10th Medium-Term Business Plan

Sanyo Global Action 2019
- Pursuing sustained growth through globalization of the Sanyo brand -Contents
Ⅰ. Results of the 9th Medium-Term Business Plan

Ⅱ. 10th Medium-Term Business Plan

Sanyo Global Action 2019
1. Business Environment
2. Strategy of the 10th Medium-Term Business Plan
3. Targeted KPIs
4. Priority Measures2

Ⅰ. Results of the 9th Medium-Term Business Plan

3

Results of the 9th Medium-Term Business Plan
(Unit: billion yen)

9th Medium-TermBusiness Plan
(FY2016 targets)

FY2016(Performance)

Net sales

200.0138.7△61.3

Ordinary income15.0

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

Variance4Changes in KPIs
Net sales, sales volume(Billion yen)
200

(1000 t/month)
88

87

100
82

84

150

75

10050
161.6

171.5

149.1

138.7

50

25
Sales

Sales volume

00
FY13

FY14

FY15

FY165

Changes in KPIs
Ordinary income, ROS, ROE(%)(Billion yen)1512.5

10

Ordinary income
ROSROE

8.5
7.786.1104.2
7.5

6.6

6.6

11.5

11.7

65.7

4.1

49.7
52

6.7

2.50
FY13

FY14FY15FY166

Changes in KPIs
Interesting-bearing debt, D/E ratio(net)(Billion yen)
60(Times)
0.6
Interest-bearing debt

50

D/E ratio

0.46

0.5

40

0.4
0.29

30
20

0.3

47.8
33.2

100.13
14.3

0.2
0.10
12.7

00.1
0

FY13

FY14

FY15

FY167

Variance Analysis of Ordinary Income (FY2013 → FY2016)(Billion yen)

FY2013 (6.7) → FY2016 (11.7) (+ 5.0 billion yen)

40Increase + 22.7 billion yen
Decrease ▲11.7 billion yen─────────────────────────
Total+5.0 billion yen

35+15.1

25▲15.4+1.2+6.430

Fixed costs etc.
Cost reductions

Sales price/mix
20▲1.515

Raw materials
and energy

1050FY2013+6.7

Subsidiaries▲0.8
Sales volume

FY2016+11.78

Variance Analysis of Ordinary Income (9th Plan → FY2016)
9th Plan (15.0) → FY2016 (11.7) (▲3.3 billion yen)(Billion yen)
50

Increase+ 21.4 billion yen
Decrease▲24.7 billion yen───────────────────────────
Total▲3.3 billion yen

4540+21.035+0.4▲16.0

Cost reductions

30Raw materials
and energy

25

Sales price/mix▲7.020

Sales volume1510Plan515.0▲1.7
Subsidiaries etc.

FY201611.709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 Processof the Ultra-HighThailan
Cleanliness Bearing Steel”.
d◇ 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)
The plant will start operation in summer 2017, as planned.

◇ 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)
The plant will start operation in summer 2017, as planned.

Others◇ Awarded the “Diversity Management Selection 100“ as a company that enhanced corporate
value by diversity management (March 2015)◇ Decision to introduce an executive officer system (March 2017)10

Ⅱ. 10th Medium-Term Business Plan

Sanyo Global Action 2019- Pursuing sustained growth through globalization of the Sanyo brand -11

1. Business Environment■ Global demand of special steel will expand moderately.
It is currently firm, but■ The trend toward declining of demand in Japan
will unchanged in the long-term.

■ Global competition in the special steel industry
will intensify increasingly.
Aggressive capital investment by competitors, increased quality
competitiveness of overseas manufacturers etc.

■ Raw materials and energy prices are trending upwards.
12

2. Strategy of the 10th Medium-Term Business Plan
Establish a strong corporate structure
by strengthening the businessfoundation
Further pursue technologicalsuperiority by enhancing R&D andquality competitivenessPursueSustainable
GrowthHuman resources
Technologies
Profitability

Promote “ Sanyo Special Steel - theConfident Choice ” to a global brand133. Targeted KPIs
(Unit: billion yen)
FY2016(Performance)

FY2019(Target)

Variance

Net sales

138.7

150.0

11.3

Ordinary income

11.7

13.5

1.8

ROS

8.5%

9%

0.5%

ROE

6.6%

7%

0.4%

ROA

6.5%

7%

0.5%

D/E ratio (net)

0.1

0.2

0.1

Investment (3 years)

35.350.0

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%

Major assumptions(FY16 → FY19)
・ Scrap market prices
22→32 (+10) 1,000 yen/t・ Exchange rate
109→ 100yen/US$・ Dubai crude oil
47→60$/BL

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

14Reference: Changes in Ordinary Income(Billion yen)
45

FY2016 (11.7) → 10th Plan/FY2019 (13.5) (+ 1.8 billion yen)40
35+5.030+14.0+2.0+0.8▲20.0

Subsidiaries, etc.
Cost reductions

Sales volume25

Material and energy
Sales price/mix

2015
1050FY2016

11.7

Increase+ 21.8 billion yen
Decrease▲20.0 billion yen──────────────────────────────Total+1.8 billion yen

FY201913.515

4. Priority Measures - 1◇ Establish a strong corporate structure by strengthening thebusiness 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 competitiveness16

(Reference) Diagram of Sanyo Factory Renovation【Present 】
No. 2 Factory
150-t
Steelmaking
Plant

Billet RollingMill

No.2 Bar Mill
SecondaryProcessing
Plants60-t
Steelmaking
Plant

Material
Storage
Yard

Large BarRolling MillTube
Manufacturing
PlantsNo. 1 Factory・ Shift to smaller diameters and lot sizes due to change in demand structure→ Bottlenecks at No. 2 Bar Mill due to decline of productivity→ Logistical congestion prior to secondary processing due to increased number of lots
・ Become decrepit and not-directly linked 60t line
→ Increase in material transportation from No.2 Factory to No.1 Factory due to decline
in production at 60t line
17

(Reference) Diagram of Sanyo Factory Renovation【After Renovation】
No. 2 Factory
150-t
Steelmaking
Plant(1) Eliminate bottlenecks(Facility renovation )(3) Increase in directrolling
Billet RollingMill

No.2 Bar MillLogisticalbase

No. 1 Factory
60-t
Steelmaking
Plant

MaterialStorageYard(2) Increase indirect-linking

Large Bar
Rolling Mill

SecondaryProcessing
Plants

TubeManufacturing
Plants(3) Increase in directrolling(1)Renovation of No.2 Bar & Wire Rod Mill to eliminate bottlenecks
for even small diameters/lots production(2) Increase in direct-linking between 60t steelmaking plant and Large Bar
Rolling Mill
(3) Increase in direct rolling at each lines (150t line and 60t line)(4) Elimination of logistical congestion prior to secondary processing throughestablishment of new logistical base(5) Promotion of automatization and improvement efficiency through activeutilization of AI and IoT, etc.

(4) Elimination of logistical congestion(Establishment of new logistical base)・ Eliminate bottlenecks
・ Streamline logistics
・ Improve efficiency
・ BCP measures18

4. Priority Measures - 2◇ Establish a strong corporate structure by strengthening thebusiness foundation(2) Secure stable earnings■ Achieve stable earnings for 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■ Improve stability of earnings through expansion of Non-SteelProducts 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

19

4. Priority Measures - 3◇ Establish a strong corporate structure by strengthening thebusiness foundation(3) Enhance the management foundation■ Promote agile, transparent management
・ Firmly establish the executive officer system (June 2017 onwards)
・ Continuously focus on safety initiatives, disaster prevention, environmental conservationand compliance structure■ Secure and train human resources
・ Strengthen the regular recruitment program for internationalization and transfer ofexpertise (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■ Enhance shareholder return・ Set 25% as the lower limit for the consolidated dividend payout ratio (currently 20%)・ Aim for a consolidated dividend payout ratio of 30% in FY201920

4. Priority Measures - 4◇ 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 based on
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“214. Priority Measures - 5◇ Further pursue technological superiority by enhancing R&Dand quality competitiveness(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 high reliability andnew technology rapidly and continually22

4. Priority Measures - 6◇ Promote “ Sanyo Special Steel-the Confident Choice ”
to a global brand(1) Promote global branding measures
Enhance the source of our brand power (QCDD* power)■ Strengthen the roles of our overseas bases■ Establish a 6-center structure worldwide for theFormed and Fabricated Materials business■ Build a global supply chain

Global branding* Quality , Cost , Delivery, Development (R&D)

23

4. Priority Measures - 7◇ Promote “ Sanyo Special Steel-the Confident Choice ”
to a global brand(2) Promote initiatives aimed at further improvements in recognition■ 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

24

4. Priority Measures - 8◇ Investments
Planning for 50 billion yen in 3 years(x1.4 compared to 9th Medium-Term)■ 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.

25(Cautionary Statement)
Business forecasts contained in this document are based on the information
available at the time of the release of this document, and actual results may

differ from these forecasts due to various factors that may occur in the future.
The business forecasts should not be interpreted as any commitment to or
guarantee of future performance.

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