Review of Operations

JFE Engineering Corporation

Unparalleled "only one" products realized through future-oriented R&D.
For JFE Engineering, an engineering company with exacting standards, this goal fuels an enduring effort to develop new markets.

JFE Engineering represents the JFE Group's second core business and pursues projects in such areas as energy industries engineering, environmental industries engineering and steel structures. With high-level technologies and the ability to realize innovative concepts, the Company adds to the synergy effect of other JFE Group companies.

We will apply these strengths toward the development of numerous "only one" and "number one" technologies and products in leading-edge fields, particularly the environment-an especially promising sector-as well as new energy and nanotechnology, thereby establishing ourselves as a leader in global engineering.

JFE Engineering Group's First Medium-Term Business Plan
In our First Medium-Term Business Plan, we state two primary financial targets to be reached by March 2006: ordinary income of ¥16.0 billion and a return on sales of 4.0%. To achieve these goals, we will strive to expand market share in mainstay business areas and develop new businesses. We will also work to maximize consolidated profits through common strategies embraced by all companies under the umbrella of the JFE Engineering Group.

Building a Stronger Structure

JFE Engineering's operations comprise five divisions: Energy Industries Engineering, Environmental Industries Engineering, Water and Wastewater Engineering, Steel Engineering and Steel Structure Engineering; and two centers: the Machinery Center and the Solution Engineering Center.

We introduced a company system format that highlights profit-oriented approaches to management and operations in each division and arranged Group companies under this five-division/two-center structure. This format will reinforce overall business and ensure the highest consolidated profits possible.

We also aim to establish office environments that enable employees to fully demonstrate their talents. Several measures are planned, including personnel evaluations based on skill and aptitude assessment, and performance-based remuneration.

"Only One" and "Number One" Strategies

Our "number one" strategy hinges on resourceful promotion of core products-pipelines, incinerators and bridges-under a proposal-style system to maintain and then expand market share. We aim to take top share in pipelines by adopting new techniques and construction methods and improving cost competitiveness, and in incinerators by enriching the product lineup. In bridges, we will widen our share by focusing on regional projects.

Our "only one" strategy spotlights the creation of proprietary products unique to the industry through active exploration of new businesses and new product development underpinned by concerted R&D efforts. To achieve steady progress under the "only one" strategy, we established the Business/Project Planning and Marketing Department, which concentrates on the development and commercialization of new products geared to clients' needs and identifies new markets.

Projects designed to yield new "only one" technologies and products include energy-saving plants utilizing high heat-transferable hydrate slurry, dimethyl ether-related facilities, and applications for carbon nanotubes.
The JFE Engineering Group has the capacity to address every aspect of public works projects, from building the facilities to operating and maintaining the equipment. We aim to encourage greater interest in operation-style projects and broaden the scope of our activities.

Of note, we want to be actively involved in Private Finance Initiative (PFI) projects, a format advocated by the government over the past few years. PFI projects employ private funds and other financing options to build necessary plants.

Drawing on the respective capabilities of the JFE Engineering Group, we will oversee production of facilities ourselves but allocate operation and maintenance activities to other members of the JFE Engineering Group.

Overseas Expansion

Our plan to expand exports focuses on two areas: steelworks and plant engineering, and steel structures. Our goal is to double the value of exports from ¥10.0 billion in the period under review to ¥20.0 billion in the year ending March 31, 2006.

East Asia, including the PRC, and Southeast Asia are of particular interest to JFE Engineering. We anticipate tremendous growth in demand for our engineering products and services in these regions and will direct concerted efforts toward gaining orders from new and existing clients here. As we raise our profile in these markets, however, we must utilize local offices and staff to solidify marketing channels and networks, and carefully pursue opportunities with sufficient consideration to profits and risks.

Engineering Research Center

The Engineering Research Center is involved in a spectrum of R&D activities, including the environment, water and wastewater, and topics related to steelmaking and steel structures. The center tackles the development of engineering-specific technologies that are second to none as well as technology that opens the door to new businesses. It is also responsible for evaluation tests using demonstration plants and performance evaluation and analyses using simulation technology. Results gleaned by the center support the business activities of the JFE Engineering Group.

In addition, the center investigates R&D in new fields with high-growth potential and is earnestly working to develop technologies to cut CO2 emissions, clean up contaminated sites and support the formation of a resource-recycling society. The center also examines potential applications of nanotechnology and considers technology to extend the life of industrial and social infrastructures.