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Business Conditions

1. Annual Report on the 62nd Fiscal Term (April 1, 2014 to Mar. 31, 2015)

In the current business year in review, consumer spending remained weak due to the consumption tax hike and a fall in real purchasing power, but on the other hand corporate earnings showed further improvement thanks to the weak yen and low oil prices, so that the economy moved slowly on a track to recovery.

Given such economic situation, we have been striving actively to increase our market share under a wide variety of circumstances by continuing to engage in proposal based sales that capture customer needs and accurately determining the trends of the market and of our competitors. However, sales have been sluggish, in a recoil against the surge in demand that was observed at the end of the last business year, prior to the consumption tax hike. Added to that, the low yen has resulted in soaring purchasing costs. Hence, we are in an ongoing severe environment.

As a result, our sales were 15.38 billion yen (a 1.2% decrease year-on-year). As regards profit, our operating income was 1.085 billion yen (a 2.4% decrease year-on-year), our ordinary income was 1.177 billion yen (a 0.7% increase year-on-year), and our current net income was 724 million yen (a 4.7% increase year-on-year), so that we achieved an increase in profit despite a decrease in revenue.

Our subsidiary TOKIRON achieved personnel deployment according to its orders situation and a switch to leasing out its plant-internal unused space. But even so its sales were 349 million yen (a 20.4% decrease year-on-year), its ordinary income 80 million yen (a 2.7% decrease year-on-year) and its current net income 52 million yen (a 3.5% increase year-on-year). Thus, it too had an increase in profit along with a decrease in revenue.

The segment-by-segment situation in the current business year in review was as follows.

Under the concept of“new customer development and an expanded high value-added products”, the Special Steel Division strove to expand sales of value-added products adapted to wide-ranging customer needs, to strengthen collaborative ties with suppliers, and to create sales orders. As a result of such efforts, it achieved sales of 5.473 billion yen (a 4.5% decrease year-on-year), a gross operating profit of 1.030 billion yen (a 4.5% increase year-on-year) and operating income of 286 million yen (a 21.4% increase year-on-year).

The tasks to be tackled by the Division in the next fiscal term are: achieving the sales plan (sales of 6.010 billion yen, gross operating profit of 1.084 billion yen), responding swiftly and flexibly to the increasingly diverse needs of its customers, practicing advance preparedness for supply purchase negotiations, and strengthening price competitiveness.

The Spare Parts Division narrowed down its sales themes to the individual customer level and strove to provide fine service, so as to bring about“entrenchment of our industry top share and strategy-based growth”on a continuous basis. Despite such efforts however, its sales rose only 0.4% year-on-year, to 8.483 billion yen, while its gross operating profit was 2.421 billion yen (a 2.3% decrease year-on-year) and its operating income 746 million yen (a 3.9% decrease year-on-year). These figures were caused by the recoil fall in demand that followed the surge before the income tax hike, and by soaring purchase prices due to the weak yen.

The tasks to be tackled by the Division in the next fiscal term will be to achieve the sales plan (sales of 8.650 billion yen, gross operating profit of 2.370 billion yen), and to work for reduction of sales and administrative expenses based on freight costs, with a goal of 30% recovery of the gross margin percentage.

The Overseas Business Division strove to expand global business, principally regarding“the 3

trident of exports (adjusters, M1 links and undercarriage) and opening up new markets”. Despite a sales slump in Thailand due to the unstable political situation there, the Division had sales of 1.333 billion yen (a 2.7% decrease year-on-year), gross operating profit of 243 million yen (an 8.3% decrease year-on-year) and operating income of 39 million yen (a 42.5% decrease year-on-year).

The tasks to be tackled by the Division in the next fiscal term will be to aim for achievement of the sales plan (sales of 1.440 billion yen, gross operating profit of 252 million yen) on the two main planks of continuous maintenance of sales and development of new products; and to take on the challenge of new markets through collaboration with partners of various kinds.

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