Message from the President

All employees will work with the singular purpose of advancing manufacturing to an even higher level and achieving perennial growth.

Could you provide an overview of fiscal 2015 and describe what the year was like amid a difficult management environment?

President Takahiro Fujioka

Looking Back on Fiscal 2015

To begin with, on January 8, 2016, an explosion occurred at our Chita Plant. We deeply regret the great trouble and inconvenience that may have been experienced by neighborhood residents, customers, related parties, employees and their families. We also deeply appreciate the steel companies and Toyota Group companies that assumed production on our behalf and assisted with the early restoration of operations at this plant. In terms of the external environment, despite extremely severe circumstances including the weaker yen and an economic slowdown in Asia, the tremendous support and cooperation we received enabled us to minimize the impact of the plant accident and secure marginal profitability. This accident taught us that we have a duty to share information that can be used going forward to ensure that an accident like this never happens again in the steel or any other manufacturing industry.

Enhanced Compliance and Governance Functions

The accident emphasized the weaknesses in our safety awareness, rules and equipment designed to guarantee safety. We will thoroughly review this accident, and in light of what we learned from supplier support and cooperation, we will further raise the level of manufacturing from the perspective of overall optimization, from steel materials to forging. To this end, we will formulate a "step up plan" focused on safety, production management and distribution, and engage in initiatives involving all departments and employees. Specifically, we will make production more efficient and engage in safety measures incorporating fail-safe*1 concepts and thorough education as well as more robust and practical BCM/BAP*2 These goals will be realized through the step up plan.

Aiming to Achieve Targets and a V-Shaped Recovery by Steadily Following Up on Each Theme

In terms of operations, the 4S Re-Engineering*3 initiatives were are currently engaged in are proceeding according to plans. This will enable us to further increase production and provide products in a timelier manner, while also reducing distribution loss and making production more efficient. We have also launched new ZZZ200*4 activities aimed at lowering the cost of sales. As opposed to activities conducted up to now, a sales and profit leader has been established in all segments to strengthen activities linked to reliable earnings. And, we aim to achieve targets and a V-shaped recovery with a more robust earnings base.

*1 Fail-safe A design method established on the premise of preventing mistakes and erroneous operations.

*2 BCM/BAP BCM: Business Continuity Management (Plan). BAP: Backup Action Plan, enables the securing of facilities, procedures and spare parts to allow for production at alternative locations if production at Group facilities becomes impossible.

*3 4S Re-Engineering Simple, Slim, Short and Straight manufacturing process innovations.

*4 ZZZ (tri-zed) 200 Named to incorporate the ideas of zenin sanka (participation by all), zenryoku (full power) and zettai yarinuku (definitely prevail), this activity sets the target of achieving consolidated operating income of at least ¥20 billion by fiscal 2020.

How are you proceeding in terms of creating a more robust management structure to achieve Vision 2020?

Moving Forward with Product Manufacturing that Contributes to Society Based on 1S Culture

One of the things learned as a result of the accident was the rediscovery of the importance of specialized steel, our Company's core product, by all employees. We are engaged in manufacturing to evolve our founding philosophy of "great cars are made with great steel" into "a great society comes from great materials." As a manufacturer of crucial components related to vehicle operation, turning and stopping, Aichi Steel plays a critical role in society, thus we must engage in manufacturing with sense of responsibility.

Furthermore, I think our 1S corporate culture*5 is the linchpin of our corporate management. With respect to the accident, with the 1S component of honesty (shojiki) as our motto, we made every effort to disclose accurate information in a timely manner. Going forward, we will attempt to further inculcate 1S Culture among all employees as we move steadily forward with the step up plan and create a more robust management structure.

Aiming to Further Enhance the Value of the Steel Business

Going forward, amid the increased diversification of automobiles and the spread of fuel cell vehicles (FCV), hybrid vehicles (HV) and electric vehicles (EV), the per-unit use of specialized steel will decline as the demand for smaller, lighter and stronger materials increases. In response to these social trends, it is critical that we quickly ascertain customer needs and promote collaborative manufacturing by front-loading that leverages the strengths of forged steel consistency. Furthermore, we will promote the steady implementation of 4S Re-Engineering manufacturing process innovations. In May 2016, we launched steelmaking reengineering, a cornerstone of energy reforms. Specifically, we make use of energy recovered and converted from electric furnace exhaust heat. Aichi Steel is first in the Japanese electric furnace industry to engage in this type of energy creation. As a Company operating in a power-intensive industry, we proactively engage in recycling energy conservation activities that significantly contribute to the global environment. We also promote the local procurement of steel materials. We are in the second year of providing technological support to Usha Martin Ltd. (India), and this year we will further improve product quality and safety to progress toward a phase in which we can realize stable procurement from India and ASEAN countries.

Further Expanding the Base of All Steel Forging Business Processes

Aichi Steel is promoting the expansion of all steel forging business processes, from cutting to machining, while at the same time enhancing capabilities through reengineering. Specifically, we have installed a CVT hot forging press line in response to increased CVT production and product miniaturization in Japan. Also, in support of stable local production by customers in line with the sales launch of new model IMVs, we established a stable operation system at AIT (Thailand) realizing stable product quality and supply in the ASEAN region.

Contributing to the Creation of a Hydrogen Society and the Rebuilding of Infrastructure

As one of our "only one" businesses, the stainless steel business is achieving contributions to the creation of a hydrogen society and the rebuilding of infrastructure. AUS316L-H2 high-pressure hydrogen stainless steel used in Toyota Motor's fuel cell vehicle MIRAI leverages the strengths of high ductility (malleability) in a high-pressure hydrogen gas environment, contributing to smaller and lighter components, which further promote higher quality, lower cost product development. In addition, as a member of the Toyota Group, Aichi Steel contributes to the realization of the Toyota Environmental Challenge 2050 promoted by Toyota Motors. We will also contribute to improved earthquake-resistance and durability in a wide range of areas through the use of high-function and varied stainless steel in the rebuilding of deteriorating roads, buildings, bridges and other infrastructure ahead of the Tokyo Olympics.

Creating a Safe and Secure Society with the Electro-Magnetic Products as a New Business Pillar

In response to the rare earth resource problem, our product MAGFINE does not use dysprosium, a heavy rare earth element. Used in conjunction with the high degree of molding freedom offered by integrated injection molding technology established last year, this product has a strong reputation of superiority in the market. Going forward, based on the local production for local consumption approach, we will increase the productivity of magnets produced at overseas subsidiaries AMC (Czech Republic) and AMT (China) in support of local procurement. In the sensor business, we developed a foreign matter detection device that contributes to the safety and security of food. We provide safety and security developed in the automobile industry to a wide range of industrial sectors. In the metallic fibers business, we commenced operation of a production line in May at the Higashiura Plant. As a result, we enabled the production of Amorphous Wire*6, making us one of only two companies in the world with this capability, while facilitating integrated production, from materials to sensors. We are looking to expand into a variety of applications, including use as a reinforcing material for golf club shafts. In the electronic components business, we are advancing the deployment of inverter cooling units for hybrid vehicles, which continue to grow in popularity around the world. By front-loading in this way, we have achieved integrated manufacturing, from the development stage to customer delivery, and are moving toward the establishment of a production system that takes BAP into account. We are also looking into the global expansion of our dental business after having expanded into the United States.

*5 1S Culture The concept of putting shojiki (honesty), seiso (cleanliness) and dai-ichi anzen (safety first) as the basis of our corporate culture.

*6 Amorphous Wire Metallic fibers comprising the core material of MI sensors. This business was acquired last year from Unitika Ltd.

What makes Aichi Steel's priority issues (materiality) so important?
Please discuss your basic approach and specific initiatives aimed at addressing these issues.

Increase Compliance Awareness Globally, and Strengthen Corporate Sustainability

Aichi Steel has always placed the highest emphasis on shojiki (honesty), one aspect of our 1S culture. Employees sent to work overseas explain in their own words the meaning of 1S culture as part of our effort to thoroughly inculcate this concept among local staff around the world. In addition to management risks associated with global business expansion, the prevention of corporate scandals causing global gossip and in light of what was learned from our plant accident this year, we observe laws and rules, revise work standards and have redoubled our safety education activities in an effort to create a mechanism for preventing compliance infractions throughout the Aichi Steel Group, providing value ensuring global security and safety.

Encouraging the Creation of Workplaces that are Safe and Comfortable for All Employees

Since being appointed as president, I have emphasized employee satisfaction. In the department policies created annually by managers in each section, I ask for recommendations on increasing employee satisfaction. I think knowing your employees and providing a positive work environment is ultimately linked to customer satisfaction. In January 2016, we established the Diversity Promotion Team with the aim of creating a workplace in which women, seniors and disabled employees are able to play an active role. In December this year, the construction of our new headquarters will be completed. This new building is expected to embody this objective by providing a diverse array of employees with a safe and satisfying space in which to work.

Providing Highly Competitive Products that are Safe, Secure and Offer New Value Globally

We need to further inculcate the idea that Aichi Steel in engaged in manufacturing that protects human life. In pursuit of this goal, if we are able to provide global security and safety, this will lead to the creation of shared value (CSV) for Aichi Steel. We must share with employees the idea of approaching work not only from the perspective of how our Company will benefit, but also how our Company can contribute to communities and society. It would be wonderful if the vectors of society, companies and individual employees were all aiming for the same goal.

Strengthen Relationships with Local Communities, and Actively Contribute to Society

Understanding and cooperation from local communities are indispensable for a company's continued success. This is why it is important that local citizens want Aichi Steel to be a part of the community forever. The construction of our new headquarters building involves the incorporation of features designed to mitigate the impact of various natural disasters, including a Nankai Trough mega-thrust earthquake, so that it can be used by the local community in the event of an emergency. This effort is aimed at enhancing the level of trust from the local community.

Strengthening Efforts toward Manufacturing in Harmony with the Global Environment

Aichi Steel manufacturing consumes massive amounts of energy through the use of electric furnaces. For this reason, we think it is necessary to proactively engage in the reduction of CO2, energy conservation and the prevention of greenhouse gas emissions as our Company's mission. Furthermore, as a resource-recycling corporation, we reuse steel scrap in our products, and we plan to further promote the 3R's going forward to fulfill our responsibilities. We also contribute to the sustainable development of society and the Earth in harmony with the environment, including foresting and greening activities aimed at protecting biodiversity, in an effort to coexist with nature. We formulated the Aichi Environmental Initiatives Plan 2020 based on these concepts, and will make an effort to achieve these targets going forward.

Establishing a Solid Financial Foundation to Support Stable and Sustainable Growth

Without a stable financial foundation, companies are not be able to provide shareholders with dividends or realize satisfactory social contributions. We will steadily practice management engaged in strengthening our financial foundation to identify appropriate inventory levels and manage our balance sheet.

Finally, what is your message for Aichi Steel stakeholders?

Aichi Steel will never forget the lessons learned from the plant accident. Our determined implementation of the step up plan will not only provide us with a fresh start, it will enable us to build a stronger management foundation as we make an effort to regain the faith and trust of all our stakeholders. Also, the aforementioned six priority issues must be achieved from the perspective of the Company and society. This will enable us to create shared value (CSV), enhance our competitiveness and resolve social issues. All employees will come together under the words "I Will" that express the spirit of our founder and tackle issues with the "Ever Better (than ever before)" attitude in an effort to achieve perennial growth and meet all targets under Vision 2020. I want to give back to all our stakeholders through the steady progress of our entire management. Alf of us at Aichi Steel sincerely appreciate your continued support and encouragement.