Management Goals and Medium-Term Strategies/Business Plan

Transcription

1 Management Goals and Medium-Term Strategies/Business Plan June 2003 Nippon Steel Corporation 0 Copyright cnippon STEEL Corporation 2003 All rights reserved.

2 Contents I. Steel Business Business Environment Nippon Steel s Competitive Advantages Key Issues and Strategies II. Medium-Term Financial Goals (FY FY2005) * Names of companies appearing in this presentation have been abbreviated 1

3 I. Steel Business 2

4 Nippon Steel: Progressing Into A New Phase of Earnings Growth Business Environment Global Global demand demand supported by by brisk brisk growth growth in in Southeast Asia, Asia, especially China China Capacity limitations leading leading to to favorable demand demand for for high high value-added products Stable Stable and and firm firm steel steel prices prices due due to to tight tight supply supply caused caused by by industry industry consolidation Global Global steel steel commodity price price convergence favorable for for Japanese steel steel makers makers Strategies & Goals Expand Expand sales sales of of high high value-added products in in growing markets, especially China China Capitalize on on strong strong relationships with with key key Japanese customers Establish global global alliances with with foreign foreign steel steel manufacturers (e.g., (e.g., Arcelor) Increase Increase efficiencies of of domestic mills mills by by expanding blast blast furnace furnace volume volume Invest Invest in in downstream production facilities in in Asia Asia (e.g., (e.g., JV JV with with Bao Bao Steel Steel in in China) China) Goal: Goal: achieve achieve record record high high recurring profit profit of of 250bn 250bn ($2.1bn) in in FY2005 FY2005 3

5 I. - Business Environment 4

6 Worldwide Demand for Crude Steel: Asian Market as a Significant Growth Driver (millions of tons) Worldwide & Asia 829 Japan CY2001 CY2002E CY2003E 868 Worldwide 449 Asia CY2001 CY2002E CY2003E E Worldwide 11% Asia 20% Worldwide ex-asia 3% Global Crude Steel Production (CY2001) Worldwide 846m tons Asia 351m tons Others 495 Asia - Others 55 Japan 103 (Source: International Iron and Steel Institute) China 149 Korea CY % increase 38 China CY2002E CY2003E CY2004E (E) China 33% Korea CY2001 CY2002E CY2003E

7 Global Consolidation Has Helped Recover Pricing Powers CY1995 Crude Steel Output Ranking (millions of tons) CY2002 Crude Steel Output Ranking (millions of tons) 1 Nippon Steel (Japan) Arcelor (EU) POSCO (Korea) Nippon Steel (Japan) British Steel EU) JFE Japan Usinor Sacilor (EU) POSCO (Korea) Riva (EU) LNM Gr (Ispat) (EU) Arbed Grp. (EU) 11.5 Shanghai Baosteel (China) NKK (Japan) Thyssen Krupp (EU) US Steel (US) Corus(EU) Kawasaki Steel (Japan) Riva (EU) Sumitomo Metals (Japan) US Steel (US) 14.5 Crude Steel Output (growing market share of top ten steel makers) Footnote: Blue represents Nippon Steel alliance partners Crude steel based on group output volume currently under negotiations CY1995 CY2002 Production Volume Market share Production Volume Market share Top 5 9,591 13% 16,150 18% Top 10 15,058 20% 24,447 27% Total (Worldwide) 75, % 90, % 6 (Source: Metal Bulletin, IISI)

8 Prices in Japan, The Lowest Worldwide, Have Recovered Significantly Steel Sheet Products Price Index (Nippon Steel estimates as of FY2002-3Q) Price Trends of Steel Products in Japan Japan EU US ASEAN Thailand China Hot-rolled sheets Cold-rolled sheets Coated steel sheets Cold-rolled sheets Plates Hot-rolled sheets (Index based on Japan as 100) -beams Small pipes (Tokyo) Scrap (Tokyo) (Source: Japan Metal Daily, Nihon Keizai Shimbun) 7

9 I. - Nippon Steel s Competitive Advantages 8

10 Our Competitive Advantages Solid Solid customer customer base base in in the the domestic domestic market market Top Top market market share share for for high high value-added value-added products products Strong Strong capacity capacity for for delivering delivering total total steel steel product product solution solution to to globalizing globalizingcustomer base base Cost Cost competitiveness competitiveness through through production production facility facility enhancement enhancement Established Established supply supply network network for for stable stable and and speedy speedy delivery delivery Strategic Strategic business business alliances alliances with with leading leading overseas overseas steel steel makers makersfor for capturing capturing growth growth opportunities opportunities as as well well as as delivering delivering technology technology innovation innovation 9

11 A Solid Domestic Base Relationship with Leading Domestic Customers (Nippon Steel figures are based on non-consolidated accounts) Steel Product Shipments Domestic shipments 66%, Export ratio 34% Composition of Domestic High weighting to long-term contracts with manufacturing industry (especially automobiles) Breakdown by User Demand FY01) Domestic Consumption and Nippon Steel Shipments of Steel Products Indexed based on FY1990 as as 100 Overall Industry Nippon Steel Manufacturing (ex.automobiles) Automobile Construction & Retail FY96 FY02 Source: Japan Iron and Steel Federation monthly statistics 10 Domestic Nippon Steel Source: Japan Iron and Steel Federation steel statistics, Nippon Steel estimates

12 Top Market Share for High Value-added Products Specialized thin steel sheets (High tensile strength steel) Galvanized steel sheets for automobiles Steel materials Nippon Steel approx. 50% Nippon Steel approx. 40% Nippon Steel approx. 25% Rails Electrical steel Tin &TFS Nippon Steel approx. 65% Nippon Steel approx. 50% Nippon Steel approx. 40% 11 (Note: Market share based on non-consolidated account) (Source: Order inflow statistics)

13 Nippon Steel s Market Share for Automotive Flat Steel in Asia 8 Major Customers in Asia Asia (including Japan) Toyota Honda Nissan Others 52% Total demand of 8 major customers (Japan & Asia) 8.2m tons Nippon Steel est. 48% Mitsubishi Motors Mazda Isuzu Fuji Heavy Suzuki 12

14 Meeting the Needs of an Ever Changing Competitive Environment/Customer Requirements Shifting nature of competition due to globalization in markets and technological, product and processing development (e.g. auto industry) Social Responsibility Globalization of Automobile manufacturers Global environmental problems Light-weight for fuel efficiency Reduction of pollutant release Pursuit of collision safety Expansion of overseas production Increase in worldwide launch of automobiles (i.e., global models) Reduction in automobile development lead time (4 years 1 year) Automobile manufacturers are requesting that the steel industry develop a global supply structure as well as maintaining highly technical products equally on a global basis. Delivering total solutions through collaboration with automobile manufacturers 13

15 Close-to-Customer Capacities Promptly Responding to Needs such as Just-in-Time Production Nationwide order inflow in millions tons, regional weighting actual figures for 1st Half 2002 annualized base Source: Steel and metal demand monthly statistics Chugoku 4.96 (9%) Muroran Hokkaido 1.58 (3%) Kyushu 4.36 (7%) Hikari Mazda Hirohata Kamaishi Nissan Honda Tohoku 2.18 (4%) Yawata Toyota Nissan Oita Sakai Kansai 12.0 (20%) Honda Toyota Nagoya Kimitsu Tokai & Hokuriku (23%) Kanto 18.6 (32%) 14

16 I. - Key Issues and Strategies 15

17 Key Issues & Strategies for Nippon Steel Issues Domestic Improvement of market condition - Optimal utilization of each alliance partners facilities Reorganizing cost structure - Enhancing operating cashflow / blast furnace capacity Meeting the increasingly demanding customer needs Overseas Supporting overseas operations of major domestic customers Capitalizing on the growing Chinese market Improving international cost competitiveness Strategies Alliance Nippon Steel Domestic: Sumitomo Metals Industries, Kobe Steel, Aichi Steel, Mitsubishi Muroran Steel, Nakayama Steel Works, Sumitomo Electric Industries Overseas: Arcelor, POSCO Improvement in Profitability - Alleviate capacity constraints at blast furnaces by introduction of thin walls - Product mix improvement due to higher value-added products and cost reduction of commodity products Responding to Customer Needs - Prompt response by having mills close to customer locations - Joint product development with customers Harnessing growth momentum of the Asian market - Investing in local companies and expanding exports 16

18 Global Alliance Network: Overseas Alliance Partners Units: ( 000 tons) I/N Tek CRC 1,600 Arcelor Bao Steel POSCO 3 Nippon Steel I/N Kote CGL 500 EGL 400 Tata SUS CRC 1, SNP 40 UNIGAL Electric resistance welded pipe 60 CGL 400 Strategic alliance JV under negotiations JV with Nippon Steel (% of capital investment) Technological alliance SUS: Siam United Steel SNP: Siam Nippon Steel Pipe 17 Note: Thin steel sheets for automobile use

19 Objectives of Strategic Alliances with Overseas Partners Arcelor Nippon Steel POSCO Bao Steel (joint venture under negotiations) Global Standardization of Technology Supporting overseas operations of domestic automobile makers Joint Research Arcelor: steel sheets for automobiles POSCO: technology for steel processing Establishing close relationships with leading overseas steel makers Harnessing growth momentum of the Asian (China) market 18

20 Strategic Alliance with Domestic Partners Alliance with Sumitomo Metals Ind. & Kobe Steel Mutual supply of slab and mutual utilization of strip mill Business integration through establishing joint ventures - Steel business with Sumitomo Metals joint ventures Cooperation between Affiliates - Nippon Steel Sumikin Welding Nippon Steel Bolten & Shinko Bolt Cooperation between Steel mills - Hirohata & Kakogawa, Kimitsu & Kashima Strengthening competitiveness through business alliance Improving Market Condition Optimal utilization of facilities between partners Streamlining Distribution Channels Nationwide processing & distribution channel 19 Aichi Steel Hybrid electrical furnace Optimal production through collaboration with major customers Mitsubishi Muroran Steel Optimal production Nakayama Steel Works, Sumitomo Electric Ind. Support and cooperation for efficient production

21 Domestic Steelmaking Facilities: History of Rationalization Blast furnace Basic oxygen furnace number of furnaces) Electric furnace Sakai 1990 Muroran (2) Hokkai Steel Works Yawata 3.6m tons (4) Oita 8.2m tons Hikari 1988 (3) (1) Hirohata 1993 Total blast furnaces: 13 units (1984) 9 units (1993) shifting to large-volume furnaces, while shutting down small-volume furnaces Total blast furnace volume: 44,000 37,000 Average inner volume: 4,400 per unit Nagoya 5.72m tons (2) Kamaishi 1989 Kimitsu 9.32m tons ( crude steel output as as of of 1st Half FY2002 (annualized) scrapped blast furnace and year (5) 20

22 Expansion of Blast Furnace Inner Volume Contributing to High Efficiency Blast Furnace Relining Schedule Volume: 37,000m 3 40,000m 3 Average furnace inner volume following completion: 4,700 m 3 per unit 3/1999 3/2000 3/2001 3/2002 3/2003 3/2004 3/2005 Thin walls: raising efficiency - Energy & labor savings - Stabilization of product quality - Increase longevity Nagoya Blast Furnace #3 (capacity 3,42 4,300m 3 ) Kimitsu Blast Furnace #3 (capacity 4,0634,822m 3 ) Muroran Blast Furnace #2 (capacity 2,2962,902m 3 ) Kimitsu Blast Furnace #4 4/2000 5/ /2001 5/2003 Furnace inner volume enhancement 37,000m 3 40,000m 3 1m ton increase in steel output (Going into effect after FY2003) (capacity 5,1515,555m 3 ) Oita Blast Furnace #2 (capacity 5,245approx. 5,700m 3 ) 4/2004 Impact of relining x 20bn (after FY2003) Reduction of scrap iron use 14% 7 (return balance) 20bn profit impact 21 10bn profit impact

23 II. Medium-Term Financial Goals (FY FY2005) 22

24 Medium-Term Financial Goals: Key Highlights Increase overall recurring profit mainly from improvements in steel business From 68bn in FY2002 to 250bn in FY2005 (improvements in steel business : 180bn) Reduce overall assets and leverage while strengthening equity base Reducing total interest-bearing debt from 1,871bn in FY2002 to 1,600bn in FY2005 Resulting in decreasing debt/equity ratio from 2.4x in FY2002 to 1.6x in FY2005 Reducing total assets from 3,757bn in FY2002 to 3,700bn in FY2005 Thus, increasing Return-On-Sales (ROS) and Return-On-Assets (ROA) Tight control over capital expenditure vis-à-vis depreciation 23

25 Medium-Term Financial Goals: Assumptions & Financial Targets Consolidated Recurring Profit Return on Sales (RP/Sales) Return on Assets 1 Total Assets Total Interest-bearing Debt Shareholders Equity FY bn ,757bn 1,871bn 789bn FY2005(E) 250bn 9 9 3,700bn 1,600bn 1,000bn Change + 181bn +6.5% points +6.4% points - 57bn - 271bn + 211bn Number of Employees 47,200 44,600-2,600 FY2003(E) 140bn 1,800bn Assumptions Crude Steel Output (2) Sales Foreign Exchange Rate Interest Rate TIBOR 29.9m tons 2,749bn 122$ m tons 2,900bn Export Ratio (2) 32% 34% 110$ 2 (1) ROA= RP excluding Interest Expense/Total Assets (2) based on non-consolidated account

26 Medium-Term Financial Goals: Details of Profit Improvement Key profit improvement driver: steel business FY bn 182bn increase FY bn Improvement in Steel Business : 180bn excludes alliance effects Pricing & product mix + 30bn Improved pricing Better product mix - shifting to more value-added products Foreign exchange rate Impact on Ordinary Profit - 10bn Cost reductions* + 130bn Effects of relining of blast furnaces: 30bn (reduction of scrap usage: 10bn) (elimination of temporary suspension problems i.e. HMR & inventories: 20bn) Procurement cost (e.g., raw materials) : 30bn Labor productivity (10% improvement) : 20bn Depreciation: 15bn Others (improved yield rates and unit productivity) : 35bn Group companies + 30bn Integration effects (Nippon Steel Sumikin Stainless Steel, etc.) Operational improvements (overseas subsidiaries, etc.) * 220bn in actual total cost reductions achieved in 3 years ( 60bn in FY2000, 80bn in FY 2001 & 80bn in FY2002) 25

27 Medium-Term Financial Goals: Cash Flow Target Generating FCF for enhancing balance sheet and international competitiveness Cash Flow Target Recurring Profit Capital expenditure (cash out) Depreciation Net proceeds from capital outlay Investing & financing activities Effects of asset reduction Corporate taxes, dividends & others Consolidated Cash Flow 3-year cumulative total 580bn - 430bn 560bn 130bn - 80bn 80bn - 350bn 360bn 26