alconix corporation

ALCONIX CORPORATION(Listed on TSE First Section, Code 3036)

November 2014

Financial Results MaterialsThe Second Quarter of the Fiscal Year Ending March 31, 2015

(Six Months Ended September 30, 2014)

Copyright ©2014 ALCONIX CORPORATION All Rights Reserved 2

Contents

- Results Materials -

Results Highlights 3

Topics 4

FY3/15 2Q Financial Results 5

FY3/15 Earnings Forecasts 15

Medium-term Business Plan 19


Results highlights (FY3/15 2Q) Overview

� The ALCONIX Group

Operation: Sales up, operating income up, ordinary income up, net income up

• Sales of parts used in smartphones and tablets as well as for environment-related and solar cell materials in the electronic materials

sector increased.

• Sales of aluminum scrap, metal silicon, tungsten and molybdenum, semiconductor manufacturing equipment parts increased backed by a

higher demand in the auto and semiconductor sectors.

• Transaction volume of light rare earth elements for batteries, magnets and catalysts in the auto industry increased. But total sales of rare

earths remained flat due to a drop in prices.

• In addition to the growth in overall group sales, recognition of non-operating income for share of profit of entities accounted for using

equity method, including gain on bargain purchase, associated with making K’MAC Co., Ltd. an equity method affiliate resulted in an

increase in profits at all levels.

Finance: Equity ratio 25.6 %; Net debt equity ratio 0.8x

• Though notes and accounts receivable-trade and payable-trade increased sharply due to higher transactions, retained earnings lifted net

assets. Therefore the equity ratio improved 1.3 points from the end of FY3/14.

• Increase in net assets caused the net debt equity ratio to maintain below 1.0x.

Consolidated Sales Consolidated Ordinary Income Major Consolidated Financial Indicators


Topics (April 2014- September 2014)

Forecast revision

Based on the consolidated results

of operations for the first half,

full-year forecast announced on

May 16, 2014 was upwardly

revised.

●●●● Overview of acquired business

Inventories of scrap electric wire, old copper, scrap brass and other copper scraps and equipment and supplies for business

operations (the scrap yard, warehouse and office formerly used by Inada Shokai at Kokurakita-ku in Kitakyushu are leased by

ALUMINUM & COPPER RECYCLING CENTER). Employees involved in the copper scrap business have transferred to ALUMINUM &

COPPER RECYCLING CENTER on this acquisition.

Acquisition of copper scrap business by a domestic consolidated subsidiary

On September 26, 2014, our consolidated subsidiary ALUMINUM & COPPER RECYCLING CENTER (note)

has reached an agreement with Inada Shokai K.K., to acquire this company’s copper recycling business.

Operation has started on November 1, 2014 ,as the Kitakyushu Branch of this subsidiary.(Note) OSAKA ALUMI CENTER CORPORATION, which was established in 2013, has renamed on September 1, 2014 following this acquisition.

●●●●Framework for the new business

ALUMINUM & COPPER RECYCLING CENTER has established the Kitakyushu

Branch (also known as the Inada Copper Center) to take over the acquired

business. ALCONIX will buy all copper scrap collected by this branch and sell it to

copper smelters and manufacturers of copper products in Japan. Using

collaboration between this subsidiary and the ALCONIX non-ferrous materials

business will lead to more growth of the Group’s recycling business.


Business Performance:

FY3/15 2Q Financial Results


Consolidated performance (FY3/15 2Q) Financial results

� There were higher sales of electronic materials used in the growing market sector of smartphones and tablets,

environment-related materials, and solar cell materials. Overseas, the increasing volume of materials sold to the

companies in the automobile and semiconductor industries contributed to sales growth. As for profits, earnings

benefited from the growth in overall group sales, and ordinary income increased sharply because share of profit of

entities accounted for using equity method, including gain on bargain purchase, associated with K’MAC Co., Ltd,

which became an equity method affiliate, was recognized as non-operating income. Net income also increased.

Sales: Increase in overall group sales

[Increase] Aluminum scrap

[Increase] Copper products (copper alloy strips)

[Increase] Metal silicon

[Increase] Tungsten, molybdenum

[Increase] Precision grinding processing parts

[Increase] Plating materials

[No change] Rare earths

[Decrease] Nickel powder (battery materials)

[Decrease] Copper tubes

[Decrease] Brass copper rod

Profits: Contribution from the gain on bargain

purchase associated with an equity method

affiliate

[Increase]

• Higher sales at all group companies (ALX, AMJ and

all consolidated subsidiaries acquired through M&A)

• Lower SG&A expenses due to reversal of allowance

for doubtful accounts

• Booking of share of profit of entities accounted for

using equity method, including gain on bargain

purchase associated with making K’MAC an equity

method affiliate, as non-operating income

[Decrease]

• Lower profit margin on imports because of the

weaker yen


Trend in results by quarter (for reference) Financial results

Second quarter sales were

higher than one year earlier in

all segments and higher than

in the previous six quarters.

Especially, all consolidated

subsidiaries that were

acquired contributed to this

sales growth.

Sales

Operating income up because

of overall sales growth. First

quarter ordinary income and

net income much higher due

to booking of share of profit of

entities accounted for using

equity method, including gain

on bargain purchase

associated with making K’MAC

an equity method affiliate, as

non-operating income.

Excluding this equity-method

income, earnings have been

climbing steadily during the

past five quarters.

Profits

Net Sales Operating Income

Ordinary Income Net Income


Operating segment information (net sales/segment profit or loss) Financial results

� Electronic and advanced materials returned to the largest share of sales due to growth in demand for electronic materials.

Light metals and copper products earnings were much higher because of the strong performance of manufacturing

subsidiaries and gain on bargain purchase. Sales and profits for non-ferrous materials were higher along with a big increase

in the volume of metal silicon and aluminum scrap. • Electronic and advanced materials: Returned to the largest share of sales. Sales and earnings increased because of higher sales of electronic materials

in the growing market of smartphones and tablets and of automotive materials.

• Light metals and copper products: Earnings improved significantly. Sales increased at all subsidiaries in Japan and earnings were much higher at

manufacturing subsidiary OHBA SEIKEN. In addition, share of profit of entities accounted for using equity method, including gain on bargain purchase

associated with making K’MAC an equity method affiliate, was booked as non-operating income.

• Non-ferrous materials: Sales and earnings increased along with a big increase in the volume of metal silicon and aluminum scrap.

• Construction and industrial materials: Earnings decreased due to lower earnings from domestic and import sales, the result of the April 2014

consumption tax increase and weaker yen, and to the depreciation of the Thai baht.


Light metals and copper products Financial results

• Weak demand for housing construction materials due to the consumption

tax hike, soring construction material prices and labor shortages.

• Steady sales of parts for automobile, aircrafts and semiconductor

production equipment. Especially, the earnings contribution from OHBA

SEIKEN increased thanks to strong demand for smartphones and tablet

materials.

• Higher sales at domestic consolidated subsidiaries in this segment,

including the domestic distribution subsidiary.

• Segment profits increased sharply because share of profit of entities

accounted for using equity method, including gain on bargain purchase,

associated with making K’MAC Co., Ltd. an equity method affiliate was

recognized as non-operating income.

Increase

Precision grinding processing parts, copper alloy strips, aluminum electrolytic

foils, semiconductor-related materials (copper strips), etc.

Decrease

Copper tubes, aluminum fins, ground plane for aluminum foils, brass copper

tubes, etc.

(Unit: million yen) Net Sales

Segment Profit


Electronic and advanced materials Financial results

• Sales of smartphone and tablet materials increased.

• Exports of environmental-related materials as well as sales of solar cell

materials were also strong.

• Consolidated manufacturing subsidiary UNIVERTICAL contributed to higher

sales in China.

• Exports of titanium and nickel products for power generation and chemical

plants are recovering.

[Minor metal, rare earth]

• Sales of minor metals such as tungsten and molybdenum increased thanks to

strong demand from auto industry and increased sales from overseas

consolidated subsidiaries.

• In the field of rare earths, demand was higher for battery, magnetic magnet,

catalyst applications due to the winding down of inventory corrections at

customers and strong demand from overseas auto industry. However sales of

light rare earth elements continued to be flat because of a decline in prices.

Sales of heavy rare earths remained stagnant.

Increase

Tungsten, molybdenum, plating materials, titanium sponge, titanium and nickel

products, battery pack materials, solar cell materials (frames, cables),

environmental-related materials (compound semiconductors, wafer, etc.), etc.

Decrease

Oxygen-free copper, battery materials (nickel powder), heavy rare earth

elements, etc.


Segment Profit


Non-ferrous materials Financial results

Increase

Recycled aluminum ingots, copper scrap, metal silicon, aluminum scrap, zinc

ingots, etc.

Decrease

Magnesium ingots, aluminum deoxidizer materials used in steel mills, etc.

• Sales of metal silicon increased substantially due to strong demand

from auto and semiconductor industries. Also, sales of primary

products, recycled aluminum ingots and copper scrap for copper

refining, were at the same level as one year earlier.

• Consolidated subsidiary ALUMINUM & COPPER RECYCLING

CENTER CORPORATION (formerly OSAKA ALUMI CENTER

CORPORATION) contributed significantly to sales of aluminum

scrap through coordination with non-ferrous materials division of

the Company.


Segment Profit


Construction and industrial materials Financial results

Increase

Bronze ingots, joints/flanges, cock/valve, valve parts, etc.

Decrease

Brass copper rods, etc.

• Domestic construction materials industry slumped due to a reaction

to consumption tax hike, soring materials prices, and labor

shortages. Sales of piping equipment in Japan was sluggish.

• Exports of piping equipment to Asia and the Middle East increased.

• Imports of bulk tanks and forge/foundry materials were weak due to

the higher costs resulting from the weaker yen.


Segment Profit


Consolidated balance sheet (FY3/15 2Q) Financial results

Assets (major components)

� Current assets

• Notes and accounts receivable-trade (due to collection of receivables)

• Inventories (higher transactions)

� Non-current assets

• Property, plant and equipment (depreciation)

• Intangible assets (amortization)

• Investment securities (acquisition of affiliate’s stock offset the

redemption of bonds)

Liabilities and Net Assets (major components)

� Current liabilities

• Notes and accounts payable-trade (due to payment of payables)

• Short-term loans payable (shift from long-term account, etc.)

� Non-current liabilities

• Bonds payable, long-term loans payable (transferred to current liabilities)

� Net assets

• Retained earnings (net income – dividends paid)

• Foreign currency translation adjustments (weaker Chinese yuan)

• Valuation difference on securities (reevaluation of listed stocks)


Financial resultsConsolidated cash flows (FY3/15 2Q)


FY3/15 Earnings Forecast and Progress Ratio

- Announced forecast revision on November 6, 2014 -


Full-year earnings forecasts (FY3/15) Earnings forecast

� Fiscal year earnings forecast raised because of the strong first half performance

• Second half earnings forecast is slightly higher despite the uncertain economic outlook in Europe and China.

Expect continued strength in the electronic materials sector.

• For rare earths, demand for light rare earth elements is recovering but we expect prices to remain low.

• Anticipate higher overseas transaction volume (at subsidiaries) because of growth in demand for non-ferrous

metals.


Full-year earnings forecasts by segment (FY3/15) Earnings forecast

� Electronic and advanced materials will rank first in second half earnings,

backed by strong demand for materials used in smartphones, tablets and automobiles • Light metals and copper products: Earnings lower than in the first half mainly because of seasonal factors in the

semiconductor sector

• Non-ferrous materials: The newly acquired copper scrap business (Inada Copper Center) will start contributing to earnings

in the second half.

• Construction and industrial materials: Earnings will be greatly affected by market conditions overseas, especially in Thailand.


Trend in consolidated earnings Earnings forecast

Net Sales Operating Income

Ordinary Income Net Income

*Net income per share figures are adjusted to reflect the stock split on August 1.


Medium-term Business Planfor the Three-year Period from FY3/15 to FY3/17

Our three-year business plan is a "rolling-style" business plan updated once a

year to adapt to changes in the business environment and promote speedier

decision-making.


Overall image of medium-term business plan Medium-term business plan


Performance targets (final year: end-March 2017) Medium-term business plan

Consolidated ordinary income: Over ¥5 billion (FY3/17)

¥15 billion over three years

Target: M&As; business investments;

net capital expenditure (capital expenditure – amount written off)

Consolidated net income: Over ¥3.5 billion (FY3/17)

ROE: Around 13-15% (FY3/17) NET DER: Around 1.0-1.3x (FY3/17)

Profit targets

Investment

plans

Management

benchmarks

For more details, please see page 27

“Promotion of investment activities”


Performance targets by business Medium-term business plan

Net Sales Segment Profit


Strengthen operating revenue 1

(1) Electronic materials business

Action plan/Medium-term business plan

Build a business model that extends from raw materials (minor metals and rare earths) to products (electronic

materials, advanced materials)

We have a high market share in the electronic and

advanced materials category, a field where Japan boasts

many of the world’s most advanced technologies

Establish a powerful operating framework by combining

the resources of ALCONIX and consolidated subsidiary

ADVANCED MATERIAL JAPAN CORPORATION (AMJ), which

specializes in the procurement of raw materials

Products supplied by the ALCONIX Group are vital to the

production of hybrid cars and smartphones and tablets

For information about market share

See page 18 of the Appendix booklet

AMJ’s most recent results (end-Mar 2014)

Net sales: ¥28,224 million

For information about shipments of hybrid cars and smartphones

See pages 25 and 26 of the Appendix booklet



(2) Environment-related businesses


A broad range of activities in Japan and other countries that encompass energy conservation, environmental

materials and recycling



(3) Overseas business

Overseas network

ALCONIX advantages

High overseas trade ratio

Growing import/export and

trilateral transactions

11 overseas subsidiaries, 16

locations


Expand local transactions with Japanese companies overseas and foreign companies

1 Expand local transactions

More triangular transactions, using our overseas network

2 Expand trilateral business

Plan to establish branches in Indonesia and India to extend the overseas network

3 Expand overseas network

Example) Shanghai subsidiary is enlarging its sales network in China by opening

offices in Beijing, Guangzhou and Shenzhen.

Example) An ALCONIX subsidiary has established a subsidiary in Singapore.

Value of trade (FY3/13, consolidated) Trade Category Sales Composition (FY3/14, consolidated)


Promotion of investment activities 1 Action plan/Medium-term business plan

(1) Track records

We have promoted M&A which is effective for short-term business expansion, business investment in metals

fabrication and sales to develop new trade channels, and investment in recycling and other projects to secure

natural resources, as core strategies for investment activities.


Promotion of investment activities 2 Action plan/Medium-term business plan

(2) Boosting manufacturing presence

Through M&A in the manufacturing sector and investment and loans to the sector, we are looking to generate synergies

through integrated management of both trading and manufacturing functions. We believe this will enhance the ALCONIX

Group's uniqueness and competitive advantage, and by integrating everything from raw materials procurement, to

manufacturing, and sales, we aim to bolster our market competitiveness and create a stable earnings structure.


(3) Projects under consideration

Action plan/Medium-term business planPromotion of investment activities 3

We plan to make investments and loans of ¥15 billion in three years with focus on M&A

(Metals, chemical products and fabrication)

• Invest in K’MAC, a manufacturer of automotive parts and residential construction materials

• Invest in copper tube manufacturer in the United States

• Invest in and make loans to a joint venture for metal processing product manufacture and coil slit

center in China and the Southeast Asia.

(Securing natural resources)

• Invest in and make loans to minor metal recycling businesses in Japan and other countries

• Invest in and make loans to minor metal and rare earth mines, and refining businesses (ASEAN

and other regions)

• In addition to the above investments and loans, ALCONIX Group companies plan following

capital expenditures totaling approximately ¥3 billion over three years: OHKAWA CORP. to

construct a plant for processing aircraft parts; UNIVERTICAL HOLDINGS INC. to purchase

production equipment and take other measures to meet demand for metal plating

materials in China.

• Promote M&As in Japan and other countries mainly in the manufacturing sector

• With a focus on non-ferrous metals, target wide variety of fields including steel, chemicals

and other materials through the sectors below

Upstream: manufacturers and recycle centers

Midstream: trading firms

Downstream: wholesalers and retailers

M&As

Investments

and loans

Capital

expenditure


Strengths of the ALCONIX Group Action plan/Medium-term business plan

1) Powerful organizing functions linking demand and supplyThe ALCONIX Group is a trading firm that specializes in non-ferrous metals from upstream to downstream functions

(final manufacturing)

See “Business fields" on page 12 of the Appendix booklet

2) Top-class performance in minor metals and rare earth for electronic materialsShare of import volumes to Japan: 50% of metal titanium, 70% of nickel powder, almost 30% of rare earths, and

more than 30% of tungsten compounds; share of export volumes from Japan: almost 20% of titanium products

See “Market position (share)” on page 18 of the Appendix booklet

3) Solid overseas network11 overseas subsidiaries, 16 locations

Our proprietary network of overseas subsidiaries plus the overseas sites of an agency

See “Solid overseas network” on page 9 of the Appendix booklet

4) Successful M&AConcluded 10 M&As and invested in 30 companies (including 17 after the MBO)

Wide range of business investments (in line with strategy of expanding business fields)

5) Staff with rich experience

These materials were prepared to help investors understand ALCONIX and were not intended as a solicitation for investment in ALCONIX. These materials

were prepared carefully for accuracy, but the completeness of these materials cannot be guaranteed. ALCONIX will not be held responsible for any problems

or damages that result from the information provided in these materials. Earnings forecasts and other future forecasts in these materials were made based on

the judgment of ALCONIX using information available at the time these materials were prepared. These forecasts embody latent risk and uncertainty. Please

understand that actual earnings may differ from these forecasts due to changes in the business environment and other factors.

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