Emerging ontoa Still Wider Stage
Revision of Numerical Targets
in Medium-Term Management Plan

Ortus Stage 2
February 8, 2019* Ortus: A Latin word meaning “beginning and birth”

Contents
Background to the Revisions to Numerical Targets
Progress Report on Medium-Term Management Plan Ortus Stage 2
State of Progress
Strategic Direction
Key Issues and Results to Date
Cost Reduction Activities at Production & Logistics Division
Expansion of On-site Business in Southeast Asia
Acquisition of Europe Business
Acquisition of U.S. HyCO Business

Revisions to the Numerical Targets of
the Medium-Term Management Plan Ortus Stage 2
Preconditions and Definitions
Numerical Targets
Financial Strategy
Revised Investment Plan
Envisaged Stronger Financial Position

Background to the Revisions
to Numerical Targets

Ortus Stage 2

Background to the Revisions to Numerical Targets
With the merger of German company Linde (currently Linde AG) and U.S. company Praxair,
TNSC has acquired Praxair’s European business and carries forward the procedures ofacquisition of Linde’s U.S. HyCO business. Through these two large-scale acquisitions,
TNSC’s business scale will expand significantly. We have therefore revised the numericaltargets for the final year of the medium-term management plan Ortus Stage 2, the fiscal
year ending March 31, 2021.

Medium-Term Management Plan Ortus Stage 2（Four-year plan spanning FYE 2018 to FYE 2021）

Existing Businesses
Gas businessin JapanGas businessin the U.S.

Acquired Businesses
Gas businessin the U.S.
HyCO business

Europe business（acquiredfrom Praxair）（plan to acquirefrom Linde）

Gas business in
Asia and Oceania

Thermos business4

Medium-Term Management Plan

Ortus Stage 2

Progress Report

Ortus Stage 2

State of ProgressContinuing on from the previous medium-term management plan, Ortus Stage 1,
we are making good progress overall on our targets for the second year in our current
medium-term management plan, Ortus Stage 2. We will therefore continue the basic
policies and key strategies set out when the plan was formulated.
1,000.0
Final fiscal year of
Ortus Stage 1
Revenue(Billions of yen)

620.0

581.5

800.0

735.0
646.2

Operatingincome(Billions of yen)

54.7

56.5

60.0

76.0

66.5
0.0760FYE2017
Actual(IFRS)

FYE2018
Target(IFRS)

FYE2018
Actual(IFRS)

FYE2019
Forecast(IFRS)

FYE2021
Projection(IFRS)

Revenue

581.5

620.0

646.2

735.0

800.0

Core operating income

54.7

56.5

60.0

66.5

76.0

Core operating income ratio

9.4%

9.1%

9.3%

9.0%

9.5%

Overseas revenue ratio

40.8%

－

43.3％

47.2%

45.0%

ROCE*

8.4%

7.9%

8.４％

6.3%

9.0%

Long-Term
Vision* ROCE (Return on capital employed) = Core operating income / Outstanding Interest-bearing Debt + Equity attributable to owners of parent* Core operating income is calculated as operating income excluding certain gains and expenses attributable to non-recurring factors (non-recurring items).
* Nonrecurring items are costs of structural reform (cost for withdrawal or downsizing business operations and special retirement allowances), losses causedby disasters or serious accidents, and other gains and expenses (such as disposal of idling assets).

6Strategic Direction
Key Strategies

Basic Policy
Reinforce Operating
Foundation
Safety, Quality, andCompliance

1. Structural Reform

2. Innovation

Maximizing group powerby augmenting collaboration

Promote innovation
by capitalizing on external
resources and IoT

Accelerating

Strengthen collaborationin the sales and marketing functions

Innovation in R&D

R&D Strategy

Integration of engineering functions

Innovation in sales approaches

Strengthening

Promotion of shared services

Corporate Functions

Growth Strategies
Expanding Domestic
Gas Business
Globalization

Integration of production & logistics

3. Globalization
Enhancement of governance

Innovation in engineering
Innovation in production & logistics

４．M&A

Strengthen the functions ofglobal operations

Seek promising M&A opportunities
to ensure sustainability andaccelerate growth

Strengthen the functions ofregional holding companies

Expand business territory
and reinforce operational density

Expanding business areas

Acquiring new products, technologies,
and supply chains

Total Electronics

Expansion of medical business

Growth Strategies

7Key Issues and Results to Date
Key Strategy

Strengthen collaboration in the sales andStructural
ReformResults to Date

Issues of Ortus Stage 2
marketing functions
Integration of engineering functions
Integration of production & logistics
Promotion of shared services

Progress
Evaluation

Consolidated sales bases and shared sales support
tools
Consolidated technologies of Group companies andcurrently promoting multi-capabilities of engineers
Promoting streamlining and optimization through○integration of industrial gas operations
Launched new-model oxygen burner and highInnovation in R&D

Innovation

Innovation in engineering
Innovation in sales approaches
Innovation in production & logistics

performance fluorinated resin using carbon nanotube
Alliance with and investment in three companies
involved in 3D printers
Increased profitability and reduced environmental load○

through energy efficiency improvement (SAITEKI
activities)

Strengthen the functions of global operations
Strengthen the functions of regional holding

Globalizationcompanies
Expanding business areas
Total Electronics

Expand business territory and reinforce
operational density

M&A

Acquiring new products, technologies, and supply

Established new global support center andstrengthened overseas engineering system
Appointed regional CCOs and established a global
compliance structure
Acquired on-site projects in Southeast Asia
Strengthened earning power through unified responseto strategic semiconductor customers◎

Bolstered production capacity for electronic materials
gases

Acquisition of European business
Acquisition of U.S. HyCO business (planned)

chainsAcquisition of U.S. distributor

Expansion of medical business

Acquisition of IMI Co., Ltd.

◎
8

Structural
ReformCost Reduction Activities at Production & Logistics Division
Better than planned reduction in costs related to production and delivery of bulk gas
in Japan through cost reduction activities at the Production & Logistics Division launchedin April 2017
Production Division
Reduction in electricity consumption per unit ofproduction in liquefied gas production
Increase in electricity cost associated withincrease in fuel prices

Division in Charge

Logistics Division

Issue

Efficient delivery from production site to consumption
site

External environment

Increased social demand for reduction in CO2emissions
Optimization of production facility operations toachieve target for electricity consumption per unitof production
Systematic replacement and maintenance of aging
equipment

Specific activities

Volatility of user demand(including consolidation and abolition)
Shortage of transportation personnel due to decline inJapanese working population
Optimal vehicle deployment in response to demand
fluctuation
Promotes delivery planning based on grasp of customers
inventory using IT

Effect of Cost Reduction Activities(Based on expected results for costs arising from production and logistics as of FYE2017)
Results in the first fiscal year (FYE2018)

Specific Initiatives and Results
Streamlining of liquefied gas equipment transportation through data analysis-¥390
million-¥370
million-¥760
millionSuppression of repair costs through optimization of planned maintenanceInitial Plan-¥1.03billionIncrease in factory utilization rate through strategic sales expansion effectPursuit of transport efficiency based on proposals to customers

Full-year plan

Full-year result

Optimization of helium and hydrogen management systems

Four-year total for
FYE2018 to FYE2021

9

Globalization

Expansion of On-site Business in Southeast Asia
Capture new on-site projects and establish a robust supply chain in the industrial gas
markets of rapidly growing Vietnam and the Philippines

Southeast Asia

VietnamPhilippines

Hanoi
Manila③ASU for foreignaffiliatedelectronic
components
manufacturers①ASU for foreignaffiliated metal
manufacturers②ASU for LSP
Main supply
customer①②

Investment
objective

Foreign-affiliated metal manufacturers
and chemical manufacturers
Build a stable revenue base in piped supply
Expand production capacity for air separation gas

Completion

Facility completion planned for middle–end of 2019supplycustomerLong Son Petrochemicals (Thai petrochemical manufacturer)

Investment
objective
Operation
start
稼動時期

Build a stable revenue base in piped supply
Expand production capacity for air separation gas
2021 (planned)*ASU： Air Separation Unit

Supplycustomer③

Foreign-affiliated electronic component manufacturers

Investment
objective

Build a stable revenue base in piped supply

Completion

Unit 1: December 2017

Supplycustomer④④ASU for foreignaffiliatedsemiconductor
manufacturers

Investment
objective
Operation start

Expand production capacity for nitrogen gas

Foreign-affiliated semiconductor manufacturers
Strengthen supply system for semiconductor andelectronic component manufacturers
Expand production capacity for nitrogen gas
Facility completion planned for second half of 201910

Globalization

Acquisition of European Business
Aim to achieve the final-year targets for medium-term management plan
Ortus Stage 2 and to progress further as a global industrial gas major.
Scope of the businesses
to be acquired
The acquisition covers companies engaged in the industrial gas
business of U.S. company Praxair in 12 European countries(including the carbon dioxide gas business) and companies
engaged in helium-related businesses. The businesses acquired
hold a market share of 16% throughout their market areas,
with a scale comparable to the U.S. business which has beendeveloped for over 30 years.

Significanceof the acquisition
Acquired businesses with a certain scale in Europe, theworld's second largest industrial gas market behind the U.S.
The businesses acquired are highly profitable, with a 16%
share of their market areas* (internal estimate)
Acquired talented personnel, including the current top
management team, and business platforms*In U.K., Ireland, the Netherlands and France, the scope of the businesses acquired
is limited only the carbon dioxide gas business.

Post-merger integration(PMI) strategy
Strengthen Group-wide collaboration (across Japan, the U.S.,
Asia, and Europe) and governance
Strengthen the Customer Relationship Management throughglobal business network of TNSC group
Optimize supply chain of strategic products

Consolidated management performanceof the acquired businesses (FYE2021 forecast)
The business is highly profitable including a certain scale in Bulk
and Piping as well as a stable competitive environment in theEuropean market
Net sales: €1,440 million (approx. ¥180.0 billion*)Core operating income: €224 million (approx. ¥28.0 billion*)*Converted at the exchange rate of one Euro to ¥125

11

Globalization

Acquisition of European Business – Business Plan
Establish Nippon Gases Euro-Holding S.L.U. in Spain as a regional headquarters for Europe
and establish a governance system for the operating companies under it.
Business areas and assets held

Business strategy (overview)＜Basic approach＞
・Entrust business management to the existing senior
management of the acquired companies and stably
grow existing business in Europe

Sweden・Leverage synergies (use the total capabilities of theGroup, develop strategic products), and plan to achieve
CAGR of around 3.8% over the next five years

Denmark

Net sales (Millions of euros)
2,000

NorwayIrelandEnvisaging CAGR (compound annual growth rate)of approximately 3.8%

U.K.

1,500

Netherlands
Germany
Belgium

France
Italy

1,000
Spain
500
Portugal
0
FYE2019*

FYE2020

FYE2021

FYE2022

FYE2023

FYE2024*FYE2019 is the cumulative total of four months from December 2018 to March 2019.

12

Globalization

Acquisition of U.S. HyCO business
Based on the key strategy of “Innovation,” TNSC is aiming to expand the gas technology
domain using M&As. TNSC carries forward the procedures of acquisition of the U.S. HyCO
business from Germany-based Linde and strengthen its proposal capabilities for customers
with enhancements to its product lineup.

Business model of the HyCO businessSeparate hydrogen and carbon monoxide from feedstock such as
natural gas using steam methane reforming (SMR) systems and supply
it to the petroleum refining and petrochemical industries throughpipelines, primarily for use in the desulfurization process.

Natural gas,etc.

Significance of the acquisition
Achieve full-scale entry into the HyCO business in the U.S.
Steadily generate strong earnings from on-site supply
agreements for H2 and CO

Acquire resources that will facilitate efficient operation of
the business

Post-merger integration (PMI) strategy
Primarily petroleum refining
and petrochemical industries

SMR-type HyCO plants
H2/CO

Strengthen the ability to offer proposals that will capture
demand for new on-site projects in the U.S. (petroleum
refining and petrochemicals, etc.)

On-site gas
users（Large usage volume）

Supplied via pipeline（Conclude long-term supply contract）
In Japan, users in the petroleum refining and petrochemical industries
internally produce and consume H2 and CO. Considering this businessstructure, industrial gas manufacturers have not entered this business.

Assets to be acquired
The acquisition covers SMR-type HyCO plants(five sites), pipelines, remote monitoring centers,
supply agreements, operation technologies andhuman resources in the HyCO business currently
undertaken by Germany-based Linde in the U.S.

13

Medium-Term Management Plan

Ortus Stage 2

Revision of Numerical Targets

Ortus Stage 2

Preconditions and Definitions
Glossary

Preconditions and Definitions in this Presentation

PPA（Purchase Price Allocation）

Allocation of the purchase price in an M&A transaction
The provisional result (pre-audit) of the PPA for the acquisition of the European business has been reflected in thisnumerical target revision. The purchase price has been allocated using the market value of property, plant andequipment (primarily ASUs) and intangible assets (mainly intangible assets related to customers), and so forth. Thebalance that cannot be allocated is treated as goodwill. The revised core operating income target includes depreciation
and amortization expenses related to the property, plant and equipment and intangible assets evaluated at market value
in the PPA.

Core operating income

Core operating income is calculated as operating income excluding certain gains and expenses attributable tonon-recurring factors (non-recurring items*).
*Nonrecurring items are costs of structural reform (cost for withdrawal or downsizing business operations and special
retirement allowances), losses caused by disasters or serious accidents, and other gains and expenses (such as disposalof idling assets).

Hybrid finance

A form of debt financing that has features resembling equity, such as voluntary deferral of interest, extremely long-term
redemption periods and subordination during liquidation or bankruptcy procedures.
This kind of financing does not cause stock dilution, and a certain ratio of the funds procured in this way can berecognized as equity credit by rating agencies provided that certain conditions are met.

Equity-type debt

The amount of debt procured by hybrid finance that has been recognize as equity credit by rating agencies.
In this fund procurement, rating agencies have recognized equity credit for 50% of the procured amount.

Key performance indicators

Calculations used in this presentation

ROCE (Return on capital employed)Core operating income / (outstanding interest-bearing debt + equity attributable to owners of parent)

Adjusted net interest-bearing debt

(Interest-bearing debt – equity-type debt) – cash and cash equivalents

Adjusted net D/E ratio

Adjusted interest-bearing debt / (equity attributable to owners of the parent + equity-type debt)

15

Numerical Targets
Adjusted net D/E ratio will be added as a new indicator
for financial soundness
FYE2021
Before revision

FYE2021After revisions

Revenue¥800.0 billion¥910.0 billion

Core operating income¥76.0 billion¥100.0 billion+¥2.4 billion

Core operating income ratio

9.5 ％

11.0 %+1.5 pt.

Overseas revenue ratio

45.0 ％

55.0 %+10.0 pt.

ROCE (Return on Capital Employed)

9.0 %

7.1 %

-1.9 pt.

―

1.27x

―

¥340.0 billion¥1,029.5 billion*+¥689.5 billion(Released March 8, 2017)

Adjusted net D/E ratio
Investment Plan
（ Capital Expenditures, Investments and loans）

Difference(Released February 5, 2019)+¥110.0 billion+13.8％+31.6％*Includes a total of ¥681.0 billion for the acquisition of the European businesses and HyCO business.
Assumed exchange rates (USD→JPY): ¥110, (EUR→JPY): ¥125

16

Numerical Targets – Reasons for Changes in Core Operating Income
The core operating income target for
the final fiscal year for Ortus Stage 2
will be increased to ¥100.0 billion
from the initial target due toadditional contributions fromlarge-scale business acquisitions¥76.0
billion-¥3.0
billionFuel price increase(1st FY, 2nd FY)+¥4.0
billionCost reduction in
the Production &Logistics Division

Carbon dioxide gas
material shortage, etc. Business growthin the U.S., etc

FYE2021(Before revision)+¥28.0billion¥100.0billion-¥5.0
billion

Review ofstrategic
investments

Contribution from
European businessacquisition

FYE2021(After revision)17

Numerical Targets – Numerical Targets by Segment
Gas Business in Europe has been newly established as a segment.
Following segments numerical targets will be set for the fiscal year
ending March 31, 2021.
RevenueCore operating
incomeCore operating
income ratio

Gas Business in Japan¥380.0 billion¥31.0 billion

8.2 ％Gas Business in the U.S.

¥205.0 billion¥20.0 billion

9.8 ％Gas Business in Europe¥180.0 billion¥28.0 billion

15.6 ％

Gas Business in Asia and Oceania¥115.0 billion¥13.5 billion

11.7 ％

Thermos Business¥30.0 billion¥9.5 billion

31.7 ％

Elimination or corporate―-¥2.0 billion

―

Total

¥910.0 billion¥100.0 billion

11.0 ％
18

Financial Strategy – Resource Allocation
Cash generated through sustainable growth and stable performance in the European
business will be properly allocated for a stronger financial position, growth investments,and shareholder returns■High profitability in the acquired European business
Operating Cash Flow

■Pursuit of Group synergy based on “Total TNSC” in Japan■Active development of businesses in growth fields

Stronger Financial
Position■Maintain an “A” credit rating from rating agencies■Systematic reduction of interest-bearing debt
■Early-stage improvements to adjusted net D/E ratio

GrowthInvestments■Capital investment towards semiconductors■Open innovation investments and alliances■Acquisition of new on-site projects (capital investment for new ASU installations, etc.)■Appropriate investing activities according to growth stage in each region

Shareholder
Returns■Implement a stable dividend while considering the balance ofa stronger financial position and growth investments

19

Revised Investment Plan (4-year plan starting from FYE2018)
Review the investment projects from theperspectives of profitability and efficiency,
and implement it with strict andmore careful section+¥681.0
billion＜Initial plan＞¥340.0 billion forinvesting activities
over 4 years*Operating cash flow target(4-year total): ¥325.0 billion

billionStrategic
Investment
70％(¥238.0 billion)

Ordinary
Investment30％+¥56.5billion¥1,029.5
billionCapital Investment
at Acquired Businesses(¥56.5 billion)

Capital investment
at acquired
businesses

Large-Scale
Acquisition
Investment

Total¥340.0Total-¥70.0billion+¥22.0Europeanbusiness andU.S. HyCO
business

Strategic
Investment(¥871.0 billion)

billionReduction
after review
of initial plan

Investment inaddition
to/outside of
initial plan

Ordinary
Investment(¥102.0 billion)(¥102.0 billion)

Initial plan

Updated plan
20

Envisaged Stronger Financial Position – Forecast for Operating Cash Flow
Operating cash flow is expected to steadily increase due to high profitability andstable performance at the acquired businesses in addition to the sustainablegrowth of existing businesses(¥ billion)

160.0
140.0

Operating cash flow

120.0
100.0
80.0
60.0
40.0
20.0
0.0

(¥ billion)

100.0

FYE2018

FYE2019

FYE2020

FYE2021

FYE2022

FYE2023

FYE2024(Actual)(Forecast)(Projection)(Projection)(Assumed)(Assumed)(Assumed)

Free cash flows

50.0
0.0
▲ 50.0▲650.021

Envisaged Stronger Financial Position – Forecast for Net D/E Ratio
Systematically reduce debt with cash generated frombusinesses, planning to bring the adjusted net D/E ratio
to 1.0 times or lower in FYE2023
Net interest-bearing debt
Adjusted net interest-bearing debt

2.00

Adjusted net D/E ratio

1.80
1.60
1.40

1.58

1.20

0.95

1.00
1.00

(Times)

0.80
0.60

0.71

0.40
0.20

FYE2018(Actual)FYE2019(Forecast)

FYE2020(Projection)

FYE2021(Projection)

FYE2022(Assumed)

FYE2023(Assumed)

FYE2024(Assumed)

0.00

With recent large-scale fund procurement, we are aiming for early improvements
to the soundness of our financial structure22Thank you

Ortus Stage 2

Reminders
The information contained here is not disclosure information for
securities trading. The accuracy and completeness of thisinformation are not guaranteed.
The briefing session and this material describe future plans andstrategies, as well as forecasts and outlooks of businessperformance. These plans and strategies, as well as forecasts andoutlooks, are made by Taiyo Nippon Sanso based on its judgments
and estimations made in accordance with the information
available at present. Actual performance will be subject tochanges caused by a variety of risks and uncertainties (such as
economic trends, market demand, exchange rates, taxation
systems and various other systems and institutions, but notlimited to them).
We wish to remind you, therefore, that the actual businessperformance may differ from the forecasts and outlooks made at
this time. Please refrain from making investment judgments based
solely on this information.