Annual Report 2004 [PDF/1.1MB]

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Steel Corporation, and to affiliated electric furnace manufacturers. In the chemicals sector, in October 2003 we joined Iwatani International Corporation and two other companies in a joint investment to establish a new company, which will focus on the sale of gases manufactured within the area covered by JFE Steel's production operations in the Chiba district of eastern Japan. In the foodstuffs and general materials sector, with a view to improving our return on assets, we reviewed our continued presence in certain sectors of the foods business and implemented a number of organizational reforms. We also initiated development plans to expand into certain canned food sectors to increase profitability. In our machinery business, we worked to strengthen our presence in trading of capitalgoods materials for supply to JFE Steel by expanding overseas sources and reducing sales-related expenses. In the electronics sector, we forged closer links with JFE Group company Kawasaki Microelectronics Inc. to expand sales of its products, establishing a new sales operating base in Taiwan. We also focused on expanding imports into Japan of products made by overseas semiconductor manufacturers. non-operating earnings also improved as interest payments fell in line with the debt reductions achieved over the past few years. Consolidated recurring income rose by 3.1 billion compared with the previous year to another record high of 13.2 billion. This figure represents the accumulation of several years of steady and ongoing efforts to raise profitability at the consolidated level. PROSPECTIVE CHALLENGES Our next major focus is to ensure the merger with NKK Trading Inc. proceeds quickly and smoothly to create the best business structure for the group. Our immediate aim is to realize merger benefits as quickly as possible from the creation of JFE Shoji Trading Corporations through the integration of our steel businesses and peripheral operations with NKK Trading. This means merging the sales, distribution and processing networks of both companies in Japan and overseas, and will involve various reorganizations within the group, together with the closure and integration of certain office facilities. 6 Finally, as part of ongoing efforts to promote greater selectivity, in March 2004 we concluded an agreement to sell our aerospace operations to Itochu Corporation. (2) Significant short-term improvements in returns on assets and equity In March 2004, we signed agreements to establish new commitment lines with financial institutions. These new trading credit facilities enabled us to squeeze the cash-on-hand balance to repay debt. We also sold parts of our investment securities portfolio and made accelerated disposals of land, buildings and other real estate. Within the Kawasho Group, we made substantial progress in selling our general leasing and resort businesses. These moves helped to reduce consolidated debt and to raise our return on assets. Over the course of the year, the year-end consolidated interest-bearing debt balance fell by 75.3 billion, or 31.4%, to 164.2 billion. This represented a significant short-term improvement in the financial position of the Kawasho Group. (3) Higher earnings power through cost-reduction efforts General costs were reduced as the relocation of our Osaka head office a year earlier generated savings in rental expenses. In addition, we squeezed labor costs further through personnel reductions. These moves resulted in greater savings in selling, general and administrative expenses. Our As the principal trading company within the JFE Group, JFE Shoji Trading will coordinate its strategy with that of the JFE Group while expanding its functional role within the group. Other major aims will be to optimize the use of management resources and to pursue further cost reductions to boost the competitiveness and profitability of the new firm. Separately, we are also looking at joint collaborative pre-merger measures with NKK Trading in the run-up to October 2004. After the corporate split, the other non-steel operating companies created from Kawasho assets will assume separate responsibility for their various areas. Their goal will be to develop and expand within each respective industrial sector, depending on the strategic vision that each management decides at the time. The functions of Holdings company which will be responsible for managing four operating companies from October 2004, will include strategic planning, risk management and media relations for the new JFE Shoji group. The main role of the holding company will be to guide the management and development of the overall group. Under the new structure, our aim will be to expand sales and profits, and to maximize the overall value of the JFE Shoji group. August 2004
CORPORATE TOPICS August 2, 2004 Establishment of Holding Company via Share Transfer and Agreement to Consolidate with NKK Trading On December 19, 2003, Kawasho Corporation and NKK Trading Inc. (President: Hajime Kizaki) announced the conclusion of a basic agreement to consolidate business operations with effect from October 1, 2004. The purpose of the merger is to develop the core functional roles of both companies within the JFE Group in the areas of product sales and global procurement. Prior to consolidation, on August 2, 2004, Kawasho established through a transfer of equity a new holding company, called JFE Shoji Holdings, Inc. Under the umbrella of this holding company, Kawasho will undergo a corporate split (scheduled for October 1, 2004), in the process forming a steel trading company and a number of trading companies covering other operations. In addition to the consolidation and reorganization scheme, on May 20, 2004, Kawasho and NKK Trading also concluded a basic agreement pertaining to matters concerning the various operating companies that will simultaneously be created under the holding company umbrella. These matters are also outlined below. Establishment of Holding Company via Share Transfer 1. Purpose of establishment of holding company The consolidation and reorganization will serve to clarify management authority and responsibilities through the separation of management and oversight functions from policy execution functions, while at the same time shifting to a pure holding company structure that is capable of responding flexibly and precisely to changes in the business environment. The Group plans to focus on maximizing consolidated value through sustained expansion and profit growth. The reorganization promises to promote faster decision-making, proper management of individual businesses in line with the expertise and characteristics of each operating company, and clearer evaluation of business performance. 2. Group roles and functions under holding company system (1) Role of JFE Shoji Holdings (holding company) Business strategy formulation and oversight func tions Formulation of overall business strategy to expand Group profits Optimal allocation of Group resources through busi ness selectivity and focus Group risk management and oversight functions Risk management for Group, including legal and reg ulatory compliance Risk management and oversight for major operating company policies External representation for Group companies Representation of Group to shareholders, investors and other outside parties to ensure high transparen cy (in capacity as the only listed firm in the Group) (2) Roles of operating companies under holding compa ny umbrella Based on the overall Group strategy, companies op erating under the holding company umbrella will each manage their respective operations to maxi mize value. Within the framework agreed with holding company JFE Shoji Holdings, each firm will have full authority and responsibility for the development of its own business. 3. Share transfer (1) Share transfer progress: July 27, 2004Delisting of Kawasho shares August 2, 2004Date of share transfer, establish ment of holding company and list ing of holding company (2) Share transfer details: The purpose of the move was the establishment of a single wholly owning parent company via the sole transfer of shares of Kawasho in a manner that keeps the shareholder compositions of Kawasho and JFE Shoji Holdings identical at the time of the share transfer. In view of these provisions, the transfer involved the allotment of one ordinary share in JFE Shoji Holdings for every ordinary share of Kawasho, and one Class A preference share in JFE Shoji Holdi ngs for every Class A preference share of Kawasho. 7
Page 1 and 2: KAWASHO CORPORATION ANNUAL REPORT 2
Page 3 and 4: FINANCIAL HIGHLIGHTS Kawasho Corpor
Page 5: crease of 2,057 million. Recurring
Page 9 and 10: Director : Tsutomu Yajima (currentl
Page 11 and 12: 2. Consolidation and reorganization
Page 13 and 14: REVIEWS OF OPERATIONS DOMESTIC STEE
Page 15 and 16: Domestic Steel Overseas Steel Terre
Page 31 and 32: CORPORATE OFFICER (As of June 18, 2
Page 33 and 34: CONSOLIDATED BALANCE SHEETS Kawasho
Page 35 and 36: CONSOLIDATED STATEMENTS OF OPERATIO
Page 37 and 38: CONSOLIDATED STATEMENTS OF CASH FLO
Page 39 and 40: NOTES TO CONSOLIDATED FINANCIAL STA
Page 41 and 42: j. Leases The Companies lease certa
Page 43 and 44: 4. SHORT-TERM BORROWINGS AND LONG-T
Page 45 and 46: 6. ACCRUED RETIREMENT BENEFITS The
Page 47 and 48: The effective tax rate reflected in
Page 49 and 50: Future minimum lease payments as of
Page 51 and 52: (2) Commodities Millions of yen 200
Page 53 and 54: Thousands of U.S. dollars Steel Raw
Page 55 and 56: 15. LITIGATION The "Royal Palm Reso
Page 58 and 59:
World Network WORLD NETWORK - 60 MA
Page 60 and 61:
Singapore SINGAPORE BRANCH 3 Shento
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COMPANY DATA Name KAWASHO CORPORATI
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