2017

ANNUAL REPORTAPRIL 1.2016-MARCH 31.2017

Message From President

Corporate Philosophy
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
11

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
Results of the 9th Medium-Term Business Plan
10th Medium-Term Business Plan “Sanyo Global Action 2019”

14
16
20
22
24
50

Corporate Governance
CSR Activities
Research and Development
TopicsFinancial 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 Metallugy
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 Metallugy 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 Metallugy 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

Formed & Fabricated Materials

Metal powders

05

Powder Metallugy productsElectric arc furnace slag

Analysis of Results of Operations and Financial Condition

Consolidated Financial Highlights

Fiscal years ended March 31

Sanyo Special Steel Co., Ltd. and consolidated subsidiaries

FY 2016 Overview

ChangeFY2014The Japanese economy travelled moderately towards recovery in FY2016, showing improvements in corporate earnings, employment,
and income, thanks to the effects of various measures. However, the future of the economy remains uncertain, primarily due to increasing
uncertainties in the global economy and financial market volatility caused by concerns over a downturn in China and other emerging
countries, the UK’s withdrawal from the European Union, and the policy trends of the new U.S. administration as well as other factors.
In the special steel industry, production volume of hot-rolled special steels was higher than that in the previous term, owing primarily
to the automobile industry, a major customer sector for Sanyo Special Steel, continuing its stable performance.
In such circumstances, the net sales of the Group for the fiscal year decreased by 10,467 million yen year on year to 138,680 million
yen, mainly due to the drop in prices associated with the iron scrap surcharge system and changes in the product mix despite an increasein sales volumes. Despite the drop in sales prices due primarily to impacts from the strong yen, the increase in retirement benefit
expenses caused by falling stock prices, and fall in profits in consolidated subsidiaries, ordinary income increased by 196 million yen year
on year to 11,736 million yen, mainly by virtue of an increase in sales volumes, a drop in raw material and fuel prices, and efforts toward
cost reduction. ROS (Ordinary income to Net sales) for the fiscal year improved to 8.5% (7.7% for the previous year). Net income
attributable to owners of the parent increased by 367 million yen year on year to 7,784 million yen, and ROE (ordinary income to net
assets) for the fiscal year improved to 6.6% (6.6% for the previous year).

FY2015FY2016FY2016FY2015 / FY2016

Operating Results (For the year)(Millions of Yen)(%)

(Thousands of
US Dollars)＊1¥ 171,495¥ 149,148¥ 138,681-7.0$ 1,236,126

Operating income

9,170

12,188

11,686-4.1

104,159

Ordinary income

9,735

11,54011,737

1.7

104,616

Net income attributable to owners of the parent 6,548

7,417

7,784

5.0

69,383(Millions of Yen)(%)

Net sales

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

Net assets ＊2

113,644

113,141

123,1448.8

1,097,638

Total assets

202,243

179,899

183,445

2.0

1,635,125(%)

Financial Indicator(%)

ROS ＊3

5.7

7.7

8.5

0.8

8.5

FY2017 Outlook

ROE ＊4

6.1

6.6

6.6

0.0

6.6

The Japanese economy is expected to continue recovering moderately, however, the operating environment surrounding the Group is
expected to remain challenging due to the effects of a slowdown in emerging economies, growing uncertainties over the global economy,
and intense global competition in the special steel industry.
In such circumstances, the Group will take extraordinary efforts to establish a corporate structure capable of stably and globally
supplying high-quality special steel that meets exact needs of the customer by ensuring that production responds to demand trends,
implementing aggressive internal cost-cutting measures, and stepping up efforts to strengthen non-price competitiveness.
Regarding the demand trend for the next term, the Group expects a slight increase in sales volumes primarily due to the robust
automobile sector and signs of recovery in the industrial and construction equipment sectors. In anticipation of a sharp rise in iron scrap
and other raw material and fuel prices, the Group will further focus on reducing costs and strive to improve sales prices, aiming atensuring adequate margins while seeking understanding from customers.
By considering all of these factors, the Group expects to earn 150 billion yen in net sales, 11.8 billion yen in ordinary income, and 7.8
billion yen for net income attributable to parent company shareholders.

ROA ＊5

4.8

6.0

6.5

0.5

6.5

Net D/E Ratio ＊6

0.29

0.13

0.10

-0.03

0.10

(Yen)

(%)

(US Dollars)＊1

Net income per share

40.60

46.00

48.29

5.0

0.43

Net assets per share

700

697

759

8.9

6.77

10.00

12.00

12.50

4.2

0.11

Cash dividends per share* 1 US dollar amounts are converted, for convenience purpose only, at the rate of ¥112.19=US$1, the approximate rate of exchange on March 31, 2017.
* 2 Non - controlling interests are included in net assets.
* 3 Ordinary income to Net sales* 4 Net income attributable to owners of the parent to Net assets* 5 Ordinary income to Total assets* 6 Net debt equity ratio - (gross interest-bearing debt - cash and deposits) / equity

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 the expectations of 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 forinvestment and other activities to enhance our corporate value. We pay dividends at the end of the 2nd quarter and the end of the fiscal
year in accordance with our profit distribution standard based on our consolidated business performance. Thus far, our standard of profit
distribution has been a consolidated payout ratio of 20% to 30%. However, we have decided to increase returns to our shareholders byraising the lower limit and setting the new criterion as 25% to 30% from the dividend payment at the end of the current term.
Regarding dividends for the FY2016, we paid a dividend of 12.5 yen per share (payout ratio of 25.9%) annually according to the basic
policy, since net income attributable to owners of the parent reached 7,784 million yen for the current year. As we implemented an interim
dividend of 5 yen per share, the year-end dividend is to be 7.5 yen per share.
Regarding dividends for the FY2017, we are planning to pay an interim dividend of 6.5 yen, a year-end dividend of 30.0 yen based on theperformance forecast announced now and the basic policy for profit distribution.
Incidentally, the Company will carry out a share consolidation at a ratio of 5 shares to one share effective October 1, 2017. Assuming thedividend is recalculated in accordance with the share consolidation, the full-year dividend will effectively be 62.5 yen per share.
06

Net sales

Ordinary income(Millions of Yen)

(Millions of Yen)

Net income attributableto owners of the parent

Cash per share(Yen)(Millions of Yen)

200,000

11,540 11,737

12,000171,495
161,587

150,000

138,306

8,000

7,417

sed
crea arsye
has inend
utive
Divid consec
for 4

15

6,548

9,735
149,148
138,681

7,784

12.0

12.5

6,000
8,000

10.0

10
6,749

6

100,000

4,066

4,000

7.5

7

5

4,000

50,000

2

2,000
1,670

FY2012 FY2013 FY2014 FY2015 FY2016

0

6

2.0
509

0

5.0

0

FY2012 FY2013 FY2014 FY2015 FY2016

FY2012 FY2013 FY2014 FY2015 FY2016

2

0

3

5

3

FY2012 FY2013 FY2014 FY2015 FY2016
Year-end dividendInterim dividend

07Segment Information
Specialty Steel

Formed and Fabricated Materials

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.

The Formed and Fabricated Materials segment uses an integrated process to manufacturehigh-quality formed and fabricated materials from high-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/forgedproducts/rolled products made from steel bars, and cold roll formed rings made from ring materials.

FY2016 Overview
Net sales decreased by 8,955 million yen year on year to 124,686 million yen, mainly because sales
prices dropped due to the iron scrap surcharge system and changes in the product mix . Operating
income increased by 1,162 million yen year on year to 9,940 million yen, mainly due to a drop in raw
materials and fuel prices and cost reduction efforts despite the impact of the strong yen on sales
prices, changes in the sales structure, and an increase in fixed costs.

Sales Breakdown

FY2016 Overview
Net sales decreased by 352 million yen year on year to 15,789 million yen, mainly because sales
prices dropped due to the iron scrap surcharge system. Operating income decreased by 539 million
yen year on year to 750 million yen, primarily due to the impact of the strong yen on sales prices, anincrease in personnel cost caused by wage increases in subsidiaries in China, and an increase intemporary costs such as expenses for the commencement of businesses at subsidiaries in Thailand
and Mexico.

Operating Income

Net Sales(Millions of Yen)

200,000

12,000152,181
133,641

124,686

6,000

100,000

FY2014FY2015FY20160

6,055

30,0002,000

16,141

15,78910,000FY2014FY2015

1,701

1,500

20,565

11.4%(FY2016)0

FY2016

1,288

1,000

750

500

FY2014FY2015FY20160

FY2014FY2015FY2016Other

The Special Materials segment manufactures and sells heat/corrosionresistant alloys and powder metallurgy products, among others.

We provide information processing services through our subsidiaries.

FY2016 Overview

FY2016 Overview

Net sales decreased by 1 million yen year on year to 1,678 million yen. Operating income decreased by 0 million yen year on year to 57 million
yen. This segment includes information processing services conducted through subsidiaries.

Net sales decreased by 1,481 million yen year on year to 5,717 million
yen, mainly because the sales volumes decreased from the previous
term partly due to weak demand in the electronic component sector andplants and the impact of the strong yen. Operating income decreased by
526 million yen year on year to 859 million yen.

Sales Breakdown

Operating Income

Net Sales

2,000

8,545
7,199
5,717

6,000

0

1,758

1,500

FY2014FY201508

FY2016

60

1,386

0.1%
(FY2016)859

FY2015FY201658

58

57

FY2014FY2015FY2016

1,678

40

1,000
20

500

0
FY2014

1,680

1,500

500
0

(Millions of Yen)
1,670

1,000
3,000

Operating Income

Net Sales(Millions of Yen)

2,000

(Millions of Yen)

(Millions of Yen)

9,000

4.1%
(FY2016)(Millions of Yen)

20,000Special Materials

Sales Breakdown

Operating Income

Net Sales(Millions of Yen)

9,940

3,000

50,000

0

8,778

9,000

150,000
84.4%(FY2016)

Sales Breakdown(Millions of Yen)FY2014FY2015FY20160Note:
Net sales for each business segment include intersegment transactions. However, the sales breakdown is calculated based on net sales by each segment to outside
customers.

09

10th Medium-Term Business Plan

Sanyo Global Action 2019

Results of the 9th Medium-Term Business Plan

- Pursue sustainable growth by building a global brand of Sanyo (Unit: billion yen)

9th Medium-TermBusiness Plan
(FY2016 targets)

FY2016(Performance)

Variance

Net sales

200.0

138.7

△61.3

Ordinary income

15.0

11.7

△3.3

ROS

7.5%

8.5%

1.0%

ROE

7.5%

6.6%

△0.9%

D/E ratio (net)

0.30

0.10

△0.20

Interest-bearing debt (net)

35.0

12.7

△22.3

Investment (3 years)

30.0

35.3

5.3

Strategy of the 10th Medium-Term Business Plan
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 competitiveness• Changes in KPIs
Net sales, sales volume(Billion yen)
200
87

88

Ordinary income, ROS, ROE(1000 t/month)
100(Billion yen)
15.0
7.7

12.5
6.1

10.0
171.5

50
149.1

0

25

FY13

FY14
Sales

FY15

FY16

Sales volume

4.2
7.5

138.7

50

(Billion yen)
60

(Times)
0.6

0.46

0.5

8.5
75

161.6

Interesting-bearing debt, D/E ratio (net)
(%)
10

84

82

150

100

PursueSustainable
Growth

0

6.6

8
6.6

6

11.7

4

5.7
11.5

4.1

2.5

2

6.7
FY13

FY14

FY15

Ordinary income

ROS

FY16

0

ROE

0.29
0.3

20

47.8
33.2

10
0

0.13
14.3

FY13

FY14

FY15

Interest-bearing debt

0.2
0.10
12.7
FY16

Targeted KPIs

0.1

(Unit: billion yen)

0.0

FY2016(Performance)

D/E ratio

Major measures during the 9th Medium-Term Plan
◆Special steel・Achieved sequential casting world record (100 heats) with a single tundish and no exchange
submerged entry nozzle in a bearing steel production (February 2015)
・Award of the 63rd (Fiscal 2016) Okochi Production Prize (February 2017)
We received the Okochi Production Prize under the title of “Development of High Productivity Process of the Ultra-HighCleanliness Bearing Steel”.
・Development of New products
・ Commercialization of "ECOMAX4" nickel/molybdenum-free high-strength case hardening steel (July 2015)
・ "QDX-HARMOTEX " obtained certification from NADCA (North American Die Casting Association) (February 2016)
・ Successful development of High-Toughness technology of Hyper-Eutectoid steel (February 2017)◆Formed and fabricated materials
・Established SMM a local subsidiary to manufacture and sell formed and fabricated materials
in Mexico(December 2015)
・Started of commercial production at SSSP a local subsidiary to manufacture and sell formed
and fabricated materials in Thailand (January 2016)◆Special materials
・Decision to construct the No.2 metal powder Plant (October 2015)◆Others
・Awarded the “Diversity Management Selection 100“ as the company that have enhanced
corporate value by diversity management (March 2015)
・Decision to introduce an executive officer system (March 2017)10

Promote “ Sanyo Special Steel - theConfident Choice ” to a global brand

0.4

40
30

9.7
5.0

50

Human resources
Technologies
Profitability

FY2019(Target)

Variance

Net sales

138.7

150.0

11.3

Ordinary income

11.7

13.5

1.8

ROS

8.5%

9.0%

0.5%

ROE

6.6%

7.0%

0.4%

ROA

6.5%

7.0%

0.5%

D/E ratio (net)

0.1

0.2

0.1

Investment (3 years)

35.3

50.0

Approx. x1.4

R&D spending (3 years)

4.6

5.0

Approx. x1.1

Recruitment (3 years,
Non-consolidated)

56 persons

150 persons

Approx. x2.7

Consolidated dividend
payout ratio

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

11

10th Medium-Term Business Plan

Sanyo Global Action 2019(2) Promote R&D- Pursue sustainable growth by building a global brand of Sanyo -Priority Measures• Establish a strong corporate structure by strengthening the business foundation(1) Strengthen competitiveness by executing “Sanyo Factory Renovation”
In addition to efforts at our regular energy saving, cost-reduction and labor saving, we aim to strengthen our cost and delivery
competitiveness by streamlining factory logistics and directly linking production processes, to eliminate bottlenecks at No. 2 Bar Mill, and topromote automation and optimization through the use of AI and IoT.

■ 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(2) Secure stable earningsi) Steel Products businessWe aim to capture the growing overseas demand for special steel and absorb material and energy price hikes through cost reductions andsales price increases as well as improvement in our sales mix. In this way, we will ensure a strong corporate structure that will securestable earnings through resilience against impacts of the external environment.
ii) Non-steel Products businessWe will ensure that our businesses in Thailand (SSSP) and Mexico (SMM) and No. 2 Metal Powder Plant, which we decided in 9th
medium-term, steadily become established. We will also capture growth markets in efforts to expand the non-steel business (1.5-foldgrowth in sales compared to FY2016), thereby increasing stable earnings for the entire company.

With our sights set on global development, we will
clarify the functions of basic research and productdevelopment and will strengthen medium- andlong-term R&D planning functions with a view tocontinually creating products with high reliability andnew technology. In terms of R&D spending, we will be
investing 5.0 billion yen over three years in the 10th
medium-term, for a 1.1-fold increase from the 9th
medium-term.

■ 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 high reliability andnew technology rapidly and continually• Promote “Sanyo Special Steel-the Confident Choice” to a global brand(1) Promote global branding measures
We will further enhance QCDD (quality, cost, delivery,
and development) competitiveness to promote customer
satisfaction, which is the source of our brand power.
Furthermore, for further development of our global
brand, we will review strategies for our respective
overseas areas and customers, strengthen our overseas
bases, establish a six-center structure worldwide for ourFormed & Fabricated Materials business, and build aglobal supply chain. In addition, we will consider
currency fluctuation measures and global CMS in light of
the increase in our overseas bases and transactions.

Enhance the source of our brand power(QCDD* power)* Quality (Quality), Cost (cost)・, Delivery(delivery on time) Development (R&D)■ Strengthen the roles of our overseas bases■ Establish a 6-center structure worldwide for the Formed andFabricated Materials business■ Build a global supply chain(3) Enhance the management foundationi) Promote agile, transparent management
We will continuously focus on management with the understanding that safety initiatives, disaster prevention, environmental conservation,
and a sound compliance structure are the cornerstones of management, and we will promote agile, transparent management by
establishing an executive officer system (June 2017 onwards).
ii) Secure and train human resources
To ensure that we have a long-term, stable workforce, we will strengthen our regular recruitment program (increasing our hiring by
2.7-fold compared to the 9th medium-term period) and promote measures to foster the development of personnel who can work in aninternational environment and who can transfer their expertise to other staff. In addition, we will improve our re-hiring scheme andcontinue to work on measures to promote diversity including providing support to women in the workplace and reforming work style toachieve a work-life balance.
iii) Enhance shareholder return
While there is a need for strategic funding, we intend to set the lower limit of the consolidated dividend payout ratio at 25% (currently20%), taking into account our current financial position, and will aim for a consolidated dividend payout ratio of 30% in the final year of
the 10th Medium-Term Business Plan.

Global branding(2) Promote initiatives aimed at further improvements in recognition
We will accelerate technological exchanges withcustomers in Japan and overseas by strengthening
our technology planning function, and we aim to earna high level of trust and achieve brand penetration in
the global market. In addition, we will further
enhance recognition of Sanyo Special Steel by
stepping up our efforts at communicating informationin Japan and overseas, including PR and IR activities.

■ Strengthen the technical planning function and accelerate technicalexchanges with customers■ Enhance communication of information in Japan and overseas... Actively expand PR and IR activities, etc.

Worldwide brand penetration• Further pursue technological superiority by enhancing R&D and quality competitiveness(1) Enhance quality competitiveness,
mainly for bearing steel
We will maintain Sanyo Special Steel’s internal
quality superiority based on its core “Premium
Cleanliness Steel Manufacturing Technology” and wewill achieve external appearance quality to matchinternal quality through improved processes andfurther advancement in quality assurance. In doing
so, we aim to become "No. 1 globally in internal
quality and external appearance quality."■ 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 globallyin internal quality and external appearance quality”

12• Investments
Planning for 50 billion yen in 3 years (x1.4 compared to 9th Medium-Term)
In specific terms, we intend to implement thefollowing investment plan: 25 billion yen/3 years forstrategic investment (“Sanyo Factory Renovation”,
M&A, etc.) and 25 billion yen /3 years for generalinvestments (investment in cost reductions such asenergy saving, labor savings, quality, updating of
aging facilities, etc.), totaling 50 billion yen /3 years.

■ 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

Corporate Governance
We are striving to enhance our corporate governance and internal control systems with a view to building management infrastructure, which
ensures integrity, fairness and transparency of our operations.

Fundamental Measures for Corporate Governance
Auditors. Audits are conducted by three corporate auditors(including two outside auditors) 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.
Internal audits are also implemented by the Internal Control &Inspection Department based on the internal audit plan preparedeach year. Audits are conducted on the business execution of ourrespective business functions and subsidiaries.

Concerning business execution, we make decisions on importantmatters and supervise execution of business operations at ordinary
meetings of the Board of Directors (held monthly), comprised ofeleven directors (including two outside directors), and extraordinary
meetings of the Board of Directors (held as required). We also set up
company-wide committees to discuss important matters concerning
operations. These include the Corporate Policy Committee (twice amonth in principle) to facilitate efficient decision-making on
management such as at the Board of Directors meetings, the Internal
Control Committee to ensure thorough compliance and solid
corporate governance, the Security & Trade Control Committee, theEnvironment 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 supervisionof management” and “business execution” and to ensure prompt
decision-making in response to diverse changes in the businessenvironment.
Audits by corporate audits are conducted as necessary based on
auditing policies formulated each year by the Board of Corporate

Development and Management of Internal Control Systems

Executives(As of June 28, 2017)

Representative Director
and President

Directors, Member of the Board
Senior Managing Executive Officers

Shinya Higuchi■ Our organizational structure for corporate governance and internal control(As of June 28, 2017)

management.
In addition, in order to enhance the effectiveness of the internal
control, as well as to discuss every item relating to internal control,in April 2016, we newly established an Internal Control Committee
which includes the function of a Corporate Behavior and Ethics
Special Committee that has discussed compliance policy andspecific measures in the past.

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

Shin-ichi Tominaga

Akihiko Yanagitani

Director,
Member of the Board
Executive Officer

Directors, Member of the Board

Katsu Yanagimoto

Yusaku Omori（＊1） Takashi Kobayashi（＊1）

Kazuya Shinno

Takayo Chiba

Takashi Kuwana

Yasukazu Unigame

Masanori Kunisada

Norihiko Morishita

Directors, Member of the Board
Managing Executive Officers

General Shareholders’ Meeting
Board of Directors(11 directors, including 2 outside directors)

Board of Corporate
Auditors

Basic policy of the Internal Control(3 auditors, including
2 outside auditors)

Wataru Nishihama Kazuhiko Nagano（Autonomous internal control）< Operating Department >Shigehiro Oi

Corporate Auditors
Hiroaki Kimura

Representative Director and President

Kozo Omae

Executive Officers
Katsuaki Oe（＊2）

Kazuhisa Fukuda（＊2）(Standing Corporate Auditor)

Corporate Policy Committee(＊3)

Shinobu Kuroishi（＊1）Outside director （＊2）Outside Corporate Auditor

Accounting
Auditors(accounting firm)

Rules on Large-scale Acquisition of Sanyo Special Steel’s Shares

Corporate Committees / Meetings
Supervisory andResponsible Executive Officers

Kozo Takahashi

Internal Control Committee
Reward & Punishment Committee

Each business divisionInternal Control & Inspection department(Internal Auditing)
(＊4)
(＊2)

Subsidiaries, Affiliated Companies(＊1)(＊1) We audit of our subsidiaries and affiliated companies through auditing consolidated financial statements.
(＊2) Each of our subsidiaries and affiliated companies has a supervisory department.
(＊3) We have committees and conference bodies, including the Comprehensive Budget Committee, the Capital Investment Committee and the Investment
and Loan Committee. In addition, we have an internal reporting system “Compliance Portal” to prevent occurrences of compliance violations.
(＊4) Corporate auditors perform inspections as necessary on the operations and asset status of subsidiaries.

14

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

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.

Improvement of Work Environment
Also we were awarded the Diversity Management Selection 100(an award from the Ministry of Economy, Trade and Industry) on
March 18, 2015. This award is the result of our efforts, and it is thefirst time a steel manufacturer.

We strive to build a workplace where all employees can demonstrate
their potential.
Examples include the introduction of a flexible working-hours
system, leave and shorted working hours for childbirth andchildcare, and rehiring at retirement age.

Compliance Structure
Furthermore, we provide compliance education encompassing
various themes and hold compliance lectures to improve complianceawareness in our employees.

The Company has established the “Guidelines for Corporate
Behavior,” which indicate how we should act as a corporation, andthe “Helpline,” a whistle-blowing system, as a part of our compliancestructure.

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.

Our original maternity working wear

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".

Corporate Behavior and Ethics Regulations
The Corporate Behavior and Ethics Regulations specify the systems and structure employed to ensure compliance.

Developing the abilities of employees
Establishment of a Internal Control Committee / Establishment of a Whistle-blowing System “Helpline”
system designed to help prevent occurrence of misconduct. The“Helpline” is aimed at detecting at an early stage any apparent orprobable circumstances/acts which are deemed inappropriate inlight of lows and regulations, social norms, and/or company rules,
and allowing prompt and appropriate action to be taken to prevent
misconduct.

The Committee discusses compliance policies and specificmeasures based on these policies. If any situation or behavior
deviates or is likely to deviate from lows and regulations etc., theCommittee investigates the actual situation, deliberates onappropriate corrective measures, and takes other relevant actions.
In addition we have initiated a “Helpline,” a whistle-blowing

respond to a globalizing business environment.
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?” and “Did you steadily carry out a process toachieve these goals?”

In line with our basic policy of "Training and utilizing people," wehave set up a detailed training and education system. We hold arange of group training programs on a timely basis, based on
development of ability through their day-to-day duties, with theobjectives of fostering employees who have both the spirit ofaccepting new challenges and the individuality to set and resolve
problems by themselves. In addition, we run foreign language
programs (mainly training in English) and overseas study courses,
with the goals of developing employees who have the ability toSocial Contributions
Our Company actively engages in activities to contribute to ourcommunity and society. Specifically, we hold concerts targeting
elementary and junior high school students, provide factory visitsand support to a marathon event of a neighboring elementary school,and provide volunteers to conduct clean-up activities in thesurrounding neighborhood.

Overseas language training seminar report meetings

Interviews with young employees

Factory visit targeting neighboring elementary
school students

Training for a marathon of elementary school children
by members of the company track team

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Cleaning areas around plants by voluntary employees

17CSR Activities
Promoting communication with shareholders and investors

Safety Initiatives
facilities in operation. Further, we have established a simulated
experience training center for safety by which employees can have asimulated experience of perils lurking in work so that every employee
can enhance their sensitivity to risks and awareness of safety.

Under the principle of giving the top priority to safety, our Company
aims to attain zero work accidents and zero traffic accidents, and weare promoting fundamental facility improvement for safety, safety
education and risk assessment activities. Within the factory, safety
fences and fail-safe devices are installed so that no one can get near

To promote greater understanding of our business strategy and ourbusiness conditions, we are striving to publicly disclose investor
relations data, hold one-on-one meetings with institutional

investors, conduct financial results briefings and take otherinitiatives to facilitate communications.

Disclosure of IR information
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 avaluable opportunity for us to enhance our communications withoverseas investors.

We are actively working to publicize information on our performanceand activities in a timely manner. We have established 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 (in English) and a variety of other

Our discussions with shareholders and investors

Experiential learning about electrocution by constant AC voltage

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

In March 2017, we held a factory tour and a financial results
briefing for individual shareholders. Since 2007 we have held these
events annually to help deepen understanding of our Company's
business. Some 90% of people taking part in tours of our impressive
manufacturing sites tell us afterwards that the tour helped them toget a greater understanding of our Company's business.

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 the financial 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 our Company's business.

Disaster prevention initiatives
disaster-prevention drills, and we strive to prevent accidents and tocontain damage should a disaster strike. In addition, our disasterprevention drills focus on more specific disaster as we specify
emergency situations. In the event of an emergency, we will set up atemporary Disaster Control Headquarters to monitor the situationand help manage the recovery.

In preparation for fires, earthquakes and other emergencies, wehave set up a management system and have conducted activities tofurther raise levels of disaster awareness.
We have a fire management system that is ready at all times. We
have prepared manuals in readiness for factory fires or explosions,or natural disasters such as earthquakes. Periodically we holdIR pages on the Company website
http://www.sanyo-steel.co.jp/english/shareholder/index.html

Financial results briefing for analysts

Factory tour and financial results briefing forindividual shareholders

Environmental Conservation

Large-scale-earthquake drills

Temporary Disaster Control Headquarters

Disaster prevention drills held in conjunction withthe local fire stationsociety-wide energy saving.
Further, while promoting the reduction of greenhouse gas
emissions and the effective utilization of resources, we also focus on
enhancement of employee awareness of the environment throughenvironmental education and training sessions.

The Company's core business is to manufacture special steel
primarily out of iron scrap, thereby playing a part in the resource
circulation society through recycling of iron resources. In addition,
our special steel products with superior characteristics have enabled
us to reduce weight of the final products, extend product longevity
and rationalize their manufacturing process, contributing toWorking together with our clients and business partners
Subcontractors." These employees also create and use voluntary
checklists in their procurement transactions as part of our internal
control process. Through these activities, we have raised corporatesocial responsibility (CSR) awareness among our Procurement staff
to strengthen relationships of trust with our clients and business
partners in our procurement transactions.

In line with our basic procurement policies, we are working tostrengthen relationships of trust with our business partners andclients while working with them to procure in an environmentallyfriendly manner. In addition, all employees in our Procurement
Department attend a course outside our Company regarding "TheAct against Delay in Payment of Subcontract Proceeds, Etc. to

By changing the transportation method to railways and ships,
we reduce carbon dioxide emission

18

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

19

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

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’
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.

Newly Developed Products"PremiumJ2, " a new grade bearing steel
Responding to the needs for smaller bearings with greater fatigue life
PremiumJ2 is a new grade bearing steel which has enabled us to extend the life of bearing ina stable manner. PremiumJ2 was produced with a combination of new technologies, which
are namely a new steelmaking technology to reduce harmful non-metallic inclusions in steel,and a new testing technology to evaluate the frequency of the inclusions in large volumes ofsteel to prove the low incidence of such inclusions. By using PremiumJ2, it has become
possible to decrease variation in the minimum life of bearings. PremiumJ2 is expected tocontribute to down-sizing and light-weighting bearrings and their peripheral parts.
Ball Bearings

Expanded ccapacity
Expandedapacity ffor
or iinnoavation
nnoavation"ECOMAX, " Ni- and Mo-free high-strength case hardening steel
Contributing to producing small-size, light-weight auto parts at a lower overall cost

Development of premium products & technologies
to meet customer needs for high reliability

Development of materials

Development of production
processes

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.

Development of evaluation &analysis technologies

Automotive gears and shafts"QDX-HARMOTEX, " a Hotworking-die steel

Basic ResearchContributing to the greater die life with high temperature strengthand enhanced toughness
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.

TopicsDevelopment of High-Toughness Hyper-Eutectoid Steel–Equivalent hardness to cold-work tool steel and bearing steel,along with more than five times higher toughness –Casting dies
Satisfying severe quality requirements of
the North American Die Casting Association,
QDX-HARMOTEX is approved for the NADCA Grade C steel.

87

Trade-off between
hardness and toughness(The harder the steel is,the brittler it is.)6

Toughness index

We successfully developed the technology to produce high-toughness hypereutectoid steel* in collaborative research with Komatsu Ltd. and Osaka University.
Applying appropriate alloy composition and innovative heat treatment, we havefound it possible to significantly improve the toughness of hyper-eutectoid steel.
With the practical application of the technology, which realizes both high hardness
and high toughness, we can expect the following drastic improvement in theperformance; that is, improved strength, impact toughness, abrasion resistance,
etc. when used for general parts, energy saving and reduction of emission gas withsmaller and lighter parts for transmission and bearing components to bear heavyload, and cost reduction owing to the reduced consumption of rare metals for tooland die materials to stand up impact loads.

5

Developed
steel"SPM X4N, " nitrided P/M high speed steels
Fourfold wear resistance compared to the conventional product - contributing toextend dies' life4
3
2

Conventional
hyper-eutectoid steels(Alloy tool steel,bearing steel, etc.)

1
0
400

500

600

700

800

Hardness (HV)
Figure :Relationship between Hardness
and Toughness of Steels.

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.

* Hyper-eutectoid steel
Steel that contains 0.7% or more carbon is called hyper-eutectoid steel. By quenching and tempering,
this steel easily shows high hardness and high abrasion resistance; therefore, it is often used for tools,
bearings, structural parts of machines, etc.

20

There is a “trade-off” between hardness and toughness:
if the hardness increases, the toughness decreases. With
developed technology regarding heat treatment and alloy
composition, hyper-eutectoid steel that balances both hightoughness and high hardness is realized.

21

Pierce punchTopics
Formed and Fabricated Materials Subsidiary in Mexico Will Start Commercial Production
Advancement into the large market across the Pacific Ocean
We have incorporated a local subsidiary, “Sanyo Special Steel Manufacturing deMéxico, S.A. de C.V. (SMM),” which manufactures and sells formed and fabricatedmaterials in Mexico.
The construction of a manufacturing facility with integrated production
processes (forging, machining and heat treatment to produce formed andfabricated materials) has been completed in Abasolo, Guanajuato, a major base of
the local automobile industry. The plant started manufacturing of a small amount ofsamples in May 2017. A number of Japanese and western bearing manufacturers
The new plant in Mexico
have recently entered the Mexican market, raising expectations for an increase indemand for the upstream processes for producing bearings in Mexico over the
medium- to long-term.
Under its 10th medium-term business plan (fiscal 2017 to fiscal 2019), Sanyoaims at improving stability of earnings through expansion of non-steel businessincluding the formed and fabricated materials business. In the formed andfabricated materials business, we aim at establish investment (local subsidiaries inThailand and Mexico) decided in 9th medium-term (FY2014 to FY2016), andExamples of formed and fabricated materials for bearings
capture growth market. The Company’s decision to advance into Mexico will resultin having the Formed and Fabricated Materials segment operate plants in six
places: Japan (Santoku Tech Co., Ltd.), China (Ningbo Sanyo Special Steel Products Co., Ltd.), the United States (Advanced Green
Components, LLC), India (Mahindra Sanyo Special Steel Pvt. Ltd.), Thailand (Siam Sanyo Special Steel Product Co., Ltd.), and Mexico(SMM). The Company will promptly build a supply-chain in a growing market, to meet the needs of customers to expand the global
business globally, as well as to boost the formed and fabricated materials business.

The State-of-the Art No.2
Highly Functional Metal Powder Plant Has Completed
Response to the expansion of the metal powder market,
high purification needs, and the creation of a new market
The Company has completed construction of the No.2 metal powder plant with ahigh level of cleanliness within the head office factory to respond to the expanding
metal powder market largely due to the increasing demand for 3D printers that may
innovate the manufacturing business and increase the need for high reliability andpurity, mainly in the electronic component sectors and in the new market. The plant
will start operation in summer 2017, as planned.
The Company will introduce two high-purity vacuum induction-melting inert gas
atomizers and a cutting-edge disk atomizer in the No.2 Metal Powder Plant for
research and development related to manufacturing and applications of highly
spherical powders of high-melting point materials, and promote its efforts to growthe metal powder business and expand advanced technology further.

The memorial photography by the president and staffs
that when crude steel production
cumulative 30 million tons has amounted.

No.2 Steelmaking Plant

We Received the Okochi Production Prize
Under the title of “Development of High Productivity Process of Ultra-High-Cleanliness Bearing Steel”
Sanyo Special Steel received the Okochi Production Prize ceremony at the 63rd
(FY2016) Annual Okochi Memorial Prize under the title of “Development of High
Productivity Process of Ultra-High-Cleanliness Bearing Steel.”
The Okochi Memorial Prizes, which are awarded by the Okochi Memorial
Foundation in commemoration of the late Dr. Masatoshi Okochi’s achievements, arelarge traditional and prestigious prizes to honor outstanding accomplishments
which contributed to the advancement of academia and the development ofindustry in the field of research and implementation of manufacturing engineering,industrial technology, and production systems in Japan.
Bearing steel is the material to make bearings for all moving objects, such as
At the award ceremony, held at Japan Industry Club
automobiles, and Shinkansen bullet trains. Since bearings are used under harsh
in Tokyo Marunouchi on March 24, 2017
conditions over a long time, bearing steel requires high reliability. We have establishedtechnologies to produce molten steel with extremely high cleanliness based on a secure heritage of technologies and skills handed down over
our long history. In 2015, we have established 100 heats for sequence casting without replacing the tundish and the submerged nozzle. Ourdevelopment of these technologies, which makes high quality compatible with high productivity, was highly acclaimed and led to this award.
We will continue to improve Sanyo Special Steel’s quality and technology in the future, and to contribute to the development of society
by stably providing high-quality special steel products.

The No.2 metal powder plant

Presentation at the “4th Highly-functional Metal Exposition”
The Company provided a promotional presentation of advanced highly functional materials
at an exhibition that gathers the most advanced metal technologies

Highly spherical metal powder (electron microscope photo)No.2 Steelmaking Plant Achieves Crude Steel Production Cumulative of 30 Million Tons
We have focused on improving quality and technology since its start up in 1982
Crude steel production at the No.2 Steelmaking Plant reached 30 million tons of cumulative volume in February 2017.
The No.2 Steelmaking Plant is our main steelmaking plant. It consistently mass produces high quality special steel using an integrated
manufacturing process, from electric arc furnace melting to billet inspection. We have continued to improve quality and technology since
its start up in October 1982. Currently, we have established Development of High Productivity Process of Ultra-High-Cleanliness Bearing
Steel of world-class cleanliness. We also made the sequential casting world record of 100 heats with a single tundish and no change ofimmersion nozzles on February, 2015. And we received the Okochi Production Prize award at the Okochi Memorial Prize under the titleof “Development of High Productivity Process of Ultra-High-Cleanliness Bearing Steel” on March, 2017.

22

We will continue to improve Sanyo Special Steel’s quality and technology in the
future, and to stably supply of high-quality special steel products to our customers.

The Company provided a promotional presentation of its metal powder products
developed in its special material business and advanced highly-functional materials
such as heat- and corrosion-resistant alloys at the “4th Highly-functional Metal
Exposition” at Tokyo Big Sight in April 2017.
Metal powder is an advanced highly functional material used in a wide range ofsectors: automobile, industrial machinery and electronic components, etc. The
Company provides low-impurity, highly-spherical, functional and reliable metal
powder products. The heat- and corrosion-resistant alloys are
high-performance materials that can stand extremely severe conditions, and used
for boilers for thermal power plants and pipes in chemical plants.

Approximately 1,600 visitors came to by the booth exhibiting
the Company’s products and materials. They revealed ahigh level of interest in the Company’s high-performance materials.

Products we exhibited・Metal powder for 3D printing & Examples of moldings by 3D printing・High-performance gas atomized metal powders
・Flaky powders for electromagnetic wave absorbers
・Sputtering Targets
・High-performance P/M high speed steels・High sphericity disk atomized metal powders
・Bars & tubes of heat- and corrosion-resistant alloys

Examples of moldings by 3D printing: Himeji Castle

23

Financial Section

Financial Statements

Analysis of Balance Sheets

Total assets stood at 183,444 million yen at the end of FY2016, an increase of 3,545 million yen
from the end of the previous term. This increase is primarily attributable to increases in net
defined benefit assets caused by higher stock prices and available-for-sale securities despite adecrease in cash and deposits mainly through loan repayments.
Liabilities stood at 60,300 million yen, decrease 6,457 million yen from the end of theprevious term, due primarily to decrease loans.
Net assets stood at 123,143 million yen, an increase of 10,003 million yen from the end of theprevious term. This increase is primarily due to the recording of net income attributable toowners of the parent, re-measurements of retirement benefits caused by higher stock prices,
and increased valuations on available-for-sale securities.
Consequently, the D/E ratio (the ratio of interest-bearing liabilities to net assets after
deducting cash and deposits) reached 0.10 at the end of the FY2016 term (0.13 at the end of
the previous term).

Analysis of Cash Flows

Concerning the status of cash flows in FY2016, the net cash provided by operations was 15,090
million yen (a decrease of 13,680 million yen from the previous term), primarily due toincreases in trade receivables (- 2,377 million yen), inventories (- 2,291 million yen), and trade
payables (3,013 million yen) as well as payment of corporate taxes (- 3,978 million yen)
compared to net income before taxes (11,458 million yen) and depreciation (9,098 million yen).
The net cash used in investing activities were 11,141 million yen (an increase of 2,630 million
yen from the previous term), mainly due to capital investments for acquiring tangible fixed
assets to reduce cost and update existing facilities and other tasks (-10,700 million yen).
The net cash used in financing activities were 10,775 million yen (an 8,032 million yen
decrease in the deficit from the previous term), due mainly to a decrease in loans payable(- 9,984 million yen).
Consequently, cash and cash equivalents at the end of FY2016 were 13,542 million yen(a 7,086 million yen decrease from the end of the previous term).

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Financial Statements

The accompanying notes are integral parts of these statements.

The accompanying notes are integral parts of these statements.

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Financial Statements

The accompanying notes are integral parts of these statements.

The accompanying notes are integral parts of these statements.

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Financial Statements

The accompanying notes are integral parts of these statements.

The accompanying notes are integral parts of these statements.

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Financial Statements

The accompanying notes are integral parts of these statements.

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Financial Statements

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Financial Statements

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Financial Statements

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Financial Statements

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Financial Statements
Independent Auditor's Report

To the Board of Directors of Sanyo Special Steel Co., Ltd.:We have audited the accompanying consolidated financial statements of Sanyo Special Steel Co., Ltd. and its consolidated subsidiaries,
which comprise the consolidated balance sheets as at March 31, 2017 and 2016, and the consolidated statements of operations,statements of comprehensive income, statements of changes in net assets and statements of cash flows for the years then ended, anda summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance withaccounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable thepreparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits inaccordance with auditing standards generally accepted in Japan. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free frommaterial misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures thatare appropriate in the circumstances, while the objective of the financial statement audit is not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used andthe reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Sanyo Special SteelCo., Ltd. and its consolidated subsidiaries as at March 31, 2017 and 2016, and their financial performance and cash flows for the years
then ended in accordance with accounting principles generally accepted in Japan.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2017 arepresented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion,such translation has been made on the basis described in Note 3 to the consolidated financial statements.

July 21, 2017
Osaka, Japan

48

49

Corporate Data

(As of March 31,2017)

Corporate Data

Consolidated Subsidiaries and Equity-Method Affiliates
Specialty SteelCorporate NameSanyo Special Steel Co., Ltd.

Head Office/Works

3007, Nakashima, Shikama-ku, Himeji, Hyogo 672-8677 Japan

Establishedphone (+81) 79-235-6003

Consolidated Subsidiaries① Yohkoh Bussan Co., Ltd.

January 11, 1935

② Santoku Seiken Co., Ltd.

Formed and Fabricated Materials
Consolidated Subsidiaries⑩ Santoku Tech Co., Ltd.

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

Manufacturing of special steel products⑪ SANYO SPECIAL STEEL U.S.A., Inc.

Manufacturing and marketing of special steel products

Paid-in Capital¥20,182 million

Number of Employees

2,598 (consolidated basis) 1,266 (non-consolidated basis)

Register of Shareholders

The Chuo Mitsui Trust & Banking Co., Ltd.

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

⑫ Ningbo Sanyo Special Steel Products Co., Ltd.

Processing of special steel and machinery maintenance

Manufacturing and marketing of special steel products④ Santoku Technos Co., Ltd.

⑬ Siam Sanyo Special Steel Product Co., Ltd.

Processing of special steel

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 Office

Manufacturing and marketing of special steel products⑤ SKJ Metal Industries Co., Ltd.

⑭ Sanyo Special Steel Manufacturing de México, S.A. de C.V.

Manufacturing and marketing of special steel products

Manufacturing and marketing of special steel products⑥ P.T. SANYO SPECIAL STEEL INDONESIA

Equity-method Affiliates⑮ Advanced Green Components, LLC

Manufacturing and marketing of special steel products

Homepage Address

http://www.sanyo-steel.co.jp/english/index.php⑦ SANYO SPECIAL STEEL TRADING (SHANGHAI) CO., LTD.

Manufacturing of special steel products

Involved in business and sales of special steel products in China

Other⑧ Sanyo Special Steel India Pvt. Ltd.
Involved in business and sales of special steel products in India

Consolidated Subsidiaries⑯ Santoku Computer Service Co., Ltd.

Equity-method Affiliates⑨ Mahindra Sanyo Special Steel Pvt. Ltd.

Stock Information

Construction, operation and consulting services for information systems⑰ Santoku Security Service Co., Ltd.

Manufacturing and sales of special steel products

Total Number of Shares Authorized to be Issued

474,392,000

Total Number of Shares Issued

167,124,036

Number of Shareholders

11,418

Security and facilities maintenance services

Principal Shareholders
Name of Shareholder
NIPPON STEEL &Number of shares held
(thousands of shares)

Percentage ofvoting rights (%)

24,256(15.1%)China

SUMITOMO METAL CORPORATION

6,028 3.6%

10,620(6.6%)NSK Ltd.

7,470(4.7%)

7,128(4.4%)

Japan Trustee Services Bank, Ltd.

Shareholder Composition (thousands of shares)
Treasury stocks

Company's Kyoeikai Association(trust account)

Securities firms

The Master Trust Bank of Japan, Ltd.

1,948 1.2%

Individuals and others

Domestic
corporations

29,320 17.5%

50,113 30.0%

6,829(4.3%)

5,696(3.6%)

Sumitomo Mitsui Banking

Total numberof shares issued
167,124100.0%

Foreign investors

Mizuho Bank, Ltd.

3,642

(2.3%)

GOVERNMENT OF NORWAY

3,445(2.1%)Marubeni-Itochu Steel Inc.

3,108

(1.9%)

2,864(1.8%)DFA INTL SMALL CAP VALUE

Financial institutions

U.S.A.
11 SANYO SPECIAL STEEL U.S.A., Inc.
●
15 Advanced Green Components, LLC●

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

(trust account)

Corporation

32,407 19.4%

12 Ningbo Sanyo Special Steel Products Co., Ltd.
●
7 SANYO SPECIAL STEEL TRADING (SHANGHAI) CO., LTD.
●

Thailand5 SKJ Metal Industries Co., Ltd.
●
13 Siam Sanyo Special Steel Product Co., Ltd.
●

Indonesia

Japan
Sanyo Special Steel Co., Ltd.
1 Yohkoh Bussan Co., Ltd.
●
2 Santoku Seiken Co., Ltd.
●
3 Santoku Kogyo Co., Ltd.
●
4 Santoku Technos Co., Ltd.
●
10 Santoku Tech Co., Ltd.
●
16 Santoku Computer Service Co., Ltd.
●
17 Santoku Security Service Co., Ltd.
●

6 P.T. SANYO SPECIAL STEEL INDONESIA●

Mexico14 Sanyo Special Steel Manufacturing●de México, S.A. de C.V.

PORTFOLIO

47,308 28.3%

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

5051

This annual report can also be found at our website.
http://www.sanyo-steel.co.jp/english/