Mitsubishi Steel Mfg. Co., Ltd. Financial Results for the Fiscal - - PowerPoint PPT Presentation

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Mitsubishi Steel Mfg. Co., Ltd. Financial Results for the Fiscal Year Ending March 2019

May 31, 2019

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1

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

• I. Message

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Message

• 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.

① FY2018 Results

• 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
• verseas (temporary)
• I. Message

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Message

• In FY2019, we will make every effort to achieve operating income of JPY2

billion, vs. JPY1 billion in FY2018.

② Forecasts for FY2019

• 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

• I. Message

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• 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

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Summary

FY2017 FY2018 Result Result Year-on-year change Net sales

1,187 1,294 107

R&D expenses, Depreciation

(△49) (△57) (△8)

Operating income

32 11 △21

Ordinary income

28 1 △27

Net income attributable to owners of parent company

29 3 △26

• II. FY2018 Results

(JPY100M)

 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.

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32

R&D expenses Depreciation,

△3 △23

Raw material prices

(Extraordinary factors related to Muroran)

Other

11

△1 △12 +59 △39 △2

JATIM added to consolidated subsidiaries Raw material prices (market conditions) Selling prices Decreased sales volumes

1,187

Decreased sales volumes Foreign exchange gains/losses 連結調整

Other

+85 +5 △4 +59 △38

Selling prices

1,294

JATIM and Ahle added to consolidated subsidiaries

Factors contributing to changes in net sales and

• perating income

FY2017 FY2018 FY2017 FY2018

Operating income Net sales

(JPY100M) (JPY100M)

• II. FY2018 Results

Springs (North America) △12

* All factors related to changes in profits/losses due to JATIM are included under “JATIM added to consolidated subsidiaries.” Consolidation adjustments, etc.

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(JPY100M)

Net sales/operating income by segment

FY2017 FY2018 Result Result

Year-on-year change Special Steel Bars Net sales

529 648 119

Operating income

16 12 △4

Springs Net sales

479 497 18

Operating income

9 △9 △18

Formed & Fabricated Products Net sales

108 114 6

Operating income

1 4 3

Machinery Net sales

93 93

Operating income

4 2 △2

Other Net sales

39 42 3

Operating income

1 2 1

Consolidated adjustments Net sales

△61 △99 △38

Operating income

Total Net sales

1,187 1,294 107

Operating income

32 11 △21

• 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.

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FY2017 FY2018 Result Result

Year-on-year change Operating income

32 11 △21

Non-operating income

△4 △10 △6

Translation (exchange profit and loss)

△2 △4 △2

Interest paid

△4 △10 △6

Share of loss of entities accounted for using the equity method

△4 4

Ordinary income

28 1 △27

Extraordinary income/loss

30 13 △17

Gains on step acquisitions

※1 25

• △25

Gain on sale of equities

4 20 16

Revaluation losses on investment securities

• △8

△8

Net income before income taxes and other adjustments

58 14 △44

Tax expenses

※2 △29

△20 9

Net income or net losses attributable to non- controlling interests *3

8 8

Net income attributable to owners of parent company

29 3 △26

(JPY100M)

Impact of non-operating income/loss and extraordinary income/loss

*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). *3 Amount corresponding to gains/losses recorded by JATIM and others attributable to non-controlling interests.

• 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.

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• 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

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(JPY100M)

Full-year performance forecasts

• III. Full-year Forecasts for FY2019

FY2018 FY2019 Result Forecast Year-on-year change Net sales

1,294 1,370 76

R&D expenses, depreciation

(△57) (△65) (△8)

Operating income

11 20 9

Ordinary income

1 7 6

Net income attributable to

• wners of parent

company

3 3

 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.

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11

1,294

Increased volume under contract Consolidation adjustments, etc.

△4 △13 △3 +33 +40 +23

Selling prices

1,370

Decreased sales volumes Increased sales from JATIM

11

△6

Selling prices Raw material prices (Extraordinary factors related to Muroran)

+10 △3 +1 +7

Sales 数量減

R&D expenses Depreciation,

△4

Raw material prices (market conditions)

JATIM社

Cost improvements

20

+4

Factors contributing to changes in net sales and

• perating income

FY2018 FY2019

Operating income Net sales

(JPY100M) (JPY100M)

FY2018 FY2019

• III. Full-year Forecasts for FY2019

Foreign exchange gains/losses

* All factors related to changes in profits/losses due to JATIM are included under “JATIM added to consolidated subsidiaries.”

Decreased sales volumes JATIM

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(JPY100M)

Performance forecasts by segment

FY2018 FY2019 Result Forecast

Year-on-year change

Special Steel Bars Net sales

648 700 52

Operating income

12 12

Springs Net sales

497 515 18

Operating income

△9 9

Formed & Fabricated Products Net sales

114 115 1

Operating income

4 4

Machinery Net sales

93 100 7

Operating income

2 3 1

Other Net sales

42 38 △4

Operating income

2 1 △1

Consolidated adjustments Net sales

△99 △98 1

Operating income Total Net sales

1,294 1,370 76

Operating income

11 20 9

 Sales are projected to increase in the Special Steel Bars, Springs, Formed & Fabricated Products, and Machinery businesses.  Operating income is projected to remain largely unchanged from last year in the Special Steel Bars, Formed & Fabricated Products, and Machinery businesses. The Springs business is expected to record profits.

• III. Full-year Forecasts for FY2019

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Full-year performance forecasts

(impact of non-operating income/loss and extraordinary income/loss)

 Increased sales by JATIM will boost working capital, increasing interest burdens. (We are currently negotiating with the joint venture partner on fund-raising methods to reduce interest burdens.)  Plans call for sale of cross-shareholdings, etc. (JPY100M)

FY2018 FY2019 Result Forecast

Year-on-year change

Operating income

11 20 9

Non-operating income

△10 △12 △2

Translation (exchange profit and loss)

△4 4

Interest paid

△10 △12 △2

Ordinary income

1 7 6

Extraordinary income/loss

13 5 △8

Gain on sale of equities

20 5 △15

Revaluation losses on investment securities

△8 8

Net income before income taxes and other adjustments

14 12 △2

Tax expenses

△20 △11 9

Net income or net losses attributable to non- controlling interests *

8 2 △6

Net income attributable to owners of parent company

3 3

• III. Full-year Forecasts for FY2019

* Amount corresponding to gains/losses recorded by JATIM and

• thers attributable to non-controlling interests

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Business indicators and financial conditions

FY2017 FY2018 FY2019 Full-year Full-year forecast

Total assets

(JPY100M)

1,533 1,533

• Net assets

(JPY100M)

722 674

• Equity capital ratio

(%)

40.9 38.5

• ROS

(%)

2.4 0.1 0.5

ROE

(%)

4.7 0.5 0.5

Dividends*

(JPY)

60.0 60.0 30.0

Dividend payout ratio

(%)

31.8 329.0 153.8

 In FY2018, we will maintain the annual dividends announced at the start of the fiscal year (JPY60/share), based on a comprehensive consideration of financial and fiscal conditions and other aspects.  We will maintain annual dividends of JPY30 in FY2019, despite expectations of a harsh income environment.

• III. Full-year Forecasts for FY2019

* We implemented a share consolidation (on the basis of 1 for every 10 shares) on October 1, 2017. Dividend figures for FY2017 above assume the share consolidation took place at the start of each consolidated fiscal year.

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20 40 60 80 100

52 33 49

減価償却費 設備投資

44 60

5 10 15 20 FY2016 result FY2017 result FY2018 result FY2019 forecast

15 11 20 16

R&D expenses, capital investment, depreciation

減価償却費 設備投資 53 36

(億円)

* Includes R&D-related depreciation.  Research and development activities will proceed in line with the mid-term business plan. We will intensify related efforts to improve both sales and cost savings.  Capital investment is underway to achieve the goals set in the mid-term business plan. However, we are reconsidering certain initiatives, including enhancements of facilities in Europe, in light of changes in global strategies of our customers.

(JPY100M)

86

(JPY100M)

【R&D expenses】 【Capital investment, Depreciation】

• III. Full-year Forecasts for FY2019

FY2016 result FY2017 result FY2018 result FY2019 forecast

Depreciation Capital investment

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• IV. Analysis of Changes in Operating Income by Segment

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

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12

Inventory valuation

• f products

(Extraordinary factors) Raw material

+7 12

(market conditions) Raw material

△5 △7 △1 △3 △2 △4

Sales decrease Other

+10

JATIM Selling prices

+5

Product lineup Cost improvement R&D expenses, depreciation

16 JATIM

Other

△12 +21 △18 △4 △2 +4 △7

Selling prices

+10

Product lineup R&D expenses, depreciation Inventory valuation

• f products

12 +1

Sales increase Cost improvement (Extraordinary factors) Raw material

+26 △23

Effect of increased earnings after making JATIM a subsidiary (JPY6.3 billion)

Special Steel Bars business

(FY2018 results and FY2019 forecasts)

FY2017 result FY2018 result

Sales 700 Sales 648

FY2018 result FY2019 forecast

• IV. Analysis of Changes in Operating Income by Segment

Sales 648 Sales 529

(JPY100M) (JPY100M)

FY2019 forecasts

Not reflected in previous year

FY2018 results

Effect of increased earnings from JATIM (JPY3.3 billion) Effect of increased earnings due to increased volume under contract (JPY4 billion)

<FY2018 results>  Net sales increased due to various factors, including the following:

• Continuing high domestic sales volumes as booming demand

persisted, primarily for construction machinery

• Progress made based on plans to reflect rising raw material

prices in selling prices and revising product lineups

• Making JATIM a consolidated subsidiary

 Operating income fell for the following reasons:

• Rising costs and decreasing volume of materials supplied due

to repairs to the coke oven at Muroran (special factors)

• Operating losses at JATIM

This was despite the following factors:

• Progress on reflecting portions of cost increases not reflected

in the previous year in selling prices and efforts to address rising prices of raw materials this year (market condition) in selling prices

• Improving product lineup

<FY2019 forecasts>  Net sales are projected to increase due to various factors, including the following:

• Increased volume under contract, despite reduced volumes of
• ur products used by major customers due to inventory

adjustments for construction machinery and industrial machinery since the Chinese economy is slowing down

• Growth in sales volumes of overseas businesses as the

customer approval process advances (JATIM)  Operating income is projected to remain largely unchanged from last year for the following reasons:

• Improvements at JATIM resulting from increased sales volume

and cost cutting

• Increased amortization and other costs resulting from

completion of coke oven repairs (although such repairs will results in improvements starting from the second half) Other pertinent factors:

• Factors leading to reduced profits, such as lower sales

volumes to manufacturers of construction machinery and industrial machinery

(market conditions) Raw material

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△12

Selling prices Increased sales volumes Product lineup

△2 +7 +1 +2

Cost improvement Raw material

Special Steel Bars business

JATIM's FY2019 forecasts

• IV. Analysis of Changes in Operating Income by Segment

① JATIM's FY2019 forecasts ② JATIM's sales forecasts

(FY2019 forecasts) Factors leading to changes in JATIM's consolidated operating income FY2018 result

FY2019 forecast Sales 96 Sales 63

(JPY100M)

 Net sales are projected to increase by JPY3.3 billion as customers switch to JATIM materials after approving its flat steel, boosting JATIM’s sales of round bars.  Operating income is projected to improve by JPY1 billion thanks to increased sales volumes and production cost improvements.  Even including amortization of goodwill and other assets, consolidated results will remain negative. While we plan to maintain a focus on cost improvements and sales promotion activities, concerns include the inflow of low-priced materials due to US-China trade friction and the economic downturn in South Korea.

The sales volume is projected to increase due to the following factors: Flat steel: Results fell short of plans in 2018 due to customer (ISP) inventory adjustments and delays in switching to JATIM materials. Customer approval will be complete in 2019, along with consumption of MSR material

• inventories. Switching began in April.

Round bars: Results fell short of plans in 2018 due to longer than expected delays in customer approval. The volume of orders received is expected to increase in 2019 with progress on approval for construction machinery, motorcycle, and automotive uses. Causes for concern include inflows of low-priced materials from China and South Korea.

5 10 15

通期実績 計画 実績 見通し

売上量（丸鋼） 売上量（平鋼）

2017 2018 2019

(10,000 t)

Full-year result Planned Result Projection

Sales volume (round bars) Sales volume (flat steel)

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19

(Discounts) Selling prices Raw material

△1

Selling prices

FY2019 forecasts

Other

△9

R&D expenses, depreciation Tariff effects

9

Selling prices Procurement improvements

+4 +2

Cost improvement Other R&D expenses, depreciation Raw material

△2

Ahle temporary costs (Other than N. America) Increased sales volumes (Discounts) Selling prices

△9 △3

Decreased sales volumes (N. America)

△2 △14 △1

Tariff effects

△2 (JPY100M)

Springs business

(FY2018 results and FY2019 forecasts)

FY2018 result FY2019 forecast Sales 497 Sales 515 FY2017 result FY2018 result Sales 479

Cost improvement Decreased sales volumes (N. America)

+2 (JPY100M)

FY2018 results

<FY2019 forecasts>  Net sales are projected to increase due to sales growth in ASEAN and India.  Operating income is projected to increase by JPY900 million for the following reasons: (North America) Reflecting last year‘s materials price increases in selling prices (+JPY300 million), improved production costs (+JPY300 million), and other factors (△JPY300 million) (China) Increased sales and reduced production costs (+JPY100 million) Effects of increased volumes in new markets (e.g., India, Mexico) (+JPY200 million) While we expect to be profitable, we do not expect to return at this point to FY2017 levels. (These factors are described in detail starting on the next page.)

• IV. Analysis of Changes in Operating Income by Segment

+1

<FY2018 results>  Making the German springs maker Ahle a subsidiary boosted net sales.  Operating income fell YoY by JPY1.8 billion overall, declining dramatically in North America following sharp increases in materials market prices due to restrictions on steel imports in North America and stalled efforts to collect payments from certain customers, among other factors.

Effects of increased earnings attributable to making Ahle a subsidiary (JPY2.2 billion)

△1 +3 +2 +4 △1

(Other than N. America) Increased sales volumes

• N. America

△12

• N. America

△1

Sales 497

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9

Germany Other India Japan China

△9 △13 △3 △1

North America

△2

Mexico

+1 △9

Germany Other India +2 Japan China +3 +1 North America +1 Mexico +2 (JPY100M)

Springs business

(Analysis of changes by region)

FY2018 result FY2019 forecast

Sales 497 Sales 515

FY2017 result FY2018 result

Sales 479

(JPY100M)

• IV. Analysis of Changes in Operating Income by Segment

<FY2019 forecasts>  We anticipate an improvement of a mere JPY300 million for North America, plus improvements of JPY600 million in other regions, for a total improvement of JPY900 million.  In Japan, we expect to cut costs in the face of rising procurement costs of leaf springs by switching to JATIM materials (approval already obtained). At the same time, we anticipate lower sales of large coil springs for use in construction machinery due to the slowdown in the Chinese construction market.  Volumes should start to rise in new markets. <FY2018 results>  Income was down JPY1.3 billion in North America and down JPY500 million in other regions YoY (see the next page for a detailed account of North America).

• In Japan, income fell due to rising procurement costs

and lower sales of leaf springs (△JPY300 million).

• Costs increased in China due to lower productivity

(△JPY100 million).

• Germany experienced PMI costs, etc. due to the

acquisition (△JPY200 million).

FY2018 results

Sales 497 Effects of increased earnings attributable to making Ahle a subsidiary (JPY2.2 billion)

FY2019 forecasts

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Raw material Tariff effects Inventory valuation

△1 +2

+3 Increase in income

Cost improvement Other Decreased sales volumes

△1

Selling prices (Discounts) Selling prices

+3 △1 +3 △1

Foreign exchange

△1

Tariff effects Procurement improvements

△13 Decrease in income

△2 +2

Cost improvement Other Decreased sales volumes

△2

Selling prices (Discounts) Selling prices

△12 +4 △3 Raw material △1

Foreign exchange

+1

Springs business

(Analysis of changes at North American subsidiaries)

FY2019 forecast

• IV. Analysis of Changes in Operating Income by Segment

FY2018 result

FY2018 results FY2019 forecasts

<FY2019 forecasts>  Materials prices have recently stabilized.  We continue to negotiate with manufacturers to reflect rising costs in prices paid by customers. However, we do not believe that we will be able to offset 100% of the cost

• increases. (+JPY300 million)

 Discounts are currently at typical levels, based on contracts with customers (△JPY100 million).  We expect to achieve cost reduction effects as planned in capital investments by dispatching production improvement teams to resolve production problems (+JPY300 million). <FY2018 results>  Materials procurement costs rose due to spikes in the market prices of materials. Spurred by steel import restrictions, materials prices rose when we switched to fallback manufacturers following the bankruptcy of a highly competitive stabilizer materials manufacturer. These events resulted in a decrease of JPY1.2 billion in income.  We were able to reach agreement with some manufacturers

• n reflecting rising material prices in selling prices. However,

the results amounted to a mere JPY400 million.  Discounts of JPY300 million include JPY100 million in compensation to secure future business.  While we had planned to cut costs by adopting new equipment, costs worsened due to problems in starting up the equipment.  Some steel import tariffs from prior to authorization were not refunded, resulting in losses of JPY200 million.

(JPY100M) (JPY100M) FY2017 result FY2018 result

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Effect of decreased profits in the Springs business

(Supplemental information on results and forecasts for North America)

 Impact of rising materials prices

• The higher materials prices encountered last year affects the entire industry. Some competitors have

announced a partial withdrawal from US production.

• For this reason, customers are in a more receptive frame of mind than usual. Some customers have

proposed making up for rising materials prices by placing orders for new business.

 Orders received

• Orders received slowed temporarily due to production disruptions following the process of plant

closures and consolidation that began after the 2008 financial crisis. Sales volumes have decreased recently.

• Currently, production is stable, supply issues have been resolved, and relationships with customers

have improved. Proactive sales efforts leveraging our lightweight technologies have led to orders

• received. Sales appear to have bottomed out from FY2018 to FY2019.

 Effects of capital investment

• Problems have emerged despite capital investments intended to cut costs, due in part to issues with

the delivery of materials caused by import restrictions. We dispatched an improvement team, thereby resolving the issues. We expect to see the results of improvements this period.

• However, under the current condition of decreased sales, these effects will be limited. If we can

boost sales, line utilization would improve, and the resulting cost savings would improve income.

• IV. Analysis of Changes in Operating Income by Segment

0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5 FY15実 FY16実 FY17実 FY18実 FY19見込 FY20見込 FY21見込 FY22見込

【北米自巻】 売上本数推移 （2015年を１とした場合）

FY15 result FY16 result FY17 result FY18 result FY19 forecast FY20 forecast FY21 forecast FY22 forecast

North American automotive coil springs sales volume trend (2015 level: 1)

0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5 FY15実 FY16実 FY17実 FY18実 FY19見込 FY20見込 FY21見込 FY22見込

【北米スタビ】 売上本数推移 （2015年を１とした場合）

FY15 result FY16 result FY17 result FY18 result FY19 forecast FY20 forecast FY21 forecast FY22 forecast

North American stabilizer sales volume trend (2015 level: 1)

SLIDE 24

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1

Decreased sales volumes Raw material prices Other

△2 △7 +11 △1 +2

Quality and cost improvements R&D expenses, depreciation

4

Increased sales volumes Selling prices Other

+1 △3 △5 +6 +2 △1

Quality and cost improvements Raw material prices R&D expenses, depreciation

Formed & Fabricated Products business

(FY2018 results and FY2019 forecasts)

(JPY100M)

FY2017 result FY2018 result

Sales 114 Sales 108

4

FY2018 results

FY2018 result FY2019 forecast

Sales 115 Sales 114

Selling prices

4 (JPY100M)

FY2019 forecasts

• IV. Analysis of Changes in Operating Income by Segment

<FY2018 results>  Net sales improved as stronger prices for cast steel and powdered products made up for lower sales volumes of defense-related maritime products.  Operating income increased as factors such as revised selling prices offset lower sales volumes and rising raw material prices. <FY2019 forecasts>  We project higher net sales based on rising sales volumes of defense-related maritime products and turbocharger-related

• products. This is despite the negative effects of low alloy

surcharge sale prices on sales.  Due to increased sales volume and cost improvements, we project operating income to remain largely unchanged from last year. This is despite rising costs at the mother plant in Chiba.*

* This refers to a model plant intended to deploy, primarily to

• verseas plants, skills and knowledge accumulated using

equipment such as VIM and various testing and trial production lines at the Chiba Works.

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4

Decreased sales volumess Profitability of

• rders awarded

2 +1

Other

△1

Product lineup Electric power machinery inventory revaluation losses

△2

Machinery business

(FY2018 results and FY2019 forecasts)

FY2017 result FY2018 result <FY2019 forecasts>  Despite harsh market conditions, we project higher net sales due to orders received for products related to

• ffshore wind power generation.

 Due to factors such as sales of products related to offshore wind power generation, we project operating income to remain largely unchanged from the previous year.

Sales 93 Sales 93

<FY2018 results>  Net sales were largely unchanged from the previous year. Sales of industrial machinery such as steel-making machinery offset decreases in sales of gas turbine parts and forming machinery.  Operating income fell due to inventory revaluation losses

• n electric power machinery.

FY2019 forecasts FY2018 results

• IV. Analysis of Changes in Operating Income by Segment

2

Increased sales volumes

△1 +1

Profitability of

• rders awarded

3

Electric power machinery inventory revaluation losses

△1

Product lineup

+2

Other Sales 100 Sales 93

(JPY100M) (JPY100M)

FY2018 result FY2019 forecast

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• V. Concise Overview of the Machinery Business

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

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Concise overview of the Machinery business

• 1. History

Comprehensive manufacturing equipment engineering company committed to deploying reliable technological capabilities to build the future Meeting diverse customer needs by fusing engineering and manufacturing

• V. Concise Overview of the Machinery Business

Summary of the Machinery business

• 2. Strengths

Engineering

• Structural and mechanical design
• Hydraulic technologies
• Electronic technologies

Manufacturing

• Boiler manufacturing, machining
• Machinery assembly
• Adjustment, trial operations

Functions similar to those of major heavy equipment manufacturers

• Comprehensive array of services ranging from

design through delivery

• Handling of large-scale products
• Process management capabilities

Facilities Aerial view of main plant Mitsubishi Nagasaki Machinery Mfg. embarked on the machinery business in 1975, following its spin off as an independent company from the machining and steelworking machinery divisions of the

Nagasaki Steel Works of Mitsubishi Steel Mfg., whose

predecessor was the Nagasaki Steel Works of Mitsubishi Shipbuilding & Engineering established in 1919.

Mitsubishi Heavy Industries Nagasaki Steel Works of Mitsubishi Shipbuilding & Engineering Mitsubishi Heavy Industries Nagasaki Steel Works of Mitsubishi Heavy Industries Nagasaki Steel Works of Mitsubishi Steel Mfg. Mitsubishi Steel Mfg. Mitsubishi Nagasaki Machinery Mfg.

Shanghai Nagasaki Isahaya Osaka Tokyo Chiba

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27

Concise overview of the Machinery business

• V. Concise Overview of the Machinery Business
• 3. Primary

products

(FY2014-FY2018 results)

• 4. Constituent

ratios of sales Machinery Steel structural products

Casting/metalworking machinery Environmental/recycling Petrochemicals Offshore equipment

Electric power equipment

Ring rolling mill

Various formed ring products

Hot casting press

• Turbine rotor
• Roll for use in

steel rolling equipment Magnetic separator, anti- vibration equipment

High pressure vessels, etc.

Steelmaking machinery

Upper part of revolving furnace, etc.

SEP equipment

SEP: self-elevating platform Marine decelerator

Gas turbine cylinder

Other steel structural products

Dredging buckets, etc. Other steel structural products Casting/metalworking machinery Machinery Environmental/ recycling Petrochemicals Steelmaking machinery Offshore equipment Electric power equipment Steel structural products

Exports: 20%

Other steel structural products Casting/metalworking machinery Machinery Environmental/ recycling Petrochemicals Steelmaking machinery Offshore equipment Electric power equipment Steel structural products

Exports: 25% (FY2021 plans)

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28

Concise overview of the Machinery business

• V. Concise Overview of the Machinery Business

・Example of magnetic separator line package <Examples of synergies among businesses>

• 5. Growth strategies <Focal points, priority measures, R&D, capital investment>

・ Growth by strengthening existing businesses

• Improving performance of forming machinery (e.g., ring

mills)

• Establishing high performance automated ring rolling controls
• Establishing expertise on ring rolling of formed products
• Establishing non-contact measuring technologies

・ Growing environmental and recycling businesses

• Deployment of anti-vibration equipment/magnetic

separator in China

• Developing anti-vibration equipment for high-speed presses
• Developing selection line packages by adopting color separator

・ Responding to demand for renovation of aging equipment

• Sales expansion activities targeting the steel production

equipment and petrochemical plant fields

・ Utilizing core technologies to advance into new fields and growth industries

• Super-high pressure machinery
• Machinery related to offshore wind power generation

・ Improving strength and flexibility by strengthening production structures

• Super-high pressure pump equipment
• Large-scale turning equipment
• Production preparations in China (MSM Ningbo Spring Co., Ltd.)
• Preparations for sub-plant operation

・ Enhancing synergies among businesses

Super-high pressure machinery

Super-high pressure double-pipe (for LDPE) Self-elevating platform equipment

• Super-high pressure double-pipe materials
• Springs for anti-vibration equipment

Support roll stand Spring grinding equipment Vacuum gas removal equipment Lower tank Inline press

・Strengthening the performance of forming machinery

Ring mill internal tester

Offshore wind power generation machinery

Handling manipulator Non-contact measuring system

Recovery of nonferrous metals Stainless steel separator Nonferrous metal separator Iron recovery Electro-magnetic suspended separator Drum type magnetic separator Pulverizer Auto scrap Discarded consumer electronics Stainless steel recovery Recovery of miscellaneous materials Iron recovery

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• VI. Progress with the 2016 Mid-term Business Plan

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

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Mid-term Business Plan: Introduction

• Declining revenues from existing businesses due to the

changing business environment make achieving targeted income difficult.

• We plan to move forward rapidly to achieve recovery in
• ur existing businesses.
• We have made steady progress on the three priority

policies of the Mid-term Business Plan.

 Creating added value from materials in the Formed & Fabricated Products business  Further enhancing the business model of producing and processing special steel bars and harvesting the results of efforts in Indonesia  Becoming a global supplier in the Springs Business

• We recognize our course of action for the Formed &

Fabricated Products and Special Steel Bars businesses to be correct.

• Given current conditions, we must reassess our strategy

to globalize Springs.

• VI. Progress with the 2016 Mid-term Business Plan

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31

Mid-term Business Plan: Progress on three priority policies ①

R&D on advanced technologies Training engineers Enhancing the global development infrastructure Improving technological capabilities, enhancing quality control

Research and Development Center

• Adoption of VIM furnace

To be completed in second half of 2019

• Adoption of precision cast steel

production line

To be completed in first half of 2019

• Adoption of gas atomizer

equipment

To be completed in first half of 2020 Considering adoption of 3D printers

• Developing heat-

resistant steel

(for special high-temperature needs)

• Developing gas atomizer

powders (powders for

metallic 3D printing use)

• Developing magnetic

materials

Vacuum induction melting furnace

The course of action for the Formed & Fabricated Products business has been demonstrated to be correct. We will maintain our efforts to strengthen this business as the third pillar of our business.

• We will also streamline and consolidate existing businesses and focus on expanding sales of turbo parts, but without advancing

into turbo assemblies.

• In cooperation with the Research and Development Center, the Chiba Works has been established as the mother plant for the

Formed & Fabricated Products business.

• We will advance with the development of high performance powders and heat-resistant steel by adopting vacuum induction

melting (VIM), gas atomizer equipment, and cast steel trial production lines.

Mother plant

Name: Advanced Materials Center

Creating added value from materials in the Formed & Fabricated Products business

The roles of the mother plant (AM Center)

• VI. Progress with the 2016 Mid-term Business Plan

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Mid-term Business Plan: Progress on three priority policies ②

• Indonesia business conditions

 Despite some difficulties after securing major status, conditions are improving.  The shift to local production has been completed as planned for flat steel for leaf spring use. Progress is also being made on external sales.  Results fell far short of plans for round bars, in part due to delays in customer approval.  Orders received from Japan-affiliated manufacturers and parts manufacturers are growing, thanks in part to having secured JIS certification.  Progress is being made on achieving high utilization rates and high profitability through mutual supply with Japan.  JATIM's interest burdens are high. Measures to reduce interest are being studied. Efforts will also be made to strengthen its financial makeup.

Further enhancing the business model of producing and processing special steel bars and harvesting the results of efforts in Indonesia

• MSR conditions

 Progress is being made on investments in MSR renovation and strategic investments, partly in response to large-scale renovations at Hokkai Iron & Coke Corporation from FY2018 through FY2020.

• Future courses of action for the steel business

 Maintaining an internal source of steel other than the Muroran Works is essential to the growth of the steel business. Getting JATIM quickly on track.  In addition to maximizing synergies with MSR, JATIM will further strengthen synergies with the Springs business (leaf springs, stabilizers).  We should see the results of strengthened ties with MSR and Nippon Steel at Muroran from FY2021.

• VI. Progress with the 2016 Mid-term Business Plan

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Mid-term Business Plan: Progress on three priority policies ③

• Becoming a global supplier in the Springs business
• Business conditions have changed massively.

 Impact of protectionism

• US invocation of Section 232, Canadian retaliation, European safeguards
• Enforcement of local procurement quotas under new NAFTA (USMCA)
• Rapid rise in North American market prices

 Trend away from globalization among automakers

• Withdrawal, curtailment of operations by Japanese and American automakers in Europe
• Decreased production of small cars in the US, Canada, and Mexico by Japanese and American

automakers (cancelled plans to open plans, plant closures)

• Contraction of standardization on global platforms
• At the same time, reports indicate that Renault and FCA are engaged in merger talks.

 Demands for further weight reductions

• Parts manufacturers face growing demand for weight reduction in response to more rigorous

environmental regulations and growing numbers of on-board devices for CASE compatibility.

• While sales expansion, primarily in Japan and the US, has proceeded based on the

development of lightweight technologies, further weight reductions will require the use of hollow structures and high-stress performance.

• Future courses of action

 Prioritizing improvement and enhancement of existing facilities and facilities in markets into which we have advanced already.  Decisions concerning further movement into new markets will be made after ascertaining conditions.  We will also consider consolidating facilities to improve profitability.  The Springs business will work with steel sections and the Research and Development Center to achieve weight reductions, restructuring the materials supply network, and expanding local procurement.  The passenger vehicle market poses significant uncertainty. We will continue to expand the leaf spring and coil spring businesses, targeting commercial vehicles and construction machinery, which enjoy deep synergies with the steel business.

• VI. Progress with the 2016 Mid-term Business Plan

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Mid-term Business Plan: Progress summary

• VI. Progress with the 2016 Mid-term Business Plan
• We will continue to advance efforts to expand the Formed

& Fabricated Products business into the third pillar of our businesses.

• Maintaining an internal source of steel other than the

Muroran Works is essential to the growth of the steel

• business. We plan to get JATIM quickly on track and

pursue steady investments to achieve our targets at MSR.

• The biggest challenge remains the Springs business, in

which business conditions have changed dramatically. We will move forward with a review of the mid-term business plan after briefly pausing to ascertain the impact

• f environmental changes and the state of recovery of

existing businesses in the first half.

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Note on forward-looking statements These materials are meant solely to provide investors with information and are not to be interpreted as

• solicitations. The forecasts provided in these materials are based on targets and projections and do not

constitute promises or guarantees of future performance. Please refer to this information with the understanding that the Company’s future performance may differ from this business outlook. While these earnings materials were prepared based on data believed to be reliable, we cannot guarantee their accuracy

• r reliability. The Company assumes no liability for these materials, regardless of the purpose for which they

are used by investors. We encourage all investors to make their final investment decisions based on their

• wn judgment.