Corporate Philosophy

Message From President
Since its founding in 1933, Sanyo Special Steel Co., Ltd. (“SanyoSpecial Steel”) has been a stable supplier of high-quality special
steel.
Our steel products fulfill a high level of confidence and are applied
to a broad range of important industrial parts in such areas as
automobiles, industrial machinery, railways and wind-power
generation equipment. Bearing steel, our mainstay product, enjoys aparticularly high reputation in many countries for its superior quality
and confidence.
Our corporate philosophy is based on “Confidence-based
Management” and Sanyo Special Steel aims to establish “Confidenceof society,” “Confidence of customers” and “Confidence amongpeople.”Our mission is to contribute to the development of society byproviding “Steel You Can Count On” which has earned a high degreeof confidence from the market in all aspects including development,
quality, and stable supply, based on our corporate philosophy.
Companies must perform both economically and socially if they areto succeed. We intend to enhance the brand power of “Sanyo Special
Steel – the Confident Choice,” and bring our business to the next level
as we fulfill our responsibilities as members of society, which include
implementation of global environment measures and corporate
missions.
We will continue to promote faithful, fair, and transparent corporate
management, and to increase the value of our company and earn theconfidence of all stakeholders by fulfilling our economic and social
missions.

Confidence-based Management

Confidenceof Society

Confidenceof Customers

Confidence
among People“Confidence of society”
We aim to acquire the confidence of society by contributing to the realization of an affluent and culturally rich society and fulfilling oursocial responsibilities through our "high-quality special steel manufacturing.”“Confidence of customers”
We aim to earn the confidence of customers by rapidly ascertaining exactly what their needs are and providing them with high-quality
special steel products.

“Confidence among people”
We aim to build the confidence among people by deepening communication with all of our stakeholders and acting autonomously in
conformity with social norms.

Sanyo Special Steel -the Confident Choice

Development

Quality

Stable Supply

Shinya Higuchi
Representative Director
and President“Development”
We are determined to create the future of steel by taking the lead in research and by developing superior products/technologies that
add to our brand power, in response to customer needs ascertained by a thorough analysis of customer information.

Contents“Quality”
02
03
04
06
07
08
10
12

Message From President
Corporate Philosophy“Steel You Can Count On” technologies that thrive in a variety of fields
Analysis of Results of Operations and Financial Condition
Consolidated Financial Highlights
Segment Information
Topics10th Medium-Term Business Plan “Sanyo Global Action 2019”

14
18
30
32
62

Management
CSR Activities
Research and Development
Financial Section
Corporate Data

We aim to win a high level of customer confidence by further increasing the already unsurpassed cleanliness of our steel and bystrengthening quality control.

“Stable Supply”
By creating efficient manufacturing processes that allow increased production capacity, we are committed to the stable supply ofhigh-quality special steel that meets the requirements of customers.

Earnings forecasts contained in this annual report have been prepared by the Sanyo Special Steel Group based on information available at the time of
their preparation. Please note that these forecasts involve various uncertainties and that actual performance may differ from the forecasted figures.

03

Aerospace

Factries,Plants, Power Stations“Steel You Can Count On”
technologies that thrive in a variety of fields

Dies for forging press,
Dies for high-quality plastics,
Casting dies, Rolls, Tolls, etc.
Tool SteelSanyo Special Steel’s “Steel You Can Count On” is incorporated and used in a variety of industrial products,
including automobiles, railroads, construction machines, electronics products, and information communication devices.
Sanyo Special Steel provides materials that offer high functionality and quality to support developmentof industry and society.

Wind power generation equipment

Bearings

Bearing Steel

Bolts, Gears, etc.

Engineering SteelElectrical Cables

High alloy cables:High-strength invar
alloy for high voltage transmission lines

Formed &FabricatedMaterials

High Alloy Steel

Construction
machineries

Gears, Shafts, Cylinders,
Sprockets, Swing gears, etc.

Formed &FabricatedMaterials

Engineering Steel

Formed &FabricatedMaterials

Bearing steel

Cutting tools, Dies, Injection
molding machine(ex. screw), etc.
Powder Metallurgy
high-speed steel

Shinkansenbullet train
Formed &FabricatedMaterials

Bearings

Bearings, Linear Motion
Bearings, Ball Screws, etc.

Driving parts, etc.

Bearing SteelBearing SteelEngineering SteelEngineering SteelStainless Steel
Metal powders for 3D printing

Tubes for refuse incineration and power generationand power generation boilers, Tubes for waste heatrecovery, Chemical plant piping

Metal powders

Stainless Steel

Extra-high-anticorrosion pipes,
Chemical plant piping,Pipes for heat exchanges, etc.

Heat-resistant thermal spray
powder for boiler pipes,
Metal powders for 3D printing

High Alloy Steel

Metal powders

Bearing Steel

Formed &FabricatedMaterials

PCs

Motor shafts for OA equipment,
Sleeves, etc.
Stainless Steel
HDDs

Mobile Phone,
Smartphone

Electro-magnetic wave absorber

Powder Metallurgy products

Metal powders

Medical Fields

Buildings

Electrical
Appliances

Parts for dental treatment
devices (hand pieces)

Bolts

Magnetic head for
HDD recorders, etc.

Stainless SteelEngineering Steel

Powder Metallurgy products

Seismic isolation systems
Bearing SteelAutomobiles

Transmission gears, Shafts, Engine parts,
Connecting rods, etc.

Roads

Base course materials,
Asphalt aggregates, etc.
Electric arc furnace slag

Engineering SteelBearings, etc.
Bearing SteelIntake/exhaust valves, etc.

Formed &FabricatedMaterials
Formed &FabricatedMaterials

RobotsHeat resistant steel
EGR cooler, Shot peening
Metal powders

Formed &FabricatedMaterials

Driving parts, etc.
Bearing SteelEngineering Steel

Industrial Machineries

Ships

Spindles, Turrets, etc.

Shafts, Bolts, etc.

Engineering SteelEngineering Steel
Propeller shafts, etc.
Stainless SteelEngine valves
Heat resistant steel
High Alloy SteelThe Group of Sanyo Special Steel's Products

Iron scrap
Bearing SteelSanyo Special Steel uses electric arc furnace steelmaking(which uses iron scrap as a main ingredient) to
manufacture special steel, contributing to the recycling
and effective use of iron resources.

Engineering Steel

RecycleTool Steel

Tubes

Stainless Steel

Wire rods

Heat resistant steel

Forged bars

High Alloy Steel04

Rolled bars

Metal powders

Powder Metallurgy products

05

Formed & Fabricated Materials

Electric arc furnace slag

Analysis of Results of Operations and Financial Condition
Fiscal years ended March 31

Consolidated Financial Highlights
Sanyo Special Steel Co., Ltd. and consolidated subsidiaries

FY2017 Overview
The Japanese economy continued to show signs of a moderate recovery in FY2017, with a rebound in individual consumption and an
improvement in corporate earnings due to an improvement in the employment and income environment. Nevertheless, it is in an unclear
situation as far as the future is concerned due to uncertainties in the global economy stemming from concerns over policy trends in the
United States and a downturn in emerging countries including China, among other factors.
In the special steel industry, production volume of special hot-rolled steels was higher than that in the previous term primarily owing tocontinued operating smoothly in our major customer sectors, automobile and industrial sectors.
In such circumstances, Net sales of Sanyo Special Steel Group (our Group) for the fiscal year increased by 18,804 million yen year on
year to 157,485 million yen, due mainly to an increase in sales volumes and an improvement in sales prices. In income, in addition to theabove, there were other factors supporting improved earnings including measures implemented to cost reduction, a decrease in fixed
expenses, and an increase in Operating income in consolidated subsidiaries. On the other hand, factors such as price increases in raw
material and fuel in particular and the time lag in application of the iron scrap surcharge caused Ordinary income to fall by 1,077 million
yen year on year to 10,659 million yen. ROS (ordinary income to net sales) for the fiscal year fell to 6.8% (8.5% for the previous year).
Net income attributable to owners of the parent decreased by 749 million yen year on year to 7,034 million yen, and ROE (Ordinary income
to Net assets) for the fiscal year fell to 5.6% (6.6% for the previous year) .

FY2013

FY2014FY2015FY2016FY2017FY2017(Millions of Yen)

Oprerating Results (For the year)(Thousands of
US Dollars)＊1¥ 171,495¥ 149,148¥ 149,148¥ 138,681¥ 157,485$ 1,482,213

Operating income

9,170

12,18812,188

11,686

10,969103,240

Ordinary income

9,735

11,540

11,54011,737

10,659100,321

Net income attiributeto owners of the parent

6,548

7,417

7,417

7,784

7,034

66,204

Net sales

Financial Position (at year-end)(Thousands of
US Dollars)＊1(Millions of Yen)

Net assets ＊2

113,644

113,141

113,141

123,144

128,960

1,213,736

Total assets

202,243

179,899

179,899

183,445

210,290

1,979,200

(%)

(%)

Financial Indicator

FY2018 Outlook

ROE ＊3

4.1

6.1

6.6

6.6

5.6

5.6

While there are expectations that the modest recovery of Japan’s economy will continue, uncertainty in the global economy is increasing due totrade issues and other factors. Moreover, with international competition in the special steel industry escalating and prices for raw material andfuel rising, uncertain conditions that do not allow for optimism are expected to continue in the business environment surrounding the Group.
In such circumstances, as stated in the 10th Medium-Term Business Plan ”Sanyo Global Action 2019,” our Group, under our Corporate
Philosophy of “Confidence-based Management,” will establish a strong corporate structure that can secure stable earnings by strengthening its
business foundation through executing “Factory Renovation,” and will pursue sustainable growth in human resources, technologies andprofitability even in a severe business environment marked by intensifying competition and rising material and energy prices. We will achieve
this by further pursuing technological superiority and promoting "Sanyo Special Steel - the Confident Choice" to a global brand.
In the next fiscal year, we expect sound demand to continue, and we believe our Group’s sales volumes and net sales will increase mainly due
to including MSSSPL becoming a consolidated subsidiary. On the other hand, raw material and fuel prices are expected to increase significantly
in comparison to the current fiscal year. To counter this, we will pay further attention to reducing costs, and we will endeavor to improve sales
prices with a view to securing appropriate margins while obtaining the understanding of our customers.
By considering all of these factors, we expects its earnings for the next term with net sales to be 185 billion yen, Operating income to be 10
billion yen, Ordinary income to be 9.5 billion yen, and Net income attributable to owners of the parent to be 8 billion yen.

ROS ＊4

4.2

5.7

7.7

8.5

6.8

6.8

ROA ＊5

3.4

4.8

6.0

6.5

5.4

5.4

Net D/E Ratio ＊6

0.46

0.29

0.13

0.10

0.22

0.22

(Yen)

(US Dollars)＊1

Profit Distribution to Shareholders
Our basic policy on profit distribution is to reward our shareholders by increasing the profits available for distribution while strengthening
our business foundation.
Concerning dividend payment, we intend to meet our shareholders’ expectations, primarily by distributing profits based on periodic
business performance, while giving due consideration to both the payout ratio and the amount of funds required for investment and otheractivities to enhance our corporate value. We pay dividends at the end of the 2nd quarter and the end of fiscal year according to our profit
distribution standard based on our consolidated business performance. Our standard of profit distribution is a consolidated payout ratioof 25% to 30%.
Regarding dividends for the current term, we have paid a dividend of 58.5 yen per share (payout ratio of 26.8%) annually according to
the basic policy, since net income attributable to owners of the parent reached 7,034 million yen for the current year. As we implemented
an interim dividend of 33.5 yen per share*1 the year-end dividend is to be 25 yen per share.
Regarding dividends for the next term, we are planning to pay a dividend of 71.5 yen per share annually (payout ratio of 29.0%, aninterim dividend of 45.0 yen, a year-end dividend of 26.5 yen*2) based on the performance forecast announced now and the basic policy
for profit distribution.
*1 We conducted a one-for-five reverse stock split of our company‘s shares effective on October 1, 2017. Earnings per share and dividends are adjusted after the one-for-five reverse stock split.
*2 We will conduct a third-party allotment effective on March 28, 2019. Earnings Per Share and Payout Ratio in Revised forecast are calculated based on average number of shares after this issuance.

Eanings per share ＊7

126.03202.99230.01241.47218.34

2.05

Net assets per share ＊7

3,167

3,498

3,483

3,797

3,961

37.28

Cash dividends per share ＊7

25.00

50.00

60.00

62.50

58.50

0.55

* 1 US dollar amounts are converted, for convenience purpose only, at the rate of ¥106.25=US$1, the approximate rate of exchange on March 31, 2018.
* 2 Non - controlling interests are included in net assets.
* 3 Net income attributable to owners of the parent to Net assets* 4 Ordinary income to Net sales* 5 Ordinary income to Total assets* 6 Net debt equity ratio - (gross interest-bearing debt - cash and deposits) / equity* 7 We conducted a one-for-five reverse stock split of our company‘s shares effective on October 1, 2017.
Cash dividends per share of FY2013-2017 are adjusted after the one-for-five reverse stock split .

Net sales

Ordinary income

200,000

12,000(Millions of Yen)

157,485
149,148 149,148
138,681(Millions of Yen)
8,000

11,540 11,540 11,737
10,659171,495

150,000

Net income attributableto owners of the parent
to Net assets(Millions of Yen)

6,548

9,735

7,417

7,417

Annual dividend *7
(Yen)

30

100

7,784
7,034

6,000

26.1

75

24.6

8,000

100,000

4,000

50.0

50
19.8

4,000

50,000

0

25

2,000

FY2013 FY2014 FY2015 FY2016 FY2017

00

FY2013 FY2014 FY2015 FY2016 FY2017

FY2013 FY2014 FY2015 FY2016 FY2017

0

25.0

30

62.5

37.5

26.8

58.5

20
30

15

25

33.5

FY2013 FY2014 FY2015 FY2016 FY2017
Year-end dividendInterim dividend
Payout ratio

06

07

25

25

35

10
15

60.0

25.9

15

Segment Information
Metal Powder
FY2017
Sales Breakdown 3.1%

Metal Powder
In the Metal Powder segment, we manufacture and sell high-purity metal powders with low oxygen levels, and powder metallurgy products
through our original powder consolidation technologies. We not only provide alloy design that meets the needs of our customers, but are alsoable to support everything from mass production to small lots for research and development. We provide
high functionality materials required in a variety of situations—from the forefront of research anddevelopment, to manufacturing sites.

Other 0.1%

Formed andFabricated Materials
11.7%

FY2017 Overview
Net sales for the fiscal year increased by 438 million yen year on year to 4,895 million yen, mainly due
to increases in sales volumes for the automotive and industrial machinery sector and the electronicmaterials sector. Operating income decreased by 11 million yen year on year to 921 million yen. Despite
positive factors such as increases in sales volumes and improvement in product mix, there was anincrease in depreciation costs due to starting operation of the No. 2 Metal Powder Plant.

Specialty Steel85.1%

Net sales

Note: The sales breakdown is calculated based on net sales by each segment to outside customers.
(Millions of Yen)

Net
sales

FY2016
Operatingincome

ROS
(%)

Net
sales

FY2017
OperatingincomeROS(%)

Specialty Steel*

125,010

9,867

7.9

141,988

9,691

6.8

Metal Powder*

4,456

932

20.9

4,895

921

18.8

Formed and Fabricated Materials

15,789750

4.7

18,431

765

4.2

Other

1,678

57

3.4

1,530

27

1.8

Adjustments-8,25280-9,359-435

Consolidated Total

138,681

11,686

157,485

10,9698.4* As a result of the reorganization as of April 1, 2017, the special alloys business, which had been classified under the “Special Materials” business segment, is reclassified
under the “Specialty Steel” business segment and consequently the “Special Materials” business segment is renamed as the “Metal Powder” business segment from FY2017.
Segment information for FY2016 has been reclassified by revised segments.

7.0(Millions of Yen)In the Specialty Steel segment, we manufacture and sell various special steel products including
bearing steel, which boasts a top share in the total domestic production, as well as engineering steel,stainless steel, heat resistant steel and tool steel.

Net sales for the fiscal year increased by 16,978 million yen year on year to 141,988 million yen, mainly
due to the increase in sales volumes and an improvement in sales prices. Operating income fell by 176
million yen year on year to 9,691 million yen, due mainly to price rises in raw fuel and the time lag inapplication of the iron scrap surcharge system, despite the above and other positive factors such as
variable cost reduction.

112,500

125,010

141,988

Operating 10,000
income(Millions of Yen)

5,000

37,5002,500
FY2016FY2017

9,867

9,691

7,500

75,000

0

4,895

3,750

Operatingincome(Millions of Yen)

1,200
900

2,500

600

1,250

300
0

FY20160

FY2017932

921

FY2016FY2017

Formed and Fabricated Materials
The Formed and Fabricated Materials segment uses an integrated process to manufacture high-quality formed and fabricated materials fromhigh-cleanliness steel, which is produced using our high-cleanliness steel manufacturing technology. Our formed and fabricated materials
include cut rings produced by cutting special steel tubes with high precision, forged rings/forged products/rolled products made from steel
bars, and cold roll formed rings made from ring materials.

FY2017 Overview

Net sales(Millions of Yen)FY2017 Overview

Net sales 150,000

4,456

Net sales for the fiscal year increased by 2,641 million yen year on year to 18,431 million yen, mainly due to increases in sales volumes andimprovement in sales prices. Operating income increased by 15 million yen year on year to 765 million yen, mainly due to an increase in sales
volumes despite mainly an increase in cost of starting a subsidiary in Mexico.

Specialty Steel(Millions of Yen)

5,000

0

2,000015,00015,78918,431

Operating 1,000
income(Millions of Yen)

750

10,000

500

5,000

250

0

FY20160

FY2017765

FY2016FY2017

Other
We provide information processing services through our subsidiaries.

FY2017 Overview
Net sales decreased by 148 million yen year on year to 1,530 million yen. Operating income decreased by 30 million yen year on year to 27 million
yen. This segment includes information processing service conducted through subsidiaries.
FY2016FY2017

Net sales(Millions of Yen)

2000

1,678

1500

1,530

Operatingincome(Millions of Yen)

100
75

1000

50

500

25
0

FY2016FY201757
27

0

Note:Net sales of each business segment include intersegment transactions.

08

750

09

FY2016FY2017

Topics
Completion of making MSSSPL(*) our consolidated subsidiary

Receipt of the 40th Japan Institute of Metals and Materials Technical Development Award•We further acquired shares of MSSSPL and made it our consolidated subsidiaryon June 21,2018.
1)The proportion of voting rights 29.0% to 51.0%
2)The consideration for purchase additional share: About INR 1.5 billion (About JPY 2.4 billion)•MSSSPL is our first subsidiary, both inside and outside Japan, that engages in
integrated manufacturing and sales of special steel products.
•MSSSPL aims to be a leading Indian manufacturer in quality, productivity, costand competitiveness as our factory in order to strengthen our capabilities to
respond to market growth and customers’ requests in India.

•We received the Japan Institute of Metals and Materials Technical Development Award for thedevelopment of “ECOMAX4 ", Ni- and Mo-free high-strength case hardening steel.
•The development which realizes high strength without using rare metals as nickel and molybdenum
and contributes to reduction of heat treatment deformation etc. was highly appreciated.
•This award was presented at the Institute annual fall meeting 2017.
•Features of ECOMAX 4
1) Suppression of grain coarsening during carburizing
2) Reduction of heat treatment deformation
3) Improvement of pitting life

[MSSSPL’s outline] (*)
Name: Mahindra Sanyo Special Steel Pvt. Ltd.
Location: Maharashtra, India
Establishment : 1962 (joint business started from 2012)
Sales: About INR 9.1 billion (About JPY 15.5 billion) (note1,2)Business: Manufacture and Sale of Special Steel Products(note)The Japan Institute of Metals and Materials Technical Development Award:
It is presented to engineers who have achieved excellent results in metallurgical engineering and related original technicaldevelopment such as new technologies and new products with the aim of recognizing intensive development and research.

MSSSPL’s Appearance(note)
1 The figures are as of the end of March, 2017.
2 JPY figures are for reference, calculated at the rate of INR1.00 = JPY1.7.
Location

Making Sanyo (*1) a Subsidiary of NSSMC (*2) andMaking Ovako (*3) a Subsidiary of Sanyo•We announced in the press release titled “Commencement of Discussions Regarding Making Sanyo a Subsidiary of NSSMC and Other
Matters” dated March 15, 2018. We have come to an agreement on the terms and conditions, and an agreement was executed on
August 2, 2018.
•We intend to conduct the following transactions on March 28, 2019.
1) Making Sanyo a Subsidiary of NSSMCSanyo’s third-party allotment underwritten by NSSMC for procuring funds to acquire all the shares of Ovako
2) Making Ovako a Subsidiary of Sanyo
Transfer of all the shares of Ovako to Sanyo from NSSMC•The policy is to maintain the listing of Sanyo on the First Section of the Tokyo Stock
Exchange.
*1 Sanyo : Sanyo Special Steel Co., Ltd.
*2 NSSMC : Nippon Steel & Sumitomo Metal Corporation*3 Ovako : Ovako AB*For the details, please refer to the document titled “Regarding the Agreement to Make Sanyo Special
Steel a Subsidiary of Nippon Steel & Sumitomo Metal and Other Matters” on our website.

Presentation at expositions~The Company provided a promotional presentation of our products
at an exhibition that gathers the most advanced technologies~•In June, we exhibited at the "12th China International Die Casting Congress & Exhibition"
held in Shanghai, China for the acquisition of new customers etc. in China die casting
industry. We exhibited products such as QDX-HARMOTEX: hot working-die steel.
•In April, We provided a promotional presentation of our metal powder products developedin special material business and advanced highly-functional materials such as its heatand corrosion-resistant alloys at the “4th Highly-functional Metal Exposition” held inTokyo.
•We exhibited highly functional gas-atomized metal powders, powder metallurgy products,
examples of moldings by 3D printing etc. at 2 expositions: International 3D Printing Show
2017(in September, in Taipei, Taiwan) and 3D Printing 2018(in February, in Tokyo).

Any exhibitions attracted much interest to visitors.

Examples of moldings by 3D printing

Receipt of the Hyogo Work-Life Balance Company Award,
Santoku Computer Service•This award was presented by Hyogo Prefecture in recognition of being a company that has vigorously
promoted “a work-life balance.”•Santoku Computer Service Co., Ltd. received this award, which we received in November 2010, forthe first time as our subsidiaries.
•It was appreciated that the company encourages to work with worth living and diversified ways of President Yamana has received recognition
from the Deputy Governor of Hyogo Prefecture
living.
•This subsidiary has established “challenging, fulfilling, and healthy” as its company-wide vision, andis promoting initiatives to curb long working hours.

Factory tour for our employee’s family in November 2017
[Ovako’s outline]
Name: Ovako AB
Location: Sweden(headquarter)
Sales: About EUR 0.92 billion (About JPY 120 billion) (note1,2)
Sales volume : About 780,000 tons �(note1)
Employees: About 3,000
Business: Manufacture and Sale of Special Steel and Secondarily
Processed Products(note)
1 The figures are as of the end of December, 2017.
2 JPY figures are for reference, calculated at the rate of EUR1.0 = JPY130.

•This tour would gain a better understanding of our pride to
manufacturing and our workplace.
•About 300 people visited Steelmaking Plant and 5,000t
Forging Press etc.
•We received many messages and illustrations fromchildren.
•On the same day, we provide volunteers to conductclean-up activities around plants. Participating employees
worked with daily gratitude to the area.

Cleaning areas around plants
by voluntary employees•Sanyo Group would like to develop social contribution
activities through these activities.
A view of the factory tour

10

11

10th Medium-Term Business Plan

Sanyo Global Action 2019(3) Enhance the management foundation- Pursue sustainable growth by building a global brand of Sanyo -Strategy of the 10th Medium-Term Business Plani) Promote agile, transparent management

Based on our management principle of “Confidence-based Management,” we will firmly establish a strong corporate structure that will enable
us to secure stable earnings by executing “Sanyo Factory Renovation” and strengthening our business foundation. In addition, we aim to further
pursue technological superiority and to promote "Sanyo Special Steel - the Confident Choice" to a global brand, with the aim of achieving
sustainable growth (human resources, technologies, and profitability) even in a challenging environment of intensifying global competition in
the special steel industry, and rising raw material and energy prices.

Establish a strong corporate
structure by strengthening
the business foundation

Further pursue technologicalsuperiority by enhancing R&D andquality competitivenessPromote “ Sanyo Special
Steel - the Confident Choice ”
to a global brandPursue Sustainable
Growth■ Firmly establish the executive officer system(June 2017 onwards)■ Continuously focus on safety initiatives, disaster prevention, environmental conservation and compliance structureii) Secure and train human resources■ Strengthen the regular recruitment program for internationalization and transfer of expertise(2.7-fold increase from the 9th medium-term period)■ Improve re-hiring scheme and continue to promote diversity management including support for women in the workplace, etc.
■ Implement work style reforms to achieve work-life balance

Human resources / Technologies / Profitabilityiii) Enhance shareholder return

Targeted KPIs

(Unit: billion yen)

FY2016 (Performance)

Net sales
Ordinary income
ROS
ROE
ROA
D/E ratio (net)
Investment (3 years)
R&D spending (3 years)
Recruitment (3 years,
Non-consolidated)
Consolidated dividend
payout ratio

FY2019 (Target)

Variance

138.7
11.7
8.5%
6.6%
6.5%
0.1

150.0
13.5
9.0%
7.0%
7.0%
0.2

11.3
1.8
0.5%
0.4%
0.5%
0.1

35.3
4.6

50.0
5.0

Approx. x1.4
Approx. x1.1

56 persons

150 persons

Approx. x2.7

25.9%

30%

4.1%

Note 1. ROE: Net Income to Net Assets
Note 2. ROA: Ordinary Income to Total Assets

Major assumptions (FY16 → FY19)

・ Scrap market prices: 22 → 32 (+10) 1,000 yen/t・ Exchange rate: 109 → 100 yen/US$・ Dubai crude oil: 47 → 60 $/BL

Priority Measures• Establish a strong corporate structure by strengthening the business foundation(1) Strengthen competitiveness by executing “Sanyo Factory Renovation”■ Eliminate bottlenecks at No. 2 Bar Mill, etc.
■ Streamline factory logistics and directly link production processes■ Promote automation and improve efficiency through AI and IoT, etc.

Strengthen cost &delivery competitiveness■ Set 25% as the lower limit for the consolidated dividend payout ratio (currently 20%)
■ Aim for a consolidated dividend payout ratio of 30% in FY2019• Further pursue technological superiority by enhancing R&D and quality competitiveness(1) Enhance quality competitiveness, mainly for bearing steel■ Maintain Sanyo Special Steel’s internal quality superiority basedon its core “Premium Cleanliness Steel Manufacturing Technology”■ Develop external appearance quality through process improvements
and a higher level of quality assurance

Aim to become “No. 1
globally in internal quality
and external appearance quality”(2) Promote R&D■ R&D spending 1.1-fold increase from 9th medium term (4.6 → 5.0 billion yen)
■ Clarify functions of basic research and product development■ Strengthen medium- and long-term R&D planning functions

Create products with highreliability and new technology
rapidly and continually• Promote “Sanyo Special Steel-the Confident Choice” to a global brand(1) Promote global branding measures

Enhance the source ofour brand power(QCDD* power)■ Strengthen the roles of our overseas bases■ Establish a 6-center structure worldwide
for the Formed and Fabricated Materials business■ Build a global supply chain

Globalbranding* Quality (Quality), Cost (cost)・, Delivery (delivery on time) Development (R&D)(2) Promote initiatives aimed at further improvements in recognition(2) Secure stable earningsi) Steel Products business■ Absorb the material/energy price hike through cost reductions
and sales price increase■ Capture the growing overseas demand for special steel■ Improve the sales mix■ Strengthen the technical planning function and accelerate technicalexchanges with customers

Achieve stable earnings

12... Actively expand PR and IR activities, etc.

Worldwide brandpenetration• Investments
Planning for 50 billion yen in 3 years (x1.4 compared to 9th Medium-Term)ii) Non-steel Products business■ Establish investment decided in 9th medium-term and capture growth market•Formed and Fabricated Materials: Local subsidiaries in Thailand(SSSP) and Mexico(SMM)•Special Materials: No.2 Metal Powder Plant■ Non-Steel Products business sales: 1.5-fold growth vs. FY2016■ Enhance communication of information in Japan and overseas

Improve stability ofearnings through expansion■ Strategic investment 25 billion yen/3 years... “Sanyo Factory Renovation”, M&A, etc.

■ General investment 25 billion yen/3 years··· Investment in cost reductions such as energy savings, labor savings, quality, updating of aging facilities, etc.

13Management
Fundamental Measures for Corporate Governance

Executives

Corporate auditors' audits are conducted as necessary based on
auditing policies formulated each year by the Board of Corporate
Auditors. Audits are conducted on a broad range of areas, including
not only directors' execution of their duties but also risk management
and compliance from an internal control perspective. Corporate
auditors express their opinions to the representative director basedon the audit results and, if necessary, also to business executionfunctions. We have a standing corporate auditor system in order tostrengthen our auditing structure.
As for accounting audits, we formulate audit policies throughdiscussions between corporate auditors and accounting auditors;
audits are then performed based on these policies. We also holdmeetings where accounting auditors can report and explain the audit
results to corporate auditors as necessary, so that corporate
auditors and accounting auditors can perform their audit duties inclose coordination.

Concerning business execution, we make decisions on importantmatters and supervise execution of business operations by directors
at ordinary meetings of the Board of Directors (held monthly), andextraordinary meetings of the Board of Directors (held as required).
We also set up company-wide committees to discuss importantmatters concerning operations. These include the Corporate Policy
Committee to facilitate efficient decision-making on management
such as at the Board of Directors meetings, the Risk Management
Committee to ensure thorough compliance and solid corporate
governance, the Security Trade Control Committee, the Environment
Conservation Committee, and the Corporate Budget Committee. We
have adopted the Executive officer system to clarify the division of
responsibility for the “policy decision and supervision ofmanagement” and “business execution” and to ensure prompt
decision-making in response to diverse changes in the businessenvironment.

■ Our organizational structure for corporate governance and internal control(As of June 27,2018)

Representative Director
and President
Director, Member of the Board
Senior Managing Executive Officer

Akihiko Yanagitani

Shinya Higuchi

Directors, Member of the Board Managing Executive Officers(As of June 27,2018)

General Shareholders’ Meeting
Kazuhiko Nagano

Board of Directors

Shigehiro Oi

Kozo Omae

Katsu Yanagimoto

Directors, Member of the Board

Board of Corporate
Auditors(9 directors, including 2 outside directors)

Kozo Takahashi(3 auditors, including
2 outside auditors)

Basic policy of the Internal Control（Autonomous internal control）< Operating Department >Representative Director and President

Corporate Policy Committee

Accounting
Auditors(＊3)(accounting firm)

Corporate Committees / Meetings
Supervisory andResponsible Executive Officers
Each business division

Yusaku Omori（＊1）

Risk Management Committee

Takashi Kobayashi（＊1）

Corporate Auditors

Reward & Punishment Committee

Hiroaki Kimura(Standing Corporate Auditor)

Internal Control & Audit department

Executive Officers
Katsuaki Oe（＊2）

Kazuhisa Fukuda（＊2）(Internal Auditing)Takayo Chiba
Norihiko Morishita
Yasumoto Koga

(＊4)
(＊2)

Subsidiaries, Affiliated Companies(＊1)(＊1) Audits of our subsidiaries and affiliated companies by audit firm are conducted through audits of consolidated financial statements.
(＊2) Each of our subsidiaries and affiliated companies has a supervisory department.
(＊3) We have committees and conference bodies, including the Security Trade Control Committee, the Environmental Conservation Committee and the
Corporate Budget Committee. In addition, we have a Whistle-blowing system “Compliance Helpline” to prevent occurrences of compliance violations.
(＊4) Corporate auditors perform inspections as necessary on the operations and asset status of subsidiaries.

14

Takashi Kuwana
Nobuhiro Tsujii

Yasukazu Unigame
Mitsuru Inoue

Masanori Kunisada
Kazuhiko Hiraoka（＊1）Outside director （＊2）Outside Corporate Auditor

Rules on Large-scale Acquisition of Sanyo Special Steel’s Shares
the Company’s “Basic Management Policy” and consistently seek tosecure and enhance the enterprise value of the company andcommon interests of the shareholders. We also believe that, when alarge-scale acquisition of the Company’s shares has been proposed,
the ultimate judgment on whether or not to accept the proposal
should be made by the shareholders at the time of proposal. We also
believe that it is the Company’s responsibility to secure sufficient timeand information for the shareholders to examine the proposal andmake a final judgment in order to protect and enhance the Company’s
enterprise value and shareholders’ common interests. The Company
has adopted the “Rules on Large-Scale Acquisition of Sanyo Special
Steel’s Shares” based on such beliefs.

The Company has adopted the “Rules on Large-scale Acquisition of
Sanyo Special Steel Shares.”
These rules were established for the purpose of securing sufficient
time and information for the Board of Directors to examine theconditions of acquisition proposals and offer alternative plans so that
our shareholders can make informed judgments (an appropriate
judgment based on sufficient time and information) and preventing
inappropriate large-scale purchases of shares that may damage theCompany’s corporate value and the common interests of theshareholders.
We believe that those who control decision-making for financial
matters and business policies in the Company should fully understand15

Implementation of compliance education

Development and Management of Internal Control Systems
developed throughout the Company in principle, as a management
system to ensure appropriate the business execution necessary toachieve integrity, fairness, and transparency in our corporate
management.

We resolved a basic policy of internal control systems at the Board of
Directors meeting in accordance with the Company Law of Japanand other relevant laws and ordinances. Under this policy, we havedeveloped, managed, and made constant efforts to improve ourinternal control systems which allow our autonomous activity to be

departments and affiliated companies are conducting complianceeducation appropriate for each department and ensure that
employees are familiar with laws, regulations, and rules necessary
for the execution of business.

We are conducting training according to various themes such ascompliance education through e-learning and compliance training
for new employees. We are also conducting harassment educationaccording to employee and officer levels. Furthermore, allInitiatives by theme

Compliance Structureand follows other relevant procedures according to company rules.
The Company will endeavor in the future to cultivate higher ethicalstandards by regularly conducting employee education on thenecessity and significance of complying with various laws,
regulations, and rules in corporate management and will makeefforts to maintain and improve the management health of not onlyof the Company but also of the Group as a whole. The Company isalso committed to putting into practice its mission to “fulfill oursocial contribution through business” by promoting businessactivities rooted in high ethical standards.

The Company has established the “Corporate Standards of Conduct”
that prescribe the standards of behavior we should follow as acorporation, and a “Code of Conduct” as guidance on conduct to beobserved in the course of business activities within the framework of
the Corporate Standards of Conduct. Moreover, the Company makes
efforts to ensure all officers and employees are thoroughly familiar
with these standards.
In addition, the Company has appointed an executive officer incharge of corporate ethics, established a compliance counselingdesk, holds regular meetings of the Risk Management Committee,

Clearly-defined Company Rules: We improve our company rules as the needs arise in order to ensure further compliance.
Guidelines for Corporate Behavior
The Guidelines for Corporate Behavior indicate how we should behave as a corporation. They underpin all corporate activities.
Code of Conduct
The Code of Conduct provides guidance on conduct to be observed in the course of our business activities within the framework set by the
Guidelines for Corporate Behavior.

Risk Management Committee(1)Security Trade control
We have formulated rules on security trade control, and we conduct
our export business based on these rules. We have also establisheda framework for controlling security trade through the holding of
Security Trade Control Committee and the implementation of internal
audits. We are also providing training for managers, including
directors, on security trade control on a regular basis.

Providing training for employees,
about Security Trade control on a regular basis(2)Protection of personal information
formulated the "Basic Policy on Handling Specific Personal
Information" and the "Specific Personal Information Handling
Regulations," and we established and currently operate a system forthe appropriate management of specific personal information.

With the understanding that the strict management of personal
information is a social obligation, we have established personal
information management regulations and rules for handling of
personal information, and we have put in place a system for the
management of personal information. Following the introduction of
the Social Security and Tax Number System in 2016, we also
(3)Information security

The Committee discusses compliance policies and specific measures based on thesepolicies. If any situation or behavior deviates or is likely to deviate form lows andregulations etc., the Committee investigates the actual situation, deliberates onappropriate corrective measures, and takes other relevant actions.

Risk Management Committee<Chairperson>
Representative Director and President

measures, we publish security reports for internal use every month.
By notifying all employees of the status of information security, we
are making efforts to increase employee awareness of information
security.

We have also established various rules such as information security
regulations and guidelines in regard to the use of e-mail and theinternet and the removal of information from company premises, andwe thoroughly enforce security management procedures regarding
information assets that are to be protected. In addition to these<Committee members>
All member of the board &All member of corporate auditors

Whistle-blowing system
We have initiated a whistle-blowing system designed to help
prevent occurrence of misconduct. The “Compliance Helpline”
is aimed at detecting at an early stage any apparent orprobable circumstances/acts which are deemed inappropriate
in light of lows and regulations, social norms, and/or
company rules, and allowing prompt and appropriate action
to be taken to prevent misconduct.

Compliance Helpline<Internal contact desk><Extemal contact desk>Internal Control & Audit Department

Corporate lowyer

Whistle-blower

16

17CSR Activities
While promoting corporate management with integrity, fairness, and transparency through the practice of our corporate philosophy,“confidence-based management,” we fulfill our economic and social missions in order to gain the confidence of all our stakeholders and build
a sustainable relationship with society.

Relationship with stakeholders
Based on our strong awareness of our company as a memberof society, we strive to build a relationship of trust with ourCSR-conscious Management

Corporate Management with
Integrity, Fairness, and Transparency

stakeholders including our customers, clients, shareholders
and investors, the local community, and our employees. We
trust by developing high-quality special steel products andsupplying of our products stably. We are also committed toengaging in fair, transparent, and free competition and in
appropriate trade. We communicate with society at large byComplianceManagement

SocialContributions

Environmental
Management

Customers

are committed to earning our customers’ satisfaction andactively and fairly disclosing corporate information. We

Shareholders &Investors

Suppliers

endeavor to actively contribute to society as a “goodcorporate citizen.” Moreover, we respect each and every
employee and ensure a safe and comfortable workplace byrealizing an environment that is supportive and enriching.
Through these efforts, we will respond to the requests andCSR in Pursuit of
Economic Goals

CSR in Pursuit ofSocial Goals

We aim for sustained company growth and thewell-being of society by gaining the confidenceof the market through our provision ofhigh-quality special steel products, and by
returning our modest profits to society.

We aim to enhance our corporate brand image
through achieving harmonious coexistence withsociety by focusing on the creation of a
resource-recycling society, environmental
protection, and cultural promotion.

expectations of our stakeholders in Japan and abroad and, in

Employees

doing so, we will earn their trust and contribute to theCommunity

realization of a sustainable society.

Initiatives in CSR management
To practice CSR management, we remain constantly aware of what our economic mission and social mission should be, and we have been
engaging in CSR activities to fulfill these missions.

Mission to be fulfilled

Corporate Philosophy:
Confidence-based Management
Confidence ofcustomers

Confidence
among people
Confidence ofsociety18

Trust from customers• Sustainable efforts to improve quality• Promotion of CS (Customer Satisfaction) activities• Promotion of technology and research on steel

Trust from suppliers• Compliance with transaction related laws and regulations• Procurement activities with consideration for the environment

Trust from shareholders and investors• Appropriate disclosure of financial information• Communication with shareholders and investors

Trust from the community• Support activities for volunteer / cultural promotion• Improve regional disaster prevention ability

Trust from employees• Improve work environment that is easy to work
• eradication of occupational accidents• Improvement of disaster prevention awareness

Environmental activities• Development of environmentally friendly products and technologies• Efforts towards environmental preservation

Governance• Promote prompt and transparent management• Thorough implementation of business activities based on compliance19Social Contribution Activity

Human resource development

The Sanyo Special Steel Group aims to evolve along with society and is actively promoting social contribution activities.

Activities to foster the development of human resources
responsible for the next generation

Development of employees’ skills
To enable each and every employee to play an active role and perform to their full potential, we strive to provide attentive training and personnel
assessments through dialogue.

voices of the children can be heard in the factory.
We also provide steel materials to nearby industrial high schools
for students’ practice. The high school students aim at winning
prizes in high school student competitions in crafting and producing
devices, and we encourage them to hone their techniques on a daily
basis. With a desire to support students in this way, we have been
providing materials since 2015.

We want children who will shoulder responsibility for the next
generation to deepen their interest and curiosity in manufacturing,
and we invite elementary school students from nearby schools on
visits and we hold factory tours with the hope that they will becomefans of our company. The children can see at close range thefactory's enormous machines and equipment while hearing theirloud noises and feeling the heat they generate. And the surprised

Factory visit targeting neighboring elementary school students

Contributing to the promotion of culture in the region

Social contribution activity with company athletic team

We established the Sanyo Special Steel Cultural Promotion
Foundation for the purpose of contributing to the promotion ofculture in the region. We sponsor various events, including cultural
lecture meetings and New Year’s concerts by elementary and juniorhigh school students, and we make donations of books.
For the cultural lecture meetings, we sponsor a wide variety oflectures based on topics of interest at the time including subjects
such as sports, science, and history. The New Year's concert aims togive children and students the experience of enjoying music firsthand and to provide a venue for choral groups and young wind
instrument musicians to present the results of their practice.
Through musical activities, we hope to assist in the development ofchildren’s imaginative expression. Every year in January wecosponsor this concert with the Himeji City Board of Education.
Through our donation of books to elementary schools, we aim torevitalize school libraries to enable children to develop richsensitivities and diverse values through books. We aim to donate
books twice during the six-year period that children attend
elementary school.

Since 2017, the Track and Field team, under the sponsorship of the
Sanyo Special Steel Cultural Promotion Foundation has been holdingthe "One-day Track and Field lecture " for students from Grade 4 inelementary school until the final year of junior high school.
The program aims for the purpose of contributing to the promotionof local sports by enabling children to experience the enjoyment ofphysical activity and to improve the children’s health and competitive
skills. The athletic team members devise activities that mix warm-up
exercises with fun and, as a final activity, hold a mini “Ekiden” racewith the children. The venue rings with excitement and cheers as thechildren run with all their might.
In addition, our athletic team has concluded an agreement oncooperation on providing information on road damage etc. with
Himeji City. This agreement is expected to discover anomalies in thedetails of sidewalks and car side streets that are difficult to detect inrunning cars, as players run extensively in the city with practice.
There are cases where the road collapse and the place where thewhite line was going out was provided to the Himeji City and led to
repair.

The New Year’s concert held in 2018

(1)Training of "self-motivated" human resources eager to take on new challenges
types of training for personnel, including incentive programs for
In line with our basic policy of "Training and utilizing people," weobtaining qualifications that pay employees a monetary reward upon
have set up a detailed training and education system. We hold aacquisition of a qualification or license. We also provide specialist
range of group training programs on a timely basis, based on
training by department for skills in areas such as patents and sales,development of ability through their day-to-day duties, with theand we dispatch personnel for various external training programs
objectives of fostering employees who have both the spirit ofincluding group training across diverse skills areas as well as online
accepting new challenges and the individuality to set and resolve
study.
problems by themselves.
We provide support programs for self-development and various(2)Systematic training of global human resources
In response to the globalization of the business environment, we areaccelerating our training of human resources capable of performingon the international stage. Specifically, we aim to provide overseas
language training for all new employees in planning positions as well
as study abroad at universities, graduate schools, and research
institutes for select personnel. In addition, we will periodically holdin-house TOEIC exams and language courses including English forjunior employees and candidates for overseas postings.
In addition to efforts to improve language proficiency, we will
enhance our training programs on themes for acquiring international
sensitivity through experience and systematically develop global
human resources.

The overseas language training of new employees

Personnel assessment
Establishing work tasks and training themes through dialogue
The performance of our employees is reviewed, focusing on thefollowing questions so that each and every one of our staff can havea strong desire for personal growth, achievement of personal goals,
and always challenge issues at a high level, and at the same time,
their individuality and the spirit of accepting new challenges can be
fostered. These questions are: “Have you set high goals and strived
to achieve them?”,” Did you steadily carry out a process to achievethese goals? ”
Employees’ work tasks and themes are set through dialogue with
their managers. In this way, employees can clarify their goals andmake efforts to improve their skills. This approach also leads tostrengthening the relationship of trust between managers and theirstaff. At Sanyo Special Steel, we also support the self-realization ofeach individual through a self-assessment system in which
individual employees can state their aspirations regarding job andworkplace options through career design talks and throughinterviews with junior employees.

A dialogue with her managers
about work tasks and training themes"One-day Track and Field lecture" held in 201820

21

Diversity initiatives

Promoting communication with shareholders and investors

Promotion of female participation and “Positive Action* Declarations”*Positive Action: Efforts to promote voluntary and female participation by individual companies to eliminate differences between male and female workers

female employees, expansion of job categories, active appointmentof women in managerial positions, and ongoing employment supportof employees during life events such as child-raising and caring forfamily members, we are striving to create a “work-friendly”
environment for women.

We have set a goal to raise the ratio of female employees to 25% by
the end of March 2028.
To achieve this, we are making efforts to create a workplace
where all employees including women can achieve self-realization
through their work while enjoying a fulfilling family life.
Through specific efforts such as the systematic recruitment of

To promote greater understanding of our business strategy and our business conditions, we are striving to publicly disclose investor relations
data, hold one-on-one meetings with institutional investors, conduct financial results briefings and take other initiatives to facilitatecommunications.

Disclosure of IR information

Our discussions with shareholders and investors

We are actively working to publicize information on our
performance and activities in a timely manner. We haveestablished Investor Relations pages (English and Japanese) on the
Company website, providing a range of IR materials including
financial highlights, summaries of financial results and earnings
forecasts. For overseas viewers we offer Annual Reports (inEnglish) and a variety of other data. We also offer (in Japanese)videos of our financial results briefings via our website. In FY2016
we held our first overseas IR meeting in London. As our Company
expands globally, this was a valuable opportunity for us to enhance
our communications with overseas investors.

We continue to hold financial result briefings for institutional
investors, financial institutions and clients, and have one-on-one
meetings with institutional investors.
At a financial results briefing for analysts that we held in Tokyo in
May 2017, Managing Executive Officer Kozo Takahashi explained thefinancial results and President Shinya Higuchi explained our 10th
Medium-Term Business Plan. At the Q&A session that followed, there
were many questions about the Medium-Term Business Plan and ourCompany's business.
We have held a factory tour annually for individual shareholders in
March, since 2007. These events are held to help deepen
understanding of our Company's business. Most of people taking
part in tours of our impressive manufacturing sites tell us afterwards
that the tour helped them to get a greater understanding of ourCompany's business.

IR pages on the Company website
http://www.sanyo-steel.co.jp/english/shareholder/index.html

Shareholder benefit plan

Training to be held for female employees to support their further success.

Systematic recruitment of female employees and expansion of job categories
employees to manufacturing sites, sales departments, and otherdepartments where there have previously been few female
employees.

We are making efforts to recruit personnel based on a recruitment
plan that sets targets for the number of male and female employees
respectively, and we are taking active steps to assign female

We present a company calendar to shareholders holding at least 100
shares who are listed on the register of shareholders as of
September 30 each year. To shareholders listed on the register ofshareholders as holding 500 shares or more for at least one year, weoffer a tour of the factory, and to shareholders listed on the registerof shareholders as having 1,000 shares or more for at least one year
as of March 31 every year, we present regional products.

Support measures including childcare

Our original maternity working wear

Financial results briefing for analysts

hours, all of which had been requested by many employees. As aresult, procedures for obtaining childcare leave and returning to theworkplace have been mostly established.

To support female employees during pregnancy and after childbirth,
we have put in place various programs including improvements inchildcare leave, the child rearing allowance, and reduced working

Lounge for women during of pregnancy and childrearing“Diversity Management Selection 100” is intended to award
the "companies that have played an enhanced corporate value
by diversity management".

Factory tour and financial briefing for individual shareholders

A company calendar for shareholders

22

23

Initiatives for health and safety management

Main initiatives in disaster prevention

Through training at the simulated experience training center for safety and other measures, we are taking initiatives in health and safety
activities to enhance employees’ sensitivity to safety and achieve a workplace completely free of accidents.

In preparation for the occurrence of emergency situations such as fire and earthquake, we are improving our management system and conduct
activities aimed at further improving disaster prevention awareness.

Risk management in emergency situations

Main efforts to ensure safety(1) Utilization of the simulated experience training center for safety
such as work in high places, crane operations, and electrical work
We are promoting safety education and risk assessment activities tothrough sensory equipment designed on the basis of case histories
eradicate work accidents at manufacturing sites. As part of ourof hazards that can occur at manufacturing sites.
efforts, we are establishing the simulated experience training center
Employees of the Sanyo Special Steel Group and employees offor safety. This center allows us to simulate the danger of various
cooperating companies undergo training to enhance their sensitivity
occupational accidents.
to danger and safety awareness.
At the center, employees can experience 59 dangerous situations

the Sanyo Special Steel Group. In case of an emergency, we will
establish a disaster headquarters to determine conditions and deal
with the situation, including restoration and other measures.
Bearing in mind disasters involving widespread damage including
the Great East Japan Earthquake of 2011, we are using pastexperiences as lessons and are strengthening our countermeasuresby assuming scenarios of a massive Nankai Trough earthquake,taking into consideration various factors from communication
systems during an emergency to recovery activities.

At our company, where many employees work, we have various types
of facilities and equipment. In addition to establishing a regular fire
management system, we take various steps to prevent accidents andthe spread of damage when a disaster does occur. For example, wedevelop manuals in preparation for possible plant accidents such as
fires or explosions, and natural disasters such as earthquakes. We
also hold regular emergency drills.
To prepare more effectively for large-scale earthquakes, we
distribute the "Initial Response in the Event of a Large-scale
Earthquake Manual" to directors, employees, and temporary staff ofConducting disaster drills

Experiential learning about being caught
into a roller of a belt conveyor

Experiential learning about electrocution
by constant AC voltage(2) Approach to risk assessment
We are promoting activities to identify latent risks in the workplace,quantify those risks, and systematically eradicate them while
implementing improvement measures.
We have also been conducting introductory education in risk
assessment and risk prediction for junior staff as well as
middle-ranking staff who will take an external course on safety inthe future to enhance their understanding of risk assessment andrisk prediction training. We are making efforts to raise the safetylevel of all workplaces by increasing the sensitivity of junioremployees to risk, and linking this to an enhanced understanding
when they later attend external courses as middle-ranking staff.

Large-scale earthquake response drills are aimed at ensuringsafety and caring for injured persons at the time of a large-scale
earthquake and tsunami (seismic surges), and taking the initial steps
for resuming business operations. After establishing a disaster
response headquarters, we check damage reports from therespective departments, aggregate the overall damage using
wireless communications, and gather information from regional andbranch offices.
In plant accident prevention drills, we conduct firefighting activities
and activities for rescuing injured persons while the disaster
response headquarters gathers information, gives instructions, andissues notices.

The equipment, chemical materials, and fuels used at our company
differ from workplace to workplace. Furthermore, awareness of
disaster prevention as well as experience in disaster prevention
varies widely among employees, not to mention new employees
participating in disaster prevention training for the first time. In
addition, the scale of a disaster may require coordination withaffiliated companies.
In view of these factors, we identify the emergency situation when
conducting a disaster drill to implement a more detailed drill. We
conduct a variety of drills for disaster prevention and disasterreadiness every year, including large-scale earthquake response
drills, plant accident prevention drills, and initial fire extinguishing
drills.

Main initiatives in health and sanitation(1) Installation of water dispensers
As part of our measures to prevent heat stroke, we installed watercoolers at each work site. In tandem with the distribution of tablets
for salt supplementation, we are making efforts to prevent
employees from getting heat stroke.

Large-scale-earthquake drills

Temporary Disaster Control Headquarters

Disaster prevention drills held in conjunction
with the local fire station

Initiatives to heighten disaster prevention and readiness awareness
Water coolers which anyone can use(2) Support for sound mental healthAmid changes taking place in economic and industrial structures,
the number of people complaining of psychological conditions due tostrong anxiety and stress over work and other problems is increasingin our society. At Sanyo Special Steel, we formulate a mental healthpromotion plan every year that not only addresses mental healthissues but also sets out a broad range of initiatives for promoting
sound mental health, including proactive communication in theworkplace.
We are also making efforts to restrict long working hours, which

contribute to mental health issues, and to increase employee rates oftaking paid holiday. In addition, we are also implementing measures
to ensure that employees themselves have a correct understandingof mental health care and to improve self-care including group
education for new employees. To promote communication andfurther improve the workplace environment, we are also continuing
our greeting campaign and the utilization of workplacecommunication support funds.

24

minute amounts of hazardous materials are kept by providing
guidance to managers and persons responsible for handlinghazardous materials and high-pressure gas.

To enhance disaster prevention and readiness awareness, thecompany holds workshops for fire prevention officers and workshops
for hazardous material supervisors and officers. We are making
efforts to improve the level of control of facilities permitted to use
hazardous materials and storage stations where small quantities or25

Environmental Initiatives

Global warming prevention measures

We are contributing to building a recycling society by promoting environmental conservation activities according to our environmental policy.

We are making efforts to prevent global warming by changing to fuels with lower CO2. emissions and promoting a modal shift.

Working toward a low carbon society

Environmental policy
Philosophy
We at Sanyo Special Steel will give consideration to environmental conservation in all stages of our business operations to support a
recycling-oriented society. We do so under the notion that environmental problems are important issues that should be solved byefforts of the entire human race. Further, we do so as a company that is located in a beautiful environment, having Himeji Castle,
which is designated as a world cultural heritage and important national asset, to the north and the Seto Inland Sea National Park to
the south.
PolicySanyo Special Steel, as a company that manufactures and distributes special steel and non-ferrous metal, will implement
environmental management based on the following policies.
1. We will recycle metal resources by manufacturing iron and steel products using scrap iron as the raw material.
2. We will abide by environment-related laws, regulations and agreements, continue to improve the environment management
system and strictly control business operations that may affect the environment.
3. We will promote resource saving, energy saving, recycling of byproducts, reduction of wastes and reduction in emission ofcontaminated substances to prevent contamination of the environment, aiming for reduction of environmental impact in all stagesof our business activities and contribution to environment conservation.
4. We will establish environmental goals and targets for achievement of the environment policies. The goals and targets will be
reviewed at least once a year and revised, if needed.
5. The environment policies will be informed to all employees through education and training, and the general manager of theEnvironment Management Department will be assigned as the person responsible for controlling the environment system, aiming
for complete management and control of the environment system.

Operation of the environmental management systemmanagement system. We are also making efforts to improve thesystem. In addition, we are devoting efforts to the ongoing training ofinternal auditors by sending managers to attend external workshops.
Among our subsidiaries, Santoku Tech Co., Ltd. has acquired
ISO 14001 Certification.

We have acquired ISO14001 Certification. This is the international
standard for environmental management systems, and we aremaking efforts to establish this standard through our annual internal
audit and external audit.
During the internal audit, junior employees are also in attendance
at audit sites, which helps them understand the environmental

thermal energy used in combustion.
Using inverters in large motors means changing the control circuitof electricity to enable adjustment of the flow of air and water
through the number of motor revolutions rather than control of theflow adjustment via a damper or valve aperture. This significantly
reduces the electricity required during operation of motors, resulting
in energy conservation.

Our company has actively promoted a changeover in the fuels it usesfrom heavy oils to city gas (natural gas). One of the distinct
advantages of city gas (natural gas) is that it generates less carbon
dioxide than heavy oils during combustion, and therefore has lessenvironmental impact.
City gas accounts for 99.9% of the fuel consumed by our company(excluding electricity), and the CO2. reduction achieved through thechangeover in fuel is almost complete. Therefore, we are now
directing our attention to CO2. reduction by reducing our fuel usage
through energy-saving measures.
Our company aims to reduce CO2. emissions by 2.6% compared to
the BAU (business as usual; e.g., not taking any special measures)rate. As energy-saving measures to achieve this, we are increasing
the use of regenerative burners for heating furnaces and the use of
inverters in large motors (revolution controlled).
Using regenerative burners for heating furnaces essentially means
refurbishing heating furnaces with energy-saving burners capable ofrecovering high-temperature exhaust gas generated during
combustion (which was previously discarded) as highly efficient

A heating furnace with energy-saving burners

Active introduction of energy conserving equipment
We will make efforts to introduce energy-saving equipment such as
the use of inverters in the motors of dust collectors, combustion
blowers, pumps, compressors, and air conditioning equipment, andwe will introduce LED for factory lighting.

A factory introducing LED lighting

Raising employee awarenessWe believe that raising every employee’s awareness of theenvironment is important in tackling our environmental conservation
activities, and we conduct regular environmental workshops
targeting different employee levels such as training for freshman
employees.
We have also established a reward program to encourage
employees to obtain qualifications related to environmental
conservation such as pollution prevention manager. Every year we
also make efforts to raise employee awareness by having them
individually prepare an environmental household ledger.
Every month, officers and division heads conduct environmental
patrols and check on the management status of environment-related
equipment.

Promotion of greening

Initiatives to modal shift

We are making efforts to cultivate trees and plants in areas aroundthe factory. The greening of our factory is expected to serve as a“green filter” for absorbing CO2.

We promote modal shift actively to reduce CO2 emission and energy
consumption in logistics.

Environmental patrol to check the status
of industrial waste control and the life

Greening of our factory, expected to serve
as a “green filter” to absorb CO2

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Transportation of products by railway

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Contributing to the building of a resource-recycling society
We will promote the 3Rs of resources to contribute to building a resource-recycling society.

We implement measures to prevent environmental pollution, such as water pollution prevention measures through the use of wastewater
treatment equipment and measures to prevent air pollution through the installation of dust-collection equipment. Through regular monitoringand measuring, we also check to ensure that we are meeting standard values required by law.
In addition, we recycle wastewater and reduce our fuel usage through energy-saving measures in efforts to mitigate our impact on theenvironment.

Reduce•Reduce usage ofresources such as
electricity and gas•Reduce generationof waste

Reuse•Reuse water•Reuse by-products

3Rs

Prevention of environmental pollution

Measures to prevent water pollution

Recycle•Use leftover scrap
material•Recycle by-products

At outlets, we have installed automatic pH measuring instrumentsthat monitor pH levels at all times. If a pH level exceeds our in-housevoluntary control standard, an alarm is activated and the supervisor
can respond promptly. We also use automatic measuring
instruments to continuously monitor chemical oxygen demand(COD), nitrogen, and phosphorus, which can cause eutrophication in
Japan’s Seto Inland Sea. By constantly monitoring wastewater
concentration and wastewater volume, we are taking steps toregulate the gross volume of our wastewater.

Our company uses water for a wide variety of purposes, such as
coolant for machinery, steel cooling water, and surface treatment
water (including acid and acid washing water), and all of this water
is transported to treatment facilities for purification treatment basedon the properties of the water used. Over 90% of this water isrecycled for reuse, and the rest of the water undergoes further
treatment before being released into public waterways. Water that isused as a coolant is used repeatedly, and we make efforts tominimize our water intake for industrial use as well as water that isdischarged outside the factory.

Active of energy conserving equipment
materials including iron scrap are recycled (including internallyrecycled materials).

We use electric arc furnace steelmaking (which uses iron scrap as amain ingredient) to manufacture special steel, contributing to therecycling and effective use of iron resources. Around 95% of our raw

Recycling of by-products
With the introduction of pressurized-steam aging equipment
capable of pressure treatment at the highest level in Japan, we aresupplying electric furnace slag products with less deterioration inquality and more reliable aging treatment of electric furnace slag ina short time. We are also introducing multifunctional sorting
equipment to enable us to respond to our customers’ diverse needs.
To effectively utilize by-products and control the volume of landfill
disposal, we are making efforts at recycling in various ways such as
outsourcing waste treatment to recycling contractors, reducing
waste water generated by reducing the water content of sludge, andrecycling brick waste as refractory material.

To promote the development of a resource-recycling society, we aremaking efforts to achieve the full commercialization of electric
furnace slag.
Electric furnace slag generated in manufacturing processes isused as an alternative to natural resources such as stone and sand,and is well regarded in various fields as an industrial product. The
slag is commercialized through an aging process where it undergoes
expansion and stabilization followed by particle size adjustment andinspection before being sold. Our electric furnace slag products areused mainly as roadbed material for roads and as an asphalt
aggregate.

Electric furnace slag

Wastewater treatment facility

Reduction of emission of air pollutants
We have almost completed the fuel conversion to city gas (naturalgas) at the smoke generating facility, and have strived to reduce SOx
emissions. By using city gas (natural gas) containing almost no
sulfur content from heavy oil, SOx emissions are reduced. In
addition, city gas (natural gas) is less susceptible to "soot" during
combustion than fuel oil, which also leads to suppression of soot anddust emissions.
We have strived to reduce NOx emissions by adopting a
low-NOx-burner to a heating furnace and proper combustion control
etc. For heating furnace facilities with a large amount of exhaust gas,
we have introduced automatic NOx measuring equipment and are
constantly strengthening our monitoring system.
In smoke generating facilities other than fuel origin, such as
electric furnaces, we have implemented dust emissions control
measures by reinforcing dust collection facilities. Furthermore, weare going around watering cars and road sweepers, and we are also
working to curb the generation of dust from the roads in the factory
and the roads.

A pressurized-steam aging equipment

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A dust collector

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Research and Development
We use findings accumulated through basic research to develop materials, production processes, evaluation and analysis technologies, andpremium products and technologies that meet customer needs for reliability, and to expand the capacity for innovation.
Utilizing our wealth of expertise in the production of advanced clean steel, we develop products of superior quality and dependability that are
differentiated by their high functions, as well as materials and technologies that reduce the environmental impact of our customers’

Developed Products"ECOMAX, " Ni- and Mo-free high-strength case hardening steel
Contributing to producing small-size, light-weight auto parts at a lower overall cost

manufacturing processes and product use.
Computer Aided Engineering is employed to develop production processes that ensure steel with the properties and availability that inspire
confidence.
We will continue our research in order to promptly and accurately respond to the changing needs of our customers and society, promoteadvanced technological innovation, and open up new frontiers for special steels.

ECOMAX is an resource-saving steel that realizes high strength without using such expensive
rare metals as Nickel and Molybdenum, which reduce manufacturability of parts, doing so
without sacrificing processability. ECOMAX responds to the need for small-size andlight-weight auto powertrain for the purpose of reducing CO2 emission and high hopes areplaced upon it as raw material for parts of automotive gears and shafts that need highstrength.

TopicsAutomotive gears and shafts

Development of a steel identification system analyzing spark image"QDX-HARMOTEX, " a Hotworking-die steel•We developed a steel identification system by spark tests* to distinguish types of steel, in joint research with Tokyo University of Science.
•Currently, workers identify each steel grade by visual inspection of sparks. In the developed system, a high-speed camera takes spark
images and an image analyzer digitizes the characteristics of the sparks.
•By calculating the volume of sparks and number of bursts through image analysis and assessing their ratios, the machine is capable ofidentifying the carbon content in steel to within ±0.05%.
•We expect that accuracy and stability of the spark test will be
improved by practical application in the future.

Contributing to the greater die life with high temperature strengthand enhanced toughness

Note: A "spark test" is a test for identifying the constituents of steel material
and their content based on the characteristics of sparks observed fromscattering sparks when the material is applied to a grinding wheel. When there
is an increase in the carbon content of steel, there is typically an increase in theamount of sparks and bursts generated.

QDX-HARMOTEX is a hotworking-die steel with high temperature strength and high toughness.
Its high temperature strength is 1.3 times greater than conventional steel(JIS SKD61,AISI H13)and it limits the occurrence of heat checks*. Also, the toughness is 1.5 times greater than thatof conventional steel and it can prevent occurrence of large cracks and minor chips.
QDX-HARMOTEX contributes to the stabilizing and enhancing the life of dies.
* Heat check： Die cracking resulting from repeated heating and cooling during use.

Casting dies
Satisfying severe quality requirements of
the North American Die Casting Association,
QDX-HARMOTEX is approved for the NADCA Grade C steel.

"SPM X4N, " nitrided P/M high speed steels
Schematic layout of the test machine
for a steel identification system

Example of sparks and bursts

Development of Heat Treatment Distortion Simulation System•We have developed a heat treatment distortion simulation system that combines a heat treatment experiment with computer simulations.
•Against the background of recent progress in the development of electric vehicles (EV) in the automotive industry, there is a growing
need for improvement in dimensional accuracy in power transmission components such as gears and shafts to improve noise reduction.
•Power transmission components require strength and dimensional accuracy, and undergo strict heat treatment through oil quenching.
•A problem that occurs in the quenching process of high-strength parts is the uneven distortion of heat-treated parts due to unequal
temperature distribution within them.
•Using this simulation system, which consists ofexperiments and computer simulations, we aim to identify
the causes of heat treatment distortion of parts and develop
countermeasures. (see Fig. 1)•The application of this system is expected to improve
dimensional accuracy of parts through the control of heat
treatment condition.
Figure 1.
Overview of the heat treatment distortion
simulation system Experiment

Fourfold wear resistance compared to the conventional product - contributing toextend dies' life
SPM X4N is manufactured by consolidating nitrided metal powder. It offers superior
performance in terms of strength, toughness, wear resistance and seizing resistance. The
product's wear resistance in particular is four times greater than conventional P/M highspeed steel tool. SPM X4M is targeted to be applied to dies that are used in the extremely
harsh environments, pierce punch and slitter, among others, and we have already received
high appraisal from our customers.

High-performance gas atomized metal Powders for 3D printing
High-performance metal powders; high purities and high fluidly ideal for 3D printing
This high-quality spherical metal powder with low oxygen and high-purity is ideal for 3D
printing. Gas release during molding is small, and it is possible to maximize the material
properties of each alloys. Excellent flowability affords a high powder supply performance. So
Satisfactory density is achieved in moldings. Using a small-sized atomizer, we can cooperate
the development of new alloy components suitable for 3D printers.

External appearance of the oil
quenching experimental device
Experiment30

Pierce punch

31

Example of molding by 3D printing: Tire mold

Financial Section

Analysis of Balance Sheets

Financial Section
33

Analysis of Balance Sheets
Analysis of Cash Flows34

Financial Statements

61

Independent Auditor’s Report

Total assets stood at 210,290 million yen at the end of FY2017, an increase of 26,845 million
yen from the end of the previous term. This increase is primarily attributable to increases inNotes and accounts receivable-trade and Inventories.
Liabilities stood at 81,330 million yen, an increase 20,029 million yen from the end of theprevious term, primarily due to increases in Bonds payable, Loans, Notes and accounts
payable- trade.
Net assets stood at 128,960 million yen, an increase of 5,815 million yen from the end of theprevious term. This increase is primarily due to the recording of Net income attributable toowners of the parent.
Consequently, the Net D/E ratio (the ratio of interest-bearing liabilities to net assets after
deducting cash and deposits) reached 0.22 at the end of the FY2017 (0.10 at the end of theprevious term).

Analysis of Cash Flows
Concerning the status of cash flows in FY2017, the net cash used in operating activities was
5,568 million yen (15,090 million yen of proceeds for the previous term), primarily due toincreases in trade receivables (negative 15,005 million yen), inventories (negative 11,326
million yen), and trade payables (4,913 million yen) as well as payment of corporate taxes(negative 3,708 million yen) compared to income before income taxes (10,259 million yen) anddepreciation (9,048 million yen). The net cash from operating activities after correcting for the
impact of the bank holiday on the last day of the term was approximately 1,400 million yen.
The net cash used in investing activities was 8,355 million yen (decrease of 2,786 million yen
from the previous term), mainly due to not only capital investments for acquiring tangible fixed
assets to reduce cost and update existing facilities and other tasks, but also investment for a
subsidiary in Mexico and No.2 Metal Powder Plant (negative 8,131 million yen).
The net cash provided by financing activities was 14,706 million yen (10,776 million yen in
payment for the previous term), mainly due to the issuance of bonds (10,000 million yen) andan increase in loans payable (4,575 million yen).
Consequently, cash and cash equivalents at the end of FY2017 was 14,298 million yen (a 755
million yen increase from the end of the previous term).

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The accompanying notes are integral parts of these statements.

The accompanying notes are integral parts of these statements.

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The accompanying notes are integral parts of these statements.

The accompanying notes are integral parts of these statements.

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The accompanying notes are integral parts of these statements.

The accompanying notes are integral parts of these statements.

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The accompanying notes are integral parts of these statements.

The accompanying notes are integral parts of these statements.

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Corporate Data
Corporate Data (As of June 30,2018)

Consolidated Subsidiaries and Equity-Method Affiliates (As of June 30,2018)
Specialty SteelCorporate NameSanyo Special Steel Co., Ltd.

Head Office/Works

3007, Nakashima, Shikama-ku, Himeji, Hyogo 672-8677 Japan
phone (+81) 79-235-6003

Consolidated Subsidiaries① Yohkoh Bussan Co., Ltd.

Established

January 11, 1935

② Santoku Seiken Co., Ltd.

Paid-in Capital¥20,182 million

Number of Employees

3,765 (consolidated basis) 1,355 (non-consolidated basis)

Register of Shareholders

The Chuo Mitsui Trust & Banking Co., Ltd.

Formed and Fabricated Materials
Consolidated Subsidiaries⑨ Santoku Tech Co., Ltd.

Trading of special steel products, steelmaking raw materials, and other materials

Manufacturing of special steel products⑩ SANYO SPECIAL STEEL U.S.A., Inc.

Manufacturing and marketing of special steel products

Trading of special steel products③ Santoku Kogyo Co., Ltd.

⑪ Ningbo Sanyo Special Steel Products Co., Ltd.

Processing of special steel and machinery maintenance

Manufacturing and marketing of special steel products④ SKJ Metal Industries Co., Ltd.

⑫ Siam Sanyo Special Steel Product Co., Ltd.

Manufacturing and marketing of special steel products

Stock Listings

Tokyo Stock Exchange (1st Section)

Book Closing

March 31

Branches and Offices

Tokyo Regional Office, Osaka Branch, Nagoya Branch, Hiroshima Branch, Kyusyu Sales Office⑥ SANYO SPECIAL STEEL TRADING (SHANGHAI) CO., LTD.

Homepage Address

http://www.sanyo-steel.co.jp/english/index.php⑦ Sanyo Special Steel India Pvt. Ltd.

Manufacturing and marketing of special steel products⑤ P.T. SANYO SPECIAL STEEL INDONESIA⑬ Sanyo Special Steel Manufacturing de México, S.A. de C.V.

Manufacturing and marketing of special steel products

Manufacturing and marketing of special steel products

Equity-method Affiliates⑭ Advanced Green Components, LLC

Involved in business and sales of special steel products in China

Manufacturing of special steel products

Involved in business and sales of special steel products in India

Other⑧ Mahindra Sanyo Special Steel Pvt. Ltd.
Manufacturing and sales of special steel products

Consolidated Subsidiaries⑮ Santoku Computer Service Co., Ltd.

Stock Information (As of March 31,2018)

Construction, operation and consulting services for information systems⑯ Santoku Security Service Co., Ltd.

Total Number of Shares Authorized to be Issued

94,878,400

Total Number of Shares Issued

33,424,807

Number of Shareholders

11,828

Security and facilities maintenance services

Principal Shareholders
Number of shares held
(thousands of shares)

Percentage ofvoting rights

4,851

15.11%

Company's Kyoeikai Association

2,228

6.94%

NSK Ltd.

1,494

4.65%

1,139

3.55%

914

2.85%

846

2.64%

Mizuho Bank, Ltd.

728

2.27%

NORTERN TRUST CO.(AVFC) RE-HCR00

668

2.08%

Marubeni-Itochu Steel Inc.

621

1.94%

608

1.90%

Name of Shareholder
NIPPON STEEL &SUMITOMO METAL CORPORATION

Sumitomo Mitsui Banking

Shareholder Composition (thousands of shares)
Treasury stocks
1,211 3.6%

Corporation

Securities firms

Japan Trustee Services Bank, Ltd.

1,065 3.2%

(trust account)

Domestic
corporations

Individuals and others

The Master Trust Bank of Japan, Ltd.

10,021 30.0%

6,600 19.7%(trust account)

Total numberof shares issued
33,424100.0%

Foreign investors
6,223 18.6%

DFA INTL SMALL CAP VALUE

Financial institutions

PORTFOLIO

8,304 24.9%

China
11 Ningbo Sanyo Special Steel Products Co., Ltd.
●
6 SANYO SPECIAL STEEL TRADING (SHANGHAI) CO., LTD.
●

U.S.A.
10 SANYO SPECIAL STEEL U.S.A., Inc.
●
14 Advanced Green Components, LLC●

India
7 Sanyo Special Steel India Pvt. Ltd.
●
8 Mahindra Sanyo Special Steel Pvt. Ltd.
●

Thailand4 SKJ Metal Industries Co., Ltd.
●
12 Siam Sanyo Special Steel Product Co., Ltd.
●Japan
Sanyo Special Steel Co., Ltd.

1 Yohkoh Bussan Co., Ltd.
●
2 Santoku Seiken Co., Ltd.
●
3 Santoku Kogyo Co., Ltd.
●
9 Santoku Tech Co., Ltd.
●
15 Santoku Computer Service Co., Ltd.
●
16 Santoku Security Service Co., Ltd.
●

Indonesia
5 P.T. SANYO SPECIAL STEEL INDONESIA●

Mexico13 Sanyo Special Steel Manufacturing●de México, S.A. de C.V.

Notes: The number of shares omits fractions of less than 1,000 shares.
Treasury stocks are not included in the above list.

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