DMG Mori : Consolidated Financial Results Release for the First Half (Jan-Jun) of FY2021

DMG MORI CO., LTD.

2-3-23, Shiomi, Kotoku, Tokyo, 135-0052, Japan

Tel.: [phone]

August 5th, 2021

DMG MORI Co., Ltd.

61% growth of orders in the first half/ Further upward revision of full year forecast

Key figures
(JPY bn)		FY2021.1H*	(YoY)	FY2020.1H	*January - June
Consolidated order Intake	：	218.4 bn	(+61.2%)	135.5	bn
Machine order backlog	：	142.0 bn	-	96.0	bn	(End of Dec. 2020)
Sales revenue	：	178.2	bn	(+15.5%)	154.3	bn
Operating profit	：	10.2	bn	(4.2x)	2.4	bn
Operating profit margin	：	5.7%		1.6%
Net profit attributable to the owners of	：	6.1	bn		-2.2 bn
the parent
Net profit attributable to ordinary	：	5.0	bn		-2.7 bn
shareholders

[First half summary]

DMG MORI's order inflow began to recover in earnest in the first quarter of 2021 (January-March 2021) and accelerated further in the second quarter (April-June). Orders in Japan, which had been slow to recover, started to increase in the second quarter, and demand for machine tools has been expanding worldwide.

Consolidated orders for the first half of 2021 (January-June 2021) were JPY218.4 billion, up 61% from the same period of last year. Integrated machines such as 5-axis machines and mill-turn centers as well as automation and full turnkey systems with peripheral equipment and software products, in which we have competitive advantages, contributed to the order growth. The order backlog for machinery increased by JPY46 billion to JPY142 billion at the end of June 2021 from JPY96 billion at the end of December 2020.

Strengthening the cost structures during the last year has now led to a significant improvement in the profit margin as sales increase. Sales for the first half of 2021 increased to JPY178.2 billion, up16% year-on-year and operating profit jumped to JPY10.2 billion, up 4.2 times, resulting in a significant improvement of the operating profit margin with 5.7% (1.6% in the same period of 2020). In April 2020, DMG MORI acquired additional shares in DMG MORI AG (hereinafter referred to as AG), thereby reducing the amount of annual recurring compensation owed to non-controlling shareholders of AG under the DPLTA (Domination Profit and Loss Transfer Agreement). As a result, the net financial cost

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DMG MORI CO., LTD.

2-3-23, Shiomi, Kotoku, Tokyo, 135-0052, Japan

Tel.: [phone]

was lowered by JPY1.3 billion. In addition, some group companies, which had pushed up the effective tax rate due to deterioration of business performance last year, recovered their profitability, leading to a net profit of JPY6.1 billion (JPY2.2 billion loss of the same period of last year) with an appropriate effective tax rate.

Free cash flow (cash flow from operating activities less capital expenditure) was in the black at JPY8.2 billion. Although trade receivables and inventories increased along with the increase in sales, advance payments increased by JPY13.8 billion due to strong orders, and net working capital came to a surplus of JPY1.7 billion. The receipt of advance payments as consideration for providing customers with higher value-added technology through direct sales channel has been going well, and this supported a positive cash flow in the period of expanding business volume.

[Business overview for the first half]

(Order trend)

Consolidated orders for the first half of 2021 increased to JPY218.4 billion, up 61% year-on-year thanks to the continued favorable demand for machine tools from the beginning of the year. The average unit price per machine bottomed out at JPY32.4 million in the fourth quarter of the last year (October-December 2020), and started to rise from the first quarter of this year (January-March 2021). In the second quarter, it climbed to JPY38.9 million. Increasing demand for ultra-precision and high- speed machinery, automation, and full turnkey systems for semiconductor production equipment, EVs (electric vehicles), molds, etc. contributed to the rise in the unit price. Orders for services and repair parts, which accounted for about 20% of total orders, also grew by 26% year-on-year, reflecting the expansion of machine utilization in customers. The share of domestic and foreign orders was 11% (14% of the last fiscal year) and 89% (86%), respectively. Domestic recovery was delayed compared to Europe, China and the Americas, but showed significant growth in the second quarter. In Japan, demand for almost all industries except commercial aircraft and combustion-driven automobiles is increasing, and, above all, demand for semiconductor production equipment and related products has remained very strong. In addition, small and medium-sized machine tool users are becoming interested in introducing automation for high-mixlow-volume products, and some material manufacturers are trying to expand their business into the downstream processing field. In this way, investment activities that are different from conventional ones are emerging even in Japan.

As for order composition ratio by overseas region, EMEA accounted for 53% (45% of the last fiscal year), the Americas for 18% (24%), China for 12% (10%) and Asia for 6% (7%).

By industry, demand in semiconductor production equipment, communications-related parts, EV- related parts, space, medical equipment, mold, and ultra-precision parts related to decarbonization has been significantly increasing. The number of inquiries from commercial aircraft industry is picking

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DMG MORI CO., LTD.

2-3-23, Shiomi, Kotoku, Tokyo, 135-0052, Japan

Tel.: [phone]

up slightly, and we believe that the worst in the industry seems to be bottoming out.

As for the second quarter (April-June 2021), consolidated orders doubled to JPY117 billion from the same period of last year. By region, orders in Japan increased by 66%, Europe by 3.2 times, Americas by 67%, China by 71% and Asia by 74%. Compared to the second quarter of 2019, i.e. before COVID- 19 that had its unusually negative effects to machine tool demand, consolidated orders saw a good recovery with a 12% growth. By region, Japan was up 1%, EMEA up 25%, Americas up 10%, China up14% and Asia up 5%, respectively. Orders of services and repair parts also went up by 4%.

(Order backlog)

The order backlog for machinery was JPY142 billion at the end of June 2021, up JPY46 billion from JPY96 billion at the end of December 2020 and by JPY18 billion from JPY124 billion at the end of March 2021. We expect orders for machines will continue to exceed sales in the third quarter and beyond, leading to an order backlog of JPY150-160 billion at the end of this year. Most of the order backlog will be translated into sales next fiscal year. Based on the projected sufficient order backlog, we would be able to see a good business performance from the beginning of the next year, unlike the start with the low order backlog of JPY96 billion at the beginning of this year.

(Profit and loss situation)

Sales for the first half of this year was JPY178.2 billion, up 16% from the same period of last year. Although the beginning of this year's term was tough because the order backlog stood at the low level of JPY96 billion, we were able to achieve better than expected sales. This was driven by a favorable order inflow since the beginning of this year as restrictions on the movement of sales and services staff were relaxed, particularly in Europe and North Americas. As a result, we worked through delayed machine installations and customer's final acceptances.

Operating profit for the first half of this year improved to JPY10.2 billion, up by JPY7.8 billion from JPY2.4 billion of the same period of last year. The factors driving this increase were JPY 5.1 billion from increased sales volume, JPY2.5 billion from the weak yen against euro including the revaluation gain of JPY2.2 billion on the foreign currency-denominated loans, and JPY1 billion from improved gross profits by providing competitive solutions to customers. Total positive impacts amounted to JPY8.6 billion. On the other hand, main factors behind the decline in the profit were JPY800 million from an increase in logistics cost. Other expenses increase in sales and general administrative expenses have been suppressed by use of digital tools and enhancement of digital contents. Personnel expenses increased by JPY2.6 billion, but this was due to a translation of AG's euro- denominated expenses into yen, and the actual personnel expenses of the group were almost flat

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DMG MORI CO., LTD.

2-3-23, Shiomi, Kotoku, Tokyo, 135-0052, Japan

Tel.: [phone]

year-on-year. As a result, the operating profit margin improved significantly from 1.6% of the same period of last year to 5.7% in the first half of this year.

As for the financial expenses, the amount of the annual recurring compensation to non-controlling shareholders of AG was lowered by JPY1.3 billion to JPY800 million from the same period of last year due to the additional acquisition of around 10% of AG shares in April 2020. As a result, profit before income taxes came to JPY8.5 billion (JPY600 million loss in the same period of last year). In addition, a lower effective tax rate of 28% pushed up net profit to JPY6.1 billion (JPY2.2 billion loss in the same period of last year). Although some group companies experienced losses last year, they returned to their healthier profit situation, leading to an almost normalized effective tax rate. Interest payment on perpetual subordinated loans and bonds classified as equity instruments was deducted by JPY1.1 billion from net income attributable to owners of the parent, resulting in income attributable to common shareholders of JPY5 billion.

Sales revenue for three months from April through June 2021 increased to JPY97.1 billion, up 45% year-on-year, operating profit to JPY6.2billion (JPY800 million loss in the same period of last year) with an operating profit margin of 6.4% (-1.3%). Profit before income taxes was JPY5.4 billion (JPY1.8 billion loss in the same period of last year), and net profit was JPY4.3 billion (JPY2.3 billion loss in the same period of last year). Compared to the first quarter (January-March 2021), sales revenue, operating profit and net profit increased by 20%, 56% and 2.4 times, respectively.

(Cash flow)

Free cash flow for the first half was in the black at JPY 8.2 billion. An increase of JPY8.1 billion in trade receivables driven by a sales expansion and JPY3.9 billion in inventories due to preparation for shipment in the second half resulted in total cash out-flow of JPY12.0 billion. This was more than compensated by cash in-flow of JPY13.8 billion in advance payments, leading to JPY1.7 billion of net cash inflow in the working capital. Together with income before taxes of JPY8.5 billion and depreciation and amortization of JPY10.9 billion, the total amount of cash inflow climbed to JPY21.1 billion. On the other hand, total investment came to JPY7.6 billion, of which tangible and intangible asset investments were JPY3.2 and JPY4.4 billion, respectively. Other cash out-flow including corporate income tax payments was JPY5.4 billion, leading to total cash out-flow of JPY13.0 billion.

(Capital expenditure)

In the first half of this year, we invested a total of JPY7.6 billion, whereof JPY3.2 billion for tangible assets and JPY4.4 billion for intangible assets. Tangible asset investments were mainly made for construction of the Nara Product Development Center, which will be the main base for future

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DMG MORI CO., LTD.

2-3-23, Shiomi, Kotoku, Tokyo, 135-0052, Japan

Tel.: [phone]

technological development, and at our Iga plant to improve production process efficiency. Intangible investments included the introduction of a new ERP (Enterprise Resource Planning) system for correct and quick management decision-making.

(Financial position)

Total assets at the end of June increased by JPY38.6 billion from the end of December 2020. The increase can be broken down into JPY10 billion in trade receivables, JPY8.1 billion in inventories, JPY4.5 billion in intangible assets and JPY7.3 billion in cash on hand including other short-term financial assets. The increased trade receivables were caused by the positive sales development and the ramped-up inventories shall serve the expected business expansion in the third quarter and beyond. We have been working on introduction of a new ERP system as mentioned earlier, resulting in the increase of intangible assets. An increase of debt was mainly caused by a JPY15.7 billion of advance payments. The shareholders' equity balance climbed by JPY11.9 billion because of profits progress and narrowed deficit of foreign currency translation reserve due to the depreciation of the yen against the euro (JPY131.6/euro at the end of June 2021 from JPY127.0/euro at the end of December 2020). As a result, the shareholders' equity ratio at the end of June 2021 was 34.9% (35.2% at the end of December 2020), the net interest-bearing debt was JPY59.5 billion (JPY64.4 billion at the end of December 2020), and the net interest-bearing debt divided by shareholders' equity declined to 30.1% ( 34.7% at the end of December 2020).

(Number of employees)

The number of consolidated employees (including contract employees, part-time workers) at the end of June 2021 was 12,180, which was almost same as 12,160 at the end of December 2020. Business activities such as orders, production, sales, and services have been growing rapidly, but the efficiency of marketing, production, and services has dramatically improved thanks to use of digital tools such as my DMG MORI, Digital Twin Showroom, and TULIP, and the enhancement of digital contents, resulting in a good management of the number of employee.

(Research and Development)

DMG MORI has been focusing on future business areas such as ultra-precision and high-speed machines, integrated machines including 5-axis machines and mill-turn centers, automation and full turnkey systems, digital tools and digital contents to satisfy our customers as well as education programs for human resource development.

As for newly developed products, we have launched the large-sized turning center NLX6000 | 1000, the additive manufacturing LASERTEC 3000 DED hybrid, and the small-space5-axis machine DMP

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