Annual Report 2004 [PDF/1.1MB]

crease of 2,057 million. Recurring income increased by
3,120 million to 13,227 million, due both to higher operating
income and to improved non-operating profitability.
We booked extraordinary gains of 2,551 million from the
sale of investment securities. Extraordinary losses totaled
23,985 million, mainly reflecting losses on the disposal of
property and equipment and losses on the sale of investments
in consolidated subsidiaries and affiliates. We recorded
a net loss for the year of 5,002 million.
Net cash provided by operating activities amounted to
14,803 million. As the result of the sale of property and
equipment and of investment securities, net cash provided
by investing activities totaled 18,348 million. We used cash
flow from these sources and from the proceeds of a preference
share issue, and also used some of our cash-in-hand,
to repay debt. As a result, net cash used in financing activities
amounted to 43,234 million. Cash and cash equivalents
at the end of the year totaled 26,425 million.
BUSINESS POLICY
On December 19, 2003, we announced a plan to merge
with NKK Trading Inc. in October 2004. Kawasho and NKK
Trading have each adopted core functional roles within the
JFE Group in the areas of product sales and global procurement
since the merger of NKK Corporation and Kawasaki
Steel Corporation to form the JFE Group. In the interests of
business development, we have agreed to work toward a
merger of our core operations with those of NKK Trading.
This merger will encompass the distribution and sale of steel
products, raw materials and related capital equipment and
materials, together with peripheral steel operations (collectively
referred to below as steel business and peripheral
operations.")
Prior to the merger, we first established on August 2, 2004
through a transfer of equity a new holding company to be
called Holdings company. In the second step, which is
scheduled to take place in October 2004, Kawasho will be
split along operational lines, with the steel business and peripheral
operations merging with NKK Trading under the umbrella
of Holdings company.
This corporate split will also create a number of other trading
companies operating under the same umbrella. Once
the merger is complete, Holdings company will be the holding
company for JFE Trading (created by a merger of the
steel business and peripheral operations of Kawasho with
NKK Trading) and three other newly created trading companies
containing the foodstuffs, semiconductor and real estate
operations of Kawasho (to be called Kawasho Foods,
Kawasho Semiconductors and Kawasho Real Estate, respectively).
As we prepare for this merger and reorganization, we continue
to press ahead to achieve three strategic policy goals
aimed at fortifying our business base: enhanced business
selectivity and accelerated asset disposals; significant shortterm
improvements in returns on assets and equity; and
higher earnings power through cost-reduction efforts. We
also increased our capital in March 2004 through an issue
of preference shares.
(1) Enhanced business selectivity and accelerated asset
disposals
Steel operations
As the core trading company within the JFE Group, we have
taken a number of specific measures to increase the competitiveness
of our steel business, which remains the core
area of operations. In Japan, as part of moves to enhance
our sales operations for steel plate products, we acquired
management control of a Sharring company in Tochigi, a
business partner, in May 2003. In the Tokyo metropolitan
area and surrounding regions, we integrated four processing
centers for steel coil in October 2003 under a new holding
company, and November 2003 we reorganized our construction
materials business in eastern Japan, merging it
with three construction materials subsidiaries to form a new
integrated firm. Finally, in February 2004, we strengthened
our presence in the blanking sector, where demand is forecast
to grow from automakers and manufacturers of automotive
components. In a capital partnership with Metal One
Corporation, we established Mizushima Metal Products Corporation.
Overall, these various moves served to optimize
the structure of Kawasho Group steel distribution, processing
and sales operations, thereby boosting business efficiency
and improving our competitiveness in Japan.
Overseas, we continued to invest aggressively in higher processing
capacity for steel products. In China, where demand
for steel continues to expand rapidly, we opened our fourth
processing center in the country, in Jiangsu Province (Jiangsu
Kawaden Steel Products Co., Ltd.) We also invested in
increased capacity at the coil center that we had established
a year previously (Zhejiang Kawaden Steel Products Co.,
Ltd.) to respond to strong growth in demand.
Non-steel operations
In our non-steel businesses, we have initiated various
moves to promote enhanced business selectivity, based on
the sales potential and relative competitiveness of each
area. In the raw materials sector, we have worked to expand
trading volumes in coke and scrap iron in an attempt to stabilize
supplies of steel raw materials to our parent, JFE
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