Mitsubishi Steel Mfg. Co., Ltd. Financial Results for the First Half of the Fiscal Year Ending March 2020 November 22, 2019
I. Message I. Message II. FY2019 1st Half Results III. Full-year Forecasts for FY2019 IV.Future Initiatives 1
Message I. Message Overview: As projected at the start of the fiscal year, we recorded operating income of zero for the first half of FY2019. However, due to dramatic changes in the business environment and the murky future of the external environment, we recorded impairment losses in numerous regions totaling JPY14.8 billion. Our full-year forecasts for FY2019 call for operating income of zero, a figure significantly below forecasts at the start of the fiscal year (JPY2 billion). Despite our commitment to continuing dividend payments, due to expectations of ordinary and net losses, we have decided not to pay dividends for this period. These results are due largely to internal factors, in addition to changes (worsening) in the business environment. The following topics will be addressed later in this presentation. Overview of results for this period and future outlook: Business environment Business trends (at JATIM and North American MSSC, in particular) Impairment Reconsideration of businesses Toward a new Mid-term Business Plan Urgent measures 2
II. FY2019 1st Half Results I. Message II. FY2019 1st Half Results III. Full-year Forecasts for FY2019 IV.Future Initiatives 3
Summary II. FY2019 1st Half Results Net sales fell, due mainly to lower sales in the domestic Special Steel Bars business amid slow demand from makers of construction machinery, industrial machinery, and machine tools; lower sales for automotive uses at overseas subsidiaries in North America and elsewhere in the Springs business; and foreign exchange effects. Operating income fell due to lower sales and increased costs attributable to production problems with new products at North American subsidiaries in the Springs business, and the large impact of lower sales volumes in the domestic Special Steel Bars business despite improved selling prices and increased production to build up inventory in preparation for blast furnace renovations in the next fiscal year. Lower operating income pushed ordinary income into negative territory. Due to impairment losses recorded as extraordinary losses, we posted a significant net loss this period. (JPY100M) FY2018 FY2019 1st H Full-year 1st H 1st H vs. initial Year-on-year result result forecast* result forecast change △ 48 △ 29 631 1,294 650 602 Net sales Operating △ 7 8 11 0 1 1 income △ 5 △ 4 △ 7 3 1 1 Ordinary income Net income attributable to △ 7 △ 143 △ 136 △ 146 3 3 owners of parent company 4 *Figures announced publicly with results on May 14, 2019
Factors contributing to changes in net sales and operating income (YoY comparison) II. FY2019 1st Half Results Net sales (JPY100M) △ 76 +19 △ 6 +6 +21 +7 Consolidation JATIM Foreign exchange *1 Increased 631 Decreased adjustments, gains/losses Selling prices sales 602 volume under etc. volumes contract FY2018 FY2019 1st H 1st H result result *1 Volume of OEM products and rolling piecework (subcontracted rolling) under contract to Nippon Steel Corporation Operating income (JPY100M) Decreased Raw material sales volumes prices*2 *3 JATIM Raw material (extraordinary △ 9 +8 added to R&D prices factors related 8 consolidated expenses, (market to Muroran) Selling subsidiaries depreciation conditions) prices 1 △ 13 Effects of △ 1 +1 +5 △ 5 inventory *4 Other +7 FY2019 FY2018 buildup in preparation for 1st H 1st H renewal of result result blast furnace lining at Muroran *2 Temporary expenses for coke oven repairs at Muroran in FY2018 *3 All factors related to changes in profits/losses due to JATIM are included under “JATIM added to consolidated subsidiaries.” *4 The “Other” category includes the following: △ 3 from production costs in the Special Steel Bars business; △ 2 from revaluation of product inventory; △ 2 from production costs in the Springs business; and △ 2 from startup costs for the mother plant in the Formed & Fabricated Products business. 5
Net sales/operating income by segment II. FY2019 1st Half Results Net sales fell in the Special Steel Bars, Springs, and Formed & Fabricated Products businesses. Operating income fell due to lower income in the Special Steel Bars business and increased losses in the Springs business. (JPY100M) FY2018 FY2019 1st H result 1st H result Year-on-year change △ 20 317 297 Net sales Special Steel Bars △ 2 11 9 Operating income △ 13 247 234 Net sales Springs △ 5 △ 10 △ 5 Operating income Formed & △ 11 58 47 Net sales Fabricated △ 0 △ 1 1 Operating income Products 37 46 9 Net sales Machinery 1 1 0 Operating income 20 20 0 Net sales Other Operating income 1 1 0 △ 48 △ 42 Net sales 6 Consolidated adjustments △ 0 0 0 Operating income △ 29 631 602 Net sales Total △ 7 8 1 Operating income 6
Special Steel Bars business II. FY2019 1st Half Results Factors contributing to changes in operating income by segment Special Steel Bars Net sales fell by JPY2 billion because the first two of the (JPY100M) following factors failed to offset the effects of the third: business ・ Improved selling prices prompted by measures accompanying rising raw material prices (unit prices of iron Effects of inventory buildup in preparation for renewal ore and ferroalloys) of blast furnace lining Raw material prices (market conditions) (excluding effects of ・ Effects of increased sales due to higher volumes of Decreased sales inventory buildup) Production costs Sales Revaluation of product Selling prices materials processed under contract and growth in sales volumes (extraordinary factors) R&D expenses, 317 JATIM Raw material prices volumes at overseas businesses (JATIM) depreciation Product lineup inventory Sales ・ The impact of lower sales due to lower sales volumes, due in 297 turn to decreased production at major domestic customers △ 1 and the accompanying inventory adjustments Operating income fell by JPY0.2 billion because the second 0 +2 and third of the following factors failed to offset the effects of △ 3 △ 9 +9 △ 9 11 Other the first: 9 +8 △ 2 ・ Decreases resulting from factors such as rising raw material +5 △ 2 prices, lower sales volumes, and decreases from inventory revaluation ・ Effects of improved selling prices and cost improvements FY2018 FY2019 after cost increases accompanying coke oven repairs in the 1st H result 1st H result previous period (extraordinary factors affecting raw material prices) JATIM ・ Effects of production increases due to inventory buildup in (JPY100M) preparation for blast furnace renovations in the next fiscal year Raw material prices Product lineup Production costs Sales Sales volumes Sales <JATIM> Selling prices 34 28 Net sales grew by JPY0.6 billion YoY for the following Other reason: △ 5 △ 6 Higher selling prices of flat bars and sales growth resulting △ 0.9 △0.6 +1.4 from customer approval of round bars 0 △ 1.6 +0.7 Operating income fell by JPY0.1 billion YoY due to the FY2018 FY2019 impact of advance procurement during the period of rising 1st H result 1st H result scrap prices from the latter half of 2018 and increased production costs due to increased problems associated with the start of mass production of new types of steel at the steel works. 7
Springs business II. FY2019 1st Half Results Factors contributing to changes in operating income by segment ① Springs business (JPY100M) Decreased sales volumes R&D expenses, depreciation Increased sales volumes Net sales declined due to lower sales for automotive uses in (other than N. America) Sales North America and foreign exchange effects, in addition to (N. America) Sales 247 Raw material prices (market conditions) slow demand for use in construction machinery in Japan and 234 Selling prices Selling prices internationally. Production costs Operating income fell due to the significant impact made by Tariff effects North American subsidiaries, as described under <Analysis △ 5 of changes by region>. Other △10 (See the next page for detailed information on the North △ 3 American subsidiaries.) 0 +1 △ 2 +1 △ 2 △ 1 +1 0 FY2018 FY2019 1st H result 1st H result Analysis of changes ＜ Analysis of changes by region ＞ (JPY100M) by region Income was down JPY0.5 billion in North America and down JPY0.2 billion in Germany YoY. Income was up JPY0.1 billion Sales Sales in Japan and up JPY0.1 billion in other regions YoY. 247 234 (See the next page for detailed information on the North N. America American subsidiaries.) In Germany, sales of brake springs for use in commercial vehicles slowed due to declining exports caused by an △ 5 Germany Mexico economic downturn in the European market and the slowing Japan China △ 10 India Other Chinese market. In addition, sales of aftermarket springs were weak due to the warm winter in 2018. △ 5 +1 0 The increase in Japan was due to factors including an △ 2 +1 0 0 increase of JPY40 million resulting from the use of JATIM FY2018 FY2019 materials in leaf springs and an increase of JPY80 million 1st H result 1st H result attributable to revised selling prices for automotive coil springs. 8
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