Sanyo Special Steel Co., Ltd.
IR Briefing Regarding the Business Results for the FY2019 2Q
Q&A Summary
Date:

Wednesday, October 30, 2019

Speaker:

Director, Member of the Board and Managing Executive Officer;
Kozo Takahashi* Please be noted that the actual Q&A session was in Japanese and this English
translation is prepared for reference purpose only.
----------------------------------------------------------------------------------------Q. Sanyo's non-consolidated sales volume in the second half of FY2019 is assumed to be similar to
the first half, although the second quarter declined drastically from the first quarter. Why do you
think the second half volume to be equivalent to that of the first half? And, how do you think about
the demand of each customer segment?
A. Some users have recovered their volume to the actual demand-based quantities as inventory
adjustments have been completed, but there is no sign of a significant recovery in the demand.
We believe that customers are still watching the situation because of uncertainty about theoutcome of trade friction between the United States and China. On the other hand, we can now
accept orders which we had to reject because of capacity limitation. In addition, Sanyo, Ovako
and Nippon Steel will cooperate to maximize synergies, and we expect some orders coming toSanyo. These are reasons why we consider the sales volume in the second half of FY2019 to be
the same level as that of the first half.
Q. Though we consider it to be unlikely that scrap prices will fundamentally rise in the near future,
there is a historical tendency that scrap prices will rise in winter. As a matter of fact, scrap pricesrose from $220/t to $250/t in Turkey. How do you think about the impact on the earnings ofsecond half of FY2019 if scrap prices rise?
A. Iron scrap prices have dropped dramatically, but recently they have stopped falling. However, wedon't think that the supply and demand balance will tighten. We consider it to be unlikely that prices
will rise significantly.
Q. In the previous briefing session (July 30, 2019), you explained that Ovako’s sales price is declining
due to intensifying competition of general-purpose product segment. How about the situation sincethen?
A. As mentioned on P21 in the IR material, the impact of Ovako's sales price and product mix
deterioration has been estimated to be -0.7 billion yen from the previous 2H forecast to the revised
2H forecast, which includes the decline in sales prices due to intensified competition ingeneral-purpose products.

Q. Regarding the collaboration among Sanyo, Nippon and Ovako, will the actual collaboration
between Sanyo and Nippon Steel start only after the completion of Sanyo Factory Renovation andthe change of Sanyo’s operational structure?
A. The discussion is ongoing on the premise that both parties will expand each area they are morecapable at. We consider that Sanyo will take over the manufacture of bearing steel of Nippon Steel.
We are on the path of materializing each concrete action of collaboration.
Q. Please tell us the prospects of demand by industries, such as automobiles, bearings, andSemi-conductors, regarding Sanyo's sales volume forecasts for the second half of the fiscal year.
A. Because inventory adjustment in the areas such as robots, machine tools, and semiconductor
manufacturing equipment have already continued for a long time, the inventory adjustment inthose fields have started to show signs of completion. In terms of sales expansion, we will try torecover sales in general areas and export, in products such as high-alloy steels like stainless steel,that we have been unable to accept orders because of our limitation in our production capacity.
Q. Some of Nippon Steel's special steel facilities have halted operation due to natural disasters. Does
this affect your sales volume in the second half of the fiscal year?
A. One of Nippon Steel’s steel making mill at Kimitsu has stopped operation due to damage by thetyphoon. This No.1 steel making plant supplies material for special steel bars. We have received arequest from Nippon Steel for support, and we included this volume into our revised forecast.
Q. What is the change in sales volume of Ovako in FY2019 compared with the previous fiscalyear?(Year on Year Basis)
A. Just for your reference, Ovako was not our consolidated subsidiary in the previous fiscal year. Thesales volume of FY2019 decreased by about 12% in the first half and will decrease by about 14% in
the second half compared to the same period of the previous fiscal year.
Q. The impact of Ovako's scrap surcharge time lag will be 1.2 billion yen in FY2019. Please tell us thebreakdown of the first half and the second half.
A. Among 1.2 billion yen; 0.2 billion yen is of the first half and 1.0 billion yen is of the second half.
Q. Sales volume forecasts for the current fiscal year have declined considerably. Inventory
adjustments in the supply chain may have resulted in a decline more than the actual demanddecrease. Please tell us where the level of actual demand is in this year's sales volume plan.
A. It’s quite difficult to answer, but bearing steel orders fell sharply from June to August 2019, asshown in the statistics of special steel orders. We think this is a movement caused by inventory
reduction. We suppose that if this inventory reduction proceeds to a certain extent, the demand will
return to the actual base. We are carefully watching what the actual demand level after the end of
inventory adjustment will be.

Q. The difference in the cost of consumable goods, outsourcing, and logistics is merely 0.1 billion yen
between the first half result of FY2019 and the second half forecast of FY2019 (IR material P25). In
such circumstance, is it possible to negotiate the reduction of prices, such as electrodes andrefractory bricks, in the second half of FY2019? How do you think about the direction of the pricesof these materials from the current term to the next term?
A. Electrode prices have reached its peak because supply and demand balance has become slack,but it takes some time that this effect actually appears in our production cost. Our logistics costs
have not significantly increased in the first half of the fiscal year, but they will increase from thesecond half of the fiscal year. As a result, we expect the direction of the prices of auxiliary materials
will not change so much.
Q. Forecasts of capital expenditures and depreciation for FY2019 have increased considerably,including Ovako. What is the prospect for FY2019 and the following years?
A. The remaining capital investment amount of No. 2 Bar & Wire Rod Mill, aimed to eliminatingproduction bottlenecks in FY2020, will be ¥6.0 billion, which is less than that of ¥13.5 billion inFY2019. Therefore, the amount of capital investment in FY2020 will decrease to the extent of thisdifference. Depreciation expense will increase in FY2020 compared to FY2019 as this investment
will begin to be amortized. We think that the capital investment amount of Ovako and MSSS will bealmost the same as this year.
This document 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 document 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 insecurities 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 proposedoffering, 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 document, you agree
to be bound by the foregoing limitations. This document contains statements that constituteforward looking statements. These statements appear in a number of places in thisdocument and include statements regarding the intent, belief or current expectations ofSanyo Special Steel Co., Ltd. or its officers with respect to its financial condition and resultsof operations, including, without limitation, future loan loss provisions and financial support tocertain borrowers. Such forward looking statements are not guarantees of future
performance and involve risks and uncertainties, and actual results may differ from those insuch forward looking statements as a result of various factors. The information contained inthis document, is subject to change, including but not limited, to change of economic
conditions, financial market conditions, and change 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. and its groupcompanies, 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.