December 6, 2022

FY 2022 2Q Results Briefing: Gist of Questions and Answers Session

About the Business Outlook
Q. The AP-related business posted an operating loss in the second quarter (July– Sept.). You
explained that you are expecting the effect of product price hike in the second half.
What would be the third and fourth quarters’ shares of the operating income forecast ofapprox. 400 million yen for the second half?

A. We expect the second-half operating income of the AP-related business to be approx. 400 million
yen. The breakdown by quarter will be ±0 million yen for the third quarter, with a possibility of it
being slightly in negative territory. In the fourth quarter, we are expecting an operating income of
400 to 500 million yen.
Q. What is your current view of the performance for the next fiscal year, which is the second yearof the Medium-Term Management Plan?
A. Economic environment has the biggest impact on business performance. Price rise in raw materials
and prolonged delivery times of electronic and other parts had major impact also in the previous
medium-term plan period, but currently it is showing improvement to a certain extent. As long as
the economic environment does not worsen further, customers also cannot leave manufacturing
facilities as they are, as they need the facilities for manufacturing their products. Consequently, we
think things will begin improving compared to now.
FY 2022 perhaps is going to be very tough especially in terms of profit and is likely to be the bottom
when you consider it over a 10 year period. Though we have been raising product prices from thelast fiscal year, there is a time lag of one to two years for AP, and sometimes even more than twoyears, for the contract to be recorded as sales, and if the raw material prices increase, profits will bedown just as much. We expect that impact to more or less disappear in the next fiscal year. As forBP, we expect it to continue its good performance.
A concern going forward is the loss of approx. 200 million yen for the half year posted by the recently
started Thailand subsidiary. We are planning to offer across-the-board support, including from theparent company to narrow the losses. Still, the loss at the Thailand subsidiary is the risk for the next
fiscal year as of now.
On the whole, in figures, we expect increases in revenue and profits for the next fiscal year comparedto the current fiscal year.
Q. You explained that the NIKKO MESSE was booming. What is its impact on futureperformance?
A. The NIKKO MESSE exhibition, despite the impact of the COVID-19 pandemic, attracted 1,126
visitors, which is quite a large number. The new large model AP exhibited at the MESSE does nothave any novelty in terms of appearance, but has a unit structure, which would enable reducing thetime required for on-site construction work as the units can be assembled like building blocks. It has
been highly acclaimed, with some business negotiations having developed into orders. While wecannot provide any quantitative figures for orders, qualitatively, we are getting increased number ofinquiries not just for the mainstay products but also for other products of the Group. We believe
getting customers interested in the displayed products will positively affect the order numbers too.
Q. You have a target of 4.0 billion yen in net sales of decarbonization-related products in FY 2030.
What is the operating margin you are envisaging there?

How does it compare to thecompany-wide goal of 10%?
A. Currently we are pushing forward various research and development activities to achieve carbon
neutrality. Close at hand is the device that would reduce the temperature of asphalt, and ultimately
fuel conversion to hydrogen and ammonia may be possible and as such, we are pursuing thatdevelopment too.
If we are able to develop a device whose added value is appreciated by the customers, we believe
we would be able to achieve an operating margin slightly higher than the 10% company-wide target.
There are uncertain areas regarding future energy supply, and we are unable to provide concrete
figures as to which product is suited for the requirements. Nonetheless, we would like to strive tosecure operating margin of devices for which we are considered as the only supplier and devices thatare distinctive.
Future capital investment
Q. Regarding the 6.0 billion yen capital investment described in page 9 of the briefing material,
what are the objectives behind the 500 million yen for new plant construction and 1.0 billion

yen for development test center? Where are you going to build them? Also, what is theremaining 4.5 billion yen in capital investment going to be allotted to?
A. Regarding the specifics of capital investment, we have not taken a final decision as a company forthe 500 million yen for new plant construction and the 1.0 billion yen for development test center.
We are, in fact, not thinking of something big regarding the new plant.
Specifically, there has been a steady increase in the number of contractors around us who aregradually closing down due to difficulties in finding successors. Our concept is that, going forward,
we will offer space to contractors who have no choice but close down their business due to lack ofsuccessors, and gather them and build plants to support them, but we have not decided on a site ortiming.
Regarding the development test center, we have strategically increased not only R&D expenses but
also the size of the team over the past several years. We are planning to build a development test
center in the premise of the Head Office Plant to house the staff of this division and carry out simple
tests.
Regarding the remaining capital investment, which is 4.5 billion yen, we do not have any specificlarge-scale projects as of now. Compared with the capital investment of 6.3 billion yen in theprevious Medium-Term Management Plan, we planned to spend 6.0 billion yen in the three years
under the current medium-term plan but it is likely to be slightly less than that. In the previous
medium-term plan, we made an extremely large investment in Thailand but we do not have a project
like that during the current medium-term plan, so there is a possibility that it would not reach 6.0
billion yen. However, we plan to steadily carry out investments that lead to rationalization andimprovement in productivity including equipment and machinery.

Note: This summary of the question and answer session was created in part to provide information to those who did not attend theresults briefing. Please note that parts of the text have been edited to improve clarity and enhance understanding.

IR Team, Financial Department, Nikko Co., Ltd.