REPORT

2022APRIL 1.2021-MARCH 31.2022

Sanyo Special Steel Report 2022

(Integrated Report)

CONTENTS

Corporate Philosophy

1

Top Message

2

Our Business

4

Value Creation Process

5

Global Business Development

6

Management Plan (2025 Medium-term Plan)

7

Topics

8

Important ESG-related Issues

10

Environment

Environmental Management

11

Climate Change Prevention Initiatives

12

Information Disclosure According to TCFD

14

Recommendations

Contribution to a Resource-recycling Society

15

Reduction of Environmental Impact

16

Social

Creating a Safe Workplace

17

Disaster Prevention Initiatives

18

Promotion of Diversity Management

19

Promotion of Corporate Health Management

20

Human Resource Development

21

Quality Improvement Initiatives

22

Expanding Technological Superiority

23

Realization of Sustainable Procurement

24

Governance

Enhancement of Corporate Governance

25

Internal Control Systems

26

Officers

27

Key Financial Data

28

  • Editorial Policy
    This report summarizes the Sanyo Special Steel Group's environmental, social, and governance (ESG) initiatives aimed at realizing a sustainable society.
  • Period and Scope of Coverage
    This report contains information on the initiatives of Sanyo Special Steel and its Group companies in FY2021 (April 1, 2021 to March 31, 2022), but also includes information outside the period covered.
  • Reference Guidelines and Other Documents "International Integrated Reporting Framework," IIRC "Guidance for Integrated Corporate Disclosure and Company-InvestorDialogue for Collaborative Value Creation," Ministry of Economy, Trade and Industry "Environmental Reporting Guidelines 2018," Ministry of the Environment
    Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations
  • Notes on forecasts
    The forward-looking statements in this report are based on the judgment of the Group based on the information currently available. These statements are subject to a number of uncertainties, and actual results may differ materially depending on a number of factors.

Corporate Philosophy

Confidence-based Management

Confidence of Society

We aim to earn the confidence of society by contributing to the realization of an affluent and culturally rich society and fulfilling our responsibilities as a member of society through our "high- quality special steel manufacturing."

Confidence of Customers

We aim to earn the confidence of our customers by rapidly and accurately identifying their needs and appropriately providing high-quality special steel products.

Confidence among People

We will build confidence among people by deepening communication with all stakeholders and acting autonomously in accordance with social norms.

1

Top Message

We are committed to contributing to the realization of a sustainable society through the practice of our corporate philosophy, "Confidence-based Management," as well as meeting the ever-increasing need for highly reliable special steels in the face of major changes in industry and society, including carbon neutrality.

Since its establishment in 1933, the Sanyo Special Steel Group has played a role in a resource-recycling society by manufacturing special steel products from iron and steel scrap, a recycled resource, and has contributed to industrial and economic development by providing highly reliable special steel products to various fields of society. In addition, we have responded to the globalization of markets ahead of others, and have established integrated manufacturing bases for special steel in Japan, Europe, and India to capture global demand for special steel and formed and fabricated material business bases in the growing automotive markets of China and North America, thereby building a supply chain that responds to local production and local consumption in customer industries.

Even under major social and industrial changes such as carbon neutrality, our highly reliable special steel products will be in even greater demand around the world as important materials to support the development of society. Under these circumstances, the Sanyo Special Steel Group will further build up the brand of the "Sanyo Special Steel - the confident choice" by strengthening its business foundation and innovating technologies that are ahead of the times to meet the needs of customers. We will continue to strive for the creation of economic and social value and contribute to the realization of a sustainable society by creating through the practice of our corporate philosophy, "Confidence-based Management," which aims to establish "confidence of society," "confidence of customers," and "confidence among people."

MIYAMOTO Katsuhiro,

Representative Director and President

2

Top Message

Review of FY2021 and Current Business Environment

ESG Initiatives for the Realization of a Sustainable Society

Review of FY2021

In FY2021, while the global economy was recovering from the severe situation caused by the COVID-19 pandemic, prices of raw materials and fuels, including iron and steel scrap, rose sharply. However, we achieved consolidated net sales of 363.3 billion yen and consolidated ordinary income of 21.7 billion yen, a marked improvement from FY2020, when the Group was in the red, due to factors such as an increase in sales volume resulting from a recovery in key customer industries, including automobiles, industrial machinery, and construction machinery; higher sales prices resulting from the application of the scrap surcharge system; and improved earnings at Group companies, including European subsidiary Ovako. (Figure 1)

In FY2021, the first year of our five-year management plan "2025 Medium-term Plan," under the policy to strive to increase earnings by strengthening our structure in anticipation of changes in the demand structure and intensifying international competition, we have been working to improve the profitability of our overseas businesses and to quickly demonstrate the synergies of the collaboration with NSC and Ovako, which is a strength not found in competitors. In the overseas businesses, Ovako made progress in improving its profitability and contributed significantly to consolidated business performance, and in the collaboration, under the plan to generate about 10 billion yen in synergies among the three companies in FY2024, the sixth year of the collaboration, the results were achieved with progress exceeding the plan in FY2021, the third year of the collaboration.

Figure 1Trends in consolidated business performance

Consolidated net sales

Consolidated ordinary income

(Billions of yen)

(Billions of yen)

21.7

20.0

400.0

20.0

363.3

385.0

10.7

300.0

9.4

10.0

262.5

200.0

210.7

185.8

157.5

0

100.0

▲1.5

0

▲4.8

▲10.0

FY2017

FY2018

FY2019

FY2020

FY2021

FY2022

Forecast (Note)

Figure 2Trends in raw material and fuel prices

(Index based on the value of the first quarter of FY2020 as 100)

350

Iron and steel scrap

Chromium

300

Nickel

297

Electricity

283

LNG

270

263

265

Toward Carbon Neutrality by 2050

Companies are expected to contribute to the realization of a sustainable society. In particular, climate change is an important issue that affects the very existence of humankind, and in July of last year, we announced a roadmap for achieving our policy goal of realizing carbon neutrality by 2050. Based on this roadmap, in addition to reducing our own CO2 emissions by 50% or more compared to the FY2013 level in FY2030, we will promote eco- products that contribute to CO2 emission reductions by customers and eco-solutions that deploy energy-saving and productivity- enhancing technologies at overseas Group companies, aiming at contributing to reducing emissions by approximately 20% of the FY2013 level.

Ovako, the Sanyo Special Steel Group's European subsidiary, has been promoting its world's most advanced initiatives toward decarbonization, and in January 2022, it shifted to a carbon- neutral production through a carbon offset program. Ovako has introduced a climate surcharge in conjunction with this and has begun selling green steel. In Europe, there is a strong interest in low-carbon steel in customer industries, and we recognize that Ovako's advantage in the European special steel market has been further enhanced by being one of the first to achieve carbon neutrality.

In terms of reducing CO2 emissions and improving energy efficiency, we believe that the need for highly reliable special steel products, in which our Group excels, will further increase. Recognizing this as a great opportunity to demonstrate our Group's strengths, we will actively promote innovations that contribute to achieving carbon neutrality for society as a whole and responses to new steel material needs that contribute to environmental issues faced by our customers.

to travel to and from foreign countries thus far, we will accelerate the interaction of human resources across national borders in the future.

In addition to these factors, technological growth is essential for our Group's sustainable growth. For the purpose of enhancing our corporate value in the global special steel market, we will promote further expansion of our technological superiority by strengthening our research, development, and quality competitiveness.

Enhancement of Corporate Governance

In June 2022, Sanyo Special Steel has transitioned to a Company with an Audit & Supervisory Committee in order to accelerate management decision-making, enhance discussions of basic management policies at Board of Directors meetings, and strengthen the supervisory function of the Board of Directors in the execution of operations. We will continue to make ongoing efforts to enhance corporate governance in order to live up to the trust and confidence placed in us by our shareholders, suppliers, and other stakeholders, achieve sound and sustainable growth of our Group, and enhance our corporate value over the medium- to long-term.

We hope that this report, which introduces our ESG initiatives, will help you to better understand the activities of our Group, and we look forward to your continued support and assistance.

Current Business Environment and Response Policies

In recent years, international competition in the special steel industry has become even more intense as competitors have increased capacity and improved quality and technology. In addition, the current situation has seen unprecedented cost increases due to a significant rise in energy prices, mainly due to the situation in Ukraine, as well as the depreciation of the yen. (Figure 2)

With regard to demand for special steel, there are concerns about a slowdown in the economy due to automobile production cuts caused by a shortage of semiconductors, etc., the prolonged situation in Ukraine, global inflation, and other factors. It is therefore necessary to continue to pay close attention to future trends.

Under these circumstances, the Sanyo Special Steel Group, based on its basic policy of "Securing appropriate margins" will promote sales price revisions and expansion of the application of surcharges, as well as focus on stable operations and take necessary measures to address increased costs due to rising raw material and fuel prices. Based on this policy, we aim to achieve ordinary income of

10.0 billion yen(Note) for the full year in FY2022 and strive to further enhance our corporate value in the global special steel market by establishing a solid corporate structure that can continue to secure stable earnings.

250

(Note) Based on purchase price

251

244

235

221

240

234

201

208 217

220

200

170

157

181

161

178

169

150

140

136

134

139151

109

140

121

100

90

83

89

101

77

86

50

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

2nd half

forecast

FY2020

FY2021

FY2022

Aiming for Growth of People and Technology

As a group of manufacturing companies, we believe that safety, disaster prevention, and health are the basic premise of our business activities and take precedence over everything else. Based on this recognition, the Group promotes the reduction of work risks and the creation of a safe workplace by "integrating top-down and bottom-up approaches" and "implementing both hard and soft measures" with regard to safety, works to prevent accidents from occurring and to prevent the spread of damage in the event of a disaster by raising employee awareness of disaster prevention and conducts large-scale earthquake disaster drills with regard to disaster prevention. With regard to health, in August 2021, we formulated the "Sanyo Special Steel Corporate Health Management Declaration" and established a corporate health management promotion structure with the Representative Director and President as the Chief Corporate Health Officer to promote the creation of an environment in which each and every employee can safely and healthily engage in rewarding work on a daily basis.

In terms of diversity, Sanyo Special Steel raised its mandatory retirement age to 65 in April 2021 to promote the active participation of the senior generation, and has long promoted measures to promote the active participation of female employees. In June 2022, a female executive officer was appointed. Moreover, in order to respond to the globalization of business activities, we are developing global human resource development initiatives. Although the spread of COVID-19 has made it difficult

(Note) Publicly announced business performance forecast as of October 31, 2022

3

Desalination, heat exchangers, etc.

Our Business

Highly reliable steel that supports global manufacturing

High-cleanliness

Japanese,

steel

European, and Indian

manufacturing

manufacturing

technology

bases

High-performance metal powders that support the development of advanced technologies

Spherical powder

Metallurgical

technology

with good

evaluation and

flowability

analysis system

Integrated

chain

Supply system to meet global needs high-cleanliness

production from

Global supply

steel

In the Steel Products business, we manufacture and sell a variety of special steel products, including bearing steel, engineering steel, stainless steel, heat-resistant steel, and tool steel.

The Sanyo Special Steel Group's special steel products are used as materials for some of the most important parts of automobiles, industrial machinery, and plants, contributing to the functional improvement of end products and the reduction of environmental impact in the manufacturing processes of our customers.

In the Metal Powders business, we manufacture and sell metal powder products.

Sanyo Special Steel manufactures high-performance metal powders with low impurities and excellent flowability and powder metallurgy products formed by our unique technology to support the development of advanced technologies in various settings, from the front lines of research and development to manufacturing sites.

In the Formed and Fabricated Materials business, we manufacture and sell formed and fabricated materials made from special steel bars and tubes.

In addition to Japan, the Sanyo Special Steel Group has established a supply system for formed and fabricated materials in North America and China, which are growth markets for the automotive industry, thereby contributing to the simplification of the processing process and local production for local consumption for customers who are expanding their business globally.

Steel Products

Bearing steel

Engineering steel

Stainless steel

Metal Powders

Heat-resistant steel

Tool steel

High alloy steel

Metal powders

Powder metallurgy

Powder metallurgy

Formed and

Formed and

high-speed steel

products

fabricated materials

Example of modeling

Sputtering target

Fabricated Materials

by 3D printer

materials

Forged/cut and

Die forged parts

CRF rings

Wind power generation

Construction machineries

Aerospace

Bearing steel

Formed and

fabricated materials

Bearings

Engineering steel

Power

Bolts, gears, etc.

transmission lines

Engineering steel

Bearing steel

Formed and

fabricated materials

Gears, shafts, cylinders,

Railroads and Shinkansen

bullet trains

Bearing steel

Formed and

fabricated materials

Bearings

Bearing steel

Engineering steel

Metal powders

Formed and

Stainless steel

3D printer

fabricated materials

Driving parts, etc.

High alloy steel

wires

High-voltage power transmission lines

sprockets, swivels, etc.

Buildings

PCs

Stainless steel

Motor shafts for OA equipment, sleeves, etc.

Powder metallurgy

products

Bearing steel

Hard disk drives

Mobile phones/

Factories, plants, power stations

Seismic isolation systems

Smartphones

Automobiles

Engineering steel

Formed and

fabricated materials

Transmission gears, shafts, engine parts, connecting rods, etc.

Bearing steel

Formed and

fabricated materials

Bearings, etc.

Heat-resistant steel

Intake/exhaust valves, etc.

Metal powders

Brazing materials for heat exchangers, shot peening

Tool steel

Bearing steel

Stainless steel

Metal powders

Dies, rolls, tools,

Boilers, waste heat

Heat-resistant thermal

etc.

Engineering steel

recovery, chemical

spray powder for

Bearings, linear

plant piping

boilers Metal powders

for 3D printing

Powder metallurgy

motion bearings,

High-alloy steel

high-speed steel

ball screws, etc.

tubes

Cutting tools, dies, injection molding machine (ex. screw), etc.

Robots

Bearing steel

Engineering steel

Formed and

fabricated materials

Driving parts, etc.

Engineering steel

Metal powders

Bolts

Electro-magnetic

wave absorber

Medical fields

Stainless steel

Ships

Parts for dental treatment

Engineering steel

devices (handpieces)

Bolts, shafts, etc.

Metal powders

Stainless steel

Dental devices

Propeller shafts, etc.

Heat-resistant steel

High alloy steel

Engine valves

4

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Sanyo Special Steel Co. Ltd. published this content on 06 January 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 January 2023 09:19:51 UTC.