Priority Issue 6 | Establishing a Solid Financial Foundation to Support Stable and Sustainable Growth

Aichi Steel recognizes that the establishment of a solid financial foundation is critical for enhancing corporate value and supporting stable and sustainable returns to stakeholders. With the intention of establishing a solid financial foundation realizing an ROE of 8% or higher as a target for improved profitability, we will steadily and systematically promote effective capital measures and capital investments aimed at perennial growth.

Management's Discussion and Analysis of Financial Operations and Results of Operations


Summary

During the consolidated fiscal year, the Japanese economy drifted toward a gradual recovery on the economic policies of the government and the Bank of Japan.However, the economic slowdown in China and other developing countries in Asia and the rapid appreciation of the yen from the end of last year pose the risk of downward pressure on the Japanese economy, thus the future remains uncertain.

Aichi Steel Group's production and sales volumes of specialty steel and forgings, our mainstay products, declined compared to the previous year to due to weak demand and an explosion accident that occurred on January 8, 2016,at our Chita Plant.

Under these circumstances, we persevered in accordance with the slogan we introduced in fiscal 2015 "First, let's give it a try! Change ourselves! Persevere!"

These efforts resulted in consolidated net sales of 214,120 million yen, a 11.0% decrease from the previous fiscal year (240,647 million yen). In terms of profit, although raw material and energy costs declined, sales volumes decreased and selling prices declined amid increased costs associated with alternative production efforts after the accident at the Chita Plant. As a result, Aichi Steel Group posted operating income of 5,883 million yen, a 44.6% decrease from the previous fiscal year (10,616 million yen). Also, ordinary income was 5,835 million yen, a 47.6% decrease from the previous fiscal year (11,141 million yen), and profit attributable to owners of parent was 20 million yen, a 99.7% decrease from the previous fiscal year (6,023 million yen) due to recovery costs associated with the explosion accident recorded as an extraordinary loss.

  • Sales volume (Non-consolidated basis)

  • Net sales

  • Operating income

  • Net income

  • ROE

  • Net assets, capital adequacy ratio

Financial/business information and highlights

Operating Income and Net Income

Net sales for the consolidated fiscal year saw an 11.0% decrease from the previous fiscal year to 214,120 million yen. The cost of sales was 186,227 million yen and cost-to-sales ratio was 87.0% (86.4% for the previous fiscal year), a 0.6% increase from the previous fiscal year. Selling, general and administrative expenses totaled 22,008 million yen, accounting for 10.3% (9.1% for the previous fiscal year) of net sales.

As a result, operating income for the fiscal year was 5,883 million yen. Profit attributable to owners of parent was 20 million yen, and ROE was 0.0%.

Sales by Business Segment

Net sales (Consolidated)

Specialty steel

Specialty steel is the mainstay product of Aichi Steel Group. During the fiscal year, explosion accident at the Chita Plant and other factors caused the specialty steel sales volume to decrease and selling prices declined, resulting in a 17.8% decrease to 94,321 million yen for this consolidated fiscal year (114,808 million yen for the previous fiscal year).

Forged Products

Closed-die forged products for automobiles account for a major part of this segment. Sales volume decreased and selling prices declined, resulting in a 6.2% decrease to 102,248 million yen for this consolidated fiscal year (108,976 million yen for the previous fiscal year).

Electro-Magnetic Products

Aiming to turn this segment into the Company's core business in the future, Aichi Steel Group develops business in four industrial fields: sensors, magnetic products, electronic components and dental. Sales in this segment saw a 6.6% increase to 13,495 million yen for this consolidated fiscal year (12,665 million yen for the previous fiscal year).

Other businesses

Aichi Steel's subsidiaries are involved in such business activities as providing services and engaging in computer software development. Net sales in this segment a 3.4% decrease to 4,055 million yen for this consolidated fiscal year (4,197 million yen for the previous fiscal year).

Financial Position

Aichi Steel Group's financial position on March 31, 2016, was as follows.

Total assets were 251,760 million yen, down 16,304 million yen from the end of the previous fiscal year.

Current assets decreased 4,626 million yen, to 119,457 million yen.

Property, plant and equipment increased 1,337 million yen year on year. Total capital expenditure during the fiscal year was 15,408 million yen, and depreciation and amortization amounted to 12,692 million yen.

Current liabilities were down 20,938 million yen. The main factor behind this decline was a 28,641 million yen decrease in the current portion of long-term loans payable.

Long-term liabilities increased by 18,769 million yen year on year, due primarily to a 21,291 million yen increase in long-term loans payable.

Net assets came to 147,534 million yen at the end of the fiscal year, down 14,135 million yen from one year earlier. Net assets per share were 708.02 yen, down from 779.41 yen, and the equity ratio declined from 57.2% in the previous fiscal year to 55.3%.

Consolidated Cash Flows

Net cash provided by operating activities increased by 5,857 million yen from the previous fiscal year to 25,193 million yen. Although income before income taxes and minority interests decreased 9,284 million yen compared with in the preceding term,sources of cash included 12,058 million yen due to a decrease in notes and accounts receivable-trade and 6,333 million yen due to a increase in notes and accounts payable-trade increased more than previous fiscal year.

Net cash used in investing activities decreased by 1,443 million yen from the previous fiscal year to 12,122 million yen. The main factor was payments for purchases of property, plant and equipment, which used 2,561 million yen less than in the previous fiscal year.

Net cash used in financing activities decreased by 692 million yen from the previous fiscal year to 9,466 million yen. Although payments of long-term loans payable used 18,795 million yen more than in the previous fiscal year, proceeds from long-term loans payable provided 19,474 million yen more than in the previous fiscal year.

As a result, cash and cash equivalents totaled 35,628 million yen at the end of the fiscal year, an increase of 3,123 million yen from the 32,505 million yen at the previous fiscal year-end.

Available-for-Sale Securities

Of the total securities owned by the Company and its consolidated subsidiaries, the historical cost of those reported on the consolidated balance sheet was 2,613 million yen and the fair market value of these securities reported on the consolidated balance sheet was 12,838 million yen.

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