Sanyo Special Steel Co., Ltd.
IR Briefing Regarding the Business Results for the FY2020
and 2025 Medium-term Management Plan
Q&A Summary
Date:
Friday, April 30, 2021
Speaker:
Representative Director and President; Shinya Higuchi (2025 Medium-term Management Plan)
Director, Member of the Board and Managing Executive Officer; Kozo Takahashi (Business Results)* Please be noted that the actual Q&A session was in Japanese and this English
translation is prepared for reference purpose only.
----------------------------------------------------------------------------------------Q．Could you please give us any ideas of business forecast for FY2021? If the negative time lag ofiron scrap surcharge in FY20/4Q (-1.7 billion yen) is relieved in FY2021, I think that ordinary
income of the FY2021 is expected to be higher than forecast.
A．Although iron scrap price rose in the second half of FY 2020(Oct. 2020 to March 2021) on apurchase basis, it has not yet increased on actual cost basis. Thus we consider this negative timelag effect will remain in FY2021. Fixed costs will increase due to an increase in depreciation
expenses associated with investment in No.2 Bar & Wire Rod Mill and an increase in labor costs
and other expenses due to the termination of emergency profit improvement measures andactions. We consider the genuine ordinary income for FY2021 to be the sum of our business
forecast 7.0 plus time lag of iron scrap surcharge 2.3 billion yen.
Q．At the previous IR briefing in January 29, 2021, there was explanation that Ovako had strong salesinquiries because import from outside EU had decreased. Could you please tell us the current
situation? Regarding a global movement toward carbon neutrality, Ovako has good reputation
about their environmental awareness and how will these affect Ovako’s business?
A．Ovako still has strong sales inquiries because import from outside EU has been decreasing due tohigh container freight and strong domestic steel demand inside China in addition to the steadydemand for mainly automobiles sector in the EU. In addition, Ovako, as Sanyo, has a long supply
chain, therefore sales orders are strong due to stocking on the customer side. At present, it isdifficult to express in figures the positive influence of carbon neutrality on Ovako’s sales. However,
we expect that the demand for Ovako, which has eco-processes, that is, high energy conservationand efficiency in production, will increase in the future. Furthermore, Ovako's customers aremostly in the EU, and Ovako has advantage from the view of local production for local
consumption as well.
Q．Could you please give us a background of recording impairment losses on fixed assets for MSSS
and how to improve profit?
A．MSSS had shown gradual but steady recovery in production and sales. However, the supply ofoxygen was halted due to state order giving priority to oxygen supply to medical institutions frommid-April 2021 due to the brutal spread of COVID-19 infection in India. Last year, the oxygen
shortage had resolved in two weeks, but we don't imagine to be that short this time. Accordingly,
we are determined that we must take a more prudent view of when MSSS will recover its
profitability, considering factors including the impact of COVID-19 on future business activities.
Nevertheless, we expect that demand for specialty steels in India will continue to grow in thefuture, and MSSS will aim to further enhance its position in the Indian market by reinforcing its
cost-competitiveness and by promoting sales of high margin, high-grade or large-diameterbearing steel.

Q．Sanyo’ｓ sales volume on non-consolidated basis of 75,000 tons per month in the “2025 Medium
term Management Plan” is lower than the recent sales record for Sanyo. Does this figure include
the effect from synergies with Nippon Steel? Could you please give us a background why thedemand for special steel will decline?
A．Sanyo’ｓ sales volume on non-consolidated basis of 75,000 tons per month is the same level as
the first half of fiscal 2019 when destocking in the supply chain just began. Positive effects fromsynergies with Nippon steel and Ovako are definitely included in that volume. However, weconsider that specialty steel demand in Japan is expected to decrease in the future becausea)social structure will change such as aging demographics, b)exports of specialty steel are
expected to decline due to the growing needs of overseas consumers for local production for local
consumption, and c) industrial structure such as increase of electrical vehicles will changed. We
will aim to further establish a lean and robust corporate structure to secure stable earnings in avolatile business environment.
Q．With regards to Sanyo’ｓsales volume on non-consolidated basis of 75,000 tons per month in the“2025 Medium term Management Plan”, could you please tell us how you evaluate the decision tohave invested in No.2 Bar & Wire Rod Mill during the previous medium-term (FY2017-FY2019)?
A．The purpose of the investment in No.2 Bar & Wire Rod Mill is to respond customer requirement
such as smaller parts and smaller diameters more cost effectively and to improve the quality ofproducts. We installed new Reducing and Sizing Block (RSB) rolling mill, which enables us, forinstance, a) producing high quality steel bars by manufacturing through higher reduction and b)
corresponding to the transformation of the demand structure, without lowering production
efficiency. In addition, we modified auxiliary lines such as cooling bed and cold shear, etc. tostrengthen the integrated manufacturing structure. As a result, we are able to even morecorrespond to the stringent requirements from customers.
Q．What do you think about CO2 emission reduction targets?
A．We will proceed to achieve carbon neutrality by 2050 in accordance with the target set by thegovernment of Japan. About 80% of our CO2 emissions are caused from procured electricity andcity gas mainly made from fossil fuels, and the key point is whether we can use green energy inthe future to reduce our emissions.
We aim to achieve carbon neutrality by 2050 with following activities a) reducing CO2 emissions
in the supply chain through the promotion of "eco products”, and b)eco-processes, that is,continuous energy conservation.
Q．In the presentation paper for 2025 Medium-term Management Plan, there is an explanation “We
focus on intensifying technologies that can respond to further reliability and consistency
requirements in fields such as EV, wind power, railways, and hydrogen society, expected toexpand globally". What kinds of concrete products do you have in your mind?
A．For EV, we expect ECOMAX Steel,Ni-and Mo-free high-strength case hardening steel, to besuitable for gears of decelerator that are used under severe environment. For wind power
generator and high speed railways, big sized or highly reliable maintenance-free bearings arerequired, and for demand of utilizing hydrogen, seamless stainless steel pipes and tubes fortransporting hydrogen could contribute.

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