Second Quarter FY2017 Earnings Summary

Transcription

1 5401: JP NSSMY: ADR (US) Second Quarter FY2017 Earnings Summary Katsuhiro Miyamoto Managing Executive Officer October 27 th, 2017 Notes on this presentation material NIPPON STEEL & SUMITOMO METAL CORPORATION is abbreviated as NSSMC All volume figures are presented in metric tons Unless otherwise noted, all financial figures are on a consolidated basis

2 Agenda 2 1. FY2017 1H Results & Full Year Forecast 2. Progress in Mid-Term Management Plan 3. Appendix

3 3 1. FY2017 1H Results & Full Year Forecast

4 Overview: FY2017 1H Results & Full Year Forecast 4 Business Environment Domestic: Economy is expected to maintain a moderate recovery, supported by stable private consumption and capital investment, despite some restraint in business activities caused by labor shortages. Demand for steel will stay firm, led principally by demand in the automotive sector. Overseas: Overall moderate conditions will continue, supported by favorable business conditions in USA and Europe, sustained firm conditions in China, and ongoing gradual economic recovery in developing countries. Topics Commodity Price: Prices of commodities such as alloy and scrap have surged this year to date. Sales price: Keep negotiating to improve the metal margin for sustainable reproduction. Technological superiority: Japanese Ministry of Trade, Economy and Industry honors NSSMC with award for Yawata works newly-developed Eco-friendly stainless steel manufacturing process. This process enabled 100% recycle of stainless steel scraps generated in Yawata works. Application of IT: NS Solutions launched the Artificial Intelligence R&D center in its Systems R&D center. Asset compression: Sellout of SUMCO shares. Ownership ratio %. Sales 27.8 bn. (Oct,17) Financial Highlights FY2017 1H FY2017 (E) Ordinary Profit (bn ) (ROS 5.7%) (ROS 5.4%) Net Profit (bn ) * ( 1.3/share) ( 193.0/share) Interim dividend: 30.00/share (+ 5.0 from the prev. forecast as of Jul.28) Consolidated payout ratio: 26.7% Profit attributable to owners of parent * 1

5 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Key Indicators: FY2017 1H Results & Full Year Forecast Crude Steel Production Steel Shipments Volume * /1H 16/2H 17/1H 17/2H(E) MMT MMT Avr. Steel Selling Price 68.0 FOREX $ Sales , , , , /1H 16/2H 17/1H 17/2H(E) k /t bn Ordinary Profit Net Profit * 2 ROS 1.3% 5.9% % 5.0% bn ROE (annualized) 0.8% 8.6% 6.6% bn /1H 16/2H 17/1H 17/2H(E) * 1 Non-consolidated+Nippon Steel & Sumikin Koutetsu Wakayama Co. * 2 16/1H 16/2H 17/1H 17/2H(E) Profit attribute to owners of parent

6 Key Indicators of Domestic Steel Demand 6 Finished Auto Production (million units) Non-Residential Construction Starts (million m 2 ) * * 1Q 2Q 3Q 4Q * * * 1Q 2Q 3Q 4Q.50 Auto Sales (million units) * * * 1Q 2Q 3Q 4Q Figures as of the end of August 1.43 Public Works Orders ( in bn) 4, ,500 3,000 2,891 2,500 2,000 1,500 1,000 1,904 1,808 1,920 3,430 2,511 2,259 3,198 2,933 3,000 2,780 3,300 * * 1Q 2Q 3Q 4Q

7 Domestic Steel Supply-Demand 7 Steel Consumption (MMT) (MMT) Rolled Sheets Inventory Rolled sheets inventory (Left axis) * 2 Ordinary steel products inventory turnover ratio (Right axis) (Times) * 1 * 1 1Q 2Q 3Q 4Q Steel Imports by Region (MMT/Month) Taiwan Korea China 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H Jul. Aug. CY20 CY2013 CY2014 CY2015 CY2016 CY '13/03 '14/03 '15/03 '16/03 Steel Inventory Cycle Increase Domestic Ordinary Steel Inventory (YoY increase (%)) Decrease Adjustment Excessive 8 Accumulation 14.2Q Q 13.4Q Q 17.1Q 14.4Q 13.1Q 13.3Q Jul.-Aug Q -.4Q 15.2Q Q.3Q 13.2Q 16.1Q 16.2Q 16.3Q 15.3Q Q -6 Decrease Decrease Ordinary steel shipped domestically Increase (YoY increase (%)) 2 '17/ Recovery * 1 Figures as of the end of August * 2 Hot-rolled, Cold-rolled and Coated sheets

8 Key Indicators of Steel Demand Overseas Manufacturers' New Orders in USA Nondefense Capital Goods Excluding Aircraft (bn$/m) Construction Spending in USA (bn$/y) Residential Fixed Asset Investment in China 30% 25% 20% 15% 10% (ratio of growth over the previous year)* 5% ( ): included in Fixed Asset Investment (Private Investment) Fixed Asset Investment (Real Estate Investment) 0% (Source: National Bureau of Statistics of China) (Government Investment) ,500 2,000 1,500 1, Rig Counts 1, ,546 1, CY 20 * Calculated by using cumulative figures from Jan. in each year CY ,875 1,919 1,167 1,234 1,761 1,862 1,296 1, CY 2011 CY 20 International (excluding U.S., Russia, China) U.S. Deep Well (included in U.S. total) CY 2013 (Source: Baker Hughes) CY 2014 Non-residential , CY (Sep. 17) CY 2016 足下 latest (Sep. 17) ('17/9)

9 China s Steel Supply-Demand & Market Trend Crude Steel Production & Channel Inventories in China (MMT) 2.5 Ave. Daily Crude Steel Production (right axis) Long Product Inventory (left axis) Flat Product Inventory (left axis) CY13 CY14 CY15 CY16 CY17 Crude Steel Production: Sharp increase since Spring Stable domestic demand and substitutional production for eliminated illegal induction furnaces which were out of statistics. Inventory: Restocking in preparation for strong demand in fall and production cut in winter. Export: Downtrend since Jan. - Sep., 2017 vs. the same period of 2016 : -31%. Market Prices: Mar. - Aug, 2017: Upward trend. Early Sep.: Soft patch after one-off surge by Benxi BF trouble. After National Day holiday(1-8 th Oct.): Rebound & uptrend. (Source: Japan Steel Association, SteelHome, CISA, MYSTEEL, NSSMC, etc.) (MMT/day) (MMT/month) * China s Export by Product Pipe Long Product Export Flat Product Export CY13 CY14 CY15 CY16 CY ($/t) China DB (right axis) Calculated by Iron Ore Market Price x Coal Market Price x 0.9 Hot Rolled Sheets Prices by Region China HC (right axis) East Asia HC(left axis) Raw Material Cost /t INDEX* (CNY/t) 4,000 3,500 3,000 2,500 2,000 1,500 1,000

10 World Steel Demand Forecasts WSA World Steel Demand Short Range Outlook 1,648 Estimates World 1,622 as of Oct.17 (MMT) 1, MMT illegal induction furnaces 1, MMT +26 MMT 1,535 1, MMT (E) 2018(E) Estimates as of Apr.17 Upward revision: Ongoing moderate growth CY MMT (vs.cy2016) Expanding demand in the global steel market. Higher performance than expected for both developed and developing economies except MENA. CY MMT(vs.CY2017) Increase in global steel demand for 3 consecutive years despite leveling off in Chine. Cf. IMF World Economic Outlook Projections (%) Em.and Em.and World Developed China World Developed Dev. Dev. China Oct Jul Apr Developed China MMT +2.8 MMT MMT +4.7 MMT (E) 2018(E) MMT Illegal induction furnaces 62.4MMT MMT MMT MMT (E) 2018(E) Emerging and Developing excl. China MMT +.2 MMT MMT MMT (E) 2018(E) *Illegal induction furnaces (out of statistics) CY2014:52.4MMT, CY2015:57.6MMT, CY2016:62.4MMT (Source: World Steel Association, IMF)

11 Raw Materials and HC Price Trend Hard Coking Coal Price (US$/wmt) Fine Iron Ore Price (US$/dmt) 11 '13/2Q '13/3Q '13/4Q '14/1Q '14/2Q '14/3Q '14/4Q '15/1Q '15/2Q '15/3Q '15/4Q '16/1Q '16/2Q '16/3Q '16/4Q '17/1Q '17/2Q '17/3Q $3 $314 Contract Price Market Price $ '13/2Q '13/3Q '13/4Q '14/1Q '14/2Q '14/3Q '14/4Q '15/1Q '15/2Q '15/3Q '15/4Q '16/1Q '16/2Q '16/3Q '16/4Q '17/1Q '17/2Q '17/3Q (Source: LME, Bloomberg, Japan Metal Daily) East Asia HC ($/t) 16/2Q 16/3Q 16/4Q 17/1Q 17/2Q 17/3Q ( ) Domestic HC (k /t) 16/2Q 16/3Q 16/4Q 17/1Q 17/2Q 17/3Q

12 Commodity Price Hike 1,460 1,360 Manganese HC FeMn(75%) (US$/t) 3,250 3,050 Zinc LME(US$/t) 360 Scrap USA Scrap(No1HMS) (US$/t, CIF Korea)(Left axis) 37 1,260 1,160 1, ,850 2,650 2,450 2,250 2,050 1,850 1, Iron Scrap Bid Prices in Kanto Region (k\/t)(right axis) ,0 2,020 1,920 1,820 1,720 1,620 1,520 1, '16.01 '16.01 '16.04 '16.04 FY16 '17.01 '17.04 Aluminum LME(US$/t) FY16 '17.04 FY17 FY17 '17.10 ' , '16.01 '16.01 HC FeCr (US /lb-cr) '16.04 '16.04 FY16 FY16 '17.01 '17.04 Chromium '17.04 FY17 FY17 '17.10 ' '16/01 '16/04 FY16 Freight '17/04 FY17 (US$/WMT, Cape size 170 thousand tons hull form) '16/01 From Brazil '16/04 FY16 '17/10 From Western Australia '17/04 FY17 '17/10 (Source : LME, Bloomberg, Japan Metal Daily)

13 NSSMC Operational Highlights 13 FY16 FY17 Change (million tons) 1Q 2Q 1H 2H 1Q 2Q 1H[E] 1H 2H[E] [E] * 3 16/1H vs. 17/1H 17/1H[E] vs. 17/1H 17/1H vs. 17/2H[E] FY16 VS. FY17[E] Pig-iron production Consolidated Crude Steel Production Non-Consolidated Crude Steel Production Steel Shipments Seamless Pipe Shipments * 2 * Average Steel Selling Price (1,000 yen/ ton) Steel Export Ratio (Value basis (%)) Forex ($ ) Depreciate Depreciate Appreciate Depreciate * 1 * 2 Includes pig-iron production of Hokkai Iron & Coke corp. and Nippon Steel & Sumikin Koutetsu Wakayama Co. Includes crude steel production of Nippon Steel & Sumikin Koutetsu Wakayama Co. 3 Figures as of July 28, 2017 *

14 FY2017 1H Results & Full Year Forecast 14 ( in billions) Net Sales Operating Profit Ordinary Profit Extraordinary Profit (Loss) Net Profit [ EPS ] EBITDA EBITDA / Sales ROS ROE * 1 FY16 1Q 2Q 1H 2H 1Q 2Q FY17 1H[E] 1H 2H[E] [E] 1, ,1.6 2, , , , , , , , , (7.3) (.0) (6.2) (2.9) (9.1) (2.9) (2.9) +6.2 (14.6) [(16.4)] [ 29.1 ] [.4 ] [135.9] [148.0] [80.8] [31.5] [ 96.0 ] [1.3] [80.7] [193.0] [+99.9] [+16.3] [-31.7] [+45.0] % 8.9% 7.5% 10.4% 9.0% 10.9% 8.1% 9.5% +2.0% -1.1% 3.6% 1.3% 5.9% 3.8% 8.0% 3.6% 5.6% 5.7% 5.0% 5.4% +4.4% +0.2% -0.8% +1.6% 16/1H vs. 17/1H -2.2% 3.9% 0.8% 8.6% 4.6% 9.6% 3.7% 6.6% +5.8% * 2 Change 17/1H[E] vs. 17/1H 17/1H vs. 17/2H[E] FY16 VS. FY17[E] 1 Profit attribute to owners of parent * 2 Figures as of July 28, 2017

15 Extraordinary Profit & Loss 15 ( in billions) FY16 FY17 1Q 2Q 1H 2H 1Q 2Q 1H Extraordinary Profit (Loss) (6.2) (2.9) (9.1) (2.9) (2.9) Gain on sales of shares of subsidiaries and associates Gain on step acquisitions Loss on inactive facilities - (2.7) (2.7) (10.0) (.7) - (2.9) (2.9) Loss on disaster (7.8) (7.8) Restructuring Loss (6.2) (0.2) (6.4) - (6.4) - - -

16 (Adjustment Page) 16

17 Ordinary Profit Variance Analysis [FY16/1H vs. FY17/1H] 17 ( in billions) FY16/1H [A] FY17/1H [B] Change [A B] Ordinary Profit Steel Non-Steel Adjustment * 1 * 2 * 3 * 4 * 5 * 6 * 7 * 8 Inventory valuation: ( ) Crude steel production: -1.42MMT ( ) Steel shipment: -0.96MMT ( ) * Figures above incl. impacts of Oita Plate Mill fire accident, but not incl. impacts on earnings. Incl. carry over Both volume decrease & cost increase Increase in depreciation etc. Stock: ( ) Flow: -5.0 Mining interests, Nisshin Steel, Business overseas etc. Engineering +0.4, Chemicals +8.5, New Materials +0.4, System Solutions +0.4 Positive Negative 28.0 Volume * * Oita Works * 2 4 Cost Fire Accident Reduction Others Group * 7 * 5 Companies Forex * FY16 1H Exclude Inventory Valuation Impact * 1 * 1 Non-* 8 Steel Raw Material Prices* 3 Steel Prices & Product Mix Exclude Inventory Valuation Impact FY17 1H

18 Ordinary Profit Variance Analysis [FY17/1H(E) vs. FY17/1H] 18 ( in billions) FY17/1H(E) as of Jul. 27 [A] FY17/1H [B] Change [A B] Ordinary Profit Steel Non-Steel Adjustment Positive Negative * 1 * 2 Inventory valuation: ( ) Crude steel production: -0.31MMT ( ) Steel shipment: -0.68MMT ( ) * Figures above incl. impacts of Oita Plate Mill fire accident, but not incl. impacts on earnings. 3 Incl. carry over * 4 Both volume decrease & cost increase 5 Stock: +1.0 ( ) Flow: ~ * 6 Nisshin Steel etc. * 7 Engineering +1.9, Chemicals +4.3, New Materials +0.6, System Solutions ~ ~ * 2 * 7 Steel Prices & * 5 Non-Steel * 2 * 4 Volume * 3 Raw Material Prices Product Mix Cost Reduction Oita Works Fire Accident Others Forex Group * 6 Companies FY17 1H(E) Exclude Inventory Valuation Impact * 1 * 1 Exclude Inventory Valuation Impact FY17 1H

19 Ordinary Profit Variance Analysis [FY17/1H vs. FY17/2H(E)] 19 ( in billions) FY17/1H [A] FY17/2H(E) [B] Change [A B] Ordinary Profit Steel Non-Steel Adjustment 5.6 (5.1) Volume * 2 * Cost Others Reduction * 7 FY17 1H Positive Negative Exclude Inventory Valuation Impact Steel Prices & Product Mix and Raw Material Prices * 3 * 2 * 4 Oita Works Fire Accident Inventory valuation: ( ) Crude steel production: +1.41MMT ( ) Steel shipment: +1.58MMT ( ) * Figures above incl. impacts of Oita Plate Mill fire accident, but not incl. impacts on earnings. Incl. carry over Both volume decrease & cost increase Forex +2.0 (Stock: +2.0 ( ) Flow: ~), Increase in depreciation etc. Nisshin Steel, Business overseas etc. Engineering -0.3, Chemicals -7.6, New Materials -0.2, System Solutions +1.6 Group * 6 Companies Non- Steel * 1 * 1 * 1 * 2 * 3 * 4 * 5 * 6 * 7 Exclude Inventory Valuation Impact FY17 2H(E)

20 Ordinary Profit Variance Analysis [FY16 vs. FY17(E)] ( in billions) FY16 [A] FY17(E) [B] Change [A B] Ordinary Profit Steel Non-Steel Adjustment Positive Negative * Volume 2 Steel Prices & Product Mix and Raw Material Prices * 3 Cost Reduction ~ * * 2 * 4 7 * 5 * 6 Steel Non- Oita Works Fire Accident * 1 * 2 * 3 * 4 * 5 * 6 * 7 Others Inventory valuation: ( ) Crude steel production: -1.02MMT ( ) Steel shipment: -0.78MMT ( ) * Figures above incl. impacts of Oita Plate Mill fire accident, but not incl. impacts on earnings. Incl. carry over Both volume decrease & cost increase Forex +3.0 (Stock: +9.0 (-9.0 ~) Flow: -6.0), Increase in depreciation, Decrease in non-operating assets sales etc. Mining interests, Nisshin Steel, Business overseas etc. Engineering -3.3, Chemicals +6.5, New Materials +0.3, System Solutions +0.9 Group Companies FY16 Exclude Inventory Valuation Impact * 1 * 1 Exclude Inventory Valuation Impact FY17(E)

21 Non-Steel Business Sales & Ordinary Profit (Non-steel business total) Sales Ordinary Profit FY2016 1H 1H (E) (YoY) (+.5) (-3.3) FY /1H 16/2H 17/1H 17/2H(E) Engineering & Construction Sales Ordinary Profit New Materials Sales Ordinary Profit ( in billions) FY2017 FY2017 1H 1H (E) (YoY) (+3.5) (+0.3) Change in Ordinary Profit (FY16 vs. FY17(E)) Engineering & Construction Chemicals New Materials System Solutions Decrease Increase Increase Increase Chemicals Sales Ordinary Profit System Solutions Sales Ordinary Profit 1H 1H (E) (YoY) (+10.8) (+6.5) FY2016 FY Profit decline due to drop in oil prices & overseas steel makers investment. Profit increase thanks to market recovery in chemicals, strong sales of functional materials and needle coke. Profit increase thanks to strong demand for electrical industries materials such as coated copper & carbon fiber. Both sales & profit increase mainly thanks to business solution, despite of SG&A increase. ( in billions) FY2016 FY2017 1H 1H (E) (YoY) (+9.5) (+0.9)

22 Balance Sheet 22 ( in billions) End of Mar End of Sep Current Assets 2, ,372.7 Inventories 1, ,350.7 Fixed Assets 5, ,104.2 Tangible fixed assets 2, ,860.0 Investment in securities Investment 1, ,034.9 Assets 7, ,477.0 ( in billions) End of Mar End of Sep Liabilities 3, ,5.7 Interest-bearing debt 2, ,174.5 Net Assets 3, ,411.3 Equity capital 2, ,055.8 Unrealized gains on available-for-sale securities non-controlling Interest in consolidated subsidiaries Liabilities & net assets 7, , ,394.0 End of Mar End of Sep Change Total assets (bn ) 7, , Interest bearing debt (bn ) 2, , Equity capital (bn ) 2, , DER , , , , , , , , , ,976.5 End of Mar End of Mar D/E Ratio D/E ratio 0.72 Equity Capital End of Mar End of Mar Interest-bearing debt End of Mar ,174.5 End of Sep. 2017

23 Interim Dividend In accordance with the basic profit distribution policy, NSSMC has decided to increase interim dividend by 5.0 from 25.0, as previously disclosed, to 30.0 (representing a dividend payout ratio of 26.7%). NSSMC plans to determine the forecast for the year-end dividend distribution amount, with due consideration of the full-year outlook for profit attributable to owners of parent, and announce it at the time of its third-quarter results announcement. /share Year-end dividend (left axis) Interim dividend (left axis) Payout ratio (right axis) 23.4% 28.4% 30.4% 26.7% 17.4% 18.7% FY20 FY2013 FY2014 FY2015 FY2016 FY2017 [Basic Profit Distribution Policy] Interim Allocate profits according to earnings Factors below need to be considered as well Reserves for future investment / Earnings forecast / Consolidated and non-consolidated financial structure Targeted dividend payout ratio: around 20% - 30% (consolidated basis) 35% 30% 25% 20% 15% 10% 5% 0% 23

24 CAPEX and Depreciation 24 NSSMC (Upper : NSC Lower :SMI) CAPEX Depreciation ( in billions) FY07 FY08 FY FY10 FY11 FY FY13 FY14 FY15 FY16 FY17(E) (310.0) (178.8) (244.0) (102.5) (300.0) (159.1) (273.7) (1.8) (330.0) (136.6) (284.0) (0.8) (290.0) (1.9) (291.5) (6.2) (265.0) (115.7) (280.9) (2.9) Incld. Nisshin Incld. Nisshin CAPEX SMI DEP SMI CAPEX DEP aprrox NSC NSC 0 FY07 FY08 FY FY10 FY11 FY FY13 FY14 FY15 FY16 FY17 FY17(E) 見

25 25 2. Progress in Mid-Term Management Plan

26 2017 Mid-Term Plan:Targeted KPIs % FY15 1H ROS 3.0% 1.3% FY15 2H FY16 1H 5.9% 5.7% FY16 2H FY17 1H FY17 2H (E) 10 % or more 10 % or more 8.1% 8.6% 6.6% 5.0% Target FY17 FY15 1H ROE 1.8% FY15 2H 0.8% FY16 1H FY16 2H FY17 1H Target FY17 Cost Reduction bn or more per year 0.66 D/E ratio Approx Base FY14 FY15 FY16 FY17 Target FY17 FY14 FY15 FY16 FY17 1H Target FY17

27 Progress of Mid-Term Plan 27 Domestic Overseas Company / Works Kimitsu Yawata Kashima/ Kimitsu/ Muroran Nisshin Steel (Kure Works) ICI (USA: Crankshaft/ No.4 Forging Press Line) NSCh (China: Auto/ Ramp up capacity of NBC) VSB VBR Integration (Brazil: Pipe / Merger with Vallourec s subsidiary) AGIS (UAE: Construction/ JV with Saif Al Ghurair Gr.) VAM BRN (Brunei: Pipe/ JV with SC and Vallourec) WTC (USA: ERW / Agreement to sell shares) KOS (Indonesia: Structural/ JV with Osaka & PTKS) KNSS (Indonesia: Auto/ JV with PTKS) NSCI (USA: Auto/ JV with secondary processors) NS BlueScope (Thailand: Construction/ JV with BlueScope Steel) Action Close No.3 BF Reorganize production frame work Start up Coke Oven Relining No.1 BF/Close No.2 BF Started operation of No.4 line Started operation Business merger Started operation of No.2 galvanizing Line Started operation Execution of Agreement to sell shares Started operation Started operation Start operation(e) Installation of No.3 Metal Coating Line FY15 2H (Kashima/1F) Aug. Oct. Dec. FY16 Mar. Oct. Oct. Nov. FY17 Jan. Jul. FY17(E) FY18 Later FY18~FY20(E) (Kimitsu (Kimitsu/4B) (Kashima(Kimitsu (Muroran /4A) Aug. Jan. /2E) No.5) No.5) FY18.Apr. FY18.2H FY19.1H(E) (E) (E) Dec. FY18(E) FY23(E)

28 *1 METI Honors NSSMC for Eco-friendly Stainless Steel Making Process 28 Japanese Ministry of Trade, Economy and Industry honors NSSMC with award for Yawata works newly developed Eco-friendly stainless steel manufacturing process* Problems of Conventional Process *called YES : Yawata Environment-friendly Smelter 1.Shortage of heat low recycle ratio of stainless steel scrap, chromium (rare metal) loss 2.Ferrosilicon alloy use as reducing agent in converter high cost, large slag volume & chromium loss Effect of YES installation Enlarged heat energy * More effective reduction by YES compared to it by converter, utilizing silicon contained in ferrochromium alloy as reducing agent instead of ferrosilicon alloy. Recycle ratio of stainless steel scrap generated in Yawata 2% 100% YES Consumption of ferrochromium alloy Consumption of ferrosilicon alloy Slag volume -38% Notable cost Reduction -11% -88% * 1 METI = Ministry of Economy, Trade and Industry

29 NSSMC Group s Quality Management 29 NSSMC s Value in manufacturing Quality always prevails production (delivery deadline, cost, etc.) Clear notification on NSSMC s Quality Guidelines Under the principal of Quality always prevails production, NSSMC has persistently carried out measures to cope with Guideline for Reinforcement of Quality Assurance Structure established by the Japan Iron and Steel Federation in 2008.

30 *1 NSSMC Group s Quality Management Structure in line with JISF Guideline 30 Thorough awareness of compliance and quality assurance Thorough awareness of compliance with rules (laws, contracts& standards) Education of basics of quality assurance Mechanism to prevent nonconformity Reinforcement of quality assurance management Improvement in reliability of inspection data Mechanism to detect nonconformity Group-wide reinforcement of quality audit Reinforcement of inspection certificate management Management Principles 1.We continue to emphasize the importance of integrity and reliability in our actions. Employee Action Guidelines We observe rules, keep our promises and pierce to the heart of matters by actively investigating the facts. Educate relevant employees by e-learning every year Thorough compliance training according to each employee s grade and work contents Separate Quality Control Department from manufacturing department in all works Obtain ISO9001 certification in all works of NSSMC & main works of group companies Receive certifications from JIS API, etc. and third party s audit periodically * 2 Educate and issue internal qualification for employees who direct or prosecute inspections Quality Control Department directs the how of inspection * for each lot Promote to automate inspection data input * frequency, manner and method etc. Check soundness of inspection system periodically Preserve record of sampling and inspection effectively and check periodically Headquarter s Quality Control Department executes all group s quality audit Keep updating checklist reflecting other quality incidents in steel sector * 1 JISF = The Japan Iron and Steel Federation * 2 JIS=Japanese Industrial Standards Inspection certificate must be issued by Quality Control Department which is independent from manufacturing department

31 NSSMC Group s Contribution to SDGs Job creation in emerging countries Reduction of vulnerability to disaster based on use of Nonframe method Use of converter slag fertilizer to improve farming productivity and salt damage in farmland Provision of titanium and stainless steel, which have excellent seawater corrosion resistance, for seawater desalination plants, securing agriculture water Promotion of air, water, soil risk management and chemical substance management Development and provision of high-tensile steel sheets with excellent collision safety performance Development and provision of steel products that contain no substances of concern, etc. 31 Conducting science classes, sending lecturers, hosting Tatara steelmaking experiments to promoting interest in manufacturing Study sessions for teachers, internship for students Establishment of in-house 24-hour nursery to support working women More hiring of women in production and other workplaces Recycling and reuse of limited water resources Promotion of water quality risk management Provision of titanium and stainless steel for seawater desalination plants Provision of lining steel pipes for delivery of clean water

32 NSSMC Group s Contribution to SDGs 32 Efficient use of energy, such as 100% use of by-product gas Diffusion of CDQ that generates power from waste heat and waste power generation in emerging countries Development and provision of steel materials for high-pressure hydrogen to support a hydrogenoriented society, etc. Taikan Program (an experiencebased safety education program) Promotion of health management programs for employees Enhanced measures to support the work-life balance, etc. Pursuit of Eco Processes TM Introduction of advanced technologies through bilateral cooperation (India, ASEAN, etc.) Use of steel slag in road materials and materials for civil engineering Thorough compliance training, such as for the Anti-Monopoly Act Promotion of employment of people with handicaps Expanded hiring of women and non- Japanese Provision of various indispensable Eco Products TM Provision of earthquake-resistance steel products Conservation and management of the Yawata Works, an industrial world heritage site, etc. Promotion of air, water, soil risk management and chemical substance management Full recycling of by-products Promotion of recycling of waste plastics and waste tires Curbing the used amount of rare metals while ensuring high performance, etc

33 NSSMC Group s Contribution to SDGs 33 Pursuit of Eco Processes TM Development and provision of Eco Products TM Promotion of Eco Solutions TM Promotion of innovative technology development, such as reduction of iron ore by hydrogen, separation, collection, and use of CO 2, etc. Promotion of water and soil risk management and chemical substance management Regeneration of seaweed beds with the use of steel slag Collaboration with an NPO, Mori wa Umi no Koibito Promotion of air, water, soil risk management and chemical substance management Creation of Hometown Forests to promote greenery within steelworks Raising awareness of and compliance with anti-bribery guidelines Elimination of antisocial forces Thorough confirmation of no use of conflict materials Thorough management of security export control Compliance with the OECD Guidelines for Multinational Enterprises across a wide range of topics Eco solutions to transfer and spread environmental, energy-saving technologies to emerging markets Japan-India and Japan-ASEAN regular exchanges among public and private steel-related parties Active participation in various activities of the World Steel Association (LCA, CO 2 data collection, environmental committee, etc.)

34 34 3. Appendix

35 Key Indicators of Demand 35 [ Domestic ] FY16 FY17 * 2 * 2 * 1 *2 * 2 * 2 1Q 2Q 1H 2H 1Q 2Q 1H[E] 1H 2H[E] [E] 16/1H vs. 17/1H 17/1H[E] vs. 17/1H Change 17/1H vs. 17/2H[E] FY16 VS. FY17[E] Housing Starts Non-residential Construction Starts Public Works Orders (million houses) Finished Auto Production Overseas Auto Production (8 Japanese car makers) Large & Middle sized Shovel Production (0.48) (26.48) (million m³) 1,904 3,430 5,333 5,456 10,790 1,920 3,000 (5,260) 4,920 6,080 11, , ( in billion) (million units) Export of Finished Auto Metal Machine Tool Production Keel-laid New Ships (million units) (million units) (thousand units) (thousand tons) (mil. gross tons) (4.68) (2.37) (34) (185) (5.80) Rig Count CY CY10 CY11 CY CY13 CY14 CY15 CY16 CY17 Latest Peak Bottom USA 1,089 1,546 1,875 1,919 1,761 1, (Sep. 17) 2,031 (Sep. 08) 404 (May. 16) Deep well ( 15,000ft) (Aug. 17) 413 (Nov. 11) 98 (May. 16) World Total (Exc. N. America, Russia & China) 997 1,4 1,167 1,234 1,296 1,337 1, (Sep. 17) 1,382 (Jul. 14) 920 (Oct. 16) (Source: Baker Hughes, Smith international, NSSMC est.) * 1 Figures published on July 28, 2017 * 2 Estimates as of early Sep., 2017

36 Domestic Steel Consumption by Industrial Sector 36 (million tons) Crude Steel Production in Japan Domestic Steel Consumption (A + B) % for manufacturing sector Ordinary Steel Consumption (A) Construction Manufacturing Shipbuilding Automotive Industrial Machine Electronic Machine Specialty Steel Consumption (B) Steel Imports Steel Exports FY16 1Q 2Q 1H 2H 1Q 2Q 1H[E] 1H 2H[E] [E] FY17 * 2 * 2 * 1 * 2 * 2 * 2 16/1H vs. 17/1H 17/1H[E] vs. 17/1H Change 17/1H vs. 17/2H[E] FY16 VS. FY17[E] ( Source : NSSMC est.) * 1 Figures published on July 28, 2017 * 2 Estimates as of early Sep., 2017

37 World Economic Outlook <Released on Oct. 10, 2017 by IMF> 37 (GDP growth rate) World Total Developed Countries USA EU27 Japan Developing Countries China India ASEAN5* Russia Brazil ( ): Outlook as of Jul. 24, 2017 CY08 CY CY10 CY11 CY CY13 CY14 CY15 CY16 CY17 CY18 見通し [E] 見通し [E] (3.5) 3.6 (3.6) (2.0) 2.2 (1.9) (2.1) 2.2 (2.1) (1.9) 2.1 (1.7) (1.3) 1.5 (0.6) (4.6) 4.6 (4.8) (6.7) 6.8 (6.4) (7.2) 6.7 (7.7) (5.1) 5.2 (5.2) (1.4) 1.8 (1.4) (0.3) 0.7 (1.3) 1.5 (Source : IMF) *ASEAN 5 : Thailand, Malaysia, Indonesia, Philippines, Vietnam

38 World Steel Demand <Released on Oct. 16, 2017 by WSA> 38 ( billion tons ) China Others Japan/North America/Europe Figures in parentheses are previous forecasts as of Apr.21, 2017 <CY> <CY13> <CY14> World <CY15> <CY16> * <CY17(E)>* <CY18(E)>* Total (1.515) (1.535) (1.548) *including illegal induction furnaces CY CY16 CY CY13 CY15 CY CY CY CY E (Source : World Steel Association, Apparent finished steel consumption)

39 World Crude Steel Production 39 (million tons) World * Total (YoY) Japan (YoY) Korea (YoY) USA EU28 Russia Brazil India China (YoY) CY16 [A] Jan - Jun CY17 Jul Aug Sep Jul - Sep Jan - Sep [B] CY17 [C] (B*/9) Change (A C) 1, , , (+0.7%) ( +4.4%) (+7.3%) (+7.2%) (+5.6%) (+6.7%) (+5.2%) (+5.0%) (-0.4%) ( +0.5%) (-4.3%) (-2.0%) (+2.0%) (-1.5%) (-0.2%) (-0.4%) (-1.6%) ( +3.8%) (+2.3%) (+3.5%) (+2.8%) (+2.9%) (+3.5%) (+2.7%) (+0.6%) (+4.0%) (+10.3%) (+8.7%) (+5.3%) (+8.1%) (+5.4%) (+5.4%) (Source : World Steel Association) * Total of 66 countries

40 Hot Rolled Sheets Prices by Region 40 ( Prices of Hot Rolled Sheets in Local Currency as of Apr. 2014=1.0 ) Japan USA 0.70 Europe S.Korea 0.60 China BaoSteel Prevailing List Price 0.50 '14/04 '15/03 '16/03 17/03 (Source : The Japan Iron and Steel Federation)

41 Domestic Steel Consumption Trend 41 (million tons) Crude Steel Production Consumption(Manufacturing Sector) Consumption(Construction and Civil Engineering Sector) Crude Steel Production Steel Exports Manufacturing Sector Steel Exports Construction and Civil Engineering Sector 0 (Source : NSSMC estimation)

42 Domestic Crude Steel Production 42 All Japan (million tons) (Domestic Crude Steel Production of FY17/3Q(E) released by METI ) (MMT) FY FY FY FY FY FY FY FY FY FY (MMT) * 1 * 2 SMI (Left axis) NSC,NSSMC (Left axis) FY17/3Q(E) All Japan (Right axis) Total Production of Crude Steel ( NSC (non-consolidated)+smi ) FY17(E) * 1 Includes NIPPON STEEL & SUMIKIN KOUTETSU WAKAYAMA CORP * 2 Includes Sumitomo Metals(Kokura), Sumitomo Metals(Naoetsu) and Sumikin Iron & Steel Co.

43 Domestic Steel Products Prices 43 Plates & H-flange beams Hot-rolled sheets & Cold-rolled sheets (thousand yen / ton ) (thousand yen / ton ) H-flange beams ( ) Hot-rolled sheets (2.3xS) Plates(19mm) Cold-rolled sheets(1.0xs) 26 th, Oct 26 th, Oct '13/03 '14/03 '15/03 '16/03 '17/03 '13/03 '14/03 '15/03 '16/03 '17/03 (Source : Japan Metal Daily)

44 Domestic Steel Inventory 44 (MMT) 7.0 Rolled Sheets Inventory * 1 H-flange beams* 2 Inventory Ordinary steel products inventory (Left axis) (Times) (MMT) Rolled sheets inventory (Left axis) * Inventory quantity (Left axis) Ordinary steel products inventory turnover ratio (Right axis) Inventory turnover ratio (Right axis) (Times) '13/03 '14/03 '15/03 '16/03 (Source : Japan Iron and Steel Federation) * 1 Hot-rolled, Cold-rolled and Coated sheets '17/ '13/03 * 2 Inventories of the distributors dealing with H-flange beams manufactured by NSSMC '14/03 '15/03 '16/03 '17/03 0.0

45 Iron Ore & Coking Coal Prices 45 Iron Ore (Fine) Hard Coking Coal (US$/dmt) NSSMC Contract Price (US$/wmt) FOB from Australia to Japan NSSMC Contract Price FOB from Australia to Japan FY04 FY FY08 10/ 1Q 10/3Q 11/ 1Q 11/3Q / 1Q /3Q 13/ 1Q 13/3Q 14/ 1Q 14/3Q 15/ 1Q 15/3Q 16/1Q 16/3Q 17/1Q 17/2Q FY04 FY FY08 10/ 1Q 10/3Q 11/ 1Q 11/3Q / 1Q /3Q 13/ 1Q 13/3Q 14/ 1Q 14/3Q 15/ 1Q 15/3Q 16/1Q 16/3Q 17/1Q 17/2Q

46 Market Trends <Crude Oil & Scrap> 46 Crude Oil Scrap 0.0 (US$/bbl) (US$/MT) (US$/ton) 600 (thousand yen/ton) Arabian Light Crude (Left axis) Bunker (Right axis) '13/03 '14/03 '15/03 '16/03 '17/ '13/03 USA Scrap(No1HMS) (US$/t, CIF Korea)(Left axis) Iron Scrap Bid Prices in Kanto Region (thousand yen/ton)(right axis) '14/03 '15/03 '16/03 '17/03 0.0

47 Market Trends <Freight & Mold Pig Iron> 47 Freight Mold Pig Iron (US$/WMT, Cape size 170 thousand tons hull form) (US$/T, CIF Korea) 35 From Brazil 600 Mold Pig Iron(US$/t,CIF Korea) 30 From Western Australia '13/03 '14/03 '15/03 '16/03 '17/03 0 '13/03 '14/03 '15/03 '16/03 '17/03

48 May-15 Jan-05 May-05 Sep-05 Jan- May- Sep- Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan- May- Sep- Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan- May- Sep- Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Energy Sector : Oil Price / Rig Count (US$/bbl) US Oil Price (WTI Spot) 200 Rig Counts (Jan. 2005=100) As of Oct. 26 Oct. Avr. 48 World Bank Estimates (as of Apr.,2017) CY2020 $62.9 Sep-14 Jan-05 May-05 Sep-05 Jan- May- Sep- Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan- May- Sep- Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan- May- Sep- Jan-13 May-13 Sep-13 Jan-14 May-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 North America (BakerHughes) World (BakerHughes)

49 Forex Trend 49 (USD/JPY) (USD/KRW) 160 1, USD/KRW Oct USD/JPY 1,5 USD/KRW 1,450 1, , ,000 Apr USD/JPY 985 USD/KRW 85 USD/JPY '08/04 '/03 '10/03 '11/03 '/03 '13/03 '14/03 '15/03 '16/03 '17/03

50 50 This presentation does not constitute an offer or invitation to subscribe for or purchase any securities and nothing contained herein shall form the basis of any contract or commitment whatsoever. This presentation is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. No warranty is given as to the accuracy or completeness of the information contained herein. Investors and prospective investors in securities of any issuer mentioned herein are required to make their own independent investigation and appraisal of the business and financial condition of such company and the nature of the securities. Any decision to purchase securities in the context of a proposed offering, if any, should be made solely on the basis of information contained in an offering circular published in relation to such an offering. By participating in this presentation, you agree to be bound by the foregoing limitations. This presentation contains statements that constitute forward looking statements. These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of Nippon Steel & Sumitomo Metal Corp. or its officers with respect to its financial condition and results of operations, including, without limitation, future loan loss provisions and financial support to certain borrowers. Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ from those in such forward looking statements as a result of various factors. The information contained in this presentation, is subject to change, including but not limited, to change of economic conditions, financial market conditions, and change of legislation / government directives. Any statements in this document. other than those of historical facts, are forward-looking statements about future performance of Nippon Steel & Sumitomo Metal Corporation and its group companies, which are based on management s assumptions and beliefs in light of information currently available, and involve risks and uncertainties. Actual results may differ materially from these forecasts.