Medium-Term Business Plan 2006 ~ 2008 Progress Accelerating Distinctiveness - Railway, Automotive & Machinery Parts 2006 2008 2015
Forward-looking Statement This presentation contains certain forward-looking statements. The Company has tried, whenever possible, to identify these forward-looking statements using words such as anticipated, believes, estimates, expects, plans, intends, targets, and similar expressions. Similarly, statements herein that describe the Company s business strategy, outlook, objectives, plans, intentions or goals are also forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause the Company s actual results, performance or achievements to differ from those expressed in, or implied by, such statements. 2006 2008 2015 These risks and uncertainties may include, but are not limited to: the Company s ability to successfully implement its strategies to restructure the steel business and reinforce its financial structure; the effects of and changes in Japanese and worldwide general economic conditions and in the steel industry in particular, including the severity of any economic slowdown, technological and other changes affecting the manufacture of and demand for Sumitomo Metal Industries Group s products, changes in Japan s and other countries laws and regulations, including with regard to taxation, and other risks and uncertainties set forth in subsequent press releases and in Sumitomo Metal Industries Group s public filings. These statements reflect the Company s current beliefs and are based upon information currently available to it. Be advised that developments subsequent to this presentation are likely to cause these statements to become outdated with the passage of time.the Company disclaims any intent or obligation to update these forward-looking statements.
Contents Ⅰ. Medium-Term Business Plan 2006 ~ 2008 Progress Ⅱ. Railway, Automotive & Machinery Parts Business Strategy - Accelerating Distinctiveness - 3
Ⅰ.Medium-Term Business Plan 2006 ~ 2008 Progress 2006 2008 2015
Building a Solid Operating Base to Underpin Future Growth Targeted earnings range 5 Recurring profit Past earnings range 93 99 Reduced excessive debt 02 05 08 New Medium-Term Plan (06-08) Strategically position Sumitomo Metals to accelerate distinctiveness Reinforce the operating base in anticipation of intensifying competition Previous Medium-Term Plan (02-05) Restructured steel business Channeled resources into strategic fields
Direction of Growth Expansion of Intangible Assets =Qualitative growth Ensure Balanced Qualitative and Quantitative growth Avoid Quantitative growth only 6 Expansion of Tangible Assets =Quantitative growth
Consolidated Financial Targets in Medium-Term Business Plan JPY billion Net Sales Operating profit Recurring profit Net income FY 05 1,552.7 305.8 280.7 221.2 FY 06 Targets (approximate) 1,560 280 300 190 FY 08 Plan (approximate) 1,620 300 290 180 Total assets Debt Shareholders equity 2,113.3 679.7 720.8 2,180 720 790 2,380 680 1,070 ROA Equity ratio D/E ratio 14.5% 34.1% 0.94 14% 36% 0.91 13% 45% 0.6 7
Change in Consolidated Recurring Profit JPY billion (FY05 FY06 Target) Net improvement of 20 JPY billion 280.7-47 Raw materials -14 Increase in fixed costs -20 Profit or loss from valuation 8 Cost improvement 21 Earnings from equitymethod affiliates 9 Exchange rate fluctuation 63 Change in product mix, unit prices, etc. 300 8 FY05 FY06 Target
Direction of Growth JPY thousands/ton Sales unit price 100 90 80 Accelerating distinctiveness Cmpany C 18.4% 15.8% 20.1% Company B Targeting greater scale Company A 14.1% 15.6% Including Stainless Steel 10.5% 9 70 0 10 20 30 40 120 50 Results for the period July ~ September 2006 Size of circle=operating margin ~ ~ Crude steel production volume (million tons/year)
Repurchase of Shares 1. Reason for Repurchase of Shares Sumitomo Metals repurchased its shares in order to facilitate flexible capital management in response to the changing business environment. 2. Details of Repurchase (1) Class of shares repurchased: Common stock of Sumitomo Metals (2) Aggregate number of shares repurchased: 160 million shares (3.33% of the total number of shares issued) (3) Aggregate repurchase price: 70 billion yen (4) Period of repurchase: November 2006 10
Accelerating Distinctiveness 2006 2008 2015
Structural Changes in the Market Steel supply/demand projections Low-to mid-grade steel products Commodity-grade steel sheet Mid/high-grade steel sheet Past Present Future 12 High-grade steel plate Specialty steel Seamless pipes Railway, Automotive & Machinery parts Level of competition Weak Core Earnings Ratio Sumitomo Metals' Earnings from key fields largely unaffected by changes in supply/demand of commodity-grade steel 2005 70% 2008 80% Intense
Changes in Sumitomo Metals Core Earnings 70% 74% 80% Earnings Time Accelerating distinctiveness Earnings Time 13 05 06 08 Ratio= core operating earnings / consolidated operating profit
Energy Sector Seamless Pipes 1,200 1,000 800 600 400 200 0 14 Sales volume: thousand tons/year 1,130 1,150 540 Energy- related 140 150 110 110 110 120 250 240 Accelerating distinctiveness (81%) Total 1,250 630 OCTG 05 06 From Q2 08 Cutting-edge products sales volume: thousand tons/year 150 129 15 13 Line pipe 100 Petrochemical 73 89 Power generation 50 Others 43 45 0 Focus on high-grade products and reinforce SCM with major oil companies Respond to increased customer demand for high-grade OCTG Total invest. Projected period Scale Increased capacity +100 thou. tons/year To 1st half FY08 for seamless pipe 35 JPY billion (mainly cutting-edge products) Increased capacity for stainless boiler tube (*) 6.5 JPY billion To 2nd half FY07 +6 thou. tons/year (from 12 to 18 thou. tons/year) (*) Figures not included in the Medium-Term Business Plan capital investment 200 Super high-alloy 13 Cr Alloy pipes for sour service 149 Total 200 20 100 80 05 06 08 Focus more on cutting-edge products For coal-fired power plants
Energy Sector Steel Plate/Large /Large-diameter welded Pipe Accelerating distinctiveness Focus on high-strength high-tensile long-life Create dedicated sales team for energy sector Increase high-grade plate output Total invest. 7 JPY billion Projected period Q3 FY 07 Scale +100 thou. tons/year Focus on energy sector Mass production of ultra-high-strength, large-diameter welded steel pipe (over X100)(*) 10 JPY billion FY 10 Greater distinctiveness in energy sector (*) Figures not included in the Medium-Term Business Plan capital investment. 15
Automotive sector Steel Sheet Breakdown of Sumitomo Metals' steel sheet orders by sector 05 50% 06 53% Other fabrication 08 Automotive 60% Stockist Accelerating distinctiveness Electrical appliances New CGL 16 Strengthen Sumitomo Metals coil center network with a view to boosting customer satisfaction; create a lineup comprising more high-end products Invest to build stronger customer base Continuous pickling line Total invest. 17 JPY billion 9 JPY billion Projected period Q3 FY06 Q2 FY07 Scale +300 thou. tons/year +1.5 mil. tons/year Strengthen production of sheet steel for automotive sector
Automotive sector Specialty Steel 05 Steel type Sector Breakdown of production at Sumitomo Metals (Kokura) 89% 75% 06 Steel type Sector 90% 76% 08 Steel type Sector Specialty steel Automotive 92% 80% Others Ordinary steel Accelerating distinctiveness Focus on functionally enhanced steel and super clean steel Respond to moves into global markets by Japanese manufacturers Total invest. Projected period Scale Steel making process innovations 20 JPY billion To FY10 Boost quality of specialty steel and cost competitiveness 17
Automotive sector Crankshafts Sumitomo Metals Group s crankshaft production framework (pieces/year) 6.3 million 7.3 million China US Japan Accelerating distinctiveness 05 08 Expand overseas operations to respond to rising local production by automakers Total invest. Projected period Scale China: Huizhou Sumikin 2nd forging press line U.S.: ICI 3rd forging press line ASEAN 18 8 JPY billion To FY07 To FY08 +1 mil. pieces/year +1.25 mil. pieces/year Expand overseas operations Increase productivity Examine supply network
Major Steps to Enhance the Competitiveness of Sumitomo Metals Steel Works Kashima Steel Works Goals: Output of 8 million tons/year, full capacity utilization, globally competitive on cost and quality No. 3 Blast Furnace relining IPP (Independent Power Producer) 29 JPY billion 57 JPY billion 1st half FY07 Q1 FY07 +0.5 million tons/year Achieve output of 8 million tons/year Underpin stable earnings Wakayama Steel Works Goals: Leading brand in seamless pipes, full capacity utilization through long-term contracts for steel slab Renewal of upstream processes Environmental protection 160 JPY billion To FY10 +0.5 million tons/year Achieve output of 4.5 million tons/year Relocate coke ovens 19
The "No. 1 Manufacturer" in Customer Satisfaction Recent awards from our customers Date of award Jan. 2006 Customer Honda Motor Corporation Award name Special Award Appreciation to Excellent Suppliers (Quality Award) Special Award Appreciation to Excellent Suppliers (Technology & Development Award) Sumitomo Metals Sumitomo Metals (Kokura) Feb. 2006 Toyota Motor Corporation Award for Quality Performance Award for Technology & Development Sumitomo Metals: Five consecutive years Sumitomo Metals: Three consecutive years Mar. 2006 Toyota Motor Manufacturing North America, Inc. Excellent Delivery Performance Award Quality Performance Award ICI: Four consecutive years ICI: Two consecutive years Mar. 2006 Honda of America Manufacturing, Inc. Quality Award ICI June 2006 Statoil Certificate of Appreciation Sumitomo Metals 20
FY06 Target of Consolidated Steel Sales by Internal Company Sumitomo Metals (Naoetsu) and others Units: JPY billion Sumitomo Metals (Kokura) 142 53 Railway, Automotive & (10%) (3%) Machinery Parts 100 (7%) Total 1,450 Steel Sheet, Plate, Titanium & Structural Steel 565 (39%) Pipe & Tube 590 (41%) 21