NIPPON STEEL CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

The key highlight of this earnings release is the return to operating profitability, driven by the absence of the business restructuring loss (2,315.8B yen) recorded in the previous period and improvements in operating rates and selling prices in the Steelmaking Business. Revenue was 28,212B yen (20,087B yen in the previous year, YoY+40.4%), Operating Income was 1,455.1B yen (previous year -1,395.6B yen), and Profit Before Tax was 1,139.0B yen (previous year -1,451.9B yen). Net Income attributable to owners of the parent was 753.0B yen (previous year -1,958.3B yen), while consolidated Net Income was 842.9B yen (previous year -1,907.2B yen). Revenue growth was led by the expansion of sales in the Steelmaking segment (+43.6%), while the increase in profit reflected the absence of the previous period’s one-time loss and improvements in the cost structure.

Drivers of Performance Changes

【Revenue】Revenue increased substantially to 28,212B yen (+40.4% year on year). The Steelmaking segment accounted for 92.2% of total revenue, with standalone segment revenue of 2,601.1B yen (YoY+43.6%) driving the overall increase. System Solutions (721.8B yen, +18.8%) and Chemicals & Materials (695.0B yen, +19.7%) also recorded double-digit growth, while Engineering (784.4B yen, -0.3%) remained virtually flat.

【Profit and Loss】The Operating Profit Margin improved substantially to 5.2% from -6.9% in the previous year. The gross margin declined slightly to 13.8% (14.9% in the previous year), indicating that cost and product-mix challenges remain, while the SG&A ratio improved marginally to 10.1% (10.3% in the previous year), reflecting progress in cost efficiency. Financial expenses surged to 396.5B yen (120.0B yen in the previous year), leaving the Profit Before Tax margin at 4.0%. The primary driver of the profit increase was the absence of the business restructuring loss (2,315.8B yen) recorded in the previous period, making this an earnings period characterized by both revenue and profit growth.

Segment Analysis

The Steelmaking segment generated revenue of 2,601.1B yen (92.2% of the Company total) and segment profit of 1,442.7B yen, with a margin of 5.5% (+0.8pt from 4.7% in the previous year), making it the largest business and accounting for 86.2% of total Company profit. System Solutions maintained high profitability, with revenue of 721.8B yen and segment profit of 95.9B yen, representing a margin of 13.3% (slightly down from 14.4% in the previous year). Chemicals & Materials recorded revenue of 695.0B yen and segment profit of 92.2B yen, with its margin improving substantially to 13.3% from 5.5% in the previous year. Engineering generated revenue of 784.4B yen, virtually in line with the previous year, but segment profit of 42.0B yen resulted in a margin of 5.4%, down from 6.9% in the previous year, indicating a slight weakening. A key characteristic is that the highly profitable businesses outside the steelmaking area are contributing to an improved earnings mix for the Company as a whole.

Key Financial Indicators

【Profitability】The Operating Profit Margin improved substantially to 5.2% from -6.9% in the previous year. The gross margin declined slightly to 13.8% (14.9% in the previous year, -1.1pt), while the Profit Before Tax margin was 4.0% and the consolidated Net Profit Margin was 3.0%. 【Cash Quality】Comprehensive income of 1,798.8B yen exceeded consolidated Net Income of 842.9B yen by 955.9B yen. This difference was primarily attributable to non-recurring valuation items, including foreign currency translation adjustments for foreign operations (+574.1B yen), changes in the fair value of financial assets, and pension remeasurements. 【Investment Efficiency】ROE was 1.4% (the figure before annualization, based on quarterly consolidated Net Income), while asset turnover against total assets of 15.2 trillion yen remained low. 【Financial Soundness】The Equity Ratio was 37.1% (-0.6pt from 37.7% in the previous year), while interest-bearing debt increased to 5 trillion 5,157B yen (+6.6% from the end of the previous period). Interest coverage, calculated as EBIT/Financial Expenses, was 3.7x, indicating a heavy interest burden.

Cash Flow Analysis

Cash and cash equivalents were 4,897.3B yen, an increase of +284.6B yen from 4,612.6B yen at the end of the previous period. Meanwhile, inventories increased to 2 trillion 9,153.9B yen (+5.0% from the end of the previous period), and accounts receivable and notes receivable increased to 1 trillion 8,309.2B yen (+3.4%), indicating further accumulation of working capital. To support this expansion in working capital and the increase in property, plant and equipment (6 trillion 707.5B yen, +2.9%), interest-bearing debt increased to 5 trillion 5,157B yen (+6.6% from the end of the previous period), suggesting that part of the funding requirement was financed through increases in borrowings and lease liabilities. The increase in inventories and accounts receivable suggests a delay in cash conversion and will be a factor affecting the Company’s future cash-generation capacity.

Earnings Quality

Business profit for the current period was 1,455.1B yen (920.2B yen in the previous year), and no one-time loss such as the 2,315.8B yen business restructuring loss incurred in the previous period was recorded during the current period. Profit Before Tax of 1,139.0B yen represents Business Profit less net financial expenses of 316.1B yen (Financial Expenses of 396.5B yen - Financial Income of 80.3B yen), indicating that the interest burden is weighing on earnings. Comprehensive income of 1,798.8B yen exceeded consolidated Net Income of 842.9B yen by 955.9B yen. This divergence was primarily attributable to foreign currency translation adjustments for foreign operations (+574.1B yen), remeasurements of defined benefit liabilities (+153.7B yen), and changes in the fair value of financial assets (+168.9B yen), all of which are non-recurring valuation factors linked to market conditions, interest rates, and foreign exchange rates. Equity in earnings of affiliates accounted for under the equity method declined slightly to 191.2B yen (274.2B yen in the previous year, -30.2%), indicating that fluctuations in the performance of affiliated companies are also affecting the quality of the Company’s earnings.

Earnings Forecast and Guidance

Against the full-year Revenue forecast of 11 trillion 2,000B yen, Q1 Revenue of 28,212B yen represents progress of 25.2%. Against the full-year Net Income forecast attributable to owners of the parent of 2,900B yen, Q1 Net Income attributable to owners of the parent of 753.0B yen represents progress of 26.0%. Against the full-year EPS forecast of 55 yen, actual EPS of 14.40 yen represents progress of 26.2%. All of these figures exceed the simple quarterly progress benchmark of 25% and indicate a start broadly in line with the plan. Although the earnings forecast was revised during the quarter, the dividend forecast was not revised.

Shareholder Returns

The full-year dividend forecast is 24 yen per share (based on the post-stock-split basis following the stock split implemented in October 2025). The Payout Ratio is 43.6% (24 yen/55 yen) against forecast EPS of 55 yen, indicating broad consistency with the full-year Net Income plan. Share repurchases totaled only 3 million yen (0.03B yen) in Q1, and shareholder returns currently consist primarily of dividends. It should be noted that the dividend amount for the same period of the previous year is based on the pre-stock-split amount, meaning that a simple comparison of annual dividends is not possible.

Risk Factors

1. Segment concentration risk: The Steelmaking Business accounts for 92.2% of revenue and 86.2% of segment profit (1,442.7B yen/1,672.8B yen), creating a structure in which fluctuations in steel product market conditions and spreads between coking coal and iron ore prices directly affect the Company’s overall performance.

2. Interest rate and interest-bearing debt burden: Interest-bearing debt increased to 5 trillion 5,157B yen (+6.6% from the end of the previous period), while Financial Expenses rose substantially to 396.5B yen (from 120.0B yen in the previous year). Interest coverage, calculated as EBIT/Financial Expenses, was 3.7x, and the impact on earnings could expand in an environment of rising interest rates.

3. Accumulation of working capital: Inventories of 2 trillion 9,153.9B yen (+5.0%) and accounts receivable and notes receivable of 1 trillion 8,309.2B yen (+3.4%) increased, and a lengthening cash conversion cycle could become a constraint on cash flow.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Company’s Operating Profit Margin and Net Profit Margin are below the industry median, indicating that profitability is somewhat lower than the manufacturing industry average.

Growth and Capital Efficiency

The Revenue Growth Rate substantially exceeded the industry median, and the pace of revenue growth, including the absence of the one-time factor from the previous period, stands out within the industry.

※Source: Compiled by the Company

Key Earnings Highlights

1. The absence of the 2,315.8B yen business restructuring loss recorded in the previous period and improved operating rates resulted in Operating Income turning profitable, from -1,395.6B yen in the previous year to 1,455.1B yen. It is necessary to assess through future trends, including the gross margin, whether this improvement reflects a structural enhancement in earnings power or merely the resolution of temporary factors.

2. The gross margin declined to 13.8% from 14.9% in the previous year, indicating that cost and product-mix challenges remain despite revenue growth. The improvement in the Company-wide Operating Profit Margin was supported primarily by the decline in the SG&A ratio (10.1%, -0.2pt) and the absence of the one-time loss.

3. Full-year progress was broadly in line with the plan, with Revenue at 25.2% and Net Income attributable to owners of the parent at 26.0%. The earnings forecast was revised during Q1.

Theoretical Stock Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market price or a recommendation to undertake any specific investment action.

Sensitivity: 967 yen–1,023 yen at ±1% for the cost of equity, and 991 yen–996 yen at ±0.1 for ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax expenses, acquisition-related expenses, non-controlling interests, and other factors (Net Income ÷ Operating Income 52%). This value reflects that compression at face value; if the factors are temporary, underlying earnings power may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used, resulting in a timing difference relative to the full-year forecast.

(Calculation model: Residual Income Model / Interest rate reference month: 2026-06 / This value does not predict or guarantee the future stock price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional advisor as necessary.

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