SHINSHO CORPORATIONSHINSHO CORPORATION

KOBELCO

FY2016‒2020 Medium Term
Management Plan

1. Introduction

In April 2016, Shinsho formulated a new medium term management plan, which covers four years starting from fiscal 2016.
Under this medium term management plan, we have entrenched our long-term vision (announced in May 2010), and the overall strategy to achieve that vision. We have also reevaluated our core capabilities, and in light of the business environment and the results of our efforts to date, have reestablished our vision of where we see each of our businesses, as well as our management goals, in fiscal 2020.
Below you can find an overview of the plan that helps you understand the medium term management plan for the entire Shinsho Corporation Group.

Vision and Overall Strategy

2. Review of the Previous Medium Term Management Plan

Under the previous medium term management plan (fiscal 2013-2015), fiscal 2013 got off to a smooth start, but from fiscal 2014, the impact of significant declines in the price of ferrous raw materials, slowing growth in China, stagnation in Thailand, Indonesia and certain other emerging markets, and other factors caused cumulative totals for the three year period to stand at approximately 89% of our goal for net sales, and roughly 84% of what we targeted for ordinary income.
On the other hand, expansion of overseas bases, investment in operations, M&A activities, global personnel training and other initiatives under the long term management vision proceeded steadily. We also experienced growth in our overseas trading ratio, moving from 33.6% in fiscal 2012 to 37.7% in fiscal 2015.

Progress under the Previous Medium Term Management Plan

(Billions of yen)
FY13-15 Cumulative Planned Results Achievement ratio
Net sales 2,800.0 2,502.7 89%
Ordinary income 21.1 17.8 84%
Segment Iron & Steel 7.9 9.4 120%
Raw Materials 4.1 2.1 52%
Nonferrous Metals 3.7 3.4 93%
Machinery & Electronics 3.1 1.8 59%
Welding 2.4 0.9 38%
Elimination and other -0.1 0.0 -

3. Overview of the FY2016-2020 Medium Term Management Plan

Under the FY2016-2020 medium term management plan as well, we a dhere to this long term management vision, making"three overall strategies"into the pillars of a number of initiatives that we will drive further forward to meet our fisca l 2020 goals of net sales of 890 billion yen, ordinary income of 8 billion yen and ROE of ab ove 8%. In addition, our target for the overseas trading ratio* remains unchanged from when we formulated our long term vision, namely 50% in fiscal 2020.

* Overseas trading ratio: The ratio of overseas net sales and i mport amount within consolidated net sales (excluding contract business for Kobe Steel).

Net sales / Ordinary income

Net sales / Ordinary income

Overseas transactions volume /
Overseas trading ratio

Overseas transactions volume /
Overseas trading ratio

In our overall strategy (I) "accelerating our global business," while continuing to strengthen functions and corporate base in three major regions (North America and Mexico as one, followed by China, as well as ASEAN and India), we will bolster our contribution and approach to relationships with each company in the Kobe Steel Group as well as to new projects. We will also promote an expanded and strengthened supply chain, including companies and bases that have been newly added to the Group in the previous medium term management plan (in Japan, Mexico, China, Korea, Thailand, Indonesia and others).
As milestones for the future, we will also continue to research and consider establishing ourselves in new markets, such as Cambodia.

Strengthening Functions and Ties at Overseas Bases

In our overall strategy (II) "strengthening our trading company functions,"we are proceeding on two main initiatives.
"Maintain and expand existing businesses." In light of the business group target direction represented by the Kobe Steel Group’s three core business areas of materials, machinery and electric power, we will respond to operational changes caused by factors such as consolidation of upstream processing to the Kakogawa Works. We will also reorganize distribution, including for consolidated subsidiaries, and work to expand base cargo through greater sales of mainstay products on account of cooperation with all of the Kobe Steel Group companies.
"Strengthen revenue of existing investment businesses." Together with stable operations, the early positive cash flow and expanded revenue for businesses we invested in up until the previous medium term management plan, we will advance on making business investments, including continued M&A activities, geared toward a strengthened revenue base.

Over the next five years, investments of 30 billion yen are planned for primarily business investments, M&A and other activities. This represents a significant increase over the actual investments of 22 billion yen made during the six year period of fiscal 2010-2015.

Investment Plans

(Billions of yen)
Sector FY2016-20 Plans Principal Regions, Projects, Other FY2010-15 Results
Iron & Steel 8.0 North America, Mexico, India Secondary wire processing plant upgrades, plate processing and fabrication facilities upgrades, other 9.8
Raw Materials 10.0 North America, Australia, other Investments in raw material interests, other 1.7
Nonferrous Metals 5.0 Mexico, China, Korea, ASEAN, Japan Strengthen overseas business bases, establish new sites, other 2.2
Machinery & Electronics 2.0 Japan, other In and outside of Japan, make investments in machinery makers, engineering and service companies, others 3.5
Welding 1.0 Japan, other Investments in distribution trading partners, others 0.1
Head Office (IT investment, etc.) 4.0 Japan, others Consider M&A, business system improvements, others 4.7
Total 30.0   22.0

In our overall strategy (III) "enhancing our business foundations," e are moving forward on three main initiatives.
"Obtain and develop human resources." In this initiative we seek to hire diverse human resources who will play a role in the future. This includes the employment of females and non-Japanese career personnel, the active roles of senior employees, and the development of a work environment in which a wide range of working styles can be practiced. In addition, we will continue to advance initiatives where we send young employees abroad for training, and conduct training in Japan for non-Japanese staff.
"Stronger financial base." Here we aim to achieve steady revenue streams and to further enhance stockholder equity (to above 50 billion yen). Moreover, we also seek to improve capital efficiency in the Group with global CMS and other initiatives.
"Enhance management system." We are proceeding with the thorough implementation of risk management, which includes compliance and worker safety management, and the strengthening of corporate governance.

Given that the decline in resource prices has become long term, the ongoing appreciation of the yen and lower stock prices, and economic stagnation in China and certain other emerging markets, we are not able to look optimistically upon the current economic environment. However, all of us in the Shinsho Corporation Group should work as one to carry out each of the initiatives formulated into the medium term management plan.

Summary of Plans for Indices by Sector

(Billions of yen)
Sector FY2015 Results FY2016 Prospects FY2020 Plan
Iron & Steel 295.8 294.5 322.4
3.1 2.1 3.5
Raw Materials 240.8 189.1 231.9
0.8 0.5 1.3
Nonferrous Metals 207.9 215.7 311.9
1.2 1.2 2.4
Machinery & Electronics 65.0 77.7 83.6
0.7 0.9 1.4
Welding 38.6 46.4 50.4
0.2 0.3 0.6
Other -56.8 -63.3 -110.2
-0.1 -0.6 -1.1
Total 791.3 760.0 890.0
5.9 4.4 8.0

(Upper row: Net sales Lower row: Ordinary income)

Trends in Principal Management Indices

(Billions of yen)
  FY2015 Results FY2016 Prospects FY2020 Plan
Net sales 791.3 760.0 890.0
Ordinary income 5.9 4.4 8.0
Net income attributable to shareholders of the parent 3.5 2.7 5.2
ROE 8.2% 6.3% 8% more over
Shareholders' equity 42.1 43.6 50.0 more over
D/E ratio 1.4 times 1.3 times 1.0 times
Capital ratio 17.1% 16.3% 20% more over
Number of Employees (year-end) Consolidated 1,508 1,629 1,840
Nonconsolidated 517 530 590

top