Sanyo Special Steel Co., Ltd.
IR Briefing Regarding the Business Results for the FY2023
Q&A SummaryDate: Tuesday, April 30, 2024
Speaker : Katsuhiro Miyamoto, Representative Director and President
Takashi Yatsunami, Managing Executive Officer* Please be noted that the actual Q&A session was in Japanese and this English
translation is prepared for reference purpose only.
----------------------------------------------------------------------------------------Q．Regarding FY2024 ordinary income forecast, is it including base price increase of 10,000 yen perton, starting from February 2024 contracts, and cost increase due to review of night-time electricity
price by Kansai Electric Power?
A．FY2024 forecast incorporates both base price increase and cost increase. We assume that baseprice increase will become more penetrated from FY2024/2H. The forecast also includes cost
increase associated with review of night-time electricity price.
Q．Could you explain outlook for demand recovery in FY2024, including from the inventory cycle
aspect?
A．Destocking is gradually coming to an end. In particular, destocking in industrial machinery sector
is almost completed and semiconductor-related demand is bottoming out. As for automotive
industry, although impact of differences in sales momentum among manufacturers as well as
temporary production and shipment halts has been greater than expected, we believe that demand
will return as the situation normalizes.
Regarding OVAKO, we also expect a gradual recovery in demand from FY2024/2H, considering
the destocking situation in Europe, which seems to have already been completed for the most part.
Q．Without full-fledged recovery of Chinese economy, wouldn’t it be difficult for demand from industrial
and construction machinery sectors to recover in Japan? In addition, Germany, to which a large
portion of OVAKO sales is destined, is partially affected by Chinese economic situation. Given
these factors, isn’t China’s economic recovery necessary for full-fledged recovery in sales volume?
A．It is true that deceleration of Chinese economy affects both Sanyo and OVAKO to some extent.
However, our forecasts for FY2024 are not based on the premises that there will be a rapid
recovery in sales volume. They are based on a scenario that there will be a post-destocking
rebound and moderate upturn in demand.
Q．Could you explain more about the partnership between OVAKO and FNsteel? Can we expect acertain amount of increase in sales volume? Also, when will the benefits begin to accrue?
A．Through the partnership, OVAKO sells CN (green) steel bars to FNsteel, which processes theminto wire rods and supplies them to customers, including Japanese automakers but we would liketo reserve providing details such as sales schedule and volume. FNsteel has agreed on stable
relationship with OVAKO and we are confident that this partnership will mutually benefit OVAKO
and FNsteel.

Q．Regarding variance analysis of OVAKO's ordinary income, could you explain why the amount ofnegative impact of raw material and fuel prices is -0.7 billion yen for “FY2023/3Q→ FY2023/4Q”
and is -2.6 billion yen for “FY2023 Result→FY2024 Forecast.” It appears that this kind of negative
impact has seldom occurred in the past.
A．As part of its efforts to strengthen cost structure for improvement of margins, OVAKO had been
increasing sales ratios of high-end products while limiting those of mid-range products. However,
we are now attracting demand for green steel materials in the mid-range sector, and we arepositively considering capturing such demand since current business situation is requiring us tosecure sales volume in a flexible manner. Therefore, some negative impact of sales margin andproduct mix resulting from increase in sales of mid-range products is included in FY2024 forecast.
Q．During explanation on Sanyo‘s sales volume trends, it was mentioned that some of the changes
were due to structural changes in market. Could you explain more about that?
A．We believe that part of gradual decline in sales volume after recovery from COVID-19 impact isdue to structural changes. In China, for example, excessive competition for EVs has led to fierce
price competition for mid-range and low-end products in the local market, resulting in shifts to somecheaper local materials and parts. On the other hand, high-end products, such as those for thesemiconductor market, where local materials and parts cannot be used, are not expected to beaffected by structural changes.
Q．Regarding variance analysis of ordinary income for “FY2023 results→FY2024 forecast,” could youtell us why there is positive impact of 4.2 billion yen in raw material and fuel prices despite thedownward trend in alloy prices, which usually pushes down sales prices through surcharge system.
A．Although partly consequential, in FY2023, impact of alloy price decline appeared in sales prices
before it did in the cost of goods sold. Therefore, we assume that decrease in the cost of goods
sold will occur in FY2024.
Q．We have heard that a European competitor has filed for reorganization proceedings. Would you
expect this to lead to increase in orders for OVAKO?
A．The competitor has a variety of customers, including Japanese manufacturers. Recently, somecustomers of the competitor have requested OVAKO to provide CN (green) steel, partly becauseof its stable management structure. We would like to ensure sales volumes by responding to such
requests. For Japanese manufacturers, OVAKO and Sanyo can work together to respond swiftlyand smoothly. We are of course open for enquiries from non-Japanese manufacturers as well.
Q．Regarding growth strategy, you explained that Sanyo Group currently has little exposure in North
America and high equity ratio in its financial position, which provides platform to explore various
opportunities. We understand that sales volume could recover in FY2024 as destocking is resolved,
but we would like to hear your thoughts on future growth strategies, including options such as M&A.
A．If there is growth opportunity and is financially feasible, we would consider to pursue any option.
For example, North America is a large market and trade barriers are blocking inflows of products
from outside the country, so it makes sense to be an insider. In addition to global growth throughregional expansion, we also aim to accelerate efforts toward carbon neutrality as demand forcarbon-neutrality-related products from our customers is expected to grow going forward.

Q．Regarding OVAKO's product mix, you explained that mid-range products will be promoted in
FY2024. Could you tell us what kind of strategies OVAKO would take after a possible recovery indemand for high-end products in the future?
A．Currently, OVAKO has some excess capacity, so sales of mid-range products should be of noconcern, but we consider it is important to increase the number of customers who require high-end
products because OVAKO’s strength lies in its high-end products. In addition, we will further
improve our carbon-neutrality-related strengths through the construction of additional hydrogenplants and other measures to stay far ahead of competitors. We also aim to use this advantage instrengthening OVAKO's product mix.
Q．Could you explain why there seems to be a major difference in impact of transient factors andsurcharge timing for Sanyo and OVAKO?
A．How surcharge time lags affect profit and loss is different for Sanyo and OVAKO. In Sanyo,surcharges on iron scrap and alloy scrap are generally reflected in sales prices within three months,
while energy surcharges have a time lag of about six months. In case of OVAKO, there are one totwo months of time lags. Therefore, there is a difference in the magnitude of the impact caused bysurcharge time lags. Part of OVAKO’s transient factors in FY2023 were related to a unique
phenomenon triggered by invasion of Ukraine, nevertheless not included in FY2024 forecasts since
the phenomenon has already disappeared.

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