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Nippon Steel Releases Forecast for Fiscal 2007 Operating Results

03/07/2008 - Nippon Steel releases its forecast for operating results for fiscal 2007, which runs through March 31, 2008.

Nippon Steel Corp. released its forecast for operating results for fiscal 2007, which runs from April 1, 2007 to March 31, 2008. The company also announced that its Board of Directors had decided on a plan to pay a term-end dividend of ¥6 per share, based on current dividend payment policies. As a result, Nippon Steel’s total annual dividend payment for fiscal 2007 will increase by ¥1 per share over the previous fiscal year to ¥11 per share, including an interim-term dividend of ¥5 per share.
 
Noting the slowdown of the U.S. economy in the face of tightening credit from the subprime loan problem, the company also noted that the global economy as a whole continues to expand as emerging countries, led by the BRICs (Brazil, Russia, India, and China), continue to register GDP growth.
 
Nippon Steel said while steel demand in Japan had been adversely affected by the amended building code, domestic industrial activity levels remain robust, “driving demand for high-grade steel used by manufacturing industries in particular”. In overseas steel markets, the company said that strong economic growth in emerging countries was keeping the trend firm, and that the overall supply/demand picture remained tight.
 
The company also said that production and shipment volume in its steel business had increased by about 1.4 million tonnes, centering on high-grade steel. The company said that it was working to expand earnings at Nippon Steel Group companies by “deepening and expanding our alliances while also striving as much as possible to respond to growing demand for high-grade steel from our customers. In these and other ways, we are doing everything we can to generate sustained earnings growth.”
 
The company said that tight supply and demand was causing prices for raw materials and fuels—especially steel scrap, ocean freight, and crude oil—to rise sharply thus far in the second half of fiscal 2007. Spot prices for coking coal have also surged due to torrential rainfalls in Australia in January 2008. As la result, the company said that its costs had increased much more than anticipated, although it continues to make every effort to reduce costs through in-house initiatives. The company said that it was also negotiating price increases with customers, but it expects its profit margin to worsen by around ¥55.0 billion year on year in fiscal 2007.
 
The company said that its engineering and construction business, which has an order backlog that approaches a record high, is working to improve its profitability through better earnings on projects as well as revenue expansion. The company said that performance is trending in line with the company plan for the urban development business, despite changes in the condominium business environment. At the chemicals business, the company said that higher prices for naphtha have impacted chemical products, and fiercer competition among companies has impacted electronic materials, but that sales of coal chemicals remain brisk, supported by firm demand. As a result, the company said that performance of its chemicals business as a whole is roughly even with the company plan.
 
The company said that for its new materials business, the adjustment phase in the electronics industry (a key market for this business) has been more drawn out than anticipated. The company said it as doing its best to improve earnings through cost-reduction initiatives. The company also said that its system solutions business is faring well, driven by business solutions, including projects for the financial industry.
 
Based on all of these factors, the company said that its consolidated operating performance forecasts for the fiscal year ending March 31, 2008, are as follows: consolidated net sales of about ¥4,800 billion, consolidated operating profit of about ¥545.0 billion, consolidated ordinary profit of ¥560.0 billion, and consolidated net income of ¥347.0 billion. The company also detailed its non-consolidated operating performance forecasts for fiscal 2007: non-consolidated net sales of about ¥2,750 billion, non-consolidated operating profit of about ¥380.0 billion, non-consolidated ordinary profit of about ¥355.0 billion, and non-consolidated net income of ¥235.0 billion.
 
For Fiscal 2008, which ends March 31, 2009, the company said that while it would be important to continue to monitor closely the ripple effects of the subprime loan problem, it expects the global economic expansion, led by emerging countries in particular, to stay on track and for steel demand in Japan and overseas to remain firm.
 
The company said that it also expects unprecedented increases in raw material procurement costs as structural problems stemming from the escalating expansion of gross steel production volumes in Brazil, Russia, India, and, above all, China worsen. The company expects this rapid increase in gross steel production volumes in the BRICs to lead to even tighter supply/demand for raw materials and greater ocean freight volumes. The company said that its outlook takes into account its recent acceptance of a sharp 65% price increase for some iron ore procurement agreements, as compared with the price in fiscal 2007.
 
Nippon Steel said that In light of the tightening supply/demand picture for raw materials and fuels, it would work to secure the necessary supplies and do everything it can to ensure that it remains a stable supplier of steel products to its customers. The company said that it continues to carefully explain these market conditions to all of its customers, and that it continues to make every effort to reduce costs through in-house initiatives. The company further said that it was in talks with its customers to raise selling prices for steel products based on supply/demand trends for steel materials and the divergence between domestic and foreign steel prices.
 
In business fields outside of steelmaking and steel fabrication, the company said that it is concentrating on maximizing the improvement in earnings by directing management resources based on the specific characteristics of each business and taking swift action in response to changes in the business environment.
 
The Nippon Steel Group continues to be both flexible in making investments and in enhancing and upholding the soundness of its financial position. Through the expansion of its technological edge and active expansion of overseas businesses (as evidenced by its recent agreement to build a new No. 3 hot-dip galvanizing line at Baosteel-NSC/Arcelor Automotive Steel Sheets Co., Ltd. (BNA)), the company continues to reinforce its strong presence among the leaders in the global steel industry.
 
Nippon Steel concluded with an expression of appreciation for understanding of the conditions that it currently faces, and for continued support.