JFE : ’ Financial Results Briefing for the Fiscal Year Ended March 2024

JFE Holdings, Inc.

Financial Results Briefing for the Fiscal Year Ended March 2024

May 7, 2024

Presentation

Moderator: We will now commence the financial results briefing of JFE Holdings, Inc.

In attendance today are Yoshihisa Kitano, Representative Director, President, and CEO, and Tsunao Takura, Vice President.

This briefing will last approximately 30 minutes for the presentation and 30 minutes for the Q&A session, for a total of 60 minutes. Questions will be answered collectively after the briefing.

First, Mr. Kitano, Representative Director, President, and CEO, will explain his aspirations upon assuming office as President and CEO, and then provide an overview of the financial results and forecast announced today and the progress of the seventh mid-term business plan.

Kitano: I am Kitano, who assumed the position of president of JFE in April. Thank you for your cooperation.

Before I explain the details of the financial results, I would like to talk about my vision for the JFE Group and my beliefs as president upon assuming office as president.

This page shows the progress of the seventh mid-term business plan and our future goals. The graphs below show crude steel production and JFE's business profit during the seventh mid-term business plan period excluding inventory valuation. During the seventh mid-term business plan period, business profit more than

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doubled compared to the previous sixth mid-term business plan period. Furthermore, the business profit forecast for FY2024 announced today is JPY335 billion, and I believe that we have established a structure that can reliably generate profits even as JFE Steel's standalone crude steel production volume is declining.

As written in the frame above, I believe that through structural reforms and a shift from quantity to quality, we have established a system to generate stable earnings that are not affected by the external environment.

Let me explain in more detail. I have served as president of JFE Steel, a steel operating company, for five years during the period of this seventh mid-term business plan. During that time, I focused on the following three points.

The first point is to continue business firmly in the COVID-19 pandemic.

Second, amid shrinking domestic demand, we have been striving to expand the ratio of high value-added products, believing that a shift from quantity to quality is necessary to ensure profits in the steel business. The figures will be explained later.

The third point is structural reform. Last September, we completed the suspension of the Keihin upper process. It was a difficult decision, but we made it in order to streamline our business structure and operations.

These measures had an effect in FY2023, as we will explain later, and business profit in FY2024 is also expected to be higher than in FY2023.

Next, I would like to explain what we intend to accomplish once the structural reforms are completed. I believe that in order to overcome the coming carbon-neutral era, we must build a solid management foundation. Therefore, I aim to firstly double group business profits and promote aggressive investment based on stable earnings to increase corporate value.

Also, by the mid-2030s, I hope to complete the development of ultra-innovative technologies to achieve carbon neutrality and be ready for implementation.

Previously, only a medium-term business plan had been formulated, but based on these visions, a long-term vision will be established, within which the eighth medium-term business plan for the period from 2025 to 2027 will be formulated, and this plan will be announced during FY2024.

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There are two key issues that I am considering in order to double our profit. The first is to make land utilization in Keihin the fourth pillar of future earnings. The other is to accelerate the shift from quantity to quality in order to achieve the doubling of profitability I mentioned earlier, and to implement aggressive investments in growth areas, growing regions, and countries.

There are three strategies to achieve these goals. The first is the GX strategy. We will develop ultra-innovative technologies and make efforts to reduce GHG emissions even during the transition period until the development of these technologies is completed. We will invest twice as many human resources in these areas as we have in the past. I would also like to promote the provision of products and services that help realize a carbon-neutral society.

The second strategy is the DX strategy. I would like to improve labor productivity by using AI, automation, robotization, and remoteness, and build a digital platform for the creation of new businesses, represented by solution businesses.

Lastly, a human resource strategy is necessary to achieve growth. I intend to promote human capital management, secure and develop human resources that will drive our growth, foster a new corporate culture, and actively invest in human capital to achieve these goals.

These are my aspirations upon assuming the office of President. Next, I will explain our business performance.

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This page shows performance highlights. The business environment in FY2023 was severe, with domestic demand, especially for civil engineering and construction, very sluggish. Even in this difficult business environment, business profit excluding inventory valuation for FY2023 increased significantly by JPY133.4 billion from the previous fiscal year due to domestic sales price improvement and fixed cost reduction effects from structural reforms.

On the other hand, in FY2024, we expect business profit excluding inventory valuation to increase by JPY38.8 billion to JPY335 billion and annual dividend to be JPY110 per share, mainly due to an increase in the ratio of high value-added products, which is the result of our existing activities.

We also hope to achieve a profit per ton of the steel business of JPY11,000.

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This section provides an overview of key profitability targets and performance for the medium term. In FY2023, consolidated business profit was JPY298.2 billion, ROE was 8.6%, and profit per ton in the steel business was JPY10,000.

In FY2024, we expect both business profit excluding inventory valuation and profit attributable to owners of the parent to increase to JPY335 billion and JPY220 billion, respectively, and we believe that we will have achieved an improvement in business performance.

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Next is the earnings trend of the steel business. By establishing a structure that will ensure stable earnings, segment profit excluding inventory valuation in FY2024 is expected to exceed the mid-term target of JPY230 billion, with segment profit excluding inventory valuation of JPY240 billion. Profit per ton is also expected to reach JPY11,000, exceeding the mid-term target of JPY10,000.

Future upside is shown in the dotted box. The forecast for FY2024 announced today is based on the assumption that the current weak market conditions overseas will continue. Therefore, we believe that earnings can be further boosted if overseas markets will recover and we can increase sales volume in line with a recovery in demand.

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This page shows our efforts to improve selling prices and progress in upgrading the product mix in the steel business.

First, look at the sales price and spread on the left side. In FY2023, the spread including various prices improved by JPY5,000 per ton and the main raw material spread improved by JPY4,000 per ton, both significant improvements despite the sluggish overseas market conditions. In FY2024, we will continue to promote measures to address cost increases in logistics, labor, and other areas, and we expect the spread including various prices to improve from the previous fiscal year.

The right side shows the ratio of high value-added products, which in FY2023 was around 48%. In FY2024, we expect to achieve 50% of our mid-term target by increasing our capacity of top-gradenon-oriented electrical steel sheets for main motors of electric vehicles and increasing sales of heavy, extra-thick steel plates for offshore wind-power.

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This page evaluates our track record of structural reforms and cost reductions in the steel business. We completed the structural reforms of the current medium-term business plan by suspending the upper process in Keihin last September. We expect to realize JPY45 billion in fixed cost reductions, significantly lowering the break-even point and achieving JPY120 billion in cumulative cost reductions under the seventh mid-term business plan.

In the solutions business, we aim for a contribution of JPY10 billion in profit in FY2024, which is approximately 3 times the FY2020 level. Topics in the solutions business are shown on the right. The brand name JFE Resolus has been announced. We will work on our business to contribute to various customers including outside the steel industry.

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This page shows profits from the engineering and trading businesses. These businesses have also achieved stable profitability, with the average of profits in the seventh mid-term business plan increasing dramatically over the sixth and fifth mid-term business plans.

In the future, the engineering business will expand its operations with a focus on the priority areas of Waste to Resource and Carbon Neutral and increase the ratio of operation businesses that contribute to stabilizing earnings.

Meanwhile, we expect an increase in orders for overseas projects. We are making strategic moves to increase profits in the future, including the launch of a waste-to-power generation business in Vietnam and a large- scale chemical plant in Singapore.

In the trading business, the Company has increased business investment profit mainly in the priority fields of electrical steel, construction materials, and automotive steel through M&A. CEMCO, a leading US building materials processing company, was acquired in FY2022. And recently, we established JSS in Serbia, a processing company for non-oriented electrical steel for EV drive motors.

In addition, as announced today, we will acquire STUDCO, a processing company of thin sheets for construction materials, which is based in the US and Australia. In order to expand the profits from these business operations, the Trading business is also expanding its overseas business.

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