August 9, 2004

1. Accounting methods employed in preparation of quarterly report

(1) Simplified accounting method: not employed
(2) Differences in accounting methods from those employed for the previous term: none
(3) Changes in scope of consolidation and application of equity methods: three subsidiaries are newly consolidated and one affiliate is excluded from the scope of application of the equity method.
(4) Quarterly results are not audited by certified public accountants.

2. Business results for the first quarter (April 1 to June 30, 2004)
(1) Results of operations

(amounts less than \1 million are omitted; y-o-y % changes)
Net sales Operating income Ordinary income Net income (loss)
1st qtr. of fiscal 2004
206,554 8.0%
3,875 81.4%
2,562 147.3%
1,226 --
1st qtr. of fiscal 2003
191,202 --
2,136 --
1,036 --
-93 --
(Reference) previous full term
818,473
13,554
10,706
3,247

Earnings (net loss) per share (\) Diluted EPS (\)
1st qtr. of fiscal 2004
3 61
3 50
1st qtr. of fiscal 2003
-0 31
--
(Reference)
previous full term
10 13
--

(Note) Excluding those for net sales, figures have never been disclosed on a quarterly basis. For comparison, however, the Company has calculated the relevant figures for the first quarter of the previous term.

Supplementary information

Background Information on Business Performance of Kanematsu Group
Thanks to the positive impact of the U.S. and Chinese economies, both of which were vigorous, the Japanese economy continued to record a steady recovery as per expectations, driven principally by exports. Industries in the ICT (information and communication technology) sector were particularly active, led primarily by digital consumer appliances.
In these circumstances, the Kanematsu Group's sales in the first quarter of fiscal 2004 posted an overall year-on-year increase of \15.4 billion, reaching \206.6 billion, on the strength of sharp growth in export sales and revenue from third-country transactions by our Information Technology and Iron & Steel businesses. In information technology, strong growth was posted in export transactions involving semiconductors and semiconductor manufacturing equipment. In the domestic market, our mobile phone business continued to record good results, with revenues up 18% over the same quarter of the previous year.
In the Iron & Steel business, too, exports to the Middle East maintained their favorable trend, in addition to which sales within the United States staged a sharp recovery, up 30% year-on-year.
As we maintained our gross trading profit ratio at the high level of 8%, the aforementioned increases in revenues translated directly into growth in profits. Gross trading profit reached \16.5 billion, and operating income rose \1.7 billion year-on-year to\3.9 billion. As a result, ordinary income registered a year-on-year increase of \1.5 billion to \2.6 billion, and we posted a net income of \1.3 billion, a major improvement compared with the net loss of \93 million registered in the same quarter of the previous year.
In summary, business performance on a consolidated basis got off to a good start in fiscal 2004.

Total assets
(\ million)
Shareholders' equity
(\ million)
Equity ratio (%) Equity per share (\)
As of June 30, 2004 507,109 25,249 5.0 73.49
As of June 30, 2003 505,903 11,409 2.3 38.56
(Reference)
As of March 31, 2004
507,991 23,283 4.6 68.77

Note:
This is the first time that the Company has disclosed its financial position on a quarterly basis. For comparison, however, the Company has compiled the relevant figures as of the end of the first quarter of the previous term.

Supplementary information

Background Information on Financial Position of Kanematsu Group
Total assets of the Kanematsu Group as of the end of the first quarter of fiscal 2004 stood at \507.1 billion, down very slightly from the figure at the end of the fiscal 2003 business year. Shareholders?Eequity increased due to the rise in retained earnings following the posting the net income for the quarter, as well as the steady exercise of share subscription rights. As a result, both paid-in capital and capital surplus increased, growing by \2 billion compared with the end of fiscal 2003, to \25.2 billion.
In spite of the issue of new unsecured non-detachable warrants, we succeeded in reducing the balance of interest-bearing liabilities by \5.4 billion compared with the end of fiscal 2003, to \318.1 billion. Nonetheless, net interest-bearing liabilities (i.e., after deduction of cash and deposits) remained essentially at the same level (\288.2 billion) as at the end of fiscal 2003, owing to the demand for an increased amount of cash in hand, in line with the growth in the volume of sales.

3. Outlook for current term ending March 31, 2005
The U.S. financial authorities have raised interest rates in response to fears of economic overheating, while an investment restraint policy has been adopted in China. As both the U.S. and Chinese economies are projected to slow down over the near term, a mood of caution is somewhat on the rise regarding the prospects for the Japanese economy, whose growth has hitherto been supported principally by the strength of exports. Be that as it may, the Kanematsu Group's business performance for the first quarter of fiscal 2004 was largely in line with our initial forecasts, and as orders as of the time of writing are continuing to flow in at a satisfactory pace, we stand by our business performance forecasts (shown below) for the fiscal 2004 full term, ending March 31, 2005, which were released at the announcement of the fiscal 2003 accounts settlement figures, on May 14, 2003.

(Reference) Forecasts released on May 14, 2004

(\ million)
Net sales Ordinary income Net income
First-half period 400,000 4,500 1,500
Full term 875,000 13,500 4,000

Note:
The forecasts and projections contained in the above text are based on information available to the management of the Kanematsu Group as of the time of writing, and on assumptions made regarding the degree of impact on the Group's business performance of a variety of factors that are beyond the management's control. The reader should be aware that, as a result of changes in external circumstances, actual business results may differ substantially from the forecasts contained herein.