Explanatory Material
Re: Sanyo Special Steel（Sanyo） becoming a Subsidiaryof Nippon Steel & Sumitomo Metal （NSSMC）“ Special Steel ” - specialized, and exists in everyday life

September 10, 2018

© 2018 SANYO SPECIAL STEEL Co,. Ltd. All Rights Reserved.

Table of Contents
1． Transaction Overview
Integration for Maximizing Synergies
Transaction Structure

2． Synergy
Technology of Sanyo Special Steel
Product Lineup of Sanyo Special Steel and OVAKO
Markets & Locations of Sanyo Special Steel and OVAKONSSMC’s Special Steel Bar & Wire Rod Business
Expected Synergies

3． Financial Highlights
Financial Highlights of Sanyo Special Steel and OVAKOOVAKO's Expected Net Profit and Financial Position
Impacts on Sanyo Special Steel’s Consolidated Net Profit

4． Schedule(Ref.) About Special Steel© 2018 SANYO SPECIAL STEEL Co,. Ltd. All Rights Reserved.

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Integration for Maximizing Synergies
As Is

Enhancing Global BusinessTechnology andproduct superiority
in special steel
Other
shareholders
100％
subsidiary

15%
Equity method
Mar. 2018 : Enteredinto share purchase affiliate
agreement

Jun. 2018 :Made OVAKO
100% subsidiary

Mainly locatedin Europe(1) Sanyo will become aconsolidated subsidiary of
NSSMC
through third party allotment¥67.2bn.

Transaction Overview

To Be
Other
shareholders
51％
subsidiary(28th, Mar. 2019
(Planned) )Sanyo’s shares
24 mil. shares (¥2,800/share)

Mainly locatedin Japan & Asia

OVAKO and Sanyo are both special
steel makers with global top leveltechnology regarding high-cleanlinesssteel for bearing steel etc.

(2) Sanyo will acquire
all the shares in OVAKO
from NSSMC

100％ subsidiary(28th, Mar. 2019(Planned))

OVAKO Shares¥67.2bn.

Maximizesynergies
among 3 companies© 2018 SANYO SPECIAL STEEL Co,. Ltd. All Rights Reserved.

3

Transaction Overview

Transaction Structure
Points of the Structure Background of making Sanyo a subsidiary of NSSMC and OVAKO a subsidiary of Sanyo Capital structure for maximizing synergies
 In order to maintain and make use of the established brand of “Sanyo’s bearing steel” in the special steel market, Sanyo
will continue to be listed on the First Section of TSE even after becoming a subsidiary of NSSMC by making NSSMC’s
shareholding in Sanyo 51% .
 Financing needs by Sanyo for the acquisition of OVAKO’s shares Secure capital for the upcoming large-scale capital and other investments scheduled under the 10th Medium-TermBusiness Plan (¥50 billion of capital investment planned by March 2020)
 To maintain the sound financial position that Sanyo presently enjoys (the amount of debt carried by OVAKO is ¥30
billion. If Sanyo was to borrow ¥67.2 billion (*1) which is the amount necessary for acquiring OVAKO’s shares throughdebt, the D/E ratio will become approximately 1.2x in comparison to the current 0.3x)
 EPS
 The dilution due to third-party allotment is to be covered by the accumulation of OVAKO’s profit and the synergy
generated.
Methods of making Sanyo a subsidiary of NSSMC + making OVAKO a subsidiary of Sanyo(*2)

Third-Party Allotment

Tender Offer + Borrowing Loan

Financing and becoming a Subsidiary simultaneously(D/E change 0.3x → 0.5x)

Requires additional financing(D/E deterioration 0.3x → 1.2x)(Dilution of the EPS will be covered by the accumulation of
OVAKO’s profit and the synergy generated)(concerns of corporate value declining due to increasing financial
costs and deteriorating D/E(* 1) The difference between the ¥51.7 billion spent for acquisition of OVAKO by NSSMC (June 2018) and ¥67.2 billion spent by Sanyo (scheduled March 2019) is due to the OVAKO’s periodic cash flow intake
since NSSMC's acquisition of OVAKO’s shares worth approximately ¥10 billion, in addition to NSSMC’s additional capital contribution of approximately ¥5.5 billion in response to the future capitalrequirements of OVAKO.
(* 2) Methods which accompanies public offering was not adopted in order to avoid uncertainties in relation to the structure and schedule.

© 2018 SANYO SPECIAL STEEL Co,. Ltd. All Rights Reserved.

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Synergy

Technology of Sanyo Special Steel・Unique Manufacturing Technology
for High-Cleanliness Steel (“Steel You Can Count On”)
－Development of Manufacturing Process
for Ultra-Cleanliness Steel (SURP：Sanyo Ultra Refining Process)・Leading Bearing Steel Manufacturer in Japan
injectoroxygen sensor[Example of Use]power steering

differential
knuckleSequential casting world record of 100
heats with a single tundish (FY2015)engine valve
connecting rod

Automobile

Ball Bearing
Constant velocity joint

propeller shaft

drive shaft

Antilock Brake System sensor

transmission

hub

Bearing forWind Power Generation

Contributing to the development of society by providing “Steel You Can Count On” which
has earned a high degree of confidence from the market in respects of development,
quality and stable supply© 2018 SANYO SPECIAL STEEL CO., Ltd. All Rights Reserved.

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Product Lineup of Sanyo Special Steel and OVAKO
High-carbon chromium steel

Bearing SteelBearing steel

Linear motion bearing

Alloy Steel
Shafts for auto

Transmission
gears

SynergyHigh cleanliness steel used for bearings,
with higher loads, downsizing effect,
and longer service life

Special Steel Market
Gears fordifferencial

High Alloy SteelInvar alloy
Precision pipes for electric Hot extrusion
power cableand partsdies© 2018 SANYO SPECIAL STEEL Co,. Ltd. All Rights Reserved.

Isotropic and ultra clean steel withmultidirectional fatigue strength.
Contributes to smart solution of components.

Material in critical partsfor various industries(autos, industrial machinery,wind power generation& robot etc.)

Demand for high-quality
special steel
will continue
to grow steadily

Wear-resistant steel with excellent formability
and weldability which contributes to design
flexibility and longer service life

Low alloyed free cutting steel with exceptional
toughness and fatigue strength.
Contributes to operational efficiency and cost
reduction of component manufacturers.

6Markets & Locations of Sanyo Special Steel and OVAKO

Asia

Japan

< Locations >Mahindra SanyoSpecial Steelcf.

OthersAutos

Industrial
machinery

Crude Steel(MMT / year)
EF
LF
RH Degasser

CCIC< Market >< Customers >Asia, North America
1.3
2
2
2
2
1

OthersEuropeAutos

Industrial

machinery< Equipment >Crude Steel(MMT / year)
EF
LF

Equipment

North Europe
America< Customers > < Equipment >Equipment< Market >Synergy

1.0
3
3

RH Degasser 2+1 (plan)

CCIC< Locations >Sanyo Special Steel <History>th(Himeji city, Hyogo pref.) 17 Century : Entered in steelbusiness in Sweden
1916 : Bought by SKF (the largest
global bearing steel maker in Sweden)
2010 : Acquired by Triton Fund2018 : Acquired by NSSMC

2
1

Headquarter
Steel mills
Secondaryprocessing mills
Sales offices

World’s major bearing steel manufacturers
Sanyo Special Steel & OVAKO are the main suppliers for the companies below.
(1) SKF <Sweden>, (2) Schaeffler <Germany>, (3) NSK <Japan>, (4) NTN <Japan>, (5) JTEKT <Japan>© 2018 SANYO SPECIAL STEEL Co,. Ltd. All Rights Reserved.

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Synergy

NSSMC’s Special Steel Bar & Wire Rod Business<Location>
Special Steel Bar &Wire Rod
Muroran
Other Products

NSSMC has superiority in Structural Steel,Sanyo and OVAKO have superiority in bearing
steel respectively

Yawata（Kokura Area）

Sanyo Special Steel<Overseas>

SteeLinC®
Brand of the Bar & Wire Rod Unit of NSSMC.
NSSMC is ready to deliver reliable, high-grade andhigh-quality products to our customers throughappropriate mixture of materials and processing

Special Steel Bar &Wire Rod
Other Bar &Wire Rod Business
Overseas Offices

Mahindra Sanyo Special Steel（India 2012~equity participation by Sanyo Special Steel
2018~Subsidiary of Sanyo Special Steel ）NSSMC Group
Overseas downstream bases capacity: 22 million tonsinc. Bar &Wire Rod: 1.2 million tons

© 2018 SANYO SPECIAL STEEL Co,. Ltd. All Rights Reserved.

Crude Steel Production (FY2017）( 10K t/y)Muroran143
Yahata(Kokura Area)
120
Subtotal
263
Sanyo Special Steel
130
OVAKO
100
Total (Special Steel)
493
Consolidated (NSSMC Group)

4,912

MarketAsia
Japan

Customers
OthersIndustrial
Machinery

Autos★Global Business Support System of NSSMC
Taking advantage of abundant experience of overseas businessregarding various products, support globalization of Special SteelBar & Wire Rod business・Global Business Support Center (in Headquarters): Support from a professional standpoint on overseas business・Overseas offices (18 bases in 12 countries): Investigation on site, collection of information, communication withvarious agencies●Company of Special Steel Bar &Wire Rod
OVAKO AB (Sweden, Subsidiary in 2018 ~ Special Steel)Suzuki Garphyttan AB (Sweden, Subsidiary in 2009 ~ Valve Spring Wire）

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Synergy

Expected Synergies
Responding to globalization of customers and needs for high quality products,
Sanyo and OVAKO will aim to realize ¥5 billion /year or more synergies
out of the Approximately ¥10 billion /year total synergies expected for the NSSMC Group
Expected Synergies

Cost Reduction(year)

Efficient
Production(year)

Approximately

Approximately¥2.5 billion¥2.5 billion(included in amount below)(included in amount below)(included in amount below)

Approximately

Approximately

Approximately¥5 billion ¥¥5 billion¥10 billion

Total

BetweenSanyo / OVAKO

Among
Sanyo / OVAKO / NSSMC

Breakdown ofSynergy

Cost Reduction

Efficient
Production






¥5 billion
or moreTiming of Synergy Realization

Synergies are expected to berealized sequentially after 2019;* 50% effect in third year
* 100% effect in sixth year
is expected, but Sanyo will makeefforts to accelerate the timingof realization

Improvement of yield rate / consumption rate through the sharing of technical / operational know-how
Reduction of labor and repair costs by improving productivity
Reduction of shipping costs by replacing the area of production
Reduction of procurement costs for materials and equipment

 Aggregate the production of specialty products
 Improvement of productivity through sharing the manufacturing know-how (utilizing available capacity) etc

Note: Since NSSMC and OVAKO are currently competitors of Sanyo, they cannot exchange necessary information for further analysis of synergies such as
customer information, cost information, etc. Accordingly, the above synergy estimates were made based on information that can be duly obtained by eachcompany.

© 2018 SANYO SPECIAL STEEL Co,. Ltd. All Rights Reserved.

9

Financial Highlights

Financial Highlights of Sanyo Special Steel and OVAKO

CY2017(130¥/€)FY2017

Crude steel

1.30 MMT/year (2EAFs)

1.01 MMT/year (3EAFs)

Sales volume

1.07 MMT/year

0.78 MMT/year

Net sales¥157.4 bn.

€921 mil. （approx. ¥120.0 bn. ）¥7.0 bn.

€15.2 mil. （approx. ¥2.0 bn. ）Net profit[FY2018(E)¥8.0 bn.][Jan.-Jun, FY2018 €26mil. (approx. ¥3.4bn.)]

Total assets¥210.2 bn.

€743mil. （approx. ¥97.0 bn. ）Interest bearingdebt¥28.4bn.

volume per€251mil. （approx. ¥34.6 bn. ） Sales
quarter (thousand

Employees

2,666

Approx. 3,000(bn.¥/Q)

EBITDA (million EUR/Q)

Profit3.5*Sanyo’s FY18.1Q net
profit incl. gain on step
acquisitions of Mahindra
Sanyo Special Steel(¥1.46bn.)**OVAKO 1Q=Jan.-Mar.
***OVAKO 18.2Q
Net Profit incl. one-off
costs (costs for advanced
redemption of bondsetc.) (€12.2mil.)

2.3

17.
1Q

240

Ordinary profit

3.9

2.6

4.0

3.0

2.0

1.7

1.5
1.0

2Q

© 2018 SANYO SPECIAL STEEL Co,. Ltd. All Rights Reserved.

3Q

4Q

2013
2015
2017

220

before restructuring cost

29

32 30

11

9

180

9

2

18

***

8

160

18

Net profit/loss
17.

18

1Q*

1Q** 2Q

1Q

3Q

2014
2016

41 40200-6

Net profit

ton/quarter)：Drop in 3Q is due toperiodic maintenance

4Q

140

2Q

1Q

2Q

3Q

4Q

10

OVAKO's Expected Net Profit and Financial Position

Financial Highlights

Acquisition of OVAKO by Sanyo: March 2019 (plan)

Net Income

Net Asset¥6.8 bn. when Net Income for

Net Asset will increase due to additional capital contribution
by NSSMC to OVAKO, in addition to FY2018 net income
Amount of goodwill: ¥30-40 bn. (assumption)

the period of Jan. – Jun. 2018 isannualized(1st Half Net Income ¥3.4 bn.×2)(the amount changes depending on market value of OVAKO’s assets anddebts/amortization period is TBD)

Cf. Depreciation expense isapproximately ¥5 bn. / each year
Changing factors assumed from the 1st half to the
2nd half of the year
① Seasonal factor (Downside factor for the 2nd half ofthe year)

2018 periodic income+
Additional capital contribution by
NSSMC (*)

Decrease in sales volume and increase in cost by
periodic maintenance in 3Q

FY 2018
Net Asset¥28 billion(assumption)② Interest cost reduction (Upside factor for the 2nd halfof the year)

Switched from bonds to bank loans in the 1st half ofthe year
Practically zero interest rate
(Will stand the same from this year onward)③ Excluding the effects of one-off costs (Upside factor
for the 2nd half of the year)


FY 2017
Net Asset¥15 billion* NSSMC will contribute additional
capital in response to the future
capital requirements of OVAKO,
before transferring OVAKO’s shares
to Sanyo

One-off costs incurred due to redemption of bonds(€12.2mil.)© 2018 SANYO SPECIAL STEEL Co,. Ltd. All Rights Reserved.

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Impacts on Sanyo Special Steel’s Consolidated Net Profit
Although synergies are expected to be realized in full on 6thyear, below are calculated based on a hypotheticalassumption that synergies are fully realized in FY 2018 toprovide a image.

72% increase(75% after
deductingtreasuryshares)Shares to be
Issuedthrough TPA

33mil.

cf. Targeted synergy effect
Before tax : more than ¥5.0 bn.
After tax : more than ¥3.5 bn.

Funds are used for
acquiring OVAKO shares

24mil.
cf.
FY2018(E)Net profit

Sanyo’s
Outstanding
Shares

¥8.0 bn.
incl. gain on
step acquisitions of
Mahindra Sanyo Special
Steel (¥1.46 bn.)

© 2018 SANYO SPECIAL STEEL Co,. Ltd. All Rights Reserved.

Financial Highlights③
Synergy②
OVAKO’s
Net profit①
Sanyo’s
Net profitGoodwill
amortization
etc.

cf.
Jan. – Jun.,
FY2018Net profit¥6.8 bn.
(annualized basis)

OVAKO’s earnings are approx. 85% of
Sanyo’s earnings (②÷①)
Total amount of OVAKO’s earnings andsynergies (after tax, excluding
amortization of goodwill) is approx.
130% of Sanyo’s earnings ((②＋③)÷①)
EPS is expected to improve12

Schedule

Schedule
Jun 1st, 2018 – Acquisition of OVAKO by NSSMC
Aug 2nd, 2018 – Execution of agreements;(a) making Sanyo a subsidiary of NSSMC,(b) transferring all shares of OVAKO to Sanyo from NSSMC
After Aug, 2018 – Approval from competition authorities inJapan and overseas
Around Feb. 2019 (plan) – Sanyo’s Extraordinary generalshareholders’ meeting
Mar. 28th, 2019 (plan) – Payment date of Third-Party Allotment& obtaining OVAKO’s shares
The policy is to maintain the listing of on the First Section of the
TSE after the transaction～Overview of the procedure andmeasures to secure fairness of the transaction～








Sanyo appointed Chuo Sogo Law Office, an independent third party, as
its legal affairs advisor and received extensive advice on legal issues
concerning the conversion into a subsidiary in the course of procedures
Sanyo established an Independent Committee, consisting solely of
independent parties, and obtained an opinion that the purpose andprocedures of the transaction are fair and appropriate
Furthermore, in order to properly reflect the shareholders’ intension,
the capital increase through a third-party allotment of shares is subject
to the condition that Sanyo obtains approval from the shareholders at
the extraordinary general shareholders’ meeting scheduled to be heldin Feb. 2019
Please refer to the press release disclosed in Aug 2nd, 2018 “Notice on
Issuance of New Shares Through a Third-Party Allotment to Nippon
Steel & Sumitomo Metal Corporation and Change in Parent Company”
for above details

Trend of Sanyo Special Steel’s Share Price(¥/share)2,900

Mar. 15th, 2018
Commencement of discussion regarding
making Sanyo a subsidiary of NSSMCSanyo Special Steel’s Share Price

Issue Price= ¥2,800(+19% Mar. 14th price)
The reference date(Aug. 1st) = ¥2,924

2,700
2,500

1 month ave.=¥2,800

2,300Mar. 14th ¥2,350© 2018 SANYO SPECIAL STEEL Co,. Ltd. All Rights Reserved.

8/31

6 months ave.= ¥2,673
8/17

8/3

7/20

7/6

6/22

6/8

5/25

5/11

4/27

3/30

3/16

3/2

2/16

4/13

(Starting point is indexed to be the same as Sanyo Special Steel’s share price)

2,100
2/2

3 months ave.= ¥2,780

Aug. 3rd ¥2,573

TOPIX Steel Industry INDEX

13

Reference(Ref.) About Special Steel
Hot-rolled steel production in
Japan(FY 2017)(M MT)

Other

0.6

Breakdown by special steel grade(M MT)

Stainless Steel

72.0

20.6

Structural Steel

2.9
High Tensile
Strength Steel

9.1

5.7
Special SteelBearing Steel

Ordinary Steel

1.0
Free-Cutting Steel

0.6

Tool Steel

0.3
0.4 Spring SteelClassification of Steel
Ordinary Steel─Mild Steel─────Rolled Steel for General Structure(SS), Rolled Steel for Welded Structure(SM),Steel Bars for Concrete Reinforcement(SR,SD), Low Manganese Non-Tempered High Tensile Strength SteelSpecial Steel┬─Structural Steel┬──Mechanical Structural Carbon Steel(S10C, S45C etc.)│└──Mechanical Structural Alloy Steel─Chromium steel(SCr), Chromium Molybdenum Steel(SCM),│
Nickel Chromium Molybdenum Steel(SNCM)├─Pressure Vessel Steel─Carbon Steel for Boilers and Pressure Vessels(SB), Chromium Molybdenum Steel for Boilers and Pressure Vessels(SCMV)├─Tool Steel─────Carbon Tool Steel(SK), Alloy Tool Steel(SKD SKT), High-Speed Steel(SKH)└─Steel for Special Use┬(Low-Alloy Steel) Spring Steel(SUP), Bearing Steel(SUJ), Free-Cutting Steel(SUM), Non-Tempered High Tensile Steel├(High-Alloy Steel) Stainless Steel(SUS), Heat-Resistant Steel(SUH), High-Manganese Non-Magnetic Steel└(Carbon Steel) Spring Steel(SUP), Piano Wire Rod Steel(SWRS)© 2018 SANYO SPECIAL STEEL Co,. Ltd. All Rights Reserved.

14

This presentation does not constitute an offer or invitation to subscribe for or purchase any securities and nothing contained herein shall form the basis of any
contract or commitment whatsoever. This presentation is being furnished to you solely for your information and may not be reproduced or redistributed to any
other person. No warranty is given as to the accuracy or completeness of the information contained herein. Investors and prospective investors in securities of any
issuer mentioned herein are required to make their own independent investigation and appraisal of the business and financial condition of such company and thenature of the securities. Any decision to purchase securities in the context of a proposed offering, if any, should be made solely on the basis of information
contained in an offering circular published in relation to such an offering. By participating in this presentation, you agree to be bound by the foregoing limitations.
This presentation contains statements that constitute forward looking statements. These statements appear in a number of places in this presentation and include
statements regarding the intent, belief or current expectations of Sanyo Special Steel Co., Ltd. or its officers with respect to its financial condition and results ofoperations, including, without limitation, future loan loss provisions and financial support to certain borrowers. Such forward looking statements are not guarantees
of future performance and involve risks and uncertainties, and actual results may differ from those in such forward looking statements as a result of various factors.
The information contained in this presentation, is subject to change, including but not limited, to change of economic conditions, financial market conditions, andchange of legislation / government directives.
Any statements in this document, other than those of historical facts, are forward-looking statements about future performance of Sanyo Special Steel Co., Ltd. andits group companies, which are based on management’s assumptions and beliefs in light of information currently available, and involve risks and uncertainties.
Actual results may differ materially from these forecasts.

© 2018 SANYO SPECIAL STEEL Co,. Ltd. All Rights Reserved.

15