Memo: Analysis Briefing for Nippon Light Metal Holdings Co., Ltd.
Progress Overview of FY2023-2025 Medium-term Management Plan (2023 Medium-termPlan)
Nippon Light Metal Group’s Carbon Neutrality Strategy
・Date: 2~3 pm, November 14, 2023 (Tuesday)
・Briefers and respondents:
Ichiro Okamato, President and CEO
Hiroyuki Matsudaira, Director and Head of Planning Administration Department
Kazuyoshi Sugiyama, Officer and Head of Green Growth Strategy Office
Haruhiko Takahashi, Officer and Accounting Manager of Personnel, General Affairs,Accounting & Finance Administration Department
Q1. To achieve the financial target of 30 billion yen in ordinary profit in the 2023
Medium-term Plan, what progress is being made as expected, and what are theshortfalls?
A1. Although the semiconductor-related market currently remains largely inactive in
fiscal 2023, we expect a recovery in fiscal 2024 and higher sales of different types ofproducts through fiscal 2025. In the thermal insulation panel business, we also expectthat clean room demand for semiconductor-related factories built in Japan willcontinue to be strong for some time from the standpoint of economic security, andthat a reasonable level of earnings will be generated during the 2023 Medium-term
Plan period. On the other hand, overseas auto parts and related products are an issue
in terms of the demand outlook for Japanese automakers in China, including gasoline
and hybrid vehicles, as well as the stabilization of mass production at the new U.S.
plant. The situation in China depends in part on customer conditions and local
demand and policies. However, with regard to the issue of stabilizing mass production
at the new U.S. plant, we expect to make a positive turn through our voluntary efforts.
Moreover, we have awarded orders not only for EVs but also for suspension and brakeparts and other auto-related products for vehicle models to be launched in fiscal 2025
and beyond, so products for auto parts, along with those for semiconductors that I
mentioned earlier, will remain fundamental pillars for achieving the financial targetsof the 2023 Medium-Term Plan. In addition, management reforms are the focus of
the 2023 Medium-term Plan and measures to prevent the recurrence of inappropriate
behavior to quality standards. We are now considering the future direction of thecurrent organizational structure, and while achieving results in existing businesses,
we intend to take a step further in terms of governance, including quality assurance.
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We will steadily build up results not only for financial targets but also non-financial
aspects step by step to enable us to move closer to our targets.
Q2. The volatility of earnings is significant. What measures are being taken to mitigate
the impact of this volatility?
A2. Most recently, the aluminum sheet and extrusions segment has been the most volatilein terms of earnings. The sales price system for the aluminum sheet and extrusions isbased on a formula for price fluctuations of additive metals in addition to the previous
formula reflecting fluctuations in aluminum ingot prices, however in the past two tothree years, the rise and fall of aluminum ingot market prices has affected earnings.
In addition, while demand for semiconductor-related products is currently low, weexpect that the timing of demand pickup in the next fiscal year (fiscal 2024) will havea significant impact on earnings.
Q3. The carbon neutrality strategy states that in the process of building a closed loop
supply chain, owing to advanced sorting technology for market scrap, aluminum scrap
will be utilized in extruded and rolled materials (aluminum sheet and extrusions),
whereas it has not been used in the past. Will this change the revenue structure in thefuture?
A3. Since it is not possible to meet the quality standards required for extruded and rolledmaterials by using all aluminum scrap, our first step in recent years has been toincrease the percentage of aluminum scrap based on aluminum primary alloy ingots.
There may not be much difference in terms of profitability (compared with theprevious use of 100% aluminum primary alloy ingot), but we believe that in the future,
as customers seek added value from low-carbon products, they will choose low-carbon
products even if sales prices are the same or higher. However, it is currently difficult
to quantify the level of contribution to profit, including the speed of change.
Q4.

Currently, the supply-demand situation for scrap is tight. What is your strategy for
procuring scrap in the future?

A4.

We are aware that scrap procurement will become more difficult in the future,affecting not just our company but also others, thus we are looking at procuring scrap
not only from within Japan but also from overseas.

Q5

What are the NLM Group’s strengths in procuring and recycling scrap?

A5. With the Group’s secondary alloy ingot business (Nikkei MC Aluminum), I believethat the Group’s secondary alloys and other technologies will enable us to respond2

quickly to development and commercialization such as for recycling technology after
scrap procurements.
Q6

What are the growth prospects for the truck body business (Nippon Fruehauf) in the
fabricated products and others segment during the 2023 Medium-term Plan period?

A6. The current order backlog is high, partly due to the impact of the truck chassis supply
shortage in fiscal 2022. In terms of profitability, the impact of sales price revisions isbeginning to keep up with cost increases due to rising raw material and fuel prices.
Going forward, given major changes in the logistics industry such as the shift toelectric vehicles and electrification of trucks, as well as the “2024 Problem” currently
drawing concern in Japan, in addition to the production and sale of new vehicles, wewill also engage in the recycling of used truck bodies and the service and maintenanceof truck bodies in use so that we can return to our original profit level (pre-fiscal 2020level) during the 2023 Medium-term Plan period.
Q7

What are the cost burdens and specific items required to procure green aluminumand recycle it by using the advanced sorting technology outlined in the carbon
neutrality strategy?

A7. Although we are not yet at the stage where we can quantify it or provide specifics, weare aware that expenses and costs will rise further than in the past. Regarding thenecessary costs, our hope is that, after consulting with our customers, they will
acknowledge the value of low-carbon and recycled use, and we can pass on cost
increases to the sales price. If that proves difficult, we will then absorb the costs
through technological improvements.
Q8

What are low-carbon demand and inquiries from customers?

A8. Several customers have asked us to use green aluminum and utilize aluminum scrap.
Up to now, each operating company has responded individually, but we will compile
such inquiries as the Group and then discuss the Group-wide approach with operatingcompanies.
Q9

Are there any concrete efforts to utilize aluminum scrap for extruded and rolledmaterials (aluminum sheet and extrusions)?

A9

The key is how to develop technologies that meet the quality standards required bycustomers. At the same time, we consider it necessary to work to relax (or review)the quality standards in the aluminum industry as a whole, because there may be areview of the fact that customers do not actually demand such high quality standards
3that are conventionally required (in the process of developing technologies to utilize
aluminum scrap).
Q10

How much capital investment do you think will be required for carbon neutrality
efforts to achieve a 30% reduction in CO2 by fiscal 2030?

A10. The capital investment for CO2 reduction alone is almost negligible, and the focus isprimarily on reducing energy load by upgrading and repairing existing facilities. We
expect that a 30% reduction in Scope 1 and 2 CO2 emissions can be achieved throughthese efforts, and that there will not be a large monetary burden.
Q11. Please explain what the decarbonization strategy and roadmap to be announced infiscal 2024 will entail.
A11. We intend to present the schedule and scale of technology development and capital
investment required to reduce CO2 emissions by 2030 and 2050. This briefing
focused on our efforts through 2030, and we want to cover further efforts and theprocess through 2050 in the roadmap that we will announce in fiscal 2024.
Q12. Do you have plans to revise the shareholder return policy during the 2023 Mediumterm Plan period?
A12. We do not see this as an issue, including the current PBR level, that could bepostponed until the next medium-term management plan period. It is difficult to be
definitive at this point, but we want to lay out our view on this and then present it assoon as possible. However, our first prerequisite is to steadily make efforts towardachieving the financial targets of the 2023 Medium-term Plan and the earnings
forecast for fiscal 2023.

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