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Medium-term Management Plan

The second phase of “CAN 20”

Four years from Fiscal 2017 (122nd term) to Fiscal 2020 (125th term)

GUNZE LIMITED

Contents

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1. Review of the 1st phase

2. New Medium-term Management Plan The second phase of “CAN 20”

Ⅰ-1．Outline of Midium-term Management Plan

Focus and Concentration

7 years （FY2014 - FY2020)1st Phase （FY2014 - FY2016）2nd Phase （FY2017 - FY2020）

“CAN 20” (CAN Twenty）

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Plan Name

Key Concept

Period

2020

Management

Vision

2020 Business

Objectives

Gunze contributes to society as a global company that provides

customers with a special type of “comfort” which only Gunze can

offer,by further reinforcing its strength.

Set the health and medical-related fields that help improve the

quality of life of people as the core source of growth, and have

each business establish a “one-of-a-kind” position in the

industry in its respective field through focus and concentration.

Ⅰ-2. Financial Results (Consolidated)

4

Could not return to growth path in the 1st phase

N

et Sales

O

peratin

gIn

com

e

N

et Inco

me

Net Sales Operating Income Net Income

Result Target100 Millions of Yen

FY2016FY2013 FY2014 FY2015

Ⅰ-3. Performance by Business Segment

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Net sales

Operating income

Functional Solutions

（100 Millions of yen）

Apparel Lifestyle Creations

Although growth had been expected, the Functional Solutions business slowed. Apparel recovered.

FY2013 FY2014 FY2015 FY2016 FY2013 FY2014 FY2015 FY2016 FY2013 FY2014 FY2015 FY2016

FY2013 FY2014 FY2015 FY2016 FY2013 FY2014 FY2015 FY2016 FY2013 FY2014 FY2015 FY2016

Target

Target

Target

Target

Target Target

Resu

ltR

esult

Resu

lt

Result

Result

Result

Ⅰ-4. Achievement in the 1st Phase

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■Rapid Progress of Medical Materials (70% increase in sales)

■Entered into Apparel Retail Business

・Net sales increased 70% year over year, while

operating income increased 300% a year over year ・Sales of Bioabsorbable Reinforcement Felt expanded

in the U.S.A.

■Revival of Strong Apparel (80% increase in operating income)

・Women’s innerwear

・CUT OFF and Seam-free innerwear was a big hit

・Legwear

・Leggings pants that created new demand became a big hit

・"Jeans & Casual the Dan" became a subsidiary (M&A)

・Directly operated shops opened (factory outlet, family shop)

I-5. Review of the 1st Phase

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1,817

■Sluggish Electronic Components Business

Fixed assets impairment:1.3 billion yen off(FY2015), 23 billion yen off(FY2016)

・Since FY2015, strategy has been revised and business structure reorganized.

・Reviewed business structure and proceeded with downsizing

Film business・Promoted cross-sectional project within application-specific segments

・Discontinued vertical production structure and accelerated restructuring for Film and Touch Screen businesses.

Electronic

ComponentsTouch screen business ■Realization of slim management by reducing scale

a. Downsized business to correspond to actual capability

b. Focused on production of finished touch screen for industrial use

c. Consolidated production sites

Termination of Jun Hong Optronics Corp’s conductive sputter film business (Taiwan)

Fixed cost reduction

■ Rebuilding by synergy of Functional Solutions

Promoted

business by

concentrating on

2 projects

【Factors causing the 1st phase slump】

・ Could not foresee drastic changes in the market (Intensified price competition and unexpectedly large drop in unit price)

Impairment loss on fixed assets: 1.3 billion yen in FY2015, 2.3 billion yen in FY2016

Ⅰ-6. Review of Priority Strategy - Creating New Business -

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⇒ Development of Medical Apparel (Medicure)

Introduced low-irritation innerwear for persons with sensitive skin

after surgery (February 2016)

⇒ Promoted commercialization of high-

performance wires for medical applications

⇒ Could not expand business area by M&A

①Nightingale Project (health and medical business expansion)

⇒ Promoted commercialization of multiple

projects (Full-time team was organized in April 2016)

⇒Wearable system (wear with built-in sensor)

⇒ Development of body temperature adjustment

wear for dairy cows

②Edison Project (creation of new business)

“Ushiburu”

for dairy cows

■New business did not grow to be commercialized・ Project team did not work out sufficiently to commercialize the project due to lack of speed

・ Enhance efforts to commercialize project in the 2nd phase

“Wearable system”

for clothing

Ⅰ-7. Summary of the 1st Phase

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Looking back on 1st Phase

Delay in action to expand

sales

Lack of action to stimulate

matured products of the

mainstay business

Lack of business serving as

growth engine

Delay in restructuring of the

Electronic Components

business (Limitation for recovery along the

extension of conventional business)

Strategic issues for 2nd Phase

Set priority order for business areas within

each segment and realize growth by allocating

resources in high-priority areas.

Speed up development of new products, new

sales channels and new technologies by

promoting close linkage within each segment.

Take on challenge of new businesses under the

“stretch plan;” launch active business of CFA

project and execute strategic M&A.

Utilize the knowledge of the functional

solutions segment and implement a new

unification strategy.

※CFA: Cross Functional Approach

Contents

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1. Review of the 1st phase

2. New Medium-term Management Plan The second phase of “CAN 20”

Ⅱ-2. Fundamental Strategy for the 2nd Phase

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Strongly promote the 3 basic strategies

Business strategy

in each segmentCreation of new

business

Reinforcement of

management foundation

【Basic Strategy①】Business strategy in each segment■Revive growth in the Functional Solutions Business

・Seek continuous growth of Medical Materials

・Tackle new fields through close linkage within the segment

■Accelerate growth in the Apparel Business・Strategies to expand new sales channels and new markets

・Accelerate growth by strengthening brands and methods of selling

by differentiated technologies and products

■Steady expansion of the Lifestyle Creation Business・Expand the sports club category

・Strengthen shopping center business

(Redevelopment project of “Tsukashin-nishimachi” northern area will start)

Ⅱ-2. Fundamental Strategy for the 2nd Phase

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【Basic Strategy②】Creation of new business

■Promote commercialization of 1st phase projects

･Develop Nightingale & Edison projects into businesses that can contribute to

management

■Expand business by Mergers and Acquisitions

・Actively promote and expand the business areas associated with existing businesses

■Construct a mechanism to create new business themes・Promote each division’s new business challenge by implementing “stretch plan”

・Continuously search for new businesses that are not affected by the present market status

【Basic Strategy③】Reinforcement of management foundation

■ Improve competitiveness by strengthening manufacturing base

■ Strengthen management foundationa. CSR Committee b. Work Style Reform Committee

Ⅱ-3. Numerical Targets / Overall Targets

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FY2020 management goals (consolidated)

Item UnitFY2016

Results

FY2020

Forecast

Increase/Decrease

FY2020/FY2016

Net Sales Millions of Yen 136,579 150,000 +13,420 110％

Operating Income Millions of Yen 4,206 8,000 +3,794 190％

Operating Margin % 3.1 5.3 +2.2％

Net Income Millions of Yen 3,102 5,600 +2,498 180％

ROA % 2.5 4.7 +2.2％

ROE % 2.9 5.0 +2.1％

The assumed exchange rate for FY2020 is 110 yen (The plan does not include new business, M & A, and ”stretch plan”)

ROE: 5.0% or over

Ⅱ-3. Breakdown by Business Segment

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Net Sales

Operating Income

・Functional Solutions: Increase of 3.8 billion yen (7% increase)

⇒ Expand Medical Materials and shrink Electronic Components

・Apparel: Increase of 6.9 billion yen (9% increase)

⇒ Expand sales in growing products and channels

・ Lifestyle Creations: Increase of 2.7 billion yen (18% increase)

⇒ Expand sports club business

・Functional Solutions: Increase of 2.9 billion yen

⇒ Increase profits in Medical Materials and turn Electronic Components

Business into the black

・Apparel: Increase of 0.9 billion yen

⇒ Revive growth and continue improvement of structure

・ Lifestyle Creations: Increase of 0.6 billion yen

50.2

71.6

15.2

FY2016 54

78.5

17.9

FY2020

3.5

2.5

1.3

FY2016

6.43.4

1.9

FY2020

（Billions of yen）

36%11%

52%

37%

52%

12%

47%

35%

18%16%

29%55%

Lifestyle Creations Functional Solutions

Apparel

Functional Solutions

Apparel

Lifestyle Creations

Ⅱ-4. Strategy ① Segment Business Strategy - Functional Solutions

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SBU Contents FY20/FY16

Bioabsorbable

Reinforcement

Felt

• Introduce a new product "Dura wave" (developed in 2017)

• Expand Bioabsorbable Reinforcement Felt into new departments such as

gastrointestinal internal medicine and plastic surgery

• Active promotion of overseas market development

115%

Active promotion

of overseas market

development

• Launch full-scale operation of Gunze Medical Devices (China) 140%

■ Seek continuous growth of the Medical Materials Business

■ New products "Dura wave"

･First in domestic market

･Non-stitch type

･Absorbable synthesis

･Artificial dura mater

■New plant in Ayabe ■New plant in China

･Construct a new factory and concentrate investment of management resources on new product development

･Expand business by improving production and sales systems and develop Medical Materials into a core business

as soon as possible

Ⅱ-4. Strategy ① Segment Business Strategy - Functional Solutions

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Restructure film business

Create new business by promoting collaboration inside and

outside of the company

■ Tackle new fields through close linkage within the segmentBy utilizing existing resources (functions, technology base, customer contacts) of the Functional

Solutions business, enhance existing business and advance into new fields

Provide industrial materials for medical field and automotive applications

Rebuild business by combining extrusion technology and processing technology◆ Extrusion technology: Film formation technology possessed by Plastic Company and Engineering Plastics Division

◆ Processing technology: Coating technology cultivated through the Electronic Components business (sputtering, wet coating)

・Advance into new fields through collaboration with other companies (using external resources)

・Create new business through connections with diverse customers and by using technologies possessed by the

Functional Solutions segment

■Accelerate Growth in the Apparel BusinessConcentrate resources in the Apparel business, which is in a recovery trend; implement

initiatives with mixed categories to accelerate growth

Ⅱ-4. Strategy ① Segment Business Strategy - Apparel

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• Rebuild the domestic EC business system

• Tackle cross-border EC business in Chinese market

Apparel Shop

for family

Apparel Shop

for women

Actively expand new sales channels by leveraging

the Apparel business’s comprehensive strengths

Factory Outlet

Shop

Jeans & Casual the

Dan（Kuranosuke）

• Build and expand successful models of directly

operated stores (Factory outlet stores / Retail stores)

Implement strategies to expand new sales

channels and sales areas

・Incorporate retail business to acquire store development

and operation know-how

(Link with “Jeans & Casual the Dan;” utilize M&A)

Priority SBU Contents FY20/FY16

Stockings• Expand differentiated products by compression design and non-stress technology

• Conduct promotions with focus on SABRINA135%

New Lifestyle• Expand product categories to include outer bottoms, sports, home sundries, etc., and

open up new sales channels and new sales areas150％

･Strengthen NB’s apparel and develop medical-related products

･Expand product planning based on new lifestyles

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Priority SBU Contents FY20/FY16

Men’s

& Kid’s

• Expand “CUT OFF" design products of BODYWILD and

YG lines, and establish the status in the market

• Expand sports items toward the Olympic Games

125%

Women’s

• Focus on expanding sales of KIREILABO’s “Seam-

free“ innerwear.

• Promote market dissemination by Tuche's "seam zero" and

"future bra"

180%

■Strengthening

advertising/publicity

By strengthening development of differentiated products, actively expand innerwear sales, centered on women’s innerwear

Accelerate growth by strengthening differentiated technologies/products, brands and

sales floor promotion capabilities

Innerwear

Legwear

Ⅱ-4. Strategy ① Segment Business Strategy - Apparel

Ⅱ-4. Strategy ① Segment Business Strategy - Lifestyle Creations

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“Suita Mirica” opened in

April 2017

■Steady expansion of the Lifestyle Creation BusinessStrengthen current business base and achieve steady business expansion

vs FY2016 130%

vs FY2016 110%

Gunze Town Center “TSUKASHiN”

Expand the sports club business

Strengthen shopping center business

• Open new clubs in good locations (8 to 10 clubs in Japan)

• Strengthen business base through scrap & build

• Launch sports club business overseas (Opened 1st club in

Cambodia in 2017; 2nd club to be opened in 2018)

• Launch redevelopment project of “Tsukashin-nishimachi”

northern area

· Reopen after renovation in 2020

· Annual sales target (whole complex): 30 billion yen (25 billion yen in FY2016)

• Establish community-type shopping center through renovation

of "Elumi Kounosu" and "Maebashi Lirica“

• Promote new development (Redevelopment of the old factory site)

■ Promote commercialization of 1st phase projects

■ Expand business areas (M&A)

Ⅱ-5. Strategy ②Creation of New Business

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Edison Project (creation of new business)

･Promote new business creation strategy in 2 business frameworks

(Highly functional textiles and Sheet materials)

・Expansion of “Medicare” (Medical Apparel) since 2016・Promotion of commercialization of high-performance wires

for medical applications (expansion of applications and foray into overseas

markets)

Nightingale Project (health and medical business expansion)

M&A focused on synergy with current business

2nd phase

sales target

第２ﾌｪｰｽﾞ売上目標

2nd phase

Investment budget・Expand the Apparel retail business・Expand Medical-related business

※New business and M&A are not included in the numerical targets of CAN 20

2 Billion yen

2nd phase

sales target 3 Billion yen

10 Billion yen

Ⅱ-6. Strategy ②Creation of New Business

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Strengthen efforts to create new business based on the review of the 1st phase

Stretch PlanNew initiatives to promote new

business creation in each segment As for themes with uncertain factors, which are difficult to

judge in terms of feasibility but can make use of the company strengths, set challenging goals not to be included in the

business plan so as to promote taking on the challenge of new field development

Unit Contents

Advance into the US market

through collaboration with

other companies

Advance into yet-to-be-developed markets

through linkage with production expansion

strategy and collaboration with other

companies

Production of construction

materials

Tackle yet-to-be-developed areas by

applying possessed technologies

Increase sales through

improvement of added value

Develop new products based on marketing

tailored to especially growing markets

【Themes to tackle】

■Construct a mechanism to create new business

・Promote each division’s new business challenge by implementing “stretch plan”

・Tackle new themes not included in the original plan (create new sales)

・Discontinue difficult-to-accomplish themes, and review progress periodically to

find additional themes

・Search for new businesses that are not affected by the present market status

Ⅱ-6. Strategy③Reinforcement of Management Foundation

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■Improve competitiveness by strengthening manufacturing base

NExT movementMovement to make GUNZE a next-generation technology-

oriented company・Improve on-site strength and productivity.

・Reduce total cost

・Establish an advanced IT communication network(NExT: New Excellent Technology)

Build a strong production system by enhancing on-site strengths (Promotion of NExT movement)

· Strengthen production capabilities to respond to anticipated changes in product portfolio

· Pursue production efficiency not affected by the complexity of product specifications

Plastic film

(Fukushima Prefecture)

Thread & Accessories

(Indonesia)

Innerwear

(Kyoto Prefecture)

Packaging film

(China)

Plastic film

(U.S.A.)

Fiscal 2020 Target

Productivity

UP 30%（vs. FY2016)

Improve the productivity of the entire GUNZE Group based on common indicators, including overseas companies

■Strengthen the management structure

Work Style Reform CommitteeCSR Committee

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Ⅱ-6. Strategy③Reinforcement of Management Foundation

Defensive CSR

Offensive CSR

Strategic CSR

To become a company that can continuously contribute to society

To become a company that can continuously respond to new lifestyles

The GUNZE Group shall remain committed to ESG (Environment, Society,

Corporate Governance) through its core business

Strategic CSR to solve social

issues through business activities

＜Subcommitee for Lively Work＞

Improve value-added productivity through

business reformation and establish strict work

time management

＜Subcommitee for Brilliant and Illuminating Work＞

Implement work style reform to establish a

flexible and creative work style to support

diversity, such as empowerment of women, and

to meet workers’ needs

Prioritize new business・Nightingale & Edison projects

Ⅱ-7. Investment Strategy

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（Billions of yen）

■Capital investment

Functional Solutions• Manufacturing facilities for shrink film

(U.S.A.)• Manufacturing facilities for medical

materials

Apparel・Manufacturing facilities for seam-free

innerwear・Manufacturing facilities for stockings

Lifestyle Creations• Rental housing, commercial facilities（Redevelopment of idle land）

• Opening of new sports clubs

1st Phase (From FY2014 to FY2016）

7.2

3.6

9.4

Functional Solutions• Manufacturing facilities for shrink film

(U.S.A.)• Manufacturing facilities for medical

materials

Apparel• Strengthening innerwear manufacturing

base• Enhancement of facilities of overseas plants

Lifestyle Creations• Redevelopment project of “Tsukashin-

nishimachi” northern area• Opening of new sports clubs

9.3

7

11

2.5 1.8Sum for the period

22.8

Others

■ R&D expenses

9.5

Prioritize drivers for growth・Concentrate resources on themes related to

core Strategic Business Units・Strengthening core competencies by

leveraging core technology

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2nd Phase (From FY2017 to FY2020）

Others Sum for the period

29.1

（Billions of yen）

Ⅱ-8. Financial Strategy

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ItemFY2016 Results FY2020 Forecast

Increase (Decrease)

FY2020/FY2016

AmountTurnover

ratioAmount

Turnover ratio

AmountTurnover

ratio

Total Assets 169 0.81 170 0.88 1 0.07

Inventories 30 4.54 29 5.02 (1) 0.48

ROA（Operating Income to

Total Assets Ratio)2.5％ 4.7％ 2.2％

（Billions of yen/Times）■Asset efficiency

94 60

■Capital policy

1 Payout Ratio: 50％(Dividend per share shall be 7.5 yen or more)

2 Total return ratio: 100％(Flexible acquisition of treasury stock)

1 Payout Ratio: 50％(FY2014: 45%, FY2015: -, FY2016: 45%)

2 Flexible acquisition of treasury stock(FY2015: Acquired 5 million shares)

3 Maintenance of equity ratioExcept when a large investment is made

1st Phase (From FY2014 to FY2016） 2nd Phase (From FY2017 to FY2020）

(at 60 to 70%)

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Forward-looking statements such as earnings forecasts and other

projections contained in this release are based on information available at

this time and assumptions that management believes to be reasonable, and

do not constitute guarantees of future performance. Actual results may

differ materially from those expectations due to various factors.