Marubeni Corporation Marubeni Corporation Annual Report 2001 For the fiscal year ended March 31, 2001 Annual Report 2001 For the fiscal year ended March 31, 2001 For the fiscal year ended March http://www.marubeni.com Printed on recycled paper in Japan Contents Mission 1 Performance Highlights 2 A Message from the President 3 Financial Highlights 3 Review of Operations 9 IT Business Utility & Infrastructure Plant & Ship Transportation & Industrial Machinery Energy Metals & Mineral Resources Iron & Steel Chemicals Forest Products & General Merchandise Agri-Marine Products Textile Development & Construction Finance & Logistics Business Business Incubation Department 36 Corporate Responsibilities 37 International Network 38 Major Subsidiaries and Affiliates 40 Directors, Corporate Auditors and Executive Officers 44 Organization 46 Financial Section 47 Corporate Data 75 Disclaimer Regarding Forward-Looking Statements This annual report contains forward-looking statements about the performance and management plans of Marubeni and its Group companies, based on management’s assumptions in light of current information. The following factors may therefore influence actual results. These factors include consumer trends in Japan and in major global markets, private capital expenditures, currency fluctuations, notably against the U.S. dollar, materials prices, and political turmoil in certain countries and regions. 78 MISSION Marubeni is involved in an array of industries as one of Japan’s top general trading houses. To enable it to succeed in each of its busi- nesses, Marubeni boasts the necessary expertise and knowledge, as well as specialized, enthusiastic staff. Marubeni was founded in 1858 as a textiles trading business, and its history has been one of constant response to the changing times. The Company has been swift to tackle shifts in industrial structure that have stemmed from progress in information technology (IT) and deregulation. Marubeni is building an infinite platform of potential by creating value and providing solutions for all industrial sectors. In meeting new challenges proactively, Marubeni is committed to increasing its corporate value for shareholders, business partners, regional communities and employees. 1 PERFORMANCE HIGHLIGHTS Solid Results Net Income (Years ended March 31) (Billions of yen) Consolidated gross trading profit rose ¥26.3 billion, to ¥479.8 billion, 24 17.2 while net income advanced ¥13.0 billion, to ¥15.0 billion. 16 15.0 8 2.1 -117.7 Healthier Balance Sheets 0 At March 31, 2001, consolidated total assets were ¥5.3 trillion, -200 1998 1999 2000 2001 which was equal to our target. Net interest-bearing debt was ¥3.1 trillion at year-end, just above the ¥3.0 trillion goal. Restructuring Achievements Net Interest-bearing Debt Our aim at March 31, 2001, was to have around 500 consolidated (At March 31) (Trillions of yen) 5 subsidiaries and affiliates, and to lower the proportion of unprofitable 4.4 4.0 4 companies to below 20%. At the close of the term, we had 598 3.3 3.1 3 consolidated subsidiaries and affiliates, which was down 48 from 2 the previous year but did not reach our target. We succeeded in 1 0 lowering the proportion of unprofitable companies to 19.7%. 1998 1999 2000 2001 Integration of Steel Products Operations Marubeni agreed to consolidate operations in the iron and steel field with those of Itochu Corporation by establishing a 50-50 joint venture, Number of Consolidated Subsidiaries and Affiliates (At March 31) Marubeni-Itochu Steel Inc., which will be formed on October 1, 2001. 800 693 689 646 640 598 Key Business Areas 480 320 Marubeni invested aggressively in strategic business areas during 160 the year under review. These included the network infrastructure 0 1998 1999 2000 2001 business, with Group company Vectant, Inc., at its core. The Company also acquired North Sea oil field rights, bought the Mibugawa Hydro Power Station, and invested in food wholesaling businesses and supermarkets. 2 A MESSAGE FROM THE PRESIDENT Financial Results Marubeni launched VISION2000, a three-year master policy, in April 1998. Under this initiative, we have been striving to contribute to the world economy as a value-creating, globally networked enterprise. In April 1999, to respond to drastic changes in our operating environment, we imple- mented the two-year VISION2000 Restructuring Plan, through which our top management priority is to streamline balance sheets by enhancing asset efficiency and curtailing interest-bearing debt. We have almost reached the objectives of the VISION2000 Restructuring Plan. Our operating profits are recovering, creating the foundations for our transformation to a more aggressive business structure. Economic Environment In the fiscal year ended March 31, 2001, the U.S. economic slowdown braked the Japanese economy, while the IT revolution accelerated in Japan. The United States experienced decelera- tion in capital investment and personal consumption. In contrast, consumption recovered in Europe, and exports were higher due to expansion supported by the weakness of the euro. In Asia, exports soared in the first half of the year on the strength of a global IT boom. Capital invest- ment was brisk, mainly to increase production capacity in IT equipment and electronic parts. In the second half, however, Asian economies slowed as IT demand in the United States shrank. In Japan, IT investment expanded steadily in line with strong corporate earnings. Nonetheless, the domestic economy lacked vigor because personal consumption remained slack amid concerns over rising unemployment and declining incomes. In addition, exports to the United States and other Asian markets flattened, leaving the Japanese economy in the doldrums from the second half of the year. Japan entered 2001 with worsening deflation and falling stock prices. The Bank of Japan responded to this situation by flooding the capital markets with funds and effectively resurrected its zero interest rate policy. Japan’s balance of payments decreased as imports of IT equipment and textiles from other Asian countries rose. Operating Performance Improved profitability helped Marubeni boost gross trading and operating profits in the fiscal year ended March 31, 2001. Net income rocketed more than sevenfold, to ¥15.0 billion. FINANCIAL HIGHLIGHTS Marubeni Corporation Years ended March 31, 2001 and 2000 Thousands of Millions of yen U.S. dollars Percentage 2001 2000 change 2001 For the year: Total volume of trading transactions ¥9,436,863 ¥10,222,442 (7.7)% $76,103,734 Gross trading profit 479,754 453,496 5.8 3,868,984 Income before income taxes and equity in earnings 6,688 5,419 23.4 53,935 Net income 15,036 2,060 629.9 121,258 At year-end: Total assets 5,320,604 5,584,353 (4.7) 42,908,097 Total shareholders’ equity 342,297 324,301 5.5 2,760,460 Percentage Yen change U.S. dollars Amounts per 100 shares: Basic earnings ¥1,006 ¥138 629.0% $8.11. Diluted earnings 940 138 581.2 7.58. Note: U.S. dollar amounts above and elsewhere in this report are converted from yen, for convenience only, at the prevailing exchange rate of ¥124 to US$1 as of March 31, 2001. 3 Restructuring Overview The VISION2000 Restructuring Plan delivered improvements in four key areas in the fiscal year ended March 31, 2001. Financial Restructuring We stepped up efforts to cut consolidated total assets and interest-bearing debt and trim our balance sheets. At the same time, we reduced interest and other expenses as part of an overall cost-reduction drive. We achieved the VISION2000 Restructuring Plan’s goal of lowering consolidated total assets to ¥5.3 trillion by the end of the fiscal year under review. Net interest-bearing debt was ¥3.1 trillion at year-end, just above the target of ¥3.0 trillion. We refrained from paying dividends for this fiscal year as part of a concerted, ongoing manage- ment effort to increase shareholders’ equity. Shareholders' Equity Change from (Billions of yen） March 31, 1999 March 31, 2000 March 31, 2001 March 31, 1999 Shareholders’ equity ¥354 ¥324 ¥342 –¥12 ROE — 0.61% 4.51% Shareholders’ equity Net debt-to-equity ratio (Billions of yen） (Times) 500 12 11.2 400 10.3 9.0 11 300 10 200 9 100 8 354 324 342 ～ 0 0 March 31, 1999 March 31, 2000 March 31, 2001 Business Restructuring We have endeavored to decrease the proportion of unprofitable operations, liquidating loss- making and noncore businesses while cutting the number of consolidated subsidiaries and affili- ates. In the year under review, we liquidated or sold 96 consolidated subsidiaries or affiliates, and newly consolidated 48 companies. At the close of the term, therefore, we had 598 consolidated companies, down 48 from 12 months earlier. Unfortunately, we failed to meet our target of having around 500 consolidated companies as of March 31, 2001. However, we did make considerable progress in that just 19.7% of these com- panies were unprofitable, down from 26.3% at the end of the previous fiscal year, in line with our goal of lowering the proportion to below 20%. Consolidated Net Profit of Group Firms Net profit of group firms (Billions of yen） Number of firms 75 (Start of restructuring) 600 484 476 480 50 459 500 32 25 9 400 37 5 42 48 66 0 –32 –39 300 209 –25 230 –35 200 –30 –50 170 100 118 –72 –75 0 March 31, 1998 March 31, 1999 March 31, 2000 March 31, 2001 Total number of group firms 693 689 646 598 Ratio of loss-making firms to total 30.2% 33.4% 26.3% 19.7% Surplus amount Deficit amount Net profit of group firms Profit-making firms Loss-making firms 4 Personnel Restructuring As well as trimming our balance sheets and liquidating operations, we reduced personnel in the fiscal year ended March 31, 2001. Marubeni had 4,652 employees as of April 1, 2001, down 399 from a year earlier.