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A Message to Investors

About ONEX Corporation

Since it was established in 1951, ONEX Corporation has taken a leading position in the industry as a comprehensive metal heat treatment service provider and equipment manufacturer, having accumulated a wide range of carburizing technologies that include vacuum heat treatment, high-frequency heat treatment, nitriding treatment, and ceramic coating. Based on its principle of always putting the customer first, ONEX aims to make further technological advances while leaping ahead of the competition as a leading listed company specializing in heat treatment.

Find out more about ONEX Corporation

ONEX's technologies

An overview of ONEX's technologies that support Japan's manufacturing industry

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ONEX's technological advantages

An explanation of how ONEX has derived technological advantages from effectively integrating strict quality control and precise control technologies with heat treatment technologies developed over many years

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Financial highlights

Updated data on ONEX's financial results and indicators

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Latest
2Q

Latest financial report

A report on ONEX's latest financial results and outlook

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2Q

Corporate governance

An overview of ONEX's corporate structure and fundamental approach to governance

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Financial highlights (non-consolidated)

consolidated

million yen %

Net sales

Net assets

Ordinary income

Total assets

Net income attributable to shareholders of the parent company (loss)

Equity ratio (%)

Return on equity (%)

Return on assets (%)

non-consolidated

(Thousands of yen)
FY2011 FY2012 FY2013 FY2014 FY2015 FY2016
Net sales 5,143,904 5,269,806 4,362,705 4,418,121 4,628,596 4,529,747
Ordinary income 637,328 597,867 111,289 61,260 292,816 120,002
Net income attributable to shareholders of the parent company (loss) 361,140 332,491 139,774 34,976 174,619 69,999
Net assets 4,749,101 5,014,768 5,011,491 5,005,875 5,184,494 5,177,203
Total assets 8,639,719 7,757,482 7,379,748 7,363,510 8,005,626 8,806,417
Net assets per share 271.72 286.94 302.47 302.16 313.00 312.58
Equity ratio (%) 55.0 64.6 67.9 68.0 64.8 58.8
Return on equity (%) 7.89 6.81 2.79 0.70 3.43 1.35
Return on assets (%) 4.2 4.3 1.9 0.5 2.2 0.8

Financial highlights (2Q FY2017)

Consolidated

(Thousands of yen)
2Q FY2017 2Q FY2016 Increase (decrease)
Net sales 2,666,471 2,507,131 6.4%
Operating income 134,034 138,263 -3.1%
Ordinary income 135,470 144,905 -6.5%
Net income (loss) attributable to shareholders of the parent company 58,088 79,713 -27.1%

Segment Information (2Q FY2017)

(Thousands of yen)
Metal Heat Treatment and Processing Business Logistics Business Adjustments Amount recorded on quarterly consolidated statements of income
Sales to external customers 2,367,936 298,535   2,666,471
Internal sales or transfers between segments   136,845 -136,845  
Total 2,367,936 435,380 -136,845 2,666,471
Segment income 99,703 17,113 17,217 134,034

Latest financial report

Analysis of Financial Results

During the fiscal year ended June 30, 2016, the Japanese economy continued to recover moderately amid ongoing improvements in employment and income conditions. Nevertheless, caution regarding the business outlook grew as the yen continued to appreciate and stock prices declined following the adoption of a negative interest rate policy by the Bank of Japan. The global economy appeared at risk of a downturn due to developments in the financial and capital markets. Although the U.S. economy continued to pick up, there was a strong tendency worldwide to avoid risks in view of the outlook for a number of trends, including uncertainty in Europe due to problems associated with the United Kingdom's withdrawal from the European Union, together with declining prices for resources, the slowdown of economic growth in emerging and resource-rich countries, and diverging monetary policies in advanced countries.

Against this backdrop, the ONEX Group worked to secure orders and cut costs. In its Metal Heat Treatment and Processing Business segment, the Group carried out measures to shorten delivery times and optimize production at each of its factories. Given the ongoing decline in the price of butane, a main material in this business, manufacturing cost prices decreased. On the other hand, orders were down in the first half of the fiscal year as a result of production adjustments in China, reflecting the country's economic slowdown. The launch of mass production at ONEX Tech Center Corporation, a consolidated subsidiary that began operations in December 2015, was delayed, and costs were incurred for equipment needed for mass production. In addition, due to the impact of falling interest rates in the market, liabilities for retirement benefits rose markedly by ¥244 million (up ¥38 million compared to the previous fiscal year). As a result of these factors, both sales and income in this segment fell year on year. Likewise, sales decreased year on year in the Logistics Business segment, mainly due to declining shipments of road-building equipment.

As a result of the factors described above, consolidated sales and every level of income decreased compared with the previous fiscal year. In the fiscal year under review, net sales amounted to ¥5,151 million, down 1.2% year on year. The Company posted an operating loss of ¥32 million and an ordinary loss of ¥27 million, compared with operating income of ¥313 million and ordinary income of ¥324 million in the previous fiscal year. Likewise, net income attributable to shareholders of the parent company of ¥191 million in the previous fiscal year turned into a net loss of ¥85 million in the fiscal year under review.

Financial results by segment are presented as follows.

[Metal Heat Treatment and Processing Business Segment (ONEX Corporation and ONEX Tech Center Corporation)]

In this segment, energy costs, including gas and electricity, decreased in line with the declining price of crude oil. The Group worked to lower cost prices by optimizing production and shortening delivery times. On the sales front, orders for heat treatment from automotive-related industries-the Group's main source of customers-were solid in the fiscal year under review. On the other hand, orders for heat treatment of construction machinery and industrial machinery decreased temporarily, mainly due to the economic slowdown in China. Industrial machinery-related orders rebounded in the second half of the fiscal year, but construction machinery-related orders remained sluggish. Consequently, sales decreased overall compared to the previous fiscal year.

In the wind power generation industry, the Group is mainly involved in the heat processing of gears for gearboxes. While opportunities for adopting renewable energy are growing, the industry has stagnated in Japan due to a requirement imposed on developers to conduct wind power environmental assessments, effective from October 2012. In the fiscal year under review, facilities for which environmental assessments had been completed began operating according to rates set under Japan's feed-in tariff system, but the industry was negatively affected by the low price of crude oil and intensifying competition from foreign companies. Reflecting these factors, orders fell year on year.

Ordinary income and net income both decreased in this segment compared with the previous fiscal year, mainly due to higher costs of sales and selling, general and administrative expenses, as well as a substantial rise in liabilities for retirement benefits, which grew ¥246 million year on year (up ¥35 million compared to the previous fiscal year) as a result of lower market interest rates. If the discount rate used to calculate retirement benefit obligations decreases substantially as a result of falling market interest rates, the Company will process the retirement benefits as a lump sum in the accrued fiscal year.

As a result of the factors described above, net sales in this segment edged down 0.5% year on year to ¥4,604 million, while segment income of ¥252 million in the previous fiscal year turned into a loss of ¥87 million.

[Logistics Business Segment (ONEX Line Corporation)]

In this segment, sales decreased compared with the previous fiscal year due to a temporary fall in orders from customers involved in road pavement work. Nevertheless, the business made use of leased vehicles for deliveries, and strove to reduce fuel consumption by carefully managing operations, rationalizing vehicle allocation, and promoting eco-friendly driving. Fuel costs decreased due to the decline in diesel prices. Despite these efforts, segment income fell year on year due to higher depreciation costs, which reflected an increase in the segment's total number of vehicles owing to the opening of a new facility in Mie Prefecture.

As a result of the above factors, the Logistics Business segment posted net sales of ¥547 million, down 6.2% year on year, and segment income of ¥23 million, a decrease of 23.5%.

Forecast of Financial Results in the Fiscal Year Ending June 30, 2017

Looking ahead in the fiscal year underway, Japan's economy is expected to continue its moderate recovery on the back of government measures. Nevertheless, downside risks are growing as a result of changes in the financial and capital markets and rising uncertainty in the global economy associated with exchange rate and crude oil price fluctuations, economic trends in resource-rich countries and emerging countries, particularly China, and the issue of the United Kingdom's separation from the European Union.

Based on this outlook, and to respond to structural shifts in Japan's manufacturing industries, the ONEX Group is establishing a production system that can more quickly meet the needs of customers. To achieve these ends, the Group has expanded its network of facilities with the startup of ONEX Tech Center Corporation's heat treatment plant in the city of Kameyama in Mie Prefecture. These plans to expand the facilities, however, include large initial investments in industrial machinery. Therefore, ONEX Tech Center Corporation is expected to post an operating loss, and the Company forecasts year-on-year decreases in income, while net sales are forecast to increase.

In consideration of these factors, ONEX Corporation forecasts the following consolidated financial results in the fiscal year ending June 30, 2017: net sales of ¥5,390 million, a year-on-year increase of 4.7%, operating income of ¥20 million, ordinary income of ¥30 million, and a net loss attributable to shareholders of the parent company of ¥60 million.

Latest financial report (2Q FY2017)

Analysis of financial results

During the six months ended December 31, 2016 (hereafter, "the first half"), the Japanese economy continued to recover moderately amid ongoing improvement in the employment and income environment. On the other hand, corporate earnings stopped improving due in part to rising energy prices following a lull in the low price of crude oil and advancing yen depreciation. Overseas, the risk of fluctuation in foreign exchange as well as financial and capital markets grew due to an economic slowdown in such areas as Asian emerging countries including China, the impact of problems associated with the United Kingdom's withdrawal from the European Union and trends following the presidential election in the United States. All of this led to a heightened sense of future uncertainty.

Against this economic backdrop, the ONEX Group worked to boost productivity and cut costs with the aim of increasing profitability. Construction machinery-related orders remained weak and industrial machinery-related orders leveled off in the automotive, construction machinery and industrial machinery related industries, the Group's main source of customers. Despite this, orders for heat treatment for automotive components were solid. In addition, sales grew year on year due to a rise in sales at ONEX Tech Center Corporation. On the cost front, production expenses fell, including those for gas and electricity, while efforts were made to reduce costs elsewhere. Nonetheless, ONEX Tech Center Corporation recorded an operating loss due to the high burden of expenses in factory supplies and depreciation relative to sales. As a result, income was down year on year.

As a result of the business climate described above, net sales for the first half were up 6.4% year on year to ¥2,666 million, operating income fell 3.1% to ¥134 million, ordinary income was down 6.5% to ¥135 million, and net income attributable to shareholders of the parent company decreased 27.1% to ¥58 million.

Financial results by segment are presented as follows.

1. Metal Heat Treatment and Processing Business Segment

In this segment, we saw brisk orders for heat treatment from automotive-related industries, the Group's main source of customers. Orders for heat treatment of industrial equipment leveled off, and orders for heat treatment of construction machinery decreased due primarily to a slowdown in the global economy. Sales rose year on year due to sales growth at ONEX Tech Center Corporation.

Operating income grew year on year at ONEX Corporation, supported by lower gas and electricity costs, coupled with Group drive to secure profits by boosting productivity and cutting personnel and other costs. ONEX Tech Center Corporation recorded an operating loss, however, which led to an overall decline in segment income.

As a result of these factors, net sales in this segment increased 6.6% year on year to ¥2,367 million while segment income fell 2.0% to ¥99 million.

2. Logistics Business Segment

In this segment, sales were firm due to a rise in sales associated with the opening of a new facility in Mie Prefecture and stability in business associated with the transportation of heavy loads such as machinery. In addition, light oil prices decreased and the business made use of leased vehicles for deliveries, while reducing fuel consumption by carefully managing operations, improving efficiency in vehicle allocation and promoting eco-friendly driving.

As a result of these factors, net sales in this segment increased 4.4% year on year to ¥298 million, while segment income fell 23.0% to ¥17 million.

Qualitative information concerning consolidated financial condition

1. Assets, liabilities and net assets

(Assets)
Total assets amounted to ¥10,130 million, up ¥977 million compared with the previous fiscal year-end. This mainly reflected an increase of ¥966 million in cash and deposits.

(Liabilities)
Total liabilities were ¥4,901 million, a rise of ¥906 million compared with the previous fiscal year-end. This was due primarily to an increase of ¥965 million in long-term borrowings.

(Net assets)
Total net assets amounted to ¥5,228 million, up ¥72 million compared with the previous fiscal year-end. This mainly resulted from an increase of ¥24 million in retained earnings and of ¥46 million in valuation difference on available-for-sale securities.

2. Cash flows

Cash and cash equivalents (hereafter, "net cash") for the first half increased by ¥966 million relative to the previous fiscal year-end, to ¥2,310 million.

(Cash flow from operating activities)
Net cash provided by operating activities stood at ¥457 million, compared with ¥127 million in the previous first half. This was due mainly to the recording of ¥144 million in income before income taxes and ¥270 million in depreciation, despite ¥67 million in income tax payments.

(Cash flow from investing activities)
Net cash used in investing activities was ¥350 million, compared with ¥1,247 million in the previous first half. This was due primarily to payments of ¥347 million for the acquisition of property, plant and equipment.

(Cash flow from financing activities)
Net cash provided by financing activities was ¥859 million, compared with ¥753 million in the previous first half. This mainly reflected ¥1,225 million in income from long-term borrowings, despite outflows such as ¥259 million in repayment of long-term borrowings.

Qualitative information concerning consolidated financial forecasts

No changes have been made to the consolidated financial forecasts announced on August 10, 2016 for the first half and year ending June 30, 2017.

Forward-looking statements made in this report are based on information currently available to management and certain assumptions deemed by management to be reasonable. A variety of factors could cause actual results to differ significantly from those projected.

Inquiries concerning Investor Relations

Please send any inquiries on investor relations to the following e-mail address.

ir@onex.jp

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