Annual Report 2002 [PDF/1.6MB]

BUSINESS ENVIRONMENTDuring the year ended March 2002, following aprolonged period of solid expansion, real annualeconomic growth in the United States slumped to the1% level as the effects of a sharp downturn inIT-related demand and falling share prices werecompounded by the terrorist attacks that occurred inSeptember 2001. The knock-on effects of the U.S.slowdown were particularly severe in newlyindustrialized and ASEAN economies such as Taiwanand Malaysia, which are highly reliant on exports toAmerica. Economic conditions across many parts ofAsia entered a downward trend as levels of exportsand production fell. China bucked this trend - althoughexpansion tapered off slightly, the country maintaineda high rate of economic growth (around 7%) as aresult of stimuli that included WTO entry and asignificant rise in public spending.Japan failed to shake off the malaise that has strickenits economy over the past decade. Due to theslowdown in the U.S. and other factors, economicactivity fell further, impacting levels of exports,investment and industrial production. A governmentledstructural reform program and progress in theresolution of bad debts within the corporate sectorcontributed to higher numbers of bankruptcies andrising unemployment. As the grip of deflationaryforces tightened, Japan remained mired in recession.In the steel industry, which represents the majorportion of Kawasho's business, growth in domesticsteel demand declined within the construction andmanufacturing industries as a result of lower capitalinvestment and a decline in public-works spending.Buoyant growth in exports to Asia helped to offsetthese trends. Annual Japanese crude steel outputsurpassed the trillion-ton mark for the secondconsecutive year. Although there were signs of arevival in prices in certain construction materialrelatedsegments as steel makers cut backproduction, downward pressure on prices persistedoverall.RESULTSThe effects of the harsh business environment had anegative impact on our consolidated net sales, whichfell 12.1% to ¥1,125.9 billion. By operating segment,although exports performed well, poor domesticmarket conditions and a drop in sales volumescontributed to lower sales of steel products.There was also an additional effect from consolidatedsubsidiary Kawasho Gecoss Corporation becoming anequity-method affiliate. Overall, net sales at our steelbusinesses decreased by 14.5%, to ¥687.7 billion.Sales of raw materials, chemicals and fuels declinedslightly amid lower revenues from steel raw materialsand fuels, dropping 2.1% to ¥172.1 billion. Due toreduced sales of lumber and pulp chips, together withthe adverse effects on food sales of a Japanese