Mitsubishi Steel Mfg.Co.,Ltd. Q2 FY2026 earnings call

• Overall Business Context & Financial Summary

  • This fiscal year is the final year of the current 2023 medium-term management plan. Demand weakness in domestic steel, uncertainty around US tariffs, and the recent Muroran Combinat blast furnace incident have pushed operating profit below target, but management is working to approach the 8% ROE KPI and advance progress toward the 2030 vision.
  • Second quarter aggregate results: Sales were slightly down year-over-year as strategic business growth offset domestic steel headwinds. Operating profit fell 1.1 billion yen year-over-year due to the domestic steel impact, but net profit improved 0.7 billion yen year-over-year thanks to the absence of last year's German spring business impairment loss and improved non-operating income.
  • Working capital and balance sheet improvements have delivered a 4.4 billion yen positive cash creation effect over the current medium-term plan period, driven by shorter cash conversion cycles, working capital optimization, and low-utilization asset rationalization. This cash has been used to reduce interest-bearing debt, lower interest costs, improve equity ratio, and balance strategic investment with stable shareholder returns.

• Strategic Investment Progress

  • Precision components (smart device hinges): Capacity expansion will be fully completed this fiscal year, already delivering 3 billion yen in annual sales growth, exceeding plan.
  • Special alloy powder: Capacity is being doubled for soft magnetic powder used in automotive and consumer electronics inductors, with current lines operating near full capacity on strong order growth. Development is ongoing for gas atomized powder for 3D printing for aerospace and defense applications.
  • Overseas steel: Round steel finishing lines have been upgraded at JATIM, with further expansion delayed pending clearer ASEAN demand recovery. JATIM now sources 100% renewable power, supporting green steel offerings.
  • Offshore wind: A new 4.6 billion yen new factory is under construction at Mitsubishi Nagasaki Kiko in Kaminoshima, Nagasaki, scheduled to start operations in January 2027, to capture growing demand from offshore wind and defense sectors, with phased investment to limit launch risk.
  • A large bending roll capable of forming 130mm thick steel plate has been installed to improve processing efficiency for large offshore wind turbine components.

• Current Medium-Term Plan Closing & Next Medium-Term Plan Direction

  • The final six months will complete staff reallocation and business portfolio optimization: North American automotive spring production will be consolidated from Mexico to the US, and Chinese automotive spring structural reform will be finalized within the current plan period, alongside further low-utilization asset sales.
  • The next medium-term plan will focus on high-return growth centered on strategic businesses, with a focus on limiting short-term capital efficiency dilution from investment, improving long-term returns via talent development, accelerating early invested capital payback, and delivering sustained ROIC improvement.

• Human Capital & Sustainability

  • 0.5 billion yen has been invested in talent development, training, wage improvements, and workplace upgrades, with an additional 0.5 billion yen allocated for further improvements. Employee engagement scores are improving, and the company holds the Certified Excellent Health Management designation.
  • Carbon neutrality targets for 2030 have been updated and are on track, with multiple ESG recognitions achieved. JATIM switched to 100% renewable power in October 2025, supporting the company's green steel strategy. A new patent has been filed for steel slag utilization products, and human rights due diligence has been expanded to key suppliers.

1. Special Steel Materials: Domestic segment saw a slight decrease in in-house sales volume, with revenue declining due to lower contracted volumes and selling prices tied to falling raw material costs. Overseas operations (Indonesia's JATIM) saw increased sales volume to two-wheeled and passenger vehicle segments, delivering revenue and profit growth. Overall, domestic profit declined sharply due to volume drops and productivity deterioration, while overseas operations remained solid. For the full fiscal year, the segment expects a revenue decrease overall: JATIM will deliver revenue growth from recovering demand and new customer expansion, but domestic headwinds will drive a sharp full-year profit decline. 2. Spring Business: Even with the impact of exiting the German spring business last year, the segment delivered revenue and profit growth, led by strong performance from the precision spring business and solid domestic spring sales volume. For the full fiscal year, the segment expects continued revenue and profit growth, driven by volume increases in precision and domestic/Asian spring operations and productivity improvements. 3. Shaped Materials: European turbocharger special alloy powder sales volume increased, but revenue declined due to lower sales of precision castings. The segment delivered profit growth, as cost pass-through for elevated input costs was completed and productivity improved. For the full fiscal year, revenue is expected to be flat year-over-year (special alloy powder growth offsets other product declines), with profit growth driven by continued cost pass-through and improved production costs. 4. Equipment and Machinery: Revenue grew on higher sales of protective equipment, forging presses, and overseas power equipment, but operating profit was flat year-over-year due to temporary Q1 productivity deterioration. For the full fiscal year, the segment expects revenue and profit growth, supported by large defense and forging projects, strong overseas power equipment demand from prior year order backlog, and improved production costs, with annual orders targeted at 12 billion yen.

• Full-year consolidated revenue is expected to be flat year-over-year: growth from precision spring volume is offset by domestic steel revenue declines, aligning with prior year levels.
  • Spring business full-year revenue and operating profit are revised upward from initial guidance, as performance has been stronger than expected and US tariff impacts have been lighter than forecast.
  • Full-year profit guidance is revised downward overall, driven by large negative impacts from lower volumes and the blast furnace incident in the domestic special steel business that outweighs upward revisions for other segments.
  • Special alloy powder revenue recognition is delayed to the next medium-term plan period due to slower-than-expected demand growth tied to EV market slowdown.
  • The dividend policy remains unchanged from the initial announcement at the start of the fiscal year.
  • Full-year non-operating income is expected to see a slight improvement, while extraordinary income is expected to see a large improvement from planned asset sales.

• The Muroran Combinat blast furnace has been partially restarted, with full resolution of operational impacts expected in the third quarter, but recovery work continues with significant uncertainty, leaving full-year profit results exposed to upward or downward swings.
  • Domestic steel demand remains weak with no clear near-term recovery expected, pressuring domestic segment profitability. The blast furnace incident has added supply constraints that further compress earnings.
  • US tariff policy (Trump-era tariffs) creates ongoing uncertainty for North American spring operations, with continued volatility in the operating environment.
  • Global automotive demand slowdown, particularly in China and ASEAN, has delayed recovery for automotive-related businesses and pushed capacity expansion plans to later periods.
  • Special alloy powder demand growth has been slower than initially projected due to EV market growth slowdown, pushing revenue contributions to the next medium-term plan. Decisions on a second vehicle spring base outside Indonesia are delayed by demand uncertainty, US tariff impacts, and geopolitical risk.

Q: What explains the difference between current full-year operating profit change drivers and initial guidance, specifically the larger-than-expected impact of lower selling prices and larger volume growth impact? / A: The larger volume growth impact comes primarily from stronger-than-expected performance in the spring business, which has added more to profit than initially forecast. The larger negative selling price impact is tied to larger-than-expected falls in iron ore and coking coal prices, which fed through to lower selling prices. This sharp raw material price decline was difficult to forecast at the time of initial guidance, creating the deviation from initial projections.

Q: Can you share an update on progress of strategic businesses over the current medium-term plan, highlighting successes and challenges? / A: Precision components (smart device hinges) have significantly exceeded plan, with higher orders than projected and already delivering strong profit contributions, driven by proactive development leveraging the company's patent portfolio. Special alloy powder capacity expansion is ongoing, but demand growth has been slower than expected due to EV slowdown, so revenue will be pushed to the next medium-term plan. Overseas steel at JATIM is profitable overall, but ASEAN demand recovery is delayed, so capacity expansion is being pushed back, though green steel progress is on track. Offshore wind projects have uncertainty after Mitsubishi Corp's exit, but results were never included in current medium-term plan targets, with gains expected in the next plan. Unplanned strong growth in defense and energy-related products makes them new priority investment areas.

Q: What is the impact of Mitsubishi Corp's withdrawal from offshore wind on Mitsubishi Steel's earnings? / A: There is almost no material impact on consolidated earnings. The three projects tied to Mitsubishi Corp were never included in earnings projections or the medium-term plan, as the company is progressing with multiple other offshore wind projects, so no changes are needed to forecasts.

Q: What is the outlook for green steel supply from JATIM? / A: JATIM has just switched to 100% renewable power and obtained non-fossil certificates, so concrete commercial plans are still in development. The company expects green steel to be used for green leaf springs, which would be the world's first product of this type and strengthen competitiveness for the spring strategic business. Round steel demand for green steel depends on customer needs, so demand outlook is unclear at this stage.