Sanyo Special Steel Co., Ltd.
IR Briefing Regarding the Business Results for the FY2018 2Q
Q&A Summary
Date:

November 16, 2018

Speaker:

Director, Member of the Board and Managing Executive Officer;
Kozo Takahashi* Please be noted that the actual Q&A session was in Japanese and this English
translation is prepared for reference purpose only.
----------------------------------------------------------------------------------------Q．It seems that Sanyo is making a business forecast for FY2018 where it is operating at fullcapacity and orders are strong, but there are concerns that the global economy may slow
down a little. Special steel is an industry that reportedly takes long processing time, andhistorically, inventory adjustment often starts suddenly at the beginning of a recession.
What are your current demand trends and do you have such contingency at this time?
A．Inventory adjustment of machine tools and manufacturing equipment for semiconductor has been
continuing for a while. We think that the impact of the recent decline in Chinese car sales isbeginning to appear, but believe that it is not that serious. However, inventory adjustments mighttake longer than previously expected and continue during the current fiscal year.
Presently, we are unable to meet all of the demand, and at this point we do not think thatshipments will fall sharply this fiscal year. Even if this happens, iron scrap prices have been
softening these days, and if this price level continues, the negative impact of the time lag of the ironscrap surcharge in the second half of the fiscal year will be reduced than expected, and we believethat this could cover the situation.
Q． As for the integration effect with Nippon Steel & Sumitomo Metal Corporation (NSSMC)
and OVAKO, it is thought that the cooperation effect with the Bar & Wire Rod Unit of NSSMC
in Japan will come out early, but how will the integration effect with OVAKO overseas be
produced specifically?
A．We have not discussed the matter in detail because we have not obtained the approvals of thecompetition authorities yet, but we believe a synergy that is expected to emerge relatively early
between Sanyo and OVAKO is in the area of operational improvement. On the other hand, it willtake more time to rearrange and optimize the manufacturing sites because the customer’s new
approval will be required and certification process will take time. Sanyo currently have a mutual
OEM relationship with NSSMC, and believe that if Sanyo become a subsidiary of NSSMC, we will
be able to do the OEM more extensively, and therefore generate synergies earlier.

Q．What do you think of additional sales price increase? It is thought that the costs willcontinue to rise in the second half of FY2018.
A．Products that adopt surcharge systems are subject to price revisions based on agreements. In thecurrent fiscal year, we requested a base sales price increase of 5,000 yen/ton due to the cost
increase of electrodes, etc., and obtained approval from most of our customers by the end of
September. In the second half of the fiscal year, we plan to ask for price revisions and change ofprocess only for unprofitable products. Should additional base sales price increases substantiate,
they would be implemented from next fiscal year.
Q．How is this year’s profit for Mahindra Sanyo Special Steel Pvt. Ltd. (MSSSPL) in India,excluding the effect of Sanyo’s goodwill? What are the prospects?
A． PBIT of MSSSPL for the first half of this fiscal year is in surplus, although there is a three-month
gap when reflecting in the consolidated result. On the other hand, PBT is in deficit because of highinterest rates in India, and it is expected to be same this fiscal year. Since India is also experiencing
a rise in raw material, fuel and electrode prices, and the sales price improvement is being delayedin MSSSPL, an achievement of positive PBT is expected to be after next fiscal year.
Q．What are the specific one-off factors in the second quarter of FY2018 (July-September) andthe second half of FY2018 (forecast)?
A．One-off factors in the second quarter of FY2018 (July-September) are the time lag of the iron scrap
surcharge of about 150 million yen, and the remaining factors are the delay in shipments fromSeptember to October due to the typhoon, expenses related to the acquisition of shares incurredfor the process of becoming a subsidiary, and the negative factors of the half-year end physicalinventory. One-off factors in the second half of the fiscal year (forecast) include the time lag of theiron scrap surcharge of 500 million yen, and expenses related to the acquisition of shares incurred
for the process of becoming a subsidiary of NSSMC and other matters, and the registration andlicense tax.
Q．What are the key points of the high-cleanliness steel manufacturing process announced inJuly 2018? What kind of possibilities are there?
A．We have developed the Sanyo Ultra Refining Process (SURP), marking additional progress in
Sanyo New Refining Process (SNRP). SNRP not only reduces the volume of inclusions, it also
controls (reduces) the size of large inclusions. Additionally, SURP helps to reduce the frequency oflarge non-metallic inclusions. It can be used in more severe environments such as high-speed
railways and wind power generation, and is expected to meet the needs for maintenance-freeoperation.

Q．In the Ordinary Income Variance Analysis from the second half of FY2017 to the first half ofFY2018, the impact due to rising price of raw materials and fuels was negative 2.6 billion yen.
What is the breakdown? Is there any effect due to the rising price of vanadium?
A．Approximately half of the negative 2.6 billion yen is due to iron scrap, remaining 40% is due to alloyiron, and the other 10% is due to energy costs. Alloy iron include nickel, molybdenum, andvanadium. Vanadium is mainly used in tool steel, but not in large quantities. Therefore, even though
the vanadium price is rising, the impact on overall profit or loss is not significant.
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