[PPT] - Mitsubishi Steel Mfg. Co., Ltd. Financial Results for the First PowerPoint Presentation

SLIDE 1

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

November 22, 2018

SLIDE 2

1

I. Message II. FY2018 1st H Results

III. Full-year Forecasts for FY2018
IV. Concise Overview of the Formed &

Fabricated Products Business V. Progress with the 2016 Mid-term Business Plan

I. Message

SLIDE 3

2

II. FY2018 1st H Results

I. Message II. FY2018 1st H Results

III. Full-year Forecasts for FY2018
IV. Concise Overview of the Formed &

Fabricated Products Business V. Progress with the 2016 Mid-term Business Plan

SLIDE 4

3

Summary

FY2017 FY2018

1st H result Full-year result 1st H forecast* 1st H result

vs. initial

forecast Year-on-year change

Net sales

579 1,187 650 631 △19 52

Operating income

17 32 13 8 △5 △9

Ordinary income

15 28 9 3 △6 △12

Net income attributable to

wners of parent

company

8 29 7 3 △4 △5

 Net sales grew, due mainly to increased domestic sales volumes and rising selling prices in the Special Steel Bars business and the addition of the Indonesian steel joint venture Jatim and German spring manufacturing company Ahle to the ranks of consolidated subsidiaries.  Operating income fell due to losses in the Springs business and losses at the newly consolidated subsidiary Jatim.  Foreign exchange losses at Jatim, attributable to the devaluation of the Indonesian rupiah, significantly affected ordinary income.  Lower operating income and lower ordinary income resulted in lower net income.  Net sales fell short of expectations due to Jatim’s results. Operating income failed to reach the target due to poor performance at Jatim and in the Springs business. (JPY100M)

* Figures announced during announcement of results on April 27, 2018 Certain forecasts of business performance were revised on July 30, 2018. (Operating income: JPY900M; ordinary income: JPY300M; net income attributable to owners of parent company: JPY400M)

II. FY2018 1st H Results

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4

Other Increased sales volumes Cost improvements

△5 +2 +25 △28 △1 +1 △3

R&D expenses, depreciation Jatim added to consolidated subsidiaries* Raw material prices Selling prices

579

8 17

Factors contributing to changes in net sales and

perating income (YoY comparison)

1st H FY2017 result 1st H FY2018 result

Operating income

579

Jatim and Ahle added to consolidated subsidiaries

+39 +16 +24 △27

Selling prices

631

Increased sales volumes Consolidation adjustments, etc.

Net sales

(JPY100M) (JPY100M)

1st H FY2018 result 1st H FY2017 result * All factors related to changes in profits/losses due to Jatim are included under “Jatim added to consolidated subsidiaries.”

II. FY2018 1st H Results

SLIDE 6

5

(JPY100M)

Net sales/operating income by segment

FY2017 FY2018

1st H result 1st H forecast 1st H result

Difference from forecast

Year-on-year change

Special Steel Bars Net sales

257

334

317 △17

60

Operating income

11

6

11

5

Springs Net sales

24１

243

247

4

6

Operating income

5

5 △5

△10

Formed & Fabricated Products Net sales

49

54

58

4

9

Operating income

△0

1

Machinery Net sales

40

43

37 △6

△3

Operating income

2

1 △1

1

Other Net sales

20

19

20

1 Operating income

1

Consolidated adjustments Net sales

△28

△43

△48

△5

△20

Operating income

△0

Total Net sales

579

*650

631 △19

52

Operating income

17

*13

8 △5

△9

* Figures announced during announcement of results on April 27, 2018 Certain forecasts of business performance were revised on July 30, 2018 (operating income: JPY900M).

 Net sales grew in the Special Steel Bars business. Operating income in the Special Steel Bars business remained more or less unchanged from the previous year, as earnings from domestic businesses offset Jatim’s operating

losses. Income in the Springs business fell significantly.

 A comparison to initial forecasts shows operating income exceeded expectations in the Special Steel Bars business but fell well short of expectations in the Springs business.

II. FY2018 1st H Results

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6

Factors contributing to changes in operating income in each segment (YoY comparison)

(JPY100M)

1st H FY2017 result 1st H FY2018 result

(JPY100M)

 Net sales grew thanks to the addition of Jatim as a subsidiary and rising selling prices and sales volume growth, driven by strong demand in the domestic construction machinery industry.  Operating income  Domestically, factors such as increased volumes and adjustments to selling prices to reflect the rising prices of raw materials (including auxiliary materials) not reflected in the previous year, led to increased earnings (up JPY500M domestically). The effects of the Hokkaido Eastern Iburi Earthquake resulted in operating losses of JPY140M and extraordinary losses of JPY30M.  Jatim, made a consolidated subsidiary this period, recorded operating losses (△JPY500M) due to its failure to achieve sales targets.

売価

Special Steel Bars Business Springs Business

Sales 241 Sales 247

Depreciation, R&D expenses

Increase in revenues attributable to Ahle becoming a subsidiary (JPY800M) Increase in revenues attributable to Jatim becoming a subsidiary (JPY3.1B)

11

Inventory valuation

f products

Depreciation, R&D expenses

原材料価格

Product lineup

Cost

improvements

△5 +1 +20 △19 +4 △1 +2 △2 △0

Increased sales volumes Other Not reflected in previous period

11

 Due to lower sales at North American subsidiaries and

ther factors, sales grew only slightly despite the

contributions of new subsidiary Ahle to overall sales figures.  Operating income fell for the following reasons:  Tariff effects: Tariffs rose due to the imposition of supplemental tariffs in North America (under Section 232

f the US Trade Expansion Act and retaliatory tariffs by

Canada).  Prices of raw materials: A change in suppliers made necessary by the withdrawal of a producer of materials for solid stabilizers in North America and the effects of rising prices of materials for hollow stabilizers  Cost improvements: Rising costs due to difficulty in

btaining raw materials and the resulting production

disruptions, as well as rising costs due to problems with startup of production facilities

II. FY2018 1st H Results

Sales 317 Sales 257

Jatim

Selling prices Raw material prices

1st H FY2017 result 1st H FY2018 result

5

Raw material prices △1

(N. America) Decreased sales volumes

Procurement improvements △1 ±0 △2 Other Tariff effects △1 +1 Product lineup △4 Cost improvements (N. America) △1 △1

(Other than N. America) Higher sales volumes

▲5

SLIDE 8

7

0.7  Sales grew due to progress with improvements in selling prices and expanded sales, including new sales expansion efforts.  Operating income grew. Measures to reflect alloy surcharges in selling prices and other factors did more than offset rising costs attributable to factors such as rising raw material prices.  Lower sales of forming machinery resulted in lower sales. This was despite increased sales of products in new business fields, such as ultra-high- pressure pipes for use in polyethylene production.  Operating income grew thanks to sales of products in new business fields.

Factors contributing to changes in operating income in each segment (YoY comparison)

0.2

Quality and cost improvements Increased sales volumes Raw material prices Other

+0.6 +4.9 △4.5

△0.1 △0.3 △0.1

Depreciation, R&D expenses Selling prices

0.4

Decreased sales volumes Product lineup Raw material prices +0.4

△0.4 △0.1 +0.3

Depreciation, R&D expenses

0.6

II. FY2018 1st H Results

(JPY100M) (JPY100M)

Sales 58 Sales 49 Sales 37 Sales 40

Formed & Fabricated Products Business Machinery Business

1st H FY2017 result 1st H FY2018 result 1st H FY2017 result 1st H FY2018 result

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8

 The addition of Jatim as a consolidated subsidiary improved the share of loss of entities accounted for using the equity method, but its interest burden increased. In addition, the devaluation of the Indonesian rupiah led to exchange losses.  Cross-shareholdings and land were sold.  Since Jatim recorded losses, net losses attributable to non-controlling interests were added to final gains/losses.

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

FY2017 FY2018 1st H result 1st H result

Year-on-year change Operating income

17 8 △9

Non-operating income

△2 △5 △3

Share of loss of entities accounted for using the equity method

△3 3

Interest paid

△2 △5 △3

Translation (exchange profit and loss)

1 △3 △4

Ordinary income

15 3 △12

Extraordinary income/loss

1 3 2

Gain on sale of equities

2 2

Gain on disposal of fixed assets

1 2 1

Losses due to disasters

△0

△0

Net income before income taxes and other adjustments

16 6 △10

Tax expenses

△8 △8

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

△1 4 5

Net income attributable to owners of parent company

8 3 △5

* Amount corresponding to gains/losses recorded by Jatim and others attributable to non-controlling interests We own 56.2% of shares of Jatim’s stock.

II. FY2018 1st H Results

(JPY100M)

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9

Business indicators and financial conditions

FY2016 1st H result FY2017 1st H result FY2018 1st H result

Total assets

(JPY100M)

1,271 1,346 1,471

Net assets

(JPY100M)

636 667 702

Equity capital ratio

(%)

45.0 45.4 41.8

ROS

(%)

1.4 2.7 0.5

ROE

(%)

4.7 2.7 0.9

Dividends*

(JPY)

25.0 25.0 25.0

Dividend payout ratio

(%)

28.4 47.4 140.1

 The equity capital ratio decreased as a result of making Jatim a consolidated subsidiary.  Our dividend policy calls for continuing and stable dividend payments. While the dividend payout ratio for this first half is high, in light of profit and loss forecasts for the second half and next year, we will continue to pay dividends of JPY25/share.

II. FY2018 1st H Results

(JPY100M)

* We implemented a share consolidation (on the basis of 1 for every 10 shares) on October 1, 2017. Midyear dividend figures for FY2016 and FY2017 above assume the share consolidation had taken place at the start

f each consolidated fiscal year.

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10

III. Full-year Forecasts for FY2018

I. Message II. FY2018 1st H Results

III. Full-year Forecasts for FY2018
IV. Concise Overview of the Formed &

Fabricated Products Business V. Progress with the 2016 Mid-term Business Plan

SLIDE 12

11

（億円）

Full-year performance forecasts (revised Nov. 6)

FY2017 FY2018 Result Initial forecast* Revised forecast Difference from forecast Year-on-year change Net sales

1,187 1,400 1,340 △60 153

Operating income

32 50 35 △15 3

Ordinary income

28 45 24 △21 △4

Net income attributable to owners

f parent company

29 30 16 △14 △13

* Figures announced during announcement of results on April 27, 2018 Forecasts of business performance were also revised on July 30, but full-year forecasts remain unchanged.

 Revenues are expected to grow since demand conditions are expected to remain strong, while Jatim and Ahle have been made consolidated subsidiaries.  Operating income is expected to increase only slightly, due to the effects of production disruptions arising from difficulties in securing raw materials at US subsidiaries in the Springs business and the anticipated effects of Jatim’s losses on the second half.  Ordinary income is expected to fall from the first half due to interest paid by Jatim and other factors. As a result, net income is expected to decline.  In light of these circumstances, full-year forecasts of sales and profits were revised downward on November 6.

(JPY100M)

III. Full-year Forecasts for FY2018

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12

Other Jatim added to consolidated subsidiaries* Cost improvements

35 △10 +1 +61 △44 △4 +5 △6

Increased sales volumes R&D expenses, depreciation Raw material prices Selling prices

32

FY2017 result FY2018 forecast

1,187

Jatim and Ahle added to consolidated subsidiaries

1,340

+96 +21 +60 △24

Selling prices Increased sales volumes Consolidation adjustments, etc.

FY2018 forecast FY2017 result

(JPY100M) (JPY100M)

Factors contributing to changes in net sales and

perating income (YoY comparison)

Operating income Net sales

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

III. Full-year Forecasts for FY2018

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13

FY2018 initial forecasts

1st H 2nd H Full year Difference between 1st and 2nd H

Special Steel Bars Net sales

334 378 712 44

Operating income

6 22 28 16

Springs Net sales

243 260 503 17

Operating income

5 9 14 4

Formed & Fabricated Products Net sales

54 60 114 6

Operating income

△0 3 3 3

Machinery Net sales

43 63 106 20

Operating income

2 2 4

Total Net sales

650 750 1,400 100

Operating income

13 37 50 24

* Initial forecasts: Figures announced during announcement of results on April 27, 2018

Regarding initial operating income forecasts (differences in

perating income between the first and second half)

Initially, we forecast marked growth in operating income during the second half. (Main factors driving forecasted improvements in the second half vs. the first half are described below.)  Special Steel Bars business: +JPY1.6B  2nd H progress on revising domestic selling prices: +JPY1.1B  Improvements in Jatim’s profits/losses: +JPY500M  Springs business: +JPY400M  Decline due to effects of North American shutdown and demand reductions after the Chun Jie holidays in Ningbo in the first half and progress in Mexico and year-end demand in Japan in the second half: +JPY200M  Seasonal factors (tire chains and other parts): +JPY200M  Formed & Fabricated Products business: +JPY300M  Productivity improvements generated by consolidation of turbine wheel plants in Thailand, selling price improvements, etc.: +JPY300M

(JPY100M)

III. Full-year Forecasts for FY2018

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14

Performance forecasts by segment (vs. initial forecasts)

FY2017

FY2018

Result Initial forecast* Revised forecast Difference from forecast Year-on-year change Special Steel Bars Net sales

529 712 670

△42 141

Operating income

16 28 27

△1 11

Springs Net sales

479 503 515

12 36

Operating income

9 14 1

△13 △8

Formed & Fabricated Products Net sales

108 114 115

1 7

Operating income

1 3 4

1 3

Machinery Net sales

93 106 90

△16 △3

Operating income

4 4 2

△2 △2

Other Net sales

39 37 39 2

Operating income

1 1 1

Consolidated adjustments Net sales

△61 △72 △89 △17 △28

Operating income Total Net sales

1,187 1,400 1,340

△60 153

Operating income

32 50 35

△15 3

 Sales in the Special Steel Bars business are expected to fall short of initial forecasts due to Jatim’s losses. However, with earnings from domestic businesses expected to offset Jatim’s losses, operating income is expected to achieve the initial forecasts.  Profits in the Springs business are expected to fall, contrary to initial forecasts. (JPY100M)

* Figures announced during announcement of results on April 27, 2018

III. Full-year Forecasts for FY2018

SLIDE 16

15

16

Inventory valuation

f products

Depreciation, R&D expenses Raw material prices

28 △27 +1 +21 △3 +3 △1 △15

Increased sales volumes Other

△1 +27

Selling prices

+7

Product lineup

Cost

improvements

16

Inventory valuation

f products

Depreciation,

R&D expenses

Raw material prices

27 △10 +1 +21 △28 +11 △3 +4 △3 △8 +26

Increased sales volumes Other Selling prices Product lineup Cost improvements

Special Steel Bars business

Factors contributing to changes in operating income in each segment

[Initial forecasts]  Net sales  With continued booming demand, particularly in construction machinery, sales volumes are expected to remain high.  Selling prices will continue to reflect rising raw material prices.  Earnings will increase due to factors including making Jatim a subsidiary.  Operating income  In addition to price adjustments not reflected in the previous period, selling prices in this period will reflect increases in raw material prices.  The product lineup will be reviewed.  Progress with cost improvements (such as improvements in utilization rates by increasing contract production volumes) is expected to generate increased earnings. [Revised forecasts]  Net sales  While sales volumes and selling prices are expected to increase thanks to booming demand, primarily in construction machinery, net sales will fall below the initial forecast due to factors including Jatim’s failure to achieve sales volume targets.  Operating income  Although growth in shares of sales accounted for by highly profitable materials (product lineup) and cost improvements will boost domestic earnings above the initial forecast, operating income is expected to be in line with the initial forecast, due to the strong impact of factors including lower sales volumes at Jatim. * Initial forecasts: Figures announced during announcement of results on April 27, 2018 Sales 529 Sales 712 Sales 529 Sales 670

Initial forcasts Revised forcasts

Not reflected in previous year Not reflected in previous year

(JPY100M)

Jatim Jatim

FY2018 Initial forecast 1st H FY2017 result FY2018 Revised forecast 1st H FY2017 result

III. Full-year Forecasts for FY2018

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16

5 10 通期実績計画見通し通期計画売上量（丸鋼）売上量（平鋼）

2017 2018 2019

(10,000 t)

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

Special Steel Bars business

Jatim performance and projections

Overview of Jatim

2019 projections

Jatim is the only Special Steel manufacturer in Southeast Asia that handles all processes from steelmaking to rolling. Jatim has begun producing high-quality round bars, for which local procurement demand is strong, based on its production of flat steel for leaf spring use. The subsidiary is currently growing its sales and secured Japan Industrial Standard (JIS) certification in October 2018.

Flat steel: Plans call for completing the switch from MSR materials to in-house materials and achieving the operational target at Jatim as the major production base. Round bars: Progress is expected with both approval

f materials and the resulting orders
awarded. Leveraging Jatim’s JIS

certification, activities to achieve exports to Japan will also move forward. 2018 projections Flat steel: Approval of the rolling process is complete and steady progress has been made on switching from Muroran (MSR)

materials. Nevertheless, sales are expected to be lower than

planned due to inventory adjustments by buyers. Round bars: Sales increased YoY thanks to progress with sales to small- scale users. However, delays in the approval of materials by major users and other factors have affected results.

With preparations for manufacturing nearing completion, the current focus is on sales expansion and approval activities.

Use of flat steel: Leaf springs used in automotive suspensions Uses of round bars: Crankshafts, cam shafts, construction machinery crawler parts

Sales volume Product line

Full-year result Planned Projection Full-year plan Flat steel for leaf spring use Special steel round bars

III. Full-year Forecasts for FY2018

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17

Cost improvements (N. America) Cost of raw materials ±0

△1 +2 +5 △10 △1

△1 △2

Decreased sales volumes (N. America)

1

(Other than N. America) Increased sales volumes Procurement improvements Depreciation, R&D expenses

9

Selling prices Tariff effects Cost improvements (N. America) Raw material prices

△3 +2 +3 △3 +6 △2 +2 14

(Other than N. America) Increased sales volumes Procurement improvements Depreciation, R&D expenses

9

Selling prices Decreased sales volumes (N. America)

Springs business

Factors contributing to changes in operating income in each segment

FY2017 result FY2018 Initial forecast FY2017 result FY2018 Revised forecast

Sales 479 Sales 503 Sales 479 Sales 515

Initial forecasts Revised forecasts

[Initial forecasts]  Net sales Sales growth resulting from addition of European subsidiary  Operating income Increased earnings due to cost improvements and procurement improvements Note: Customer approval of capital investment in North America was completed during FY2017, and mass production began. The following improvements are expected in FY2018:

Improved material yields due to the adoption
f cold drawing equipment for coil spring

materials

Production brought in-house based on the

adoption of stabilizer coating equipment (Increased earnings expected due to switch to lower-cost materials)

Increased adoption of Jatim materials

instead of domestic materials for leaf springs

Cost savings achieved by changing suppliers

[Revised forecasts]  Net sales Largely in line with initial forecasts  Operating income Revised downward from initial forecasts due to the following main factors: ① Tariff effects [described on following pages] ② Raw material prices [described on following pages] ③ Cost improvements (North America) [described

n following pages]

Described below are other factors affecting forecast figures: Decreased sales: Effect of a smaller range in decreased revenue in North America Procurement improvements: Delay in switching to Jatim materials for leaf springs

(JPY100M)

* Initial forecasts: Figures announced during announcement of results on April 27, 2018

III. Full-year Forecasts for FY2018

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18

Effects of decreased earnings in Springs business (1)

Tariff effects, raw material prices, cost improvements (North America)

① Tariff effects Impact on full-year performance: △JPY200M

 Section 232 of the US Trade Expansion Act (invoked March 23, 2018)  Retaliatory tariffs by Canada against the US (invoked July 1, 2018)  North American subsidiaries  US subsidiaries: Importing some materials from Japan  Canadian subsidiary: Importing from US materials makers Importing some materials from Asia, including Japan, via the US

① Applications for exemption Section 232 of the US Trade Expansion Act ⇒ Approved Retaliatory tariffs by Canada against the US ⇒ Application process underway ② Shifting to local procurement ③ Changing shipping routes The Canadian subsidiary has switched to routes detoured to avoid traveling through the US for materials previously imported via the US. Although measures have been implemented to minimize the effects of tariffs, we have sustained an impact of △JPY200M. This is because tariffs

n imports before the application for exemption are not refunded.
III. Full-year Forecasts for FY2018

SLIDE 20

19

② Raw material prices Initial forecast: △JPY300M ⇒ Revised forecast: △JPY1B (vs. initial forecast: △JPY700M) ③ Cost improvements Initial forecast: +JPY600M ⇒ Revised forecast: △JPY100M (vs. initial forecast: △JPY700M)

Reasons for worsening situation ▪ Price of materials for hollow stabilizers grew rapidly due to increased domestic US demand resulting from restrictions

n imports of materials into the US.

Since previous fluctuations in raw material costs trended largely in tandem with fluctuations in demand, they were normally reflected in selling prices. However, the current change is due to extraordinary measures on the part of the US, resulting in a major gap between demand functions and cost fluctuations. We have as yet been unable to reflect the increased costs in our prices.

Note: For the hollow stabilizer business of North American subsidiaries, an index reflecting demand fluctuations is applied to material procurement prices, while an index reflecting cost fluctuations is applied to product selling prices.

Reasons for worsening conditions ▪ Worsening productivity due to small-lot production and other factors due to pressure on obtaining materials ▪ Improvement effects were not felt in the US due to worsening utilization rates vis-a-vis bringing the stabilizer coating process in-house and delays in switching the coil spring drawing process. ▪ Improvement effects were not achieved in Canada due to delays in switching to lower-priced materials for hollow materials (delay in customer approval). [Response and future outlook] ▪ With regard to worsening productivity attributable to instability in materials procurement, we have secured a new materials maker in Canada and are in the process of negotiating with customers for approving this new supplier. (Certain customers have already given their approval.) ▪ With regard to problems in starting up newly adopted equipment, an improvement support team is being dispatched from Japan to enhance the support structure. (Team members have already been dispatched.) ▪ The switch to lower-priced materials for hollow materials is complete. [Response and future outlook] ▪ Since the first half, we have proceeded with negotiations intended to address the fluctuations in materials market conditions, using the same indicator for product selling prices and material procurement prices. We have already reached agreement with certain customers. Negotiations with other customers continue. We expect to be able to resolve the impact of rising material prices in the second half.

Effects of decreased earnings in Springs business (2)

Tariff effects, raw material prices, cost improvements (North America)

III. Full-year Forecasts for FY2018

SLIDE 21

20

1 △1 △0 Decreased sales volumes Selling prices Other

4 △6 +2 △1

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

+7 +2 1

Increased sales volumes Selling prices Other

3 +1 △１ △3 +2 △1

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

+3 +1

Formed & Fabricated Products business

Factors contributing to changes in operating income in each segment

[Initial forecasts]  Net sales Earnings are projected to increase due to revised selling prices for wear-resistant cast steel products and powdered products, in addition to increased

rders received for turbo-related parts beginning in

the second half.  Operating income Profits are expected to grow due to selling price revisions and a review of the surcharge system, as well as strengthened cost-cutting effects from the consolidation of turbine wheel plants. [Revised forecasts]  Net sales Sales of precision machined products and others are expected to decrease. However, these declines should be offset by measures such as revisions to selling prices of wear-resistant cast steel products and revisions to selling prices of powdered products through surcharges, so that sales are expected to be in line with the initial forecast.  Operating income In spite of increased raw material prices, operating income is expected to exceed the initial forecast due to spreading effects of price revisions for wear-resistant cast steel products and the effects

f increases in surcharges on powdered products

and magnetic products, among other factors. FY2017 result FY2018 Initial forecast FY2017 result FY2018 Revised forecast

Sales 108 Sales 114 Sales 108 Sales 115

Initial forecasts Revised forecasts

Revision of selling prices through surcharges

Revision of base prices Revision of base prices

Revision of selling prices through surcharges

(JPY100M)

* Initial forecasts: Figures announced during announcement of results on April 27, 2018

III. Full-year Forecasts for FY2018

SLIDE 22

21 4

Product lineup Profitability of

rders awarded

△0.5 +1 △0.5 △2 2

Decreased sales volumes Temporary inventory adjustment costs

4 +2 △2 4

Increased sales volumes Decreased profitability

f orders awarded

[Initial forecasts]  Net sales Sales growth is expected in new business fields, including sales of products related to

ffshore wind power generation.

 Operating income Profits/losses are expected to remain roughly the same as in the previous year due to the continuing slow demand for gas turbines and low profitability. [Revised forecasts]  Net sales Due to delays in receipt of large-scale orders related to offshore wind power generation, sales remain roughly the same as sales for the previous year.  Operating income Demand for gas turbines is expected to remain low. Temporary inventory adjustment costs may arise depending on future sales

trends. Earnings YoY are expected to decline.

FY2017 result FY2018 Initial forecast FY2018 Revised forecast

Sales 93 Sales 106 Sales 93 Sales 90

Initial forecasts Revised forecasts

FY2017 result

(JPY100M)

Machinery Business

Factors contributing to changes in operating income in each segment

* Initial forecasts: Figures announced during announcement of results on April 27, 2018

III. Full-year Forecasts for FY2018

SLIDE 23

22

31 30 H1 22

80 44 20 40 60 80 100 120 52 33 H2 60

H1 20

53 36

H2 22

Depreciation Capital investment

R&D expenses, capital investment, depreciation

FY2016 result FY2015 result FY2017 result FY2018 forecast

（億円）

8 11 18 5 10 15 20 25 30

FY2015 result FY2016 result FY2017 result FY2018 forecast

15 H1 8 H2 10

* Includes R&D-related depreciation.

 Research and development activities are proceeding in line with the mid-term business plan.  Steady progress with capital investments is underway toward the goals set in the mid-term business plan. However, construction timetables for facility expansions in Europe and advances into ASEAN markets have been adjusted to suit customer mass production schedules.

R&D expenses Capital investment, depreciation

Jatim: 7 Ahle: 1 Reduced by JPY2.3B vs. initial forecast (JPY10.3B)

(JPY100M) (JPY100M)

III. Full-year Forecasts for FY2018

SLIDE 24

23

FY2017 FY2018 Result Forecast Year-on-year change

Operating income

32 35 3

Non-operating income

△4 △11 △7

Share of loss of entities accounted for using the equity method

△4 4

Interest paid

△4 △10 △6

Translation (exchange profit and loss)

△2 △6 △4

Ordinary income

28 24 △4

Extraordinary income/loss

30 2 △28

Gains on step acquisitions

*1

25 △25

Gain on sale of equities

4 2 △2

Gain on disposal of fixed assets

1 1

Losses due to disasters

△0

△0

Net income before income taxes and other adjustments

58 26 △32

Tax expenses

*2 △29

△17 12

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

△0 7 7

Net income attributable to owners of parent company

29 16 △13

 Making Jatim a consolidated subsidiary improved the share of loss of entities accounted for using the equity method, but its interest burden increased. In addition, the devaluation of the Indonesian rupiah is expected to generate exchange losses.  Since Jatim recorded losses, net losses attributable to non-controlling interests were added to final gains/losses.

Full-year performance forecasts

(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. recorded a transfer from deferred tax assets. *3 Amount corresponding to gains/losses recorded by Jatim and others attributable to non-controlling interests

(JPY100M)

III. Full-year Forecasts for FY2018

SLIDE 25

24

Business indicators and financial conditions

FY2016 FY2017 FY2018 Full-year result Full-year result Full-year forecast

Total assets

(JPY100M)

1,351 1,537 －

Net assets

(JPY100M)

670 722 －

Equity capital ratio

(%)

44.7 40.7 －

ROS

(%)

3.1 2.4 1.8

ROE

(%)

5.9 4.7 2.6

Dividends*

(JPY)

60.0 60.0 60.0

Dividend payout ratio

(%)

26.3 31.8 57.7

 Our dividend policy calls for continuing and stable dividend payments. In light of profit and loss forecasts for the next year, we plan to pay dividends of JPY60/share.

(JPY100M)

III. Full-year Forecasts for FY2018

* We implemented a share consolidation (on the basis of 1 for every 10 shares) on October 1, 2017. Dividend figures for FY2016 and FY2017 above assume the share consolidation took place at the start of each consolidated fiscal year.

SLIDE 26

25

IV. Concise Overview of the Formed & Fabricated Products Business

I. Message II. FY2018 1st H Results

III. Full-year Forecasts for FY2018
IV. Concise Overview of the Formed &

Fabricated Products Business V. Progress with the 2016 Mid-term Business Plan

SLIDE 27

26

Concise overview of the Formed & Fabricated Products business

1. History
1919: Began manufacturing steel castings and forgings as the Nagasaki Steel Works of Mitsubishi Shipbuilding &

Engineering Co., Ltd.

1924: Began steel manufacturing in Aizu Wakamatsu, Fukushima Prefecture
1994: After expanding businesses involving the manufacture and sale of casting magnets into Thailand,

expanded into businesses including precision casting, precision machining, and turbine wheels

2. Shares of sales to domestic and
verseas markets (%)
5. Research and development

Creating added value from materials

3. Where its products are used
Plans call for establishing a mother plant for the Formed & Fabricated Products business at the

Chiba Works in cooperation with the Research and Development Center.

Developing high-performance powders and heat-resistant steel by adopting vacuum induction

melting (VIM) and gas atomizer equipment

Diverse materials (heat-resistant steel, wear-resistant steel, magnetic materials, corrosion-resistant steel)
Diverse processing technologies (casting, forging, powder metallurgy, cutting, polishing, heat treatment)

Overview of the Formed & Fabricated Products business

Vacuum induction melting (VIM) furnace

4. Strengths
IV. Concise Overview of the Formed & Fabricated Products Business

Japan Special steel

machined products 13%

Japan Japan Thailand Thailand Thailand Thailand

Cast-steel products 14%

FY2017 Japan: 54% Thailand: 46%

Magnetic products 9%

Special alloy powders 27% Precision cast products 21% Turbine wheels 2%

Mechanical parts (fan-shaped gear)

Special alloy powders Precision cast products Precision machined products

Smartphone components Engine cross-section Valve seats Turbocharger parts Fuel injector components

Precision machined products 14%

SLIDE 28

27

Support

Advancing current technologies and developing new materials and new products through utilization of the mother

plant and cooperation with the Research and Development Center to accelerate progress in line with the mid-term business plan slogan: Creating added value from materials

Enhancing competitive strengths, particularly in powdered products, turbocharger-related parts, and precision

machined products

Growth strategy

IV. Concise Overview of the Formed & Fabricated Products Business

Concise overview of the Formed & Fabricated Products business

Relationship between mother plant and manufacturing/development facilities

Thailand

Chiba

Mother plant

Cooperation

Chiba

Chiba Works

Companywide R&D base

Research and Development Center

Request Support Request Support Request Support Request Four roles of the mother plant

Technology transfer and problem solving

R&D for advanced technologies Training engineers Global environmental and safety management, quality control

Transfers of production technologies

verseas

Role as backup plant Developing and communicating new technologies Adopting new products and materials HR development for engineers from

verseas and Japan and strengthening

their technological capabilities

Overseas base for Formed

& Fabricated Products business

MSM(THAILAND)CO.,LTD.

 Precision casting mass production line  Precision machined products mass

production line

 Trial mass production line for

precision casting

 Vacuum induction melting (VIM)

furnace

 Gas-atomized powder line  Training engineers in precision

casting, precision machining, and metal powders

 Developing heat-resistant

steel (for turbocharger use)

 Improving high-frequency

properties of soft magnetic powders

 Water-atomized powder mass

production line

 Cast steel/ingot mass production

lines

Domestic base for Formed

& Fabricated Products business

Fukushima

Hirota Works

Gas atomizing Precision machining

SLIDE 29

28

I. Message II. FY2018 1st H Results

III. Full-year Forecasts for FY2018
IV. Concise Overview of the Formed &

Fabricated Products Business V. Progress with the 2016 Mid-term Business Plan

V. Progress with the 2016 Mid-term Business Plan

SLIDE 30

29

About Jatim

Despite advice from MSM, efforts to produce quality products were impeded by

cheap, shoddy equipment and materials and lack of understanding of special steel production.

Indo Prima Group discontinues special steel production.

1971: Jatim founded, begins production of steel bars for construction use 2008: Indo Prima Group seeks to produce special steel (flat steel) 2018: MSM’s first year as majority owner

Improving quality is the top priority.

Improvements in quality achieved; Japan Industrial Standard (JIS) certification earned.

Sales plans

While customers seek out Jatim materials, errors arise in estimating the time required for approval.

2019

Meetings with customers complete. Certain customers approve Jatim materials.
Agreement reached with customers on future approval process; approval periods

are estimated with high precision.

 The only special steel maker in the local market. Expectations from Japan- affiliated customers are very high.  JIS certification enables imports to Japan as well. Imports of small-size products in small lots lead to high operation and profitability for MSR.

2014: MSM becomes minority investor

V. Progress with the 2016 Mid-term Business Plan

SLIDE 31

30

North American Springs business

Challenges

While overseas bases are managed mainly by the relevant business divisions, a

Global Control Office for Corporate Administration has been established at the head

ffice to oversee all aspects other than production.
The Spring Division has established a specialized team to oversee overseas
perations, production in particular.

Responses Reflections

Rising material prices Decision made to reflect in selling prices beginning in second half, with certain exceptions US tariffs: exemption approved Canadian tariffs: exception approved (with some exceptions) Dispatching a support team; recovery underway

Actions begun too late

Import restrictions generated abnormal market conditions.
While this challenge should have been anticipated from a risk management

perspective, we had not established a structure capable of handling such challenges.

Tariffs Unstable supplies of materials

Import restrictions

Expanding range of suppliers Production disruptions Delays in production improvements Recovering productivity through stable materials procurement

V. Progress with the 2016 Mid-term Business Plan

SLIDE 32

31

Progress on the mid-term business plan (sales, profits/losses)

Despite recent difficulties in the North American Springs business and at Jatim, we have made progress on various other measures. Thus, the goals for FY2020 remain unchanged.

2016 mid-term business plan Shifting from a company that produces and processes special steel to one that creates added value from materials

Long-term vision

V. Progress with the 2016 Mid-term Business Plan

Other (30) ROE/operating income/ net sales (JPY100M)

Operating income

Special Steel Bars business FY2016 FY2017 FY2018 FY2018 FY2019 FY2020 FY2025

Result Result

Initial forecast

Forecast

Announced Nov. 6

Projection

Target Target

Eliminated through consolidation (△20)

Springs business

Formed & Fabricated Products business

Machinery business

SLIDE 33

32 Measure Details Progress ①

Investment in Muroran renovation, strategic investment

Approx. JPY13 billion in strategic investment and renovation of aged equipment planned over a period of five years
Full-scale operations at Muroran aimed to achieve during FY2020, despite delays resulting from injection of human

resources into Jatim

②

Building a global spring supply chain

Beginning mass production of stabilizers in Mexico and China and springs for construction machinery use in India
Acquisition of German spring maker Ahle; beginning construction work on stabilizer facility
Decision made to advance into the Philippines in response to customer requests; beginning facility construction

work

Making progress toward developing a global procurement network, including localization of materials procurement

③

Enhancing spring technological development capabilities

Development of new materials for automotive coil springs completed (achieving 15% weight reductions); moving

forward with further development

Development of high-stress hollow bars for stabilizer use completed (achieving 20% weight reductions)

④

Making Jatim a consolidated subsidiary and expanding Jatim’s sales

Injecting human resources to accelerate management speed and further improve quality and cost competitiveness
One result of these efforts: JIS certification (October 2018)
Due to rising demand for localized procurement, receiving a flood of inquiries outstripping production capacity
Moving energetically to obtain early plant approval and quality approval from customers

⑤

Project to strengthen synergies (cross-functional)

Achieving the objectives of enhancing corporate functions and developing an overseas support structure

(established an investment/finance committee, Global Control Office for Corporate Administration, and risk management project)

Considering developing systems to generate both new products and further synergies across business divisions

⑥

Research and Development Center

Adoption of various testing equipment proceeding as planned
Launching electric vehicle (EV) project

⑦

Global sales expansion of leaf springs

Sales to Thailand and India currently proceeding as planned
Considering production in countries other than Indonesia to meet customer demand

⑧

Overseas expansion of steel bars

Considering moving overseas, including India and North America, to develop an integrated model with the Springs

business (carefully studying options, including joint efforts and investments, while considering conditions at Jatim)

⑨

Developing an integrated model for the Formed & Fabricated Products business (working jointly with turbocharger subassembly makers)

No new developments to report on efforts to form business alliances and work jointly with subassembly makers

⑩

Developing an integrated model for the Formed & Fabricated Products business (In-house production of materials)

Promoting the development of an integrated model for precision casting master heat and precision machined

products

Plans call for the VIM equipment to come online at the Chiba Works in April 2019.
Decision made to adopt a new gas-atomized powder mass production furnace (scheduled to begin operating in

April 2020)

Progress on priority measures

: Slightly behind the plan : Proceeding as planned * Progress is indicated by defining the completion of each task in the mid-term business plan as 100%. Coloring indicates the extent of progress on the plan. : At least six months behind the plan

20 40 60 80 100 20 40 60 80 100 20 40 60 80 100 20 40 60 80 100 20 40 60 80 100 20 40 60 80 100 20 40 60 80 100 20 40 60 80 100 20 40 60 80 100 20 40 60 80 100

V. Progress with the 2016 Mid-term Business Plan

SLIDE 34

33

[Progress 1] Progress on global deployment

f the Springs business

Global deployment and sales plans for each base

MSSC Ahle GmbH MSM SPRING INDIA PVT．LTD． MSSC CANADA INC. MSSC MFG MEXICANA, S.A. DE C.V. MSM Ningbo Spring Co., Ltd. Chiba Works MSM CEBU,INC. 96 %

122 %

‘17 ‘18 ‘20

126 % 157 %

‘17 ‘18 ‘20

100 %

106 % 132 %

‘17 ‘18 ‘20

made consolidated subsidiary in April 2018

95 % 104 %

‘17 ‘18 ‘20

182 % 382 %

‘17 ‘18 ‘20

MSSC US INC.

Springs business totals

89 % 87 % 107 % 122 %

‘17 ‘18 ‘20 ‘21 ‘22 Advancement into ASEAN officially announced in June of this year Manila Works Our steel bars business Jatim’s manufacture of leaf spring materials to help cut costs in the Springs business

Acquisition of Ahle achieves European presence (mass production set to begin in 2021 after installation of equipment) Enhancing the Philippine base (Drawing on resources of the former Manila Works) Increasing use of locally produced large coil springs Lower revenues expected through 2020 due to delays in launching the new program, followed by sales recovery in 2021

200 %

‘17 ‘18 ‘20

550 %

712 %

‘17 ‘18 ‘20

V. Progress with the 2016 Mid-term Business Plan

Automotive coil springs Large coil springs Stabilizers Precision products

SLIDE 35

34

[Progress 2] Muroran renovation investment, strategic investment

Enhancing the domestic production infrastructure: Now proceeding with JPY1.3B in capital investment planned from 2016 to 2020

Completed investment of JPY3.7B as of the end of September 2018 (28% of total)

Renovation investment Strategic investment

[Main completed (planned) results]

Renewal of hollow round bar flaw detectors (ROT-150B)

(Completed Sept. 2018)

Renewal of finishing mill motor drive equipment (Completed Sept. 2018)
Renewal of soaking pit cranes

(Completion scheduled for November 2018)

Renewal of backbone system

(Completion scheduled for December 2018)

Renewing aging equipment and achieving stable operation to enhance revenue foundations

Net benefits from cost savings and quality improvements: JPY500M/year (FY2020) Construction now underway on TD induction heating equipment

(Completion scheduled for December 2019)

Iron core coil and gate equipment

Achieving high purity

Aggregation and floating of impurities through induction magnetic field and electric current

V. Progress with the 2016 Mid-term Business Plan

[Main completed (planned) results]

Renewal of secondary cooling equipment

in continuous casting machinery (Step 1 completed March 2018) Now checking quality in preparation for Step 2

Changing RH lower vessel and dipping pipe shapes

(Testing began June 2018)  Reducing volumes of fire-resistant materials and steam used

Modifying RH (degassing) vacuum equipment

(Completion scheduled for April 2019)  Reducing volume of steam used

Investment amount [JPY100M] Net benefits [JPY100M]

Strategic investment: Amounts of investment and net benefits

Investment amount Net benefits FY2018 FY2019 FY2020

SLIDE 36

35

Decision made on renovation at Hokkai Iron & Coke Corporation, a facility operated jointly

with Nippon Steel & Sumitomo Metal (We hold a 20% share in the company.)

Centering on producing highly reliable products as well as renovation and strategic

investment in Mitsubishi Steel Muroran Inc. In addition, further improving cost competitiveness

[Muroran topics] Impact of renovation of Hokkai Iron & Coke Corporation’s blast furnace

V. Progress with the 2016 Mid-term Business Plan

Summary of renovation and their anticipated effects

Timing of renovation:

FY2020 (second half)

Investment cost:

JPY35B

Repair policies:

① Functional restoration: Extending the service life

f iron shell through the

simple restoration of aging equipment and improved cooling efficiency. ② Functional improvements: Adopting state-of-the-art technologies, including advanced IT.

Effects of investment: Stable production, higher productivity, increased effects of cost

improvement Increased production through supplying iron source to other steel works

Nippon Steel & Sumitomo Metal Corporation

Muroran Works

Hokkai Iron & Coke Corporation

Joint investment by Mitsubishi Steel Mfg. Co.,

Ltd. and Nippon Steel &

Sumitomo Metal Corporation

Mitsubishi Steel Muroran Inc.

Mutual OEM production

SLIDE 37

36

[Progress 3] Making the Chiba Works a mother plant

Developing high-stress

spring steel

Materials development, applying residual stress, making crystal grain finer, etc.

Addressing electric

vehicles Launching EV project R&D on advanced technologies Engineer training

Enhancing the global development infrastructure Improving technological capabilities while enhancing quality control

Establishing a mother plant for creating added value from materials, based on the joint efforts of Special Steel Bars, Springs, and Formed & Fabricated Products businesses and the Research and Development Center

Research and Development Center

[Inside Chiba Works]

Adoption of precision casting

line

Completion planned for April 2019

Adoption of gas atomizer furnace

Completion planned for April 2020 Considering adoption of 3D printers

Trial mass production

line for springs

Stabilizer compact line completed in October 2017

Considering high-stress hollow

stabilizers

Mother plant

Building to be completed December 2018

Developing heat-

resistant steel

Developing gas

atomized powders

(Fine powders for use in metal 3D printers)

 Adoption of vacuum induction melting (VIM) furnace

Development of new materials Completion planned for April 2019

Special Steel Bars Formed & Fabricated Products Springs

Integrating the Muroran

divisions

(Adding a vacuum induction melting furnace)

Establishing high-

purity WG

(MSR TD induction heating equipment installation)

Completion planned for December 2019

Building repairs now underway

Seismic retrofitting Interior painting

VIM furnace

Image of completed VIM VIM foundation construction

V. Progress with the 2016 Mid-term Business Plan

SLIDE 38

37 Section Research and development items

FY2016 FY2017 FY2018 FY2019 FY2020

Springs Making springs lighter Developing high-stress spring steel Evaluation testing of local procurement

f spring materials

Special Steel Bars Developing high-purity steel Material development and mass production with VIM (vacuum induction melting) furnace Formed & Fabricated Products Developing heat-resistant steel (for turbocharger use) Developing special steel powders Company- wide Addressing electric vehicles IoT: Streamlining production lines IoT: Developing high value-added products

[Progress 4] Research and Development Center (development plan)

India, North America Mexico, etc. Europe, etc. Evaluation testing High-stress spring steel 1,300 MPa Developing high-stress spring steel 1,500 MPa

High-stress spring steel 1,400 MPa 1,300 MPa approval activities

High stress and hollowed, fine grained Resin springs Master heat for precision casting Steel prototypes (spring steel, etc.) VIM equipment installation Research on suspension systems, addressing in-wheel motors Fracture prediction system (suspension abnormality detection system) Visualization, automating testing Traceability marking Benchmarking against products from competitors Developing high-purity steel and high fatigue life steel Turbine wheel proposal, support for materials evaluation Developing highly heat-resistant steel for gasoline turbochargers For 3D printers (gas atomized powder) Installation of gas atomizer mass Installation of gas atomizer mass production equipment

magnetic powders (insulation process) Improving the performance of soft magnetic powders (insulation process)

Developing high-performance soft magnetic powder materials

★EV project launch VIM construction now underway Startup and operation set for April 2019

V. Progress with the 2016 Mid-term Business Plan

SLIDE 39

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 or 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 own judgment.