Briefing on Results for the First Half of theFiscal Year ending March 31, 2017

November 22, 2016

Photo: Denyo United Machinery Pte Ltd (Singapore)ContentsI. Overview of Results for the First Half of FY2017/3
Toshiya Tozawa, Senior Executive Officer, Chief Executive
Administration Division

II. Outlook for FY2017/3 and Future Management
PolicyShoichi Shiratori, President

1Overview of Results for
the First Half of FY2017/32

Highlights of Results for the First Half of FY2016/3 (Consolidated)
Key Point

Both Net sales and Net income decreased year on year.
(million yen)First half of FY2016/3

Net sales
Operating income
Ordinary income
Net income
Capital investment
Depreciation
Net income per share

ROE
Interim dividends per share

23,560
1,743
1,895
1,414

100%
7.4%
8.0%
6.0%

First half of FY2017/3

22,894
1,667
1,784
1,103

818
598

204
605

66.21 yen51.61 yen

6.0% Annualized
14.0 yen

4.6%

Rate of change(YoY)

100% △2.8%
7.3% △4.4%
7.8% △5.9%
4.8% △22.0%

Annualized

15.0 yen
3Sales Trends by Product (Consolidated)
Overview

1. Sales of generators decreased 522 million yen (△3.0%).
2. Sales of welders decline 456 million yen (△16.7%).
3. Sales of compressors were up 68 million yen (12.6%).
(million yen)

By productFirst half ofFY2016/3

Rate ofchange(YoY)△666 △2.8%

17,595 74.7%

17,073 74.6%△522 △3.0%

2,731 11.6%

2,275

9.9%

△456 △16.7%

2.3%

607

2.7%

68

12.6%

2,938 12.8%

245

9.1%

23,560Generators
Welders

OthersChange(YoY)

100%

Net sales

Compressors

First half ofFY2017/3

539

100%

2,693 11.4%

22,8944Engine Generators (Consolidated)
First half of FY2016/3

Generators

17,595 million yen

First half of FY2017/3

Rate of change(YoY)△3.0%

17,073 million yen• In Japan, shipment to the major leasing and rental industry
increased.
• Overseas, shipment to the Asia and the Middle and Near Eastdecreased.

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

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

Mobile-type generator

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 FY2016/3

Welders

2,731 million yen

First half of FY2017/3

Rate of change(YoY)△16.7%

2,275 million yen• In Japan, the shipment decreased.
• Overseas, the shipment to the Europe increased while
the shipment to America decreased.

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 FY2016/3

Compressors

539 million yen

First half of FY2017/3

Rate of change(YoY)

607million yen• For the full-fledged production in American factory
started, shipment to America increased.

12.6%

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 FY2016/3

Others2,693 million yen

Rate of change(YoY)

First half of FY2017/3

2,938 million yen

9.1%• Sales of self-propelled lifters and Parts etc. increased.

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 FY2016/3

First half of FY2017/3

Change(YoY)

Rate ofchange(YoY)

Net sales

23,560100%

22,894

100%

△666

△2.8%

Domestic sales

12,96255.0%

12,99456.8%

320.2%

Overseas sales

10,597

45.0%

9,900

43.2%

△697

△6.6%

North/Central
America

4,785

20.3%

4,984

21.8%

199

4.2%

Asia

4,041

17.2%

3,598

15.7%

Others

1,771

7.5%

1,316

5.7%

△443 △11.0%△455 △25.7%

First half of FY2016

Japan

North/Central
America

AsiaFirst half of FY2017

Japan

North/Central
America

Asia

0

5,000

10,00015,00020,000

OthersOthers
25,000

million yen

9Factor Analysis of Changes in Operating Income
Decrease in Operating Income•It is mainly affected by the increase of the ratio of SG&A to sales.
(million yen)First half ofFY2016/3

First half of
FY2017/3

Change (YoY)

Operating income

1,743

1,667

△76

Operating income margin

7.4%

7.3%

△0.1 percentage points

First half of
FY2016/3

First half of
FY2017/3

Rate of change (YoY)

Gross profit margin

24.5%

24.6%

0.1 percentage points

Ratio of SG&A to sales

17.1%

17.3%

0.2 percentage points

Ratio of operating income tosales

7.4%

7.3%

△0.1 percentage points••

Gross profit margin is improved by the import cost of raw materials decreased for the appreciation of the yen.
Ratio of SG&A to sales increased due to increase of the personnel expense and etc.

10Consolidated Balance Sheets
Overview

1. A 2,272 million yen decrease in current assets was mainly due to an decrease in tradenotes and accounts receivables.
2. A 2,359 million yen decrease in current liabilities was mainly due to declines in tradenotes and accounts payables.
(million yen)First half ofFY2016/3

At the end ofFY2016/3

First half ofFY2017/3

Change from theend of FY2016/3

Current assets

38,59742,24639,974△2,272Non-current assets

25,21924,74723,544△1,203

Total assets

63,817

66,99463,519△3,475Current liabilities

10,217

12,455

10,096△2,359Long-term liabilities

4,165

3,726

3,366

△360

Total liabilities

14,382

16,181

13,463△2,718

Total net assets

49,43450,81250,056△756

Total liabilities and net assets

63,817

66,99463,519△3,47511

Changes in Consolidated Cash Flows
Overview

1. A 1,711 million yen cash flow from operating activities was mainly due to an increase innet income before taxes.
2. Balance of cash and cash equivalents increased 276 million yen from the end of theprevious fiscal year.
(million yen)First half ofFY2016/3

First half ofFY2017/3

I Cash flow from operating activities

1,506

1,711

II Cash flow from investing activities

△ 510

△ 550

996

1,161

△ 652

△ 458

IV Foreign currency adjustments on cash and cashequivalents

25△425

V Net increase or decrease in cash and cash equivalents

368

276

11,144

12,022

I + II Free cash flows
III Cash flow from financing activities

VI Cash and cash equivalents, end of period12Outlook for FY2017/3 andFuture Management Policy

13Outlook for FY2017/3: Consolidated Income and Loss
Key points

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

FY2016/3(million yen)

FY2017/3 (forecast)Rate ofchange(YoY)

Change(YoY)

Net sales

50,419100%

50,500

100%

81

0.2%

Operating income

4,097

8.1%

4,100

8.1%

30.1%

Ordinary income

4,494

8.9%

4,500

8.9%

60.1%

Net income

3,137

6.2%

2,900

5.7%

△237

△7.6%

Capital investment

1,125

1,000△125△11.1%

Depreciation

1,284

1,250

△34△2.6%

146.8yen

135.7yen△11.1yen

Net income per share
ROE
Cash dividends pershare (yen)

6.5%
30.0yen*Equity is calculated by using the amount of money

5.9% at the end of FY2016/3.
30.0yen14

Changes in the Amount of Capital Investment(million yen)

End of March2014

End of March2015

End of March2016

End of March2017 (plan)

2,453

2,531

1,125

1,000

Cost ofequipment••

Main uses••

Machinery of Fukui plant,etc. 480
Nishinihon Generator Mfg.
270
Vietnam Plant 440
Singapore 1,100

•
•
•
•
•

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.
80
Vietnam Plant 100
Singapore 280••••

Machinery of Fukui plant,etc. 500
Nishinihon Generator Mfg.
100
U.S. Plant 300
Others 100

Amount of capital investment
million yen

3,000
2,500
2,000
1,500
1,000
500
0
End ofMarch2014

End ofMarch2015

End ofMarch2016

End ofMarch2017(plan)

Denyo Vietnam the 2nd factory

15Outlook for Sales by Product (Consolidated)
Overview

1. Sales of generators are expected to increase by 106 million yen (0.3 %).
2. Sales of welders are anticipated to decline by 300 million yen (5.9%).
3. Sales of compressors are forecasted to be up by 196 million yen (17.8%).
(million yen)

FY2017/3 (forecast)

Change (YoY)

Rate of change(YoY)

Consolidated
sales

50,419 100%

50,500 100%

81

0.2%

Generators

38,294 76.0%

38,400 76.3%

106

0.3%

Welders

5,100 10.1%

4,800 10.2%

△300

△5.9%

1.9%

196

17.8%

6,000 11.5%

811.4%

By product

FY2016/3

Compressors
Others

1,1042.2%

5,919 11.7%

1,30016Outlook for Sales by Region (Consolidated)(million yen)

FY2016/3

FY2017/3 (forecast)

Change (YoY)

Rate of change(YoY)

50,419 100%

50,500 100%

81

0.2%

Domestic sales

30,115 59.7%

31,400 62.2%

1,285

4.3%

Overseas sales

20,304 40.3%

19,100 37.8%△1,204△5.9%

North/ Central
America

9,776 19.4%

10,200 20.2%

424

4.3%

Asia

6,921 13.7%

6,100 12.1%△821△11.9%

Others

3,606

5.6%

△806

△22.4%

By region

Consolidated sales

FY2016Japan

FY2017/3(forecast)

Japan010,000

7.2%

2,800

North/Central
America

Asia

North/Central
America
20,00030,00040,000Asia

OthersOthers
50,00060,000 million yen

17Details of the Operating Income Forecast
Increase slightly in operating income

The operating income and the operating income margin are almost unchanged
from the previous year.

(million yen)

FY2016/3

FY2017/3(forecast)

Change (YoY)

Operating income

4,097

4,100

3

Operating income margin

8.1%

8.1%

±0percentage points

FY2016/3

FY2017/3(forecast)

Change (YoY)

Ratio of SG&A to sales

24.1%
16.0%

24.6%
16.4%

0.5percentage point
0.4percentage point

Ratio of operating income to sales

8.1%

8.1%

±0percentage point

Gross profit margin••The gross profit margin are expected to improve by the import cost of raw materials decreased for the appreciation ofthe yen.
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 (6.5% in FY2016/3)(2) Ratio of ordinary income to sales: 12% or more (8.9% in FY2016/3)
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:
28 yen in FY2015/3 ⇒ 30 yen in FY2016/3 ⇒ 30 yen (forecast) in FY2017/3
yen35
3025
20Year-end dividents

15Interim dividends

1050FY2014/3

FY2015/3

FY2016/3

FY2017/3(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-by
generating 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.

LEG standby generator

Strengthening 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 10, 2016.
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.

1961

Began to manufacture and sell engine-driven generators.

1966

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

1983Listed on the Second Section of the Tokyo Stock Exchange.

2000

Listed on the First Section of the Tokyo Stock Exchange.

● Company size, etc. (FY2016/3 on a consolidated basis)(million yen)

Net sales

50,419Overseas sales

20,304

Ordinary income

4,494

Net income

3,137

Total assets

66,994

Net assets

50,812Market capitalization (as of March 31)

26,494

Number of employees

1,165

Head Office (Nihonbashi-Horidomecho)

24

The Group Companies
100%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

40,00030,000Welders

5,181
805

993

1,126
5,556

5,263

5,919

6,000

1,104

1,300

5,100

4,800

1,094
3,844

4,834

36,84938,241

40,07936,46538,29438,400FY2012/3

FY2013/3

FY2014/3

FY2015/3

FY2016/3

FY2017/3(forecast)

5,611
929
2,935

20,00023,811

10,0000FY2011/326

Changes in Sales by Region and Forecasts
Sales by region

million yen

60,000JapanAsia

2,945

50,0002,466
5,647

40,000

2,137
2,410
6,959

3,606
6,619
6,921

6,862

9,548

30,000

North/Central America

Europe and others

2,800
6,100

9,007

11,23431,727

31,46830,15531,400FY2014/3

FY2015/3

FY2016/2

FY2017/3(forecast)

9,776

10,20010,753

2,954
4,731
6,652

20,00030,445

10,00027,645

18,9490
FY2011/3

FY2012/3

FY2013/327

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

Net sales,100 milion yen

600
Bubble periodJapan

Overseas

Ordinary income
Great East Japan
Earthquake

500
Y2K boom

60
50

Lehman shock

400

40300

30200

20100

1000
Fiscal Year28