March 2, 2018

Company name:

Nippon Steel & Sumitomo Metal Corporation

Representative:

Kosei Shindo, Representative Director and President

Code number:

5401

Contact:

Public Relations Center

Telephone:+81-3-6867-2135, 2146, 2977, 3419

NSSMC Announces Mid-Term Management Plan

Nippon Steel & Sumitomo Metal Corporation announced the subject of the title.
Please refer to the next page for details.

March 2, 2018
Nippon Steel & Sumitomo Metal Corporation

NSSMC Announces Mid-Term Management Plan
Forging Manufacturing Capability, Addressing Megatrends, and Creating the Value of SteelNSSMC has developed its 2020 Mid-Term Management Plan (the “2020 Plan”) consisting of athree year plan for Fiscal Year (“FY”) 2018 through FY2020 and longer-term measures beyond
FY2021 to be formulated and set into motion in the three-year term.
NSSMC’s Business Environment
With the world economy expected to remain strong, global steel demand is projected to steadily
increase over the long term, led by demand for construction and infrastructure development inemerging countries. In Japan, continued demand for urban infrastructure replacement is expected.
Trends such as rapid innovation in IT (in such areas as AI, IoT, and big data), automakers’
growing need for lighter and stronger vehicles, a shift to electric and other new energy vehicles,
and the development of self-driving vehicles are anticipated to bring significant change to society
and industry. Further, the adoption of the Sustainable Development Goals (SDGs) by the United
Nations and entering into force of the Paris Agreement reinforce corporate responsibility tocontribute to the achievement of a sustainable society.
Steel possesses significant advantages relative to competing materials not only in terms of cost
but also of diverse properties and infinite potential, repeated recyclability into all kinds ofapplications, and low life-cycle environmental impact. Steel being an indispensable basic material
for all industries and infrastructure, the steel industry will continue to play a significant role in
the growth of the society over a long term.
Having in mind the megatrends of changes in society and industry and the role of steel, NSSMC
intends to work on the following major initiatives over the medium- to long-term:-

Delivering materials and solutions responsive to changes in society and industry-

Strengthening and expanding its global business-Continuing to strengthen “manufacturing capabilities” of domestic mother mills-

Utilizing advanced IT in steelmaking processes-

Contributing to the achievement of a sustainable society (SDGs)

Through these initiatives, NSSMC will seek to advance towards “the best steel maker withworld-leading capabilities” by further improving its capabilities in terms of “technology,” “cost,”
and “being global,” and “creating the value of steel”. The major features of the 2020 Plan are
described below.

1Major Features of the 2020 Mid-Term Management Plan
1.

Delivering materials and solutions to address changes in society and industry

Requirements for properties of materials are becoming diverse and advanced: automobiles are
becoming lighter and more electrified, and electronic components are required to be even lighter,thinner, shorter, and smaller, as well as more reliable. NSSMC will develop materials that address
evolving customer needs and expand its offer of solutions in areas such as application andprocessing technologies. This will include supporting customers through stable supply of andfurther enhanced performance of high-grade steel such as high-tensile steel sheet, high-efficiency
electrical steel sheet, high-corrosion resistant seamless pipes, stainless steel for high-pressurehydrogen environment, and high-strength rails. NSSMC will thus aim to contribute to customers’
value creation and to achieve growth in its own sales.
Moreover, NSSMC will respond to customer needs for multi-materials by organically allying
technologies and products of its non-steel material businesses (Chemicals and New Materials)
with steel. To advance this initiative, Nippon Steel & Sumikin Chemical Co., Ltd. and Nippon
Steel & Sumikin Materials Co., Ltd. will be integrated to strengthen their capabilities in providing
comprehensive material solution proposals (the integration is planned for October 2018).
2.

Strengthening and expanding global business

Leveraging its product technology capability, cost competitiveness, and global supply network to
the maximum extent, NSSMC will expand the supply of steel products in the automotive, energy
and resources, and infrastructure sectors in Japan and overseas.
NSSMC will meet increasing overseas demand by the combination of exports of high-grade steel
from Japan and supplies from overseas production bases. In order to expand supply of steel
products to areas where demand for infrastructure in particular is increasing, and to prepare forrising protectionism and a shift towards self-sufficient markets, NSSMC will expand overseas
integrated steel production bases. NSSMC is currently working with ArcelorMittal on joint
acquisition of Essar Steel India Limited, an Indian integrated steelmaker.
In implementing these initiatives, NSSMC will continue to undertake alliances with major
companies and M&As, with speed and flexibility.

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3.

Continuing to strengthen “manufacturing capabilities” of domestic mother mills

NSSMC’s domestic mother mills will aim to strengthen their “manufacturing capabilities” and tocontinue to improve as bases for technology development, cost competitiveness, and productivity.
The mother mills will be committed to stable supply of steel products in Japan and overseas andassisting overseas businesses.
(1) Further enhancing facilities and human resources capabilities
NSSMC will further increase capital expenditures by about ¥ 100 billion per year in addition to
the capital expenditures in the 2017 Mid-Term Management Plan (“2017 Plan”), which were at ahigher level than the previous years, in order to undertake refurbishment of blast furnaces, cokeovens, and other facilities and to introduce advanced equipment, thereby improving stability,
productivity, and cost.
As for the enhancement of human resources, NSSMC will maintain the number of newly-hired
employees at the increased level of the 2017 Plan and promote the succession of skills andknow-how and employee training, and in parallel, promote labor-saving measures (i.e., use of IT
and automation) to address labor shortage expected due to Japan’s declining population.
(2) Establishing an optimal production framework
NSSMC will promote the development of an optimal production framework in order to build a leanmanufacturing framework that can address changes in the business environment. In addition to
the measures implemented under the 2017 Plan, namely, the consolidation of rolling andsurface-treatment facilities and the ceasing of operation of the No. 3 blast furnace of Kimitsu
Works, the following measures will be implemented as part of the 2020 Plan:
1)

Yawata Works’ advanced continuous caster will start operation (in FY2019) and the

upstream facilities (the blast furnace and the steelmaking mill in the Kokura Area will cease
operation at around the end of FY2020, as scheduled. Kokura’s production of special steel bars
and wire rods will be maintained at the current level. (as already announced)
2)

At Wakayama Works, production will be switched from the No. 5 blast furnace to the new

No. 2 blast furnace, which has been on standby, at around the end of FY2018, increasing steel
production capacity by 500,000 tons per year. The steelmaking mill of Nippon Steel &Sumikin Shapes Corporation located in Wakayama Works will cease operation at around theend of FY2019, after which steel slabs will be supplied by the Wakayama Works steelmaking
mill.

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3)

The small-diameter seamless pipe & tube mill (former Tokyo Works) in Kimitsu Works

will cease operation at around May 2020 and production will be consolidated to the Kainan
Area of Wakayama Works.
4. Developing world-leading technologies and utilizing advanced IT (AI, IoT, and big data)
NSSMC will make the best of its R&D operations, which is the largest in scale (with about 800
researchers) and highest level in quality in the global steel industry, and promote technology
development, a key driver for innovation. Specifically, NSSMC will work on the development ofhigh-end products (e.g., products that provide lighter weight, higher strength, morecorrosion-resistance, and lower electricity loss) by anticipating and addressing evolving customer
needs. The company will also promote advances in design and processing technology as well as
technology to minimize environmental impact through the use of steel products over their life
cycle from manufacturing to use and recycling. NSSMC will thereby continue to demonstrateworld-leading capabilities by “creating the value of steel”.
Utilizing IT, which is continuously evolving, is becoming an essential element that determines thecompetitiveness of a company. Taking advantage of the system solutions business within theGroup (NS Solutions Corporation) and utilizing advanced IT (AI, IoT, and big data), NSSMC will
aim to achieve safety and competitiveness in manufacturing frontlines, stability in production,
improvement in product quality, and sophistication in business operations.

5.

Enhancing the operating structure of the NSSMC GroupNSSMC will enhance alliances within the Group to strengthen the Group’s overall capabilities inorder to deliver higher value to customers and society through materials and solutions, utilizing
the Group’s core competency in steel. At the same time, NSSMC will undertake further
reorganization within the Group and advance concentration on core business operations.
(1) Synergies with Nisshin Steel Co., Ltd.
NSSMC and Nisshin Steel Co., Ltd., which became a subsidiary of NSSMC in March 2017,
will realize synergies of ¥ 20 billion per year by the end of FY2020. In addition, the companies
will further expand alliances in steel sheet, stainless steel, and other products, as well as iniron-making. The refurbishment of the Kure No. 1 blast furnace of Nisshin Steel Co., Ltd. has
been deferred from the end of FY2019 to the end of FY2023 by utilizing NSSMC’s technology
to extend the life of a blast furnace.
(2) Through alliance of the steel business and integrated chemicals and new materials businesses,
the NSSMC Group will strengthen its capability to respond to leading-edge needs in areas
including vehicles and batteries, thereby advancing its business strategy.

4(3) The Engineering Business segment will work at strengthening the competitiveness of each ofits businesses and enhancing its alliances within the NSSMC Group. In addition, to pursue
synergies through collaboration with companies outside the Group, Nippon Steel & Sumikin
Engineering Co., Ltd will work on expanding its profitability through a comprehensive
collaboration with Toyo Engineering Corporation.
(4) Further growth in the System Solutions segment and enhancement of the Group’s IT
infrastructure
NS Solutions Corporation is strengthening its capability to provide solutions to customers in
the areas of IoT and AI, through its IoX Solution Business Promotion Department(established in April 2016) and its AI R&D Center (opened in October 2017). Taking
advantage of NS Solution Corporation, the NSSMC Group will work on strengthening its IT
infrastructure and utilizing advanced IT.

6.

Proactively investing in growth(1) Capital expenditures in JapanNSSMC will implement capital expenditures of around ¥ 1,700 billion over the three-year
term, an increase of ¥ 350 billion from the 2017 Plan, in order to (a) enhance facilities throughthe introduction of advanced equipment and maintenance of the soundness of facilities (e.g.,
relining of blast furnaces and coke ovens) and (b) capture demand in growth areas bystrengthening its production capability.
(2) Business investments
NSSMC will implement business investment of around ¥ 600 billion over the three-year term.
In addition to growth investment in (a) domestic and overseas businesses to be developed on
product, customer sector, and region bases and (b) interests in raw materials, NSSMC will bealert for new opportunities through mergers and acquisitions.
(3) Hiring
In order to enhance its human resources capability, NSSMC plans to hire about 1,100
employees per year, similar to the 2017 Plan level.
In addition, NSSMC will further advance concentration on core business operations on agroup-wide basis and proceed with asset compression (targeting approximately ¥ 100 billion
within the three-year term), which will fund part of the growth investment above.

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2020 Plan targets
Capital expenditures inJapan(consolidated basis)/ 3 years

Business investment

Approx. ¥600bn(consolidated basis)/ 3 years

R&D spending

Approx. ¥220bn(consolidated basis)/ 3 years

Number to be newly2017 Plan targets

for FY2015-2017(FY2015-2017)¥1,260bn / 3 years¥210bn / 3 years¥210bn / 3 years

Approx. ¥1,350bn/ 3 years
Approx. ¥300bn/ 3 years
Approx. ¥210bn/ 3 years

Approx. 1,100

Approx. 1,300

Approx. 1,300

employees / year

employees / year

employees / year

Asset compression

Approx. ¥100bn

Approx. ¥300bn

Approx. ¥200bn(consolidated basis)/ 3 years/ 3 years/ 3 years

employed(non-consolidated basis)

7.

Approx. ¥1,700bn

Forecasts

Profit and financial targets and shareholder return(1) Under the 2017 Plan, NSSMC has implemented measures to enhance facilities and humanresources capabilities as ways to fortify mother mills in Japan and measures to improve costcompetitiveness. However, NSSMC experienced a large production decline due to equipment
trouble and other reasons. In addition, depressed oil prices caused a decline in demand in theenergy sector. As a result, the company does not expect to achieve the target level of 10% in
return on sales (ROS) and return on equity (ROE) by the end of the 2017 Plan period.
(2) Through implementation of the measures outlined above under the 2020 Plan, including
global business development, strengthening of “manufacturing capabilities” andenhancement of the Group operating structure, NSSMC aims to advance towards “the best
steelmaker with world-leading capabilities.” Through these measures, the company aims at a
medium-to-long-term growth in profit and an expansion of cash flow generating ability, with atarget ROS of about 10% and ROE of about 10% in FY2020.
(3) After incorporating facility enhancement investment and growth investment, NSSMC aims toachieve a debt-to-equity ratio of about 0.7 at the end of FY2020, a level similar to that at theend of FY2017.
(4) With respect to return to shareholders, NSSMC will raise the targeted payout ratio from thecurrent “around 20-30%” on a consolidated basis to “around 30%” (to be applied to FY2018
onwards).

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2020 Mid-Term Management Plan Targets

8.

FY2020 targets

FY2017 forecasts

2017 Plan targets

Return on sales

About 10%5.3%

10% or more

Return on equity

About 10%

About 6%

10% or more

D/E ratio

About 0.7

About 0.7

About 0.5

Payout ratio

Around 30%

About 30%

Around 20-30%

A company with integrity and reliability(1) Corporate Philosophy“The NSSMC Group will pursue world-leading technologies and manufacturing capabilities,
and contribute to society by providing excellent products and services.”(2) NSSMC’s priorities in manufacturing are “safety, environment, and disaster prevention,”“quality,” “production,” and “cost and profit” in this order. NSSMC will continuously work at
appropriate risk management and implement preventive measures, based on lessons learned
from past events and accidents.
(3) NSSMC will implement and appropriately manage internal control systems and strive tocontinuously improve them in order to comply with laws and regulations and to ensure
credibility of its financial reporting, as well as the validity and efficiency of its operations.
(4) NSSMC will achieve the Workstyle Innovation as endorsed by the Japanese government bystandardization of operations and improvement in efficiency of operations as well as further
utilization of IT.
(5) NSSMC will promote the establishment of a recycling-oriented society and preservation of theenvironment through its three Eco’s (Eco Process, Eco ProductsTM, and Eco Solutions) anddevelopment of innovative technologies, such as COURSE50.
By implementing these measures, the NSSMC Group will aim to continue to be trusted companies
in society.
For more information, please contact:
Public Relations Center, General Administration Division
TEL: +81-3-6867-2135, 2146, 2977, 3419

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