Outline of the JFE Group

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JFE Steel manufactures a wide range of steel products, notably sheets and plates, employing technological expertise on a par with the best in the world. We take very seriously our responsibilities as a maker of steel products, which are essential to economic growth and the enhancement of the social infrastructure, and are proud of the vital role we play. Because of this, we put our full efforts into the development of leading-edge technologies, enabling us to meet our customers' needs through the provision of superior and unique products and services.

Hajime Bada President & CEO

Business Overview: Cost-cutting and price raises produce record profit, despite rises in raw materials prices

Crude steel output (JFE Steel non-consolidated)

Steel demand in the year ended March 2005 remained at a high level overall, centered on domestic manufacturing industries, notably shipbuilding and motor vehicles. This came in spite of a decline in demand from civil engineering projects owing to cutbacks in public investment. Demand was buoyed by recovering corporate earnings, an improved employment situation, and robust consumer spending. Exports also remained brisk, particularly to East Asia.

Amid this environment, JFE Steel's output of crude steel, on a consolidated basis, increased by 2.4% from the previous year, to 31.28 million tons. Sales to manufacturing industries rose, and both domestic and overseas steel prices increased, buoyed by higher demand globally. As a result, we achieved a 15.1% year-on-year growth in net sales, to ¥2,421.7 billion.

Sharp rises in raw materials prices, among other factors, had a severely negative impact on profits, but the Company was nonetheless able to achieve substantial profit growth, thanks to cost-cutting through improved capacity utilization and price raises. Overseas, we sought to secure stable customer relationships, including strategic alliances with reliable partners. We also worked to strengthen the Group's earnings base by increasing our focus on the development of Only One and Number One products, and by fully integrating the operations of JFE Steel's subsidiaries. Thanks to these initiatives to reinforce our overall strength, operating income rose by 88.0% year-on-year, to ¥456.3 billion on a consolidated basis, and ordinary income posted a sharp rise of 116.0% to ¥450.3 billion, both record highs.

Product breakdown (JFE Steel non-consolidated)

The Year ended March 2005 Business Results - Major Contribution also Made by Affiliated Companies (¥ billion)

Years ended March 2004 2005 Gap Net sales Non-consolidated 1,334.6 1,640.4 305.8 Group companies' contribution 769.3 781.3 12.0 Consolidated 2,103.9 2,421.7 317.8 Operating income Non-consolidated 169.4 334.6 165.2 Group companies' contribution 73.3 121.7 484 Consolidated 242.7 456.3 213.6 Ordinary income Non-consolidated 156.1 341.6 185.5 Group companies' contribution 52.4 108.7 56.3 Consolidated 208.5 450.3 241.8 Return on sales (ROS) Consolidated 9.9% 18.6% 8.7%

Enhancement of Product Structure by Increase in Only One and Number One Products

Fundamental Strategy: Improvement of marketing capabilities - Product-based management system, and strategic focus on Only One and Number One products

13Cr seamless OCTG

By applying a management system based on eight product types, the Company is able to ensure the transparency, clarity and efficiency of its management by controlling profitability across divisions such as sales, production, logistics and research. This system allows us to identify the profitability of any given order, thereby clarifying how we can best maximize overall earnings. At the same time, the system gives us an accurate picture of our customers' increasingly sophisticated needs, helping enhance our marketing capabilities.

In addition, the new integrated sales, production and logistics system, under development since the consolidation, is due for completion during 2005. This will enable us to expand capacity and cut costs through the further concentration of production lots, and to reduce lead times by adapting production to circumstances as they arise.

In the year ended March 2005, products classifiable as Only One and Number One accounted for approximately 17% of total sales, nearly three times the level of two years earlier. We expect to exceed the target of 20% by March 2006 laid down in our Medium-Term Business Plan. Our principal Only One products are NANO HITEN and JFE Super Core, and Number One products include chromate-free steel sheets and 13Cr seamless OCTGs. The originality and superiority of these product groups render them immune to price competition, and for that reason it is our policy to increase their ratio to total sales to the greatest possible extent.

Production System: Two mega steelworks enjoy economies of scale

The two mega steelworks -- the East Japan Works and the West Japan Works -- comprise the backbone of the production network of JFE Steel, along with the Chita Works. The East Japan Works consists of two mills located in Chiba and Keihin, while the West Japan Works consists of two mills in Kurashiki and Fukuyama. Both of the mega steelworks are operated in a fully integrated manner, under which each of the two mills involved are under centralized management. The mega steelworks focus on the production of our mainstay sheet and plate, which account for some 80% of all steel shipped, while the Chita Works in Aichi prefecture specializes in the production of steel pipe.

Since JFE's formation, operation of two of the Company's blast furnaces has been discontinued, and 14 downstream production lines have also been closed down. As a result, capacity utilization has increased markedly, making a significant contribution to improved earnings.

Crude Steel Output by Steelworks (Year ended March 2005)

Progress under Medium-Term Business Plan: Targets exceeded a year ahead of schedule

All principal financial targets laid down in our first Medium-Term Business Plan, including net sales on a consolidated basis, ordinary income, and the ratio of ordinary income to net sales (ROS), were achieved and substantially exceeded by the end of the fiscal year to March 2005, a year ahead of schedule. For the next stage, through the formulation of its next Medium-Term Business Plan, the company will focus on further enhancing the efficiency of its human resources, business assets, and financial resources, with the goal of further improving profitability and maintaining its growth potential.

	CONSOLIDATED OPERATING RESULTS

	Billions of yen

(Years ended/ending March 31)

2003 Actual (approximate)

2004 Actual

2005 Actual

2006* Forecast

2006  Plan's original target

	Ordinary income	91	208.5	450.3	490.0		230.0
	Return on sales (ROS)	4.6%	9.9%	18.6%	17.9%		11.0%

	*Estimated figures for the year ending March 2006 are those declared as of May 12, 2005.

Issues to address in the year ending March 2006: Enhancement of plant and equipment, improvement of product mix and expansion overseas

JFE Steel will use the year -- the final year of its first Medium-Term Business Plan -- to address the efficiency with which its management resources are employed, maximizing capacity utilization on individual production lines, and enhancing its foundations in the fields of raw materials, production, shipping and logistics. The majority of JFE Steel's facilities were built during the period of Japan's rapid economic growth in the 1960s and 1970s, and some 30 years have elapsed since they were brought into operation. All necessary measures to ensure their competitiveness have been implemented hitherto, but to ensure that they match the state-of-the-art plant and equipment of overseas manufacturers in countries such as Korea and China, from a long-term perspective we recognize the necessity of still further capital investment.

In addition, we aim to position ourselves to secure stable earnings in any business environment. Among the steps we will take are increasing value added through the creation of Only One and Number One products and technologies designed to meet customer needs. For the JFE Steel group as a whole we will further strengthen the competitiveness of core businesses and take exhaustive steps to review and reorganize operations in fields in which we cannot gain a competitive advantage, to ensure a solid foundation for group earnings.

JFE Steel and Guangzhou Iron & Steel sign joint venture agreement

Overseas, to position ourselves to satisfy the expected strong expansion of demand in the future, we will pursue a medium- to long-term strategy centered on business alliances. We will also proceed cautiously with the implementation of future-oriented measures such as the building of facilities in Guangzhou in China for the production of galvanized steel sheets for automobiles, and feasibility studies into a project for an integrated steelworks. Additionally, we will actively invest in and form alliances with overseas raw materials suppliers, to assure long-term stable procurement in the face of tight markets and soaring prices.

(Please refer to p.13 and 17 for further details)