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To Our Shareholders and Investors [November 2018/June 2018]

We would like to express our gratitude for the continuing support and encouragement.As our consolidated period for the second quarter of 86th fiscal year ended, I would like to address the summary of our financial report.

In our consolidated cumulative second quarter, the economic environment has gradually recovered in Japan. There were improvements in aspects of personal consumption, capital investment and domestic income. Although there are still uncertainties such as impact from the US-China trade dispute, we may see a moderate recovery trend in the world economy as a whole.

As for the automotive industry which our group primarily associate with has been stagnant, as the overall sales of automobiles in our main markets of China, United States and Japan has slowed, but our sales in Japan has been favorable with net sales of 95.1 billion yen (4.0% increase). However, operating profit has decreased to 9.3 billion yen (16.6% decrease) due to the surging costs of raw materials, temporary expense accompanying the launch of new models, increased development cost for advanced technologies, and as well as the reduced sales price to compete with local manufacturers in China. Ordinary profit was 11.1 billion yen (12.9% decrease), and net profit was 6.3 billion yen (4.5% decrease). Although we managed to achieve our business plan objective through manufacturing cost and general expense reduction activities, but it was not enough to cover for the decrease in profit.

Taking the business performance and financial condition of the current term into consideration, and to respond to the continuous support from our shareholders, we plan to increase the interim dividend to 27 yen per share, a 1 yen increase from the initial forecast in the beginning of the financial year.

A Start of a New Mid-Term Management Plan.

We started the Mid-Term Management Plan (20 Mid-Term Plan) which ends in March 2021 as the final fiscal year with "Innovate & Expand / Globally & Speedily (IEGS)" as the slogan to promote the development of both existing businesses and new businesses.

Considering the possible impact from the trade friction between United States and China will have on the world economy, the change from NAFTA to USMCA, and the ongoing trade negotiations between Japan and the United States, we are concerned for the future of the automotive industry. However, our company has an integrated force of sales, technology, and production to strengthen the sales of existing products, and with Faltec and other new field companies, we will expand the non-power train business and establish future technologies through active investment in the advanced fields.

We humbly ask for the continued patronage from all of our shareholders.

November 12, 2018
Hideo Yamaoka, Chairman & CEO

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