FY2020 1Q Earnings Summary - TYO : 5401 OTC : NPSCY(ADR) - Nippon Steel Corporation
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TYO : 5401 OTC : NPSCY(ADR) FY2020 1Q Earnings Summary Aug 4th, 2020 Notes on this presentation material Unless otherwise noted, all volume figures are presented in metric tons Unless otherwise noted, all financial figures are on consolidated basis
Agenda 2 1. FY2020 1Q Earnings Summary and FY2020 Forecast 2. Business Environment (COVID-19 Impacts & Our Actions) 3. Measures to Improve Business Performance and CFs 4. Medium-Long Term Restructuring 5. Supplementary Material for Financial Results Appendix 1. Our Activities for Tackling Climate Change (Japan Business Federation “Challenge Zero” and Our Innovations) Appendix 2. Structural Measures (Announcement on Feb. 7 ) th Appendix 3. Progress of Management Strategy Measures Appendix 4. Related Indicators © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
3 1. FY2020 1Q Earnings Summary and FY2020 Forecast © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
4 FY2020.1Q Earnings Summary and FY2020 Forecast Cf. FY2019 1H(f) FY2019-> 1Q 1H(f) 2H(f) FY2020(f) ->2H(f) FY2020(f) Domestic Steel Demand 59 12 Approx. 24 Approx. +2 Approx. 26 Approx. 50 Approx. -9 (MMT/Y) Manufacturing Sector 38 7 Approx. 15 Approx. +2 Approx. 17 Approx. 32 Approx. -7 Non-consolidated Crude Steel 41.85 *1 7.20 Approx. 14.90 Approx. +2.00 Approx. 16.90 Approx. 31.80 Approx. -10.00 Production (MMT/Y) (284.4) Vs FY2019 before Consolidated Business Profit impairment losses (bn. JPY/Y) (76.5 excl. impairment (27.5) (150.0) +180.0 30.0 (120.0) etc. -197.0 losses etc.) *1 Nippon Steel + Ex-Nippon Steel Nisshin Volume Forecast Demand has decreased rapidly due to COVID-19 impacts and is expected to increase in 2H but still in lower level comparing to before pandemic. Profit Forecast Consolidated business profit is expected to be in large deficit in 1H due to rapid decrease of volume, but to be surplus in 2H. Cost reduction of more than 50 bn. JPY in variable cost and 200 bn. JPY in fixed cost is planned in FY2020 to realize non-consolidated operating profit as soon as possible. Cost increase due to production decrease is planned to be offset by further cost reduction of fixed cost and variable cost taking advantage of low operation rate on the top of 50 bn. and 200 bn. JPY. Most of the profit variance between 1Q and 2Q comes from one-off factors such as fixed cost and dividend incomes. Business Profit Valiance FY2020.1H(f)->2H(f) FY2019->FY2020(f) +180.0 bn. JPY -197.0 bn. JPY Variable cost reduction ＋ 50.0 ★ Volume - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - + 55.0 -280.0 Steel prices, product mix, raw material prices + 9.0 - 53.0 Fixed cost (cash basis) reduction ＋ 90.0 ★ Cost reduction (incl. increase due to volume decline) + 28.0 +140.0★ DEP ＋110.0 ☆ Depreciation and amortization - - - - - - - - - - - - - 13.0 +110.0☆ Fixed cost reduction + 200.0 Inventory valuation - - - - - - - - - - - - - - - - - - - - - + 19.0 - 38.0 Cost increase due to volume decline Group companies, non-steel - - - - - - - - - - - - - - + 71.0 - 108.0 Cost reduction taking advantage ± 0★ Disasters - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - + 42.0 of low production rate Others - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - + 11.0 - 10.0 © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
5 FY2020 1H Net Profit Forecast and Interim Dividend FY2020 1H Net Profit Forecast FY2020.2Q(f) Additional Line Items FY2019 FY2020 Losses on inactive facilities 1Q 2Q(f) (bn. JPY) 1H(f) Consolidated Business Profit (284.4) (27.5) (122.5) (150.0) (Kyushu Works Yawata Area (Kokura) upstream facilities, etc.) Additional Line Items (121.7) － (40.0) (40.0) Net Profit* (431.5) (42.0) (158.0) (200.0) * Profit attributable to owners of the parent FY2020 Interim Dividend 31.7% 30.4% 28.4% 28.4% With severe financial result 23.4% FY2019 expected this year, Nippon Steel Payout ratio Interim dividend: 10 JPY/share plans to forgo the interim 18.7% Year end dividend: non dividend 17.4% 80 dividend payment. 70 55 40 Full-year dividend 50 FY2020 45 45 40 Nippon Steel will rebuild profit Year-end dividend Interim dividend: structure and improve financial status 30 35 15 non dividend Interim dividend as soon as possible, and return profit 45 (planned) 10 30 30 40 10 to shareholders. 20 20 10 10 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 1H(f) © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
6 2. Business Environment (COVID-19 Impacts & Our Actions) © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
FY2020 Production Level 7 We have adopted prompt reduction of production such as BF banking for response to sharp decrease of steel demand due to COVID-19 impacts. Non-consolidated crude steel production in FY20.1Q was in a low level 7.20MMT, and is expected to increase in 2Q and 2H, to approx. 14.90MMT in 1H and 16.90MMT in 2H. Operation rate is expected to be approx. 60~70% in 1H and approx. 80% in 2H. Nippon Steel Non-consolidated Crude Steel Production Volume （MMT） Ex-Nisshin (excl. stainless steel) 12 10.36 10 Ex-Sumitomo Metals 7.79 9.90 7.70 8 7.65 7.20 Dot line: FY2009 1Q level under the financial crisis 6 Crude steel: approx. 7.7 MMT/Q 20.2H(f) (Steel Shipment: approx. 7.3MMT/Q) approx. 16.90 4 Ex-Nippon Steel 20.1H(f) ~Nippon Steel and Sumitomo Metals approx. 14.90 2 ~Nippon Steel 0 08.1Q 09.1Q 10.1Q 11.1Q 12.1Q 13.1Q 14.1Q 15.1Q 16.1Q 17.1Q 18.1Q 19.1Q 20.1Q 2Q 3Q 4Q 2Q 3Q 4Q 2Q 3Q 4Q 2Q 3Q 4Q 2Q 3Q 4Q 2Q 3Q 4Q 2Q 3Q 4Q 2Q 3Q 4Q 2Q 3Q 4Q 2Q 3Q 4Q 2Q 3Q 4Q 2Q 3Q 4Q 2Q 3Q 4Q © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
8 World Steel Demand (MMT/Y) World Japan China South Korea ASEAN5 India NAFTA EU28 CY2019 1,767 63 908 53 78 102 135 158 CY2020 (f)* 1,654 51 917 47 76 83 108 133 CY2019->20 -113 -12 +9 -7 -2 -18 -27 -25 Change -6.4% -19.1% +1.0% -12.6% -2.4% -17.9% -20.0% -15.8% * Source: World Steel Association as of June, 2020 Other Central-Stouth America 1,767 CIS EU28 1,708 1,717 NAFTA ASEAN5 1,633 1,654 Other South Korea Japan 1,545 1,552 1,506 1,520 Central- India China 59 1,419 1,446 57 South America 56 (MMT/Y) 53 CIS 1,320 1,322 1,317 54 192 184 EU28 205 166 1,239 60 58 51 52 206 135 1,153 59 108 115 NAFTA 56 179 186 141 194 199 78 50 175 138 76 79 ASEAN5 191 77 53 47 49 South Korea 56 50 131 146 63 55 177 134 131 74 54 51 49 37 133 59 65 96 Japan 123 64 56 102 83 235 216 145 52 67 76 64 97 India 221 112 49 55 56 57 54 65 68 56 46 56 62 89 84 64 74 63 131 39 52 64 76 84 141 72 80 155 43 45 64 70 40 59 53 65 35 55 58 50 81 78 79 51 908 917 917 51 836 46 774 741 711 China 641 660 672 681 551 588 418 447 378 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY2020 CY2021 (f) (f) © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
9 Domestic Steel Demand Trend Manufacturing Sector Civil Engineering and Construction (MMT) (MMT) 19.9 20.5 20.0 20.4 19.6 18.4 16.6 14.9 10.6 11.0 10.6 10.8 10.5 9.9 8.9 11.1 11.4 10.9 11.1 10.7 10.6 Others 8.5 Civil Engineering 9.4 9.3 3.4 3.9 3.4 3.8 3.5 4.1 3.6 4.0 Automotive 9.3 9.5 9.3 9.5 9.1 8.5 Construction 6.5 7.7 7.7 7.5 7.5 7.3 7.2 6.5 5.8 5.3 1H 2H 1H 2H 1H 2H 1H(f) 2H(f) 1H 2H 1H 2H 1H 2H 1H(f) 2H(f) FY2017 FY2018 FY2019 FY2020 FY2017 FY2018 FY2019 FY2020 Demand had been declining since FY2019 mainly High demand continues, and construction in indirect exports, and the decline gathered stagnation due to COVID-19 impacts is limited. speed due to COVID-19 impacts. It is expected to In the FY2020.2H, demand will decline in recover toward the 2H mainly in automotive. construction sector, but is expected to increase in civil engineering sector. © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
10 20 30 40 50 50 0 0 100 0 10 20 30 40 Jan Jan Jan Feb Feb Feb Mar Mar Mar Apr Apr Apr May May May India Jun Jun Japan Jun Mexico Jul Jul Jul Aug Aug Aug Sep Sep Sep Oct Oct Oct Nov Nov Nov Dec Dec Dec 10 20 30 40 10 20 50 0 0 0 100 Jan Jan Jan Feb Feb Feb Finished Auto Production Mar Mar Mar Apr Apr Apr May May May Brazil Jun Jun Jun Thailand Jul Jul Jul United States Aug Aug Aug Sep Sep Sep Oct Oct Oct Nov Nov Nov 2019 2017 2008 Dec Dec Dec 0 50 100 150 200 250 300 0 10 20 30 40 50 60 0 10 20 Jan Jan Jan 2020 2018 2009 Feb Feb Feb Mar Mar Mar Apr Apr Apr May May May China Jun Jun Jun Germany Indonesia Jul Jul Jul Aug Aug Aug Sep Sep Sep Oct Oct Oct 10 (10 thousand units/month) Nov Nov Nov Dec Dec Dec © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
11 Production Reduction Steel Inner Area Production Reduction in works volume m3 Upstream Facility Muroran #2BF 2,902 Time of suspension of BF for its relining pushed forward from Aug to Jul 8th. 1) Reduction of BF’s productivity and Kashi- #1BF 5,370 From April 15th : Banking extension of blowing-stop times East ma #3BF 5,370 2) BF banking* and suspension of related Nippon Kimitsu #2BF 4,500 From June 14th : Banking coke ovens #4BF 5,555 are in progress. #1BF 5,443 Nagoya #3BF 4,300 * Banking is to take measures to temporarily stop blast Waka- #1BF 3,700 From Apr. 25th : Banking (2022 1H shutdown) furnace production but make it possible to restart Kansai production at a later date by stopping the air blast flow. yama #2BF 3,700 Kure #1BF 2,650 (2021 1H shutdown) Setouchi #2BF 2,080 From Feb. 15th : Banking (2021 1H shutdown) Banking is in progress for 6 BFs out of 15 Yawata #4BF 5,000 (equivalent to 32% in inner volume) (Kokura) #2BF 2,150 From July 17th : Banking (Sep-2020 shutdown) Kyushu #1BF 5,775 Oita #2BF 5,775 East Nippon Kashima Area: 1 oven out of 2 (#1EE oven) 15 Total 64,270 Kimitsu Area: 2 ovens out of 5 (#3AB and #4AB ovens) BFs Kansai Works Wakayama Area: 1 oven out of 3 (#5 oven) Production Reduction in Downstream Facility Pursuing an optimal operating system for each line in accordance with the production reduction in upstream facilities at each steelworks and the demand situation for each product. We are implementing cost-minimum operations such as shift-down, collecting some idling times into a temporary suspension. Temporary off-days for employees As one measure that contributes to maintaining employment, each of Nippon Steel’s offices, manufacturing bases, and R&D laboratories is closed some days per month from April 2020, while maintaining bare minimum operation, and each employee has some temporary off-days per month. Offices, manufacturing bases, and R&D laboratories which meet the requirement receive employment adjustment grants from the government. © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
12 3. Measures to Improve Business Performance and CFs © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
Efforts to Return to Profit in Non-consolidated Operating P/L 13 In addition to operational improvement and capital investment planned in the Variable Cost medium-term management plan to reduce variable cost, additional improvement Reduction measures, operation optimization accompanying facility structural measures, etc. are planned to realize cost reduction of more than 50 bn. JPY/Y Fixed cost reduction of approx. 200 bn. JPY/Y in FY2020 is planned. (Of which 33 bn. JPY will be the effect of facility structural measures) Fixed Cost Depreciation cost: 110 bn. JPY approx. 60 JPY/Y due to impairment loss, approx. 50 JPY/Y due to change in depreciation method from declining balance to straight –line Reduction Other fixed cost (cash basis): 90 bn. JPY: Selective input of maintenance cost (suppressing input to facilities scheduled to be shutdown), thorough management of facility inspection with advanced IT, enhancement of maintenance efficiency in reorganized steelworks, etc. Additional Although a large amount of variable cost demerits (such as deterioration of unit cost at a low productivity of BF and a change in the energy structure due to a decrease in the Cost amount of by-product gas) occurs as production cuts, we are going to offset most of Reduction the demerits with To Offset 1) Efforts to minimize the disadvantages Cost Increase 2) Additional variable cost reduction taking advantage of low production due to Low 3) (expansion of utilization of cheap raw materials, etc.) Additional fixed cost reduction(temporary off-days for employees, employment Production adjustment grants, reduction of repair costs due to lower operating rate, etc.) Thorough Execution of Pursuing to gain flexibility of production level adjustment. Further Profit-Oriented Thorough placing of great importance on profitability in accepting order Production and production. Long-term “Fair sharing of burden across the supply chain for increasing costs other Contractual Steel than main raw materials”, and “appropriate sales price reflecting values of Prices Improvement Nippon Steel’s products and comprehensive contributions to customers“. © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
14 Cash and Financial Action 120.0Additional asset compression bn. JY +400.0+α bn. JPY In addition to the 400 bn. 280.0 Jun. 5th, 2020 +100.0+α 500.0 Aug. 1st, 2019 +200.0 JPY/ three-year asset bn.JPY Feb. 7th, 2019 +100.0 +α bn.JPY/3 years Further Asset compression already 100.0 100.0 bn.JPY bn. JPY/ 3 years proposed by May, further 1,280.0 Compression target of 100.0 +α bn. JPY 780.0 bn.JPy Original MTMP +α bn. jPY has been decided to be set. FY FY FY FY FY2018 Accumulation 2012 2018 2019 2020 ~20 since FY2012 〜17 Plan Examining more efficient CAPEX based on long-term refurbishing plan. Selection and concentration to sectors and regions that will promisingly contribute to Further CAPEX profit in the future. Reduction We have decided to scale back on CAPEX by another 100 bn. JPY in FY2020. Total CAPEX for 3 years (2018-2020) will be 300 bn. JPY less than the original MTMP. Original MTMP: 1.7 trillion JPY/3 years ⇒ May 8th,2020: 1.5 trillion JPY/3 years ⇒ 1.4 trillion JPY/3 years (There is a time lag between decision making and cash-out, and cash-out suppression will be from 2021) Taking appropriate financial measures in appropriate timing responding to refinancing needs and deterioration of operating CFs June 17th: Issued straight bond 80.0 bn. JPY (3, 5, 10 years) Financing July 21st: Expanded hybrid loan by 150.0 bn. JPY. (50% of the loan is deemed as equity for the purpose of agencies’ rating) Cash balance: 2020.6E 390.6 bn. JPY (2020.3E 289.4 bn. JPY, 2019.3E 163.1 bn. JPY) Commitment line already established: 665.8 bn. JPY (as of 2020.3E) © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
15 4. Medium-Long Term Restructuring © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
16 Business Environment Harsh Environment for Steel Industry due to Complexed Factors 2019~: “Decoupling of high raw material prices & low steel product prices” Current Demand decrease due to prolonged US-China trade issue and slowdown of China’s economic growth rate Business High raw material cost due to Chinese government’s stimulus measures Environment + 2020~: COVID-19 pandemic, decrease of emerging countries’ purchasing power due to their currency depreciation The changes in the business environment that were previously envisioned in our management strategies (production facility structural measures, overseas business strategies) are accelerated due to the impact of COVID-19. Domestic: Risk of sluggishness and shrink due to population decline and aging, Business decline in indirect exports due to international trade friction Environment 海外 Overseas: Acceleration of local production for local consumption in in Post manufacturing industry, sluggishness in energy sector and COVID-19 emerging countries Era Expanding advantage of Chinese steel manufacturers due to early restart of Chinese economy, earlier than any other economies in the world Examining the need of additional restructuring measures and acceleration of restructuring, assuming that the business environment will be even more severe. © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
17 Medium-Long Term Measures to Improve Profitability • Implementing structural measures announced on Feb. 7th, 2020, aiming for early realization of 100 bn. JPY/year profit contribution. (35 bn. JPY/Y in FY2020) • Considering additional structural measures and earlier schedule of restructuring Production Facility we are now on as needed. Structural Measures • We will make selective investments in highly competitive equipment to improve productivity and profitability. We have decided to reline Nagoya Steel Works #3 BF (announced on June 5th, 2020) Structural Measures (announced on Feb. 7th, 2020) ⇒ refer to PP.39-45 • Reduction of depreciation cost and maintenance cost through thorough selection Structural Reduction and concentration • Scale back of CAPEX for 3 years (2018-2020) from 1.7 trillion JPY in original MTMP to of Fixed Costs 1.4 trillion JPY, which would contribute to reduce depreciation cost in the future. • Aiming to reduce dependence on low-profit products and expand world-class, high- Improvement of value-added product sales. Product Mix • Promoting investment on electrical steel sheets manufacturing facilities for their capacity expansion and product quality improvement, responding to an increasing (Expansion of High demand for more sophisticated electrical steel sheets in power plant industry and Grade Product Sales) automobile industry. Electrical Steel Sheets Strategy ⇒ refer to PP.18-20 Overseas Business Selection and concentration: Expansion of business in demand-growing sectors and regions like India and withdrawal from unprofitable business Flexibly Responding to Localization Trend AM/NS India ⇒ refer to P.21 Expressed support for “Challenge Zero” declaration announced by Japan Federation of Actions for Tackling Economic Organization on June 8th, 2020. We have registered 10 projects as innovative the Climate Change challenges. “Challenge Zero” project ⇒ refer to P.22 © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
Electrical Steel Sheets – Investments for Capacity & Quality Improvement - 18 Electrical steel sheet is a functional material manufactured by modifying the magnetic properties of steel for efficient magnetism and electricity conversion. Losses in power generation, transmission, and consumption are reduced, which contributes Demand Increase Quality Sophistication to energy saving. GO World Generated Electricity Outlook Tightening of Electric Transformer Efficiency Regulation (Grain Oriented) Source︓The Institute of Energy Economics, Japan 47 High-grade GO is essential to improve electric transformer’s efficiency for transformers 41 （Pwh） → Demand for high-grade GO is expected to grow. 34 Figures in parenthesis︓Regulatory requirement for energy loss (iron loss) ratio improvement 160% 25 33 To Be 27 Non-OECD Area Regulation As Is 22 14 Tier 2 Tier 3 Japan Top Runner 11 13 13 14 OECD [vs. level 1 Reg. +7%] [vs. level 2 Reg.+10%] Tier 1 Tier 2 2016 2030 2040 2050 EU Eco-design [vs. before regulation +40%] [vs. level 1 Reg.+10%] NO World Finished Auto Production Outlook (million units/year, Nippon Steel’s estimate) World Demand Outlook for Electrical Steel Sheets for Cars (Non Oriented) 120 30% （Nippon Steel’s estimate, The beginning of FY2017 = 1） for motors 110 Ratio of Eco Car(Right axis) 2.7 EV 20% Growing approx. 1400% 100 PHV The Highest Grade 90 HV 10% Internal combustion 4.3 80 engine motor vehicle 0.2 High Grade (Left axis) 0.8 Growing approx. 500% 70 0% FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 We have decided investments responding to an increasing demand for more sophisticated Aug. 1st, 2019: Kyushu Works Yawata Area st electrical steel sheets ; Grain Oriented Nov. 1 , 2019: Setouchi Workds Hirohata Area electrical steel sheets (GO) for transformers May. 8th, 2020: Kyushu Works Yawata Area etc. and Non Oriented electrical steel sheets Further CAPEX plan is ongoing, and the details will be posted once (NO) for eco-cars. the plan is decided. © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
Our Strategy of Non Oriented Electrical Steel Sheet For Automotive 19 In long term perspective, eco-cars will spread and needs for improving the performance of eco-cars will increase to reduce CO2 emission. HEV・PHEV BEV・FCV Market Needs Economical Good Performance Start, acceleration, Longer Cruising For eco-cars Space Saving (fuel-saving, climbing, urban driving, electricity-saving) highway driving Distance For drive motors Compact High efficiency High torque High rotation Lightweight Minimized core High magnetic For electrical steel sheets High strength Easy-processing loss flux density The required improvements in performance conflict with each other Our Actions and it is difficult to achieve all at the same time. Long relationship and enable us to manufacture electrical steel sheets with corporation with customers contradictory performances balanced at a high level. R&D of our unique seeds technology + Improvement of engineering and enable us to maintain both stable quality and cost operation in steelworks competitiveness even during mass production. We are further improving manufacturing capacity and quality of the highest grade non oriented electrical steel sheets, which contribute to higher performance of eco-cars, and thus contribute to reduction of CO2 emission. © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
For Better Performance of Non Oriented Electrical Steel Sheets for Automotive20 Achieving a high level of contradictory Needs of eco-cars performance with our advanced technology (Better) Higher Low (Better) (Better) Higher High (Better) © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
21 AM/NS India Update Status of Operation From the end of March to April, steel sales dropped significantly due to the lockdown in India, and the operation shifted to a minimum. From mid-April, production and sales of steel increased gradually with gradual increase of domestic demand and export orders. The production level is same as pre-pandemic (January-2020). Results EBITDA secured a profit even in the most difficult situation from April to June while exporting pellet and reducing costs. Furthermore, CAPEX saving is implemented. Jan.-Mar. 2020 Apr.-Jun. 2020 Delhi Crude steel production 1.70 MMT 1.20 MMT Indore Thakuran Bhuj mine EBITDA 140 million USD 107 million USD Dabuna Hazira Beneficiation Kolkata Hazira plant New Topic Integrated steel mill Mumbai Pune Acquired OSPIL* for 23.6 bn. INR in July 2020 Kirandul Pune Beneficiation plant (Net acquisition amount excluding collection of Downstream manufacturing base Paradeep claim debt recovery : 18.6 bn. INR) Pelletization plant Integrated steel mill Chennai * Odisha Slurry Pipeline Infrastructure Limited: Downstream facility Company managing the Odisha state slurry Beneficiation plant Vizag pipeline which AM/NS India uses to transport Pipeline Pelletization plant fine iron ore from a beneficiation plant to a Pelletization plant pelletization plant which AM/NS owns. Service center Marine transportation Mine © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
22 “Challenge Zero” Innovations We support the “Challenge Zero” declaration announced by the Japan Federation of Economic Organizations in June 2020 to realize carbon-free society, and through this we have announced 10 concrete innovation initiatives. (As of July 2020, 143 companies/organizations have participated and reported a total of 320 case studies. Only 4 companies including our company have reported 10 or more cases.) Our Innovation Initiatives Contributing to Realization of Carbon-Free Society Net Zero Transi- Adaptation Emission tion / Resilience Development of Hydrogen Steelmaking Process for Zero Emission ● Development of CO2 emission reduction technology using hydrogen in BF steelmaking ● Development of low-cost CO2 separation technology ● Contributing the hydrogen infrastructure formation by spreading usage of the specialized ● steel for hydrogen station Development and dissemination of Eco Products TM that contribute to reductions in CO2 ● emissions at the point of product use (NSafe TM -AutoConcept; electrical steel sheet) Enhanced efficiency in recycling of waste plastics ● Establishment of dimethyl carbonate (DMC) production method using CO2 as raw material ● Zero emission hydrogen production technology by artificial photosynthesis ● CO2 uptake and carbon storage as blue carbon by utilizing steel slag ● Provision of solutions for “National Resilience” aimed at adaptation to climate change ● Net Zero Emission Technology: Technology to stop, absorb, or utilize greenhouse gases. Transition Technology: Technology which is necessary in the process of realizing carbon-free society, such as innovative energy-saving technology that contributes to the significant reduction of greenhouse gases in the world including emerging countries Adaptation / Resilience Technology: Technology that contributes to adaptation (preparation for mitigation of climate change impacts) and resilience etc. Details of each innovations ⇒ refer to PP. 32-38 © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
23 5. Supplementary Materials for Financial Results © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
24 Business Profit Variance Analysis [FY19 vs. FY20(f)] (FY19: Before impairment losses etc.) FY19 FY20(f) change *1 Crude steel production: .approx. -10.05MMT (41.85*→approx. 31.80) (bn. JPY) [A] [B] [A→B] Excl. One-off Factors: approx. -10.29MMT FY19 excl. One-off Factors: 42.09*MMT Business Profit 76.5 (120.0) -196.5 Steel shipment: approx. -9.00MMT (38.70*→ approx. 29.70) Excl. One-off Factors: approx. -8.81MMT FY19 excl. One-off Factors: 38.51*MMT *FY19 incl. ex-Nippon Steel Nisshin (overlaps eliminated) Steel 35.6 (130.0) -165.6 2 * Incl. Carry over +25.0 (-18.0→7.0) Non-Steel 55.3 30.0 -25.3 *3 Operational support, mines, EAFs, domestic and overseas re-rollers, etc. Adjustment (14.4) (20.0) -5.6 (AM/NS India is expected to be in profit) Volume *4 Engineering -2.7, Chemical s & Materials -18.4, *1 System Solutions -4.1 -8.0 Others Group -42.0 +27.0Companies 126.5 Depreciation 76.5 Cost Cost *3 Reduction Non- Steel FY19 Disas- Other -280.0 +110.0 -104.0 *4 (59.0) Raw Steel ters One-off Material Prices, -25.0 Factors Prices Product (120.0) Underlying Profit excl. *2 Mix -61.0 One-off factors +49.0 +140.0 Underlying Profit excl. Other FY20(f) -102.0 One-off factors One-off Factors FY19 FY20(f) Change Disasters (42.0) - +42.0 Inventory Valuation (1.0) (39.0) -38.0 Forex Valuation - (4.0) - 4.0 Group Companies (7.0) (18.0) -11.0 Other One-off Factors (8.0) (61.0) -53.0 Total (50.0) (61.0) -11.0© 2020 NIPPON STEEL CORPORATION All Rights Reserved.
25 Business Profit Variance Analysis [FY19.2H vs. FY20.1H(f)] FY20 (FY19.2H: Before impairment losses etc.) FY19 change (bn. JPY) 2H 1H(f) Crude steel production: .approx. -54.05MMT (20.30*→approx. 14.90) [A] [B] [A→B] *1 Excl. One-off Factors: approx. -5.14MMT FY19.2H excl. One-off Factors: 20.04*MMT Business Profit 3.4 (150.0) -153.4 Steel shipment: approx. -4.74MMT (18.84*→ approx. 14.10) Excl. One-off Factors: approx. -4.50MMT FY19.2H excl. One-off Factors: 18.60*MMT Steel (13.6) (155.0) -141.4 *FY19.2H incl. ex-Nippon Steel Nisshin (overlaps eliminated) Non-Steel 23.8 9.0 -14.8 *2 Incl. Carry over +28.0 (-28.0→0.0) *3 Operational support, mines, EAFs, Adjustment (6.8) (4.0) +2.8 domestic and overseas re-rollers, etc. Volume *4 Engineering +0.5, Chemical s & Materials -13.5, System Solutions -1.6 -10.0 *1 3.4 -19.0 32.4 Group Companies FY19 Other Disas- Others One-off ters 2H Factors +13.0 *3 -155.0 Steel Depreciation Raw Material Prices, Cost Underlying Profit excl. Prices Product +64.0 Non- (104.0) One-off factors 2 Mix * -73.0 Steel Cost (150.0) Reduction *4 -15.0 +49.0 -55.0 +36.0 -46.0 FY19.2H FY20.1H(f) Change Disasters (19.0) - +19.0 One-off Inventory Valuation (5.0) (29.0) -24.0 Underlying Factors FY20 Forex Valuation - (4.0) - 4.0 Profit excl. 1H(f) Group Companies (5.0) (13.0) - 8.0 Other One-off Factors (10.0) (46.0) -36.0 One-off factors Total (29.0) (46.0) -17.0 © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
26 Business Profit Variance Analysis [FY20.1H(f) vs. FY20.2H(f)] FY20 FY20 change *1 Crude steel production: approx.+2.00MMT (bn. JPY) 1H(f) 2H(f) [A] [A→B] (approx. 14.90→approx. 16.90) [B] Steel shipment: +1.50MMT (approx. 14.10→ approx. 15.60) Business Profit (150.0) 30.0 +180.0 *2 Incl. Carry over +7.0 (0.0→7.0) *3 Domestic and overseas re-rollers, etc. *4 Engineering -4.0, Chemical s & Materials +13.0, System Solutions +3.0 Steel (155.0) 25.0 +180.0 Non-Steel 9.0 21.0 +12.0 Non- Adjustment (4.0) (16.0) -12.0 Steel One-off Group Factors Companies *4 Depreciation *3 +12.0 -15.0 Underlying Profit excl. Cost 45.0 One-off factors Cost 30.0 Steel Reduction +48.0 Raw Prices, Others FY20 Material Product +28.0 -13.0 +10.0 Volume Prices Mix 2H(f) (104.0) *1 *2 Underlying -24.0 +33.0 Profit excl. +55.0 One-off factors (150.0) -46.0 FY20.1H(f) FY20.2H(f) Change Inventory Valuation (29.0) (10.0) +19.0 FY20 One-off Forex Valuation (4.0) - + 4.0 1H(f) Factors Group Companies (13.0) (5.0) + 8.0 Total (46.0) (15.0) +31.0 © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
27 Business Profit Variance Analysis [FY20.1Q vs. FY20.2Q(f)] FY20 FY20 change (bn. JPY) 1Q 2Q(f) [A] [B] [A→B] *1 Crude steel production: approx.+0.50MMT (7.20→approx. 7.70) Steel shipment: approx. -0.12MMT (7.12→ approx. 7.00) Excl. One-off Factors: approx. -0.02MMT Business Profit (27.5) (122.5) -95.0 FY20.1Q excl. One-off Factors: 7.02MMT Steel (30.5) (124.5) -94.0 Non-Steel 7.4 1.6 -5.8 Adjustment (4.3) 0.3 +4.6 Group (27.5) Companies, (50.5) Raw Steel Non-steel, (58.5) Material Prices, Others +23.0 Volume Prices Product Depreciation 1 Cost 〜 * Mix Cost Seasonality, Reduction FY20 One-off -5.0 (122.5) 1Q Factors -12.0 +7.0 +8.0 -6.0 FY20.1Q Underlying Profit FY20.2Q Underlying Profit -64.0 excl. One-off factors excl. One-off factors FY20.1Q FY20.2Q(f) Change Seasonality, FY20 Inventory Valuation (17.0) (12.0) + 5.0 Group Companies 6.0 (19.0) - 25.0 One-off Factors 2Q(f) Fixed Costs, Non-operating Incomes/losses, etc. 34.0 (33.0) - 67.0 Total 23.0 (64.0) - 87.0 © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
Key Indicators (bn. JPY) 28 Business Profit EBITDA Figures in parentheses = Ordinary Profit (JGAAP) Figures in parentheses = JGAAP FY19, FY19 2H = Before impairment loss etc. IFRS : Business Profit + Depreciation + Amortization + Impairment loss JGAAP : Ordinary Profit + Net Interest + Depreciation + Amortization FY17 FY18 FY17 FY18 [297.5] 336.9 FY19 FY19 [658.0] 745.5 FY20(f) 466.8 FY20(f) [157.6][139.9] [151.5] 178.9 76.5 190.0 157.9 (130.0) 5.5% 73.1 8.0% 355.4 390.1 [333.9] [344.4] 2.4% 30.0 [324.1] ROS [5.7%] [4.8%] 5.4% 3.4 3.0% 284.9 [5.2%] 0.1% 12.1% 12.1% 190.0 [12.2%] 181.9 [11.1%] 9.3% FY17 FY17 FY18 FY18 FY19 FY19 FY20 FY20 -2.0% [11.9%] EBITDA/Sales 1H 2H 1H 2H 1H 2H 1H(f) 2H(f) 6.3% -7.0% 0.0 -6.8% FY17 FY17 FY18 FY18 FY19 FY19 FY20 FY20 (150.0) -12.0% 1H 2H 1H 2H 1H 2H 1H(f) 2H(f) Cost Reduction CAPEX & Depreciation 481.3 480.0 440.8 140.0 411.9 150.0 CAPEX 399.7 408.6 60.0 351.0 417.3 347.4 310.0 331.8 320.0 340.7 44.0 308.2 304.7 304.3 304.6 Base 257.0 Original Depreciation & Amortization FY17 FY18 FY19 FY20(f) 2020 MTMP FY13 FY14 FY15 FY16 FY17 FY18 FY18 FY19 FY20(f) Before accounting change After accounting change © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
29 Non-Steel Businesses Revenue & Business Profit (3 Non-steel businesses total) Figures in parentheses = JGAAP basis (Sales , Ordinary profit) (Bn. JPY) 457.3 (Bn. JPY) 413.8 422.3 407.0 Engineering & 2019 2020 FY19→ 345.0 Construction 1Q 1H FY 1Q 1H(f) FY(f) FY20(f) Revenue FY18 : 61.1 FY19 : 55.3 Revenue 78.4 157.9 340.4 73.2 150.0 FY20(f): 30.0 Business Business Profit 3.8 5.1 10.7 5.3 6.0 8.0 -2.7 Profit 33.2 31.5 27.9 23.8 21.0 Chemicals 2019 2020 FY19→ 9.0 & Materials 1Q 1H FY 1Q 1H(f) FY(f) FY20(f) FY18 FY18 FY19 FY19 FY20 FY20 Revenue 54.4 114.1 215.7 37.1 75.0 1H 2H 1H 2H 1H(f) 2H(f) Business Profit 3.5 11.3 18.4 -3.1 -6.5 0.0 -18.4 Change in Business Profit (FY19vs. FY20(f)) Profit is expected to decline due to economic System 2019 2020 FY19→ Engineering & uncertainty due to COVID-19 and sluggish Solutions Construction electricity business. 1Q 1H FY 1Q 1H(f) FY(f) FY20(f) Revenue 82.1 150.2 273.2 59.0 120.0 Chemicals Profit is expected to decline due to chemical & Materials products margin decline and decrease in sales Business Profit 7.9 14.9 26.1 of needle cokes etc. 5.1 9.5 22.0 -4.1 System Profit is expected to decline due to the harsh Solutions environment for customers, mainly in the manufacturing industry, to make investments. © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
Balance Sheet 30 End of End of End of End of (Bn. JPY) (Bn. JPY) Mar. 2020 Jun. 2020 Mar. 2020 Jun. 2020 Current Assets 2,784.9 2,699.3 Liabilities 4,448.3 4,458.8 Inventories 1,532.1 1,508.3 Interest-bearing debt 2,488.7 2,733.6 Fixed Assets 4,659.9 4,662.1 Net Assets 2,996.6 2,902.6 Tangible fixed assets 2,812.5 2,824.5 Equity capital 2,641.6 2,552.9 Investments accounted for Unrealized gains on 878.2 854.3 available-for-sale securities * 111.9 121.0 using the equity method Non-controlling interest in Investment in securities 418.5 435.6 consolidated subsidiaries 355.0 349.7 Assets 7,444.9 7,361.5 Liabilities & net assets 7,444.9 7,361.5 * Fair value of financial assets measured at fair value through other comprehensive income Aiming further 1.06 Debt & Equity Asset Compression more compression 0.86 0.85 Adjusted 120.0 0.68 0.74 D/E Approx. +α 500.0 0.64 0.63 0.61 0.66 0.7 280.0 +α 2,978.6 2,948.2 3,230.7 2,552.9 2,683.6 2,773.8 2,641.6 3,136.9 2,369.2 2,733.6 FY12-17 2,394.0 Equity capital 2,157.7 2,488.7 accumulated 2,543.0 2,008.2 2,104.8 1,976.5 780.0 bn. JPY100.0 2,296.3 Interest-bearing debt Base '13.3E'14.3E'15.3E'16.3E'17.3E'18.3E'19.3E'20.3E'20.6E Original FY17 FY18 FY19 FY20(f) Target 2020 MTMP FY20 © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
31 (Adjustment page) © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
32 Appendix 1. Our Activities for Tackling Climate Change (Japan Business Federation “Challenge Zero” and Our Innovations) © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
“Challenge Zero” Program of Japan Business Federation 33 and Our Innovations Toward Carbon-Free Society A new framework of Japan Business Federation published in June 2020 that supports innovations of companies/organizations in collaboration with the Japanese government toward the realization of URL: https://challenge-zero.jp/en/ a "carbon-free society“, which the international climate change framework “Paris Agreement" defines as a long-term goal. As of July 2020, 143 companies/organizations have participated and reported a total of 320 case studies. We support “Challenge Zero” program, and have released 10 innovative challenges toward realization of a “carbon-free society”. (There are only 4 companies that have released more than 10 challenges) Our Innovative challenges 1) Development of Hydrogen Steelmaking Process for Zero Emission https://challenge-zero.jp/en/casestudy/528 We are challenging to develop hydrogen reduction ironmaking technology, in which iron ore is reduced by hydrogen instead of coking coal. It is necessary to establish a technology to supply a large amount of hydrogen gas and heat to the reactor stably because reduction by hydrogen is an endothermic reaction. © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
“Challenge Zero” Program of Japan Business Federation 34 and Our Innovations Toward Carbon-Free Society We are challenging 30% reduction of CO2 emissions through following 2 challenges 2) Development of CO2 emission reduction technology using hydrogen in BF steelmaking https://challenge-zero.jp/en/casestudy/537 COURSE50 As a transition technology until the establishment of 100% hydrogen reduction steelmaking, we are developing technology to replace a part of carbon reduction with hydrogen reduction in BFs. We have developed a technology to reduce CO2 emissions from BFs by 10% using 3D mathematical model of BF and test BF with a volume of 12m3 (about 1/500th the scale of an actual BF) constructed at our East Nippon Works Kimitsu Area Super COURSE50 As a next step, assuming that a large amount of hydrogen can be supplied, we are developing technology to use a large amount of hydrogen-based gas outside the steelworks to dramatically increase the reduction by hydrogen and reduce CO2 emission from BFs, over the target set in COURSE50. 3) Development of low-cost CO2 separation technology https://challenge-zero.jp/en/casestudy/533 The chemical absorption method is a process in which CO2 is absorbed by special absorption liquid and then separated/collected as the liquid is heated. The majority of CO2 capture cost arises from the energy required for absorbent regeneration, i.e. the release of CO2 from the absorbent. In our preceding investigations, we have successfully developed high-performance aqueous absorbents that could reduce the energy consumption for CO2 separation to CO2 Capture 2.3 GJ/t-CO2. On the basis of these investigations, we continue our research to further reaction of catalyst reduce the energy consumption to 1.6 GJ/t-CO2, the theoretical minimum. © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
“Challenge Zero” Program of Japan Business Federation 35 and Our Innovations Toward Carbon-Free Society 4) Contributing the hydrogen infrastructure formation by spreading usage of the specialized steel for hydrogen station https://challenge-zero.jp/en/casestudy/530 HYDREXEL TM is free from hydrogen brittleness even in the high pressure hydrogen environment to bring the longer lifetime and higher safeness of hydrogen stations, indispensable infrastructure for hydrogen society. It also brings enlargement of inner tube diameter realizing larger flow and higher speed pumping of hydrogen, and contribution to construction of compact hydrogen stations and cost reduction of construction and maintenance. We are now developing welding procedure to spread usage of HYDREXEL TM. 5) Development and dissemination of Eco ProductsTM that contribute to reductions in CO2 emissions at the point of product use (NSafe TM-AutoConcept; electrical steel sheet) https://challenge-zero.jp/en/casestudy/532 We provide steel products and services which help users’ products be lightweight, high-performance, and durable thus minimize CO2 emissions over their entire life cycle. Prime examples include our NSafeTM-AutoConcept, which uses high-strength steel and other advanced materials and their processing technology solutions, and our highly-efficient non- oriented electrical steel sheet, which enhances energy efficiency. These Eco ProductsTM have the potential for further enhancement of their properties and we will take up various R&D challenges © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
“Challenge Zero” Program of Japan Business Federation 36 and Our Innovations Toward Carbon-Free Society 6) Enhanced efficiency in recycling of waste plastics https://challenge-zero.jp/en/casestudy/536 For over 20 years, we have strived to carry out and expand chemical recycling of waste plastics, using a coke oven process, with the aim of reducing emissions of global greenhouse gases (totally 3.07 million tons of CO2 reduction). In response to further requests from society, we are taking up the challenge to make high-density waste plastic moldings in order to moderate the operating impact of coke ovens when handling waste plastics in vast volume. 7) Establishment of dimethyl carbonate (DMC) production method using CO2 as raw material https://challenge-zero.jp/en/casestudy/534 We have been developing new DMC (Dimethyl Carbonate) process directly producing from CO2 with Tohoku University and chemical companies. DMC is widely used for source of high-performance engineering plastics and Li batteries electrolyte, etc. We have established process not only effectively using CO2 but also safe and with low cost. By replacing current DMC production with this technology, we aim to reduce about 1 million tons of CO2 emission. © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
“Challenge Zero” Program of Japan Business Federation 37 and Our Innovations Toward Carbon-Free Society 8) Zero emission hydrogen production technology by artificial photosynthesis https://challenge-zero.jp/en/casestudy/535 We are challenging to develop an artificial photosynthesis technology to produce hydrogen directly from water using sunlight as an energy source and photocatalysts. We have developed a new photocatalyst and confirmed the world's top efficiency. We are now challenging to develop more efficient photocatalyst. 9) CO2 uptake and carbon storage as blue carbon by utilizing steel slag https://challenge-zero.jp/en/casestudy/529 We have developed coastal environment improvement technologies that utilize steel slag, a by-product of the steelmaking process. Steel slag provides iron needed for seaweeds to flourish. Focusing on the function of the coastal environment as a blue carbon ecosystem, we are challenging to improve our technology to contribute to CO2 reduction. We are also challenging to establish an evaluation system of the carbon stock capacity of coastal ecosystems using large *1 Blue Carbon: CO2 uptake and carbon storage by coastal ecosystem aquarium laboratories in our R&D center. © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
“Challenge Zero” Program of Japan Business Federation 38 and Our Innovations Toward Carbon-Free Society 10) Provision of solutions for “National Resilience” aimed at adaptation to climate change https://challenge-zero.jp/en/casestudy/531 Ex) Reinforcement of Reservoir embankment In recent years natural disasters have intensified in Japan. Our group is striving to enhance our technologies and products, which can contribute to National Resilience, and make proposals to clients and design consulting firms. We have been making steady achievements, including the adoption of our technologies and products. We aim at contributing to the progress of society through pursuit of world-leading technology development and manufacturing strength, and activities that match the United Nations’ Sustainable Development Goals (SDGs), in particular the Goal 9 of building infrastructure for industrialization and innovation. © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
39 Appendix 2. Production Facility Structural Measures (Announcement on Feb. 7th) © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
40 Assumption for Future Market and Nippon Steel’s Structure Shrinking construction demand due to population ageing and decline Shrinking steel demand in exporting industries due to expansion of local production by customers Risk of domestic steel demand depreciation Market Forecast Shrinking steel demand in China Enhancement of Chinese steelmakers’ integrated capacity in coastal China and ASEAN Risk of intensifying competition in overseas market More than 50 years have passed since the construction of Nippon Nippon Steel’s main steelworks. Steel’s Fixed Cost Large-scale CAPEX for facility refurbishment is still Structure needed even if controlled by selection and concentration. © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
Concept and Procedure for Pursuing Lean and Optimal Production Framework 41 Basic Concept To build efficient production framework centered on competitive integrated steelworks Procedure 1) Comprehensively examine competitiveness of integrated steelworks from the perspective of the system and ability to consistently manufacture high value- added products 2) Shutdown facilities with inferior competitiveness and integrate their production into other facilities with superior competitiveness Strategically make selective investments to improve productivity and strengthen the business structure Product mix improvement Pursuit of lean & optimal through raising ratio of high-value production framework added products Maximization of marginal profit under adequate fixed cost level © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
Structural Measures to Realize Lean and Measures Optimal already 42 Production Framework Legends: announced Further measures Underlined items are updates from prev. announcements Purpose Relevant Steelworks and Facilities Time of Closure (1) Strengthening 1) Setouchi Works Kure Area/ Shutdown of upstream facilities of competitiveness (BF, sintering, and steelmaking) By around the end of FY2021 1H in upstream / all other facilities (incl. hot strip mill and pickling line) By around the end of FY2023 1H integrated 2) Kansai Works Wakayama Area/ Shutdown of #1 BF, #5-1 sintering production machine, #4/5 coke ovens, and part of #3 continuous caster By around FY2022 1H 3) Kyushu Works Yawata Area (Kokura)/ Shutdown of Previously: By around the end of FY2020 upstream facilities ⇒By around the end of FY2020 1H (2) Upstream 4) Setouchi Works Hirohata Area/ Shutdown of By around FY2023 1H facility reformation a melting furnace, installation of EAF 5) Nippon Steel Structural Shapes/ Previously: By around the end of FY2019 Cancellation of steelmaking facility shutdown ⇒Operation to continue (Shutdown cancelled) (3) Efficiency 6) Setouchi Works Hanshin Area (Sakai)/ Shutdown of continuous annealing and process- enhancement of the steel ing line, electro-galvanizing line, and #1 continuous aluminizing line sheet production system By around the end of FY2020 (4) Strengthening of Previously: By around FY2021 2H 7) Setouchi Works Hirohata Area/ Shutdown of tinplate mill ⇒By around the end of FY2020 the tinplate business (5) Strengthening of the 8) Nagoya Works/ Shutdown of steel plate mill By around FY2022 2H steel plate business 9) Kansai Works Osaka Area/ Shutdown of titanium round bar line (6) Withdrawal from By around the end of FY2022 unprofitable titanium 10) Kyushu Works Oita Area (Hikari)/ By around the end of FY2021 1H business Shutdown of titanium ERW line (7) Strengthening of 11) Nippon Steel Stainless Kinuura Works the stainless steel / Shutdown of hot strip mill By around the end of Dec-2020 business / Shutdown of precision product lines By around the end of FY2020 1H (8) Strengthening of 12) East Nippon Works Kashima Area/ Shutdown of UO pipe mill Oct-2019 (done) the pipe & tube business 13) East Nippon Works Kimitsu Area (Tokyo)/ Shutdown of small-diameter seamless pipe mill By around May-2020 © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
Effects of Measures Decided So Far and Future Efforts 43 Effect of measures decided so far Before After Number of BF -4 furnaces 15⇒11 furnaces Already announced: Kure #2, Yawata (Kokura) Decided this time: Kure #1, Wakayama #1 Crude steel production Cf. FY2018 crude steel production capability -5 MMT/Y Nippon Steel (non-consolidated): 41.00MMT Ex-Nippon Steel Nisshin (Kure) : 2.73MMT Nippon Steel (consolidated) : 47.84MMT Effects of measures decided this Expected profit time: +76 bn. JPY improvement 100 bn. JPY/Y Effects of measures already announced: +24 bn. JPY Extra effect: CAPEX reduction CAPEX for around next 10 years to BFs, coke ovens, sintering machines, and due to facility shutdowns energy generation facilities etc. can be partially avoided. Future efforts In addition to the series of structural measures decided this time as the first step, Nippon Steel is pursuing further measures as next steps to build more competitive, leaner, and optimal production framework. Nippon Steel will implement selection and concentration of CAPEX Assessing domestic and overseas S&D balance and Nippon Steel’s expected profit under such circumstance, Nippon Steel will implement further measures in accordance with business environment changes. © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
44 Production Facility Structural Measure In addition to striving to realize effects of the structural measures, announced on February 7, ahead of schedule, we will pursue further optimal production framework and implement additional measures as necessary. Breakdown of Cost Reduction Maintenance cost: Suppressing input prior to shutdown while maintaining facility Variable Mainte- soundness until shutdown cost nance Labor cost: Reduction by suppressing new employment. (No early discharge) cost Depreciation cost: Reduction due to facility shutdown 100.0 Variable cost: Cost reduction by transferring production from facilities shutdown to Depreci- bn. JPY/Y highly competitive facilities ation Labor cost cost Cost Reduction Curve (Rough Estimation) Prior to the facility shutdowns, FY2020 1) Suspension of maintenance expenses Aiming for earlier realization 35.0 for facilities scheduled to be shutdown 2) Reduction of depreciation cost due to bn. JPY 100.0 recording Kure impairment loss bn. JPY/Y will be realized. FY FY FY FY FY FY 2019 2020 2021 2022 2023 2024 ････ Kashima/ UO pipe mill End of Oct-19 Kimitsu (Tokyo)/ Seamless pipe mill May-20 Yawata (Kokura)/ Upstream facility FY2020 1H Kinuura/ Precision product lines Kinuura/ Hot strip mill Dec-20 Hanshin (Sakai)/ a part of flat steel sheet mill FY2020 2H Hirohata/ Tinplate mill FY2021 1H Kure/ Upstream facility, Oita (Hikari)/ Titanium pipe mill FY2022 1H Wakayama/ BF and related facilities Nagoya/ Steel plate mill, Osaka/ Titanium round-bar mill FY2022 2H Kure/ Hot strip mill etc., Hirohata/ Melting furnace FY2023 1H © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
45 To Build Lean & Optimal Production Framework Number of (Deter- facilities mined in to be closed FY2019 3Q) Facilities to be closed Time of closure Coke oven -2 (-2) Wakayama -2 (#4, #5） FY2022 1H Kure -2 (#1, #2) Around the end of FY2021 1H Sintering -4 (-2) Wakayama -1 (#5-1) FY2022 1H Yawata -1 (Kokura) Closed in Nov-2016 Kure -2 (#1, #2) Around the end ofFY2021 1H BF 15 ⇒ 11 -4 (-2) Wakayama -1 (#1) FY2022 1H Yawata -1 (Kokura) The end of FY2020 1H Kure -3 (#1, #2) Around the end of FY2021 1H Converter 38 ⇒ 28 -10 (-3) Yawata -3 (Kokura 3) The end of FY2020 1H Hirohata -3 (Melting furnace, decarburization furnace) Around the end of FY2023 1H EAF +1 Hirohata +1 FY2022 1H Kure -2 Around the end of FY2021 1H Continuous caster -5 (-2) Wakayama –1 (#3 Continuous caster #1 strand) Around the end of FY2020 1H Yawata -3 (2 in Kokura, 1 in Tobata), +1 (Tobata #3) Around FY2022 1H Hot rolling 7 ⇒ 6 -1 (-1) Kure -1 Around the end of FY2023 1H Thick plate 4 ⇒ 3 -1 (-1) Nagoya -1 Around FY2022 2H Pickling -1 (-1) Kure -1 Around the end of FY2023 1H Hirohata -1 Around the end of FY2020 Annealing -2 (-1) Nisshin Sakai -1 (Continuous annealing line) Around the end of FY2020 Galvanizing -1 (-1) Nisshin Sakai -1 (Electrogalvanizing line) Around the end of FY2020 Tinning -1 Hirohata -1 Around the end of FY2020 Nisshin Sakai -1 (Hot-dip aluminizing line) Around the end of FY2020 Other coating -2 (-1) Hirohata -1 (Coating & laminating line) The end of FY2020 Seamless pipe -1 Kimitsu -1 (Tokyo small-diameter seamless pipe mill) Around May-2020 UO pipe -1 Kashima -1 Closed in Oct-2019 ERW -1 (-1) Oita (Hikari) -1 (Titanium welded pipe line) Around the end of FY2021 1H Forging -1 (-1) Osaka -1 (Titanium round bar line) Around the end of FY2022 Nippon Steel Stainless Kinuura -3 (Hot rolling line) Around the end Dec-2020 Stainless -3 (-3) (precision product lines: cold rolling line and bright annealing line) Around the end of 2020 1H © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
46 Appendix 3. Progress of Management Strategy Measures © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
Progress: Strengthen Manufacturing Capabilities 47 47 *BF = Blast Furnace Legend : New measure Plan Done Cancelled Action Publication ~FY19 FY20 FY21 FY22 FY23~ (Kure) Close Upstream Process and Hot- End of FY21 1H: Upstream closure Feb-20 End of FY23 1H: rolling Line Others closure (Wakayama) Close BF and Related Facilities Feb-20 End of FY22 1H: Closure (Yawata) Optimize Upstream Mar-16 (Tobata) - Start new continuous casting facility May-19 : End of FY20 : (Tobata) - Close continuous casting facility Completion full-scale operation End of FY20 : Closure (Kokura) - Close upstream process End of FY20 : Closure - Move up the schedule Feb-20 End of FY20 1H : Closure (Nagoya) Close Steel Plate Mill Feb-20 FY22 2H : Closure (Hanshin Sakai) Feb-20 End of FY20: Closure Close a part of Flat Steel Sheet Mill (Oita) Close Titanium Pipe Mill End of FY21 1H: Closure Feb-20 (Osaka) Close Titanium Round Bar Line End of FY22: Closure (NIPPON STEEL Stainless Steel Kinuura) Close Hot Strip Mill Feb-20 End of Dec-20: Closure and Precision Product Lines End of FY20 1H: Closure (Hirohata) Close Tinplate Mill Nov-19 FY21 2H : Closure Move up the schedule Feb-20 End of FY20: Closure (Kimitsu) Close Small-diameter May-20 : Close & transfer its Mar-18 production to Wakayama Works Seamless Pipe & Tube Mill End of Oct-19 : Closed & transferred (Kashima) Close UO Pipe Mill May-19 its production to Kimitsu Works © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
Progress: Strengthen Manufacturing Capabilities 48 48 *BF = Blast Furnace Legend : New measure Plan Done Cancelled Action Publication ~FY19 FY20 FY21 FY22 FY23~ (Wakayama) BF Switch Mar-18 Mid Feb-19 : Switch from 5BF to New 2BF (HOKKAI IRON & COKE CORP. in Muroran) FY20. 2H: Completion Nov-18 Reline 2BF (Nagoya) Reline 2BF Jun-20 FY22. 1H: Completion (Hirohata) Scrap Melting Process Nov-19 FY22 1H: EAF Completion FY23 1H: Melting furnace closure (NIPPON STEEL Structural Shapes) End of FY19: Close steelmaking facility and transfer its production to Wakayama Works Close Steelmaking Mill Mar-18 Cancellation Feb-20 Cancelled the shutdown of the steelmaking facility Coke Oven Refurbishment (Kimitsu) 5 Coke Oven Apr-16 Feb-19 : Completion Sep-19 : Completion (Hokkai) 5 Coke Oven Jun-17 (Completed refurbishment for all coke ovens in Hokkai) (Nagoya) 3 Coke Oven Nov-18 FY21.1H: Completion © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
Progress : Global Business Development & Domestic Realignment49 49 Legend : New measure Plan Done Cancelled Action Publi- ~FY18 FY19 FY20 FY21~ cation NIPPON STEEL NISSHIN Becoming our subsidiary, Mar-17 : Nisshin became our subsidiary (8→51％) Dec. 26th, 18 : Nisshin delisted from Tokyo Stock Exchange our wholly owned subsidiary Jan. 1st, 19 : Nisshin became our 100% subsidiary Merger Oct-19 Oct-19 : Announcement Apr-20 : Merger Integrations of group companies May-18: Basic agreement Stainless sheets business May-18 Apr-19 : “NIPPON STEEL STAINLESS STEEL” started Aug-18: Basic agreement Stainless Pipe&Tube business Aug-18 Apr-19 : “NIPPON STEEL STAINLESS STEEL PIPE” started Realignments of trading firms Dec-18: Nihon Teppan became Nippon Steel Trading’s subsidiary, and its commercial rights for stainless steel Nihon Teppan Sep-18 transferred to Nippon Stainless Trading Merger: NS Stainless and Nippon Stainless Trading Jan-19 Oct-20 : Merger Realignments of steel making facility engineering & maintenance companies Jun-19 Jun-19 : Basic agreement (Business integration of Nippon Steel Texeng & Nippon Steel Nisshin Koki) Jul-20 : Integration Realignments of logistic companies Nov-19 : Basic agreement (Business integration of Nippon Steel Logistics Nov-19 & Nippon Steel Nisshin Logistics) Apr-20 : Integration Realignments of construction steel sheets business Tokai Color Sep-18 Jan-19: Tokai Color became NISC’s* subsidiary Merger of Nippon Steel Coated Sheet and Dec-19 Jul-20: Merger Nippon Steel Nisshin A&C Integration of road-related business between Apr-21: “Nippon Steel and Nippon Steel Metal Products and Kobelco Mar-20 Kobelco Metal Products” Engineered Construction Materials inauguration Transfer of slit dam business from Kobe Steel to Mar-20 Apr-20: Transfer Nippon Steel Metal Products *NISC : Nippon Steel Coated Sheet Corporation © 2020 NIPPON STEEL CORPORATION All Rights Reserved.
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