Mitsubishi Steel Mfg. Co., Ltd. Financial Results for the Fiscal Year Ending March 2019 May 31, 2019
I. Message I. Message II. FY2018 Results III. Full-year Forecasts for FY2019 IV. Analysis of Changes in Operating Income by Segment V. Concise Overview of the Machinery Business VI. Progress with the 2016 Mid-term Business Plan 1
Message I. Message ① FY2018 Results • At the start of FY2018, we projected operating income of JPY5 billion for the fiscal year. • Actual results, operating income of JPY1 billion, fell significantly short of projections. • Over this period, we revised our forecasts of results downward three times. The actual results fell short even of the revised lower projections. • At the start of FY2018, our primary goals compared to FY2017 were the following: To increase prices for steel bars (normalizing the spread) To harvest the results of investments to improve productivity, particularly in the Springs business in North America. While steel bars pricing proceeded as planned. We failed to achieve the desired effects from the investments in Springs Business. • We also encountered unforeseen developments: Rising prices in materials markets and procurement difficulties, spurred by the invocation of Section 232 in North America A large gap vs. sales projections due to longer than expected delays in securing customer approval for PT.JATIM TAMAN STEEL MFG.(JATIM) Reduced production and increased costs due to the reduced supply of materials at the Muroran Works Revaluation of inventories due to unfavorable conditions for gas turbines overseas (temporary) 2
Message I. Message ② Forecasts for FY2019 • In FY2019, we will make every effort to achieve operating income of JPY2 billion, vs. JPY1 billion in FY2018. • Since the unforeseen developments encountered during FY2018 have stabilized, the increase in income will be realized chiefly through harvesting results not fully realized last year. Harvesting the results of investments to improve productivity, primarily in the Springs business in North America Reflecting rising material prices in selling prices in North America and identifying new procurement sources Results of sales growth at JATIM Recovery of materials supply volume at Muroran Works • We also project the following: Results of sales growth for turbocharger-related parts in the Formed & Fabricated Products business Increased sales related to offshore wind power generation in the Machinery business (reflecting strong interest) Improved earnings in the Springs business due to increased sales in new markets 3
II. FY2018 Results I. Message II. FY2018 Results III. Full-year Forecasts for FY2019 IV. Analysis of Changes in Operating Income by Segment V. Concise Overview of the Machinery Business VI. Progress with the 2016 Mid-term Business Plan 4
Summary II. FY2018 Results Net sales grew, due mainly to rising selling prices in the Special Steel Bars business and the addition of the Indonesian steel joint venture JATIM and German spring manufacturer Ahle to the ranks of consolidated subsidiaries. Operating income fell due to losses in the Springs business, mainly at a North American subsidiary, increased costs related to coke oven repairs at Muroran Works, and losses at JATIM. Ordinary income suffered due mainly to lower operating income and foreign exchange losses and interest costs at JATIM. Lower operating income and lower ordinary income, as well as the recording of revaluation losses on investment securities, resulted in lower net income, despite progress on the sale of cross- shareholdings. (JPY100M) FY2017 FY2018 Result Result Year-on-year change 1,187 1,294 107 Net sales R&D expenses, ( △ 49) ( △ 57) ( △ 8) Depreciation 32 11 △ 21 Operating income 28 1 △ 27 Ordinary income Net income attributable 29 3 △ 26 to owners of parent company 5
Factors contributing to changes in net sales and operating income II. FY2018 Results Net sales (JPY100M) +5 △ 38 +59 Foreign exchange △ 4 gains/losses Consolidation 連 結調整 +85 Decreased sales Selling prices adjustments, Other volumes etc. JATIM and Ahle 1,294 added to consolidated 1,187 subsidiaries FY2017 FY2018 Operating income Springs (JPY100M) (North America) △ 12 △ 39 +59 Raw material △ 23 △ 12 prices △ 1 (market △ 3 32 JATIM △ 2 conditions) Raw material Selling prices Decreased sales 11 added to R&D expenses prices volumes consolidated Other Depreciation, (Extraordinary factors FY2017 subsidiaries related to Muroran) FY2018 * All factors related to changes in profits/losses due to JATIM are included under “JATIM added to consolidated subsidiaries.” 6
Net sales/operating income by segment II. FY2018 Results Net sales grew in the Special Steel Bars, Springs, and Formed & Fabricated Products businesses. Operating income grew in the Formed & Fabricated Products business. In the Special Steel Bars business, earnings from domestic businesses offset JATIM’s operating losses through the first half, but income fell in the second half due to effects related to coke oven repairs at Muroran Works. The Springs business recorded losses due to cost increases resulting mainly from steel import restrictions in North America. (JPY100M) FY2017 FY2018 Result Result Year-on-year change 529 648 119 Net sales Special Steel Bars 16 12 △ 4 Operating income 479 497 18 Net sales Springs 9 △ 9 △ 18 Operating income Formed & 108 114 6 Net sales Fabricated 1 4 3 Operating income Products 93 93 0 Net sales Machinery 4 2 △ 2 Operating income 39 42 3 Net sales Other 1 2 1 Operating income △ 61 △ 99 △ 38 Net sales Consolidated adjustments 0 0 0 Operating income 1,187 1,294 107 Net sales Total 32 11 △ 21 Operating income 7
Impact of non-operating income/loss and extraordinary income/loss II. FY2018 Results The addition of JATIM as a consolidated subsidiary removed its impact from loss of entities accounted for using the equity method, but added to JATIM’s interest burdens. In addition, the devaluation of the Indonesian rupiah led to exchange losses. We recorded extraordinary gains from the sale of cross-shareholdings but recorded revaluation losses on investment securities. Since JATIM recorded losses, net losses attributable to non-controlling interests were added to final gains/losses. (JPY100M) FY2017 FY2018 Result Result Year-on-year change 32 11 △ 21 Operating income △ 4 △ 10 △ 6 Non-operating income △ 2 △ 4 △ 2 Translation (exchange profit and loss) △ 4 △ 10 △ 6 Interest paid Share of loss of entities accounted for △ 4 0 4 using the equity method 28 1 △ 27 Ordinary income 30 13 △ 17 Extraordinary income/loss ※ 1 25 - △ 25 Gains on step acquisitions 4 20 16 Gain on sale of equities Revaluation losses on investment - △ 8 △ 8 securities Net income before income taxes and other 58 14 △ 44 adjustments ※ 2 △ 29 △ 20 9 Tax expenses Net income or net losses attributable to non- 0 8 8 controlling interests *3 29 3 △ 26 Net income attributable to owners of parent company *1 The FY2017 result includes gains on step acquisitions due to the acquisition of a majority stake in JATIM. *2 In FY2017, MSSC Canada Inc., a Canadian consolidated subsidiary, recorded a transfer from deferred tax assets ( △ JPY1.5 billion). 8 *3 Amount corresponding to gains/losses recorded by JATIM and others attributable to non-controlling interests.
III. Full-year Forecasts for FY2019 I. Message II. FY2018 Results III. Full-year Forecasts for FY2019 IV. Analysis of Changes in Operating Income by Segment V. Concise Overview of the Machinery Business VI. Progress with the 2016 Mid-term Business Plan 9
Full-year performance forecasts III. Full-year Forecasts for FY2019 Despite the impact of protectionist trade policies in the US and the economic slowdown in China in the main construction machinery and automotive industries, net sales are projected to rise to JPY137 billion, due to growth in overseas businesses and increased production under contract at Muroran. Despite expected improvements in the earnings of JATIM in the Special Steel Bars business, due to the effects of slowing domestic demand, the fact that earnings recovery in the Springs business in North America remains in process, and other factors, operating income is projected to be a mere JPY2 billion. Ordinary income is expected to increase due to rising operating income. Net income is projected to remain roughly unchanged from last year's figure of JPY300 million. (JPY100M) FY2018 FY2019 Result Forecast Year-on-year change 1,294 1,370 76 Net sales R&D expenses, ( △ 57) ( △ 65) ( △ 8) depreciation 11 20 9 Operating income 1 7 6 Ordinary income Net income attributable to 3 3 0 owners of parent company 10
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