2019 New Year’s Message from Mr. Kosei Shindo, President to Employees

Jan. 04, 2019

Nippon Steel & Sumitomo Metal Corporation

2019 New Year’s Message from Mr. Kosei Shindo, President to Employees

To begin 2019, I would like to talk about our priority issue and how we are tackling them.

During the Heisei reign period of 30 years, Japanese society and industries have significantly changed and we, the NSSMC Group, have strived hard to keep up with macro changes and innovate our business structure.We endured severe rationalization made necessary during the so-called “Ice Age for steel,” survived the changes arising from globalization and industry restructuring, and have advanced towards our stated goal of recognition as the best steel maker with world-leading capabilities. Going forward, we have to keep on trying to innovate ourselves, by promptly and appropriately anticipating and dealing with diverse changes in our business environment and by always seeking for timely growth strategy.

In 2019, the global economy is expected to continue a recovery trend but downside risks require full attention. After years of solid growth, we began to see signs of change in the global steel market around the end of last year. We therefore need to be well prepared to confront a severe business environment at any moment. In order to prevail despite intense competition, let us brace ourselves and make a good start of the new year.

I would like to tell you about our three priority issues in 2019 and how we will tackle them.

(1) Rebuilding our profit base
The first priority issue is to rebuild our profit base. Unfortunately, we are not able to demonstrate what can be termed desirable profitability despite the favorable environment for steelmaking business. I must say that our profit base is extremely fragile. I hope everyone, including plant workers and management executives alike, shares this sense of crisis. I hope that we re-establish our strength in manufacturing and in sales in a safety-first environment, and rebuild our profit base.

Let me discuss four major points in realizing this.

1) Focus on safety
Safety comes first and foremost. In 2018, I appreciate as a proof of steady implementation of our initiatives based on the working objective of “a safety three-year plan to be well understood and firmly established in our organization.” In 2019, in addition to further enhancing the three-year plan, we will accelerate the safety level from the perspective of greater mechanization and less operation by workers, and make more powerful efforts towards establishing a safe work environment for all of us.

2) Realizing steady levels of production
Next is to realize steady production. Particularly in recent years, there has been an increase in unprecedented equipment failures partly explainable by aging equipment and by operational problems. Bearing such structural changes in mind, we will thoroughly implement measures that reflect awareness of past problems and our consequent action taken. At the same time, we will also execute practical measures regarding hardware and software, including a measure to enhance preventive maintenance levels by more thoroughness in inspection of equipment.

3) Sales and marketing activities that maximize added value
The third point concerns sales and marketing activities that maximize added value. It is when a company is immersed in a harsh business environment that real power in sales and marketing is demonstrated. I would like those of you in charge to capture needs of customers and society, make use of our technological and product capabilities, and undertake sales and marketing aimed at maximizing added value with the close coordination of the manufacturing divisions. I further ask for your efforts in continuing to engage in dialogue with customers and seek for their understanding so that we can secure appropriate margins at the time when our production lines are increasingly burdened with surges in costs of logistics, equipment, and materials, and with further advance in the product types we make.

4) Strengthening overseas business
The fourth point is to strengthen overseas business. I am pleased that our overseas business, which together with our domestic business functions as the two halves of the whole in our basic strategy, is on a trend of profit expansion, thanks to your efforts for improvements, such as sales expansion and promotion of steady operation and structural measures against the background of a favorable market environment. Please further enhance your management practices in order to withstand future market fluctuations.

(2) Completion of the Mid-Term Management Plan, and structural measures
The second priority issue is to carry through each and every measure in the current Mid-Term Management Plan, that began in 2018. Let me emphasize the measure to “revamp facilities and workforce,” such as to refurbish key facilities, as this concerns the foundation of our competitiveness and we intend to continue working systematically at this. In particular, with regard to measures for achieving an optimal production framework to be launched in a year or so, including Yawata Works’ new No. 5 continuous caster (CC) and Wakayama Works’ new No.2 blast furnace, I would like us to be well prepared for their start-up and start to benefit from our investment as early as possible.

The year of 2019 is also a start-up year as we are reaching a phase when we will see the outcome of integration or restructuring of some of our group companies and businesses, processes that began in 2018.

On January 1, we just completed the procedure to make Nisshin Steel a wholly owned subsidiary of NSSMC. It will change its name to Nippon Steel Nisshin Co., Ltd. in April, along with the integration of the stainless steel sheet, pipes and tubes businesses. As for the special steel business, Ovako AB, a major special steel manufacturer in Sweden, became a wholly owned subsidiary of NSSMC last year and was placed under the umbrella of Sanyo Special Steel. We are currently taking procedures to make Sanyo Special Steel our subsidiary. Moreover, in the chemicals and new materials segments, Nippon Steel Chemical & Material Co., Ltd. was established in October 2018.

We are also undertaking procedures to jointly acquire Essar Steel India Limited, which has nominal annual production capacity of 10 million tons, jointly with ArcelorMittal. We will make full use of our accumulated knowhow in managing overseas business and intend to focus on putting the project on track at an early stage.

“Forge manufacturing capability, address megatrends, and create the value of steel.” Without any interruption, NSSMC will be on a quest for securing the optimal production structure that allows us to outperform our competitors in productivity, and to refine competitiveness.We will remain vigilant in pursuing and maximizing the potential of steel by continually working at technology development on a medium- to long-term basis.

(3) Promoting operational reforms, standardization, and workstyle reforms
The third priority point is to promote operational reforms, standardization, and workstyle reforms. As the business environment is changing in significant, new ways, and we face more complex, advanced challenges, operational reforms and standardization are the keys in squarely tackling the issues stated above and in thoroughly executing the adopted measures. No time should be wasted in accomplishing workstyle innovation, which is inextricably linked with these activities.

We will unify the way work is done across the group, establish a common operational base including IT systems, and adopt advanced IT and other tools. This is how we can raise operational efficiency and allocate the time saved to creation of added value. Just as the PDCA cycle helps our manufacturing workplaces make steady progress, we will “Standardize” the way we do non-manufacturing work, “Do” it, “Check” for improvement, and “Act”, as with follow the SDCA cycle. I hope this will eventually lead us to a virtuous cycle of raising our operation levels. When you and I are physically and mentally healthy and energetic, and are efficiently engaged in work, we can perform to the best of our potential, which in turn creates unwavering competitive strength of the company even in drastically-changing times.

In April, we will change our corporate name to “Nippon Steel Corporation.” As a steel company that originated in Japan, this simple comprehensive corporate name, embracing a diversity of DNAs of our group companies, will push us forward in executing business strategy when growing on the world stage. On this occasion, a new common brandmark, combining the present NSSMC corporate mark and the new English logo, has been created for the new Nippon Steel Group. Under the new brandmark, I truly desire to work with you to unify our Group’s power for further development.

In a historic year when we welcome a new Japanese imperial reign period, I am pleased that we can make a fresh start under our new name with a “Nippon” prefix. My ultimate desire is to make us be the best steel maker with world-leading capabilities where we can all work with pride, by thoroughly completing our undergoing measures.

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