of new products in the future. However, as a result of uncertainty, the actual outcomes may be different
from the estimates.
2) 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 cashgenerating 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 March 31, 2020 and 2021 were as follows.
Millions of yen

NTK CERATEC CO., LTD.

Thousands of U.S. dollars

2020

2021

2021

¥ 307

¥ 307

$ 2,766

CAIRE Inc.

3,062

3,115

28,063Total¥3,369¥3,422$30,829

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Goodwill that is of significance was a consequence of the Company’s acquisition of all of 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 four-year business plan approved by the Board of Directors and the growth rate.
The growth rate used in the estimation for the period subsequent to the approved business plan is determined based on the average longterm growth rate of the markets to which the cash-generating units belong. The growth rates used to measure the value in use were 1.8%
and 2.0% for the fiscal years ended March 31, 2020 and 2021, respectively. The discount rates used were 14.8% and 13.5% for the fiscal
years ended March 31, 2020 and 2021, respectively. As a result of the impairment tests, no impairment loss has been recognized withrespect to the goodwill.
Even if the major assumptions used in the impairment tests were to change within a reasonable range, the Group determined that thepossibility that the cash-generating unit would incur significant impairment loss was low. The estimated future cash flows used in themeasurement of the value in use were predicted on the assumptions that the sales of major products would increase by growth in the market,
the introduction of new products and the expansion of sales channels and that costs would be reduced. However, as a result of uncertainty,
the outcomes may be different from the estimates.
12. Leases
LesseeThe Group deems that a contract 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, 2021 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 were as follows.
Millions of yen

2020

Thousands of U.S. dollars

2021

2021

Right-of-use assets
With buildings and structures as underlying assets¥7,180¥6,569$59,180

With machinery, equipment and vehicles as underlying assets

1,970

2,001

18,027

With tools, furniture and fixtures as underlying assets

145

126

1,135

With land as underlying asset

240

233

2,099

4

61

550

¥9,541¥8,992$81,009

With software as underlying asset
Total

Medium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Changes in the amounts of right-of-use assets, lease-related expenses and cash outflows for the fiscal years ended March 31, 2020 and
2021 were as follows.
Millions of yen

Thousands of U.S. dollars

2020

2021

2021

Depreciation of right-of-use assets
With buildings and structures as underlying assets¥1,270¥1,415$12,748

With machinery, equipment and vehicles as underlying assets

625

626

5,640

With tools, furniture and fixtures as underlying assets

138

136

1,225

With land as underlying asset

186

193

1,739

With software as underlying asset

16

11

99

¥2,237¥2,381$21,450

Interest on lease liabilities

¥

¥

$

Short-term lease expenses

¥ 761

¥ 753

$ 6,784

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

¥

¥

$

Total depreciation of right-of-use assets

82
24

90
1

811
9

Variable lease payments not included in the measurement of lease liabilities

—

—

—

Income from subleases

—

—

—

Gains or losses arising from sale and leaseback transactions

—

—

—

Cash outflow related to lease¥3,423¥3,580$32,252

Changes in the carrying amount of right-of-use assets¥3,650¥1,544$13,910Maturity analysis of lease liabilities is presented in “Note 20: Financial Instruments”.

13. Investments Accounted for Using the Equity Method
Investments accounted for using the equity method are all related to associates and individually immaterial.
14. Other Financial Assets
The components of other financial assets as of March 31, 2020 and 2021 were as follows.
Millions of yen

2020

Thousands of U.S. dollars

2021

2021

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

—

¥18,000$162,162

Time deposits

¥

5,462

8,148

73,405

Other

1,078

1,034

9,315

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

¥

Derivative assets

54

¥

33

$

297

50

—

—

Stocks¥42,809¥53,361$480,730

Total¥49,454¥80,577$725,919

Current portion¥ 5,897¥26,266$236,631

Noncurrent portion¥43,557¥54,310$489,279

Items classified as financial assets measured at fair value through othercomprehensive income

15. Trade and Other Payables
The components of trade and other payables as of March 31, 2020 and 2021 were as follows.
Millions of yen

Accounts payable
Other payables
Total

Thousands of U.S. dollars

2020

2021

2021

¥31,892¥35,414$319,045

11,78816,850151,802¥43,681¥52,264$470,847(Note) Trade and other payables are classified as financial liabilities measured at amortized cost.

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16. Bonds and Borrowings

Millions of yen

Short-term loans payable with interest rate of 0.61%

Thousands of U.S. dollars

2020

2021

2021

Term ofpayment¥ 10,931¥ 28,943$ 260,748—

Current portion of long-term loans payable with interest rate of 0.05%

4,353

17,816

169,505—

Current portion of bonds (Note 3)

29,971———Long-term loans payable (except portion due within one year) withinterest rate of 0.30%

47,63390,966

819,514from 2022
to 2029

Bonds (Note 3)

49,77249,812448,757—¥142,663¥187,538$1,689,532—

Current portion¥ 45,257¥ 46,759$ 421,225—

Noncurrent portion¥ 97,406¥140,779$1,268,279

—

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, 2021.
3. The issuing terms of the bonds were as follows.

Segment Highlights

Financial / Corporate Information

Date of issuance

2020

2021

2021

0.296% unsecured bonds due October 27, 2020

October 27, 2015

¥30,000

0.110% unsecured bonds due June 14, 2023

June 14, 2018

10,00010,0000.370% unsecured bonds due June 14, 2028

June 14, 2018

10,00010,00090,0900.110% unsecured bonds due June 20, 2024

June 20, 2019

20,00020,000180,180

0.270% unsecured bonds due June 20, 2029

June 20, 201910,00010,00090,090¥80,000¥50,000$450,450

—

¥

—

$

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. 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 otherconditions.
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 laws, the dispositions issued by the Minister of Health,Labour and Welfare pursuant to laws and provisions, and to faithfully perform their duties for the benefit of plan participants, etc. They areprohibited 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 management of thepension reserves.
(1) Defined benefit plan

Thousands of
U.S. dollars

Millions of yen

Total

Foundation for Value Creation

19. Employee Benefits

The components of bonds and borrowings as of March 31, 2020 and 2021 were as follows.

Name of bondMedium-term Growth Strategies

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 were as follows.

—
90,090Millions of yen

Present value of funded retirement benefit obligations
Fair value of plan assets

17. Other Financial Liabilities

Subtotal

The components of other financial liabilities as of March 31, 2020 and 2021 were as follows.
Millions of yen

2020

Thousands of U.S. dollars

2021

2021

Items classified as financial liabilities measured at amortized cost¥

Lease liabilities

5

¥

4

$

36

10,283

9,655

86,982

876

583

5,252

Items classified as financial liabilities measured at fair value through profit or loss
Derivative liabilities
Total¥11,165¥10,243$92,279

Current portion¥ 3,126¥ 3,217$28,982

Noncurrent portion¥ 8,038¥ 7,025$63,288

18. Other Liabilities
The components of other liabilities as of March 31, 2020 and 2021 were as follows.
Millions of yen

Thousands of U.S. dollars

181,378

Amounts recognized in the consolidated statement of financial position
Net amount2021¥70,122¥71,398$643,225

Current service cost

3,572

3,595

32,387

Interest expenses

544

539

4,856

Remeasurement276(1,904)(17,153)

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

Actuarial gains and losses arising from changes in demographic assumptions

118

(120)

(1,081)

Actuarial gains and losses arising from changes in financial assumptions

290(2,020)(18,198)

Actuarial differences arising from revisions to results

(133)

236

2,126

36

—

—

(3,065)(3,417)(30,784)

76,459Benefits paid

Accrued paid leave

8,134

8,220

74,054

Other (Note 2)

Other (Note)

7,016

7,811

70,369

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

Total$ 30,423

Thousands of U.S. dollars

2021

8,487

¥ 3,377

214,739$214,739

Millions of yen

8,664¥ 3,191

23,836¥23,836

2020

Accrued bonuses

Noncurrent portion

29,494¥29,4942) Reconciliation of present value of defined benefit obligations
Changes in the present value of defined benefit obligations for the fiscal years ended March 31, 2020 and 2021 were as follows.

2021$293,676

419,514$ 33,351$214,739$103,198$324,099

46,566¥ 3,702
20,1332021¥32,598

41,904¥ 7,965¥23,836¥11,455¥35,975$452,865

21,5282020¥31,176¥50,268¥29,494¥10,552¥34,3672021¥49,870

Net defined benefit liabilities or assets

Accrued expenses

Current portion

2021

Present value of unfunded retirement benefit obligations

Retirement benefit liability

Other

Thousands of U.S. dollars

2020

Past service cost

(87)

190

1,712

¥71,398¥70,402$634,252(Notes) 1 The weighted-average durations of defined benefit plans in the fiscal years ended March 31, 2020 and 2021 were 14.5 years and 14.4 years, respectively.
2 “Other” includes translation differences of defined benefit obligations of overseas consolidated subsidiaries.

(Note) “Other” in the fiscal year ended March 31, 2021 includes the provision for the violation of antitrust law. See “Note 34: Contingencies (2) Litigation, etc.”

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Consolidated Financial Statements

3) Reconciliation of the fair value of plan assets
Changes in the fair value of plan assets for the fiscal years ended March 31, 2020 and 2021 were as follows.
Thousands of U.S. dollars

2020

2021

2021

¥42,923¥41,904$377,514

Interest income

325

340

3,063

Remeasurement

(535)

3,610

32,52332,523Return on plan assets (excluding interest income)

(535)

3,610

Contributions from the employer

1,129

2,696

24,288Benefits paid

(1,915)(1,959)(17,649)

Other (Note)

(23)

(25)

(225)

¥41,904¥46,566$419,514

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 ¥2,614 million ($23,550 thousand) in the fiscal year ending March 31, 2022.
4) Components of plan assets by category
The fair value of plan assets by category as of March 31, 2020 and 2021 were as follows.
Millions of yen

Thousands of U.S. dollars

2020
Quoted market prices
in active markets
Yes

2021
Total

No

¥

2021

Quoted market prices
in active markets
Yes

Quoted market prices
in active markets

Total

No

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

20. Financial Instruments

Millions of yen

Opening balance of fair value of plan assets

Medium-term Growth Strategies

Yes

Total

No

(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
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.
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.

Shares¥ 5,796—¥ 5,796¥ 8,485—¥ 8,485$ 76,441—$ 76,441

Bonds

15,654—

15,654

15,925—

15,925

143,468—

143,468

General account—11,614

11,614—

11,912

11,912—

107,315

107,315

U.S. dollar

¥113

¥160

$1,441

Alternatives (Note)

—

3,397

3,397

—

3,675

3,675

—

33,10833,108

Other

3,683

1,758

5,441

4,696

1,871

6,567

42,306

16,85659,162

Euro

¥ 46

¥ 40

$ 360

Total

¥25,134¥16,770¥41,904¥29,106¥17,459¥46,566$262,216$157,288$419,514

Chinese yuan

¥102

¥114

$1,027

Thai baht

¥171

¥228

$2,054¥$

Millions of yen

2020

Thousands of U.S. dollars

2021

2021

(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

2020

2021

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

2) 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

2021

2021

0.5% increase in the discount rate¥(5,127)¥(4,712)$(42,450)

0.5% decrease in the discount rate

¥ 5,643¥ 5,150$ 46,396(2) Defined contribution plan
The amount recognized as an expense in relation to the defined contribution plan was ¥631 million and ¥644 million ($5,802 thousand) for the
fiscal years ended March 31, 2020 and 2021, 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 ¥111,078 million and ¥105,348 million ($949,081 thousand) for the fiscal years ended March 31, 2020 and
2021, respectively.

2020
Equity¥264

Thousands of U.S. dollars

2021
¥339

2021
$3,054

4) 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 regulations, 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.

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Consolidated Financial Statements(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 debtor insolvency.
The Group assesses a financial asset to be in default if the debtor 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 debtor.
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 historicalcredit loss rate. For receivables other than trade receivables, etc., allowance for doubtful accounts is in principle recorded at an amountequal to the 12-month expected credit losses. However, if the credit risk has increased significantly since the initial recognition,
allowance for doubtful accounts is recorded at an amount equal to the lifetime expected credit losses. If it is assessed that the credit
risk has not increased significantly, the expected credit loss for such receivables is calculated by multiplying the amount of receivables
by the provision rate that is based on historical credit loss rate. With respect to assets whose credit risk has been assessed to haveincreased significantly, and receivables, etc. that are treated as credit-impaired financial assets, the expected credit losses aremeasured by taking into account such factors as the debtor’s financial condition, estimated realizable collateral value, compensation byguarantee 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.

Medium-term Growth Strategies

Foundation for Value Creation

2021

2021

Lifetime expected credit losses¥78,587¥100,255$903,198

Up to 30 days past due

Not past due

5,912

3,790

34,144

Over 30 days past due

2,277

554

4,991

Over 60 days past due

488

198

1,784

Over 90 days past due
Total

1,098

1,018

9,171

¥88,365¥105,818$953,315

Other payables and other financial assets
Millions of yen

2020

¥—
—
—
—
¥—
—
—
—
¥—

¥119
—
—
—
¥119
138
—
—
¥257

¥5,718¥6,961

12

—

—

Total

¥5,730¥6,961$62,712

Millions of yen

Trade receivables

¥—
—
—
—
¥—
—
—
—
¥—

¥ 496
98
(140)
(28)
¥ 425
117
(95)
34
¥ 482

Total

¥ 616
98
(140)
(28)
¥ 545
255
(95)
34
¥ 740

Thousands 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, 2020
Increase during the fiscal year
Decrease during the fiscal year
Other
Balance as at March 31, 2021

$—
—
—
—
$—

Credit-impaired
financial assets$1,072
1,243——$2,315Trade receivables

$—
—
—
—
$—

$3,829
1,054
(856)
306
$4,342

Total$4,910
2,297
(856)
306
$6,667

The aggregate carrying amounts of financial assets held were as follows.

Not past due

¥132

¥334

Past due

—

—

—

Total

¥132

¥334

$3,009Millions of yen

2020¥11,193¥33,110

¥132
¥334

¥—
¥—

Trade receivables

Total¥ 88,365¥105,818¥ 99,691¥139,263

FY 2020 (March 31, 2021)$298,288$3,009$—Trade receivables

Total$953,315$1,254,622

2021

¥—

¥—

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.

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.

Thousands of U.S. dollars
Credit-impaired
financial assets

Thousands of U.S. dollars

2021

Not past due

Measured at lifetime expected credit losses
Measured at 12-month Financial assets that
expected credit losses are not credit impaired$3,009Lifetime expected credit losses(credit-impaired financial assets)

Millions of yen

FY 2019 (March 31, 2020)
FY 2020 (March 31, 2021)

2021

Lifetime expected credit losses(financial assets that are not credit-impaired)

Measured at lifetime expected credit losses
Credit-impaired
financial assets$62,712

Thousands of U.S. dollars

2021

Maturity analysis
The balance of major financial liabilities (including derivatives) by contractual maturities were as follows.

Carrying amounts

Measured at 12-month Financial assets that
expected credit losses are not credit impaired

2021

Past due

2020

Measured at lifetime expected credit losses

Balance as at April 1, 2019
Increase during the fiscal year
Decrease during the fiscal year
Other
Balance as of March 31, 2020
Increase during the fiscal year
Decrease during the fiscal year
Other
Balance as at March 31, 2021

Thousands of U.S. dollars

2021

Measured at an amount equal to 12-month expected credit losses

Millions of yen
Credit-impaired
financial assets

Thousands of U.S. dollars

Millions of yen

2020

Allowance for doubtful accounts

Measured at 12-month Financial assets that
expected credit losses are not credit impaired

Financial / Corporate Information

Trade receivables

Not past due(ii) Changes in allowance for doubtful accounts and underlying assets
Changes in allowance for doubtful accounts were as follows.

Segment Highlights(iii) Risk profile
The components of credit risk profile based on due date as of March 31, 2020 and 2021 were as follows.
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Consolidated Financial Statements

Millions of yen
Carrying
amountMarch 31, 2020

Contractual
cash flows

Not later than
1 yearLater 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

Nonderivative financial liabilities
Trade and other payables¥ 43,681¥ 43,681¥43,681—

Borrowings¥ 62,919¥ 63,443¥15,351¥7,725

¥

59

—
¥

Bonds

¥ 79,743¥ 80,797¥30,185¥¥

97

Lease liabilities¥ 10,283¥ 10,786¥ 2,624¥1,865¥1,500

97

—

—

—

59

¥40,088¥10,091¥20,075¥20,251¥ 1,095¥¥ 3,004

159

¥

696

Derivative financial liabilities
Interest rate and currency
swaps

¥

Total

876

¥

¥197,504

876¥¥199,585

602

¥ 273

—

—

—

—

¥92,445¥9,962¥1,656¥11,346¥20,831¥63,343

Millions of yen

March 31, 2021

Carrying
amountContractual
cash flows

Not later than
1 yearLater than 1
year, not later
than 2 years¥ 52,264¥ 52,264¥ 52,264—

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

Nonderivative financial liabilities

Medium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

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.
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.
(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 inputs
Major financial instruments measured at amortized cost

Trade and other payables

—

—

—

—

Borrowings¥137,726¥139,279¥ 47,214¥5,208¥¥11,678¥74,721

Bonds¥ 49,812¥ 50,611

¥

97

¥

97

¥10,091¥20,075¥

64¥20,187

Lease liabilities

¥

¥

¥

2,692

¥1,828¥ 1,297¥ 1,023¥721¥ 2,368

9,655

9,933

313

¥

143

Millions of yen
Fair value

March 31, 2020

Carrying amount

Level 1

Level 2

Level 3

Total

Liabilities

Derivative financial liabilities
Forward exchange contracts¥

Interest rate and currency
swaps

¥

Total

402

¥

180

¥

¥250,042402
180¥252,672

¥
¥

402
180

¥102,851

¥
¥

—

—

—

—

—

—

—

—

—

—

¥7,133¥11,702¥21,242¥12,464¥97,277¥ 79,743¥—¥ 79,804¥—

Borrowings

Bonds

51,987—51,992—¥ 79,804
51,992

Total¥131,731¥—¥131,796¥—¥131,796

Millions of yen
Fair value

Thousands of U.S. dollars
Carrying
amountMarch 31, 2021

Contractual
cash flows

Not later than
1 yearLater 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

March 31, 2021
Later than
5 years

Nonderivative financial liabilities
Trade and other payables$ 470,847 $ 470,847$470,847

—

—

—

—

—

Borrowings$1,240,775 $1,254,766$425,351$46,919$$105,207$673,162

Bonds$ 448,757 $ 455,955

$

$

874

$ 90,910$180,856$

577$181,865

Lease liabilities$$ 24,252$16,468$ 11,685

$

$

6,495

$ 21,333

86,982 $89,486

874

2,820

$

1,288
9,216

Level 1

Level 2

Level 3

Total

Liabilities
Bonds¥ 49,812¥—¥ 49,773¥—

Borrowings

108,783—

108,386—

108,386

Total¥158,595¥—¥158,159¥—¥158,159¥ 49,773

Thousands of U.S. dollars
Fair value

Derivative financial liabilities
Forward exchange contracts$

3,622 $

3,622

$

3,622

—

—

—

—

—

Interest rate and currency
swaps

$

1,622 $

1,622

$

1,622

—

—

—

—

—

$926,586$64,261$105,423$191,369$112,288$876,369

Total

Carrying amount$2,252,631 $2,276,324(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 hierarchy.
(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 rules. In the measurement of the fair value,
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.

March 31, 2021

Carrying amount

Level 1

Level 2

Level 3

Total

Liabilities
Bonds$ 448,757$—$ 448,405$—

Borrowings

980,027—

976,450—

976,450

Total$1,428,784$—$1,424,856$—$1,424,856(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 carry-ing amounts approximate their fair values.

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Consolidated Financial Statements

Financial instruments that are measured at fair value on a recurring basis

Medium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Reconciliation from the opening balances to the closing balances of financial instruments classified as Level 3 were as follows.
Millions of yen
Millions of yen
Fair value

March 31, 2020

Carrying amount

Level 1

Level 2

Level 3

Total

Assets¥42,809¥38,147¥ —¥4,661¥42,809

Financial assets measured at fair value
through profit or loss:
Bonds, etc.

54

—

—

54

54

50

—

50

—

50

¥42,913¥38,147¥ 50¥4,715¥42,913

Liabilities¥4,715$42,477

Total gains (losses)(1,937)

202

1,820

(11)

1

9

(1,926)

200

1,802

Acquisitions

1,665

392

3,532

—

(805)

(7,252)

Disposals
Closing balance

4

13

117

¥ 4,715¥4,519$40,712(Notes) 1. Gains and losses included in profit or loss relate to financial assets measured at fair val-ue through profit or loss as of the end of the fiscal year. These gains and losses are presented in“Fi-nance 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 loss-es are presented in “Financial assets measured at fair value through other comprehensive in-come” in the consolidated statement of comprehensive income.

(4) Equity instruments

Financial liabilities measured at fair value
through profit or loss:
Total¥ 4,983

Other

Derivative assets

Derivative liabilities

2021

Opening balance

Other comprehensive income (Note 2)

Stocks

Total

2021

Profit (loss) (Note 1)

Financial assets measured at fair value
through other comprehensive income:

¥

876

¥

—

¥876

¥

—

¥

876

¥

876

¥

—

¥876

¥

—

¥

876

For investments in equity instruments that are made with the objective of maintaining and strengthen-ing business relationships, the Group
classifies such equity instruments as financial assets measured at fair val-ue 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 were as follows.
Millions of yen

Millions of yen
Fair value

March 31, 2021

Carrying amount

Level 1

Level 2

Level 3

Total

AssetsFinancial assets measured at fair value
through other comprehensive income:Stocks¥53,361¥48,875¥ —¥4,486¥53,361

Financial assets measured at fair value
through profit or loss:
Bonds, etc.
Total

33

—

—

33

33

¥53,394¥48,875¥ —¥4,519¥53,394

Liabilities
Financial liabilities measured at fair value
through profit or loss:
Derivative liabilities
Total

¥

583

¥

—

¥583

¥

—

¥

583

¥

583

¥

—

¥583

¥

—

¥

583

Fair value

2020

2021

2021

TOTO Ltd.

¥ 9,158¥17,323$156,063

Honda Motor Co., Ltd.

7,518

10,24092,252

Toyota Motor Corporation

11,2599,942

89,568Mitsubishi UFJ Financial Group, Inc.

3,714

5,453

49,126NGK INSULATORS, LTD.

1,371

1,958

17,640Noritake Co., Ltd.

722

745

6,712

Rinnai Corporation

447

733

6,604

NTN Corporation

197

356

3,207

Meiko Trans Co., Ltd.

307

331

2,982

ANA HOLDINGS INC.

324

316

2,847

Carrying amount

Level 1

Level 2

Level 3Total

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 ration-ality of holding the stocks and enhancement ofcorporate value, based on a comparison of capital cost with medi-um-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) were as follows.
Millions of yen

Assets2020

Financial assets measured at fair value
through other comprehensive income:Stocks$480,730$440,315$—$40,414$480,730

Financial assets measured at fair value
through profit or loss:
297

—

—

297

297

$481,027$440,315$—$40,712$481,027

$

5,252

$

—

$

5,252

$

—

$5,252

$

—

$

5,252

$5,252

$

—

$

5,252

Liabilities
Financial liabilities measured at fair value
through profit or loss:
Derivative liabilities
Total

Thousands of U.S. dollars

2021

2021

Fair value at the time of sale¥363

¥8,199$73,865

Cumulative gains (before tax effects)¥118¥5,985$53,919(5) Offsetting financial assets and financial liabilities

Bonds, etc.
Total

Thousands of U.S. dollars

Stock name(Note) Financial assets that do not have an active market are primarily investments in new busi-nesses such as environment/energy, medical, and next-generation automobiles. The fair value ofinvestments in new businesses as of March 31, 2020 and March 31, 2021 were ¥3,078 million and ¥2,837 million ($25,559 thousand), respectively.

Thousands of U.S. dollars

March 31, 2021

Thousands of U.S. dollars

2020

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 ba-sis or realize the asset and settle the liability simultaneously. Accordingly,
these financial assets and finan-cial 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 were as follows.

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Consolidated Financial Statements

March 31, 2020

Trade and other receivables

Gross amount offinancial liabilities

Trade and other payables

Gross amount of financial
liabilities set off in the
consolidated statement offinancial position¥95,350

Net amount of financial
assets presented in the
consolidated statement offinancial position¥2,745¥92,604

Gross amount of financial
assets set off in the
consolidated statement offinancial position¥46,426

Net amount of financial
liabilities presented in the
consolidated statement offinancial position¥2,745¥43,681Millions of yen

March 31, 2021

Trade and other receivables

Gross amount offinancial assets

Gross amount offinancial liabilities

Trade and other payables

Gross amount of financial
liabilities set off in the
consolidated statement offinancial position¥115,706

Net amount of financial
assets presented in the
consolidated statement offinancial position¥4,366¥111,339

Gross amount of financial
assets set off in the
consolidated statement offinancial position¥56,631

Net amount of financial
liabilities presented in the
consolidated statement offinancial position¥4,366¥52,264

Thousands of U.S. dollars

March 31, 2021

Trade and other receivables

Gross amount offinancial assets

Gross amount offinancial liabilities

Trade and other payables

Gross amount of financial
liabilities set off in the
consolidated statement offinancial position$1,042,396

Net amount of financial
assets presented in the
consolidated statement offinancial position$39,333$1,003,054

Gross amount of financial
assets set off in the
consolidated statement offinancial position$510,189

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information(2) Retained earnings

Millions of yen

Gross amount offinancial assets

Medium-term Growth Strategies

Net amount of financial
liabilities presented in the
consolidated statement offinancial position$39,333$470,847(6) Hedge accounting
The Group is exposed to currency fluctuation risks associated with foreign currency-denominated trade re-ceivables and the repayment andinterest payment of foreign currency-denominated borrowings. The Group us-es forward exchange contracts, currency options and interest
rate and currency swaps for the purpose of hedg-ing transactions against currency fluctuation risk, but does not apply hedge accounting.
21. Equity and Other Components of Equity

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 were as follows.
Number of shares (shares)

Amount(Millions of yen)Amount(Thousands of U.S. dollars)

April 1, 2019739,357¥ 1,741

Increase

4,774,736

10,074

Decrease(4,759,494)(10,213)

March 31, 2020

754,599¥ 1,602

Increase

3,637

7

63

Decrease(26,205)

(55)

(495)

March 31, 2021

732,031¥ 1,554$14,000$14,432(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 430,908 and 407,406 as of March 31,
2020 and 2021, 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.

(1) Capital stock and capital surplus
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. were as follows.

April 1, 2019
Changes during the fiscal year (Note 2)
March 31, 2020
Changes during the fiscal year
March 31, 2021

March 31, 2020
Changes during the fiscal year
March 31, 2021

Number of authorizedshares (shares)

Number of issued
shares (shares)

Capital stock(Millions of yen)

Capital surplus(Millions of yen)

390,000,000

208,911,620¥47,869¥54,835—(4,736,300)

—

(44)

390,000,000

204,175,320¥47,869¥54,791

—

—

—

65

390,000,000

204,175,320¥47,869¥54,856

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

204,175,320$431,252$493,613

—

—

—

586

390,000,000

204,175,320$431,252$494,198

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 accounting principles generally accepted in Japan.
Dividend payments were as follows.
Fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020)
Total amount of dividends

Dividends per share

Record date

Effective date

Board of Directors’ meeting held on
April 26, 2019 (Note 1)

Resolution date

¥7,300 million¥35

March 31, 2019

June 4, 2019

Board of Directors’ meeting held on
October 28, 2019 (Note 2)¥7,300 million¥35

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 of dividends on the Company’s shares
held by the Directors’ Compensation BIP Trust.
2. The total amount of dividends payments based on the resolution of the Board of Directors’ meeting held on October 28, 2019 includes ¥15 million of dividends on the Company’s
shares held by the Directors’ Compensation BIP Trust and the ESOP Trust.

(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.

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Consolidated Financial Statements

Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021)
Total amount of dividends

Dividends per share

Record date

Effective date

Board of Directors’ meeting held on
May 25, 2020 (Note 1)

Resolution date

¥7,134 million($64,270 thousand)¥35($0.32)

March 31, 2020

June 17, 2020

Board of Directors’ meeting held on
November 9, 2020 (Note 2)¥5,096 million($45,910 thousand)¥25($0.23)September 30, 2020

November 30, 2020

(Notes) 1. The total amount of dividend payments based on the resolution of the Board of Directors’ meeting held on May 25, 2020 includes ¥15 million ($135 thousand) of dividends on the
Company’s shares held by the Directors’ Compensation BIP Trust and the ESOP Trust.
2. The total amount of dividend payments based on the resolution of the Board of Directors’ meeting held on November 9, 2020 includes ¥10 million ($90 thousand) of dividends on the
Company’s shares held by the Directors’ Compensation BIP Trust and the ESOP Trust.

Medium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

In the plan, no exercise price is set as both the Company’s shares are granted and the amount of money equivalent to the conversion
value of the Company’s shares is paid through the ESOP Trust.
The weighted-average fair value of an ESOP Trust point as of the grant date was ¥1,762 and ¥1,436 ($12.94) in the fiscal years ended
March 31, 2020 and 2021, respectively. These fair values were measured by reference to the fair values calculated using the Black-Scholes model.
Assumptions used in the model were as follows.
2020

2021

Share price¥1,908¥1,436 ($12.94)

Expected volatility (Note)

33.2%

36.2%

Expected remaining term

2.2 years

1.3 years

Expected dividend yield

3.7%

—%

Dividends with an effective date in the next fiscal year were as follows.

Risk-free rate(0.2)%(0.1)%

Fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020)(Note) The expected volatility is calculated based on the historical price performance over the expected remaining period.

Resolution date

Source of dividends

Total amount ofdividends

Board of Directors’ meeting held on
May 25, 2020

Retained earnings¥7,134 million

Dividends per share

Record date

Effective date

¥35

March 31, 2020

June 17, 2020

(Note) The total amount of dividend payments includes ¥15 million of dividends on the Company’s shares held by the Directors’ Compensation BIP Trust and the ESOP trust.

24. Revenue(1) Revenue recognized from contracts with customers
The components of “revenue” in the consolidated statement of profit or loss in the fiscal years ended March 31, 2020 and 2021 were as follows.
Millions of yen

Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021)
Resolution date

Board of Directors’ meeting held on
May 7, 2021

Source of dividends

Total amount ofdividends

Dividends per share

Record date

Effective date¥35($0.32)

March 31, 2021

June 4, 2021

¥7,134 million
Retained earnings ($64,270 thousand)

Revenue recognized from contracts with customers

2021

2021

¥425,798¥427,417$3,850,604

Revenue recognized from other sources(Note) The total amount of dividend payments includes ¥14 million ($268 thousand) of dividends on the Company’s shares held by the Directors’ Compensation BIP Trust and the ESOP Trust.

Total

Thousands of U.S. dollars

2020
274

129

1,162

¥426,073¥427,546$3,851,766(Note) Revenue recognized from other sources includes revenue from lease contracts as defined under IFRS 16.

(2) Disaggregation of revenue

23. Share-based Payments
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 ¥113 million and ¥102 million ($919 thousand) in the fiscal
years ended March 31, 2020 and 2021, 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 acquires its shares through the BIP Trust using
funds contributed by the Company and, in accordance with the Company’s share grant policy, grants the shares and pays an amount ofmoney equivalent to the conversion value of the shares to the respective Directors, etc. based on the number of points granted (1 point = 1
share).
The vesting conditions require, in principle, that the Directors, etc. have served continuously in the position of Directors from the grant
date to the vesting date.
In the plan, no exercise price is set as both the Company’s shares are granted, and the amount of money equivalent to the conversion
value of the Company’s shares is paid through the BIP Trust.
The weighted-average fair value of a BIP Trust point as of the grant date was ¥1,959 and ¥1,436 ($12.94) in the fiscal years ended March
31, 2020 and 2021, respectively. These fair values were measured by reference to the fair values calculated using the Black-Scholes model.
Assumptions used in the model were as follows.
2020

2021

Share price¥2,115¥1,436 ($12.94)

Expected volatility (Note)

32.4%

36.2%

Expected remaining term

2.3 years

1.3 years

Expected dividend yield

3.3%

—%

Risk-free rate(0.2)%(0.1)%(Note) The expected volatility is calculated based on historical price performance over the expected remaining period.

(2) Employee Stock Ownership Plan (ESOP) Trust
The Company has adopted an 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 increase in the stock price.
This is a performance-linked, share-based payment plan, under which the Company acquires its shares through the ESOP Trust using
the funds contributed by the Company and, in accordance with the Company’s share grant policy, grants the shares and pays an amount ofmoney equivalent to the conversion value of the shares to the respective eligible persons based on the number of points granted (1 point = 1 share).
The vesting conditions require, in principle, that the eligible persons have been in service retaining the eligibility from the grant date to thevesting date.

Revenue recognized from contracts with customers is disaggregated by segment based on the contracts with the 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 relationshipbetween disaggregated revenue and segment revenue for the fiscal years ended March 31, 2020 and 2021 is set forth in the table below.
As noted in “Note 4: Segment Information”, the Group has changed its reportable segments, and the disaggregation of revenue for the
fiscal year ended March 31, 2020 is made and reported based on the reportable segments of the fiscal year ended March 31, 2021.
Millions of yen

Thousands of U.S. dollars

2020

2021

2021

Automotive components¥344,398¥338,612$3,050,559

Plugs

203,538

205,259

1,849,180

Sensors

140,859

133,352

1,201,369

Ceramics¥ 36,311¥ 38,915$ 350,586

Medical¥ 20,671¥ 24,805$ 223,468

New businesses¥ 20,630¥ 19,905$ 179,324

Other

¥

¥

$

Total

4,060

¥426,073

5,307¥427,546

47,811$3,851,766(Note) The table above includes “revenue recognized from contracts with customers” and “revenue recognized from other sources.”

The Automotive components segment principally manufactures and sells automotive components and consists of two subsegments:
Plugs, which is the spark plug business, and Sensors, which is which the business of exhaust gas sensors and other types of automotive
sensors. Ceramics is a segment that manufactures and sells cutting tools, industrial ceramics and products for semiconductor manufacturing
equipment. Medical is a segment that manufactures and sells artificial bones and oxygen concentrators. New businesses is a segment that
manufactures and sells products related to new businesses, such as the environmental and energy business.
In the sale of products, revenue is recognized when the control of the product is transferred to the customer; that is, when the product isshipped to a location specified by the customer, and is delivered to and accepted by the customer, upon which the legal title to and thephysical possession of the product, as well as the significant risks and rewards of ownership of the product transfer to the customer. No
significant financing component is included in the consideration promised by the customer as it is received within one year after therecognition of the revenue.
There are instances in which the products of the Automotive components segment are sold with variable considerations, including
rebates that 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 thecustomer, less the estimated amount of achievement rebates or other variable consideration. Achievement rebates are estimated using themost likely amount method, 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 the recognized revenue will occur.

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Consolidated Financial Statements

Medium-term Growth Strategies

Foundation for Value Creation

Segment Highlights(3) Contract liabilities(2) Finance expenses

Contract liabilities relate primarily to payments received from customers in advance. The balance of contract liabilities as of March 31, 2020
and 2021 is as follows.

The components of finance expenses for the fiscal years ended March 31, 2020 and 2021 were as follows.

Millions of yen

2020
Contract liabilities

Millions of yen

Thousands of U.S. dollars

2021

¥342

2021

¥548

$4,937

Thousands of U.S. dollars

2020

2021

¥ 899

¥ 850

5,833

—

—

33

216

1,946

¥6,766¥1,067$9,613

Other (Note)

Balance as at
March 31, 2020

2021

Interest expense
Financial liabilities measured at amortized cost (Note)
Foreign exchange loss (net)

The amounts of all contract liabilities included in the opening balance of fiscal years ended March 31, 2020 and 2021 were recognized asrevenue for the fiscal years ended March 31, 2020 and 2021, respectively.

Financial / Corporate Information

Other
Total

$7,658(Note) Interest expense associated with lease liabilities is stated in “Note 12: Leases.”

25. Selling, General and Administrative Expenses
The components of “Selling, general and administrative expenses” in the consolidated statement of profit or loss for the fiscal years ended
March 31, 2020 and 2021 were as follows.
Millions of yen

Thousands of U.S. dollars

2020

2021

2021

¥ 5,509¥ 5,502$ 49,568

Retirement benefit costs

1,184

1,122

10,108

Director compensation and employee salaries and allowances

34,262

34,516

310,955

Packaging and transportation expenses

8,580

10,59895,477Advertising expenses

5,612

4,285

38,604Other

32,142

27,846

250,865¥87,292¥83,871$755,595

Depreciation and amortization

Total

26. Other Income and Expenses
The components of other income for the fiscal years ended March 31, 2020 and 2021 were as follows.
Millions of yen

2020
Gain on sale of property, plant and equipment

¥

Other
Total

2021
39

Insurance income

Thousands of U.S. dollars

¥

2021
28

$

252

57

39

351

1,445

1,576

14,198¥1,542¥1,644$14,811

Millions of yen

2020
¥ —

Other
Total

(1) Deferred tax assets and deferred tax liabilities
The components of major causes of deferred tax assets and deferred tax liabilities were as follows.
Fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020)
Millions of yen
Balance as at
April 1, 2019

Thousands of U.S. dollars

2021

2021

¥ 518

$ 4,667

718

1,167

10,514¥718¥1,686$15,189

Recognized throughprofit or loss

Recognized throughother comprehensive
incomeDeferred tax assets
Operating loss carryforwards¥ 1,478¥ (59)—¥ 471¥ 1,890

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)

622

(135)

4,804

¥28,830

¥ 635

724

¥ 192

¥30,383

Retained earnings of affiliates

3,889

106

—

—

3,995

Valuation differences on securities

11,256

8(2,736)—

8,529

Property, plant and equipment, andintangible assets

3,278

84

—

(184)

3,177

Total

Total
Net deferred tax assets (liabilities)

371

52

—

(15)

409

¥ 251

¥(2,736)¥(200)¥16,111¥10,034¥ 384¥ 3,460¥ 393¥14,272(Note) Foreign currency translation differences are included in “Other.”(1) Finance income
The components of finance income for the fiscal years ended March 31, 2020 and 2021 were as follows.
Millions of yen

Thousands of U.S. dollars

2021

2021

¥ 675

¥ 384

$ 3,459

1,492

1,228

11,063

Interest income
Financial assets measured at amortized cost
Dividend income
Financial assets measured at fair value through other comprehensive income(Note)
Gain on valuation of derivatives

843

243

2,189

Foreign exchange gains (net)

—

3,785

34,099

Other
Total

56

37

333

¥3,068¥5,679$51,162¥¥18,796

27. Finance Income and Finance Expenses

2020

¥

Deferred tax liabilities

Other

The components of other expenses for the fiscal years ended March 31, 2020 and 2021 were as follows.

Settlement package

28. Income Taxes(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.
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Consolidated Financial Statements

Millions of yen
Recognized throughprofit or loss

Recognized throughother comprehensive
income¥ 1,890¥ (531)Retirement benefit liabilities

8,434

Property, plant and equipment, andintangible assets
Accrued expenses
Inventories

Other (Note)—¥(531)(67)(1,564)

13

6,816

2,745

(265)

—

(47)

2,432

3,840

259

—

112

4,212

2,881

Unrealized gains

144

5,786

Other
Total

¥

—

(242)

¥

97

—

826

—

2021

Deductible temporary differences¥ 9,762¥11,682$105,243

Tax loss carryforwards and tax credit carryforwards¥16,165¥21,336$192,216

The expiration schedule of tax loss carryforwards and tax credit carryforwards for which no deferred tax assets were recognized as ofMarch 31, 2020 and 2021 is as follows.
Millions of yen

2020¥

Thousands of U.S. dollars

2021
14

2021

5,543

First year

1

—

—
—

¥

—

$

—

4,804

531

(505)

478

5,308

¥30,383¥ (173)¥(2,069)¥ 122¥28,262

Third year——

Fourth year

—

—

—

16,14821,336

192,216¥16,165¥21,336$192,216

3,995

953

—

Valuation difference on securities

8,529

(18)

Property, plant and equipment, andintangible assets

3,177

19

409

Net deferred tax assets (liabilities)

Thousands of U.S. dollars

2021

Second year

Retained earnings of affiliates

Total

Financial / Corporate Information

2020

3,123

Deferred tax liabilities

Other

Segment Highlights

Millions of yen
Balance as at
March 31, 2021

Deferred tax assets
Operating loss carryforwards

Foundation for Value Creation

Deductible temporary differences, tax loss carryforwards and tax credit carryforwards for which no deferred tax assets were recognized
as of March 31, 2020 and 2021 were as follows.

Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021)

Balance as at
April 1, 2020

Medium-term Growth Strategies

—

4,948

3,080

—

11,590

—

97

3,294

31

—

40

481

¥16,111¥985¥ 3,080¥ 138¥20,316¥14,272¥(1,159)¥(5,150)¥ (15)¥ 7,946

Fifth year and beyond
Total

Taxable temporary differences associated with investments in consolidated subsidiaries and associates for which no deferred tax liabilities
were recognized as of March 31, 2020 and 2021 are immaterial.
(2) Income tax expenses
The components of income tax expenses for the fiscal years ended March 31, 2020 and 2021 were as follows.
Millions of yen

Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021)
Thousands of U.S. dollars
Recognized throughother comprehensive
incomeCurrent tax expense

Balance as at
April 1, 2020

Recognized throughprofit or loss

Operating loss carryforwards$ 17,027$ (4,784)

Retirement benefit liabilities

75,982(604)(14,090)

117

61,405

Property, plant and equipment, andintangible assets

24,730(2,387)—(423)

21,910Accrued expenses

34,595

2,333

—

1,009

37,946Inventories

25,955

1,297

—

874

28,135

Unrealized gains

52,126(2,180)——49,937

Other

43,2794,784(4,550)4,306

47,820$273,721$ (1,559)$(18,640)$ 1,099$254,613

Other (Note)

Balance as at
March 31, 2021

Deferred tax assets

Total

$

—

$(4,784)$7,441

Retained earnings of affiliates

35,991

8,586

—

—

44,577

Valuation difference on securities

76,838(162)

27,748—104,414

Property, plant and equipment, andintangible assets

28,622

171

—

874

29,676

Other

3,685

279

—

360

4,333

$145,144$ 8,874$ 27,748$ 1,243$183,027$128,577$(10,441)$(46,396)$ (135)$ 71,586

Net deferred tax assets (liabilities)

2021¥11,502¥13,261$119,468

(384)

1,159

10,441¥11,118¥14,420$129,910(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 in the fiscal
year ended March 31, 2020 (not applicable for the fiscal year ended March 31, 2021).

(3) Reconciliation of combined statutory tax rate
Reconciliation of combined statutory tax rate and average effective tax rate for the fiscal years ended March 31, 2020 and 2021 were as follows.

Deferred tax liabilities

Total

2021

Deferred tax expense (Note)
Total

Thousands of U.S. dollars

2020(Note) Foreign currency translation differences are included in “Other.”

Deferred tax assets and deferred tax liabilities in the consolidated statement of financial position as of March 31, 2020 and 2021 were as
follows.
Millions of yen

Deferred tax assets
Net deferred tax assets

Combined statutory tax rate

2021

30.6

30.6

(Reconciliation)
Permanently nondeductible expenses

0.9

0.8

Permanently nontaxable income

(0.4)

(0.5)

Tax credits for experimental research costs, etc.

(3.3)

(3.9)

Differences in statutory tax rates of overseas consolidated subsidiaries

(0.9)

(0.5)

The reassessment of the recoverability of deferred tax assets

(1.5)

1.2

Retained earnings of overseas consolidated subsidiaries and associates

0.3

1.9

Tax exemption on overseas consolidated subsidiaries

(0.3)

(1.2)

Other
Average effective tax rates

(0.6)

(0.6)

24.8

27.8

(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,
2020 and 2021 were both 30.6%. Overseas consolidated subsidiaries are subject to income taxes at their respective jurisdictions.

Thousands of U.S. dollars

2020

2021

2021

¥14,296¥8,438$76,018

Deferred tax liabilities

Percentage

2020

24

491

4,423

¥14,272¥7,946$71,586

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138

Our Business

Consolidated Financial Statements

Medium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021)

29. Earnings Per Share

Millions of yen(1) Per share information
Yen

Basic earnings per share

Amount arisingduring the fiscal year

U.S. dollar

2020

2021

¥163.06¥188.59

Reclassification
adjustments

Before tax
effects

Amount of tax
effects

Net of tax
effects

Items that will not be reclassified to profit or loss

2021

Financial assets measured at fair value through othercomprehensive income$1.70¥19,516¥—¥19,516¥(6,273)¥13,243

5,515

—

5,515

(1,564)3,950(Note) Diluted earnings per share information is omitted because the Company does not have dilutive potential ordinary shares.

Remeasurements of defined benefit plans(2) The basis for the calculation of basic earnings per share for the fiscal years ended March 31, 2020 and 2021 is as follows.

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

2

—

2

—

2

Thousands of U.S. dollars

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

¥25,035¥—¥25,035¥(7,838)¥17,196

Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations

9,091

—

9,091

—

9,091

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

627

Millions of yen

Item

2020

2021

2021

Profit attributable to owners of the parent¥33,698¥38,367$345,649

Thousands of shares

627

—

627

Total of items that may be reclassified subsequently to
profit or loss

¥ 9,718¥—¥ 9,718¥—¥ 9,718(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.

Total of other comprehensive income¥34,753¥—¥34,753¥(7,838)¥26,915

30. Other Comprehensive Income

Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021)

Weighted-average number of ordinary shares during the year

2020

2021

206,665

203,439

Thousands of U.S. dollars

The components of other comprehensive income and their tax effects (including noncontrolling interests) for the fiscal years ended March 31,
2020 and 2021 were as follows.
Financial assets measured at fair value through othercomprehensive income

Millions of yen
Reclassification
adjustments

Before tax
effects

Amount of
tax effects

Net of tax
effects

Remeasurements of defined benefit plans

Items that will not be reclassified to profit or loss
Financial assets measured at fair value through othercomprehensive income
Remeasurements of defined benefit plans

Reclassification
adjustments

Before tax
effects

Amount of tax
effects

Net of tax
effects

Items that will not be reclassified to profit or loss

Fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020)
Amount arisingduring the fiscal year

Amount arisingduring the fiscal year¥(10,863)¥—¥(10,863)¥3,328¥ (7,535)$175,820$—$175,820$(56,514)$119,306

49,685—49,685(14,090)

35,586

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

18

—

18

—

18

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

$225,541$—$225,541$(70,613)$154,919

(812)

—

(812)

101

(710)

Items that may be reclassified subsequently to profit or loss

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

(5)

—

(5)

—

(5)

Exchange differences on translation of foreign operations

81,901—

81,901—

81,901

Total of items that will not be reclassified to profit or loss¥(11,681)¥—¥(11,681)¥3,430¥ (8,251)

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

5,649

—

5,649

—

5,649

Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Share of other comprehensive income of investments
accounted for using the equity method(11,975)
(576)

—
—

(11,975)

—

(576)

—

(11,975)

Total of items that may be reclassified subsequently to
profit or loss

$ 87,550$—$ 87,550$—$ 87,550

Total of other comprehensive income$313,090$—$313,090$(70,613)$242,477(576)

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)

31. Changes in Liabilities Arising from Financing Activities
Changes in liabilities arising from financing activities for the fiscal years ended March 31, 2020 and 2021 were as follows.
Fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020)
Millions of yen
Noncash changes
Foreign currency
exchangedifferences

April 1, 2019

Cash flows

Short-term loans payable¥ 27,587¥(16,404)¥(250)

Long-term loans payable

31,23020,076

Bonds

49,842

Lease liabilities
Total

New lease
contracts¥

Changes arisingfrom acquisition ofcontrol insubsidiaries

Other

March 31, 2020

—

¥—

¥ —

¥ 10,931

787

—

—

(106)

51,98729,852

—

—

—

48

79,743

9,678(2,637)

(296)

3,453

—

83

10,283¥118,339¥ 30,887¥ 240¥3,453¥—¥ 25¥152,946

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Consolidated Financial Statements

Millions of yen
Noncash changes

April 1, 2020

Cash flows¥ 10,931¥ 17,916¥

Short-term loans payable95

New lease
contracts¥

Changes arisingfrom acquisition ofcontrol insubsidiaries

—

Other

¥86

March 31, 2021¥(87)

¥ 28,943

Long-term loans payable

51,98755,785

949

—

—

60

108,783

Bonds

79,743(30,000)

—

—

—

68

49,812

Lease liabilities
Total

Foundation for Value Creation

10,283(2,825)

329

1,893

—

(24)

9,655

¥152,946¥ 40,876¥1,374¥1,893¥86¥ 16¥197,194

35. Subsequent Events
There are no items to report.

Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021)
Thousands of U.S. dollars
Noncash changes

April 1, 2020

Cash flows$

98,477$161,405

Long-term loans payable

468,351

502,568

Bonds

718,405(270,270)

Short-term loans payable

Lease liabilities
Total

Foreign currency
exchangedifferences$

856

Changes arisingfrom acquisition ofcontrol insubsidiaries

New lease
contracts

$

Other

March 31, 2021

—

$775

$(784)$ 260,748

8,550

—

—

541

980,027

—

—

—

613

448,757

92,640(25,450)

2,964

17,054—(216)

86,982$1,377,892$368,252$12,378$17,054

$775

$ 144

$1,776,523

32. Major Subsidiaries
The Company’s major subsidiaries are mentioned on the Company’s website (https://www.ngkntk.co.jp/english/).
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 fiscal years ended March 31, 2020 and 2021 were as follows.
Millions of yen

2020
Remuneration and bonuses
Total

Thousands of U.S. dollars

2021

2021

¥ 901

¥794

113

91

820

¥1,014¥885$7,973

Share-based payments$7,153(Notes) 1. Key management personnel are the Company’s directors and executive officers working in the respective presented fiscal years.
2. The amounts of share-based payments are the amounts expensed in the fiscal years ended March 31, 2020 and 2021.

34. Contingencies(1) Guarantee obligations
The Group provides guarantees for borrowings from financial institutions taken by the Group’s employees, as follows.
Millions of yen

March 31, 2020
Guarantees of employees’ borrowings
Total

Segment Highlights

Financial / Corporate Information

and recognizes the estimated amount of liability, such as settlement packages that may occur in the future. The carrying amount of theprovision for the violation of antitrust law as of March 31, 2021 was ¥384 million ($3,459 thousand). The estimated amount of liability that may
occur in the future is based on information currently available. However, as a result of uncertainty, if new facts become available in the future,additional loss may result. In accordance with IAS 37, “Provisions, Contingent Liabilities and Contingent Assets,” a detailed description of thelegal proceedings, etc., is not disclosed to avoid putting the Group at a disadvantage.

Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021)

Foreign currency
exchangedifferences

Medium-term Growth Strategies

Thousands of U.S. dollars

March 31, 2021

March 31, 2021

¥5

¥4

$36

¥5

¥4

$36

(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. The Company analyzes the risks individually based on the status of theinvestigations by the national and antitrust law authorities, the progress of settlement negotiations and the opinions of the lawyers in charge,

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Independent Auditor’s Report

Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

NGK SPARK PLUG CO., LTD. Integrated Report 2021

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144

Segment Highlights

Financial / Corporate Information

Our Business

Independent Auditor’s Report

Medium-term Growth Strategies

Foundation for Value Creation

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146

Segment Highlights

Financial / Corporate Information

Our Business

Independent Auditor’s Report

Medium-term Growth Strategies

Foundation for Value Creation

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148

Segment Highlights

Financial / Corporate Information

Our Business

Independent Auditor’s Report

Medium-term Growth Strategies

Foundation for Value Creation

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150

Segment Highlights

Financial / Corporate Information

Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Global Network
Global Network

Global Network (As of July 1, 2021)

NGK SPARK PLUGS (THAILAND) CO., LTD.
SIAM NGK SPARK PLUG CO., LTD.
NGK SPARK PLUGS (ASIA) CO., LTD.
NGK SPARK PLUG EUROPE GmbHNTK CORPORATION ASIA CO., LTD.

EUROPE TECHNICAL CENTERNGK SPARK PLUGS (UK) LTD.

CHANGSHU NGK SPARK PLUG CO., LTD.

LLC NGK SPARK PLUGS(EURASIA)NGK SPARK PLUGS(FRANCE) S.A.S.
(Headquarters)

NGK SPARK PLUGS (U.S.A.), INC.
(Headquarters)
U.S.A. TECHNICAL CENTERWOOJIN INDUSTRY
CO., LTD.
WOOJIN TECHNICALCENTERNGK SPARK PLUG
MIDDLE EAST FZENGK SPARK PLUGSCANADA LIMITEDNTK TECHNOLOGIES, INC.

NGK SPARK PLUGS(INDIA) PVT. LTD.

NGK SPARK PLUGS(FRANCE) S.A.S.
(France Factory)

Wells Vehicle Electronics, L.P.

NTK TECHNICAL CERAMICS
KOREA CO., LTD.

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 &sales organization

NGK SPARK PLUGS(PHILIPPINES), INC.

Sales organization
NGK SPARK PLUGS (VIETNAM) CO., LTD.

Technical center
Holding company
OthersNGK SPARK PLUGS SA (PTY) LTD

CERAMICA E VELAS DE
IGNICAO NGK DO BRASILLTDA.

NGK SPARK PLUG (AUSTRALIA) PTY. LTD.

BRASIL TECHNICAL CENTER

Domestic Network
SAPPORO SALES OFFICE

Domestic Network (As of July 1, 2021)

KAMIOKA CERAMIC CO., LTD.
NTK CERATEC CO., LTD.
NAGANO LIAISONOFFICESENDAI SALES OFFICE

Komaki Plant
CERAMIC SENSOR CO., LTD.
Spark Tec WKS CO., LTD.
UTSUNOMIYA LIAISON OFFICENTK CERAMIC CO., LTD.
MORIMURA SOFC TECHNOLOGY Co., Ltd.

SAITAMA LIAISON OFFICECECYLLS Co., Ltd.
NTK Medical CO., LTD.
NTK Cutting Tools CO., LTD.

TOKYO BRANCHHIROSHIMA SALES OFFICEHAMAMATSU LIAISON OFFICEATSUGI LIAISON OFFICE

Headquarters & Nagoya Plant

FUKUOKA SALES OFFICENICHIWA KIKI CO., LTD.
Satsuma Plant

Ise Plant
NANSEI CERAMIC CO., LTD.
OSAKA SALES OFFICENGK SPARK PLUG CO., LTD. Integrated Report 2021

151

NITTOKU DENSHI CO., LTD.

Headquarters/Plant

NITTOKU ALPHA SERVICE CO., LTD.

Sales office

NITTOKU SMILE CO., LTD.

Group company

Sharing FACTORY Co., Ltd.
ignArt CO., LTD.

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Our BusinessMedium-term Growth Strategies

Foundation for Value Creation

Segment Highlights

Financial / Corporate Information

Corporate Profile and Stock Information
Corporate data (As of March 31, 2021)

Number of employees at work (consolidated) (As of March 31, 2021)

Number of shares and shareholders (As of March 31, 2021)

NGK SPARK PLUG CO., LTD.

(Number of employee)

Paid-in capital

47,869 million yen

Total number ofauthorized shares
Total number of issued
sharesListed market

390,000,000

20,000

14-18 Takatsuji-cho, Mizuho-ku, Nagoya

Headquarters

467-8525, Japan

15,000Established

October 1936

10,000

Number of employees

Non-consolidated: 5,891

15,322

14,92615,994

16,43016,3915,000

Consolidated: 16,391

0

2016

2017

2018

2019

2020

(FY)

Major shareholders (As of March 31, 2021)
Number ofName of shareholder

204,175,320

Shareholder registryadministrator
Accounting auditor

Tokyo Stock Exchange and Nagoya
Stock Exchange (First Section)
Mitsubishi UFJ Trust and Banking
Corporation
KPMG AZSA LLC

Number of shareholders

19,342

Corporate Management Committee
Corporate Officers’ Meeting

Treasury Stock

Audit & Supervisory Board

Meetings

Audit & Supervisory Board Member

Committees

Individuals and Others
in Japan
10.36%(21,154 Thousand Shares)

Audit & Supervisory Board Office<Corporate Domain><BP Company>

FP & A Company
Accounting & Finance Dept.
Business Support Company

Financial Strategy Dept.

<Business Domain>

Mobility Business Company
Operation Control Dept.
Marketing & Strategy Dept.

Corporate Strategy Dept.
Business Management Dept.

General Administration Dept.

AM-GHQ

Intellectual Property Dept.

Japan Sales RHQ

Corporate Quality Control Dept.

Strategic Procurement Dept.

Personnel Labor Dept.
Corporate Communication Dept.
IT Systems Company
Information Systems Dept.
SCM Solutions & Services Company

Strategic Planning
Engineering Dept.
Product Engineering
Quality Assurance
Related Products

Logistics Dept.

7.81

8,041

3.94

7,404

3.63

4,380

2.14

3,929

1.92

Nippon Life Insurance Company

3,563

1.74

TOTO Ltd.

3,433

1.68

Custody Bank of Japan, Ltd. (trust account 7)

3,322

1.63

Custody Bank of Japan, Ltd. (trust account)

Agriculture Cooperatives
MUFG Bank, Ltd.

Breakdown ofshareholders
by type

The Master Trust Bank of Japan, Ltd.
(for Toyota Motor Corporation)

Trust Services
22.76%(46,481 Thousand
Shares)Securities Companies
2.88%(5,873 Thousand Shares)

Note: Ownership ratio above is calculated excluding treasury stock.

Stock price of NGK SPARK PLUG

The Nikkei 225

Strategic Planning Dept.
Production Engineering Company

Development Design 1

Strategic Planning Dept.

Development Design 2
Development Design 3

Strategic Engineering Planning Office

Production Engineering Control Dept.

Operation Control Dept.

R&D Dept.

Production Engineering Dept. 1

Quality Assurance Dept.

30,0003,200

24,0002,400

18,0001,600

12,000

800

6,000

0

0

Advanced Ceramics Company
Planning Dept.

Operation Dept.
Global Procurement Company■

Trading volume(Million shares)

60
50
40
30

Production Engineering Dept. 2
Equipment Maintenance Dept.

(Yen)

4,000

Sensor Beyond Company

Production Engineering Development Dept.

Business Design Div.

15,932

Stock price and trading volume (As of June 30, 2021)

Planning & Administration

Planning Control OfficeBusiness Creation Company

8.21(trust account)

Financial Institutions
26.20%(53,489 Thousand
Shares)Other Corporations in Japan
6.82%(13,934 Thousand Shares)

Strategic Planning Dept.

Implant Dept.
R&D Group

Foreign Corporations
and Individuals
30.82%(62,918 Thousand
Shares)Business Management

Secretarial Office

PKG Solution Dept.

IGNITE Company

Process Engineering

Management Auditing OfficeBusiness Transformation Div.

16,752(Yen)

HR Development Dept.

Internal Auditing Office

The Dai-ichi Life Insurance Company, Limited

OEM Sales GHQ

Environment & Safety Management Dept.

HR Communication Company

Global Group Governance Headquarters

8.23

Sales Engineering Dept.

Sustainability Promotion Dept.
Strategic Human Resources Dept.

16,794The Master Trust Bank of Japan, Ltd.

Breakdown of shareholders by type (As of March 31, 2021)
0.16%(324 Thousand Shares)

Digital Transformation Dept.

Meiji Yasuda Life Insurance Company

National Mutual Insurance Federation of

President

Ownership ratio (%)(thousand)Organization chart (As of July 1, 2021)

Board of Directors

shares held

Sales & Marketing Dept.

Venture Investment Dept.

Strategic Planning Dept.

Engineering Dept.

Business Strategy Dept.

Procurement Dept.

Quality Assurance Dept.

Business Development Div.

20
100
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 10 11 12 1 2 3 4 5 6
2021
2017
2018
2019
2020
2015
2016

Machining Technology Company(Year)

Note: Trading volume above does not include data for trading via the ToSTNet system.

Planning Dept.

Fuel Cell Office

Sales & Marketing Dept.
Engineering Dept.
Quality Control Office

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Foundation for Value Creation

Segment Highlights

Financial/Corporate Information

Independent Verification Report

Editorial Note

Our Value to Society
Thank you for taking the time to read our Integrated Report 2021.

We have explained our business strategy and initiatives for sustainability to our shareholders, investors, and allother stakeholders through integrated reports since the first issue in FY2017. During this period, the businessenvironment surrounding us has changed with the speed beyond our imagination, and furthermore, strengthening of
response to Environmental (E) and Social (S) issues has been strongly requested, partly affected by the COVID-19
infection. We have prepared this report, focusing on more clearly communicating to stakeholders how we will tackle
these environmental changes through our business activities.

Regarding the initiatives for sustainability, we have formulated Eco Vision 2030 in the current fiscal year. On thepremise of aiming for carbon neutrality in 2050, we have shown the vision (or goal) of what we want to be by 2030
and the vision of what we will pursue until 2040 through this vision. In addition, last year we announced our support
for the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, and in the current fiscal year,
we conducted a scenario analysis. We have disclosed the content of the analysis in this report as well as on our
website.
Also, in the previous fiscal year, we announced our long-term vision to break away from the business portfolio in
which the ICE business accounts for 80% of our total revenue. In the current fiscal year, we formulated the Mediumterm Management Plan (from FY2021 to FY2024) as the specific strategy to achieve the long-term vision. In thisreport, we have explained specific plans to materialize the vision of what we want to be, including an improvement inefficiency and speed of management by the introduction of an in-house company system.
The ICE business is still our main business today, and we sometimes receive critical comments from investors forour repeated trial and error in developing new businesses. On the other hand, as the company holding the top sharein spark plugs and sensors market in the world, we believe in the value only we can offer, such as the contribution tosolving social issues through the dissemination and expansion of environmentally friendly products. Through thisreport, we hope you will understand our attitude to continuously promote activities toward realization of a sustainable
society, while pursuing to transform our business portfolio in the long run.

Environment & Energy

Mobility

To an energy efficient and

To a mobile society that isenvironmentally-friendly society

fun and convenient

Using sensing technology to improve

Providing maintenance services according

industrial efficiency

to your lifestyle

Stable supply of regenerated energy

Improving electricity using ceramic

We would sincerely appreciate your continued support for the NGK SPARK PLUG Group.
September 2021
Mikihiko Kato,
Member of the Board Executive Officer,
Strategic Human Resources and Sustainability Promotion
Administrative Office of Integrated Report 2021 Projectcomponents
Providing MaaS (Mobility as a Service) to fit
special needs

SPARK
PLUG
Integrated
ReportNGKNGK
SPARK
PLUG
CO.,CO.,
LTD.LTD.
Integrated
Report20212021

NGK SPARK PLUG CO., LTD. Integrated Report 2021

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