Annual Report2009

NISSHIN STEEL
ANNUAL REPORT 2009
Contents
Consolidated Financial Highlights 1
To Our Shareholders and Investors 2
Management’s Discussion and Analysis 4
Consolidated Seven-Year Summary 6
Consolidated Balance Sheets 8
Consolidated Statements of Income 10
Consolidated Statements of Changes in Net Assets 12
Consolidated Statements of Cash Flows 14
Notes to Consolidated Financial Statements 15
Report of Independent Auditors (2009) 29
Investor Information 31
Board of Directors, Corporate Auditors, and Executive Officers 32
Consolidated Financial Highlights
Nisshin Steel Co., Ltd. and its consolidated subsidiaries
Years ended March 31, 2009, 2008 and 2007
Millions of yen
(except per share amounts)
2009
Thousands of U.S. dollars1
(except per share amounts)
Percent
change
(2009/2008)
2009
2008
2007
¥ 649,495
¥ 641,246
Net (loss) income .......................... (25,484)
32,192
37,214
—
Total assets..................................... 722,271
818,310
826,540
(11.7)
7,352,856
Total net assets .............................. 260,641
361,463
385,695
(27.9)
2,653,375
Net (loss) income per share2 ......... ¥ (28.15)
¥ 35.37
¥ 39.86
—
$(0.29)
10.00
7.00
(30.0)
0.07
Net sales .........................................¥ 617,400
7.00
Cash dividends per share2 ............
$ 6,285,249
(4.9)%
(259,432)
Notes: 1. Unless indicated otherwise, all dollar figures herein refer to U.S. currency. Yen amounts have been translated into U.S. dollars,
for convenience only, at ¥98.23 = US$1, the effective rate of exchange at March 31, 2009.
2. Per share figures are in yen and U.S. dollars.
Net Sales
Net Income (Loss)
(Billions of yen)
(Years ended March 31)
(Billions of yen)
(Years ended March 31)
720
40
641.2
600
535.7
37.2
649.5
617.4
32.2
556.1
30
24.1
24.5
480
20
360
10
240
–25.5
0
120
0
’05
’06
’07
’08
’05
’09
’06
’07
’08
Total Net Assets
Net Income (Loss) per Share
(Billions of yen)
(March 31)
(Yen)
(Years ended March 31)
400
39.86
40
385.7
35.37
361.5
315.6
320
30
276.6
’09
25.19
25.98
260.6
240
20
160
10
80
0
–28.15
0
’05
’06
’07
’08
’09
’05
Note: The amount of total net assets at March 31, 2005 and 2006
represents the value of conventional total shareholders’ equity.
1
’06
’07
’08
’09
To Our Shareholders and Investors
Overview of the Fiscal Year Ended March 31, 2009
The Japanese economy saw a drastic decline in demand both
domestically and overseas during the second half of this
fiscal year. The domestic economy continued to plummet
as a result of the downturn in the global economy that was
triggered by the U.S. financial crisis. This drop resulted in
a sharp decline in corporate revenues as well as consumer
spending due to cutbacks in capital investment and job
insecurity. The economy stopped growing and quickly fell
into the doldrums.
The steel industry enjoyed steady demand in major
areas such as the automotive and electric sectors during
the first half of this fiscal year. However, in addition
to the already stagnating demand for building materials,
demand fell significantly in almost all areas during the
second half of this fiscal year. The automotive sector in
particular was hit hard by the depressed U.S. market as
well as serious decline in sales volume, and was forced
to make inventory adjustments and cut production to an
unprecedented level.
Despite this very tough environment, the Nisshin Steel
Group has been making a group-wide effort to strengthen
its operational foundation and achieve sustainable growth.
We also developed and have been implementing a range
of measures to boost earnings high enough to enable us to
weather the current economic storm.
Fi rst, i n response to sk yrocketi ng pr ices of raw
mater ia ls such as i ron ore a nd coa l, we establ ished
the Committee for Streamlining and Total Cost Reduction
in Apr il 2008 to review and reduce costs across all
departments. Given the sudden downturn in the market,
we expanded the scope of the committee’s activities
to i nclude i mplementi ng u rgent measu res that wi l l
ensure profitability for the entire Group. Furthermore,
to align ou r pr o duc t ion w it h t he slow i ng d e m a nd,
we lowered the capacity utilization of the Kure Works’
blast furnace, steelmaking and hot-rolling equipment to
an unprecedented level and drastically cut stainless steel
production at the Shunan Works by about 60%. We also
focused on meeting technical challenges arising from these
oper at ion a l c utback s to en su re ef f icient a nd steady
facility operation and minimize costs associated with lower
energy efficiency resulting from decreased production.
Operating in this tough environment where demand in
major sectors has dropped significantly made it necessary
to gain our customers’ understanding of the situation and
reflect any cost increases that we were unable to absorb in
our sales prices. At the same time, we continued to work
on cultivating demand by offering high-value-added, unique
products tailored to our customer needs. These products
include highly corrosion-resistant, resource-saving ZAM ®
(hot-dipped zinc-aluminum-magnesium alloy coated steel)
products, a wide range of our unique, high-performance
DNA-SUS stainless steel products that enable our customers
to enhance competitiveness, and high-quality customized
special steel products.
We identified investment priorities to reinforce our
operational foundation for the future and made strategic
investments, including an overhaul of major facilities
with state-of-the-art technologies designed to enhance
efficiency and qualit y as well as capital investments
aimed at reducing the environmental burden through
increasing energy efficiency and recycling by-products of
our processes.
To strengthen our business operations in Southeast
Asia where demand for stainless steel is likely to increase
over the medium to long term, Nisshin Steel established
Bahru Stainless SDN. BHD. jointly with Acerinox, S.A.
(Spain) for the production of cold-rolled stainless steel.
Construction of a new production facility is now underway
in Malaysia, which is scheduled to come on stream in 2011.
We acquired additional shares of Acerinox to strengthen
the ties we have built over the years and enhance our
global stainless steel business network. We now have a 15%
stake in Acerinox, which makes the company our equity
method affiliate.
We continued to work on improving sales prices in
the face of soaring costs for raw materials such as iron ore
and coal. Despite our efforts, we suffered a sharp decline
in sales volume due to a sudden economic downturn in
the latter half of this fiscal year. As a result, consolidated
net sales for the fiscal year under review totaled ¥617,400
million (a year-on-year decrease of ¥32,095 million).
Looking at income for the fiscal year under review, we
posted a loss before special items of ¥12,383 million (a
year-on-year decrease of ¥66,929 million from the income
before special items recorded the prior year). This drop
was due to declining sales and a loss on revaluation of
inventories associated with a sudden slowdown in the
stainless steel market, which our group-wide efforts to
streamline operations and slash overall costs could not fully
absorb. Since the amount of deferred tax assets associated
with the net loss carried forward was not recorded in the
statement of operations for this fiscal year, the consolidated
net loss for this fiscal year totaled ¥25,484 million (a yearon-year decrease of ¥57,676 million from the net income
recorded the prior year). On a non-consolidated basis, net
sales totaled ¥477,218 million, the loss before special items
¥16,192 million, and the net loss ¥26,779 million.
Outlook for the Fiscal Year Ending March 31, 2010
The Japanese economy is predicted to continue to decline as
the global economy shows little sign of recovery. The outlook
for the future remains rather bleak, as there is a possibility
that the economy may slow even further depending on
foreign exchange fluctuations and trends in the financial and
capital markets.
The steel industry is very unlikely to see a quick recovery
in demand in major sectors such as automotive, building
materials and electric sectors, although temporary excesses
in iron ore and coal supplies over demand will bring down
raw material prices.
2
The Nisshin Steel Group will move aggressively to
overcome any hurdle it faces in today’s harsh business
environment. We will make group-wide efforts to sharpen
our competitive edge with a commitment to carving out a
strong operational position that will enable us to respond
flexibly and adequately to drastic changes in both the
Japanese and overseas markets.
First, we will step up streamlining and cost reduction
efforts to achieve results that will eclipse the previous
results achieved by the Committee for Streamlining and
Total Cost Reduction. We will work together as a Group to
take every possible action, from emergency cost reduction
measures to permanent streamlining measures, to reduce
both fixed and variable costs. In light of the current situation
of underutilized production lines due to declining demand,
we will work to ensure flexible line operations to respond
quickly to changes in production scale while minimizing
production cost.
We will also strive to elevate superiority in quality, which,
along with a cost advantage, will boost our competitiveness.
We will enhance our capability to steadily provide
customers with high-quality products by maximizing both
our new and overhauled facilities employing state-of-theart technologies. While Japan Industrial Standards ( JIS)
certification for the Amagasaki Works’ stainless steel pipes
was cancelled in June 2008 due to inadequacy of testing, we
successfully reacquired JIS certification in March 2009 after
reestablishing a fully functional quality assurance system.
We continue to make aggressive efforts to improve quality
to maintain a high level of customer trust.
We will strengthen our solutions business to quickly offer
proposals/suggestions that address diversifying customer
requirements as well as potential needs by leveraging the
entire Group’s R&D and product development capabilities.
This will enable us to move further toward realizing our
Group mission to create unique markets together with our
customers. As part of this effort, we opened the F-Tech.
Plaza at our Sakai Works this June as the cross-point where
our customers’ dreams meet the Nisshin Steel Group’s
technologies and products. At the F-Tech. Plaza, customers
can actually see, touch and experience our technological
and solution capabilities. The F-Tech. Plaza also serves as a
venue for communicating with customers so that we can
offer the specific solutions they are seeking and deliver the
kind of R&D capabilities they expect from the Nisshin Steel
Group. We will remain committed to customer-focused
product/service development with an eye to helping
customers make their dreams come true.
Going forward, the Nisshin Steel Group will identify
priorities for key business challenges from mid-range as well
as long-term perspectives and take every step necessary to
reach our goals. In overseas markets with good prospects for
growth, we will move forward steadily with the construction
of Bahru Stainless SDN. BHD. in Malaysia, while accelerating
operations at existing operational bases in China and the
United States. We will also continue to build stronger ties
with our new equity method affiliate, Acerinox, S.A., with
the aim of expanding our global stainless steel business
network. Environmental initiatives will also be a key focal
point, as we boost our competitiveness through active
efforts to develop technologies that will enable efficient
use of low-grade materials and energy to make the most
effective use of limited natural resources.
We expect the environmental and energy conservation
market to keep pace with growing public awareness of
relevant issues. The Nisshin Steel Group will remain focused
squarely on research and product development in these
areas. We continue to provide high-performance products
that reduce man’s environmental footprint and conserve
the environment with a view to maintaining harmonious
relationships with local communities and society as a whole.
In December 2008, the Tokyo District Public Prosecutors
Office indicted Nisshin Steel and one of its employees for
violating the antitrust law in relation to the sale of hotdipped 55% aluminum-zinc alloy coated steel (both painted
and non-painted) to general consumers. We deeply apologize
for causing any burden to our shareholders, customers and
other stakeholders.
We have taken this situation seriously and have
developed measures to prevent such a case from happening
again, including the establishment of a third-par ty
committee comprised of external experts who provide
recommendations and evaluations from their professional
perspectives to ensure effectiveness, objectivity and
transparency. We will implement these preventive measures
thoroughly throughout the company to avoid the occurrence
of a similar incident in the future. We have made compliance
a top priority in all our corporate activities by ensuring that
all of our Board members and employees comply with all laws
and regulations, including internal rules and regulations,
and respect social norms as well as morals.
In July 2008 we celebrated the 100th anniversary of our
predecessor company, and in April 2009 we celebrated the
50th anniversary of Nisshin Steel. We value the tremendous
amount of support that our shareholders, customers and
stakeholders have given us over the last 50 years. We will
build on the strength of that support to create a solid
business foundation, upon which we will realize everything
that the name of our company stands for and “bring
innovations to life every day.” We will continue to work
with our customers to create unique markets to realize
our corporate vision of being the most preferred company
by customers, shareholders and employees today and
tomorrow, and operating in continuous harmonious with all
its stakeholders and society.
Taking into account the circumstances described above
and the various measures for business improvement of
our Group companies in the future, the current financial
outlook is presented below. Since raw material prices and
sales prices are still under negotiation, the figures are
provisional and may change drastically depending on future
circumstances.
3
acquisition of treasury stock. The acquisition of treasury
stock is conducted from the perspective of a f lexible
capital policy responsive to the business environment,
taking into account capital necessary in the future and
earnings forecasts.
Internal reserves will be used for investments to ensure
sustainable growth and strengthen competitiveness to
improve corporate value, as well as maintain and enhance
the Group’s financial position.
Dividends from retained earnings for the subject fiscal
year, based on the Group’s business results and forecasts,
and in overall consideration of the economic outlook and
plans for business development, were ¥1.00 per share
for the year-end. In addition to commemorating our 50th
anniversary this April, we added a special dividend bonus
of ¥2.00 per share to the year-end dividend, making it ¥3.00
per share. Combined with the interim dividend of ¥4.00 per
share, which had already been paid, the full-year dividend
was ¥7.00 per share.
(Billions of yen)
Consolidated forecast
Interim
Net sales
¥170.0
Full year
¥390.0
Operating loss
(45.0)
(45.0)
Loss before special items
(50.0)
(50.0)
Net loss
(51.0)
(51.0)
These forecasts are based on certain assumptions
deemed rational at the time of preparation. Actual results
may differ materially as a result of various factors, including
economic conditions in major markets (such as Japan and
Asia), rapid changes in the balance of product supply and
demand, significant shifts in foreign exchange rates, or
major fluctuations in capital market rates.
Basic Policy on Returns to Shareholders
The Nisshin Steel Group’s basic policy with regard to the
distribution of earnings is to provide shareholders with an
appropriate dividend from retained earnings in line with
consolidated results, while securing the internal reserves
necessary for future business development to enhance
corporate value, and in consideration of the future business
outlook.
The Group has established as a benchmark for the
distribution of earnings 20% to 30% of consolidated net
income, combining dividends from retained earnings and
I would like to offer my appreciation to all shareholders and
investors for their continued support.
June 2009
Hideo Suzuki
President and Chief Executive Officer
Management’s Discussion and Analysis
Financial Position
¥63,937 million, with Acerinox, S.A. becoming our equitymethod affiliate owing to our additional acquisition of
the Spanish company’s shares, which led to the change
in valuation of such shares from the fair-market-value
basis to the at-cost basis. The net loss for the period was
¥25,484 million.
Consolidated total assets at the close of the year ended
March 31, 2009 stood at ¥722,271 million, down ¥96,039
million from the end of the previous year. This was mostly
the result of lower valuation of investment securities (down
¥88,196 million) with Acerinox, S.A. becoming an equitymethod affiliate of ours with our additional acquisition of
the Spanish company’s shares, which led to the change in
valuation of such shares from the fair-market-value basis to
the at-cost basis. Notes and accounts receivable were down
¥36,290 million, and cash on hand and in banks was up
¥21,459 million.
Total liabilities rose by ¥4,783 million to ¥461,630
million. Long-term loans and other interest-bearing debt rose
¥67,653 million and notes and accounts payable decreased
¥21,022 million, while deferred income taxes declined
¥33,810 million.
Total net a s s et s decl i ned ¥10 0,822 m i l l ion to
¥260,641 million. This was mostly the result of a lower
unrealized gain on available-for-sale securities (down
Cash Flows
Net cash provided by operating activities totaled ¥25,810
million. This was due mainly to ¥40,486 million from
depreciation and amortization and a decrease of ¥36,092
million in notes and accounts receivable against ¥17,946
million in loss before provision for income taxes, an
increase of ¥11,372 million in inventories and a decrease of
¥20,182 million in notes and accounts payable.
Net cash used in investing activities totaled ¥62,252
million, with ¥33,221 million spent on acquisition of property,
plant and equipment and ¥16,565 million for acquisition
of shares of affiliates. Free cash flow amounted to negative
¥36,442 million.
4
Net cash proviced by financing activities totaled ¥58,534
million. This mainly reflected a ¥67,701 million increase in
interest-bearing debt, and ¥9,037 million in cash dividends.
As a result of these developments, and with the addition
of foreign currency translation adjustment of cash and
cash equivalents, the consolidated balance of cash and
cash equivalents at the end of the fiscal year amounted to
¥39,626 million, up ¥21,459 million from the end of the
previous year.
Forward-Looking Statements
The forecasts presented in this report are based on certain assumptions, rationally established by the Company at the time of
preparation. Projected results may differ materially due to changes in the business environment or product demand in principal
markets (Japan, Asia, etc.), significant fluctuations in exchange rates, or major shifts in capital market rates.
Operating Income (Loss)
Total Current Assets
Total Assets
(Billions of yen)
(Billions of yen)
(Billions of yen)
350
80
66.8
900
315.4
70.2
63.3
58.5
60
293.7
300
826.5 818.3
296.0
750
257.1 259.5
682.5
722.3
718.2
250
600
200
40
450
150
300
20
100
–7.3
0
150
50
0
’05
’06
’07
’08
0
’05
’09
’06
’07
’08
’09
Net Cash Provided
by Operating Activities
Long-Term Debt
(Billions of yen)
(Billions of yen)
60
200
58.3
52.3
175.8
50
160
42.4
40
120
94.6
93.0
30
90.3
26.5
25.8
’08
’09
72.6
80
20
40
10
0
0
’05
’06
’07
’08
’09
’05
’06
’07
5
’05
’06
’07
’08
’09
Consolidated Seven-Year Summary
Nisshin Steel Co., Ltd. and its consolidated subsidiaries
6
7
Consolidated Balance Sheets
Nisshin Steel Co., Ltd. and its consolidated subsidiaries
March 31, 2009 and 2008
8
9
Consolidated Statements of Income
Nisshin Steel Co., Ltd. and its consolidated subsidiaries
Years ended March 31, 2009 and 2008
10
THIS PAGE INTENTIONALLY LEFT BLANK
11
Consolidated Statements of Changes in Net Assets
Nisshin Steel Co., Ltd. and its consolidated subsidiaries
Years ended March 31, 2009 and 2008
12
13
Consolidated Statements of Cash Flows
Nisshin Steel Co., Ltd. and its consolidated subsidiaries
Years ended March 31, 2009 and 2008
14
Notes to Consolidated Financial Statements
Nisshin Steel Co., Ltd. and its consolidated subsidiaries
Years ended March 31, 2009 and 2008
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
THIS PAGE INTENTIONALLY LEFT BLANK
30
Investor Information
(As of March 31, 2009)
Nisshin Steel Co., Ltd.
Registered Head Office
Shin Kokusai Building, 4-1, Marunouchi 3-chome,
Chiyoda-ku, Tokyo 100-8366, Japan
Telephone: (81)-3 3216-5566 Facsimile: (81)-3 3216-5546
Year of Establishment
1928
Year of Incorporation
1959
Common Stock
Authorized: 3,977,964 thousand shares
Issued: 994,500 thousand shares
Capital: ¥79,913,126 thousand
Common Stock Price Range
(Tokyo Stock Exchange)
2009
High Low
¥418 ¥342
366
193
216
101
192
136
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2008
High Low
¥576 ¥456
592
411
534
367
404
309
2007
High Low
¥413 ¥310
380
326
449
332
571
391
Note: Years ended March 31.
Number of Shareholders
46,976
Independent Certified Public Accountants
Ernst & Young ShinNihon LLC
For further information or additional copies of our corporate brochure or annual report, please contact the Public & Investor Relations Team.
Public & Investor Relations Team
General Administration Department
Nisshin Steel Co., Ltd.
Shin Kokusai Building, 4-1, Marunouchi 3-chome, Chiyoda-ku, Tokyo 100-8366, Japan
Telephone: (81)-3 3216-5566
Facsimile: (81)-3 3216-5546
31
Board of Directors, Corporate Auditors, and Executive Officers
(As of June 23, 2009)
Directors
President and Chief Executive Officer
Hideo Suzuki*1
Fumio Oda*1
Makoto Yada
Kenji Minami
Kazuhisa Obama
Yoshikazu Tsuda
Yukio Uchida
Yukio Nariyoshi
Koji Mizumoto
Hideo Suzuki
Vice-Presidents and Executive Officers
Fumio Oda
Makoto Yada
Managing Executive Officers
*1 Representative Director
Kenji Minami
Kazuhisa Obama
Yoshikazu Tsuda
Yukio Uchida
Yukio Nariyoshi
Koji Mizumoto
Yoshifumi Hiraoka
Umeo Irie
Toshinori Miki
Akira Ichii
Takafumi Fukami
Koji Tomita
Auditors
Takashi Sugiyama*2
Hiroaki Shinagawa
Yukihiro Ito
Yoichiro Yamakawa
Toshio Yonezawa
*2 Standing Auditor
Executive Officers
Hideyuki Moriya
Takayuki Nakanori
Katsuhisa Miyakusu
Junya Hayakawa
Kiyoshi Yasui
Takashi Nakao
Nobuhiro Miyoshi
Tetsuo Kaharu
Tadashi Nakagawa
32
This annual report is printed on recycled paper.
Printed in Japan