SPECIAL FEATURE 1: THE JFE GROUP'S FIRST MEDIUM-TERM BUSINESS PLAN

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In January 2003, the JFE Group made public its First Medium-Term Business Plan, covering the three fiscal years from the year ended March 2004 through the year ending March 2006 (April 2003 to March 2006). The Plan sets out common policies for the Group, and also defines policies for each member company of the Group.

 COMMON MEASURES FOR THE GROUP

(1) Strengthening Group-wide management
  1. Promote corporate governance and compliance measures through the holding company system and strive for optimal business management that takes into account the different characteristics of each business field, and further strengthen the Group's consolidated management.
  2. Ensure an adequate infrastructure for the Group's finance and information networks
  3. Reorganize and consolidate Group companies operating in the same business field at the earliest possible date
(2) Technology-based organization
  To ensure that we routinely develop and further improve on our world-class technologies, we will maintain and support three research laboratories: the JFE Steel Research Laboratory, JFE Engineering Research Center, and JFE R&D Corp.
  1. Double the number of Only One and Number One products through unflagging efforts to create new Only One and Number One technologies JFE Steel: original target 6% 15-20%, JFE Engineering: original target 5% 14%
  2. Develop process technology that helps raise facilities productivity and contributes to the early achievement of target costs
  3. Maintain the leading technologies in both our core fields and in growth fields
(3) Promoting human resource and labor managementpolicies
  In order to enhance productivity by promptly realizing the benefits of the merger, while making the maximum and most appropriate use of the abilities of each and every employee,
  1. Promote personnel and labor management policies that are proper for business and strategy of each Group company
  2. Secure and train adequate human resources in order to cope with the expected upcoming large-scale generational change
(4) Reducing procurement costs
  1. Make maximum use of the bargaining power of the Group as a whole
  2. Unite manufacturing and technology to reduce procurement costs by such measures as the maximum use of low-cost materials by sharing leading technologies within the Group
(5) Fully implementing environmental management
  1. Take proactive approaches to the global environmental issues
  2. Establish world-class environmental management
(6) Actively utilizing information technology
  Develop a new unified system to shorten the management cycle, integrate the foundations of management and construct Group-wide information networks

 GROUP CONSOLIDATED FINANCIAL TARGETS

    Billions of yen
    Actual Plan's final target
(Years ended/ending March 31) 2003 2006
Ordinary income 104.6   250  
  JFE Steel 91.0 * 230  
  JFE Engineering 12.0 * 16  
Return on sales (ROS) 4.3%   10%  
  JFE Steel 4.6% 11%  
  JFE Engineering 2.6% 4%  
Return on assets (ROA) 3.7%   9%  
         
Total assets 3,831.6   3,360  
Debt outstanding 2,057.1   1,600  
Shareholders' equity 594.5   830  
*Figures of the year ended March 2003 for JFE Steel and JFE Engineering are approximate calculations.
 

 GROUP CASH FLOW TARGETS

    Billions of yen
    Three-year
cumulative total
JFE Steel
Ordinary income 580   530  
Balance 105   100  
  Capital investment (385)   (370)  
  Depreciation and amortization 490   470  
Investments and loans (40)   (38)  
Reduction in assets* 150   150  
Income taxes, dividends and other (345)   (312)  
Total 450   430  
* Approximately ¥50 billion each for stocks, lands, and shares

PROGRESS UNDER THE FIRST MEDIUM-TERM BUSINESS PLAN

The Group made great progress under the First Medium-Term Business Plan in the year ended March 2004, the first year of the Plan. We are on track to meet each of our targets for the final year of the Plan ending March 2006; most of the targets may even be met ahead of schedule, in the year ending March 2005.

 PROGRESS UNDER THE FIRST MEDIUM-TERM BUSINESS PLAN

Group Billions of yen
Actual Actual Estimated Plan's final
target
(Years ended/ending March 31) 2003 2004 2005 2006
P/L        
  Ordinary income 104.6  218.3  400  250 
  Net income 15.9  106.8  120  130 
  Net income per share (yen) 2.77  18.58  20.46  22.6 
B/S        
  Total assets 3,831.6  3,724.4  3,600  3,460 
  Debt outstanding 2,057.1  1,837.4  1,480  1,600 
  Shareholders' equity 594.5  746.2  870  830 
  Retained earnings (deficit) (48.1)  53.5  156  180 
FINANCIAL INDICATORS    
  EBITDA* 316.6  432.3  602  450 
  ROS 4.3%  8.8%  14.6%  10% 
  ROA 3.7%  6.5%  11.5%  9% 
  Debt-to-equity 346%  246%  170%  190% 
  Shareholders' equity 15.5%  20.0%  24.2%  24% 
* Ordinary income + interest expense + depreciation and amortization
Breakdown
by operating company
Billions of yen
Actual Actual Estimated Plan's final
target
(Years ended/ending March 31) 2003 2004 2005 2006
Net sales 2,426.8  2,473.7  2,740  2,500 
  JFE Steel 1,977.4  2,103.9  2,320  2,060 
  JFE Engineering 457.3  339.4  370  430 
  JFE Urban Development 30.8  26.2  33  47 
  Kawasaki
Microelectronics (LSI)
34.1  40.4  47  52 
  Elimination/Corporate (72.9)  (36.3)  (30)  (89) 
Operating income 146.8  253.6  420  293 
  JFE Steel 132.9  242.7  405  270 
  JFE Engineering 12.8  3.1  18 
  JFE Urban Development 1.0  1.4  1.9 
  Kawasaki
Microelectronics (LSI)
1.2  4.9  4.6 
  Elimination/Corporate (12)  1.2  2.5  (2) 
Ordinary income 104.6  218.3  400  250 
  JFE Steel 91.0  208.5  385  230 
  JFE Engineering 12.0  5.4  7.5  16 
  JFE Urban Development 0.3  1.3  1.7 
  Kawasaki
Microelectronics (LSI)
1.0  4.5  4.5 
  Elimination/Corporate 0.3  (1.4)  1.3 
ROS  
  JFE Steel 4.6%  9.9%  16.6%  11% 
  JFE Engineering 2.6%  1.6%  2.0%  4% 

 (Reference) JFE STEEL CHANGES IN ORDINARY INCOME: RESULTS OF THE YEAR ENDED MARCH 2004 AND THE ESTIMATES FOR THE YEAR ENDING MARCH 2005

    Billions of yen
(Years ended/ending March 31) 2003 Actual
2004 Actual
2004 Actual
2005 Estimated
Cost changes 50.2   47.0  
  Change in costs 56.0   49.0  
  Labor costs (2.0)   (10.0)  
  Depreciation 2.0   7.5  
  Fixed costs 3.0   (5.5)  
  Other (8.8)   6.0  
Foreign exchange (15.5)   (11.0)  
Cost of materials (31.7)   (135.0)  
One-time depreciation (20.9)   0.0  
Volume, structure, price 104.1   239.0  
Non-operating profit and other 9.6   8.9  
Total change in non-consolidated
ordinary income
95.8   148.9  
Change in affiliated companies' earnings 21.7   27.6  
Total change in consolidated
ordinary income
117.5   176.5  
Note1: Estimated figures for the year ending March 2005 are those declared as of August 30, 2004.
Note2: Figures for the year ending March 2006 are calculated at the assumed exchange rate of ¥110.0=U.S.$1.00.