NPSCY Nippon Steel Corporation (PK)

Part I

Not applicable.

Not applicable.

You should carefully consider the risks described below before making an investment decision. If any of the risks described below actually occurs, NSC’s business, financial condition or results of operations could be adversely affected. In that event, the trading prices of NSC’s common stock could decline, and you may lose all or part of your investment. Additional risks not currently known to NSC or that NSC now deems immaterial may also harm NSC and affect your investment.

Risks Relating to Our Business

Our business is substantially affected by changes in macroeconomic conditions and recessions or prolonged periods of weak growth in the global economy, or the economies of our key markets have in the past had, and in the future would be likely to have, a material adverse effect on our business, results of operations and financial condition.

Our business, including our core Steelmaking and Steel Fabrication segment, is substantially affected by changes in macroeconomic conditions and, in particular, the health of the steel industry. The steel industry has historically been highly volatile, largely due to the cyclical nature of the industries that are the principal consumers of steel, including the automotive, energy and resources, construction, appliance, machinery, equipment and transportation industries. Fluctuations in demand for steel products generally correlate to macroeconomic fluctuations in the global economy. For example, starting in late 2008 and lasting through early 2010, a steep downturn in the global economy, sparked by uncertainty in credit markets and deteriorating consumer confidence, adversely affected global demand for steel and steel products. As a result, many steel producers, including us, recorded sharply reduced revenues and operating losses. Subsequently, the strength of the economy, and therefore the demand for steel, as well as our other products and services, has varied among different markets globally.

The global economy as a whole experienced gradual growth during the fiscal year ended March 31, 2019, with ongoing economic growth in the United States and a trend of continued economic stability in emerging countries in general, while China’s economy showed some signs of a slowdown. The Japanese economy continued its modest recovery, with ongoing improvement in the labor market and an increase in capital investment. However, many risks to the global outlook remain, including geopolitical tensions globally, threats to globalization by renewed protectionism, political tensions in Europe and the slowdown of economic growth in developing markets, especially in Asia. The materialization of any of these risks could depress demand for steel, or our other products and services, and have a material adverse effect on our business, results of operations and financial condition.

Japan is our most important market, and our current business and future growth could be materially and adversely affected if economic conditions in Japan deteriorate.

We are incorporated in Japan and a substantial portion of our operations and assets are located in Japan. Japan is our most important market and accounted for 65.6% of our total revenue for the fiscal year ended March 31, 2019. Demand for our products and services in Japan is mainly affected by the health in Japan of the industries that are the principal consumers of steel, including the automotive, energy and resources, construction, appliance, machinery, equipment and transportation industries, as well as the strength of the Japanese economy

3

in general. As a result, we are subject to political, economic, legal and regulatory risks specific to Japan. The outlook for the Japanese economy is uncertain and subject to many factors beyond our control. The deterioration of the Japanese economy could have a material adverse effect on our business, financial condition and results of operations.

Factors that could have an adverse impact on Japan’s economy include:

Excess capacity, oversupply and the severely competitive environment in the steel industry may adversely affect our business.

The steel industry is affected by global and regional production capacity and fluctuations in steel imports and exports, as well as severe competition in the steel industry, including established producers expanding in new markets, smaller producers increasing production in anticipation of demand increases or amid recoveries, or exporters selling excess capacity from markets such as China. The steel industry globally has historically suffered from structural overcapacity and global steelmaking capacity currently exceeds global consumption of steel. This overcapacity is amplified during periods of global or regional economic weakness due to weaker global or regional demand. The overcapacity of steel production in some markets and in China in particular has

4

weighed on global steel prices in recent years. For example, in 2015, decreased domestic demand for steel in China, the largest consumer of steel globally, led to massive increases in exports to both developing and developed markets by Chinese producers of steel, which placed significant price pressure on steel products. While capacity cuts and stronger domestic demand in China have led to a reduction in Chinese exports in recent years, should Chinese domestic demand weaken significantly, exports by Chinese steel producers would likely increase significantly again unless there is further rationalization of capacity.

A renewed phase of steel oversupply, if not counterbalanced by effective trade measures, increases in demand or both, could have a material adverse effect on our business, results of operations and financial condition.

Furthermore, for example, world leaders have, in connection with the 2016 G20 summit, urgently called for the removal of market-distorting subsidies and other types of support by governments and related entities in the steel industry, acknowledging that steel industries in some countries benefit from subsidies and related government supports. They agreed to establish the Global Forum on Steel Excess Capacity (the “GFSEC”) to deal with the issue and, since then, meetings of the GFSEC have been held twice at the ministerial level and 12 times at the official level. The effective term of the GFSEC will expire in December 2019 and the members of the GFSEC have not yet reached an agreement to renew the effective term. Further, the 2019 G20 summit leaders’ declaration included a note requesting relevant ministers and members of the GFSEC explore and reach a consensus by fall 2019 on ways to further the work of the GFSEC. A failure to continue the GFSEC may have had and may have in the future a distorting influence on the competitive environment in the steel industry.

We rely on export sales for a significant portion of our total revenue. Adverse economic and financial developments in markets to which we export, particularly Asia, may have an adverse effect on the demand for our products.

Our export sales and overseas sales to customers abroad accounted for 34.4% of our total revenue for the fiscal year ended March 31, 2019, with exports to Asia accounting for a significant portion of our total revenue from produced and exported steel products. In particular, Thailand, China and Korea accounted for 4.9%, 4.2% and 3.2% of our total revenue, respectively, during the fiscal year ended March 31, 2019. We expect export sales and overseas sales to customers abroad to remain important to our business in the future. Accordingly, adverse economic and financial developments in the markets to which we export may have an adverse effect on the demand for our products.

Unfavorable or uncertain economic and market conditions overseas—which can be caused by, among other factors, difficulties in the financial sector, corporate, political or other scandals that may reduce confidence in the markets, declines in business confidence, increases in inflation, natural disasters or pandemics, outbreaks of hostilities or other geopolitical instability—the deterioration in economic or diplomatic relations between Japan and its trading partners or allies or a combination of these or other factors may adversely affect the demand for our products outside of Japan. Economic weakness in Asia in particular may also adversely affect our sales to our Japanese customers that export to the region. Furthermore, weaker demand in Asia, combined with an increase in global production capacity, may also reduce the export prices in U.S. dollar terms of our principal products sold to customers in Asia.

Protracted low steel prices would be likely to have an adverse effect on our results of operations.

As a producer of steel, our results of operations are sensitive to the market prices of steel globally and in the markets we serve. Steel prices are affected by supply trends, demand trends and inventory cycles. In the past, substantial price decreases during periods of economic weakness have not always been offset by commensurate price increases during periods of economic strength. In addition, as indicated above, excess supply relative to demand in local markets generally results in increased exports and drives down global prices. In terms of inventory, steel stocking and destocking cycles affect apparent demand for steel and therefore steel prices and

5

steel producers’ profitability. For example, steel distributors may accumulate substantial steel inventories in periods of low prices (stock) and, in periods of rising real demand for steel from end-users, steel distributors may sell steel from inventory (destock), thereby delaying the effective implementation of steel price increases. Conversely, steel price decreases can sometimes develop their own momentum, as distributors destock and end-users of steel delay purchases in the expectation of further price decreases.

As a result of such factors, steel prices have been under pressure in recent periods and particularly in 2015, when they reached their lowest levels in more than a decade. Such low steel prices had a pronounced negative effect on our results of operations in the form of significant declines in revenue and operating income for the fiscal year ended March 31, 2016. Steel prices improved in 2016, compared to 2015, but remained highly volatile, particularly in the last three months of 2016. The significant overall trend in steel prices saw an increase during the fourth quarter of 2016, which continued during the first quarter of 2017, followed by a decline during the second quarter of 2017 and a strong rebound in the second half of 2017. While the trend of steel prices, since the second half of 2016, has generally been positive, there can be no assurance that this trend will continue.

Significant increases in market prices of essential raw materials, energy or transportation, as well as supply disruptions, could adversely affect our results of operations.

Steel production requires substantial amounts of raw materials, including iron ore and coking coal, and we purchase substantially all of the principal raw materials we use from sources outside of Japan. We imported approximately 59 million dry metric tons of iron ore and 25 million wet metric tons of coking coal during the fiscal year ended March 31, 2019. We import iron ore primarily from Australia and Brazil and import coking coal primarily from Australia, Canada and the United States.

The prices of our key raw materials have fluctuated significantly in recent years. According to information published by the Ministry of Finance of Japan, the average import prices of iron ore per metric ton for the fiscal years ended March 31, 2014, 2015, 2016, 2017 and 2018 were ¥11,586, ¥7,663, ¥6,377, ¥8,666 and ¥8,445, respectively; and the average import prices of coking coal per metric ton for the fiscal years ended March 31, 2014, 2015, 2016, 2017 and 2018 were ¥11,863, ¥10,557, ¥12,015, ¥16,325 and ¥17,705, respectively. We are particularly exposed to increases in the prices of iron ore and coking coal, which represent the largest components of our cost of sales. A surge in coking coal prices from the second half of the fiscal year ended March 31, 2016 has led to a substantial rise in our costs.

Our long-term supply contracts for raw materials generally have terms of three to ten years with the volume fixed for the entire contract term but the necessity to agree on price on a quarterly basis. We typically maintain approximately one month’s worth of inventory of raw materials. Negotiations with respect to quarterly agreements on price are influenced by various factors, including the global economic outlook, global market prices of raw materials and steel products, supply and demand outlook of raw materials and production costs of raw materials. In the case of iron ore and coking coal, we and the relevant supplier typically agree on the purchase price primarily based on negotiations, making reference to the relevant market prices. Future increases in prices of our key raw materials and our inability to pass along such increases to our customers could adversely affect our margins and profits. Increased prices may also cause potential customers to defer purchase of steel products, while rapidly falling prices may increase loss on valuation of raw material inventory purchased when prices were higher, either of which could have an adverse effect on our business, financial condition and results of operations.

We are also exposed to fluctuations in the price of energy and transportation. Our manufacturing operations involve the use of significant amounts of energy, making us sensitive to energy prices. As a result, an increase in energy prices, especially in Japan, where many of our key production facilities are located, would increase our production costs. Also, transportation costs are an important component of our cost of sales. If increases in transportation costs are not offset by an increase in the prices of our products, it could have an adverse effect on our financial condition and results of operations.

6

In addition, disruptions in our supply of raw materials, which could be caused by political or other events in the countries from which we import these materials, could adversely affect our operations. For example, supply disruptions require us to cut back on our steel production, which would negatively impact our revenue from steel products, or result in an increase in raw material prices, which would negatively affect our financial condition and results of operations.

Fluctuations in foreign currency exchange rates may make our export products less competitive or negatively affect the principal consumers of steel, including the automotive, energy and resources, construction, appliance, machinery and equipment industries, reducing the demand for our products.

Appreciation of the Japanese yen against foreign currencies causes our export products, as well as the export products of the principal consumers of steel, including the automotive, energy and resources, construction, appliance, machinery and equipment industries, to be less competitive overseas by raising the prices of such products in foreign currencies. Any decline in the demand for our products and services directly or indirectly caused by the appreciation of the Japanese yen could have a material adverse effect on our business, financial condition and results of operations. Appreciation of the Japanese yen against foreign currencies may also negatively affect the value of the assets that we hold that are denominated in foreign currencies.

Competition from materials other than steel as well as advancements in the automobile industry could reduce the market price of, and demand for, steel products.

In many applications, steel competes with other materials that may be used as substitutes, such as aluminum, carbon fiber, concrete, composites, glass, plastic and wood. In particular, as a result of increasingly stringent regulatory requirements, as well as developments in alternative materials, designers, engineers and industrial manufacturers, especially those in the automotive industry, are increasing their use of lighter weight and alternative materials, such as aluminum, composites and plastics in their products. For example, automobile manufacturers are using more aluminum than in the past, particularly in premium vehicles and specific parts such as doors and hoods. Steel may lose market share to substitute materials, despite our efforts to make steel products that are attractive to our customers, due to factors such as increased government regulatory initiatives favoring the use of alternative materials or the development of additional new substitutes for steel. Furthermore, advancements in the automobile industry, including advancements in technology such as self-driving technology and the electrification of automobiles, may reduce the demand for steel products. For example, self-driving technology may render traffic accidents less rare, decreasing the need to use steel, due to its strength, in automobile frame and body components and the electrification of automobiles may reduce the need for engine components that are made out of steel, a common feature of gasoline-powered automobiles. For these or other reasons, competition from alternative materials or advancements in the automobile industry could significantly reduce the market prices of, and demand for, steel products and have a material adverse effect on our business, financial condition and results of operations.

We are highly dependent on our steelmaking and steel fabrication business.

We are highly dependent on our Steelmaking and Steel Fabrication segment, which accounts for a significant majority of our total revenue and gross profit. While we intend to increase sales of our non-steel businesses, we may fail to do so. In addition, our strategy to expand our overseas steel production capabilities to capture the projected long-term growth in global steel demand, particularly in emerging markets, may increase our reliance on our Steelmaking and Steel Fabrication segment. So long as we remain dependent on our Steelmaking and Steel Fabrication segment, the realization of risks affecting the steel industry—such as regional and global macroeconomic conditions, excess capacity, oversupply, destocking cycles, the competitive environment, unfair trade practices, protracted low steel prices, significant increases in market prices of raw materials and competition from other materials—could have an especially material adverse effect on our business, financial condition and results of operations.

7

We may fail to reduce costs, improve profit margins and increase our global market share as planned.

Difficult operating conditions in recent years, due in particular to macroeconomic conditions and the balance of supply and demand, have reduced our profitability. Accordingly, in recent fiscal years we have focused energy on initiatives to reduce our costs and increase our operating efficiency. These initiatives include the introduction of advanced facilities, energy-saving measures, resource recycling and the streamlining of our production framework. We plan to continue to reduce costs by ¥50 billion or more per fiscal year, improve the branding of our products and roll out businesses that take advantage of such branding and provide new products, services and solutions to our supply and value chains that offer greater value and functionality. However, our efforts are subject to operational challenges and limitations, and we may fail to reduce costs, improve profit margins or increase our global market share as planned. If we are unable to achieve these targets as anticipated, it could have a material adverse effect on our financial condition and results of operations.

Our capital expenditures may require additional financing and adversely affect our financial condition and results of operations.

The steelmaking business is capital intensive and requires substantial ongoing maintenance capital expenditures. In addition, we have significant ongoing and planned capital expenditures, including the refurbishment of blast furnaces, coke ovens and other facilities and introduction of advanced equipment. Over the three fiscal years ending March 31, 2021, we plan to make ¥1,700 billion in capital expenditures. We expect to fund these capital expenditures primarily through internal resources. However, depending on the amount of internally generated cash flows and other uses of cash, we may have to choose between incurring additional indebtedness in order to complete such capital expenditures as planned or foregoing investments in projects targeted for profitable growth.

We have grown through acquisitions and may continue to do so. We may fail to manage external growth or face difficulties completing planned acquisitions or integrating acquired companies.

We were formed and have subsequently grown through mergers and acquisitions. For example, we were formed upon the merger of Nippon Steel Corporation and Sumitomo Metal Industries, Ltd. (“SMI”) in 2012. In March 2017, we acquired 43% of the outstanding shares of common stock of Nisshin Steel Co., Ltd. (“Nisshin Steel”) by way of a cash tender offer and, as a result, Nisshin Steel became our subsidiary, as we already held 8% of the outstanding shares of common stock of Nisshin Steel at the time. Moreover, we conducted a share exchange (the “Share Exchange”) effective January 1, 2019, wherein we made Nisshin Steel our wholly-owned subsidiary. We made Ovako AB (“Ovako”) our wholly-owned subsidiary on June 1, 2018, by acquiring 100% of the shares of Ovako. More recently, in March 2019, we made Sanyo Special Steel Co., Ltd. (“Sanyo”) our subsidiary, by means of a capital increase through a third-party allotment of shares conducted by Sanyo and subscribed to by us. Additionally, we transferred our entire holdings of Ovako shares to Sanyo on the same date, thereby making Ovako a wholly-owned subsidiary of Sanyo. In connection with further mergers and acquisitions, we may incur additional indebtedness, experience increased operating costs or be forced to allocate more of our management resources away from our day-to-day operations. Successfully managing mergers and acquisitions will require us to successfully continue to develop our financial and management information control systems, integrate acquired assets with our existing operations, handle any labor disruptions that may arise, attract, retain, train and supervise qualified management and personnel, including at more remote sites where there may be a shortage of such personnel and manage the risks and liabilities associated with businesses that we acquire. Our failure to successfully manage mergers and acquisitions could have a material adverse effect on our business, financial condition, results of operations or prospects. Furthermore, our failure to achieve the intended benefits of any such merger or acquisition, due to the businesses that we acquire significantly under-performing relative to our expectations, could lead to the impairment of any assets that we hold or goodwill that we record in connection with such acquisition.

8

Turning Nisshin Steel into a wholly owned subsidiary may not produce the benefits we anticipate.

Nisshin Steel Co., Ltd. was made a wholly-owned subsidiary in January 2019 through the Share Exchange and the Group’s stainless steel business was restructured in April 2019 by reorganizing and integrating the stainless steel sheet business and the welded stainless steel pipe business of the Group, with the aim of further enhancing the competitiveness of these businesses. Although the reorganization and integration are completed, there can be no assurance that we will be able to maximize synergies as planned by making organizational and operational systems more efficient and creating value for our customers through the provision of products and processing technology, or we may incur greater costs or be required to divert greater human, management, financial or other resources to do so than expected. If the synergies that we expect to result from turning Nisshin Steel into a wholly owned subsidiary and the stainless steel business restructure fail to materialize, the Share Exchange may not produce the benefits we anticipate.

Accidents or malfunctioning equipment at our facilities may disrupt our production and negatively impact our business.

Our production processes depend on certain critical equipment such as blast furnaces, coke ovens, steel converters, continuous casters, rolling mills and energy facilities. This equipment may be negatively affected in the case of electrical or mechanical accidents, malfunction or damage, including due to industrial accidents. A significant interruption in our production process due to the malfunction or damage of critical equipment could cause us to incur significant expenses in connection with the repair or reconstruction of the affected equipment or lead to lost profits, any of which could have a material adverse effect on our business, financial condition and results of operations.

Our plans to invest in production bases in growing markets overseas are subject to financing, execution and completion risks.

As part of our growth strategy, we plan to continue to invest in production bases in growing markets overseas. Such projects could entail substantial capital expenditures, and their timely completion and successful operation may be affected by factors including our ability to obtain financing on reasonable terms, obtain or renew required regulatory approvals and licenses or secure and maintain adequate property rights to land and mineral resources, local opposition to land acquisition or project development, our ability to manage relationships with or obtain consents from other shareholders, the revision of economic viability projections, the demand for our products, local environmental or health-related conditions and general economic conditions. These or other factors may cause us to delay, modify or forego some or all aspects of our development projects. There can be no assurance that we will be able to successfully execute any such projects, that such projects will be completed on schedule or within budget or that we will achieve an adequate return on our investment. Conversely, should we decide to postpone or cancel investments in production bases in growing markets overseas, we could incur various negative consequences, such as litigation or impairment charges.

Product liability and other customer claims could have a material adverse financial impact on us and product quality issues involving our products, or the products of other steel manufacturers, particularly in Japan, could have a material adverse financial impact on our financial condition and reputation.

We sell products to major manufacturers engaged in the manufacture and sales of a wide range of end products and to other customers. Our customers may be dissatisfied with products we sell for various reasons including that our products had defects, including false data, or otherwise did not meet the customers’ expectations. Claims from such dissatisfied customers may adversely affect our business operations and financial results. Furthermore, there could be significant consequential damages resulting from defects in our products that are sold to, and used in, certain safety-critical applications, such as, for example, pipes used in gas or oil pipelines and in automotive applications.

In addition, product quality issues with any of our products, or the products of other steel manufacturers, particularly other steel manufactures in Japan, could result in additional costs and reputational harm. For

9

example, in October 2017, a large Japanese steel and materials manufacturer admitted that it had falsified data about copper, aluminum and steel it supplied to makers of planes, cars and other end products. If our customers suspect, for example, that other steel companies in Japan, including us, have undertaken similar practices, we may incur increased expenses to assure quality of our products to our customers or experience a decrease in demand for our steel products, each of which could materially harm our financial condition and future operating results.

We face risks associated with our investments in joint ventures and associates.

We sometimes hold a majority interest in the projects among our joint venture partners, but in most cases we do not take a controlling interest in such projects. Therefore, we may not be able to require that our joint ventures sell assets or return invested capital, make additional capital contributions or take any other action without the agreement of our joint consortium partners. For example, it took us more than three years to resolve a dispute with our joint venture partner and agree upon new governance rules with respect to a Brazil-based equity-method associate. When there are disagreements between us and our joint venture partners, regarding the business and operations of the joint projects, we cannot assure you that we will be able to resolve them in a manner that will be in our best interests. Certain major decisions, such as selling a stake in the joint project, may require the consent of all other partners, while others may require an affirmative vote of joint venture partners holding a majority interest in the project. These limitations may adversely affect our ability to obtain the economic and other benefits we seek from participating in these projects.

In addition, joint ventures and associates may be controlled and managed by joint venture or controlling partners that may not fully comply with our standards, controls and procedures, including our health, safety, environment and community standards, which could lead to higher costs, reduced production or environmental, health and safety incidents or accidents, which could adversely affect our results and reputation.

Furthermore, certain of these joint ventures and associates are currently experiencing, or may in the future experience, difficult operating conditions, which may lead to them to incur losses. Difficult operating conditions in joint ventures and associates may expose us to loss of our investment, requirements for additional investments or calls on guarantees. Our failure to achieve the intended benefits of any such joint venture, due to the joint venture significantly under-performing relative to our expectations, could lead to the impairment of any assets that we hold or goodwill that we record in connection with such joint venture.

Our export products have been and may become subject to tariffs, anti-dumping or countervailing duty proceedings.

Countries to which we make export sales may take restrictive measures, such as trade tariffs, or anti-dumping duties and other non-tariff barriers, to protect their home markets. For example, in August 2016, the U.S. Department of Commerce imposed anti-dumping duties on us, in relation to hot-rolled coil steel, which had an adverse effect on our business. Also, on March 2, 2018, the president of the United States announced plans to impose a 25% tariff on all steel and steel products imported into the United States. This tariff would not only significantly undermine the competitiveness of our steel exports to the United States, but could also negatively impact our exports to other countries that impose or increase tariffs, or take other protectionist measures, in response to U.S. tariffs. It is not clear to what extent our exports will be subject to or exempt from this tariff as put in place. If most of our exports are not exempted, but some jurisdictions in which our competitors are located are, it could have a negative effect on our competitive position. Any increases in or new imposition of tariffs, anti-dumping duties, countervailing duties or quotas on our sales in major overseas markets could result in a material reduction in our export levels, which could have a material adverse effect on our business, operating results and financial condition.

10

Changes in our assumptions underlying the carrying value of certain of our assets, including as a result of adverse market conditions, could result in the impairment of assets, including goodwill.

At each reporting date, we review the carrying amounts of our tangible assets and intangible assets (goodwill is reviewed annually or whenever changes in circumstances indicate that the carrying amount may not be recoverable) to determine whether there is any indication that the carrying amount of such assets may not be recoverable through continuing use. If any such indication exists, the recoverable amount of the asset is reviewed in order to determine the amount of the impairment, if any.

If certain of our management’s estimates change during a given period, such as the discount rate, capital expenditures, expected changes to average selling prices, growth rates, shipments and direct costs, our estimate of the recoverable amount of an asset or goodwill could fall significantly and result in the recording of an impairment charge, which could have a material adverse effect on our results of operations. For example, for the fiscal year ended March 31, 2019, we recognized impairment loss on non-financial assets of ¥16,882 million. Impairment losses in the Steelmaking and Steel Fabrication segment were recognized mainly due to strategic realignments of its businesses in order to address unfavorable of business environment. This includes the impairment losses of ¥5,990 million related to goodwill of a subsidiary that is in a business of manufacturing and distributing railway wheels and axles in the U.S. This impairment loss was recognized due to the decision to reorganize the operation of certain business in the U.S. in the Steelmaking and Steel Fabrication segment. Impairment losses of ¥5,919 million related to an investment accounted for using the equity method of a subsidiary that operates mining business in Australia were recognized as a result of a re-review of its investment plan. Impairment losses related to goodwill were recognized in the Engineering and Construction segment mainly due to an unfavorable business environment. These impairment losses were incurred by a subsidiary that operates an environmental plant business in Europe. No assurance can be given that we will not record significant impairment losses in future periods, particularly if market conditions deteriorate.

We may incur losses on our equity securities portfolio if domestic or foreign stock markets decline.

A decline in stock prices in Japan or in other markets where we invest in equity instruments could reduce the value of the equity instruments that we hold. As of March 31, 2019 we held ¥718,470 million in equity instruments, consisting mainly of publicly listed common stock of Japanese companies, for the purpose of sustainably developing strategic alliances as well as maintaining and strengthening our business and operational relationships with such companies. The market values of equity instruments are inherently volatile. For example, weakening or stagnant conditions in other countries or concerns over the impact of geopolitical tensions and conflicts in various parts of the world could not only affect stock prices abroad, but may also adversely affect stock prices in Japan. A significant decline in the market prices of equity instruments held by us would give rise to unrealized losses that would negatively affect our net assets, which would adversely affect our financial condition. In addition, equity instruments constitute a significant portion of our funded retirement benefit plan assets. If stock prices in Japan or in other markets decline significantly, our funded retirement benefit plans may require additional funding, which could have a material adverse effect on our business and financial condition.

We may suffer large losses in the event of a natural disaster such as an earthquake.

Our manufacturing operations and steel works in Japan and overseas are subject to the risk of earthquakes and other natural disasters, including typhoons, tsunamis, tidal waves, floods and volcanic eruptions. For example, for the year ended March 31, 2019, we incurred ¥22.3 billion in losses from weather-related natural disasters, including heavy rainfall in western Japan on July 6, Typhoon Jebi on September 4 and Typhoon Trami on September 30, that resulted from restoration repairs, the disposal of machinery and other related costs. We also suffered a significant impact from the 2011 Great East Japan Earthquake and the following tsunami. Not only were our Kashima steel works and Kamaishi steel works directly damaged by the earthquake and tsunami, but the increase in raw material costs and drop in demand for steel products following the disaster, driven in part by disruption to the operations of steel consumers in Japan, had a significant impact on our business operations

11

and financial results, causing our predecessor entities to incur over ¥100 billion in losses in the aggregate. In the event of another major natural disaster affecting our manufacturing facilities, we may experience catastrophic loss, operations at such production sites may be halted, shipments of products may be suspended or delayed, a significant reduction or loss of revenues may be experienced, or other problems may adversely affect our operations.

We may not be able to adequately protect our intellectual property rights in foreign countries and we may become involved in intellectual property disputes.

Patents and other forms of intellectual property rights are competitive factors in the markets in which we operate, which are characterized by constantly evolving technology. We rely on the technologies and know-how we have developed for our business, and seek to protect such technologies and know-how through a combination of patents, and other forms of intellectual property rights, as well as through the use of contractual confidentiality procedures, contract clauses and agreements. There can be no assurance, however, that we will always be successful in adequately protecting our technologies and know-how, including by securing patents or other intellectual property rights. While we have registered intellectual property (mainly patents and trademarks) in approximately 70 countries, because of the differences in foreign patent, trademark and other intellectual property or proprietary rights laws, we may not receive the same protection in foreign countries as we would in Japan.

It is also important for us to operate without infringing upon the patents or other intellectual property rights of others. There can be no assurance that third parties will not assert infringement claims against us or that such claims will not be successful. Such infringement claims could result in the payment of monetary damages, the suspension of our operations involving the subject technologies, the necessity to develop or acquire non-infringing technologies, a significant investment of time and effort on the part of our management, increased legal expenses, damage to our reputation and other costs which could negatively impact our results of operations.

We rely on trade secrets and other unpatented proprietary know-how to maintain our competitive position, and unauthorized disclosure of our trade secrets or other unpatented proprietary know-how could negatively affect our business.

We rely on trade secrets and unpatented proprietary know-how and information. In an effort to protect this information and prevent leakages, we have implemented internal policies and procedures that require our employees to adequately manage information, including trade secrets, obtained during the course of business and that also prohibit our employees from leaking confidential information. Under these policies and procedures, we may take disciplinary action, including dischargement, in the event of violations. Furthermore, when we outsource business to or engage in joint research and development with other companies, we require that such companies agree to maintain the confidentiality of the trade secrets and know-how that we share during the course of such engagement by refraining from disclosing such information to third parties, taking appropriate measures to prevent leakages of such information and prohibiting the use of such information outside of the agreed-upon purpose. We cannot assure the enforceability of these types of policies and procedures, or that they will not be breached. We also cannot be certain that we will have adequate remedies for any breach. The disclosure of our trade secrets or other know-how as a result of such a breach could adversely affect our business.

Fluctuations in the prevailing market interest rate for borrowings and debts, in the financial market as well as in the financing environment could harm our business, results of operations and financial condition.

As of the fiscal year ended March 31, 2019, the balance of our total consolidated interest-bearing debt was ¥2,369,231 million, and any fluctuations in the prevailing market interest rate and in other financial markets could adversely affect our results of operations. In addition, we finance a part of our operations through borrowings from banks and other financial institutions as well as the issuance of debt. If the financial market becomes unstable and deteriorates or credit rating agencies decide to downgrade our credit ratings, our methods of obtaining financing could be limited, resulting in an increase in financing costs, which may adversely affect our business, results of operations and financial condition.

12

We may face difficulties hiring and retaining qualified employees.

In order to maintain the sustainable growth of our business, we depend on the leadership of our key management personnel as well as our ability to attract, employ and retain skilled professionals, including management professionals, and highly qualified employees with relevant experience. Furthermore, we must be able to successfully recruit, train and develop new hires. If we are unable to successfully execute our human resource strategies and experience unforeseen increases in employee departures or are unable to successfully groom replacement candidates for our management personnel in a timely manner, we may lose valuable know-how or other organizational resources, which could harm our ability to compete effectively. Additionally, unforeseen costs in connection with increased competition for talented personnel, increased employee regulation, or issues related to workplace health and safety arising from improper labor management may negatively affect our financial condition and results of operations.

Our internal controls may not be effective in preventing misstatements of our financial condition and results of operations.

In accordance with the FIEA, as a public company in Japan, we are required to evaluate the effectiveness of our internal controls over financial reporting as of the end of our fiscal year and have our evaluation audited by our independent auditors. Although we found our internal controls over financial reporting to be effective as of March 31, 2019, if our internal controls over financial reporting are found to have material weaknesses as a result of our evaluation or the audits conducted by our independent auditors in the future, our ability to produce reliable financial reports on a timely basis could be adversely affected, resulting in a loss of confidence in our financial reporting by investors, which could materially and adversely affect the price of our shares. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met and thus are subject to inherent limitations.

We are subject to economic policy, political, social and legal risks and uncertainties in the emerging markets in which we operate or propose to operate.

We operate in emerging markets, such as the ASEAN countries and India, and intend to expand our operations in such markets. In recent years, many of these countries have implemented measures aimed at improving the business environment and providing a stable platform for economic development. Our business strategy has been developed partly on the assumption that this modernization, restructuring and upgrading of the business climate and physical infrastructure will continue, but this cannot be guaranteed. Any slowdown in the development of such economies could have a material adverse effect on our business, financial condition, results of operations or prospects, as could insufficient investment by government agencies or the private sector in physical infrastructure. For example, the failure of an emerging market to develop reliable electricity and natural gas supplies and networks, and any resulting shortages or rationing, could lead to disruptions in our production.

Certain emerging markets where we have operations have experienced or are experiencing particularly difficult operating conditions. Brazil, for example, is currently emerging from a severe recession, but its recovery has been marred by political uncertainty. Recession continues to loom in South Africa, where the steel and mining industries are subject to a challenging operating environment characterized by lower local demand, increased cheap imports and higher costs.

In addition, the legal systems in some of the countries in which we operate remain less than fully developed, particularly with respect to the independence of the judiciary, property rights, the protection of foreign investment and bankruptcy proceedings, which generally results in a lower level of legal certainty or security for foreign investment than in more developed countries. Furthermore, we may encounter difficulties in enforcing court judgments or arbitral awards in some countries in which we operate because, among other reasons, those countries may not be parties to treaties that recognize the mutual enforcement of court judgments. Assets in certain countries where we operate could also be at risk of expropriation or nationalization, and any compensation paid for such assets may be below fair value.

13

Our insurance policies provide limited coverage, potentially leaving us uninsured against some business risks.

The occurrence of an event that is uninsurable or not fully insured could have a material adverse effect on our business, financial condition, results of operations or prospects. We maintain fire insurance on property and equipment in amounts that we believe are commercially reasonable in consideration of possible risks, but we are not fully insured against all such risks. Our insurance policies cover physical loss or damage to our property and equipment on a reinstatement basis as arising from a number of specified risks and certain consequential losses, including business interruption arising from the occurrence of an insured event under the policies. However, we do not have significant insurance coverage with respect to product liability or certain other kinds of risks. Notwithstanding the insurance coverage that we do have, the occurrence of an event that causes losses in excess of limits specified under the relevant policy, or losses arising from events not covered by insurance policies, could materially harm our financial condition and results of operations.

Our income tax liability may substantially increase if the tax laws and regulations in countries in which we operate change or become subject to adverse interpretations or inconsistent enforcement.

Taxes payable by companies in many of the countries in which we operate are substantial and include value-added taxes, excise duties, profit taxes, payroll-related taxes, property taxes and other taxes. Tax laws and regulations in some of these countries may be subject to frequent change, varying interpretation and inconsistent enforcement. Ineffective tax collection systems and national or local government budget requirements may increase the likelihood of the imposition of arbitrary or onerous taxes and penalties, which could have a material adverse effect on our financial condition and results of operations. In addition to the usual tax burden imposed on taxpayers generally, these conditions create uncertainty as to the tax implications of various business decisions. This uncertainty could expose us to significant fines and penalties and to enforcement measures despite our best efforts at compliance, and could result in a greater than expected tax burden. Also, if tax rates increase in any of the jurisdictions in which we operate, or treaties between those jurisdictions are modified in an adverse manner, our cash flows, liquidity and ability to pay dividends could be negatively affected.

Our reputation and business could be materially harmed as a result of system failure, data breaches, data theft, unauthorized access or successful hacking. Furthermore, our business could be adversely affected as a result of the rising costs of maintaining sufficient cybersecurity in light of continuous technological advances.

Our operations depend on the secure and reliable performance of our information technology systems. An increasing number of companies have recently experienced intrusion attempts or breaches of their information technology security, some of which have involved sophisticated and highly targeted attacks on their computer networks. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement in a timely manner effective and efficient countermeasures.

While we have adopted procedures and controls to protect our information and operating technology, including sensitive proprietary information and confidential and personal data, there can be no assurance that a system or network failure, or security breach, will be prevented. If unauthorized parties attempt or manage to bring down our website or gain access into our information technology systems, they may be able to misappropriate confidential information, cause interruptions in our operations, damage our computers or process control systems or otherwise damage our reputation and business. Any compromise of the security of the our information technology systems could result in interruptions to our systems, a loss of confidence in our security measures, reputational damage and subject us to litigation, civil or criminal penalties and adverse publicity that could adversely affect our reputation, financial condition and results of operations. Furthermore, we expect that the costs of maintaining adequate cybersecurity to combat the leakage of information in this environment will continue to rise, and such costs could also adversely affect our financial condition and operations.

14

We are subject to regulatory and compliance risks, which may expose us to governmental investigations or penalties, including in connection with antitrust laws and regulations, and private lawsuits.

We operate globally. Our business straddles multiple jurisdictions and complex regulatory frameworks at time of increased enforcement activity and enforcement initiatives worldwide. Such regulatory frameworks, including economic sanctions, are constantly evolving, and we may, as a result, become subject to increasing limitations on our business activities or the risk of penalties or other sanctions for non-compliance. In addition, our governance and compliance processes, which include the review of internal controls over financial reporting, may not prevent us from violating law or accounting or governance standards. Furthermore, we face various private lawsuits and other claims in connection with our business activities around the world.

We are one of the largest steel producers in the world. As a result, we may be subject to exacting scrutiny from regulatory authorities and private parties, particularly regarding our trade practices and dealings with customers and counterparties. As a result of our position in steel markets and our historically acquisitive growth strategy, we could be subject to governmental investigations and lawsuits based on antitrust laws.

Such governmental investigations or penalties or private lawsuits could require us to incur significant expenditures or result in liabilities or governmental orders that could have a material adverse effect on our business or reputation, which may negatively affect our operating results, financial condition and prospects.

We are subject to strict environmental, health and safety laws and regulations that could give rise to a significant increase in costs and liabilities.

We are subject to a broad range of environmental laws and regulations in each of the jurisdictions in which we operate. These laws and regulations impose increasingly stringent environmental protection standards regarding, among others, wastewater storage, treatment and discharges, the use and handling of hazardous or toxic materials, waste disposal practices and the remediation of environmental contamination. The costs of complying with, and the imposition of liabilities pursuant to, current and future environmental laws and regulations could potentially be significant, and compliance with new and more stringent obligations in the future may require us to make additional capital expenditures or modify our operating practices. Failure to comply can result in civil and or criminal penalties being imposed, the suspension of permits, requirements to curtail or suspend operations and lawsuits by third parties. Despite our efforts to comply with environmental laws and regulations, environmental incidents or accidents may occur that negatively affect our reputation or the operations of key facilities.

Integrated steel processing involves carbon and creates CO2, which distinguishes integrated steel producers from mini-mills and many other industries, where CO2 generation is primarily linked to energy use. The European Union has established greenhouse gas regulations and is revising its emission trading system for the period after 2020 in a manner that may require steel producers, including us, to incur additional costs to acquire emissions allowances. In 2015, Japan set a target for reducing greenhouse gas emissions by 26% by 2030 and the United States has required reporting of greenhouse gas emissions from certain large sources since 2011, with emissions trading regimes and other initiatives being pursued at the state and regional level. See Item 4.B “Business Overview—Regulation.”

We are also subject to a broad range of health and safety laws and regulations in each of the jurisdictions in which we operate. These laws and regulations, as interpreted by relevant agencies and the courts, have in recent years imposed increasingly stringent health and safety protection standards. The costs of complying with, and the imposition of liabilities pursuant to, health and safety laws and regulations could be significant, and failure to comply could result in the assessment of civil and criminal penalties, the suspension of permits or operations and lawsuits by third parties. In addition, under certain circumstances authorities could require our facilities to curtail or suspend operations based on health and safety concerns.

New or more stringent environmental, safety and health standards could require us to make increased capital expenditures or make modifications in operating practices or projects. As a result, the amount and timing of

15

future environmental and related expenditures may vary substantially from those currently anticipated. These additional costs may also have a negative impact on the profitability of the projects we intend to implement or may make such projects economically unfeasible. We could also be exposed to civil liabilities, administrative penalties, criminal sanctions and closure orders for non-compliance with these regulations, as well as encounter delays in obtaining environmental or other operating licenses. Waste disposal and emission practices may result in the need for us to clean up or retrofit our facilities at substantial costs or substantial liabilities. Environmental regulatory restrictions imposed by foreign markets to which we export our products may also materially and adversely affect our export sales.

Risks Relating to Owning Our Common Stock and American Depositary Shares (“ADSs”)

Further issuances of shares by us may have an adverse effect on the market value of our shares and may dilute existing shareholders.

We may issue additional shares within the unissued portion of our authorized share capital and sell shares held as treasury stock, generally without shareholder approval. Issuances of shares in the future may be at prices below prevailing market prices and may be dilutive. If additional shares are issued by us or if it is perceived that additional shares will be issued in the public market, the trading price of our shares could be materially and adversely affected. If we were to issue additional shares in the future, holders of shares of our common stock, including purchasers of our shares in the global offering, may experience dilution.

Our shareholders of record on a record date may not receive the dividends they anticipate.

Consistent with market practice in Japan, we regularly announce forecasts of year-end and interim dividends. However, any such forecasts will not be legally binding. The actual payment of any interim or yearend dividends will require a resolution of our Board of Directors or a resolution of the shareholders’ meeting. See Item 10.B “Memorandum and Articles of Incorporation—Distribution of Surplus” below. These actual payments may differ from any previously announced forecasts or payout ratio targets, and since resolutions to pay dividends are usually not adopted until after the relevant record date, currently specified as March 31 and September 30 by our Articles of Incorporation, our shareholders of record on a record date may not receive the dividends they anticipate.

Under the Companies Act of Japan (the “Companies Act”), we will not be able to declare or pay dividends unless we meet specified financial criteria on an unconsolidated basis. Generally, we will be able to pay dividends only if we have certain surplus as calculated based on the aggregate of other capital surplus and other retained earnings on our unconsolidated balance sheet as of the end of the preceding fiscal year as determined in accordance with Japanese GAAP. For details of restrictions on the payment of dividends, see Item 10.B “Memorandum and Articles of Incorporation —Distribution of Surplus—Restriction on Distributions of Surplus.” below.

Investors holding less than a unit of shares will have limited rights as shareholders.

Pursuant to the Companies Act and other related legislation, our Articles of Incorporation provide that 100 shares of common stock constitute one unit. The Companies Act imposes significant restrictions and limitations on holdings of shares that do not constitute whole units. In general, holders of shares constituting less than one unit do not have the right to vote or to examine our accounting books and records. The transferability of shares of our common stock constituting less than one unit is significantly limited. For a more complete description of the unit share system and its effect on the rights of holders of our common stock, see Item 10.B “Memorandum and Articles of Incorporation—Unit Share System” below.

Because of daily price range limitations under Japanese stock exchange rules, investors may not be able to sell their shares of our common stock at a particular price on any particular trading day, or at all.

Stock prices on Japanese stock exchanges are determined on a real-time basis by the equilibrium between bids and offers. These exchanges are order-driven markets without specialists or market makers to guide price

16

formation. To prevent excessive volatility, these exchanges set daily upward and downward price fluctuation limits for each stock, based on the previous day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit may not be able to sell his or her shares at such price on a particular trading day, or at all.

Rights of shareholders under Japanese law may be more limited than under the laws of other jurisdictions.

Our Articles of Incorporation, the regulations of our Board of Directors and the Companies Act govern our corporate affairs. Legal principles relating to such matters as the validity of corporate procedures, directors’ fiduciary duties and liabilities, and shareholders’ rights may be different from those that would apply to a non-Japanese company. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the laws of other countries or jurisdictions within the United States. You may have more difficulty in asserting your rights as a shareholder than you would as a shareholder of a corporation organized in another jurisdiction. For example, under the Companies Act, only holders of 3% or more of our total voting rights or outstanding shares are entitled to examine our accounting books and records. Furthermore, there is a degree of uncertainty as to what duties the directors of a Japanese joint stock corporation may have in response to an unsolicited takeover bid and such uncertainty may be more pronounced than in other jurisdictions.

It may not be possible for investors to effect service of process within the United States upon us or our directors, executive officers or audit & supervisory board members, or to enforce against us or those persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States.

We are a joint stock corporation incorporated under the laws of Japan. All of our directors, executive officers and audit & supervisory board members reside outside the United States. Many of our assets and the assets of these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for U.S. investors to effect service of process within the United States upon us or these persons or to enforce against us or these persons judgments obtained in the U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States. We believe that there is doubt as to the enforceability in Japan, in original actions or in actions to enforce judgments of U.S. courts, of liabilities predicated solely upon the federal securities laws of the United States.

We plan to terminate our registration under the Exchange Act and cease to be an SEC reporting company as soon as practicable in accordance with applicable rules and regulations.

We plan to terminate our registration under the Exchange Act as soon as practicable in accordance with the rules that permit the deregistration of eligible foreign private issuers. Upon the termination of our registration, we will no longer be subject to the reporting provisions of the Exchange Act. As a result, U.S. shareholders will have access to less information about us and our business, operations and financial performance. Upon the termination of our registration under the Exchange Act, we will cease, among other things, to be subject to the liability provisions of the Exchange Act and the provisions of the Sarbanes-Oxley Act of 2002.

ADS holders must act through the depositary to exercise these rights and have fewer rights than shareholders.

The rights of shareholders under Japanese law to take actions, including exercising their voting rights, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records, and exercising appraisal rights, are available only to shareholders of record. Because the depositary, through its nominee, is the record holder of the shares underlying the ADSs, only the depositary can exercise those rights in connection with deposited shares. If shareholders choose to deposit shares allocated to them in the Share Exchange for ADS, the depositary will make efforts to exercise their voting rights underlying ADSs in accordance with the instructions of ADS holders, and will pay dividends and distributions collected from us.

17

However, ADS holders will not be able to bring a derivative action, examine our accounting books and records, or exercise appraisal rights through the depositary.

There are restrictions on the withdrawal of shares from our depositary receipt facility.

Our Articles of Incorporation provide that 100 shares constitute one unit. Under our ADS program, each ADS represents the right to receive one share. As a result of the unit share system, American Depositary Receipt (“ADR”) holders will only be permitted to surrender ADRs and withdraw underlying shares constituting whole units. If a holder surrenders an ADR representing shares that do not constitute an integral number of whole units, the depositary will deliver to that holder only those shares which constitute a whole unit. The depositary will then issue to the holder a new ADR representing the remaining shares. Holders of an ADR that represents less than a whole unit of underlying shares will be unable to withdraw the underlying shares. As a result, while holders of common stock whose shares constitute less than one whole unit may require us to purchase such shares under our Articles of Incorporation, those ADR holders will be unable to require us to purchase their underlying shares to the extent those shares constitute less than one whole unit.

Fluctuations in the exchange rate between the Japanese yen and the U.S. dollar could affect the market price of ADSs, as well as the dividends received by ADS holder.

Fluctuations in the exchange rate between the Japanese yen and U.S. dollar will also affect the U.S. dollar equivalent of the Japanese yen price of the shares of our common stock on the TSE and, as a result, will likely affect the market price of the ADSs. These fluctuations will also affect the U.S. dollar conversion by the depositary for the ADRs of cash dividends, if any, paid in Japanese yen on shares of common stock represented by the ADSs.

We changed our trade name from “NIPPON STEEL & SUMITOMO METAL CORPORATION” to “NIPPON STEEL CORPORATION,” effective as of April 1, 2019, in an effort to promote the development of our business in areas such as the Americas, Europe, China, Southeast Asia and India amidst the advancing trend of globalization of the economy. Additionally, the trade name of Nisshin Steel was also changed from “Nisshin Steel Co., Ltd.” to “NIPPON STEEL NISSHIN CO., LTD.,” effective as of the same date, for purposes of consistency in branding and the fostering of a sense of unity throughout our group.

For a description of our principal capital expenditures during the fiscal years ended March 31, 2017, 2018 and 2019, see Item 5.B “Liquidity and Capital Resources—Capital Requirements—Capital Expenditures,” below.

We file annual reports and other information with the SEC. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Our corporate website is https://www.nipponsteel.com/en/. The information contained in both websites is not incorporated by reference into this annual report.

Steelmaking and Steel Fabrication Segment

Our financial results are driven primarily by the financial results of our Steelmaking and Steel Fabrication segment, our largest segment, which manufactures and markets steel products. For the fiscal year ended March 31, 2019, the total revenue from external customers of our Steelmaking and Steel Fabrication segment was ¥5,408,633 million, or 87.5% of our consolidated revenue from external customers.

We manufacture and sell a broad line of steel products, including the following:

19

Approximately two-thirds of the total revenue from external customers of our Steelmaking and Steel Fabrication segment is generated from sales to customers in the manufacturing industry, such as automobile and electrical appliance manufacturers, and the remainder is basically generated from sales to customers engaged in the building materials and civil engineering industries.

Pricing Policy

We determine the sales price of our products based on a number of factors, including the cost of raw materials, supply and demand in Japan and overseas, exchange rates and conditions in the international steel market. The price of our products can fluctuate considerably over time, depending on market conditions and other factors.

Principal Markets for Our Steelmaking and Steel Fabrication Segment

Japan is the most important market for our Steelmaking and Steel Fabrication segment. Sales to customers in Japan represent a majority of the total revenue from external customers of our Steelmaking and Steel Fabrication segment. See “—Principal Markets” below.

Sales Methods

We rely on tied sales and retail sales to distribute our products in the Japanese market. For tied sales, we receive orders directly from end-user customers. Such orders often include detailed instructions as to price, volume and product specifications. We then fill such orders, based on the customer’s order instructions. For retail sales, we sell steel products to retailers and trading firms, without end-user customers being specified. Such retailers and trading firms stockpile steel products, thereby assuming inventory risk for the purchased products, and then sell such products to end-user customers.

Delivery Methods

We transport and deliver steel products to our Japanese customers through a mixture of short sea shipping and truck delivery. For the fiscal year ended March 31, 2019, short sea shipping and truck delivery accounted for approximately 60% and 40% of our Japanese shipping, respectively.

20

The Steelmaking Process

Our major production facilities, which include Oita Works, Kimitsu Works, Kashima Works and Nagoya Works, generally produce steel by the blast furnace method.

In the blast furnace method, molten pig iron is produced in a blast furnace from iron ore, which is the basic raw material used in steelmaking. Molten pig iron is then refined into molten steel using a basic oxygen furnace, which blows pure oxygen at high pressure to remove impurities.

Molten steel is made into semi-finished products, such as slabs, blooms and billets, in various standardized sizes and shapes through the continuous casting process. Continuous casting improves product quality by imparting a homogenous structure to the steel. Our production facilities which have blast furnaces are equipped with continuous casters. Slabs, blooms and billets are used to produce further-processed products or sold to other steelmakers that produce further-processed steel products.

Engineering and Construction Segment

Through our Engineering and Construction segment, we plan, design and construct a variety of construction projects, including industrial plants, environmental and energy plants, civil engineering projects, large steel structures such as skyscrapers and oil and gas pipelines. Also, through our energy solution business line, we provide electric power companies and energy consumers, mainly in the manufacturing business, with various energy solutions, including retail electricity supply, on-site energy supply, power generation engineering, wind power generation and geothermal steam production equipment. Our Engineering and Construction segment is comprised of the following business lines: plant and machinery, environmental solutions, energy solutions, marine engineering and construction, building construction and steel structures.

Our principal customers in our Engineering and Construction segment are the energy and steel-making industries and the public sector. Our largest market by total revenue from external customers is Japan, and we have expanded our sales activities into Asia, such as Vietnam, Indonesia and Thailand.

Chemicals and Materials Segment

Our former Chemicals segment and New Materials segment were merged to form the Chemicals and Materials segment after Nippon Steel Chemical & Material Co., Ltd. was established in October 2018 following the merger of Nippon Steel & Sumikin Chemical Co., Ltd. and Nippon Steel & Sumikin Materials Co., Ltd.

In our Chemicals and Materials segment, we produce and sell a variety of materials including coal-based chemical products, petrochemicals, electronic materials, materials and components for semiconductors and electronic parts, carbon fiber and composite products, and products that apply technologies for metal processing. The total revenue from external customers of this segment accounted for 4.0% of our consolidated revenue from external customers for the fiscal year ended March 31, 2019.

Our principal customers in the Chemicals and Materials segment are the automobile industry, the semiconductor industry, and the electric furnace steel-making industry. Our largest market by total revenue from external customers is Japan, and we have expanded our sales activities into several countries in East Asia, including China and Korea.

System Solutions Segment

Through our Systems Solution segment, we provide computer system engineering and consulting services, information technology outsourcing services and other client-oriented information technology business solutions to customers in a wide range of industries, including manufacturing and consumer products. Building upon the

21

system technologies that we have accumulated over many years of operation in the steelmaking business, we launched this business in 1986. Since then, the segment has not only provided a source of external sales, but also reinforced the infrastructure of our group by providing information technology solutions to our businesses. We operate our systems solutions business through our consolidated subsidiary, NS Solutions Corporation (“NS Solutions”), a publicly traded company listed on the First Section of the TSE, of which we hold 63.4% of the voting rights.

NS Solutions provides customer-oriented solutions to global business operations of a wide range of clients. NS Solutions has overseas branches in six countries, including the United States, the United Kingdom, China, Singapore, Thailand and Indonesia, helping it better market to overseas businesses.

Note:

Seasonality

Our overall business has, in the aggregate, no significant seasonality in terms of sales or profits. Thus, seasonality does not have a material effect upon our overall operations.

Raw Materials

The principal raw materials that we use in our business are iron ore and coking coal. We import all of the coking coal and all of the iron ore that we use. In the fiscal year ended March 31, 2019, we imported approximately 59 million dry metric tons of iron ore and 25 million wet metric tons of coking coal. We primarily import iron ore from Australia and Brazil and primarily import coking coal from Australia, Canada and the United States. The prices of iron ore and coking coal are linked to the international demand for and supply of such resources, and there have been significant fluctuations in recent years. In the future, major fluctuations could occur in the prices of iron and coking coal due to a number of factors, including the global economic outlook, the global market prices of raw materials and steel products, the supply and demand outlook of raw materials and the production costs of raw materials.

We make investments in exploration and production projects outside of Japan to enhance our ability to meet our requirements for high-quality raw materials. We secured approximately 20% of our iron ore and 20% of our coking coal imports in the fiscal year ended March 31, 2019 from foreign mines in which we have made investments. Our major investments to procure supplies of iron ore and coking coal are primarily located in Australia and Brazil. We plan to continue to selectively seek opportunities to enter into additional strategic relationships that could enhance our ability to meet our requirements for our principal raw materials.

22

In order to meet our transportation needs for iron ore and coking coal, we have entered into contracts with shipping companies in Japan to retain a fleet of dedicated vessels.

In addition to iron ore and coking coal, we also procure iron scrap, iron alloy and lime, mainly from Japanese sources. The prices for such materials are sometimes volatile.

Marketing Channels

We engage in marketing and sales activities for the sale of our products, and our distribution routes for the sale of iron and steel products consist of the following:

We also conduct marketing and sales activities abroad at the local level through each of our production subsidiaries, which each target third-party customers in their respective country or region. While we do reach out to new customers, the primary goal of our marketing and sales activities is to maintain and strengthen our relationships with our existing customers. Specifically, our production subsidiaries regularly conduct local market research and customer visits to better understand our customers’ needs. In the case of production subsidiaries that do business with trading firms, we believe that it is important to establish good relationships with such trading firms in order to expand and strengthen our end-user customer base, because trading firms engage in marketing and sales activities of their own toward end-user customers and provide us with information about the market and end-user customers.

Intellectual Property

We rely in part on proprietary manufacturing technologies, proprietary rights in products and processes and on our ability to obtain patents, licenses and other intellectual property rights over such technologies from third parties. While we believe that all of our intellectual property rights are important, we believe that neither the expiration nor termination of any specific intellectual property right would have a significant impact on our operations, as whole.

Competition

Our principal businesses operate in markets that are highly competitive. In addition, the global steel industry is cyclical and historically has been subject to overcapacity. The Japanese steel market is expected to shrink gradually going forward while steel supply in Asia (excluding Japan) is expected to increase, meaning that competition is likely to intensify in the future, with cost competitiveness playing a major role in determining the success of market participants.

With respect to all of our principal businesses, we compete on the basis of price, product performance, product quality and customer service. We strive to develop products that offer unique value and performance to customers, and our brand names, brand strength and the brand loyalty of our customers also impact our competitive position. Our principal competitors in the Steelmaking and Steel Fabrication segment include ArcelorMittal, China Baowu Steel Group Corporation Limited, JFE Steel Corporation, Kobe Steel, Ltd. and POSCO.

23

Regulation

Our business activities are subject to various governmental regulations in the countries that we operate in. Such regulations include investment approvals, export regulations, tariffs, antitrust, anti-bribery, intellectual property, data protection, product safety, taxation, exchange controls, and environmental and recycling requirements.

Significant environment-related regulations to which our business activities are subject include:

Disclosure of Iranian Activities under Section 13(r) of the Exchange Act

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act. Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction. Pursuant to Section 13(r), NSC is disclosing the following information.

During the fiscal year ended March 31, 2019, export sales to Iran accounted for ¥1,954 million, or 0.03% of NSC’s total consolidated revenues for the fiscal year ended March 31, 2019. NSC sold steel pipes, tin plate, and steel plate to Iran for civilian use. We cannot exactly calculate the net profits associated with these transactions.

NSC conducted the above transactions in accordance with applicable law, and NSC believes that the above transaction does not subject to U.S. sanctions. Upon the reinstatement of sanctions by the United States in November 2018, NSC ceased these operations, and NSC does not currently intend to resume these transactions so long as sanctions imposed on Iran by the United States are in place.

24

As of March 31, 2019, we had 420 consolidated subsidiaries and 119 affiliates (consisting of associates and joint ventures accounted for by the equity method as well as joint operations). The following table includes certain basic information regarding each of our principal subsidiaries and affiliates, including their principal business activities and percentage of voting rights held by us.

25

26

27

Notes:

28

The following table lists our “significant subsidiary” (as that term is defined in Rule 1-02(w) of Regulation S-X under the Exchange Act) as of March 31, 2019.

29

Notes:

Substantially all of our properties are free of material encumbrances and we believe our properties are in adequate condition for their purposes and suitably utilized. During the fiscal year ended March 31, 2019, there were no material problems regarding either the productive capacity or the extent of utilization of our properties.

All of our properties operate in compliance with governmental and municipal laws and regulations. Furthermore, we established a number of internal environmental guidelines which are at the same level as, or stricter than, those provided by the relevant authorities. If any non-compliance occurs, we take immediate and appropriate actions to meet the regulatory requirements and to ensure the proper utilization of our properties.

30

The following table includes information regarding material improvements to our tangible fixed assets and material new construction in progress as of March 31, 2019:

Notes:

The volume of steel product that we sell is affected by the demand for our steel products both in Japan and overseas. Japan is the most important market for our Steelmaking and Steel Fabrication segment and sales to customers in Japan represent a majority of the total revenue from external customers of our Steelmaking and Steel Fabrication segment. Demand in Japan is affected by the condition of and operating environments for major steel consuming industries in Japan, including the automotive, energy and resources and construction and civil engineering industries, as well as the general condition of the Japanese economy. With respect to our overseas sales of steel products, certain Asian markets, including Thailand, China, Korea, Indonesia, Malaysia and Vietnam, are our most important markets overseas for such products. Overseas demand is affected by the condition of and operating environments for major steel consuming industries as well as the general condition of the global and local economies. In addition, demand for our steel products overseas is affected by quotas, tariffs and other measures related to import-export policy and market protectionism.

According to the World Steel Association, global crude steel production increased significantly in calendar year 2018 to a record 1.80 billion metric tons, up 4.6% from calendar year 2017. Production growth throughout the year was supported by an increase in output in all major regions except the European Union, which saw a 0.3% decrease. In Asia, steel output rose 5.6% year-on-year in calendar year 2018, to 1,271.1 million metric tons, the highest since calendar year 2014. In Japan, crude steel production decreased to 104.3 million metric tons, down 0.3% from calendar year 2018. At the same time, global apparent steel use, a metric developed by the World Steel Association to measure steel demand, had growth of approximately 1.5% in calendar year 2018. The growth in 2018 largely reflected increases in demand in China, India and the United States, and the continued growth in demand in some emerging markets, notably Brazil, also contributed the growth. Steel demand in Japan increased by 3.5% during calendar year 2017, driven in part by a government stimulus package, improved exports and preparations for the 2020 Olympic games. In calendar year 2018, Japanese steel demand remained strong, benefitting in part from strong activity in the automotive industry.

The prices of our steel products are affected by global and regional production capacity and fluctuations in steel imports and exports, which are themselves affected by the existence and amounts of tariffs, customer stocking and destocking cycles as well as competition in the steel industry, including developments such as established producers expanding into new markets, smaller producers increasing production in anticipation of demand increases or amid recoveries and exporters selling excess capacity from markets such as China. The steel industry globally has historically suffered from structural overcapacity. The current global steelmaking capacity exceeds the current global consumption of steel, which puts downward pressure on the price of steel.

In addition, pricing terms with major customers are heavily negotiated and are affected by factors such as the cost of raw materials, overall volume, timing, financing requirements for production and other considerations. Product pricing for our steel products is particularly sensitive to raw materials costs. During periods of decreased raw materials costs we face competitive pressure to decrease our product pricing. Conversely, we generally seek to increase our product pricing during periods of higher raw materials costs and the reflection of increases in raw materials costs is a major element of our negotiations with our customers. However, we may be unable to pass on the entire increase in costs to our customers. Because price negotiations with major customers are generally conducted months in advance of production and delivery, it can take some time before the impact of fluctuations in raw materials costs is reflected in our financial results.

33

Cost of Sales

A principal component of our cost of sales in the Steelmaking and Steel Fabrication segment is the cost of raw materials. Like other Japanese steelmakers, we source our raw materials primarily from overseas suppliers and to a limited extent from suppliers in Japan, with Australia accounting for about 60% of the iron ore and 60% of the coal that we import and Brazil accounting for about 30% of the iron ore that we import. Our long-term supply contracts for raw materials generally have terms of three to ten years with the volume fixed for the entire contract term but the necessity to agree on price on a quarterly basis. Negotiations with respect to quarterly agreements on price are influenced by various factors, including the global economic outlook, global market prices of raw materials and steel products, supply and demand outlook of raw materials and production costs of raw materials. The prices of our key raw materials have fluctuated significantly in recent years.

Energy costs also impact our cost of sales, with elevated energy costs increasing our cost of sales and decreased energy costs decreasing our cost of sales. Other material elements of our cost of sales in the Steelmaking and Steel Fabrication segment include depreciation and amortization expenses, repair expenses and personnel expenses.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses in our Steelmaking and Steel Fabrication segment primarily consist of:

For breakdowns of selling, general and administrative expenses, see “—Results of Operations—Comparison of the Fiscal Year Ended March 31, 2018 to the Fiscal Year Ended March 31, 2019—Selling, General and Administrative Expenses” and “—Results of Operations—Comparison of the Fiscal Year Ended March 31, 2017 to the Fiscal Year Ended March 31, 2018—Selling, General and Administrative Expenses” below.

Factors Affecting the Results of Operations of Our Other Segments

The results of operations in our Engineering and Construction segment may be negatively affected by downward trends in investments related to crude oil and coal, environment-related investments such as waste processing plants in Japan and Europe and construction-related investments in Japan as well as the economic conditions in Japan and other Asian regions which are our principal markets.

Our Chemicals and Materials segment has numerous product lines, including coal-based chemical products, petrochemicals, electronic materials, materials and components for semiconductors and electronic parts, carbon fiber and composite products, and products that apply technologies for metal processing, and we supply processed products to a wide variety of sectors in Japan and abroad. The results of operations in our Chemicals and Materials segment may be negatively affected by rises in the prices of raw materials such as coal or petrochemical raw materials, failures to set prices in light of such rises and global or regional changes in demand.

Our System Solutions segment is subject to risks associated with the rapid transformation of the structure of the IT industry, which is being driven by factors such as continuous technological advancements in this area as well as the rise of the sharing economy. The results of operations in our Systems Solutions segment may be negatively affected if we are unsuccessful in our efforts to meet such growing demands in the IT area or if we are unable to retain necessary personnel amid adverse demographic changes in Japan.

34

Critical Accounting Estimates and Judgments

Impairment of Non-financial Assets

For the non-financial assets other than inventories and deferred tax assets, we assess whether there is any indication of impairment on each asset or the cash-generating unit to which the asset belongs at the end of each reporting period. If any indication of impairment exists, the recoverable amount of the asset or the cash-generating unit to which the asset belongs is estimated and impairment tests are performed. Goodwill, intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually and whenever an indication of impairment exits.

The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. When the recoverable amount of the individual asset cannot be estimated, we estimate the recoverable amount of the cash-generating unit or our cash-generating units to which the asset belongs. The value in use is calculated by discounting the estimated future cash flows to the present value, and a pre-tax discount rate that reflects the time value of money and the risks specific to the asset is used as a discount rate.

For the fiscal year ended March 31, 2019, we recognized impairment losses on non-financial assets of ¥16,882 million. Impairment losses in the Steelmaking and Steel Fabrication segment were recognized mainly due to strategic realignments of businesses within the segment in order to address unfavorable changes in the business environment. This includes impairment losses of ¥5,990 million related to the goodwill of a subsidiary that is in the business of manufacturing and distributing railway wheels and axles in the United States, which was recognized due to a decision to reorganize the operation of certain business in the United States. Also, impairment losses of ¥5,919 million related to an investment accounted for using the equity method of a subsidiary that operates mining business in Australia were recognized as a result of re-review of its investment plan. In addition, impairment losses related to goodwill were recognized in the Engineering and Construction segment mainly due to an unfavorable business environment. These impairment losses were incurred by a subsidiary that operates an environmental plant business in Europe. For the fiscal year ended March 31, 2018, we recognized impairment losses on non-financial assets of ¥18,075 million. The amount of the impairment losses consisted of ¥8,505 million recognized with respect to the operating assets held by a subsidiary in the United States that operates a pipe business in the Steelmaking and Steel Fabrication segment. We did not recognize any impairment losses on non-financial assets for the fiscal year ended March 31, 2017.

Valuation of Financial Assets

Financial assets other than derivative financial instruments are classified at initial recognition as those measured at amortized cost or at fair value through other comprehensive income.

We assess expected credit loss at the end of each reporting period for the impairment of financial assets measured at amortized cost. The loss allowance is measured at an amount equal to the lifetime expected credit losses for trade receivables and financial assets with a significant increase in credit risk since initial recognition. With regard to financial assets measured at fair value through other comprehensive income, subsequent changes in fair value are recognized in other comprehensive income.

Provision for Retirement Benefit

We operate three retirement benefit plans, which consist of a defined benefit plan, a defined contribution plan and a lump-sum retirement payment plan. Liabilities for defined benefit plans are recognized in the consolidated statement of financial position at the present value of retirement benefit obligations less the fair value of plan assets at the end of reporting period. The present value of retirement benefit obligations is calculated with reference to certain assumptions, including discount rates.

Measurements, which include actuarial gains and losses arising from differences between estimates and actual experience, and changes in actuarial assumptions, are recognized in other comprehensive income in the

35

period in which they arise. Such measurements are not reclassified to profit or loss but are reclassified to retained earnings immediately. Assumptions are evaluated at least annually or at the time when events occur. While management believes that the assumptions used are appropriate, differences in actual results or changes in assumptions may affect our future defined benefit costs and liabilities for retirement benefits.

The discount rates, one of the key assumptions in the determination of defined benefit costs and liabilities for retirement benefits, used as of March 31, 2019 and 2018 were 0.3%. While holding all other assumptions constant, an increase of 0.5% in the discount rate would result in a decrease of ¥33,151 million and ¥32,049 million in the present value of retirement benefit obligations, as of March 31, 2019 and 2018, respectively.

Deferred Tax Assets

We exercise judgment about our future results in assessing the recoverability of our deferred tax assets. Inherent in this estimation process is the requirement for us to estimate future taxable income. We make these estimates exercising judgment about our future results, and the economic environments in which we do business. It is possible that our actual results will differ from our assumptions and require adjustments to our allowances due to, for example, our failure to generate adequate levels of taxable income in future periods to offset the unused tax losses and reverse the temporary differences prior to expiration.

For the fiscal year ended March 31, 2019, we recognized deferred tax assets of ¥269,234 million, including ¥66,924 million in defined benefit liabilities and ¥39,280 million in unused tax losses. For the fiscal ended March 31, 2018, we recognized deferred tax assets of ¥217,772 million, including ¥48,011 million in defined benefit liabilities and ¥29,681 million in elimination of unrealized gains on property, plant and equipment and others.

Accounting Pronouncements Not Yet Adopted

IFRS 16 “Leases”

The principal changes in accounting policy and potential impacts to the consolidated financial statements of the application of IFRS 16 from the fiscal year ending March 31, 2020 are as follows:

IFRS 16 changes the definition of a lease and provides a single on-balance lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. The Group will recognize new assets and liabilities for operating leases as a lessee. In addition, expenses related to leases will change from straight-line operating lease expenses to a depreciation charge for right-of-use assets and interest expenses on lease liabilities.

The Group applies the standard retrospectively with the cumulative effect of initially applying this standard by adjusting the cumulative effect of initially applying this standard in opening retained earnings as of April 1, 2019 without restating financial information for the prior period.

The Group also grandfathers the definition of a lease during the transition and applies this standard to all the lease contracts entered into prior to April 1, 2019 identified under IAS 17 “Leases” and IFRIC 4 “Determining whether an Arrangement contains a Lease”. The impact of applying this standard to total assets and total liabilities in the consolidated financial statements is approximately ¥31,944 million.

36

Comparison of the Fiscal Year Ended March 31, 2018 to the Fiscal Year Ended March 31, 2019

Revenue

Revenue increased by ¥464,982 million, or 8%, to ¥6,177,947 million for the fiscal year ended March 31, 2019 as compared to the prior year. The increase was primarily due to an increase in the price of steel products in connection with an improvement in the condition of the global steel market as well as a rise in raw material prices.

Cost of Sales

Cost of sales was ¥5,391,493 million for the fiscal year ended March 31, 2019, an increase of ¥442,610 million, or 9%, as compared to the prior year. The increase was primarily due to a price increase in raw material and scrap and alloy.

Gross Profit

As a result of the increases in revenue and cost of sales described above, gross profit increased by ¥22,371 million, or 3%, year-on-year to ¥786,453 million for the fiscal year ended March 31, 2019 as compared to the prior year.

37

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by ¥34,622 million, or 6%, to ¥568,409 million for the fiscal year ended March 31, 2019 as compared to the prior year. The year-on-year increase was mainly due to a ¥19,218 million increase in transportation and storage. These increases were caused primarily by the rise in distribution costs.

The following table includes a breakdown of selling, general and administrative expenses for the fiscal years ended March 31, 2018 and 2019.

Total research and development costs included in cost of sales and selling, general and administrative expenses were ¥72,043 million during the fiscal year ended March 31, 2019 compared to ¥74,071 million in the prior year.

Share of Profit in Investments Accounted for Using the Equity Method

Share profit in investments accounted for using the equity method increased by ¥20,754 million, or 32%, year-on-year to ¥86,411 million for the fiscal year ended March 31, 2019. The increase was caused primarily by improved results from overseas associates.

Other Operating Income

Other operating income increased by ¥11,085 million, or 12%, to ¥102,606 million for the fiscal year ended March 31, 2019 as compared to the prior year. This was primarily due to increases in dividends received and gains on foreign exchange.

Other Operating Expenses

Other operating expenses decreased by ¥28,653 million, or 29%, to ¥70,120 million for the fiscal year ended March 31, 2019 as compared to the prior year. This was primarily due to ¥18,075 million in impairment losses of non-financial assets, including goodwill, in the fiscal year ended March 31, 2018.

Business Profit

Business profit increased by ¥48,241 million, or 17%, to ¥336,941 million for the fiscal year ended March 31, 2019 as compared to the prior year. This was mainly due to an improvement in the prices of steel products, driven primarily by a increases in overseas markets, especially in the first half of the year, and profit improvement in business segments other than steelmaking and steel fabrication, in addition to group-wide efforts to implement measures to rationalize facilities and operations and the steady adoption of cost reduction measures. However, this increase was negatively affected by costs associated with natural disasters, such as heavy rains and

38

typhoons, an overall cost increase for our operations, stemming from a surge in the prices of primary raw materials, increases in commodity materials costs, other material procurement costs and distribution costs and a decrease in the difference in inventory valuation by NSC and its group companies.

Losses on Natural Disaster

Losses related to weather related natural disasters, such as heavy rains and typhoons in Japan, were incurred during the year ended March 31, 2019, including losses resulting from restoration repair, disposal of machinery and other related costs, were ¥22,349 million.

Losses from Reorganization

As part of its strategic initiative, we have realigned resource allocation to certain business and have incurred losses from reorganization. The reorganization losses are principally divided into impairment losses of ¥16,882 million, losses on withdrawal from businesses of ¥17,443 million and losses incurred to withdraw from inactive facilities and other losses of ¥15,154 million for the year ended March 31, 2019. Impairment losses mainly were related to goodwill and investments accounted for using the equity method and were recognized due to changes in recoverable amounts as a result of the reorganization of business activities. Losses on withdrawal from businesses mainly consisted of losses related to the pending withdrawal from a large casting and forgings business operated by Japan Casting & Forging Corporation, an affiliate in the Steelmaking and Steel Fabrication segment, due to an unfavorable business environment. Losses incurred to withdraw from inactive facilities and others losses mainly consisted of the termination and demolition losses of the No. 5 blast furnace of Wakayama Works which was replaced by a new facility in February 2019.

Operating Profit

Operating profit decreased by ¥23,589 million, or 8%, to ¥265,111 million for the fiscal year ended March 31, 2019 as compared to the prior year. This was primarily due to the reasons described under “—Business Profit”, “—Losses on Natural Disaster” and “—Losses from reorganization” above.

Finance Income

Finance income decreased by ¥1,540 million, or 20%, to ¥6,104 million for the fiscal year ended March 31, 2019 as compared to the prior year. This was primarily due to a one-time gain in the prior year from the early repayment of Nisshin Steel’s borrowing.

Finance Costs

Finance costs decreased by ¥2,139 million, or 9%, to ¥22,445 million for the fiscal year ended March 31, 2019 as compared to the prior year. This was primarily due to a decrease in interest expense.

Profit Before Income Taxes

As a result of the above factors, for the fiscal year ended March 31, 2019, profit before income taxes was ¥248,769 million, a ¥22,991 million decrease compared to profit before tax of ¥271,760 million in the prior year

Income Tax Expenses

Income tax expenses were ¥(8,809) million in the fiscal year ended March 31, 2019, a ¥68,358 million year-on-year decrease compared to income tax expenses of ¥59,549 million in the prior year. This was primarily due to an increase in the estimated total amount of carry over deficit that could be utilized against the taxable income with the implementation of the consolidated tax payment system during the year ended March 31, 2019.

39

Profit for the Year

As a result of the above factors, profit increased by ¥45,369 million to ¥257,579 million for the fiscal year ended March 31, 2019 as compared to the prior year.

Comparison of the Fiscal Year Ended March 31, 2017 to the Fiscal Year Ended March 31, 2018

Revenue

Revenue increased by ¥1,016,137 million, or 22%, to ¥5,712,965 million for the fiscal year ended March 31, 2018 as compared to the prior year. This increase was primarily due to an increase in the price of steel products led by the improvement of the conditions of the global steel market and as a rise in prices of raw materials, as well as the consolidation of Nisshin Steel as our wholly owned subsidiary.

Cost of Sales

Cost of sales was ¥4,948,883 million for the fiscal year ended March 31, 2018, an increase of ¥863,232 million, or 21%, as compared to the prior year. This increase was primarily due to an increase in market prices of auxiliary materials, scrap and alloy, as well as the consolidation of Nisshin Steel as our wholly owned subsidiary.

Gross Profit

As a result of the increases in revenue and cost of sales described above, gross profit increased by ¥152,906 million, or 25%, year-on-year to ¥764,082 million for the fiscal year ended March 31, 2018 as compared to the prior year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by ¥67,436 million, or 14%, to ¥533,787 million for the fiscal year ended March 31, 2018 as compared to the prior year. This year-on-year increase was mainly due to a ¥29,236 million increase in transportation and storage and a ¥15,503 million increase in salaries and bonuses, which increases were in turn caused primarily by the consolidation of Nisshin Steel as our wholly owned subsidiary.

The following table includes a breakdown of selling, general and administrative expenses for the fiscal years ended March 31, 2017 and 2018.

Total research and development costs included in cost of sales and selling, general and administrative expenses were ¥74,071 million during the fiscal year ended March 31, 2018 compared to ¥70,100 million in the prior year.

40

Share of Profit in Investments Accounted for Using the Equity Method

Share profit in investments accounted for using the equity method increased by ¥21,539 million, or 49%, year-on-year to ¥65,657 million for the fiscal year ended March 31, 2018. This increase was primarily led by the enhanced financial results of our oversea joint ventures.

Other Operating Income

Other operating income increased by ¥29,413 million, or 47%, to ¥91,521 million for the fiscal year ended March 31, 2018 as compared to the prior year. This was primarily due to an increase in dividends received and gain of disposal of fixed assets.

Other Operating Expenses

Other operating expenses increased by ¥17,602 million, or 22%, to ¥98,773 million for the fiscal year ended March 31, 2018 as compared to the prior year. This increase was primarily due to a ¥18,075 million impairment of non-financial assets, including goodwill in the fiscal year ended March 31, 2018.

Business Profit

Business profit increased by ¥118,822 million, or 70%, to ¥288,700 million for the fiscal year ended March 31, 2018 as compared to the prior year. This increase was primarily due to the continued execution of our cost-reduction measures, the improved performance of our group companies in Japan and abroad, and the positive impact of differences in inventory valuations, even though business profit was negatively affected by a decrease in production and shipment volume due to facility-related incidents and adverse weather, a surge in prices of primary raw materials, and a rise in costs of auxiliary materials such as scrap and alloy, procurement costs of other materials and distribution costs.

Gains from Reorganization

We recognized gains from reorganization of ¥40,165 million for the fiscal year ended March 31, 2017 resulting from the partial sale of shares of SUMCO Corporation, which was offset by loss from the restructuring of the butt-welding fitting business of Nippon Steel & Sumikin Kikoh Company.

Operating profit

Operating profit increased by ¥78,656 million, or 37%, to ¥288,700 million for the fiscal year ended March 31, 2018 as compared to the prior year. This increase was primarily due to the reasons described under “—Business Profit” and “—Gains from Share Divestiture” above.

Finance Income

Finance income increased by ¥1,322 million, or 21%, to ¥7,644 million for the fiscal year ended March 31, 2018 as compared to the prior year. This increase was primarily due to the gains from the early repayment of Nisshin Steel’s borrowings.

Finance Costs

Finance costs increased by ¥2,998 million, or 14%, to ¥24,584 million for the fiscal year ended March 31, 2018 as compared to the prior year. This increase was primarily due to the consolidation of Nisshin Steel as our wholly owned subsidiary.

41

Profit Before Income Taxes

As a result of the above factors, for the fiscal year ended March 31, 2018, profit before income taxes was ¥271,760 million, a ¥76,980 million increase compared to profit before income taxes of ¥194,780 million in the prior year.

Income Tax Expenses

Income tax expenses were ¥59,549 million in the fiscal year ended March 31, 2018, a ¥19,252 million year-on-year increase compared to income tax expenses of ¥40,297 million in the prior year. This was primarily due to the income tax expenses increased as a result of the improvement in the business profit for the fiscal year ended March 31, 2018.

Profit for the Year

As a result of the above factors, profit for the year increased by ¥57,727 million to ¥212,210 million for the fiscal year ended March 31, 2018 as compared to the prior year.

42

Notes:

43

Comparison of the Fiscal Year Ended March 31, 2018 to the Fiscal Year Ended March 31, 2019

Steelmaking and Steel Fabrication Segment

External revenue from the Steelmaking and Steel Fabrication segment, net of the elimination of intersegment revenue, increased by ¥425,298 million, or 9%, to ¥5,408,633 million for the fiscal year ended March 31, 2019 as compared to the prior year. The increase was primarily due to an increase in the price of steel products reflecting an improvement in the global steel market as well as a rise in raw material prices.

Segment profit was ¥274,672 million, an increase of ¥28,964 million, or 12%, as compared to segment profit of ¥245,708 million in the prior year. This was mainly due to an improvement in the prices of steel products, driven primarily by a increases in overseas markets, especially in the first half of the year, in addition to group-wide efforts to implement measures to rationalize facilities and operations and the steady adoption of cost reduction measures. However, this increase was negatively affected by costs associated with natural disasters, such as heavy rains and typhoons, an overall cost increase for our operations, stemming from a surge in the prices of primary raw materials, increases in commodity materials costs, other material procurement costs and distribution costs and the decrease in the difference in inventory valuation by NSC and its group companies.

Engineering and Construction Segment

External revenue from the Engineering and Construction segment, net of the elimination of intersegment revenue, increased by 23%, or ¥60,438 million in the fiscal year ended March 31, 2019 as compared to the prior year. This increase was primarily due to a stable business environment in the domestic energy field and construction and environment-related sectors.

Segment profit was ¥9,474 million, an increase of ¥364 million, or 4%, as compared to segment profit of ¥9,110 million in the prior year. This increase was primarily due to a stable of business environment in the domestic energy field and construction and environment-related sectors and the company’s steady control of project execution.

Chemicals and Materials Segment

External revenue from the Chemicals and Materials segment, net of the elimination of intersegment revenue, increased by 4%, or ¥8,906 million in the fiscal year ended March 31, 2019 as compared to the prior year. This increase was primarily due to improved performance in both the domestic and overseas markets with its needle coke, the mainstay of its coal tar chemicals business, due to ongoing demand for graphite electrode materials.

Segment profit was ¥25,095 million, an increase of ¥7,696 million, or 44%, as compared to segment profit of ¥17,399 million in the prior year. This increase was primarily due to improved performance in both the domestic and overseas markets with its needle coke, the mainstay of its coal tar chemicals business, due to ongoing demand for graphite electrode materials.

System Solutions Segment

External revenue from the System Solutions segment, net of the elimination of intersegment revenue, increased by 8%, or ¥14,642 million in the fiscal year ended March 31, 2019 as compared to the prior year. This increase was primarily due to the continuation of a favorable business environment along with a robust system investments derived from the advanced operational needs of customers, which is developing safe, protective solutions at factories and other work sites that make use of IoT technology and developing platforms to analyze data based on AI technology.

Segment profit was ¥26,576 million, an increase of ¥3,284 million, or 14%, as compared to segment profit of ¥23,292 million in the prior year. This increase was primarily due to the continuation of a favorable business

44

environment along with a robust system investments derived from the advanced operational needs of customers, which is developing safe, protective solutions at factories and other work sites that make use of IoT technology and developing platforms to analyze data based on AI technology.

Comparison of the Fiscal Year Ended March 31, 2017 to the Fiscal Year Ended March 31, 2018

Steelmaking and Steel Fabrication Segment

External revenue from the Steelmaking and Steel Fabrication segment, net of the elimination of intersegment revenue, increased by ¥966,664 million, or 24%, in the fiscal year ended March 31, 2018 as compared to the prior year. This increase was primarily due to an increase in the prices of steel products, which led by the improvement conditions of the global steel market and a rise in the prices of raw materials, as well as the consolidation of Nisshin Steel as our wholly owned subsidiary.

Segment profit was ¥245,708 million, an increase of ¥107,691 million, or 78%, as compared to segment profit of ¥138,017 million in the prior year. This increase was primarily due to an increase in business profit, which was negatively affected by a decrease in production and shipment volumes due to facility-related incidents and adverse weather, a surge in prices of primary raw materials and a rise in costs of auxiliary materials, including scrap and alloy, procurement costs of other materials and distribution costs. However, these factors were offset by positive factors such as the steady execution of our cost-reduction measures, the improved performance by our group companies in Japan and abroad, and the positive impact of differences in inventory valuations.

Engineering and Construction Segment

External revenue from the Engineering and Construction segment, net of the elimination of intersegment revenue, increased by ¥26,046 million, or 11%, in the fiscal year ended March 31, 2018 as compared to the prior year. This increase was primarily due to an improvement in the business environment as oil prices rose and overseas steelmakers resumed capital investments.

Segment profit was ¥9,110 million, an increase of ¥2,272 million, or 33%, as compared to segment profit of ¥6,838 million in the prior year. This increase was primarily due to an improvement in the business environment as oil prices rose and overseas steelmakers resumed capital investments. Robust business conditions in the domestic construction sector and other areas as well as our steady project execution also contributed to an increase in both sales and profit.

Chemicals and Materials Segment

External revenue from the Chemicals and Materials segment, net of the elimination of intersegment revenue, increased by ¥30,992 million, or 15%, in the fiscal year ended March 31, 2018 as compared to the prior year. This increase was primarily due to favorable trends in the market for electronic device materials, which resulted in record-high sales volumes in the circuit board and display materials used in smartphones, as well as a significant improvement in the market conditions for chemicals and coal chemicals businesses, which resulted in a rise in the prices of relevant products.

Segment profit was ¥17,399 million, an increase of ¥11,094 million, or 176%, as compared to segment profit of ¥6,305 million in the prior year. This increase was primarily due to favorable trends in the market for electronic device materials, which resulted in record-high sales volumes in the circuit board and display materials used in smartphones, as well as a significant improvement in the market conditions for chemicals and coal chemicals businesses, which resulted in a rise in the prices of relevant products.

System Solutions Segment

External revenue from the System Solutions segment, net of the elimination of intersegment revenue, increased by ¥12,069 million, or 7%, in the fiscal year ended March 31, 2018 as compared to the prior year. This

45

increase was primarily due to the promotion of the development of solutions for customer enterprises that enable them to make use of AI, machine learning and IoT, and thereby enhance the sophistication of their operations in their production and logistics workplaces.

Segment profit was ¥23,292 million, an increase of ¥1,179 million, or 5%, as compared to segment profit of ¥22,113 million in the prior year. This increase was primarily due to the promotion of the development of solutions for customer enterprises that enable them to make use of AI, machine learning and IoT, and thereby enhance the sophistication of their operations in their production and logistics workplaces.

Financial Condition

Our total assets as of March 31, 2019 were ¥8,049,528 million, an increase of ¥293,394 million, or 4%, as compared to as of March 31, 2018. This increase was primarily due to an increase in trade and other receivables of ¥136,292 million, the inventories of ¥167,295 million and property, plant and equipment of ¥122,812 million primarily resulting from acquisition of Sanyo Special Steel Co., Ltd. and Ovako AB, which offset a decrease in other financial assets (non-current) of ¥194,958 million, primarily resulting from a fair value decrease and sales of investment securities.

Our total liabilities as of March 31, 2019 were ¥4,442,160 million, an increase of ¥210,922 million, or 5%, as compared to as of March 31, 2018. This increase was primarily due to an increase in interest-bearing liabilities of ¥211,476 million, from ¥2,157,755 million as of March 31, 2018 to ¥2,369,231 million as of March 31, 2019.

Our total equity attributable to owners of NSC as of March 31, 2019 was ¥3,230,788 million, an increase of ¥93,797 million, or 3%, as compared to as of March 31, 2018. This increase was primarily due to profit for the year attributable to owners of the parent of ¥251,169 million and disposals of treasury stock of ¥73,656 million offsetting a decrease in the fair value of financial assets measured at fair value through other comprehensive income of ¥86,680 million, foreign exchange differences on translation of foreign operations of ¥60,586 million and dividends of ¥70,710 million.

Comparison of the Fiscal Year Ended March 31, 2018 to the Fiscal Year Ended March 31, 2019

In the fiscal year ended March 31, 2019, net cash provided by operating activities was ¥452,341 million, representing a ¥33,198 million, or 7%, decrease as compared to the prior year. This decrease was due primarily to a decrease in profit before tax, an increase in non-cash items such as depreciation and an increase in working capital, which was primarily caused by a rise in steel prices.

Net cash used in investing activities amounted to ¥381,805 million in the fiscal year ended March 31, 2019, an increase of ¥18,635 million, or 5%, as compared to ¥363,170 million in the prior year. This was primarily due to an increase of capital investments in subsidiaries and associates, such as Sanyo Special Steel Co., Ltd. and Ovako AB, and an increase in the acquisition of tangible and intangible fixed assets, which was offset by an increase in the sale of investment securities.

Net cash used in financing activities was ¥42,900 million, a ¥62,069 million decrease as compared to net cash used in financing activities of ¥104,969 million in the prior year. This was primarily due to an increase in interest-bearing debt offsetting a decline in income from factored receivables to group company. At the end of the fiscal year ended March 31, 2019, interest bearing debt decreased ¥211,476 million to ¥2,369,231 million as compared with the end of the prior year.

As a result of the foregoing, as of March 31, 2019, we had ¥163,176 million in cash and cash equivalents, representing a ¥20,306 million increase in cash and cash equivalents as compared to March 31, 2018.

Comparison of the Fiscal Year Ended March 31, 2017 to the Fiscal Year Ended March 31, 2018

In the fiscal year ended March 31, 2018, net cash provided by operating activities was ¥485,539 million, representing a ¥21.396 million, or 4%, decrease as compared to the prior year. This decrease was due primarily to an increase in profit before income taxes offset by an increase in working capital, mainly led by a rise in steel and inventory prices.

Net cash used in investing activities amounted to ¥363,170 million in the fiscal year ended March 31, 2018, an increase of ¥10,588 million, or 3%, as compared to ¥352,582 million in the prior year. This was mainly due to an increase in purchases of property, plant and equipment and intangible assets, which was offset by a decline in purchases of investment of securities, including ¥75,972 million of Nisshin Steel’s common stock that we purchased in the previous year.

Net cash used in financing activities was ¥104,969 million, a ¥43,134 million decrease as compared to net cash used in financing activities of ¥148,103 million in the prior year. This decrease was due primarily to the purchase of treasury stock in the fiscal year ended March 31, 2017, and as a result, we spent less cash in financing activities. At the end of the fiscal year ended March 31, 2018, interest bearing debt decreased ¥57,172 million to ¥2,157,755 million as compared with the end of the prior year.

As a result of the foregoing, as of March 31, 2018, we had ¥142,869 million in cash and cash equivalents, representing a ¥18,940 million increase in cash and cash equivalents as compared to March 31, 2017.

47

Note:

We have also entered into commitment line agreements with financial institutions to manage our working capital requirements effectively. The available credit balance under these agreements was ¥666,096 million and ¥650,933 million as of March 31, 2019, and 2018, respectively. As of March 31, 2019, no amounts were outstanding under these agreements.

Capital Requirements

Our principal capital and liquidity needs have been for capital expenditures, strategic acquisitions and investments, working capital, repayments of borrowings, payments of interest, dividends and funds for payments of income taxes.

48

In the fiscal year ended March 31, 2019, we spent ¥440,830 million on capital investments, representing a 7% increase compared to the prior year. This was primarily related to the relining of the No. 3 coke oven, including fixtures and fittings at NSC’s Nagoya Works, the relining of the No.2 blast furnace located in Muroran, Hokkaido and owned by our subsidiary, HOKKAI IRON & COKE CORP., and the new installation of the No. 3 continuous caster (CC), including fixtures and fittings, at NSC’s Yawata Works.

Our planned capital expenditure from the fiscal year ended March 31, 2019 to the fiscal year ending March 31, 2021 is approximately ¥1.7 trillion to upgrade and reinforce our steel production facilities in Japan. We plan to fund these capital expenditures using cash flows from operations.

Working Capital

Our principal working capital requirements are for the purchase of raw materials, salaries and wages and taxes. We believe we have working capital sufficient to cover all of our current requirements.

Our research and development team consists of approximately 800 personnel. Our research and development activities are primarily conducted at three core research centers in Japan: the R&E (Research & Engineering) Center (Futtsu), in Chiba Prefecture; the Amagasaki R&D Center, in Hyogo Prefecture; and the Hasaki R&D Center, in Ibaraki Prefecture.

The R&E (Research & Engineering) Center (Futtsu), which is our main research and development facility, is divided into several departments, including steel research laboratories, which focus on maximizing the functionality of our products through design improvements and stress test simulations, advanced technology research laboratories, which engage in the development of foundational technologies to be used across our product portfolio and process research laboratories, which focus on developing new technologies used in the iron refinement, steelmaking and rolling processes, as well as developments aimed at minimizing the environmental impact of our business.

Our R&D Planning Division coordinates research and development activities across our group to facilitate coordination and cooperation among different research facilities, as well as to coordinate technology development with product engineering efforts. Since the integration of NSC and SMI in October 2012, we have

49

consolidated research teams working in the same research field but at various sites and clarified research teams’ roles and functions, as well as those of R&D Laboratories in each of our steelworks. Work in a given research field is now done at a single location. By taking such measures, we believe that we have established an optimal research and development organization to maximize synergies.

For a description of the amount we spent on research and development activities during the fiscal years ended March 31, 2017, 2018 and 2019, see Note 25 “Research and Development Costs” to our consolidated financial statements included in this annual report.

The information required by this item is set forth in Item 5.A “Operating Results” of this annual report.

As of March 31, 2019, we did not have any off-balance sheet arrangements that have, or are likely to have, a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

However, we provide guarantees on bank loans to our joint ventures and associates. For each guarantee provided, we are required to perform and to be liable for any related losses under the guarantee if the guaranteed party defaults on a payment. As of March 31, 2019, the amount of guarantees on bank loans provided to joint ventures and associates was ¥62,506 million.

We had outstanding, as of March 31, 2019, various long-term obligations that will become due during the fiscal year ending March 31, 2020 and beyond. These various purchase commitments and long-term obligations will have an effect on our future liquidity and capital resources.

The following table includes our current estimate of annual maturities of commitment and obligations, by major category, outstanding as of March 31, 2019.

Note:

Statements in Item 5.E and Item 5.F of this annual report that are not statements of historical fact, constitute “forward-looking statements.” See “Forward-Looking Statements” on page 1 of this annual report for additional information.

50