阪和興業株式会社

2018
ANNUAL REPORT

Year ended March 31, 2018

Contents
To Our Stakeholders..........................01
Business Model...................................02
At a Glance.........................................04
Interview with the President............06

Coping with changing times and markets
quickly, Hanwa makes a great contribution
to society by satisfying various needs ofcustomers as a “distribution specialist”

Topics...................................................09
Review of Operations▶︎ Steel................................................10▶ Metals and Alloys..........................12▶ Non-Ferrous Metals.......................13▶ Food Products................................14▶ Petroleum and Chemicals.............15▶ Overseas Sales Subsidiaries...........16▶ Other Business...............................17
Corporate Governance......................18
CSR Activities......................................24

Success in today’s markets demands speed and the ability tomeet a broad range of needs. Change is occurring on an
unprecedented scale. Only companies that can adapt quickly
will survive. Hanwa has experience and accomplishments inthe field of “distribution” that span more than 70 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 making communities and the world a better
place to live. This is why we prioritize compliance and other

Financial Section
Five-Year Summary.........................26
Management’s Discussion
and Analysis...................................27
Consolidated
Financial Statements......................30
Notes to Consolidated
Financial Statements.....................35
Independent Auditor’sReport.............................................59
Global Network..................................60
Corporate Information......................64

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
to such factors as changing social andeconomic conditions.

activities that enable us to fulfill our obligation to society.
Through such activities, Hanwa keeps nurturing a corporate culture that will enhance the value and reliability of ourcompany. We aim to make greater contributions by fulfilling
our social responsibilities.

To Our Stakeholders

Hanwa supplies a broad range of products, including steel, metals andalloys, non-ferrous metals, food products, petroleum and chemicals,
lumber, machinery and many other items, to a diverse range of customers.
Since our inauguration, by our specialized expertise and an extensive service
network, we have been serving our customers as “distribution specialists”
to meet customer needs with precisely the right solutions. This skill has
made Hanwa earn a reputation as a trading company in which customers
know they can place their trust, and from which they can receive outstanding
products and services.
During the fiscal year ended March 31, 2018, economic conditions ingeneral maintained a growth trend both in Japan and abroad. Hanwa

Hironari Furukawa

completed the second year of its Medium-Term Business Plan, which covers

President
古川 弘成

the period from April 2016 to March 2020, and posted higher sales andprofits. We intend to continue to ensure that our third year of the plan
progresses steadily 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 our 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. As we
pursue sustainable growth and progress, we will retain our devotion tocontributing to society by performing functions unique to Hanwa, whileserving as a trading company known for outstanding footwork.
In all our activities, we ask sincerely for your continued understanding
and support.

| HANWA ANNUAL REPORT 2018 | 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▶

FOOTWORK◀︎▶

NETWORK◀

▶

TEAMWORK◀

The footwork required to act withspeed and agility

The foundation for skills in informationand sales

A cohesive organization that thrives
on teamwork

Hanwa firmly believes in positioning markets atthe center of its operations. Front-line activities
are a source of information and lessons that areavailable nowhere else. Speed and agility are vitalto being in the right place at the right time togather this knowledge. Recognizing the importance of spending time in the field, Hanwa
business professionals use swift footwork tomove from one location to another. This constantfocus on the essence of business activities allows
Hanwa to supply customers with solutions of thehighest caliber.

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

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 ourorganization. All available resources are used
to meet our customers’ needs. Teamwork has
one more important benefit: the ability tobuild mutually beneficial (“win-win”) relationships by creating the best possible partnershipwith each customer.

02 | HANWA ANNUAL REPORT 2018 |Developing Globally While Expanding and Deepening Business Fields
Hanwa has built a solid position in the market as a trading company handling a broad 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.

▶SteelDedicated 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, other seafood, and meat products, 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

50

Number of Overseas
Processing Plants

Number of Subsidiaries
and AssociatedCompanies

55

16

Number of
Employees (consolidated)

3,576| HANWA ANNUAL REPORT 2018 | 03

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

Steel¥920,269 million

+18.6

%

Metals and Alloys¥198,330 million+50.9%
Non-Ferrous Metals¥97,356 million

+25.3

%

Food Products¥98,876 million

Fiscal 2017 Net Sales¥1,791,118+11.5

million%Petroleum and Chemicals¥233,926 million

–9.0

%

Overseas Sales Subsidiaries¥167,388 million

+49.5

%

Other Business¥74,970 million

+5.0

%

04 | HANWA ANNUAL REPORT 2018 |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 materials

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

Thousands of
U.S. dollars (*1)

2018

2017

2018

¥1,791,118¥1,514,037$16,859,167

Operating income

26,21723,426

246,771

Net income attributable toowners of the parent

17,354

16,363

163,347

Comprehensive income

22,532

20,991

212,085

For the year:

Net sales

At year-end:
Nickel, chromium, ferro-alloys, stainlesssteel scrap, titanium scrap, silicon¥

Cash and cash equivalents

34,855¥$27,206

328,077

Total assets

861,965

694,232

8,113,375

Total net assets

203,700

171,637

1,917,356

3,576

3,155

Number of employees

Yen

U.S. dollars (*1)

Per share data (*2):

Copper, aluminum, zinc, lead, e-scrap

Net income attributable toowners of the parent¥

427.04¥$400.894.019

Cash dividends (*3 and *4)

85.00

19.00

0.800

Net assets attributable toowners of the parent

4,621.96

4,193.50

43.504%
Key financial ratios:
Prawns and shrimp, crab, salmon,
herring roe, horse mackerel, mackerel,
capelin, octopus, eel, herring, flounder,
Matsubara’s red rockfish, fish paste,
processed goods, meat products

Petroleum products in general, bunker
oil, petrochemicals, synthetic resin,
paper products, biomass fuel, refuse
plastics and paper fuel (RPF)

Wholesale trade, general merchandise

Return on assets (ROA)

2.2

2.5

Return on equity (ROE)

9.7

10.1

Net debt/equity ratio (*5)

150

140

*1. The U.S. dollar amounts represent translations, for convenience only, of yen amounts at the rate of ¥106.24=$1.00.
2. The Company consolidated its common shares at a ratio of 5 shares to 1 share on October 1, 2017.
		 Accordingly, per share data (except for cash dividends) are calculated on the assumption that the consolidation of shares
was conducted at the beginning of fiscal 2017.
3. Dividends per share of ¥85.00 for the year ended March 31, 2018 consisted of interim dividends of ¥10.00 per share
before the consolidation of shares and year-end dividends of ¥75.00 per share after the consolidation.
4. Year-end dividends per share of ¥75.00 for the year ended March 31, 2018 included the 70th anniversary commemorative dividend of ¥10.00.
5. 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)

25,00025,00020,00020,00015,00015,00010,00010,000

5,000

5,000

1,500,000

1,000,000

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

500,000

0

0
14

15

16

17

18

0
14

15

16

17

18

14

15

16

17

18

| HANWA ANNUAL REPORT 2018 | 05

Interview with the President
Looking at the present and the future of the Hanwa Group

Steadily Advancing the
Medium-Term Business Planfor Sustainable Growth

Hironari Furukawa, President
代表取締役社長

古川 弘成

Please share your opinion about the economic environment during the fiscal
year ended March 31, 2018.

Q1
A

Q2

With regard to the world economy in the fiscal year under review, the U.S. economy maintained a growth trend, driven
primarily by continued steady growth in personal consumption and private investment, and a recovery in production andexports in the public sector. The European economy continued to expand gradually on the real economy front, butshowed political instability due to national elections held in some of its member countries. The Chinese economy maintained a growth trend, reflecting a recovery in capital investment in infrastructure and real estate due to the effects ofeconomic measures taken by the Chinese government, and higher personal consumption reflecting an improvement in
employment and income conditions due to substantial corporate activity. In other emerging nations, domestic demand
as seen in personal consumption and capital expenditures remained firm, affected by factors such as a recovery inexports accompanying steady economic growth in Western countries and China and a recovery in resource prices.
In Japan, exchange rates, interest rates and stock markets were affected by issues such as North Korea and U.S.–
China trade friction, but the overall economy remained firm. There was a recovery in exports following the moderate
recovery in overseas economies, and an improvement in employment and income conditions supporting an upturn
in housing investment and consumption. This contributed to a gradual recovery in corporate production activities andan upturn in construction demand and capital expenditures.

Please summarize operating results for the fiscal year ended March 31, 2018.

A

Given this background, the Group posted consolidated net sales of ¥1,791,118 million for the consolidated fiscal year
ended March 31, 2018, representing a year-on-year increase of 18.3%. This result was due mainly to higher prices ofsteel and metal resources compared to the previous consolidated fiscal year. Operating income rose 11.9%, to ¥26,217

06 | HANWA ANNUAL REPORT 2018 |million, mainly reflecting higher profit in the metals and alloys business. Net income attributable to owners of the parent
climbed 6.1%, to ¥17,354 million, due to factors such as a foreign exchange gain versus a foreign exchange loss
recorded in the previous fiscal years, despite a decrease in extraordinary income and an increase in income taxes.

Q3

What is your outlook for the fiscal year ending March 31, 2019?

A

Q4

The U.S. economy is likely to remain on a modest recovery track, although close attention should be paid to factors suchas the economic and fiscal policies of the Trump administration, trade issues, and additional interest rate hikes by theFederal Reserve. In Europe, despite political instability caused by factors such as Brexit (the United Kingdom’s withdrawal
from the European Union) and immigration issues, the real economy is expected to maintain steady growth. The Chinese
economy shows strong personal consumption as well as a growth trend in corporate activities and noncurrent asset
investment, and is expected to remain robust, supported by the Chinese government’s policy to continue fiscal stimulus
measures. In other emerging countries, it is anticipated that the economy will experience moderate growth.
In the Japanese economy, personal consumption and housing investment are expected to remain firm due to policy
effects such as improvements in employment and income conditions and work-style reform, and construction demandis likely to remain high. In the manufacturing sector, production activity is expected to be steady and capital expenditures
will also recover due to rising domestic demand and higher export growth driven by overseas economic recovery.
In this operating environment, the Hanwa Group 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. It
will implement sales/inventory policies that address precisely the needs of its clients and actively pursue the developmentof a new customer base.
Based on the factors just described, in terms of consolidated operating results for the next fiscal year, we expect net
sales of ¥2,000,000 million (up 11.7% compared with the previous year), operating income of ¥31,000 million (up18.2%), and net income attributable to owners of the parent of ¥19,500 million (up 12.4%).

Please discuss your vision for business management in the future.

A

Q5

The Group has formulated the Medium-Term Business Plan for the four-year period from April 2016 to March 2020 andsought to realize the objectives of the plan. For the final year of the plan, we expect net sales of ¥2,100,000 million,
ordinary income of ¥35,000 million, and acquisition of a cumulative total of 2,700 new customers over four years.

What is your message for Hanwa investors with regard to shareholder return?

A

Delivery of a stable dividend to shareholders is one of the top prior issues for the Company. As for the distribution ofretained earnings for the fiscal year under review, we decided to distribute a year-end dividend of ¥65 per share anda commemorative dividend of ¥10, for a total dividend of ¥75 per share, taking into consideration the fact that ourbusiness earnings exceeded the initial forecast and celebration of the 70th anniversary of our foundation. We havealready declared and delivered an interim dividend of ¥10 per share (¥50 per share equivalent after the five-to-one
share consolidation on October 1, 2017), bringing the total dividend for the year to ¥125 per share.
In all our activities, we ask sincerely for your continued understanding and support.

| HANWA ANNUAL REPORT 2018 | 07

Medium-Term Business Plan

CLOSE
UP

An Overview : The Revised Medium-Term Business Plan (FY2016–FY2019)
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
stm
e
inv

s

AB

TAIN

SUS

TH
ROW
LE G
ic
teg
stra
m
fro

SPEEDY

e
ts
enu
men
l rev
vest
a
n
n
i
o
i
s
ea
Addit
overs
ic anddomest
ies
m
o
r
f
e
u
n
e
v
Re
mpan
roup co
g
s
a
e
s
r
e
v
o
Revenue from domestic andSpeed 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(Billions of yen)

Net sales
Ordinary income

1. STEADY
2. SPEEDY
3. STRATEGIC
Total

FY2016(Actual)

FY2017(Actual)

FY2018(Planned)

FY2019(Planned)¥1,514.0¥ 19.1
3.1
0.7¥ 22.9¥1,791.1¥ 20.15.8(0.6)¥ 25.5¥2,000.0¥ 21.0
6.0
3.0¥ 30.0¥2,100.0¥ 22.0
7.0
6.0¥ 35.0Growth 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 group companies in Japan and overseas more profitable—Moving up to secure returns from current business investments thatare performing well or have excellent prospects

08 | HANWA ANNUAL REPORT 2018 |• 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 China, Southeast Asia
and North America.

TOPICS

Launch of Joint Venture Business for Comprehensive
Steel Processing Center with Da Ming International
Holdings Limited
In November 2017, Hanwa decided to invest in a new comprehensive steel processing
center that Da Ming International Holdings Limited will establish in Jiaxing, Zhejiang
Province, China. The Da Ming International Group, led by a holding company, Da
Ming International Holdings Limited, is the largest stainless distribution processing
corporate group in China.
The Da Ming Group’s business development is consistent with the “fast delivery/small-lot/processing” strategy that the Company has pursued. It is expected to builda supply chain from raw materials procurement to finished products, aiming for
further global expansion. The start of operation is scheduled for the end of 2018,

Signing ceremony

with annual handling volume of 1,100,000 tons (stainless steel of 300,000 tons andcarbon steel of 800,000 tons).

Hanwa’s 70th Anniversary
Hanwa reached the foundation its 70th anniversary on April 1, 2017. The Group pledges toperform the mission with pride in the 70-year
history, making every effort to achieve sustainablegrowth and to improve general corporate value.

70th anniversary celebration

Promotion of the M&A+A (Alliance) Strategy
Outside Japan, as a distinctive resource investment, in April 2017 we made a joint
investment in Japan South Africa Chrome Company Limited, who invests Samancor
Chrome Holdings Proprietary Limited, producer of ferro-chrome, material for stainlesssteel, with Japan Oil, Gas and Metals National Corporation (JOGMEC). We also
invested in Bacanora Minerals Ltd. that plans to produce lithium for positive electrodematerials for automotive batteries in Mexico.
In Japan, we included Sanyo Kouzai Co., Ltd. and Kamei Co., Ltd., major steel
dealers (regional wholesalers) in western Japan, in the Company’s scope of
consolidation. We also invested in Ohmi-sangyo Co., Ltd. a major coil center in theSpecial metal fittings manufactured by Japanlife Co., Ltd.

Kansai region. In addition, Japanlife Co., Ltd., the Japan’s largest manufacturer ofmetal hardware products for construction, became a subsidiary. In this way, we will
pursue further the “fast delivery/small-lot/processing” strategy in Japan.

| HANWA ANNUAL REPORT 2018 | 09

Review of Operations

Steel (Domestic)
Fiscal 2017 Results
Domestic demand during fiscal 2017 remained strong. In the manufacturing sector, forexample, domestic automobile production increased 3.4% year on year in fiscal 2017,
and the amount of construction machinery shipments and orders received for machine
tools also significantly increased—17.6% and 38.1% year on year, respectively.
Domestic demand for both steel bars and sheets was solid thanks to strong
demand driven by the Tokyo Olympics and Paralympics demand for infrastructure andcivil engineering, as well as strong private demand mainly in the non-residential sector.
Steel products prices rose significantly mainly because of rising international
market prices due to tight supply in China. In addition, supported by strong domestic
demand and raw material price increase, blast furnace mills continue a price raise
policy, and production remained weak at steel mills.
The Company promoted the fast delivery/small-lot/processing strategy further
and increased sales volume by capturing end-user demand supported by strong
domestic demand. The Company was also able to improve its profit margins andachieve strong performance thanks to higher inventory profit from on-market
products along with rising long contracts prices, higher profit generated by risingconditional prices, domestic subsidiaries’ profit improvement through price increases,
and through increased operation.

Looking Ahead and Key Strategies

Net Sales(Millions of yen)

800,000

600,000

400,000

200,000

0

14

15

16

17

18

Net Sales Composition

51.4%

10 | HANWA ANNUAL REPORT 2018 |of yen) continuously strongof yen)In fiscal(Millions
2018,
domestic demand for steel is expected (Millions
to remainin the manufacturing industry mainly in the sectors of automobiles, construction
machines, and industrial machines. Demand in the constructionindustry is also
100,000
200,000
forecast to remain solid as a whole, mainly supported by the Tokyo Olympics andParalympics-related demand, urban redevelopment projects,
80,000 and hotel construction
150,000
in response
to demand of incoming foreigners.
Prices are unlikely to plunge because tight demand-supply
conditions appear to
60,000continue100,000
while steel makers’ unused production capacity remains inadequate, and it isdifficult for them to increase production amid continuously40,000
strong demand environment
in the construction and manufacturing industries. Regarding global market conditions,
50,000
it is difficult to forecast the effects of U.S. protectionist20,000
trade policies and China’s
counter-tariff measures. In China, however, adequate demand exists even as steel
production is0 increasing and market conditions remain solid.
Accordingly, negative
0
15
16
17
14 to be15 exerted
16 on 1718 market conditions.14
effects do not appear
domestic
As a user-oriented trading company, the Company will promote the fast delivery/small-lot/processing strategy for its domestic steel business by improving the Hanwa
Group’s functions through M&A+A (Alliance) and alliances formed with partnercompanies, continue to explore existing customer demand, gain new customers,
and expand and strengthen regional facilities, aiming to meet further regional
demand. The Company will also strengthen the sales of drawings, combined sales,
sales activities targeting property owners who are considering construction, andother sales activities using the networks of subsidiaries with relevant functions andprocessing partners.

18

Steel (Overseas)
Fiscal 2017 Results
China’s real GDP growth rate for 2017 was 6.9% (year on year), higher than thegovernment target of 6.5%. As a result of tighter steel demand and supply
conditions caused by the elimination of low-quality steel from as part of excess
capacity reduction measures, China’s domestic market surged and performance ofChinese mills improved significantly.
The U.S. economy remained solid, and sluggish steel demand from the oil andgas sectors started to recover. As steel and aluminum tariffs took effect in March(end of the fiscal year) under Section 232 of the Trade Expansion Act of 1962, thefuture of steel exports to North America is unclear.
While demand in the ASEAN region remained firm in general despite variations
among member countries, their imports of China-made steel products declined
substantially due to the effects of excess capacity reduction in China. The energy
sector continued to experience weak growth, although it bottomed out with the
exception of Vietnam.
During fiscal 2017, Japan’s steel exports decreased 7.3% year on year to 37.72
million tons, representing five consecutive years of decreases. As strong domestic
demand continued, steel makers put limits on order receipt for steel products
exported, creating a difficult environment to ensure adequate volume. The
Company’s steel export volume remained flat year on year thanks to increased pipetransactions and steady trading of steel sheets and shaped steel products although
the supply of steel plates and high-performance materials was limited during acertain period of time.

Looking Ahead and Key Strategies
The prospects for steel exports are unpredictable amid many trade issues that havearisen in the U.S. and Europe, but global market conditions are expected to remain
stable at the current level due to declining steel exports from China. Market pricesof reinforcing bar, shaped steel, etc. are forecast to possibly be affected by the new
construction of many electric furnaces in China. In Japan, domestic demand for steel
sheets is still strong, and allocation for export is anticipated to be limited.
Demand is forecast to be strong in North America and continues to be stable in
ASEAN countries. Projects that have been behind schedule in the Middle East appear
to be restarting thanks to the oil price recovery. Japanese mills request that increased
raw material costs be passed on with higher prices, but it might be difficult to makeusers accept price increases.
We seek to expand our business by taking advantage of our own processing
facilities that exist across the world, as well as those of our business partners, and by
making necessary capital contributions. To this end, we engage in endeavors thatleverage the high quality and credibility of Japan-made products and customeroriented service mainly in high-grade and niche product market segments in thefield with a little competition with Chinese products. As for general-purpose
commodities, we will strengthen the trading of competitively priced steel materials
that can meet the needs of customers in China, South Korea, India, and ASEAN
countries. In Asia, North and Central America, Europe, and the Middle East where
we currently conduct business, we will enhance our presence, and also explore thepossibility of starting new business activities in emerging countries such as Myanmar
and the Philippines.

| HANWA ANNUAL REPORT 2018 | 11

Review of Operations

Metals and Alloys
Fiscal 2017 Results
Nickel prices, which hit the bottom (about $9,000 per ton) at the beginning of theyear due to Indonesia’s partial lifting of its ore export ban and poor demandprospects, started to rise around July due to the effects of the earthquake in Sichuanprovince and in anticipation of a tighter demand-supply situation in China, andsurpassed $12,000 per ton in September. Amid consistently strong forecasts
including a forecast for the rapid expansion of electric vehicle-related demand,nickel prices reached the $13,500-per-ton level at the end of the year, despite someprice fluctuations in the second half of the year.
Prices of silicon and manganese-based ferroalloys were solid earlier this year, but
remained high thereafter due to the effects of decreased production in China andan extremely tight demand-supply situation caused by China’s strict regulations onenvironmental problems. For example, prices of ferrosilicon and silico-manganesesurpassed $2,000 per ton and $1,600 per ton, respectively, at year end, although
they were corrected towards the end of the year.
The price of ferrochromium was still high earlier this year after reaching highs inJanuary through March 2017, but declined significantly due to underselling by somemakers from around May in anticipation of a loosened demand-supply situation.
Then the price recovered from the middle of the year as the progress of South
African supplier’s M&A deal was favorably accepted. The price at year end was solid.
Prices fluctuated significantly as a whole, but we were able to create an(Millionsof yen)(Millions of yen)advantageous
positioning amid solid market sentiment.
As a result, we have steadily
increased new transactions including investments, generating a source of income.

Net Sales(Millions of yen)

100,000

200,000

100,000

Looking Ahead and Key Strategies
80,00080,000150,000

Trade conflicts mainly between the U.S., China and Russia, as well as economic
60,00060,000sanctions, exert significant influence on demand forand supply of specialty metals

and ferroalloys such as nickel (i.e. exchange-traded products), and eventually on

100,000

40,000market prices.
50,000

0

14

15

16

17

18

Net Sales Composition

11.1%

12 | HANWA ANNUAL REPORT 2018 |40,000This year, unstable demand-supply conditions and violent market fluctuations
20,00020,000 are forecast to be observed(i.e. rapid market price surges and significant declines)
repeatedly and with considerable frequency.
00
The Company will be facing violent market fluctuations.
However, new customers
14
15
16
17
18
15
16
16
17
18
and products will actively increased in stainless steel raw material business.
As for scrap raw materials, the Company will secure its profit rate by streamlining
and multi-functionalizing processing facilities, although domestic cargo collection
volume and sales are not expected to increase.
The metal compound with chemicals product business will also vigorously strive
to develop new products and markets, and turn existing investment into actual
businesses, aiming to expand the entire business by actively making new upstream
investments in growing markets.
In ferroalloy markets, the Company will strive to expand sales volumes, producttypes and sales regions in an appropriate manner, while continuing to make investment
in upstream business areas.

Non-Ferrous Metals
Fiscal 2017 Results(Millions of yen)

800,000

600,000

400,000

200,000

0

Aluminum prices that were at the $1,950-per-ton level at the beginning of the fiscal
year fluctuated repeatedly, but surpassed $2,000 per ton at mid-year and $2,200 per
ton in the fourth quarter. The year-end price settled down at the $2,000-per-ton level.
Copper prices increased gradually from the $5,800-per-ton level at the beginningof the fiscal year and rose sharply after that, surpassing $7,000 per ton in the second
half of the fiscal year due to the effects of China’s environmental regulations and the
Trump Effect on the markets. The year-end price settled down at $6,600 per ton.
Zinc prices fluctuated repeatedly within the $2,500- to $2,700-per-ton range inthe first half of the fiscal year, but rose to the $3,500 level in the middle of year as
the demand-supply balance became tight. The year-end price settled down at the$3,200-per-ton level.
Lead prices were in the $2,100- to $2,300-per-ton range in the first half of the
fiscal year, but settled down at the $2,400-per-ton level after tentatively rising to the$2,600-per-ton level in the second half of the fiscal year.
This business achieved high profitability as a whole thanks to solid demand and an
upward market trend.
The aluminum raw material business achieved a huge turnaround throughdiversification of suppliers and customers.
As for copper products, the Company secured a certain profit in a stable manner
thanks to solid demand. The copper raw material business increased its profit by(Millionsprices.
of yen)ensuring the supply of raw materials amid rising
As for white raw materials and e-scraps, the Company posted earnings thanks to
new product development and diversification 200,000
of suppliers and customers, and started
new joint venture operations in Europe.

Net Sales(Millions of yen)

(Millions of yen

100,000

100,000

80,00080,00060,00060,00040,00040,00020,00020,000150,000

Looking Ahead and Key Strategies
As for nonferrous metals in general, the first100,000
half of last year is considered to be aperiod when prices started to rise, but these prices jumped in the second half of theyear due to the effects of China’s environmental regulations and Trump’s policies.
50,000Future price development is considered to be largely affected by China’s
environmental regulations and policies toward the U.S., U.S. policies toward various
countries, and global geopolitical risk. However, a 0tight supply situation is considered
14
15
16
17
18
14
15
16
17
18
to continue due to solid fundamentals.
Metal prices will remain high in the first half of the current fiscal year, and enter aphase of adjustment in the second half of the year due to the effects of U.S. sanctions
against Russia, China, etc.
Demand movement is expected to occur particularly in automobile, semiconductor
and electronic component markets because fundamentals are quite solid.
In Japan, demand will not decline significantly thanks to underlying factors such as
special demand driven by the Olympics and the progress of IoT in automobiles andelectronic devices.
In this environment, the Company aims to further streamline its processing facilities
to continuously create high added value, diversify its suppliers, customers andproducts, and achieve globalization through investment in foreign countries, although
the relevant investment has been mainly domestic.

0

0

14

15

16

17

18

Net Sales Composition

5.4%| HANWA ANNUAL REPORT 2018 | 13

Review of Operations

Food Products
Fiscal 2017 Results
Fish prices remained high due to growing global demand and poor catches, but the prices
of some fish products began to decline due to demand reduction caused by high prices.
Chilean silver salmon prices were gradually revised downward in and after October after
hitting a record high in April due to the arrival of red salmon and Japanese white salmon.
Snow crab prices hit an all-time high again due to catch quotas for Alaska, Canada,
and Russia (major snow crab fishing areas) that did not increase and tight demandacross the world including the U.S. Demand for live crab is particularly strong in China
and South Korea. The prices of king crab remained weak and decreased by about
10% in six months because consumers avoided buying them due to high prices.
Shrimp prices rose in the summer due to increased imports into the U.S. and China,
but declined at the end of year and remained weak thereafter due to falling consumption
caused by high prices and their arrival from India from October. Shrimp product sales tocorporate customers remained strong thanks to the effects of incoming foreigners.
The prices of raw chicken meat materials remained high, started to decline in thefall due to increased arrivals in the summer, and were at bottom level at the end ofyear and thereafter due to over-stocking. Due to labor shortages at domestic foodprocessing factories, demand for processed foods imported into Japan is steadily
growing mainly among convenience stores.
Hanwa Foods Co., Ltd. was not able to pass on increased raw materials costs to
product prices, and faced a decline in profit rates.
(Millionsof yen)(Millions becauseof yen)SeattleShrimp & Seafood Company’s profit declined as a whole
an excesssupply of shrimp (its main product) led to weak prices, and Chilean king crab prices
70,000
that500,000
contributed to prior-year profit also fell.

Net Sales(Millions of yen)

100,000

60,000400,000

80,000

Looking Ahead and Key Strategies

60,000The 300,000
supply situation will remain unchanged for all types of fish. As 40,000
demand will continue
to increase, fish prices will remain high.
30,000200,000
Demandfor salmon is growing globally, and its prices will remain high because nocompetition exists in particular in fish markets even in Japan even 20,000
though current prices
100,000
are forecast
to remain at the current level or increase for some time.
10,000As the snow crab quota for Canada has been reduced by 30%, prices are forecast to00increase andthe Company will face fiercer competition when ensuring supply.
King crab prices
14
15
16
14
15
16
17
18
will remain stable after declining because the fishing quota will not change from last year.
Shrimp prices will be somewhat weak at the beginning because suppliers (mainly
India) are boosting their output and the U.S. has adequate stocks of shrimp. However,(Millionsof yen) mass market
once these prices start to fall, consumption is expected to increase
throughretailers. As the prices of shrimp products are also somewhat weak, we will carefully
purchase them by paying attention to market conditions.
160,000
Chicken meat prices are expected to remain flat due to overstocking. As demand foroverseas processed chicken products is expected to continuously increase, the Company will
120,000
expand its sales channels (mainly convenience stores) to ensure stable profit.
Hanwa Foods Co., Ltd. will be expanding the sales
80,000of shrimp products to create a source of income bytaking advantage of falling prices although it is continuously difficult to generate profit for a while under the
40,000current environment.
Seattle Shrimp & Seafood Company aims to expand0
programmed sales of Indian products whose production
14
15
16
is expected to increase. The Company will also focus on
creating a third pillar (other than shrimp and crab).

40,00020,000

0

18

15

16

16

17

18

Net Sales Composition

5.5%

14 | HANWA ANNUAL REPORT 2018 |50,000

17

18

17

18

Petroleum and Chemicals
Fiscal 2017 Results(Millions of yen)

100,000

80,00060,00040,00020,0000

The price of WTI crude oil, which remained at around $50 during the first half of the
fiscal year, soared in the second half, reaching nearly $70 at the end of year. In
Japan, a specific pricing policy was implemented in July after the realignment ofwholesale companies. This policy aims to ensure refining margins are in line with
global prices by exerting price control under the pricing framework. Due to higher
purchase prices, and return to the series trade, the Company faced a challenging
environment in spot markets, failing to ensure adequate quantities and profit.
However, the Company was able to generate profit mainly thanks to its stocking
strategy formulated in line with price fluctuations and higher prices of kerosene oiland heavy oil during severe winter weather.
The bunker oil business environment still remains severe due to weak shipping
markets.
The lubricant business grew in a stable manner by increasing the quantities ofbase oils exported to Southeast Asia and new materials such as inorganic materials.
The profit of the chemicals business decreased due to the inability to pass on
increased costs to customers while costs apparently increased in line with increased
prices of polyethylene raw materials, etc. Sales of imported raw materials remainedsolid due to raw material shortages in Japan. Against this backdrop, the Company
was able to steadily sell them, compensating for a decline in product sales.
The paper business faced rapid price changes because China prohibited or
restricted the importation of used paper and waste plastics due to its environmental(Millions of yen)problems. However, the Company overcame
this situation through flexible operations
mainly in relation to Southeast Asian transactions.
100,000
The new energy business has continuously
struggled because demand for PKS
will be picking up on a full-scale basis in 2019. However, the Company strove to80,000establish the wood pellet business foundationby concluding long-term contracts,
etc. to fulfill the PKS supply shortage.
60,000

Looking Ahead and Key Strategies
40,000In the fuel business, the Company aims to remain in business and achieve mid-term
20,000growth by strengthening heavy oil stock blending
functions, sharing information about
foreign bunkers and cargos, improving compliance with the 2020 sulfur regulations,and developing global business amid decreasing
demand for petroleum products.
0
14
15 lubricant
16
17and paper
18
16 their16profit
17rates18throughThebusinesses aim to 15
improvenew product development and cost reduction, respectively.
In the new energy business, the Company will develop procurement sources andstrengthen relationships with them, aiming to expand sales of biomass fuels such as
palm kernel shells (PKS) and wood pellets and chips. Regarding recycled fuels such as
RPF (Refuse Paper and Plastic Fuel), the Company will also aim to create demand incollaboration with its subsidiaries (Seibu Service Co., Ltd. and Alpha Forme Co., Ltd.).
In addition, the Company will strengthen its power retailing business in collaboration
with Toyo Energy Co., Ltd. (subsidiary) and erex Co., Ltd. (investee) to prepare for the
full-scale biomass power generation that is expected to start in or after 2019.
The chemicals business has achieved certain
results in terms of development of large customers
that purchase conventional disposable plastic
shopping bags, etc. This year, this business will shift
its focus to the development of new products suchas new high-performance plastic bags and officesuppliers offered to consumption-related companies,
aiming to increase transactions.

Net Sales(Millions of yen)(M

500,000

400,000
300,000

200,000
100,000

0

14

15

16

17

18

Net Sales Composition

(M

13.1%

| HANWA ANNUAL REPORT 2018 | 15

Review of Operations

Overseas Sales Subsidiaries
Fiscal 2017 Results(Millions of yen)

70,00060,00050,00040,00030,00020,00010,000
0

14

15

16

17

18

Net Sales(Millions of yen)

During fiscal 2017, international commodity prices remained relatively strong as awhole from the middle of the year.
In North America, the steel business was able to increase its trading volume eventhough it struggled to review transaction timing, customers, and suppliers, due tothe effects of anti-dumping rules, measures against roundabout exports, and the
Trump Administration’s protectionist policies. The metal business also strengthened
its operations by expanding products, suppliers, and customers.
China started to accelerate its growth for the first time in seven years, achieving a
GDP growth rate of 6.9% in 2017. Its crude steel production also hit a record highagain due to the effects of expanded domestic demand through infrastructure
improvement and the prohibition of induction furnace steel production (illegal steel
materials). Steel prices jumped significantly due to increased steel demand. Eachoverseas base’s earnings increased as a result of transforming its business from conventional commission-based operations to local business-oriented operations to keep up
with the rapid changes in China’s economy.
In ASEAN countries, there was strong demand. Infrastructure-related demandfor construction materials and steel products within the region continued to increase.
The scrap metal business remained vigorous. Regarding petroleum used in ships, theCompany ensured profit by increasing the number of petroleum products that it
handled although the competition was intensified even after the shipping market
was bottoming out. Against the backdrop of strong economic growth, all local
subsidiaries of the Company in ASEAN countries posted a profit.

160,000

Looking Ahead and Key Strategies
120,000

80,00040,000

0

14

15

16

17

18

Net Sales Composition

9.3%

16 | HANWA ANNUAL REPORT 2018 |In North America, the Company will evaluate actual demand and flexibly respond toenvironmental changes, paying attention to the Trump Administration’s protectionist policies, worsening trade conflict, and rising interest rates. Regarding thesteel business in particular, the Company will strive to solidify customer loyalty andbuild region-based business operations amid imposition of additional tariffs on steel
and aluminum product imports under Section 232 of the Trade Expansion Act.
China’s 2018 GDP growth is forecast to be 6.7%, and the steel market is expected
to remain solid partly due to environmental regulations. As production of new energy
vehicles is expected to increase under policies to promote the use of these vehicles, theCompany will strengthen the handling of steel, materials for batteries in this businessarea. The Company will also establish a steel processing center together with Da Ming
International Group, which is China’s biggest stainless steel distributor listed on the
Hong Kong Stock Exchange, improve processing functions, and propose one-stop
solutions on steel processing.
In the ASEAN region, steel demand will remain solid, but in terms of supply, theeffects of establishing new facilities in China and emerging nations are forecast to
emerge gradually. However, investment strategies for supply chains ranging from raw
materials to products, as well as business development results achieved throughcollaboration among offices in ASEAN countries, will materialize in future. In addition,
the Company needs to change its business model in line with circumstantial changes
because the steel, non-ferrous metal, paper, marine fuel, and other businesses that theCompany conducts are affected by China’s environmental regulations and expanded
trade conflicts with the U.S.

Other Business (Lumber and Machinery)
Fiscal 2017 Results
LumberHousing starts totaled 964,000 units in fiscal 2017 (almost flat year on year), of which
412,000 units were conventional wood-based construction (a year-on-year increase of0.8%). These results were continuously driven by detached housing.
In the lumber business, our main customers were wholesale lumber distributors,
but we have started to change our sales targets to direct sales for customers andhousing makers. Sales to new target customers have expanded and currently represent
about 40% of the entire sales. We have also started to handle more housing-relatedmaterials other than wood products (main products), such as steel products (ceilingjoists and reinforcing units) and building materials.
We have struggled to generate adequate earnings due to the deteriorated market
conditions caused by the importation of large quantities of lumber and failure to passon increased costs with higher selling prices.
MachineryIn the leisure business, we made parts sales, etc. this year, but completed only theconstruction work DISK-O (one of the largest models in Japan for Yomiuri Land). We
also began handling imported premium items for game facilities.
In the industrial machinery business, we delivered processing line facilities toforeign countries, and exported slitters used for electrical steel sheets to China. In
Europe, we procured the conveyor lines used for e-scrap transport and delivered(Millions of yen)them to the Netherlands. In addition,
we started to sell equipment such as cranes inthe blast and electric furnace industries.

of yen)500,000

00

Looking Ahead and Key
400,000 Strategies

00

00

00

00

0

15

Lumber
300,000decrease to 930,000 to 940,000 units in fiscal
Housing starts are forecast to slightly
2018. This is because the benefits of low interest rates and last-minute demand before
200,000
the consumption tax hike can still
be expected. Solid sales of low-priced detachedhousing will continue amid soaring condominium prices.
100,000
However, as the said demand
will diminish next year and beyond and overall
demand is forecast to decline year by year, the lumber business is focusing more on0
direct demand and has adopted a policy
enabling the provision of total housing
14
15 measures,
16
17we will
18 also conduct
16 services
16 in17an active
18 manner. Regarding labor-saving
the paneling, steel product, lumber delivery, and erection support businesses.
We will continuously strive to be able to supply imported lumber products (mainproducts) in a stable manner, and conduct sales of domestic lumber products byactively proposing housing specifications.
MachineryIn the leisure facilities business, contract workloads for construction work to becompleted have been light since fiscal 2017. As we have piled up official and unofficial
orders for construction in and after 2019 and may be receiving additional orders,which we will actively seek out.
In the industrial machinery business, we will receive more orders for and inquiries
about large cranes used for steel and steel-frame bridges. By further strengthening
inter-departmental cooperation, we expect to develop new customers and suppliers.
As Chinese markets are still vigorous, we will also strengthen our activities mainly toexport machines from Japan.

Net Sales(Millions of yen)

70,00060,00050,00040,00030,00020,00010,000
0

14

15

16

17

18

Net Sales Composition(Millions of yen)

160,000

120,000

4.2%

80,00040,000

0

14

15

16

17

18

| HANWA ANNUAL REPORT 2018 | 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, the management decisionmaking and business supervisory body, and to monitor the
performance of duties by the Company’s administrative organizations operating under the Management Committee. We thenreport our findings 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
three 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, and meets at least twice a year to
perform a comprehensive evaluation of the officers’ performance.
This includes an assessment of the level of commitment of each
officer and a mutual evaluation process for all the officers. In
addition, the Compensation Committee, which determines each
officer’s compensation, and the Election Committee, whichgoverns the nomination of officers, both operate under the
Evaluation Committee.
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 aregular salary plan to the Board of Directors. In terms of the officers’

18 | HANWA ANNUAL REPORT 2018 |bonuses, we use a system that awards a bonus directly linked toperformance and clearly reflects each individual Officer’s achievement level. The Board of Directors approves this performance-based
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
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 theInternal 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 theManagement 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
aware of the responsibility entrusted to us by our shareholders.
Our daily business decisions are therefore carefully made with theleadership of our directors, who understand thoroughly our operations. In addition, business matters of significance are put throughthe Board of Directors for discussion. We believe that the modelwe have adopted, in which a separate Board of Auditors (including
outside corporate auditors) is set up to perform an audit andinspection, is the most appropriate for our company. In FY1994, aspart of our efforts to remain accountable and improve the transparency of our business decisions for our stakeholders, including ourshareholders, we began hiring outside directors, and added an
additional outside director in FY2011 and another one in FY2018,
making a total of three outside directors. They provide us with amore objective 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.

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

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

Board of Directors
11 internal directors
3 outside directors

Recommendation

Officers Evaluation Committee
9 internal officers, 3 outside directors
Election
Committee

Compensation
Committee

Election/dismissal

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
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 2018 | 19

Corporate Governancedirector responsible reports quarterly on the overseas bases to theBoard of Directors. Furthermore, the Office prepares reports whenrequested by the Board of Auditors.
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 of Auditors maintains its independence from the top management to perform
auditing duties appropriately. It also exchanges views and opinionswith the president as well as managing officers and presents the findings provided by the corporate auditors to the Board of 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.

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 three outside directors and three outside corporate auditors, none of whom has any vested interest in the
Company. This, we believe, ensures that no conflict of interest
arises with the general stockholders.
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 have introduced the following Independence Standards for
Outside Officers as a criteria for determining the level of independence.
• Independence standards for outside officers
When an outside officer (outside director and outside corporate
auditor) of the Company does not fall under any of the following
cases, he or she is judged independent from the Company.
(1) A major shareholder of the Company (meaning a shareholder
who holds either directly or indirectly 10% or more of thetotal voting rights of the Company at the end of the mostrecent fiscal year), or an executing person thereof.
(2) A person belonging to or an executing person of a companyof which the Company is a major shareholder (holding 10%
or more of the total voting rights of the company at the endof the most recent fiscal year).
(3) A major business partner of the Company (whose annualtransactions with the Company exceed 2% of the consolidated
20 | HANWA ANNUAL REPORT 2018 |net sales of the Company during the most recent fiscal year),or an executing person thereof.
(4) A major lender to the Company (whose outstanding loans to
the Company at the end of the most recent fiscal year
exceeds 2% of the consolidated total net assets of theCompany), or an executing person thereof.
(5) A representative or an employee who belongs to the audit
corporation that is the accounting auditor of the Company.
(6) A consultant, legal professional, certified public accountant,
tax accountant, or other person providing a specialist service
who received ¥10 million or more of monetary considerationor other properties per year from the Company other thanofficer remuneration in the most recent fiscal year (referring toa person belonging to the organization if the one who
received the relevant property is an organization such as acorporation or association.)(7) A person who received the annual total of ¥10 million ormore of donations or aid funds from the Company in themost recent fiscal year (referring to an executing person who
belongs to the organization if the one who received the relevant donations or aid funds is an organization such as acorporation or association.)(8) A person who falls under any of (1) to (7) above in the past
three years.
(9) A person whose close relative falls under any of (1) to (8) above.
Notes: 1. An executing person refers to an executive director, executive
officer, corporate officer, or staff executing business of an entity.
2. A close relative means a relative within the second degree of kinship.

Even if a person falls under any of the above criteria, such
person may be elected as a candidate for independent outside
officer if the person satisfies the requirements of an outside
director or an outside corporate auditor under the Companies Act,has specialization and experience necessary in view of theCompany’s current situations and his/her knowledge and viewpoint are judged to be beneficial to the Company’s management,on the condition that the Company provides explanations to shareholders of the reasons for its judgement and the fact that theperson satisfies the requirements of an independent outside officer.

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 or makes it available for viewing at all time. The
committee also disseminates compliance programs thoroughly
and verifies that the 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.
b) Personnel responsible for managing documents act proactively
against loss or damage to stored documents and have installed alocking 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 and reports 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, and other matters in accordance with internal
rules, manuals, and other guidelines. The Compliance
Committee, the Security Trade Control Committee, and otherapplicable committees assist the departments by providing advice
and educational support. Advice from external attorneys andother experts is used as required.

c) The Personnel Department, Legal & Credit Department, Internal
Audit Department and Corporate Planning Department of theCompany work in collaboration with other relevant 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, theInternal Audit Department monitors all the Company’s domestic
and overseas bases, domestic group companies and overseas
subsidiaries based on a predetermined auditing plan. Theirreports are then submitted to the Management Committee aswell as the president when appropriate. The director responsible
also submits a report quarterly to the Board of Directors to keep
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 Group Company Management Rules, Group
Company Financial Management Rules, and Domestic Group
Company Accounting Treatment Uniformity Rules, the Company
manages properly the risks related to the Group’s companies by
establishing the appropriate authority management system andreporting system.
g) Each business department and subsidiary of the Company
promotes the Hanwa Knowledge Quality Control (HKQC) activities
to properly control operational risks by identifying risks inherent in
operational procedures and organizing countermeasures for them.
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 businessbriefing 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.
| HANWA ANNUAL REPORT 2018 | 21

Corporate Governanced) The Officers Evaluation Committee, chaired by the president andcomprised of members including the outside directors to provide
advice, meets at least twice a year to set forth issues of significanceconcerning the execution of duties of each director as well as toconduct a comprehensive evaluation for each director 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 fromthe directors and ensuring the effectiveness of instruction
to such personnel
A certain number of employees are assigned to assist the corporate auditors. These employees receive requests from thecorporate auditors to investigate, report, and maintain a collaborative relationship with the corporate auditors. In addition, these
employees receive no orders or instructions from the directors or
anyone else concerning the directives and orders received fromthe corporate auditors.
Systems for the Group’s directors, executive officers, employees
and the subsidiaries’ corporate auditors to report to thecorporate 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
and matters related to infractions of laws and regulations. The
Compliance Committee Chairperson also submits reports tothe corporate auditors on reports made to the complianceconsultation service. In addition, the directors report to thecorporate auditors regarding important decisions and thestatus of business operations at important meetings such as
the Board of Directors’ meeting and the Management
Committee meeting.

22 | HANWA ANNUAL REPORT 2018 |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
auditors of 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 theperformance of duties, the Company processes the relevant
expense promptly unless cases where the expenses pertaining tosuch billing are deemed to be unnecessary for the performanceof 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 for financial reports of theGroup. The Internal Audit Department is supervised directly by
the Management Committee. They check and evaluate theestablishment and operation of internal controls for financial
reports and submit reports to the Management Committee. The
Management Committee makes appropriate corrections andmodifications as needed based on these 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 financial reports of the Group performed by the Internal
Audit Department. It also offers its views on the Internal Control
Report to the Management Committee.

Overview of operation of systems to ensure proper operations(internal control systems) in the period under review is as
stated below.
Activities for compliance
The Company has focused on developing a compliance structureby establishing the Corporate Ethics Philosophy, Corporate EthicalStandards, and Rules of Ethical Business Conduct in April 2003 andthe Compliance Manual in April 2006. The manual has been
distributed or made accessible at any time to ensure that everyone
is made thoroughly aware of the contents. The Company also
released the fourth edition of the Compliance Manual in October
2015 and expanded a compliance consultation service. With thegoal of establishing a compliance structure involving Group
companies, the Company has continued to expand the compliancestructure in the fiscal year under review, such as by keeping all
executives and employees of the Group including overseas subsidiaries informed of the Compliance Manual.
Activities for risk management
The Company manages risks related to new business ventures andnew investments, environmental management, emergency
responses, information security, trade security control, and othermatters by designating business departments in charge of each risk.
Various committees have been established as advisory bodies tosupport these departments.
The Company has maintained the Hanwa Knowledge Quality
Control (HKQC) activities. Through the activities, the Company aims
to properly control operational risks by identifying risks inherent in
operational procedures and organizing countermeasures for suchrisks for each business department and Group company. The HKQC
event was held in the fiscal year under review intended for all
departments and Group companies in Japan to check the status of
implementation and operation of HKQC activities, share information
with other departments, and raise awareness of executives andemployees toward risk management.
The Business Continuity Plan (BCP), which has been formulated to prepare for large-scale disasters and epidemics, is updated
as appropriate.
Activities for Group management
The Company established the appropriate authority management
system and reporting system for the Group companies by formulating the Group Company Management Rules, Group Company
Financial Management Rules, and Domestic Group Company
Standard Accounting Rules. In addition, efforts have been made toestablish an efficient and effective group management system bycreating the Group Support Section in the Corporate Planning
Department. The Company amended the Group Company
Management Rules in the fiscal year under review to clarify departments that support Group companies for each business whilestrengthening the Group management system, such as by clearly
defining matters to be reported from Group companies to theCompany. In addition, the Company held the Group Company

Corporate Auditors Conference twice during the fiscal year underreview, which has been created as a forum for the corporate auditors of the Company and subsidiaries to share information.
The performance of duties by the directors
As a rule, the Board of Directors meets once a month and theManagement Committee meets twice a month in accordance with
the Board of Directors Rules and other rules. The Board of Directors
reaches decisions on matters required by laws and regulations andissues of significance concerning management which have been
discussed at the Management Committee meetings that involve
executive officers. The Board of Directors met 16 times and theManagement Committee met 24 times during the fiscal year
under review. In addition, the Board of Directors receives reports
from each director regarding business operations, etc., in theGroup and oversees duties performed by the directors.
Systems and others to ensure effective auditing by the
corporate auditors of the Company
Systems are in place where the Group’s directors, executive officers,
employees and the subsidiaries’ corporate auditors submit reports
to the corporate auditors on occurrence of significant risks andmatters related to infractions of laws and regulations in addition tosubmitting reports on issues of significance concerning compliance.
The Compliance Committee Chairperson has secured a system
to submit reports to the corporate auditors on reports made to thecompliance consultation service.
In addition, the directors submit reports 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.
The Internal Audit Department submits reports based on theschedule predetermined by the Audit Plan to the corporate auditors
concerning internal audits. They also conduct an additional investigation and report on issues as requested by the corporate auditors.
The representative directors and directors overseeing each department individually meet with corporate auditors and outside
directors to exchange information on various matters.
The Company appoints two employees (concurrent position) toassist the corporate auditors in performing their duties including
independent investigation and secures a system to support theperformance of duties by the corporate auditors.
The Company has maintained the above systems during the
fiscal year under review and ensured the effectiveness of the audit
performed by corporate auditors.

| HANWA ANNUAL REPORT 2018 | 23

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 executive 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

Management Committee
Hanwa ScholarshipFoundation

CSR Committee

Donations

ChairmanManaging 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, etc.
●Environmental Committee●Compliance Committee●Security Trade Control 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

To Everyone Working at the Hanwa Group

3. Contribution to industrial society

We promote awareness of compliance for everyone working at the
Hanwa Group. If any of the following is applicable, please
immediately contact the compliance consultation desks.

4. Diligent information disclosure

You may be violating laws or internal rules.
You may be acting in a manner that runs counter to the
Corporate Philosophy.

5. Consideration of environment

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.

COMPLIANCE MANUAL Version 4

6. Global harmony
7. Ensuring a free and generous workplace environment

Compliance Consultation DesksInternal Consultation Desk
Members of the Compliance Committee, Outside Directors
Please see page 7 of this Manual.

8. Promoting activities contributing to society as a“Good Corporate Citizen”

External Consultation Desk
MIDOSUJI LEGAL PROFESSION CORPORATION(Tokyo and Osaka)
Please see page 8 of this Manual.

9. Making people familiar with ethical standards
1-3

2016/02/16

15:27:15

Compliance manual distributed to all officers and employees

24 | HANWA ANNUAL REPORT 2018 |10. Appropriate corporate managements

Corporate Risk Management
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, distributionof high-capacity storage batteries, use of measures designed toprevent office equipment from tipping over, and managementof stockpiled disaster relief supplies.

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.
In March 2011, the Great East Japan Earthquake took place,and we issued the Crisis Management Manual applicable for
Hanwa Co., Ltd. and its affiliates two months later.

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 assistingothers until they are ready and able to return to their regularduties 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 60th 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, 2018, the program had distributed a total of ¥678 million
in scholarships, and the accumulated number of scholarshipstudents had grown to 1,107.
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
High school(Persons)

University

Studying abroad

Graduate school

1,200
15

1,000
66

800

68

24

82

82

834

850

75

66
62

600

56
52
49

400
18

200
0

3
4
7
1957
(1)

41
28
1961
(5)

422

479

548

604

662

712

765

318

181

96
64

87

98

115

130

144

151

151

151

151

151

151

1966
(10)

1971
(15)

1976
(20)

1981
(25)

1986
(30)

1991
(35)

1996
(40)

2001
(45)

2006
(50)

2011
(55)

2016
(60)

2017 Year(61) (Times)| HANWA ANNUAL REPORT 2018 | 25

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Financial
SectionFive-Year Summary
For the years ended March 31

				Millions of yen, 			
				
except for number of employees
		

		

2018

2017

2016

2015

Thousands of
U.S. dollars (*1)

2018

2014

For the year:
Net sales				¥ 1,791,118 ¥ 1,514,037 ¥ 1,511,800 ¥ 1,737,397¥ 1,682,503 $16,859,167

Operating income 			23,426
26,217

18,178

19,107

16,252

246,771

Net income attributable to owners of the parent 			16,363
17,35425,469

9,086

7,896

163,347

Comprehensive income 		
22,532

20,991

16,77819,45014,647

212,085

Net cash provided by (used in) operating activities 			
3,959(19,755)

53,0981,790

343(185,946)

Net cash provided by (used in) investing activities		
(39,971)(10,446)(18,427) 		

(13,692)(5,244)(376,233)

Net cash provided by (used in) financing activities		
66,435

15,447(41,751)

19,339(4,927)625,329

15,919 $328,077

At year-end:
Cash and cash equivalents 		
34,855 ¥¥27,206

Total assets		
861,965

694,232

599,694

651,456593,351

8,113,375

Total net assets 		
203,700

171,637

156,139

142,749

125,361

1,917,356

Number of employees 			
3,155
3,576

2,977

2,772

2,610

¥

				

				

		

2018

2017

25,804¥24,515

Yen

¥

		

2016

2015

U.S. dollars (*1)

2018

2014

Per share data (*2):
Net income attributable to owners of the parent 			400.89 ¥¥427.04 ¥122.92

¥

43.85

¥

38.11

$

4.019

Cash dividends (*3 and *4)			
18.00
19.00
85.00

15.00

12.00

0.800

Net assets attributable to owners of the parent 		
4,621.96

682.46591.6843.5044,193.50

				

		

2018

2017

747.40

%

		

2016

2015

2014

Key financial ratios:
4.1
2.5
2.2
Return on assets (ROA)				

1.5

1.4

10.1
9.7
Return on equity (ROE)			

17.2

6.9

6.6

140
140
150
Net debt/equity ratio (*5)			

180

190

*1. The U.S. dollar amounts represent translations, for convenience only, of yen amounts at the rate of ¥106.24=$1.00.
2. The Company consolidated its common shares at a ratio of 5 shares to 1 share on October 1, 2017. Accordingly, per share data (except for cash dividends) are calculated on
the assumption that the consolidation of shares was conducted at the beginning of fiscal 2017.
3. Dividends per share of ¥85.00 for the year ended March 31, 2018 consisted of interim dividends of ¥10.00 per share before the consolidation of shares and year-end dividendsof ¥75.00 per share after the consolidation.
4. Year-end dividends per share of ¥75.00 for the year ended March 31, 2018 included the 70th anniversary commemorative dividend of ¥10.00.
5. Net debt/equity ratio = Net interest-bearing debt/equity.
Net interest-bearing debt = Interest-bearing debt – cash.

26 | HANWA ANNUAL REPORT 2018 |Management’s Discussion and Analysis
Operating Results
Operating Results for the Fiscal Year Ended March 31, 2018
With regard to the world economy in the fiscal year under review, theU.S. economy maintained a growth trend, driven primarily bycontinued steady growth in personal consumption and private
investment, and a recovery in production and exports in the public
sector. The European economy continued to expand gradually on thereal economy front but showed political instability due to national
elections held in some of its member countries. The Chinese economy
maintained a growth trend that reflected a recovery in capital
investment in infrastructure and real estate due to the effects ofeconomic measures taken by the Chinese government, and higher
personal consumption reflecting an improvement in employment andincome conditions due to substantial corporate activity. In otheremerging nations, domestic demand such as personal consumption
and capital expenditures remained firm, affected by factors such as arecovery in exports accompanying steady economic growth in Westerncountries and China and a recovery in resource prices.
In Japan, exchange rates, interest rates and stock markets wereaffected by issues such as North Korea and U.S.–China trade friction,
but the overall economy remained firm. There was a recovery inexports following the moderate recovery in overseas economies, andan improvement in employment and income conditions supporting an
upturn in housing investment and consumption. This contributed to a
gradual recovery in corporate production activities and an upturn inconstruction demand and capital expenditures.
Given this background, the Group posted consolidated net sales of¥1,791,118 million for the consolidated fiscal year ended March 31,
2018, representing a year-on-year increase of 18.3%. This result wasdue mainly to higher prices of steel and metal resources compared tothe previous consolidated fiscal year, which turned upward from thesecond half of the previous fiscal year. Operating income rose 11.9%
to ¥26,217 million mainly reflecting higher profit in the metals andalloys business. Net income attributable to owners of the parent
increased 6.1% to ¥17,354 million due to factors such as a foreignexchange gain, compared with a foreign exchange loss recorded in theprevious fiscal years in addition to higher operating income, despite adecrease in extraordinary income and an increase in income taxes.
Net Sales
Net sales rose 18.3% year on year to ¥1,791,118 million. This result
was due mainly to higher revenues, except for revenues in the
petroleum and chemicals business, where the market size of spot
trading is shrinking, as a result of higher prices of steel and metal
resources compared to the previous consolidated fiscal year, which
turned upward from the second half of the previous fiscal year,

coupled with an increase in sales volumes mainly in the steel businessand metals and alloys business. Domestic sales rose 14.6%, to¥1,302,944 million while overseas sales jumped 29.3% to ¥488,174
million. For a discussion of sales by segment, see “Review ofOperations” and “Segment Information.”
Cost of Sales and Selling, General and Administrative (SG&A)
Expenses
Cost of sales increased 18.6% to ¥1,718,922 million. This was due
mainly to a rise in purchase prices reflecting higher commodity prices
and an increase in purchase volume accompanying sales expansion.
SG&A expenses rose 11.9%, to ¥45,977 million, primarily becauseof a rise in expenses due to the inclusion of newly consolidated
subsidiaries in addition to an increase in personnel expenses such as
salaries and welfare expenses.
Operating Income
Operating income for the consolidated fiscal year under review
expanded 11.9% to ¥26,217 million from ¥23,426 million a year
earlier, due mainly to higher profit in the metals and alloys business,while the operating margin remained at 1.5%.
Other Income (Expenses)
Net other expenses amounted to ¥781 million, up ¥518 million fromthe previous consolidated fiscal year. This reflected primarily decreases
in gain on sales of property and equipment, and investment securities,
increases in interest expense and bank charges accompanying higher
interest-bearing debt, a rise in the share of profit loss of entities
accounted for using the equity method, provision for product warrantiesof ¥345 million, and a loss of ¥217 million on valuation of investments
in capital for a coil center, HANWA STEEL SERVICE (JIANGXI) CO., LTD.,
for which a transfer has been decided. These factors were partly offset
by an increase in interest and dividend income, a foreign exchange gain
compared to a loss in the previous consolidated fiscal year, and areversal of ¥512 million in the provision for loss on business of subsidiaries and associates.
Income Taxes
Income taxes increased 23.6% to ¥8,315 million as the effective tax rate
approached the statutory tax rate, although the effects of a tax deduction
for an impairment loss on sold real estate that was recognized retrospectively were accounted for in the previous consolidated fiscal year.
Net Income Attributable to Owners of the Parent
Net income increased 4.2% to ¥17,120 million. Net income attributable

Net Sales and Operating Income

Net Income Attributable to
Owners of the Parent and ROE

Total Assets and ROA(Millions of yen)

(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

16,000400,000

8,000

0

0

14

15

Net Sales (left scale)

16

17

18

Operating Income (right scale)

0

0

14

15

ROE (right scale)

16

17

18

(%)

800,000

4

600,000

3

400,000

2

200,000

1

0

0

14

15

16

17

18

ROA (right scale)| HANWA ANNUAL REPORT 2018 | 27

Management’s Discussion and Analysis
to owners of the parent within net income increased 6.1% to ¥17,354
million. Accordingly, net income per share rose to ¥427.04 from¥400.89 in the prior year. (The Company consolidated its commonshares at a ratio of 5 shares to 1 share on October 1, 2017. Accordingly,
the net income per share was calculated on the assumption that theconsolidation of shares was conducted at the beginning of fiscal 2017.)

Sources of Capital and Cash Liquidity
Financial Condition
Total assets increased to ¥861,965 million, up 24.2% from theprevious consolidated fiscal year, reflecting higher trade receivables
and investment securities.
Liabilities rose 26.0% to ¥658,264 million as a result of increases
in trade notes and accounts payable and long-term debt after one
year, and interest-bearing debt expanded 25.4% to ¥325,562
million. The net debt/equity ratio (net interest-bearing debt as apercentage of equity) stood at 150% as of March 31, 2018.
Net assets grew 18.7% to ¥203,700 million. This was attributable
mainly to an increase in non-controlling interests arising from theconsolidation of Japan South Africa Chrome Co., Ltd. and a rise in net
income attributable to owners of the parent. Conversely, the equity
ratio at March 31, 2018 fell to 21.8% from 24.5% a year ago due togreater increases in liabilities and non-controlling interests than inshareholders’ equity.
Cash FlowsNet cash used in operating activities totaled ¥19,755 million,
compared to net cash provided by ¥3,959 million in the previous
consolidated fiscal year. This was due primarily to higher working
capital requirements reflecting increases in trade notes and accounts
receivable and inventories arising from an upturn in sales, which
continued from the middle of the previous consolidated fiscal year.
Net cash used in investing activities amounted to ¥39,971
million, up ¥21,543 million from the previous consolidated fiscal
year. This was attributable mainly to increases in the purchase ofinvestment securities, including shares of SAMANCOR CHROMEHOLDINGS PROPRIETARY LTD., and long-term loans to investees.
Net cash provided by financing activities amounted to ¥66,435
million, up ¥50,987 million from the previous consolidated fiscal year.
This resulted primarily from an expansion in proceeds from long-term

debt and other items reflecting increases in investment funds foracquiring investment securities and demand for working capital arisingfrom higher sales.
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 stable liquidity
and agility in liquidity management, however, it may fund its activities by
issuing bonds and commercial paper in the capital markets from time totime. In addition, the Group has entered into a commitment line
agreement totaling ¥80,000 million with financial institutions.
The Group meets its working capital requirements principally
through long-term borrowings from banks to secure stable funds,
while short-term bank borrowings are used for day-to-day funding.
Short-term borrowings as at March 31, 2018 stood at ¥81,722 million,
mostly denominated in yen. The Group’s outstanding long-term loan
was ¥182,124 million, including the current portion of long-termloans of ¥34,522 million.
The Group issues bonds primarily to fund working capital. As of
March 31, 2018, bonds outstanding consisted of straight bonds
amounting to ¥50,176 million. To increase its flexibility to issue bonds
in a 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, 2018, the unused aggregate
principal amount of the shelf registration for straight bonds forsubscription in Japan amounted to ¥40,000 million.
Advocating improvement of overall corporate value 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,
Total Net Assets andEquity Ratio

Interest-Bearing Debt andNet Debt/Equity Ratio(Millions of yen)(%)

200,000

28

150,000

21

100,000

14

50,000

7

0

0

14

15

16

Equity Ratio (right scale)including Japan, North America, Europe and Asia (especially East
Asia with China being the key market) with an accompanying
decrease in demand could have an adverse impact on the Group’sbusiness performance and financial condition.

17

18

BPS and ESP (Note)(Millions of yen)(%)

300,000

300

250,000

250

200,000

200

150,000

150

100,000

100

50,000

50

0

0

14

15

16

17

Net Debt/Equity Ratio (right scale)

18

(Yen)

(Yen)

4,000

400

3,000

300

2,000

200

1,000

100

0

0

14
BPS (left scale)

15

16

17

18

EPS (right scale)Note: The Company consolidated its common shares at a ratio of 5 shares to 1 share on October 1, 2017. Accordingly, BPS and EPS are calculated on the assumption that the consolidationof shares was conducted at the beginning of fiscal 2017.

28 | HANWA ANNUAL REPORT 2018 |Commodity Price Fluctuations
The Group holds inventories for distribution that include steel products,
metals and alloys, non-ferrous metals, foods and petroleum/chemical
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 of thefinancial 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 the U.S. dollar which accounts
for a substantial portion of the Group’s sales) adversely affects theGroup’s export transactions, while it favorably affects the Group’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, most 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 recently stepped up efforts 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 Quality of Products
Products and services offered by the Group are jointly provided with
suppliers and outsourcing partners under appropriate quality control
and inspection systems. The unlikely event of defects in products andservices that leads to a large-scale recall or product liability compensation may trigger an accrual of a large amount of costs or damage tocredibility and the corporate image, and may have significant adverse
effects on the Group’s business performance and financial position.
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 individuals’ 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 2018 | 29

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Balance Sheets
As at March 31, 2018 and 2017							Thousands of						Millions of yen
U.S. dollars (Note 1)

2018
Assets				

2017

2018

Current assets:							¥34,855 ¥27,206 $328,077
Cash and cash equivalents (Note 3)							Receivables:						
		Trade notes and accounts (Note 3):									13,271
9,791
124,915
Unconsolidated subsidiaries and affiliates 							387,045
298,061
3,643,119
			Other							
		Electronically recorded monetary claims (Note 3)							

			

789
—
7,426
Unconsolidated subsidiaries and affiliates 										Other

24,62730,742

231,805

		Loans:							
			

4,554
3,606
42,865
Unconsolidated subsidiaries and affiliates 										Other		

3,779

13,69135,570(481)(334)(4,527)
Allowance for doubtful receivables							

683
486
6,428
Securities (Notes 3 and 4)							134,877
111,039
1,269,550
Inventories (Note 6)							
1,891
1,919
17,799Deferred tax assets—current (Note 10) 							40,13841,561
377,804
Other current assets (Note 7)							646,032
537,773
6,080,873
			Total current assets											Investments and noncurrent receivables:						55,87058,786
Investment securities (Notes 3, 4 and 7)						525,884

53,911
13,737507,445
Investments in and advances to unconsolidated subsidiaries and affiliates (Note 3)					Loans receivable (Note 3):						
		

1,459
560
13,733
Unconsolidated subsidiaries and affiliates 									Other

18,906

10,281

177,955

18,688
11,787
175,903
Other investments and noncurrent receivables							
(902)
(504)
(8,490)Allowance for doubtful receivables 										147,934
94,6481,392,451
Total investments and noncurrent receivables															Property and equipment (Note 7):						32,402
29,640304,988
Land (Note 12)							42,08937,963396,169
Buildings and structures							32,05429,188
301,713
Other								(42,076)(37,299)(396,046)
Accumulated depreciation							
			64,46959,492606,824
Total property and equipment															Other assets:							
103
283
969
Deferred tax assets—noncurrent (Note 10)							
3,426
2,034
32,247
Intangibles and other assets 							
			

3,529
2,317
33,217
Total other assets 							¥ 861,965 ¥ 694,232 $ 8,113,375
			Total						See accompanying Notes to Consolidated Financial Statements.

30 | HANWA ANNUAL REPORT 2018 |							Thousands of						Millions of yen
U.S. dollars (Note 1)

2018
Liabilities and Net Assets				

2018

2017

Current liabilities:							68,882¥
81,722 ¥Short-term loans payable (Notes 3 and 8)						

$769,220

94,1265,000
10,000Commercial paper (Notes 3 and 8)							420,208
38,40144,643Long-term debt due within one year (Notes 3, 7 and 8)							Trade notes and accounts payable (Note 3):						
		12,6971,057
1,349
Unconsolidated subsidiaries and affiliates							2,496,667
190,931265,246
		Other 							23,2862,306
2,474
Accrued bonuses to employees 							
3,680
146
391
Provision for product warranties 							—512—Provision for loss on business of subsidiaries and associates 							47,533
6,752
5,050
Income taxes payable							384,51645,06840,851Other current liabilities 										4,251,976
359,058
451,730
Total current liabilities 																	Noncurrent liabilities:							1,766,349
146,308
187,657
Long-term debt due after one year (Notes 3, 7 and 8)							46,526
4,518
4,943
Net defined benefit liability (Note 9)							73,192
7,000
7,776
Deferred tax liabilities—noncurrent (Note 10)							57,953
5,709
6,157
Other noncurrent liabilities 										1,944,032
163,536
206,534
Total noncurrent liabilities 																	Contingent liabilities (Note 14)																Net assets (Note 12)							Shareholders’ equity (*):							Common stock: 						
		Authorized: 114,000,000 shares in 2018 and 570,000,000 shares in 2017 					

		Issued: 42,332,640 shares in 2018 and 211,663,200 shares in 2017

429,696
45,65145,651					

1,233,480
117,778
131,045
Retained earnings							(35,071)(3,720)(3,726)
Treasury stock, at cost: 1,694,375 shares in 2018 and 8,464,473 shares in 2017					1,628,096
159,709
172,969
			Total shareholders’ equity							Accumulated other comprehensive income:						134,996
12,58014,342
Valuation difference on available-for-sale securities, net of taxes						(1,590)142(169)
Deferred gains or losses on hedges, net of taxes							27,8892,966
2,963
Land revaluation difference, net of taxes							29,2731,062
3,110
Foreign currency translation adjustments							(50,715)(6,037)(5,388)Remeasurements of defined benefit plans (Note 9)							
			139,853
10,713
14,858
Total accumulated other comprehensive income							149,397
1,214
15,872
Non-controlling interests							1,917,356
171,637
203,700
			Total net assets							¥ 861,965 ¥ 694,232 $ 8,113,375
			Total							* The Company consolidated its common shares at a ratio of 5 shares to 1 share on October 1, 2017.

| HANWA ANNUAL REPORT 2018 | 31

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income
For the years ended March 31, 2018 and 2017							Thousands of						Millions of yen
U.S. dollars (Note 1)
				
2018

2018

2017

Net sales								¥ 1,791,118 ¥ 1,514,037 $ 16,859,167
Cost of sales 							1,718,922
1,449,522
16,179,612
		 Gross profit 							72,19564,514
679,546
Selling, general and administrative expenses 							45,97741,088432,765
		Operating income							26,21723,426
246,771
Other income (expenses):
Interest and dividend income 							
2,875
2,684
27,061
Interest expense							(3,245)(2,553)(30,544)
Foreign exchange gain (loss)		
316
(284)
2,974
Share of profit (loss) of entities accounted for using equity method
(127)
(88)
(1,195)Gain on sales of property and equipment (Note 15)						—876—Gain on sales of investment securities							
165
674
1,553
Reversal of provision for loss on business of subsidiaries and associates (Note 16)		
512
—
4,819
Loss on sales of property and equipment (Note 17)
—
(227)
—
Loss on valuation of investment securities						
(181)
(814)
(1,703)
Loss on valuation of investments in capital(217)—(2,042)
Loss on liquidation of business (Note 18)							
—
(253)
—
Provision for product warranties (Note 19)							(345)—(3,247)
Other, net							
(534)
(277)
(5,026)

Income before income taxes						
25,43523,163
239,410
Income taxes (Note 10):						Current								
8,410
7,354
79,160
Deferred							
(95)
(625)
(894)
Total income taxes
8,315
6,728
78,266
Net income							¥17,120 ¥16,434 $161,144

Net income attributable to:							Owners of the parent						¥
17,354 ¥16,363 $163,347
Non-controlling interests						
(233)
71
(2,193)
Other comprehensive income (Note 20):						Valuation difference on available-for-sale securities, net of taxes						
1,762
4,555
16,585
Deferred gains or losses on hedges, net of taxes							
(311)
518
(2,927)
Foreign currency translation adjustments
316
(723)
2,974
Remeasurements of defined benefit plans, net of taxes
587
360
5,525
Share of other comprehensive income of entities accounted for using equity method
3,057
(154)
28,774
Total other comprehensive income 						
5,411
4,557
50,931
Comprehensive income			¥
22,532 ¥20,991 $212,085
Comprehensive income attributable to:
Owners of the parent
Non-controlling interests

					
			
¥
21,501 ¥21,017 $202,381
			
1,031
(26)
9,704

							U.S. dollars						
Yen
(Note 1)
					
2018

Net income per share (*1) 				¥427.04

Cash dividends per share (*2 and *3)				
85.00

2018

2017

¥

400.89
19.00

$

4.019
0.800

*1. The Company consolidated its common shares at a ratio of 5 shares to 1 share on October 1, 2017. Accordingly, per share data (except for cash dividends) were calculated on
the assumption that the consolidation of shares was conducted at the beginning of fiscal 2017.
2. Dividends per share of ¥85.00 for the year ended March 31, 2018 consisted of interim dividends of ¥10.00 per share before the consolidation of shares and year-end dividendsof ¥75.00 per share after the consolidation.
3. Year-end dividends per share of ¥75.00 for the year ended March 31, 2018 included the 70th anniversary commemorative dividend of ¥10.00.
See accompanying Notes to Consolidated Financial Statements.

32 | HANWA ANNUAL REPORT 2018 |HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Changes in Net Assets
For the years ended March 31, 2018 and 2017

Thousands

Millions of yen

Number ofshares ofcommonstock (*)

Commonstock

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

Balance at April 1, 2016.....................

211,663¥ 45,651

Cash dividends paid.......................
Change of scope of consolidation....
Change of scope of equity method...
Reversal of revaluation reserve
for land.......................................
Net income attributable to ownersof the parent...............................
Purchases of treasury stock............
Purchase of shares of consolidated
subsidiaries..................................
Sales of shares of consolidated
subsidiaries..................................
Consolidation of shares..................
Other changes...............................
Net changes of items other thanshareholders’ equity.....................

—
—
—

—
—
—

—
—
—

(3,900)
219
700

—
—
—

—

—

—

—

—
—
..
—

—
—

—
—

—

—
—
—
—

Balance at March 31, 2017................

211,663

45,651—

Balance at April 1, 2017.................. 211,663
Cash dividends paid.......................
—
Change of scope of consolidation....
—Change of scope of equity method...
—
Reversal of revaluation reserve
for land.......................................
—Net income attributable to ownersof the parent...............................
—
Purchases of treasury stock............
—
Purchase of shares of consolidated
subsidiaries..................................
—
Sales of shares of consolidated
subsidiaries..................................
—
Consolidation of shares.................. (169,330)
Other changes...............................
—Net changes of items other thanshareholders’ equity.....................
—

45,651
—
—
—

—
—
—
—

—

—

—
—

Balance at March 31, 2018..............

42,332Landrevaluationdifference,
net of taxes

Foreign
Remeasurements
currencyof definedtranslation
benefit plans,adjustments
net of taxes(376)¥ 2,966¥ 1,842 ¥ (6,397) ¥ 1,272 ¥ 156,139

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(3,900)
219
700

—

—

—

—

—

—

—

—

16,363——(2,270)

—
—

—
—

—
—

—
—

—
—

—
—

16,363(2,270)

(4)

(200)

—

—

—

—

—

—

—

(205)

—
—
—

—
—
—

(0)
—
(4)

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(0)
—
(4)

—

—

—

—

4,555

518

—

(780)

360

(58)

4,596

117,778(3,720)12,580

142

2,966

1,062

(6,037)

1,214

171,637

117,778(4,063)(25)—(3,720)———12,580
—
—
—

142
—
—
—

2,966
—
—
—

1,062
—
—
—

(6,037)
—
—
—

1,214
—
—
—

171,637(4,063)
(25)
—

2

—

—

—

—

—

—

—

2

—
—

17,354
—

—
(6)

—
—

—
—

—
—

—
—

—
—

—
—

17,354
(6)

—

—

—

—

—

—

—

—

—

—

—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—

—

—

1,762

2,047

648

14,65818,803

Capitalsurplus¥—¥ 45,651¥

Retainedearnings

Treasurystock

4 ¥ 104,600 ¥ (1,449) ¥8,024— ¥ 131,045 ¥ (3,726) ¥ 14,342 ¥Thousands

211,663$429,696

Cash dividends paid.......................
—
Change of scope of consolidation..
—
Change of scope of equity method.
—
Reversal of revaluation reserve
for land.......................................
—Net income attributable to ownersof the parent...............................
—
Purchases of treasury stock............
—
Purchase of shares of consolidated
subsidiaries..................................
—
Sales of shares of consolidated
subsidiaries..................................
—
Consolidation of shares.................. (169,330)
Other changes...............................
—Net changes of items other thanshareholders’ equity.....................
—

—
—
—

—
—
—

(38,243)
(235)
—

—
—
—

—
—
—

—

—

18

—

—
—

—
—

163,347
—

—

—

—
—
—

42,332(2)¥ 2,963

Total¥ 3,110 ¥ (5,388) ¥ 15,872 ¥ 203,700

Thousands of U.S. dollars (Note 1)

Commonstock

Balance at March 31, 2018..............

(311)
(169)

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

Number ofshares ofcommonstock (*)

Balance at April 1, 2017..................

¥

Noncontrollinginterests$—$429,696

Land
revaluationdifference,
net of taxes

Foreign
Remeasurements
currencyof definedtranslation
benefit plans,adjustments
net of taxes

1,336$27,917$ 9,996 $ (56,824) $ 11,426 $1,615,559

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(38,243)
(235)
—

—

—

—

—

—

—

18

—
(56)

—
—

—
—

—
—

—
—

—
—

—
—

163,347
(56)

—

—

—

—

—

—

—

—

—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—

—

—

16,585(2,927)(18)

19,267

6,099

137,970

176,986— $1,233,480 $(35,071) $134,996 $ (1,590)$27,889

Capitalsurplus$Retainedearnings

Treasurystock— $1,108,603 $(35,015) $118,411$

Noncontrollinginterests

Total$29,273 $ (50,715) $149,397 $1,917,356* The Company consolidated its common shares at a ratio of 5 shares to 1 share on October 1, 2017.
See accompanying Notes to Consolidated Financial Statements.

| HANWA ANNUAL REPORT 2018 | 33

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cash Flows
For the years ended March 31, 2018 and 2017
Thousands of
U.S. dollars (Note 1)

Millions of yen

2018
Cash flows from operating activities:
Income before income taxes
Adjustments to reconcile income before income taxes
to net cash provided by (used in) operating activities:
Depreciation
Amortization of goodwill
Increase (decrease) in allowance for doubtful receivables
Interest and dividend income
Interest expense
Share of (profit) loss of entities accounted for using equity method
Gain on sales of property and equipment
Gain on sales of investment securities
Reversal of provision for loss on business of subsidiaries and associates
Loss on sales of property and equipment
Loss on valuation of investment securities
Loss on valuation of investments in capital
Loss on liquidation of business
Provision for product warranties
Decrease (increase) in trade receivables
Decrease (increase) in inventories
Increase (decrease) in trade notes and accounts payable
Increase (decrease) in net defined benefit liability
Other, net
Subtotal
Cash flows during the year for:
Interest and dividends received
Interest paid
Income taxes (paid) refund
Net cash provided by (used in) operating activities¥

Cash flows from investing activities:
Payments into time deposits
Proceeds from withdrawal of time deposits
Additions to property and equipment
Proceeds from sale of property and equipment
Additions to investment securities
Proceeds from sale and redemption of investment securities
Proceeds from purchase of shares of subsidiaries resulting in change
in scope of consolidation (Note 21)
Net decrease (increase) in short-term loans receivable
Additions to long-term loans receivable
Proceeds from long-term loans receivable
Other, net
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Net increase (decrease) in short-term loans payable
Net increase (decrease) in commercial paper
Proceeds from long-term debt, issuance of bonds
Repayments of long-term debt, redemption of bonds
Proceeds from share issuance to non-controlling shareholders
Purchase of treasury shares
Payment of cash dividends
Dividends paid to non-controlling interests
Payments from changes in ownership interests in subsidiaries that do not resultin change in scope of consolidation
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash and cash equivalents from newly consolidated subsidiaries
Cash and cash equivalents at end of year
See accompanying Notes to Consolidated Financial Statements.

34 | HANWA ANNUAL REPORT 2018 |

¥

2018

2017

25,435¥23,163$

239,410

4,240
532
(193)
(2,875)
3,245
127
—
(165)
(512)
—
181
217
—
345
(82,227)(21,619)
69,366992(7,073)(9,982)

3,971
217
67
(2,684)
2,553
88
(876)
(674)
—
227
814
—
253
—
(60,931)(3,991)
39,538
959
44
2,739

39,9095,007(1,816)(27,061)
30,544
1,195—(1,553)(4,819)
—
1,703
2,042
—
3,247
(773,974)(203,492)
652,917
9,337(66,575)(93,957)

3,681(3,257)(10,196)(19,755)

2,766(2,562)
1,015
3,959

34,647(30,657)(95,971)(185,946)(3,039)3,553(4,650)144(35,461)
1,137(1,245)
1,261(3,656)
1,453(2,883)
1,161(28,605)
33,443(43,768)
1,355(333,782)
10,702

1,176
11,665(15,037)
978(436)(39,971)—(14,829)
(808)
28
1,090
(18,427)

11,069109,798(141,538)
9,205(4,103)(376,233)

12,1855,000
94,188(54,363)
13,580(6)(4,063)(28)

12,3435,000
25,290(20,499)—(2,270)(3,899)(29)

114,693
47,063
886,558(511,699)
127,823(56)(38,243)
(263)

—

(220)

(58)
66,435(203)
6,504
27,206
1,144
34,855¥(267)
15,447(370)
609
25,804791
27,206 $—(545)
625,329(1,910)61,219256,080
10,768328,077

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 theiraccounting records maintained in conformity with Japanese GAAP.
The accompanying consolidated financial statements have been
restructured and translated into English with some expanded
descriptions from the consolidated financial statements of theCompany prepared in accordance with Japanese GAAP and filedwith 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 not presented 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, 2018, whichwas ¥106.24 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.
As permitted, amounts of less than one million yen are omitted
in the presentation for 2017 and 2018. As a result, the totals shownin the accompanying consolidated financial statements, both in yen
and in U.S. dollars, do not necessarily agree with the sum of theindividual amounts.

2. Significant accounting policies
Consolidation
The consolidated financial statements include the accounts of theCompany and its 37 (30 in 2017) significant subsidiaries (together,“the Companies”). The accounts of certain consolidated subsidiaries have been included on the basis of fiscal periods that ended
three months or less prior to March 31, and significant transactions
after these year-ends were appropriately adjusted in consolidation.
Intercompany transactions and accounts have been eliminated. All
material unrealized profits included in assets resulting from intercompany transactions are eliminated.
Equity method
As of March 31, 2018, the Company had 53 unconsolidated subsidiaries and 18 affiliates. The equity method has been applied to theinvestments in 4 of the unconsolidated subsidiaries and 4 of the affiliates. Investments in the remaining unconsolidated subsidiaries andaffiliates are not accounted for by the equity method as the applicationof 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 on collection. 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 amountis 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
by subsidiaries and affiliated companies which are not consolidated
or accounted for using the equity method are stated at moving
average cost. Available-for-sale securities with available fair values
are stated at fair value. Valuation differences on available-for-salesecurities are reported, net of applicable income taxes, as a separate component of accumulated other comprehensive income.
Realized gains on the sales of such securities are computed using
moving average cost. Other available-for-sale securities are statedat moving average cost.
Inventories
Inventories are stated at the lower of cost (based principally on a moving
average 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 non-current assets has been deducted from acquisition costs.
Depreciation is provided principally on the straight-line method over the| HANWA ANNUAL REPORT 2018 | 35

estimated useful life of the asset. Major renewals and improvements
are capitalized. Maintenance, repairs and minor renewals are expensed
as incurred.

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.

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.

Translation of foreign currencies
Receivables and payables denominated in foreign currencies are translated into Japanese yen at year-end rates.
Balance sheets of foreign consolidated subsidiaries are translated
into Japanese yen at year-end rates, except for shareholders’ equity
accounts, which are translated at historical rates. Income statementsof foreign 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.

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 product warranties
Provision for product warranties is recorded to cover the payment of
product warranty costs with the potential to occur within a certain
period of time based on the ratio of the warranty costs to sales in thepast.
For certain consolidated subsidiaries, the provision is recognizedbased on the amount individually estimated.
Provision for loss on business of subsidiaries and associates
Provision for loss on business of subsidiaries and associates is recorded
to cover the 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 straight-line
method for a fixed period of years within the average remaining
service years of employees when costs accrue from their service.
Actuarial differences are posted in expenses mainly after the
consolidated fiscal year following their accrual based on the straightline method for a fixed period of years within the average remaining
service years of employees.
3. Adoption of simplified method by small companies
In calculating net defined benefit liability and retirement benefit

36 | HANWA ANNUAL REPORT 2018 |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
items are recognized. For certain overseas consolidated subsidiaries,
fair value hedge accounting is applied.
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.
Accounting Standards Not Yet Applied(A) The Company and domestic consolidated subsidiaries• “Accounting Standard for Revenue Recognition” (ASBJ Statement
No. 29, March 30, 2018)• “Implementation Guidance on Accounting Standard for Revenue
Recognition” (ASBJ Guidance No. 30, March 30, 2018)
1. Overview
The above standard and guidance provide comprehensive principles for revenue recognition. Under the standard and guidance,
revenue is recognized by applying following 5 steps:
Step 1: Identify contract(s) with customers.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligation in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a
performance obligation.
2. Effective date
Effective from the beginning of the fiscal year ending March 31,
2022
3. Effects of the application of the standards
The Companies are currently in the process of evaluating the effectsof these new standards on the consolidated financial statements.
(B) Foreign consolidated subsidiaries
Accounting standards which were newly established or amended
before March 31, 2018, but not yet applied to the foreign consolidated subsidiaries set forth in the table below.
The Companies are in the process of evaluating the effects of thestandards on the consolidated financial statements.
Accounting Standards

IFRS 9,“Financial
Instruments”

Overview
Effective date
The Standard introduces
new requirements forclassification and measure- Fiscal year ending Marchment of financial instru31, 2019ments, impairment andhedge accounting.

The standard introduces asingle comprehensive
IFRS 15,“Revenue frommodel that is applied toContracts with Customers”
account for revenues fromcontracts with customers.

Fiscal year ending March
31, 2019| HANWA ANNUAL REPORT 2018 | 37

3. Financial instruments
At March 31, 2018 and 2017, 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 and electronically recordedmonetary claims are exposed to credit risk of customers. Some ofthem are denominated in foreign currencies and exposed to theforeign exchange rate fluctuation risk as well.
Securities mainly consist of stocks and are exposed to price fluctuation risk. Some of them are denominated in foreign currencies, whichaccompany 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 forward contracts and currency swap agreements are used to hedge foreign exchange rate fluctuation risk
associated with certain assets and liabilities denominated in foreign
currencies. Interest rate swap agreements are made use of forhedging fluctuations in forward interest rates. Commodity forward
contracts and commodity swap agreements aim to hedge market
risks associated with 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 and accounts receivable,
electronically recorded monetary claims and long-term loans receivable
are exposed, the Company sets a credit limit amount for each business
partner and manages the outstanding balance in accordance with the“Credit administrative provisions” while monitoring the credit status ona regular basis. Furthermore, the Company is committed to reducing
foreign exchange rate fluctuation risk to which trade notes and accounts
receivable, electronically recorded monetary claims and trade notes
and accounts payable are exposed by means of derivatives trading.
38 | HANWA ANNUAL REPORT 2018 |Because price fluctuation risks associated with securities mainly
affect stocks of the Company’s business partners, the Company
reports the regularly assessed market values and their financial status
to the Board of Directors. In regard to foreign exchange rate fluctuation risk, the Company is committed to reducing it by means ofderivatives 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 supervising director in
charge of administration department 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, 2018 and 2017 were as follows:March31, 2018
					Book value

Millions of yen 			Fair value

DifferenceBook value

Thousands of U.S. dollars
Fair value

Difference(1) Cash and cash equivalents¥ 34,855¥ 34,855¥—$ 328,077$ 328,077$—(2) Trade notes and accounts receivable
400,317 			
3,768,044
		Allowance for doubtful receivables(363) 			(3,416)
				Net		399,953
399,953—
3,764,617
3,764,617—
25,416 			
239,231		(3) Electronically recorded monetary claims
Allowance for doubtful receivables(23) 			(216)				Net		25,39225,392—
239,006
239,006—(4) Securities						a) Equity securities issued by affiliated companies
3,712
1,892
(1,819)34,93917,808(17,121)b) Available-for-sale securities
43,81343,813—412,396
412,396—(5) Long-term loans receivable
20,366
			
191,698		Allowance for doubtful receivables(20) 			(188) 				Net		20,345
20,345—191,500
191,500—
Total assets¥ 528,073¥ 526,253¥ (1,819) $4,970,566$4,953,435$ (17,121)¥ 81,722¥ 81,722¥$ 769,220$ 769,220$(1) Short-term loans payable——(2) Commercial paper
10,00010,000—94,126
94,126—44,64344,643—420,208420,208—(3) Long-term debt due within one year(4) Trade notes and accounts payable
266,595
266,595—
2,509,365
2,509,365—(5) Long-term debt due after one year
187,657
187,693(36)
1,766,349
1,766,688(338)
Total liabilities¥ 590,619¥ 590,655¥(36) $5,559,290$5,559,629$(338)
Derivatives:						Hedge accounting not applied¥(5,722) ¥ (5,722)¥—$ (53,859) $ (53,859)$—
Hedge accounting applied
(460)
(867)
(407)
(4,329)(8,160)(3,830)(6,182) ¥ (6,589)(407) $ (58,189) $ (62,019) $ (3,830)
Total derivatives¥¥

March 31, 2017

					Book value

Millions of yen 			Fair value

Difference(1) Cash and cash equivalents¥ 27,206¥ 27,206¥—(2) Trade notes and accounts receivable
307,853 		
Allowance for doubtful receivables(267) 				 Net		
307,586
307,586—
30,742 		
(3) Electronically recorded monetary claims
Allowance for doubtful receivables(29) 				 Net		
30,71230,712—(4) Securities			a) Equity securities issued by affiliated companies
2,671
1,051
(1,619)b) Available-for-sale securities
38,621
38,621—
10,842		(5) Long-term loans receivable
Allowance for doubtful receivables(10) 				 Net		
10,831
10,831—
Total assets¥ 417,628¥ 416,008¥(1,619)¥ 68,882¥ 68,882¥—(1) Short-term loans payable(2) Commercial paper
5,000
5,000
—
(3) Long-term debt due within one year
38,401
38,401—(4) Trade notes and accounts payable
191,989
191,989—
146,308
146,587(278)(5) Long-term debt due after one year
Total liabilities¥ 450,582¥ 450,860¥(278)
Derivatives:			Hedge accounting not applied¥ 10,444¥ 10,444¥—
Hedge accounting applied
(49)
(640)
(591)
Total derivatives¥ 10,395
¥
9,803
¥
(591)

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

| HANWA ANNUAL REPORT 2018 | 39

Basis of determining the fair value of financial instruments is asfollows:
Cash and cash equivalents, Trade notes and accounts receivable,
and Electronically recorded monetary claims
The book values of cash and cash equivalents, trade notes and accounts
receivable, and electronically recorded monetary claims approximate
fair value due to their short maturities.
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, 2018 and 2017:							Thousands of					Millions of yen
U.S. dollars
					
2018

			

		

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

Book value¥

50,198

¥

2017

2018

Book value

Book value

11,066$ 472,496(2) Available-for-sale securities:							Unlisted stocks				
¥
4,307
¥
4,190
$ 40,540
Unlisted foreign stocks				
6,333
14,04959,610Unlisted foreign convertible bonds				
1,822
2,406
17,149Unlisted domestic convertible bonds				26—244Unlisted domestic bonds				
250
—
2,353
Investment in limited partnerships				—5—
Total				¥ 12,740¥ 20,651$ 119,917

The maturities of receivables and securities with maturities outstanding at March 31, 2018 were as follows:			Year ending March 31

																		2019

Cash and cash equivalents		 ¥ 34,855¥
Trade notes and accounts receivable		
400,317
Electronically recorded monetary claims		
25,416
Available-for-sale securities with maturity dates		
683
Long-term loans receivable		—Total			¥ 461,272
¥
			

		

																2019

Millions of yen
From 2020 		
to 2023		

—
—
—
1,396
18,16919,566

From 2024		
to 2028		

¥

¥

—
—
—
26
1,388
1,414

Thereafter		

¥

¥

—
—
—
—
11
11

Thousands of U.S. dollars
From 2020 		
to 2023		

Cash and cash equivalents		 $ 328,077$—
Trade notes and accounts receivable		
3,768,044—
Electronically recorded monetary claims		
239,231—
Available-for-sale securities with maturity dates		
6,428
13,140Long-term loans receivable		—
171,018
Total			$4,341,792$ 184,167

From 2024		
to 2028		

$

$

—
—
—
244
13,064
13,309Thereafter		

$

$

—
—
—
—
103
103

Long-term loans receivable of ¥796 million ($7,492 thousand) were excluded from the above table since due date for the redemption had not
yet been determined.
40 | HANWA ANNUAL REPORT 2018 |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, 2018 and 2017:
March 31, 2018					Securities with book values exceeding acquisition costs:
Equity securities¥
Bonds
Securities with book values not exceeding acquisition costs:
Equity securities¥
Bonds

Book value

Thousands of U.S. dollars

Acquisition cost

Book value

Difference¥

38,906—¥23,436—$ 145,613—$

366,208—$ 220,594
—

7,361
10

¥

4,899
7

¥

(2,461)(2)$$

46,11265$

			

69,286
94(23,164)(18)

Millions of yen

Acquisition cost

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

Difference

15,470—March 31, 2017
		Millions of yen 			Acquisition cost

Book value

Difference

12,812¥33,861¥

21,049

6,883

¥

4,759

¥

(2,123)(B) The following tables summarize sales of available-for-sale securities in the years ended March 31, 2018 and 2017:
March 31, 2018

			Millions of yen 					Proceeds from sales

Gains on sales

Losses on sales

Equity securities

¥

¥

¥

304

March 31, 2017

			

114

$

2,861

Gains on sales

$

1,073

Losses on sales$

28

Millions of yen

		Proceeds from sales

Gains on sales

Equity securities

¥

¥

1,160

3

Thousands of U.S. dollars

Proceeds from sales

674

Losses on sales¥—(C) The loss resulting from the valuation of the securities in the years ended March 31, 2018 and 2017 was as follows:							Thousands of					Millions of yen
U.S. dollars
					
2018

Securities in subsidiaries and affiliates				¥
60
120
Other securities				Total				
¥
181

2018

2017

¥
¥

757
57
814

$
$

564
1,129
1,703

| HANWA ANNUAL REPORT 2018 | 41

5. Derivatives(A) The following tables summarize fair value information as of March 31, 2018 and 2017 for the derivatives to which hedge accounting
has not been applied:
March 31, 2018
Currency related

			
				
				

Millions of yen 			Thousands of U.S. dollars

Contract ornotional amountForeign exchange forward contracts:
Selling:		 				U.S. dollars				 ¥ 100,694
		Other currencies
		533
Buying:					U.S. dollars				
15,621		Other currencies		
2,679
Currency swap agreements:
Japanese yen received for U.S. dollars		
12,364
		Total 				
¥—Due after		Net recognized
one year
Fair value
gain or loss

¥

¥

			

—
—

2,791
(1)

¥

(202)
(42)

¥

603
—

2,791 $ 947,797
(1)
5,016
(202)
(42)

¥

603
3,149

Due after		
one year
Fair value$

147,035
25,216$116,378—$

Net recognizedgain or loss——

$ 26,270(9)$ 26,270
(9)

—
244

(1,901)(395)(1,901)
(395)

5,675
—

5,675
$ 29,640——$

Millions of yen 			Thousands of U.S. dollars

Contract ornotional amount

Forwards:
Petroleum:						Selling				 ¥ 2,538
		Buying
			
1,882
Non-ferrous metals:					Selling		
		6,907
		Buying
			3,513
Commodity swap agreements:
Petroleum:		
62
		Selling					513
		Buying		
Total 				
¥
—

¥

—
26

Commodity related

				
				

—
—

Contract ornotional amountDue after		Net recognized
one year
Fair value
gain or loss

¥

¥

—
—

¥

(24)
79

—
—

407
(143)

—
—
—

(0)
(4)
—

¥

¥

¥

Contract ornotional amountDue after		
one year
Fair value$(24) $
79

23,88917,714407(143)

65,01333,066——

3,830(1,346)

3,830(1,346)

(0)
(4)
313 $

583
4,828
—

—
—
—

(0)
(37)
—

(0)
(37)
2,946

$

—
—

$

$

(225)
743

Net recognizedgain or loss

$

$

(225)
743

Derivatives in which valuation gains or losses are attributable to counterparties based on the contracts were as follows:
			
				
				

Millions of yen 			Thousands of U.S. dollars

Contract ornotional amount

Forwards:
Non-ferrous metals:		 				Selling				 ¥ 112,025
		Buying			13,020		
Total 				
¥—Due after		Net recognized
one year
Fair value
gain or loss

¥
¥

—
—
—

¥
¥

(9,193)8—¥¥

Contract ornotional amount(9,193) $ 1,054,452
8
122,552(9,185) $—Due after		
one year
Fair value

$
$

—
—
—

The derivatives above are included in “Derivatives: Hedge accounting not applied” in Note 3, “Financial instruments.”

42 | HANWA ANNUAL REPORT 2018 |$ (86,530)75$—

Net recognizedgain or loss

$ (86,530)75$ (86,455)

March 31, 2017
Currency
related
			
				
				

Millions of yen

Contract ornotional amountForeign exchange forward contracts:
Selling:		 				U.S. dollars				 ¥ 71,334
		Other currencies			
787
Buying:				
		U.S. dollars				7,416		Other currencies		
1,010
Currency swap agreements:
Japanese yen received for U.S. dollars		
12,088		Total 				
¥—Due after		Net recognized
one year
Fair value
gain or loss

¥

—
—

(347)
(1)

—
—

Contract ornotional amount

¥

37
(4)

—
—

¥

Commodity
related
			
				
				

¥

¥

(311)
—

(347)
(1)
37
(4)

¥

(311)
(627)

Millions of yen 		Due after		Net recognized
one year
Fair value
gain or loss

Forwards:
Petroleum:						Selling				 ¥3,229 ¥
		Buying				
2,360
Non-ferrous metals:						Selling				
7,877
		Buying
			
4,105
Commodity swap agreements:
Petroleum:
139
		Selling				
			
1,106
		Buying		
Total 				
¥
— ¥

—
—

¥

67
30

¥

67
30

—
—

(192)
(36)

(192)
(36)

—
—
—

(2)
17
—

(2)
		
17 		
(117) 				¥

¥Derivatives in which valuation gains or losses are attributable to counterparties based on the contracts were as follows:
			
				
				

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

Forwards:
Non-ferrous metals:		 				Selling				 ¥ 112,676 ¥		Buying				23,336
		Total 				
¥
— ¥

—
—
—

¥
¥

11,660
(471)
—

¥
¥

11,660(471)
11,188 				The derivatives above are included in “Derivatives: Hedge accounting not applied” in Note 3, “Financial instruments.”(B) The following tables summarize fair value information as of March 31, 2018 and 2017 for the derivatives to which hedge accounting
was applied:
March 31, 2018
Interest rate related

			
		
		

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

40,626

Millions of yen 			Due after
one year¥

35,171

Fair value

¥

(407)

Thousands of U.S. dollars

Contract ornotional amountDue after
one year$ 382,398$ 331,052

Fair value$(3,830)| HANWA ANNUAL REPORT 2018 | 43

Commodity related

			
		
		

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

32,54922,066

March 31, 2017
Interest rate related

			
		
		

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

40,336

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

Millions of yen 			Contract ornotional amountDue after
one year¥

87,88050,928

¥

(147)
(312)

$ 306,372
207,699

Due after
one year

$

—
1,600

Fair value$(1,383)(2,936)

Millions of yen 			Due after
one year¥

35,736

		Fair value

¥

(591)

Millions of yen 			Contract ornotional amount

¥

—
170

Fair value

Thousands of U.S. dollars

Contract ornotional amountDue after
one year

¥

—
254

		
Fair value

¥

132
(181)

6. Inventories
Inventories at March 31, 2018 and 2017 consisted of the following:							Thousands of					Millions of yen
U.S. dollars
					
2018

Merchandise and finished products				¥ 124,289
Work-in-process				
1,559
Raw materials and supplies 				9,028Total				¥ 134,877

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

2017

2018

¥ 101,650
1,917
7,471
¥ 111,039$1,169,888
14,674
84,977$1,269,550

loss were a net loss of ¥139 million ($1,308 thousand) and a net
gain of ¥655 million for the years ended March 31, 2018 and2017, respectively.

7. Pledged assets
At March 31, 2018 and 2017, assets pledged as collateral for loans payable in the amount of ¥594 million ($5,591 thousand) and ¥932
million, respectively, and for guaranty deposits, and for loans of third parties were as follows:							Thousands of					Millions of yen
U.S. dollars
					
2018

For loans payable:				
Other current assets 				
¥—Buildings and structures, net of accumulated depreciation 				
432Land 				2,726Total				¥3,158For guaranty deposits:				
Other current assets				¥43
Investment securities 				5,604Total				¥5,647For loans of third parties:				Investment securities 				¥1,594Total				¥1,59444 | HANWA ANNUAL REPORT 2018 |

2018

2017

¥

¥

50
280
1,112
1,442

$

$

—
4,066
25,65829,725

$

¥

13
5,298
5,311

$

404
52,74853,153

¥
¥

1,705
1,705

$
$

15,00315,003¥

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, 2018 and 2017 was 1.4% and 1.1%,
respectively, regardless of borrowing currencies though the range ofthe interest rates varies by borrowing currencies. There was an
outstanding balance of ¥81,722 million ($769,220 thousand) and¥68,882 million at March 31, 2018 and 2017, respectively.

The Company has entered into a yen denominated domestic
commercial paper program. There was an outstanding balance of¥10,000 million ($94,126 thousand) and ¥5,000 million at March
31, 2018 and 2017, respectively.

Bonds at March 31, 2018 and 2017, consisted of the following:							Thousands of					Millions of yen
U.S. dollars
					
2018

2017

Issued in 2013, 0.74% unsecured straight bonds, due 2018			
¥Issued in 2014, 0.44% unsecured straight bonds, due 2019				Issued in 2015, 0.43% unsecured straight bonds, due 2020				
Issued in 2016, 0.29% unsecured straight bonds, due 2021				Issued in 2017, 0.27% unsecured straight bonds, due 2022				
Issued in 2014, unsecured floating rate bonds, due 2021				Issued in 2016, 0.19% unsecured straight bonds, due 2019				
Total
		
¥

10,000$ 94,126
10,000 		 94,126
10,000 		 94,126
10,000 		 94,126—		 94,126
97 		
715
— 		
941
40,097$ 472,289

10,000¥10,000 		
10,000 		
10,000 		
10,000 		76 		
100 		
50,176¥2018

Long-term loans payable at March 31, 2018 and 2017, consisted of the following:							Thousands of					Millions of yen
U.S. dollars
					
2018

Loans from banks with weighted average interest rates of 0.5% and 0.6%
at March 31, 2018 and 2017, respectively, maturing serially through 2031		
Less amounts due within one year			
Total			

¥ 182,124(34,522)¥ 147,601

2017

2018

¥ 144,612$1,714,269(38,380) 		 (324,943)¥ 106,232$1,389,316

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, 2018 were as follows:
Years ending March 31																			Thousands of							Millions of yen
U.S. dollars

2019					¥ 34,522$ 324,943
2020						27,474
258,6032021						27,134
255,4022022						30,446
286,5772023						30,941
291,236
Thereafter					31,605
297,486
Total					¥ 182,124$ 1,714,269| HANWA ANNUAL REPORT 2018 | 45

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 20 years in which pension conversion rates
vary according to market interest rates.

In the defined benefit corporate pension plans and lump-sum
retirement payment plans which certain subsidiaries have, net
defined benefit liability and retirement benefit expenses are calculated mainly based on the simplified method.
Certain subsidiaries participate in corporate 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
					
2018

2017

2018

Balance at beginning of year			¥ 26,438¥
Service cost				 1,215
Interest cost			
100
Actuarial loss (gain)				
(111)
Benefits paid				(861)
Other		2 		Balance at end of year		¥ 26,786¥

25,687$ 248,851
1,149
11,43696941
277 		
(1,044)(785)		 (8,104)12		
18
26,438$ 252,127(2) Movements in plan assets, except plans applying the simplified method							Thousands of					Millions of yen
U.S. dollars
					
2018

2017

2018

Balance at beginning of year			¥ 22,423¥ 22,099$ 211,059
Expected return on plan assets			
674
662 		
6,344
Actuarial gain (loss)			
(345)(320) 		(3,247)
Contributions paid by the employer				806 		
767		 7,586
Benefits paid		
(861) 		(785)		 (8,104)
Other		3—		28Balance at end of year		¥ 22,700¥ 22,423$ 213,667(3) Movements in liability for defined benefits for plans applying the simplified method							Thousands of					Millions of yen
U.S. dollars
					
2018

Balance at beginning of year			
Defined benefit costs			
Benefits paid			
Contributions paid by the employer		
Other		Balance at end of year		46 | HANWA ANNUAL REPORT 2018 |

¥

¥

502
¥
149
(49)
(22) 		277 		
857
¥

2017

487
$
104 		
(62) 		
(20)		
(5)		
502
$

2018

4,725
1,402
(461)
(207)
2,607
8,066

(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
					
2018

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		
Total net liability (asset) for defined benefits at end of year		

2017

2018

¥

27,077¥ 26,680$ 254,866(22,906)(22,627) 		 (215,606)
4,171
4,052 		39,260772
465 		
7,266
4,943
4,518 		46,526
4,943 		4,518 		46,526
¥
4,943
¥
4,518
$
46,526(5) Retirement benefit costs							Thousands of					Millions of yen
U.S. dollars
					
2018

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		

¥

¥

2017

1,215
¥
100
(674)
1,019
65
149 		
(12) 		
1,864
¥

2018

1,149
$ 11,43696 		941(662) 		(6,344)
1,056 		
9,591
65 		
611
104		 1,402(5)		 (112)1,803$ 17,545(6) Remeasurements of defined benefit plans in other comprehensive income (before applicable tax effects)							Thousands of					Millions of yen
U.S. dollars
					
2018

Past service costs			
¥Actuarial gains and losses			
Total		 ¥

65
785
850

2017

65
$
457 		
523
$

¥
¥

2018

611
7,388
8,000

(7) Remeasurements of defined benefit plans in accumulated other comprehensive income (before applicable tax effects)							Thousands of					Millions of yen
U.S. dollars
					
2018

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			

¥
¥

65
7,789
7,854

2017

¥
¥

130
$
8,574 		
8,705
$

2018

611
73,31573,926| HANWA ANNUAL REPORT 2018 | 47							(8) Breakdown of plan assets
				

2018

2017

Bonds (*1)
34.0%
27.6%
Equity securities (*1)		
16.9
16.5
Cash and cash equivalents		
0.6
4.6
General account assets			
22.2
24.0
Other (*2)			
26.3
27.3
Total			100.0%
100.0%*1. These consist of investment products that use mainly traditional assets and derivatives for hedging purposes.
2. “Other” consists of investments in investment products mainly targeting asset classes other than traditional
assets, 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											

2018

Discount rateLong-term expected rate of return		Expected salary increase rate		

0.4%
3.0
3.4

(C) Defined contribution plans
The Companies were required to contribute ¥251 million ($2,362
thousand) and ¥239 million to the defined contribution plans(including corporate pension fund plans under the multi-employer
pension system in which accounting treatment is implemented in
the same way as the defined contribution plans) for the years
ended March 31, 2018 and 2017, respectively.
(D) Multi-employer pension plans
Year ended March 31, 2018
Description is omitted because the multi-employer corporate pension
plan, in which certain subsidiaries participate, was newly establishedon April 1, 2017 and information about its funded status at March
31, 2018 has not yet been available.
Year ended March 31, 2017
Description is omitted because all the multi-employer welfare pension
plans, in which certain subsidiaries had participated, dissolved by theend of March, 2017 with approval of the Minister of Health, Labourand Welfare. Additional expenses resulting from the dissolution of
the pension plans are not expected to accrue.

48 | HANWA ANNUAL REPORT 2018 |

2017

0.4%
3.0
3.4

10. Income taxes
The Company is subject to a number of taxes based on income,which indicates an aggregate statutory income tax rate in Japanof approximately 30.9% for the years ended March 31, 2018and 2017.

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, 2018 and 2017.

					
2018

2017

30.9%
0.8
1.0
1.5
(0.9)
(0.6)
32.7%

Statutory tax rate:					Tax effect of permanent differences					Valuation allowance recognized for deferred tax assets
				Consolidation adjustment for equity method				
Difference in tax rates for consolidated subsidiaries
				
Other
				
Effective tax rate					

30.9%
0.7
(2.3)
0.2
(0.5)
0.1
29.1%

The significant components of the Companies’ deferred tax assets and liabilities as of March 31, 2018 and 2017 were as follows:							Thousands of					Millions of yen
U.S. dollars
					
2018

2018

2017

Deferred tax assets:
Temporary differences resulting from the merger with consolidated subsidiaries		
¥
2,731
¥
2,731
$ 25,705
Loss on valuation of investment securities, currently not deductible			
1,861
1,890
17,516
Net defined benefit liability				
1,493
1,345
14,053
Loss on sale-repurchase agreements of land				
1,293
1,293
12,170Tax losses carried forward				
1,292
1,076
12,161
Loss on impairment of non-current assets				
795
795
7,483
Accrued bonuses to employees				
761
705
7,163
Land revaluation difference, net of taxes unrealized loss				
225
225
2,117
Other				
4,026
3,807
37,895
Total deferred tax assets				
14,482
13,873
136,314
Valuation allowance				(10,131)(8,840)(95,359)
Net deferred tax assets				
4,351
5,032
40,954
Deferred tax liabilities:						Valuation difference on available-for-sale securities				
6,342
5,692
59,695Land revaluation difference, net of taxes unrealized gain				
1,633
1,634
15,370
Other				
2,156
2,502
20,293
Total deferred tax liabilities				
10,132
9,830
95,368Net deferred tax liabilities			¥ (5,781)¥ (4,797)$ (54,414)

Deferred tax assets and deferred tax liabilities were included in the consolidated balance sheets at March 31, 2018 and 2017, respectively,
as follows:							Thousands of					Millions of yen
U.S. dollars
					
2018

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

¥

1,891
103
0
7,776

2018

2017

¥

1,919
283
0
7,000

$

17,799969
073,192| HANWA ANNUAL REPORT 2018 | 49

11. Business Combination
Transactions under common control
Capital increase of subsidiary through third-party allotment(A) Outline of business transaction(1) Name and business components of the company acquired
Japan South Africa Chrome Company Ltd. (“Japan South Africa
Chrome”)
Investment and management of securities and business transactions executed through holding shares and/or equity of acompany of metal mining industry(2) Business combination date
April 1, 2017 (deemed acquisition date)					(3) Legal form for business combination
Capital increase of subsidiary through third-party allotment
					(4) Name of company after business combination
Not changed(5) Other matters related to overview of transaction
On April 3, 2017, the Company established a wholly-owned
subsidiary, Japan South Africa Chrome, with the intention of
acquiring the stakes of SAMANCOR CHROME HOLDINGSPROPRIETARY LTD. (“SAMANCOR”) and obtaining the right tosupply Ferro-Chromium for Japanese market. The capital increase
was aimed for procuring funds for the acquisition of the stock of
SAMANCOR and smooth business operations.
As a result of the transaction, the ownership ratio held by
the Company was changed from 100% to 50.1%.		
					(B) Overview of accounting treatment adopted
It is accounted for as a transaction under common control basedon the “Accounting Standard for Business Combinations” and the“Guidance on the Accounting Standard for Business Combinations
and Accounting Standard for Business Divestitures.”					(C) Matters related to additional acquisition of stocks of subsidiary: details of the acquisition cost were as follows:															Millions of yen

Thousands of
U.S. dollars

Acquisition consideration (Cash)					¥ 13,635
Acquisition cost					¥ 13,635$ 128,341$ 128,341

50 | HANWA ANNUAL REPORT 2018 |12. Net assets
Net assets comprise three subsections, which are shareholders’equity, accumulated other comprehensive income and non-controlling interests.
Under the Japanese Companies Act (“the Act”), the entire
amount of the issue price of shares is required to be accounted for ascommon stock, although a company may, by resolution of its Boardof Directors, account for an amount not exceeding one-half of theissue price of the new shares as additional paid-in capital.
Under the Act, in cases in which a dividend distribution of surplus
is made, the smaller of an amount equal 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 asadditional paid-in capital or legal earnings reserve. Legal earnings
reserve and additional paid-in capital are included in retained earnings and legal capital surplus, respectively, in the accompanying
consolidated balance sheets.
Under the Act, legal earnings reserve and additional paid-in
capital are able to eliminate or reduce a deficit by a resolution of theshareholders’ meeting.
Under the Act, 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 non-consolidated financial statementsof the Company in accordance with Japanese laws and regulations.
At the annual shareholders’ meeting held on June 22, 2018, theshareholders approved cash dividends of ¥75.0 per share ($0.70)
amounting to ¥3,047 million ($28,680 thousand). This appropriation
had not been accrued in the consolidated financial statements as ofMarch 31, 2018. 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, 2018, the carrying amount of the land after theabove one-time revaluation exceeded the market value by ¥741 million($6,974 thousand).

13. Leases
Operating leases 									As Lessee 									
Obligations under non cancelable operating leases as of March 31, 2018 and 2017 were as follows:												Thousands of
				
			
		
Millions of yen
U.S. dollars
					
2018

Due within one year
			
¥
551
Due after one year				
7,458
Total				¥ 8,009

2018

2017

¥
¥

529
7,834
8,364

$
$

5,186
70,19975,385

14. Contingent liabilities
At March 31, 2018 and 2017, the Companies were contingently liable as follows:							Thousands of					Millions of yen
U.S. dollars
					
2018

Export letters of credit and trade notes (including export bills) discounted 			Electronically recorded monetary claims discounted				Trade notes endorsed				
Guarantees of indebtedness				

¥

9,864
79
233
4,859

2018

2017

¥

6,071
—
194
2,076

$

92,846743
2,193
45,736| HANWA ANNUAL REPORT 2018 | 51

15. Gain on sales of property and equipment
The following table summarizes gain on sales of property and equipment in the years ended March 31, 2018 and 2017:							Thousands of					Millions of yen
U.S. dollars
					
2018

Land				¥
—Other 				—Total				
¥
—

2018

2017

¥

869
7
876

¥

$

—
—
—

$

16. Reversal of provision for loss on business of subsidiaries and associates
Year ended March 31, 2018
The reversal of provision for loss on business of subsidiaries and associates has been recorded because the previously anticipated expenses suchas debt guarantees for a subsidiary were no longer expected.
Year ended March 31, 2017
Not applicable.

17. Loss on sales of property and equipment
The following table summarizes loss on sales of property and equipment in the years ended March 31, 2018 and 2017:							Thousands of					Millions of yen
U.S. dollars
					
2018

Buildings and structures				
¥
—

2018

2017

¥

227

$

—

18. Loss on liquidation of businessYear ended March 31, 2018
Not applicable.
Year ended March 31, 2017
Due to the closing of some business facilities, the Companies recorded a loss on liquidation of business of ¥253 million.
The loss consisted of loss on impairment of non-current assets of ¥111 million, estimated removal cost of ¥109 million, loss on disposalof property and equipment of ¥20 million, and other costs of ¥11 million.
Details of the loss on impairment of non-current assets were as follows:													Millions of yen							
Location
Description			

Sodegaura, Chiba
Sodegaura yard				Total				Buildings andstructures

¥
¥

111
111

Other

¥
¥

Total

0
0

¥
¥

111
111

The Companies reduced the book value of the non-current assets that were impaired to the memorandum values.
For the purpose of recognition and measurement, the Companies grouped the non-current assets based principally on the location of
the business entity to which the assets belonged, and each idle asset was treated as a separate property.

52 | HANWA ANNUAL REPORT 2018 |19. Provision for product warranties
Year ended March 31, 2018
Provision for product warranties was recorded to cover probable product warranties. The provision was recognized based on individually estimatedamounts.
Year ended March 31, 2017
Not applicable.

20. Other comprehensive income
Years ended March 31, 2018 and 2017
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

					
2018

Valuation difference on available-for-sale securities, net of taxes:				
Increase (decrease) during the year			¥
2,220
Reclassification adjustments 			
190
Sub-total, before tax				2,411
Tax expense (benefit)				
648
Sub-total, net of tax				
1,762
Deferred gains or losses on hedges, net of taxes:				
Increase (decrease) during the year			(465)
Reclassification adjustments 			22
Sub-total, before tax				(443)
Tax expense (benefit)				
(131)
Sub-total, net of tax				(311)
Foreign currency translation adjustments:
Increase (decrease) during the year			
316
Reclassification adjustments 			—Sub-total, before tax				316
Tax expense (benefit)				
—Sub-total, net of tax				
316
Remeasurements of defined benefit plans, net of taxes:
Increase (decrease) during the year			
(225)
Reclassification adjustments 			
1,076
Sub-total, before tax				
850
Tax expense (benefit)				
263
Sub-total, net of tax				
587
Share of other comprehensive income of entities accounted for using equity method:
Increase (decrease) during the year			
3,057
Total other comprehensive income			¥
5,411

Thousands of
U.S. dollars
2018

2017

¥

¥

7,542
(663)
6,879
2,324
4,555

$

20,896		
1,788
22,693
6,099
16,585

(286)
1,036
749
231
518

(4,376)207(4,169)(1,233)(2,927)

(723)
—
(723)
—
(723)

2,974
—
2,974
—
2,974

(602)
1,125
523
162
360

(2,117)
10,128
8,000
2,475
5,525

(154)
4,557

$

28,77450,931| HANWA ANNUAL REPORT 2018 | 53

21. Cash flow information(A) Major breakdown of assets and liabilities of companies which became newly consolidated subsidiaries through share acquisition.
Year ended March 31, 2018
					The assets and liabilities of newly consolidated subsidiaries at the time of consolidation and the reconciliation between the acquisition cost ofsharesand net cash proceeds from the purchase of shares were as follows:																										Millions of yen

Thousands of
U.S. dollars¥ 11,218
3,044
1,808
(6,842)(7,442)(46)¥ 1,739(2,915)
Net cash proceeds from purchase of shares of subsidiaries resulting in change in scope of consolidation		¥ 1,176$ 105,591
28,652
17,018(64,401)(70,048)(432)$ 16,368(27,437)$ 11,069

Current assets
Noncurrent assets
Goodwill
Current liabilities
Noncurrent liabilities
Non-controlling interests
Acquisition costs of shares
Cash and cash equivalents of acquired companies

Year ended March 31, 2017
Not applicable.
(B) Significant non-cash transactions
Significant non-cash transactions in the years ended March 31, 2018 and 2017 were as follows:							Thousands of					Millions of yen
U.S. dollars
					
2018

Conversion of long-term loans receivable to investment securities				

¥

2018

2017

—

¥

3,682

$

—

22. 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 main products and services that fall under these reportablesegments are listed as follows. (Shown in parentheses are contentsof services.)54 | HANWA ANNUAL REPORT 2018 |Steel: Steel bars and shapes, steel plates and sheets, special steels,
wire products, steel pipes, steelmaking raw materials (steel
processing and storage)
Metals and alloys: Nickel, chromium, silicon, manganese, steel alloys
Non-ferrous metals: Aluminum, copper, zinc (recycling business)
Foods: Seafood, meat products
Petroleum and chemicals: Petroleum products, industrial chemicals,
chemicals, refuse plastics and paper fuelOverseas 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.

Net sales, profits, assets and others by reportable segments for the year ended March 31, 2018 were as follows:Year ended March 31, 2018

				
		

Millions of yen

Reportable segments

			
		
Steel

Metalsand alloys

Non-ferrous		
metalsFoods

Petroleum
Overseas		
and chemicals sales subsidiaries
Total

Other
business

Total

Adjustment

Consolidated

Net sales		Intersegment		
Total		

¥ 920,269 ¥ 198,330
11,6784,869¥ 931,948 ¥ 203,200¥ 97,356
1,704¥ 99,060¥ 98,876 ¥ 233,926 ¥ 167,388 ¥ 1,716,148
601
6,768
54,28979,912¥ 99,477 ¥ 240,695 ¥ 221,678 ¥ 1,796,060¥ 74,970 ¥ 1,791,118 ¥— ¥ 1,791,118
1,628
81,541(81,541)—¥ 76,598 ¥ 1,872,659 ¥ (81,541) ¥ 1,791,118

Segment income

¥

¥

¥

¥

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¥ 411,990 ¥ 215,003
3,197
98
326
56
182
1,227
2,358
2,607

20,324 ¥

4,958

2,038

¥ 23,545
240
67
5
270

1,057 ¥

2,164 ¥

¥ 41,945 ¥
33
—
20
391

47,925 ¥
211
82
52
253

950 ¥

31,49435,956 ¥ 776,367
62
3,842
—
532
110
1,599
685
6,568

691 ¥

32,185 ¥(6,683) ¥25,502¥ 29,978 ¥ 806,345 ¥ 55,620 ¥ 861,965
304
4,147
93
4,240
—
532
—
532
10
1,610
137
1,747
204
6,772
(3,527)
3,245

242

(513)

—

—

—

15

(255)

127

(127)

—

(127)

4,023

38,125

—

—

—

107

42,257905

43,162—

43,162

4,803

47

127

11

99

48

5,137

760

5,898

42

5,941

Adjustment

Consolidated

Year ended March 31, 2018

				
		

Thousands of U.S. dollars

Reportable segments

			
		
Steel

Metalsand alloys

Non-ferrous		
metalsFoods

Petroleum
Overseas		
and chemicals sales subsidiaries
Total

Other
business

Total

Net sales		Intersegment		
Total		

$ 8,662,170 $ 1,866,810
109,92045,830$ 8,772,100 $ 1,912,650$ 916,378
16,039$ 932,417$ 930,685 $ 2,201,863 $ 1,575,564 $ 16,153,501 $ 705,666 $ 16,859,167 $— $16,859,167
5,657
63,704
511,003752,183
15,323
767,516 (767,516)—$ 936,342 $ 2,265,577 $ 2,086,577 $ 16,905,685 $ 720,990 $ 17,626,684 $ (767,516) $16,859,167

Segment income$ 191,302 $46,667$ 19,182$

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		

$ 3,877,917 $ 2,023,748
30,092
922
3,068
527
1,713
11,54922,19524,538$ 221,620
2,259
630
47
2,541

$ 394,813 $ 451,101 $ 338,441 $ 7,307,671 $ 282,172 $ 7,589,843 $ 523,531 $ 8,113,375
310
1,986
583
36,163
2,861
39,034875
39,909
—
771
—
5,007
—
5,007
—
5,007
188
489
1,035
15,05094
15,154
1,289
16,443
3,680
2,381
6,447
61,822
1,920
63,742 (33,198)
30,544

9,949 $

20,368 $

8,942 $

296,442 $6,504 $

302,946 $ (62,904) $240,041

2,277(4,828)

—

—

—

141

(2,400)

1,195(1,195)—(1,195)37,867

358,857

—

—

—

1,007

397,750

8,518

406,268—

406,268

45,208

442

1,195

103

931

451

48,352

7,153

55,515395

55,9201. “Other business” represents businesses such as lumber section
and machinery section which are not included in the above reportable segments.
2. Adjustments are as follows:(1) Adjustments of negative ¥6,683 million ($62,904 thousand)for segment income include intersegment elimination andGroup costs that were not allocated to reportable segments.
These Group costs consist mainly of expenses of administrative
departments.
(2) Adjustments for segment assets amounting to ¥55,620 million($523,531 thousand) include Group assets that were notallocated 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¥93 million ($875 thousand) include mainly depreciation andamortization expenses of Group assets.
(4) Adjustments for interest income and interest expense amounting
to ¥137 million ($1,289 thousand) and negative ¥3,527 million($33,198 thousand) include intersegment elimination, revenue
and expense that were not allocated to reportable segments.
(5) Adjustments for increases in tangible fixed assets and intangible fixed assets amounting to ¥42 million ($395 thousand)are increases in Group assets.

| HANWA ANNUAL REPORT 2018 | 55

Net sales, profits, assets and others by reportable segments for the year ended March 31, 2017 were as follows:Year
ended March 31, 2017
						

Millions of yen

Reportable segments

			
		
Steel

Metalsand alloys

Non-ferrous		
metalsFoods

Petroleum
Overseas		
and chemicals sales subsidiaries
Total

Other
business

Total

Adjustment

Consolidated

Net sales			Intersegment		
Total		

¥ 775,725 ¥ 131,413 ¥ 77,674
11,1673,210
1,532¥ 786,892 ¥ 134,624 ¥ 79,206¥ 88,671 ¥ 257,165 ¥ 111,993 ¥ 1,442,643
339
7,299
62,287
85,837¥ 89,011 ¥ 264,465 ¥ 174,280 ¥ 1,528,481¥ 71,394 ¥ 1,514,037 ¥— ¥ 1,514,037
1,660
87,498(87,498)—¥ 73,054 ¥ 1,601,535 ¥ (87,498) ¥ 1,514,037

Segment income		

¥

¥

¥

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		

¥ 371,789 ¥ 114,436 ¥ 21,772
2,970
121
267
140
33
44
190
790
0
2,008
1,171
180

18,082 ¥

1,413 ¥

1,084

2,872 ¥

2,461 ¥

¥ 34,074 ¥
41
—
32
324

41,128 ¥
42
—
50
276

196 ¥

26,11132,305 ¥ 615,506
50
3,494
—
217
73
1,138
298
4,260

1,526 ¥

27,638 ¥(4,731) ¥22,907¥ 27,394 ¥ 642,900 ¥ 51,332 ¥ 694,232
362
3,857
114
3,971
—
217
—
217
10
1,148
90
1,238
167
4,427
(1,874)
2,553

(66)

—

—

—

—

(120)

(186)

97

(88)

—

(88)

2,671

—

—

—

—

48

2,719

778

3,498

—

3,498

3,479

69

310

58

36

84

4,038

345

4,383

51

4,435

(3) Adjustments for depreciation and amortization amounting
to ¥114 million include mainly depreciation and amortization
expenses of Group assets.
(4) Adjustments for interest income and interest expense amounting
to ¥90 million and negative ¥1,874 million include intersegment
elimination, revenue and expense that were not allocated toreportable segments.
(5) Adjustments for increases in tangible fixed assets and intangible fixed assets amounting to ¥51 million are increases inGroup assets.

1. ”Other business” represents businesses such as lumber section
and machinery section which are not included in the above reportable segments.
2. Adjustments are as follows:(1) Adjustments of negative ¥4,731 million for segment income
include intersegment elimination and Group costs that were
not allocated to reportable segments. These Group costs
consist mainly of expenses of administrative departments.
(2) Adjustments for segment assets amounting to ¥51,332 million
include Group assets that were not allocated to reportablesegments. These Group assets consist mainly of cash and cash
equivalents, investment securities and assets of administrative
departments.

(B) Related information
Product information
Net sales information by products for the years ended March 31, 2018 and 2017 were as follows:Year
ended March 31, 2018							 Metals		Steeland alloys

Net sales to external customers¥

987,386¥

169,309¥

155,056

Year
ended March 31, 2018							 Metals		Steeland alloys

Net sales to external customers$ 9,293,919$ 1,593,646

Millions of yen

Non-ferrous		Petroleum		metalsFoods
and chemicals
Other

¥

56 | HANWA ANNUAL REPORT 2018 |

806,203¥

139,846284,363¥

94,823¥ 1,791,118

Thousands of U.S. dollars$ 1,459,487$

Year ended March 31, 2017
				
¥

¥

Non-ferrous		Petroleum		metalsFoods
and chemicals
Other

			 Metals		Steeland alloys

Net sales to external customers

100,178

942,940$ 2,676,609$

892,535

116,981

Total$16,859,167

Millions of yen

Non-ferrous		Petroleum		metalsFoods
and chemicals
Other

¥

Total

¥

88,768¥279,812¥82,425

Total¥ 1,514,037

Geographic information(1) Net sales in different countries for the years ended March 31, 2018 and 2017 were as follows:Year ended March 31, 2018

					Millions of yen

					
Japan

Net sales to external customers 				Asia¥ 1,302,944

¥

Other

386,262¥

101,911

Year ended March 31, 2018					Thousands of U.S. dollars

					
Japan

Asia

Net sales to external customers 				$ 12,264,156$

959,252

Total$16,859,167

Millions of yen

					
Japan

Net sales to external customers 				¥ 1,791,118

Other$ 3,635,749

Year
ended March 31, 2017
					

Total

Asia

¥ 1,136,629

¥

Other

300,439¥

76,969Total¥ 1,514,037(2) Property and equipment in different countries for the years ended March 31, 2018 and 2017 were as follows:Year ended March 31, 2018
The geographic information on property and equipment was omitted because the amount of property and equipment located in Japanexceeded 90% of the the total amount reported in the consolidated balance sheets.
Year ended March 31, 2017

					Millions of yen

					
Japan

Property and equipment				

¥

Asia

53,140

¥

6,251

Other

¥

100

Total

¥

59,492

Loss on impairment of non-current assets in reportable segments
Year ended March 31, 2018
There was no loss on impairment of non-current assets for the year ended March 31, 2018.
Year ended March 31, 2017
Loss on impairment of non-current assets of ¥111 million was accrued from the assets in the metals and alloys segment and recorded as partof loss on liquidation of business on the consolidated statements of income.
Outstanding balance of goodwill and amortization of goodwill in reportable segments
Outstanding balance of goodwill for the years ended March 31, 2018 and 2017 were as follows:Year ended March 31, 2018
					
		
				
			
Steel

Balance at end of year		¥ 1,629 ¥Millions of yen

Reportable segments
Metalsand alloys

Non-ferrous		
Petroleum
Overseas		
metalsFoods
and chemicals sales subsidiaries
Total

90 ¥

123 ¥

— ¥

219 ¥

—

¥

2,063 ¥

Other
business—

Adjustment

Total

¥

2,063

— ¥

Year ended March 31, 2018
					
		
				
			
Steel

Balance at end of year		$ 15,333 $Thousands of U.S. dollars

Reportable segments
Metalsand alloys

Non-ferrous		
Petroleum
Overseas		
metalsFoods
and chemicals sales subsidiaries
Total

847 $

1,157 $

— $

2,061

$

—

$ 19,418 $Otherbusiness

Adjustment

—

$

Total

— $ 19,418

The information of amortization of goodwill was omitted here because it has been noticed in the overview of the reportable segments.

| HANWA ANNUAL REPORT 2018 | 57

Year ended March 31, 2017
		

		

		

Millions of yen

Reportable segments

				
			
Steel

Metalsand alloys

Balance at end of year		¥148 ¥Non-ferrous		
Petroleum
Overseas		
metalsFoods
and chemicals sales subsidiaries
Total

66 ¥

110 ¥

—

¥

—

¥

—

¥

Other
business

325 ¥Adjustment

—

¥

Total

— ¥

325

The information of amortization of goodwill was omitted here because it has been noticed in the overview of the reportable segments.

23. Related party information(A) Related party transactions
Year ended March 31, 2018

Type

Name

Location

Capital orinvestments

Business or
profession

Company
with amajority of¥30 million Processing
and salesvoting rights Nakajo Co., Sanjo-shi
Niigata($282
of steelLtd. (*1)
held byPrefecture
thousand)products
executive or
close
relative

Voting rights held(%)—

Relationship withthe relatedparties

Businesstransactions

Transactions

AmountAccount name

Balance as ofMarch 31, 2018

Sales ofsteel
products(*2)¥10 million($94
thousand)
(*3)

—

—

*1. 100% directly held by a close relative of Mr. Ryuichi Takaba, an executive officer of Hanwa Co., Ltd.
2. The terms and conditions applicable to the above transaction have been determined by mutual agreement of both parties.
3. Consumption taxes are not included in the amount of transaction .
Year ended March 31, 2017
Not applicable.
(B) Notes on significant affiliates
A summary of the financial statements from April 1, 2017 to December 31, 2017 of SAMANCOR CHROME HOLDINGS PROPRIETARY LTD., asignificant affiliate for the year ended March 31, 2018, was as follows:							Thousands of					Millions of yen
U.S. dollars
					
2018

Total current assets				 ¥ 59,799
Total noncurrent assets				78,604
Total current liabilities				
32,211
Total noncurrent liabilities				53,242
Total net assets				
52,949100,010
Net sales				
Income before income taxes				
5,357
Net income				
3,927

2018

2017

¥

—
—
—
—
—
—
—
—

$ 562,867
739,871
303,190
501,148498,390
941,359
50,42336,963

SAMANCOR CHROME HOLDINGS PROPRIETARY LTD. became an equity-method affiliate from the year ended March 31, 2018. The periodof its financial statements for which the equity method has been applied was from April 1, 2017 to December 31, 2017.

58 | HANWA ANNUAL REPORT 2018 |Independent Auditor’s Report| HANWA ANNUAL REPORT 2018 | 59

Global Network

ASIA

EUROPEMIDDLE
EAST

LondonKuwaitAmsterdam

JeddahViennaDammamDubai
Istanbul

AFRICA

Johannesburg

Seoul
Busan
Beijing
Qingdao
DalianTianjin
Shanghai
Chongqing
Fuzhou
Wuhan
Taicang
Guangzhou
DongguanZhongshan
Hong Kong

60 | HANWA ANNUAL REPORT 2018 |Taipei
Kaohsiung
Bangkok
Chonburi
YangonKuala Lumpur
Singapore
Ho Chi Minh
Hanoi
Jakarta
ManilaMumbaiNew Delhi
ChennaiAMERICAS

New York
ChicagoHoustonSeattleLos Angeles
San Diego

VancouverMexico City
CelayaGuamSantiago
Bogota

JAPAN

Osaka
Tokyo
NagoyaKyushuHokkaido
TohokuKitakanto
Niigata
Chugoku
Hachinohe

Mito
AtsugiShizuoka
Okayama
Fukuyama
Okinawa
Hokuriku
Wakayama| HANWA ANNUAL REPORT 2018 | 61

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

TOKYO

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

NAGOYAJP Tower Nagoya Bldg., 1-1-1, Meieki, Nakamura-ku, Nagoya, Aichi 450-6335, Japan
Tel: 81-52-977-3600 Fax: 81-52-977-3630

KYUSHU

Taihaku Center Bldg., 2-19-24, Hakata-ekimae, Hakata-ku, Fukuoka 812-0011, Japan
Tel: 81-92-471-7121 Fax: 81-92-471-7060

HOKKAIDO

NREG 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

KITAKANTO1059-3, Tanakamachi, Isesaki, Gunma 372-0814, Japan
Tel: 81-270-27-4510 Fax: 81-270-27-4550

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

CHUGOKU

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

HACHINOHE

Kyoei Hachinohe Bancho Bldg., 9-5, Bancho, Hachinohe, Aomori 031-0031, Japan
Tel: 81-178-73-1170 Fax: 81-178-22-2211

MITO

Okaba Mito Sannomaru Bldg., 1-3-35, Minami-machi, Mito, Ibaraki 310-0021, Japan
Tel: 81-29-300-0351 Fax: 81-29-226-8230

ATSUGI

Nihonseimei Hon-Atsugi Bldg., 1-2-1, Asahi-cho, Atsugi, Kanagawa 243-0014, Japan
Tel: 81-46-226-9005 Fax: 81-46-227-0121

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

425 North Martingale Road, Suite 1120, Schaumburg, Illinois 60173, U.S.A.
Tel: 1-847-278-7360 Fax: 1-847-285-1369

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

HANWA AMERICAN CORP. SEATTLE BRANCH

801 South Fidalgo Street, Suite 110, Seattle, WA 98101, U.S.A.
Tel: 1-206-622-2102 Fax: 1-206-622-6464

HANWA AMERICAN CORP. LOS ANGELES BRANCH
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 Fax: 57-1-704-7710

SEATTLE SHRIMP & SEAFOOD COMPANY, INC.
801 S. Fidalgo Street, Suite 100, Seattle, WA 98108, U.S.A.
Tel: 1-206-812-2824 Fax: 1-206-812-2840

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# 1601-1166 Albermi Street, Vancouver, B.C. V6E 3Z3, Canada
Tel: 1-604-876-1175 Fax: 1-604-876-1085

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

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

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

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

HANWA GUAM CORPORATION

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

HANWA CHILE LIMITADA

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

SHIZUOKA

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

ASIA

OKAYAMA

Kurashiki Ark Square, 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

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

HANWA (KOREA) CO., LTD.

Room 3205, 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.

Suite A101, 10/F, Twin Towers (East), B12 Jianguomenwai Ave. Chao Yang District,
Beijing, P.R. China
TEL:86-10-5123-5113 FAX:86-10-5123-5122

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.

62 | HANWA ANNUAL REPORT 2018 |

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, 9th Floor, Jl. Jend. Sudirman Kav, 10-11 Jakarta 10220, Indonesia
Tel: 62-(0)21-5785-3033 Fax: 62-(0)21-5785-3045
MM2100 Industrial Town, Block QQ-5, West Cikarang, Bekasi 17520, Indonesia
Tel: 62-21-8998-1791 Fax: 62-21-8998-1794
14th Floor, 6788 Ayala Avenue, Oledan Square, 1226, Makati City, Metro Manila, Philippines
Tel: 63-2-817-5624 Fax: 63-2-817-5956

HANWA INDIA PRIVATE LTD. MUMBAI HEAD 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. NEW DELHI BRANCH 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. 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 CO., (HONG KONG) 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

TAIWAN 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

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 B-6F, Strawinskylaan 625, 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. 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.

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 STEEL SERVICE (THAILAND) CO.,LTD.

HANWA MIDDLE EAST FZE

Dubai Airport Free Zone, East Wing, Building, No.6E, No.549,
P.O. BOX 293873, Dubai, U.A.E.
Tel: 971-4-701-7565 Fax: 971-4-701-7560

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 MIDDLE EAST FZE KUWAIT OFFICEHANWA CO., LTD., MYANMAR REPRESENTATIVE OFFICEHANWA MIDDLE EAST FZE JEDDAH SATELLITE OFFICE

Unit 7&9, 11th Floor, HAGL Myanmar Centre Tower 1, 192, Kaba Aye Pagoda Road,
Bahan Towenship, Yangon, Myanmar
Tel: 95-1-9345-379 Fax: 95-1-9345-379

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

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

Unit 4-1, 19th Floor, A&B Tower, 76 Le Lai Street, Ben Thanh Ward, District 1, Ho Chi Minh
City, S.R. Vietnam
Tel: 84-28-3822-5715 Fax: 84-28-3822-5725

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. HA NOI BRANCH OFFICE

Unit 1, 24th Floor, TNR Tower, 54A Nguyen Chi Thanh Street, Dong Da District,
Ha Noi, Vietnam
Tel: 84-24-7300-9155 Fax: 84-24-7300-9159

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 2018 | 63Corporate Information (As of March 31, 2018)
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: 3,576

Tokyo Head Office

4-3-9, Fushimi-machi, 			

Nagoya Branch Office JP Tower Nagoya Bldg.,
1-1-1, Meieki, Nakamura-ku,
Nagoya, Aichi 450-6335, Japan
Tel: +81-52-977-3600
Fax: +81-52-977-3630

Chuo-ku, Osaka 541-8585, Japan

Kyushu Branch OfficeNon-consolidated: 1,306
Address
Osaka Head Office

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

HK Yodoyabashi Garden Avenue Bldg.,

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

Taihaku Center Bldg. 2-19-24, 		
Hakata-ekimae, Hakata-ku,
Fukuoka 812-0011, Japan
TEL: +81-092-471-7121
FAX: +81-092-471-7060

Board of Directors, Corporate Auditors and Executive Officers (As of June 29, 2018)
BOARD OF DIRECTORS
President*

Hironari Furukawa

Director,*
Executive Vice President andExecutive Officer
Hiroshi Serizawa
Directors,
Senior Managing
Executive Officers

Outside Directors

Directors,
Managing Executive
Officers

Yasumichi Kato

古川 弘成

芹澤

浩

加藤 恭道

Hidemi Nagashima

長嶋 日出海Yoichi Nakagawa

中川 洋一

Yasuharu Kurata

倉田 泰晴

Osamu Seki関收Ryuji Hori

堀龍兒Tatsuya Tejima

手島 達也

Hiromasa Yamamoto

山本 浩雅

Yasushi Hatanaka

畠中 康司

Yoichi Sasayama

篠山 陽一

Chiro Ideriha

出利葉知郎

Takatoshi Kuchiishi

口石 隆敏

Hideo Kawanishi

川西 英夫

Akihiko Ogasawara

小笠原朗彦

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)
Outside Corporate
Auditors*Representative Director

64 | HANWA ANNUAL REPORT 2018 |EXECUTIVE OFFICERS
Senior Managing
Executive Officer

Hiroshi Ebihara

海老原 弘Managing
Executive Officer

Keiji Matsubara

松原 圭司

Executive Officers

Isao Kimizu

木水

Hideo Kobayashi

小林 秀雄

勲

Yoshimasa Ikeda

池田 佳正

Ryuichi Takaba

竹迫 隆一

Yoshifumi Miyano

宮野 好史

Toshihiro Kawaguchi

川口 敏弘

Hideki Kataoka

片岡 秀樹

Shoji Shirasawa

白澤 省二

Yukiaki Takada

高田 幸明

Takeshi Amano天野毅Stock Information

Japanese financial
institutions
34.9%

Foreigncorporations
25.2%

Individuals and Other domestic
otherscorporations
22.0%
12.9%

Japanese financial
institutions
34.9%

Foreign
Individuals and Other domestic
corporations
otherscorporations
Japanese22.0%
brokerage firms12.9%
Treasury stock
25.2%
1.0%
4.0%

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 DividendInterim dividend: September 30

PayoutYear-end dividend: March 31

Authorized Shares

114,000,000 shares

Japanese brokerage firms
1.0%

Breakdown by Size of Holding

Issued and Outstanding Shares 42,332,640 shares
Number of Shareholders

Treasury stock
4.0%

–100
7.8%

100–5,000
85.6%

5,000–100,000
5.7%

–100
7.8%

100–5,000
85.6%

5,000–100,000
5.7%
100,000–
0.9%

7,586

Note: The Company consolidated its common shares at a ratio of five-to-one on October
1, 2017. Accordingly, the total number of authorized shares is 114,000,000, andthe total number of issued and outstanding shares is 42,332,640.

Principal Shareholders
Name of Shareholder

100,000–
0.9%

Number of Shares(thousands)

Percentage of Total
Issued Share (%)

3,673
2,565
1,613
1,560
1,526
979
820
785
703
600

9.04
6.31
3.97
3.84
3.76
2.41
2.02
1.93
1.73
1.48

Japan Trustee Services Bank, Ltd. (Trust Account)...........................................................
The Master Trust Bank of Japan, Ltd. (Trust Account) .....................................................
Hanwa Clients’ Stock Investment Association.................................................................
Japan Trustee Services Bank, Ltd. (Trust Account 9)........................................................
Sumitomo Mitsui Banking Corporation..........................................................................
JP MORGAN CHASE BANK 385632................................................................................
Hanwa Employees’ Stock Investment Association...........................................................
GOVERNMENT OF NORWAY..........................................................................................
Japan Trustee Service Bank, Ltd. (Trust Account 5)..........................................................
Nippon Steel & Sumitomo Metal Corporation................................................................
Note: The Company holds 1,694,375 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
(¥)

(¥)

6,000

25,0005,000

20,0004,000

15,00010,0003,000

Trading Volume(Millions of shares)

6

2,000

4
2
4
5
2016

6

7

8

9

10

11

12

1
2
2017

3

4

5

6

7

8

9

10

11

12

1
2
2018

3

0

Note: Retrospectively adjusted to reflect the five-to-one share consolidation on October 1, 2017.						| HANWA ANNUAL REPORT 2018 | 65http://www.hanwa.co.jp

2018.8 Printed in Japan