Overview of Business Results
for the 1st Quarter of Fiscal Year Ending March 31, 2021
(April 2020 → June 2020)© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

1

Table of Contents
1. FY2020 1Q Results

Outline of Statements of Income
Income (Structural Basis)
Ordinary Income Variance Analysis
Net Sales and Income (quarterly)
Review of Performance; Sanyo, Ovako and MSSS
Earnings by Business Segment
Balance Sheets
Capital Expenditure and Depreciation
D/E Ratio

2. FY2020 Forecast

Business Forecast for FY20
Ordinary Income Variance Analysis
Net Sales and Income (fiscal), Sales Volume and Ordinary Income at the 2008 Financial Crisis
Dividend Forecast for FY20, Dividend Trend

3. COVID-19 Infection

Impact of COVID-19 Infection, Countermeasures of COVID-19 Infection

4. Others

Emergency Profit Improvement Measures and Actions
Outline of Ovako

5. Topics
6. Reference

Trends in Automobile Market, Industrial Machinery Market, and Special Steel Market
Raw Materials and Fuel Prices© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

2

Business Results

Outline of Statements of Income
１. Outline of 2020FY1Q Result

Sanyo’s sales volume (non-consolidated) was very stagnant comparable to the 2008 financial crisis period. Demand deteriorated due to the
expansion of COVID-19 infection. To improve the financial performance, Sanyo introduced profit improvement measures such as reducing
overtime, utilizing the unemployment insurance scheme for temporary leave, voluntary partial returning of executive compensation andmanager’s salary, cutting other expenses, etc. In addition, Sanyo changed the depreciation methods (ref. P13). Nevertheless, We regrettably
recorded an ordinary loss in FY20/1Q of 1.8 billion yen, deteriorating by 4.1 billion yen from FY19/1Q.

(Thousands of ton )(Reference) 2020FY/1Q Sales Volume (for Ovako and MSSS; January 2020 to March 2020)

Sales Volume(Sanyo)(Ovako)(MSSS)

FY20/1Q (A)FY19/1Q(B)

137
173
25

255
196
28

335

479

Change(B) → (A)FY19/4Q(C)Change(C) → (A)-118(-46.3%)-23(-11.9%)-3(-10.4%)

172
141
19

-35(-20.2%)+32(+22.5%)+5(+28.2%)-144(-30.1%)332

2. Statements of Income (FY20/1Q vs FY19/1Q)
FY20/1Q (A)FY19/1Q(B)AmountRatio(%)
AmountRatio(%)
Net Sales
53.0
100.0
77.2
100.0
Operating Income
-1.2
-2.2
2.5
3.2
Ordinary Income-1.8 ROS -3.3
2.3 ROS 3.0(Sanyo)-0.8
2.5(Ovako) *1
0.5
1.1
*1
(MSSS)-0.3-0.3(Amortizationof goodwill )

-0.6

-

-0.8

Net Income*2

-1.5

-2.8

Net Income

-0.8

-1.6

(Structural Basis) *3+2(+0.7%)(Unit：Billion yen)
Change(B) → (A)AmountRatio(%)

-24.2
-3.6

-31.3

-3.3
-0.5
+0.1

-

-4.1

-

-52.0

-

1.8

-

2.3

+0.1

-3.3

-

2.6

3.3

-3.4

-

*1 The consolidated accounting period for Ovako and MSSS is January to March 2020.
*3 Adjusted by amortization of goodwill*2 Profit attributable to owners of parent© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

3

Business Results

Income (Structural Basis) FY19/1Q vs. FY20/1Q
Ordinary Income

Ordinary Income at Structural Basis (billion yen)

+0.8
2.3
Billionyen

Amortizationof goodwill

3.1
Billionyen

FY19/1Q
Structural Basis

FY19/1Q-4.2(3.1→-1.1)

FY20/1Q
Structural Basis

FY20/1Q-1.8

Billion yen

Net Income-1.1

Amortizationof goodwill

Billion yen+0.6

Net Income at Structural Basis (billion yen)

+0.8
1.8
Billionyen
FY19/1Q

Amortizationof goodwill

2.6
Billionyen
FY19/1Q
Structural Basis-3.4(2.6→-0.8)

FY20/1Q
Structural Basis

FY20/1Q-1.5

Billion yen+0.6
Amortizationof goodwill-0.8

Billion yen© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

4Ordinary Income Variance Analysis (FY19 1Q → FY20 1Q)
Drop of Sanyo’s sales volume by 46%-118 : 255→137 (thousands of ton )(Billion yen)
6.0

+1.0 -4.0
+1.6

4.0

Increase+2.7 Billion yen
Decrease-6.8 Billion yen── ─ ── ─ ─ ── ── ─ ── ── ── ──
Total-4.1 Billion yen

Fixed
cost
Sales

Raw

2.0

0.0

material

2.3

1Q
-2.0

-4.0

and

volume-0.4-0.4

fuel prices

price andConsumable,

product mix

outsourcing,

FY20-0.3 -0.9

Sales

FY19

Business Results

1Q

-0.1

logistic

valuation

cost,etc.

Ovako'sloss onoperatingRepair and inventory

IncomeTime lag of iron scrap surcharge pricing+0.3 Billion yen(FY19 1Q -0.2 →FY20 1Q +0.1)

maintenanceexpenses-0.2 +0.1 -0.5
-1.8
Consolidated

Non-affiliatedOperatingcompanies

profitAmortizationofandloss (*)

goodwill-6.0

Sanyo’s Non Consolidated Operating Income Variance-3.4 billion yen(*) Including foreign exchange
gains and losses -0.5 billion yen© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

5Ordinary Income Variance Analysis (FY19 4Q → FY20 1Q)(Billion yen)
4.0

Business Results

Increase+3.7 Billion yen
Decrease-2.9 Billion yen── ─ ── ─ ─ ── ── ─ ── ── ── ──
Total+0.8 Billion yen

Time lag of iron scrap surcharge pricing-0.0 Billion yen(FY19 4Q +0.2 →FY20 1Q +0.1)

2.0
Drop of Sanyo’s sales volume by 20%-35 : 172→137 (thousands of ton )
0.0

FY19

+0.9 -1.2

4Q
-2.0

-2.6

+0.4

Fixed
cost

Raw
material
and

-4.0

+2.2

fuel prices

Sales
volume+0.0 +0.2

-1.0

-0.1
Consumable,
outsourcing,logistic
cost-0.5
Valuation
loss oninventory-0.1

affiliatedoperatingcompanies

Income

Metal

1Q

-1.8

Consolidated
Ovako's

FY20

NonOperating

Amortization

profitofandgoodwillloss (*)

powders

Sanyo’s Non Consolidated Operating Income Variance -0.6 billion yen(*) Including foreign exchange
gains and losses -0.9 billion yen© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

6

Business Results

Net Sales and Income (quarterly)
Net Sales(Billion yen)

Sanyo
; Sales volume decreased in Apr. - Jun due to the impact of COVID-19.
Ovako,MSSS ; Sales volume increased in Jan. - March 2020 from Oct. – Dec. 2019.
The impact of COVID-19 has materialized from Apr. 2020.
Sales Volume(Thousands of ton per quarter)

Net Sales
Sales Volume(Sanyo+Ovako+MSSS)

100

9Sales Volume(Sanyo)

90

291

60

281

251

310
270

290

0

43.9 45.8

40

49.5 46.6

39219
172 173191 139
68.9

250

28

25

150

141

57.6 58.8 137

23

8.0

7

5.3

5.3

4

4.1

1

19

25

100

0

5.0

4.7

3.8

3.0

-2

-4
-5

4.0

2.1

3.0

2.9

3.93.9
1.92.0 2.32.2

1.3

2.0

2.0 2.32.5-0.1 0.7

-0.1

-1

-3
50

6.0

5.0

5

2

7.0

6.3

0

53.0

31

200

9.0

8.8

3

196 207

77.2

8

10.0

9.3

6
350
300

258 255

30

10

400

332 335

40

20

381

Sales Volume(MSSS)

70

50

450

423

Sales Volume(Ovako)

80

500 10

479

ROS
(%)

Ordinary Income(Billion yen)

1.3

-0.5

-1.2

-0.8

-1.8

-1.7

-2.6

Ordinary Income
Ordinary Income(Sanyo)

-2.0

-3.3
-4.4

0.0
-1.0
-2.0

ROS(Ordinary Income)ROS(Ordinary Income:Sanyo)

1.0

-3.8

© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

-3.0
-4.0
-5.0

7

Business Results

Review of Performance <Sanyo>
Overview of FY 2020

Inventory circulation diagram (Bearing products)(Until 2019)

Acceleration of destocking in main customer industry;a) Machine tool, b)Robot, c) Automotive, d)Industrial machinery,d) Construction machinery.
↓
Pursuing optimum production and cost minimum operation &Implementing emergency profit improvement measures from FY19/4Q↓
Inventory adjustment was expected to mostly complete at the end of FY19/4Q,
and profit improvement measures were taking effects.

COVID-19 Impact
Due to the decline of demand , the customer industry re-enteredinto a destocking phase (see figure on the right). resulting into asignificant drop of sales volume.
(FY20/1Q result)

The ordinary loss was 0.8 billion yen due to the negative effects from thedrop of sales volume (down 46% compared to FY19/1Q) and valuation loss oninventory (-0.8 billion yen) by COVID-19 impact.
Positive effects from “emergency profit improvement measures and actions” and“reduction of depreciation expenses by change in depreciation methods”
contributed to offset the above mentioned negative effects.

(FY20 forecast)

The ordinary loss of the 1st half FY20 is expected to be 2.9 billion yen
due to the negative effects from further sales volume drop in FY20/2Q. Some of
the negative effects are offset by additional positive effect from “the reduction ofdepreciation expenses by change in depreciation methods”.
The ordinary income of the 2nd half FY20 is expected to be positive, 4.1 billion
yen, due to gradual recovery of sales volume compared to the 1st half of FY20,
though some of COVID-19 impact will linger until Dec. 2020.
Consequently, the ordinary income for the full FY 20 is expected to be1.2 billion
yen positive.

(Y-axis) Inventory change ratio
Stock Raising
Phase2018.4Q
25.0

Destocking
Phase(X-axis)Shipmentchangeratio

2017.4Q

May,2020
0.0
-50.0

-25.0

0.0

25.0

Stock
Loading50.0 Phase

COVID-19
Impact-25.0

2019.4Q

Recovery Phase
Source: METI Mechanical Statistics

Profit improvement measures and actions(1) Acceleration of profit improvement measures

We will further promote the followings to strengthen financial soundness.
a) Practicing voluntary partial return of executive compensation andmanager’s salary as planned.
b) Additional reductions in overtime and further utilization of theunemployment insurance program for temporary leave.
c) Additional reduction of repair and maintenance expenses and others.

(2) Effort to lower break-even point
We will bolster the corporate robustness by further pursing cost minimum
operation and through additional reduction of fixed cost, to enable Sanyo
being profitable even if production and sales does not return to high level.

© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

8

Review of Performance <Ovako>

Business Results

Headquarter : Stockholm, Sweden Manufacture and sale of special steel bars, pipes, rings, etc.
Manufacturing sites in Sweden and Finland. An affiliated company of Sanyo since March 2019.

Overview of FY 2020

Units of automobile sales in Europe

Recent trend of market
Since autumn 2018, the demand for special steel in Europe has been stagnant mainly due to U.S.-China tradedispute, Brexit, and automobile sales plunge triggered by WLTP. Nevertheless, the destocking process
was completed by end 2019, and the market started to show some signs of recovery in January 2020.
Result of 2020 1Q (January to March 2020)
The demand for special steel in Europe recovered in 2020/1Q;Jan.-Mar.2020, and the COVID-19 impact
on sales was still limited. Ovako’s sales volume for the 1Q was 173kt(+23% increase from 2019/4Q;Oct.Dec.2019), and Ovako’s ordinary income for Jan.-Mar. 2020 was 0.5 billion yen.

(Year-on-year rate )WLTP effectSales plunge

50%
25%
0%

Forecast for FY2020 (January to December 2020)
Although the COVID-19 impact started to materialize from 2Q;Apr.-Jun.2020, Ovako’s ordinary income for the
1st half;Jan.-Jun.2020, will be in surplus by 0.4 billion yen. However, the COVID-19 impact will peak in 3Q;Jul.Sep.2020, and together with the effect of regular maintenance outage in July and December, the sales volume
for the 2nd half;Jul.-Dec.2020 will drop significantly, resulting in an ordinary loss of 4.1 billion yen.
Consequently, Ovako’s ordinary loss for FY20 will be 3.7 billion yen.
Profit improvement measures and actions
Ovako will vigorously continue to pursue the followings to regain profitability and increase competitiveness.
・Reduction of fixed cost, partly by utilizing the unemployment compensation scheme for temporary lay off
・Maximizing synergies among the 3 companies, Ovako, Sanyo and Nippon Steela)Sales promotion activities b)Reduction of operational cost c)Reduction of procurement cost

-25%
-50%

COVID-19 impact
Sales plunge-75%

Source ： MarkLines Co., Ltd.
2020/52020/32020/1

2019/92019/112019/7

2019/5

2019/3

2019/1

2018/92018/112018/7

2018/5

2018/3

2018/1-100%

Trend of Operating income, Ordinary income and Sales volume
10.0
8.0

438

367

416

387

347

500

320

280

6.0

4.0
2.0

5.0

8.0
3.3

2.5

0.0
-2.0
-4.0

1.7

4.2
-1.2

-1.1

Operating income(billion yen)･･･left scale

0.6
-2.3

Ordinary income(billion yen)･･･left scale

400
300

200

1.4

-1.2

255

100

0.4

0

-2.3

-4.0

-4.1

Sales volume(kt)･･･right scale-6.0
FY17 1H

FY17 2H

FY17

FY18 1H

FY18 2H

FY18
2nd Half ～:WLTP effect sales plunge

FY19 1H

FY19 2H

FY19
Destocking in the supply chain

FY20 1H

FY20 2H

FY20 Forecast
2Q､3Q:COVID-19 impact© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

9

Review of Performance <MSSS>

Business Results

Mahindra Sanyo Special Steel Pvt. Ltd. Headquarter : Mumbai, India
Manufacturing and sales of special steel & Our affiliated company since June 2018

Units of automobile sales in India

Overview of FY 2020

Domestic car sales in India
Since 2018/11 YoY negative trend
2019/08
YoY ▼30%
2019/10~12 sales volume bottoms out→ Destocking was predicted to end(Year-on-year rate )50%

Sign of Recovery

25%
0%
-25%
-50%
-75%

MSSS recorded a ordinary loss of 0.3 billion yen in 1Q(January-March 2020), though the sales volume increasedby 28% from 4Q of the previous year, partly owing to therecommencement of shipments to railways.

-100%

Source ： MarkLines Co., Ltd.

30

COVID-19
Impact

MSSS’s sales volume (kt)20

Impact of COVID-19‣Lockdown of the surrounding region of MSSS site,
Khopoli, Maharashtra, from March 23 until May 3.
‣Ordered to halt operation from late March to mid May.
‣Demand for automobiles at low level,
even after operations resumed

MSSS earnings outlook(First half)

Sales volume in 2Q (April-June) dropped by 60%
compared to 1Q. Ordinary loss for the 1H is
expected to be 0.8 billion yen.

(Second half)

The drop of sales volume will bottom out in AprilJune, but the impact of COVID-19 will prevail
throughout the year 2020. Ordinary loss for the 2H
is expected to be 0.8 billion yen as well.

10

23

19

25
10

0
FY19/3Q

FY19/4Q

FY20/1Q

FY20/2Q
Forecast

Profit improvement measures and actions
・Reducing operation cost by improving energy intensityand efficiency, and reducing procurement cost by useof low-cost raw materials.
・Intensifying sales network, securing higher sales
volume and increasing orders of higher margin products.
・Securing stable orders for railways.
(expected to be 2,000 t/month)・Reducing labor cost including optimization of manning.

© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

10

Business Results

Earnings by Business Segment
FY20/1Q(A)
Net
Sales

FY19/1Q(Ｂ)
ROS

Operating
Income(Unit : Billion yen)

Net
Sales

(%)

50.3
0.8

-1.0
0.0

-1.9
4.7

Formed andFabricatedMaterials

3.1

-0.2

Sub-total

54.2

Other

Change (B) → (A)ROS

Operating
Income

(%)

73.8
1.1

2.2
0.1

2.9
6.3

-7.9

4.6

0.2

-1.2

-2.2

79.5

0.0
0.0

1.8

Adjustments

0.3
-1.5

Consolidated
Total

53.0

-1.2

Steel Products
Metal Powders

4
3

40.4

41.7

45.3

54.3

42.9

54.9

80

50.3

2
1

40
3.2

1.8

1.8

1.6

2.2

20

0.2

0
▲1
▲2

60

-1.5

-0.4 -12.0

2.4

3.1

-25.3

-3.6

-5.3

0.0
0.0

0.2
─

+0.0
+1.1

+0.0
-0.0

+1.6

─

0.3
-2.6

-2.2

77.2

2.5

3.2

-24.2

-3.6

-5.4

0

Operating income

-1.3

-1.0
-2.8

Sales

▲3

0.30
1.2

Sales

1.2

1.1

0.15
0.10

0.20

1.0

0.8

1.0

FY18

FY19

FY20

0.60

1.3

0.40

0.17
0.07 0.00

0.09 0.11

3Q

FY18

0.29

4.0

4.2

4.6

0.22 0.17

6.0

4.6

4.5

5.4

4.7

0.20

3.1
0.21 0.19

0.3

4Q

1Q

2Q

FY19

3Q

4Q

▲0.20

1Q

FY20

2.0

0.06
0.0
-0.24

-0.09

0.04

Operating income

-0.28

-2.0

Sales
0.0

2Q

4.7

0.5
0.10

1Q

5.1

0.00

0.22

0.05

1.0
0.8

0.00

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q

1.5

1.0

1.2

─

Formed and Fabricated Materials(unit: billion yen)

Operating income

1.3

0.25
0.20

-4.8
-1.6

4.1

Metal Powders(unit: billion yen)
100

(%)

-3.1
-0.0

Steel Products(unit: billion yen）
73.8 65.4

ROS

Operating
Income-23.4-0.3

Change in Business Segment
5

Net
Sales

▲0.40

-4.0

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q

FY18

FY19

FY20

© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

11

Business Results

Balance Sheets(Billion yen)

309.3
300.0

27.2
47.1

200.0

72.4
5.0
34.1

Assets
328.0
27.8
50.9

Liabilities and Net Assets
328.0
309.3

Cash and Deposits (*)
Trade Receivables

300.0

20.6
73.6

Inventories
78.7
6.2
35.6

100.0

0.0

(Billion yen)

114.9

120.5

8.6
2020/68.3
2020/3Major changes in Assets
Trade Receivables
Inventories
Goodwill

Other Current Assets

23.6

200.0

22.4

Trade Payables

76.5
29.2

17.0

17.7

174.5

182.2

Interest-bearing Debt
Other Current Liabilities

Goodwill
Tangible/Intangible
Fixed Assets(excluding Goodwill)
Investments

100.0

Net Assets(*) Including deposits paid 0.0
to affiliated company- 18.6 billion yen(-6%)
- 3.9
- 6.3
- 1.5

Other Fixed Liabilities

2020/62020/3Major changes in Liabilities and Net Assets – 18.6 billion yen (-6%)
Net Assets(Reference) Assets of Sanyo, Ovako and MSSS (non consolidated basis)
Sanyo 242.1 billion yen, Ovako 83.6 billion yen, MSSS 12.9 billion yen- 7.7

Equity Ratio

2020/655.3％

2020/3

54.4％

Ovako’s goodwill
・ According to the accounting standard for impairment of fixed assets, it would be “Indicators of impairment”, in case Ovako fails toachieve an positive EBIT of more than 2.5 billon yen in FY21 to exceed the amount of annual goodwill amortization, since Ovako is
expected to be negative in EBIT for two consecutive years by -0.6 billion yen in FY19 and -3.5 billion yen in FY20.
・ Nevertheless, even if Goodwill would be fully impaired, Sanyo continues to maintain the strong financial robustness,with the equity ratio nearly to 50% and the D/E ratio around 0.3 to 0.4 after full impairment of Ovako’s goodwill.
© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

12

Business Results

Capital Expenditure and Depreciation(Billion yen)

30

Capital Expenditure25

Depreciation

20
15
10
5

0

27.6
18.2
14.7
11.6
10.9
FY11

FY12

4.6

11.0

FY13

7.2 9.8

9.9 9.3

9.8 9.1

FY14

FY15

FY16

8.1 9.0 10.6 9.3
FY17

FY18

15.0 13.014.0
FY19

FY20
Forecast*Capital Expenditure of 13.0 billion yen in FY20 forecast includes following
1)8.6 billion yen for Sanyo (including 4.9 billion yen for Sanyo Factory Renovation to resolve bottlenecks at No.2 Bar &Wire Rod Mill)2) 3.3 billion yen for Ovako 3) 0.7 billion yen for MSSS
Depreciation of 14.0 billion yen in FY20 forecast includes
1) 7.0 billion yen for Sanyo and 2) 5.1 billion yen for Ovako and 3) 0.4 billion yen for MSSS.

*

Changes in depreciation methods◆ Since FY20, Sanyo and domestic subsidiaries have changed the depreciation method.
(declining balance method → ​straight-line method)◆ The reason for this change is unifying the our group accounting policies on global basis.
◆ We considered following issues to change the depreciation method.
・The facilities used by the our group are expected to operate steadily in the future・There is little risk that our products and equipment will become obsolete due to changes in the market environment or technology.
・Timing of changes in depreciation methods→ Synchronizing with start of full-scale operation of new facilities in the No.2 Bar &Wire Rod Mill◆ Depreciation in FY20 will decrease by 2.4 billion yen and profit improvement effect will be 2.0 billion yen compared to previous method.

© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

13

Business Results

Ｄ/Ｅ Ratio
Net D/E ratio(Times)Interest-bearing Debt
(Billion yen)

0.6

0.54

90

0.53

0.5

Interest-bearing Debt (Net)Net D/E Ratio
75

0.46

0.42 0.42
0.4

60

0.34

0.29

0.27

0.3

45

0.22
0.2

0.1

35.9 38.8

0.13

52.1 51.6 47.8

69.0 0.27
46.4

0.10

33.2

30

48.7

28.4

15

14.3 12.7
0

0
FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20/1Q* Interest-bearing Debt(Net) = Interest-bearing Debt – (cash + deposits paid to affiliated company)© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

14

Business Forecast

Business Forecast for FY20 (Announced on July 31,2020)(Reference)2020FY Sales volume outlook(Thousands of ton)

１. 2020FY Outlook

・The drop of sales volume due to COVID-19 is expected to bottom out in July-September,even though sales volume will be relatively stagnant until December,2020.
The consolidated accounting period of Ovako and MSSS has a lag of three months,
hence the COVID-19 impact for Ovako and MSSS will materialize after FY20/2Q.
・Ordinary loss for FY20 1st half will be 5.4 billion yen due to additional drop of sales volume.
・Ordinary loss for FY20 2nd half will be 2.6 billion yen as a result of deficit of Ovako and MSSS
partly offset by surplus of Sanyo.
・Consequently, Ordinary loss for FY20 will be 8.0 billion yen. We have carried out and willcontinue to implement profit improvement measures in order to recover the consolidated earnings.

２. 2020FY Forecast
Net Sales
Operating Income
Ordinary Income

FY20 1H
Amount

FY20 2H
Amount

-5.4

-2.3

95.0

-5.4

105.0

-2.6

FY20(A)
AmountRatio(%)

200.0

-7.7

100.0

-3.9

-8.0 ROS -4.0

400
300
200
100
0

335

273

288

387

25
173
137

10
147
116

18
96
174

204

FY20/1Q

FY20/2Q
Forecast

FY20/3Q
Forecast

MSSS

Ovako

Sanyo

FY19(B)
AmountRatio(%)
262.5
100.0

-1.4

-1.5 ROS

-0.5
-0.6

24
159
FY20/4Q
Forecast(Unit：Billion yen,%)Change(B) → (A)AmountRatio(%)

-62.5

-6.3

-23.8

-

-6.5

-69.8
-

-2.9
0.4
-0.8

4.1
-4.1
-0.8

1.2
-3.7
-1.6

-

4.0

-

-0.9

-

-1.4

-

-2.8
-2.8
-0.2

-1.2

-1.2

-2.5

-

-

+0.4

-

Net Income

-4.8

-2.3

-7.1

-3.6

-2.9

-3.7

-1.4

-3.4

-

Net Income(Structural Basis)

-3.6

-1.1

-4.6

-2.3

0.5

0.2

-5.1

-

Sales
Volume(Thousands of ton)

608

675

1,615 (per month)135

-332

-20.6

(Sanyo)(Ovako)(MSSS)(Amortization of
goodwill )(Sanyo)(Ovako)(MSSS)

Major assumptions
after July 2020

253
320
35

378
255
42

1,283 (per month)107
631
575
77

53
48
6

854
667
95

71
56
8

-223
-92
-18

-26.1
-13.8
-18.9

･Scrap iron July-Sept. 22,800 yen/t , Oct.- 26,000 yen/t (H2 market price in Himeji area)･Crude oil(Dubai) 40$/BL･Exchange rate
105 yen/US$, 118 yen/€© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

15

Business Forecast
Ordinary Income Variance Analysis (FY19 to FY20 Forecast)
Increase+10.1 Billion yen
Decrease-16.6 Billion yen── ─ ── ─ ─ ── ── ─ ── ── ── ──
Total- 6.5 Billion yen(Billion yen)
10.0

+1.9 -7.8

8.0
6.0

+5.7

4.0
2.0
0.0
-2.0

+1.1

Raw

FY19

-1.5

material
andfuel prices

+0.9

+0.1

Fixed
cost

Repair andmaintenanceexpenses

Variable

Drop of Sanyo’s sales volume by 26%-223: 854→631 (thousands of ton )Salesvolumecost
reductions

Consumable,-4.6

outsourcing,logistic

Sales

cost

price andproduct mix

-4.0
-6.0

Time lag of iron scrap surcharge pricing-1.1 Billion yen（ FY19 +0.9 →FY20 Forecast -0.2）-0.3 -2.9
Metal

powders

Ovako'soperating

Forecast-0.8+0.4 -0.2 -8.0

Income

-8.0
-10.0

FY20

consolidated
affiliated

Sanyo’s Non Consolidated Operating Income Variance-3.0 billion yen

Companies(*)
Amortizationof goodwill

NonOperating
profitandloss(*) Including operating income variance as below:
MSSS -0.2 billion yen, Other affiliated companies of formed and fabricated materials section -0.4 billion yen.
16
© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

Business Forecast

Net Sales and Income (fiscal)

Operating Income
Ordinary Income(Billion yen)

Net Sales(Billion yen)
300

30.0

262.5
250

The 2008 financial crisis impact

200

159.5

171.8
138.3

150

100

25.0

161.6

171.5

200.0

185.8
149.1

138.7

20.0

157.5

15.0

95.5
10.0

14.213.450

11.311.0
1.5 1.7

6.9 6.7

9.2 9.7

12.211.5 11.711.7 11.0
10.7

10.1 9.4

5.0

0

0.0

-3.9 -3.6-1.4 -1.5
Operating Income

Ordinary Income

Net Sales-7.7 -8.0

-5.0

-10.0
FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20
Forecast*MSSS has been consolidated since FY18/2Q, and Ovako has been consolidated since FY19/1Q for profit and loss.
© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

17

Business Forecast

Sales Volume and Ordinary Income at the 2008 Financial Crisis
During the era of financial crisis from September 2008, Sanyo’s earnings deteriorated significantly in FY08/4Q and FY09/1Q.
Reasons were; a) substantial drop of sales volume, b) significant decline of sales price due to iron scrap surcharge
pricing (Scarp price; 2008 2Q; over 70K yen/t → 2008 4Q approx. 20K yen/t, c) huge valuation loss of inventory triggeredby considerable drop of production volume.

Sanyo’s non-consolidated sales volume and ordinary income from FY08 to FY09 (after the 2008 financial crisis)

252

242

300
200
100
0

2.6

3.4

216

4.8

96

184

1.1

208

2.0

6.0
4.0
2.0
0.0

Ordinary income(billion yen)･･･right scale-6.9

Sales volume(kt)･･･left scale

101

156

-6.7

-2.0

-0.6

-4.0
-6.0
-8.0

FY08/1Q

FY08/2Q

FY08/3Q

FY08/4Q

FY09/1Q

FY09/2Q

FY09/3Q

FY09/4Q(Reference) Sanyo’s non-consolidated sales volume and ordinary income from FY19 to FY20 (around the COVID-19)
300

255

200
100
0

2.5

207

219

0.7

1.3

Ordinary income(billion yen)･･･right scale

172

-0.5

137

-0.8

116

-2.1

174

204

6.0
4.0

1.4

2.7

2.0
0.0
-2.0
-4.0

Sales volume(kt)･･･left scale

-6.0
-8.0

FY19/1Q

FY19/2Q

FY19/3Q

FY19/4Q

FY20/1Q

FY20/2Q

FY20/3Q

FY20/4Q

Forecast

Forecast

Forecast© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

18

Dividend Forecast for FY20(Announced on July 31,2020)

Business Forecast

To our deepest regret, we will cease the dividend payment for FY20,
in accordance with our negative business forecast of a net loss of
7.1 billion yen in FY20.
(Reference) Dividend for FY19FY19After amortizationof goodwill

Before amortizationof goodwill

Net Income

Billion yen

-3.7

0.5

Earnings per share¥/share

-67.1

9.3

Annual dividend

Payout ratio *1

A¥/sharetimes

15.5(Interim 15.5 Year-end 0.0)

0.9

Dividend
Repurchase of Shares(1,730,000shares) *2

2.5

Billion yen

3.4

Total Return to Shareholders
Total Return Ratio *3

1.7

times

-

6.5

*1 Payout Ratio ・・Dividend / Earnings Per Share*2 A total treasury stock of 2,930,000 shares(former possession 1,200,000 shares +repurchase 1,730,000 shares)
was cancelled on December 27, 2019. It is 5.1% of the total number of issued shares before cancellation.
*3 Total Return Ratio ・・・Total Return / Net Income© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

19

Business Forecast

Dividend Trend(Yen per share)

(%)

150.0

FY12
63.4

125.0

24.6

100.0

19.8

75.0

50.0

50.0 45.0
25.0

30.0

20.0

25.0

25.0

10.0 25.0
10.0

10.0
15.0

Year-end dividend

69.0

22.5

24.0

15.0

60.0 62.5 58.5
30.0

25.0

0.0

25.9 26.8

37.5

22.7
20.6

50.0

26.1

29.0

FY19
167
(*2)

37.5

25.0

15.5

35.0
15.0

30.0

Interim dividend

25.0

33.5

45.0
15.5

7.5

0.0

Payout ratio*1 We conducted a one-for-five reverse stock split of our company‘s shares effective on October 1, 2017.
Dividend is adjusted after the one-for-five reverse stock split .
*2 Calculated by Earnings Per Share before goodwill amortization© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

20

COVID-19

Impact of COVID-19 Infection
１． Operating status of the Sanyo Group

NSSP, our affiliated company in China, was ordered to halt operation from January to mid-February, and MSSS in India
from the end of March to mid-May. Other companies do not have similar problems, but capacity utilization is significantly
depressed due to decline of demand.

２． Impact on demand for special steel(1) Trends to date

World automobile sales(Year-on-year rate )(Unit: 1car )9,000,000
8,000,000

20%
Source ： MarkLines Co., Ltd.

20/1-3 : Demand declines, mainly in China. Although operation of NSSP 7,000,000
was halted temporarily, the impact on P/L was limited.

10%
0%6,000,000-10%

5,000,000-20%

4,000,000-30%(2) Outlook

3,000,000-40%

20/7-9: Customers, mainly in automobiles, have restarted production

2,000,000-50%

20/4-6 : The spread of COVID-19 has stalled customer production
activities. The consolidated sales volume dropped significantly.

activities. Our sales volume will hit the bottom and start torecover gradually.
20/10-12 : The demand is expected to continue to gradually recover, but COVID-19 impact will remain until the end of 2020,and sales volume will remain muted.
21/1-3 : Sales volume will recover to the same level as the second half of FY 2019, when destocking was ongoing.

３．Our views for the post-corona era
We consider the required time frame needed for recovery of special steel demand back to the pre-corona levels to be

substantially long. We will closely monitor the market trend to capture the recovery of demand promptly, andsimultaneously continue to lower the break even point by improving the product mix and reducing cost.

© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

21

Countermeasures of COVID-19 Infection (as of July 31,2020)

COVID-19

Countermeasures in Japan・Upgraded telework environment. Promoting working from home.
・Implementation of staggered working hours.
(Only 4% of the employees commute to Himeji head office by public transportation)
・Implementation of staggered lunch time.
・ Installing alcohol disinfectants to each workplace and distributing masks to all employees.
・ Installing thermography camera and thermometer at workplace.
・ Individual measurement of body temperature before entering workplace.
・ Promoting periodical hand-washing, mouth rinsing, disinfection with alcohol,
and wearing of masks.
・ Frequent ventilation of room air, maintaining inter-personal distance during work.
・ Restricting of face to face conferences, recommendation of web meetings.
・ Prohibition of foreign business trips in general.
・ Limiting domestic business trips based on travel areas and customer’s policy.

Countermeasures in overseas’ affiliates

・All measures and actions in accordance with the laws, regulations and policy of each country.
・Collecting information of each country and supporting the representatives and their family.
・Supporting Japanese representatives to return to their global workplace, based on
the situation of medical care, living condition and immigration of each country.
(Representatives already returned to Finland in June 2020, to China and Indonesia in July
2020. Planning to return to Thailand and Sweden after August 2020.)
・Individual measurement of body temperature before entering workplace.
・Promoting periodical hand-washing, mouth rinsing, disinfection with alcohol,
and wearing of masks.

© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

22

Emergency Profit Improvement Measures and Actions

OthersEmergency profit improvement measures and actions to realize a swift recovery (Announced on January 31, 2020)
Measures①Voluntary partial
return of executive
compensation(*)

Representative Director andPresident
Director and Managing Executive
Officer
Fellow

Term

20% of monthly
compensation
10% of monthly
compensation

From February 2020 for thetime being

Executive Officer
Executive Councilor

7% of monthly compensation②Utilizing the unemployment
insurance for temporary
leave program

Planning to utilize the unemployment insurance for temporary leave
program about two days furlough in a month for all employees
working at Head Office/Plant.

③Voluntary partial returnof manager’s salary

General Manager Position

5% of monthly salaryGroup/Section Manager Position

3% of monthly salary

Other Manager

1% of monthly salary④Reduction of otherexpenses

From March 2020 for thetime being
From February 2020 for thetime being

Promoting operational efficiency and reduce expense to the minimum, such as implementing
intensive cost-minimization operations, and curbing non urgent expenditures and investments.

(*) Full-time Audit & Supervisory Board Members have voluntarily offered to return 10% of monthly compensation in the same period as well.

・ Estimated profit improvement for year ; 0.5 Billion yen
・ Additional profit improvements of 0.5 billion yen in FY2019, and 1.0 billion yen in FY2020(+0.5 billion yen from FY2019) by reductions in bonuses and overtime.
・ Further profit improvement measures and actions being implemented by affiliated companies, including Ovako and MSSS .
After the expansion of COVID-19 impact (from March 2020)
・ Utilizing the unemployment compensation scheme for temporary lay off for employees of branch offices, in addition to employees ofHimeji Head Office/Plant.
・ Higher compensation rate applied, based on the introduction of the Special Measures against Corona Act of the government.
・ More reductions in overtime by drop of production and enhancing operational efficiency. Decrease of business trip expenses.
・ Utilizing the unemployment compensation scheme for temporary lay off in Ovako, Sweden since April, 2020.
© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

23

Others

Outline of Ovako【History】

17th Century : Entered in steel business in Sweden
1916: Purchased by SKF (world-leading bearing steel maker in Sweden)
2010: Acquired by Triton Fund2018
: Acquired by Nippon Steel2019: Become our affiliated company【Location】【Characteristics】
Headquarter
Main
production mills
Secondaryprocessing mills
Sales offices【Customers】【Sales】

・ Five major production mills (Three steel making mills and two rolling mills)
・ 26 subsidiaries and 1 affiliated company.
・ Leading manufacturer of Bearing steel. Main customer areas are automobiles
and industrial machinery.
・ Sales volume about 80% of Sanyo (non-consolidated) but
total assets only approx. 1/3 of Sanyo.

Asia, North America ・ Trade Receivables are approx. 1/3 of Sanyo, andTangible/Intangible fixed asset approx. half of Sanyo.

Other・Structural drop of sales in the second half of the year due to theeffect of regular maintenance outage in July and December.

Autos

Industrial
machinery

Europe・ World's first steel mill to be successful in use of hydrogen-based steel heating,to reduce CO2 emission© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

24

Topics

Topics(1) Ovako first in the world to heat steel using hydrogen・Ovako has conducted a full-scale trial in Hofors plantusing hydrogen to heat steel before rolling together
with Linde Gas AB at first in the world.
・This historic development proves that carbon dioxide
emissions from rolling can be eliminated with a great
positive effect on the environment.
・The existing LPG combustion system was upgradedto handle hydrogen and LPG as fuels.
・Heating with hydrogen does not affect the quality.
・According to Ovako’s estimate, this development
would save 20,000 tons of carbon dioxide in
Hofors plant each year.

© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

25

Topics

Topics(2) One-third of the total directors to be independent outside directors,
and establishment of the Nomination and Compensation Advisory Committee
・We appointed three independent outside directors after the election of the 108th General
Meeting of Shareholders held in June 2020 and the number of independent outside
directors becomes one-third of the total nine directors.
・The board of directors established “The Nomination and Compensation Advisory Committee”
as a non-compulsory advisory-council, consisting of representative director
and all independent outside directors.
・We intend to strengthen independence, objectivity and accountability of the board of directors,
and to enhance the corporate governance by getting appropriate involvement and advice
from independent outside directors about particularly important matters including executive
appointment or compensation.
(3) Live streaming of General Meeting of Shareholders
・In June 2020, we held the 108th General Meetingof Shareholders and streamed it live on the web.
・We provided opportunities for shareholders to watch
the meeting with personal computers to prevent thefurther spread of COVID-19 and to ensure
shareholders’ safety.
・We uploaded the meeting video on our website.
It will be available by the end of September 2020.

General Meeting of Shareholders streamed on the web© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

26

Topics

Topics(4) Provision of steel for a local industrial high school
・In June 2020, we provided steel for an industrial high schoolin Himeji, for their practices using the turning machine.
・It was the sixth provision and the attempt has been highly
appreciated by schools, because that contributes
to improvement of students’ skills.

・Through this activity, we promote our products and secureyoung workers, essential for the business continuity.

Students using the steel materials(5) New exhibition roomof seamless pipes and tubes
・We established the new exhibition room of seamless
pipes and tubes within the No.1 Plant.
・We gathered exhibitions that had been scattered in theplants. Sanyo is the only special steel manufacturer
in Japan that has seamless pipes and tubes
manufacturing equipment.

Model of Assel mill
The new exhibition room

・We improved exhibitions to make it understandable
to the customers about advantages of our manufacturing
processes, facilities and products.
© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

27

Reference

Trends in Automobile Market
Units of automobile salesin Japan(Year-on-year rate )Units of automobile sales
in U.S.

(Year-on-year rate )(Unit：1car)50%
40%

2,000,000

Source ：Japan Automobile Dealers Association

1,500,000

500,000

3,000,000

2,000,000

-20%
-30%

-40%

2019/7-9; Demand rush before VAT raise.
2019/10 ; ▼25% on YoY basis after VAT raiseand easing decline of sales until 2020/3
2020/5 ; ▼45% on YoY basis due to COVID-19 impact
2020/6 ; easing decline of sales from 2020/5

4,000,000

0％
0%
-10%

-20%

-50%

30%

10%
1,000,000

-10%

-30%

5,000,000

20%

10%
0%
0％

Source ： MarkLines Co., Ltd.

40%

30%
20%

50%

(Unit：1car)

1,000,000

-40%
0

-50%

0

2018; Stable sales
2019; Slowing sales due to the effects of labor strikeand others
2020/2 ; there is the sign of recovery
2020/3 ; ▼38% on YoY basis due to COVID-19 impact
2020/4 ; ▼46% on YoY basis due to COVID-19 impact
2020/5~ ; easing decline of sales© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

28

Reference

Trends in Automobile Market

Units of automobile sales
in China（Factory shipment base）

Units of automobile sales
in India(Year-on-year rate )(Year-on-year rate )(Unit：1car)
50%

Source ： MarkLines Co., Ltd.

25%

0%
0％

1,000,000
900,000
800,000
700,000

-50%

-75%

-100%

Continuous drop since 2018/07 due to;a) higher insurance premiums, b) higher fuel prices, c)tightening automobile loans, and d) deterioration of
employment.
2019/10~ ; easing decline of sales
2020/3 ; ▼62% on YoY basis due to COVID-19 impact
2020/4 ; ▼100% on YoY basis due to lockdown resulting
from expansion of COVID-19
2020/5 ; sales activities resume

30%
20%

5,000,000

Source ： MarkLines Co., Ltd.

10%4,000,000

0%
0％
-10%

600,000-25%(Unit：1car)

500,000

3,000,000

-20%

-30%

400,000-40%

300,000-50%

200,000-60%

100,000

-70%

0

-80%

2,000,000

1,000,0000Continuous drop due to; a) the effects of the U.S.-China
trade dispute, and b) introduction of new emission
restrictions in urban areas.
2019 summer ~ ; easing decline of sales
2020/2 ; ▼79% on YoY basis due to COVID-19 impact
2020/3~ ; recovering sales
2020/5 ; +15% on YoY basis© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

29

Reference

Trends in Automobile Market
Units of automobile salesin Europe(Year-on-year rate )(Unit：1car)
50%

50%

3,000,000

Source ： ACEA
25%

Units of automobile export
from Germany(Year-on-year rate ) (Unit：1car)25%

750,000

Source ： VDA

2,500,000

0％
0%
0%
0％

500,000

2,000,000
-25%

-25%

1,500,000
-50%

-50%

250,000

1,000,000
-75%

-75%

500,000
-100%

-100%

0

0

2018/9; Huge fluctuation due to WLTP.
Stagnate tendency due to concern of Brexit,and U.S.- China trade dispute.
Sign of recovery from 2019/9 though absolute
number of units sold is mediocre.
2020/4 ; ▼79% on YoY basis due to COVID-19 impact
2020/5~ ; easing decline of sales

Continuous drop due to;a) demand decrease in China affected by the
U.S.- China trade dispute.
b) inventory adjustments.
2020/4 ; ▼ 92% decrease on YoY basis
2020/5~ ; easing decline of export© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

30

Reference

Trends in Industrial Machinery Market
Sales amount of machine tool orders（Japan）(Year-on-year rate )Sales amount of semiconductor manufacturing equipment（3 month moving average）(Japanese equipment)(Year-on-year rate )

40%

30%
50%

20%

40%

10%

30%

0％
0%
-10%

20%

-20%

10%

-30%

0%
0％

Source ： SEAJ

-40%

-10%
-20%

Sales amount of world wide semiconductor equipment-30%(Year-on-year rate )
40%

-40%
-50%

Source ：Japan Machine Tool Builders’ Association

-60%

30%

20%
10%
0%
0％
-10%

2017 to 2018 1st Half; strong demand due to expanding
production of smartphones in China.
2018/10～; continuous drop due U.S.-China trade dispute,affecting multiple industries.
Drop rate on YoY basis stays between ▼30％ to ▼40％ from2019/2 to 2020/3.
2020/5 ; ▼53% on YoY basis due to COVID-19 impact
2020/6 ; ▼32% on YoY basis

-20%
-30%
-40%

Source ： SEAJ,SEMI,SEMI Japan

Through 2018; continuous drop due to U.S.-China tradedispute. Recovery from autumn 2019 attributable to increase of
5G and data-center related demand.
© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

31

Trends in Special Steel Market
Volume of order booked (Specialty steel products)(Year-on-year rate )20%

Reference

Volume of European deliveries:Bars and Flats / Alloy Engineering Steel(Year-on-year rate )

10%
30%

0%
0％
-10%

20%

-20%

Source ：The European Steel Association

-30%
10%

-40%
-50%
-60%

Source ：The Japan Iron and Steel Federation

0%
0％
-10%

Volume of order booked (Bearing steel)(Year-on-year rate )
20%

-20%

-30%

5%
0％
-10%

-40%

-25%
-50%

-40%
-55%

-70%

Source ：The Japan Iron and Steel Federation

Regarding bearing steel, big negative trend from summer 2019 due to 1)
Sluggish global demand in the domestic automotive, construction machinery,industrial machinery, and semiconductors sectors, 2) Huge inventory
adjustment , and 3) COVID-19 impact. 2020/5 ; ▼65% on YoY basis

2018/10～; negative trend due to 1) Sluggish
demand in the European automotive sector,
2) Inventory adjustment in supply chain, and
3) COVID-19 impact.
2020/4 ; ▼47% on YoY basis© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

32

Reference

Raw Materials and Fuel Prices(FY15=100)
200
Scrap iron(market)

NickelElectricity

LNG

175

163

173

150

128
125

119
100

100
75

86
76

105
92

84

126

107
90

87

103
85

85

87

FY18

FY19

82

71

62

50
FY15

FY16

FY17

FY20
Forecast* Based on purchase price© 2020 Sanyo Special Steel Co., Ltd. All Rights Reserved.

33

(Cautionary Statement)
Business forecasts contained in this document are based on the information available at the time of
the release of this document, and actual results may differ from these forecasts due to various factorsthat may occur in the future. The business forecasts should not be interpreted as any commitment to or
guarantee of future performance.