阪和興業株式会社

2016
ANNUAL REPORT

Year ended March 31, 2016

Coping with changing times and markets quickly,
Hanwa makes a great contribution to society
by satisfying various needs of customers as a
“distribution specialist”
Success in today’s markets demands speed and the ability to meet a broad range ofneeds. Change is occurring on an unprecedented scale. Only companies that can adapt
quickly will survive. Hanwa has experience and accomplishments in the field of “distribution” that span 69 years.
We know how to build powerful businesses and move quickly in the pursuit of value
creation and customer satisfaction.
Dedicated to corporate citizenship, we want our business operations to help makecommunities and the world a better place to live. This is why we prioritize complianceand other activities that enable us to fulfill our obligation to society.
Through such activities, Hanwa keeps nurturing a corporate culture that will enhancethe value and reliability of our company. We aim to make greater contributions byfulfilling our social responsibilities.

To Our Stakeholders

Contents
To Our Stakeholders............................1
Business Model.....................................2
At a Glance...........................................4Interview with the President..............6
Topics.....................................................9Review of Operations◆ Steel................................................10◆ Metals and Alloys..........................12◆ Non-Ferrous Metals.......................13◆ Food Products................................14◆ Petroleum and Chemicals.............15◆ Overseas Sales Subsidiaries...........16

Shuji Kita

Hironari Furukawa

Chairman
北 修爾

President
古川 弘成

Hanwa supplies a broad range of products, including steel, metals and alloys, nonferrous metals, food products, petroleum and chemicals, lumber, machinery and manyother items, to an equally diverse range of customers.
Since our inception, we have focused our operations on the mission of serving ourcustomers as “distribution specialists.” Each year, we have used our specialized expertise and an extensive service network to meet customer needs with precisely the rightsolutions. This skill has earned Hanwa a reputation as a trading company in whichcustomers know they can place their trust, and from which they can receive outstanding
products and services.

◆ Other Business...............................17
Corporate Governance......................18
CSR Activities......................................22
Financial Section
Five-Year Summary.........................24
Management’s Discussion
and Analysis...................................25
Consolidated
Financial Statements......................28
Notes to Consolidated
Financial Statements.....................33
Independent Auditor’sReport.............................................55

The current economic environment surrounding the Group remains challenging.

Global Network..................................56

Against this backdrop, in order to build a medium- to long-term sustainable profit

Corporate Information......................60

structure and a stronger foundation, we launched the new Medium-Term Business
Plan for the three-year. For the fiscal year ending March 31, 2017, the first year of
this plan, we aims to focus its efforts on maintaining and improving its businessperformance by gaining an accurate and thorough understanding of the demand
trends in each business category. We will implement sales/inventory policies that
address precisely the needs of its clients and actively pursue the development of a
new customer base.
The sincere advice and support of all stakeholders forms the basis of all our activities.
We place great value on each customer relationship, together with the accompanying
opportunities. As we pursue further growth and progress, we will retain our devotion
to contributing to society by performing functions unique to Hanwa, while serving as

Forward-Looking Statements
The plans, strategies and other statements
related to the outlook of future results inthis annual report reflect the assumptions
and beliefs of management based on
currently available information. However, it
should be noted that there is a possibility for
actual results to differ significantly owing tosuch factors as changing social andeconomic conditions.

a trading company known for outstanding footwork.
| HANWA ANNUAL REPORT 2016 | 01

Business Model

DISTRIBUTION SPECIALIST“Customers first” is Hanwa’s core business policy.
Our business calls for growing with our customers.
Since its inception in 1947, Hanwa has continuously pursued growth in its corporate value. The Group has achieved steady
growth in its core steel business as well as metals and alloys, non-ferrous metals, food products, petroleum and chemicals,
lumber, machinery and other business.
Hanwa aims to be a different type of trading company, using a vertically aligned organization to earn profits by serving as
an intermediary for business transactions and investing mainly to boost relationships that generate such profits. We are dedicated to putting our customers first and prospering together with them. This is why we use horizontal collaboration that goes
far beyond conventional vertical organizational structures. Using this approach produces ideas and improvements that originate
from strong partnerships between Hanwa and its customers. Only this type of trading firm can function as a “true trading
company” that performs a valuable role in society.
To further solidify its relationships, Hanwa follows a business model innovation based on three strategic concepts in theactivities of all segments: (1) always stay close to the viewpoint of users, (2) diversify business activities, and (3) manage
activities for the Group as a whole. Targeting efficiency and optimization across the value chain, extending from manufacturers and other suppliers to users, we are diversifying the Group’s business domains within the supply chain to achieve thegreatest possible user satisfaction.

Past business areas

Upstream

Makers/suppliers

Trade

Temporary
distribution

Downstream

Manufacturing
process

Intermediate
distribution

Users

Three Strengths
The footwork required to act with speed and agility
FOOTWORK

Hanwa firmly believes in positioning markets at the center of its operations. Front-line activities are a source of information andlessons that are available nowhere else. Speed and agility are vital to being in the right place at the right time to gather thisknowledge. Recognizing the importance of spending time in the field, Hanwa business professionals use swift footwork tomove from one location to another. This constant focus on the essence of business activities allows Hanwa to supply customers
with solutions of the highest caliber.

The foundation for skills in information and sales
NETWORK

Hanwa has a powerful network that spans the globe. In Japan, Hanwa offices and distribution centers work closely
together to serve customers. Overseas, we have an extensive network of offices and subsidiaries, particularly in Asia.
Skills in information and sales that originate from this network are a critical component of our business operations. With
these capabilities, we can meet the expectations of every customer as “distribution specialists.”

A cohesive organization that thrives on teamwork
TEAMWORK

02 | HANWA ANNUAL REPORT 2016 |Conventional general trading companies operate by making each business a largely autonomous unit. Hanwa’s operations go beyond this vertical structure. Our business operations benefit from powerful teamwork among all departments
and people in our organization. All available resources are used to meet our customers’ needs. Teamwork has one more
important benefit: the ability to build mutually beneficial (“win-win”) relationships by creating the best possible partnership with each customer.

Developing Globally While Expanding and Deepening Business Fields
Hanwa has built a solid position in the market as a trading company handling a board range of products, including
steel, metals and alloys, non-ferrous metals, food products, petroleum and chemicals, lumber, machinery and manyother items. As a “trading company that makes a difference,” we are expanding our business fields in accordancewith the changing times and society to satisfy customers’ diverse requirements.
●

Steel

Dedicated to meeting the needs of customers in a broad spectrum of industries, the Steel Division handles
everything from steel plates, sheets and bars to construction materials.
●

Metals and Alloys

Metals and alloys Division fulfills an important social responsibility as a supplier of many metals resources
such as chromium, manganese, silicon ore and ferroalloys of primary products.
●

Non-Ferrous Metals

One of the first companies to recycle aluminum, copper, nickel and chromium, Hanwa is at the forefront ofeffective resource recycling.
●

Food Products

Handling prawns, crab and other seafood, and enjoying the top market shares in several product categories,
we bring fine food products from around the world to tables throughout Japan.
●

Petroleum and Chemicals

As a trader in petroleum products, chemical products and paper materials, we cultivate durable relationships
with customers by providing accurate information and responding swiftly to market needs.
●

Overseas Sales Subsidiaries

This segment includes trading of various goods and relevant business activities handled by overseas sales
subsidiaries in North America and Asia.
●

Other BusinessThis segment mainly comprises the Lumber and Plywood Division, which imports quality forest products aroundthe world, and the Machinery Division, which handles a variety of amusement facilities and industrial machinery.

Number ofOverseas Bases

47

Number of Overseas
Processing Plants

Number of Subsidiaries
and AssociatedCompanies

41

30

Number of
Employees (consolidated)

2,977| HANWA ANNUAL REPORT 2016 | 03

At a Glance
Net Sales / Year-on-Year Change

Steel¥778,738 million

–9.2

%

Metals and Alloys¥127,759 million+1.6%
Non-Ferrous Metals¥80,895 million

–1.3

%

Food Products¥89,542 million

Fiscal 2015 Net Sales¥1,511,800+3.0

million%Petroleum and Chemicals¥271,602 million

–35.7

%

Overseas Sales Subsidiaries¥97,468 million

–3.8

%

Other Business¥65,796 million

+6.8

%

04 | HANWA ANNUAL REPORT 2016 |Principal Items
Steel Bars
Steel bars of various shapes, screw-type reinforcementsteels, steel pipe piles, H-beam, flat bars, square steel,light gauge sections, cement, various construction works
Steel Sheets
Steel plates, hot-rolled steel sheets, cold-rolled steel
sheets, surface-treated steel sheets, electrical steel sheets
Special steels and others
Special steels, cast steels, stainless steels, steel wires,
steel pipes, ferrous raw material

Nickel, chromium, ferro-alloys, stainlesssteel scrap, titanium scrap, silicon, solar
cell materials

Consolidated Financial Highlights
Millions of yen,
except for number of employees

Thousands of
U.S. dollars (Note 1)

2016

2015

2016

¥1,511,800¥1,737,398$13,416,755

Operating income

18,178

19,107

161,324

Net income attributable toowners of the parent

25,4709,086

226,038

Comprehensive income

16,77919,450148,908

For the year:

Net sales

At year-end:¥

Cash and cash equivalents

25,805¥

599,694

651,457

5,322,098

Total net assets

156,139

142,750

1,385,685

2,977

2,772

Yen

Petroleum products in general, marineoil, petrochemicals, synthetic resin,
paper products

U.S. dollars (Note 1)

Per share data:

Net income attributable toowners of the parent

Prawns and shrimp, crab, salmon,
herring roe, horse mackerel, mackerel,
Capelin, octopus, eel, herring, flounder,
Matsubara’s red rockfish, fish paste,
processed goods

229,011

Total assets

Number of employees
Copper, aluminum, zinc, lead$

24,515¥122.92

¥

$

43.85

1.091

Cash dividends

18.00

15.00

0.160

Net assets attributable toowners of the parent

747.40682.46

6.633%
Key financial ratios:

Return on assets (ROA)

4.1

1.5

Return on equity (ROE)

17.2

6.9

Net debt/equity ratio (Note 2)

140

180

Notes: 1. The U.S. dollar amounts represent translations, for convenience only, of yen amounts at the rate of ¥112.68=$1.00.
2. Net debt/equity ratio = Net interest-bearing debt/equity.
Net interest-bearing debt = Interest-bearing debt – cash.

Net Sales

Operating Income

Net Income Attributable to
Owners of the Parent(Millions of yen)

(Millions of yen)

(Millions of yen)

25,00020,0001,500,000

Wholesale trade, general merchandise

20,00015,0001,000,000

Lumber and Plywood
Structural lumber for housing, various
plywood
Machinery
Various amusement facilities, steel-relatedindustrial machinery, environment-related
machinery
Other
Environment-related business

15,00010,00010,000500,000
5,000

0

5,000

0
12

13

14

15

16

0
12

13

14

15

16

12

13

14

15

16

| HANWA ANNUAL REPORT 2016 | 05

Interview with the President

Looking at the present and the future of the Hanwa Group

steady“ The
implementation ofstrategies propels
us toward
sustainable growth.

”
Hironari Furukawa, President
代表取締役社長 古川 弘成

Q1Please share your opinion about the economic environment during the fiscal
year ended March 31, 2016.

A

Q2

With regard to the world economy in the fiscal year under review, the U.S. economy maintained a gradual
recovery centered on personal consumption and housing investment, but showed signs of stagnation after the
U.S. federal funds rate hike in December 2015. The European economy remained uncertain due to politicalinstability despite a continuous economic recovery on the whole. With China in a transition phase to stable
growth under its new economic policy, the pace of economic growth slowed. Other emerging countries also
experienced continuing stagnation on the whole.
The Japanese economy experienced a stagnation in production activities in the manufacturing industry
due to such factors as sluggish growth in exports and the trend of yen appreciation, despite partly modest
improvement in personal consumption. Consequently, reflecting sluggish capital expenditures and a continuing
decline in public investment, the economic ripple effects of government measures began to fade.

Please summarize operating results of the fiscal year ended March 31, 2016.

A

06 | HANWA ANNUAL REPORT 2016 |Given the background as mentioned above, the Group posted consolidated net sales of ¥1,511,800 million forthe consolidated fiscal year ended March 31, 2016, representing a year-on-year decrease of 13.0%, due mainly
to a price decline in steel products accompanying weak demand and excess supply. Operating income fell 4.9%,
to ¥18,178 million, primarily reflecting lower profit in the metals and alloys business. Net income attributable toowners of the parent jumped 180.3% to ¥25,470 million, due to such factors as a decrease in the foreignexchange loss, a gain on sales of property and equipment, and a drop in income taxes paid reflecting a tax
deduction for the impairment loss of the relevant assets recorded in previous fiscal years, despite a share of lossof entities accounted for using the equity method.

Q3

What is your outlook for the fiscal year ending March 31, 2017?

A

Although the U.S. economy is showing signs of slow recovery, close attention should be paid to such factors as thetrends in monetary policy, while its European counterpart still faces an uncertainty stemming from economic andsocial instability despite a gradual economic recovery. Chinese government authorities, which has been promoting
the “new normal” policy of sustainable growth, rather than aggressive expansion, found it hard to launch largescale economic stimulus measures. Therefore, the condition of uncertainty is expected to remain unchanged.
The Japanese economy has been experiencing few signs of an upturn in personal consumption andcapital expenditure in the face of an uncertain economic outlook, despite expectations of demand recovery inthe construction industry.
In this operating environment, the Group aims to focus its efforts on maintaining and improving its business performance by gaining an accurate and thorough understanding of the demand trends in each businesscategory. It will implement sales/inventory policies that address precisely the needs of its clients and actively
pursue the development of a new customer base.
Based on the factors described above, in terms of consolidated operating results for the next fiscal year, we
expect net sales of ¥1,600,000 million (up 5.8% compared with the previous year), operating income of ¥21,000
million (up 15.5%), and net income attributable to owners of the parent of ¥13,000 million (down 49.0%).

Q4

Please share your vision for business management in the future.

A

Q5

In May 2016, the Group launched the new Medium-Term Business Plan for the three-year period from April
2016 to March 2019, which essentially calls for action needed to commit to the “Three S” initiatives (Steady,
Speedy, Strategic), to build a medium- to long-term sustainable profit structure and a stronger foundation. The
business plan includes three objectives: “steady” growth of the Company by earning profits in current businessdomains; “speedy” gaining of returns from strategic investments in the Group companies both in Japan andabroad; and “strategic” mergers, acquisitions, and alliances to add more sources of earnings in the future.
Against the backdrop of these initiatives, regarding consolidated operating results for the fiscal year ending
March 31, 2019, the final year of the Medium-Term Business Plan, we expect net sales of ¥2,000,000 million,
ordinary income of ¥20,000 million, and 2,000 new customers.

What is your message for Hanwa investors with regard toshareholders return?

A

The Company gives top priority to the payment of a higher and stable dividend to shareholders. As for the
distribution of retained earnings for the fiscal year under review, we decided to pay a year-end dividend of ¥10
per share, bringing the total dividend for the year to ¥18 per share, including an interim dividend of ¥8 pershare. We made this decision because we managed to generate stable operating revenue without greater
downside while the business environment remained challenging.
For the fiscal year ending March 31, 2017, we plan to pay an annual dividend of ¥18 per share if thetargeted results are achieved.
In all our activities, we ask sincerely for your continued understanding and support.

| HANWA ANNUAL REPORT 2016 | 07

Medium-Term Business Plan

Close
Up

An Overview : The New Medium-Term Business Plan (FY2016–FY2018)
For the next decade, this business plan sets the objectives of steady growth for Hanwa by earning profits in current business domains whileachieving speedy earnings growth driven by group companies and strategic investments. In addition, there will be more strategic mergers,
acquisitions and alliances to add more future sources of earnings.

Medium-Term Business Plan Theme
The “Three S” Commitment: Steady, Speedy, Strategic
Build a medium- to long-term sustainable profit structure and a stronger foundation

STRATEGIC
Establish future sources of additional earnings bycontinuing strategic investments

t
en
tm
es
v
in

s

AB

TAIN

SUS

TH
ROW
LE G
ic
teg
tra
s
from

SPEEDY

s
e
ent
enu
estm
l rev
iona
s inv
t
i
a
d
e
s
d
r
A
ove
ic anddomesties
Revenue frommpan
oup coverseas gr
o
d
n
a
c
i
t
s
e
m
o
d
Revenue fromSpeed up to produce benefits from investments in groupcompanies and strategic investments in Japan and overseas

STEADY
Maintain and increase earnings in well-established businesses

Revenue from Hanwa

Quantitative Objectives

FY2015FY2018¥1,511,800¥2,000,000

Ordinary Profit
OP Margin (%)¥15,424¥20,000

New customers

2,075

2,000

Net sales

Our aim for the next three to five years is “2 x 4”: Sales of ¥2,000 billion,
ordinary income of ¥20 billion, 2,000 new customers, and net assets of¥200 billion. In the final year of the Medium-Term Business Plan (the fiscal
year ending March 31, 2019), the quantitative objectives are listed in thechart on the right.

(Million Yen)

1.0%

(Aggregate in three years)

1.0%

Growth Strategy: “Three S”
STRATEGIC
SPEEDY
Makers/suppliers

STEADY

Trading

SPEEDY
Primary
distribution

Maintain steady earnings

Processing

Intermediate
distribution

Users

Speed up to produce benefits
from investments

Establish future sources of additional earnings by continuing strategic investments• STEADY: Maintain and increase earnings in well-established business—
Use HKQC (quality assurance using the Hanwa Group’s collective
knowledge) to eliminate the risk of losses in all business processes.
—Increase cash flow generation by improving the efficiency of purchases,
inventories, sales and the receipt of payments• SPEEDY: Speed up to produce benefits from investments—Make companies (36 in Japan and 33 overseas) more profitable—Moving up to secure returns from current business investments thatare performing well or have excellent prospects

08 | HANWA ANNUAL REPORT 2016 |• STRATEGIC: Continuing strategic investments—Execute diversified mergers and acquisitions and flexible allianceinvestments in high-quality small and midsize companies.
—Create opportunities for strategic investments in the food products,
petroleum and chemicals, lumber and other business sectors.
—Make strategic investments in natural resource sectors with distinctive
characteristics.
—Make carefully targeted strategic investments in Southeast Asia andNorth America.

TOPICS

Acquisition of Shares of Daisun Co., Ltd.
In July 2015, Hanwa acquired a 100% stake in Daisun
Co., Ltd., a company headquartered in Osaka that
deals in general steel, steel building materials andrelated products. The company was subsequently madeinto a subsidiary.
Daisun was founded in 1946 and in 1957 opened
a liaison office in Tokyo (now a branch office). Among
many a general steel dealer (secondary wholesaler) inOsaka, the company is the only distributor with sales
bases in both eastern and western Japan, and ranks
View of warehouse
fifth in net sales.
Daisun’s main products include steel shapes, such as I-beams and unequal
angle steel, with the former employed in shipbuilding, crane garters, elevators,
driving rails for high-speed building cleaning gondolas, and construction. In
terms of size range and stocks of I-beams, the company is unmatched in Japan.

Head office (Distribution warehouse)

Opening Ceremony of Hanwa Steel Service Mexicana, S.A. de C.V.
Hanwa Steel Service Mexicana, S.A. de C.V. (HSSM) wasestablished in 2012 as the Company’s wholly owned
subsidiary. Following the start of operations in 2013, thethird phase of facilities expansion works was completed in
November 2015. To commemorate this milestone, HSSM
held an opening ceremony on site.
As is widely known, Mexico has already developed
into the seventh largest automobile manufacturer in theworld, and it is projected to become the fifth largest, withannual production of five million vehicles.
In particular, the state of Guanajuato, which is home
to many Japanese manufacturers including the major
automobile companies, is expected to become the world’s
leading manufacturing industrial park. Given this background,
HSSM anticipates soaring steel demand from manufacturers
centered on Mexico’s automobile industry, and is leveraging
the effects of the third phase of its expansion to further
develop its business.

Production lines

HSSM head office| HANWA ANNUAL REPORT 2016 | 09

Review of Operations

Steel (Domestic)
Fiscal 2015 Results
Global crude steel production for calendar year 2015 totaled 1,600 million tons,
down 2.3% year on year, marking the first decline in the last 34 years, yet it was stillat an elevated level. In China in particular, prices of raw materials such as iron ore
and coking coal dropped in the face of lackluster domestic demand. This caused Chinamade steel to be exported at low prices to foreign markets, resulting in the nation’s
steel exports for 2015 reaching 110 million tons, up 20% year on year, which
induced international steel market prices to continue falling. In Japan, meanwhile,
domestic steel market prices continued to decline almost every month as shipments
were slack amid falling international market prices, putting the Company’s businessof sales to wholesalers in a challenging environment.
On the demand front, Japan’s domestic demand for steel products from the
manufacturing industry was generally sluggish in fiscal 2015 as the year’s domestic
automobile production decreased 4.2% year on year to 9,187,500 units withconstruction machinery shipment value also falling year on year in response to thestagnant Chinese and Asian economies. Meanwhile, domestic demand for steel
products from the construction industry showed signs of stagnation due to budget
revisions, design changes and project schedule delays on the part of customers
although labor shortage was in the process of being resolved.
During fiscal 2015, the Company continued to pursue the fast delivery/small-lot/processing strategy and carefully capture demand from regional customers andsmall- to medium-sized enterprises with the result that its product handling volume(Millions of yen)yen)declined(Millions
onlyof slightly
year on year. Profits were underpinnedby the completion andrecording of relatively high-margin construction work project contracts which had
been wonat the early stage of the Abenomics initiative,
120,000
80,000 and by the Company
correctly setting its purchasing timing amid the downturn of market prices.

Net Sales(Millions of yen)

800,000

90,000600,000

Looking Ahead and Key Strategies

400,000

200,000

0

12

13

14

15

16

Net Sales Composition

51.5%

10 | HANWA ANNUAL REPORT 2016 |

60,000After the 60,000
start of 2016, international steel market prices 40,000
climbed on expectations fora potential recovery in China’s steel demand. There are, however, some signs of steel
prices turning lower again while elevated levels of steel production continues in
20,00030,000China. With
iron ore market prices moving violently, risingand falling repeatedly, it
is difficult to predict the market conditions for fiscal 2016.
The Japanese
economy, with various indicators weakening
slightly, is showing a001213currently
14 in 1512
13
14 The15 nation’s
16 manufacturing industry
growing sense of future
uncertainty.
isa challenging climate due to declining domestic automobile sales as well as to the falling
construction and industrial machinery order intake stemming from the decelerating
Chinese and emerging market economies and the accelerated yen’s appreciation.
The construction and civil engineering industries will probably experience a demand
recovery in the second half of fiscal 2016, supported by Olympics-related demand andurban redevelopment projects. However, due to their work capacity constraints, players
in these industries are unlikely to enjoy a substantial increase in demand.
In Japan, the Company will strive to gain new customers among small- to mediumsized enterprises, becoming more oriented towards direct demand. At the same time,in order to further explore direct demand, we will continue to implement the fastdelivery/small-lot/processing strategy, thus seeking to improve the Hanwa Group’sfunctions through M&A and forming alliances with partner companies. To this end,
we will revise our logistics strategy, establishing medium-sized warehouses in locations
near where demand exists, thereby developing a platform for the Company to provide
attentive service. As for demand from construction and civil engineering industry
customers, we will bolster our project-focused sales activities targeting demand fromvarious projects, including Olympics-related and Tokyo metropolitan zone redevelopment
projects, and make efforts to capture such demand.

16

Steel (Overseas)
Fiscal 2015 Results
Global crude steel production for calendar year 2015 totaled 1,621.10 million tons,
marking the first year-on-year decline for six years. Among it, crude production in China
stood at 803.82 million tons, down year on year, yet it was still at an elevated level.
Japan’s steel exports for fiscal 2015 came to 41.45 million tons, falling for thethird consecutive year. Yen depreciation did not translate into larger exports.
In China, the decelerating economy prevented steel demand from growing withthe demand affected by the yuan devaluation as well as the falling prices of Chinese
stocks and real estate.
In the United States, despite strong demand from the housing and automobile
sectors, steel demand from the oil and gas sectors decreased markedly, pressured by
crude oil prices falling further.
While demand in the ASEAN region remained firm in general, despite variations
among member countries, the region encountered trouble caused by increased
inflows of China-made steel products to member countries, and was shown to beaffected by the downturn of the Chinese economy and the falling crude oil prices.
In this environment, although the Company’s steel exports struggled due to thedeclining steel plate trading in the shipbuilding and energy sectors in Asian countries
such as South Korea, increased trading of stainless products offset the lower trading
volume of steel plates. Nevertheless, China’s sluggish domestic demand prompted
its annual steel exports to exceed 110 million tons while expanded inflows of Chinamade steel products to the international market lowered overall world market
prices, which was a contributing factor for the reduced export sales of the Company
for fiscal 2015.

Looking Ahead and Key Strategies
Some regions will likely see steel demand recover in the base infrastructure,
automobile and housing sectors thanks to economic assistance measures
implemented by the government.
However, depressed crude oil prices will increasingly give rise to suspensions
and postponements of energy-related projects, causing industry-wide restructuring
to accelerate.
The existing global excess production capacity for steel products is expected toremain during fiscal 2016. Depending on the operation of Chinese mills, international
steel market prices will likely move unstably during the year. Although the nation’s
domestic demand will fail to rise, mills in China will likely continue to be eager toexport aggressively. China-made steel products, barred from some countries due tointernational trade issues involving the imposition of anti-dumping duties (ADs), may
potentially flow to other countries at an accelerated pace to replace non-China-madesteel products, thus putting steel distribution in a complicated state.
We will continue to focus on promoting Japan-made steel products in market
segments in which they compete little against Chinese products and through, inparticular, endeavors that leverage the high quality and credibility of Japan-madeproducts. We seek to expand trading by correctly identifying user needs and taking
advantage of our own processing facilities and inventories, among other resources,
as well as those of our business partners.
As for general-purpose commodities, rather than adhering to products made inJapan, we will deal in Chinese and South Korean steel products with pricecompetitiveness, and strive to actively expand their sales to overseas users in Asia,
North and Central Americas, Europe and the Middle East through our network.

| HANWA ANNUAL REPORT 2016 | 11

Review of Operations

Metals and Alloys
Fiscal 2015 Results
Although it is in a challenging environment, the primary special metal businessdealing mainly with nickel cathode and other chemicals saw substantial growth interms of business results as the Company gained new customers such as those in
the battery industry, secured suppliers and rolled out new products, all in a smoothmanner. Affected by the nickel ore export ban in place in Indonesia, nickel pig ironproduction in China became sluggish, which allowed us to tap the growing demand
for nickel metal, a substitute raw material.
After peaking out at $14,500 per ton in May 2015, nickel prices continued to fall
before hitting a low of $7,500 per ton in February 2016. Meanwhile, the special
metals recycling business, consisting mainly of stainless scrap and special metal scrap,
was weak in terms of earnings, including at the Company’s affiliates, affected by lower
collection volume and reduced handling fee amid the plunging nickel prices.
The ferroalloy business, targeting steel mills and stainless steelmakers, sufferedprofitability deterioration in the first half of fiscal 2015 amid falling demand andplunging prices. In the second half, however, this business succeeded in growing
handling volume, posting improved earnings thanks to the market rebounding.
Fiscal 2015 was an extremely challenging year for the metal raw materials
business as the adverse climate marked generally by the falling demand and prices
continued during the year. Meanwhile, rather than becoming cautious, the Company
aggressively continued to invest in upstream business areas, a source of its future(Millionsof yen)(Millions toof yen)earnings,
by taking the opportunity of costs related
holding interests in natural
resources being revised downward.

Net Sales(Millions of yen)

120,000

80,000100,000

Looking Ahead and Key Strategies
80,00090,00060,000It appears that prices of metal raw materials such as nickel, chromium, manganese,

60,000been
40,00030,000

0

12

13

14

15

16

Net Sales Composition

8.4%

12 | HANWA ANNUAL REPORT 2016 |silicon and molybdenum have more or less hit the60,000
bottom, and some mines havesubjected to production reduction, operation suspension and closure.
Meanwhile, a period of about six months is not 40,000
long enough for the industry toresolve the gap between the world’s total demand volume and supply capacity, a
20,00020,000process that will go into full swing from now on. Therefore,
there will probably be
no significant upside for demand and prices over the next year with another period00of price
downturn potentially looming.
12
13
14
15
16
12
13
14
15
16
In this environment, the specialty metals recycling business consisting mainly of
stainless scrap is unlikely to achieve significant growth in terms of volume.
Consequently, the Company and its related companies will seek to stabilize earnings
by cutting costs and retaining sales volume.
Raw materials for primary specialty metals are not expected to post substantial
growth either, meaning it will be important for the Company to expand into new
business segments and develop new products. In chemicals markets such as forsulfuric acid that are still growing even in this environment, we will pursue operations
aggressively including through loan and investment programs.
As for the ferroalloy business, the environment for metal raw materials is likely
to become even more challenging. The Company will leverage loan and investment
programs that had been implemented until the previous fiscal year to specificallysecure new products and business interests, translating them into profits.

Non-Ferrous Metals
Non-Ferrous Metals
Fiscal 2015 Results
Early in fiscal 2015, in May, copper and aluminum prices both peaked at $6,500 per
ton and about $2,000 per ton, respectively, before continuing to decline persistently
in the first half of the fiscal year amid the slowing economy, mainly in China, and aflight of cash from natural resources and commodities as a whole. Copper andaluminum prices stopped falling temporarily in September 2015 only to turn lower
again to explore new lows, hitting $4,300 per ton in January 2016 and $1,400 per
ton in December 2015, respectively. Although rebounding slightly toward the fiscal
year-end, copper and aluminum prices each failed to break out of their bottom
ranges. In addition to commodity prices dropping, CIF Japan premium on newaluminum ingots declined sharply from $425 per ton at the fiscal year-start to below$100 per ton in six months. This premium drop-off, albeit predicted in advance,
caused a significant loss to the Company’s aluminum raw materials business because
this is a commodity category for which no effective hedging vehicle is available.
Meanwhile, in the business for white metals such as copper, precious metal, tin,lead and zinc, the Company achieved higher volumes and sales in this environment,
securing earnings more or less in line with the plan. Although strong financial results
were posted by SEIKI Co., Ltd., an aluminum scrap processing and aluminumdeoxidizing material manufacturing company that was newly converted into a
consolidated subsidiary of Hanwa Co., Ltd., it failed to fully compensate for the loss
incurred by the aluminum business.
(Millions of yen)

(Millions of yen)

Looking Ahead and Key Strategies
800,000

600,000

400,000

200,0000

120,000

The second half of fiscal 2015 saw prices of metals fall below the break-even points
for mines developed in recent years with some mines resorting to production cuts
90,000and suspensions. Although metal prices are thought
to be close to the bottom, any
rebound should be rather limited in extent at a time when demand is not expected
to grow much and global demand is highly likely
60,000to decline gradually given China’s
current conditions. Prices of metals will most probably fail to break out of the bottom
range in light of their supply-demand balance despite the fact that metals are free
30,000of the kind of structural and man-made problems involved in the previous fiscal
year’s CIF Japan premium drop-off.
0 expand earnings through the
In this environment, the Company aims to
12
13
14
15
16
12
13
14
15
16
development of new products for the recycling market, an initiative underway togrow its handling volume and sales, as well as through the processing work
performed in Japan to create added values and efforts to increase sales and handlingvolume abroad. In particular, regarding our strategic product categories, such as
precious metals, white metal raw materials and products targeted by the Basel
Convention, we will consider making investments and participating in a joint venturearrangement, if any opportunity is available, in order to grow our volume, expand thetypes of products and raise the number of procurement regions and sales regions.

Net Sales(Millions of yen)

(Millions of ye

100,000

80,00080,00060,00060,00040,00040,00020,00020,000

0

0

12

13

14

15

16

Net Sales Composition

5.4%| HANWA ANNUAL REPORT 2016 | 13

Review of Operations

Food Products
Fiscal 2015 Results
Prices of shrimp, our mainstay, continued to decline until the summer of 2015 in apersistent price slide that began in fiscal 2014.
Prices of other raw materials for marine products rose as supply generally
decreased. Among such raw materials was salmon, whose prices climbed markedly,
affected by salmon farming failures in Chile.
Although China’s import volume of raw materials for marine products declined,
pressured by its decelerating economy, it did not have much effect on global supplydemand balance.
While domestic consumption continued to decrease, the Company recorded
relatively strong product sales in Japan, helped by the falling shrimp prices. On theother hand, a significant loss was posted for the second consecutive year due toinventory disposal sales by Seattle Shrimp & Seafood Company, Inc. our distributor
in North America of seafood products consisting mainly of shrimp, which stemmed
from a shrimp price drop-off in North America.
On the domestic front, Hanwa Foods Co., Ltd., a distributor of processed foodproducts for downstream categories, failed to achieve profitability due to a raw material purchasing failure, yen weakness-induced cost rises and product quality issues.

Looking Ahead and Key Strategies

Net Sales(Millions of yen)

100,000

80,00060,00040,00020,000

0

16

12

13

14

15

16

Net Sales Composition

5.9%

Although
prices of overall raw materials for marine products(Millions
remain(Millions of yen)of yen)at high levels
due to falling supply, some products have entered into a price adjustment as theirconsumption
has decreased in response to the high prices. 60,000
However, prices of
500,000
salmon and crab, items for which the market is large in North America, are staying
50,000at highlevels with their shipment volumes to Japan being on the decline.
400,000
Sales of marine products to restaurants in Japan are strong,
40,000 supported by
300,000consumption by foreign tourists. A growing proportion of high-priced
growing
30,000products are now being sold gradually through online distributors
rather than
200,000mainly mass retailers. Thus, the Company needs to gain or explore new
through
20,000
customers strong in new sales routes, in addition to its existing customers.
100,000 with the challenge of labor shortage caused by Japan’s decreasing
Beset
10,000working-age population, the nation’s food processing factory operators are increas0
ingly outsourcing
processing operations to overseas vendors. Given0food processing
12
13
14
12
13
14
15
16
companies’ accelerated shift away from China and the effects of the Trans-PacificPartnership (TPP), the Company must urgently secure processing bases in theSoutheast Asian region. We aim to expand our operations by leveraging our network(Millions of yen)in the region to assist customers in
expanding to foreign countries.
100,000
Hanwa Foods Co., Ltd., Marumoto
Honma Suisan Co., Ltd. and Seattle
80,000Shrimp & Seafood Company, Inc. will
make greater efforts to exchange
60,000information closely with the Food
Department of the parent company
40,000Hanwa Co., Ltd., and strive to lower
risks for quality and the market to the
20,000extent possible, thereby seeking toachieve profitability and higher profits.

15

1

15

1

0

12

14 | HANWA ANNUAL REPORT 2016 |13

14

Petroleum and Chemicals
Fiscal 2015 Results

80,000The crude oil price decline triggered two years ago by the shale revolution continued
throughout fiscal 2015, and February 2016 saw the WTI crude oil price drop to $26/
BBD. In the domestic oil market, product selling prices continued to fall in anunrestrained manner despite oil wholesale companies’ policy to maintain their prices.
The Petroleum Department continued to suffer challenging conditions with salesof heavy oil to utility companies falling and kerosene oil sales plunging due to awarm winter. The department, however, achieved favorable results above
expectations as it was able to take nimble steps for procurement and price hedging,and captured price fall-induced customer demand for heavy oil boiler reactivation
while expanding sales of coal, lubricants and base oil. Meanwhile, the bunker oil
business experienced a significant deterioration, affected by the declining productprices and slack vessel demand as well as a structural change marked by US bunker
oil prices falling below Asian ones.
The chemicals business saw its product profitability improve as prices of raw
materials for synthetic resins declined. Meanwhile, although yen weakness caused
the profitability of imported raw materials to deteriorate, product volume stabilized,
allowing the chemicals business to achieve strong results.
In the paper business, both earnings and volume deteriorated as the priceadvantage of old and waste paper diminished due to China-made products
becoming cheaper following declines in pulp market prices, while waste paper
occurrence volume decreased.
of yen)In the new energy business, both(Millions
volumeand profits failed to grow as sales
competition intensified with the scope of customers for palm kernel shell (PKS)
100,000
being still limited.

60,000

Looking Ahead and Key Strategies(Millions of yen)

80,00040,00020,0000

Crude oil prices broke out of the bottom60,000
range in April 2016 to rebound to the $40
level. However, price coordination meetings of OPEC member and other petroleum
producing countries ended unsuccessfully,
40,000suggesting that crude oil prices could
potentially drop again and significant price rises are unlikely to take place.
Domestic demand is expected to keep
20,000 decreasing, causing the challenging
environment to continue further as wholesale companies’ realignment in the country
will likely give rise to fierce price competition
0 with players seeking to secure their
12 existing
13 levels
14 of 1516
13
14
15survive
16 in thesales allocation.
The Petroleum 12
Department
aims toindustry by focusing its efforts more intensely on the industrial heavy oil business, inwhich it excels. The Petroleum Department will review the operations of our
subsidiary Toyo Energy Co., Ltd. and bolster the collaboration with the subsidiary,
thus achieving an increased synergy effect. The bunker oil business will seek tostabilize its earnings by revising its hedging methods and altering the terms andconditions of term agreements.
The chemicals business will continue striving to gain new customers, and expand
volume while considering the option of making investment for logistics overhaul purposes.
The paper business will seek to grow sales in Asia by posting its staff to the UnitedStates, and expand business operations with
the involvement of an RPF manufacturingsubsidiary previously acquired.
The new energy business will likely enjoy
increased demand starting from the second
half of fiscal 2016 with its sales volume andearnings becoming stable. Thus, this businesswill bolster its procurement, striving to build
a stable supply platform.

Net Sales(Millions of yen)(M

500,000

400,000
300,000

200,000
100,000

0

12

13

14

15

16

Net Sales Composition

(M

18.0%

| HANWA ANNUAL REPORT 2016 | 15

Review of Operations

Overseas Sales Subsidiaries
Fiscal 2015 Results(Millions of yen)

60,00050,00040,00030,00020,00010,000
0

12

13

14

15

16

Net Sales(Millions of yen)Prices of steel, non-ferrous metals and crude oil continued to fall markedly almost
throughout 2015 before rebounding slightly after the start of 2016.
Steel handling volume in North America declined sharply as anti-dumping duties(ADDs) were imposed on China-made steel products. The marine products businessalso suffered a fall in handling volume due to a drastic inventory adjustment by
Seattle Shrimp & Seafood Company, Inc. Although the non-ferrous metals businessreceived growing scrap collection requests from users, i.e. Japanese precious metalsmelting companies, the overall poor performance of metal market prices led toreduced scrap generation, pressuring profits for this business.
Fiscal 2015 proved to be a challenging year in which most of steel mills in China
recorded losses due to excess production-induced unit price declines. The Hanwa
Group accelerated efforts to expand its entirely China-based business operations
and engage in export trading targeting overseas markets, consisting mainly of
ASEAN countries, while performing its existing functions to: 1) procure raw materials
and goods bound for Japan and 2) serve as instruction/trading bases for the exportof Japan-made products.
It was a year in which ASEAN economies experienced growth rate slowdowns
with their demand trends varying greatly from one country to another and from one
industry to another amid currency depreciation. Although the Company’s handlingvolume in the ASEAN region grew thanks to transaction transfers from Japan andnew item deployments, lower prices resulted in sales declining year on year.

100,000

Looking Ahead and Key Strategies

80,000With regard to commodity prices, steel prices will likely continue to fluctuate in
response to the China factors. Meanwhile, nonferrous metal and crude oil prices,
although expected to be stronger compared to fiscal 2015, are thought by many
experts to involve instability factors including the foreign exchange rate trend.
In North America, the steel business will continue its efforts to grow the numberof product offerings while seeking to secure non-China-based procurement routes
given that ADDs on steel products from the country are still in place. The marine
product business will expand sales to Japan as well as within the Americas, including
Canada, the United States and Mexico. The nonferrous metals business will seek toexpand E-scrap procurement sources and pursue entirely Americas-based trading of
metals such as zinc and lead while promoting sales of nickel and cobalt products tochemicals and battery materials manufacturers.
China’s GDP growth rate for 2016 is forecast at 6.6% to 6.8%, below thegrowth rate for 2015, and the nation’s steel industry restructuring is still in its earlystage. The Company will modify the operations of its Chinese bases according to thechanging circumstances, and focus its efforts on inland China regions (Chongqing
and Chengdu) in particular, while expanding its automobile-related business and thenon-steel business.
The ASEAN region is expected to develop steadily with each national economy
forecast to grow at least 4% to 5% annually. However, the region’s export-oriented
automobile and home appliance businesses are prone to be affected by the economic
conditions of their export destinations comprising Europe and the United States.
The Company will continue to deploy its domestic the fast delivery/small-lot/processing model in overseas markets while focusing its efforts for the time beingon overseas trading consisting mainly of intra-region, local and China transactions.

60,00040,00020,000
0

12

13

14

15

16

Net Sales Composition

6.4%

16 | HANWA ANNUAL REPORT 2016 |Other Business (Lumber and Machinery)
Fiscal 2015 Results
LumberHousing starts grew to 910,000 units in fiscal 2015 due to the resolution of the decrease
stemming from a backlash from the surge in rush demand before the consumption tax
hike of fiscal 2014 as well as to low interest rates. Of this total, 370,000 units wereconventional timber-based constructions.
Although the supply of European lumber decreased, there was an increase in the
Company’s supply to house building companies of items other than non-precut lumber
products, including steel products. On the earnings front, the Company benefitted frommarket prices stabilizing due to reduced supply of imported lumber and lumber businessdownsizing by rival companies as well as from growing trading with house building companies.
As a result, the Company succeeded in retaining its top market share in imported wood
products composed mainly of European, Russian, US, and Canadian lumber products.
The domestic lumber business grew due to rising log exports to China andspecification solution sales activities during the design stages towards house building
companies as well as increasing deliveries of floor panel plywood products.
MachineryIn the leisure facilities business, we delivered large-sized amusement rides (15 models) to
Yomiuri Land. Meanwhile, the work on a large-sized Ferris wheel for the EXPOCITY
complex was underway with its completion slated for the first half of fiscal 2016.
Moreover, we engaged in solution sales activities towards amusement park operators for
projects in fiscal 2017 onwards.
In the industrial machinery business, we delivered large-sized systems such as steel-frame
primary processing equipment and (Millions
a largeof semi-automatedwelding system. By bolstering its
yen)equipment sales to blast furnace and electric furnace steel manufacturers, the Company won
new specific contracts while its efforts to gain new customers were still underway.
500,000 sales of automation and labor-saving production
We conducted recommendation-based
equipment, targeting mainland China, a nation suffering from surging labor costs. Furthermore,
400,000
we strove to sell precision machinery/equipment
products whose performance cannot
technologically be matched by products made in China and Southeast Asian countries.

of yen)000

000

Net Sales(Millions of yen)

60,00050,00040,000300,000

000

Looking Ahead and Key Strategies
LumberHousing starts for fiscal 2016 are expected to stand at approximately 930,000 units, helped
consistently by the positive effect of low
interest rates. Conventional timber-based construc100,000
tion single homes will probably remain strong owing to the surging condominium prices.
Meanwhile, demand is likely to decline0 in fiscal 2016 onwards due to the country’s falling
will further
population,
low birth
12 respect,
13 we14
15 bolster
16 our down13
14
15
16 rate and aging society. In thisstream strategy, expanding sales to house building companies and other end users.
Specifically, we will: 1) increase sales of precut and peripheral products to house building
companies: 2) grow sales of steel products for homes; 3) stabilize the trading of imported
products by bolstering our downstream business; 4) expand the biomass material business;5) grow our home, panel and floor plywood products and increase our domestic products forexport; and 6) expand sales of floor base material and surface material products.
200,000

000

000

0

12

Machinery
The leisure facilities business has seen amusement park operations gradually become eager
to make investments for the future with their customer traffic recovering. Such operators
are all seeking to keep the customer drawing trend by differentiating them from rivals,
which puts the Company’s recommendation-based sales, its strength, at an advantage. We
plan to conduct from now on sales activities further towards amusement parks andcommercial facilities, businesses serving inbound tourist demand. Thus, we will refine ourrecommendation capabilities to meet their needs.
The industrial machinery business will continue joint sales activities with the domestic
steel business, seeking to acquire new customers and expand the number of repeat
customers, while focusing efforts on sales of equipment to steelmakers as well.
We will introduce Japan-made machinery/equipment to Chinese automobile-relatedcompanies while making recommendations in earnest on labor-saving and automatic
production line systems targeting users in China.

30,00020,00010,000
0

12

13

14

15

16

Net Sales Composition(Millions of yen)

100,000
80,0004.4%

60,00040,00020,000
0

12

13

14

15

16

| HANWA ANNUAL REPORT 2016 | 17

Corporate Governance
Basic Corporate Governance Policy
We aim to fulfill our social responsibilities as a good corporate
citizen so that we can gain and retain the respect from stakeholders
and be recognized as a valuable enterprise. We work to establish ahigh degree of transparency in management systems to ensure fulllegal and regulatory compliance and respect for social norms.
In addition to participating in many corporate social responsibility (CSR) activities, we have established the CSR Committee anduse a commitment to CSR management to make our corporate
brand even more respected.

Corporate Governance Structure
Basic overview of the corporate governance structure
We have adopted a corporate auditors’ system, which includes theBoard of Auditors that comprises five corporate auditors (of whomthree are outside corporate auditors) selected at the General
Shareholders’ Meeting. The system is used to audit and perform
oversight on the Board of Directors and to monitor the performance of duties by the Company’s administrative organizations
operating under the Management Committee. We then report ourfindings at the General Shareholders’ Meeting after completing
our own reviewing process.
In April 2012, we introduced an executive officer system toestablish a system that enables more detail-oriented business operations and to promote more efficient and quicker decision-making.
The Board of Directors, which comprises 14 directors, including
two outside directors, meets once a month as a rule to deliberateand decide on important business plans and proposals concerning
the Group, and to oversee business operations.
As a rule, the Management Committee meets twice a month.
The members of this committee, all of whom are executive officers, discuss issues of significance concerning management andreach decisions. They also submit issues to the Board of Directorsthat involve the Group’s management and promote the efficientperformance of duties in accordance with the management policy
determined by the Board of Directors.
The Officers Evaluation Committee, chaired by the president
and attended by the outside directors, conducts an evaluation of
the officers’ performance. The Compensation Committee, which
determines each officer’s compensation, and the Election
Committee, which governs the selection of officers, both operate
under the Evaluation Committee.
The Officers Evaluation Committee meets at least once a year to
perform a comprehensive evaluation of the officers’ performance. This
includes an assessment of the level of commitment that each officer
has set at the beginning of the fiscal year and a mutual evaluation
process for all the officers.
The results of the evaluation provided by the Officers
Evaluation Committee are used by the Compensation Committee,
which includes outside directors, to determine each officer’s
compensation. The fixed monthly compensation is then submitted
as a regular salary plan to the Board of Directors. In terms of theofficers’ bonuses, we use a system that awards a bonus directly
linked to profits and clearly reflects each individual Officer’s
achievement level. The Board of Directors approves this profitbased calculation model after the Officers Evaluation Committee
reviews it. The corporate auditors have also approved this system.
To select Officers, the Selection Committee, which includes
outside directors, reviews the coming year’s members based on
18 | HANWA ANNUAL REPORT 2016 |their evaluation and their performance. A draft is then submitted
to the Board of Directors. A proposed list of candidates is thenforwarded to the Regular General Shareholders’ Meeting.
Advisory Committees
The Investment Examination Committee meets twice a month as arule. Its members conduct multilateral analyses of important investment projects proposed by business departments, divisions, andgroup companies, in terms of their consistency with the Company’s
management policy, profitability, risks, etc., and submit theCommittee’s opinions to the Management Committee.
The Disclosure Committee meets on an as-needed basis to
discuss the significance of information on decisions made by theGroup and facts and events occurring within the Group, and determines whether they should be disclosed to the public, as well as
looks into the appropriateness of details of such disclosures. It also
formulates rules and basic policies and develops corporate structures for legal disclosures and timely disclosures.
The Compliance Committee meets on an as-needed basis tocheck, investigate, and discuss measures to establish, maintain,
and manage the overall compliance structure of the Group, alongwith individual cases and issues where necessary, and develops
subsequent preventive measures.
The Security Trade Control Committee meets on an as-neededbasis to promote compliance with laws and regulations related to
the Group’s security trade, plan for export control reviewing systemand processes, and manages and supervises such reviews.
The Internal Control Committee meets on an as-needed basis.
Delegated by the Management Committee, the Committee provides
advice and assistance for examinations performed by the Internal
Audit Department on the effectiveness of the internal control
systems of the Group, and offers its opinions in Internal Control
Reports. It also studies issues involving internal controls of the Group,and submits the results of these studies to the Management
Committee.
Explanation of why this system was adopted
We have expanded its business over the years across a wide rangeof business fields, while making optimal use of the high level ofexpertise we can offer as a distribution specialist. We are fully awareof the responsibility entrusted to us by our shareholders. Our daily
business decisions are therefore carefully made with the leadershipof our directors, who understand thoroughly our operations. In
addition, business matters of significance are put through the Boardof Directors for discussion. We believe that the model we haveadopted, in which a separate Board of Auditors (including outside
corporate auditors) is set up to perform an audit and inspection, isthe most appropriate for our company. In 1994, as part of ourefforts to remain accountable and improve the transparency of ourbusiness decisions for our stakeholders, including our shareholders,
we began hiring outside directors. They provide us with a moreobjective point of view and act as a checking mechanism.
We also believe that we enable our corporate auditors to
perform their duties effectively by allowing them to attend important meetings, including managers’ meetings, and to request
advance information before important plans are finalized.
Moreover, we have adopted a system in which preliminary reviewsof management issues are performed in various committees suchas the Officers Evaluation Committee, the Investment Examination

Committee, and the Compliance Committee. Enhancement ofthese management systems makes our corporate governancesystem highly effective.

The audit performed by corporate auditors focuses on proactive auditing to prevent incidents. The process is mainly based onconversations regarding compliance, internal systems, and risk
management. Auditors also attend meetings of the Board of
Directors, the Management Committee, and others to monitor andaudit the execution of duties by the management. With the participation of the outside corporate auditors, who have ample
knowledge and experience in corporate activities, the Board ofAuditors maintains its independence from the top management toperform auditing duties appropriately. It also exchanges views andopinions with the president as well as managing officers and presents the findings provided by the corporate auditors to the Boardof Directors.
Corporate auditors and the Audit Division file audit reports to
independent auditors periodically while continually exchanging
information to keep abreast of progress. Our goal is to improve themonitoring function by increasing the level of collaboration.
The Audit Division also collaborates with the Internal Control
HKQC promotion division, which is tasked with organizing andevaluating our internal control systems to efficiently share information and optimize the execution of duties.

Internal Audit and Auditing by Corporate Auditors
An internal audit is performed by the audit division in the Internal
Audit Department and the Overseas Audit HKQC promotion division on the Company’s domestic and overseas bases as well asother national group companies and overseas subsidiaries. The
audit is centered mainly on monitoring their accounting, compliance, and internal control practices. The monthly internal audit
report is then directly submitted to the president, while theManagement Committee is also kept informed when appropriate.
The Management Committee may also choose to report to theBoard of Directors on issues that are deemed relevant and important. The audit division, which collaborates continually with thecorporate auditors, may also act as support staff for the auditors
and prepare reports as requested by the Board of Auditors. The
director responsible reports quarterly on the overseas bases to theBoard of Directors. Furthermore, the Office prepares reports whenrequested by the Board of Auditors.

The Corporate Governance Structures and Internal Control Systems for the Hanwa Group
General Shareholders’ Meeting
Election/dismissal

Recommendation

Officers Evaluation Committee
9 internal officers, 2 outside directors
Election
Committee

Compensation
Committee

Election/dismissal

Board of Directors
Board Chairman: Chairman
12 internal directors
2 outside directors

Oversight/audit

Recommendation
Election/supervision

Operationalorganization

Independent Auditors

Oversight/audit

Cooperation

Information gathering/administration

Internal Reporting
SystemAdvicePresident

Human Resource
Development Committee

Compliance Committee
Security Trade Control
Committee

Recommendation

Investment Examination
Committee
Application

Operating bases(Japan/overseas)

Examination/
administration

Administrative
divisionsExamination/
recommendation

Evaluation/oversight
Document control
Internal audit

Internal Control
Committee
AdviceInternal Audit
Department
Cooperation

SupportGroup companies

Cooperation

Recommendation

Awareness/support
Recommendation

External Attorneys
Accounting audit/internal control audit

Management Committee
Committee Chairman: President
23 executive officers

Operatingdivisions

Coordination

ReportDisclosure Committee
ReportBoard of Auditors
2 corporate auditors
3 outside corporate auditors

Election/dismissal

Guidance

Group Company Corporate
Auditors Conference| HANWA ANNUAL REPORT 2016 | 19

Corporate Governance
Overview of Potential Conflict of Interests Due to Personal/
Financial Relationships or Business Dealings between
Outside Directors/Corporate Auditors and the Company
The Company has two outside directors and three outside corporate auditors, none of whom at the time of the submission of thisreport has any vested interest in the Company. This, we believe,
ensures that no conflict of interest arises with the generalstockholders.
Outside directors and outside corporate auditors are expectedto act as representatives for stakeholders, including stockholders.
They are expected to evaluate and consider business decisions aswell as the appropriateness of the execution of duties from an
objective point of view. Therefore, only candidates with competence and experience suitable for this demanding position are
selected. We also make use of articles in the Enforcement Rules for
Securities Listing Regulations and the Guideline for the ListingManagement, both established by the Tokyo Stock Exchange, as areference for determining the level of independence necessary foroutside executives.

Organization of Internal Control and the Risk
Management System
At our Board of Directors’ meeting on May 10, 2006, we resolved
on basic policies regarding the development of internal control
systems, to ensure that the execution of duties by the directors
complies with laws and regulations and that the duties are
performed properly by other employees. Note that the basic policies below are as of the date of submission of our financial report.
Systems to ensure that the performance of duties by the
directors, executive officers and employees of the Company
and its subsidiaries (henceforth referred to as “the Group”)
complies with laws and regulationsa) The standards for the Group’s corporate ethics and ethicalbehavior are established in accordance with the creed.
b) The Compliance Committee is created, which distributes acompliance manual in principle to all executives and employeesof the Group and verifies that compliance programs are being
used effectively.
c) The Company establishes a consultation service (using theCompliance Committee, outside directors and external attorneys)
where all executives and employees of the Group can obtainadvice on compliance matters, providing a means of directly
reporting compliance problems. The Company also stipulates
that whistleblowers will not suffer from any disadvantageous
treatment due to their submission of reports. In the event of
occurrence of such a situation, the Company engages in prompt
and accurate disclosure of the event to society with establishedaccountability, and strives to thoroughly determine the causes
and implement measures to prevent recurrence.
d) The Company collaborates with authorities such as the police totake determined action against anti-social influences and blockall contact with such entities.
Systems to store and control information related to duties
performed by the directors of the Companya) Information related to the duties performed by the directors isstored properly in written documents or electronically(henceforth referred to as “documents”), and these records are
stored and managed in accordance with laws, regulations andthe Hanwa’s regulations for document management.
20 | HANWA ANNUAL REPORT 2016 |b) Personnel responsible for managing documents act proactively
against loss or damage to stored documents and have installeda locking mechanism (including restricted access by passwords
and other codes) and manage the documents accordingly.
Regulations and systems related to management of the riskof loss in the Groupa) Directors, executive officers, senior general managers, anddepartment managers of the Company and presidents of theGroup work with the Legal & Credit Department to educate
employees thoroughly on regulations regarding credit management and business activities, so as to manage and reduce risks.
The Company has also established the Investment Examination
Committee, which manages investment risks by studying
proposals for new business ventures and new investments. The
committee reviews the investment risk for the Group andreports the results to those responsible for settling the matters.
b) Each business department of the Company cooperates with the
General Affairs Department, the Information Systems Department,
the Legal & Credit Department and the General Affaires
Department on compliance, environmental management, emergency responses, information security, trade management, andother matters in accordance with internal rules, manuals, andother guidelines. The Compliance Committee, the Security Trade
Control Committee, and other applicable committees assist the
departments by providing advice and educational support. Advice
from external attorneys and other experts is used as required.
c) The Human Resources Department and Corporate Planning
Office of the Company work in collaboration with otherrelevant departments to implement educational and informative
programs to grasp thoroughly and accurately how to manage
risks for the Group.
d) To verify the effectiveness of risk management for the Group,
the Internal Audit Department monitors all the Company’s
domestic and overseas bases, domestic group companies andoverseas subsidiaries based on a predetermined auditing plan.
Their reports are then submitted to the Management Committee
as well as the president when appropriate. The director responsible also submits a report quarterly to the Board of Directors tokeep others informed of the status of the Group’s companies.
e) With the respect to the disclosure of corporate information, theCompany establishes the disclosure regulations, and the Disclosure
Committee reaches decisions on the importance and suitability of
information to be disclosed to ensure that information is released
to the public in a fair, timely, and appropriate manner.
f) In accordance with regulations for the oversight of subsidiaries,
the Company manages properly the risks related to its subsidiaries
by establishing the appropriate authority management system andreporting system.
Systems to ensure efficient execution of directors’ duties in
the Groupa) As a rule, the directors of the Company meet once a month toreach decisions on group management matters of significanceand to supervise the execution of business operations. As a rule,
the Management Committee meets twice a month. Its members
discuss matters of significance concerning management andreach decisions. They also submit issues to the Board of Directorsthat concern matters involving the Group’s management basedon the Board’s regulations and agenda standards.
b) The Company has its subsidiaries submit reports monthly on thestatus of business operations, and holds a monthly businessbriefing at the Tokyo head office, Osaka head office and Nagoya
branch office to receive reports from each sales department
including some domestic subsidiaries, and verifies the businessdirection, operating efficiency and whether or not there is a risk
for the Group.
c) The Company has established a medium-term business plan aswell as a business plan for the fiscal year, to realize its mediumto long-term business strategies. Principally through theperiodical meetings to achieve targets with its departments andsubsidiaries, the Company inquires about assessment of duties
performed and checks the progress of work (including a reviewof the plan and modification of methods to achieve the plantarget), which improves the efficiency of operation.
d) The Officers Evaluation Committee, chaired by the president
and comprised of members including the outside directors toprovide advice, meets at least once a year to set forth issues ofsignificance concerning the execution of duties of each director
as well as to conduct a comprehensive evaluation for eachdirector after following peer evaluation between directors. The
results are used to determine each officer’s compensation in
the Compensation Committee and also in the selection of
officers in the Election Committee; both operate under the
Evaluation Committee.
Systems to ensure proper operations in the Groupa) Regulations for the oversight of subsidiaries are established.
Through collaboration with these companies, the Company
ensures efficient management of operations and plan forcomprehensive business development.
b) The department or officers responsible of the Company must
understand thoroughly the status of its domestic and overseas
subsidiaries in order to manage duties in a comprehensive
manner. Other relevant departments may provide support toensure that duties are performed properly.
c) The Group Company Corporate Auditors Conference, comprisedof full-time corporate auditors and auditors of the Internal Audit
Department and subsidiaries, holds meetings as needed. Thesemeetings provide an opportunity to exchange information related
to audits of the Company and its subsidiaries.
Systems related to employees assigned to assist the corporate
auditors, and the independence of such employees from thedirectors and ensuring the effectiveness of instruction tosuch personnel
A certain number of employees are assigned to assist the corporate
auditors. These employees receive requests from the corporate auditors to investigate, report, and maintain a collaborative relationshipwith the corporate auditors. In addition, these employees receive noorders or instructions from the directors or anyone else concerning thedirectives and orders received from the corporate auditors.
Systems for the Group’s directors, executive officers,
employees and the subsidiaries’ corporate auditors to reportto the corporate auditors and systems otherwise pertaining toreporting to the corporate auditorsa) In addition to submitting reports on issues of significanceconcerning compliance, the Group’s directors, executive officers,
employees and the subsidiaries’ corporate auditors submit
reports to the corporate auditors on occurrence of risks andmatters related to infractions of laws and regulations. The
Compliance Committee Chairperson also submits reports to thecorporate auditors on reports made to the compliance consultation service. In addition, the directors report to the corporate

auditors regarding important decisions and the status of business operations at important meetings such as the Board of
Directors’ meeting and the Management Committee meeting.
b) The Group’s directors, executive officers, employees and thesubsidiaries’ corporate auditors must respond quickly andaccurately to requests for reports by the corporate auditors.
c) The Internal Audit Department submits reports based on theschedule predetermined by the Audit Plan to the corporate
auditors concerning internal audits. They also conduct anadditional investigation and report on issues as requested by
the corporate auditors.
d) The Company explicitly prohibits disadvantageous treatment of
the Group’s directors, executive officers, employees and thesubsidiaries’ corporate auditors who have reported to thecorporate auditors and responded to the matter under theprovisions listed in the preceding three items.
Systems to ensure effective auditing by the corporate auditorsof the Companya) The corporate auditors exchange opinions with the directors,
executive officers as well as employees and announce theirfindings and views at meetings of the Board of Directors asneeded. In addition, the corporate auditors collaborate andexchange their views with the independent auditors on thefinancial audit.
b) A system is established that allows the corporate auditors toattend meetings of the Board of Directors and other important
meetings, inspect important documents, and investigate major
departments and subsidiaries.
c) When a corporate auditor claims advance payments or the
reimbursement of expenses incurred in relation to the performance of duties, the Company processes the relevant expense
promptly unless cases where the expenses pertaining to suchbilling are deemed to be unnecessary for the performance of
duties of the corporate auditor.
Systems to ensure the reliability of financial reportsa) In accordance with the Fundamental Policy concerning Internal
Controls for Financial Reports, the Group operates the internal
controls reporting system in an efficient and effective manner.
b) The Management Committee oversees the establishment andoperation of the internal systems of the Group. The Internal
Audit Department is supervised directly by the Management
Committee. They check and evaluate the establishment andoperation of internal controls and submit reports to theManagement Committee. The Management Committee makes
appropriate corrections and modifications as needed based onthese reports.
c) The Internal Control Committee studies the Group’s issues
involving internal controls and submits reports on the results ofthese studies to the Management Committee. In addition, theInternal Control Committee provides advice and assistance for
examinations on the effectiveness of the internal control
systems for the Group performed by the Internal Audit
Department, and offers its views in an Internal Control Report.

| HANWA ANNUAL REPORT 2016 | 21

5_0704828602802.indd

CSR Activities
Hanwa’s Basic Policy on Corporate Social Responsibility (CSR)
Hanwa’s corporate social responsibility (CSR) consists of six basic
policies that Hanwa considers an integral part of management:(1) thorough legal compliance; (2) environmental considerations;(3) good corporate citizenship; (4) transparent management andproactive disclosure; (5) maintaining of financial soundness; and(6) workplaces geared to employee self-realization.
To promote CSR management, the CSR Committee,
chaired by managing exsective officer of Management
Division, incorporates organizations including the Compliance

Committee, Environmental Committee, and the Hanwa
Scholarship Foundation and engages in organized operation.
Companies both within Japan and overseas are internationally finding it more necessary to become globalized
in terms of economic activity and to create sustainable
developments. Hanwa is going to continue making efforts
toward development as a single corporation existing
within the world society with a focus on the ISO26000
international standard.

Positioning of the CSR Committee
Board of Directors
IR and PR activities

DonationsManagement Committee

CSR Committee

Hanwa Scholarship
ProgramChairmanManaging exsective officer of Management Division
Vice Chairman Exsective Officer of Management Division
Secretariat
General Affairs Department
CSR & Environment Section
Members
General Managers of the relevant departments

Support of students
from overseas●Environmental Committee Secretariat●Security Trade Control●Compliance Committee●Safety and Health Committee

NPO & NGO

Activities to enhance employees’ awareness of CSR

ComplianceHanwa has in place a Compliance Committee that promotes
compliance with the Company’s ethical principles and corporate
ethical standards. The committee has drawn up a compliancemanual for employee behavior, and has distributed the booklet toall officers and employees as part of its CSR efforts. Fully
understanding the significance of compliance, Hanwa strives topractice CSR as a corporation by being both socially responsible
and complying fully with all legal requirements.
The Company promotes openness and visibility to prevent
any occurrence of misconduct.

Corporate Ethical Standards
1. Compliance with laws and social norms
2. Fair business activities
3. Contribution to industrial society

To Everyone Working at the Hanwa GroupWe promote awareness of compliance for everyone working at the

4. Deligent information disclosure

Hanwa Group. If any of the following is applicable, please
immediately contact the compliance consultation desks.

You may be violating laws or internal rules.

5. Concern for the environment

You may be acting in a manner that runs counter to the
Corporate Philosophy.
You may not be able to tell others about your actions
openly and honestly.
You may feel lost or doubtful about whether you aredoing the right thing.

6. Global harmony

COMPLIANCE MANUAL Version 4

7. Ensuring a free and generous workplace environment
Compliance Consultation Desks

8. Promoting good corporate citizenship throughactive social contribution activities

Internal Consultation Desk
Members of the Compliance Committee, Outside Directors
Please see page 7 of this Manual.
External Consultation Desk
MIDOSUJI LEGAL PROFESSION CORPORATION(Tokyo and Osaka)
Please see page 8 of this Manual.

9. Making people familiar with ethical standards anddeveloping the in-house compliance program

1-3

2016/02/16

15:27:15

Compliance manual distributed to all officers and employees

22 | HANWA ANNUAL REPORT 2016 |10. Preventing the recurrence of misconduct andproviding appropriate information disclosureCorporate Risk Management
Hanwa Co., Ltd. and its affiliates. As for overseas efforts,
when flooding occurred in Thailand in 2011, Hanwa remainedin close contact with employees in the affected area toswiftly ensure their continued safety and provide assistanceas necessary.
Using the information gained from these experiences,
Hanwa will continue to conduct complete reviews of its disasterprevention practices and maintain management of emergency
equipment, implementation of a satellite phone service,
distribution of high-capacity storage batteries, use of measuresdesigned to prevent office equipment from tipping over, andmanagement of stockpiled disaster relief supplies. In addition,
the Tokyo Head Office is working to increase its stockpile ofdisaster relief supplies in accordance with the disaster prevention
policy released by the Tokyo metropolitan government.

The Company has simulated major potential risks that might
threaten the safety of our employees and their families, as wellas the Company’s assets or the ability to continue business
operations. We have established the necessary measures tominimize the damage in case such risks arise, including means
to continue and restart the core business while ensuring thesafety of employees and their families as a priority.
When the Great East Japan Earthquake took place inMarch 2011, Hanwa established an emergency response
headquarters immediately and began checking on the safetyof employees using the Mobile i-Call service, sending
emergency supplies to stricken areas, and conducting otheractivities to assist with relief efforts in accordance with the
Hanwa Disaster Prevention Manual in use at the time. In May
2011, we issued the Crisis Management Manual applicable for

Promoting Diversity by Realizing Various Working Styles
providing nursing care. We have placed employees who are
currently working part-time on a child-care track in the
Personnel department to form a business support team whose
members work to support other departments by fulfilling
requests for assistance with work duties. There are several
employees from the entire Company in this team making
effective use of the short time they are at work assisting others
until they are ready and able to return to their regular duties
full time.

The Diversity Promotion Office is responsible for taking measuresrelated to diversity. We define diversity as an environment inwhich individual employees acknowledge various backgrounds
and points of view, and in which a variety of work styles can be
pursued. We consider diversity as a business challenge in which
all employees should play their part. We have introduced amentor scheme especially for female employees in general positions with a chance of promotion and for new non-Japaneseemployees. An employee in a different section with a longer
work experience at the Company is assigned as a mentor toprovide intellectual and psychological support, to create a betterworking environment.

Hiring Disable Persons
Hanwa makes an effort to provide a workplace where disable
persons can fully utilize their talents and is involved in
employment activities in order to observe the employment rate
for persons with disabilities.

Support Child Rearing and Nursing Working
Hanwa makes an effort to make it easier for employees who
encounter important events in life, such as raising children orSocial Contribution
Hanwa Scholarship Program
The Hanwa Scholarship Foundation was established in 1957 aspart of activities to commemorate the 10th anniversary of
Hanwa’s establishment, and marked its 59th anniversary. Jiro
Kita, the first president of Hanwa, decided to establish thefoundation based on the philosophy of “contributing to society
based on an awareness of a company’s social responsibilities.”
The foundation began with a contribution of ¥10 million, at atime when Hanwa’s own capital was ¥100 million. As of March
31, 2016, the program had distributed a total of ¥587 million
in scholarships, and the accumulated number of scholarshipstudents had grown to 1,055.
The Hanwa Scholarship Program looks forward to using
political, economic and cultural insight to assist a growing numberof outstanding students around the world to realize their goals as
globalization continues to advance in the 21st century.

Accumulated Number of Scholarship Students(Persons)

High school

1,000

University

Studying abroad

Graduate school
81

75

75

77

79

765

773

783

800

817

151

151

151

151

151

6

68
66

800

66
62
56

600
52
49

400

422

18

200
4

0

28

604

662

712

479

318

3
181

41
7

548

96
64

87

98

115

130

144

151

151

151

1957 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2012 2013 2014 2015 Year(1)(5) (10) (15) (20) (25) (30) (35) (40) (45) (50) (55) (56) (57) (58) (59) (Times)| HANWA ANNUAL REPORT 2016 | 23

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Financial
SectionFive-Year Summary
For the years ended March 31
				Millions of yen, 			
				
except for number of employees
		

		

2016

2015

2014

2013

Thousands of
U.S. dollars (Note 1)

2016

2012

For the year:
Net sales				¥ 1,511,800 ¥ 1,737,398 ¥ 1,682,504 ¥ 1,511,325¥ 1,564,251 $13,416,755

Operating income 			19,107
18,17816,253

12,491

14,977

161,324

Net income attributable to owners of the parent 			
9,086
25,470

7,897

4,721

4,633

226,038

Comprehensive income 		
16,77919,45014,648

6,600

6,214

148,908

Net cash provided by (used in) operating activities 			
1,791
53,099343

19,381

11,970471,237

Net cash provided by (used in) investing activities		
(10,447)(5,244)(13,693) 		

(5,107)(12,009)(92,714)

Net cash provided by (used in) financing activities		
(41,752)

19,339(4,928)(16,364)

1,596(370,536)

23,411 $229,011At year-end:
Cash and cash equivalents 		
¥25,805 ¥24,515

Total assets		
599,694

651,457

593,352

552,908

582,405

5,322,098

Total net assets 		
156,139

142,750

125,362

120,674

115,957

1,385,685

Number of employees 			
2,772
2,977

2,610

2,208

2,201

¥

				

				

		

2016

2015

15,920¥23,198

Yen

¥

		

2014

2013

U.S. dollars (Note 1)

2016

2012

Per share data:
$

1.091

Net income attributable to owners of the parent 			43.85 ¥¥
122.92 ¥38.11

Cash dividends 			
15.00
18.00

12.00

12.00

12.00

0.160

Net assets attributable to owners of the parent 			682.46747.40591.68570.50548.22

6.633

				

		

2016

2015

¥

22.78

%

¥

22.35

		

2014

2013

2012

Key financial ratios:
1.4
1.5
4.1
Return on assets (ROA)				

0.8

0.8

6.9
17.2
Return on equity (ROE)			

6.6

4.1

4.1

180
140
Net debt/equity ratio (Note 2)			

190

180

190

Notes: 1. The U.S. dollar amounts represent translations, for convenience only, of yen amounts at the rate of ¥112.68=$1.00.
2. Net debt/equity ratio = Net interest-bearing debt/equity.
Net interest-bearing debt = Interest-bearing debt – cash.

24 | HANWA ANNUAL REPORT 2016 |Management’s Discussion and Analysis
Operating Results
Operating Results for the Fiscal Year Ended March 31, 2016
With regard to the world economy in the fiscal year under review, theU.S. economy maintained a gradual recovery centered on personal
consumption and housing investment but showed signs of stagnation
after the U.S. federal funds rate hike in December 2015. The European
economy remained uncertain due to political instability provoked bysuch factors as financial problems, refugee issues and geopoliticalrisk, despite a continuous economic recovery on the whole. With
China in a transition phase to stable growth under its new economic
policy, the pace of economic growth slowed reflecting mainly abacklash against financial and real estate bubbles, and excess capacity.
Other emerging countries also experienced a continuous economic
downturn on the whole due to changes in their financial environments and a drop in resource prices, together with a number ofpolitical and geopolitical issues.
The Japanese economy remained weak despite signs of modest
improvement in personal consumption and housing investment, andsaw a stagnation in production activities in the manufacturing industry.
Consequently, reflecting sluggish capital expenditures and a continuing
decline in public investment, the economic ripple effects of government
measures taken in line with “Abenomics” and monetary easing by the
Bank of Japan began to fade.
In these circumstances, the Group posted consolidated net sales of¥1,511,800 million for the consolidated fiscal year ended March 31, 2016,
representing a year-on-year decrease of 13.0%, due mainly to a pricedecline in petroleum and steel products accompanying weak demand andexcess supply. Operating income fell 4.9%, to ¥18,178 million, mainlyreflecting lower profit in the metals and alloys business and the non-ferrous
metals business, which were affected by market downturns. Net income
attributable to owners of the parent jumped 180.3% to ¥25,470 million,
due to such factors as a decrease in the foreign exchange loss, a gain on
sales of property and equipment, and a drop in income taxes paid
reflecting a tax deduction for the impairment loss of the relevant assets
recorded in previous fiscal years, despite a share of loss of entities
accounted for using equity method.
Net Sales
Net sales decreased 13.0% year on year to ¥1,511,800 million, due
mainly to lower net sales in the petroleum and chemicals business andthe steel business. Domestic sales were down 12.0% to ¥1,130,114
million, while overseas sales fell 15.8%, to ¥381,686 million. For a
discussion of sales by segment, see “Review of Operations” and“Segment Information.”

Cost of Sales and Selling, General and Administrative (SG&A)
Expenses
Cost of sales declined 13.5% to ¥1,455,240 million. This was due
mainly to a drop in purchase prices and a decrease in purchase volume
accompanying inventory reduction.
SG&A expenses rose 4.8% to ¥38,382 million, primarily reflecting
a rise in salaries and bonuses, and an increase in expenses due to theinclusion of newly consolidated subsidiaries.
Operating Income
Operating income for the consolidated fiscal year under review fell
4.9% to ¥18,178 million, from ¥19,107 million a year earlier, due
mainly to a lower profit margin on ingots and scraps in the metals andalloys business and the non-ferrous metals business, despite anincrease in earnings related to contracted works in the steel business.
The result raised the ratio of operating income to net sales by 0.1
percentage point from the previous consolidated fiscal year, to 1.2%.
Other Income (Expenses)
Net other income amounted to ¥8,566 million, up ¥14,655 million fromthe previous consolidated fiscal year. This reflected primarily a gain on
sales of property and equipment of ¥13,075 million due to a sale of realestate in the distribution center located in Chiba Prefecture, a gain on
bargain purchase of ¥1,101 million, and a decrease in the foreignexchange loss. These factors were partly offset by a share of loss ofentities accounted for using equity method of ¥1,304 million due to the
one-time amortization of goodwill accompanying the decline in stock
prices of an equity-method affiliate, COSMOSTEEL HOLDINGS LIMITED,and a loss of ¥3,273 million, which consisted of a loss on valuation of
investment securities and a loss on valuation of investment in capital.
Income Taxes
Income taxes decreased 67.4% from the previous consolidated fiscal
year to ¥1,264 million, reflecting a drop in taxable income due mainly
to the tax deduction for impairment loss of sold real estate that wasrecognized in previous years.
Net Income Attributable to Owners of the Parent
Net income advanced 178.7% to ¥25,480 million. Net income attributable to owners of the parent within net income jumped 180.3% to¥25,470 million. Accordingly, net income per share rose to ¥122.92,
from ¥43.85 in the prior year.

Net Sales and Operating Income

Net Income Attributable to
Owners of the Parent(Millions of yen)

(Millions of yen)(%)

25,00020

20,00016

15,00012

10,000

8

5,000

4

(Millions of yen)

1,600,000

32,0001,200,000

24,000800,000

Total Assets and ROA

16,000400,000

8,000

0

0

12

13

Net Sales (left scale)

14

15

16

Operating Income (right scale)

0

0

12

13

ROE (right scale)

14

15

16

(Millions of yen)(%)

600,000

4

450,000

3

300,0002

150,000

1

0

0

12

13

14

15

16

ROA (right scale)| HANWA ANNUAL REPORT 2016 | 25

Sources of Capital and Cash Liquidity
Financial Condition
Total assets decreased 7.9% to ¥599,694 million from the previous
consolidated fiscal year, reflecting lower inventories and trade receivables resulting from lower sales.
Liabilities declined 12.8% to ¥443,555 million as a result of
decreases in trade notes and accounts payable and commercial paper,and interest-bearing debt fell 12.8% to ¥237,553 million. The net debt/
equity ratio (net interest-bearing debt as a percentage of equity) stoodat 140% as of March 31, 2016.
Net assets grew 9.4% to ¥156,139 million. The expansion was
attributable mainly to the accumulation of retained earnings from net
income attributable to owners of the parent, despite a decrease in thevaluation difference on available-for-sale securities, net of taxes.
Accordingly, the equity ratio at March 31, 2016 rose to 25.8% from
21.7% a year ago.
Cash FlowsNet cash provided by operating activities totaled ¥53,099 million, up¥51,308 million from the previous consolidated fiscal year. This was due
primarily to improvement in working capital turnover, which mainlyreflected decreases in trade notes and accounts receivable and inventories accompanying lower sales affected by the price decline inpetroleum products.
Net cash used in investing activities amounted to ¥10,447 million,
down ¥3,246 million from the previous consolidated fiscal year.
Although cash was used for the purchase of investment securities,
which resulted mostly from corporate acquisitions and investments
to form alliances, and the recording of loans to an investee, thesewere partly offset by cash inflows from a sale of real estate in the
distribution center.
Net cash used in financing activities amounted to ¥41,752 million,
versus net cash provided of ¥19,339 million in the previous consolidated
fiscal year. This resulted primarily from decreases in commercial paperand short-term loans payable due to lower working capital requirements
compared to the previous consolidated fiscal year.
Financial Policy
The Group depends primarily on bank borrowings to meet its working
capital requirements and to fund its investing and financing activities.
As part of its efforts to diversify funding sources to ensure stableliquidity and agility in liquidity management, however, it may fund its
activities by issuing bonds and commercial paper in the capital markets
from time to time.
The Group meets its working capital requirements principally
through floating-rate long-term borrowings from banks to secure stable
funds, while short-term bank borrowings are used for day-to-day
funding. Overseas subsidiaries borrow from their respective local banks.
Capital investments and other long-term funding needs in Japan andabroad are, in principle, met by long-term borrowings from Japanesesources. Short-term borrowings as at March 31, 2016 stood at ¥56,412
million, mostly denominated in yen. The Group’s outstanding long-termloan was ¥139,743 million, including the current portion of long-termloan of ¥10,322 million.
The Group issues bonds primarily to fund working capital. As of
March 31, 2016, bonds outstanding consisted of straight bonds
amounting to ¥40,137 million. To increase its flexibility to issue bonds ina timely manner to take advantage of or to meet changing market
environments and internal financial requirements, the Company has
filed for shelf registration. As of March 31, 2016, the unused aggregate
principal amount of the shelf registration for straight bonds forsubscription in Japan amounted to ¥40,000 million.
Advocating overall corporate value improvement and sustainablegrowth, the Group attempts to conduct efficient management tosecure funds needed for business growth and maintain a healthyfinancial balance.

Business and Other Risks
Changes in the Macroeconomic Environment
Hanwa Group’s worldwide operating revenue is subject to macroeconomic conditions of the countries and regions where it sells its
products. An economic slowdown in any of the primary markets,
including Japan, North America, Europe and Asia (especially East
Asia with China being the key market) with an accompanying
Total Net Assets andEquity Ratio

decrease in demand could have an adverse impact on the Group’sbusiness performance and financial condition.
Commodity Price Fluctuations
The Group holds inventories for distribution that include steel products,
metals and alloys, non-ferrous metals, foods and petroleum/chemicalInterest-Bearing Debt andNet Debt/Equity Ratio

BPS and EPS(Millions of yen)(%)

(Millions of yen)(%)

150,00030

250,000

250

120,000

24

200,000

200

90,00018

150,000

150

60,00012

100,000

100

30,000

6

50,000

50

0

0

0

12

13

14

Equity Ratio (right scale)

26 | HANWA ANNUAL REPORT 2016 |

15

16

0

12

13

14

15

Net Debt/Equity Ratio (right scale)

16

(Yen)

(Yen)

800

120

600

90

400

60

200

30

0

0

12
BPS (left scale)

13

14

15

EPS (right scale)16

products. These are commodities whose prices are highly susceptible tofluctuations in supply and demand and movements in foreignexchange. The Group’s business performance and financial position
could be adversely affected in the event of the Group’s inability torespond adequately to price fluctuations of such commodities.
Foreign Exchange Fluctuations
The Group is engaged in worldwide procurement and sales of goods.
Foreign currency-denominated profits or loss, costs, assets, liabilities
and other accounting records associated with areas outside Japanare translated into Japanese yen amounts in the preparation offinancial statements. While the amounts reported in original currencies
remain unchanged, the post-translation amounts are subject to theconversion rate applied to them. Generally speaking, a stronger yen
relative to other currencies (especially against U.S. dollars, which
account for a substantial portion of the Group’s sales) adversely
affects the Group’s export transactions, while it favorably affects theGroup’s import transactions.
Interest Rate Fluctuations
The Group funds its operating, investing and financing activities byborrowing from financial institutions and by tapping into the bondand other capital markets. To hedge against interest rate fluctuations, the Group may execute interest rate swaps to cover certain
funds subject to floating interest rates. However, the Group’s business performance and financial position may be adversely affected if
interest rates change in a direction unfavorable to the Group.
Stock Price Fluctuations
The Group holds marketable securities at home and abroad mostly ofwhich are issued by its business counterparties that are subject toprice fluctuations. Price fluctuations of the securities it holds could
impact the business performance and financial position of the Group.
Counterparty Credit Risk
The majority of trade receivables held by the Group are based onprior granting of credit limits to its business counterparties. While theGroup has put in place stringent and skillful credit management,
there is no guarantee that all such receivables can be fully recovered.
In the event of unanticipated bankruptcy or commencement of thecivil rehabilitation proceedings filed on behalf of or against a businesscounterparty, the business performance and financial condition of
the Group could be adversely affected.
Business Investment Risk
The Group makes business investments to strengthen existing businesses and to expand the scope of its business. Such investments arecarried out upon completion of prescribed approval procedures
specific to investment characteristics and monetary amounts to beinvested, including scrutiny by the investment committee. However,if the value of any company in which the Group has invested deteriorates or profits generated are less than initially anticipated, theGroup’s business performance and financial condition could be
adversely affected.
Liquidity Risk Associated with Funding Activities
The Group funds its operating, investing and financing activities byborrowing funds from financial institutions and issuing bonds andother instruments in capital markets. For funding, the Group strives
to secure cash on hand based on estimated funding requirements.
However, factors such as disruptions in financial markets, regulatorychanges affecting the financial industry in Japan or elsewhere, thedowngrading of the Group’s credit ratings or changes in financial
institutions’ lending policies could significantly affect the Group’s
funding environment. These changes could restrict the Group’s
funding activities and result in higher funding costs, thus impacting
the business performance and financial condition of the Group.
Risks Associated with Global Activities and Entry toOverseas Markets
The Group has stepped up efforts recently to enter Asian markets aswell as markets in the United States and Europe. The Group may
face a number of risks inherent in overseas business activities, suchas the following:(1) Unanticipated changes in foreign trade regulations, especially interms of laws and customs duties.
(2) Political and/or economic changes and fluctuations in international currencies unfavorable to the Group.
(3) Difficulty in recruiting and retaining human resources.
(4) The possibility of immature infrastructure exerting negative impacts
on the Group’s activity or resulting in deteriorating customer satisfaction with respect to the Group’s products and services.
(5) Changes in taxation unfavorable to corporate activity.
(6) Acts of terrorism, war and social turmoil caused by other factors.
Legal and Regulatory Risks
The Group is subject to a variety of governmental regulations imposedby the nations where it operates, including business and investment
approvals/licenses, export/import and sales restrictions on grounds ofnational security and otherwise, customs duties and other foreign trade
regulations. In addition, laws and regulations relevant to the Group’sbusiness activities, including those concerning trade, antimonopoly,
patent, taxation, foreign exchange control, food safety, environmentand recycling, must be fully observed. Such regulations may not only
limit the Group’s business activities but also entail a higher cost of doing
business as more funds may be needed to be disbursed to ensurecompliance. Therefore, the business performance and financial condition of the Group may be impacted by such regulations.
Risks Associated with Natural Disasters
To prepare for natural disasters such as an earthquake or an outbreakof pandemic diseases such as influenza, the Group has formulated
crisis management manuals and business continuity plans and set inplace a system for confirming individual safety. It also administers
anti-seismic measures and conducts disaster drills. However, due tothe dispersion of the business locations and areas where employees
conduct their business, the Group may not be able to avert all thenegative consequences of a natural disaster. If damages beyond theGroup’s projected level are inflicted, the business performance andfinancial condition of the Group could be impacted.
Retirement Benefit Obligations
Retirement benefit costs and obligations are calculated based on
actuarial assumptions on discount rates and long-term expected
returns on plan assets, among others. If actual results differ fromsuch assumptions or if such assumptions are revised, the effect ofsuch difference or revision will be subsequently accrued andrecognized over a period of years, thus affecting costs and obligations to be recognized or posted over such years. Deteriorating
discount rates and poorer returns on plan assets resulting fromsuch changes could adversely affect the Group’s business performance and financial position.
| HANWA ANNUAL REPORT 2016 | 27

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Balance Sheets
As at March 31, 2016 and 2015							Thousands of						Millions of yen
U.S. dollars (Note 1)

2016
Assets				

2016

2015

Current assets:							229,011¥25,805 ¥24,515 $Cash and cash equivalents (Note 3)							Receivables:						
		Trade notes and accounts (Note 3):						

			77,503
8,733
15,114
Unconsolidated subsidiaries and affiliates 							2,374,512
267,560
306,528
			Other									Loans:										21,3792,409
2,225
Unconsolidated subsidiaries and affiliates 										Other
		

196

99

1,739

(2,547)(287)(915)
Allowance for doubtful receivables							

—
—
2,610
Securities (Notes 3 and 4)							941,170
106,051
133,056
Inventories (Note 6)							18,504
2,085
1,116
Deferred tax assets—current (Note 10) 							343,468
38,702
26,030
Other current assets (Note 7)							4,004,739
451,254510,378
			Total current assets											Investments and noncurrent receivables:						45,062
43,782
Investment securities (Notes 3, 4 and 7)						399,911

120,776
13,60914,512
Investments in and advances to unconsolidated subsidiaries and affiliates (Note 3)					12,3843,003
Loans receivable (Note 3)						109,904

125,195
14,107
15,993
Other investments and noncurrent receivables							(4,304)(485)(295)
Allowance for doubtful receivables 							
			751,482
84,67776,995
Total investments and noncurrent receivables																	Property and equipment (Note 7):					
267,528
30,14531,676
Land (Note 12)							344,595
38,82934,587
Buildings and structures							160,082
18,03815,894
Machinery, equipment and vehicles							93,335
10,517
10,426
Other								(319,187)(35,966)(31,636)
Accumulated depreciation							
			546,353
61,56360,947
Total property and equipment																
			Other assets:			
2,165
244
107
Deferred tax assets—noncurrent (Note 10)							Net defined benefit asset

—

1,011

—

17,3591,956
2,019
Intangibles and other assets 							
			19,5242,200
3,137
Total other assets 							¥ 599,694 ¥ 651,457 $ 5,322,098
			Total						
See accompanying Notes to Consolidated Financial Statements.

28 | HANWA ANNUAL REPORT 2016 |							Thousands of						Millions of yen
U.S. dollars (Note 1)

2016
Liabilities and Net Assets				

2016

2015

Current liabilities:							Short-term loans payable (Notes 3, 7 and 8)						70,211¥
56,412 ¥$500,639

Commercial paper (Notes 3 and 8)							—27,000—Long-term debt due within one year (Notes 3, 7 and 8)							180,698
21,944
20,361
Trade notes and accounts payable (Note 3):						
		Unconsolidated subsidiaries and affiliates							
6,088
3,816
686

		Other 							1,323,855
176,339
149,172
Advances received 							275,603
22,62031,055
Accrued bonuses to employees 							19,462
2,051
2,193
Provision for loss on business of subsidiaries and associates 							
4,544
—
512
Income taxes payable							
2,902
1,232
327
Other current liabilities 							77,104
16,9848,688
			

Total current liabilities 							2,390,895
342,197
269,406										Noncurrent liabilities:							Long-term debt due after one year (Notes 3, 7 and 8)							1,415,673
152,353
159,518
Net defined benefit liabilities (Note 9)							36,173412
4,076
Deferred tax liabilities—noncurrent (Note 10)							44,3208,140
4,994
Other noncurrent liabilities 							49,352
5,605
5,561
			

Total noncurrent liabilities 							1,545,518
166,510
174,149										Contingent liabilities (Note 14)																Net assets (Note 12)							Shareholders’ equity:							Common stock: 						
		Authorized: 570,000,000 shares 						

		Issued: 211,663,200 shares 							405,138
45,65145,651

Capital surplus							
4455Retained earnings							928,301
82,111
104,601
Treasury stock, at cost: 4,455,897 shares in 2016 and 4,449,160 shares in 2015					(12,868)(1,446)(1,450)			Total shareholders’ equity							1,320,615
126,321
148,807
Accumulated other comprehensive income:						Valuation difference on available-for-sale securities, net of taxes						71,229
11,623
8,026
Deferred gains or losses on hedges, net of taxes							(3,346)
1,526(377)
Land revaluation difference, net of taxes							26,3223,250
2,966
Foreign currency translation adjustments							16,3562,356
1,843
Remeasurements of defined benefit plans (Note 9)							(56,780)(3,660)(6,398)			Total accumulated other comprehensive income							53,781
15,095
6,060

Non-controlling interests							11,2891,334
1,272
			Total net assets							1,385,685
142,750
156,139

			Total							¥ 599,694 ¥ 651,457 $ 5,322,098| HANWA ANNUAL REPORT 2016 | 29

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income
For the years ended March 31, 2016 and 2015							Thousands of						Millions of yen
U.S. dollars (Note 1)
				
2016

2016

2015

Net sales								¥ 1,511,800 ¥ 1,737,398 $ 13,416,755
12,914,803
Cost of sales 							1,681,668
1,455,240

501,952
Gross profit 							55,73056,560340,628
Selling, general and administrative expenses 							36,62338,382
161,324
		Operating income							19,107
18,178										Other income (expenses):						18,459Interest and dividend income 							
1,396
2,080

(23,820)
Interest expense							(2,868)(2,684)(9,221)
Foreign exchange loss
(2,882)(1,039)(11,573)

Share of profit (loss) of entities accounted for using equity method

207(1,304)Gain on sales of property and equipment (Note 15)						
12813,075116,037

Gain on bargain purchase						
—
1,101

9,771

—

6,585

Loss on sales of property and equipment (Note 16)—(261)
Loss on disposal of property and equipment 						(213)
—(2,316)

Loss on valuation of investment securities						(477)(2,385)(21,166)

Gain on sales of investment securities

742—(7,881)
(227)
(888)
—
Loss on business of subsidiaries and associates 							
(456)
—
(568)
Loss on revision of retirement benefit plan							—
(64)Loss on valuation of investments in capital

1,714
Other, net							
(697)
193

237,345
Income before income taxes						
13,01826,744
Income taxes (Note 10):						9,940Current								
3,809
1,120

1,278
Deferred							67
14411,2183,876
1,264

226,127
Net income							9,142 $¥
25,480 ¥Net income attributable to:							226,038
Owners of the parent						
9,086 $¥
25,470 ¥89						
56
10
Other comprehensive income (Note 17):						Non-controlling interests(31,922)
Valuation difference on available-for-sale securities, net of taxes						4,137(3,597)(16,889)
Deferred gains or losses on hedges, net of taxes							1,887(1,903)905
Land revaluation difference, net of taxes							
184
102
(675)

2,175

(5,990)(2,738)

1,925(24,299)—
110
Total other comprehensive income 						10,308(8,701)

976

Foreign currency translation adjustment
Remeasurements of defined benefit plans, net of taxes
Share of other comprehensive income of entities accounted for using equity method(77,219)$

148,908

Comprehensive income			¥
16,779 ¥Comprehensive income attributable to:					Owners of the parent
Non-controlling interests			¥
16,822 ¥			
(43)

19,45019,271$

149,290(382)

179							U.S. dollars						
Yen
(Note 1)
					
2016

Net income per share 				¥122.92

Cash dividends per share 				18.00See accompanying Notes to Consolidated Financial Statements.

30 | HANWA ANNUAL REPORT 2016 |

2016

2015

¥

43.85
15.00

$

1.091
0.160

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Changes in Net Assets
For the years ended March 31, 2016 and 2015
Thousands

Millions of yen

Number ofshares ofcommomstock

Commomstock

Valuationdifference on
Deferredavailable-for- gains or losses
sale securities, on hedges,
net of taxes
net of taxes

Balance at April 1, 2014..................... 211,663¥ 45,651

Cumulative effects of changes inaccounting policies..........................

——

Balance at April 1, 2014 after
accounting policies changed............ 211,663

Capitalsurplus¥5

Retainedearnings

Treasurystock¥ 76,520 ¥ (1,442) ¥

7,485

¥

Land
revaluationdifference,
net of taxes(361) ¥

32

Foreign
Remeasurements
currencyof definedtranslation
benefit plans,adjustments
net of taxes¥

Noncontrollinginterests

Total

304 ¥ (5,585) ¥ 2,753 ¥ 125,362

—

1,924

—

—

—

—

—

—

—

1,924

45,651

5

78,444(1,442)

7,485

(361)

32

304

(5,585)

2,753

127,286

Cash dividends paid.......................

—

—

—

(2,797)

—

—

—

—

—

—

—

(2,797)

Change of scope of consolidation....

—

—

—

412

—

—

—

—

—

—

—

412

Change of scope of equity method...

—

—

—

—

—

—

—

—

—

—

—

—

Reversal of revaluation reserve forland.............................................

—

—

—

(3,034)

—

—

—

—

—

—

—

(3,034)

Net income attributable to ownersof the parent...............................

—

—

—

9,086

—

—

—

—

—

—

—

9,086

Purchases of treasury stock............

—

—

—

—

(4)

—

—

—

—

—

—

(4)

Other changes...............................

—

—

—

—

—

4,138

1,887

3,218

2,052

1,925

(1,419)11,801

Balance at March 31, 2015................ 211,663

45,651

5

82,111(1,446)

11,623

1,526

3,250

2,356

(3,660)1,334

142,750

Balance at April 1, 2015.................. 211,663

45,651

5

82,111(1,446)

11,623

1,526

3,250

2,356

(3,660)1,334

142,750

Cash dividends paid.......................

—

—

—

(3,212)

—

—

—

—

—

—

—

(3,212)

Change of scope of consolidation....

—

—

—

278

—

—

—

—

—

—

—

278

Change of scope of equity method...

—

—

—

(433)

—

—

—

—

—

—

—

(433)

Reversal of revaluation reserve forland.............................................

—

—

—

387

—

—

—

—

—

—

—

387
25,470Net income attributable to ownersof the parent...............................

—

—

—

25,470

—

—

—

—

—

—

—

Purchases of treasury stock............

—

—

—

—

(4)

—

—

—

—

—

—

(4)

Other changes...............................

—

—

—

—

—

(3,597)(1,903)

(284)

(513)

(2,738)(62)(9,097)

Balance at March 31, 2016.............. 211,663¥ 45,651¥

5¥104,601 ¥ (1,450) ¥Thousands
Number ofshares ofcommomstock

Balance at April 1, 2015..................

8,026 ¥

(377) ¥ 2,966¥ 1,843 ¥ (6,398) ¥ 1,272 ¥ 156,139

Thousands of U.S. dollars (Note 1)

Commomstock

211,663 $405,138

Capitalsurplus$

44

Valuationdifference on
Deferredavailable-for- gains or losses
sale securities, on hedges,
net of taxes
net of taxes

Landrevaluationdifference,
net of taxes

Foreign
Remeasurements
currencyof definedtranslation
benefit plans,adjustments
net of taxes

Noncontrollinginterests$728,710 $(12,833) $103,151 $ 13,543$28,842$20,909 $(32,481)$11,839 $1,266,862

Retainedearnings

Treasury
stock

Total

Cash dividends paid.......................

—

—

—

(28,506)

—

—

—

—

—

—

—

Change of scope of consolidation..

—

—

—

2,467

—

—

—

—

—

—

—

2,467

Change of scope of equity method.

—

—

—

(3,843)

—

—

—

—

—

—

—

(3,843)

Reversal of revaluation reserve forland.............................................

—

—

—

3,435

—

—

—

—

—

—

—

3,435
226,038(28,506)

Net income attributable to ownersof the parent...............................

—

—

—

226,038

—

—

—

—

—

—

—

Purchases of treasury stock............

—

—

—

—

(35)

—

—

—

—

—

—

(35)

Other changes...............................

—

—

—

—

—

(31,922)(16,889)(2,520)(4,553)(24,299)(550)(80,733)

Balance at March 31, 2016..............

211,663 $405,138$

44$928,301 $(12,868) $ 71,229 $ (3,346) $26,322$16,356 $(56,780) $11,289 $1,385,685

See accompanying Notes to Consolidated Financial Statements.

| HANWA ANNUAL REPORT 2016 | 31

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cash Flows
For the years ended March 31, 2016 and 2015							Thousands of						Millions of yen
U.S. dollars (Note 1)
				
2016

2015

Cash flows from operating activities:						Income before income taxes						¥26,744¥13,018 $Adjustments to reconcile income before income taxes 						to net cash provided by (used in) operating activities:								Depreciation
4,344
3,891
		 Amortization of goodwill
232
187
		 Increase (decrease) in allowance for doubtful receivables(633)(1,050)		 Interest and dividend income(2,080)(1,396)
		Interest expense
2,684
2,868
		 Share of (profit) loss of entities accounted for using equity method
1,304
(207)
		 Gain on sales of property and equipment(13,075)(128)
		 Gain on bargain purchase(1,101)—
		 Gain on sales of investment securities(742)—
		 Loss on sales of property and equipment261—
		 Loss on disposal of property and equipment—
213
		 Loss on valuation of investment securities
2,385
477
		 Loss on valuation of investments in capital
888
227
		 Loss on business of subsidiaries and associates—
456
		 Loss on revision of retirement benefit plan64—
		 Decrease (increase) in trade receivables
49,176
1,824
		 Decrease (increase) in inventories
31,641(11,490)
		 Increase (decrease) in trade notes and accounts payable(38,116)(5,589)
		 Increase (decrease) in deposits received(6,638)(65)
		 Increase (decrease) in advances received
8,435
13,261		 Decrease (increase) in advance payments(8,407)(7,082)
		 Increase (decrease) in net defined benefit liabilities						4,603(5,109)		Other, net					(3,656)
4,788
		Subtotal						58,313
9,094
Cash flows during the year for:								 Interest and dividends received						
2,025
1,416
		Interest paid						(2,703)(2,858)
		 Income taxes (paid) refund					(4,536)(5,861)
Net cash provided by (used in) operating activities					53,0991,791

2016

237,345

38,552
2,059(5,618)(18,459)
23,82011,573(116,037)(9,771)(6,585)2,316—
21,166
7,881—
568
436,422
280,804(338,268)(58,910)74,858(74,610)40,850(32,446)
517,510
17,971(23,988)(40,256)471,237

Cash flows from investing activities:						Payments into time deposits						(1,547)(31)(13,729)
Proceeds from withdrawal of time deposits
701
91
6,221
Proceeds from redemption of securities
—
2,000
—
Additions to property and equipment						(6,360)(3,807)(56,443)
Proceeds from sale of property and equipment						20,682
1,646
183,546
Additions to investment securities						(13,392)(12,774)(118,850)
Proceeds from sale and redemption of investment securities					
2,107
3,069
18,699Purchase of shares of subsidiaries resulting in change in scope of consolidation(2,165)—(19,214)
Net decrease (increase) in short-term loans receivable						
(430)
(412)
(3,816)
Additions to long-term loans receivable						(10,325)(2,897)(91,631)
Proceeds from long-term loans receivable						
24
25
213
Other, net						
258
(603)
2,290
Net cash provided by (used in) investing activities						(10,447)(13,693)(92,714)
Cash flows from financing activities:				
Net increase (decrease) in short-term loans payable						(14,065)(7,876)(124,823)
Net increase (decrease) in commercial paper						(27,000)
22,000(239,617)
Proceeds from long-term debt, issuance of bonds						26,02645,015230,973
Repayments of long-term debt, redemption of bonds						(23,160)(36,649)(205,538)
Payment of cash dividends					(3,210)(2,797)(28,488)
Dividends paid to non-controlling interests						
(35)
(47)
(311)
Other, net						
(308)
(307)
(2,732)
Net cash provided by (used in) financing activities						(41,752)
19,339(370,536)
Effect of exchange rate changes on cash and cash equivalents					
(495)
624
(4,393)
Net increase (decrease) in cash and cash equivalents						
405
8,061
3,594
Cash and cash equivalents at beginning of year						24,515
15,920217,563
Increase in cash and cash equivalents from newly consolidated subsidiaries
885
534
7,854
Cash and cash equivalents at end of year					¥25,805¥24,515 $ 229,011
See accompanying Notes to Consolidated Financial Statements.

32 | HANWA ANNUAL REPORT 2016 |HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements
1. Basis of presenting consolidated financial statements
The accompanying consolidated financial statements of Hanwa Co.,
Ltd. (the “Company”) and its consolidated subsidiaries have been
prepared in accordance with the provisions set forth in the Financial
Instruments and Exchange Act of Japan and its related accounting
regulations and in conformity with accounting principles generally
accepted in Japan (“Japanese GAAP”), which are different in certain
respects as to application and disclosure requirements of International
Financial Reporting Standards.
The accounts of overseas subsidiaries are based on their accounting
records maintained in conformity with Japanese GAAP. The accompanying consolidated financial statements have been restructured andtranslated into English with some expanded descriptions from theconsolidated financial statements of the Company prepared inaccordance with Japanese GAAP and filed with the appropriate Local
Finance Bureau of the Ministry of Finance as required by the Financial
Instruments and Exchange Act of Japan. Some supplementary information included in the statutory Japanese language consolidated
financial statements, but not required for fair presentation, is notpresented in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollar
amounts is included solely for the convenience of readers outside
Japan, using the prevailing exchange rate at March 31, 2016, whichwas ¥112.68 to U.S.$1.00. The translations should not be construed
as representations that the Japanese yen amounts have been, could
have been or could in the future be converted into U.S. dollars at thisor any other rate of exchange.

2. Significant accounting policies
Consolidation
The consolidated financial statements include the accounts of theCompany and its 28 (24 in 2015) significant subsidiaries (together, “theCompanies”). The accounts of certain consolidated subsidiaries havebeen included on the basis of fiscal periods that ended three months orless prior to March 31, and significant transactions after these year-ends
were appropriately adjusted in consolidation. Intercompany transactions
and accounts have been eliminated.
Equity method
As of March 31, 2016, the Company had 41 unconsolidated subsidiaries and 16 affiliates. The equity method has been applied to theinvestments in 3 of the unconsolidated subsidiaries and 1 of the affiliates. Investments in the remaining unconsolidated subsidiaries andaffiliates are not accounted for by the equity method, as the application of the equity method would not have a material effect on net
income and retained earnings, or on the consolidated financial statement as the whole. Where the fiscal year-ends of the entities accounted
for by the equity method are different from that of the Company, theCompany mainly used their financial statements as of their fiscal yearends and for the years then ended for applying the equity method.
Cash and cash equivalents
In preparing the consolidated statements of cash flows, cash on
hand, readily available deposits and short-term highly liquid investments with maturities not exceeding three months at the time ofpurchase are considered to be cash and cash equivalents.
Allowance for doubtful receivables
The allowance for doubtful receivables is provided to cover possible losses oncollection. With respect to normal trade accounts receivable, it is stated at an
amount based on the actual rate of historical bad debts, and for certain
doubtful receivables, the uncollectible amount is individually estimated.
Securities
The Companies classify securities as (a) securities held for trading
purposes (hereafter, “trading securities”), (b) debt securities intended
to be held to maturity (hereafter, “held-to-maturity debt securities”),(c) equity securities issued by subsidiaries and affiliated companies, and(d) all other securities that are not classified in any of the above categories (hereafter, “available-for-sale securities”).
The Companies do not hold trading securities. Held-to-maturity
debt securities are stated at amortized cost. Equity securities issued bysubsidiaries and affiliated companies which are not consolidated or
accounted for using the equity method are stated at moving averagecost. Available-for-sale securities with available fair values are stated atfair value. Valuation difference on available-for-sale securities arereported, net of applicable income taxes, as a separate component ofaccumulated other comprehensive income. Realized gains on the salesof such securities are computed using moving average cost. Other
available-for-sale securities are stated at moving average cost.
Inventories
Inventories are stated at the lower of cost (based, principally, on a movingaverage basis or a specific-identification basis) or net realizable value.
Property and equipment (except under lease)
Property and equipment are carried at cost. Recognized loss on impairment of long-lived assets has been deducted from acquisition costs.
Depreciation is principally provided on the straight-line method overthe estimated useful life of the asset. Major renewals and improvements are capitalized. Maintenance, repairs and minor renewals are
expensed as incurred.
Software costs
The Companies include software in “Intangibles and other assets”
and depreciate it using the straight-line method over the estimateduseful life, especially 5 years for computer software for internal use.
Bonuses
The Companies follow the Japanese practice of paying bonuses to
employees. At the balance sheet date, bonus liabilities are estimated and accounted for on an accrual basis.
Provision for loss on business of subsidiaries and associates
Provision for loss on business of subsidiaries and associates is recorded
to cover probable losses on business of subsidiaries and associates.
Income taxes
Income taxes comprise corporate tax, prefectural and municipal
inhabitants taxes and enterprise tax. The Companies recognize thetax effects of loss carryforwards and the temporary differences
between the carrying amounts of assets and liabilities for tax andfinancial reporting. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax
consequences of the temporary differences.
The Company and its wholly owned domestic subsidiaries fileconsolidated tax returns.
Retirement benefits
1. Attribution of estimated retirement benefits
To calculate benefit liabilities, the estimated amount of retirement
benefits is attributed to the consolidated fiscal year under review
based on the benefit formula.
2. Treatment of unrecognized actuarial differences and past service costs
Past service costs are posted in expenses based on the straightline method for a fixed period of years within the averageremaining service years of employees when costs accrue fromtheir service.
Actuarial differences are posted in expenses mainly after the
consolidated fiscal year following their accrual based on the| HANWA ANNUAL REPORT 2016 | 33

straight-line method for a fixed period of years within the averageremaining service years of employees.
3. Adoption of simplified method by small companies
In calculating net defined benefit liability and retirement benefit
expenses, certain subsidiaries adopt a simplified method that regards
the benefits payable assuming the voluntary retirement of all
employees at the fiscal year-end as retirement benefit obligations.
Translation of foreign currencies
Receivables and payables denominated in foreign currencies are translated into Japanese yen at year-end rates.
Balance sheets of overseas consolidated subsidiaries are translated
into Japanese yen at year-end rates, except for shareholders’ equity
accounts, which are translated at historical rates. Income statementsof overseas consolidated subsidiaries are translated at average rates,
except for transactions with the Company, which are translated at
rates used by the Company.
The Companies report foreign currency translation adjustments inaccumulated other comprehensive income.
Finance leases
Finance leases that do not transfer ownership of the leased property to
the lessee at the end of the lease period are depreciated using thestraight-line method over the period of the lease with a residual value
assumed to be zero.
Derivatives and hedge accounting
The Company states derivative financial instruments at fair value andrecognizes changes in the fair value as gain or loss unless the derivative
financial instruments are used for hedging purposes.
If derivative financial instruments are used as hedges and meetcertain hedging criteria, the Company defers the recognition of gainor loss resulting from the changes in the fair value of the derivative
financial instruments until the related gain or loss on the hedged
item is recognized.
Also, if interest rate swap agreements are used as hedges and meetcertain hedging criteria, the net amount to be paid or received under theinterest rate swap agreements is added to or deducted from the intereston the assets or liabilities for which the swap agreement was executed.
The following summarizes hedging derivative financial instruments
used by the Company and items hedged:
Hedging instruments:
		 Interest rate swap agreements
		 Commodity forwards contracts
Hedged items:
		 Interest expense on borrowings
		 Inventories and commitments
The Company evaluates hedge effectiveness by comparing the
cumulative changes in cash flows or changes in the fair value of thehedged items and the corresponding changes in the hedging derivative instruments.
Goodwill
Goodwill is amortized by the straight-line method over 5 years.
Reclassifications
Certain prior year amounts have been reclassified to conform to thecurrent year presentation.
Amounts per share
Computations of net income per share of common stock are based on
the weighted average number of shares outstanding during eachperiod. Diluted net income per share is not disclosed because potentially dilutive securities are not issued. Cash dividends per share in the
consolidated statements of income and comprehensive income are
dividends applicable to the respective years including dividends to be
paid after the end of the consolidated fiscal year.
Changes in accounting policies
The Company and its domestic subsidiaries adopted “Revised
34 | HANWA ANNUAL REPORT 2016 |Accounting Standard for Business Combinations” [ASBJ Statement
No.21, September 13, 2013 (hereinafter, “Statement No.21”)], “Revised
Accounting Standard for Consolidated Financial Statements” [ASBJ
Statement No.22, September 13, 2013 (hereinafter, “Statement
No.22”)] and “Revised Accounting Standard for Business Divestitures”[ASBJ Statement No.7, September 13, 2013 (hereinafter, “Statement
No.7”)] (together, the “Business Combination Accounting Standards”),
from the current fiscal year. As a result, the Company changed its
accounting policies to recognize in capital surplus the differences
arising from the changes in the Company’s ownership interest of
subsidiaries over which the Company continues to maintain control
and to record acquisition related costs as expenses in the fiscal year inwhich the costs are incurred. In addition, the Company changed its
accounting policy for the reallocation of acquisition costs due to thecompletion following provisional accounting to reflect such reallocation in the consolidated financial statements for the fiscal year in which
the business combination took place. The Company also changed thepresentation of net income and the term “non-controlling interests” isused instead of “minority interests.” Certain amounts in the prior year
comparative information were reclassified to conform to such changes
in the current year presentation.
With regard to the application of the Business Combination
Accounting Standards, the Company followed the provisional treatments in article 58-2 (4) of Statement No.21, article 44-5 (4) ofStatement No.22 and article 57-4 (4) of Statement No.7 with application from the beginning of the current fiscal year prospectively.
The impact on the consolidated financial statements as a result of
this change was minimal.
In the consolidated statements of cash flows, cash flows fromacquisition or disposal of shares of subsidiaries with no changes inthe scope of consolidation are included in “Cash flows from financing
activities” and cash flows from acquisition related costs for shares ofsubsidiaries with changes in the scope of consolidation or costs
related to acquisition or disposal of shares of subsidiaries with nochanges in the scope of consolidation are included in “Cash flows
from operating activities.”
The effects of this change on per share information are negligible.
Accounting Standards Not Yet Applied“Revised Implementation Guidance on Recoverability of Deferred Tax Assets”(ASBJ Guidance No. 26, March 28, 2016)
1. Overview
Following the framework in Auditing Committee Report No.66“Audit Treatment regarding the Judgment of Recoverability ofDeferred Tax Assets,” which prescribes estimation of deferred tax
assets according to the classification of the entity by one of five
types, the following treatments were changed as necessary:(1) Treatment for an entity that does not meet any of the criteria
in types 1 to 5;(2) Criteria for types 2 and 3;(3) Treatment for deductible temporary differences which an entity
classified as type 2 is unable to schedule;(4) Treatment for the period which an entity classified as type 3 isable to reasonably estimate with respect to future taxable
income before consideration of taxable or deductible temporary
differences that exist at the end of the current fiscal year; and(5) Treatment when an entity classified as type 4 also meets thecriteria for types 2 or 3.
2. Effective date
Effective from the beginning of the fiscal year ending March 31, 2017
3. Effects of application of the Guidance
The Company and its consolidated domestic subsidiaries are
currently in the process of determining the effects of this change on
the consolidated financial statements.

3. Financial instruments
At March 31, 2016 and 2015, information on financial instruments
was as follows.
(A) Qualitative information on financial instruments
Policy for financial instruments
The Group’s main business is the sales of various products ranging
from mainly steel, metals and alloys, non-ferrous metals to foodproducts, petroleum and chemicals, lumber, and machinery. The
Group also engages in other business activities such as steel material
processing, non-ferrous metal processing and amusement park
management and operations. While the Group depends primarily onbank borrowings to procure funds necessary for these operationaltransactions as well as investing and financing activities, the Groupseeks to diversify its financing instruments to ensure stable andflexible liquidity, funding these activities by issuing bonds andcommercial paper in the capital markets in some cases. Temporary
surplus funds are managed in low-risk financial assets.
It is the Companies’ policy to use derivatives only for the purposeof reducing market risks associated with assets and liabilities.
Components of financial instruments and risks
Trade notes and accounts receivable are exposed to credit risk ofcustomers. Some of them are denominated in foreign currencies andexposed to the foreign exchange rate fluctuation risk as well.
Securities mainly consist of listed stocks and are exposed to pricefluctuation risk. Some of them are denominated in foreign currencies,
which accompany foreign exchange rate fluctuation risk.
Long-term loans receivable are mainly for the suppliers of theCompany and are exposed to credit risk.
Foreign currency denominated trade notes and accounts payable
are exposed to foreign exchange rate fluctuation risk.
Short-term loans payable, commercial paper, bonds payable
and long-term loans payable are used for raising working capitaland investment funds, although they have liquidity risk related tochanges in financial market environments.
Foreign exchange future contracts and currency swap agreements
are used to hedge foreign exchange rate fluctuation risk associatedwith certain assets and liabilities denominated in foreign currencies.
Interest rate swap agreements are made use of for hedging fluctuations in future interest rates. Commodity forward contracts andcommodity swap agreements aim to hedge market risks associatedwith certain inventories and commitments.
Refer to No. 2, “Significant accounting policies — Derivatives andhedge accounting” for an explanation of the Companies’ hedging
instruments, hedged items, and evaluation of hedge effectiveness.
Risk management system for financial instruments
With regard to credit risk to which trade notes, accounts receivableand long-term loans receivable are exposed, the Company sets a credit
limit amount for each business partner and manages the outstandingbalance in accordance with the “Credit administrative provisions”
while monitoring the credit status on a regular basis. Furthermore, theCompany is committed to reducing foreign exchange rate fluctuation
risk to which trade notes and accounts receivable and trade notes andaccounts payable are exposed by means of derivatives trading.

Because price fluctuation risks associated with securities mainly
affect listed stocks of the Company’s business partners, the Company
reports the regularly assessed market values to the Board of Directors.
In regard to foreign exchange rate fluctuation risk, the Company iscommitted to reducing it by means of derivatives trading.
In regard to business investments, in compliance with the“Rules for the Review and Approval of New Businesses, Loans andInvestments,” the Company decides whether or not to invest after
following the prescribed procedures. The Company continuously
monitors the financial status and trading conditions of the issuing
company and reviews its policies for the holding of stocks.
To deal with liquidity risk associated with procuring funds for
short-term loans payable, commercial paper, and long-term debt, theCompany creates a fund procurement plan based on the outlook of
the Group’s financial requirements. Taking financial market trends
into consideration as well, the Company works to diversify the funds
procurement to ensure liquidity. In addition, with regard to interest
rate risk and foreign exchange rate fluctuation risk, the Company
seeks to reduce such risks through derivatives trading and other means.
The Company practices and manages the trading of derivatives
related to currencies and products in compliance with the “Business
Department Operating Rules,” and each department receives theapproval of a supervising director to engage in such trading. In addition, the trading authority and trading limit are clearly stated in the“Regulations for Administrative Authority” and the bylaws.
With respect to derivatives trading related to interest rates associatedwith loans, the Company receives approval from a director in charge ofsupervising financial affairs before engaging in such trading.
In order to reduce credit risk to which derivatives trading partners are exposed, the Company trades only with highly rated
financial institutions.
With regard to the contract balances of derivatives trading related
to products, the trading department reports it to the supervising
director of each department and to the Internal Audit Department.
The Hedging Administration Office checks the balance confirmations
from the contractors and reports them to the supervising director ofeach department and the internal Audit Department. At the sametime, the Accounting Department checks the balance directly withthe contractors. When necessary, internal auditing is implemented
by the Internal Audit Department.
Supplementary explanation for items concerning fair valuesof financial instruments
The fair value of financial instruments is based on the market price, but
in cases in which market prices are not available, the fair value is reasonably estimated. As variable factors are incorporated into the estimationof values, values may vary depending on the assumptions used.
The contract amount related to derivative transactions in Note 5,“Derivatives” does not express the market risk related to the derivative transactions themselves.
(B) Fair values of financial instruments
Book values and fair values of the financial instruments (excluding
those whose fair values were hard to determine) on the consolidatedbalance sheets at March 31, 2016 and 2015 were as follows:| HANWA ANNUAL REPORT 2016 | 35

March31, 2016
					Book value

Millions of yen 			Fair value

DifferenceBook value

Thousands of U.S. dollars
Fair value

Difference(1) Cash and cash equivalents¥ 25,805¥ 25,805¥—$ 229,011$ 229,011$—(2) Trade notes and accounts receivable276,293 			
2,452,014 		
Allowance for doubtful receivables(260) 			(2,307) 		
		Net		276,033
276,033—
2,449,707
2,449,707—(3) Securities						a) Equity securities issued by affiliated companies
2,894
826
(2,068)25,683
7,330(18,353)b) Available-for-sale securities
31,66931,669—281,053
281,053—(4) Long-term loans receivable
12,384
			
109,904
		Allowance for doubtful receivables(12) 			(106) 				Net		12,372
12,372—
109,798
109,798—
Total assets¥ 348,773¥ 346,705¥ (2,068) $3,095,252$3,076,899$ (18,353)(1) Short-term loans payable¥ 56,412¥ 56,412¥—$ 500,639$ 500,639$—(2) Long-term debt due within one year
20,361
20,372(11)
180,698
180,796(98)(3) Trade notes and accounts payable
149,858
149,858—
1,329,942
1,329,942—(4) Long-term debt due after one year
159,518
159,983(465)
1,415,673
1,419,800(4,127)(476) $3,426,952
Total liabilities¥ 386,149¥ 386,625¥$3,431,177$(4,225)Derivatives:						
2,124
2,124
—
—
To which hedge accounting is not applied¥¥¥$ 18,850$ 18,850$
To which hedge accounting is applied(486)(1,329)(843)(4,313)(11,794)(7,481)(843) $ 14,537
Total derivatives
¥
1,638
¥
795
¥
$
7,056
$ (7,481)

March 31, 2015

			

		

Book value

Millions of yen
Fair value

Difference(1) Cash and cash equivalents¥ 24,515¥ 24,515¥—(2) Trade notes and accounts receivable
321,642 					Allowance for doubtful receivables(852) 								 Net		
320,790
320,790—(3) Securities						a) Equity securities issued by affiliated companies
6,481
4,890
(1,591)b) Available-for-sale securities
36,47436,474—(4) Long-term loans receivable
3,003 			Allowance for doubtful receivables(9) 		
		 Net		
2,994
2,994
—
Total assets¥ 391,254¥ 389,663¥ (1,591)¥ 70,211¥ 70,211¥(1) Short-term loans payable—(2) Commercial paper
27,00027,000—(3) Long-term debt due within one year
21,944
21,951(7)(4) Trade notes and accounts payable
180,155
180,155—(5) Long-term debt due after one year
152,353
152,540(187)
Total liabilities¥ 451,663¥ 451,857¥(194)
Derivatives:						To which hedge accounting is not applied¥(2,046)¥(2,046)¥—
To which hedge accounting is applied
2,424
1,958
(466)
Total derivatives
¥
378
¥
(88)
¥
(466)

Allowance for doubtful receivables recognized in trade notes and accounts receivable and long-term loans receivable was offset.
Derivative assets and liabilities were on net basis.

36 | HANWA ANNUAL REPORT 2016 |Basis of determining the fair value of financial instruments is asfollows:
Cash and cash equivalents, Trade notes and accounts
receivable
The book values of cash and cash equivalents and trade notes
and accounts receivable approximate fair value due to their shortmaturities.
Securities
The fair value of securities is based on the quoted market price on thestock exchange. The fair value of bonds is based on the quoted priceprovided by financial institutions.
Long-term loans receivable
The book value of long-term loans receivable approximates fair value
due to their floating interest rates.

Short-term loans payable, Commercial paper, and Trade notes
and accounts payable
The book values of short-term loans payable, commercial paper andtrade notes and accounts payable approximate fair value due to theirshort maturities.
Long-term debt
The book value of long-term loans payable with floating interest rates
approximates fair value. The fair value of long-term loans payable with
fixed interest rates is estimated by discounted cash flow analysis, using
rates currently available for similar types of borrowings with similar terms
and remaining maturities. The fair value of straight bonds is based on
the quoted price provided mainly by Japan Securities Dealers Association.
Derivatives
The fair value of derivatives is based on the quoted price provided
mainly by financial institutions and exchange members.

The following tables summarize book values of financial instruments whose fair values were hard to determine as of March 31, 2016 and 2015:							Thousands of					Millions of yen
U.S. dollars
					
2016

			

		

(1) Equity securities issued by unconsolidated subsidiaries and affiliated companies			

Book value¥

10,715

2015

2016

Book value

Book value

¥

8,031

$

95,092(2) Available-for-sale securities:							Unlisted stocks				
¥
2,808
¥
3,373
$ 24,920
Unlisted foreign stocks				
8,160
3,935
72,418Unlisted foreign convertible bonds				
2,417
2,577
21,450Investment in limited partnerships				8
33
71
Total				¥ 13,393¥
9,918$ 118,859

The maturities of receivables and securities with maturities outstanding at March 31, 2016 were as follows:			Year ending March 31

											2017							Cash and cash equivalents		 ¥ 25,805¥
Trade notes and accounts receivable		
276,293
Held-to-maturity debt securities		——Available-for-sale securities with maturity dates		Long-term loans receivable		—Total			¥ 302,098
¥
			

		

																2017

Cash and cash equivalents		 $ 229,011$
Trade notes and accounts receivable		
2,452,015
Held-to-maturity debt securities		—Available-for-sale securities with maturity dates		—Long-term loans receivable		—Total			$2,681,026$

Millions of yen
From 2018 		
to 2021		

—
—
—
2,417
8,413
10,830From 2022		
to 2026		

¥

¥

—
—
—
—
3,121
3,121

Thereafter		

¥

¥

—
—
—
—
5
5

Thousands of U.S. dollars
From 2018 		
to 2021		

———
21,45074,663
96,113

From 2022		
to 2026		

$

$

—
—
—
—
27,69827,698Thereafter		

$

$

—
—
—
—
44
44

Long-term loans receivable of ¥845 million ($7,499 thousand) were excluded from the above table since due date for the redemption had not
yet been determined.

| HANWA ANNUAL REPORT 2016 | 37

4. Securities(A) The following tables summarize acquisition costs and book values (fair values) of available-for-sale securities with available market
values as of March 31, 2016 and 2015:
March 31, 2016

					Securities with book values exceeding acquisition costs:
Equity securities¥
Securities with book values not exceeding acquisition costs:
Equity securities¥

Book value

Thousands of U.S. dollars

Acquisition cost

Book value

Difference¥

26,171¥

14,653$ 102,219$

232,260$ 130,041

8,532

¥

5,498

¥

(3,034)$$

48,793$ (26,926)

			

75,719Millions of yen

Acquisition cost

Securities with book values exceeding acquisition costs:
Equity securities¥
Securities with book values not exceeding acquisition costs:
Equity securities¥

Difference

11,518March 31, 2015
		Millions of yen 			Acquisition cost

Book value

Difference

11,494¥29,447¥

17,953

8,508

¥

7,027

¥

(1,481)(B) The following tables summarize sales of available-for-sale securities in the years ended March 31, 2016 and 2015:
March 31, 2016

			Millions of yen 					Proceeds from sales

Gains on sales

Losses on sales

Equity securities

¥

¥

¥

706

March 31, 2015

			

499

5

$

6,266

Gains on sales

$

4,428

Losses on sales$

44

Millions of yen

		Proceeds from sales

Gains on sales

Losses on sales

Equity securities

¥

¥

¥

32

Thousands of U.S. dollars

Proceeds from sales

16—(C) The loss resulting from the valuation of the securities in the years ended March 31, 2016 and 2015 was as follows:							Thousands of					Millions of yen
U.S. dollars
					
2016

Securities in subsidiaries and affiliates				¥644
Other securities				
1,741
Total				¥2,38538 | HANWA ANNUAL REPORT 2016 |

2016

2015

¥
¥

267
210
477

$
$

5,715
15,451
21,166

5. Derivatives(A) The following tables summarize fair value information as of March 31, 2016 and 2015 for the derivatives to which hedge accounting
has not been applied:
March 31, 2016
Currency related

			
				
				

Contract ornotional amountMillions of yen 			Thousands of U.S. dollars
Due after		Net recognized
one year
Fair value
gain or loss

Contract ornotional amountDue after		
one year
Fair value

Net recognizedgain or loss

Foreign exchange forward contracts:
Selling:		 				U.S. dollars				 ¥ 49,271 ¥— ¥ 1,678 ¥
1,678 $ 437,265 $— $ 14,891 $		Other currencies
		
676
—
(9)
(9)
5,999
—
(80)
Buying:					U.S. dollars				
12,878
—
(453)
(453)
114,288—(4,020)		Other currencies
		
1,172
—
(5)
(5)
10,401—(44)
Currency swap agreements:
Japanese yen received for U.S. dollars		
13,217—799
799
117,297—7,091
		Total 							¥2,010 				 $Commodity related

			
				
				

Contract ornotional amount

14,891(80)(4,020)(44)
7,091
17,838Millions of yen 			Thousands of U.S. dollars
Due after		Net recognized
one year
Fair value
gain or loss

Contract ornotional amountDue after		
one year
Fair value

Net recognizedgain or loss

Forwards:
Petroleum:						Selling				 ¥
1,751 ¥
— ¥
43 ¥
43 $
15,540 $— $382 $		Buying
			
589
—
24
24
5,227
—
213
Non-ferrous metals:					Selling				19,125
—
(139)
(139)
169,728—(1,234)
		Buying			
13,053—200
200
115,841—
1,775
Commodity swap agreements:
Petroleum:
		
395
—
2
2
3,506
—
18
		Selling		
			
423
—
(17)
(17)
3,754
—
(151)
		Buying		
Total 							¥113 				 $

382213(1,234)
1,775

18
(151)
1,003

| HANWA ANNUAL REPORT 2016 | 39

March 31, 2015
Currency
related
			
				
				

Contract ornotional amountMillions of yen 			Due after		Net recognized
one year
Fair value
gain or loss

Foreign exchange forward contracts:
Selling:		 				U.S. dollars				 ¥ 57,967 ¥— ¥(606) ¥
(606)
		Other currencies			
590
—
15
15
Buying:				
		U.S. dollars				
11,57148
179
179
		Other currencies
		
2,572
288
(14)
(14)
Currency swap agreements:
Japanese yen received for U.S. dollars		
11,118—(2,114)(2,114)
		Total 							¥ (2,540)

Commodity
related
			
				
				

Contract ornotional amountMillions of yen
Due after		Net recognized
one year
Fair value
gain or loss

Forwards:
Petroleum:						Selling				 ¥1,850 ¥— ¥17 ¥17		Buying				
964
—
(9)
(9)
Non-ferrous metals:						Selling				
17,986—400
400
		Buying
			
7,814
—
140
140
Commodity swap agreements:
Petroleum:
550
—
(5)
(5)
		Selling						Buying
			
1,065
—
(49)
(49)
		
Total 							¥494(B) The following tables summarize fair value information as of March 31, 2016 and 2015 for the derivatives to which hedge accounting
has been applied:
March 31, 2016
Interest rate related

			
		
		

Contract ornotional amountInterest rate swap for long-term loans:
Floating rate received for fixed rate¥

39,947

Commodity
related							Forwards for inventories and commitments:
Non-ferrous metals
		Selling		Buying

40 | HANWA ANNUAL REPORT 2016 |Millions of yen 			Due after
one year¥

16,27813,465¥(842)

Due after
one year$ 354,517$ 354,517

Millions of yen 			Contract ornotional amount¥39,947

Fair value

Due after
one year¥—
511

Fair value

¥

279
(765)

Thousands of U.S. dollars

Contract ornotional amount$(7,472)Thousands of U.S. dollars

Contract ornotional amount$ 144,462
119,498

Fair value

Due after
one year

$

—
4,535

Fair value

$

2,476
(6,789)

March 31, 2015
Interest rate related

			
		
		

Contract ornotional amountInterest rate swap for long-term loans:
Floating rate received for fixed rate¥

34,937

Millions of yen
Due after
one year¥Commodity
related							Forwards for inventories and commitments:
Non-ferrous metals
		 Selling		Buying

34,43734,00819,328¥(466)

Millions of yen

Contract ornotional amount¥

Fair value

Due after
one year¥—
904

Fair value

¥

4,617
(2,193)

6. Inventories
Inventories at March 31, 2016 and 2015 consisted of the following:							Thousands of					Millions of yen
U.S. dollars
					
2016

Merchandise and finished products				¥ 96,083
Work-in-process				2,090
Raw materials and supplies 				7,878Total				¥ 106,051

The provisions made or reversed in the year were determined
after considering the realizable value of the inventories due to thedecline in profitability. Such provisions recognized in the profit and

2015

2016

¥ 120,516
2,234
10,306¥ 133,056$ 852,707
18,54869,915$ 941,170

loss were a net gain of ¥439 million (gain of $3,896 thousand) anda net loss of ¥1,043 million for the years ended March 31, 2016
and 2015, respectively.

7. Pledged assets
At March 31, 2016 and 2015, assets pledged as collateral for loans payable in the amount of ¥2,579 million ($22,888 thousand) and ¥3,197
million, respectively, and for guaranty deposits were as follows:							Thousands of					Millions of yen
U.S. dollars
					
2016

For loans payable:				
Other current assets 				
¥50Buildings and structures, net of accumulated depreciation 				
296Land 				1,113Investment securities 				—Total				¥1,459For guaranty deposits:				
Other current assets				¥13
Investment securities 				2,489Total				
¥
2,502

2016

2015

¥

¥
¥
¥

—
213
585
64
862

$

13
3,044
3,057

$

$

$

444
2,627
9,877
—
12,948115
22,08922,204| HANWA ANNUAL REPORT 2016 | 41

8. Short-term loans payable, commercial paper and long-term debt
The weighted average interest rate applicable to short-term loans
outstanding at March 31, 2016 and 2015 was 1.3% and 1.0%,
respectively, regardless of borrowing currencies though the range ofthe interest rates varies by borrowing currency. There was an
outstanding balance of ¥56,412 million ($500,639 thousand) and¥70,211 million at March 31, 2016 and 2015, respectively.

The Company has entered into a yen denominated domestic
commercial paper program. There was an outstanding balance ofzero and ¥27,000 million at March 31, 2016 and 2015, respectively.

Bonds at March 31, 2016 and 2015, consisted of the following:							Thousands of					Millions of yen
U.S. dollars
					
2016

2015

Issued in 2012, 0.54% unsecured straight bonds, due 2015			
¥Issued in 2013, 0.74% unsecured straight bonds, due 2018				
Issued in 2013, 0.36% unsecured straight bonds, due 2016				
Issued in 2014, 0.44% unsecured straight bonds, due 2019				Issued in 2015, 0.43% unsecured straight bonds, due 2020				
Issued in 2011, 1.01% unsecured straight bonds, due 2016				
Issued in 2011, unsecured floating rate bonds, due 2016				
Issued in 2014, unsecured floating rate bonds, due 2021				
Total
		
¥

10,000$—10,000 		 88,747
10,000 		 88,747
10,000 		 88,747—		88,747
24 		
71
30 		
89
139 		
1,055
40,193$ 356,203—¥
10,000 		
10,000 		
10,000 		
10,000 		
8 		
10 		
119 		
40,137¥2016

Long-term loans payable at March 31, 2016 and 2015, consisted of the following:							Thousands of					Millions of yen
U.S. dollars
					
2016

Loans from banks with weighted average interest rates of 0.7% and 0.8%
at March 31, 2016 and 2015, respectively, maturing serially through 2023		
Less amounts due within one year							¥ 139,743
10,322¥ 129,421

2016

2015

¥ 134,297$1,240,176
11,944 		
91,605¥ 122,353$1,148,571

The interest rates represent weighted average rates regardless of borrowing currencies, though the range of the interest rates varies byborrowing currencies.
The annual maturities of long-term loans payable outstanding at March 31, 2016 were as follows:
Years ending March 31																			Thousands of							Millions of yen
U.S. dollar

2017					¥ 10,322
2018					38,1772019					43,81527,0242020					2021					11,280
Thereafter					9,125
Total					¥ 139,743

42 | HANWA ANNUAL REPORT 2016 |$

91,605
338,809388,845239,830
100,106
80,981$ 1,240,176

9. Employees’ severance and retirement benefits(A) Overview of retirement benefit system adopted
To provide retirement benefits for employees, the Company and its
consolidated subsidiaries have adopted funded and unfunded defined
benefit plans and defined contribution plans. These Companies may
also pay extra retirement allowances to employees at retirement.
Under its defined benefit corporate pension plan, the Company
provides employees with lump-sum or pension benefits after determining the amount of benefits based on their salary and years of service.
In calculating pension benefits, the Company uses a life pension systemwith a guarantee period of 15 years in which pension conversion rates
vary according to market interest rates. On April 1, 2016, the Company
reduced a portion of the defined benefit life pension plan and adopted
defined contribution life pension plan. This transition was accounted forin accordance with the “Accounting of Transitions Between Retirement
Benefit Systems (Guidance on Accounting Standard for Retirement
Benefit No. 1 dated January 31, 2002).
In the defined benefit corporate pension plan and lump-sum
retirement payment plan which certain subsidiaries have, net defined
benefit liability and retirement benefit expenses are mainly calculated
based on the simplified method.
Certain subsidiaries participate in welfare pension plans, which
are classified as multi-employer plans. In regards to such pension
plans, sufficient information to calculate the proportionate share ofsuch plan assets cannot be obtained. Thus, the Company accounts
for such pension plans in the same manner in which it recognizes
defined contribution plans.

(B) Defined benefit plans(1) Movements in defined benefit obligations, except plans applying the simplified method							Thousands of					Millions of yen
U.S. dollars
					
2016

Balance at beginning of year			
Cumulative effects of changes in accounting policies 						

¥23,650—2015¥

27,601(2,990)2016$ 209,886—

Balance at beginning of year after accounting policies changed			
23,65024,611 		 209,886
Service cost				 1,062 		 1,133 		
9,425Interest cost			
325
337
2,884
Actuarial loss (gain)				 4,788(1,606) 		
42,492
Benefits paid				(731)(825) 		 (6,487)
Decrease by partial termination of defined benefit plans				 (3,415)—		(30,307)
Other		9 		—		80Balance at end of year		¥ 25,688¥ 23,650$ 227,973(2) Movements in plan assets, except plans applying the simplified method							Thousands of					Millions of yen
U.S. dollars
					
2016

Balance at beginning of year			
Expected return on plan assets			
Actuarial gain (loss)			
Contributions paid by the employer		
Benefits paid		
Decrease by partial termination of defined benefit plans		
Balance at end of year		

¥¥

24,661¥740(1,236)916 		
(730) 		(2,252)22,099
¥

2015

2016

23,462$ 218,859
704 		
6,567
373 		 (10,969)
947		 8,129(825)		 (6,479)—		(19,985)
24,661$ 196,122(3) Movements in liability for defined benefits for plans applying the simplified method							Thousands of					Millions of yen
U.S. dollars
					
2016

Balance at beginning of year			
Defined benefit costs			
Benefits paid			
Contributions paid by the employer		
Other		Balance at end of year		

¥

¥

412
¥
87
(55)
(21) 		
64 		
487
¥

2015

2016

344
$
3,656
88 		
772
(30) 		
(488)(20)		 (186)30		 568
412
$
4,322

| HANWA ANNUAL REPORT 2016 | 43

(4) Reconciliation from the balances of defined benefit obligations and plan assets and the liability (asset) for retirement benefits							Thousands of					Millions of yen
U.S. dollars
					
2016

Funded defined benefit obligations			
Plan assets							
Unfunded defined benefit obligations		
Total net liability (asset) for defined benefits at end of year		Net defined benefit liability		Net defined benefit asset		
Total net liability (asset) for defined benefits at end of year		

2016

2015

¥

25,925¥ 23,902$ 230,076(22,293)(24,854) 		 (197,843)
3,632(952) 		32,233444
353 		
3,940
4,076
(599) 		36,173
4,076 		412 		
36,173— 		(1,011)		
—
¥
4,076
¥
(599)
$ 36,173(5) Retirement benefit costs							Thousands of					Millions of yen
U.S. dollars
					
2016

¥

2016

2015

Service cost			Interest cost			Expected return on plan assets			
Net actuarial loss amortization		
Past service costs amortization		
Retirement benefit costs based on the simplified method		
Other		Total retirement benefit costs		

¥

1,062
¥
325
(740)
909
81
87 		
(16) 		1,708¥

Loss on revision of retirement benefit plan		

¥

64

1,132
$
9,425
337 		
2,884(704) 		(6,567)
1,196 		
8,067
81 		
719
89		 7725		 (142)
2,136$ 15,158

¥

—

$

568

(6) Remeasurements of defined benefit plans in other comprehensive income (before applicable tax effects)							Thousands of					Millions of yen
U.S. dollars
					
2016

Past service costs			
¥Actuarial gains and losses			
Total		 ¥107(3,913)(3,806)

2015

¥
¥

81
$
3,175 		
3,256
$

2016

950
(34,727)(33,777)(7) Remeasurements of defined benefit plans in accumulated other comprehensive income (before applicable tax effects)							Thousands of					Millions of yen
U.S. dollars
					
2016

Past service costs that are yet to be recognized			
Actuarial gains and losses that are yet to be recognized			
Total balance at end of year			

44 | HANWA ANNUAL REPORT 2016 |

¥
¥

196
9,033
9,229

2015

¥
¥

303
$
5,119 		
5,422
$

2016

1,740
80,165
81,905

(8) Breakdown of plan assets							
				

2016

Bonds
18.4%
Equity securities		
11.2
Cash and cash equivalents		
5.6
General account assets			
29.4
Other 			35.4Total			100.0%

2015

20.3%
12.8
4.2
19.3
43.4
100.0%“Other” consists of investments mainly in hedge funds investing in domestic and foreign equities and bonds,
foreign exchange, and various futures and derivatives.
Long-term expected rate of return
Current and target asset allocations, historical and expected returns on various categories of plan assets havebeen considered in determining the long-term expected rate of return.
(9)
Principal actuarial assumptions											

2016

Discount Rate
Long-term expected rate of return		Expected salary increase rate		

0.4%
3.0
3.4

(C) Defined contribution plans
Consolidated domestic subsidiaries were required to contribute ¥144
million ($1,278 thousand) and ¥113 million to the defined contribution
plan (including corporate pension fund plans under the multi-employer

2015

1.4%
3.0
3.4

pension system in which accounting treatment is implemented in thesame way as the defined contribution plan) for the years ended March
31, 2016 and 2015, respectively.

(D) Multi-employer pension plans
Multi-employer pension plans under which required contributions were accounted for as retirement benefit expenses. Items relating to overall statusof pension plan reserves at March 31, 2015 and 2014 (as of the most recently available year-end date of the pension fund) were as follows:						

Millions of yen						
2015

Fair value of plan assets					¥ 88,297
Benefit obligation based on pension plan finance calculation						 101,987
Balance at end of year				¥ (13,690)

The principle factors relating to the balance were the prior service costsof ¥9,871 million and ¥10,385 million as at March 31, 2015 and 2014
respectively, based on pension plan finance calculations. Amortization of
unamortized prior service costs was conducted using the straight-line
method over a period of 20 years.		

2014

¥
		
¥

78,19997,285(19,086)

Percentage of total pension plan accounted for by contributions of
the Group at March 31, 2015 and 2014 was 0.90% and 0.65%, respectively. The percentage does not match the actual amount contributed by
the Group.

| HANWA ANNUAL REPORT 2016 | 45

10. Income taxes
The Company is subject to a number of taxes based on income,which indicates an aggregate statutory income tax rate in Japan ofapproximately 33.1% and 35.6% for the years ended March 31,
2016 and 2015 respectively.

The following table summarizes the significant differences
between the aggregate statutory income tax rate and the Company’s
effective tax rate for financial statement purposes for the years ended
March 31, 2016 and 2015.

					
2016

2015

33.1%
(1.1)
(24.0)
—
0.1
(3.4)
4.7%

Statutory tax rate:					Tax effect of permanent differences					Valuation allowance recognized for deferred tax assets
				
Reversal of revaluation reserve for land				
Difference in tax rates for consolidated subsidiaries
				
Other
				
Effective tax rate					

35.6%
(0.3)
0.9
(9.2)
(1.1)
3.9
29.8%

The significant components of the Companies’ deferred tax assets and liabilities as of March 31, 2016 and 2015 were as follows:							Thousands of					Millions of yen
U.S. dollars
					
2016

2016

2015

Deferred tax assets:
Temporary differences resulting from the merger with consolidated subsidiaries		
¥3,764¥ 11,944$ 33,404
Loss on valuation of investment securities, currently not deductible			
3,221
909
28,585
Loss on sale-repurchase agreements of land				
1,294
1,367
11,484
Net defined benefit liabilities				
1,220—
10,827
Loss on impairment of long-lived assets				
877
1,955
7,783
Accrued bonuses to employees				
688
682
6,106
Land revaluation difference, net of taxes unrealized loss				
226
239
2,006
Other				
5,109
4,256
45,341
Total deferred tax assets				
16,39921,352
145,536
Valuation allowance				(11,062)(17,410)(98,172)
Net deferred tax assets				
5,337
3,942
47,364
Deferred tax liabilities:						Valuation difference on available-for-sale securities				
3,367
5,336
29,881
Land revaluation difference, net of taxes unrealized gain				
1,635
1,922
14,510Net defined benefit assets				—210—
Other				
3,000
3,393
26,624
Total deferred tax liabilities				
8,002
10,861
71,015Net deferred tax liabilities			¥ (2,665)¥ (6,919)$ (23,651)

Deferred tax assets and deferred tax liabilities were included in the consolidated balance sheets at March 31, 2016 and 2015, respectively,
as follows:							Thousands of					Millions of yen
U.S. dollars
					
2016

Current assets: Deferred tax assets				
Other assets: Deferred tax assets				Current liabilities: Other current liabilities (Deferred tax liabilities)				
Noncurrent liabilities: Deferred tax liabilities				

Adjustment of deferred tax assets and liabilities for enactedchanges in tax laws and rates
On March 29, 2016, amendments to the Japanese tax regulations wereenacted into law. Based on the amendments, the statutory income tax
rates utilized for the measurement of deferred tax assets and liabilities

46 | HANWA ANNUAL REPORT 2016 |

¥

2,085
244
0
4,994

2016

2015

¥

1,116
107
2
8,140

$

18,5042,165
044,320expected to be settled or realized from April 1, 2016 to March 31, 2018
and on or after April 1, 2018 were changed from 32.3% to 30.9% and30.6%, respectively, as of March 31, 2016.
The impact of this change on the financial statements has been
immaterial.

11. Business Combination
Year ended March 31, 2016(A) Outline of business combination(1) Name and business of the company acquired
Daisun Co., Ltd.
Wholesale steel distributor(2) Major reasons for the business combination
The business combination has made it possible for theCompany to further improve its own distribution functionality by pursing the JIT/small-lot orders/processing strategy,
which is the pillar of its marketing strategy, taking advantage of the Daisun’s sales and distribution bases in Tokyo
and Osaka.

(3) Business combination dateJuly 1, 2015(4) Legal form for the business combination
Cash purchase of shares(5) Name of the company after the business combination
Daisun Co., Ltd.
(6) Voting rights acquired
100.0%(7) Reason for decision on the acquiring company
The Company acquired Daisun’s shares with cash.

(B) Period of the acquired company’s fiscal year included in the consolidated financial statements
From July 1, 2015 to March 31, 2016
(C) Details of the acquisition cost of the acquired company were as follows:											
		Thousands of					Millions of yen
U.S. dollar

Acquisition consideration (Cash)
Acquisition cost		

¥
¥

2,300
2,300

$
$

20,412
20,412(D) Main acquisition related costs											
		Thousands of					Millions of yen
U.S. dollar

Advisory fee, etc.

¥

10

$

89

(E) Amount of and reason for negative goodwill(1) Amount of negative goodwill¥1,101 million ($9,771 thousand)(2) Reason for negative goodwill
The acquisition cost was lower than the net assets at fair value of the acquired company.
(F) Amounts of assets and liabilities acquired on the business combination date were as follows:											
		Thousands of					Millions of yen
U.S. dollar

Current assets
Fixed assets
Total assets
Current liabilities
Long-term liabilities
Total liabilities		

¥

¥

5,101
4,392
9,493
5,467
624
6,091

$

$

45,27038,977
84,24748,5185,538
54,056(G) Estimated impact on the consolidated statement of income assuming the business combination had been completed as of the beginning of the fiscal year
Omitted because the impact is immaterial. This disclosure is unaudited.

| HANWA ANNUAL REPORT 2016 | 47

12. Net assets
Net assets comprise three subsections, which are shareholders’equity, accumulated other comprehensive income and non-controlling interests.
Under the Japanese Corporate Law (“the Law”), in cases in which
a dividend distribution of surplus is made, the smaller of an amountequal to 10% of the dividend or the excess, if any, of 25% of common
stock over the total of additional paid-in capital and legal earnings
reserve must be set aside as additional paid-in capital or legal earnings
reserve. Legal earnings reserve and legal capital surplus are included inretained earnings and additional paid-in capital, respectively, in theaccompanying consolidated balance sheets.
Under the Law, legal earnings reserve and additional paid-in
capital are able to eliminate or reduce a deficit by a resolution of theshareholders’ meeting.
Under the Law, all additional paid-in capital and all legal earnings
reserve may be transferred to other capital surplus and retained earnings, respectively, which are potentially available for dividends.
The maximum amount that the Company can distribute as dividends is calculated based on the nonconsolidated financial statementsof the Company in accordance with Japanese laws and regulations.

At the annual shareholders’ meeting held on June 29, 2016, theshareholders approved cash dividends of ¥10.0 per share ($0.09)
amounting to¥2,072 million ($18,388 thousand). This appropriation
has not been accrued in the consolidated financial statements as ofMarch 31, 2016. Such appropriations are recognized in the period inwhich they are approved by the shareholders.
Land revaluation difference
Pursuant to the Law Concerning Land Revaluation, the Company revaluated land used for business activities at March 31, 2002.
Unrealized gain (loss) on land revaluation is recorded as land revaluationdifference in a separate component of accumulated other comprehensive
income in the consolidated balance sheets until realized. The amounts areshown net of applicable income tax.
The revaluation of land was determined based on a declared land
value with certain necessary adjustments in accordance with Article 2,
Paragraph 1 of the Enforcement Ordinance Concerning Land Revaluation.
As of March 31, 2016, the carrying amount of the land after theabove one-time revaluation exceeded the market value by ¥1,224 million($10,863 thousand).

13. Leases
Operating leases 									As Lessee 									
Obligations under noncancelable operating leases as of March 31, 2016 and 2015 were as follows:												Thousands of
				
			
		
Millions of yen
U.S. dollars
					
2016

Due within one year
			
¥
528
Due after one year				
8,342
Total				
¥
8,870

2016

2015

¥

128
327
455

¥

$
$

4,686
74,03278,718

14. Contingent liabilities
At March 31, 2016 and 2015, the Companies were contingently liable as follows:							Thousands of					Millions of yen
U.S. dollars
					
2016

As endorsers of export letters of credit and notes discounted			As guarantors of indebtedness				

¥

4,320
4,231

2016

2015

¥

7,436
3,345

$

38,33937,54915. Gain on sales of property and equipment
The following table summarizes gain on sales of property and equipment in the years ended March 31, 2016 and 2015:							Thousands of					Millions of yen
U.S. dollars
					
2016

Buildings and structures				¥—
Machinery, equipment and vehicles				2Land				13,066
Other 				7Total				¥ 13,075

48 | HANWA ANNUAL REPORT 2016 |

2016

2015

¥

¥

107
—
14
7
128

$

—
18
115,957
62$ 116,037

16. Loss on sales of property and equipment
The following table summarizes loss on sales of property and equipment in the years ended March 31, 2016 and 2015:							Thousands of					Millions of yen
U.S. dollars
					
2016

Buildings and structures				¥
257
Machinery, equipment and vehicles				
4
Other 				0Total				
¥
261

2016

2015

¥

—
—
—
—

¥

$

$

2,281
35
0
2,316

17. Other comprehensive income
Years ended March 31, 2016 and 2015
Amounts reclassified to net income in the current period that were recognized in other comprehensive income in the current or previous
periods and tax effects for each component of other comprehensive income were as follows:
			
			

			
		
Millions of yen

					
2016

Valuation difference on available-for-sale securities, net of taxes:				
Increase (decrease) during the year			¥ (6,227)
Reclassification adjustments 			
662
Sub-total, before tax				
(5,565)
Tax expense (benefit)				
(1,968)Sub-total, net of tax				(3,597)
Deferred gains or losses on hedges, net of taxes:				
Increase (decrease) during the year			
592
Reclassification adjustments 			(3,417)
Sub-total, before tax				(2,825)
Tax expense (benefit)				
(922)
Sub-total, net of tax				(1,903)
Land revaluation difference, net of taxes:				
Increase (decrease) during the year			—
Reclassification adjustments 			—Sub-total, before tax				—Tax expense (benefit)				
(102)
Sub-total, net of tax				102
Foreign currency translation adjustments:
Increase (decrease) during the year			
(675)
Reclassification adjustments 			—Sub-total, before tax				(675)
Tax expense (benefit)				
—Sub-total, net of tax				(675)
Remeasurements of defined benefit plans, net of taxes:
Increase (decrease) during the year			(6,024)
Reclassification adjustments 			
2,218
Sub-total, before tax				(3,806)
Tax expense (benefit)				
(1,068)Sub-total, net of tax				
(2,738)
Share of other comprehensive income of entities accounted for using equity method:
Increase (decrease) during the year			
110
Total other comprehensive income			¥ (8,701)

Thousands of
U.S. dollars
2016

2015

¥

¥

5,346
202
5,548
1,411
4,137

$

(55,263)
5,875(49,388)(17,466)(31,922)

3,362
(521)
2,841
954
1,887

5,254
(30,325)(25,071)(8,182)(16,889)

—
—
—
(184)
184

—
—
—
(905)
905

2,175
—
2,175
—
2,175

(5,990)—(5,990)—(5,990)

1,980
1,276
3,256
1,331
1,925

(53,461)
19,684(33,777)(9,478)(24,299)—
10,308$976(77,219)| HANWA ANNUAL REPORT 2016 | 49

18. Investment and rental properties
Information about fair value of investment and rental properties is disclosed as follows:
The Group owns office buildings, logistics centers and other properties for rent in Tokyo and other cities.
Rental profits from these properties were ¥381 million ($3,381 thousand) and ¥274 million for the years ended March 31, 2016 and 2015,
respectively, and were included in gross profit.
Book value, annual net increase and decrease amount and fair value of investment and rental properties were as follows:Year ended March 31, 2016		
Millions of yen							Thousands of U.S. dollars
Book value
Balance at beginning 		
of year
Net increase

¥

4,014

¥

3,295

Book value
Balance at end		
of yearFair value

¥

7,309

¥

7,099

Balance at beginning 		
of year
Net increase$

35,623$29,242

Balance at endof year$64,865

Fair value$

63,001

Year ended March 31, 2015
Millions of yen
Book value
Balance at beginning 		
of yearNet decrease

¥

7,385

¥

3,371

Balance at endof year¥

4,014

Fair value

¥

3,668

Book value is net of accumulated depreciation and impairment loss.
Fair values of these properties are measured mainly by the Company, based on “Standard for real-estate appraisal.”

19. Segment information(A) Overview of the reportable segments
The Group’s reportable segments are determined on the basis that
separate financial information for such segments is available andexamined periodically by the Board of Directors, which makes decisions regarding the allocation of management resources and assesses
the business performances of such segments.
The Group’s main business is buying and selling of various productswith a focus on steel, and the business department, which is divided
according to products handled or service contents, mainly carries out
business activities. For this reason, the Group consists of businesssegments with the business department as the basis. The 6 reportablesegments are “steel business,” “metal and alloy business,” “non-ferrous
metal business,” “food business,” “petroleum and chemical business,”and “overseas sales subsidiaries.” The “overseas sales subsidiaries,” whichhave been included in the “other business” in the previous fiscal year,
is separately presented in the reportable segment since the quantitative importance has increased. In this regard, the segment information
for the previous fiscal year has been prepared pursuant to the reportable segment classification subsequent to the changes.

50 | HANWA ANNUAL REPORT 2016 |The main products and services that fall under these reportablesegments are listed as follows. (Shown in parentheses are contentsof services.)
Steel: Steel bars and shapes, steel plates and sheets, special steels,
wire products, steel pipes, and steelmaking raw materials (steel
processing and storage)
Metals and alloys: Nickel, chromium, silicon, manganese, steel alloys
Non-ferrous metals: Aluminum, copper, and zinc (recycling business)
Foods: Seafoods
Petroleum and chemicals: Petroleum products, industrial chemicals,
and chemicals
Overseas sales subsidiaries: (Trading of various goods and related
business activities)
The reportable segment income figures are based on operating
income coupled with interest and dividend income, interest expense,and foreign currency translation adjustments. Intersegment transactions are presented based on the current market prices at the time ofthis report.

Information about sales, profits, assets and others by reportable segment for the year ended March 31, 2016 was as follows:Year ended March 31, 2016

				
		

Millions of yen

Reportable segment

			
		
Steel

Metalsand alloys

Non-ferrous		
metalsFoods

Petroleum
Overseas		
and chemicals sales subsidiaries
Total

Other
business

Total

Adjustment

Consolidated

Net sales		Intersegment		
Total		

¥ 778,738 ¥ 127,759 ¥ 80,895
19,954
3,429
1,187¥ 798,692 ¥ 131,188 ¥ 82,082¥ 89,542 ¥ 271,602 ¥ 97,468 ¥ 1,446,004
1,130
4,848
80,149110,697¥ 90,672 ¥ 276,450 ¥ 177,617 ¥ 1,556,701¥ 65,796 ¥ 1,511,800 ¥— ¥ 1,511,800
1,459
112,156 (112,156)—¥ 67,255 ¥ 1,623,956 ¥ (112,156) ¥ 1,511,800

Segment income (loss)

¥

¥

¥

Assets		
Depreciation
Amortization of goodwill
Interest income
Interest expense
Share of profit (loss) of entities
accounted for using equity method
Investment for entities
accounted for equity method
Increase in property
and equipment¥ 332,394 ¥
3,248
155
204
2,213

14,829 ¥2,218 ¥

849

64,753 ¥ 17,527
108
281
33
44
526
0
765
212

75 ¥

¥ 33,776 ¥
30
—
0
224

1,975 ¥

(708) ¥

19,23838,054 ¥ 24,601 ¥ 511,105
68
62
3,797
—
—
232
53
70
853
283
265
3,962

1,376 ¥

20,614 ¥(5,189) ¥15,425¥ 32,103 ¥ 543,208 ¥ 56,486 ¥ 599,694
457
4,254
90
4,344
—
232
—
232
13
866
173
1,039
126
4,088
(1,404)2,684(1,031)

—

—

—

—

(273)

(1,304)—(1,304)—(1,304)

2,894

—

—

—

—

132

3,026

—

3,026

—

3,026

5,232

141

134

202

172

48

5,929

344

6,273

710

6,983

Adjustment

Consolidated

Year ended March 31, 2016

				
		

Thousands of U.S. dollars

Reportable segment

			
		
Steel

Metalsand alloys

Non-ferrous		
metalsFoods

Petroleum
Overseas		
and chemicals sales subsidiaries
Total

Other
business

Total

Net sales		Intersegment		
Total		

$ 6,911,057 $ 1,133,822
177,086
30,431$ 7,088,143 $ 1,164,253$ 717,918
10,534$ 728,452$ 794,658 $ 2,410,383 $ 864,998 $ 12,832,836 $ 583,919 $ 13,416,755 $— $ 13,416,755
10,02843,025711,298
982,402
12,948995,350 (995,350)—$ 804,686 $ 2,453,408 $ 1,576,296 $ 13,815,238 $ 596,867 $ 14,412,105 $ (995,350) $ 13,416,755

Segment income (loss)$ 131,603 $$$Assets		
Depreciation		
Amortization of goodwill
Interest income		Interest expense		
Share of profit (loss) of entities
accounted for using equity method
Investment for entities
accounted for equity method
Increase in property
and equipment		

$ 2,949,893 $ 574,663
28,825
958
1,376
293
1,811
4,668
19,6406,789

19,684

7,535$ 155,547
2,494
390
0
1,881

665 $

17,527 $(6,283) $170,731 $ 12,212 $

182,943 $ (46,051) $136,892$ 299,752 $ 337,717 $ 218,326 $ 4,535,898 $ 284,904 $ 4,820,802 $ 501,296 $ 5,322,098
266
604
550
33,697
4,056
37,753799
38,552
—
—
—
2,059
—
2,059
—
2,059
0
470
621
7,570
115
7,685
1,536
9,221
1,988
2,512
2,352
35,162
1,118
36,280 (12,460)
23,820(9,150)

—

0

—

—

(2,423)(11,573)—(11,573)—(11,573)

25,683

—

—

—

—

1,172

26,855—26,855—26,85546,432

1,251

1,189

1,793

1,527

426

52,6183,053

55,671

6,301

61,972

1. ”Other business” represents businesses such as lumber section
and machinery section which are not included in the above reportable segment.
2. Adjustments are as follows:(1) Adjustments of negative ¥5,189 million (negative $46,051 thousand) for segment income (loss) include intersegment elimination
and Group costs that have not been allocated to reportablesegments. These Group costs consist mainly of expenses ofadministrative departments.
(2) Adjustments for segment assets amounting to ¥56,486 million($501,296 thousand) include Group assets that have not been
allocated to reportable segments. These Group assets consist
mainly of cash and cash equivalents, investment securities andassets of administrative departments.

(3) Adjustments for depreciation and amortization amounting to¥90 million ($799 thousand) include mainly depreciation andamortization expenses of Group assets.
(4) Adjustments for interest income and interest expense amounting
to ¥173 million ($1,536 thousand) and negative ¥1,404 million(negative $12,460 thousand) include intersegment elimination, revenue and expense that have not been allocated toreportable segments.
(5) Adjustments for increases in tangible fixed assets and intangible
fixed assets amounting to ¥710 million ($6,301 thousand) are
increases in Group assets.

| HANWA ANNUAL REPORT 2016 | 51

Information about sales, profits, assets and others by reportable segment for the year ended March 31, 2015 was as follows:Year
ended March 31, 2015
						

Millions of yen

Reportable segment

			
		
Steel

Metalsand alloys

Non-ferrous		
metalsFoods

Petroleumand chemicals

Overseas		sales subsidiaries
Total

Other
business

Total

Adjustment

Consolidated

Net sales			Intersegment		
Total		

¥ 857,396 ¥ 125,768 ¥ 81,97821,3195,403
1,387¥ 878,715 ¥ 131,171 ¥ 83,365¥ 86,923 ¥ 422,450 ¥ 101,276 ¥ 1,675,791 ¥ 61,607 ¥ 1,737,398 ¥— ¥ 1,737,398
723
7,470
78,288
114,590
1,220
115,810 (115,810)—¥ 87,646 ¥ 429,920 ¥ 179,564 ¥ 1,790,381 ¥ 62,827 ¥ 1,853,208 ¥ (115,810) ¥ 1,737,398

Segment income (loss)¥¥

14,737 ¥Assets		¥ 354,475 ¥3,024
Depreciation		
Amortization of goodwill
154
Interest income		
199
Interest expense		
2,201
Share of profit (loss) of entities
accounted for using equity method
207
Investment for entities
2,009
accounted for equity method
Increase in property
and equipment
3,140

343 ¥

1,146

72,533 ¥ 23,270
105
38
33
—
170
—
652
160

583 ¥

2,481 ¥

¥ 34,127 ¥
17
—
0
258

48,406 ¥
66
—
137
376

19,231 ¥743 ¥19,974 ¥(5,709) ¥14,265

38,116 ¥ 570,927 ¥ 23,594 ¥ 594,521 ¥ 56,936 ¥ 651,457
52
3,302
543
3,845
46
3,891
—
187
—
187
—
187
91
597
16
613
251
864
372
4,019
162
4,181
(1,313)
2,868

—

—

—

—

—

207

—

207

—

207

—

—

—

—

—

2,009

—

2,009

—

2,009

79

34

40

64

115

3,472

355

3,827

106

3,933

1. ”Other business” represents businesses such as lumber section
and machinery section which are not included in the above reportable segment.
2. Adjustments are as follows:(1) Adjustments of negative ¥5,709 million for segment income
include intersegment elimination and Group costs that havenot been allocated to reportable segments. These Group costs
consist mainly of expenses of administrative departments.
(2) Adjustments for segment assets amounting to ¥56,936
million include Group assets that have not been allocated toreportable segments. These Group assets consist mainly ofcash and cash equivalents, investment securities and assets ofadministrative departments.

52 | HANWA ANNUAL REPORT 2016 |(59) ¥(3) Adjustments for depreciation and amortization amounting to¥46 million include mainly depreciation and amortization expensesof Group assets.
(4) Adjustments for interest income and interest expense amounting
to ¥251 million and negative ¥1,313 million include intersegment elimination, revenue and expense that have not been
allocated to reportable segments.
(5) Adjustments for increases in tangible fixed assets and intangible fixed assets amounting to ¥106 million are increases inGroup assets.

(B) Related information
Product information
Net sales information by products for the years ended March 31, 2016 and 2015 was as follows:Year ended March 31, 2016							 Metals		Steeland alloys

Net sales to external customers¥

816,000¥

122,466¥

119,668

Year ended March 31, 2016							 Metals		Steeland alloys

Net sales to external customers$ 7,241,746$ 1,086,848

Millions of yen

Non-ferrous		Petroleum		metalsFoods
and chemicals
Other

¥

885,756¥

127,140

286,692¥

76,556$ 1,062,016$

802,432$ 2,544,302$

679,411

114,898

Total$13,416,755

Millions of yen

Non-ferrous		Petroleum		metalsFoods
and chemicals
Other

¥

Total

¥ 1,511,800

Thousands of U.S. dollars

Year
ended March 31, 2015
				
¥

¥

Non-ferrous		Petroleum		metalsFoods
and chemicals
Other

			 Metals		Steeland alloys

Net sales to external customers

90,418¥99,692¥437,392¥

72,520Total¥ 1,737,398

Geographic information(1) Net sales in different countries for the years ended March 31, 2016 and 2015 were as follows:Year ended March 31, 2016

					Millions of yen

					
Japan

Net sales to external customers 				¥ 1,130,114

Asia

¥

Other

308,943¥

Year
ended March 31, 2016
					Thousands of U.S. dollars

					
Japan

Asia

Net sales to external customers 				$ 10,029,411¥ 1,284,291

$

Total

645,571$13,416,755

Millions of yen

					
Japan

Net sales to external customers 				¥ 1,511,800

Other$ 2,741,773

Year ended March 31, 2015
					

Total

72,743

Asia

¥

Other

369,515¥

Total

83,592¥ 1,737,398(2) Property and equipment in different countries for the year ended March 31, 2016 and 2015 were as follows:Year ended March 31, 2016

					Millions of yen

					
Japan

Property and equipment				¥

54,365

Asia

¥

Other

7,123

¥

Year ended March 31, 2016
					Thousands of U.S. dollars

					
Japan

Asia

Property and equipment 				

$482,473$

Year ended March 31, 2015¥

52,885¥61,563$666$

546,353

Total

Millions of yen

					
Japan

Property and equipment				

75

Other

63,214

					

Total

Asia

¥

7,988

Other

¥

Total

74

¥

60,947| HANWA ANNUAL REPORT 2016 | 53

Loss on impairment of long-lived assets in reportable segment
Year ended March 31, 2016
Loss on impairment of long-lived assets in reportable segment is omitted because it is immaterial.

Outstanding balance of goodwill and amortization of goodwill in reportable segment
Outstanding balance of goodwill for the year ended March 31, 2016 and 2015 were as follows:Year ended March 31, 2016
						

Millions of yen

Reportable segment

			 Metals		Steeland alloys

Balance at end of year ¥

289 ¥

100

Non-ferrous		Petroleum		 Other
metalsFoods
and chemicals
Total
business

¥

155 ¥

—

¥

— ¥

544 ¥

Total

— ¥

Adjustment

544 ¥

— ¥

Consolidated

544

Year ended March 31, 2016
						Thousands of U.S. dollars

Reportable segment

			 Metals		Steeland alloys

Non-ferrous		Petroleum		 Other
metalsFoods
and chemicals
Total
business

Balance at end of year $

$

2,565

$

887

1,376 $—$

— $4,828 $

Total

— $

Adjustment

4,828 $

— $Consolidated

4,828

The information of amortization of goodwill was omitted here because which has been noticed in the overview of the reportable segments.
Year ended March 31, 2015									 Metals		Steeland alloys

Balance at end of year ¥Millions of yen

Reportable segment

442 ¥

134

Non-ferrous		Petroleum		 Other
metalsFoods
and chemicals
Total
business

¥

— ¥

—

¥

— ¥

576 ¥

Total

— ¥

Adjustment

576 ¥

— ¥

Consolidated

576

Gain on negative goodwill in reportable segment
Year ended March 31, 2016
The Company recorded gain on negative goodwill of ¥1,101 million due to acquisition of a 100% stake in Daisun Co., Ltd. in the steel segment,
which was made into a subsidiary. The gain on negative goodwill is not included in the segment income because it is recorded as an extraordinary
gain on the consolidated statements of income.

54 | HANWA ANNUAL REPORT 2016 |Independent Auditor’s Report| HANWA ANNUAL REPORT 2016 | 55

Global Network

ASIA

EUROPEMIDDLE EAST

AFRICA

LondonKuwaitJohannesburg

Amsterdam

JeddahViennaDammamDubai
Istanbul

56 | HANWA ANNUAL REPORT 2016 |Seoul

Hong Kong

Busan

Taipei

Beijing

Kaohsiung

QingdaoBangkok

DalianChonburi

Tianjin

YangonShanghai

Kuala Lumpur

Chongqing

Singapore

FuzhouHo Chi Minh

Wuhan

Hanoi

Taicang

Jakarta

Jiangxi

ManilaGuangzhou

Mumbai

Dongguan

New Delhi

Zhongshan

ChennaiAMERICAS
New York
ChicagoHoustonSeattleLos Angeles
San Diego

Guam

VancouverSantiago

Mexico City

BogotaCelaya

JAPAN
Osaka

Hachinohe

Tokyo

Mito

NagoyaAtsugi

Hokkaido

Shizuoka

TohokuOkayama

Kanto

Fukuyama

Niigata

Okinawa

Chugoku

Iwaki

KyushuHokuriku

Wakayama| HANWA ANNUAL REPORT 2016 | 57

Global Network

JAPAN
HANWA CO., LTD.
OSAKA

HK Yodoyabashi Garden Avenue Bldg.,
4-3-9, Fushimi-machi, Chuo-ku, Osaka city, Osaka 541-8585, Japan
Tel: 81-6-7525-5000 Fax: 81-6-7525-5365

AMERICAS
HANWA AMERICAN CORP. HEAD OFFICE

Parker Plaza, 12th Floor, 400 Kelby Street, Fort Lee, NJ 07024, U.S.A.
Tel: 1-201-363-4500 Fax: 1-201-346-9890

HANWA AMERICAN CORP. CHICAGO BRANCH

TOKYO

425 North Martingale Road, Suite 1120, Schaumburg, Illinois 60173, U.S.A.
Tel: 1-847-278-7360 Fax: 1-847-285-7790

NAGOYA

2925 Briarpark Drive, Suite 100, Houston, TX 77042, U.S.A.
Tel: 1-713-978-7904 Fax: 1-713-978-7790

Ginza Shochiku Square Bldg., 1-13-1, Tsukiji, Chuo-ku, Tokyo 104-8429, Japan
Tel: 81-3-3544-2171 Fax: 81-3-3544-2351

HANWA AMERICAN CORP. HOUSTON BRANCHNHK Nagoya Broadcasting Center Bldg., 1-13-3, Higashisakura, Higashi-ku, Nagoya,
Aichi 461-8614, Japan
Tel: 81-52-952-8800 Fax: 81-52-952-9300

HANWA AMERICAN CORP. SEATTLE BRANCHHOKKAIDO

HANWA AMERICAN CORP. LOS ANGELES BRANCHNREG Kita-sanjo Bldg., 3-1-25, Kita-sanjo Nishi, Chuo-ku, Sapporo, Hokkaido
060-0003, Japan
Tel: 81-11-219-7375 Fax: 81-11-219-7376

TOHOKU

Sendai Dai-ichi Seimei Tower Bldg., 4-6-1, Ichiban-cho, Aoba-ku, Sendai, Miyagi
980-0811, Japan
Tel: 81-22-227-7981 Fax: 81-22-227-7969

KANTO

Takasaki East Center Bldg., 14-1, Sakae-cho, Takasaki, Gunma 370-0841, Japan
Tel: 81-27-310-6390 Fax: 81-27-321-0952

NIIGATA

Hokuetsu-daiichi Bldg., 1-2-25, Higashi Oodouri, Chuo-ku, Niigata 950-0087, Japan
Tel: 81-25-255-1777 Fax: 81-25-255-1776

601 Union Street, Suite 626, Seattle, WA 98101, U.S.A.
Tel: 1-206-622-2102 Fax: 1-206-622-6464

18100 Von Karman, Suite 480, Irvine, CA 92612, U.S.A.
Tel: 1-949-955-2780 Fax: 1-949-955-2785

HANWA AMERICAN CORP. COLOMBIA BRANCH

Carrera 15 No. 93A-84, Edificio Business 93, Oficina 209, Bogota D.C., Colombia
Tel: 57-1-704-7651

SAN DIEGO VISTA STEEL SERVICE CORP.
8753 Kerns Street, San Diego, CA 92154, U.S.A.
Tel: 1-619-671-9247 Fax: 1-619-671-9210

HANWA CANADA CORPORATION
Suite 600-777 Hornby Street, Room 633, Vancouver, B.C. V6Z 1S4, Canada
Tel: 1-778-382-9915 Fax: 1-778-358-5225

HANWA MEXICANA, S.A. DE C.V.

CHUGOKU

Hiroshima-fukuromachi Bldg., 5-25, Fukuro-machi, Naka-ku, Hiroshima 730-0036, Japan
Tel: 81-82-543-2570 Fax: 81-82-543-2561

Paseo de la Reforma 255 Piso 11-A Col. Cuauhtemoc Cuauhtemoc, Ciudad de Mexico,
CP 06500, Mexico
Tel: 52-55-5525-9934 Fax: 52-55-5533-2774

KYUSHUHANWA STEEL SERVICE MEXICANA, S.A. DE C.V.

HACHINOHE

Autopista Queretaro-Irapuato, KM 35+500, AV. Celaya No.105, Parque Industrial
Amistad Bajio, C.P. 38160, Apaseo El Grande, Guanajuato, Mexico
Tel: 52-413-158-6600 Fax: 52-413-158-6601

MITO

428, Chalan Antonio Suite, 102, Tamuning, 96913, Guam
Tel: 1-671-647-0133 Fax: 1-671-647-0135

ATSUGI

Apoquindo 5583, oficina 92, Las Condes, Santiago, R.O. Chile
Tel: 56-2-2247-5125 Fax: 56-2-2954-1803

Taihaku Center Bldg., 2-19-24, Hakata-ekimae, Hakata-ku, Fukuoka 812-0011, Japan
Tel: 81-92-471-7121 Fax: 81-92-471-7060
Kyoei Hachinohe Bancho Bldg., 9-5, Bancho, Hachinohe, Aomori 031-0031, Japan
Tel: 81-178-73-1170 Fax: 81-178-22-2211
Okaba Mito Sannomaru Bldg., 1-3-35, Minami-machi, Mito, Ibaraki 310-0021, Japan
Tel: 81-29-300-0351 Fax: 81-29-226-8230
Nihonseimei Hon-Atsugi Bldg., 1-2-1, Asahi-cho, Atsugi, Kanagawa 243-0014, Japan
Tel: 81-46-226-9005 Fax: 81-46-227-0121

SHIZUOKA

Mizunomori Bldg., 14-1, Minami-machi, Suruga-ku, Shizuoka
422-8067, Japan
Tel: 81-54-654-7080 Fax: 81-54-654-7082

HANWA GUAM CORPORATION
HANWA CHILE LIMITADAASIAOKAYAMA

Sumitomo life Insurance Bldg., 2-4-6, Showa, Kurashiki, Okayama 710-0057, Japan
Tel: 81-86-435-7122 Fax: 81-86-422-5622

FUKUYAMA

Meiji-Yasuda Seimei Fukuyama-ekimae Bldg., 1-25, Nobehiro-cho, Fukuyama, Hiroshima
720-0064, Japan
Tel: 81-84-973-5701 Fax: 81-84-924-8707

OKINAWA

Kokuba Bldg., 3-21-1, Kumoji, Naha, Okinawa 900-8505, Japan
Tel: 81-98-860-9115 Fax: 81-98-861-5516

IWAKI

ZENSHO Shirogane Bldg., 5-7, Taira aza Shirogane-machi, Iwaki, Fukushima
970-8026, Japan
Tel: 81-246-35-6585 Fax: 81-246-35-6586

HOKURIKU

2-33-5, Ariso, Imizu, Toyama 933-0251, Japan
Tel: 81-766-54-5022 Fax: 81-766-54-5252

WAKAYAMA

Shine Bldg. Fukushima, 36 Motobakurou-machi, Wakayama 640-8216, Japan
Tel: 81-73-428-7230 Fax: 81-73-428-7231

58 | HANWA ANNUAL REPORT 2016 |HANWA (KOREA) CO., LTD.

Room 1703, Korea World Trade Center, 511, Yeongdong-Daero, Gangnam-Gu, Seoul,06164, R.O. Korea
Tel: 82-2-551-5387 Fax: 82-2-551-5575

HANWA (KOREA) CO., LTD. BUSAN OFFICE

Room 504, Industry Bldg., 37 Gwaegam-Ro, Sasang-Gu, Busan, 46977, R.O. Korea
Tel: 82-51-319-1006 Fax: 82-51-319-1545

HANWA (BEIJING) CO., LTD.
Room 907, 908, Beijing Fortune Bldg., 5 Dong San Huan Bei-lu, Chaoyang District,
Beijing 100004, P.R. China
Tel: 86-10-6566-8618 Fax: 86-10-6566-8619

HANWA (BEIJING) CO., LTD. TIANJIN BRANCH#17-DE Pingan Mansion, NO. 59 Machang Road, Hexi dist, Tianjin 300203, P.R. China
Tel: 86-22-6566-8618 Fax: 86-22-6566-8619

HANWA (QINGDAO) CO., LTD.

1401, 14F, Shangri-La Centre Office Tower, No. 9 Hong Kong Middle Road, Qingdao,
266071, P.R. China
Tel: 86-532-8-577-9990 Fax: 86-532-8-577-9630

HANWA (DALIAN) CO., LTD.

PT. HANWA INDONESIAHANWA TRADING (SHANGHAI) CO., LTD.

PT. HANWA STEEL SERVICE INDONESIAHANWA TRADING (SHANGHAI) CO., LTD. CHONGQING BRANCHHANWA CO., LTD. MANILA REPRESENTATIVE OFFICE

Senmao Bldg., 20F, 147 Zhongshan Street, Dalian City, Liaoning 116011, P.R. China
Tel: 86-411-8-368-6954 Fax: 86-411-8-368-6934
16F SMEG Plaza,1386 Hong Qiao Road, Chang Ning District, Shanghai 200336, P.R. China
Tel: 86-21-6237-5260 Fax: 86-21-6237-5282
Room 1711, Metropolitan Tower, 68 Zhou Rong Lu, Central District, Chongqing
400010, P.R. China
Tel: 86-23-6381-1101 Fax: 86-23-6381-7385

HANWA TRADING (SHANGHAI) CO., LTD. FUZHOU BRANCH

Room 1204, Shenglong Financial Center, No. 1 Guangming Road, Fuzhou, 350009,
P.R. China
Tel: 86-591-8-3354165 Fax: 86-591-8-3345202

HANWA TRADING (SHANGHAI) CO., LTD. WUHAN BRANCH

Room 1009, New World Center, Tower A, No. 634, Jiefang Avenue, Wuhan 430032,
P.R. China
Tel: 86-27-8549-7132 Fax: 86-27-8578-7196

GUANGZHOU HANWA TRADING CO.,LTD.

Unit 3701-3704, Profit Plaza, No. 76 Westhuangpu Road, Guangzhou City,
Guangdong 510623, P.R. China
Tel: 86-20-8732-0451 Fax: 86-20-8732-0402

GUANGZHOU HANWA TRADING CO.,LTD. ZHONGSHAN BRANCH
Unit 2313, Block 2, Lihe International Residence, No. 2, Yintong Road, Zhongshan,
Guangdong, P.R. China
Tel: 86-760-2332-0706 Fax: 86-760-2332-0696

Midplaza 1 Building, 16th Floor, Jl. Jend. Sudirman Kav, 10-11 Jakarta 10220, Indonesia
Tel: 62-21-5785-3033 Fax: 62-21-5785-3045
MM2100 INDUSTRIAL TOWN, BLOCK QQ-5, WEST CIKARANG, BEKASI 17520, INDONESIA
Tel: 62-21-8998-1791 Fax: 62-21-8998-1794
23F., Tower 6789, 6789 Ayala Avenue, 1227 Makati City, Metro Manila, Philippines
Tel: 63-2-528-3113

HANWA INDIA PRIVATE LTD. NEW DELHI HEAD OFFICE

203, Bestech Chambers, B Block, Sushant Lok 1, Gurgaon, Haryana 122002, India
Tel: 91-124-456-6100 Fax: 91-124-456-6111

HANWA INDIA PRIVATE LTD. MUMBAI BRANCH OFFICE

Unit No.208, 2nd Floor, B-Wing, Dynasty Business Park, 58, Andheri Kurla Road,
Andheri (E), Mumbai 400 059, India
Tel: 91-22-2826-0884 Fax: 91-22-2826-1097

HANWA INDIA PRIVATE LTD. CHENNAI BRANCH OFFICE

5H-1/5K/5K-1, 5th Floor, Century Plaza, 560-562, Anna Salai, Teynampet, Chennai
600 018, India
Tel: 91-44-3353-9100 Fax: 91-44-3353-9104

EUROPE

HANWA STEEL SERVICE (DONGGUAN) CO., LTD.

D Block, Chashan Industrial Park, Chashan Town, Dongguan City, Guangdong
523391, P.R. China
Tel: 86-769-8182-1000 Fax: 86-769-8182-1001

CHANG FU STAINLESS STEEL CENTER (SUZHOU) CO., LTD.

No. 7 Guangzhou East Road, Economic Development Area, Taicang City, Jiangsu 215400,
P.R. China
Tel: 86-512-5359-0800 Fax: 86-512-5358-8942

HANWA STEEL SERVICE (JIANGXI) CO., LTD.

Jinlong Road Ganzhou Development Zone, Ganzhou City, Jiangxi 341000, P. R. China
Tel: 86-797-555-8892 Fax: 86-797-555-8890

HANWA CO., (H.K.) LTD.

Suite 1504, 15/F., Cityplaza Four, 12 Taikoo Wan Road, Taikoo Shing Island East,
Hong Kong
Tel: 852-2545-0110 Fax: 852-2542-2544

HANWA CO.,LTD. LONDON BRANCH
7th Floor, 55 Strand, London, WC2N 5LS, U.K.
Tel: 44-20-7839-4448 Fax: 44-20-7839-3994

HANWA EUROPE B.V. HEAD OFFICEWTC Tower C-14F, Strawinskylaan 1447, 1077XX, Amsterdam, The Netherlands
Tel: 31-20-575-2460 Fax: 31-20-575-2461

HANWA EUROPE B.V. VIENNA BRANCH
Wipplingerstrasse 34 Top 174, 1010 Wien, Austria
Tel: 43-1-532-01-65 Fax: 43-1-532-01-65-20

MIDDLE EASTTAIWAN HANWA KOGYO CO.,LTD.

Room A, 9th Floor, No. 132, Minsheng East Road Sec. 3, Taipei 10596, Taiwan
Tel: 886-2-2545-7151 Fax: 886-2-2545-7112

TAIWAN HANWA KOGYO CO., LTD. KAOHSIUNG OFFICE
Room B, 17th Floor, No.7 Su-Wei 4th Road, Kaohsiung, Taiwan
Tel: 886-7-338-5508 Fax: 886-7-338-5433

HANWA THAILAND CO., LTD.

HANWA MIDDLE EAST FZE

Dubai Airport Free Zone, East Wing Bldg., No. 6E, B-Block, Room No. 544, Dubai,
U.A.E.
Tel: 971-4-701-7558 Fax: 971-4-609-1895

24th Floor, Unit 2401-2402, Q.House Lumpini Bldg., 1 South Sathorn Road,
Tungmahamek, Sathorn, Bangkok 10120, Thailand
Tel: 66-2-343-8877 Fax: 66-2-343-8878

HANWA MIDDLE EAST FZE KUWAIT OFFICEHANWA STEEL SERVICE (THAILAND) CO.,LTD.

HANWA MIDDLE EAST FZE JEDDAH SATELLITE OFFICE

700/625 Moo 4, 700/630 Moo 5, Tambol Baankao, Amphur Panthong, Chonburi
20160, Thailand
Tel: 66-38-21-0200 Fax: 66-38-21-0085

HANWA CO., LTD., MYANMAR REPRESENTATIVE OFFICE

Room No. 607, 6th Floor, LA Pyi Wun Plaza, No. 37, Alanpya Pagoda Road, Dagon
Township, Yangon, Myanmar
Tel: 95-1-373-635

HANWA (MALAYSIA) SDN. BHD.

Lot 19-5, Level 19, Menara Hap Seng 2, No.1, Jalan P. Ramlee, 50250 Kuala Lumpur,
Malaysia
Tel: 60-3-2022-2308 Fax: 60-3-2022-2164

HANWA SINGAPORE (PRIVATE) LTD.

8 Shenton Way, #29-01 AXA Tower, Singapore 068811
Tel: 65-6536-7822 Fax: 65-6536-7855

15th Floor, Al Nema Tower, Jaber Al Mubarak St., Block No.4 Plot No.2, Sharq, Kuwait
Tel: 965-2-243-7259 Fax: 965-2-243-7263
Tel: 966-55-118-4708

HANWA MIDDLE EAST FZE DAMMAM OFFICE

Office No.1, 1st Floor, Al-Hammam Center for Trading King Fahad Bin Abdul Aziz
Road, Dammam, Saudi Arabia
Tel: 966-3842-0845 Fax: 966-3842-0847

HANWA MIDDLE EAST FZE ISTANBUL LIAISON OFFICE

Levent Loft Residence, Buyukdere CD, No. 201 A Blok K.4, D.76 34394 Sisli, Istanbul, Turkey
Tel: 90-212-325-0046 Fax: 90-212-325-0051

AFRICA

HANWA VIETNAM CO., LTD. HO CHI MINH HEAD OFFICE

Unit 4, 19th Floor, A&B Tower, 76 Le Lai Street, District 1, Ho Chi Minh City, S.R. Vietnam
Tel: 84-8-3822-5715 Fax: 84-8-3822-5725

HANWA VIETNAM CO., LTD. HA NOI BRANCH OFFICE

14th Floor, Vit Tower, 519 Kim Ma Street, Ba Dinh, Hanoi, S.R. Vietnam
Tel: 84-4-2220-9155 Fax: 84-4-2220-9159

HANWA CO., LTD., JOHANNESBURG BRANCH

2nd Floor, West Tower, Nelson Mandela Square, Maude Street, Sandton, Johannesburg
2196, South Africa
Tel: 27-11-881-5966 Fax: 27-11-881-5611| HANWA ANNUAL REPORT 2016 | 59

Corporate Information (As of March 31, 2016)
Corporate Data
Company Name

Hanwa Co., Ltd. 阪和興業株式会社

Established

April 1947

Capital¥45,651 million

Number of Employees

Consolidated: 2,977

Tokyo Head Office

1-13-1, Tsukiji, Chuo-ku, Tokyo
104-8429, Japan
Tel: +81-3-3544-2171
Fax: +81-3-3544-2351

Non-consolidated: 1,216

Nagoya Branch Office NHK Nagoya Broadcasting Center Bldg.,

Address
Osaka Head Office

Ginza Shochiku Square Bldg.,

1-13-3, Higashisakura, Higashi-ku,

HK Yodoyabashi Garden Avenue Bldg.,

Nagoya, Aichi 461-8614, Japan

4-3-9, Fushimi-machi, 			

Tel: +81-52-952-8800

Chuo-ku, Osaka 541-8585, Japan

Fax: +81-52-952-9300

Tel: +81-6-7525-5000
Fax: +81-6-7525-5365

Board of Directors, Corporate Auditors and Executive Officers (As of June 29, 2016)
EXECUTIVE OFFICERSBOARD OF DIRECTORS
Chairman*

Shuji Kita

北President*

Hironari Furukawa

古川 弘成

Directors,
Executive Vice President andExecutive Officers
Hideo Kawanishi
Hiroshi Serizawa
Directors,
Senior Managing
Executive Officers

Outside Directors
Directors,
Managing Executive
Officers

修爾

Outside Corporate
Auditors*Representative Director

60 | HANWA ANNUAL REPORT 2016 |Hiroshi Ebihara

海老原 弘

Executive Officers

Takatoshi Kuchiishi

口石 隆敏

川西 英夫

Chiro Ideriha

出利葉知郎

芹澤

Isao Kimizu

木水浩

Akihiko Ogasawara

小笠原朗彦

Naoyuki Togawa

十川 直之

Yasumichi Kato

加藤 恭道

Osamu Seki関收Ryuji Hori

堀龍兒Hiromasa Yamamoto

山本 浩雅

Yasushi Hatanaka

畠中康司

Hidemi Nagashima

長嶋 日出海Yoichi Nakagawa

中川 洋一

Yasuharu Kurata

倉田 泰晴

Yoichi Ejima

江島 洋一

Atsuhiro Moriguchi

森口 淳宏

Yasuo Naide

名出 康雄

Katsunori Okubo

大久保克則

Mitsuo Hirakata

平形 光男

CORPORATE AUDITORS
Corporate Auditors(Full-time)

Senior Managing
Executive Officer

勲

Yoichi Sasayama

篠山 陽一

Hideo Kobayashi

小林 秀雄

Keiji Matsubara

松原 圭司

Tsuneo Tsuiki

立木 恒雄

Yoshimasa Ikeda

池田 佳正

Ryuichi Takaba

竹迫 隆一

Yoshifumi Miyano

宮野 好史

Toshihiro Kawaguchi

川口 敏弘

Stock Information

Japanese financial
institutions
30.1%

Foreigncorporations
26.5%

Individuals andothers28.2%

Japanese financial
institutions
30.1%

Foreign
Individuals andOther domestic
corporations
otherscorporations
Japanesebrokerage firms 12.3%
Treasury stock
26.5%
28.2%
0.8%
2.1%

Breakdown by Type of Shareholder

Fiscal Year-End

March 31Annual Meeting of Shareholders June
Independent Auditors

KPMG AZSA LLC

Domestic Stock Exchange
The First Section of the Tokyo
Listings		 Stock Exchange
Date of Record for Dividend
PayoutInterim dividend: September 30
Year-end dividend: March 31

Authorized Shares

570,000,000 shares

Japanese brokerage firms
0.8%

Treasury stock
2.1%

Breakdown by Size of Holding

Issued and Outstanding Shares 211,663,200 shares
Number of Shareholders

Other domestic
corporations
12.3%–1,00012.3%

1,000–50,000
84.7%

50,000–1,000,000
2.6%–1,00012.3%

1,000–50,000
84.7%

50,000–1,000,000
2.6%
1,000,000–
0.4%

10,585

Principal Shareholders

1,000,000–

Name of Shareholder

Number of Shares(thousands)

0.4%
Percentage of Total
Issued Share (%)

15,426
8,294
7,789
7,630
5,575
4,656
4,299
3,680
3,001
2,994

7.44
4.00
3.76
3.68
2.69
2.25
2.07
1.78
1.45
1.45

Japan Trustee Services Bank, Ltd. (Trust Account)...........................................................
The Master Trust Bank of Japan, Ltd. (Trust Account) .....................................................
Hanwa Clients’ Stock Investment Association.................................................................
Sumitomo Mitsui Banking Corporation..........................................................................
CBNY-GOVERNMENT OF NORWAY................................................................................
Hanwa Employees’ Stock Investment Association...........................................................
Japan Trustee Services Bank, Ltd. (Trust Account 9)........................................................
CBNY DFA INTL SMALL CAP VALUE PORTFOLIO.............................................................
Nippon Steel & Sumitomo Metal Corporation................................................................
State Street Bank And Trust Company............................................................................
Note: The Company holds 4,455,897 shares of treasury stock, which is excluded from the principal shareholders listed above.

Stock Price Range and Trading Volume (Common Stock)
Nikkei Stock Average (closing)

Stock Price
(¥)

(¥)

700

22,000600

18,000500

14,000400

10,000
Trading Volume(Millions of shares)

300

40
30
20
10

4
5
2014

6

7

8

9

10

11

12

1
2
2015

3

4

5

6

7

8

9

10

11

12

1
2
2016

3

0

| HANWA ANNUAL REPORT 2016 | 61

http://www.hanwa.co.jp

2016.8 Printed in Japan