Shareholder Letter March 2013 On October 1, 2012, Nippon Steel Corporation and Sumitomo Metal Industries, Ltd. merged to become Nippon Steel & Sumitomo Metal Corporation (NSSMC). This report explains the NSSMC Group’s management policies and overview of business operations. We hope you find it useful. We would like to ask your continued support to the NSSMC Group. Kimitsu Steel Works To Our Shareholders Let us thank you first and foremost for your support. Since the integration on October 1 last year, we have made a good start as Nippon Steel & Sumitomo Metal Corporation (NSSMC). We are striving hard to raise our corporate value by integrating the strength of the two former companies. Harsh business environment continues The global economy is seeing signs of a modest pick-up in the U.S. and emerging countries while Japan’s economy is Representative Director, President and COO, Tomono(left) experiencing only a sporadic recovery in Representative Director, Chairman, and CEO, Muneoka(right) some areas, partly due to the correction of the overvaluation of the yen in the Specifically, many steelmakers, for construction, manufacturers world currency market. While the macro particularly those in China, had expanded are accelerating a shift to overseas economic environment is improving production capacity. The resultant production and local procurement from somewhat, our business environment oversupply situation has forced many overseas suppliers. Further, the export remains challenging as we are facing major global steelmakers to make drastic market structure has also changed structural changes in the global steel changes in their business structure. In significantly. Japanese steel makers used industry. Japan, in addition to a drop in demand to have an overwhelming presence in the ASEAN market but are now suffering from severe competition with Korean, Chinese and other emerging makers. In order to win out in such a highly competitive environment, we must urgently reform our corporate structure and our practices in profit making, financial areas and manufacturing. We are determined to change wherever we need to change through integration and seek great improvement such as cannot be attained by our competitors. 1 We are making collective bases steadily. Our fourth efforts to establish strategy is to “Strengthen competitive strength and Engineering, Chemicals, aim to become the “Best New Materials and System Steelmaker with World- Solutions Businesses.” Leading Capabilities” Each segment company is getting ready to make the The current business environment is most of its newly combined severe indeed, but we believe that the strength through the strategy steel industry is a growth industry from of concentrating on its core a long-term perspective. Global steel competence. We will further demand was 1.3 billion tons in 2007 and reinforce those non-steel 1.5 billion tons in 2012 and is forecasted business segments. to keep growing along with the economic expansion of emerging countries in years New integrated to come. Against this background, we company’s second- Nagoya Steel Works’ new type of coke oven: SCOPE21 aim to become the “Best Steelmaker half operating with World-Leading Capabilities.” In forecasts and year- other words, we as a manufacturing end dividend policy company are determined to provide cost- competitive, best-quality products that We forecast ordinary profit of satisfy the needs of our customers and ¥40 billion and net profit of contribute to society. ¥35 billion on a consolidated basis for the second half of To achieve this goal, we must make the current fiscal year (ending collective efforts to implement our core March 31, 2013), as a result Overseas business integration is well under way. (The secondary-processing steel bar companies of the two four strategies in a quick and thorough of our enhanced efforts to former companies in Thailand have merged into Nippon manner and establish a solid foundation rapidly realize synergy effects Steel & Sumikin Steel Processing (Thailand) Company Limited.) on which to build our competitive from the integration. strength. Regarding the year-end dividend We are currently drawing up our mid- Our first strategy is to “Improve Cost forecast, we have adopted a policy term business plan, which is to be Competitiveness.” We are determined to distribute a year-end dividend of announced in the near future. We will to attain cost competitiveness quickly ¥1.0 per share (representing a second- implement this plan in a speedy, steady, and win out in global competition. half consolidated payout ratio of collective manner to win in global Our second strategy is to “Advance approximately 25%), in consideration competition and become more profitable. Technologies.” Our people in R&D, of factors including the second-half manufacturing and sales must earnings forecasts after the integration We would like to ask for your work together to advance technical and the outlook for the business. continued support. capabilities in all aspects including (Please see details on page 3, “Operating product development, manufacturing, results published on February 14, 2013.”) production processes, energy-saving, and environment-related measures. Our third strategy is to “Globalize Representative Director, Chairman, and CEO, Steel Business.” We will endeavor Shoji Muneoka to expand global production and supply Representative Director, President and COO, Hiroshi Tomono 2 Overview of business operations (disclosed on February 14, 2013) Forecasts for Fiscal 2012 and year-end dividend distribution policy Business environment mainly to Asian emerging countries is more growth potential. Despite projected to become relatively stable such efforts, due to the depressed The global economy is showing in the near future. steel market and other factors, our signs of recovery. Economies in forecasts for the current fiscal 2012 China and other emerging countries Against that background, the steel (ending March 31, 2013) are ordinary are picking up from the recent market had been depressed owing to profit of ¥60 billion (¥70 billion on the economic slowdown, while Europe sluggish demand and a high level of simple combined basis of the two remains to be bleak. production by Chinese and Korean integrated companies), which will steelmakers. While the global steel be lower than the previous year, and Japan’s economy is also showing market more recently is gradually net loss of ¥140 billion partly due to some signs of improvement in turning around, we should say that the extraordinary loss, which was particular from its weakness in the the overall environment for fiscal recorded in the first half. manufacturing industry, partly due 2012 will turn out to have been harsh, to the correction of the overvaluation given the significant negative impacts If we look only at the second half of the yen in the world currency up to the middle of the fiscal year. of the year, ordinary profit of ¥40 market and the recovery in overseas billion and net profit of ¥35 billion Forecasts for fiscal 2012 economy. are projected, as we are reinforcing and year-end dividend efforts to rapidly realize synergy distribution policy Domestic steel demand had been effects after the integration. weak, mainly due to weak demand Under these circumstances, we from the manufacturing industry. are striving hard to rapidly realize Regarding the year-end dividend However, it is now expected to synergy effects from the integration, forecast, we have adopted a policy to increase in fiscal 2013, thanks to the in addition to reduce costs as much distribute a year-end dividend of ¥1.0 government’s economic measures as ¥130 billion per year. At the same per share (representing a second- in addition to construction demand time, we are making investments to half consolidated payout ratio of that is related to reconstruction from upgrade upstream manufacturing approximately 25%), in consideration the March 2011 earthquake as well processes in Japan as part of efforts of our earnings forecasts (net profit as disaster prevention measures to solidify our business base and of ¥35 billion) for the second-half stimulated by that event. Moreover, making investments also to expand after the integration and the outlook less robust growth in steel exports overseas business so as to capture of business conditions. Forecasts for fiscal 2012 (Billions of yen) forecasts for fiscal year results for 1st half forecasts for 2nd half Nippon Steel& Nippon Steel& Nippon Steel Sumitomo Metal(NSSMC) results for 3Q forecasts for 4Q Sumitomo Metal(NSSMC) 600 195 ordinary profit 125 275 400 （on the simple combined basis)※ （700） （303） net income (loss) ▲ 1,400 ▲ 1,766 247 103 350 Sumitomo Metal ※ on the simple combined basis results for 1st half : the sum of results of Nippon Steel and Sumitomo ordinary profit 108 ① Metal for 1st half ▲ 1,338 net income (loss) ② forecasts for fiscal : the sum of above ① and Nippon Steel& Sumitomo Metal(NSSMC) forecasts for 2nd half Long-term trend of ordinary profit(loss) on consolidated basis Billions of yen 5,000 Nippon Steel& Sumitomo Metal Nippon Steel Sumitomo Metal (NSSMC) 3,000 （on the simple combined basis) forecasts for 2nd half 400 1,000 700 results for 1st half 303 ▲1,000 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Forecasts for fiscal 2012 IR Calendar: Upcoming Events March 2013 Announcement of the Mid-term Business Plan Early May 2013 Announcement of fiscal 2012 earnings and proposal for year-end dividend distribution Early June 2013 Notice of