DMG Mori : FY2021 First Quarter Release

DMG MORI CO., LTD.

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

Tel.: [phone]

May 12th, 2021

DMG MORI Co., Ltd.

29.5% growth of orders in the first quarter/ Upward revision of full year forecasts

Key figures
(JPY bn)		FY2021.Q1	YoY	FY2020.Q1
Consolidated Order Intake	：	101.4	bn	+29.5%	78.3	bn
Machine Order Backlog	：	124.0	bn	-	96.0	bn (End of Dec. 2020)
Sales Revenue	：	81.1	bn	-7.0%	87.3	bn
Operating Profit	：	4.0	bn	+21.8%	3.3	bn
Operating Profit Margin	：	4.9%		3.8%
Net profit attributable to the owners	：	1.8	bn		0.1	bn
of the parent
Net profit attributable to ordinary	：	1.3	bn		-0.1	bn
shareholders

[Summary]

Consolidated order intake for the first quarter of 2021 (January-March 2021) increased by 29.5% year-on- year to JPY101.4 bn, and, since the second quarter (April-June) of 2019, we have been able to surpass the JPY100 bn mark for the first time in seven quarters. The order backlog for machinery at the end of March 2021 went up by JPY28 bn to JPY124 bn from JPY96 bn at the end of December 2020.

While sales declined by 7% year-on-year due to order backlog being at a low level at the beginning of the term, we could nevertheless achieve an operating income growth with JPY4 bn, up 21.8% from JPY3.3 bn of the same period of the last year due to the following factors: maintaining tight control over personnel expenses, SG&A cost reduction by transforming of marketing strategy from real exhibitions to digital exhibitions, improvement of sales gross profit margin through further shift towards higher added value models such as high-speed and high accuracy 5-axis machines and mill-turn centers, automation and full- turnkey systems, and foreign currency gains of receivables derived from the weak yen at the end of financial term. The operating profit margin improved to 4.9% from 3.8% of the same period of the last year. The net non-operating results were still negative JPY900 mil but improved by JPY1.2 bn, mainly because of lower annual compensation amount to non-controlling shareholders of DMG MORI AG (hereinafter referred to as AG) caused by an acquisition of additional shares of AG in April 2020. In addition, we were able to secure a significant increase in net income attributable to owners of the parent to JPY1.8 bn, since

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DMG MORI CO., LTD.

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

Tel.: [phone]

the profit of some group companies improved, whose deficits in the last year had pushed up the effective tax rate.

[Management Analysis: President and Group CEO, Dr. Eng. Masahiko Mori]

The first quarter of 2021 got off to a very good start. Orders have clearly recovered in the EMEA region, which is one of our strengths, and China has hit a quarterly order peak. In the US, demand in the semiconductor, medical and space industries remained strong, and Japan, which had been sluggish, has finally turned positive year-on-year. In Japan, small-groupin-person customer events called "Technology Fridays" have taken root, and at the same time interactive business talks have increased. In Europe, the digital exhibition "DMG MORI Digital Event Pfronten" held in February successfully attracted about 8,000 customers. The number of inquiries increased 1.5 times compared to 2019 at the real exhibition held in Beijing, China in April.

Given such situation, we are now confident of customers' strong appetite for capital spending for machine tools in the global market. In addition, we believe that the significant increase in order backlog at the end of the first quarter to JPY124 bn (end of December 2020: 96 billion yen) should lead to stable business expansion in the future.

In terms of financial performance, sales declined due to remaining lower order backlog at the beginning of the term. However, thorough cost control measures from last year, improvement of sales gross margin by providing higher value under direct sales and services channel and foreign currency exchange gains led to the year-on-year positive growth in operating income. The decline of annual compensation to non- controlling shareholders in AG and a lower effective tax rate by improving the profits of group companies contributed to the significant improvement in net income attributable to the parent, which was a great achievement for DMG MORI.

Based on the better than expected order growth and the continued solid cost structure, we have revised the business outlook for FY2021. In this revision, we are also incorporating the return of the average salary level of employees in Japan this year to JPY7.1 mil (previous year: JPY6.43 mil).

As global awareness of responding to climate change continues to grow, we have achieved CO2 neutrality in the operational process from Scope 1 to upstream Scope 3, that is, procurement of components to delivery of machinery manufactured globally from January 2021. We have shipped these machines with our "GREENMACHINE" logo. The CO2 neutrality was assessed and given assurance by the third-party evaluator, PricewaterhouseCoopers GmbH for AG in October 2020 and for CO in March 2021. Our group will further accelerate the reduction of CO2 emissions, setting a reduction target of about 30% by 2030 compared to 2019.

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DMG MORI CO., LTD.

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

Tel.: [phone]

[FY2021 Q1 financial summary]

(Order trends)

Consolidated orders for the first quarter significantly exceeded our initial plan of JPY85 bn, increasing 29.5% year-on-year to JPY101.4 bn. After peaking in the first quarter of 2018, it had adjusted for 12 quarters until the fourth quarter of 2020 mainly due to the influence of the US-China trade conflict from the latter half of 2018 and the COVID-19 pandemic in 2020. Order development finally turned positive year- on-year exceeding the JPY100 bn mark for the first time in seven quarters since the second quarter of 2019. Orders for service and spare parts also turned positive, up 6% year-on-year, reflecting improvements in customers' machine utilization rate. In addition, the order price per machine began to rise in this quarter after declining due to sluggish demand for high value-added machinery for the passenger aircraft industry since the second quarter last year.

The share of domestic orders dropped to 10% (14% last fiscal year), while that of overseas climbed to 90%. With regard to the share of overseas orders by region, Europe recovered to more than 50% with 52% (45%) and China expanded its share to 14% (10%), exceeding the Japanese position. Although the Americas maintained stable orders, its share declined to 18% (24%). Asian countries remained almost unchanged at 6% (7%).

By industry, demand recovered in all industries except passenger aircraft and energy industries, with strong orders related to semiconductor production equipment, clean diesel for trucks, construction machinery and agricultural machinery, wind power generation, and medical care. EV (electric vehicle) related drive train and battery components was on the rise in Europe and China. The automobile industry has also started to recover after around two years of adjustments.

(Order backlog)

The order backlog for machinery rose to JPY124 bn at the end of March with an increase of JPY28 bn from JPY96 bn at the end of December 2020. The order backlog is equivalent to about 6-month-worth of machine sales. We expect orders to continue to outpace sales in the second quarter and beyond, and we therefore anticipate further increases in order backlog. Based on our fiscal year's upward revised forecast of JPY400 bn in orders and JPY345 bn in sales, the order backlog at the end of December 2021 is expected to be JPY140-150 bn.

(Profit and loss situation)

Sales revenue was at JPY81.1 bn, down 7% from the same period of the last year. The main reason for this was that the order backlog at the beginning of the term started from a low level of JPY96 bn, and that business travel of sales and service personnel was restricted, which brought delays in shipments or

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DMG MORI CO., LTD.

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

Tel.: [phone]

acceptance tests.

Operating income was JPY4 bn, an increase of JPY700 mil from JPY3.3 bn in the same period of the last year. Operating income decreased by JPY3.7 bn due to a drop in sales volume. On the other hand, the following positive factors absorbed the decline in profit derived from the sales drop: personnel cost reduction of JPY1.7 bn due to continued restraint since last year, SG&A expense reduction of JPY900 mil by transformation of marketing strategy, sales gross profit improvement of JPY500 mil connected with value proposition to customers, and revaluation gains of JPY1.3 bn on foreign currency denominated receivables derived from the weak yen at the end of March. The positive factors totaled JPY4.4 bn, which brought net increase of JPY700 mil in operating income from the same period last year. As a result, the operating profit margin improved from 3.8% to 4.9%.

The net non-operating results improved by JPY1.2 bn from the same period of the last year mainly due to a decrease in the annual compensation to non-controlling shareholders in AG of JPY1.2 bn resulting from the acquisition of additional AG shares at the request of AG shareholders in April 2020. As a result, income before income taxes for the period increased 2.5 times year-on-year.

The effective tax rate was still high at 42% from an appropriate tax rate of around 32%. However, it has dropped significantly from 93% in the same period of the last year and 67% for the full last year. Some group companies that pushed up the effective tax rate by recording a deficit last year were also working to improve their business performance, leading to a decline in the effective tax rate. As a result, quarterly income attributable to owners of the parent was JPY1.8 bn. Interest payments on perpetual subordinated loans and corporate bonds (hereinafter referred to as hybrid capital), in the amount of about JPY500 mil, were deducted from income attributable to owners of the parent, resulting in quarterly income attributable to ordinary shareholders of JPY1.3 bn.

(Cash flow)

Despite a positive effect of advance payments of JPY6.3bn, an increase of trade receivables of JPY3.9bn, an increase of inventories of JPY2.7 bn and a decline of trade payables of JPY3.2 bn, combined effects resulted in negative working capital of JPY3.5 bn.

In addition, investments in tangible and intangible assets amounted to JPY 4.4 bn, which could not be covered by cash inflow due to profit improvement effects and depreciation & amortization, and free cash flow was negative JPY1.8 bn.

(Capital expenditure)

In the first quarter, we invested JPY4.4 bn, out of which JPY2.1 bn and JPY2.3 bn were invested in tangible and intangible assets, respectively. Investment in tangible assets was mainly for the Nara Product Development Center which will play an important future role as technological development hub, and for an

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DMG MORI CO., LTD.

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

Tel.: [phone]

improvement of production process efficiency of mechanical components at our Iga factory. Investment in intangible assets was mainly for ERP (Enterprise Resource Planning) system for more accurate and quick management decision making.

(Financial position)

Total assets increased by JPY17.4 bn from the end of December 2020. The reasons included increases in trade receivables by JPY5.4 bn, of inventories by JPY5.8 bn in preparation of an expected growth in sales from the second quarter onwards and of intangible assets by JPY2.4 bn such as ERP. As for liabilities, contract liabilities (or advance payments) increased by JPY7.8 bn due to an increase in orders, and borrowings increased by JPY3.8 bn to compensate for a rise in working capital. Retained earnings remained almost flat with contribution of quarterly income attributable to owners of the parent of JPY1.8 bn being offset by dividends paid for the second half of fiscal 2020 and interest payments on hybrid capital. On the other hand, shareholders' equity increased by JPY4 bn to JPY189.4 bn, mainly due to an improvement of JPY3.7 bn in the foreign exchange translation adjustment account due to the depreciation of the yen against the EURO at the end of March. As a result of the above, the shareholders' equity ratio stayed at 34.8% (end of December 2020: 35.2%), net interest-bearing debt was JPY68.5 bn (JPY64.4 bn), and net debt/equity ratio was 36.3% (34.7%).

(Number of employees)

The consolidated number of employees (including contract employees and part-time workers) at the end of March was 12,081, a decrease of 79 from 12,160 at the end of December 2020. The decrease in the number of employees was due to a natural decrease.

(Research and Development)

We have been focusing our development efforts on sources of future growth such as high-precision and high-speed machines, 5-axis and mill-turn centers that contribute to machining process integration, automation and digitization. In the first quarter, we launched the large-sized turning center DMF 300|8, the universal turning center CLX 450 TC, and the additive manufacturing machine LASERTEC 3000 DED hybrid. The DMF 300|8 is suitable for molds as well as processing structural components for semiconductor production equipment, which is currently in high demand. The CLX 450 TC supports customers' high precision and complex machining, and small lots. The LASERTEC 3000 DED hybrid can be applied not only to parts processing, but also to quenching, welding, coating, etc., expanding its scope of application. We have also been progressing with development for the introduction of differentiated and advanced machine models in the second half of this fiscal year.

In digitization, our portal site "my DMG MORI" steadily increased the number of registrations, reaching

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