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Due to the changing landscape of the political economy, trade rules, energy and environmental issues, technological innovations, and other factors, the environment in which the NGK Group operates is expected to present both expanding business opportunities and growing uncertainty in areas including the economic outlook for China and other emerging markets in Asia and the impact of fluctuations in resource prices and financial and capital markets.

Given these conditions, the overall NGK Group will work together to achieve its aim of becoming a truly world-class, global corporation, based on the key management strategies of 1) Enhancing the competitiveness of existing businesses by new/reformed manufacturing structures and 2) Creating new products and new businesses by 2017 Challenge 30.

1) Enhancing the competiveness of existing businesses: new/reformed manufacturing structures

The NGK Group will work to secure profitability from a medium- to long-term standpoint. We will aim to establish ideal structures for each business as of 2020, improve product value through technological progress, and improve profitability and shorten lead times by developing and adopting innovative manufacturing processes.

For automotive products, we will strive to differentiate our products by promoting the development of high value-added products to meet growing global demand generated by increasingly stringent governmental emissions regulations and rising automobile sales in each country while seeking to ensure sustained business growth by steadily deploying state-of-the-art production lines overseas and building a high-efficiency global production structure. In the area of ceramics products for use in semiconductor manufacturing equipment, demand is growing against a backdrop of proliferating data centers and high-density integration of semiconductors; at the same time, market requirements are becoming more stringent. To bolster competiveness, we will strengthen product performance and develop innovative manufacturing methods.

At the same time, we will complete business restructuring for insulators and products designed for use with industrial machinery to improve profitability. In the area of NAS batteries, beyond steady progress on cost-cutting, we will strive to create both domestic and international demand through alliances with our partners while working to acquire continuing orders.

2) Creating new products and new businesses: 2017 Challenge 30

The NGK Group has set a group-wide goal called 2017 Challenge 30, which targets increasing the share of net sales accounted for by sales of new products to 30% by fiscal 2017. We are currently working to create new products and businesses and making steady progress toward achieving this goal next year.

Targeting continuing growth, we will steadily expand and invest in mass-producing new lines of wafer products. To accelerate the business development of new products, including solid oxide fuel cells, chip type ceramic secondary batteries, and zinc secondary batteries, we will move ahead to develop production technologies and facilities and strengthen customer development as part of efforts to establish a ceramic battery project consisting of the Corporate Manufacturing Engineering, Corporate R&D, business divisions, and Headquarters. The entire Company will work as a team to swiftly bring new products to market. Furthermore, to help ensure the creation of new products on a sustained basis, our full-time marketing professionals, sample prototype team, and New Business Planning Office will work together to promote efforts to precisely identify market needs.

As a member of the global business community

With opportunities for doing business overseas continuing to expand, we must improve the transparency and the autonomy of our management while further strengthening corporate governance and compliance systems. The Company will work to rigorously enforce its Corporate Governance Code and to establish conditions allowing all Group employees to act in accordance with fair values and internationally accepted assessment criteria.

The NGK Group is a subject of an international investigation on past competitive practices. We have cooperated fully with this investigation; in 2012, we established an independent committee composed of outside directors and auditors and outside legal counsel to ensure impartiality in our handling of the matter. In September 2015, we accepted a plea bargain, consisting mainly of a payment of USD65.3 million in penalties, from the United States Department of Justice concerning charges including violation of US antitrust law in certain transactions involving automotive catalytic carriers. We paid the entire penalty in November of that year. In light of these developments, we expect to pay some compensation for damages, and we are in the process of negotiating with the customers involved concerning such compensation and other issues. We deeply regret the considerable concern these cases have caused our shareholders and other stakeholders. The NGK Group regards legal compliance as a crucial management issue and has developed a thorough compliance system. We regard such cases with the utmost gravity and intend to rebuild trust by preventing their recurrence and by further strengthening our compliance system.

To prevent the recurrence of violations on laws governing competition in particular, we have established various training venues based on the Competition Laws Compliance Rules and Competition Law Compliance Handbook and are working rigorously to ensure legal compliance, including compliance among executives and employees of Group companies overseas. We have also strengthened associated management systems by appointing a Competition Law Compliance Officer charged with establishing a management system to ensure compliance with laws governing competitive practices and by requiring the Business Ethics Committee, which receives reports on compliance matters from the officer, to relay the reports directly to the Board of Directors.

In addition, starting this consolidated fiscal year, we seek to strengthen our compliance system by operating a new hotline that allows executives and employees of the NGK Group to submit whistleblowing reports directly to the Business Ethics Committee via outside legal counsel. Established apart from the helpline system operated by the Compliance Subcommittee of the CSR Committee, this system is intended to ensure compliance with competition laws and laws against foreign corrupt practices and to prevent inappropriate actions and legal violations involving management.

Another initiative is the Fourth Five-Year Environmental Action Plan, which sets new goals for environmental activities for fiscal years 2016-2020. Through our business activities, alongside sustainable growth, we will strive to contribute to build a low-carbon society based on recycling and coexistence with nature. Major goals include reducing carbon dioxide emissions and waste globally by linking new/reformed manufacturing structures to efforts to reduce our environmental impact and growing sales of products that contribute to the environment, including products used to clean vehicle exhaust, NAS batteries, and low-level radioactive waste processing equipment, thereby creating a better society. In response to the increasing needs of society, we will also augment our initiatives to protect biodiversity, manage risks associated with water resources, and improve the efficiency of water use.

In the administrative divisions, we will promote activities to enhance Headquarters support capabilities for global management, thereby shaping the overall NGK Group into a corporate group capable of squaring off against global competition and demonstrating the highest possible performance. While each and every employee works to maximize the added value and productivity of his or her own work in pursuit of the essential goals of these activities, the Group as a whole will focus on developing diverse human resources capable of flexible thinking and motivated to tackle challenges.

Through such efforts and initiatives, the NGK Group will seek to achieve sustained growth and greater corporate value by maintaining its management focus on capital efficiency and shareholders.

Taku Oshima

Taku Oshima

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