FY2021 First-Half Results Briefing

FY2021 First-Half Results Briefing

Yokohama Transformation 2023 Progress & Full-Year Outlook

Good day everyone and thank you for making time in your busy schedule to attend today’s presentation of Yokohama Rubber’s results for the first half of 2021.

My presentation today focuses on the progress we made implementing our YOKOHAMA Transformation 2023 medium-term management plan during the first half of the year.

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Copyright(C) THE YOKOHAMA RUBBER CO., LTD.

Medium-term Management Plan

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As this slide shows, we use YX2023 as the short name of our medium-term plan covering the three years from 2021 to 2023.

The “Y” of course stands for “YOKOHAMA” and the “X” is short for “Transformation,” as we plan to pursue “Exploitation” and “Exploration” to achieve the transformation of the Yokohama Group.

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303.9

Medium-Term Management Plan: Targets

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650.5

570.6

620.0

700.0

770.0

2019 2020 2021 2022 2023 2024 2025

Culmination of past 100 years

Sales revenue

YX2023 2024~2025

Business profit 50.1 36.8 70.0 80.0

Record high sales revenue

50.0

Unit: ¥ billion

GD2020

Achieve GD100targets655.0

49％*

* excluding Hamatite business

2021 Forecast

During YX2023, we will “exploit” the core strengths of existing businesses while simultaneously “exploring” new growth opportunities that will respond to the dynamic once-in-a-hundred years transformation taking place in the tire market. Through this two-dimensional approach, we are aiming for record profits in 2023, targeting sales revenue of ¥700 billion and business profit of ¥70 billion.

Looking a little further into the future, in 2025 we are aiming for sales revenue of ¥770 billion and business profit of ¥80 billion, which would amount to achieving the goals envisioned in our GD100 management plan and be a gratifying culmination of the Yokohama Group’s efforts over the past 100 years.

In the first half of 2021, YX2023’s first year, we achieved sales revenue of ¥303.9 billion. Even though this figure excludes the Hamatite business, which will be transferred to another company later this year, it amounts to 49% progress toward our initial full-year target, which as of today has been raised to ¥655.0 billion. In the second half of the year, all members of the Yokohama Group will make every effort to achieve this new, higher target.

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Tire Strategy: Impact of CASE/MaaS on Tire Business

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Next, I would like to present our vision of the future tire market.

The tire market includes two distinct markets—the consumer tire market centering on passenger cars and the commercial market, which includes tires for trucks, buses, agricultural machinery, and other commercial-use vehicles. However, the trends toward CASE, MaaS and DX, which is short for digital transformation, are changing the market landscape. Specifically, we expect individual ownership of cars to decrease and infrastructure-related vehicles devoted to moving people and goods to increase. In short, we expect the main customers for tires to shift from individuals to companies, which will result in today’s consumer tires increasingly becoming commercial tires.

Yokohama Rubber is responding to this transformation of the tire market by promoting strategies based on the two approaches mentioned earlier, “Exploitation” and “Exploration.” Our strategy for consumer tires centers on maximizing the sales ratio of our high value-added tires by increasing sales of our ADVAN, GEOLANDAR and WINTER tires. This approach amounts to the exploitation of our current core strengths in ultrahigh performance tires, tires for SUVs and pickup trucks, and winter tires. Meanwhile, in the commercial tire market, we will be exploring new opportunities created by changes in the market. Our efforts will be guided by four main themes—cost competitiveness, service, DX, and expansion of our product lineup.

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Consumer Tires: Raise High Value-Added Tire Sales Ratio

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40%(2019)

40%(2019)

40%(2019)

UHPSUV

Pickup truck WINTER

1) Expanding OE use of ADVAN & GEOLANDAR

2) Strengthen sales in replacement market and

Expand size lineups including for WINTER tires

3) Strengthen sales of tires suited to local market needs

Target

50%+

Let’s look a little more closely at each part of our consumer tire strategy.

We aim to expand the sales ratio of high value-added tires from the recent 40% to more than 50% by increasing sales of ADVAN, GEOLANDAR, and WINTER tires. This effort will include expanding OE use of ADVAN and GEOLANDAR brand tires, strengthening sales in the replacement market, expanding our size lineups, including for WINTER tires, and strengthening sales of tires suited to each local market’s needs.

The next several slides present our activities to achieve the goals of our consumer tire strategy during the first half of this year.

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Consumer Tires: OE on Premium Cars

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BMW iX3Mercedes-AMG GLB 35 4MATICBMW M M3 Sedan & M4 Coupe

ADVAN

BluEarth

Mitsubishi Motors’ new Eclipse Cross PHEV

GEOLANDAR

Nissan’s new Rogue (for No. American market)

Toyota’s new Land Cruiser (overseas specs)Received letter of appreciation for tire development

Let’s start with our effort to expand the use of ADVAN and GEOLANDAR tires as original equipment on premium cars.

During the first half of 2021, our ADVAN tires were adopted as OE for such new prestige models as BMW’s M3 sedan and M4 coupe, and Mercedes-AMG’s GLB35 4MATIC. ADVAN tires also were adopted for use on BMW’s iX3 electric SUV.

GEOLANDAR tires meanwhile were adopted by Toyota for its new Land Cruiser 300 Series for the overseas market, and we also received a letter from Toyota praising our technologies that contribute to GEOLANDAR tires’ excellent environment-friendly and off-road performance qualities. Nissan adopted our GEOLANDAR X-CV (G057) tire as OE on its new Rogue SUV for the North American market, and Mitsubishi Motors is equipping its new Eclipse Cross PHEV with our BluEarth brand tires, known for their environment-friendly features.

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Consumer Tires: Strengthen WINTER tire R&D

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Launched WINTER tires worldwide

Next up is our WINTER tires.

So far this year, we have launched four new tires shown in this slide. The iceGUARD 7 is a studless tire for the Japanese market. The BluEarth Winter V906 is being sold in Europe. The 904W is a studless tire for trucks and buses, and the BluEarth-Van All Season is, as its name indicates, an all-season tire developed especially for use on vans.

YX2023 has positioned 2021 as the year we go on the offensive in the winter tire market, and we will be making every effort to expand sales of these new tires.

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Consumer Tires: Motor Sports Activities

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Overall winner of 6th

round of Nürburgring Endurance Series (NLS)

Winners of two divisions at Pikes Peak

International Hill Climb in USA

Winner in Pro UTV NA class of the SCORE SAN

FELIPE 250, off-road endurance race in Mexico

2nd place finisher in 4th

race of SUPER GT GT500, Japan’s top-level touring car racing series

Again supplying ADVAN racing tires as control tire

for Japanese SUPER FORMULA Championship

In 1H 2021, supplied Yokohama tires to teams competing in 88 races

Japan 44 racesEurope 26 racesNo. America 9 racesAsia 0 0 1 raceOceania 0 8 races

Concept: Grassroots

★★ ★ ★

★

★★★

★

★

Motor sports has been part of Yokohama Rubber’s DNA since our participation in the 1957 for Mount Asama Volcano Race.

Since then, we have participated in races in every category, including “grassroots” events. In the first half of 2021, we supplied our racing tires to teams competing in 88 races in Japan and overseas. We will continue to participate in motor sports and will strive to meet the expectations of race fans around the world as well as enhancing the value of the YOKOHAMA brand.

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Consumer Tires: Product & Regional Strategies

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North America

China ADVAN ＋6

Sizes added in 1H 2021

Japan

Europe ADVAN ＋20GEOLANDAR ＋6

Expanding size lineups of high-value added tires in each region

ADVAN ＋16GEOLANDAR ＋9

ADVAN ＋17GEOLANDAR ＋10

106％95％

ADVAN

150%(vs 2019）

※ Sales increase rates are comparisons with 1H 2019 results

117％

115%(vs 2019）

WINTER

120%(vs 2019）

18” and larger

155%(vs 2019）133％

GEOLANDAR

The essential point in our product and regional strategies is the timely expansion of our lineup of products suited to each regional market.

During the first half, we expanded our ADVAN and GEOLANDAR size lineups as appropriate for each region and exceeded our sales targets for the two brands and for large-sized tires of 18 inches or more.

WINTER tire sales were lower than in the first half of 2019, when sales in Japan were supported by price increases and a surge in demand ahead of the hike in Japan’s consumption tax rate. However, we expect the earlier mentioned four new tires will support our effort to achieve our sales target.

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Expanding production capacity for tire sizes 18-inch and larger

Consumer Tires: Investing to Improve Product Mix

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Production capacity for 18” and larger tires as share of total production capacity

31%32%

35% 35%

37% 37%

39%

40%40%

20%

25%

30%

35%

40%

45%

0

10

20

30

40

50

60

2015年 2016年 2017年 2018年 2019年 2020年 2021年 2022年 2023年

18インチ以上タイヤ本数 18インチ未満タイヤ本数 18インチ以上構成比％Under 18” volume

Period Investment Plant locations

2018～

2020¥29bn

Japan: Shinshiro, Shinshiro-Minami, Mie

Overseas: Philippines, China-Suzhou & Hangzhou, India, Thailand

2021～

2023

About ¥20bn

（plan）

Japan:Shinshiro, Mie, Mishima

Overseas: Philippines, China-Suzhou, Thailand

2015 2016 2017 2018 2019 2020 2021 2022 2023

Under 18” volume18” and larger volume 18” and larger share

As this slide shows, we have been actively investing to improve our product mix since the previous medium-term plan, GD2020. From 2018 to 2020, we invested ¥29 billion to improve our product mix. During YX2023, we plan to invest another ¥20 billion.

This aggressive investment has raised our production capacity for 18-inch and larger tires from 35% of total capacity in 2017 to 37% in 2020, GD2020’s final year, and we expect to raise that figure to 40% in 2023, YX2023’s final year.

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ＤX: Digital transformation

Commercial Tires: Respond to Market Changes

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Started trial operation of a tire solutions business with ORIX Auto Corp.

Use sensors and the cloud to manage tire pressure data taken while driving and at vehicle inspections

Onboard device + SIM card

Increase accuracy and quick tire

pressure checks

Enhance safety by notifying driver when tire pressure

becomes low while drivingNFC

Data posted to the cloud

Report / Confirmation

Inspection / Replacement

Able to check vehicle conditions online

Remote data management

Car sharing management office

Small sensors attached to tires

I will now explain our first-half achievements in the commercial tire market segment.

In February, we announced our SensorTire Technology Vision, which will guide our technological development of sensors for passenger car tires over the medium and long terms. The aim of this new vision is to continue providing support for the safe and sound movement of people while also addressing changes in mobility demand.

This August we began a trial operation of a new system for remotely monitoring tire air pressure in cooperation with Orix Auto’s car sharing business.

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Integrating OHT businesses of Yokohama Rubber, ATG, and Aichi Tire

Commercial Tires: OHT Business Is Future Growth Driver

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Decided to make additional investment in response to strong demand.Scheduled startup for capacity added from original plan: 1Q 2024

Investing to expand capacity: 2.2x increase in originally planned capacity of new plant in Visakhapatnam, India

Business integration: Yokohama Off-Highway Tires

Yanmar Agribusiness tractor now coming equipped with ALLIANCE brand tires

YT460A

ALLIANCE selected as OE in Japan

ALLIANCE AGRISTAR Ⅱ

Previously announced

450Production to

start at Visakhapatnam

510

2025

OHT production capacity (rubber volume, tons/day

Up about 40%

from 2020

Next, I will present the progress made in our OHT business, which we regard as a key driver of growth in our commercial tire business.

In a first step to strengthen the Group’s OHT business, in January this year we integrated Yokohama Rubber’s OHT business with that of Group companies ATG and Aichi Tire under the name Yokohama Off-Highway Tires. An early concrete result from this integration was achieved in May, when Yanmar Agribusiness selected an ALLIANCE brand tire as OE on its new agriculture-use tractors. This is the first time in about 50 years that one of our OHT tires will be used as OE by a Japanese maker of agricultural machinery.

In addition, as announced earlier today, we have decided to increase our investment in production capacity at a plant already under construction in Visakhapatnam, India. The additional investment will more than double the original planned capacity of the new plant. As a result, our global OHT production capacity in 2025 will increase to 510 tons per day, 13% more than the 450 tons we announced back on February 19.

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MB Strategy: Shifting Portfolio to Products with Highly Stable Earnings and Strong Growth Potential

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Hose &couplingsGrowth driver

Hose &couplingsGrowth driver

Industrial products

Stable earnings

Industrial products

Stable earnings

HamatiteFocus on

core areas

HamatiteFocus on

core areas

Aerospace productsStructural reforms

Aerospace productsStructural reforms

Business restructuring

Strengthen/expand by allocating resources to

core product areas

Hamatite business transferHamatite business to be transferred to Sika AGTransfer date: November 1, 2021 (planned)Transfer price: ¥17.2bn (agreed upon value of the business)

・Tripling capacity of Chinese plantInvestment amount: RMB 76mn (approx. ¥1.3bn)

・Acquisition of Furusawa Shokai, an equipment maintenance company

Yokohama Industrial Products–Hangzhou Co., Ltd.

Hose & couplings

Next is our MB strategy.

By concentrating the MB segment’s resources in its two strongest businesses—hose & couplings and industrial products—we will solidify the segment’s ability to generate stable earnings while also enhancing its growth potential. In the hose & couplings business, we are investing to triple capacity at our Chinese plant in response to robust demand from Chinese OEMs and from the replacement market. We also recently acquired Furusawa Shokai, a Hokkaido-based company engaged in the maintenance of construction and hydraulic machinery.

As for the Hamatite business, in April we decided to transfer the business to Sika AG. The two companies have agreed to a transfer price of ¥17.2 billion, equal to the business’ value. The transfer will take effect on November 1.

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Human Resources Strategy

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Full-time officers’ annual bonus in salary months based on earnings results (consolidated business profit)

Personnel management to realize further growth• Strengthen performance-linked remuneration for managers

Head office buyer: ATF Special Purpose Company(established by Asahi Kasei Realty & Residence Corp., Taisei Corp.,

and Fuyo General Lease Co., Ltd.)

Gain on sale : ¥20.8 billion（Contract concluded on February 26, 2021)

Percent of head office employees commuting to office during pandemic (Apr. 2020-Jun. 2021)

・ Planning, production, sales, R&D, and logistics functions united at same site

・ Continuation of telework and flextime removes time and location restraints

Results

Business profit (unit=¥100mn)

～150

151～

201～

251～

301～

351～

401～

451～

501～

551～

601～

651～

Bonus

Standard months paid

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5

Basic salary Performance-linked pay

Composition of president’s remuneration (FY2020)

52％48％

(Short-term) Bonus 8％(Long-term) Stock 44％

Speedier decision-making facilitated by merger of head office and Hiratsuka factory / work-style reforms

0%

50%

100%

4月 5月 6月 7月 8月 9月 10月11月12月 1月 2月 3月 4月 5月 6月

2020 2021

Apr. May Jun Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun

I will now explain our human resources strategy.

We are strengthening performance-linked remuneration for directors and, as shown in the upper right of this slide, we have created a table that linearly links the number of months’ salary to be paid as a bonus to our short-term earnings performance. Combining the bonus indicated by this table with restricted stock compensation linked to long-term performance, my performance-linked remuneration, for example, amounted to 52% of my total pay in 2020. In addition, this March we introduced a medium-term performance-linked remuneration system that will be based on the achievement of the financial targets in our medium-term management plan.

To facilitate decision-making and ongoing work-style reforms, we decided to move our head office to the site of our Hiratsuka factory. As a result, on February 26, we agreed to sell the head office building to ATF Special Purpose Company, a joint venture formed by Asahi Kasei Realty & Residence, Taisei, and Fuyo General Lease. The sale will generate a gain of ¥20.8 billion.

In addition to moving most head office functions to Hiratsuka, we are also continuing to promote work-style reforms that benefit our employees. For example, in the first half of this year, the percent of head office workers who commuted into the office was only about 30-40% on average. Based on the experience gained during the pandemic, we are promoting greater use of work-at-home and flextime and have improved our system for granting leave to care for family members. These actions are helping to improve our employees’ work-life balance.

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ESG: Environment

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Products

Earth’s environment

・ Developed a lighter automotive air-conditioning hose

About 50% lighter than conventional hoses

• Expand use of renewable energyEstablish itinerary by end of this year for achieving carbon neutrality

◆Carbon neutrality

ATG’ India’s Dahej Plant

Image of structure of new rubber-resin polymer alloy

◆YOKOHAMA Forever Forest activities• Tree-planting goal: 1.06 million by 2023 → 1.15 million (After change)

Trees planted as of end-1H 2021: 1.06 millionTree-planting event

Butadiene rubber produced from biomass

Next-generation air-conditioning hose

"BluEarth-GT AE51" prototype tire with butadiene rubber derived from biomass

• Increase recyclable fuels & materials to more than 30% of total used by 2030

Begin exploration & evaluation of new raw materials in Japan and abroad

◆Circular economy

Next, I will present our ESG initiatives, starting with the Environment.

Product-related initiatives included the development of an automotive air-conditioning hose that sharply reduces the weight of conventional hoses. By using proprietary a rubber-resin polymer alloy, we were able to reduce the hose’s weight by about 50% compared to conventional hoses. By helping reduce vehicle weight, the lighter hose will contribute to greater vehicle fuel efficiency.

Looking at our initiatives to protect the Earth’s environment, by the end of this year we will establish an itinerary for achieving carbon neutrality that will meet the increasingly strict environmental standards being set by national governments and automobile makers. As part of our effort to expand the use of renewable energy, ATG is installing solar panel power generation systems at its two plants in India. We also are making efforts to promote a circular economy. We aim to increase the use of recyclable fuels and materials to more than 30% of our total energy usage by 2030, and accordingly are stepping up R&D of recyclable materials, such as butadiene produced from biomass.

We also are continuing our YOKOHAMA Forever Forest project, which we launched in 2007. In the first half of this year, we achieved our original goal of planting 1.06 million trees by 2023. We therefore have raised that goal to 1.15 million.

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Copyright(C) THE YOKOHAMA RUBBER CO., LTD. 16

ESG: Society

Supporting regional societies

Support provided in 1H 2021

COVID-19 related support for Kanagawa Prefecture

Donated tiresTire replacement costs

COVID-19 related support for Mie Prefecture

Donated tires

Earthquake off coast of Fukushima Prefecture

Monetary donation

Japan Car Sharing Association Donated tires & wheels

Japan Hair Donation & Charity Monetary support

Child Fund Japan Monetary support

Kanagawa Prefectural Hospital’s Children’s Medical Fund

Monetary support

Chance For Children Monetary support

Shine On! Kids Monetary support

YOKOHAMA Magokoro Fund

Next is our society-related initiatives.

The YOKOHAMA Magokoro Fund established by our employees in 2016 continues to support organizations dealing with important social issues while also making donations to support disaster-recovery operations. In the first half of 2021, support for efforts to control the spread of COVID-19 included the donation of tires for use on healthcare institution vehicles as well as monetary donations.

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ESG: Governance & People / Third-Party Recognition

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Creating safe and comfortable work environment

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• Included in major ESG stock index for 16th straight year

Third-party recognition of our sustainability efforts• On CDP A List for 2020, 2nd straight year on the list

• Safe & secure workplace

Participating in Japanese Red Cross Society’s

“ACTION! For Disaster Prevention & Mitigation”

program

The last ESG topic is Governance.

We aim to maintain safe and secure work environments for all employees. Accordingly, we are conducting risk assessments of all equipment and processes at our factories to identify and reduce potential risks. In addition, we are participating in the Japanese Red Cross Society’s “ACTION! For Disaster Prevention & Mitigation” program.

Our ESG activities have been highly evaluated by institutions in Japan and abroad. For example, our stock has been included in the FTSE4Good Index Series, a leading global index for ESG investment, for 16 consecutive years. In addition, earlier this year we were again named to the 2020 Climate Change A List established by CDP, a global environmental impact non-profit organization. The selection was our second straight and third overall. We are one of 53 Japanese companies on the list, which includes a total of 277 companies from around the world.

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FY2021 Full-year Forecasts and Comment on Dividend

Plan to increase full-year dividend by ¥1 to ¥65/share

DPS trend

(¥ billion) 2021

forecast2020result

Change Change (%)YX2023targets

Sales revenue 655.0 551.1 +103.9 +18.9％ 700.0

Business profit 51.5 35.9 +15.6 ＋43.6％ 70.0

Business profit margin 7.9％ 6.5％ +1.4％ 10％

FY2021 full-year forecasts

※ A 1-for-2 share merger was carried out on July 1, 2015. DPS figures prior to the share merger have been retroactively adjusted to reflect the merger.

Shareholder return¥65¥64

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Yokohama Rubber has reclassified that Hamatite sealings and adhesives business as “discontinued operations” in the interim results reported here and has restated the figures for the same period of the previous year.

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Considering our progress during the first half of fiscal 2021, we have revised our forecasts for the full year.

We are now targeting sales revenue of ¥655 billion, business profit of ¥51.5 billion, operating profit of ¥73.5 billion, and ¥57.5 billion in profit attributable to owners of the parent. We will distribute an interim dividend of ¥32 per share and plan to increase the annual dividend by ¥1 to ¥65.

In the second half of the year, the entire Yokohama Group will make every effort to achieve the revised targets by continuing to implement the strategies explained here today.

Cautionary Notes Regarding Forecasts

Forecasts and outlooks included in this material are based on the judgment of the Company's management using currently available information. Actual results and earnings may differ from the forecasts and outlooks included in the material due to various risks and uncertainties.

This concludes my presentation of our progress in implementing the YX2023 medium-term management plan during the first half of fiscal 2021.

I thank you for your kind attention today and look forward to your continued guidance and support.

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FY2021 First-Half Results Briefing

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