Year Ended March 31, 2017
ANNUAL REPORT 2017
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Business Segments / Financial Highlights
Our Values
Special Feature
Top Message
Market Trends
Feature
Business Overview
Board Directors and Corporate Auditors
Corporate Governance
Business and Other Risks
Financial Section
Investor Information
Forward-Looking Statements: Projections of operating results and changes in the business environment provided in this report are based on information available to the management as of the date the report was prepared. As such, these projections are exposed to uncertainties and potential risks that may affect the projections, should they materialize. Readers are therefore cautioned that actual operating results and the business environment in the future may differ materially from the projections provided herein.
CONTENTS
Management Principle
Action Guidelines
At the Kyoei Steel Group, we strive to become a corporate group in harmony with society
through recycling operations that focus on the steel business and that contribute to the
development of the national economy and local communities.
SPIRIT OF CHALLENGE
We act with fairness and integrity in accordance with high ethical standards.
We cultivate a corporate culture imbued with a spirit of enterprise and innovation, eager to
embrace challenges, and enthusiastically committed to the accomplishment of ambitious goals.
We are practical and realistic.
Net sales
Operating
income
*¥145,991
million¥7,971
million*Before the elimination of inter-segment transactions
0.2
%4.5
%31.9
%78.2
%10.8
%11.0
%63.4
%BUSINESS SEGMENTS
FINANCIAL HIGHLIGHTS
FY2017
Domestic Steel Business
Material Recycling Business
Other Business
Overseas Steel Business
Net Sales 200,000 150,000 100,000 50,000 0 (Millions of yen)
2013 2014 2015 2016 2017
142,305 174,694 181,436 160,952 145,991 (FY)
Operating income &
Profit (loss) attributable to owners of parent
Cash dividends applicable to the year
2013
(Yen)
2014 2015 2016 2017
20 20 35 45 30 (FY) 50 40 30 20 10 0 2013
(Millions of yen)
2014 2015 2016 2017
4,343 2,0692,857 –795 11,796 6,923 13,792 7,971 8,467 4,783 (FY)
Capital expenditures & Depreciation and amortization
2013 16,000 12,000 8,000 4,000 0 (Millions of yen)
2014 2015 2016 2017
3,809 4,254 7,344 4,232 15,920 4,147 10,103 7,262 5,026 5,961 (FY)
ROA & ROE
ROA ROE
2013
(%)
2014 2015 2016 2017
2.9 2.1 6.6 5.5 –0.7 1.7 7.1 3.5 6.4 4.1 (FY)
Total assets & Net assets & Shareholders' equity to total assets
Total assets Net assets Operating Income
Profit (loss) attributable to owners of parent Shareholders' equity to total assets
Capital expenditures Depreciation and amortization
2013 250,000 200,000 150,000 100,000 50,000 0 100 50 0 (Millions of yen)
2014 2015 2016 2017
165,129 125,257 180,771 128,788 201,760 138,052 200,436 214,341 143,090 146,663 (FY) (%)
74.2 67.3 64.2 67.3 64.6
15,000 10,000 5,000 0 –5,000 8 6 4 2 0 –2
The steel business, which melts steel scrap in electric arc furnaces, transforming it into new steel products, is the core business of Kyoei Steel. The Company provides a stable supply of high-quality steel products by using its technological capabilities nurtured for more than half a century. Our mainstay product, concrete reinforcing bar (including threaded rebar), accounts for 80% of production volume.
Kyoei Steel became the first Japanese minimill steel company to succeed in melting and detoxifying potentially infectious medical and industrial waste, using the heat from electric arc furnaces that reach thousands of degrees Celsius. We have been developing it as a business since then for more than 25 years. Our MESSCUD System for completely detoxifying and melting medical waste is an integrated collection, transport and disposal method developed nationwide.
Domestic Steel
Business
Material Recycling
Business
Kyoei Steel is developing overseas business in Vietnam and the United States. We have two bases in Vietnam: Vina Kyoei Steel Co., Ltd. (VKS) in southern Vietnam and Kyoei Steel Vietnam Company Limited (KSVC) in the north. We are responding to increasing demand for steel in Vietnam as the economy grows. In the United States, we acquired Vinton Steel LLC in December 2016. Leveraging the experience we have gained in the US market over the past two fiscal years, we will use Vinton Steel as a bridgehead to expand our steel business in that country.
Strengths of Kyoei Steel
Kyoei Steel contributing to the
building of a recycling-oriented
society
OUR VALUES
COMPANY OUTLINE
Established
Head Office
Capital
Employees
Production and Sales Bases
August 21, 1947
1-4-16 Dojimahama, Kita-ku, Osaka 530-0004 Japan
¥18,516 million
2,341 (as of March 31, 2017)
VIETNAM
UNITED STATES
Vina Kyoei Steel
Co., Ltd.
Kyoei Steel
Vietnam Company
Limited
JAPAN
Kanto Steel Ltd.
Hirakata Division
Nagoya Division
Yamaguchi Division
The Company has the leading market share in Japan
for rebar, which is indispensable for construction and
civil engineering, especially high-rise buildings and
condominiums, roads and other social infrastructure.
The Kyoei Steel Group is the only steel minimill
company with production and sales bases in Kanto,
Chubu, Kansai and Kyushu; with these regions
accounting for 70% of the rebar market.
The material recycling business shares facilities with
our steel business, contributing to high margins and
stable profit that boosts Group performance.
By acquiring a mill in the United States in 2016, we
created a tri-polar structure, spanning Japan, Vietnam
and the United States. By developing our business in
different countries—Japan, our mainstay market;
Vietnam, which continues to develop; and the United
States, an advanced country—we intend
to achieve stable growth.
No. 1 market share of steel rebar
in Japan
Aiming for growth through a
tri-polar structure: Japan, Vietnam
and the United States
Material recycling business with
steel mills
Operating production and sales
bases in every major demand
region in Japan
Vinton Steel (Vinton Steel LLC)
Kyoei Steel’s
Metal Recycling
System
Steel Business
Material
Recycling
Business
Steel products
Steel scrap
Steelmaking line
Rolling line
Buildings / bridges,
etc.
Processing out-of-date
drinking water
Reuse of out-of-date
drinking water as
rolling process coolant
after treatment
Reuse of gas emitted
during the disposal of
industrial waste for heat
during the rolling process
Reuse of slag
generated from the
disposal process as
roadbed materials
Industrial waste
Medical waste
Roadbed material
Unwanted appliances
and equipment
1960 1970 1980 1948
1948
Founding of the People’s Republic of China
1964
Tokyo Olympics held
1971
World Exposition held in Osaka
1973
First oil shock
1979
Second oil shock
Founder Hideji Takashima
SPECIAL FEATURE
Aiming for Further Growth as We Look toward Becoming
a 100-Year Company
KYOEI STEEL was established in 1947, shortly after World War II, by Hideji Takashima in Furuichi in Osaka’s Joto
Ward. In the ensuing 70 years, the Company faced numerous challenges, including the economic stagnation
caused by oil shocks and increasingly severe global competition. Throughout, in keeping with our management
principle the Spirit of Challenge, we have grown while taking on repeated challenges as we fostered innovation in
electric arc furnace technology, developed overseas operations and made structural improvements in the electric
arc furnace industry. We look forward to continuing to meet every challenge as we aim at becoming a 100-year
company. We will do this based on our growth strategies: to prevail in the domestic steel market, promote the
overseas steel business and expand the material recycling business.
Kyoei Iron Ltd. is established.
Company name is changed to Kyoei Steel Ltd. Company establishes its first electric arc furnace mill in Osaka (Tsukuda Mill) and begins operating.
Tsukuda Mill branches off and becomes Kyoei Iron & Steel Ltd.
A new electric arc furnace mill is established in Hirakata City, Osaka.
A new rolling mill is established in Hirakata City, creating an integrated system of steelmaking and rolling (now the Hirakata Division).
Yamaguchi Kogyo Ltd. is established (name changed the following year to Yamaguchi Kyoei Industries Ltd.). Kumamoto Kyoei Industries Ltd. (now the Nishi-Nippon Kumamoto Works of Osaka Steel Co., Ltd.) is established in Uto City, Kumamoto Prefecture, to produce and sell rebar and merchant bar.
Auburn Steel Company Inc. is established in the US state of New York.
The steelmaking mill at Auburn Steel is completed, and production commences.
Management rights of Auburn Steel are transferred. Management rights of Kumamoto Kyoei Industries are transferred.
A capital tie-up is formed with Sumitomo Metal Industries, Ltd.,(now NIPPON STEEL & SUMITOMO METAL
CORPORATION) increasing capital to ¥100 million. Kyoei Steel aquires management rights of Daiichi Steel Ltd. (now the Nagoya Division of Kyoei Steel) are acquired.
1947 1948 1962 1963 1971 1972 1973 1975 1979 1982 1984
Yamaguchi Kyoei Industries begins MESSCUD business (disposal of medical waste using electric arc furnaces). Wakayama Kyoei Steel Ltd. (now Nippon Steel & Sumikin Shapes Corporation) is established to expand into the field of “junior” H-beams.
Kyoei Steel, Kyoei Iron & Steel, Yamaguchi Kyoei Industries, Daiichi Steel and Wakayama Kyoei Steel merge and operate as Kyoei Steel. Kyoei Iron & Steel, Yamaguchi Kyoei Industries, Daiichi Steel and Wakayama Kyoei Steel are reorganized and become the Osaka Division, Yamaguchi Division, Nagoya Division and Wakayama Division, respectively. As a result of the merger, capital is increased to ¥140 million. Kyoei Iron (now Nippon Steel & Sumikin Shapes Corporation) is established.
Business rights of the Wakayama Division are transferred to Kyoei Iron.
Kyoei Steel acquires management rights of US-based Florida Steel (name later changed to Ameristeel, Inc.) to expand business in North America.
1988 1990 1991 1992 1972 1972 Yamaguchi Kyoei Industories Ltd. is established. A new steelmaking
and rolling mill established in Hirakata City
1990 2000 2010 ( F Y )
1989
Nikkei average stock price reaches record high (closing at ¥38,915.87)
1995
Great Hanshin-Awaji Earthquake
Early 1990s
Economic bubble burst in Japan
2008
Collapse of Lehman Brothers in the U.S. (Lehman shock)
2011
Great East Japan Earthquake
Non-consolidated Consolidated
Net Sales
Aiming for Further Growth as We Look toward Becoming
Vina Kyoei Steel Ltd. (VKS) is established in southern Vietnam.
Kanto Steel Ltd. is established. The company starts operations with production facilities inherited from Aiba Steel Company’s Niihari Mill.
Vina-Japan Engineering Ltd. (a foundry) is established in Vietnam.
Management rights of Ameristeel are transferred to Gerdau S.A. of Brazil.
Kyoei Steel becomes one of the two largest shareholders of Nakayama Steel Products Co., Ltd. along side Godo Steel, Ltd. Capital is increased to ¥17,048 million, and the Company is listed on the First Section of the Tokyo Stock Exchange and the First Section of the Osaka Securities Exchange. Kyoei Steel Vietnam Co., Ltd. (KSVC) is established in northern Vietnam. (Operations begin the following March.) A steel making factory and the No.2 rolling mill is completed at VKS, establishing an integrated steelmaking and rolling operation.
Operations at the Hirakata Division’s Osaka Mill are suspended and the mill is closed.
The material recycling business undergoes organizational restructuring within the Group. (Kyoei Industrial’s recycling department is transferred to Kyoei Steel.)
The Company acquires BD Vinton Steel in the US state of Texas and changes the name to Vinton Steel LLC.
1994
1996
1999
2002
2006
2011
2015
2016
2016
A Steel making factory and No.2 rolling mill is completed at VKS.
1994 2006 2015
Kyoei Steel is listed on the First Section of the Tokyo Stock Exchange and the First Section of the Osaka Securities Exchange. Kanto Steel Ltd.
Sharply higher prices for steel scrap in the Kyoei Steel
Group’s core domestic steel business caused the metal
spread to shrink, compounding the difficulties in this
business. However, the overseas steel business that
we are developing in Vietnam was characterized by
robust demand for steel materials, leading to a
significant improvement in performance.
As a result, on a consolidated basis we achieved
net sales of ¥145,991 million, down 9.3% year on
year. Operating income fell 42.2%, to ¥7,971 million,
and profit attributable to owners of parent decreased
43.5%, to ¥4,783 million. We paid out dividends for
the year of ¥30, including a year-end dividend of ¥20.
2017 marks the Company’s 70th anniversary. I
sincerely thank our shareholders and investors for
their ongoing support, and ask for their continuing
guidance and encouragement.
Higher Profits from Overseas Partly Covered a
Profit Decline in the Domestic Steel Business
In the construction steel products market, demand for
steel products failed to grow in the area of primary
demand for the domestic steel business. Against this
backdrop, prices for the scrap steel used to make
these products rose sharply in the first and third
Kyoei Steel will
soon celebrate
the Company's
70th anniversary.
TOP MESSAGE
Mitsuhiro Mori
President and Representative Director
Net sales
Operating
income
Profit attributable to
owners of parent
¥
145,991
million
¥
7,971
million
¥
4,783
million
Operating Performance in the Fiscal Year
Ended March 31, 2017
integrated steelmaking and rolling line at VKS in
Vietnam is now capable of full production, VKS and
KSVC recorded a combined sales volume of around 1
million tons for the year, raising earnings for both
companies. To grow our global network and mitigate
business risk, in December 2016 we acquired all the
shares of BD Vinton LLC (now Vinton Steel LLC),
based in the US state of Texas, and converted that
company into a subsidiary.
Following this acquisition, the Kyoei Steel Group’s
steel business has become tripolar, with operations in
Japan, Vietnam and the United Sates. From next fiscal
year, we will be within range of total global
production capacity of 3 million tons, one of the goals
of our medium- to long-term business vision.
In the material recycling business, we revamped
the Group’s internal organization in the second half.
Our aims were threefold: (1) increase efficiency by
consolidating the sales functions within the Group, (2)
enter into strategic capital and business alliances, and
(3) reinforce the safety management system.
Net Sales Expected to Rise Substantially Due to
the Conversion of Vinton Steel in the US into a
Subsidiary
In the domestic steel business, large-scale products
are anticipated, due to demand related to the Tokyo
Olympics, as well as infrastructure projects. The
recovery in demand for steel materials, however, is
likely to occur from around the second half of the
fiscal year. Given the robust demand overseas, we
expect the price of steel scraps to remain high. We are
also concerned that production costs will increase as
quarters of the fiscal year. Prices were particularly high
from November on (third quarter), affected by
overseas market prices, notably in the United States
and China.
Faced with this situation, we endeavored to raise
our prices. However, as it takes some time for contract
prices to be reflected in delivery prices, the metal
spread shrank sharply, causing profits to fall year on
year.
In the overseas steel business, vigorous demand for
steel in Vietnam led to favorable production and sales,
prompting higher sales and profits in this business.
For the material recycling business, we focused on
acquiring projects characterized by materials that are
difficult to dispose of, but waste disposal volumes
were down due to the closure of the Osaka Mill and
problems with disposal equipment. Sales and profits
both declined year on year as a result.
Consequently, although sales and profits were
down on a consolidated basis, overseas steel business
compensated to some extent for slow performance in
Japan. This situation highlights one of the Kyoei Steel
Group’s strengths: diversity.
Backed by Economic Growth in Vietnam, Combined
Sales Volume for VKS and KSVC Reached
Approximately 1 Million Tons
In our medium- to long-term business vision, we
outlined three growth strategies: “prevail in the
domestic steel market,” “promote the overseas steel
business” and “expand the material recycling
business.” With these strategies, we are aiming for
further growth.
In the domestic steel business, to minimize the
impact of a shrinking metal spread, we are continually
working to cut costs through measures such as
improving production technologies. In particular, we
are striving to cut unit electric power consumption (the
amount of electricity needed to produce one ton of
product) at all our mills. During the year, these efforts
contributed to a substantial reduction in energy costs.
In the overseas steel business, partly because the
Three Growth Strategies
in the domestic Prevail steel marketPromote the overseas steel business
Expand the material
recycling business
Initiatives and Results during the Year
Signs of Small Rebar Demand Bottoming Out, Moving toward Recovery
Looking at recent trends in the Japanese steel market, demand fell for the three years from fiscal 2014, but showed signs of bottoming out on a half-year basis in the second half of fiscal 2016. Domestic demand for small rebar is expected to move toward a full-fledged recovery in fiscal 2018, due to demand related to the Olympics and the start of specific projects, such as the Hokuriku Shinkansen (bullet train), particularly from the second half.
Ongoing Expansion of Demand for Long Products, in Line with Vietnam's Economic Growth
Vietnam is expected to maintain high levels of economic growth, with GDP forecast to rise 6.5% in 2017. As in the previous year, demand for steel products remains robust. Demand outpaced Japanese levels in 2015 and quickly surpassed 10 million tons in 2016.
Material Recycling Business
Domestic Steel Business
Overseas Steel Business
MARKET TRENDS
Mitsuhiro Mori
President and
Representative Director
Joined Kyoei Steel in 1970. Appointed the first President of Vina Kyoei Steel Co., Ltd. (VKS), established in southern Vietnam in 1994. In 2000, appointed General Manager of the Overseas Business Department, then once again as president of VKS in 2010 after having been Deputy General Manager of the Hirakata Division, and others. In June 2015, appointed President of Kyoei Steel, Ltd.
PROFILE
electric power and other energy costs rise, along with
those of associated materials.
In the overseas steel business, competition is likely
to grow tougher, as supply volumes rise in tandem
with robust demand in Vietnam. By raising sales
volumes and strengthening cost competitiveness at
VKS and KSVC, we expect to see higher sales and
profits. We also aim to considerably boost earnings
through productivity improvements at Vinton Steel.
In the material recycling business, we will strive to
create a new growth trajectory by benefiting early on
from organizational restructuring.
For the Group as a whole, we anticipate a major
increase in net sales, to ¥180.0 billion, due to the
consolidation of Vinton Steel. We expect profits to be
down year on year, due mainly to a shrinking metal
spread in Japan and rising production costs, leading to
operating income of ¥5.9 billion and profit
attributable to owners of parent of ¥3.9 billion.
By promoting a global tripolar structure in the steel
business and expanding the material recycling
business, the Kyoei Steel Group plans to stabilize the
management base. Although the operating
environment is forecast to remain difficult, we aim to
achieve robust growth as a steel minimill company
with a presence.
The volume of industrial waste processing is trending downward in Japan, but processing fees are going up. The reason is that emissions from difficult-to-process waste are rising, requiring increasingly sophisticated processing techniques. In recent years, the emergence of large companies able to provide this sophisticated level of processing has made the competitive environment increasingly difficult.
0 3 6 9 15
12
(CY)
(Millions of tons)
Trends in Demand for Long Products in Vietnam
2010
6.3
2011
5.8
2012
5.5
2013
5.9
2014
7.0
2015
9.1
2016
10.5
2017
11.2
environment. By introducing Kyoei Steel’s
technologies, we believe we can lower the company’s
production costs. Furthermore, by expanding the sales
area we anticipate higher sales, leading to increased
profits.
This move marks the Kyoei Steel Group’s third foray
into the United States, following moves in the 1970s
and 1990s. Backed by stable demand in the United
States, an advanced country, we believe we can apply
the know-how we
have developed in
overseas businesses
to create a tripolar
global structure:
Japan, Vietnam and
the US.
Overview of Vinton Steel
Chairman Takashima (center) and President Mori (second from left) visiting Vinton Steel
Senior Vice President Hirotomi (left) and Executive Officer Kitada (right) at the agreement signing
* KYOEI STEEL America LLC is a wholly owned subsidiary of the Company, that oversees the steel business in the United States.
FEATURE
Kyoei Steel Enters the Steel Business in the United States,
Acquires Production and Sales Base
In December 2016, we acquired all the shares of
BD Vinton LLC, operating in the US state of Texas,
through Kyoei Steel America LLC, our
consolidated subsidiary. We converted the
company into a subsidiary called Vinton Steel LLC,
now the US base for the Kyoei Steel Group.
Located in Texas near the US border with Mexico,
Vinton Steel has been operating continually as a steel
minimill company for more than 50 years. The
company produces rebar and steel balls used for ore
crushers in mining applications. Vinton Steel has an
annual production capacity of 250,000 tons of steel,
can roll 200,000 tons of steel rebar and has the
capacity to forge 50,000 tons of steel balls for mine
ore crushers. The company has scrap facilities on-site,
covering integrated processes that span the handling
of raw materials through to making final products.
Annual US steel demand is currently around 8 million
tons, and the market is stable. Vinton Steel’s
commercial area covers the Texas region (demand of
around 1 million tons) to the West Coast, which has
demand of 2 million tons. Texas, where the company
is located, has the second largest population among
the states, and it continues to grow. Accordingly, we
expect steel demand to remain strong. Demand also
continues to grow in California, which is included in
the company’s sales area, creating a favorable business
Location Vinton, El Paso, Texas, US
Established 1962
Products Rebar, steel balls for crushing ore at mines
Production capacity 250,000 tons of steel, 200,000 tons for rolling (steel
rebar) and 50,000 tons for forging (steel balls)
Representative and president Masahiro Kitada (Executive Officer of Kyoei Steel)
Investor and ownership ratio KYOEI STEEL America LLC* 100%
Texas
BUSINESS OVERVIEW
TOPICS
In the domestic steel business segment, sales and income were both down due to a lack of robust demand and
lower sales of semi-finished products as a result of closing the Osaka Mill. In the overseas steel business segment,
we increased production because a new production line began operating at our base in southern Vietnam,
where business is growing.
Organizational Restructuring of the Group’s Material
Recycling Business
We are consolidating sales activities at all of our offices to respond more swiftly and
flexibly and to grow the business.
Domestic Steel Business
In this segment, the volume of product shipped increased 21,000
tons year on year to 1,662,000 tons. Of this amount, exports
were 61,000 tons. Although product prices fell ¥5,100 per ton
year on year, prices for scrap steel—our main raw material—rose
¥2,500 per ton. The metal spread, which is the source of the
Company’s profits, therefore decreased by ¥7,600 per ton.
As a result, segment sales were ¥92,525 million, a
year-on-year decrease of ¥15,117 million, or 14.0%, while operating
income fell ¥5,190 million, or 41.5%, to ¥7,317 million.
Net Sales
Operating Income
120,000
90,000
60,000
30,000
0
(Millions of yen)
2016
2017
107,642
92,525
(FY)
14,000
10,500
7,000
3,500
0
(Millions of yen)
2016
2017
12,507
7,317
(FY)
Down
14.0
%
Down
41.5
%
For one of our three growth strategies—to expand the material recycling business—on October 1, 2016 we began restructuring the Group’s organization. We consolidated at the headquarters the industrial waste mediation previously handled by Group company Kyoei Industrial Co., Ltd. We also integrated at the headquarters the sales activities that had been handled up to now by individual business offices, thereby strengthening the Group’s overall sales ability. By entering into business and capital alliances with other companies that have processing plants, we are also aiming to provide one-stop solutions to respond more broadly to customers’ increasingly diverse requirements. At the same time, amid a growing awareness of
compliance in industrial waste processing, we recognized the need to heighten our focus on compliance and safety. For this reason, we established a specialized auditing department. By reinforcing compliance and safety, we are creating higher-quality processing and striving to enhance awareness of the Kyoei Steel Group’s brand for industrial waste processing.
As one part of these activities, we have introduced a QR (quick response) code system for tracking industrial waste during processing. An industry breakthrough, this system boosts traceability beyond previous levels, which should lead to increased levels of trust in us.
Overseas Steel Business
For the fiscal year under review, there were three companies in this
segment: Vina Kyoei Steel Ltd. (VKS), located in southern Vietnam;
Kyoei Steel Vietnam Company Limited (KSVC), in the north of the
country; and Kyoei Steel America LLC (KSA), a US holding company. In
calendar 2016, the Vietnamese economy maintained a high level of
growth: real GDP rose 6.2%. Demand for long products, centered on
steel rebar, rose by around 15% year on year. Against this backdrop of
favorable demand, both VKS and KSVC enjoyed strong increases in
sales volume; the two companies recorded a combined output of
approximately 1 million tons. However, due to the introduction of
safeguards to counter an influx of inexpensive products from China,
the price rose and remains high for semi-finished products, the raw
materials for these two companies. Furthermore, product prices have
dropped because of a more competitive environment, causing profits
to fall in the second half. KSA, meanwhile, incurred expenses
associated with the acquisition of Vinton Steel in the United States.
As a result of these factors, segment sales rose ¥613 million year on
year, or 1.3%, to ¥46,648 million. Operating income surged ¥287
million, or 38.5%, to ¥1,031 million.
In this segment, the Company focused on acquiring projects with
difficult-to-process items. However, the closure of the Osaka Mill and
problems with processing equipment led to a decline in the amount
of waste being processed. As a result, segment sales fell ¥452
million, or 6.5%, to ¥6,504 million, and operating income declined
¥383 million, or 27.6%, to ¥1,006 million.
8,000
6,000
4,000
2,000
0
2016
2017
6,956
6,504
(FY)
1,600
1,200
800
400
0
2016
2017
1,389
1,006
(FY)
Net Sales
Operating Income
(Millions of yen)(Millions of yen)
Down
6.5
%
Down
27.6
%
50,000 40,000 30,000 20,000 10,000 0
2016
2017
46,035
46,648
(FY)
1,200
800
400
0
2016
2017
744
1,031
(FY)
Net Sales
Operating Income
(Millions of yen)(Millions of yen)
Up
38.5
%
Up
1.3
%
Board Director &
Senior Vice President Yasuyuki Hirotomi
Board Director & Senior Executive Managing Officer
Naoyoshi Goroku Marketing Planning & Coordination
Kazuyoshi Ota General Manager of Yamaguchi Division
Board Director & Executive Managing Officer
Toshimasa Zako Corporate Planning, Overseas Investment, Project Planning & Development
Haruo Hiraiwa Production Planning & CoordinationGeneral Manager of Nagoya Division
Board Director & Executive Officer
Kenji Ishihara Accounting & Financing, Information Systems, Material Recycling
Osamu Narumi General Manager of Hirakata Division
Shogo Sakamoto Deputy General Manager of Yamaguchi Division
Katashi Enomoto Compliance, Human Resources & General Affairs
Board Director (External Board Director)
Nobuhiko Arai Senior Adviser of TOYO TEC CO., LTD.
Tetsuya Yamao Partner of UMEDA SHINMICHI LAW OFFICEExternal Auditor of CYPRESSCLUB CO., LTD.
Standing Corporate Auditor Shuji Ichihara
Corporate Auditor (External Auditor)
Hiroshi Ito General Manager of Group Companies Planning Div. of Nippon Steel & Sumitomo Metal Corporation
Akira Kotani Chairman of Shijonawate Gakuen Chairman and Representative Director
President and Representative Director
Hideichiro Takashima
Mitsuhiro Mori
From top left to bottom right: Shuji Ichihara, Toshimasa Zako, Naoyoshi Goroku, Yasuyuki Hirotomi, Kazuyoshi Ota, Haruo Hiraiwa, Hideichiro Takashima and Mitsuhiro Mori
BOARD DIRECTORS AND CORPORATE AUDITORS
Kyoei Steel recognizes the importance of the following goals to coexist with society and contribute to the development of the Japanese economy and local communities as a corporate group: (1) build a management system capable of prompt and accurate responses to changes in the business environment; (2) strive for rational decision-making and efficient execution for sufficient fulfillment of the duty of accountability; (3) ensure transparent and fair decision-making; (4) seek to pursue sound ethics not only from a legal perspective but also more broadly in accordance with social norms; and (5) disclose information promptly and appropriately to stakeholders. We have systematically put in place and are enhancing our corporate governance framework to achieve these goals, and are working to achieve sustainable growth and enhance corporate value for Kyoei Steel and the Kyoei Steel Group.
Board of Directors
Our Board of Directors totals 13 members (with two external directors), including two representative directors and 11 board directors. The Board executes important decisions and oversees the execution of business by the board directors and executive officers. In addition to regular monthly meetings, extraordinary meetings of the board are convened when necessary.
Management Conferences are held concerning Board of Directors meeting agenda items or important matters for discussion, adjustment, or decision pertaining to management execution.
Management Conferences are attended by executive managing officers, standing corporate auditors, executive officers, and the president of Kanto Steel Ltd., as well as others designated by the chairman or president.
In addition to being held monthly, extraordinary Management Conferences may be convened when necessary. On June 15, 2016, we established the Nomination and Remuneration Advisory Committee as a voluntary advisory body to the Board of Directors. This committee is composed of independent external directors and board directors selected by resolution of the Board of Directors.
Board of Auditors
The Board of Auditors is has one standing corporate auditor and two corporate auditors for a total of three members (two of whom are external auditors), each thoroughly versed in the business of the Company and the industry, with one corporate auditor who is an independent executive posing no conflict of interest with general shareholders. Auditors monitor the effectiveness of governance and audit management performance, including the execution of duties by directors. The Articles of Incorporation limit the number of corporate auditors to five.
Sales & Marketing Committee
The president serves as the committee chairman, with other members being the director in charge of the Marketing Planning & Coordination Department, the general managers of the Sales & Marketing Department of each division, and others designated by the chairman. In principle, the committee meets monthly. In addition to the detailed sharing of information concerning the environment and situation surrounding steel
scrap (raw material) and product market conditions, the members propose business strategy plans. Exchanges of timely information concerning sales and purchasing are also
conducted via the Company intranet.
Corporate Risk Management Committee
This committee, chaired by the president, includes people in charge of risk and compliance in each department and is charged with the oversight of risk management and with promoting compliance for the Kyoei Steel Group. The
committee also spearheads education and awareness programs aimed at reducing risk across the Group, setting priority items and formulating annual plans, as well as determining the status and assessing initiatives.
Compliance System
The Internal Auditing Department has been established as a department to which the president is directly attached, and in addition to conducting regular business audits, it also audits the execution of work by the executive officers and employees. Also, when questions arise concerning compliance, executive officers and employees can report to the Compliance Committee or internally to the Compliance Consultation Desk, which has been established for that purpose. A system has been established whereby the details and proposals for resolution are relayed via the Compliance Committee to the Board of Directors and the corporate auditors, in the rare event that a compliance infraction has occurred.
Initiatives Targeting Affiliated Companies
Based on the Kyoei Steel Group’s management philosophy and code of conduct, we formulated basic rules concerning regulations for managing subsidiaries. We have also formulated a management structure by department for subsidiaries. By dispatching corporate auditors to affiliated companies, we audit their internal control systems, and the Company’s Internal Auditing Department performs regular internal audits. We also call on individual subsidiaries to establish compliance programs based on the Company’s programs, depending on the type and scale of their operations.
Elimination of Antisocial Forces
The Kyoei Steel Group maintains a basic policy of never associating with antisocial forces and organizations that threaten the order and safety of civil society, and resolutely opposes any injurious pressure or demands from them. Furthermore, we have joined with police, attorneys and other external specialist organizations to create a structure for the elimination of antisocial forces.
External Directors / External Auditors
Kyoei Steel has two external board directors and two external auditors.
We are working to strengthen our management oversight functions, and have appointed an external board directors and external auditors with assured independence for more sound,
fair, and transparent management as well as to ensure fulfillment of our duty of accountability.
External Board Director Nobuhiko Arai has rich experience as manager at such companies as Resona Trust & Banking Co., Ltd. (the present Resona Bank, Ltd.) and TOYO TEC CO., LTD. and we have appointed him based on our belief that he will provide advice on overall management judgments.
External Board Director Tetsuya Yamao has significant experience and specialized knowledge as an attorney, as well as a robust spirit of compliance. We have appointed him based on our judgment that he will conduct his duties appropriately.
External Auditor Hiroshi Ito has many years of experience in the steel industry, and we have appointed him based upon our judgment that as a specialist his auditing will strengthen and improve our corporate group’s auditing structure.
External Auditor Akira Kotani has rich experience as a banker, and we have appointed him based upon our judgment that as a specialist his auditing will strengthen and improve our corporate group’s auditing structure.
Method for Deciding Executive Pay and Executive Pay Amounts
Executive compensation is within the remuneration range resolved at the General Meeting of Shareholders, and takes into consideration factors such as the management situation, the balance between executive compensation and employee salaries and degree of responsibility. Based on these factors, the Company’s policy is to pay amounts that are in line with its operating performance, as well as individual performance and
achievement. The Company’s executive compensation system and method of assessment of performance/determining executive compensation amounts employ a framework under which the Nomination and Remuneration Advisory
Committee—composed of independent external board directors and directors selected by resolution of the Board of Directors—deliberates these matters, which are then reviewed and resolved. In this way, the Company employs a highly transparent remuneration system from the standpoint of objectivity.
It has been resolved that compensation for all board directors shall not exceed ¥550 million annually, while compensation for all corporate auditors shall not exceed ¥60 million annually.
Risk Management
We classify potential risks as follows: (1) operational risks at our production sites; (2) product liability; (3) credit risk related to sales; (4) credit risk associated with investment and lending; and (5) risks related to natural disaters.
Our executives are always examining and sharing measures for preventing and hedging every type of risk. Moreover, the internal communication system for use in the event of an emergency is very well known, and in case of an emergency the department with jurisdiction immediately contacts the Headquarters Human Resources and General Affairs Department, whereupon the Headquarters Human Resources and General Affairs Department transmits the information via the prescribed network.
Corporate Governance Structure
Formulation and
supervision of management strategies
The Kyoei Steel Group Business Management Structure Audit Appointment Management and execution of operations Affiliates Divisions Corporate Lawyers Board Directors
Chairman of the Board President Consolidated Subsidiaries Nomination and Remuneration Advisory Committee Accounting Auditor (KPMG AZSA LCC) Management Conference Corporate Risk Management Committee Compliance Committee Sales & Marketing Committee Internal Auditing Dept. Board of Directors
Board Directors and Executive Officers Executive Officers
Shareholders’ Meeting
Corporate Auditors Standing Corporate Auditor
Board of Auditors
Division for Execution of Operations
Executive Officers Employees
(1) Relationship with Nippon Steel & Sumitomo Metal Corporation
As of June 23, 2016, Nippon Steel & Sumitomo Metal Corporation (NSSMC) owned 25.8% of the outstanding shares in Kyoei Steel (26.7% of the voting rights) and is the Company’s largest shareholder. Kyoei Steel is an equity-method affiliate of NSSMC. The Company operates autonomously and conducts business independently, and intends to continue doing so in the future; provided, however, that as the top shareholder in our company, NSSMC is in a position to influence our operations by exercising its voting rights, and the interests of NSSMC may not necessarily coincide with those of the Company’s other shareholders.
(2) Selling Price Fluctuations Caused by Competition
There are a number of steel minimill companies competing in the main business of our Group, which is steel products for construction work, and excess production capacity is a structural issue that we face. Consequently, as demand for steel products fluctuates, competition to maintain sales volumes increases, and the resulting reductions in selling prices may influence the results of our Group.
(3) Fluctuations in Raw Materials Prices
Steel production is growing in the countries of Asia, which has experienced rapid economic growth in recent years, with consumption of steel scrap also trending upward. At the same time, semi-finished product exports from China to neighboring Asian countries have increased, significantly lowering steel scrap prices. These factors can cause the supply/demand environment for steel scrap, which is the principal raw material of our main products, to experience severe price fluctuations that may influence the results of our Group.
(4) Impact of the Downward Trend in Construction Demand
With the Japanese economy in a state of maturity, we believe that neither domestic public- nor private-sector demand is likely to expand significantly over the long term. Accordingly, we judge that demand for the Group’s mainstay product, rebar, is likely to decrease. If the Group’s efforts to supplement this demand are unsuccessful, the Group’s results could be affected.
(5) Effects of Power Supply Issues
Most nuclear power plants in Japan are currently not operating, causing a significant increase in the cost of electricity. This has resulted in Tokyo Electric Power, Kansai Electric Power, Chubu Electric Power, and other power companies raising their rates. Going forward, fluctuations in energy prices and exchange rates may be associated with further increases in electricity rates, though there was a temporary drop in the unit price adjusted for fuel costs, which is determined by the cost of thermal power plant fuel (liquefied natural gas and crude oil).
Also, the halt of nuclear power plant operations has been given as a reason for possible power shortages. Our Group mainly operates plants at night, when power demand is low, so we believe there is little chance of limits on power use being imposed directly, but broad limits imposed on power supplies in the future could make our operations difficult.
As a result, electricity rates and the power supply situation may influence Group results.
(6) Effects of Sharply Higher Energy Prices
If global energy prices (for oil, LNG, etc.) were to increase sharply, or if exchange rate trends were to cause a rise in energy import prices, the cost of the fuel used in our production processes (mainly those involving the reheat furnace) would also rise. In addition, against a backdrop of the cessation of operations of almost all nuclear power plants in Japan, higher energy prices are connected to a rise in electricity rates. Otherwise, a spike in oil prices could cause export costs to rise. An increase in energy prices that continues over the long term could indirectly cause a slowdown in the rate of Japanese economic growth, which may cause a contraction in construction demand. The above items may influence the results of our Group.
(7) Country Risk Regarding Our Subsidiaries
Kyoei Steel’s subsidiaries are located in the Socialist Republic of Vietnam and the United States. The results of those subsidiaries are influenced by the economic conditions there and their markets for steel products. If economic conditions or markets for steel products deteriorate in Vietnam and the US, this may adversely affect the results of those
subsidiaries. In addition, sudden political instability, a natural disaster or an industrial accident in those countries could lead to a cessation of operations or similar problems, and given that economic conditions and trade customs differ from those in Japan, recovery in these cases could take longer than expected.
The above items may influence the Group’s results.
(8) Impact of Natural Disasters
If a large-scale earthquake, typhoon or other natural disaster affects a site where the Group’s mills are located, damage to production equipment and infrastructure could result in a suspension of mill operations. Mills near the sea or rivers are particularly susceptible to tsunami, flooding and other types of water damage. Disaster prevention measures are in place at all mills on both the facility and personnel fronts. However, if hit by disaster, the Group’s results could be affected.
2008
2009
2010
2011
2012
Product shipments (Thousands of tons):Finished product 2,078 1,717 1,431 1,462 1,549
Billet (semi-finished products) 284 259 205 243 297
For the year (Millions of yen):
Net sales ¥ 181,576 ¥ 194,345 ¥ 111,485 ¥ 116,828 ¥ 130,650
Gross profit 27,456 36,672 19,999 8,124 12,780
Operating income (loss) 17,189 26,270 11,454 (206) 4,166
Income (loss) before income taxes 17,195 23,388 11,121 (386) 3,151
Profit (loss) attributable to owners of parent 11,070 14,009 6,691 (794) 1,692
Research and development expenses 26 152 44 43 29
Depreciation and amortization 4,738 4,869 4,992 4,806 4,644
Capital expenditures 5,550 5,173 4,815 2,706 4,991
Per share amounts (yen):
Net income (loss), basic 253.66 318.72 152.23 (18.22) 38.89
Net income (loss), diluted - - - -
-Cash dividends applicable to the year 30.00 40.00 40.00 20.00 20.00
At year-end:
Total assets ¥ 166,572 ¥ 153,711 ¥ 151,125 ¥ 146,453 ¥ 164,486
Working capital 28,316 43,120 50,334 51,265 61,950
Interest bearing debt 1,952 1,540 1,729 1,665 10,877
Net assets 107,846 119,154 124,905 119,973 122,725
Shareholders’ equity* 107,129 118,387 124,076 119,064 120,344
Ratios:
Return on equity (%) 10.8 12.4 5.5 (0.7) 1.4
Return on total assets (%) 10.4 16.6 7.7 (0.0) 2.8
Debt to equity ratio (times) 0.02 0.01 0.01 0.01 0.09
Shareholders' equity* to total assets (%) 64.3 77.0 82.1 81.3 73.2
Other statistics:
Number of shares outstanding (thousands) 44,899 44,899 44,899 44,899 44,899
Number of employees 1,049 1,045 1,061 1,077 1,299
Stock price (yen):
High ¥ 3,750 ¥ 2,590 ¥ 2,805 ¥ 2,082 ¥ 1,692
Low ¥ 1,532 ¥ 911 ¥ 1,544 ¥ 876 ¥ 1,011
Consolidated Ten-Year Summary
For the years ended March 31, 2008 through 2017
FINANCIAL SECTION
2013
2014
2015
2016
2017
Products shipment (Thousands of tons):
1,603 1,720 1,680 1,641 1,662 Finished products
303 247 280 259 18 Billet (semi-finished products)
For the year (Millions of yen):
¥ 142,305 ¥ 174,694 ¥ 181,436 ¥ 160,952 ¥ 145,991 Net sales
13,256 12,293 21,900 23,889 18,726 Gross profit
4,343 2,857 11,796 13,792 7,971 Operating income
3,738 9 10,730 12,432 7,698 Income before income taxes
2,069 (795) 6,923 8,467 4,783 Profit (loss) attributable to owners of parent
95 188 231 104 119 Research and development expenses
4,254 4,232 4,147 5,026 5,961 Depreciation and amortization
3,809 7,344 15,920 10,103 7,262 Capital expenditures
Per share amounts (yen):
47.59 (18.28) 159.30 194.94 110.41 Net income (loss), basic
- - - - - Net income (loss), diluted
20.00 20.00 35.00 45.00 30.00 Cash dividends applicable to the year
At year-end:
¥ 165,129 ¥ 180,771 ¥ 201,760 ¥ 200,436 ¥ 214,341 Total assets
63,811 79,699 81,872 83,565 93,301 Working capital
11,231 26,530 32,810 33,149 41,414 Interest bearing debt
125,257 128,788 138,052 143,090 146,663 Net assets
122,515 121,622 129,546 134,886 138,365 Shareholders’ equity*
Ratios:
1.7 (0.7) 5.5 6.4 3.5 Return on equity (%)
2.9 2.1 6.6 7.1 4.1 Return on total assets (%)
0.09 0.22 0.24 0.23 0.28 Debt to equity ratio (times)
74.2 67.3 64.2 67.3 64.6 Shareholders' equity* to total assets (%)
Other statistics:
44,899 44,899 44,899 44,899 44,899 Number of shares outstanding (thousands)
1,327 1,611 1,741 1,806 2,341 Number of employees
Stock price (yen):
¥ 1,781 ¥ 2,220 ¥ 2,286 ¥ 2,455 ¥ 2,349 High
¥ 1,105 ¥ 1,372 ¥ 1,618 ¥ 1,584 ¥ 1,387 Low
*Shareholders’ equity = Net assets – Non-controlling interests
Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Net Assets Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
23 24 27 29
DATA SECTION
Consolidated Ten-Year Summary Financial Review (Consolidated) Consolidated Balance Sheets
Consolidated Statements of Operations
Operating Results
In the fiscal year ended March 31, 2017, the Japanese economy recovered gradually despite the slow pace of improvements in some sectors. However, the economic outlook remained uncertain as geopolitical risk increased due to Britain’s
departure from the EU, the election of a new U.S. president and other events.
In the market for steel construction materials in Japan, the primary source of demand for the products of Kyoei Steel Group (“the Group”), there was general lackluster demand for steel. But there were steep increases in the price of steel scrap in the spring and fall of 2016 caused by overseas events. The price of steel scrap was particularly high starting in the fall of 2016 because of very strong demand for steel in the United States and China. Although the Group raised prices of its products, higher contractual prices were not immediately reflected in the prices of products that were shipped. This time lag caused a big decrease in the metal spread, which is the difference between prices of steel products and steel scrap. In the Overseas Steel Business, sales volumes increased at Vina Kyoei Steel Ltd. (VKS) in southern Vietnam and Kyoei Steel Vietnam Company Limited (KSVC) in northern Vietnam because of the strong demand for steel in Vietnam.
On December 21, 2016, the consolidated subsidiary Kyoei Steel America LLC (KSA), which is located in Delaware, U.S., acquired all the equity interests of BD Vinton LLC (now Vinton Steel LLC, hereafter “VS”), which is located in Texas. VS and its subsidiary became consolidated subsidiaries, Vinton Metal Processing LLC (MPI), through this acquisition. The acquisition was treated as having taken place on December 31, 2016 for accounting purposes. As a result, results of the operations of these two subsidiaries are not included in the consolidated statements of operations for the fiscal year ended March 31, 2017.
Overall, consolidated sales decreased 14,961 million yen ($133,366 thousand), or 9.3%, to 145,991 million yen ($1,301,399 thousand). Operating income decreased 5,821 million yen ($51,890 thousand), or 42.2%, to 7,971 million yen ($ 71,055 thousand), and profit attributable to the owners of parent decreased 3,684 million yen ($32,840 thousand), or 43.5%, to 4,783 million yen ($42,637 thousand).
Results by business segment are described below.
1) Domestic Steel Business
Shipments of finished products increased 21 thousand tons from one year earlier to 1,662 thousand tons, which included exports of 61 thousand tons. Product prices fell by 5,100 yen ($45.46) per ton from one year earlier, but the price of steel scrap, the primary raw material, increased 2,500 yen ($22.29) per ton. As a result, the difference between the price of steel products and steel scrap, the source of earnings in this segment, narrowed by 7,600 yen ($67.75) per ton. Segment
sales decreased 15,117 million yen ($134,757 thousand), or 14.0%, to 92,525 million yen ($824,791 thousand), and operating income was down 5,190 million yen ($46,265 thousand), or 41.5%, to 7,317 million yen ($65,226 thousand).
2) Overseas Steel Business
The Overseas Steel Business segment includes the operations of two companies in Vietnam, VKS in southern Vietnam and KSVC in northern Vietnam, and the U.S. holding company KSA. In 2016, Vietnam recorded strong GDP growth of 6.2% with an increase of about 15% in demand for long steel products, especially rebars. Sales volume at both VKS and KSVC increased, resulting in combined sales reaching about one million tons. However, prices of semi-finished steel products, the main raw material used by the two companies, increased and remained high because of the start of safeguard measures in Vietnam in response to inflows of cheap steel products from China. Lower prices caused by intense competition also created challenges. Due to these difficulties, profits at the subsidiaries in Vietnam decreased in the second half of 2016. At KSA, expenses associated with the acquisition of VS were accounted for. Segment sales increased by 613 million yen ($5,464 thousand), or 1.3%, to 46,648 million yen ($415,832 thousand), and operating income increased by 287 million yen ($2,558 thousand), or 38.5%, to 1,031 million yen ($9,191 thousand).
3) Material Recycling Business
In the Material Recycling Business, Company focused on measures to capture more orders for materials that are difficult to recycle. However, the volume of materials recycled decreased mainly because the Osaka Mill closed and there were problems with equipment. As a result, segment sales decreased by 452 million yen ($4,029 thousand), or 6.5%, to 6,504 million yen ($57,978 thousand), and operating income was down 383 million yen ($3,414 thousand), or 27.6%, to 1,006 million yen ($8,968 thousand).
4) Others
This category includes mainly the sales of civil engineering materials by a subsidiary and an insurance agent business. Sales decreased by 5 million yen ($45 thousand), or 1.4%, to 314 million yen ($2,798 thousand), and operating income was down 30 million yen ($267 thousand) to a loss of 10 million yen ($90 thousand) compared with operating income of 20 million yen in the previous fiscal year.
i. Status of Consolidated Assets, Liabilities and Net Assets (1) Assets
Current assets increased by 11,226 million yen ($100,071 thousand), or 10.7%, from the end of the previous fiscal year to 115,906 million yen ($1,033,215 thousand). This increase was attributable mainly to increases of 24,707 million yen ($220,244 thousand) in cash and time deposits,
Financial Review (Consolidated)
1 Consolidated Operating Results
2 Financial Situation
3,650 million yen ($32,537 thousand) in notes and accounts receivable and 4,618 million yen ($41,166 thousand) in inventories and a decrease of 21,600 million yen ($192,548 thousand) in marketable securities.
Long-term assets increased by 2,679 million yen ($23,881 thousand), or 2.8%, from the end of the previous fiscal year to 98,435 million yen ($877,474 thousand). This increase was mainly attributable to a decrease of 4,060 million yen ($36,192 thousand) in accumulated depreciation, an increase of 445 million yen ($3,967 thousand) in intangible assets, an increase of 1,536 million yen ($13,692 thousand) in investments in securities and a decrease of 1,127 million yen ($10,046 thousand) in land.
Total assets increased by 13,905 million yen ($123,953 thousand), or 6.9%, from the end of the previous fiscal year to 214,341 million yen ($1,910,689 thousand).
(2) Liabilities
Current liabilities increased by 12,809 million yen ($114,183 thousand), or 34.4%, from the end of the previous fiscal year to 50,034 million yen ($446,017 thousand). This increase was attributable mainly to increases of 2,716 million yen ($24,211 thousand) in notes and accounts payable and 10,863 million yen ($96,835 thousand) in short-term loans, and a decrease of 1,026 million yen ($9,146 thousand) in income taxes payable.
Long-term liabilities decreased by 2,477 million yen ($22,081 thousand), or 12.3%, from the end of the previous fiscal year to 17,644 million yen ($157,282 thousand). This decrease was attributable mainly to an increase of 838 million yen ($7,470 thousand) in deferred tax liabilities and a decrease of 3,609 million yen ($32,172 thousand) in long-term debt. Total liabilities increased by 10,332 million yen ($92,102 thousand), or 18.0%, from the end of the previous fiscal year to 67,678 million yen ($603,299 thousand).
(3) Net Assets
Net assets increased by 3,573 million yen ($31,851
thousand), or 2.5%, from the end of the previous fiscal year to 146,663 million yen ($1,307,390 thousand). This was attributable mainly to a profit attributable to owners of parent of 4,783 million yen ($42,637 thousand), dividends of surplus of 1,955 million yen ($17,427 thousand) and an increase of 640 million yen ($5,705 thousand) in valuation difference on available for sale securities.
As a result, from the end of the previous fiscal year, net assets per share increased by 76.16 yen ($0.68) to 3,192.02 yen ($28.45), and shareholder’s equity to total assets declined from 67.3% to 64.6%.
ii. Cash Flow Status
Cash and cash equivalents at the end of the current fiscal year decreased by 2,856 million yen ($25,459 thousand) from the end of the previous fiscal year to 36,740 million yen ($327,509 thousand). The cash flow components during
the fiscal year and the main reasons for the changes are described below.
(1) Cash flows from operating activities
Net cash provided by operating activities was 6,889 million yen ($61,410 thousand). The major components were income before income taxes of 7,698 million yen ($68,622 thousand), depreciation and amortization of 5,961 million yen ($53,138 thousand), increases of 2,685 million yen ($23,935 thousand) in notes and accounts receivable, 2,150 million yen ($19,166 thousand) in notes and accounts payable, 2,747 million yen ($24,487 thousand) in inventories, a decrease of 651 million yen ($5,803 thousand) in accrued consumption taxes and income taxes paid of 2,968 million yen ($26,458 thousand).
(2) Cash flows from investing activities
Net cash used in investing activities was 16,016 million yen ($142,771 thousand). The major components were an increase in time deposits of 5,965 million yen ($53,173 thousand), payments of 5,612 million yen ($50,027 thousand) for the purchase of investments in subsidiaries resulting in a change in the scope of consolidation, 6,724 million yen ($59,939 thousand) for the purchase of property, plant and equipment and proceeds of 2,343 million yen ($20,886 thousand) from the sale of property, plant and equipment.
(3) Cash flows from financing activities
Net cash provided by financing activities was 6,572 million yen ($58,585 thousand). The major components included a net increase of 10,975 million yen ($97,834 thousand) in short-term loans payable, the repayment of long-term debt of 2,520 million yen ($22,464 thousand) and cash dividends paid of 1,955 million yen ($17,427 thousand).
It is our fundamental principle to reward our shareholders by increasing corporate value. Accordingly, we endeavor to distribute dividends rationally, while ensuring appropriate internal reserves for business growth and enhancing the corporate structure from a long-term perspective. Accordingly, we plan to pay a year-end dividend of 20 yen ($0.18) per share, initially planned for the fiscal year ended March 31, 2017, including an interim dividend of 10 yen ($0.09), resulting in a total dividend of 30 yen ($0.27) per share for the fiscal year.
Millions of yen
Thousands of U.S. dollars
(Note 1)
KYOEI STEEL, LTD. and Consolidated Subsidiaries
Years ended March 31, 2017 and 2016
2017
2016
2017
ASSETS
Current assets:
Cash and time deposits (Note 12) ¥ 39,446 ¥ 14,739 $ 351,631
Notes and accounts receivable 35,584 31,934 317,204
Marketable securities 8,400 30,000 74,880
Inventories (Note 5) 29,237 24,619 260,626
Deferred tax assets (Note 10) 410 538 3,655
Other current assets 2,944 3,028 26,244
Allowance for doubtful accounts (115) (178) (1,025)
Total current assets 115,906 104,680 1,033,215
Property, plant and equipment:
Buildings and structures 43,014 44,381 383,437
Machinery and equipment 110,702 110,591 986,825
Land (Note 6) 23,993 25,120 213,879
Construction in progress 773 708 6,891
Other 2,349 2,373 20,940
Total 180,831 183,173 1,611,972
Accumulated depreciation (99,457) (103,517) (886,584)
Net property, plant and equipment 81,374 79,656 725,388
Investments and other assets:
Investments in securities (Note 17) 7,433 5,897 66,260
Unconsolidated subsidiaries and affiliated companies (Note 17) 3,683 4,772 32,831
Investments in long-term loans receivable 407 398 3,628
Net defined benefit asset (Note 13) 176 108 1,569
Intangible assets, net 1,659 1,214 14,789
Deferred tax assets (Note 10) 323 615 2,879
Other noncurrent assets (Note 17) 3,444 3,160 30,701
Allowance for doubtful accounts (64) (64) (571)
Total investments and other assets 17,061 16,100 152,086
Total assets ¥ 214,341 ¥ 200,436 $ 1,910,689
Consolidated Balance Sheets
The accompanying notes to the consolidated financial statements are an integral part of these statements.
Millions of yen
Thousands of U.S. dollars
(Note 1)
KYOEI STEEL, LTD. and Consolidated Subsidiaries
Years ended March 31, 2017 and 2016
2017
2016
2017
Liabilities and Net Assets Current liabilities:
Notes and accounts payable ¥ 11,967 ¥ 9,251 $ 106,677
Short-term loans (Note 7) 24,388 13,525 217,401
Long-term debt due within one year (Note 7) 3,041 2,585 27,108
Income taxes payable 949 1,975 8,460
Deferred tax liabilities (Note 10) 0 3 0
Accrued employees’ bonuses 701 714 6,249
Accrued directors’ bonuses 110 179 981
Provision for loss on business liquidation - 110
-Other current liabilities 8,878 8,883 79,141
Total current liabilities 50,034 37,225 446,017
Long-term liabilities:
Long-term debt (Note 7) 13,427 17,036 119,692
Deferred tax liabilities (Note 10) 920 82 8,201
Deferred tax liabilities for revaluation (Note 6) 2,433 2,592 21,688 Accrued directors’ severance and retirement benefits 9 8 80
Net defined benefit liability (Note 13) 76 88 677
Other long-term liabilities 779 315 6,944
Total long-term liabilities 17,644 20,121 157,282
Total liabilities: 67,678 57,346 603,299
Net assets (Note 9)
Shareholders’ equity
Common stock 18,516 18,516 165,056
Authorized – 150,300,000 shares in 2017 150,300,000 shares in 2016 Issued – 44,898,730 shares in 2017
44,898,730 shares in 2016
Capital surplus 21,493 21,493 191,594
Retained earnings 91,730 88,546 817,704
Treasury stock (1,916) (2,025) (17,080)
Total shareholders’ equity 129,823 126,530 1,157,274
Accumulated other comprehensive income
Valuation difference on available for sale securities 1,952 1,312 17,401
Deferred gains or losses on hedges 40 - 357
Revaluation reserve for land (Note 6) 4,618 4,974 41,166 Foreign currency translation adjustments 1,930 2,229 17,204
Remeasurement of defined benefit plans 2 (159) 18
Total accumulated other comprehensive income 8,542 8,356 76,146
Non-controlling interests 8,298 8,204 73,970
Total net assets 146,663 143,090 1,307,390
Millions of yen
Thousands of U.S. dollars
(Note 1)
KYOEI STEEL, LTD. and Consolidated Subsidiaries
Years ended March 31, 2017 and 2016
2017
2016
2017
Net sales ¥ 145,991 ¥ 160,952 $ 1,301,399
Cost of sales 127,265 137,063 1,134,471
Gross profit 18,726 23,889 166,928
Selling, general and administrative expenses (Note 8) 10,755 10,097 95,873
Operating income 7,971 13,792 71,055
Other income (expenses):
Interest income 288 297 2,568
Dividend income 222 222 1,979
Interest expense (723) (578) (6,445)
Share of profit of entities accounted for using equity method 112 468 998
Foreign exchange losses (80) (161) (713)
Gain on sale and disposal of property, plant and equipment 566 18 5,045 Loss on sale and disposal of property, plant and equipment (520) (435) (4,635)
Impairment loss on fixed assets (Note 18) - (1,401)
-Reversal of provision for loss on business liquidation - 231 -Loss on liquidation of business (Note 19) (120) (122) (1,070)
Cash sales discount (25) (36) (223)
Loss on sales of investments in securities (94) - (838)
Other, net 101 137 901
Other income (expenses), net (273) (1,360) (2,433)
Income before income taxes 7,698 12,432 68,622
Income taxes (Note 10)
Current 1,835 3,850 16,358
Deferred 722 440 6,436
Total income taxes 2,557 4,290 22,794
Profit 5,141 8,142 45,828
Profit (loss) attributable to non-controlling interests 358 (325) 3,191
Profit attributable to owners of parent ¥ 4,783 ¥ 8,467 $ 42,637
Yen U.S. dollars (Note 1)
Amounts per share (Note 14)
2017
2016
2017
Net income
Basic ¥ 110.41 ¥ 194.94 $ 0.98
Diluted* - -
-Cash dividends applicable to the year ¥ 30.00 ¥ 45.00 $ 0.27
Consolidated Statements of Operations
* As there was no dilutive stock outstanding during the year, the computation of diluted net income per share was not calculated.
The accompanying notes to the consolidated financial statements are an integral part of these statements.
