2015 New Year’s Message from Mr. Kosei Shindo, President to Employees

Jan. 05, 2015

Nippon Steel & Sumitomo Metal Corporation

2015 New Year’s Message from Mr. Kosei Shindo, President to Employees

In beginning 2015, I would like to talk about our immediate priority issues and how we are tackling these issues.

Looking back 2014, five accidents which occurred at the Nagoya Works caused great trouble and inconvenience to the local residents, customers, and others concerned, while the trust and confidence in NSSMC has been impaired. We must sincerely recognize this fact and make group-wide efforts to effectively carry out various measures to prevent similar accidents.

In this new year of 2015, let us go back to basics, continue to make concerted group-wide efforts to prevent accidents and trouble, and overcome the current crisis.

In 2014, up to the second quarter (July-September), Japan had experienced two consecutive quarters of negative economic growth due to negative impact of the consumption tax hike in April 2014. However, the House of Representatives election, held in mid-December, has resulted in endorsing continuation of the so-called “Abenomics” economic policies. Going into 2015, a mild economic recovery is expected on the back of improvement in capital spending and exports, and petering out of the impacts of the tax hike.

Looking worldwide, while the U.S. economy is robust with favorable private-sector demand, China and other emerging economies are showing signs of slowing down and a recovery in Europe has been delayed. I would thus say that the overall global economy is growing only modestly and will continue to do so in the foreseeable future.

In such an economic environment, Japan’s steel demand is expected to recover as housing investment bottoms out and capital investment grows, albeit with the possibility of a temporary adjustment. We therefore anticipate that the overall robust condition will continue. Globally, in the growing global economy, steel demand is also expected to increase mildly.

On another front, starting from this year, numerous brand new facilities will start up in the East Asia region and we are anticipating a significant oversupply of steel that will further increase from the present 500 million tons per year. Partly due to a catch-up in the quality of products manufactured in mills in emerging countries, fierce competition is expected not only in general-grade products but also in middle-grade and high-grade products, our areas of strength. Unless we strengthen our business performance, such as making by further technical advances and enhancing cost competitiveness, our presence, that is now strong, may be jeopardized.

Let me now talk about priority issues of 2015 and how I think we should be acting.

Last year’s accidents have reminded us that a company cannot sustain its business unless it is being acknowledged and trusted by the society. Each and every one of us must keep this in mind and strive to conform to compliance requirements, eliminate major risks to safety or in the environment, prevent disasters, ensure quality, and achieve a zero-accident target. It is absolutely essential that we regain trust of our customers, communities, and the society.

On that basis, our domestic and overseas businesses, like the two wheels of a cart, are to be strengthened with emphases on “technology,” “cost,” and “being global,” and we must prevail against global fierce competition.

Now I would like to raise three specific challenges that our NSSMC Group shall focus on in 2015.

The first challenge is to objectively review our competitiveness and re-build our manufacturing capability, which is a source of our strength, with focus on “facilities” and “human resources.”

Up to the present, we have strived hard to improve our manufacturing capability by improving manufacturing infrastructure, addressing issues of the transition to the next generation, enhancing alliances with cooperative companies, and exploiting maximum integrated operations within the framework of optimal mass production, among other measures. As the times change, however, our manufacturing sites must change. In particular, new challenges emerge in the areas of “facilities” and “human resources,” in accordance with various changes within and outside our group, such as the introduction of new technologies and transition to the next generation. In order to cope with such new challenges, I firmly believe that we need to check our own capability once again and reestablish ourselves.

Regarding “facilities,” our basic policy on facility maintenance and renewal and its follow-up system need to be checked and reestablished, with due consideration to the age of facilities, technical innovation, changes in the business environment, and other factors. We need a long-term perspective in planning the timing and investment resources for major repair or large-scale facility renewal and need to implement those activities one by one with the right timing. This is essential for our domestic manufacturing sites to keep playing the role of mother plants in our global strategy.

In terms of “human resources,” we will enhance timely response capability to satisfy needs for both manufacturing and non-manufacturing staffing, which needs stem from generational transition and global development. At the same time, we will focus on hiring, relocation, and development of human resources based on more sophisticated assumptions on operational needs and risks. With the aim of strengthening this personnel base, we will also keep seeking for improved operational efficiency, enhancement of each employee’s capability, and maximization of total output as an organization.

The second challenge is to deepen global business development.

In 2014, our various product business units launched new products, application technologies, and brands, while overseas development progressed steadily. Going forward, there is no way to avoid more intensified competition in the steel market, even in the middle- and high-grade product areas. Looking at this from a positive perspective, this could mean a great opportunity for NSSMC to exploit its strength in technological advances and grow further in the global market. Each and all of us is a global player. Under the spirit of solidarity and camaraderie, let all of us in the NSSMC Group make utmost efforts to establish our presence in the global market.

As I have mentioned, domestic businesses and overseas businesses are like the two wheels of a cart. By deepening this thinking, we need to plan and implement strategies by market and geographic segments, in addition to strategies by product. We must also realize an optimal production system and cost structure for the whole integrated group, strengthen marketing strategies, and closely cooperate with partner companies. By executing such actions, we can ensure our competitive advantages over our peers. With the aim of enhancing the necessary support for each overseas business, we will improve our corporate-wide operational infrastructure, which encompasses personnel management, financials, and facility and equipment. At the same time, we will continue to seek to enhance our domestic businesses, which are the base for our overseas businesses.

Furthermore, technological development is indispensable in maintaining and enhancing our competitiveness. Our proposal for “total solution in products, structures, and manufacturing methods” needs to be enhanced, while innovative steelmaking methods and other process development must be continuously pursued. These initiatives will enable us to ensure unrivaled competitiveness in the global market. With renewed confidence that technological superiority is the basis of all global businesses, we are committed to refine our technological prowess.

The third challenge is to complete business integration.

Since our integration, two years and three months have passed. Thanks to the efforts of all of you, I believe that our integration has been proceeding very smoothly. In April 2014, steelworks integration and restructuring as well as integration of the personnel system and a part of operational systems have been realized. With regard to Group companies, integration that contributes to enhance competitiveness has been done by the processes of functional streamlining and unification. As a result of those initiatives, we are within the targets for each benchmark in the Medium-term Business Plan, or are expecting to even surpass for some targets. In my view, however, the true sense of integration synergies can be exerted only when our mind-setting, behavior, and work style are unified as a corporate entity. In order to achieve this, it is important that we promote thorough discussion from the way of thinking as a base and up to the sense of values held, and that each and all of us become convinced. I encourage candid discussion by everyone, including those of you in the front line of operations, and those of you who are directors, and to accomplish business integration.

In concluding my greetings, I would like to share with you once again the phrases I have repeatedly mentioned, “Honor is equal.” meaning every player, each carrying out a different role or contributing in a different way, deserves a share of the glory, and “Practice makes the impossible possible.” I firmly believe that for a manufacturing company such as ours, the key to manage organization and operation is teamwork and day-to-day efforts. With the spirit of team play, each and all of us shall sincerely play his or her role, which will lead the company to overcome crises and grow steadily. In 2015, I would like us to pave the way for becoming “the world’s leading steelmaker with comprehensive strengths” and solidify our competitiveness to prevail in intensifying competition.

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