Step I: Reinforce Foundation in Order to Achieve Our Long-term Vision

The end of this fiscal year marks one-and-a-half years since our former companies were merged in October 2013. Since that time, in March 2014, we announced the UACJ Group Vision for the Future, which sets forth the main goal of the merger: namely to become an aluminum industry leader in a competitive global market. Then in December 2014, the UACJ Group Global Step I mid-term management plan was formulated. This plan expands on the policies of the UACJ Group Vision for the Future, stipulating strategies for each business sector. The first stage in our roadmap for achieving the goals of our long-term vision, Global Step I, focuses on reinforcing foundations over the plan's three-year term, fiscal 2015-2017 (Fig. 1).

In preparing this plan, we carefully considered the progress we have made towards Group unity, synergies and global expansion since the merger, and made a close analysis of the projected market environment during the plan's term.

Global demand for flat rolled products is expected to continue to grow steadily, especially in regions such as Asia, North and Central Americas, and Europe. Competition is also expected to grow more severe, with rolled aluminum manufacturers engaging in large-scale plant and equipment investment in regions worldwide. Fuel and energy prices are also expected to continue to rise.

In light of this market environment, the mid-term management plan introduces three major polices for the Group: (1) Expand growth products in the transportation field—focusing on automobiles—and the energy field, and strengthen business in growth regions such as Asia; (2) Construct an optimal production network for each business sector utilizing the synergies created through unification; and (3) Develop unique technologies and products by applying our vast technological prowess to fundamental research.

In addition to formulating and implementing tangible measures for each business sector in line with these policies, we will move forward strengthening our global sales network, developing new technologies and products, training human resources capable of excelling on the global stage, and carrying out strategic capital investment. This approach will surely enable us to achieve the objectives set forth in the mid-term management plan.

Policies and Measures for Each Business Sector

Based on the three major policies of Vision for the Future, in the Group's core business of sheet products, we are working to construct an optimal global production network, create technological synergies and bring large-scale strategic investments into play as early as possible.

In Thailand, the second phase of construction—covering processes from casting to rolling—at the Rayong Works of UATH has been completed. Fully-integrated manufacturing began at the works in August 2015. In order to meet the thriving demand in Asian markets, the original plans for the Rayong Works were increased in scale, in terms of both quality and volume. As a leading integrated manufacturing plant in Asia, combining high quality with low cost, the Rayong Works will make a significant contribution to improving the global competitiveness of the UACJ Group.

Aluminum demand is expected to increase further in the future. We are currently working to establish a supply network capable of meeting this demand, targeting a yearly capacity of 200,000 tons by 2017. We are also exploring further capital investments to raise that capacity to 300,000 tons.

In North America, the use of aluminum BiW panels has been increasing rapidly as the result of stricter fuel efficiency regulations. In response, we set up a joint venture in the USA to manufacture and supply automotive BiW panels. Plant construction for the new company is currently underway, and operations are scheduled to commence in fiscal 2016. The plan is for annual capacity to be 100,000 tons, enabling the company to meet automotive manufacturers' needs by supplying high-quality products.

In Japan, restructuring by reallocating product mixes at domestic manufacturing bases is also underway, with reorganization expected to be completed in fiscal 2016. Specifically, we plan to increase productivity by aggregating rolling processes at the Fukui and Nagoya works, and specialize in thick plate and finishing processes at the Fukaya Works, and finishing processes at the Nikko Works. This will enable us to transfer surplus equipment that is not being used to overseas plants, thus minimizing overall capital expenditures. Further increases in demand for the thick plate used in the construction of LNG tankers are also expected, and this restructuring will enable us to produce the plate at the Fukaya Works as well as the Fukui Works.

In conjunction, we will also expand leading technologies and quality management systems at individual plants to other locations. This will enable production costs to be lowered by reducing energy consumption, and improving efficiency and yield.

In other areas as well, we are proceeding with measures based on matching each business environment and its strengths, as well as maximizing synergies between businesses in order to contribute to realizing sustainable growth and maximum Group profits.

Strategic Capital Investment Focused on Growth Regions

Our capital investment plan, which is designed to establish a foundation for greater growth, calls for spending at the scale of ¥90 billion over the three-year period, fiscal 2015-2017.

Approximately 60% of expected investment is targeted for growth areas and regions. Among growth areas, one of the leaders is the transportation industry, where aluminum parts continue to be introduced to meet the need for lighter weight automobiles, aircraft and other vehicles. Growth regions include areas such as Asia and the Middle East, where incredible economic growth is leading to increased demand in all fields, but especially in consumer goods such as can stock and foil.

While focusing on strategic investment in these fields, we will also be reducing upkeep, renovation and other general expenditures by reallocating product mixes at manufacturing bases in Japan.

Anticipating further growth, we ask for your continued guidance and support.

Regarding the forecast for fiscal 2015, while startup of the UATH Rayong Works will continue to incur costs, we also expect further post-merger synergies to develop from the effects of integration. An increase in the sales of thick plate for LNG tankers is also anticipated as the import of shale gas from North America and Canada commences. However, we expect to see an adverse effect on inventory valuation due to a drop in the market price of aluminum ingots.

As a result of these factors, as of July 31, 2015, we have amended the full-year forecast for fiscal 2015. We are now forecasting net sales of ¥610 billion, operating income of ¥17 billion, ordinary income of ¥13 billion, and net income of ¥6 billion.

Regarding dividends, we consider a stable and continuous return on investment as an important commitment. At the end of fiscal 2014, we distributed a dividend of ¥3 per share. For fiscal 2015, we expect to distribute an interim dividend of ¥3 per share and year-end dividend of an additional ¥3, for a yearly total of ¥6 per share.

In terms of forecasting further on, plans are to continue expanding production capacity at the UATH Rayong Works, where a fully-integrated manufacturing system was completed in August 2015. It is believed this will strengthen the global production network and enable sales overseas to be increased. Furthermore, with the export of U.S. shale gas to Japan scheduled to begin in 2017 and export of Canadian shale gas scheduled to begin around 2018, demand for the thick plate used in the construction of LNG tankers—one of our principal products—is expected to increase greatly, and should contribute significantly to sales.

As we look forward to these exciting challenges, we wish to humbly request your continued guidance and support.