OREANDA-NEWS. July 30, 2012. 1.      Qualitative Information and Financial Review

Global and Domestic Economic Conditions in the First Quarter of Fiscal 2012

The overall pace of global economic growth slowed in the term under review amid ongoing gradual economic growth in the United States while economic conditions stagnated in Europe and the economic growth slowed in China and other emerging economies. The gradual recovery of the Japanese economy continued despite persisting record-high yen rates as corporate production activity rebounded nearly to pre-Great East Japan Earthquake levels, and government stimulus policies and emerging reconstruction-related demand supported brisk consumer spending and private capital investment.

Performance Review by Business Segment in the First Quarter of Fiscal 2012

The Nippon Steel Group companies continued efforts to improve revenue responding to the changing operating environments in each of their business segments.

Overview of operating performance by business segment is as follows.

(Billions of yen)

 

Net Sales

Ordinary Profit

 

1Q FY12

1Q FY11

1Q FY12

1Q FY11

Steelmaking and steel

823.6

851.9

6.6

48.5

fabrication

 

 

 

 

Engineering and construction

69.6

44.0

4.0

0.2

Urban development

16.6

12.7

2.3

2.3

Chemicals

41.6

48.3

0.7

3.6

New materials

11.0

14.2

0.3

0.2

System solutions

37.8

36.2

2.4

2.9

Total

1,000.4

1,007.5

16.5

57.9

Adjustment

(39.7)

(22.0)

(7.2)

(0.9)

Consolidated Total

960.6

985.5

9.2

57.0

Steelmaking and Steel Fabrication

Domestic steel demand remained at a constant level overall as solid demand in the construction, automobile, and industrial machinery industries balanced out sharply declining demand in the shipbuilding industry. Steel exports increased to newly emerging countries in Asia supported in part by the recovery in production levels after the flood damage in Thailand. In the first quarter of fiscal 2012, total crude steel production volume in Japan amounted to 27.50 million tons, representing an increase of 930,000 tons compared with the fourth quarter of fiscal 2011.

At the same time, market conditions softened for steel materials due to the ongoing historical high yen value and consequent weakening of the Company’s export competitiveness along with the continuing strong supply pressure from steel mills in South Korea and China, which created a backdrop of excessive supply in East Asia and increasing volume of imported steel materials. In this severe operating environment, the Company continued its efforts to maximize cost improvements. The steelmaking and steel fabrication business recorded net sales of JPY 823.6 billion and an ordinary profit of JPY 6.6 billion.

Engineering and Construction

In the engineering and construction business, Nippon Steel Engineering Co., Ltd., continues to face a severe order environment in Japan and overseas. The company focused on conducting meticulous risk management of projects currently under way and improving its cost structure. As a result, the engineeringnand construction business recorded first-quarter net sales of JPY 69.6 billion and an ordinary profit of JPY 4.0 billion.

Urban Development

Nippon Steel City Produce, Inc., recorded solid condominium market sales centered on the Tokyo metropolitan area. In the rental building market, vacancy rates continued at a high level with the exception of certain large-scale highly functional structures in urban centers. The urban development business posted net sales of JPY 16.6       billion and an ordinary profit of JPY 2.3 billion in the first quarter of fiscal 2012.

Chemicals

Nippon Steel Chemical Co. Ltd. recorded a recovery in sales of epoxy resin for electronic materials and a brisk market for acid phthalic anhydride. Sales volume fell sharply for styrene monomer, and market conditions were severe for sales of circuit board materials for smartphones. The chemical business posted first-quarter net sales of JPY 41.6 billion and an ordinary profit of JPY 0.7 billion.

New Materials

Nippon Steel Materials Co., Ltd., sustained its strong shipments of surface-treated copper wire in its core electronic materials business segment but otherwise faced declining demand in all business segments. The new materials business recorded net sales of JPY 11.0 billion and an ordinary profit of JPY 0.3 billion in the first quarter of fiscal 2012.

System Solutions

NS Solutions Corporation brought its number 5 data center on-line in May of this year as it fortified and expanded its cloud computing services business and progressed with the expansion of business operations in the Asian region to fulfill the global development needs of its corporate customers. The system solutions business recorded first- quarter net sales of JPY 37.8 billion and an ordinary profit of JPY 2.4 billion.

Sales and Income in the First Quarter of Fiscal 2012

The Company posted consolidated net sales of JPY 960.6 billion, an operating loss of JPY 6.2 billion, ordinary profit of JPY 9.2 billion, and a net loss of JPY 87.5 billion, which was due to the reporting of a special loss on the valuation of investments in securities, including domestic listed securities owing to weakness in stock market prices.

2. Consolidated Forecast Qualitative Information

We anticipate continuing strong steel demand from the domestic construction, automobile, and industrial machinery industries and ongoing strong export demand to Southeast Asia. Due to the excessive supply conditions in East Asia and list price reductions by major steel mills in China and other countries, the steel materials market is deteriorating.

In these conditions, Nippon Steel will continue closely monitoring the domestic and overseas economic conditions as well as steel material supply and demand trends. In Asia, we anticipate deteriorating profitability at the major steel mills in China and other countries. In Japan, we believe the undertone of relatively firm demand is producing a growing sense that prices have bottomed out. We also believe the conditions may support a rise off the bottom levels in each region and anticipate a gradual recovery in steel material prices.

The Company will continue making every effort to improve its cost structure and maximize efficiency as it further strengthens its ability to market proposals to customers while seeking the understanding of its customers in setting its steel product prices.

Based on this outlook and the first-quarter results, the Company’s consolidated results forecast for the first half of fiscal 2012 are for net sales of JPY 1,950 billion, ordinary profit of JPY 10 billion, and a net loss of JPY 85 billion. The net loss forecast amount includes same special loss (loss on valuation of investments in securities) amount as was recorded in the first quarter. The Company plans to announce performance forecasts for fiscal 2012 (ending March 31, 2013) after the merger with Sumitomo Metal Industries, Ltd., scheduled for October 1, 2012.

Basic Profit Distribution Policy and First-Half (Interim) Dividend Distribution

Nippon Steel’s basic profit distribution policy is to pay dividends from distributable funds at the end of the first half (interim) and second half (year-end) of the fiscal year in consideration of the consolidated operating results and such factors as capital requirements for investment and other activities aimed at raising corporate value and performance prospects while also considering the financial structure of the Company on a consolidated and non­consolidated bases. The Company has set a consolidated payout ratio target of approximately 20% for use as an indicator for the distribution of profits based on due consideration of consolidated operating results. The level of the first-half (interim) dividend is set based on consideration of the interim performance figures and the forecast for the full fiscal year performance.

In accordance with the basic profit distribution policy described above and in consideration of the business performance forecasts for the first half of the fiscal year etc., the Company sincerely regrets to announce that it will forego the first-half (interim) dividend at this time.

Nippon Steel Corporation (5401) First Quarter, Fiscal Year 2012

The Company plans to announce its plan for the year-end dividend when announcing its earnings results for the third quarter of the fiscal year.