Mission-Driven Transformation for aCarbon-Neutral Future
At the core of JFE's ambitious new medium-term businessplan is a clear mission: to be essential to society's sustainable developmentwhile creating safe, comfortable lives for people everywhere. The company,whose operations span steel production, engineering, and global trading, aimsto generate value by maximizing business resources accumulated over many years,including technology, people, financial and intellectual capital, and networks.The plan acknowledges unprecedented challenges facing the industry, includingintensifying global competition amid China's industrial ascendency, increasingeconomic uncertainty from U.S.-China conflicts, climate change imperatives,emerging digital technologies, and ongoing pandemic disruptions. JFE's responseis bold and comprehensive, targeting both environmental and socialsustainability alongside economic sustainability through stable earnings power.
Strategic Pivot from Quantity to Quality inSteel Production
A fundamental shift in JFE's domestic steel businessstrategy involves moving from quantity to quality production. With Japan'ssteel market expected to shrink due to population decline, intensifying pricecompetition for commodity products, and the increasing trend of localproduction for local use, JFE acknowledges that growing export volumes isunlikely to be profitable. Instead, the company is targeting per-ton profit ofsteel materials, aiming to achieve world-class cost and quality competitiveness.This involves completing structural reforms to reduce fixed costs and lowerbreakeven points, introducing new technologies through digital transformationto improve production efficiency and yields, and investing approximately ¥120billion ($800 million) in equipment modernization and rationalization. JFEplans to enhance its product mix by focusing resources on strategic products,increasing its mix of highly value-added products to an unprecedented 50%. Thecompany will also ensure that high-value products are suitably recognized inthe market, supporting a complete overhaul of sales pricing. These measures aimto achieve a profit per ton of ¥10,000 ($67) and segment profit of ¥230 billion($1.53 billion) by FY2024.
Growth Strategies Across Diverse BusinessSegments
JFE's growth strategy encompasses all three of its majorbusiness segments. In the steel business, the company is studying a productionand sales joint venture with India's JSW for grain-oriented electromagneticsteel sheets, leveraging JFE's advanced technology to tap into India's growingdemand for transformers. The company also plans to build a platform to providetechnologies, operations, and research know-how for manufacturing highlyvalue-added products and reducing environmental impact, aiming to tripleearnings in this solutions-based business by fiscal 2024 compared to fiscal2020. In the engineering business, JFE targets expansion to the ¥1 trillion($6.67 billion) revenue level by fiscal 2030, doubling current sales throughgrowth in operational businesses, mergers and acquisitions, and businessalliances. This expansion will focus on environmental, recycling, and renewableenergy fields, helping to solve pressing issues in global society. For thetrading business, JFE intends to create the world's leading global distributionand processing system by leveraging its global network, including expandingsupply chain management for overseas processing of high-functionelectromagnetic steel sheets.
Digital Transformation as a CompetitiveAdvantage
Digital transformation (DX) represents a critical pillar ofJFE's strategy to enhance competitiveness. The company plans to invest ¥120billion ($800 million) in DX initiatives over the four-year plan period. JFEwill deploy leading-edge digital technologies such as cyber-physical systems inall steel-manufacturing processes and build platforms that don't requirespecialized knowledge to analyze plant-operation data. This approach leveragesJFE's vast stores of data and know-how accumulated over many years as keysources of competitive advantage. The company will enhance products andservices and strengthen customer relationships by improving supply chainefficiency, digitizing accumulated plant-operation data, and utilizingdigital-twin technology optimized in virtual spaces for everything from designto operations. JFE also aims to create new business models by expandingsolutions businesses that provide operational technologies and know-how, and bydeveloping new value, markets, and customers in fields such asdisaster-resilience and environmental protection through digital services.Recognizing the cybersecurity risks that come with expanded DX deployment, JFEwill strengthen security measures and governance led by its SecurityIntegration and Response Team.
Financial Discipline and Strategic Investment
JFE's financial strategy balances soundness with effectiveinvestment through a "select and concentrate" approach. The companyplans consolidated investments of approximately ¥1.45 trillion ($9.67 billion)over the four-year period, including ¥1.2 trillion ($8 billion) in equipmentinvestment and ¥250 billion ($1.67 billion) in business investment. Of thistotal, ¥340 billion ($2.27 billion) is earmarked for green transformation (GX)initiatives and ¥120 billion ($800 million) for digital transformation. JFEwill reduce assets by ¥200 billion ($1.33 billion), particularly those thatcontribute little to earnings or are tied to unprofitable businesses, tostrengthen investment effectiveness and financial stability. The company hasalready fixed plans for structural reforms to reduce annual crude steelproduction capacity in Japan by approximately 4 million metric tons, expectedto reduce annual costs by approximately ¥60 billion ($400 million) in fiscal2024 and lower renewal investment needs by approximately ¥200 billion ($1.33billion) over 10 years. JFE is also working with Kawasaki city and othergovernment authorities to repurpose various sites in the Keihin District of itsEast Japan Works after restructuring, considering land sales, leasing, andbusiness uses to maximize economic efficiency and contribute to sustainabledevelopment in local communities.
Ambitious Performance Targets and ShareholderReturns
For the plan's final year in FY2024, JFE has set ambitiousperformance and profitability targets: ROE of 10%, consolidated business profitof ¥320 billion ($2.13 billion), and profit attributable to owners of theparent of ¥220 billion ($1.47 billion). This represents a dramatic improvementfrom FY2020 actual results of ¥12.9 billion ($86 million) in consolidatedbusiness profit, ¥21.8 billion ($145 million) in profit attributable to owners,and 1.3% ROE. The company also targets improving its debt/EBITDA ratio from8.1x to about 3x and its D/E ratio from 93% to about 70%. Segment profittargets for FY2024 include ¥230 billion ($1.53 billion) for the steel business(compared to a ¥65.4 billion loss in FY2020), ¥35 billion ($233 million) forthe engineering business (up from ¥24 billion), and ¥40 billion ($267 million)for the trading business (up from ¥20 billion). Regarding returns toshareholders, JFE's policy aims for a dividend payout ratio of around 30%,balancing shareholder returns with investments needed for future growth andsustainability.
Key Takeaways:
* JFE Holdings has launched its most transformativebusiness plan in company history, committing to carbon neutrality by 2050 withan 18% reduction in steel business CO₂emissions by FY2024 versus 2013 levels, developing innovative technologiesincluding carbon-recycling blast furnaces and hydrogen-based ironmaking whileexpanding renewable energy operations.
* The company is strategically pivoting its domestic steelbusiness from quantity to quality, targeting profit per ton of ¥10,000 ($67) byFY2024 through increasing high-value-added products to 50% of production,implementing ¥120 billion ($800 million) in cost reductions, and boosting laborproductivity by 20%.
* JFE plans ¥1.45 trillion ($9.67 billion) in strategicinvestments over four years while reducing assets by ¥200 billion ($1.33billion), targeting ambitious FY2024 performance goals including ROE of 10%,consolidated business profit of ¥320 billion ($2.13 billion), and profitattributable to owners of ¥220 billion ($1.47 billion), up dramatically fromFY2020 results.
