Briefing on Results for the First Half of theFiscal Year ending March 31, 2018

November 22, 2017

Photo: Denyo Manufacturing Corporation (U.S.A.)Contents

I. Overview of Results for the First Half of FY2018/3
Toshiya Tozawa, Senior Executive Officer, Chief Executive
Administration Division

II. Outlook for FY2018/3 and Future Management
PolicyShoichi Shiratori, President

1Overview of Results for
the First Half of FY2018/32

Highlights of Results for the First Half of FY2018/3 (Consolidated)
Key Point

Both Net sales and Net income decreased year on year.
(million yen)First half of FY2017/3

First half of FY2018/3

Rate of change(YoY)

Ordinary income

22,894
1,667
1,784

100%
7.3%
7.8%

22,7831,432
1,526

100% △0.5%
6.3% △14.1%
6.7% △14.4%

Profit attributable toowners of parent

1,103

4.8%

946

4.2% △14.2%

Capital investment
Depreciation

204605336588Net income per share

51.61 yen

44.56 yen

Net sales
Operating income

ROE
Interim dividends per share

4.6% Annualized
15.0 yen

3.6%

Annualized

15.0 yen3

Sales Trends by Product (Consolidated)
Overview

1. Sales of generators increased by 432 million yen (2.5%).
2. Sales of welders rose by 90 million yen (4.0%).
3. Sales of compressors decreased by 124 million yen (20.4%).
(million yen)

By productFirst half ofFY2017/3

100%First half ofFY2018/3

Rate ofchange(YoY)△111 △0.5%

Net sales

22,894Generators

17,073 74.6%

17,505 76.8%

432

2.5%

Welders

2,275

9.9%

2,365 10.4%

90

4.0%

Compressors

607

2.7%

Others2,938 12.8%

22,783

100%

Change(YoY)

2.1%△124 △20.4%

2,429 10.7%△509 △17.3%

4834

Engine Generators (Consolidated)
First half of FY2017/3

Generators

17,073 million yen

First half of FY2018/3

Rate of change(YoY)

17,505 million yen• In Japan, shipment to the major rental industry remain robust
and shipment of the emergency generators increased.
• Overseas, shipment to the Asia and the Middle and Near Eastdecreased.

2.5%

65%
Domestic market share of*According to aengine generators (mobile-type) Company survey

Manufacturing engine-driven generators with capacityfrom 1kVA to 1100kVA

Silent generator “Mālie”

Stand-by generating sets

Mobile-type generators
Power source on a construction site and for civil engineering workand disaster recovery/restoration, etc.
Stand-by generating sets (stationary type)Back-up power source such as disaster prevention equipment
and offices, etc.
Power-supply vehicles, power light, etc.

5Engine Welders (Consolidated)
First half of FY2017/3

Welders

2,275 million yen

First half of FY2018/3

Rate of change(YoY)

2,365 million yen

4.0%• In Japan, the shipment decreased slightly.
• Overseas, the shipment to America and the Europe
increased.

55%Domestic market share ofengine welders*According to aCompany survey

The Company developed the first engine-driven welder for outdoor work inJapan.
Ranging from 135A for welding light-gauge steel to a 500A engine-driven
welder for heavy-gauge steel, a TIG welder and a CO2 welder, etc.
Welding of steel construction for buildings, condominiums and bridges.
Welding of important structures such as petroleum storage tanks and pipelines.
Engine welder

6

Engine Compressors (Consolidated)
First half of FY2017/3

Compressors607million yen

First half of FY2018/3

Rate of change(YoY)△20.4%

483million yen• In Japan the shipment increased, but the shipment toAmerica decreased.

20%
Domestic market share ofengine compressors

Engine compressor

Motor compressor*According to aCompany survey

Manufacturing compressors with air discharge
amounts from 1.6㎥/min to 42.4㎥/min.
 Breaking-up of roads and ground improvement workof roads
 Mortar spraying work for preventing landslides ofmountain roads.
 For artificial snow machines on ski slopes, etc.
7

Others (Consolidated)
First half of FY2017/3

Others2,938 million yen

Rate of change(YoY)

First half of FY2018/3

2,429 million yen△17.3%• Sales of self-propelled lifters and Repair sales etc. decreased.

Sales of other products
Self-propelled lifters
PartsSecondhand equipment and purchased
merchandiseRepair sales, etc.
Self-propelled lifter

Load testing equipment

8

Sales Trends by Region (Consolidated)(million yen)

By region

First half of FY2017/3

First half of FY2018/3

Change(YoY)

Rate ofchange(YoY)

Net sales

22,894100%

22,783

100%

△111

△0.5%

Domestic sales

12,994

56.8%13,337

58.5%

343

2.6%

Overseas sales

9,900

43.2%

9,446

41.5%

△454

△4.6%

North/Central
America

4,984

21.8%

4,936

21.7%

△48△1.0%

Asia

3,598

15.7%

3,164

13.9%

Others

1,316

5.7%

1,345

5.9%

△434 △12.1%
29
2.2%

First half of FY2017/3

Japan

North/Central
America

Asia

OthersFirst half of FY2018/3

Japan

North/Central
America

Asia

Others

15,00020,0000

5,000

10,00025,000

million yen

9Factor Analysis of Changes in Operating Income
Decrease in Operating Income•It is decreased due to the worsening of the gross profit margin and the ratioof SG&A to sales.
(million yen)First half ofFY2017/3

First half ofFY2018/3

Change (YoY)

Operating income

1,667

1,432

△235

Operating income margin

7.3%

6.3%

△1.0 percentage points

First half ofFY2017/3

First half ofFY2018/3

Rate of change (YoY)

Gross profit margin

24.6%

24.0%

△0.6 percentage points

Ratio of SG&A to sales

17.3%

17.7%

0.4 percentage points

Ratio of operating income tosales

7.3%

6.3%

△1.0 percentage points••

Gross profit margin is worsen due to a decrease in the shipment of the large-sized machine with relatively highprofitability to overseas market.
Ratio of SG&A to sales increased due to an increase of the personnel expense, etc.

10Consolidated Balance Sheets
Overview

1. A 68 million yen increase in current assets was mainly due to an increase in cash anddeposits, etc.
2. A 538 million yen decrease in current liabilities was mainly due to declines in tax income
payable, etc.
(million yen)First half of
FY2017/3

At the end ofFY2017/3

First half ofFY2018/3

Change from theend of FY2017/3

Current assets

39,974

43,81443,88368

Non-current assets

23,544

24,86325,866

1,003

Total assets

63,51968,67869,749

1,071

Current liabilities

10,096

11,596

11,058Long-term liabilities

3,366

3,936

4,361

△538
425

Total liabilities

13,463

15,532

15,419Total net assets

50,05653,14554,330△112
1,184

Total liabilities and net assets

63,51968,67869,7491,071
11

Changes in Consolidated Cash Flows
Overview

1. A 3,548 million yen cash flow from operating activities was mainly due to a decrease intrade receivable, etc.
2. Balance of cash and cash equivalents increased 2,167 million yen from the end of theprevious fiscal year.
(million yen)First half ofFY2017/3

First half ofFY2018/3

I Cash flow from operating activities

1,711

3,548

II Cash flow from investing activities

△ 550

△ 882

I + II Free cash flows

1,161

2,666

III Cash flow from financing activities

△ 458

△ 406

IV Foreign currency adjustments on cash and cashequivalents△425△92276

2,167

12,022

14,387

V Net increase or decrease in cash and cash equivalents
VI Cash and cash equivalents, end of period12Outlook for FY2018/3 andFuture Management Policy

13Outlook for FY2018/3: Consolidated Income and LossKey points

1. Net sales are expected to be 50.5 billion yen.
2. Assumed exchange rate is 105 yen/dollar.

FY2017/3(million yen)

FY2018/3 (forecast)

Change(YoY)

Rate ofchange(YoY)

Net sales

48,851100%

50,500

100%

1,649

3.4%

Operating income

4,247

8.7%

4,000

7.9%

△247

△5.8%

Ordinary income
Profit attributable toowners of parent
Capital investment

4,526

9.3%

4,200

8.3%

△326

△7.2%

2,867

5.9%

2,600

5.1%

△267

△9.3%

511

1,000

489

95.7%

Depreciation

1,211

1,200

△11△0.9%

134.2yen

122.4yen△11.8yen

Net income per share
ROE
Cash dividends per
share (yen)

5.7%
30.0yen*Equity is calculated by using the amount of money

5.1% at the end of FY2017/3.
30.0yen14

Changes in the Amount of Capital Investment(million yen)

End of March2015

End of March2016

End of March2017

End of March2018 (plan)

2,531

1,125

511

1,000

Cost ofequipment••Main uses•••

Machinery of Fukui plant,etc. 440
Nishinihon Generator
Mfg.160
U.S. Plant 50
Vietnam Plant 1,630
Singapore 180

•
•
•
•

Machinery of Fukui plant,etc. 430
Nishinihon Generator
Mfg.80Vietnam Plant 100
Singapore 280

•
•
•
•

Machinery of Fukui plant,etc. 100
Nishinihon Generator Mfg.
50
Vietnam Plant 250
Singapore 20

•
•
•
•
•

Machinery of Fukui plant,etc. 600
Nishinihon Generator Mfg.
70
U.S. Plant 200
Vietnam Plant 100
Others 30

Amount of capital investment
million yen

3,000
2,500
2,0001,500
1,0005000
End ofMarch2015

End ofMarch2016

End ofMarch2017

End ofMarch2018(plan)

Denyo Vietnam the 2nd factory15

Outlook for Sales by Product (Consolidated)
Overview

1. Sales of generators are expected to increase by 1,943 million yen (5.3 %).
2. Sales of welders are anticipated to increase by 418 million yen (8.7%).
3. Sales of compressors are forecasted to be down by 290 million yen (20.1%).
(million yen)

FY2018/3 (forecast)

Change (YoY)

Rate of change(YoY)

100%

1,649

3.4%

Generators

36,857 75.4% 38,800 76.8%

1,943

5.3%

Welders

4,832

9.9%

5,250 10.4%

418

8.7%

Compressors

1,440

2.9%

1,150

FY2017/3

By productConsolidatedsales

Others48,851100%

5,720 11.7%

50,5002.3%

5,300 10.5%△290 △20.1%
△420

△7.3%
16

Outlook for Sales by Region (Consolidated)(million yen)

FY2017/3

FY2018/3 (forecast)

Change (YoY)

Rate of change(YoY)

48,851 100%

50,500 100%

1,649

3.4%

Domestic sales

29,252 59.9%

31,050 61.5%

1,798

6.1%

Overseas sales

19,599 40.1%

19,450 38.5%△149△0.8%North/ Central
America

10,310 21.1%

10,550 20.9%

2402.3%

Asia

6,479 13.3%

5,950 11.8%

△529

△8.2%

Others

2,808

5.8%

1425.1%

By region

Consolidated sales

FY2017/3

5.7%

2,950

North/Central
AmericaJapan

FY2018/3(forecast)

North/Central
AmericaJapan010,000Asia

20,00030,00040,000

OthersAsia

Others
50,00060,000 million yen

17Details of the Operating Income Forecast
Decrease in operating income

The operating income is expected to decrease by 247 million yen(million yen)

FY2017/3

FY2018/3(forecast)

Change (YoY)△247

Operating income

4,247

4,000

Operating income margin

8.7%

7.9% △0.8percentage points

FY2017/3

FY2018/3(forecast)

Change (YoY)

Ratio of SG&A to sales

24.5%
15.8%

24.1%
16.2%

△0.4percentage point
0.4percentage point

Ratio of operating income to sales

8.7%

7.9%

△0.8percentage point

Gross profit margin••

The gross profit margin is expected to be worsen due to the shipment of large-sized machine to overseas market
decreased.
The ratio of SG&A to sales are expected to rise due to increase of the personnel expenses ,etc.

18

Future Management Policy
Management philosophy:
Devoting our attention to manufacturing products focusing on safety, economy andenvironment under the theme of power sources while pursuing“benefits for three parties”(so those who use, sell and manufacturer will benefit).
Management strategies:(1) As a pioneer in power sources, we aim to become the leader in the highperformance generator market, employing our strong technical capabilities
and extensive sales network.
(2) Enhancing the peripheral businesses of generators.
(3) Entering into new related businesses.
Target management indicators:(1) ROE: 8% or more (5.7% in FY2017/3)(2) Ratio of ordinary income to sales: 12% or more (9.3% in FY2017/3)
19

Profit Distribution Policy
Profit distribution: Denyo recognizes the importance of returning profits toshareholders, while aiming to strengthen future competitiveness and profitability, andwe will implement an interim and term-end dividend payouts of distribution ofresults comprehensively calculated by achievement and payout ratio.

Changes in cash dividends:
30 yen in FY2016/3 ⇒ 30 yen in FY2017/3 ⇒ 30 yen (forecast) in FY2018/3yen353025

20

Year-end dividents

15Interim dividends

1050
FY2015/3

FY2016/3

FY2017/3

FY2018/3(forecast)20

Future Business Strategies
Key Points

 Enhancement of products for other than construction-related markets
 Development of products with high environmental performance Strengthening of overseas business strategies

Enhancement of products forother than constructionrelated markets

Eco-base generator↓Enhancement of the stand-bygenerating set business
Sales expansion of power-supplyvehicles

Development of Product withhigh environmental
performance↓Contributing to the protection of theenvironment by manufacturing a seriesof standard feature eco-based(ecologically-minded) generators,welders and compressors.

Stand-by generating setsStrengthening of overseas
business strategies↓
・Selling products in the American, Asianand European markets in a balancedmanner.
・Manufacturing engine generators at
the Vietnam Plant to respond to therobust Asian market.

21Notes on Our Outlook

This material contains assumptions and outlooks for the future andforecasts based on plans as November 9, 2017.
Actual results may differ materially from projected values due to future
economic changes and competition.
This material is prepared for the purpose of providing information and is
not meant to solicit investment in securities issued by the Company.
Investors are responsible for making their own final investment decision.

22

Reference Materials

23Overview of the Company
The leading manufacturer of outdoor power sources such as engine generators and engine welders
History:

July 2,1948

Established as Japan Power Welding Machine Co., Ltd.

1959

Developed and launched Japan’s first high-speed engine-driven welders.

1961Began to manufacture and sell engine-driven generators.

1966

Developed soundproof engine-driven generators.
Changed its corporate name to Denyo Co., Ltd.

1983

Listed on the Second Section of the Tokyo Stock Exchange.

2000

Listed on the First Section of the Tokyo Stock Exchange.

● Company size, etc. (FY2017/3 on a consolidated basis)(million yen)

Net sales

48,851

Overseas sales

19,599Ordinary income

4,526

Net income

2,867

Total assets

68,678

Net assets

53,145Market capitalization (as of March 31)

38,496

Number of employees

1,215

Head Office (Nihonbashi-Horidomecho)

24

The Group Companies
100%( Nishinihon Generator Mfg. Co., Ltd. )
100%

80%

100%

100%

76%

51%
100%

*1. Other than the above, the New Japan Machinery Corporation is an equity-method affiliate (investment ratio 15.7%).
2. Underlined companies are manufacturers.

25Trends and Forecasts by Product Sales
Sales by productmillion yen

60,000Generators

50,000Compressors

Others

5,504
5,334
6,701

40,000Welders

5,181
805

993

1,126
5,556

5,263

1,094
3,844

4,834

36,46536,84938,241FY2012/3

FY2013/3

FY2014/3

5,919
1,104
5,1005,300
5,720
1,440

1,150
5,250

4,832

30,00020,00040,07938,29436,857FY2015/3

FY2016/3

FY2017/3

38,80010,0000FY2018/3(forecast)

26

Changes in Sales by Region and Forecasts
Sales by region

million yen

60,000
Japan

North/Central America

Asia

2,945

50,0002,466
5,647

40,000

2,137
2,410
6,959

3,606
6,619

6,862

9,548

2,808

6,921

6,479

9,776

10,310Europe and others

2,950
5,950

9,007

11,23431,727

31,46830,15529,252

31,050FY2014/3

FY2015/3

FY2016/3

FY2017/3

FY2018/3(forecast)

10,753

10,55030,000

20,00030,44527,645

10,0000
FY2012/3

FY2013/327

Changes in Results for the Last 30 Years
Ordinary income, 100 million yen

Net sales,100 milion yen

600

60
Bubble periodJapanOverseas

Ordinary income
Great East Japan
Earthquake

500

50
Y2K boom

Lehman shock

400

40300

30200

20100

1000
Fiscal Year28