INTEGRATED REPORT 2019 › ir › files › FY2019_79th_Integrated report.pdf · Nikkiso Co., Ltd....

2019INTEGRATEDREPORT

Fiscal Year Ended December 31, 2019

NIK

KIS

O C

O., LTD

. INTE

GR

ATE

D R

EP

OR

T 2019

The Nikkiso Group Continues to Lead

Society Forward, Blazing a Trail to the

Future with Technology and Creativity

Editorial PolicyNikkiso Co., Ltd. publishes this integrated report containing financial and non-financial information so

that shareholders, investors, and all other stakeholders can gain a deeper understanding of the Nikkiso

Group’s medium- to long-term value creation. For more information about Nikkiso’s products and

services, please visit our website (https://www.nikkiso.com/products/).

Reporting PeriodJanuary 1, 2019–December 31, 2019 (some sections include information after January 1, 2020)

Reporting ScopeThis report contains information about Nikkiso Co., Ltd. and its Group companies

(74 consolidated subsidiaries).

Forward-Looking Statements

The forward-looking statements provided in this integrated report are estimates based on data available at the time of

publishing. These forward-looking statements involve known and unknown risks and uncertainties. Please be advised

that actual results may differ significantly from those discussed in the forward-looking statements.

Key factors that have the potential to change these statements include, but are not limited to, changes in the

business environment that could significantly affect the Company’s operating conditions, major fluctuations in the JPY/

USD, JPY/EUR, or other currency pairs involving the Japanese yen, and Japanese stock market volatility. Under no

circumstances does the Company guarantee the results of the forward-looking statements contained in this report.

Message from the President ......................................................... 2

Nikkiso’s Strengths

Strength 1: Advanced Technological Capabilities Cultivated

over Many Years ................................................... 4

Strength 2: Extensive Global Network ....................................... 6

Strength 3: Ability to Respond to Market Needs ....................... 8

The Nikkiso Group’s Value Creation Model ................................. 10

Financial/Non-Financial Highlights .............................................. 12

Overview of the New Six-year Business Plan ............................. 14

Dialogue with the President......................................................... 16

Message from the Analyst ........................................................... 21

At a Glance .................................................................................. 22

Review of Operations .................................................................. 24

Industrial Division ..................................................................... 24

Precision Equipment Division .................................................. 26

Deep UV-LEDs Division ........................................................... 27

Aerospace Division .................................................................. 28

Medical Division ....................................................................... 30

ESG Initiatives ............................................................................. 32

Environment ............................................................................. 32

Social ....................................................................................... 34

Corporate Governance ............................................................ 36

Board of Directors and Audit & Supervisory Board Members .... 40

Financial Information ................................................................... 42

Management’s Discussion and Analysis ..................................... 44

Business Risk .............................................................................. 47

Consolidated Financial Statements............................................. 48

Company Information .................................................................. 52

Share Information ........................................................................ 53

CONTENTS

1NIKKISO CO., LTD. INTEGRATED REPORT 2019

Message from the President

Toshihiko KaiPresident & Chief Executive Officer

2 NIKKISO CO., LTD. INTEGRATED REPORT 2019

We aim to grow and leap forward in global markets with

our prominent technological capabilities.During Japan’s post-World War II recovery, Nikkiso grew by developing

businesses in fields needed for upgrading and rebuilding the infrastructure

used by society. Water-conditioning systems for thermal power plants,

leak-free pumps, and other products requiring specialized, advanced

technology have been Nikkiso’s areas of expertise since its foundation.

Much of Nikkiso’s business involves projects that are the first to

be undertaken in Japan or in the world. We have brought advanced

technologies into specialized fields such as producing special precision

pumps for petrochemical plants, hemodialysis machines, and carbon

fiber reinforced plastic (CFRP) aircraft components. We supply highly

specialized products to major companies in each business field and

medical institutions.

As the structure of Japan’s industry has changed, the Japanese

market has lost its growth potential. In this situation, we have experienced

a crisis in which successful strategies that we relied on in the past

became ineffective. We have attempted to capture new demand by

expanding our focus to include overseas markets, improving our

products to meet market needs and standards, and widening our view

to include peripheral fields as well as our traditional areas of business.

For example, we have entered the upstream field of the oil and gas

market through a corporate acquisition, built a product lineup that

covers the value chain from upstream to downstream in the LNG

market, made a full-scale entry into the overseas hemodialysis

machine market, and established our position as an aircraft components

manufacturer. Through such measures, while we continue to value our

original technologies and products, we are taking a new perspective to

develop and expand them.

Growth opportunities continue to increase in the markets where

we are developing our businesses, and each business has the potential

for tremendous growth. To unleash this potential, we have formulated

new targets in our six-year business plan, “Nikkiso 2025,” which

finishes in 2025. The first three years of the plan are positioned as

Phase 1, during which we will enhance our technological ability and

production system by reorganizing our locations in Japan to strengthen

our business bases. In tandem with this, we aim to build an

organization enabling globally integrated business promotion to

steadily capture growth opportunities in global markets. In Phase 2,

covering the latter three years, our plan is to make our existing

investments successful and turn each strategy into an achievement.

We will strive constantly over the next six years to demonstrate

Nikkiso’s excellence in terms of technological capabilities and solution

provision capabilities in global markets. Through these efforts, in 2025,

we aim to achieve revenue of ¥250.0 billion and operating profit of

¥20.0 billion.

We will continue to provide products, technologies, and services

that contribute to solving social issues. By strengthening our relationships

of trust with customers, partners, and local communities, and

establishing and maintaining risk management and compliance

systems while reinforcing our financial position, we aim to achieve

sustainable growth and increase our corporate value. I ask for your

continued support.

FORMULATING AND ACCELERATING TO GROWTH We aim to

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Advanced Technological Capabilities Cultivated over Many Years

At our foundation, we introduced advanced technologies unknown in Japan at the time and started creating products. Since

then, we have continuously refined our technologies and created numerous products that have been first in the world or first

in Japan. Using innovative technologies and ideas, we have expanded our business domains and contributed to society.

1Nikkiso’s Strengths

1969Developed and started manufacturing and selling Japan’s first dialysis machines

1975Started manufacturing and selling dialyzers

1953Established Special

Pump Co., Ltd.

1985Started manufacturing and selling warm isostatic laminators

1954Industrial DivisionStarted selling Milton Roy Pumps (metering pumps) as an agency for Milton Roy Company (USA)

Sampling system at an early stage Ceramic electronic components manufacturing equipment (warm isostatic laminator)

1960Provided Japan’s first artificial heart to the Department of Surgery, The University of Tokyo

1956Started manufacturing and selling Japan’s first leak-free canned motor pump

1973Established Nikkiso Eiko Co., Ltd.

Established Nikkiso Deutschland GmbH (now Nikkiso Pumps Europe GmbH) in Germany

First in Japan

First in Japan

First in Japan

First in Japan

First in Japan

1963Developed Japan’s first completely leak-free canned motor pumps

1983Started manufacturing and selling cascades, CFRP aircraft components

1955Precision Equipment DivisionDeveloped and started manufacturing and selling water-conditioning systems for thermal power plants

1967Medical DivisionStarted import sales of dialysis machines for the first time in Japan

1981AerospaceDivisionStarted manufacturing CFRP

1959 Company renamed Nippon Kikai Keiso Kaisha, Ltd.

1960 Completed construction of the Higashimurayama Factory (now the Higashimurayama Plant)

1968 Company renamed Nikkiso Co., Ltd.

1971 Listed on the Tokyo Stock Exchange First Section

1974 Completed construction of the Shizuoka Factory(now the Research & Engineering Institute)

1985Supplied Japan’s first cryogenic pump

First in Japan

First in the world

First in the world


1996Started manufacturing and selling “D-dry” for artificial kidney dialysate (Started production at the Kanazawa Plant)

1984Started manufacturing and selling artificial pancreases

2016Started manufacturing and selling the “Acrosurg.,” a microwave surgical instrument

1994Established M.E. Nikkiso Co., Ltd. (Thailand) for the purpose of manufacturing and selling medical devices

1997Established Nikkiso Medical GmbH (Germany, now Nikkiso Europe GmbH) for the purpose of manufacturing and selling medical products

2010Established a joint venture with the China-based Weigao Group for the purpose of manufacturing and selling hemodialysis machines

2014Acquired the CRRT business of Baxter International Inc. (USA)

2001Established Nikkiso Vietnam MFG Co., Ltd. for the purpose of manufacturing blood tubing lines

1994Established Shanghai Nikkiso Non-Seal Pump Co., Ltd. for the purpose of manufacturing and selling non-seal pumps in China

2013Acquired Geveke B.V. (the Netherlands)

2015Acquired the LNG cryogenic pump business of Atlas Copco (Sweden)

2017Acquired the Cryogenic Industries Group (USA)

2009Acquired LEWA GmbH (Germany)

First in Japan

1987Established a composite material product factory at the Shizuoka Plant (now the Research & Engineering Institute)

2008Established Nikkiso Vietnam, Inc. as a production base for aircraft components

2013Started production at the Kanazawa Plant

2016Started production at the Higashimurayama Plant

2018Started production at Nikkiso Miyazaki, and the secondfactory in Vietnam

2019Established a joint venture with the Formosa Plastics Group2006

Deep UV-LEDs DivisionEstablished a joint venture for R&D, production, and sales related to UV-LEDs

1996Established Nikkiso LNG Testing INC. (USA, now Nikkiso Cryo, Inc.)

1995 Completed construction of the Kanazawa Plant

2014 Completed construction of the Hakusan Factory. Established the Aerospace Products Factory and the Medical Products Factory at the Kanazawa Plant

2017 Established Nikkiso Miyazaki Co., Ltd.

Started production of Deep UV-LEDs at the Hakusan Factory

2014First in the world

First in the world

First in the world

1993Established Taiwan Nikkiso Co., Ltd. for the purpose of manufacturing and selling water-conditioning systems


1985198019751970196519601955

1997Established Nikkiso Europe GmbHEstablished Nikkiso Medical GmbH (renamed

Nikkiso Europe GmbH in October 2009) to provide

medical equipment sales and services in Germany

2013Acquired Geveke B.V. of the Nether-

landsAcquired Geveke B.V., which has strengths in

pump package products, etc., for the oil and gas

industry

2016Acquired the AquiSense Technolo-

gies of the United StatesAcquired the AquiSense Technologies, which

develops, manufactures, and sells Deep UV-LED

products

2009Acquired LEWA GmbH of GermanyAcquired LEWA GmbH, which is a pumps and

systems manufacturer with a strong position in

the oil and gas industry

Manufacturing site of reciprocating pumps (LEWA GmbH) Manufacturing site of dialysis machines (Weigao Nikkiso (Weihai) Dialysis Equipment Co., Ltd.)

Foundedin 1953

2010Established a partnership with the

Weigao Group of ChinaPartnered with the Weigao Group, China’s largest

medical equipment manufacturer, and established

a joint venture to manufacture, sell, and maintain

dialysis machines

2019 Overseasrevenue ratio

64%

Initiatives to expand business

Revenue in Japan and overseas

Extensive Global Network2Nikkiso’s Strengths

Nikkiso has built a global network through M&As to meet the needs of its customers and to plant seeds for future growth.

Using our advanced technological capabilities and Group synergies, we supply everything from production to sales to after-

sales services to customers throughout the world.


20192016201520102005200019951990

2019Established a joint venture with the Formosa Plastics Group

of TaiwanEstablished the joint venture company NKFG Corporation with the Formosa Plastics

Group for the Deep UV-LEDs business

2019 Revenue

¥165.7 billion

Domestic revenue

¥60.3 billion

Overseas revenue

¥105.4 billion

IFRSJGAAPA six-month period due to a change made to the account closing date

A nine-month period due to a change made to the

account closing date

2017Acquired the Cryogenic Industries Group of the United StatesAcquired the Cryogenic Industries Group, which has world-class technological

capabilities and a high market share, mainly in the downstream field of the LNG

sector and in the industrial gas processing and equipment field

VaporizersManufacturing site of vaporizers (Cryogenic Industries Group)


Nikkiso’s basic strategy is to properly meet high-level

customer needs in highly specialized fields. The high

added value of our products has provided solutions to

various social issues. We have opened up new markets

through our highly specialized, prominent technological

capability and ability to provide solutions, establishing

overwhelming positions in various fields.

Passenger transport demand has increased partic-

ularly in developing countries and is expected to

reach 8.7 billion passengers in 2037 from the 4.1

billion passengers recorded in 2017. According to

this growth, it is estimated that from 2018 through

2038 the number of commercial airplanes will

increase from 24,000 to over 40,000.

Dedicated to Expanding Global

Air Transport

Projected Number of Passenger Jets

2018

23,904

2038

40,30169% UP

CascadesCascades are components of thrust reversers,

which are used during landings. Nikkiso has the

capability to develop and design cascades to control

thrust airflow. The manufacturing process requires

delicate craftsmanship. With

these reputations, Nikkiso’s

share of cascades for

commercial airplanes

exceeds 90%.

With

so’s

Source: Japan Aircraft Development Corporation, Worldwide Market Forecast 2019–2038

Ability to Respond to Market Needs3Nikkiso’s Strengths


Contribution to the Spread

of Clean EnergyLNG produces only half the CO2 emissions of

coal and no sulfur oxide emissions. Demand is

growing, especially in China and the rest of Asia,

driven by progress toward low-carbon societies.

Global demand is projected to reach 401 million

tons in 2024.

Projected LNG Demand

2018

2024

243million tons

40165% UPmillion tons

Hemodialysis machinesSince developing Japan’s first

hemodialysis machine, Nikkiso has

contributed to advances in dialysis

therapy with innovative and unique

technologies as a pioneer in this field.

In the past few years, we have also been

providing products for overseas markets

by utilizing technologies developed in

Japan, and they are highly regarded.

Cryogenic pumpsLarge pumps play an essential role

in transporting LNG from LNG tanks.

Advanced manufacturing technolo-

gies are required to make pumps

that can operate stably at the

ultralow temperature of –162˚C.

Nikkiso’s share of this market has

grown to around 50%.

Contribution to Improving the Quality

of Life (QOL) for Dialysis Patients

Globally The number of dialysis patients is increasing globally,

partly reflecting higher living standards in emerging

countries. Especially in China, the number of patients

has surged in the past few years as medical insurance

is in place nationwide, and the number of patients is

projected to reach 1,330 thousand by 2025.

Projected Number of Dialysis Patients in China

2018

580thousand

2025

1,330thousand130% UP

Sources: Chinese National Renal Data System, Shanghai Nikkiso Trading Corporation projection

Source: IEA World Energy Outlook 2018


The Nikkiso Group’s Value Creation Model

Social Issues

Global warming driven by increased energy consumption

More widespread movement and

transportation dueto globalization

Greater demandfor water as a result

of population increase

Rising healthcare costs due to

an aging population

Demand for labor-saving measures

owing to labor shortages

Nikkiso’s basic strategy is to provide high value-added products that meet the needs of our customers in highly specialized

fields. We have thus far created various businesses that pioneered new markets through our inherent technological know-

how and original ideas. We will continue to evolve in the future as we seek to create value through our business operations.

Growth underpinned by corporate governance

New Six-year Business Plan, “Nikkiso 2025”Basic Strategies

Enhance our technological capability and production systemAim to enhance production efficiency and capacity in Japan, create an environment enabling technology

and development teams to demonstrate their abilities, and cultivate higher level and more efficient

production capability and human resources

Build an organization enabling globally integrated business promotionStrengthen collaboration among Group companies and manufacturing bases,

and build regional production, sales, and technology frameworks

Targets

Phase 1 (FY2020-FY2022)Strengthen business bases

Revenue: ¥200.0 billionOperating profit: ¥14.0 billion

Phase 2 (FY2023–FY2025)Growth and leap forward

Revenue: ¥250.0 billionOperating profit: ¥20.0 billion

Nikkiso’s Strengths

Advanced technological capabilities cultivated

over many years

1 2 3Extensive global

networkAbility to respond to

market needs

• High value-added products backed by advanced techno-logical know-how

• Systems that guarantee high quality and stable supplies to meet stringent customer standards

• Continuous customer support structure

• Manufacturing, sales, and service networks covering the key regions of Europe, the U.S., and Asia

• Recognizing growth fields and investing aggressively in them

• Foreseeing risks and restruc-turing our business portfolio in line with changes in the business environment


Contribute to resolving new social issues with technologies created by Nikkiso

Business Fields Value Created for Society

Realize a low-carbon society• Promote the spread of LNG

• Strive to develop new technolo-

gies such as hydrogen pumps

Promote sustainable indus-

trialization• Realize a safe, secure society

though stable operation of plants

• Promote the spread of next-genera-

tion infrastructure such as 5G

Provide safe, low-cost

transportation systems• Respond to demand for aircraft

• Contribute to reducing the

environmental impact of aircraft

Realize a safer society• Supply safe water and air

through disinfection and

purification technologies

• Reduce environmental impact

through mercury-free products

Realize healthy lifestyles• Improve patient QOL

• Reduce the burden on medical

professionals and reduce

medical costs

• Promote preventative medical

care

• Oil and gas production

• Petrochemical plants

• Power plants

• LNG import terminals

• Aerospace

• Power plants

• Factories

• Medical care

• Analysis

• Sanitation

• Medical care

Industrial Division

Aerospace Division

Precision Equipment Division

Deep UV-LEDs Division

Medical DivisionMedical Division

Sustainable Development Goals (SDGs)

In 2015, the United Nations adopted 17 goals as the Sustainable Development Goals (SDGs), to be achieved by 2030. The goals cover topics

including eliminating injustice such as poverty and inequality, and responding to climate change. The SDGs call for wide-ranging cooperation

among companies, governments, and communities throughout the world, and provide a concrete action plan for realizing prosperity for the

human race and for the earth. Companies are called on to contribute to resolving social issues through all their business activities.


Orders/Revenue

Orders

167.0(( 3.2%)172.4

140.4

165.3

140.9

(Billions of yen) Revenue

165.7(( 0.3%)

200

150

100

50

0

12/2017

12/2017

12/2017

12/2018

12/2018

12/2018

12/2019

12/2019

12/2019

Total assets/Total equity/Equity ratio

Total assets

252.9(( 1.3%)249.7244.6

30.7 30.7

78.376.7

(Billions of yen) (%)

Total equity

83.4(( 6.5%)

Equity ratio

32.2(( 1.5 point)

400

300

200

100

0

60.0

45.0

30.0

15.0

0

Financial/Non-Financial Highlights

Profit before tax/Profit for the year attributable to owners of the Company

Profit before tax

11.3(( 16.8%)

9.7

8.37.4

5.1

(Billions of yen)

Profit for the year attrib-utable to owners of the Company

6.8(( 8.5%)

16

12

8

4

0

12/2017

12/2017

12/2018

12/2018

Operating profit/Operating margin

10.3

8.7

6.2 6.2

(Billions of yen) (%)

Operating profit

12.4(( 21.0%)

Operating margin

7.5( 1.3 point)

16

12

8

4

0

16.0

12.0

8.0

4.0

0

12/2017 12/2018 12/2019

12/2019

12/2019

ROE/ROA

9.8

3.9

7.3

3.9

(%)

Return on equity (ROE)

8.6 (( 1.2 point)

Return on asset (ROA)

4.5 (( 0.6 point)

12.0

9.0

6.0

3.0

0

Financial Highlights

Cash flows

51.0

4.914.0

-5.7

-48.0

-12.2

(Billions of yen)

60

30

0

-30

-60

Net cash generated by operating activities

11.9

Net cash used in investing activities

-5.1

Net cash generated by/used in financing activities

-15.5


BPS/EPS

1,074.831,053.16

104.6372.82

(Yen)

1,600

1,200

800

400

0

12/2017 12/2018 12/201912/2017 12/2018 12/2019

Dividends per share/Dividend payout ratio

1816

22.0

17.2

(Yen) (%)Dividends per share

20(( ¥2)

Dividend payout ratio

20.9( 3.7 point)

24

18

12

6

0

40.0

30.0

20.0

10.0

0

Ratio of female managers (Non-consolidated)

4.3

3.2

(%) (%)

4.0(( 0.3 point)

6.0

4.5

3.0

1.5

0

3.00

2.50

2.00

1.50

0

12/2017 12/2018 12/2019 12/2017 12/2018 12/2019

12/2017 12/2018 12/2019 12/2017 12/2018 12/2019

Non-Financial Highlights

Employment rate for disabled people(Non-consolidated)

2.40 2.37

2.20 2.20

Legal employment rate

2.20

Equity attributable toowners of the Company

per share (BPS)

1,143.26(( 6.4%)

R&D expenditure/Capital expenditure/ Depreciation and amortization

5.2

2.4 2.3

6.37.5

12.8

(Billions of yen)

16

12

8

4

0

R&Dexpenditure

2.3(( 1.7%)

Capital expenditure

7.2(( 43.9%)

Depreciation and amortization

8.9(( 42.0%)

Number of employees

5,745

1,877 1,983

5,811

250 375

(Persons)

8,000

6,000

4,000

2,000

0

Non-consolidated

2,044(( 61)

Domesticsubsidiaries

450(( 75)

Overseas subsidiaries

5,997(( 186)

Earnings per share (EPS)

95.68(( 8.6%)

Employment rate fordisabled people(Non-consolidated)

2.13 (( 0.24 point)


Overview of the New Six-year Business Plan

Review of the Previous Medium-Term Business Plan, “Nikkiso 2020”

Basic strategies of “Nikkiso 2020”

1. Re-establish Nikkiso as a technology expert

2. Strengthen our management base and profitability for further growth

Main achievements of “Nikkiso 2020”

We have identified promising business areas, reorganized our business structure, and

clarified our future growth trajectory.

Investment in growth businessesSet as growth areas the LNG-related equipment market, overseas hemodialysis market,

and aerospace components market, and focused more on allocating management resources

• Strengthened LNG business by acquiring the Cryogenic Industries Group (U.S.)

• Strengthened Chinese hemodialysis business by enhancing alliance with the Weigao Group

• Expanded production capacity for aircraft components by constructing the second factory in Vietnam

• Increased production capacity and technological capabilities by establishing Nikkiso Miyazaki

• Established a joint venture in the Deep UV-LEDs business with the Formosa Plastics Group

Business organizationDiscontinued operations in areas not deemed promising or profitable

• Transferred liquid chromatography business

• Transferred particle analysis instruments business

• Posted impairment loss in the continuous renal replacement therapy (CRRT) business

Nikkiso’s previous medium-term business plan, “Nikkiso 2020,” was in effect from 2016 through 2019 and, in those four

years, we engaged in various challenging endeavors to achieve our future dreams.

Now we have clarified our future growth trajectory by identifying promising business areas and reorganizing our

business structure. We think we must take actions based on new goals reflecting external environmental changes and

issues we have identified domestically and globally. Therefore, we have prepared our new six-year business plan, “Nikkiso

2025,” covering 2020 through 2025.


New Six-year Business Plan, “Nikkiso 2025”

“Nikkiso 2025” covers a six-year period, with the first three years designated Phase 1 and the last three years Phase 2.

During Phase 1, the Group will focus on strengthening its business bases, including reorganizing production sites, upgrading

technological development sites, and strengthening the business promotion structure globally, including both Japan and

overseas, to achieve sales strategy. Phase 2 is positioned as a period to grow and leap forward by turning existing

investments and strategies into achievements.

Basic strategies 1. Enhance our technological capability and production systemAim to enhance production efficiency and capacity in Japan, create an environment enabling

technology and development teams to demonstrate their abilities, and cultivate higher level

and more efficient production capability and human resources

2. Build an organization enabling globally integrated business promotionStrengthen collaboration among Group companies and manufacturing bases, and build

regional production, sales, and technology frameworks

Positioning Strengthen our business bases during Phase 1, the first three years of the

six-year plan, then make existing investments successful and turn each

strategy into an achievement in the latter half of the plan, Phase 2.

FY2019 FY2020 FY2022 FY2025

¥165.7billion

¥174.0billion

Previous Medium-Term Business Plan, “Nikkiso 2020” New Six-year Business Plan, “Nikkiso 2025” FY2020-FY2025

Operatingprofit

Operatingprofit

Operatingprofit

Operatingprofit

Revenue

Medical Division

Aerospace Division

Industrial Division

Revenue ¥200.0billion

Revenue

¥250.0billion

Revenue

¥12.4billion

¥11.0billion

¥14.0billion

¥20.0billion

62.0 66.0

75.0

100.0

17.9 18.530.0

40.0

84.4 88.5 95.0 110.0

Phase 1FY2020-FY2022

Strengthen business bases

Phase 2FY2023-FY2025

Growth and leap forward


Dialogue with the President

Review of “Nikkiso 2020” and Current Business Environment

Yamada: Could you please review the four years 2016 to 2019, covered

by medium-term business plan, “Nikkiso 2020,” and share your own

evaluation?

Kai: In the fiscal year ended December 31, 2019, revenue increased

¥0.4 billion and operating profit increased ¥2.1 billion from the previous

year, both achieving record highs. On the other hand, I feel that our

forward-looking initiatives were delayed two to three years due to

product quality problems in 2016 and 2017. Nevertheless, from a global

perspective, we have plenty of room to grow, in the energy, medical

equipment, and aircraft fields. Among these, during the previous

medium-term business plan, the Company strengthened its allocation of

management resources in growth fields such as the LNG-related

equipment market, the overseas hemodialysis market, and the aircraft

components market, with the result that each field now appears to be on

a clear growth trajectory.

Yamada: There are numerous issues affecting the world such as the

spread of COVID-19, the protracted trade friction between the United

States and China, and turbulence in the crude oil market due to

increased competition among oil-producing countries. How is Nikkiso’s

business environment?

Kai: The stalling of the global economy and the fall in crude oil prices

due to the impact of COVID-19 appear to be causing a sharp

Toshihiko KaiPresident & Chief Executive Officer,

Nikkiso Co., Ltd.

Ichiro YamadaExecutive Officer and Head of Securities

Investment Department,

Fukoku Mutual Life Insurance Company

Nikkiso has formulated a new six-year business plan, “Nikkiso 2025,” covering the years 2020 to 2025, aimed at making a

further leap forward. In this section, Mr. Ichiro Yamada, Executive Officer and Head of Securities Investment Department of

Fukoku Mutual Life Insurance Company, was invited to participate in a dialogue about the objectives of the plan and the

specific measures the Company is taking to address external environmental changes and global issues.


deterioration in the business environment. However, for the Company’s

three main businesses, it is difficult to judge from recent earnings. We

need to look a certain distance into the long-term future where capital

expenditure also has an impact. This is why we have set a six-year

period for the new business plan.

Yamada: Over the past 10 years or so, you have expanded the business

by acquiring LEWA GmbH, Geveke B.V., the Cryogenic Industries (CI)

Group, and so forth. How did you make these investment decisions?

Kai: Previously, our Industrial Division was centered mainly on our Japan

operations, where it was difficult to see much future potential. As we

were exploring options for overseas expansion to develop business, we

were joined by LEWA in 2009, which expanded a product lineup that

previously had consisted only of canned motor pumps, to include

reciprocating pumps. In addition, looking at global energy demand and

supply trends, we anticipated growth in the LNG market and made a full-

scale entry into cryogenic pumps from the late 1980s. Today the Group’s

lineup includes reciprocating pumps, canned motor pumps, and

cryogenic pumps. Very few pump systems manufacturers in the world

have this combination. This puts Nikkiso in an extremely advantageous

position today.

Investments during the First Three Years of the New

Six-year Business Plan

Yamada: Under the new six-year business plan, “Nikkiso 2025,” which

ends in 2025, you have positioned the first three years for strengthening

your business bases, and by realizing these achievements in the latter

three years, you aim to achieve revenue of ¥250.0 billion and operating

profit of ¥20.0 billion in 2025. Since Nikkiso has so far increased its

leverage through aggressive investments, can we take it that you will

continue this direction for the new six-year business plan as well?

Kai: In promoting “Nikkiso 2020,” we worked to upgrade our business

structure by recognizing fields with future potential, and the issues that

we must address to ensure growth going forward have now become

clear. Therefore, the new six-year business plan, “Nikkiso 2025,” reflects

our recognition of changes in the external environment and the

challenges we face in Japan and overseas. Specifically, we will enhance

our technological ability and production system with a view toward the

future, and build an organization enabling globally integrated business

promotion. In Phase 1, we plan to construct the Industrial Factory in

Miyazaki and prepare to increase production at the Aerospace Factory in

Miyazaki, convert the Higashimurayama Plant into a technology

development base, bolster production capacity at the Kanazawa Plant,

and construct a new factory for blood tubing lines in Vietnam. During the

first year of the plan in particular, we expect our profits to be reduced by

increased investments and expenses for these projects. However, by

steadily taking the steps that we should, we believe it will be possible to

achieve sustainable growth and increase our corporate value.

Specific Initiatives in the Industrial Division

Yamada: Tell me about the initiatives in your main segments during

Phase 1. How about the Industrial Division?

Kai: One of the greatest achievements of the previous medium-term

business plan was establishing a system that enables the German

company LEWA GmbH, the U.S. company CI Group, and Nikkiso to

Under the new six-year business plan,

we will strengthen our business bases

for further growth.Toshihiko Kai


approach markets as a single group. LEWA has outstanding strengths in

the upstream oil and gas sector, and relatively high profitability. However,

since crude oil is on a long-term decreasing trend, they have been

looking at reducing their dependence on the upstream sector and

building their lineup in the middle and downstream sectors, such as LNG

and petrochemicals, where Nikkiso has considerable experience. I think

it is very significant that the entire Group, including Nikkiso and the CI

Group, can now provide an integrated range of product groups and

solutions completely covering the whole range from upstream to

downstream in the oil and gas field. As Nikkiso’s canned motor pumps

and cryogenic pumps are now being produced for customers in Europe,

the United States, the Middle East, and Southeast Asia, with a view

toward sales in Russia in the future, we have come to need a certain

amount of production capacity. This is far beyond the capacity of our

current production system in Higashimurayama, so we decided to build

the Industrial Factory in Miyazaki. In addition, our Las Vegas cryogenic

pump testing facility is now at full-capacity utilization, so we decided to

build a new testing facility, which led to the decision to invest in one

along with construction of the Industrial Factory in Miyazaki.

Yamada: What do you think of synergies between LEWA, the CI Group,

and Nikkiso?

Kai: There are many specialist manufacturers in the pump industry, and

surprisingly few who cover the whole range from upstream to

downstream with a range from reciprocating pumps to cryogenic pumps,

as the Nikkiso Group does. On the other hand, there is quite an overlap

on the customer side, so we expect to see some interesting

developments in terms of synergies.

Specific Initiatives in the Aerospace Division

Yamada: How about initiatives in the Aerospace Division? Last year it was

reported that production of the 737 MAX series by the Boeing Company in

the United States had been halted. Was there any impact on Nikkiso?

Kai: In our Aerospace Division, we started with CFRP*1 components,

which we initially supplied to Boeing, Airbus in Europe, and to their

directly related components manufacturers. This is quite a different

development path from that of other Japanese aircraft components

manufacturers. Boeing called a temporary halt to production of the 737

MAX series in January 2020. However, since a major disruption would

occur if its enormous globally distributed supply chain were to stop

completely, the major components manufacturers have made stable

production plans even during the production halt, and we are sending

out shipments in line with these plans. Over the medium to long term,

demand for commercial aircraft, especially small airplanes, is expected

to continue expanding, mainly in Southeast Asia. For now, however, we

are operating the business cautiously, given the uncertain direction of

Boeing’s development, production systems, and earnings recovery, and

the apparent significant impact of COVID-19 on the aircraft industry.

Yamada: Tell me about the role of the factory in Miyazaki and the one in

Vietnam.

Kai: We are thinking of the Vietnam Factory as a production site for main

wing components. Nikkiso Miyazaki will produce cascades and serve as

a site for a new cascade production method and for developing

technologies that we want to try going forward. As you know, the number

of aircraft is expected to double in 20 years from now. Aircraft

manufacturers are also working hard to develop new models and


In Phase 1, you will take an even more

aggressive approach to upgrading your

production bases and sales system to

grow your business.Ichiro Yamada


increase production. To meet these needs, as a components

manufacturer, it is vital not only that we revamp our CFRP components

production method to reduce costs, but also that we are able to handle

production increases at any time. Our plan is to have Nikkiso Miyazaki

constantly try out new ideas as a production technology site. Recently,

there has been a lot of public interest in the development of the eVTOL*2

“flying car.” As flying car is difficult to manufacture from metal alone,

Nikkiso may find that its technological opportunities expand significantly

as a specialist in manufacturing complex-shaped components with CFRP.

*1 CFRP: carbon fiber reinforced plastic

*2 eVTOL: electric vertical takeoff and landing aircraft

Specific Initiatives in the Medical Division

Yamada: What is the situation with the Medical Division? In overseas

markets, I hear that hemodialysis machines are performing well in China

and Europe, while in Japan the new model Si Series has been highly rated.

Kai: Overseas, we continue to see growth in sales of the DBB-EXA

hemodialysis machine that we have been selling since 2015. The

DBB-EXA automatically prefills dialysate with the press of a button. This

has given it a strong reputation in Europe especially for ease of use,

labor savings, and efficiency. In 2020, we will start full-scale sales of the

DBB-EXA ES, which has been simplified by reducing the number of

functions. Going forward, we expect this to become a mainstream model

in the Chinese and U.S. markets, among others. In China, the further

development of the healthcare infrastructure is increasing the scope for

treating more patients, and since the Weigao Group, our partner, is a

major medical equipment manufacturer with a strong network in China,

our market share has grown considerably. On the other hand, in the U.S.

market, we are making progress obtaining FDA*3 approval and setting

up a base, and we plan to ramp up sales of hemodialysis machines

there. In Japan, the Si Series has received high praise from customers

for achieving labor savings and cost efficiency through links with

equipment in the dialysis-machine rooms.

Yamada: Your plan is to achieve revenue of ¥100.0 billion in 2025. Is

this possible without conducting large-scale M&As?

Kai: That’s right. However, I feel that our current production capacity

won’t be enough. We will expand our production capacity for

hemodialysis machines by reorganizing our domestic production sites.

Moreover, in disposables too, we are reaching the point where it is

difficult to increase production of blood tubing lines in Thailand and

Vietnam, where we are already producing at full capacity. As sales of

hemodialysis machines increase to overseas markets such as the United

States, it will be necessary to provide a stable supply of blood tubing

lines. We are therefore looking at moving to mass production for

overseas markets in step with future market growth, and we plan to

build a new blood tubing line factory in Vietnam.

*3 FDA: Food and Drug Administration

Strengthening Technological Capability and Human

Resources Initiatives

Yamada: You have positioned Phase 1 for strengthening the business

bases. What kind of activities are you thinking of in terms of technology

and human resources?

Kai: One initiative is to transfer people in line with our relocation of

production sites, and the second is to improve our working environment.

Our growth flows from our prominent

technological capability and products

and services that exceed customer

expectations. We can see the issues that

need to be resolved to ensure this.Toshihiko Kai


I am looking forward to seeing you achieve

results in Phase 2. I hope the Company will

steadily capture growth opportunities in global

markets going forward.Ichiro Yamada

In particular, I feel we have been a little slow with work-environment

improvements in the engineering divisions, and this is one of our priorities

for future growth. Nikkiso recognizes that its existence rests on an

unwavering commitment to technological innovation. To continue

cultivating world-leading technologies in each business field and producing

trusted products, I would like to have our employees work on technological

development in the best possible environment. From the perspective of

making effective use of business sites, we believe it is optimal to relocate

our technological development base from Shizuoka to Higashimurayama,

which is inside the greater Tokyo area. We are aiming to have our new

research center up and running within the first three years of the six-year

business plan.

Yamada: What are your thoughts on human resources development?

Kai: Naturally, human resources development is one of our most important

priorities. LEWA and the CI Group, which hold important positions with the

Nikkiso Group, are independent companies and they have human

resources with a management perspective. However, in each business

division on the Japan side, we need more people who can talk with them

from the same management perspective. Developing such human

resources is an urgent task. To give our employees a management

perspective, it is necessary for them to have contacts with the outside

world, rather than close themselves off inside their own specialist field,

and to participate in opportunities such as different kinds of projects. In the

past few years, we have had young and middle-ranking employees who

worked at overseas subsidiaries and others with overseas experience work

with local management teams to acquire different experience and abilities.

It won’t happen overnight, but we aim to thoroughly develop management

personnel in each business division who can operate in a global setting.

Financial Strategy and Shareholder Returns

Yamada: In Phase 1, it appears that you will basically make aggressive

investments. From a capital strategy standpoint, WACC*4 is stable due to

an increase in dependence on debt, but the increase in the leverage

ratio has raised the cost of shareholders’ equity. In the current state

where the leverage is sufficiently effective, measures that will increase

interest-bearing debt such as new M&As or investments will also lead to

an increase in leverage, so a cautious stance seems to be called for.

Moreover, with ROIC*5 on a level trend, an increase in the operating

margin would be welcome. What are your thoughts?

Kai: It seems unlikely that we will conduct any further large investments

like the M&As we have already done. However, the Phase 1 measures

for strengthening the business bases are also important for ensuring

earnings in the future. In Phase 1, we will make concentrated capital

investments and establish needed production sites. In Phase 2, we will

achieve the results, strengthening our profitability by expanding sales

while simultaneously increasing management efficiency to enhance

things like the operating margin. Increasing our profitability should lead

to improved cash flow and reduced interest-bearing debt. We will

continue to pursue the optimal balance between financial soundness,

capital efficiency, and shareholder returns, while achieving sustainable

growth and increased corporate value over the medium and long terms.

I hope you will continue to expect great things from Nikkiso.

*4 WACC: weighted average cost of capital (cost of debt + cost of shareholders’ equity)

*5 ROIC: return on invested capital



Message from the Analyst

As securities analysts, we assess the value of shares through analysis

of companies and industries. Nikkiso uses its core competence in

fluid control technology for a unique dual specialization in industrial

machinery and medical equipment. Since these two specializations fall

into unrelated industries, Nikkiso can be seen by the stock market as

difficult to comprehend, but the Company provides clear explanations

through dialogue in its investor relations activities. Nikkiso’s Industrial

Business has continued to expand through proactive investments

and acquisitions; however, with a sharp fall in crude oil prices and

stalling demand for aircraft touched off by the spread of COVID-19,

the Company now faces a difficult period. On the other hand, as the

Medical Business is expected to show stable growth unaffected by the

macroenvironment, it should be able to demonstrate relative resolve in

an economic recession.

Since Nikkiso’s business portfolio thus comprises both an

economic cyclical element and a defensive element, it is a highly

sustainable company. Through 2022, in Phase 1 of the Company’s

new six-year business plan, it plans to reorganize its domestic

bases, strengthen its overseas business, and eliminate unprofitable

operations, among other measures. In the short term, the Company

will focus on strengthening its business base. However, our focus is

on Nikkiso’s initiatives for reaping the benefits of its growth in Phase 2,

from 2023 onward.

We Expect Nikkiso to Leverage Its

Unique Dual Specialization in Industrial

Machinery and Medical Equipment to

Drive Sustainable Growth

Takahiro Mori

Senior Analyst

Equity Research Dept., Mizuho Securities Co., Ltd.

With regard to how the Nikkiso Co., Ltd.’s management and corporate value are evaluated by the

capital markets, we received a message from Senior Analyst Takahiro Mori, of Mizuho Securities

Co., Ltd. He is assigned to research the Nikkiso Group and has issued numerous reports on many

listed companies.


At a Glance

We supply specialized pumps and systems that can

perform stably even in extreme operating conditions of

high temperatures, high pressure, or ultralow tempera-

tures, which occur in crude oil and natural gas produc-

tion, liquefied natural gas (LNG) transportation, and liquid

transportation in various processes of petrochemical

plants. We are expanding our global business as a

world-leading pumps and systems manufacturer

with a wide-ranging lineup.

Industrial Division

Nikkiso succeeded in developing the world’s first

carbon fiber reinforced plastic (CFRP) cascades

for commercial jet engines. Now, as a professional

aircraft parts manufacturer with advanced skills,

we manufacture a variety of CFRP components for

engine nacelles and main wings.

Aerospace Division

Since developing Japan’s first water-conditioning

systems for stabilizing the water quality at power plants,

Nikkiso has supported the vital infrastructure of power

generation. We also develop precision equipment that

contributes to higher performance in the electronic mate-

rials field, such as the warm isostatic laminators that are

widely used as the de facto standard system in the

ceramic circuit board production process.

Precision Equipment

Division

We have led the world in commercializing deep UV

rays, which include wavelengths that can detoxify

bacteria in water, in the air, and on surfaces. We have

started using Deep UV-LEDs, which are a next-

generation light source, to develop businesses in

various new fields such as industry, medical care,

and the environment.

Deep UV-LEDs Division

As a pioneer in dialysis treatment in Japan, we are

contributing to its development. We have been

developing overseas markets, such as China, where

dialysis patient numbers are increasing rapidly, and

we are expanding our business field to include the

area of surgery, producing such things as microwave

surgical instruments.

Medical Division

Business OverviewRevenue Composition

Medical Business(Medical Div.)

Industrial Businesses(Industrial Div. + Precision Equipment Div. + Aerospace Div. + Deep UV-LEDs Div.)

Revenue

¥165.7 billion

Revenue

Industrial Businesses

103.7 104.5

60.8

(Billions of yen)

Medical Business

62.0

120

90

60

30

0

12/2018 12/2019

Segment Profits

Industrial Businesses

10.8

8.1

5.5

(Billions of yen)

12

9

6

3

0

12/2018 12/2019

* Impairment loss of approximately ¥2.1 billion was recognized due to a downturn in business performance of the continuous renal replacement therapy (CRRT) business.

Medical Business

3.4 *


Winglet

• Major oil & gas companies

• EPC contractors

• Chemical manufacturers

• Electric power and gas companies

• Industrial gas companies

• Reciprocating pumps/systems

• Cryogenic pumps

• Canned motor pumps

• Vaporizers

• Air separation units

• Aircraft component manufacturers

• Satellite manufacturers, etc.

• CFRP jet engine/nacelle parts

(cascades, blocker doors, torque boxes,

fan case liners, etc.)

• CFRP main wing components

(fixed leading edges, winglets, flaps, etc.)

• CFRP fuselage components

(cargo doors)

• Electric power companies

• Electronic device manufacturers, etc.

• Water-conditioning systems for power plants

• Warm isostatic laminators

• Dry laminators

• Manufacturing plants (disinfection

processes for drinking water and

washing water, etc.)

• Hospitals

• Offices

• General households

• Plant factories

• UV-LED water purifiers

• Air purifiers

• Surface irradiation products

• Household appliances for general home use

• Hospitals, clinics and dialysis centers

• Hemodialysis-related products

• Continuous renal replacement therapy

(CRRT)-related products

• Immunopure (apheresis product)

• Acrosurg. (microwave surgical instrument)

• STG-55 (artificial pancreas)

Customers Products

Cryogenic pumps

Warm isostatic laminator(S Series)

Reciprocating pumps/system

Sampling system

Canned motor pump

Fixed leading edge

Fan case liner

UV-LED water purifier(medium flow rate: 50L/min)

Acrosurg.(microwave surgical instrument)

PearlAqua™ UV-LED water purifier(low flow rate: less than 10L/min)

Cascade

DCS-200Si(hemodialysis machine)


Industrial Division

Performance for the Fiscal Year Ended December 31, 2019

Orders came to ¥77,623 million (–5.6% YoY) and revenue amounted to

¥75,238 million (–2.0%).

In the oil-related business, LEWA saw revenue and profit increase

year on year. The results reflected a recovery in inquiries in the upstream

field and the successful expansion of sales with strengthened after-sales

services, leading to improved profitability.

In the industrial gas and LNG-related business, the Cryogenic

Industries Group (CI Group) saw revenue and profit increase year on

year, reflecting sales growth in LNG-related products and reduced

depreciation expenses.

The Industrial Division overall saw revenue decline year on year

due to a decrease in projects in the Middle East and foreign exchange

impacts caused by the depreciation of the euro, etc. Nevertheless, the

division increased profit due to the improved performance of LEWA and

the CI Group.

Review of Operations

RevenueCompositionby Segment

Revenue

¥75.2 billion

Revenue Composition by Region Revenue Composition by Product

35%

29%

10%

26%

Asia

11%Japan

39%Reciprocating pumps (LEWA)

6%Canned motor pumps

21%North America

Europe

13%Cryogenic pumps

Geveke

CI Group

5%Other

4%Other

Trends in Crude Oil Prices (Monthly) LNG Imports and Exports

Japan and Korea China India Other Asia Europe Other

Middle East North America Australia Africa Russia Other

MARKET DATA

Expanding sales of diverse products in global

markets through production capacity expansion

and Group synergies

45%

2017

2020

2030

2040

Imports Exports

-1,000 -500 0 500 1,000

(USD/barrel) (Billions of yen)

150

120

90

60

30

020162015201420132012 2017 2018 2019 2020

BrentWTIDubai

Source: LNG imports and exports, “BP Energy Outlook 2019”


Market Environment and Outlook for the Next Fiscal Year

In the oil-related business, orders continue to increase, mainly for

offshore facilities. The improvement is due to a restart of upstream

capital investment for crude oil and gas exploration following an increase

in prices since the second half of 2017, despite uncertainty over the

future direction of crude oil prices. Furthermore, in the industrial gas and

LNG-related business, we are seeing strong inquiries regarding the large

cryogenic pumps used in LNG import terminals and offshore facilities,

driven by an expanding global LNG market.

In the fiscal year ending December 31, 2020, we will further

strengthen our unified Group approach to the market. The stalling of

the global economy and the fall in crude oil prices due to the impact of

COVID-19 appear to be causing a sharp deterioration in the business

environment. Nevertheless, from a medium- to long-term perspective,

Nikkiso will work to strengthen its technological capabilities by constructing

a research center at Higashimurayama and bolster its ability to keep up

with increased LNG demand with a new cryogenic pump testing facility

in Miyazaki. Nikkiso will also increase its technological capabilities and

production capacity by building the Industrial Factory in Miyazaki.

As for business results for the fiscal year ending December 31,

2020, the Industrial Division is expecting orders of ¥85,000 million

(+9.5% YoY) and revenue of ¥82,000 million (+9.0%).

Initiatives under the New Six-year Business Plan

In Phase 1 of the new six-year business plan, we will work to strengthen

our business bases. In the Industrial Division, we plan to increase our

technological capabilities and production capacity by constructing a

new cryogenic pump testing facility in Miyazaki, where we also plan to

relocate our pump production sites from Higashimurayama.

Furthermore, the Nikkiso Group is a unique pumps and systems

manufacturer internationally, covering the entire value chain from

upstream fields such as crude oil and gas exploration to the middle and

downstream fields of the petrochemicals market. To bolster our business

promotion structure globally, including both Japan and overseas, we will

forge even deeper links between LEWA, Nikkiso, and the CI Group, and

promote sales strategies that utilize our overseas network of bases and

our outstanding technological capabilities to systematically approach

customers throughout the world.

Market Analysis

Opportunities and Risks

• Increase in capital investments owing to greater global demand

for energy such as crude oil and natural gas

• Increase in demand for upgrades and maintenance of aged

equipment

• Expansion in demand in fields related to alternative energy

• Decline in capital investments owing to lower crude oil prices

or political instability

• Tightening of each country’s policies and regulations to

promote transition to low-carbon societies

Strengths

• Specialized technological capabilities and high quality in

specific fields in the energy sector

• Custom-made, high value-added products that meet

customer needs

• Global sales and service network for customers

• Long-term support structure, including sales of parts, repairs,

and maintenance services

Toward a Hydrogen Society

Hydrogen, which emits no CO2 or other harmful substances upon

combustion, is drawing attention as a global warming countermea-

sure. To enable the transportation, storage, and use of hydrogen,

the CI Group is applying the technologies it has developed working

with LNG and industrial gas to rapidly develop liquid hydrogen

pumps. Hydrogen is already being used as a fuel for forklifts in the

United States, with the CI Group’s pumps used for fueling.

The Group will

continue working as one

to provide new solutions

that will help achieve a

full-fledged hydrogen

society.

FOCUS Toward a Sustainable Society




Aiming to create the de facto standards for the industry following

on the warm isostatic laminator for MLCCs*


As a result of transferring the particle analysis instruments business during the third quarter, orders came to ¥7,571 million

(–38.0% YoY) and revenue was ¥9,233 million (–13.6%).

In power plant-related equipment, despite a slump in domestic markets, we are receiving more overseas inquiries about

water-conditioning systems, mainly in Southeast Asia. In electronic components production equipment, orders decreased due

to a slowdown in the electronic components markets. However, production and shipments of existing orders proceeded

smoothly. On January 1, 2020, the Precision Equipment Division was integrated into the Industrial Division to ensure the

appropriateness of business management.


In power plant-related equipment, we have started strengthening our

sales activities with our subsidiary in Taiwan in response to an increase

in inquiries for water-conditioning systems in Southeast Asia.

In the electronic components industry, the downturn in demand

shows signs of hitting bottom, and capital investment is expected to

recover. Furthermore, we expect orders for the Company’s equipment

to increase due to global expansion in demand for such things as 5G

mobile communication systems.


2020, the Precision Equipment Division is expecting orders of ¥6,500

million (–14.2% YoY) and revenue of ¥6,500 million (–29.6%), reflecting

the impact of a partial business transfer and a decrease in orders related

to electronic components in the previous fiscal year.


Under Phase 1 of the new six-year business plan, we will expand our

lineup of electronic components production equipment and aim to create

de facto standards for the industry. In power plant-related equipment,

we will further accelerate our business in Asia.

6%

Market Analysis


• Increase in demand for electricity in emerging markets

• Prolonged shutdown of domestic nuclear power plants

• Growth of electronic materials market

• Abrupt changes in electronic materials market environment

Strengths

• Ability to create and propose new added value

• Ability to develop new products with new technologies and

techniques

• Test evaluation room for resolving customer demand

• Unique products that increase customer productivity

*MLCC: Multi-Layered Ceramic Capacitor

Review of Operations

Promoting the Realization of Society 5.0 by Contributing

to Increased Sophistication of Electronic Components

Amid the incredible evolution of advanced technologies such as IoT,

robotics, and AI, governments too are aiming to realize Society 5.0,

a new structure that will facilitate both economic development and

the solving of social issues. The foundation of such a society rests

on electronic components, requiring that they be manufactured

efficiently in smaller sizes and that they offer higher performance.

Nikkiso has been working to address customers’ demands by

developing S-WIP (the warm isostatic laminator S series), which

has received positive feedback. In addition to multi-layered ceramic

capacitors, where we have an established track record, we will

also work on developing electronic circuit board manufacturing

equipment for 5G and

contribute to providing the

infrastructure for realizing

a sustainable society.



Establishing a joint venture with the Formosa Plastics Group

to purify water and air with a next-generation light source


The Deep UV-LEDs Division established NKFG Corporation as a joint

venture with the Formosa Plastics Group in Taiwan, and preparations are

now under way for mass production of products and its R&D framework.

Since the third quarter, the Division has recorded revenue from licenses

with NKFG Corporation and development contract fees.

Market Environment and Future Development

Deep UV can detoxify bacteria and viruses in water, in the air, and on

surfaces, and up until now, UV lamps using mercury have been in use.

However, since mercury has a negative impact on the human body and

the environment, under the Minamata Convention on Mercury, by 2020,

the manufacture, import, and export of products that use mercury are

to be restricted and such products are to be appropriately disposed

of. Against this backdrop, Deep UV-LEDs have garnered attention as

a next-generation light source. Working in collaboration with Nobel

Prize winners in physics, the Company led the world in successfully

developing and commercializing Deep UV-LEDs, which are mercury-

free and environmentally friendly, with distinctive features including a

compact size, energy savings, and a long service life.

In spring 2019, we went into mass production of a Deep UV-LED

water purifier with the same level of performance and cost as a general

type of purifier that uses a UV lamp. This led to an increase in inquiries

and orders for industrial water disinfection applications. The purifiers are

also being used for water purification and clean water disinfection on

manufacturing lines in the food industry. We are also examining the use

of LED properties for suppressing pests in agricultural crops.

Looking ahead, we aim to create new businesses by expanding our

lineup of products with world-leading technologies such as air purifiers

or flowing water disinfection modules that use Deep UV-LEDs.

History of Deep UV-LEDs

2006Drawing on the research achievements of two Nobel Prize recipients, Professor Isamu Akasaki and Professor Hiroshi Amano, UV Craftory Co., Ltd. was established with the goal of realizing commercial viability for Deep UV-LEDs.

2012Samples of Deep UV-LEDs went on sale.

2014The Hakusan Factory, with the capacity for the design, development, and mass production of Deep UV-LEDs and modules, was completed.

2015Deep UV-LEDs with the highest output in the world of 50 mW were successfully developed for mass production.

2016Nikkiso acquired AquiSense Technologies, a supplier of UV-C LED disinfection system.

2017Deep UV-LEDs with higher outputs of 70 mW and 85 mW were developed.

2018A Deep UV-LED water purifier capable of performing on a par with mercury lamps was developed.

2019NKFG Corporation, a joint venture with the Formosa Plastics Group, was established.

Deep UV-LEDs DivisionReview of Operations

Development of Healthcare Products Designed to

Prevent Cluster Infections

Preventing cluster infections is extremely important for controlling

medical cost increases, which have become a social issue. Amid

multiple reports of the emergence of resistant bacteria due to

heavy use of antibiotics and environmental pollution caused by

widespread application of disinfectants, the Company is working to

develop healthcare products aimed at the reliable, safe prevention

of cluster infections without using disinfectants.

In January 2020, we started selling our air purifier, Aeropure,

designed with the concept of medical-grade, safe, reliable air.

Aeropure uses Deep UV-LED air disinfection technology to

detoxify bacteria, viruses, and allergens, and break down organic

substances. We have had

more orders than initially

anticipated, due to the

spread of COVID-19, and

we are currently working

to ramp up production.


Note: This product is not a medical device.


Revenue

¥17.9 billion


14%

44%Cascades

13%Nacelle parts

24%Wing parts

Engine parts4%

Other

Number of Passenger Jets and Demand Forecast by Size

6%Asia

18%Japan

72%North America

4%Europe

11%


Orders came to ¥17,926 million (+6.2% YoY) and revenue amounted to

¥17,955 million (+6.2%).

Demand for commercial aircraft, short-haul (single aisle) airplanes

in particular, has been expanding especially in Southeast Asia, and

accordingly, there were more opportunities to participate in new work

packages. In business performance for fiscal 2019, the Boeing 737 MAX

suspension did not affect deliveries from Nikkiso, and overall revenue for

the division increased year on year as a result of growth in shipments

of major products such as cascades and engine/nacelle parts of other

platforms. Profit decreased, however, reflecting an increase in expenses

for capacity expansion to support existing and future demands, such as

depreciation costs at the Aerospace Factory in Miyazaki, completed the

previous year.

MARKET DATA

40,000

30,000

20,000

10,000

018,00016,00014,00012,00010,0008,0006,0004,0002,0000

(Number of aircraft)

(Number of aircraft)

(Number of seats)

Demand Forecast for Passenger Jets

2018 2038

20182038

100-119

20182038

230-309

20182038

120-169

20182038

310-399

20182038

170-229

20182038

Over 400

New demand16,397

46%23,904

40,301 592

12,689

2,666

1,750

2,356

406

15,346

8,686

6,102

4,742

152

1,821

1,821

Number of aircraft to be delivered35,312

Replacement demand18,915

54%

Existing aircraft4,989

Number of aircraft in service (existing aircraft)

Number of new aircraft to be delivered

Source: Japan Aircraft Development Corporation, Worldwide Market Forecast 2019–2038


Aerospace DivisionReview of Operations

Enhancing the Company’s presence in the aerospace

industry by accelerating development and mass production

of new parts and optimizing production bases


Market Analysis


• Increased movement and transportation driven by economic

growth

• Improvement in fuel efficiency of aircraft due to tighter

environmental regulations in each country and reinforcement

of approaches to CO2 reduction

• Strict requirements for quality, cost, delivery (QCD)

• Importance of always keeping competitiveness in technology

Strengths

• Design ability and manufacturing skills specializing in

complex shapes and quality assurance systems

• Over 90% global market share in cascades

• Production capacity and delivery management enabling us

to handle demand for increased aircraft production

• Meeting the needs of rapid growth in Asian market with

factories in Vietnam


Aircraft demand is expected to continue growing steadily due to

increasing demand for passenger transport, mainly in emerging

countries. However, Boeing’s recovery plans for development and

production and their impact on Nikkiso’s business plans are still

uncertain. In addition, as COVID-19 is seriously damaging the aviation

industry, we will continue to work closely with our customers and

suppliers to properly manage business under the circumstances.

Through the fiscal year ending December 31, 2020, Nikkiso’s plans for

optimizing manufacturing bases and systems to meet market demands

will continue. At the Aerospace Factory in Miyazaki, the first delivery of

newly developed A320neo PW cascades took place last October, and

we will continue to develop manufacturing techniques and innovative

technology. In addition, we will work to increase production at our

second factory in Vietnam to improve the bottom line.


2020, the Aerospace Division is expecting orders of ¥18,500 million



In Phase 1 of the new six-year business plan, our most important

task is to establish a robust manufacturing system to meet increasing

demand. In December 2019, we ended production in Shizuoka and

completed transferring the programs to other factories. Our next

missions are to continually stabilize production at the Aerospace

Factory in Miyazaki and to achieve a smooth start-up of production

at our second factory in Vietnam.

On the engineering side, we will reorganize and relocate engineers

to liaise at each production site to achieve better functionality and

strengthen our core technology. The R&D group will focus on developing

applications for new materials and creating new manufacturing

processes, through both internal activity and collaboration with partners.

Improving Aircraft Fuel Efficiency

While aircraft demand is increasing, the aviation industry is under

pressure to deal with increased CO2 emissions from aircraft.

The Carbon Offsetting and Reduction Scheme for International

Aviation (CORSIA), adopted by the International Civil Aviation

Organization (ICAO) in 2016, requires a plan of growth for inter-

national aviation without an increase in CO2 emissions. Therefore,

airframers have been grappling with trying to adapt innovative

technology to advance fuel consumption efficiency. To play a part

in this industry trend, Nikkiso, as a pioneer in meeting industry

needs, is prepared to join customers in developing new materials

and manufacturing methods for next-generation aircraft at the

Aerospace Factory in Miyazaki.



Revenue

¥62.0 billion


15%Asia

70%Japan

15%Dialysis machines (Japan)

12%Dialysis machines (Overseas)

32%Disposables (Japan)

1%North America

12%Europe

3%Disposables (Overseas)

12%Service

8%CRRT

19%Other

2%Other

37%


Orders came to ¥62,597 million (+2.6% YoY), revenue amounted

to ¥62,046 million (+2.0%), and segment profit was ¥3,447 million

(–38.2%). In addition, impairment loss of approximately ¥2.1 billion was

recognized due to a downturn in the performance of the continuous

renal replacement therapy (CRRT) business.

The domestic market was sluggish due to a longer replacement

purchase cycle for hemodialysis machines. However, inquiries were

increasing for the new model Si Series, which was appreciated positively

after its sales launch in the third quarter. We also saw growth in sales

of disposables, such as blood tubing lines and powder of dialysate

concentrate, etc.

In overseas markets, sales were strong in Europe, Southeast Asia,

and China, where the Company’s products have been highly evaluated

for their functionality. In the CRRT business, sales of machines and

disposables were strong in the main market of China but were unable to

absorb downturns in other areas.

MARKET DATANumber of Dialysis Centers (China) Projected Number of End-Stage Renal Disease Patients and

Hemodialysis Patients (China)

(Centers)

10,000

7,500

5,000

2,500

020182015 20192016 20202017 2021 202420232022

(Million people) (%)

4

3

2

1

0

100

75

50

25

02019 202520232020 20242021 2022

Over the past few years, the number of dialysis centers offering hemodialysis

therapy has been increasing annually in China, due to the nationwide

expansion of medical insurance.

With the number of dialysis facilities increasing, 1.33 million people, or 38%

of patients with end-stage renal insufficiency, are expected to be able to

receive hemodialysis therapy by 2025.

Sources: Weigao Group (joint venture partner) survey up to 2018; Shanghai Nikkiso Trading Corporation projection from 2019

Ratio of HD/ESRDNumber of end-stage renal disease (ESRD) patientsNumber of hemodialysis (HD) patients

3.07

0.65

21%

3.55

1.33

38%


Medical DivisionReview of Operations

Leveraging advanced technological capabilities in dialysis

machines to take a big step toward becoming a global

medical equipment manufacturer



In the domestic market, our new hemodialysis machines, the Si

Series, has been highly appreciated by customers for treatment

safety, convenience, and economic efficiency. In overseas markets,

the Company’s hemodialysis machines have been highly rated for

functionality in Europe, Southeast Asia, China, and the United States.

In the fiscal year ending December 31, 2020, in Japan, we will

promote the Si Series to penetrate and spread in the market, while

strengthening services to our customers. In overseas markets, we will

expand business bases and strengthen relationships with local partners

to increase sales of our newly developed hemodialysis machine, the

DBB-EXA ES. Moreover, to keep pace with growing market demand,

we plan to expand our production capacity for hemodialysis machines

and blood tubing lines. In addition, we will expand our market for the

Acrosurg. microwave surgical instruments by launching a new device

for laparoscopic surgery and by commencing its sales in the field of

veterinary medicine.


2020, the Medical Division is expecting orders of ¥66,000 million



In Phase 1 of the new six-year business plan, we believe it is important

to expand our market share of the growing global dialysis market,

particularly in China and the United States, the world’s two largest

hemodialysis markets.

Our urgent task is to increase and expand production capacity

ahead of sales expansion in global markets. To this end, we will increase

our dialysis machine production lines at the Kanazawa Plant. In addition,

we plan to build a new factory in Vietnam to expand our production

capacity for blood tubing lines.

On the sales front, we will strengthen our services together with

sales expansion to meet expanding demands. In overseas markets, we

will enhance our sales channels by strengthening relationships with

local partners.

Market Analysis


• Increase in dialysis patients in China, the world’s largest

dialysis market, and in emerging countries in Asia and Central

and South America, etc.

• Changes in medical care needs (increase in demand for

telemedicine, shift in medical expenditure from chronic to

acute medical care)

• Decrease in domestic dialysis patient numbers and increased

competition

• Advances in medical care technology that make existing

technologies obsolete

Strengths

• Dialysis business expertise and network developed for over

50 years

• Development of new technologies based on fundamental

research at our Research & Engineering Institute

• Product development capabilities matched to customer

needs and sufficient production capacity

• Rapid and stable support, including training for healthcare

professionals and 24/7 direct call service

Aiming to Reduce Burdens on Both Patient and Surgeon

Acrosurg., commercialized by Nikkiso, is the world’s first surgical

instrument that uses microwaves. Unlike conventional high fre-

quency or ultrasonic waves, microwaves (like those in a microwave

oven) are capable of rapid healing with minimal thermal damage.

Microwave surgery is also expected to reduce surgery time since

multiple functions can be performed by a single device, thereby

helping to alleviate the burdens on both the patient and the sur-

geon. The use of Acrosurg. has been steadily expanding since its

introduction in 2017, and we

are now planning to launch a

device for laparoscopic surgery

that will further lessen the bur-

den on patients. We are also

planning to unveil a dedicated

device to meet needs in the

veterinary field.



—Nikkiso Environmental Declaration—

Nikkiso’s corporate philosophy is to contribute to the world using its

original technologies, focusing on human life and the environment.

Modern day society is in a stage of transition, seeking both harmony with

nature and sustainable development. Nikkiso aims to grow and develop

with society and offer technologies, products and services to help

realize these objectives. In 1998, we released the Nikkiso Environmental

Declaration, which comprises our environmental philosophy and action

guidelines, and since that time we have continued to contribute to

realizing a recycling-oriented society.

More specifically, we continue to take steps toward reducing

our impact on the environment by curbing our CO2 emissions and

other efforts, implementing recycling-oriented society initiatives, and

developing products that help mitigate environmental impacts.

Initiatives for Reducing Environmental Impact

—Curbing CO2 Emissions

Nikkiso is endeavoring to lower its greenhouse gas emissions not only in

production operations but across all business activities.

We will step up efforts to minimize our environmental impact by

managing the amount of resources (energy, water, CO2 emissions) we

use at each of our plants and by constantly finding ways to reduce

greenhouse gas emissions at every stage of our business operations.

Environment

Basic Policy

Nikkiso aims to achieve sustainable growth and enhance

medium- to long-term corporate value by making creative

contributions to solving social issues in areas essential

to living, such as aerospace, dialysis therapy, and various

industries involved in handling fluids such as crude oil

and natural gas.

To this end, we continue to develop the necessary

frameworks for our operations, in the belief that

strengthening our environmental, social, and governance

(ESG) initiatives is indispensable.

Stepping up our ESG initiatives to help solve social issues and create

value through our business activities

ESG Initiatives


Initiatives for Recycling-Oriented Society—Minimizing Waste

Nikkiso aims to minimize burdens on the natural environment with

groundbreaking technological innovation in all its business fields,

thereby contributing to the realization of a sustainable environment. In

line with this policy, we are making every effort to minimize waste and

recycle resources.

Dialysis Machine Recycling System

With the approval of our customers, Nikkiso reuses and recycles waste

products from our used dialysis machines. This system alleviates the

waste disposal burden on our customers and contributes to a recycling-

oriented society.

Completion report

Designated transport company

Disassembly center

Recycling company

Collection request

Collection request

Collection

Waste disposalconsignment agreement

Customer

Other Environmentally Friendly Products

Business Product Description SDGs

AerospaceCFRP aircraft components(cascades, etc.)

Aircraft components that are much lighter

Industrial

Cryogenic pumpsPumps that operate stably even under the cryogenic and high-pressure conditions required for LNG production and consumption

Canned motor pumpsLeak-free pumps that prevent the spillage of dangerous solutionsduring transportation

Diaphragm pumpsReciprocating pumps with diaphragms to prevent leaks, used inapplications requiring accurate metering of hazardous liquids

MedicalSmart E System®

(dialysis heat pump system)

Equipment that amplifies the small amount of heat in used dialysissolution to heat the source water. It reduces power consumption byroughly 78%–90% during dialysis therapy.

Deep UV-LEDs UV-LED water purifiers Water purifiers that use environmentally friendly Deep UV-LEDs

Nikkiso’s Products That Help Reduce Environmental Impacts

Nikkiso is committed to developing products without using materials

that pollute the environment. We implement the three Rs (reduce, reuse,

and recycle) across the entire lifecycle of our products and promote

development of environmentally friendly products.

Driven in part by the introduction of CO2 taxes and tighter laws and

regulations in certain countries, efforts are under way to help reduce

the amount of CO2 emitted into the atmosphere by separating out CO2

produced in large volumes in oil refining processes, and injecting it

underground.

LEWA GmbH produces pumps that separate CO2 from gases

emitted by facilities such as thermal power plants and oil refineries,

concentrating it and injecting it deep underground for storage. At the

Snøhvit gas field in Norway, LEWA’s G4T diaphragm pumps are used to

inject CO2 underground.

Recycling System


Nikkiso protects the rights of employees and gives thoughtful consideration

to creating a comfortable working environment. We also strive to nurture

human resources and effectively use their capabilities with the aim of

enhancing our corporate value.

Human Resources DevelopmentCreating Skills Maps for Engineers

We have created and started to use systems for using and transmitting

such things as technological standards, proprietary technologies, and

expertise in our engineering divisions by converting them into an IT format.

We have also started implementing a new systematic education program

to enable new engineers to acquire basic knowledge quickly. In addition,

we will visualize the skills level of our engineers with skills maps, using

them to encourage further individual skills development and to raise the

execution capabilities of each department in our business fields.

Developing a Global Workforce

In recent years, we have expanded our business operations overseas

and accordingly increased the number of overseas sites. For this reason,

it is essential that we use a global workforce, which is why we actively

recruit talented personnel irrespective of nationality. We also dispatch

young employees to our overseas sites to foster human resources

exchanges within the Nikkiso Group, with the aim of nurturing Nikkiso

employees with a global mindset.

Respecting Human RightsHarassment Prevention

Nikkiso has strict requirements on matters such as respecting human

rights, stopping discrimination, preventing harassment, and protecting

personal information. Regarding the prevention of harassment in

particular, in fiscal 2019, we conducted harassment prevention training

for all employees at every domestic business site. We are working to

cultivate awareness of

harassment prevention

throughout the

Company with measures

including establishing

a consultation desk for employees if they are actually affected by

harassment.

Respecting DiversityPromoting Women’s Participation and Advancement

Nikkiso considers it a loss of valuable human resources when female

employees leave their jobs to give birth and raise children. To enable

them to fully realize their capabilities, we are developing frameworks

and systems that go beyond those required by law. On April 1, 2019,

we drafted a new action plan in line with Japan’s Act on Promotion

of Women’s Participation and Advancement in the Workplace and the

Act on Advancement of Measures to Support Raising Next-Generation

Children as part of our efforts to establish a framework that supports

the formation of career female employees. We have two objectives:

(1) to raise the percentage of new female graduate employees

assigned to career-track jobs to 20% or more and (2) to create a

working environment that enables both male and female employees

to balance childcare and family nursing care responsibilities and

work commitments. Going forward, Nikkiso will endeavor to create a

workplace environment where employees from all walks of life can thrive

by promoting the active participation of women and placing the right

people in the right jobs.

Employing People with Disabilities

Nikkiso aims to create a workplace environment where employees with

various backgrounds, individual characteristics, and values can fully

engage their abilities and work with motivation. As one aspect of this

goal, we are promoting employment of people with disabilities. Our

employment rate for people with disabilities in fiscal 2019 was 2.13%,

and we are establishing an environment where they can work over the

long term using their individual strengths.

Health and SafetyTo ensure the safety of employees and other onsite workers at Nikkiso

and prevent workplace accidents, health and safety committees at

each workplace meet monthly, and we strive to raise safety awareness.

To reduce the risk of workplace accidents, we share information with

employees about workplace mishaps and near misses, as well as

countermeasures, action that helps prevent similar accidents from

occurring again.

Nikkiso’s Initiatives on Human Resources

Social

ESG Initiatives


Relationships with Customers

Strengthening Quality Assurance Systems

Strengthening quality assurance systems is an issue related to the essence

of management, and the entire Company makes continuous efforts in

this regard. We recognize that quality is the result of every process, from

product planning and order solicitation to design, manufacturing, and

service, and we are working to control these sources of quality.

To develop human resources responsible for design quality, we are

sharing the proprietary technologies and expertise of our engineering

division by converting them to an IT format, and we have revamped our

systematic education system for new engineers. We will also develop

the front-line capabilities of engineers and technicians by visualizing

their skills. Moreover, strengthening the quality assurance systems of the

suppliers from whom we procure components is essential for stabilizing

the Company’s own product quality. We therefore conduct standardized

companywide activities for visualizing issues and making improvements.

To retain our position as a technology expert, we will continue to

work even harder to strike the right balance between guaranteeing

quality and embracing the challenge of incorporating new technologies.

Improving Customer Satisfaction

The Nikkiso Group as a whole is working to improve customer

satisfaction. We strive to be a reliable presence for our customers, but

rather than simply responding to their needs, we anticipate changes in

the business environment and continually propose the adoption of new

technology, new techniques, and new ideas, according to every situation.

This effort has been favorably received by our customers, who have

recognized Nikkiso as an excellent partner in recent years.

In June 2019, we received a Supplier Award from Safran Nacelles.

The award recognized our 100% deadline compliance rate, 0% defect

rate, and extremely stable, high performance over the past two years,

as well as our track record in focusing on the customer’s perspective in

day-to-day dealings. Nikkiso will continue working to improve customer

satisfaction to resolve customer issues.

Relationships with Partner Companies

Nikkiso’s original manufacturing ability relies on building strong

relationships with numerous partner companies. Every year, we

select Partners of the Year from among companies that have made

contributions and with whom we want to develop together in the future.

In fiscal 2019, we presented awards to four companies. We hope to

establish even better relationships with the aim of achieving mutual

growth and development.

Preventing Bribery and Corruption

The Nikkiso Group strives to ensure compliance and prevent bribery and

corruption in any form under the Nikkiso Group Global Code of Conduct,

the Company’s highest set of standards. In addition to establishing anti-

bribery and other regulations, we use e-learning in employee training

that includes content to prevent bribery and corruption.

Relationships with Communities

Nikkiso is working to make social contributions through various

communication activities. These are designed to promote the sustainable

development of society and to enhance local residents’ understanding of

Nikkiso’s business.

Initiatives in Japan

In fiscal 2019, at our Kanazawa Plant, we held a Kanazawa Techno

Park Science Class in which elementary and junior high school students

conducted experiments to learn how dialyzers work. The experience of

actually seeing and touching the dialyzers made at the Kanazawa Plant

helps students learn about the functions of the human body and the

supporting role of medical equipment. We think helping them learn is part

of our social responsibility as a manufacturing company in the community.

Preserving and Promoting the Kaga Zogan Metal Inlay Technique

Nikkiso Co., Ltd. established the Soukeikai Foundation to help bolster

the foundations of local industry and advance traditional culture by

promoting and developing the kaga zogan metal inlay technique. Since

the foundation was launched, we have

completed various awareness-raising

projects to help develop successors to the

kaga zogan technique and advance and

spread metal processing technology.


Major Recent Reforms in Corporate Governance

2001

• Introduced the Executive Officer System 2006

• Abolished officers’ retirement benefit system 2008

• Shortened term of office of directors from two years to one year 2012

• Elected one outside director

• Introduced a system of stock options as stock-based compensation

for directors excluding outside directors 2015

• Increased the number of outside directors from one to two

• Abolished anti-takeover measures

• Established Nikkiso Group Corporate Governance Guideline

2016

• Examined the effects of cross-shareholdings

• Conducted monitoring of related party transactions

• Introduced a “stock-linked compensation plan” (Phantom Stock Plan)

for all directors other than outside directors, executive officers of the

Company, and officers of affiliates

• Conducted analysis and evaluation of the effectiveness of the Board

of Directors 2017

• Built a Groupwide internal whistle-blowing system2019

• Established units above the business divisions to strengthen the

supervision of the Board of Directors and clarify the responsibilities

of the executive officers by separating supervision and execution

As a member of society, the Group maintains a set of values and social

ethics that are sound, obeys laws, regulations, and the Articles of

Incorporation, follows social mores, and works to build close ties with

stakeholders, including shareholders, customers, employees and their

families, business partners, and creditors. At the same time, the Group

upholds the corporate philosophy of providing its original technology to

contribute creatively to fields that form the bedrock of the industry and

our lives, in an effort to improve people’s quality of life, with the aim of

achieving the sustainable growth of the Group, as well as the medium-

to long-term enhancement of its corporate value.

The Group believes that our goal for corporate governance should be

to achieve our corporate philosophy by ensuring transparency and fairness

in decision-making and by making decisions promptly and decisively.

We are working to build optimum corporate governance suited to the

development stages of the Group, in line with the following core beliefs.

• We respect the rights of the shareholders and secure their equality.

• We respect the interests of the stakeholders and cooperate with them,

appropriately.

• We disclose the Nikkiso Group’s information in an appropriate manner

and ensure transparency.

• We effectively separate supervision and execution of management.

• We ensure the effective supervision and audit of management through

the coordination of independent outside directors, independent

outside audit & supervisory board members, internal auditors, and the

accounting auditor, and at the same time, develop an environment

within the Nikkiso Group that allows our business execution divisions

to focus on improving business profitability.

• We hold constructive dialogue with shareholders who have medium-

to long-term shareholder profit as their investment aim.

Corporate Governance Structure Overview

Main items Value

Organization design format Company with its Audit & Supervisory Board

Number of directors (number of outside directors) 7 (2)

Number of audit & supervisory board members(number of outside audit & supervisory board members)

4 (2)

Number of meetings of the Board of Directors (FY2019) (Average attendance by outside directors)(Average attendance by outside audit & supervisory board members)

14(96%)(96%)

Number of meetings of the Audit & Supervisory Board (FY2019) (Average attendance by outside audit & supervisory board members)

15

(97%)

Director term 1 year

Employment of Executive Officer System Yes

Optional committee of the Board of Directors Internal Control Committee

Accounting auditor Deloitte Touche Tohmatsu LLC

Basic Approach

Corporate Governance

ESG Initiatives


Corporate Governance Organization, Roles, and Responsibilities(as of April 1, 2020)

Selection/Dismissal

Auditing

AuditingSupervision

Cooperation

Accountingaudits

Internal controlsInternal auditsWhistle-blowing system

Internalcontrol-relateddivision

Business execution divisions

Business andaccounting audit system

Selection/DismissalSelection/Dismissal

Dismissal

Cooperation

General Meeting of Shareholders

Audit & Supervisory Board• 2 full-time members• 2 outside members

Office of Audit &Supervisory Board

Members

Board of Directors• 5 Executive Directors• 2 Outside Directors

Internal Audit Department

Internal Control DepartmentBusiness Divisions/

Common Departments

Unit

Affiliated Companies

President & CEO

Management Meeting

Internal Control Committee• Committee Chairperson (Executive officer in charge of internal controls)• Members (including division managers, internal control department manager)

• Risk Management and Compliance Committee• Information Systems Committee External

legal firm

Accounting Auditor

Board of DirectorsGiven its fiduciary responsibility and accountability to shareholders, the

Board of Directors will assume responsibility for the sustainable growth

of the Group and the maximization of corporate value over the medium

to long term through efficient and effective corporate governance. The

Board of Directors comprises seven directors, two of whom are outside

directors. As a general rule, the Board of Directors meets regularly once

a month, and passes resolutions in writing, as necessary, from the

standpoint of prompt and efficient decision-making. Individual business

execution is delegated to the executing division whenever possible, to

ensure prompt and firm decision-making. We have also established an

environment that enables the Board of Directors to dedicate itself to

the roles of “indicating the overall direction of management, including

management strategies,” “developing internal systems that support

prompt and decisive management decisions,” and “demonstrating

supervisory functions over management in general and ensuring fair and

transparent management.”

Executive Officer System and Unit/Business Division SystemThe Executive Officer System and Unit/Business Division System have

been adopted to build an internal structure that ensures prompt and

firm decision-making. The Management Meeting, which is attended

mainly by the President and executive officers, has been established to

deliberate important business execution matters, including resolutions

by the Board of Directors. In addition, as the Company engages in a

diverse range of businesses, business divisions are situated within the

units to delegate each business to executives who are well informed

about the specific business and market to enable prompt and market-

oriented decision-making.

Audit & Supervisory BoardThe main responsibility of audit & supervisory board members and

the Audit & Supervisory Board is to determine by audits whether the

directors and the Board of Directors are performing their duties in

fulfillment of their responsibilities appropriately and in compliance with

laws and regulations, from an independent standpoint. Currently, the

Audit & Supervisory Board comprises four audit & supervisory board

members (including two outside audit & supervisory board members).

Assessment of Effectiveness of the Board of DirectorsThe Board of Directors consists of persons who share core values

regarding business execution within the Group, and can empathize

with the Group’s business principles due to their superior character,

perception, capabilities, and wealth of experience. We remain committed

to taking diversity into consideration in the composition of the Board

of Directors, from the perspective of ensuring the effectiveness of its

functions. Meanwhile, the audit & supervisory board members are

nominated from the standpoint of having individuals who are able to

proactively exercise authority by expressing their opinions appropriately

at the Board of Directors Meeting. Currently, the Audit & Supervisory

Board comprises four audit & supervisory board members, one of whom

has substantial knowledge and experience in finance and accounting,

and one who has substantial knowledge and experience in legal matters.

To analyze and assess the effectiveness of the Board of Directors,


we implement a questionnaire of all executives (including outside

officers) regarding the effectiveness of the Board of Directors. The

results and issues for improvement are then discussed by the Board

of Directors. A high percentage of the responses to the majority of the

assessment’s questions has indicated that the board’s execution of

duties is appropriate. On the other hand, multiple responses noted,

among other things, the need to enhance meeting agenda materials and

expand opportunities to update knowledge of the Company’s businesses

and organization. We will tackle these issues to further improve the

effectiveness of the Board of Directors.

Independent Outside Board MembersFor outside directors, the Company elects people who do not have any

personal relationship, capital relationship, transactional relationship or any

other interest other than the relationship as an outside officer with the

Company and who have no conflicts of interest with general shareholders.

Elected outside directors are expected to play their full part to supervise

decision-making and execution of duty by directors from an objective

and expert standpoint independently from the Company’s business

execution, and to provide proper advice from the viewpoint of promoting

the Company’s sustainable growth and increasing corporate value over the

medium to long term, based on their own knowledge and experience.

Furthermore, given that all outside directors and outside audit &

supervisory board members have met the independence standards

provided by the Tokyo Stock Exchange, which the Company has adopted

as its independence standards for outside officers, they have been

registered as such with the Tokyo Stock Exchange.

Succession Plan for the PresidentRegarding the succession plan for the President, we believe that it

is essential to select a successor to the President, either internally

or externally, without preconceptions. The successor must have the

qualifications, experience, and insight of a leader who will appropriately

guide and execute our management strategies, including our six-

year business plan, “Nikkiso 2025.” The Company’s Board of Directors

appropriately supervises this process, including setting a timetable for

succession planning, if necessary. We also make active use of the opinions

and advice of our outside officers to ensure that the Board of Directors is

able to appropriately oversee the succession plan for the President.

Executive CompensationCompensation of directors is determined by a comprehensive

Reasons for Election and Activities of Outside Directors and Outside Audit & Supervisory Board Members

Position Name Reason for election Activities

OutsideDirectors

Eisuke Nagatomo

Present position from March 2018

Having held major positions during his career, including being former Senior Executive Officer of the Tokyo Stock Exchange, Inc., former member of the Financial Services Agency Business Accounting Council, and Director of the Financial Accounting Standards Foundation, he has close familiarity with corporate governance, group governance, and risk management, in addition to his extensive knowledge of finance and accounting. He is expected to provide valuable advice for the continuous growth of the Group and to increase our corporate value over the medium to long term.

Board of DirectorsAttended 13 of 14 meetings

Haruko Hirose*


For many years, she has worked on international projects such as in personnel, financial affairs, and industrial development of the United Nations. Furthermore, she has endeavored in activities for developing personnel who are active on the world stage. She is expected to provide valuable advice for building a Group environment where a diverse workforce can thrive in appropriate positions, starting with ensuring the effective functioning of the Board of Directors and promoting the active participation of women.

Board of DirectorsAttended 14 of 14 meetings

Outside Audit & Supervisory Board Members

Mitsuaki Nakakubo

Present position from June 2015

He is an attorney who has been active in a wide range of corporate legal matters. He also has deep insight into corporate governance and compliance systems. He is expected to play an extensive role in monitoring the decision-making and business execution of the directors, from an objective and expert perspective.

Board of DirectorsAttended 14 of 14 meetingsAudit & Supervisory BoardAttended 15 of 15 meetings

Hiroyuki Muneta


Through his activities as a certified public accountant and licensed tax accountant over the years, he has acquired abundant expertise related to financial affairs, accounting, and corporate management. He is expected to point out risks and provide advice relating to corporate management, based on a wide range of knowledge relating to finance, accounting, and corporate management.

Board of DirectorsAttended 13 of 14 meetings Audit & Supervisory BoardAttended 14 of 15 meetings

*Note: Haruko Hirose’s legal name is Haruko Makinouchi.

ESG Initiatives


assessment of the Company’s performance, as well as the nature and

execution of each director’s duties, to appropriately compensate the

performance of the directors, who continuously strive to enhance our

corporate value. In addition, a draft of the compensation of directors is

explained to independent outside officers in advance, and after receiving

their advice, is submitted to the Board of Directors.

The specific determination of director compensation is the discretion

of the President & CEO at the Board of Directors, on the premise that the

decision will be based on the above-mentioned policy.

(Millions of yen, people)

ExecutiveCategory

Total Compen-sation Amount

Basic Compensation

StockOption

BonusNumber of People

Directors 172 89 32 50 8

Audit & Supervisory Board Members

29 29 — — 3

Of which, Outside Directors and Outside Audit & Supervisory Board Members

33 33 — — 4

Internal Control SystemTo ensure that the execution of duties by the directors and employees of

the Group conforms to laws, regulations, and the Articles of Incorporation,

the Group has formed a company-level Internal Control Committee,

chaired by the executive officer in charge of internal controls. Moreover,

we have formed the Risk Management and Compliance Committee

to promote and drive risk management operations in the Group, and

have established a system to support the handling and resolution of

emergency situations in case a serious risk occurs. Furthermore, a

“whistle-blowing system” in place both in Japan and overseas allows

employees of the Group to make reports directly and either anonymously

or in their own names to experts such as outside attorneys, in the event

that an illicit act such as violation of laws and regulations is discovered

within the Group.

ComplianceThe Group has established the “Nikkiso Group Global Code of Conduct”

as its highest set of standards, to ensure that we consistently remain in

compliance and continue to fulfill our social responsibilities. This code

applies Groupwide, both in Japan and overseas. To raise employees’

awareness of compliance, including ensuring that all employees are

mindful of this code of conduct, we provide compliance education to

employees Groupwide, utilizing e-learning and other means. In addition

to establishing anti-bribery and other compliance-related regulations,

we strive to create a compliance system that includes the adoption and

rollout of a Groupwide whistle-blowing system.

Internal Audits and Audits of Audit & Supervisory Board

MembersThe Nikkiso Group has formed an Internal Audit Department under

the direct control of the President, as an internal auditing body to

conduct internal audits. The Internal Audit Department and the audit

& supervisory board members regularly exchange information and

opinions, and additionally exchange opinions and deliberate with the

accounting auditor on a regular basis or as needed.

Information DisclosureThe department responsible for IR has been established to disclose

information to shareholders, investors, and others, and is overseen by

the officer in charge of IR. The officer in charge of IR and others strive

to provide necessary and useful information in a timely and appropriate

manner, by working in close cooperation with the General Affairs

Department, Accounting & Finance Department, Legal Department,

Human Resources Department, and other departments, each of which

has necessary and constructive information relating to IR. The officer in

charge of IR reports useful information, opinions, and advice received

from shareholders to top executives and the Board of Directors regularly

or as appropriate. The general managers of business units and general

managers of divisions manage insider information as “manager

of information,” following the “Insider Information Management

Regulations.” The officer in charge of IR and others are able to confirm

the insider information registered in the database in advance, before

engaging in dialogue with shareholders, investors, and others. In this

manner, we are able to maintain a mechanism that prevents insider

information from unintentionally being leaked.


Board of Directors and Audit & Supervisory Board MembersAs of April 1, 2020

Toshihiko KaiPresident & Chief Executive Officer

Feb. 1996 General Manager of Dai-Ichi Kangyo Bank Nederland N.V.

Mar. 2000 Joined the CompanyApr. 2001 Executive Officer of the CompanyApr. 2002 President, Medical Equipment Unit

(currently Medical Division) of the CompanyJune 2003 Director of the Company (present position)Dec. 2004 President & CEO of the Company (present

position)

Shoichi NagatoDirector, Executive Officer

Oct. 1987 Joined the CompanyApr. 2006 General Manager of the Planning and Sales

Department, Composite Materials Unit (currently Aerospace Division) of the Company

Apr. 2009 Executive Officer (present position), General Man-ager of Aerospace Division of the Company

Mar. 2016 President & Representative Director, Nikkiso Giken Co., Ltd. (the Company’s consolidated subsidiary)

Oct. 2016 General Manager of Precision Equipment Division of the Company

Dec. 2017 General Manager of Aerospace Division of the Company (present position)

Jan. 2019 General Manager of Aerospace Business Unit of the Company (present position), Chairman, Nikkiso Vietnam, Inc. (the Company’s consolidated subsidiary in Vietnam) (present position)

Mar. 2019 Director of the Company (present position)

Susumu KoitoDirector, Executive Officer

Apr. 1981 Joined the CompanyApr. 2006 General Manager of Accounting & Finance

Department of the CompanyApr. 2007 General Manager of Human Resources Depart-

ment of the CompanyJuly 2011 General Manager of Administration Division,

General Manager of Human Resources Depart-ment of the Company

Apr. 2012 Executive Officer (present position), General Manager of Administration Division, and General Manager of Human Resources Department of the Company

Jan. 2019 General Manager of Corporate Unit of the Company (present position)

Mar. 2020 Director of the Company (present position)

Masaru YamamuraDirector, Executive Officer

Nov. 1990 Joined the CompanyOct. 2009 General Manager of Business Promotion Depart-

ment, Medical Division of the CompanyJuly 2012 General Manager of Osaka Branch of the CompanyApr. 2017 General Manager of Industrial Division of the

Company (present position)Jan. 2018 Executive Officer of the Company (present position)Jan. 2019 General Manager of Industrial Business Unit of the

Company (present position)Mar. 2019 Director of the Company (present position)

Yoshihiko KinoshitaDirector, Executive Officer

Apr. 1989 Joined the CompanyApr. 2009 General Manager of Market Development

Department, Medical Division of the CompanyOct. 2011 Deputy General Manager of Medical Division of

the CompanyJan. 2016 General Manager of Medical Division of the

Company (present position)Oct. 2016 Director, Vice Chairman, Weigao Nikkiso (Weihai)

Dialysis Equipment Co., Ltd. (the Company’s equity method affiliated company in China) (present position)

Jan. 2017 Executive Officer of the Company (present position)Mar. 2017 Director in charge of Medical Business of the

Company (present position)Oct. 2017 CEO and Managing Director of Nikkiso Europe

GmbH (consolidated subsidiary in Germany)Jan. 2019 General Manager of Medical Business Unit of

the Company (present position)

Eisuke NagatomoOutside Director

Apr. 1971 Joined Tokyo Stock ExchangeDec. 2005 Senior Executive Officer, Tokyo Stock Exchange,

Inc. (Chief Self-Regulatory Officer)Oct. 2007 President & CEO, EN Associates Co., Ltd. (present

position)June 2010 Outside Director, Miroku Jyoho Service Co., Ltd.

(present position)June 2012 Outside Audit & Supervisory Board Member of the

CompanyJune 2016 Outside Audit & Supervisory Board Member, Nidec

Corporation (present position)Mar. 2018 Outside Director of the Company (present position)June 2018 Public Interest Director, Japan Financial Services

Association (present position)

Haruko HiroseOutside Director

Dec. 1968 Appointed to the National Personnel Authority of JapanJan. 1992 Director, Bureau of Human Resources Management of

Headquarters, United Nations Educational, Scientific and Cultural Organization (UNESCO)

Sept. 2002 Deputy to the Director General and Managing Director of Programme Coordination and Field Operations Division, United Nations Industrial Development Organization (UNIDO)

Nov. 2006 Japanese Ambassador Extraordinary and Plenipotentiary to Kingdom of Morocco

May 2014 President, Japan Morocco Association (present position)June 2016 Outside Director, S&B Foods Inc. (present position)Mar. 2018 Outside Director of the Company (present position)

Board of Directors


Toshiaki MitsumiAudit & Supervisory Board

Member

Akira OhsawaAudit & Supervisory Board

Member

Sept. 2005 Assistant General Manager of Sales and Adminis-trative Division at Head Office, Mizuho Corporate Bank, Ltd. (currently Mizuho Bank, Ltd.)

Dec. 2007 Joined the CompanyApr. 2013 General Manager of Medical Administration

Department, Medical Division of the CompanyJan. 2015 General Manager of Industrial Administration

Department, Industrial Division of the CompanyApr. 2015 Auditor, Shanghai Nikkiso Non-Seal Pump Co., Ltd.

(the Company’s consolidated subsidiary in China)Jan. 2016 General Manager of Sales Division of the CompanyApr. 2017 General Manager of Administration Department,

Corporate Planning Division of the CompanyMar. 2019 Audit & Supervisory Board Member of the

Company (present position)

Apr. 1982 Joined the CompanyApr. 2010 General Manager of Instrumentation Sales

Department, Industrial Division of the CompanyJan. 2016 General Manager of Electricity System Depart-

ment, Industrial Division of the CompanyDec. 2017 General Manager of Precision Equipment Division

of the CompanyJan. 2019 Executive Officer, General Manager of Precision

Equipment Division of the CompanyJan. 2020 In charge of Precision Equipment Business,

Industrial Division of the CompanyMar. 2020 Audit & Supervisory Board Member of the

Company (present position)

Mitsuaki NakakuboOutside Audit &

Supervisory Board Member

Hiroyuki MunetaOutside Audit &

Supervisory Board Member

Apr. 1995 Registered as an attorney of Japan (affiliated with the Daini Tokyo Bar Association) (to present)

Apr. 2001 Partner, Asahi Law Offices (present position)June 2008 Substitute Outside Audit & Supervisory Board

Member of the CompanyOct. 2011 Auditor, Bicycle Parking Facilities Provision

Foundation, a public interest incorporated foundation (present position)

June 2015 Outside Audit & Supervisory Board Member of the Company (present position)

June 2017 Outside Audit & Supervisory Board Member, Nippon Kodo Holdings Co., Ltd. (present position)

June 2019 Outside Director, FANCL CORPORATION (present position)

Oct. 1985 Joined Aoyama Audit Corporation, Price Water-house as a Junior Accountant

Mar. 1989 Registered as a certified public accountant (to present)

July 1989 Left Aoyama Audit Corporation, Price WaterhouseJuly 1989 Joined BDO Sanyu & Co.Apr. 1997 Registered as a licensed tax accountant

(to present)Aug. 1997 Established Muneta Certified Public Accounting

Office (currently Ichiban-cho Joint Accounting Office) as Managing Partner (present position)

Apr. 1999 Representative Director, Biotech System Machin-ery Co., Ltd. (present position)

Mar. 2018 Outside Audit & Supervisory Board Member of the Company (present position)

Aug. 2019 Outside Audit & Supervisory Board Member, InterPia Co. Ltd. (present position)

Audit & Supervisory Board Members

Executive Officers

Kyosuke WatanabeGeneral Manager, Administration Division,

General Manager, Corporate Planning Division

Kenji TomuraGeneral Manager, Nishinihon Branch

Motohiro TakeuchiGeneral Manager, Research & Engineering Institute

General Manager, Biomedical Engineering Center

Takayoshi IzumiGeneral Manager, Medical Factory, Kanazawa Plant

Tateki NakamuraGeneral Manager, Higashinihon Branch


Other 4.2

Europe 30.1

North America 29.6

Asia 41.4

200

160

120

80

40

0

80

60

40

20

03/2011 3/2012 3/2013 3/2014 3/2015 12/2015 12/2016 12/2017 12/2018 12/2019

JGAAP

3/2011 3/2012 3/2013 3/2014 3/2015 12/2015(9 months)

Orders ¥ 84,536 ¥ 94,921 ¥103,409 ¥122,325 ¥133,751 ¥113,059Net sales 83,143 90,137 103,670 121,548 129,255 110,218Gross profit 26,920 29,625 34,239 43,953 47,912 40,856Selling, general and administrative expenses 21,521 23,044 26,757 34,530 41,792 37,012Operating income 5,398 6,580 7,481 9,423 6,120 3,844Ordinary income 4,658 6,370 8,945 11,330 8,960 3,964Net income attributable to owners of the parent 2,684 3,317 6,897 5,897 5,099 2,031

Capital investments ¥ 2,028 ¥ 3,242 ¥ 4,377 ¥ 9,093 ¥ 7,467 ¥ 4,828Depreciation expenses 2,802 2,738 2,841 3,452 4,982 4,738R&D expenses 1,150 1,125 1,433 1,889 1,811 1,688

Total assets ¥122,009 ¥118,234 ¥138,345 ¥161,283 ¥181,187 ¥177,646Net assets 49,039 50,392 58,558 67,372 74,464 71,142Interest-bearing debt and bonds 51,924 44,332 49,844 56,737 70,302 69,843

Cash flowsCash flows from operating activities ¥ 6,004 ¥ 3,961 ¥ 8,398 ¥ 5,587 ¥ 8,183 ¥ 3,265Cash flows from investing activities (609) (3,325) (324) (15,966) (9,046) (4,635)Cash flows from financing activities 6,623 (10,242) 3,653 2,047 11,578 (1,209)

Per share information (yen)Net assets ¥ 605.46 ¥ 639.98 ¥ 742.03 ¥ 853.06 ¥ 945.30 ¥ 904.40Net income attributable to owners of the parent 33.86 42.47 89.41 76.46 66.12 26.34Cash dividend 12.00 12.00 14.00 16.00 16.00 16.00

RatioEquity ratio (%) 39.3 41.8 41.4 40.8 40.2 39.3Return on equity (ROE) (%) 5.7 6.8 12.9 9.6 7.4 2.8Return on assets (ROA) (%) 3.9 5.3 7.0 7.6 5.2 2.2Payout ratio (%) 35.4 28.3 15.7 20.9 24.2 60.7Debt/equity ratio (times) 1.08 0.90 0.87 0.86 0.96 1.00Number of employees 4,820 5,185 5,408 6,198 6,389 6,558

Financial Information

Trends in Overseas Revenue

(9 months)

JGAAP IFRS(%)(Billions of yen)

Overseas revenue ratio64%


2.5

2.0

1.5

1.0

0.5

0

150

120

90

60

30

012/2016 12/2017 12/2018 12/2019

15

12

9

6

3

012/2016 12/2017 12/2018 12/2019

100

80

60

40

20

0

(Millions of yen) IFRS (Millions of yen)

12/2016 12/2016 12/2017 12/2018 12/2019

¥130,980 Orders ¥129,209 ¥ 140,412 ¥ 172,492 ¥ 167,034 132,890 Revenue 130,045 140,912 165,326 165,78045,225 Gross profit 44,855 48,608 56,977 54,78340,332 Selling, general and administrative expenses 37,374 42,218 47,123 43,9174,893 Operating profit 8,117 8,718 10,302 12,4664,201 Profit before tax 6,801 8,310 9,741 11,3812,729 Profit for the year attributable to owners of the Company 4,883 5,182 7,448 6,813

¥ 7,635 Capital expenditure ¥ 7,635 ¥ 7,508 ¥ 12,869 ¥ 7,220 5,150 Depreciation and amortization 4,766 5,246 6,335 8,9941,679 Research and development expenditure 1,679 2,435 2,387 2,346

¥175,457 Total assets ¥177,717 ¥ 244,692 ¥ 249,788 ¥ 252,984 65,533 Total equity 67,664 76,787 78,338 83,41369,488 Interest-bearing debt and bonds 69,884 122,528 117,052 104,731

Cash flows¥ 12,608 Net cash generated by operating activities ¥ 13,400 ¥ 4,915 ¥ 14,076 ¥ 11,996

(7,400) Net cash used in investing activities (7,993) (48,058) (12,218) (5,145)(6,052) Net cash generated by/used in financing activities (6,251) 51,015 (5,771) (15,534)

Per share information (yen)¥ 902.45 Equity attributable to owners of the Company per share ¥ 932.67 ¥1,053.16 ¥1,074.83 ¥1,143.26

36.93 Earnings per share (Basic) 66.08 72.82 104.63 95.6816.00 Dividends 16.00 16.00 18.00 20.00

Ratio36.6 Equity ratio (%) 37.4 30.7 30.7 32.24.1 Return on equity (ROE) (%) 7.2 7.3 9.8 8.62.4 Return on asset (ROA) (%) 3.8 3.9 3.9 4.5

43.3 Dividend payout ratio (%) 24.2 22.0 17.2 20.91.08 Debt/equity ratio (times) 1.05 1.63 1.53 1.28

6,870 Number of employees 6,870 7,872 8,169 8,491

Total Equity/ROE Interest-Bearing Debt and Bonds & D/E Ratio

(Billions of yen)

Total equity

(Billions of yen)

Interest-bearing debt and bonds

(%)

ROE

(Times)

Debt/equity ratio

83.4

8.6

1.28

104.7


Management’s Discussion and Analysis

Overview of Operating PerformanceIn the fiscal year ended December 31, 2019, the Company booked

orders of ¥167,034 million (–3.2% year on year), revenue of ¥165,780

million (+0.3%), operating profit of ¥12,466 million (+21.0%), profit

before tax of ¥11,381 million (+16.8%), and profit for the year

attributable to owners of the Company of ¥6,813 million (–8.5%).

In the Industrial Business, amid an ongoing recovery trend in

investment in the oil and gas markets, LEWA GmbH saw both revenue

and profit increase year on year, reflecting a steady recovery of inquiries

in its core upstream field business, a contribution from the downstream

field, and strengthened after-sales services. Moreover, the CI Group

saw strong sales of its LNG-related products with brisk inquiries for

large cryogenic pumps from regions around the world in response to

growth in the LNG market. The Industrial Division overall saw revenue

decline due to a decrease in projects for the Middle East and foreign

exchange impacts caused by the depreciation of the euro. Nevertheless,

the division increased profit due to the improved performance of LEWA

and the CI Group. The Precision Equipment Division saw year-on-year

decreases in both orders and revenue, mainly due to the transfer of the

particle analysis instruments business. The Aerospace Division recorded

year-on-year increases in orders and revenue, as both trended firmly, but

profit decreased due to increased expenses associated with the start-

up of the Aerospace Factory in Miyazaki. The Deep UV-LEDs Division

recorded revenue from licenses under a contract in a joint venture

and development contract fees from the third quarter. As a result, the

Industrial Business overall recorded lower revenue and higher profit

compared with those of the previous fiscal year.

In the Medical Business, revenue increased year on year. Although

equipment sales struggled due to a longer replacement purchase cycle

for hemodialysis machines in the domestic market, equipment sales

for overseas markets such as China and Europe remained firm, and

domestic sales of disposables also increased. On the profit front, due

to increased expenses for product development and recognition of

impairment loss in the continuous renal replacement therapy (CRRT)

business, the Medical Business overall saw profit decrease despite

higher revenue.

We also recorded a gain on the sale of shares of the particle

analysis instruments business. As a result, the Company overall recorded

higher revenue and profit year on year.

Overview of Business DivisionsIndustrial Division

In the oil-related business, orders continue to increase, mainly for

floating production storage and offloading (FPSO) facilities. The

improvement is due to a restart of upstream capital investment for crude

oil and gas exploration following an increase in prices from the second

half of 2017, despite uncertainty over the future direction of crude

oil prices. In the petrochemicals market, which forms the middle and

downstream fields, investment started to be curbed from the second

half of the year due to a deceleration in the petrochemicals industry

caused in part by trade friction between the United States and China. In

this environment, LEWA saw revenue and profit increase year on year.

The results reflected a recovery in inquiries in the upstream field and

the successful expansion of sales in the downstream field and, with

strengthened after-sales services, led to improved profitability.

In the industrial gas and LNG-related business, the global LNG market

expansion trend is accelerating, and inquiries remain strong for our large

cryogenic pumps used in LNG import terminals and floating LNG storage

regasification units (FSRUs). In the CI Group, revenue and profit grew year

on year, reflecting growth in sales of LNG-related products coupled with

reduced depreciation expenses. However, orders decreased as the order

receipt of a major project was shifted to the next period.

The Industrial Division overall saw revenue decline year on year

due to a decrease in projects for the Middle East and foreign exchange

impacts caused by the depreciation of the euro. Nevertheless, the

division increased profit due to the improved performance of LEWA and

the CI Group. Looking ahead, we aim to expand sales by strengthening

our unified Group approach to the market and by promoting sales

strategies. We will also bolster our ability to keep up with increased

LNG demand with a new cryogenic pump testing facility in Miyazaki

and increase our technological capabilities and production capacity by

constructing the Industrial Factory in Miyazaki.


In power plant-related equipment, despite a slump in domestic markets,

we are receiving more overseas inquiries about water-conditioning

systems, mainly for Southeast Asia, and strengthening our sales

activities with our subsidiary in Taiwan. In electronic components

production equipment, orders decreased due to a slowdown in the

electronic components markets. However, production and shipments

of existing orders proceeded smoothly. In the electronic components

industry, the downturn in demand shows signs of hitting bottom, and

capital investment is expected to recover. Going forward, we expect

orders for the Company’s equipment to increase due to global expansion

in demand for such things as 5G mobile communication systems. As a

result of transferring the particle analysis instruments business during

the third quarter, the Precision Equipment Division saw overall orders

and revenue decrease year on year.

Aerospace Division

Demand for commercial aircraft, centered on short-haul airplanes

(single-aisle airplanes), continued to expand, mainly in Southeast Asia,

and the Company is seeing a steady increase in inquiries. In fiscal

2019, the division saw growth in shipments of its mainstay cascades

and engine parts in the absence of any major impact on shipments of

products for the 737 MAX series of Boeing in the United States. As a


result, revenue increased, but profit decreased, mainly due to increased

expenses such as depreciation for the Aerospace Factory in Miyazaki,

completed the previous year. In the future, the division will continue to

consolidate and optimize its domestic production bases and production

system, while working to increase its profitability by achieving stable

operations at the Aerospace Factory in Miyazaki and utilizing the second

factory in Vietnam.

In other areas, the Deep UV-LEDs Division established NKFG

Corporation as a joint venture with the Formosa Plastics Group, and

preparations are under way for mass production of products and its R&D

framework. Moreover, since the third quarter, the division has recorded

revenue from licenses with NKFG Corporation and development contract

fees. Looking ahead, we aim to create new businesses by expanding our

lineup of products with world-leading technologies, such as those for air

purifiers and flowing water disinfection modules that use deep UV-LEDs.

Medical Division

The domestic hemodialysis market saw lackluster sales of hemodialysis

machines, mainly due to the medical industry waiting to see the effect of

revised medical service fees and the impact of an accompanying longer

replacement purchase cycle for hemodialysis machines. Nevertheless, a

new model that went on sale from the third quarter is seeing growth in

inquiries after being highly rated by customers for safety, convenience

of treatment, and economic efficiency. Meanwhile, sales of disposables

in general grew, mainly blood tubing lines and powder of dialysate

concentrate, which can provide added value in combination with the

Company’s hemodialysis machines. In overseas markets, sales of

hemodialysis machines showed a solid trend in China, where dialysis

therapy is spreading and the market continues to expand. In Europe, the

Company’s hemodialysis machines continued to earn positive feedback

from customers and maintained a steady sales trend. The hemodialysis

business overall recorded higher revenue but lower profit year on year,

mainly due to increased product development expenses.

In the CRRT business, sales of machines and disposables were

strong in the main market of China but unable to absorb downturns in

other areas. Furthermore, a downturn in business performance resulted

in an impairment loss of approximately ¥2.1 billion in the third quarter.

Looking ahead, we will promote increased market penetration and

the spread of the new Si Series hemodialysis machines in the domestic

market, while strengthening our service systems. In overseas markets,

our hemodialysis machines have been highly evaluated for functionality

in Europe, Southeast Asia, China, and the United States. In these

markets, we will establish bases and strengthen relationships with local

partners with a view toward expanding sales of our newly developed

hemodialysis machine, the DBB-EXA ES. Moreover, to keep pace with

growing market demand, we will expand our production capacity for

hemodialysis machines and blood tubing lines. In the new business field

of the Acrosurg. microwave surgical instrument, we aim to expand the

market by strengthening our lineup by launching a device for laparoscopic

surgery and by commencing sales in the field of veterinary medicine.

Research and DevelopmentThe Nikkiso Group spends heavily on research and development to

create new products and technologies that address the needs of

customers, applying innovative technologies in each business domain.

As for the industrial field, in the Industrial Division, we are pursuing

development of hydrogen pumps for fuel cell vehicles with an eye on

future energy shifts. We are also working to improve the function and

efficiency of the large pumps used in LNG liquefaction bases and import

terminals, and develop canned motor pump models that comply with

international specifications for use in a wide range of fields such as

petrochemicals, oil refining, electric power, food, semiconductors, and

air conditioning. In the Aerospace Division, we are working proactively

to develop new applications for carbon fiber reinforced plastic (CFRP)

molding products that help reduce fuel consumption and CO2 emissions

in jet engines for commercial aircraft. We are also working to develop

and commercialize new materials (resin, fiber) and new manufacturing

methods through independent development and joint research. In the

Deep UV-LEDs Division, we are making progress on developing products

such as air purifiers and flowing water disinfection modules.

In the medical field, we are developing products that can offer

dialysis therapy with even greater peace of mind, safety, and reliability

to help medical institutions and patients. We are engaging in basic

research on next-generation dialysis therapy and working to enhance

the functionality of dialysis machines and develop the next-generation

models. In new business fields, we are also working on projects such as

the development of surgical instruments that use microwaves. Total R&D

expenses for fiscal 2019 came to ¥2,346 million.

Financial PositionAs of December 31, 2019, total assets were ¥252,984 million, an

increase of ¥3,196 million compared with those of a year earlier, mainly

due to an increase in right-of-use assets following the adoption of IFRS 16.

Total liabilities were ¥169,571 million, a decrease of ¥1,878 million,

mainly reflecting a decrease in borrowings.

Total equity was ¥83,413 million, an increase of ¥5,074 million,

mainly due to an increase in retained earnings from the booking of profit

for the year attributable to owners of the Company.

Cash Flows

As of December 31, 2019, cash and cash equivalents totaled ¥20,303

million, a decrease of ¥8,965 million from that of the end of the previous

fiscal year.

Net cash generated by operating activities was ¥11,996 million,

mainly reflecting the recording of profit before tax.

Net cash used in investing activities was ¥5,145 million, mainly for

the purchase of property, plant and equipment.

Net cash used in financing activities was ¥15,534 million, mainly for

the repayment of borrowings.


Capital Expenditure and Depreciation and Amortization

In fiscal 2019, capital expenditure totaling ¥7,220 million was mainly

allocated to the expansion of production capacity, including investments

in facility upgrades and streamlining.

By segment, in the Industrial Business, we invested a total of ¥5,017

million, mainly for expanding production facilities at the Aerospace

Factory in Miyazaki, introducing a production management system in

Japan, newly establishing and expanding capacity of production facilities

at one of our Hanoi factories in Vietnam for products such as carbon

fiber reinforced plastic (CFRP) molding products, and expanding capacity

at our reciprocating pump production facilities in Germany.

In the Medical Business, we invested a total of ¥1,905 million

in enhancing R&D equipment at our Research & Engineering

Institute, upgrading production facilities and introducing a production

management system at the Kanazawa Plant, and boosting production

capacity at factories in Thailand and Vietnam that manufacture our blood

tubing lines. In addition, Company-wide investments amounting to ¥297

million were mainly for new installation and improvement of production

management equipment.

There were no disposals or sales of major property or equipment in

fiscal 2019.

Depreciation and amortization came to ¥8,994 million.

Shareholder Return PolicyNikkiso’s basic capital policy is to achieve sustained growth and improve

corporate value over the medium to long term while pursuing an optimal

balance of financial strength, capital efficiency, and shareholder returns.

With the basic recognition that consistent and stable shareholder returns

are a key pillar of our capital policy, management endeavors to return

profits to shareholders using a comprehensive assessment of business

performance and the operating environment, while appropriately

reinvesting internal reserves for nurturing new businesses and

strengthening the production system.

In the fiscal year ended December 31, 2019, Nikkiso paid an annual

dividend of ¥20 per share. In the fiscal year ending December 31, 2020,

the Company plans to pay an annual dividend of ¥20 per share again.

Forecasts for Fiscal 2020In promoting the medium-term business plan “Nikkiso 2020,” which

started in fiscal 2016, we strengthened the LNG-related business by

purchasing the CI Group and accelerated growth investments such as

the construction of new factories in Miyazaki and Vietnam. In addition,

we reallocated management resources, mainly by selling unprofitable

businesses and peripheral business with relatively low affinity to our

core operations. These measures have established clear paths to growth

for each business segment. Meanwhile, the challenges that need to be

overcome to cement that growth have now been thrown into sharp relief,

and we have formulated a new six-year business plan, “Nikkiso 2025”

(target period: 2020–2025), which reflects our recognition of changes in

the external environment and issues in Japan and overseas. For the first

three years of “Nikkiso 2025,” our focus is primarily on “strengthening

our business bases.” In this phase, we will continue the future-looking

initiatives started under “Nikkiso 2020” to enhance our technological

capability and reorganize our production system, while bolstering the

business promotion structure globally, in both Japan and overseas. In the

last three years, we plan to realize the achievements of these measures,

aiming to have revenue of ¥250.0 billion and operating profit of ¥20.0

billion in fiscal 2025, the final year of the plan.

The halfway point of the new six-year business plan, “Nikkiso 2025,”

will be in 2022. By that time, we aim to convert the Higashimurayama

Plant into a research and development base and bolster the production

capacity of the Kanazawa Plant. To this end, in fiscal 2020, the first year

of the plan, we will carry out strategies centered on strengthening our

business bases, such as constructing the Industrial Factory in Miyazaki

and converting our Shizuoka facility into a distribution base. The increase

in investments and expenses required for upgrading the production

bases will weigh on profits during this phase. However, the Company’s

core businesses, such as the LNG-related business, the hemodialysis

business, and the aircraft-related business, will continue to grow globally.

By continuing to steadily execute the measures that we need to take, we

aim to achieve sustainable growth and increase corporate value.

In light of this situation, our consolidated earnings forecasts for

fiscal 2020 are as follows.

(Millions of yen)Fiscal 2019

resultsFiscal 2020forecasts Change

Orders 167,034 177,000 +6.0%

Revenue 165,780 174,000 +5.0%

Operating profit 12,466 11,000 –11.8%

Profit before tax 11,381 10,000 –12.1%

Profit for the year attributable to owners of the Company

6,813 6,000 –11.9%

50

40

30

20

10

012/2017 12/2018 12/2019 12/2020

25

20

15

10

5

0

Dividend per Share

(Yen)

Interim dividend

Year-end dividend

(%)

Payout ratio

(forecasts)

10

23.7%

10


Business Risk

Business and Other RisksThe following are recognized as the main risk factors that could

adversely affect the business results, stock price, and financial condition

of the Nikkiso Group. Please note also that forward-looking statements

herein represent the expectations of the Group as of the end of the fiscal

period described in this report.

Changes in Product Markets

Our principal customers in the industrial sector are in such industries

as energy, petrochemicals, and power generation. Shrinking demand or

a decline in competitiveness in these industries could have a negative

impact on the Nikkiso Group’s operating performance and financial

position. Furthermore, aircraft industries account for the majority of the

Group’s customers in the Aerospace Business. Should an incident such

as a synchronized terrorist attack that substantially impacts aircraft

demand occur, the Nikkiso Group’s operating performance and financial

position could be negatively affected.

Medical Insurance

In the Medical Business, government regulations on medical insurance

affect dialysis-related markets, which are key sources of sales. Such

regulation can have both direct and indirect effects on the markets

and prices for products in this business. If markets were to shrink or

prices to fall as a result of changes in government policies, the Nikkiso

Group’s operating performance and financial condition could be

negatively affected.

Fluctuations in Currency Exchange Rates

The assets and liabilities of the Nikkiso Group’s overseas subsidiaries are

denominated in foreign currencies, and the Group has foreign currency

sales, purchases, assets, liabilities, and other items that are converted

into Japanese yen when preparing its consolidated financial statements.

Fluctuations in the exchange rates for the major non-yen currencies,

notably the U.S. dollar and the euro, could affect the Nikkiso Group’s

operating performance and financial condition. For the Nikkiso Group as

a whole, the Nikkiso Group’s foreign currency sales exceed its purchases

that are denominated in foreign currencies, and foreign currency assets

outweigh foreign currency liabilities. As a result, appreciation of the

Japanese yen against these currencies could have a negative effect on

the Nikkiso Group’s operating performance and financial condition.

Overseas Production

As overseas sales grow in relation to the Nikkiso Group’s total sales,

its overseas production ratio is also rising. In the Industrial Business,

we manufacture pump products mainly in Germany and the United

States, some parts in China, Taiwan, and other countries. The Company

manufactures some aircraft components in Vietnam, as well. In the

Medical Business, the Group manufactures disposables such as blood

tubing lines in Vietnam and Thailand, and some dialysis machines

through a joint venture in China. Accordingly, changes in laws and

regulations or changes in political and economic conditions in those

regions could affect normal company operations and production activities

at overseas subsidiaries. Such changes could have a negative effect on

the Nikkiso Group’s operating performance and financial condition.

Performance of Overseas Subsidiaries

The Nikkiso Group acquires and invests in companies and businesses

in Japan and overseas in an effort to enhance its lineup of products and

technologies in existing businesses, reinforce sales routes, and acquire

new businesses. The Nikkiso Group believes that such acquisitions and

investments will strengthen its operations and lead to higher growth in

the future. However, if the performance of such businesses were to fall

significantly, the Nikkiso Group’s performance and financial condition

could be negatively affected.

Other

In addition to the factors described above, should certain events such as

a downturn in the global economic environment or a large-scale natural

disaster that would significantly affect the Group’s operating environment

occur, the Nikkiso Group’s operating performance and financial position

could be negatively affected.


Consolidated Statement of Financial Position

(Millions of yen) (Thousands of U.S. dollars)

12/2018 12/2019 12/2019

AssetsCurrent assets

Cash and cash equivalents ¥ 29,269 ¥ 20,303 $ 185,322Trade and other receivables 54,077 53,256 486,096Other short-term financial assets 1,107 468 4,274Inventories 33,297 35,523 324,241Income tax refund receivable 186 470 4,294Other current assets 3,403 2,997 27,359

Total current assets 121,342 113,020 1,031,588

Non-current assetsProperty, plant and equipment 44,920 41,849 381,980Goodwill and Intangible assets 64,255 61,105 557,733Right-of-use assets 14,696 134,141Investments accounted for using the equity method 1,299 2,947 26,899Long-term financial assets 13,825 15,392 140,491Deferred tax assets 2,735 3,315 30,265Other non-current assets 1,409 657 5,999

Total non-current assets 128,446 139,964 1,277,511Total assets ¥249,788 ¥252,984 $2,309,099

Liabilities and equityLiabilities

Current liabilitiesShort-term borrowings ¥ 40,056 ¥ 21,680 $ 197,888Trade and other payables 27,380 28,231 257,681Lease liabilities 2,550 23,275Other short-term financial liabilities 626 820 7,490Income taxes payable 1,977 869 7,932Provisions 1,347 1,355 12,374Other current liabilities 15,658 12,117 110,606

Total current liabilities 87,045 67,625 617,248

Non-current liabilitiesLong-term borrowings 76,996 83,050 758,038Lease liabilities 11,830 107,979Other long-term financial liabilities 1,050 949 8,668Net defined benefit liabilities 3,217 3,315 30,261Provisions 213 284 2,600Deferred tax liabilities 2,807 2,399 21,904Other non-current liabilities 118 115 1,053

Total non-current liabilities 84,404 101,946 930,505Total liabilities 171,450 169,571 1,547,753

EquityShare capital 6,544 6,544 59,732Capital surplus 11,069 11,001 100,411Treasury shares (2,544) (2,519) (22,993)Other components of equity 1,851 1,447 13,208Retained earnings 59,703 65,063 593,864Equity attributable to owners of the Company 76,624 81,537 744,224Non-controlling interests 1,714 1,875 17,121

Total equity 78,338 83,413 761,346Total liabilities and equity ¥249,788 ¥252,984 $2,309,099


Consolidated Statement of Profit or Loss


12/2018 12/2019 12/2019

Revenue ¥ 165,326 ¥ 165,780 $ 1,513,150

Cost of sales (108,349) (110,997) (1,013,121)

Gross profit 56,977 54,783 500,028

Selling, general and administrative expenses (47,123) (43,917) (400,857)

Other income 805 4,354 39,749

Other expenses (356) (2,753) (25,135)

Operating profit 10,302 12,466 113,785

Financial income 528 523 4,774

Financial costs (1,355) (1,345) (12,284)

Share of profit (loss) of associates and joint ventures accounted for using the equity method 266 (262) (2,395)

Profit before tax 9,741 11,381 103,879

Income tax expenses (2,146) (4,345) (39,665)

Profit for the year 7,595 7,035 64,214

Profit for the year attributable to:

Owners of the Company 7,448 6,813 62,191

Non-controlling interests 146 221 2,023

Profit for the year ¥ 7,595 ¥ 7,035 $ 64,214

Earnings per share (Yen or U.S. dollars) (Yen) (U.S. dollars)

Basic ¥ 104.63 ¥ 95.68 $ 0.87

Diluted ¥ 97.09 ¥ 95.53 $ 0.87

Consolidated Statement of Other Comprehensive Income(Millions of yen) (Thousands of U.S. dollars)

12/2018 12/2019 12/2019

Profit for the year ¥ 7,595 ¥ 7,035 $ 64,214

Other comprehensive income

Items that will not be reclassified subsequently to profit or loss

Financial assets measured at fair value through other comprehensive income (1,207) 1,012 9,238Remeasurements of defined benefit pension plans (39) (90) (826)Share of other comprehensive income (loss) of associates and joint ventures accounted for using the equity method

3 (2) (22)

Total (1,244) 919 8,389Items that may be reclassified subsequently to profit or loss

Exchange differences on translation of foreign operations (2,885) (1,201) (10,965)Gain (loss) on cash flow hedges (294) (105) (966)Share of other comprehensive income (loss) of associates and joint ventures accounted for using the equity method

(59) (9) (86)

Total (3,239) (1,316) (12,018)Other comprehensive income, net of tax (4,483) (397) (3,628)

Total comprehensive income for the year 3,111 6,637 60,585

Total comprehensive income for the year attributable to:

Owners of the Company 2,991 6,319 57,677Non-controlling interests 119 318 2,908

Total comprehensive income for the year ¥ 3,111 ¥ 6,637 $ 60,585


Consolidated Statement of Changes in Equity

(Millions of yen)

Equity attributable to owners of the Company

Non-controlling interests

Total equitySharecapital

Capitalsurplus

Treasuryshares

Other components of equity

Retained earnings

Total

Financial assets measured at fair

value through other comprehensive

income

Remeasure-ments of

defi ned benefi t pension plans

Exchange differences on translation of

foreign operations

Profi t (loss)in cash fl ow

hedgesTotal

Balance as of January 1, 2018 ¥6,544 ¥11,099 ¥(2,543) ¥5,428 ¥1,118 ¥(278) ¥6,268 ¥53,682 ¥75,051 ¥1,736 ¥76,787

Adjustment resulting from change in accounting policy

(248) (248) (248)

Restated balance as ofJanuary 1, 2018

¥6,544 ¥11,099 ¥(2,543) ¥5,428 ¥1,118 ¥(278) ¥6,268 ¥53,433 ¥74,802 ¥1,736 ¥76,538

Profit for the year 7,448 7,448 146 7,595

Other comprehensive income (1,204) ¥(39) (2,918) (294) (4,456) (4,456) (26) (4,483)

Total comprehensive incomefor the year

(1,204) (39) (2,918) (294) (4,456) 7,448 2,991 119 3,111

Purchase of treasury shares (0) (0) (0)

Disposal of treasury shares 0 0 0 0

Dividends (1,139) (1,139) (136) (1,275)

Share-based payments 30 30 30

Changes in ownership interestsin a subsidiary

(61) (61) (4) (66)

Transfer to retained earnings 39 39 (39)

Total transactions with owners (30) (0) 39 39 (1,178) (1,170) (141) (1,311)

Balance as of December 31, 2018 ¥6,544 ¥11,069 ¥(2,544) ¥4,223 ¥(1,800) ¥(572) ¥1,851 ¥59,703 ¥76,624 ¥1,714 ¥78,338


60 60 60

Restated balance as of January 1, 2019

¥6,544 ¥11,069 ¥(2,544) ¥4,223 ¥(1,800) ¥(572) ¥1,851 ¥59,764 ¥76,684 ¥1,714 ¥78,399

Profi t for the year 6,813 6,813 221 7,035

Other comprehensive income 1,009 ¥(90) (1,307) (105) (494) (494) 96 (397)


1,009 (90) (1,307) (105) (494) 6,813 6,319 318 6,637



Dividends (1,424) (1,424) (139) (1,563)



(74) (74) (18) (93)


Total transactions with owners (68) 25 90 90 (1,514) (1,466) (157) (1,624)

Balance as of December 31, 2019 ¥6,544 ¥11,001 ¥(2,519) ¥5,233 ¥(3,108) ¥(677) ¥1,447 ¥65,063 ¥81,537 ¥1,875 ¥83,413

(Thousands of U.S. dollars)

Equity attributable to owners of the Company

Non-controlling interests

Total equitySharecapital

Capitalsurplus

Treasuryshares

Other components of equity

Retained earnings

Total

Financial assets measured at fair

value through other comprehensive

income

Remeasure-ments of

defi ned benefi t pension plans

Exchange differences on translation of

foreign operations

Profi t (loss)in cash fl ow

hedgesTotal

Balance as of December 31, 2018 $59,732 $101,035 $(23,225) $38,551 $(16,434) $(5,221) $16,895 $544,941 $699,379 $15,650 $715,030


556 556 556

Restated balance as ofJanuary 1, 2019

$59,732 $101,035 $(23,225) $38,551 $(16,434) $(5,221) $16,895 $545,497 $699,936 $15,650 $715,586

Profit for the year 62,191 62,191 2,023 64,214

Other comprehensive income 9,215 $(826) (11,937) (966) (4,513) (4,513) 884 (3,629)


9,215 (826) (11,937) (966) (4,513) 62,191 57,677 2,908 60,585



Dividends (12,998) (12,998) (1,269) (14,267)



(684) (684) (166) (850)


Total transactions with owners (623) 231 826 826 (13,824) (13,389) (1,436) (14,825)

Balance as of December 31, 2019 $59,732 $100,411 $(22,993) $47,767 $(28,371) $(6,187) $13,208 $593,864 $744,224 $17,121 $ 61,346


Consolidated Statement of Cash Flows


12/2018 12/2019 12/2019

Operating activities:

Profit before tax ¥ 9,741 ¥ 11,381 $ 103,879Depreciation and amortization 6,335 8,994 82,093Impairment losses 2,249 20,530Interest and dividend income (357) (394) (3,599)Interest expense 1,074 1,166 10,650Exchange difference (59) 49 452Share of loss (profit) of associates and joint ventures accounted for using the equity method (266) 262 2,395Losses on sale and disposal of property, plant and equipment 77 49 447Gain on sale of investments in affiliates (2,414) (22,037)Increase in trade and other receivables (4,791) (3,077) (28,092)Increase in inventories (3,661) (3,765) (34,369)Increase in trade and other payables 5,469 3,827 34,937Decrease in net defined benefit liabilities (91) (54) (494)Other 4,359 (714) (6,518)

Subtotal 17,830 17,559 160,274Interest and dividends received 422 483 4,409Interest paid (1,014) (1,146) (10,466)Income taxes paid (3,162) (4,899) (44,719)

Net cash generated by operating activities ¥ 14,076 ¥ 11,996 $ 109,497

Investing activities:

Payments into time deposits ¥ (420) ¥ (11) $ (102)Proceeds from withdrawal of time deposits 370 574 5,240Purchase of property, plant and equipment (11,959) (5,699) (52,020)Proceeds from sale of property, plant and equipment 627 69 632Purchase of intangible assets (909) (1,520) (13,881)Proceeds from sale of intangible assets 70 3 31Payments for acquisition of affiliates (3,002) (27,402)Proceeds from sale of investments in affiliates resulting in change in scope of consolidation 4,309 39,333Payments made for short-term loans receivable (9) (36) (334)Proceeds from collection of short-term loans receivable 10 68 629Payments made for long-term loans receivable (0) (0) (5)Other 100 916

Net cash used in investing activities ¥(12,218) ¥ (5,145) $ (46,962)

Financing activities:

Proceeds from short-term borrowings ¥ 29,778 ¥ 22,942 $ 209,408Repayments of short-term borrowings (49,055) (47,534) (433,863)Repayments of lease liabilities (71) (2,805) (25,606)Proceeds from long-term borrowings 40,700 20,000 182,548Repayments of long-term borrowings (25,769) (6,480) (59,150)Payments for purchase of treasury stares (0) (0) (7)Proceeds from sale of treasury shares 0 0 0Dividends paid (1,139) (1,424) (12,998)Dividends paid to non-controlling interests (136) (139) (1,269)Payments for acquisition of interests in subsidiaries from non-controlling interests (76) (93) (851)

Net cash used in financing activities (5,771) (15,534) (141,790)

Effects of exchange rate changes on the balance of cash and cash equivalents held in foreign currencies (911) (282) (2,579)

Decrease in cash and cash equivalents (4,825) (8,965) (81,834)Cash and cash equivalents at the beginning of the year 34,095 29,269 267,157Cash and cash equivalents at the end of the year ¥ 29,269 ¥ 20,303 $ 185,322


Company InformationAs of December 31, 2019

Major Group Companies

Regions Company Name Location Operations

Japan

Nikkiso Eiko Co., Ltd. Higashimurayama-shi, TokyoManufacture and sale of general-purpose small pumps and water filtration systems

Nikkiso Giken Co., Ltd. Hakusan-shi, IshikawaDevelopment, manufacture, and sale of Deep UV-LEDs and applied products

Nikkiso Miyazaki Co., Ltd. Miyazaki-shi, MiyazakiManufacture of aircraft components made of carbon fiber reinforced plastic (CFRP), special pumps for industry and other Nikkiso products

Nikkiso-Therm Co., Ltd. Musashino-shi, Tokyo Manufacture and sale of precision thermistors and applied products

The Americas

Nikkiso America, Inc. San Diego, U.S.A.Administration and management of business planning at Nikkiso subsidiaries in the U.S. as well as development of new businesses for Nikkiso products in North, Central, and South America

Cryogenic Industries, Inc. Temecula, U.S.A.

Development of business strategies and management of the Cryogenic Industries Group, specializing in liquefied gas-related plant engineering as well as development and manufacture of related equipment and systems

Nikkiso Cryo, Inc. Las Vegas, U.S.A. Manufacture, sale, and servicing of cryogenic pumps

Europe

LEWA GmbH Leonberg, GermanyManufacture and sale of industrial reciprocating pumps and pump systems

Geveke B.V. Amsterdam, NetherlandsProvision of solution services through development, designing, manufac-ture, and sale of system package products for pump compressors, etc.

Nikkiso Europe GmbH Hanover, GermanyManufacture, sale, and maintenance of hemodialysis and blood purifi-cation-related products in Europe

Asia

Nikkiso Critical Care Medical Supplies(Shanghai) Co., Ltd.

Shanghai, ChinaImport, sale, and maintenance of critical care blood purification-related products in the medical business in China

Shanghai Nikkiso Non-Seal Pump Co., Ltd. Shanghai, China Manufacture, sale, and maintenance of non-seal pumps

Shanghai Nikkiso Trading Corporation Shanghai, ChinaImport and sale of hemodialysis-related products and components in the medical business in China

Weigao Nikkiso (Weihai) Dialysis EquipmentCo., Ltd.

Weihai City, ChinaManufacture, sale, maintenance of Nikkiso technology-based medical products in China

Taiwan Nikkiso Co., Ltd. Taipei City, TaiwanMarketing, designing, manufacture, inspection, and test run of boiler water-conditioning systems for the Asian market

NKFG Corporation Taipei City, TaiwanManufacture and sale of Deep UV-LED chips, tools and equipment using the chips

M.E. Nikkiso Co., Ltd. Bangkok, Thailand Manufacture and sale of disposables parts for medical devices

Nikkiso Medical (Thailand) Co., Ltd. Bangkok, ThailandImport, sale, and maintenance of Nikkiso dialysis machines, dispos-ables, and other medical products in Thailand

Nikkiso Vietnam, Inc. Hung Yen Province, Vietnam Manufacture of aircraft components

Nikkiso Vietnam MFG Co., Ltd. Ho Chi Minh City, Vietnam Manufacturer of blood tubing lines for hemodialysis

Company Name NIKKISO CO., LTD.

Head Office Yebisu Garden Place Tower 22nd Floor, 20-3, Ebisu 4-Chome, Shibuya-ku, Tokyo 150-6022, JapanTel: +81-3-3443-3711 Fax: +81-3-3473-4963

Date of Establishment December 26, 1953

Paid-in Capital ¥6,544,339,191

Number of Employees 8,491 (Consolidated) 2,044 (Non-consolidated)

Fiscal Year From January 1 to December 31


Financialinstitutions

38.1%

Share InformationAs of December 31, 2019

Share DistributionShare Information

Securities Code 6376

Number of Shares Issued(Including Treasury Shares)

74,286,464 (3,067,681)

Number of Shareholders 7,678

Listed Stock ExchangeFirst Section of Tokyo Stock Exchange

Major Shareholders

Company Name Number of Shares Held(Thousands)

Percent of Total SharesOutstanding (%)

The Master Trust Bank of Japan, Ltd. (Trust Account) 3,766 5.28

Japan Trustee Services Bank, Ltd. (Trust Account) 3,042 4.27

Nikkiso Shareholders Association 2,689 3.77

Mizuho Bank, Ltd. 2,500 3.51

JP Morgan Chase Bank 385632 2,101 2.95

Mitsui Sumitomo Insurance Co., Ltd. 1,966 2.76

Nikkiso Employee Shareholders Association 1,749 2.45

Fukoku Mutual Life Insurance Company 1,700 2.38

Nippon Life Insurance Company 1,650 2.31

MUFG Bank, Ltd. 1,622 2.27

Note: The Company maintains 3,067,681 shares of treasury shares, which does not include the holdings of the major shareholders in the above list. In addition, the shareholding ratio is

calculated by deducting treasury shares.

For detailed financial information, please see the Financial Statements.

https://www.nikkiso.com/ir/library/results.html

Stock Information

12010

4 7 10 12011

4 7 10 12012

4 7 10 12013

4 7 10 12014

4 7 10 12015

4 7 10 12016

4 7 10 12017

4 7 10 12018

4 7 10 12019

4 7 10

1,800

(¥)

1,200

600

0

Financial instrumentsbusiness operators0.9%

Othercorporations15.5%

Individualsand other

23.0%

Foreigncorporations, etc.22.5%


Printed in Japan

NIKKISO CO., LTD.

Yebisu Garden Place Tower 22nd Floor,

4-20-3, Ebisu, Shibuya-ku,

Tokyo 150-6022, Japan

Phone: +81-3-3443-3711

Fax: +81-3-3473-4963

https://www.nikkiso.com

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