Analyst Meeting Presentation Materials for the the Fiscal Year Ended March 31, 2017 May 31, 2017 1
1 2 Consolidated Financial Results for the Fiscal Year Ended March 31, 2017 Consolidated Financial Results Forecast for the Fiscal Year Ending March 31, 2018 Notes regarding figures and expressions: 1. Amounts are rounded off to the nearest 0.1 billion yen; totals may not sum due to rounding. 2. Fiscal year (FY) represents the 1-year period from Apr 1 of stated year to Mar 31 of the following year (i.e. FY2017 refers to year ending Mar 31, 2018). 3. H1 is the first half of the fiscal year, i.e., the 6-month period from Apr through Sep. Disclaimers regarding translation: 1. This document is an English translation of the original Japanese document dated May 11, 2017 and is only for reference purposes. In the event of any discrepancy between the original Japanese document and this translated document, the Japanese document shall prevail. 2. Translations of brand names and product names not yet launched in English-speaking regions are not official and are subject to change without notice. 2
Summary of consolidated financial results Business results FY2015 FY2016 Variance (billion yen, %) Net sales % Net sales % Variance % Net sales 474.1 477.1 3.0 0.6 Operating income 24.3 5.1 23.5 4.9-0.8-3.2 Ordinary income 21.3 4.5 21.3 4.5-0.4 Profit attributable to owners of parent 14.6 1 3.1 12.1 2.5-2.5-16.8 Depreciation 27.0 29.0 2.0 7.5 Capital expenditures 37.3 32.5-4.8-13.0 Exchange rate (average rate during term): 120.2yen/USD 108.4yen/USD -11.8yen/USD Dubai crude oil (average price during term) 46USD/barrel 47USD/barrel 1USD/barrel Financial data FY2015-end FY2016-end Variance Net interest-bearing debt 281.5 255.1-26.4 Equity ratio 24.9 % 26.8 % 1.9 Net D/E ratio 1.7 1.4-0.3 Notes 1. Includes gain on sales of investment securities of around 2.5 billion yen (net of tax; original amount 3.7 billion yen). 2. As of the first quarter of FY2016, the number of consolidated subsidiaries became 30 (up from 29, at the end of FY2015) due to the new inclusion of PT. Elleair International Manufacturing Indonesia (EIMI) in the scope of consolidation due to increased significance. 3
Increase/decrease of consolidated operating income -0.8 billion yen (FY2015: 24.3 bn yen FY2016: 23.5 bn yen) (billion yen) 35 30 25 20 15 10 5 Sales and market conditions (-9.1) Paper & Paperboard (P&P), YoY: -0.4 Home & Personal Care (H&PC), YoY: -0.3 Other (incl. adjustments)*: -0.1 Price of raw materials and fuels (+9.0) Production Fixed increase, manufacturing cost reduction costs (+1.5) (-0.2) Others (-1.6) Sales and market conditions (-2.0) Price of raw materials and fuels (+3.5) Production Fixed increase, manufacturing cost reduction costs (+0.8) (-1.6) 24.3 23.5 0 FY2015 FY2016 P&P H&PC Other* Total P&P Major Factors H&PC Major Factors Sales / market conditions -9.1-2.0 - -11.1 Improved product mix +1.3, price -10.4 Sales volume +1.3, price -3.3 Price of raw materials and fuels Production increase, cost reduction 9.0 3.5-12.5 Woodchip +4.3, coal +2.7, chemicals and others +1.5, recovered paper -0.1 1.5 0.8-2.3 Improved energy-saving +0.7, increased production +0.1, improved yield and raw materials composition +0.2, others +0.6 Fixed manufacturing costs -0.2-1.6 - -1.8 Maintenance cost -0.3, depreciation and labor costs -0.1 Others -1.6-1.0-0.1-2.7 Moving average -1.5, increased logistics cost from sales increase -0.3 OP income YoY, total -0.4-0.3-0.1-0.8 Increas e, total 10.5 4.3-14.8 Decreas e, total -10.9-4.6-0.1-15.6 Others (-1.0) Other(incl. adjustments)* (-0.1) SAP and others +1.6, pulp +0.8, chemicals and others +0.9 Improved energy-saving +0.5, increased production +0.2 Depreciation -0.8, labor cost -0.7 Increased logistics cost from sales increase -0.7, moving average -0.3 * Other is the sum of Other category and Adjustments. The Other category consists of business segments other than the two reporting segments, such as wood, forestry, machinery, logistics, electric power selling, and golf club businesses. Adjustments refer to adjustment for elimination of intersegment transactions. 4
Business results by segment (Paper & Paperboard) (billion yen) 283.5 290.0 11.4 Net sales 4.0% Operating income 3.5% 10.1 10.5 300.0 292.0 3.5% 10.0 3.4% 20.0 % OP margin Variance Net sales -8.0 (-2.7%) Operating 10.0income -0.4 (-4.3%) Major factors Sales and market conditions -9.1 Decrease in prices of raw materials/fuels +9.0 Production increase, cost reduction +1.5 Increase in fixed manufacturing costs -0.2 Others -1.6 Total -0.4 200 150 100 FY13* FY14 FY15 FY16 A) Prices of imported woodchips 250 USA N-chip(US$/BDU_left) Australia L-chip(A$/BDT_left) USA N-chip(yen/kg_right) Australia L-chip(yen/kg_right) N-chip = softwood chips L-chip = hardwood chips From Apr 2015, Australia L-chip is imported at rate of US$/BDT instead of A$/BDT. (Source: In-house investigation) 20 18 16 14 12 10 20 15 10 0.0 Main types Paper - Containerboard and corrugated container B) Prices of recovered paper 30 Old newspapers,over-the-counter price(yen/kg) 110.0 Old corrugated containers,over-the-counter price(yen/kg) Old newspapers, export(yen/kg) 105.0 25 Old corrugated containers, export(yen/kg) (Source: Ministry of Finance Japan Statistics, Paper Recycling Promotion Center) 100.0 95.0 90.0 85.0 80.0 Year-on-year change Vol. Amt. Major factors + - + Improvement in product mix and composition of customer base - Decrease in amount due to deteriorating domestic market condition + Growth in fields of e-commerce and processed food, etc. - Decrease in amount due to change in customer base and product mix C) Prices of major products (Apr 2009=100) Kraft linerboard Coated paper (A2 grade) (Source: The Nikkei) *For the objective of monitoring the operating performance of each business segment more appropriately, corporate expenses have been allocated to each business segment, for operating income after FY14 (i.e., FY14, FY15, FY16 above). However, operating income before FY14 (i.e., FY13) are before allocation of corporate expenses. 5
(billion yen) 105.0 100.0 95.0 Business results by segment (Home & Personal Care) 134.9 9.7 Net sales 7.2% Operating income 146.8 9.2 6.3% 158.9 % OP margin 6.5% 168.8 10.4 10.1 FY13* FY14 FY15 FY16 A) Prices of major products (Apr 2009 = 100) Facial tissue Toilet paper 6.0% 20.0 Operating income 10.0 Year-on-year change in sales amount by category Household paper + + Shift to value-added products in domestic market Baby diapers - - Decrease in inbound demand Fall in unit price from stiff competition 0.0 Overseas Adult diapers Feminine care 180 160 140 120 Variance Net sales +9.9 (+6.2%) + + + JPY/CNY JPY/KRW JPY/THB JPY/IDR -0.3 (-2.5%) + China: Launch of pants-type Angel series diapers + Increased sales to other SE Asian countries + Expansion of sales of other categories + New product Attento Sports Pants, and product update of high functionality pads for night use contributed to higher sales + Increased sales of absorbent liner Natura and high value-added slim sanitary pads elis Megami Wet wipes etc. + + Increased sales of toilet cleaning wipes, antibacterial wipes, and baby wipes JPY/RUB Major factors Sales and market conditions -2.0 Decrease in prices of raw materials/fuels +3.5 Production increase, cost reduction +0.8 Increase in fixed manufacturing costs -1.6 Others -1.0 B) Monthly exchange rates (Monthly average TTM) (Apr 2009 = 100) Total -0.3 90.0 100 80 85.0 60 80.0 (Source: SRI(retail tracking research) data) 40 (Source: MURC Exchange Quotations) 2009 Sep 2010 Sep 2011 Sep 2012 Sep 2013 Sep 2014 Sep 2015 Sep 2016 Sep 2017 2009 Sep 2010 Sep 2011 Sep 2012 Sep 2013 Sep 2014 Sep 2015 Apr Mar Mar Mar Mar Mar Mar Mar Mar Apr Mar Mar Mar Mar Mar Mar *For the objective of monitoring the operating performance of each business segment more appropriately, corporate expenses have been allocated to each business segment, for operating income after FY14 (i.e., FY14, FY15, FY16 above). However, operating income before FY14 (i.e., FY13) are before allocation of corporate expenses. Sep 2016 Mar Sep 2017 Mar 6
Summary of business results by segment (forecast to results) Business results by segment (Nov 11, 2016 Forecast) (Billion yen, %) FY2016 Forecast FY2016 Results Variance Net sales OP income % Net sales OP income % Net sales OP income Paper & Paperboard 294.0 12.0 4.1 292.0 10.0 3.4-2.0-2.0 Home & Personal Care (H&PC) 170.0 10.0 5.9 168.8 10.1 6.0-1.2 0.1 Other *1 (incl. adjustments *2 ) 16.0 3.0 16.4 3.4 0.4 0.4 Total 480.0 25.0 5.2 477.1 23.5 4.9-2.9-1.5 *1 The "Other" category consists of business segments that are not included in the reporting segments, and includes wood, forestry, machinery, logistics, electric power selling and golf club businesses. *2 "Adjustments" refers to the adjustment for elimination of intersegment transaction. 7
1 2 Consolidated Financial Results for the Fiscal Year Ended March 31, 2017 Consolidated Financial Results Forecast for the Fiscal Year Ending March 31, 2018 8
Prospects for achieving 2 nd MTBP goals FY2016 Results FY2017 projection Final year of 2 nd MTBP FY2017 Forecast 2 nd MTBP Goal Prospects for achieving goals after considering the impact of M&A Net sales 477.1 bn yen + Structural reform of Paper business + Expansion of overseas H&PC business + Investment returns + Contributions from M&A (+ Price increase of paper) Ordinary income 21.3 bn yen + Increase in net sales + Savings from cost reduction measures + Contributions from M&A 550.0 bn yen 500.0 bn yen 25.5 bn yen 25.0 bn yen Net interestbearing debt 255.1 bn yen Repayment of interest-bearing debt on schedule - Expenses from M&A 283.0 bn yen 250.0 bn yen Daio Paper is set to achieve most of its 2 nd Medium-term Business Plan goals. Returns exceeding goodwill amortization is expected from the two M&A cases (Nisshinbo Holding s Paper Products Business and Miura Printing Corporation), hence Daio Paper is set to achieve its net sales goal and ordinary income goal. Regarding net interest-bearing debt, as the two cases of M&A require approximately 33.5 billion yen of funds, Daio Paper projects that it will exceed the goal by 33.0 billion yen. As regards dividends, Daio Paper intends to maintain its current dividend level. 9
Summary of consolidated financial forecast (billion yen, %) Business results (forecasts) FY2016 FY2017 forecast Variance Net sales % Net sales % % Net sales 477.1 550.0 72.9 15.3 Operating income 23.5 4.9 25.0 4.5 1.5 6.4 Ordinary income 21.3 4.5 25.5 4.6 4.2 19.7 Profit attributable to owners of parent 12.1 2.5 14.0 2.5 1.9 15.7 Depreciation 29.0 32.5 3.5 12.1 Capital expenditures 32.5 30.1-2.4-7.4 Exchange rate (average rate during term): 108.4yen/USD 113.0yen/USD *1 4.6yen/USD Dubai crude oil (average price during term) 47USD/barrel 55USD/barrel 8USD/barrel Financial data FY2016-end FY2017-end forecast Variance Net interest-bearing debt 255.1 283.0 27.9 Equity ratio 26.8 % 26.8 % - Net D/E ratio 1.4 1.5 0.1 Notes 1. Average exchange rate for H1 is estimated to be 111.0yen/USD, and average exchange rate for H2 is estimated to be 115.0yen/USD. 2. Forecasts include Nisshinbo Holding's Paper Products Business and Miura Printing Corporation within the scope of consolidation. 3. As regards FY2017 forecast for CAPEX and equity ratio, after reviewing the figures announced on 11th May, CAPEX was revised from 3 7.0 bn yen to 30.1 bn yen, and equity ratio was revised from 27.3% to 26.8%. 10
Increase/decrease of consolidated OP income (H1 forecast) -4.2 billion yen (FY2016 H1: 11.2 bn yen FY2017 H1 forecast: 7.0 bn yen) (billion yen) 15 10 5 11.2 Paper & Paperboard (P&P), YoY: -3.8 Home & Personal Care (H&PC), YoY: -0.7 Sales and market conditions (-0.5) Price of raw materials and fuels (-3.8) Production increase, cost reduction (+0.8) Fixed manufacturing costs (+0.2) Others (-0.5) Sales and market conditions (+1.0) Price of raw materials and fuels (-1.2) Production increase, cost reduction (+0.9) Other (incl. adjustments) *1 M&A *2 Fixed manufacturing costs Others Other(incl. (-0.4) (-1.0) adjustments) M&A (-0.9) (+1.2) 7.0 0 FY16 FY17 H1 results H1 forecast P&P H&PC Other* 1 M&A* 2 Total P&P Major Factors H&PC Major Factors Sales / market conditions -0.5 1.0 - - 0.5 Improved product mix +1.1, price -1.6 Sales volume +1.1, price -0.1 Price of raw materials and fuels Production increase, cost reduction -3.8-1.2 - - -5.0 Recovered paper -2.2, coal -0.8, chemicals and others -0.5, heavy oil -0.4 0.8 0.9 - - 1.7 Increased production +0.7, improved energy-saving -0.4, others +0.6 Heavy oil -0.6, SAP and others -0.4, chemicals and others -0.3 Increased production +1.1, improved energy-saving -0.2 Fixed manufacturing costs 0.2-0.4 - - -0.2 Maintenance cost +0.6, others -0.4 Labor cost -0.3, depreciation -0.1 Others -0.5-1.0-0.9 1.2-1.2 Increased logistics cost from sales increase, and others OP income YoY, total -3.8-0.7-0.9 1.2-4.2 Increas e, total 1.0 1.9-1.2 4.1 Decreas e, total -4.8-2.6-0.9 - -8.3 Increased logistics cost from sales increase, and others *1 Other is the sum of Other category and Adjustments. The Other category consists of business segments such as wood, forestry, machinery, logistics, electric power selling, and golf club businesses. Adjustments refer to adjustment for elimination of intersegment transactions. *2 M&A refers to two cases: the acquisition of Nisshinbo Holdings Paper Product Business, and the tender offer for share certificates, etc. of Miura Printing Corporation. The former became Daio Paper s subsidiary as of April 3, and the latter as of April 18. 11
Increase/decrease of consolidated OP income (full year forecast) +1.5 billion yen (FY2016 full year: 23.5 bn yen FY2017 full year forecast: 25.0 bn yen) (billion yen) 35 30 25 20 15 10 5 23.5 Paper & Paperboard (P&P), YoY: -2.5 Home & Personal Care (H&PC), YoY: +2.9 Sales and market conditions (+2.7) Price of raw materials and fuels (-6.0) Production increase, cost reduction (+1.0) Fixed manufacturing costs (+0.6) Others (-0.8) Sales and market conditions (+4.6) Price of raw materials and fuels (-1.7) Production increase, cost reduction (+2.1) Fixed manufacturing costs (-1.2) Others (-0.9) Other(incl. adjustments) (-1.6) 0 FY16 FY17 Full year results Full year forecast P&P H&PC Other *1 M&A*2 Total P&P Major Factors H&PC Major Factors Sales / market conditions 2.7 4.6 - - 7.3 Improved product mix +1.5, price +1.2 Sales volume +4.0, price +0.6 Price of raw materials -6.0-1.7 - - -7.7 Coal -2.2, recovered paper -1.6, chemicals SAP and others -0.8, pulp -0.3, and fuels and others -0.8, heavy oil -0.6 chemicals and others -0.4 Production increase, 1.0 2.1 - - 3.1 Increased production +0.8, improved cost reduction energy-saving -0.5, improved yield and raw materials composition +0.2 Fixed manufacturing costs 0.6-1.2 - - -0.6 Maintenance cost +0.7, depreciation +0.3, others -0.4 Others -0.8-0.9-1.6 2.7-0.6 Increased logistics cost from sales increase, and others OP income YoY, total -2.5 2.9-1.6 2.7 1.5 Increas e, total 4.3 6.7-2.7 13.7 Decreas e, total -6.8-3.8-1.6 - -12.2 Other (incl. adjustments) *1 M&A *2 M&A (+2.7) 25.0 Increased production +2.4, improved energy-saving -0.4 Labor cost -0.6, depreciation -0.3, maintenance cost -0.1 Increased logistics cost from sales increase, and others *1 Other is the sum of Other category and Adjustments. The Other category consists of business segments such as wood, forestry, machinery, logistics, electric power selling, and golf club businesses. Adjustments refer to adjustment for elimination of intersegment transactions. *2 M&A refers to two cases: the acquisition of Nisshinbo Holdings Paper Product Business, and the tender offer for share certificates, etc. of Miura Printing Corporation. The former became Daio Paper s subsidiary as of April 3, and the latter as of April 18. 12
Increase/decrease of consolidated ordinary income (H1 and full year forecast) (billion yen) H1 forecast, YoY: +0.4 bn yen (FY2016 H1: 8.1 bn yen FY2017 H1 forecast: 8.5 bn yen) Full year forecast, YoY: +4.2 bn yen (FY2016: 21.3 bn yen FY2017 forecast: 25.5 bn yen) 15 Subsidy income (net) +2.8 Foreign exchange loss on loans to foreign subsidiaries +2.2 Others -0.4 30 Operating income (+1.5) Non-operating income/expenses (+2.7) 10 Operating income (-4.2) Non-operating income/expenses (+4.6) 20 Subsidy income (net) +2.0 Foreign exchange loss on loans to foreign subsidiaries +1.2 Others -0.5 5 8.1 8.5 10 21.3 25.5 0 FY2016 H1 FY2017 H1 forecast 0 FY2016 Full year FY2017 Full year forecast 13
Business results forecast by segment Paper & Paperboard (excluding M&A) Net sales 290.0 3.5% Operating income % OP margin 300.0 292.0 294.0 3.5% 3.4% 10.1 10.5 10.0 250.0 200.0 2.6% 150.0 100.0 20.0 10.0 146.8 9.2 H&PC (excluding M&A) Net sales Operating income % OP margin 158.9 6.5% 6.3% 168.8 10.4 10.1 6.0% (billion yen, %) 200.0 13.0 6.5% 7.5 50.0 0.0 0.0 FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17 Forecast Forecast H1 forecast H2 forecast Full year forecast Net sales OP income OP margin Net sales OP income OP margin Net sales OP income OP margin Paper & Paperboard 145.0 1.5 1.0% 149.0 6.0 4.0% 294.0 7.5 2.6% (Results of prev. corresponding period) 143.9 5.3 3.7% 148.1 4.7 3.2% 292.0 10.0 3.4% H&PC 88.0 3.5 4.0% 112.0 9.5 8.5% 200.0 13.0 6.5% (Results of prev. corresponding period) 77.7 4.2 5.4% 91.1 5.9 6.5% 168.8 10.1 6.0% M&A 21.0 1.2 5.7% 24.0 1.5 6.3% 45.0 2.7 6.0% Other (incl. adjustments) 6.0 0.8 5.0 1.0 11.0 1.8 (Results of prev. corresponding period) 6.9 1.8 9.5 1.6 16.4 3.4 Total 260.0 7.0 2.7% 290.0 18.0 6.2% 550.0 25.0 4.5% (Results of prev. corresponding period) 228.5 11.2 4.9% 248.6 12.3 4.9% 477.1 23.5 4.9% Regarding the disclosure of the results of the 2 M&A cases, the results will be allocated accordingly to the segments of Paper & Paperboard and H&PC. 14
Trend of consolidated capital expenditures and depreciation (billion yen) 40 37.7 Depreciation Capital expenditures 37.3 30 20 32.3 33.0 32.9 18.7 22.0 29.6 18.2 31.6 26.4 26.4 27.2 27.0 24.9 21.7 29.0 32.5 32.5 30.1 10 0 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 (Forecast) 10 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 (Forecast) EBITDA 1 53.6 57.0 47.5 42.6 43.6 47.2 59.1 57.7 58.3 65.6 Depreciation 32.3 33.0 32.9 29.6 26.4 26.4 27.2 27.0 29.0 32.5 3-year cumulative 1st Medium-term Business Plan 2nd Medium-term Business Plan 95.4 80.0 88.5 CAPEX 37.7 18.7 22.0 18.2 21.7 24.9 31.6 37.3 32.5 30.1 3-year cumulative 58.9 78.3 99.9 1 EBITDA = Ordinary income + interest expenses + depreciation and amortization + amortization of goodwill + equity in earnings of affiliates 2 Due to an increase in construction expenses and the acceleration of the CAPEX schedule to promote more growth during the 3 rd MTBP, CAPEX had been revised to 106.8 bn yen as announced in the supplementary materials released on May 11; thereafter, it was revised to 99.9 bn yen. 2 15
Trend of net sales, net interest-bearing debt, equity (ratio), net D/E ratio (billion yen) 550 500 450 Left axis Right axis Net sales Net interest-bearing debt Equity ratio Net D/E ratio 17.0 23.7 24.9 26.8 26.8 28.0 (%, times) 30.0 25.0 20.0 400 350 14.8 15.1 12.7 14.0 14.7 15.0 300 10.0 250 200 1st MTBP 2nd MTBP FY2017 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 (Forecast) Net sales 465.8 423.1 410.2 409.0 407.4 430.1 450.2 474.1 477.1 550.0 500.0 Net interestbearing debt 3.7 3.2 3.8 3.7 3.7 3.0 1.9 1.7 1.4 1.5 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 (Forecast) 382.5 336.5 329.3 308.9 363.5 331.8 292.5 281.5 255.1 283.0 250.0 (YoY change) 54.6-31.7-39.3-11.0-26.4 27.9-5.1 Equity 104.5 106.2 85.6 83.2 97.1 109.8 154.5 163.1 176.5 Equity ratio 14.8% 15.1% 12.7% 14.0% 14.7% 17.0% 23.7% 24.9% 26.8% 26.8% 28% Net D/E ratio 3.7 3.2 3.8 3.7 3.7 3.0 1.9 1.7 1.4 1.5 1.5 1.5 FY2017 (2nd MTBP Goal) FY2017 (Goal) 5.0 0.0 16
Progress of measures for improving financial strength Improve financial strength, and suppress financing costs by diversifying financing methods. FY2014 FY2015 FY2016 FY2017 (billion yen) Results Results Results Forecast Goal Net interestbearing debt 292.5 281.5 255.1 283.0 250.0 350 <Trend of net interest-bearing debt, interest expenses, and interest rate> 331.8 Net interest-bearing debt Interest expense Interest rate 2.0% Equity ratio 23.7% 24.9% 26.8% 26.8% 28% 300 292.5 281.5 283.0 Net D/E ratio 1.9 1.7 1.4 1.5 1.5 Operating CF 44.7 47.0 63.0 2 次中計期間はフリー CFContinue のプラス to Investment CF -28.6-26.1-31.4 を継続 generate positive free CF Free CF 16.1 20.9 31.6 during 2 nd MTBP 250 200 150 1.6% 1.5% 1.3% 255.1 1.1% 1.0% 1.0% Credit rating Aug 2016 R&I BBB-(Stable) BBB(Stable) BBB(Positive) 100 JCR BBB (Stable) BBB(Positive) BBB+(Stable) Progress of diversifying financing methods Jul 2015 Registered issuance limit of CP Sep 2015 Issued CB Sep 2016 Submitted straight bond shelf registration Mar 2017 Issued straight bond As regards FY 2017 equity ratio forecast, after reviewing equity and debt levels, it was revised from 27.3% to 26.8%. 50 0 6.9 5.8 4.7 3.7 3.4 FY13 FY14 FY15 FY16 FY17 (Forecast) 0.0% 17
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2 nd Medium-Term Business Plan Step-up ~ Leap and Expand Towards achieving 2 nd MTBP goals 19
2 nd Medium-term Business Plan (MTBP) FY2015 FY2016 FY2017 Results Results Forecast Goal Net sales bn yen 474.1 477.1 550.0 500.0 Ordinary income bn yen 21.3 21.3 25.5 25.0 Sales ratio % 4.5 4.5 4.6 5.0 Net interestbearing debt bn yen 281.5 255.1 283.0 250.0 Equity ratio % 24.9 26.8 26.8 28 Net D/E ratio times 1.7 1.4 1.5 1.5 Exchange rate yen/usd 120.2 108.4 113.0 113.0 Dubai crude oil USD/barrel 46 47 55 55 Principal strategies Structural shifting of Paper business Strengthening Containerboard and Corrugated Container business Further growth and acceleration of H&PC business Thorough cost reduction Pursuing efficiency and diversity in human resource utilization Further improvement of financial strength 20
Capital expenditure plan CAPEX amount (bn yen) 1 st Medium-term Business Plan 2 nd Medium-term Business Plan RESTART: STEP-UP: Transform business structure, increase competitiveness Strategic investments in growth area FY2012 21.7 FY2013 24.9 FY2014 31.6 FY2015 37.3 FY2016 32.5 FY2017 1 st MTBP 2 nd MTBP (3-year cumulative) 30.1 78.3 99.9 48.1 Home & Personal Care Domestic 1.4 5.5 7.1 22.6 13.6 11.9 14.0 Overseas (6.6) (16.6) Corrugated Container 1.2 0.9 0.8 3.1 4.3 0.2 2.9 7.6 61.5 Paper, Containerboard, Other Businesses 19.2 18.6 23.7 11.6 14.6 18.0 44.2 (Ordinary investment of around 12.0-15.0 bn yen per annum is included in CAPEX amount stated above. However, leased facilities and machinery are not included.) 21
Structural shifting of Paper business Promote unique measures to make Daio s core business highly profitable Shift in product mix to maximize profit (i.e. expand sales of A2 grade coated paper, uncoated paper, sheet products) Continue full production and full sales at our highly cost-competitive Mishima mill, the main production base of Paper business Promote shift to sales to regional distributors via measures such as DAIO Partner Ship Sakura Terrace Further improve customer base composition <Sales mix of paper products (domestic)> <Sales volume of sheet products> <Sales percentage of A2 grade Thousand Thousand Increase paper sheeting facility coated paper> t/month t/month at Mishima mill (Sep) A2 Other grades 155 158 20 FY12 150 149 151 150 151 Results 35% Coated paper FY16 Results 47% 100 50 Uncoated printing paper Communication paper Wrapping paper/ functional material Uncoated paper Newsprint 10 FY17 Plan FY12 Results FY16 Results 23% 33% 48% <Sales percentage (of coated paper) to regional distributors> Regional distributors Other business types 0 FY12 FY13 FY14 FY15 FY16 Results FY17 Plan 0 FY12 FY13 FY14 FY15 FY16 Results FY17 Plan FY17 Plan 34% Sales percentage within coated paper 22
Structural shifting of Paper business strengthening of business via M&A Strengthen Paper business by honing Daio s characteristics and strengths, and by expanding the fields and domains of the Business Acquired Paper Products Business from Nisshinbo HD Acquired Miura Printing through tender offer Paper business (Papermaking) Expand sales category Fine paper Synthetic paper Paper business (Printing) Paper business acquired from Nisshinbo HD Customers (Regional distributors, Printing companies, etc.) Integrated management Daio Paper (Paper and Paperboard) Market-in approach to product development and proposal-based sales Information on customer needs and market trends Miura Printing (Commercial Printing) Daio Printing Commercial printing, label printing, business form printing Printing business acquired from Nisshinbo HD (Label printing) 23
Strengthening Containerboard & Corrugated Container business Strengthen Containerboard business One-stop delivery from Daio s two production bases in East Japan and West Japan respectively Shift to sales of higher value-added products Strengthen Corrugated Container business 1.Higher quality corrugated containers Improve quality by remodeling corrugators and/or replacing or newly installing printing, diecutting and flexo & folding-gluing facilities at each factory of Daio Package Expand sales to industries with high quality demands (e.g. medical, cosmetic) 2.Develop new sales route Improve proposal capability by strengthening network with other industries (flexible packaging, machinery, logistics) Expand sales to paperboard carton customers via strengthening of network with Daiwa Shiko, acquired from Nisshinbo HD Daio Paper Containerboard sales division Procurement division H&PC division Paper sales division Daio Package Daio Paper Group Companies Daio Engineering Daio Printing Daio Logistics Daiwa Shiko Daiwa Shiko s paperboard carton products Other industries Flexible packaging manufacturer Machinery manufacturer Logistics company 24
Further growth and acceleration of H&PC business FY2017 net sales goal: 200 billion yen Increase competitiveness of household paper products; expand sales of high value-added products Expand sales of adult disposable diapers; improve market position of baby disposable diapers and feminine care products; strengthen production and sales of wet tissue and wipes billion yen 200 150 Expand overseas business Actively advance into new markets and expand sales area Increase sales through multi-category global expansion Household paper business acquired from Nisshinbo HD Household paper products 100 Absorbent products 50 0 (15%) (16%) (19%) FY2012 FY2013 FY2014 FY2015 FY2016 Results % of H&PC overseas net sales out of consolidated net sales (23%) FY2017 Plan 4.9% 5.3% 6.6% 9.1% Overseas business Figures in () are the % of overseas net sales out of H&PC overall net sales 25
120 100 80 60 40 20 Further growth and acceleration of H&PC business Household paper products Expand profit through launch of new high value-added products Maximize synergy effect of M&A billion yen <Net sales of household paper products> Acquired household paper products business from Nisshinbo HD Installed new facial tissue machine at Kani mill High value-added Standard! Market share by manufacturer and category Daio Paper Nisshinbo HD Household Paper April 2017 After acquisition Toilet tissue 1st 23.4% 4th 8.0% 1st 31.4% TOPIC Acquired Paper Products Business from Nisshinbo HD As of Apr 3, 2017, along with the acquisition of (former) Nisshinbo Paper Products, its company name was changed to Daio Paper Products. Facial tissue 2nd 21.0% 6th 2.5% 2nd 23.5% Kitchen paper 1st 23.3% 5th 7.3% 1st 30.6% 3-category total 1st 22.5% 5th 5.9% 1st 28.4% 0 FY12 FY13 FY14 FY15 FY16 Results FY17 Plan Oct 2018: Start of operation of Kawanoe mill New product Shoushuu+ (Deodorizing toilet tissue) Product update +Water Product update elleair tissue Product update Zeitaku Hoshitsu (Lotion tissue) Cotton Feel Toilet Paper with Twice the Absorbency Achieve No.1 in market share in each individual category (Based on SRI data by Intage - Apr 2016~Mar 2017 cumulative sales value of facial tissue, toilet tissue, and kitchen paper) 26
Further growth and acceleration of H&PC business Absorbent products (incl. wet wipes and others) Achieve higher market share across all categories through consecutive product launches and updates billion yen 140 120 <Net sales of absorbent products (incl. wet wipes and others)> (incl. overseas net sales) Wet wipes and others Feminine care 100 Adult diaper 80 60 40 Baby diaper 20 0 FY12 FY13 FY14 FY15 FY16 Results FY17 Plan Accelerate growth through consecutive product launches and updates annually 27
40 30 20 10 Further growth and acceleration of H&PC business FY2017 Net Overseas Sales Goal: 50 billion yen billion yen 50 Expanded Thailand warehouse. Expanded China factory building, increased baby diaper machine. 10.7 Install new feminine care production facility in Thailand. Increase baby diaper machine in Indonesia. Increase baby diaper machine in China. Commenced production at Indonesia new factory. Installed new wet wipe machine in Thailand. Increased baby diaper machine in China. Established Vietnam rep. office. Established Malaysia rep. office. Established Taiwan rep. office. 13.1 22.2 25.1 31.7 50.0 Russia, Taiwan, others SE Asia (Thailand, Indonesia, and others) South Korea China <Main measures (plan) > Russia: In addition to mainstay premium zone, expand sales of new standard zone product (expanding market). Taiwan (Rep. office established in 2016): Expand categories carried. Increase feminine care sales by launching products with labeling in local language. Promote advancement into new markets such as Middle East, Central and South Asia. Thailand: Increase sales through expanding range of categories carried. Achieve vertical start-up of feminine care product machine which will start operation in July. Expand sales of wet wipes developed to meet local need Expand sales to SE Asia region. Local-based activities in Vietnam and Malaysia (rep. offices established in 2016). Indonesia: Add one baby diaper machine to factory which started operation last year. Expand sales to minimarts, and expand sales of single pack diapers targeted at traditional trade. Increase sales by expanding range of categories carried - baby diapers, adult diapers and feminine care products. Develop baby care products that meet local market needs. Launch Hangul-labeled products (silver care, feminine care). Expand sales of super premium zone Angel series. Launch highest-rank product in the super premium zone Angel series for users who seek for Made in Japan products. In response to sharp growth in pants-type market, add one pants-type baby diaper machine and expand sales. Expand sales area from 1 st -tier cities to include 2 nd -, 3 rd -tier. Strengthen EC sales. 0 FY2012 FY2013 FY2014 FY2015 FY2016 Results FY2017 Plan In-store promotion in China Exhibition in South Korea 28
Further growth and acceleration of H&PC business Expand sales area and increase categories carried in each region and achieve multicategory global expansion a three dimensional business expansion plan Enter market via category of baby diaper, heighten awareness of the elleair brand, and expand range of categories to include adult diapers, wet wipes, household paper No. of countries & regions with sales history Baby disposable diaper Adult disposable diaper Operation of new feminine care production facility at Thai factory commences in July 2017 Feminine care Household paper Operation of wet wipes production facility at Thai factory commenced in March 2016. Daio will continue to develop wet wipes that meet local needs in 2017. Wet tissues and wipes As of FY2012 10 4 1 6 8 As of FY2015 25 6 7 9 14 As of FY2016 29 9 8 13 18 FY2016 year-on-year net sales by category (take FY2015 as 100%) YoY 125% 174% 754% 243% 145% ( カ国 ) 29
Progress of new business~cellulose Nanofiber (CNF) Tire reinforcement material, Automotive interior material Barrier film, Barrier sheet Structural material Thickening agent, additive Progress of capital investments 2016 Apr Completed pilot plant in the premises of Mishima mill Production capacity: 100t/year (at max. capacity) Jun FY2017 FY2020 <<Characteristic of Daio s CNF Our goal is to produce Energy Efficient CNF Installed preprocessing facility (for higher energy efficiency) Install drying facility (planned) for production of dry powder form CNF Construct mass production plant (planned) Progress of development of new applications 2016 Oct Developed compact formed of high level of CNF Nov 2017 Apr Developed porous artificial bone graft material using CNF Launched toilet cleaning wet wipe with CNF content Kirekira! Nano EX Others Specialty paper, Ceramic binder 30
Thank you. 31
Reference materials 32
Changes in external environment JPY/USD(TTM) 125.0 A) Exchange rate at end of each quarter 150 B) Price of crude oil and coal 15 100.0 100 10 75.0 50.0 50 0 '09 Sep '10 Dubai crude oil price(usd/barrel_left axis) Coal(USD/tonne_left axis) Coal(yen/kg_right axis) Sep '11 Sep '12 Sep '13 Sep '14 (Source: The Nikkei, GCI-NC) Sep '15 Sep '16 Sep '17 5 0 Apr Mar Mar Mar Mar Mar Mar Mar Mar (Thousand t) 8,000 C) Quarterly trend of domestic demand for paper and paperboard < Domestic Shipment + Imports = Domestic Demand > Domestic shipment, total Imports, total Paper Paperboard (Left axis) (Left axis) (Take Apr-Jun 2009 as 100% _right axis) (%) 150 7,000 6,000 125 5,000 4,000 100 3,000 2,000 75 1,000 (Source: Japan Paper Association Statistics, Ministry of Finance Japan Trade Statistics) 0 50 33
Trend of consolidated ordinary income (billion yen) 30.0 25.0 Consolidated ordinary income Sales ratio 4.8 4.5 4.5 4.6 (%) 5.5 4.5 20.0 15.0 10.0 5.0 0.0 2.4 11.2 3.4 14.2 1.4 1.2 5.7 4.7 1.6 6.6 2.6 11.3 21.8 (19.1) 21.3 21.3 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 Subsidy income from Fukushima Pref. of approx. 2.7 billion yen is included in ordinary income (21.8 billion yen) of FY2014. (Forecast) (2.7) 25.5 3.5 2.5 1.5 0.5 Consolidated ordinary income 1st Medium Term Business Plan 2nd Medium Term Business Plan FY2017 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 (Forecast) 11.2 14.2 5.7 4.7 6.6 11.3 21.8 21.3 21.3 25.5 Sales ratio 2.4 3.4 1.4 1.2 1.6 2.6 4.8 4.5 4.5 4.6 3-year cumulative 24.7 billion yen (2.0%) 39.7 billion yen (3.2%) 68.1 billion yen (4.5%) 34
Progress of 2 nd MTBP strategies and measures 1 Structural shift of Paper business (A) Further shift of product mix to profitable paper types to improve profitability (B) Further concentration of manufacturing of different product types at Mishima mill, and operation at full capacity to achieve greater profits (C) Establishment of DAIO Partner Ship Sakura Terrace to strengthen bonds with regional distributors (D) Realize synergy effect with Nisshinbo Paper Products Business (Paper business) and Miura Printing 2 Strengthening Containerboard & Corrugated Container business (A) Maintain production and sales at full capacity for Iwaki No. 3 machine (B) Expand Corrugated Container business by strengthening capability of Daio Package 3 Further growth and acceleration of H&PC business 1) Domestic (A) Expand adult diapers business, improve market position of baby diapers, and feminine care products Elleair Product (EPR) Fukushima Factory - Construct and start operation (B) Strengthen competitiveness, and expand sales of high value-added products to aim for No.1 in category share for all household paper products Install new facial tissue machine at Kani mill Plan to install new paper towel machine Announce plan for new household paper facility at Kawanoe mill (operation planned to start Oct 2018) Realize synergy effect with Nisshinbo Paper Products business (Household paper business) (C) Strengthen production and sales of wet tissue and wipes Strengthen facility at EPR Ehime Factory (D) Restructure brand strategy 3rd MTBP 2) Overseas (A) Achieve net overseas sales of 50 bn yen in FY2017 China: Increase baby diaper facilities, expand warehouse Thailand: Increase baby diaper facilities Thailand: Install new wet tissue and wipes production facility, and install new feminine care production facility (B) Early ramp-up of Indonesia factory, convert into joint venture with Mitsubishi Corporation (C) Advance into new markets (Middle East, etc.), and increase distribution of new categories Set up representative offices in Vietnam, Malaysia, and Taiwan (D) 3D approach to global expansion: expand reach and range Postponed 4 Thorough cost reduction 5 Pursuing efficiency and diversity in human resource 6 Further improvement of financial strength-issue of CB 7 Building foundations of new businesses ~ towards 3rd MTBP (A) Development of new raw material Cellulose nanofiber pilot plant commenced operation Development of porous artificial bone graft material, launch of toilet cleaning wet wipe with CNF content (Kirekira! Nano EX) (B) Expansion of engineering business (C) Expansion of energy business Announce plan for electricity business utilizing FIT (operation to start in FY19) (D) Effective use of forestry business (E) Effective use of logistics business 3rd MTBP - Implemented and reaped benefits - Implementing and will reap benefits in the future - Will implement during 2 nd MTBP In blue are strategies that were not announced at start of 2 nd MTBP, and were added. 8 Others (A) 2.00yen upward revision to year-end dividends (for FY2015) (B) Introduction of shareholders' benefits program 35
Cautions regarding forward-looking statements Forward-looking statements such as projections and forecasts on business results included in this document are derived by Daio Paper Corporation (the Company ) based on beliefs as well as assumptions made using information currently available to it at the time of the release of the original Japanese document (May 31, 2017), and are subject to contingencies, risks and uncertainties. As such, actual future performance and results could differ materially from the statements included herein as a result of latent risks, factors not yet known to the Company or not currently considered material to the Company and its subsidiaries by the Company. 36