Sumitomo Metal Industries tries to improve the international competitiveness through the merger with Nippon Steel. Sumitomo Metals’ vice president Fumio Hombe said the merger company name, Nippon Steel & Sumitomo Metal Corporation represents their message of best for the new company. He said after approval from Japan Fair Trade Commission, Sumitomo Metals and Nippon Steel start full scale discussion for best steel maker with world leading capabilities.
Mr. Hombe said the shareholders expect Sumitomo Metals can keep the portfolio and originality in the merger company. The merger company targets 10% of return on sales through better international competitiveness. He said the merger company will keep existing steel works and employees while the new company seeks better utilization of the resources. The firm posted 41.3 billion yen of consolidated recurring profit for first half of fiscal 2011 started April, which was 43% higher than same period of fiscal 2010, while other major steel makers posted lower profit. Mr. Hombe said the firm expected around 10% higher profit than original forecast of 40 billion yen due to higher seamless pipe selling price and cost cutting but the actual profit was lower than the expectation due to lower steel market price and loss from Nippon Steel & Sumikin Stainless Steel (NSSC). He said the firm tries to increase sales for contract users and reduce weight of commodity grade steel, which is sensitive to economy condition and market price. He analyzes the sales portfolio change effort contributed to the higher profit and stable results while the firm got major damage at Kashima works from the major earthquake. The firm kept targeted 100 billion yen of annual recurring profit for fiscal 2011, which is 3 times of fiscal 2010 level, despite of the Thai flood impact and low level steel market. Mr. Hombe said the firm spends 100 billion yen for rebuilding of Kashima works and secures more than 50 billion yen for the fund in fiscal 2011 by better free cash flow and cost cutting. He emphasized the firm decided to secure the 100 billion yen of recurring profit for the recovery plan. He expects the firm can increases the steel sales volume by around 30% to 6.5 million tonnes in the second half from the first half and the better selling price, lower cost and better equity method profit from SUMCO Corporation and Osaka Titanium Technologies will contribute to the better profitability despite of the uncertainty in the market. The firm exports monthly 40,000 tonnes of sheet steel and 10,000 tonnes of special steel for Thailand. He said the firm revised the raw steel output plan from 7.1 million tonnes to 6.9 million tonnes in the second half of fiscal 2011 when Thai flood impact could continues for around 3 months and the lower export volume under market price slump. Mr. Hombe said the capital expenditure is 130 billion yen in fiscal 2011 compared with 109.9 billion yen in fiscal 2010. The firm completes upper stream refreshing at Wakayama works when the works starts operation new No.2 blast furnace in the second half of fiscal 2012. He said the project investment will be around 45 billion yen in fiscal 2011 compared with 43.2 billion yen in fiscal 2010. The firm starts operation of No.1 blast furnace at Brazilian seamless mill joint venture and purchases Standard Steel of USA with Sumitomo Corporation while Sumitomo Metals divested share in Namisa iron ore mine in Brazil. Sumitomo Metals and Sumitomo Corp. purchase Standard Steel for US$ 340 million. Mr. Hombe said Sumitomo Metals is sure to secure return from the investment when the firm transfers technology to improve productivity and the quality. He said the firm can manage potential risk through production base of Osaka steel works and Standard Steel and can expand the business to European market as the one of core business of rail car parts business including railway wheel. The firm reported 1.21 trillion yen of interest baring debt at end of September, which is around 37 billion yen higher than end of March. The debt equity ratio increased by 0.8 points to 1.61. Mr. Hombe said the debt increased due to the quake damage and the net assets decreased due to valuation loss of investment securities. He said the debt will be same level at end of March 2012 as end of September and the firm tries to realize less than 1.0 of debt equity ratio. He said the firm keeps improving the business portfolio under the mid-term management plan.