Annual Report 2011

First of all, I would like to thank all of our shareholders for their continued support.

I would also like to express my deepest sorrow for those who passed away due to the Great East Japan Earthquake, and I extend my heartfelt sympathy to those affected by the disaster.

In presenting the annual report for our 129th year of business (from April 1, 2010 to March 31, 2011), I would like to offer a few words.

During the fiscal year under review, competition intensified in the stainless and specialty steel industry, with companies based in countries such as China increasing their production capacities. As a result, coupled with the yen's continued appreciation, the profitability of exports of domestic companies fell further.

With regard to the Group's business, comprising stainless steel and other processed products, demand generally remained weak except for the automotive and home appliance sectors, which were favorably affected by the economic stimulus measures implemented by the government. However, when the price of nickel, a major raw material, rose during the latter half of the fiscal year, anticipation of higher prices in the Asian markets converted potential demand for stainless steel sheets and plates into actual demand. As a result, sales volumes increased and consolidated net sales rose 42.6% from the previous fiscal year.

We have been striving to expand sales of high-performance alloys, the most strategically important products of the Group, by centering on highly corrosion-resistant and highly heat-resistant steels. As a result, net sales of the Company soared 70.4% year on year.

On the other hand, the Company failed to generate consolidated ordinary income, partly because of delays in adjusting sales prices to reflect increased raw materials costs. The Company also recorded a net loss, due chiefly to a one-time write-down of deferred tax assets, which was done to establish a sound financial base taking into account the above financial situation.

Given the severe business environment mentioned above, we regretfully decided to forgo payment of a year-end dividend.

The economies of China and other emerging nations are forecasted to continue growing at high rates. Meanwhile, in Japan, economic activity is likely to remain sluggish by the recent earthquake, and short- to medium-term restrictions of power supplies may impact private consumption and corporate production activities, to a certain extent.

In the market for ordinary stainless materials, there is expected to be a substantial supply-demand gap for a certain period, centering on Asian markets, due to a sharp increase in production capacity, mainly by Chinese manufacturers.

With regard to high-performance alloys, the Company's strategic products, the market is likely to continue expanding in the energy and environment fields. At the same time, however, global competition is projected to further intensify, given the progress of the globalization of user markets and rival suppliers.

Based on the above developments, the Group has formulated a new medium-term management plan, titled "Reformation 2011," under which we aim to establish a highly profitable structure, while meeting worldwide needs for high-performance alloys using core technology-based strategies and measures. The plan consists mainly of the following two key points.

The First is a growth strategy for the global market. We will strive to increase sales in the global market, which is likely to continue expanding, by responding rapidly to changes in market conditions and accurately identifying the needs of customers. To facilitate this, we plan to establish a structure centered on four regions — Japan, the United States, Europe, and Asia; strengthen solution marketing — customer-centered, problem-solving marketing; and establish a production and sales system that can promptly respond to market changes.

The second comprises measures for augmenting competitiveness. Specifically, we will establish a system under which high-performance alloys, the Company's most strategically important products, are manufactured with nearly the same load as that needed for producing ordinary stainless materials — that is, a generic production system — by enhancing the functions of each process on production lines. We will also develop highly adaptive technologies that can fully utilize various different type of nickel ores as raw materials and make the necessary modifications to these processes. Through these efforts, we will further reduce costs and shorten delivery periods.

By implementing the plan, as a stainless and specialty steel manufacturer that is highly trusted and is vital to Japan's economy and overseas markets, we will strengthen our corporate platform. We will also make group-wide efforts to boost earnings.

I would like to ask for your continued support and cooperation.

June 2011

Kazuta Sugimori
President