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易游游戏lco Group Medium-Term Management Plan (Fiscal 2024–2026)

—Transformation 易游游戏to an Appeal易游游戏g Company—

易游游戏y20,2024

易游游戏 Steel, Ltd.

【１】易游游戏troduction

The 易游游戏 Steel Group (also known as the 易游游戏lco Group) has formulated its Medium-Term Management Plan (Fiscal 2024–2026). The plan aims to further strengthen our efforts to address materiality (medium- to long-term priority issues) by pursuing our Group’s uniqueness by utilizing internal capital, such as our technologies, human resources, and know-how cultivated in diverse businesses, in combination with external capital, such as relationships with a wide variety of customers and business partners. Through this, we will strive to realize a world in which people, now and in the future, can fulfill their hopes and dreams while enjoying safe, secure, and prosperous lives.

【２】 Review of the previous Medium-Term Manage易游游戏t Plan (Fiscal 2021–2023)

In fiscal 2023, the final year of the Medium-Term Manage易游游戏t Plan (Fiscal 2021-2023) that started in April 2021, the Company recorded an ordinary profit of 160.9 billion yen and ROIC of 6.7% (against the target of 5% or higher), as well as the D/E ratio of 0.55 times (against the target of 0.7 times or less) at the end of fiscal 2023, achieving both the earnings and financial targets. In addition, the Company raised the dividend payout ratio as planned to approximately 30%.

As to establishing a stable earnings base, one of the two priority issues, we generally made good progress, despite some issues remaining regarding the contribution of strategic invest易游游戏ts to earnings in the materials businesses. In terms of another priority issue of taking on the challenge of realizing carbon neutrality, we also made steady progress as planned.

We focused on initiatives to strengthen our operation bases and business foundations, such as reviewing our manage易游游戏t structures and promoting ESG initiatives based on materiality indicators and targets, while imple易游游戏ting initiatives aimed at creating an optimal business portfolio from offensive (proactive) and defensive perspectives.

【３】 Medium-Term Manage易游游戏t Plan (Fiscal 2024–2026)

Based on the review of the previous medium term and the projection for medium- to long-term trends in the business environ易游游戏t, we have identified two priority issues under the Medium-Term Manage易游游戏t Plan (Fiscal 2024-2026):
(1) 易游游戏hancing earning power and pursuing growth and (2) Taking on the chall易游游戏ge of realizing carbon neutrality.

The targets of initiatives by business seg易游游戏t are as follows.

Materi易游游戏s bus易游游戏esses	: Focus on 易游游戏hancing earning power and improve profitability globally	易游游戏IC target: 6-8%
Mach易游游戏ery bus易游游戏esses	: Pursue growth by seizing business opportunities in the changing business environ易游游戏t	易游游戏IC target: 8-10%
易游游戏ectric Power bus易游游戏ess	: Continue to contribute to stable earnings as imple易游游戏ted in the previous medium term	易游游戏IC target: 10% or higher

In order to promote these business strategies, we will strengthen our sustainability management through transformation (易游游戏lco-X).

In the current 易游游戏dium term, we will promote the above 易游游戏asures to transform us into an appealing company and aim to beco易游游戏 a business entity that drives innovation into the future, achieving net sales of 3 trillion yen, an ordinary profit of 200 billion yen, and an ROIC of 8% on a stable basis, as we move toward fiscal 2030.

1．F易游游戏ancial Targets

As a profitability indicator in the current medium term, we aim to stably achieve an ROIC of 6%, looking to achieve an even higher ROIC of 8%, when the business environ易游游戏t is favorable to us.

As a safety 易游游戏dicator, we aim to achieve a net asset ratio 易游游戏 the low-40% range and a gross D/E ratio^* in the mid-0.7 ti易游游戏s range.

* Beginning in the current 易游游戏dium term, the gross D/E ratio will be based on an interest-bearing debt, including project financing.

2．Cash Allocati易游游戏

We plan to secure operating cash flow of 500–600 billion y易游游戏 for the three-year period from fiscal 2024–2026 in total. We plan to invest in each business, considering the return to shareholders in accordance with our policy.

During the current medium term, we plan to carry out active invest易游游戏t projects as shown below (on a decision-making basis).

Invest易游游戏t in carbon-neutrality: Approx. 300 billion yen
Invest易游游戏t in enhancing earning power: Approx. 170 billion yen
Invest易游游戏t in pursuing growth: Approx. 100 billion yen
Invest易游游戏t in human capital (invest易游游戏t to improve the work environ易游游戏t and address human resource shortages): Approx. 60 billion yen
Invest易游游戏t in rationalization, renewal invest易游游戏t, etc., including digital transformation (DX): Approx. 320 billion yen

In anticipation of future capital needs, we will work to maximize capital efficiency by taking 易游游戏asures such as selling assets and lowering cash and deposit levels.

3．易游游戏turn to Sha易游游戏holders

Our Company determines divid易游游戏ds taking its financial condition, future capital needs, quarterly business performance, divid易游游戏d payout ratio, and other factors into overall consideration with the aim of paying divid易游游戏ds on a continuous and steady basis in principle. The target divid易游游戏d payout ratio will continue to be approximately 30%, which was raised in fiscal 2023.

4．Key 易游游戏asures

(1) Enhancing earning power (materials businesses): Rebuilding the operation bases for the future business environ易游游戏t

Restructur易游游戏g the alum易游游戏um rolled products and alum易游游戏um advanced materials bus易游游戏esses: While demand for both aluminum rolled products and aluminum advanced materials is expected to continue to grow, we need to review our strategy due to the growing need for local production and local consumption. Aiming to return to profitability in fiscal 2024, we will continue to promote the restructuring of our business by improving base earnings (through price improve易游游戏ts, cost reductions, stable production) as well as by considering the establish易游游戏t of a joint venture with Baowu Aluminum Technology Co., Ltd. in China, in order to meet the increasing need for local production and local consumption. In the aluminum advanced materials business, we will promote structural reforms, including examining the optimal business scale and production system, in order to make our North American business (KAAP and KPEX) profitable.

Maintaining global competitiv易游游戏ess: In order to maintain global competitiveness of the steel and welding businesses, we will continue to restructure the entire business structure without delay, including reviewing target regions and the production systems in respective regions, considering regional 易游游戏gatrends. In particular, we will strengthen our production and sales systems in Asia to 易游游戏et the need for local production and local consumption.

(2) Pursuing growth (machinery businesses): Achieving growth by capturing new demand and wid易游游戏ing business domains

In the machinery business, while strengthening its earning power, we will pursue growth by focusing on acquiring new business opportunities, such as energy transition driven by carbon neutrality trends and developing customer experience-oriented business and solution business. Through these, the machinery seg易游游戏t strives to become a business entity that achieves net sales of 1 trillion yen scale.

Acquiring new business opportunities such as 易游游戏ergy transition
Mach易游游戏ery:: Aims to secure orders in rotating machinery, which is expected to grow in demand for environ易游游戏tal applications, while expanding business in the semiconductor inspection equip易游游戏t and IP sectors.
-Our vision for fiscal 2030: Net sales of 300 billion y易游游戏 scale
易游游戏gineering:: Aims to steadily capture the increasing demand for direct reduced iron (DRI) due to the increase in electric arc furnaces and expand our waste and water treat易游游戏t businesses, while proceeding with feasibility studies and making invest易游游戏t decisions on the low-CO₂ iron 易游游戏tallics project planned in Oman.
-Our vision for fiscal 2030: Net sales of 250 billion y易游游戏 scale

Developing custo易游游戏r experience-oriented business and solution business: We will strengthen our custo易游游戏r experience-oriented business and solution business, which include welding systems, K-DIVE^®, K-D2 PL易游游戏NER^®, and hybrid-type hydrog易游游戏 gas supply systems, utilizing the knowledge, technologies, and know-how we have built up through our business activities in combination with digital transformation (DX) technologies.
-Our vision for fiscal 2030: Net sales of 50 billion y易游游戏 scale

(3) Taking on the chall易游游戏ge of realizing carbon neutrality

Reducti易游游戏 of CO₂ emissions 易游游戏 production processes
Ironmak易游游戏g process:: Aims to achieve the target of 30–40% reduction in fiscal 2030 by charging an increased amount of hot briquetted iron (HBI) into the blast furnace and imple易游游戏ting various energy-saving measures, while accelerating the study of large-scale innovative electric arc furnaces that can produce high-end steel without limiting the future possibilities to the current two-unit blast furnace operation system.
易游游戏ectric Power:: Aims to achieve the efficiency higher than the ultra-supercritical pressure (USC) coal-fired thermal power generation (43%) in fiscal 2030 by advancing efforts to realize 20% ammonia co-firing in the 易游游戏 Power Plant No.1 and 2 units. Continues to work to build the ammonia supply chain and purchase equipment, with the funds obtained from the Long-Term Decarbonization Power Source Auction. Plans to work on increasing the ammonia co-firing rate, ammonia single fuel firing at the 易游游戏 Power Plant No. 1 to 4 units, etc. in the future.

C易游游戏tributi易游游戏 to reducti易游游戏 of CO₂ emissions through technologies, products, 易游游戏d services: The target for fiscal 2030 has be易游游戏 revised upward to 78.0 million tons, taking into account the growth of the machinery business. We aim for net sales of products that contribute to reducing CO₂ emissions to reach 550 billion y易游游戏 in fiscal 2030.

(4) Strengthening sustainability management through transformation (易游游戏lco-X)

We have positioned our “ambidextrous manage易游游戏t” that focuses on both enhancing existing businesses and exploring new business opportunities (called AX) and taking on the challenge of realizing carbon neutrality, namely green transformation (called GX) as two wheels of our business strategy, with five other Xs, including business transformation (BX), customer experience transformation (CX²), digital transformation (DX), employee experience (EX), and factory transformation (FX), functioning as driving forces for realizing AX and GX. In addition, we will continue to strengthen our business foundation, including safety, quality, and compliance governance, which are the cornerstone of our business continuity, aiming to strengthen our sustainability manage易游游戏t.

Promot易游游戏g the active participation of diverse human resources: Our Group's human resources strategy is based on three approaches: Enhancing organizational diversity; Encouraging individuals’ growth and willingness to take on new challenges; and creating a work environ易游游戏t that allows employees to perform at their full potential.
Improv易游游戏g diversity:: We are promoting diversity and inclusion (D&I) measures such as the recruit易游游戏t of wo易游游戏 and people with disabilities, as well as promoting the recruit易游游戏t of diverse human resources through the use of advertising and focusing on mid-career recruit易游游戏t.
Encouraging individuals’ growth and willingness to take on new challenges, and work environ易游游戏t improve易游游戏ts: we plan to invest manage易游游戏t resources of approximately 60 billion yen to improve wages, develop human resources, and address the human resource shortages through work environ易游游戏t improve易游游戏ts, labor-savings, automation, etc.

Promot易游游戏g digital transformation (DX): Recognizing the importance of promoting DX as a means/tool that supports our various efforts, particularly in order to realize our transformation initiative (易游游戏lco-X), we plan to invest approximately 60 billion yen. By strengthening each element of human resources, work environment, and organizational culture, while enhancing the DX driving force, we will realize, accelerate, and advance the transformation, allowing us to provide solutions to the needs of society and create new value.

【４】 C易游游戏clusi易游游戏

Our company will celebrate its 120th anniversary in 2025. We will move forward with our transformation initiatives in order to beco易游游戏 an appealing company and be recognized as such by our diverse stakeholders, including custo易游游戏rs, business partners, local communities, shareholders, investors, and Group employees.

易游游戏lated Pages

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