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| 1. External Environment
for this interim period The external environment in the first half of fiscal 2001 grew in severity due to global economic recession. As regards the Japanese economy, production and capital investment decreased drastically owing mainly to the sharp decline in exports of Information Technology (IT) related products, and high unemployment figures prevailed due to the decline in corporate earnings. Although measures to ease the money supply were implemented, the fall in stock/commodity prices continued due to the impact of the problem of bad loans, and the deflationary trend increased further. In the U.S., the economic recession which started with the slump in the dot.com companies in the second half of fiscal 2000 manifested itself clearly, and the decelerating trend intensified as production and capital investment rapidly slowed down. Although the U.S. Federal Reserve lowered interest rates consecutively, the NY stock market continued to slump, and the unemployment rate also rose. Moreover, the terrorist attacks that occurred near the end of the interim period of fiscal 2001 have taken a toll on the slowing economy, and heightened the sense of uncertainty about the future. Within the European economy, production faltered, particularly in the German economy. Due to the effect of global economic recession, Europe too entered a phase of economic adjustment. In Asian countries, as the production activity dropped in NIES countries due to the drastic decrease of Information Technology (IT) related export to the United States, the economic recession became notable. However, China continued to show high growth, as it made preparations for entry into the World Trade Organization. 2. Progress on Medium-Term Management Plan 2002 The Company designated fiscal 1999 as the first year of its three-year Medium-Term Management Plan 2002, which is scheduled for completion in fiscal 2001. The Company's two fundamental policies under the plan are (1) to improve the financial structure by promoting a sound balance sheet through streamlining assets and reducing interest-bearing debt, and (2) to strengthen the earnings structure by focusing on core businesses and withdrawing from low-margin transactions with low capital efficiency. The plan incorporates the following measures: (1) streamline assets, (2) select and concentrate on strategic core businesses, (3) reform the cost structure, (4) merge and liquidate Group companies, (5) improve and strengthen risk management, (6) strengthen corporate governance and bolster corporate infrastructure for the coming era. The current situation with regard to each of the six tasks mentioned above is as follows: (1) Streamline Assets By carefully selecting investment projects and withdrawing from low-margin transactions, the Company has reduced assets by approximately ¥1,350 billion of the ¥1,200 billion target in the three-year plan. The Company also reduced interest-bearing debt by approximately ¥970 billion, progressing on schedule toward a total reduction of ¥1,200 billion over three years. The final targets are expected to be achieved by the end of this fiscal year. (2) Select and Concentrate on Strategic Core Businesses In November 1999, the Company designated the following five areas as its core businesses: 1) Information Industries & Aerospace Industries, 2) Plant & Projects, 3) Steel & Ferrous Metals, 4) Energy, and 5) Consumer Products. In addition, the Company introduced an internal Division Company System. By promoting financial self-sufficiency and accountability under market principles in each field of business, the Company is carrying out an overall policy of changing to a high-income structure by withdrawing from low-income transactions and promoting optimal allocation of management resources. The Company has achieved a marked improvement on gross profit margin and operating income margin. (3) Reform the Cost Structure Figures for selling, general and administrative expenses have consequently remained constant, but in view of the impact of the increase in the number of consolidated subsidiaries owing to new consolidated accounting standards, as well as the increase of retirement benefit costs owing to the introduction of "Option on Setting Accounting Standard for Employees' Severance and Pension Benefits," our efforts at curtailment of SG&A expenses through organizational and operational reform and workforce reductions become self-evident. (4) Merge and Liquidate Group Companies The Company has targeted approximately 200 Group companies to be eliminated through mergers and liquidations during the three-year period beginning March 1999. Over the past two and a half years, the Company has eliminated 188 Group companies through merging and liquidation, progressing 94% of the way toward the stated goal. However, the number of Group companies increased by 120 due to establishment of new rules pertaining to consolidated financial statements, the total number of Group companies currently amounts to 612 (a net decrease of 68). (5) Improve and Strengthen Risk Management 1) Enhancement of the activities of the Risk Management Committee, and the Risk Management Group, which was integrated and reinforced this April, and to take measures toward rational setting of Country-wise Exposure Ceilings (CEC), and to enforce strict compliance. 2) Setting up ceiling with regard to speculative trading risks, fluctuations on interest rate, foreign exchange and commodity price. 3) Putting a mechanism in place to cut losses through third-party monitoring. 4) Improvement of risk management, such as setting risk premium adjusted return indices, and so on. Moreover, the Company has also worked on a further reinforcement of credit exposure management including investment and loans, and in-house audit. Furthermore, by reorganizing and expanding the in-house Crisis Management Committee as Compliance & Crisis Committee, the Company has initiated a system of strict observance of the law, corporate ethics and risk management. (6) Strengthen Corporate Governance and Bolster Corporate Infrastructure for the Coming Era Please refer to "3. Policies Relating to Business Management and Structures" below. Although the operating environment this half year is becoming severe, we are focusing our efforts on achieving our targets, as it is the final year of the ongoing medium-term management plan. 3. Policies Relating to Business Management and Structures Various measures and systems to reform management and enhance in-house infrastructure were put in place with an aim to create new business management structures and the Division Company System this year. |
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Director Nomination Committee A director nomination committee has been established as the organ charged with deliberating on and nominating candidates for the positions of director and executive officers, responding to inquiries from the Company president regarding candidacy for corporate auditor positions, and discussing such issues as ideal candidates for directorship and succession plans for the cultivation of future director candidates. Director Remuneration Committee A director remuneration committee was formed as a counsel of the Board of Directors with the responsibility for enacting and reforming remuneration assessment systems for directors and executive officers, determining remuneration for directors (including the Company president) and executive officers based on performance and peer evaluations, reviewing retirement bonuses and standard benefits, as well as providing counsel to corporate auditors. Advisory Board An advisory board, which consists of experts from outside the Company and the Company president, was formed in order to provide counsel on Company management goals and strategies; express views and recommendations on Company president remuneration, and take suggestions on such issues as remuneration, performance evaluation and screening systems for directors, corporate auditors and executive officers. Furthermore, By aiming to foster cost-consciousness/quality-consciousness under market principles, boost of morale by promoting independent decision-making, and reduction of group sales and management costs, the Company is actualizing efficient management through the establishment of a Shared Service Company (SSC) and a "Small Headquarters Company". The SSC is scheduled to start next April by merging the existing administrative subsidiaries. In this way, the Company is actively implementing necessary reforms, by seeking rather than fearing change, in a bid to become a better company. 4. Restructuring the Company's Business Portfolio Group management is taking on greater significance with the full-scale introduction of consolidated accounting. A multifaceted strategy is necessary, covering such aspects as spin-offs, strategic tie-ups and mergers and acquisitions that does not focus on a particular philosophy. On the other hand, peripheral infrastructure is gradually being built to support these strategies, such as holding companies, spin-offs, consolidated taxation and tracking stocks. As part of this multifaceted strategy, restructuring of business is being implemented, such as spin-offs, transference and assignment of business, and mergers/acquisitions. The main restructuring activities during this interim period are as follows: |
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As for the metals operations integration with Mitsubishi Corporation, both Companies have established a preparatory office for integration, and are proceeding with analysis of business and office net-work, and examination of organization and systems. The new company is expected to start by October, 2002. These strategic alliances and the spin-offs of businesses are being carried out for the following purposes, and are likely to continue in the future. |
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5. Dividend Policy Management places utmost importance on ensuring maximum returns on shareholder investment in the form of stock dividends, and dividend policy is one of the most important corporate policies. We strive to ensure stable earnings and increased profitability through speedy decision-making and judicious allocation and utilization of management resources. In addition, we are committed to ensuring a stable dividend stream to our shareholders, while paying careful attention to reinforce our corporate base through retention of requisite reserves. In view of the ultimate purpose to enhance shareholders' value and strengthen the corporate capital structure on a priority basis, management has decided to forego dividend payments for this interim period. |
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| Consolidated Financial Statements Non-Consolidated Financial Statements To Our Stakeholders Business Results (Consolidated) Outlook for Fiscal Year 2001 (Consolidated) |
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