Kyushu Electric Power Company Inc. Annual Report 2006 Year Ended March 31, 2006 Introduction to the Ambitious Island Kyushu
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Kyushu Electric Power Company Inc. Annual Report 2006 year ended March 31, 2006 Introduction to the Ambitious Island Kyushu Kyushu Electric Power Co., Inc. was established in 1951 and has been providing electric power service to the Kyushu region which includes the most southwestern of Japan’s four main islands, and more than 1,400 of the smaller islands surrounding Kyushu Island. With an area of 4.2 million hectares, the region is comprised of the seven prefectures of Fukuoka, Saga, Nagasaki, Kumamoto, Oita, Miyazaki and Kagoshima. It has a population of about 13.4 million, or approximately 12% of the national total. By region, Kyushu ranks next to the Kanto, Kinki and Tokai metropolitan areas with regards to the scale of population and gross domestic product. As far as regional spheres, it ranks as the largest in scale. Its GDP in FY2002 was US$372.7 billion, which in terms of economic scale, rivals Russia (US$432.8 billion), Brazil (US$492.3 billion) and Australia (US$507.7 billion). As the closest part of Japan to continental Asia, Kyushu has traditionally been the nation’s portal for cultural and technological exchange. One of the Vladivostok geographical advantages of the Kyushu region is Nakhodka Beijing the fact that the area within a 1,000-kilometer Dalian Incheon Japan radius of Kyushu Island includes such major East Tsingtao Seoul Pusan Tokyo Asian cities as Tokyo, Osaka, Seoul, Pusan, Tsingtao, Nanjing Nagoya Osaka and Shanghai. Each prefecture of the Kyushu Kyushu Hangzhou region has one or more airports with more than 30 Shanghai 500km international routes in total which connect Kyushu Guangzhou with Pusan, Seoul, and Shanghai all in less than 2 Taipei 1000km hours. The domestic transportation system in the Hong Kong Kyushu area is also very extensive. The Kyushu ■Transportation system in the Kyushu Island Bullet Train Kagoshima Line was partly opened in Kitakyushu Airport The Sanyo Shinkansen March 2004 and the entire line is expected to open (bullet train) line Shin-Kitakyushu Airport by 2011, thus an increasing amount of traffic Hakata st. Oita Airport activity inside the Kyushu region is projected. Fukuoka Airport Fukuoka Pre. Saga Pre. Oita Trans versal Nagasaki Transversal Expressway The Kyushu region has been a well-known Expressway Saga Airport Kyushu Transversal Oita Pre. supplier of electronic products, fine ceramics, and Expressway Kumamoto Pre. automobiles for markets world-wide. However, in Nagasaki Airport Nagasaki Pre. Kumamoto recent years, we have seen an accumulated growth Airport in the semiconductor related industry. With regard Miyazaki Pre. to the automobile industry, with three assembly Amakusa Airport rsal Expressway nsen line plants, Nissan Motor Company Ltd., Kyushu Miyazaki Transversal hu Transve Expressw ay Factory, Toyota Motor Company Ltd., and the East-Kyus Kagoshima Daihatsu Auto Body Company Ltd., factory, the Airport The Kyushu Shinka Miyazaki projected number of manufactured automobiles in Airport Kyushu for 2006 is expected to reach about a Kagoshima-Chuo st. million units. In the semiconductor industry, Kagoshima Pre. Kyushu produces approximately one fourth of the semiconductors manufactured nationally. 1 Introduction to the Ambitious Island Kyushu Reflecting the steady increase in Kyushu’s demand for power since our inception, our sales volume has risen from 4.1 billion kWh in FY1951 to 83.0 billion kWh in FY2005. To support this growth in demand, we have established a supply network throughout Kyushu that has been the key in ensuring efficient supplies of power to the region since our establishment. Contents Introduction to the Ambitious Island Kyushu・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 1 Consolidated Financial Highlights ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 3 To our shareholders and investors・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 4 Overview of FY2005 (April 2005 ~ March 2006) ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 5 Midterm Management Plan ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 7 Sales Strategy to Satisfy Customers・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 9 Low-cost Operation of Power Generation Facilities・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 10 Expanding the Area of Our Business ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 11 SPECIAL TOPICS ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 13 Business Management and Corporate Governance ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 14 Corporate Social Responsibility ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 15 Environmental Activities・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 17 Promoting Technology Development・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 20 Board of Directors and Auditors ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 21 Organization Chart ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 22 Major Subsidiaries and Affiliated Companies・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 23 Financial Section ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 24 Corporate Data ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 60 Overview of Power Generation Facilities・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 61 Main Facilities ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 62 Disclaimer Regarding Forward-Looking Statements: Statements made in this annual report regarding Kyushu Electric Power Group’s strategies and forecasts and other statements that are not historical facts are forward-looking statements based on management’s assumptions and beliefs in light of information currently available, and should not be interpreted as promises or guarantees. Owing to various uncertainties, actual results may differ materially from these statements. Investors are hereby cautioned against making investment decisions solely on the basis of forward-looking statements contained herein. 2 Consolidated Financial Highlights Kyushu Electric Power Company, Incorporated and Consolidated Subsidiaries Years Ended March 31, 2006, 2005 and 2004 Thousands of U.S. Dollars Millions of Yen (except for (except for per share data) per share data) 2006 2005 2004 2006 For the year: Operating revenues ¥ 1,401,752 ¥ 1,408,728 ¥ 1,391,684 $11,932,851 Operating income 171,285 213,735 198,966 1,458,117 Net income 76,850 89,288 72,792 654,210 Per share of common stock (yen and U.S. dollars): Net income: Basic ¥ 161.67 ¥ 0,0187.91 ¥ 0,0153.05 $ 1.38 Diluted Cash dividends applicable to the year 60.00 60.00 50.00 0.51 At year-end: Total assets ¥ 4,102,319 ¥ 4,049,713 ¥ 4,114,378 $34,922,270 Total shareholders’ equity 1,052,785 979,252 910,838 8,962,161 Note: All dollar figures herein refer to U.S. currency. Japanese yen amounts have been translated, for convenience only, at the rate of ¥117.47=US$1, the approximate exchange rate prevailing on March 31, 2006. ■Operating Revenues and Net Income Operating revenues (left scale) Net income (right scale) (Billions of yen) (Billions of yen) 1,500 1,458 100 1,421 1,392 1,409 1,402 89 1,200 77 80 73 61 64 900 60 600 40 300 20 0 0 2002 03 04 05 06 (FY) ■Total Assets (Billions of yen) 5,000 4,290 4,205 4,114 4,050 4,102 4,000 3,000 2,000 1,000 0 2002 03 04 05 06 (FY) 3 To our shareholders and investors ~Message from the president~ To our shareholders and investors ~Message from the president~ We wish to take this opportunity to sincerely thank you for your continuing support of our business. In the electric power market, the scope of deregulation expanded in April 2005 to cover all customers who have signed either the high voltage or the extra high voltage power purchase contract. Other deregulation initiatives recently taken include the establishment of the Japan Electric Power Exchange (JEPX), an organization dedicated to the wholesale supply of electric power, and the abolishment of fees for transmitting power for other utilities. As a result of these initiatives, nationwide competition has intensified significantly. Moreover, increasing energy demands in Asia and rising crude oil prices inhibit us from presenting a clear forecast for future market trends. To ensure further growth of our business in this environment, Kyushu Electric Power Co., Inc. is striving to promote a total energy business by fortifying our group’s business bases, in line with the Midterm Management Plan launched in March 2005. We are also working to provide our customers with optimal solutions, responding to their needs in a timely way and with sincerity, by adhering to customers’ viewpoints. While committed to reducing costs to realize competitive electric rates, we will continue working to enhance our brand value and establish our reputation as a trustworthy utility that ensures peace of mind for all stakeholders. Regarding financial aspects, we will continue to seek both profitability and financial stability. At the same time, we are committed to achieving the highest efficiency among the domestic power companies, creating new demands for the energy business, and boosting sales in non-energy businesses as well. Finally, I would like to request your generous understanding of and support for our efforts to continually enhance our group’s corporate value. June 2006 Shingo Matsuo President 4 Overview of FY2005 (April 2005 ~ March 2006) Pursuit of Management Efficiency July 2005 Commencement of Since April 2005 operation of Tamukae Continued review of the allocation of customer service Hydroelectric Power offices and reduced the number of customer service offices