To Our Stakeholders

Following the September 2002 establishment of JFE Holdings, Inc., Kawasaki Steel Corporation and NKK Corporation moved toward the final stage of a plan to consolidate all operations. The April 2003 reorganization of individual business segments into independent companies marked a major corporate milestone for the new JFE Group.

Under the umbrella of JFE Holdings, the JFE Group comprises five segment-based companies: JFE Steel, JFE Engineering, JFE Urban Development, Kawasaki Microelectronics and JFE R&D. JFE Holdings will work to maximize the synergy effects of this new operating structure, ensure steady growth, foster a corporate culture attuned to changing currents and build an organization of excellent 21st century companies.

KANJI EMOTO	YOICHI SHIMOGAICHI

The Perfect Group Format

The operating environment for steelmakers is undergoing a transformation unprecedented in both the scale and the speed of associated changes. There is a trend toward business consolidation and realignment among suppliers of iron ore and other raw materials and similar moves among primary customer groups, such as automakers. Major steelmakers around the globe have also embraced business integration and capital alliance opportunities to at least maintain but more hopefully reinforce levels of competitiveness. Efforts to overcome challenges, however, have only served to heighten competition worldwide.

To successfully ride these shifting currents, Kawasaki Steel and NKK embarked on a business consolidation plan that would combine respective strengths in all fields of endeavor and confirm a place of excellence in their various business domains.

In September 2002, the two companies jointly established JFE Holdings and became wholly owned subsidiaries of the holding company through a stock-for-stock exchange process. Then, in April 2003, individual business segments were reorganized into independent companies that function as the building blocks of an ideal operating foundation for the Group, one that reflects the unique characteristics of each business domain while supporting core operations. This segment-based restructuring marked the real start of the JFE Group.

The JFE Group adheres to a corporate philosophy that emphasizes contributing to society with the world's most innovative technology. Guided by this perspective, we will hone the sharpest competitive edge through a strong client base, sophisticated technologies, and highly efficient, well-equipped steelworks and manufacturing plants. Moreover, with an innovative corporate culture that embraces change, we aim to reinforce our ability to meet clients' needs on a global basis, maintain credibility in the eyes of shareholders and global capital markets, create workplaces with appropriate opportunities for employees, and contribute to local communities and a greener, healthier planet.

Our First Medium-Term Business Plan

In January 2003, the JFE Group announced its First Medium-Term Business Plan, articulating challenging goals for business growth from April 2003 through March 2006.

Through the three-year plan, we will quickly strengthen the Group's financial position by securing stable profitability-an integral part of our aim to maximize free cash flow-and also by applying aggressive measures to trim debt.
To this end, we will raise the competitiveness of core operations-steel and engineering-and forge a more resilient operating structure.

Corporate Governance and Compliance Structure

The JFE Group seeks to fortify consolidated operations through management structures tailored to the characteristics of each business segment and through corporate governance and compliance procedures determined by JFE Holdings. With regard to management structures, each operating company set up a management committee to expedite decision making through discussions and introduced a corporate officer system. To improve internal controls, each operating company adopted an internal auditing structure and will execute internal audits according to a format common throughout the Group. Meanwhile, JFE Holdings is responsible for planning Group strategies, managing risk and preparing corporate communications for external use.
On the compliance front, we formed the JFE Group Compliance Committee in December 2002, prepared JFE Group Standards for Business Conduct, and initiated measures to ensure full adherence to laws and ordinances and to ethical standards.

Solid Strides Forward

Underpinned by steady progress toward the stated objectives in its First Medium-Term Business Plan, the JFE Group will boost profitability and strengthen its balance sheet.
The steel industry is bracing for a period of transition that will impact operations worldwide. Against this backdrop, the JFE Group will pursue its own reforms to achieve continuous business growth and foster a corporate culture suited to the new era. Together, we will take solid strides forward on the world stage.
On behalf of the Board, we extend our sincere thanks for your support and ask for your continued encouragement of our efforts as we strive to reach new heights as the JFE Group.

August 2003

Kanji Emoto Chairman and Co-CEO

Yoichi Shimogaichi President and Co-CEO