Sojitz aim in conducting its businesses is to satisfy all its stakeholders expectations by generating outstanding value.

Transcription

1 Annual Report 2007

2 Sojitz Corporation Annual Report 2007 New way, New value Sojitz aim in conducting its businesses is to satisfy all its stakeholders expectations by generating outstanding value. We therefore intend to generate New value unique to Sojitz in our distinctive New way. We will do this by leveraging our history, human resources, commercial rights and every other capability, tangible or intangible. This is the meaning of our Group slogan. Including the legacies of Nichimen and Nissho Iwai, Sojitz boasts over 100 years of history. We regard this as an extremely important asset in pursuing our goal of becoming an innovative and function-oriented trading company. And as we strive to achieve our goal, we intend to pursue sincerity in all that we do. Sojitz conducts its operations across a broad range of business fields, but in each of these areas we have extremely knowledgeable specialists. It has long been said that a trading company is its people. An important key to the sustainable growth of a trading company, or any other type of company, is the sophistication of the capabilities afforded by all the company s personnel. The Sojitz Group slogan encourages specialists in each business area to constantly take on new challenges and practice business in a New way on a dayto-day basis in order to create New value. Contents 2 To Our Stakeholders 5 Financial Highlights 6 New Stage Growth Strategies 14 Business at a Glance 16 Business Divisions and Group 16 MACHINERY & AEROSPACE DIVISION 20 ENERGY & MINERAL RESOURCES DIVISION 24 CHEMICALS & PLASTICS DIVISION 28 REAL ESTATE DEVELOPMENT & FOREST PRODUCTS DIVISION 32 CONSUMER LIFESTYLE BUSINESS DIVISION 36 IT BUSINESS GROUP 38 Regional Heads Talk About the Challenges Sojitz Has Set Itself 40 Sojitz Group Management 42 Foundations of Management

3 Annual Report 2007 Sojitz Corporation In addition, Sojitz possesses a multitude of outstanding commercial rights. The majority of these rights, some of which are relatively small businesses but are nonetheless treasured by Sojitz, have been cultivated by our personnel during the course of our history. They are competitive and will likely continue to grow going forward. However, in times of substantial change, such as the present, simply maintaining commercial rights without extending them even if they are exceptional may well result in their deterioration, not growth. Only by constantly pursuing the ideals expressed in our Group slogan will we be able to develop our top-class commercial rights. Moreover, pursuit of our New way will further develop and enhance Sojitz functional capabilities, and the provision of New value will lead to improvement in our corporate value. Ultimately this should help us to attract a large number of shareholders, as well as strategic partners that have been attracted by the business functions Sojitz offers. Above all, however, our goals pivot around sincerity and trust. Sincere convictions, sincere business activities, sincere employees and sincere management we are fully aware that sincerity is the first step to always having the trust of stakeholders, and we plan to maintain our sincerity as we move forward. To produce new sources of wealth by leveraging our capacities: that is the commitment of the Sojitz Group. Sojitz intends to continue striving constantly to offer more sophisticated business functions and enhanced corporate value to our strategic partners and shareholders under the New way, New value banner. In doing so, we will aim to grow alongside you and continue to produce new sources of wealth all around the world. 48 Corporate Governance 50 Risk Management 52 Corporate Social Responsibility 54 Compliance 56 Directors, Corporate Auditors, and Executive Officers 59 Organization 60 Principal Operating Bases 66 Main Subsidiaries 84 Financial Section 130 Corporate Data 131 Acquiring FSC Certification FORWARD-LOOKING STATEMENTS The information in this annual report about future performance (forward-looking statements) is based on information available to management at the time of its disclosure. Accordingly, readers are advised that actual results may differ from forward-looking statements due to a wide variety of factors including, but not limited to, conditions in the Company s principal overseas and domestic markets, economic conditions, and changes in foreign currency exchange markets. 1

4 Sojitz Corporation Annual Report 2007 To Our Stakeholders Sojitz Group Statement The Sojitz Group produces new sources of wealth by connecting the world s economies, cultures and people in a spirit of integrity. Sojitz Group Slogan New way, New value Group Management Vision To establish a multi-faceted business, which has both top-tier competitiveness and strong earnings power in specific industries and markets, by continuously pursuing profitability and growth in core business areas To nurture an innovative trading company, by actively responding to environmental changes and market globalization, and continuously developing new business fields through entrepreneurship To build a function-oriented trading company, by fully grasping and anticipating various client needs and by providing sophisticated, tailor-made services as a client s business partner To become a flexible company, open to new ideas, where each employee can pursue challenges and explore opportunities to realize his or her own personal goals and ambitions 2

5 Annual Report 2007 Sojitz Corporation Yutaka Kase assumed the position of president of Sojitz Corporation on April 1, Since becoming president, I have advocated a Group philosophy of Sincerity and Trust with the motto Turn Words Into Action guiding our efforts to make Sojitz a company and a corporate group that has the confidence of its stakeholders and that its officers and employees are proud to be part of. In our operations, I am placing top priority on management transparency. Building on a solid foundation of corporate governance, I intend to reinforce our business base by strengthening our capital and financial structure and improving the sophistication of our risk management. Leveraging that stronger base, I plan to shift our focus to growth strategies. Our three-year medium-term management plan New Stage 2008 is proceeding well. In the year ended March 31, 2007 (fiscal 2006), the first year of the plan, recurring profit and net income both exceeded their targets, rising to 89.5 billion and 58.8 billion, respectively. For the fiscal year ending March 31, 2008, we have set the revised targets of achieving 92.0 billion in recurring profit and 60.0 billion in net income. The net income target in particular is an aggressive one, reflecting our strong progress with profitability: it requires us to achieve the final-year target of the New Stage 2008 plan a full year ahead of schedule. We also saw steady improvement in other performance indicators in fiscal Shareholders equity ( * ) amounted to billion, the net debt-equity ratio was 1.7 times, the current ratio was 132%, and the long-term debt ratio was 61%. Against the backdrop of this excellent performance, we will be striving in the coming fiscal year to complete our restructuring by achieving all three of our key objectives: restoring dividend payments, eliminating outstanding preferred shares, and achieving an investment-grade credit rating. We restarted dividend payments in the fiscal year under review, paying 6 per share. Going forward we will seek to maintain stable dividend payments and raise our dividend payout ratio to the 20% level. Progress has also been made with eliminating outstanding preferred shares. The 300 billion convertible bond with stock acquisition rights issue conducted in May 2006 to fund the repurchase and cancellation of preferred shares was fully converted as of July 3, Consequently, we expect to finish canceling preferred shares within the first half of the year ending March 31, To attain an investment-grade credit rating, we will inform rating agencies of our current achievements. In particular, we are seeking to convey the fact that we are progressing smoothly with our business plan, New Stage 2008, having stabilized our earnings base, and are steadily attaining our financial goals. We are also close to completing the elimination of outstanding preferred shares, and are making tangible progress in reinforcing our risk management system. Our success in all these areas means that we are now just a step away from completing our restructuring. The next stage is to strengthen our capital and financial structure and further refine our risk management system as we shift our focus to growth strategies. As part of that process, we are expanding business investment. Over the three years of New Stage 2008, we plan to make new investments and loans totaling 300 billion, and have already invested 90 billion during the fiscal year under review, the first year of the plan. In the fiscal year ending March 31, 2008 we are planning investments amounting to over 100 billion, which we are steadily implementing, starting with the energy and mineral resources field. * Shareholders equity = Net assets - Minority interests 3

6 Sojitz Corporation Annual Report 2007 In particular, we don t want to miss out on the excellent opportunities overseas, where the rapid progress of economic globalization is presenting many chances for us to grow our businesses. In addition to the BRICs economies, with the notable growth of Vietnam and other ASEAN nations, the capital-rich Middle East, and resource-rich North and Central Africa, the high growth centers of the world are offering a wide range of business opportunities for trading companies. We, in turn, are steadily conducting new investments and loans for the future. Meanwhile, to achieve a balanced business portfolio, we are applying our own risk/return indicator SCVA (Sojitz Corporation Value Added) to all our businesses as we rapidly implement selection and focus initiatives, shifting priority fields. Of course, people and the development of their skills are essential to our pursuit of sustained growth. People are the lifeblood not only of trading companies but all businesses. To demonstrate more effective overall power as a Group, therefore, we are developing Sojitz people who are true individuals. In doing so, we will consistently work to improve our own unique business functions as we strive to be a function-oriented general trading company. While our shareholders desire growth in corporate value and regular and stable dividends, our customers look to us for the strong business proposals and capabilities they have come to know us for. Meanwhile, our employees want workplaces that are stimulating and a company they can be proud of. To fulfill the expectations of all these stakeholders, we plan to refine our own unique business functions and proceed with developing a diverse range of businesses in regions throughout the world. By meeting the requirements of each of our customers, we aim to grow together with them in our role as a function-oriented general trading company. We are committed to being a superlative strategic business partner, increasing corporate value, and moving forward in good faith as a corporation on which people can rely. We are doing so by establishing a unique combination of business models, domains, regions, and products that cannot be emulated by competitors. In addition, we will work to find solutions together and create unique business opportunities based on original perspectives and concepts. Thank you for your continuing encouragement and support. July 2007 Yutaka Kase President & CEO 4

7 Annual Report 2007 Sojitz Corporation Financial Highlights For the years ended March 31, 2007, 2006 and 2005 Millions of Billions of yen U.S. dollars* Net sales (Total trading transactions) 5, , ,675.9 $44,221.6 Gross trading profit ,156.5 Operating income Recurring profit Net income (loss) (412.5) Core earnings As of March 31: Total assets 2, , ,448.5 $22,199.2 Net assets* ,505.4 Interest-bearing debt 1, , , ,166.8 Net interest-bearing debt , ,170.3 Net cash provided by (used in) operating activities (19.8) 59.7 Net cash provided by investing activities Net cash used in financing activities (95.5) (55.8) (212.3) (809.1) Cash and cash equivalents at the end of the year ,934.5 Yen U.S. dollars Amounts per share: Net income (loss) (1,876.48) $0.71 Net assets* (368.95) (1,440.26) 1.22 Dividends ROA (14.9) ROE (138.3) Equity ratio Net debt equity ratio (DER) (Times) *1 The presented amounts of the prior year are based on shareholders equity under the previous accounting standard, instead of net assets under the new accounting standard. *2 The U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate at March 31, 2007 of 118=$1. % Recurring profit and Net income (loss) (Billions of yen) 100 Net assets (Billions of yen) 600 Net interest-bearing debt and Net DER (Billions of yen, times) 1, Recurring profit Net income (loss) Mar. 05 Mar. 06 Mar. 07 Mar. 05 Mar. 06 Mar. 07 Mar. 05 Mar. 06 Mar. 07 Net interest-bearing debt Net debt equity ratio (DER) 5

8 Sojitz Corporation Annual Report 2007 New Stage 2008 Progress During the First Year of the Medium-term Management Plan After achieving the earnings targets of our previous medium-term management plan one year ahead of schedule, we judged that it was time to aspire to a new stage of growth and in April 2006 we started New Stage 2008, a new medium-term management plan. The fundamental policy of New Stage 2008 is to deliver sustained growth by realizing our Group Management Vision in order to accelerate capital and financial strategies, further enhance growth strategies and upgrade risk management. In this way we will strive to raise corporate value. By executing the strategies and initiatives contained in New Stage 2008, Sojitz is striving to achieve consolidated net income of 60.0 billion, consolidated recurring profit of billion and shareholders equity of billion by the year ending March 31, 2009, which is the final year of the plan. Net income (Billions of yen) 60 Consolidated net income 58.8 billion Year-on-year change billion Surpassed upwardly revised forecasts for the year Recurring profit (Billions of yen) 100 Consolidated recurring profit 89.5 billion Year-on-year change billion Surpassed upwardly revised forecasts for the year Target Revised Result Target Forecast Target 20 Target Revised Result Target Forecast Target 0 0 Mar. 07 Mar. 08 Mar. 09 Mar. 07 Mar. 08 Mar. 09 Accelerate Capital and Financial Strategies The capital and financial strategies outlined in New Stage 2008 involve accelerating capital restructuring by eliminating preferred shares and improving the stability of our funding structure. The strategy is intended to strengthen our management base, which is essential to Sojitz sustained growth. Through progress in this area we also hope to further raise shareholder value. In April 2006, Sojitz concluded an agreement with its preferred shareholders regarding the acquisition of their preferred shares. The agreement called for preferred shares with an issue price of billion to be repurchased at a cost of billion. The purpose of the agreement was to minimize the dilution arising from future conversion of the preferred shares, to accumulate 6

9 Annual Report 2007 Sojitz Corporation shareholders equity by reducing the burden of dividend payments to preferred shareholders, and to achieve a substantial discount through the early repurchase of the preferred shares as a whole. In addition, we issued billion in convertible bonds with stock acquisition rights in May This was intended to minimize the decrease in shareholders equity due to the repurchase of preferred shares by procuring capital via conversion of the convertible bonds, thereby contributing to the accumulation of shareholders equity. The cumulative amount generated through conversion of the convertible bonds to common stock as of March 31, 2007 totaled billion, and on March 30, 2007 preferred shares with a FY2006 April 28, 2006 May 25, Agreements concluded with shareholders of the relevant preferred shares in order to repurchase issued preferred shares for a total acquisition cost of billion (ceiling of billion). Shares subject to agreements accounted for billion. 2 Procured funds from external sources through 300 billion CB issue. March 30, 2007 FY2007 June 22, 2007 July 3, 2007 July 30, Repurchased 2nd Series Class I to 2nd Series Class V (Repurchase amount: billion; issue amount: billion). 4 Repurchased 1st Series Class IV and part of 1st Series Class V (Repurchase amount: 55.2 billion; issue amount: billion). The total of 300 billion of CB conversions fully completed. 5 Determined to repurchase 1st Series Class V on September 28 (Repurchase amount: 46.8 billion; issue amount: billion). Reorganization of Capital Structure Complete Total repurchase amount for preferred shares: billion Repurchase order Issue amount Repurchase amount and % of issue amount 2nd Series Class I 52.6 billion 56.8 billion (108%) 3rd Series Class I 52.6 billion 55.8 billion (106%) 3 4th Series Class I 52.6 billion 54.7 billion (104%) 1st Series Class II 52.6 billion 53.6 billion (102%) 2nd Series Class V 20.0 billion 20.0 billion (100%) 4 1st Series Class IV billion 45.9 billion (23%) 5 1st Series Class V billion 56.1 billion (43%) 7

10 Sojitz Corporation Annual Report 2007 New Stage 2008 par value of billion were repurchased for billion and cancelled. Thereafter, another 60.0 billion in convertible bonds was converted by June 30, 2007, and on June 22, 2007 we repurchased and cancelled preferred shares with a par value of billion at a cost of 55.2 billion. As of July 3, 2007, all the remaining 15.0 billion of convertible bonds was converted, and on September 28 the last of the billion in preferred shares initially targeted for repurchase and cancellation will be eliminated. The steps we have taken have succeeded in significantly limiting any potential dilution of stock value due to an outstanding balance of preferred shares. In this way we have steadily improved the quality of Sojitz capital and have made healthy progress in our capital restructuring project. Common Stock Simulations (Millions of shares) 2,000 Total Approx. 1,889 million Total Approx. 1,234 million 1,800 1,600 1,400 1,200 1, Estimated latent stock of preferred shares (Approx. 197 million) Repurchased and cancelled preferred shares Estimated latent stock (Approx. 1,240 million) Dampening effect (Approx. 655 million) Increase in no. of shares from CB conversion (Approx. 782 million) Preferred share conversions Issued common stock as of date of CB issue (May 25, 2006) (Approx. 452 million) CB conversions Conversion of preferred shares No. of shares assuming the following: 2nd Series Class I 1st Series Class II: maximum conversion price of 262 1st Series Class IV, 1st Series Class V, and 2nd Series Class V: 552 (based on closing price on June 29, 2007) Excluding conversion of 1st Series Class III preferred shares (balance, 3 billion; conversion price, 476) Further Enhance Growth Strategies The growth strategies laid out in New Stage 2008 involve delivering sustained growth by leveraging our strengths to develop business functions and by extending the scope of our business investments. As a function-oriented general trading company, Sojitz conducts business operations with a functional focus. Improving the quality of our business functions and enhancing them will strengthen business development itself as well as help further the growth of our strategic business partners. 8

11 Annual Report 2007 Sojitz Corporation We have a target of committing billion in new investments and loans during the threeyear period covered by the New Stage 2008 plan. In fiscal 2006, the initial year of our New Stage 2008 management plan, Sojitz conducted new investments and loans totaling approximately 90.0 billion. We provided a significant level of investments and loans in the first year of the plan as we made steady progress to meeting this target. During the period covered by New Stage 2008 our goal is not just to accumulate more earnings but to further strengthen profitability over the medium term, expand our business foundation, and continue to raise corporate value. Given this, we worked during the year to develop new opportunities and create businesses. To promote business development that is focused on business New investments and loans by business operation Textiles 3.1 billion Mineral resources 7.7 billion Foods 1.2 billion Oil and gas 18.7 billion Retail property 12.9 billion Chemicals 2.2 billion JALUX 8.4 billion Forest products 2.0 billion New investments and loans by region Europe 11.8 billion Africa 3.8 billion Asia 7.2 billion China 8.5 billion Japan 42.2 billion Americas 10.0 billion Automobiles 6.8 billion Aerospace 2.5 billion Machinery 4.7 billion Industrial information 6.8 billion Oceania 6.1 billion Sojitz made new investments and loans of 90 billion in the first year of the current medium-term management plan, representing good progress toward the three-year target of 300 billion. Plan (three years) FY2006 Results Main Investment Projects Machinery & Aerospace 33.0 billion 14.0 billion Purchase of Isuzu shares = 5.0 billion; acquisition of semiconductor mounting equipment company (China) = 4.5 billion; aircraft leasing with Iceland Air = 2.0 billion Energy & Mineral Resources billion 28.0 billion North Sea Globe gas field = 7.0 billion; nickel production company, Coral Bay Nickel = 2.0 billion; acquisition of additional rights at Minerva mine = 3.0 billion; North Sea Tors gas field = 2.6 billion; El Alamein Yidma oil field in Egypt = 2.0 billion Chemicals & Plastics 20.0 billion 2.0 billion Construction of chemical tanks and other facilities in Southeast Asia and Japan = 0.7 billion; investment in industrial salt field in Australia = 0.3 billion Real Estate Development & Forest Products 29.0 billion 18.0 billion Retail facility development (increased floor space at Mallage Saga; construction of Shobu and other shopping malls) = 7.4 billion; investment in office and retail buildings in Tokyo and Osaka = 5.5 billion; lumber sawing plant in China = 1.6 billion Consumer Lifestyle Business 15.0 billion 5.0 billion Other 39.0 billion 23.0 billion Investment in apparel manufacturing and retail sites in China = 1.2 billion Acquisition of JALUX shares = 8.4 billion; animation content (A.D.Vision) = 0.9 billion Total billion 90.0 billion 9

12 Sojitz Corporation Annual Report 2007 New Stage 2008 functions unique to Sojitz, we plan to continue using stringent criteria to select high-quality opportunities for investment and loans that will serve to accelerate our growth. In this context, we use SCVA (Sojitz Corporation Value Added), our own unique risk/return indicator, to evaluate each of our businesses. Every quarter we monitor SCVA in each business and take any necessary action, reviewing the respective SCVA-based rankings yearly. We will continue implementing selection and focus initiatives based on SCVA to pursue reliable returns commensurate with risks incurred. This will enable us to maximize shareholder value and assemble an efficient and robust portfolio of businesses. Upgrade Risk Management The New Stage 2008 priority of upgrading risk management refers to managing overall Group risk and maintaining a high-quality business portfolio by strengthening and upgrading the risk management systems we have worked to develop at the Group level. We believe that enhancing risk management systems and ensuring their implementation is an important aspect of our management base and is necessary to achieve ongoing growth. Our basic policy as we work to upgrade risk management is to manage risk assets so that their value remains below that of shareholders equity, with a target of 80%. Risk assets as of March 31, 2007 totaled approximately billion, around 60% of shareholders equity, meaning we are successfully managing risk levels. Risk assets and shareholders equity As of March 31 (Billions of yen) Risk assets Shareholders equity Risk assets Shareholders equity Risk assets Shareholders equity Mar. 05 Mar. 06 Mar

13 Annual Report 2007 Sojitz Corporation Growth Strategies Hiroyuki Tanabe Executive Vice President (Marketing management) As of April 2007, I assumed the position of executive vice president of Sojitz and am in charge of marketing throughout the Group. In this feature, I focus on explaining our growth strategies in terms of challenges for which Sojitz is uniquely positioned. Establishing and Promoting a System to Conduct Division-based Marketing Strategies Globally Sojitz recognizes that strengthening its overseas strategy is essential to further improving and expanding its overall growth strategies. To that end, on January 1, 2007, the Company introduced a system to conduct division-based marketing strategies globally. In the past, our marketing organization was split into head office and overseas operations, with each creating and taking responsibility for their own marketing strategies. The introduction of a system to conduct division-based marketing strategies globally will enable the Company s marketing divisions to promote global marketing strategies for each business and product. This will enable Sojitz to use management resources more efficiently and to establish an organization whereby the head office marketing divisions and overseas regional marketing operations pursue joint strategies. The Move to a Five-region Structure for Overseas Operations In addition to the above, Sojitz also needs to develop a multi-dimensional management perspective to expand its capabilities as a trading company and to complement the worldwide strategies it will be conducting for individual businesses and products. Such a perspective would strengthen information-gathering capabilities and maximize business opportunities across a number of operations and throughout whole regions. In other words, we need to adopt a multi-perspective approach that marries vertical strategies specific to particular businesses with a horizontal perspective spanning multiple businesses. Our overseas operating bases and all President & CEOs in charge of those bases have an important role to play in this regard. We have recently stepped up our activities in Africa, which offers the prospect of significant future growth, as a new region of interest for the Company. Our network previously comprised the four regions of the Americas; Europe & Africa; China; and Asia. As of January 2007, we added the Middle East & Africa, and the new five-region structure is composed of the Americas; Europe, Russia & NIS; China; Asia & Oceania; and Middle East & Africa. 11

14 Sojitz Corporation Annual Report 2007 We consider Africa to have huge growth potential. Leveraging its energy and natural resource development, the continent is preparing to leap into the future. Moreover, along with improved levels of political stability in each country, we can expect growth in infrastructure and natural resource development projects and automobile-related businesses. To lay the groundwork for an overseas business foundation to support Sojitz in the medium-to-long term, we intend to make Africa a focus of our activities, mindful of its potential for sustainable economic growth. We will take a pioneering role in the region based on our wealth of experience and strong record of achievements. Reinforcing Our Targeted Overseas Strategies and Cross-divisional Business Strategies Aiming to further strengthen our system to conduct division-based marketing strategies globally, we will pursue targeted overseas strategies and cross-divisional business strategies. To boost our existing market advantages, we are specially targeting Vietnam, Thailand, and Russia and will implement strategies for future growth from a Companywide perspective. We are already progressing with various specific projects, such as aluminum hydroxide production in Vietnam, development of the Vietnam-based food processing business leveraging a port infrastructure development project, and the expansion of automobile-related businesses in Russia and Thailand. We have now added India, Indonesia and Brazil as new target countries. In India, we have a major asset in our excellent long-term relationship with the Tata Group. In Indonesia, Sojitz has an outstanding reputation built on its work over many years in the LNG, coal development, and methanol production fields. Our chief advantage in Brazil is the long history of our relationships with Petróleo Brasileiro S.A. (Petrobras) and Companhia Vale do Rio Doce and the record of our joint ventures with them. We recently formed task forces to further pursue our Companywide strategies for targeted countries. Specifically, we formed cross-divisional task force teams for each targeted country to expand our business domains and strengthen relationships with our strategic partners in those countries. Another reason for the cross-divisional composition of these teams is to enable them to take a multi-faceted approach by matching the capabilities of the various marketing divisions to customer needs. We will continue to face up to the challenges of implementing targeted overseas strategies and cross-divisional business strategies to support the strategies of the Sojitz Group as a whole. I would also add that we will be forming task forces for particular customers not covered by the above strategies. These task force teams will focus on reinforcing relationships with major overseas customers and major business customers in Japan. 12 Responding to the End of Natural Resource Price Rises In the fiscal year ended March 31, 2007, net income for the Sojitz Group was 58.8 billion and recurring profit amounted to 89.5 billion. It must be admitted that this excellent performance was in no small part thanks to the soaring prices of natural resources. In the mean time, it is also

15 Annual Report 2007 Sojitz Corporation true that the high prices for natural resources have had a medium-to-long term impact on resource producing and consuming nations, leading to the creation of new businesses and business opportunities. One could say that there has been a shift in certain business paradigms. Therefore, we have to view this phase following the end of price escalation not just in terms of a loosening of the supply-demand balance; we need a strategy for expanding earnings that focuses on what we can do to tap the new markets that have emerged. We will continue to use selective strategies in securing natural resources by diversifying risk and thoroughly managing our portfolio, especially for energy and mineral resources, where the importance of securing better quality resources has become an issue. We will also continue to develop our upstream to downstream supply chain. In automobile-related businesses, we will step up the pace of development in overseas operation. At the same time, we will aggressively develop our overseas business in chemical products, which offer a stable earnings base. Meanwhile, in the highly promising foods and plastics fields, we have established a Companywide support structure, and are steadily initiating concrete growth measures. However, it is also important to expand into new growth fields. In March 2007, we acquired a 30% stake in JALUX Inc., previously a subsidiary of Japan Airlines Corporation. JALUX is a company engaged in a vast range of businesses including the airline, airport terminal, consumer lifestyle, and customer services businesses. Through involvement in these businesses, we intend to boost the corporate value of JALUX as well as expanding our functional capabilities and business sphere. BLUE SKY stores are operated by JALUX in 25 airports throughout Japan Original JAL SELECTION food products The JALUX mail order catalog Measures to Accelerate New Business Investments and Loans Our investment strategy is the key to our global strategies as a trading company. Unfettered by our traditional business scope, we are strengthening our investments and loans in environmental, alternative energy sources, technological innovation, and other new business fields. Our investments are taking many forms: some are to open up distribution-based earnings opportunities or to enable major development projects, others are to expand our business domain, to further strengthen our operations in specific fields, or to build up companies we have invested in. By establishing robust risk asset management, we plan to construct a high-quality business portfolio. Sojitz is blessed with a large number of highly talented specialist staff. We are depending on them to utilize their excellent judgment to accurately read trends in customer needs and markets, leveraging the functional capabilities and value we can offer to create sources of earnings for the future. We are doing so to ensure Sojitz future and create more wealth in years to come. At the same time, we will continue striving to enrich society as a whole. As a result of pursuing challenges for which Sojitz is uniquely positioned, we will be able to offer New value that exceeds our stakeholders expectations. 13

16 Sojitz Corporation Annual Report 2007 Business at a Glance For the years ended March 31, 2007 and 2006 Main Businesses MACHINERY & AEROSPACE DIVISION Automobiles Information and Industrial Machinery Aircraft Ships Financial Data (Billions of yen) Net sales ,118.2 Gross trading profit Operating income Recurring profit Total assets Gross Trading Profit (Billions of yen) Mar. 06 Mar. 07 ENERGY & MINERAL RESOURCES DIVISION Oil, gas, and LNG Coal Mineral Resources Power & Industrial Plants Nuclear Fuel Cycle Renewable Energy/Emission Trade Steel Products Net sales 1, ,286.9 Gross trading profit Operating income Recurring profit Total assets Mar. 06 Mar. 07 L J A G D E CHEMICALS & PLASTICS DIVISION Chemicals Plastics Fertilizer Methanol Net sales Gross trading profit Operating income Recurring profit Total assets Mar. 06 Mar. 07 REAL ESTATE DEVELOPMENT & FOREST PRODUCTS DIVISION Condominiums Development of Retail Property Forest Products Net sales Gross trading profit Operating income Recurring profit Total assets Mar. 06 Mar. 07 CONSUMER LIFESTYLE BUSINESS DIVISION Foods Textiles General Merchandise Net sales Gross trading profit Operating income Recurring profit Total assets Mar. 06 Mar. 07 IT BUSINESS GROUP IT Content Environment Healthcare Net sales Gross trading profit Operating income (loss) (0.7) 0.2 Recurring profit Total assets Mar. 06 Mar

17 Annual Report 2007 Sojitz Corporation Recurring Profit (Billions of yen) Mar. 06 Mar. 07 Automobiles: Sojitz is building a unique value chain in the broad-based automotive industry. This comprises the export of completely built-up vehicles and knocked down components; automobile components and engineering; and activities in after-sales markets. Information & industrial machinery: Sojitz conducts global operations including industrial plant; infrastructure projects; telecommunications equipment; Surface Mounted Technology equipment; bearings and electronic components & materials. Business Activities Aircraft: Over nearly half a century Sojitz has supported the sale of Boeing commercial aircraft in Japan (market share exceeds 85%) and the sale of Bombardier commuter aircraft in Japan (market share close to 100%). Ships: Sojitz collaborates with other companies in multiple areas including new shipbuilding and second-hand ships, chartering and marine-related equipment, as well as its own ship-owning business Mar. 06 Mar. 07 Oil and gas: Sojitz is involved in upstream investments and loans; the sale of production equipment and devices; petroleum product trading; and imports, exports and sales. LNG: Centers on establishing LNG Japan Corporation s energy value chain. Coal: Sojitz invests in, develops and operates coal mines and sells steaming, coking and PCI (pulverized coal injection) coal. Mineral resources: Sojitz invests and trades in a variety of minerals such as ferroalloys, iron ore, nonferrous metals, and precious metals. Power and industrial plant: Operations include the supply and operation of power plants in Japan and overseas, and export of plant and equipment focused on the markets of the Middle East, North Africa, ASEAN countries, and South America Mar. 06 Mar. 07 Chemicals: Sojitz handles more than 1,400 items worldwide. Sojitz inorganic chemical lineup includes mineral resources and inorganic pharmaceuticals, while it handles petrochemicals and solvents in the organic field. Among the Company s specialty chemicals are high-performance functional materials and rare earths. The fine chemicals lineup covers pharmaceuticals and agrochemicals, drug intermediates, catalysts, and ingredients for cosmetics. Plastics: Sojitz handles raw materials for plastic compounds and resins; a wide range of packaging films and materials; and electronic materials, such as LCDs. Fertilizer: Operations cover fertilizer manufacturing and sales companies in Thailand, the Philippines and Vietnam Methanol: Operations are centered on a methanol plant in Indonesia Real estate: Sojitz has been involved in the housing and commercial real estate development business for around 40 years. Core businesses span suburban, downtown, and wholesale condominium development projects on the one hand and the development of suburban retail property, such as shopping centers and outlet malls on the other. Forest products: Sojitz imports timber, plywood and lumber products from all over the world; conducts offshore trading of forest products; distributes plywood, lumber products, and a variety of building materials in Japan; and is also actively involved in forest product processing operations overseas. 0 Mar. 06 Mar Mar. 06 Mar. 07 Foods: Operations cover agricultural, marine, livestock, and other products. Guided by the main themes of safe and reliable food, Sojitz has a large number of contract producers and JVs in Japan and overseas, affording an integrated value chain that extends from upstream raw materials procurement and processing to downstream distribution and sales. Textiles: This area is one of Sojitz traditional strengths. The Company has competitive products in many categories, including raw materials for textiles, textile fabrics, bed linen, and apparel. General merchandise: Covers products such as woodchips, infant products, cigarettes, and many other items. Sojitz possesses its own distinct supply chains in each market The division is aiming to build an IT business as a future growth field from a medium-to-long-term perspective. To do so, the division has selected and focused on certain businesses for which the New Business Development Group was previously acting as a business incubator. As the New Business Development Group, the division was developing content, environmental, healthcare, and other businesses around its central IT business. The division officially changed its name to the IT Business Group as of April 2007, and intends to focus even more on IT-oriented business development. 0 Mar. 06 Mar

18 Sojitz Corporation Annual Report 2007 Business Divisions and Group MACHINERY & AEROSPACE DIVISION Net Sales (Billions of yen) 1,200 1, Gross Trading Profit (Billions of yen) Recurring Profit (Billions of yen) President, Machinery & Aerospace Division Kazunori Teraoka 0 Mar. 05 Mar. 06 Mar. 07 Business Activities Overview In the automotive field, the Machinery & Aerospace Division exports completely built-up vehicles and knocked down components. In addition, we are building a unique Sojitz value chain in the broadbased automotive industry across upstream businesses in components and engineering through downstream businesses including the after-sales and secondary markets. The Aerospace Unit business involves commercial aircraft, defense and space- related business. As part of these operations, Sojitz has worked closely with The Boeing Company in the sale of Boeing commercial airplanes for nearly half a century. Sojitz is also exclusive Japanese sales representative for Canada-based Bombardier Inc., which manufactures regional and business aircraft and currently enjoys a virtually unchallenged presence in its respective market in Japan. We will vigorously promote sales of the full range of business aircraft that Boeing s BBJ (Boeing Business Jets) arm and Bombardier have to offer. In the defense field, Sojitz and its wholly owned subsidiary, Sojitz Aerospace Corporation, have been working for the Japanese Ministry of Defense and Self Defense Forces by proposing necessary equipment and systems for their various missions. Such missions include overseas peace keeping missions, which are increasing in scope to deal with the requirements of Japan s changing security environment. 0 Mar. 05 Mar. 06 Mar. 07 In the information and industrial machinery field, the division is developing operations on a global scale, with an emphasis on India, China, Vietnam and other parts of Asia. The division s wide-ranging activities include everything from steel, chemical and industrial plants, infrastructure projects and telecommunication infrastructure equipment, to surfacemount technology (SMT) equipment, wire & cable processing equipment, co-generation plants, bearings and electronic components & materials. In the marine business sector, economic growth in BRICs countries has triggered sharp growth in demand for seaborne cargo trade. In this climate, the division possesses a collaborative business network in operations that encompass new shipbuilding and second-hand ships, long-term chartering and marine-related equipment, as well as its own ship-owning business. These partnerships give the division collective strengths and a competitive advantage that are enabling it to expand its business scope, and make it a force to be reckoned with in the industry. Fiscal 2006 Results 0 Mar. 05 Mar. 06 Mar. 07 In fiscal 2006, ended March 31, 2007, the division recorded net sales of 1,118.2 billion, up 16.7% year on year, and gross trading profit of 53.6 billion, up 15.0%. Recurring profit, however, decreased 10.7% to 10.0 billion. 16

19 Annual Report 2007 Sojitz Corporation In the automotive business, export sales of completely built-up (CBU) vehicles and knocked down (KD) components remained firm. In the industrial systems business, meanwhile, sales of Fuji Machine s SMT equipment continued to hold strong in Southeast Asia, Brazil and India. In its capacity as import sales consultant for the U.S.-based Boeing Company, the division s commercial aircraft business negotiated additional contracts for the sale of strategic next-generation B787 midseries and B737 new generation Boeing aircraft, adding to the major contracts it has already secured with All Nippon Airways Co., Ltd. and Japan Airlines Corporation. In the marine segment, the shipping market had entered a period of adjustment around summer, but mounted a steady recovery from fall onwards, helping demand for new shipbuilding remain robust for the year. New Stage 2008 Business Strategy The Machinery & Aerospace Division s business strategy under New Stage 2008 calls for realizing overall earnings expansion by leveraging its strengths and unique capabilities in every business segment automotive, aircraft, information and industrial machinery, and marine. In particular, the division is focusing on aggressively channeling investments and loans in ways that enhance the earnings base and expand the functional capabilities of each business segment. In conjunction with the introduction of global management from fiscal 2007, the Machinery & Aerospace Division is forging greater ties with overseas subsidiaries in a move that should lead to expansion in overall earnings. In its automotive segment the division focuses on upstream operations, especially automotive components, in China and other Asian markets where future growth is anticipated. Steps are taken to expand the manufacture and sales of completely built-up vehicles in Southeast Asia, Central and South America, Russia, and the newly independent states of the former Soviet Union. The division also plans to strengthen its after-sales market business, most notably in China. The division actively supports an array of operating companies overseas in emerging markets, most notably MMC Automotriz, S.A. in Venezuela and Subaru Motor LLC in Russia. In the aviation segment, the division brings to bear its related know-how accumulated over the years in developing its operations across Asia. The division is also working to expand the earnings of the Sojitz Group through two companies, Sojitz Aerospace Corporation and Sojitz Aircraft Leasing B.V. The former handles defense and aerospace aircraft and equipment in Japan, while the latter is responsible for aircraft leasing to overseas markets. In the information and industrial machinery segment, the division focuses on China, India and other parts of Asia as priority markets as well as participating in and promoting manufacturing and sales businesses and a host of large-scale projects. Sojitz Machinery Corporation, a trading company specializing in machinery, is the focal point of operations in Japan. Overseas operating companies handling SMT equipment and bearings are also leveraged to enhance the sales network in this segment. In the marine segment, operations center on Sojitz Marine & Engineering Corporation, which covers all the business fields in this sector and has emerged as a dominant force in the industry in Japan. In the marine business as well as its other businesses, the division is further honing its collective strengths and competitiveness by consolidating and centralizing segment operations. 17

20 Sojitz Corporation Annual Report 2007 Main Businesses MACHINERY & AEROSPACE DIVISION The Boeing Company/Bombardier Inc. For approximately 50 years, Sojitz has worked closely with The Boeing Company in the sale of Boeing commercial airplanes. The Boeing aircraft handled by the division have captured an 85%-plus share of the respective Japanese market. The B787, a new aircraft incorporating the latest in Boeing technology, will enter the service fleets of two prominent Japanese airlines, All Nippon Airways and Japan Airlines, from Meanwhile, in the field of regional and business aircraft, Canada-based Bombardier Inc. enjoys a largely unchallenged presence with respect to sales of its small jets in Japan. With further growth in business jets anticipated going forward, we will vigorously promote sales of the full range of related aircraft that Boeing s BBJ (Boeing Business Jets) arm and Bombardier have to offer. Boeing 787 Dreamliner (Top), Bombardier Global Express (Right) and Dash8-Q400 (Left) Aerospace Development Business: Contributing to Global Society Sojitz and Sojitz Aerospace Corporation act as agent for U.S.-based Alliant Techsystems, Inc. (ATK) in the import to Japan of solid rocket booster (SRB-A) materials and solid strap-on boosters (SSB), used in the H-IIA, Japan s world-class rocket. In addition, the Company is contributing to the Japanese space industry and to the international community through the supply of various Earth-observation sensors and electronic equipment for the International Space Station s Japanese Experiment Module (JEM), and communications satellites. JAXA Providing a broad range of European and U.S. products for International Space Station, H-IIA rocket and satellite applications Manufacture and Sales of Isuzu Trucks in Russia The Japan-Russia Investment Forum, organized to coincide with a visit to Japan by Mikhail Fradkov, Prime Minister of the Russian Federation, took place on February 28, At the forum, former Isuzu Motors Limited President Yoshinori Ida, OAO Severstal-Auto President Vadim Shvetsov, and former Sojitz Executive Vice President Yutaka Kase (now President) signed a protocol that will see the companies enter negotiations aimed at establishing a joint venture for the manufacture and sale of Isuzu trucks in Russia. In the past, UAZ, an automobile plant and Severstal-Auto subsidiary, has manufactured and sold Isuzu s ELF light-duty trucks. The proposed joint venture will enable the ELF, as well as medium and heavy-duty Isuzu trucks, to be produced and sold in Russia. Signing ceremony at the Japan-Russia Investment Forum for eventual establishment of a joint venture in Russia Automotive Components in the United States Sojitz is using M&A opportunities to accelerate its entry into the automotive components industry. As one example, Sojitz joined forces with the Minth Group, a prominent maker of automotive exterior components and strategic partner based in China, to assume the business operations of U.S.-based Plastic Trim LLC in June By leveraging the Minth Group s expertise in low-cost operations, together with design, development technology, and manufacturing bases centered on the production of customer-driven automotive components, Sojitz plans to establish a highly profitable business model for developing operations in North America. The extrusion process for exterior components produced by Plastic Trim LLC Hyundai Sales in Central and South America South Korea-based Hyundai Corporation is another Sojitz strategic partner, and a company that has experienced astounding growth in recent years. Working primarily through its Hyundai car assembly operations in Venezuela, Sojitz is helping Hyundai to establish leading market shares in Colombia, Chile, Peru and other Central and South American countries through a push to expand sales in these markets. To further enhance its value chain in this region, Sojitz acquired a 34% stake in Hyundai Motor Argentina S.A. on May 22, 2007, with plans to sell upwards of 3,000 vehicles in Shaking hands with local partners at the signing of a capital tie-up with Hyundai Motor Argentina Digital Device FPC Manufacturing Business Sojitz has formed an alliance with Sakai Electronic Industry Co., Ltd. that has resulted in the establishment of a company specializing in the manufacture of flexible printed circuits (or FPC) in Dong Nai, Vietnam. Fully integrated FPC production has already commenced at the new company, named Sakai Circuit Device of Vietnam Co., Ltd. (SCD-V). The high-quality FPC produced by SCD-V are emerging as key components in digital devices, with greater use expected in car electronics and other new fields in which global demand is set to increase. Integrated production at the SCD-V plant of FPC marketed to electronic device makers across Asia. 18

21 Annual Report 2007 Sojitz Corporation Development of Global Plant and Infrastructure Business In January 2007, Sojitz received an order for two Sendzimir 20-high cold rolling mills from Spain s ACERINOX Group, the world s second largest stainless steel manufacturer. Sojitz is licensed to manufacture and sell these mills, and aggressively pursues sales activities in the stainless steel market, where growth in demand is expected. Here, the Sojitz sales approach is one that closely tracks the needs of its customers worldwide. The coming years will also see Sojitz enact initiatives related to industrial plants (e.g., cement, paper, energy, chemical, and fertilizer plants), ports, bridges, airports, and other types of infrastructure. Sendzimir 20-high cold rolling mill for delivery to ACERINOX Group company Columbus Stainless (Pty) Ltd. of South Africa Global Development of Electronic Component SMT Equipment and Related Businesses Sojitz has established sales and service subsidiaries in Southeast Asia, Brazil and India specializing in SMT equipment produced by Fuji Machine Mfg. Co., Ltd., which boasts the world s leading share of industrial robots used for semiconductor mounting. Through these subsidiaries, Sojitz offers related sales and service mainly to clients in the PC, mobile phone, automotive, and electronic component fields. In China, too, Sojitz purchased a sales and service company in January 2007 that, as a subsidiary, has helped to expand its SMT equipment sales and service network in the country. Looking ahead, Sojitz is eyeing the establishment of companies involved in the development and manufacture of related products as it takes steps to expand operations in this sector. Fuji Machine semiconductor SMT equipment New Business Models in Growing Electronics and Telecommunication Fields Sojitz is leveraging its overseas network and financing functions to develop its upstream telecommunication infrastructure equipment business targeting markets in India, Southeast Asia, and Japan. Going forward, Sojitz will pursue operations related to telecommunication network maintenance and service in each of these key markets. In the downstream field of electronic components, Sojitz aims to become a logistical trading company that can answer needs in important markets, particularly in India, Brazil, and other BRICs countries, with VMI (Vendor Managed Inventory), financing functions, and other solutions. In the future, Sojitz also plans to take part in manufacturing, sales, and service operations in the electronic components field. Satellite telecommunication antenna Sojitz Machinery Corporation: A Dynamic Machinery Trading Company The continuation of healthy growth in the automobile industry has triggered a resurgence of investment in steelmaking, non-ferrous metals, petrochemicals and other key industries. In these key industries, Sojitz Machinery is expanding sales of energy-efficient, labor-saving, and environmental equipment for new and renewal plans. Sojitz Machinery is also unveiling aggressive initiatives that target future growth fields such as LCDs, optical films, and semiconductors, as well as the fuel cell, solar and lithium-ion battery sectors. In parallel, the company is working to promote growth in sales of safe diagnostic systems, medical polymers and other new equipment to the medical sector, including through the manufacture of hollow-fiber films for artificial dialysis. Equipment from Fila Tech Corporation used to manufacture hollow-fiber films for artificial dialysis Sojitz Marine & Engineering Corporation This company operates in a wide range of marine fields thanks to a formidable network of more than 110 experts and 14 offices in Japan and overseas. From the sale and purchase of newly built and second-hand ships, long-term chartering, ship management and construction supervision, to main propulsion engines, special equipment for LNG carriers, and sales of cast and forged steel products and shipbuilding equipment, Sojitz Marine & Engineering has businesses that cover every corner of the shipping and shipbuilding industries. As it continues to use these collective strengths to provide solutions to customer needs, Sojitz Marine & Engineering will take steps to extend its business scope even further. The CRP Azipod, a next-generation hybrid electric propulsion system for ships The Ship-Owning Business Sojitz brings more than 40 years of experience and know-how to bear in developing its ship-owning business operations. Economic growth in the BRICs and other countries is spurring greater demand for seaborne cargo trade. In this climate, Sojitz is taking full advantage of both client networks and information gained through Sojitz Marine & Engineering business operations, all while steadily upgrading its fleet. Sojitz also plans to resume investment in LNG carriers in collaboration with the Energy & Mineral Resources Division. The 30,000 dwt log/bulk carrier Fortune Express, one of the ships in the Sojitz Fleet 19

22 Sojitz Corporation Annual Report 2007 Business Divisions and Group ENERGY & MINERAL RESOURCES DIVISION Net Sales (Billions of yen) 1,500 Gross Trading Profit (Billions of yen) 50 Recurring Profit (Billions of yen) 40 1, President, Energy & Mineral Resources Division Hiroshi Kanematsu 0 Mar. 05 Mar. 06 Mar. 07 Business Activities Overview The Energy & Mineral Resources Division is made up of two business units the Energy Unit and the Mineral Resources Unit. For both units, from upstream through to downstream is the key phrase guiding the development of business networks encompassing everything from investments and loans in upstream resource interests, to mid- and downstream distribution operations. The Energy Unit is pursuing multifaceted energy businesses underpinned by oil & gas development, production, sales and trading, but extending to power generation, plant and facility-related businesses, and nuclear fuel operations. The Mineral Resources Unit trades in a variety of metal and mineral resources such as coal, ferroalloys, iron ore, nonferrous metals, and precious metals. Sojitz strength lies in the ability to draw synergies from investment in mineral resource concessions, both to secure access to resources and for related distribution and retail businesses. In addition to these existing businesses, last year, we established the Energy & Mineral Resources Business Development Office to assist in cultivating future energy businesses. To this end, the office is involved in the development of businesses pertaining to biofuels, carbon dioxide emissions credits, and technologies for more efficient coal use, among other tasks. 0 Mar. 05 Mar. 06 Mar. 07 Other important areas for the division are the LNG business and steel operations, which we take part in through Group companies. And while business results have benefited from booming resource demand in recent years, the division s objective remains the pursuit of growth that is sustainable from a long-term perspective. Fiscal 2006 Results 0 Mar. 05 Mar. 06 Mar. 07 In fiscal 2006, ended March 31, 2007, the division recorded net sales of 1,286.9 billion, up 6.6% year on year. Gross trading profit was 41.3 billion, up 1.2%, and recurring profit increased 18.5% to 33.3 billion. These increases were largely the result of resource prices, which remained elevated throughout the year. In the energy business, performance in upstream oil concession rights was firm despite delays in boosting production in gas projects in the U.S. Gulf of Mexico and other issues. Performance was mainly supported by earnings from concessions at North Sea oil fields and the start of crude oil production in Egypt against a backdrop of high prices for crude oil. In the mineral resources business, earnings in the molybdenum business got a significant boost from the division s molybdenum mining interest in Canada. The division also saw robust growth in earnings from its nickel project in the Philippines, thanks to steady growth in production volume and 20

23 Annual Report 2007 Sojitz Corporation exceptionally favorable market conditions. In coal, commercial production at the Minerva Coal Mine in Australia continues to grow apace. The same is true for the division s alumina projects in Australia, where expansion work designed to ramp up production volume has been completed. Metal One Corporation, a steel-related firm in which Sojitz has a 40% stake, also continues to perform well, with earnings up sharply atop marked growth in demand. New Stage 2008 Business Strategy Under the New Stage 2008 medium-term management plan, the key issue for the division will be the transformation of its earnings structure. We will accomplish this through upstream business investment that can take advantage of our downstream distribution businesses. Actions in this vein will serve as the basis for conducting sales activities vigorously in each division business segment. Going forward, the division s challenge is to establish a resource and energy value chain that rests on three actions: promote investments and loans that are balanced in terms of the commodity, the region, and the time frame; reinforce efforts to achieve stable commercial rights, particularly in distribution; and generate new businesses based on innovative concepts. We view overseas markets as vital to the division s medium- to long-term growth. For this reason, we have identified India, Vietnam and other countries in Asia, as well as African nations, Brazil, Australia and China as key markets. In these countries, we intend to accelerate business development in ways that maintain and strengthen relationships cultivated with strategic partners over the years. In our energy business we are planning to accumulate more upstream resource interests with a focus on maintaining a balance between oil and gas, and spreading our interests between regions. In the mineral resources business we will supplement our efforts to obtain additional assets including coal, molybdenum, vanadium and nickel with efforts to identify new business opportunities in iron ore, copper, and other rare metals. Ties with Group companies will be critical to establishing a value chain in energy and mineral resources. Sojitz is largely responsible for the upstream development of oil, gas and other resources, as well as investments and loans in coal, metal and mineral resources. Group companies, meanwhile, head up mid- and downstream operations involving the distribution, sales and trade of energy-related commodities, steel and nonferrous products, precious metals and more. They are also responsible for promoting related businesses. Going forward, we will strengthen downstream businesses through companies such as Sojitz Energy Corporation, which sells petroleum products; Ject Corporation, which handles carbon products; and e-energy Corporation, which sells nuclear power-related equipment. We will also strengthen our cooperation with Metal One Corporation and LNG Japan Corporation as a means of maximizing group profits. 21

24 Sojitz Corporation Annual Report 2007 Main Businesses ENERGY & MINERAL RESOURCES DIVISION Oil and Gas Upstream Concessions Sojitz continues to pursue investments in oil and gas upstream concessions utilizing full advantage of its unique know-how and worldwide networks. In addition to the existing assets in the U.K. North Sea, the U.S. Gulf of Mexico, Qatar, Gabon, and Egypt, Sojitz acquired gas upstream assets in the U.K. North Sea and the Gulf of Mexico last year, and plans to start oil production in Brazil in Sojitz will continue to mitigate risk by acquiring assets with consideration for the need to maintain a regionally balanced portfolio, while striving to obtain the interests to meet the goal of 40,000 barrels of crude oil equivalent per day targeted in the medium-term management plan. Production platform at the MC-486 block in the U.S. Gulf of Mexico Petroleum Trading Business Sojitz is involved in the development of mid- and downstream petroleum businesses. While Sojitz handles the trading and sale of crude oil and petroleum products in Japan and internationally, Group subsidiaries are responsible for the management of gasoline stations, the sale of coke and carbon products, and a petroleum and chemical tank facility business, among other operations. These examples are just some of the ways that business development founded on the Group s collective strengths is a major advantage for Sojitz. Plans are also under way for the Company to establish a presence in bioenergy, gas trading, and other new sectors. Tokyo Yuso Co., Ltd. s high-performance Kawasaki Terminal Power Generation Sojitz is engaged in power generation businesses both at home and abroad. Overseas, we are part of the Phu My 3 IPP project in Vietnam in collaboration with Kyushu Electric Power Co., Inc. In China, Sojitz is jointly invested with Electric Power Development Co., Ltd. (J-POWER) in the Tianshi power generation project. We have also taken part in projects in Sri Lanka, Mexico and other countries. In Japan, Sojitz has joined forces with the Osaka Gas Group to build the Hayama Wind Power Station in Kochi Prefecture. We are also pursuing more eco-friendly power generation businesses, as seen with the incineration of industrial waste to generate electricity in Chiba Prefecture. Ties that we forge with prominent domestic and overseas partners will underpin further efforts in this area going forward. The Phu My 3 combined cycle gas turbine power plant IPP Plants and Facilities Sojitz exports plant facilities and equipment to the Middle East, North Africa, ASEAN, and South America, which we consider to be priority market regions. In these regions, we work to identify projects and win orders through prominent overseas partners with whom Sojitz has exceptionally strong business ties. Specific export orders have included equipment for laying seafloor cable and other power substation and transmission equipment to Asia, equipment for transformers and rectifiers to aluminum refinery manufacturers in the Middle East, and textile plants to Brazil. Gas insulated switchgear for substation, exported to Saudi Arabia Nuclear Fuel Sojitz acts as the distributing agent in Japan for France s Areva NC, the world s top integrated nuclear fuel cycle company. The division provides a full range of products and services to Japanese power utilities from front-end (uranium concentrates; conversion, enrichment and fuel fabrication services) through back-end (reprocessed uranium recycling, MOX fuel fabrication and its associated services). We also supply support for the overseas reprocessing of spent nuclear fuel from these same utilities. Moreover, through affiliate companies, we sell a wide variety of other equipment, fuels and materials pertaining to nuclear power generation. Looking ahead, we will leverage Sojitz solid position in this industry to expand business further as a partner to the Areva Group. MOX fuel pressurized water reactor (PWR) fabricated by Areva of France Coal Business Sojitz coal operations are comprised of a distribution business involving the sale of steaming and coking coals, and an investment business for securing coal resources overseas, from which we work to draw synergies. In coal sales, we are striving on the one hand to expand existing sales volume and identify new sources primarily for coal from Russia, for which we enjoy the top share of imports to Japan, and from Indonesia. At the same time, we are also focusing on sales to China and other countries. Where investments are concerned, we bought additional interests in the Minerva Coal Mine in Australia last year. We will also expand investments in other coal projects in Australia, as well as in Indonesia and Russia, to accumulate a greater volume of coal from such interests. Open-pit mining at the Minerva Coal Mine in Australia 22

25 Annual Report 2007 Sojitz Corporation Ferroalloy & Iron Ore Business In this business, Sojitz handles the so-called rare metals, especially molybdenum, vanadium, manganese, chrome, nickel, niobium, silicon, and other ferroalloys used in steel production. Of these, molybdenum and vanadium in particular require investment in overseas mining projects to secure stable supplies while retaining high profitability. In iron ore, we rank second among Japanese trading companies in imports. Going forward, we plan to extend sales of iron ore and related investments to China and other countries as we seek to broaden our business scope. Endako Molybdenum Mine in Canada Non-ferrous Business Sojitz has a distribution business involved in the sale of aluminum such as billet and alloys produced by Aluminium Bahrain B.S.C. (ALBA) in Bahrain, as well as copper, zinc, tin and other metals. On top of the distribution business, we invested in alumina production projects in Worsley, Australia jointly with BHP Billiton, one of the world s largest resource firms. In cooperation with prominent partners in Japan and overseas, we plan to expand the distribution business especially in Southeast Asia in the coming years. At the same time, we will examine the feasibility of taking part in development projects related to copper, zinc and other metals. Worsley Alumina Refinery in Australia Precious Metals Business In addition to the handling of gold, platinum and other precious metals, Sojitz operations cover commodity futures trading and the sale of jewelry through a subsidiary. In the future, we will work to expand existing commercial rights and develop markets overseas in countries such as China and Turkey, while also exploring new industrial application markets. Jewelry brand Plu*e by Sojitz Jewelry New Energy Business The Energy & Mineral Resources Business Development Office, established under the direct control of this division last year, is devising initiatives for new energy-related businesses. At present, the office is working to formalize projects along three main lines: clean coal technologies (including the development of technologies for utilizing brown coal in Indonesia), biofuels, and emissions credits/cdm businesses. We have also set up a New Energy Technology Model Fund for eco-friendly energy choices, coupled with investment in new technologies and business models with the potential to play a central role in the next generation. A memorandum of understanding relating to brown coal utilization was concluded with Indonesia s state electricity corporation LNG LNG Japan Corporation LNG Japan Corporation is Sojitz Group s LNG-related operating company, 50% owned by Sojitz and 50% by Sumitomo Corporation. Leveraging a wealth of experience and expertise derived from around 40 years in the LNG business centering on Indonesian projects, the company is striving to expand its business area and create a new value chain in the LNG business all over the world. Current projects include the Ras Laffan LNG project in Qatar, where production is proceeding smoothly, and the Tangguh LNG project in Indonesia, where production is set to commence at the end of At present, LNG Japan is involved in discussions aimed at securing participation in an upcoming project in Nigeria and conducting long-term LNG trading for the project. Shipments at the LNG terminal in Bontang, Indonesia Steel Business at Metal One Corporation Metal One Corporation, a joint venture 40% owned by Sojitz and 60% owned by Mitsubishi Corporation, is Japan s largest trading company in steel products. Since its establishment in 2003, the company has consistently performed well, reflecting distinctive growth strategies, synergies from business collaborations with its parent companies, and a favorable business climate. Going forward, the company will take steps to maintain and expand the dominant strength it enjoys in Japan, while continuing to build global value chains by further enhancing energy industry-related and overseas transactions. Line pipe integration terminal in Western Australia 23

26 Sojitz Corporation Annual Report 2007 Business Divisions and Group L J A G D E CHEMICALS & PLASTICS DIVISION President, Chemicals & Plastics Division Joji Suzuki Net Sales (Billions of yen) Mar. 05 Mar. 06 Mar. 07 Business Activities Overview Gross Trading Profit (Billions of yen) Mar. 05 Mar. 06 Mar. 07 The Chemicals & Plastics Division is comprised of two main business entities: the Chemicals Unit and the Plastics Unit. It has 83 subsidiaries and affiliated companies in Japan and overseas. In October 2006, the Chemicals Unit merged with Sojitz Chemical Corporation, one of the division s core operating companies. In addition to the Fertilizer & Methanol Department enjoying stable earnings through its four manufacturing subsidiaries in Asia, the division has newly established several other departments. These include the Inorganic Chemicals & Industrial Minerals Department, which handles mineral resources and inorganic chemicals; the Organic Chemicals Department, involved mainly in petrochemicals and solvents; the Tokyo and Osaka Specialty Chemicals Departments, responsible for high performance chemicals, advanced materials and rare earth; and the Fine Chemicals Department, which largely handles pharmaceuticals and agrochemicals, drug intermediates, catalysts and ingredients for cosmetics. Through these departments, we handle an array of more than 1,400 items and conduct business investments aimed at making the division s already solid value chain even stronger. In the Plastics Unit, operations are primarily conducted through another core operating company, Sojitz Pla-Net Corporation*. Sojitz Pla-Net is made up of five key departments through which it provides solution-based, function-enabling operations that meet a broad range of customer needs. These departments are the No. 1 and No. 2 Performance Polymers Departments, which mostly operate the compound resin business and handle plastic materials; the No. 1 and No. 2 Packaging Materials Departments, which handle film sheets and materials for use in various types of packaging; and the Advanced Materials Department, which handles LCDs and other electronic materials. *Name changed from Pla-Net Corporation on April 1, Fiscal 2006 Results Recurring Profit (Billions of yen) Mar. 05 Mar. 06 Mar. 07 In fiscal 2006, ended March 31, 2007, the division recorded net sales of billion, up 5.7% year on year. Gross trading profit increased 12.4% to 48.8 billion, while recurring profit rose a substantial 25.4% to 8.4 billion. In the chemicals sector, healthy performance was attributable to elevated market prices for naphtha and other petrochemicals and basic raw materials, alongside robust demand for electronic materials and related products. The plastics sector, meanwhile, saw brisk business particularly in operations related to plastics used in new video game consoles in Japan and overseas. Growth came despite another round of upward price adjustments to keep pace with rising prices for raw materials. 24

27 Annual Report 2007 Sojitz Corporation In the fertilizer business, prices for raw materials worldwide remained elevated throughout the year. Nevertheless, overall sales volume rose year on year to 1.8 million tons, reflecting record performance at joint ventures in Thailand, the Philippines, and Vietnam involved in the manufacture and sale of high-analysis compound fertilizers. All three joint ventures benefited from their recognition as premium brands, along with expansion in the sale of specialty brands. In the methanol business, the division s methanol manufacturing company in Indonesia complemented another year of stable and accident-free operations with the production and sale of 670,000 tons of methanol for the year. High market prices also contributed to earnings growth in this business. New Stage 2008 Business Strategy In the chemical sector, we will expand business scope by broadening existing upstream and downstream businesses, and advancing into new business domains. By improving quality as we grow in scale, the aim is to add greater depth to the division s business base to realize multi-dimensional growth. Business investment in the chemical sector will seek to secure resources and establish a network of distribution bases in China. In North America, Europe and Asia, the plan is to develop business through more investments with strategic partners in manufacturing operations. In the plastics sector, Sojitz Pla-Net will further strengthen relationships with business customers, having positioned plastics for office automation (OA) equipment and home electronics, and barrier packaging materials as its core business. In automotive and FPD (flat-panel display)-related businesses, we are bolstering division responsiveness to growth markets in line with strategic business expansion plans. Meanwhile, we will aggressively invest in photovoltaic cells and other advanced materials, which we view as the division s next major source of earnings growth. Also, we are expanding the division s plastic raw materials business for the OA, home electronics and automotive fields in China and other Asian countries designated as strategic regions by focusing management resources in these areas. In North America and Europe, meanwhile, we are focusing on building a competitive structure to bring greater diversity and added value to the packaging material products handled by the division. The division realizes a stronger value chain through the access to Group company functions provided by Sojitz Corporation. In the methanol business, Indonesia-based methanol manufacturing subsidiary P.T. Kaltim Methanol Industri supplies products to the domestic market and exports to other parts of Asia. In Vietnam, sales subsidiary Sojitz Chemical Distribution Service Co., Ltd., which owns tank facilities, boasts the leading market share in Vietnam in terms of methanol sales volume. The company has achieved this feat by importing large shipments of methanol from P.T. Kaltim Methanol Industri, which it then stores and sells in smaller order quantities to customers. In this way, Sojitz is taking an organic approach to linking Group company functions to the customers and regions they serve to further expand its value chain. 25

28 Sojitz Corporation Annual Report 2007 Main Businesses A L D J E G CHEMICALS & PLASTICS DIVISION Sojitz Cosmetics Corporation Sojitz Cosmetics Corporation was launched in April 2007 after assuming operations once conducted by Sojitz Corporation s Cosmetics Department. Drawing synergies between marketing functions that accurately read market trends, product development capabilities in offering safe and highly functional products, and Sojitz procurement capabilities for cosmetic raw materials, the company is supplying customers with excellent cosmetics that satisfy their needs. Major cosmetics products from Sojitz Cosmetics Corporation (Belle Cio brand) Industrial Minerals Business In this business, Sojitz handles a variety of industrial minerals for which it enjoys significant market shares, including fluorspar, bauxite, vermiculite, bentonite, ilumenite, and zircon. In May 2006, we gained a secure supply source for dolomite by taking an equity stake in a related mining company in China. This step has enabled Sojitz to accelerate the supply of this secondary raw material used in steel manufacturing for import to Japan and to the domestic Chinese market. Mine operated by a dolomite production company invested in by Sojitz Chlor-alkali Business Sojitz boasts a leading position among trading companies in the handling of industrial salt, the key raw material for inorganic chemicals; its derivatives such as caustic soda, soda ash and other alkali products; and chlorinated products like EDC (the raw material for PVC (Polyvinyl Chloride)) and chlorates. In the industrial salt and EDC business, Sojitz invested in producers in Australia and Brazil, respectively, and has over many years accumulated a strong track record of shipments to Japan and other parts of Asia. Plant operated by Braskem, a Brazil-based EDC producer Chemical Tank Business: Supporting Global Marketing in Liquid Chemicals Sojitz operates chemical tank facilities with a total capacity of more than 100,000kl across eight countries worldwide including Japan, Vietnam, and Thailand. This makes the division one of the leading players among trading companies in the field in terms of capacity. Sojitz maintains distribution bases to ensure the stable trade of liquid chemical products. In imports of industrial-use ethanol, Sojitz is a leader among Japanese trading companies in terms of volume, with a 15% share of the market. In Vietnam, where demand for chemical products is climbing in step with economic growth, we completed construction in November 2006 that doubled storage capacity. From this position, we are supplying products to clients on a stable basis while taking steps to increase sales. Sojitz Chemical Distribution Service Co., Ltd. of Vietnam Metton Business: A New Environmentally Friendly Molding Material As a strategic business in its organic chemicals operations, Sojitz owns Metton America, Inc., its subsidiary manufacturing Metton resin in the U.S. As a liquid resin, Metton facilitates molding of large and complex components and offers excellent shock resistance. Since Metton molding eliminates the use of glass fiber, it is eco-friendly in recycling and fuel consumption due to less weight compared with the other resins for the same mechanical performance. Its use as a new material in the U.S. and Europe is expanding rapidly: applications include components for large trucks, as well as for construction and agricultural machinery. Large truck components made possible thanks to the design potential of Metton plastic Fertilizer Business Sojitz produces and sells 1.8 million tons of chemical fertilizer annually through Thai Central Chemical Public Co., Ltd. in Thailand, AFC Fertilizer and Chemicals Inc. in the Philippines, and Japan Vietnam Fertilizer Company in Vietnam. Through these companies, Sojitz contributes to agricultural development in Asia as the largest chemical fertilizer producer in Southeast Asia. As the global population increases and demand for crops for use as fuel rises, greater growth in agricultural output will be critical to meeting emerging needs. Accordingly, we expect to see increased demand for fertilizer in the years to come. Chemical fertilizer from Thai Central Chemical Public Co., Ltd. 26

29 Annual Report 2007 Sojitz Corporation Methanol Business P.T. Kaltim Methanol Industri (KMI), in which Sojitz is the major shareholder, has been involved in the manufacture of methanol in Indonesia since KMI sells approximately 670,000 tons of methanol annually to markets throughout Asia, where its close proximity to demand centers, stable operations, and high quality have won it a strong reputation in these markets. In addition to its traditional use as a raw material in a vast range of chemical products, methanol has recently gained attention in environmentally friendly energy products such as bio-diesel and DME (Dimethyl Ether). KMI methanol manufacturing plant FPD (Flat-panel Display)-related Businesses Sojitz Pla-Net Corporation has positioned the FPD sector as a site for strategic business expansion. Most notably, the company is eyeing sales of liquid crystal, oriented film and other FPD-related materials to Taiwan, where the industry is amassing a presence. To expand initiatives targeting the next generation of new technologies and materials like organic EL, which have gained much attention of late, the company is pursuing partnerships with prominent basic material manufacturers, as well as capital and business tie-ups with related venture firms. Organic EL panels Automotive Component-related Businesses Amid global market growth in the automotive sector, Sojitz Pla-Net is selling plastic raw materials, components and related products mainly to Japan, China and other Asian markets. Particularly in the Southern China region, where growth in automobile production volume has risen rapidly, the company is leveraging Group companies such as Takagi Auto Parts (Foshan) Co., Ltd., Nanhai Huada-Takagi Mold Co., Ltd., and Sojitz Plastic (Shenzhen) Ltd. to develop a framework for supplying raw materials, components, molds, and a host of other products. Automotive components OEM Business Based on the needs of its business clients, Sojitz Pla-Net handles, on a consignment basis, design through to production of containers for transporting silicon wafers, FPD glass substrates and other products that require high levels of cleanliness. The company is extending its reach into two new sectors, photovoltaic cells and amusement, where high growth rates are anticipated going forward. Containers for transporting color filters Plastics Resin Business Sojitz Pla-Net s involvement in plastics goes beyond the automobile sector. As another core operation, the company does substantial business selling plastic resin to the home electronics and OA equipment sectors. In overseas markets where further growth is expected, Sojitz Pla-Net supplies plastic resin from its plastic compound (premold materials) manufacturing bases and plastic sales subsidiaries. Furthermore, by strengthening logistics functions such as VMI (Vendor Managed Inventory), Sojitz Pla-Net is striving to build a framework for supplying plastic resin to business clients worldwide. VMI warehouse in Europe Packaging Materials Business In the packaging materials business, Sojitz Pla-Net conducts a wide range of businesses, from the supply of plastic materials and facilities to production of finished products, covering everything from food and generalpurpose products through to industrial-use applications. This is especially the case with food products, where it supplies high-oxygen barrier EVOH plastics, and in the medical sector, where it sells compound films with outstanding moisture-blocking properties and other high-performance products. Meanwhile, Sojitz Pla-Net s Naruhotto brand containers, which have the ability to heat up container contents, were selected as one of the top 100 Japanesque Modern products last year. Encouraged by this recognition, we plan to take appropriate steps to cultivate this business. Sojitz Pla-Net s Naruhotto brand products 27

30 Sojitz Corporation Annual Report 2007 Business Divisions and Group REAL ESTATE DEVELOPMENT & FOREST PRODUCTS DIVISION Net Sales (Billions of yen) Gross Trading Profit (Billions of yen) Recurring Profit (Billions of yen) President, Real Estate Development & Forest Products Division Masao Ichishi 0 Mar. 05 Mar. 06 Mar. 07 Business Activities Overview The division has positioned the condominium and retail property development businesses as its core domains in the real estate sector. In the condominium market, demand volume is expected to be largely flat among post-baby boomers and younger cohorts, typically the main customers for division product models. Nonetheless, sales prices are rising sharply, mainly reflecting increased construction costs due to higher prices for useable land and resources. In retail property development, while the desire for store expansion among property tenants remains as strong as ever thanks to Japan s economic recovery, which is widely expected to continue, changes in consumer lifestyles will likely trigger more diverse needs with respect to shopping centers as well. As we work to anticipate market changes and purchase prime land for business use, we are leveraging Sojitz strengths in product planning and business development to advance this business. In the forest products sector, global demand is rising, with a greater push to promote the use of sustainable forest resources to reduce carbon dioxide emissions also likely going forward. Backed by these trends, the division is engaged in an array of businesses in its upstream through downstream value chain. Operations include the import of timber, plywood, and lumber products from around the world as well as offshore trade. The division is also 0 Mar. 05 Mar. 06 Mar. 07 engaged in distribution of plywood, lumber products and building products in Japan, and overseas timber processing, primarily through Sojitz Building Materials Corporation. Fiscal 2006 Results 0 Mar. 05 Mar. 06 Mar. 07 In fiscal 2006, ended March 31, 2007, the division recorded net sales of billion, a decrease of 9.4% year on year, as sales of construction equipment and materials fell despite a recovery in the lumber market. Gross trading profit, however, rose 4.2% to 25.0 billion, reflecting improved earnings in lumber transactions. Recurring profit, meanwhile, remained steady at 8.1 billion. In the condominium sector, the division focused on retaining profitability against a backdrop of increased procurement costs due to sharply higher land prices and increasing polarization of the market with regard to sales. To this end, we maintained tight management with respect to purchasing, planning and sales. In the retail property development sector, meanwhile, the division completed secondphase construction at the Mallage Saga shopping center in Saga, Saga Prefecture, Japan, in November 2006, aimed at expanding floor space. The Kobe-Sanda Premium Outlets located in Kobe, Hyogo Prefecture were also constructed, and opened in July Incidentally, all five existing outlet malls posted healthy performance for the year. 28

31 Annual Report 2007 Sojitz Corporation In the forest products sector, overall costs for lumber materials rose, tracking higher prices at production centers in response to rising global demand and the impact of a weaker yen. This trend notwithstanding, business remained profitable thanks to progress in raising domestic sales prices, especially for plywood, to cover higher costs. Operations also commenced in December 2006 at a joint venture lumber factory with Tachikawa Forest Products Co., Ltd. in Jiangsu, China. New Stage 2008 Business Strategy In real estate development, the division will continue to position condominiums and retail property development as its core businesses, optimally leveraging Sojitz functions as a general trading company. At the same time, Sojitz will leverage the information, product planning, and business scheme development capabilities cultivated over the years to accurately grasp changes in the business environment and market needs. We will also aggressively develop a wide range of business real estate properties, including offices and properties related to distribution and other operations. In the condominium business, we have put in place a framework for conducting everything from product planning to sales and management within the Sojitz Group by inviting Group companies involved in sales and property management to offer input from the planning phases of condominium development. The division has also started marketing IMPREST as a new condominium brand. In the retail property development business, we are taking steps to integrate planning and development through to store operations within the Sojitz Group. Our strong tenant networks have been especially well-received. Going forward, the division will strive to further boost in-group functions in each related field. For the retail property development business in particular, we plan to integrate the expertise of Chelsea Japan Co., Ltd., a company involved in outlet mall development, as we expand the division s business domains to encompass neighborhood shopping centers and urban commercial facilities. Where forest products are concerned, the goal is to respond to changes in retail distribution channels through more efficient Group management. Here, we are realigning the division s domestic organization around Sojitz Building Materials Corporation. This effort will also see the division strengthen transactions for lumber products and building materials, and attain more sophisticated functions to encourage direct sales to meet downstream demand. Elsewhere, we are working to obtain official certification under Japan s Law on Promoting Green Purchasing and enhancing initiatives for creating a more environmentally friendly business. The forest products business boasts one of the largest handling volumes in the industry for lumber imports to Japan, a feat made possible through strong relationships forged over the years with prominent suppliers abroad. In this business, we are promoting an overseas strategy underpinned by this network of key production centers overseas that illustrates two division strengths: purchasing power built on economies of scale, and efficient logistics operations. Management resources will be channeled into natural resource-rich China and Russia as we bolster our manufacturing functions overseas by taking a proactive approach to putting Japan s sophisticated and cost-competitive timber processing technology to use outside Japan. 29

32 Sojitz Corporation Annual Report 2007 Main Businesses REAL ESTATE DEVELOPMENT & FOREST PRODUCTS DIVISION Unifying Condominiums Under the IMPREST Brand In more than 35 years of business, Sojitz has supplied an industry-leading cumulative total of roughly 80,000 condominiums in Japan. Now, we have unified Sojitz condominiums under a single brand, IMPREST. This single brand replaces the numerous different brands used in the past (i.e., the Restarge, Century Heights and Grazioso brands from Nichimen, and the Sofia and Region brands from Nissho Iwai). The underlying concept behind this change was to merge and restructure past expertise to deliver an experience that exceeds the expectations of all Sojitz condominium customers. The IMPREST logo, the new face of Sojitz condominiums IMPREST Yokohama Tsurugamine: A Home and Oasis Nine Minutes from Yokohama The concept that gave rise to this 321-unit condominium project was to create an oasis to call home just nine minutes from Yokohama. This development enables residents to enjoy the conveniences of Yokohama, while living in tranquility a comfortable distance away from the hustle and bustle of the city. The property is surrounded by flowing water and lush greenery, giving it the look and feel of an oasis from a completely different world. The absence of nearby buildings blocking the breeze and sunlight brings a sense of relaxation and openness to the property. Each all-electric unit features the latest in amenities, including steam-mist dishwasher/dryers, garbage disposals, and non-contact IC cardkey entry systems. Exterior view of the IMPREST Yokohama Tsurugamine Condominium Development Manor s Hill Senri: The 21 st Century Manor The august homes that English lords built in medieval times to oversee their domains were called manors. Manor s Hill Senri seeks to become the manor of the 21 st century by achieving a living experience that residents can take immense pride in. Featuring a stately exterior, a relaxed garden layout with fountains, and other exquisitely designed shared spaces, the property also has a condominium power cogeneration system and other innovative facilities that helped to bring this well-crafted living space to life. The library is reminiscent of one to be found in an old-english manor house Large-scale Suburban Shopping Centers: Third Center Planned for Shobu-machi The Sojitz Group develops and operates the Mallage brand of large-scale shopping centers. These sites feature specialty outlets including fashion boutiques, general merchandise shops, restaurants, and amusement centers, developed around anchor facilities such as supermarkets, home centers and cinemas. In November 2006, the Group reopened the revamped Mallage Saga, which first opened in March 2003, after adding a cinema complex, amusement center and specialty shops. Local response to the newly redesigned center has been extremely positive. At present, Sojitz is acquiring land in Shobu-machi, Saitama Prefecture, with plans to build a third center following those in Saga and Kashiwa. The target date for the start of operations at the new facility is fall of Mallage Shobu Outlet Mall Business: Opening of Kobe-Sanda Premium Outlets Sojitz is an investor in Chelsea Japan Co., Ltd., a company that has developed Premium Outlet malls across Japan, most notably in Gotemba, Rinku, Sano, Tosu, and Toki. Performance at the malls has improved steadily since their respective openings. The outlet centers developed by Chelsea are among the largest of their kind in Japan in terms of scale, sales and foot traffic. In a bid to raise customer satisfaction even further, Chelsea will work to upgrade mall facilities, tenants and services, while remaining committed to the opening of new centers. On July 6, 2007, Chelsea opened its sixth center in Kobe-Sanda, and has begun development of another center in Izumi Park Town in Sendai, which is scheduled to open in October Rinku Premium Outlets Property Management Business Ensuring Peace of Mind and Reliability Sojitz General Property Management Corporation offers a full line of property management services for condominium, office and commercial facilities. The company had a portfolio of over 25,000 condominiums under management as of March 31, 2007, and will take advantage of this record under the Sojitz Group s new condominium brand, the IMPREST series. In addition to providing services using systems such as NAMS-24 security system, MUAS accounting system, and F-net, the company acquired Privacy Mark certification in December This was followed by ISO 9001 certification for resident association accounting operations obtained by the company s Tokyo Head Office in In these ways, Sojitz General Property Management is working to provide greater peace of mind and reliability. NAMS-24 offers round-the clock remote surveillance 30

33 Annual Report 2007 Sojitz Corporation Condominium Sales, Furnishing Retail and Property Consulting Business Providing Homes With a Difference Sojitz Realnet Corporation is the Sojitz Group s total property services company handling the planning and sale of 4,000 units a year. It is engaged in a diverse range of businesses from the interior design of show-units and sale of home furnishings, to condominium sales center design, construction and proposals. The company also acts as intermediary in property-related transactions, provides advice on the effective utilization of property, offers consulting, and is involved in purchasing and refurbishing properties. The cooperative framework and information capabilities made possible through the Sojitz Group are the driving force in winning the company a strong reputation among its customers. From this base, Sojitz Realnet is determined to achieve a level of customer satisfaction that is second-to-none in every field of operations. Internal view of condominium sales center Lumber Business in Manzhouli, China Sojitz and Shimizu Lumber Co., Ltd. have agreed to cooperate in a lumber business in Manzhouli, a city in the Inner Mongolia Autonomous Region bordering Russia. Currently, work is moving forward on the construction of a lumber factory at the site, with operations scheduled to commence in the fall of With Russia s abundance of forest resources as a backdrop, manufacturing in China, where integrated container transport directly to Japan is possible, will result in a system for fast delivery of Sojitz brand lumber products to homebuilders in Japan. A lumberyard for Russian-produced timber First Veneer Processing Plant in the Russian Far East Demand is currently increasing for structural plywood materials. In order to secure stable supplies, Sojitz is building a veneer processing plant in resource-rich Russia, which boasts the largest land area of forest in the world. In this project Sojitz is partnering with Flora Joint-Stock Company, a leading forest products company in the Russian Far East. Japan s largest wood-processing company, Seihoku Corporation, will provide technical support for the plant, which is slated to come onstream in fiscal Veneer processing plant under construction in Russia One of New Zealand s Largest Lumber Production Bases Sojitz and Tachikawa Forest Products Co., Ltd. established Tachikawa Forest Products (N.Z.) Ltd. in Rotorua, New Zealand, in One of New Zealand s largest lumber production bases, the plant has Chain-of-Custody certification, which certifies that environmental measures are taken with respect to logistics processes for lumber products. From this position, the company will pursue sales of Forest Stewardship Council (FSC)-certified lumber not only to Japan, but to areas where demand is growing such as China, Southeast Asia and the Middle East. Lumber produced by Tachikawa Forest Products (N.Z.) awaits shipment Sojitz Building Materials Corporation Number One Share of the Lumber Market Sojitz Building Materials Corporation responds accurately to market demand for environmentally friendly and safe materials to create optimal living spaces. It boasts the industry s leading trading volume for plywood and lumber, and also has a competitive edge in the sale of other interior building materials, building construction supplies and home fittings. In October 2006, the company integrated its operations with Sojitz Lumber & Panel Marketing Department to offer a complete range of consulting services related to building materials for the home. Manufacturing plywood at a plant supplying Sojitz Building Materials Japan Building Materials Mall in Shanghai Sojitz Building Materials and YZJ Investment & Management Co., Limited are operating the Japan Building Materials Mall in Shanghai. Permanently dedicated to showcasing and selling high-quality Japanese building materials, the center will respond to needs in the increasingly high-quality oriented Chinese market. The center offers full support to exhibiting firms seeking to establish themselves in China, assisting them with distribution, marketing, design and construction, and advertising using the Chinese mass media. Entrance of Japan Building Materials Mall 31

34 Sojitz Corporation Annual Report 2007 Business Divisions and Group CONSUMER LIFESTYLE BUSINESS DIVISION Net Sales (Billions of yen) 1, Gross Trading Profit (Billions of yen) Recurring Profit (Billions of yen) President, Consumer Lifestyle Business Division Keisuke Ishihara 0 Mar. 05 Mar. 06 Mar. 07 Business Activities Overview In April 2006, the Consumer Lifestyle Business Division replaced its three business group structure comprising the Foods Group, the General Commodities & Consumer Business Group, and the Textiles Group with a dual group structure. This new structure comprises the Foods Unit and the Textiles & General Merchandise Unit, formed by combining the former General Commodities & Consumer Business Group and the Textiles Group, which share certain areas of downstream strategy. The Foods Unit operates across the entire food business sector, handling agricultural, marine, and livestock products and associated processed food products. Based on its business vision of establishing an innovative food value chain that vertically integrates upstream and downstream activities to provide safe and reliable food, the Foods Unit has many cooperative plants and joint ventures in Japan and overseas and pursues a strategy that integrates raw material procurement, processing, distribution, and sales. The Textiles & General Merchandise Unit handles a huge variety of businesses: it utilizes Sojitz powerful supply chain in clothing and bed linen materials and wholesaling, while Sojitz global capacities come into play for textile operations, highly functional textile materials, and industrial textile materials. In its lifestyle business the unit supplies infant products to specialty chain stores and volume 0 Mar. 05 Mar. 06 Mar. 07 retailers throughout Japan, while the general commodities and consumer business handles woodchips, consumer products, and cigarettes. Each of these businesses is striving to cater to customers more fully and provide more detailed and sophisticated services and functions. Fiscal 2006 Results 0 Mar. 05 Mar. 06 Mar. 07 In fiscal 2006, ended March 31, 2007, the division recorded net sales of billion, up 5.3% from a year earlier. This increase reflected higher sales in foods and apparel. Gross trading profit amounted to 38.4 billion, down 2.3%, while recurring profit declined 53.7%, to 2.5 billion. In the Foods Unit, Sojitz Foods Corporation, which is a specialist trading company with development and importing capabilities, saw earnings fall below planned targets during the fiscal year because of intensified competition among consumeroriented products. In December 2006, Sojitz concluded a joint venture agreement with Beijing San Yuan Group Company to establish a wholesale food distribution company in Beijing, China. The joint venture will operate a comprehensive logistics business for foods using three temperature zones: frozen, refrigerated, and room temperature. In the textiles business, net sales demonstrated growth during the year, but operating income decreased due to the effects of bad weather and 32

35 Annual Report 2007 Sojitz Corporation higher SG&A expenses resulting from investment for the future. To ensure growth going forward, the Sojitz Group formed a significant capital alliance in the clothing materials field during the fiscal year. In December 2006, wholly owned subsidiary Nichimen Infinity Inc. acquired a 35% stake in S.S HOLDINGS CO., LTD. the parent company of Shop and Shops Co., Ltd., an apparel and sundries company, forming a capital alliance. Utilizing the retail know-how of S.S HOLDINGS, Nichimen Infinity plans to develop an SPA (Specialty store retailers of Private label Apparel) business, new brands, and new business fields. Among other highlights during the fiscal year, Nichimen Infinity established a wholesale and retail sales company for its core McGregor and other brands in Shanghai, China, and set up McGregor specialty shops in three local Isetan department stores, continuing to expand sales of the McGregor brand within China. New Stage 2008 Business Strategy Against a backdrop of recent advances in globalization, diversification of consumption patterns, and changing industry trends, ongoing changes are occurring in sources of business earnings and in markets themselves. In a bid to take advantage of these trends, the division is strengthening its functions in each of its businesses and pursuing earnings growth by establishing a value chain unique to Sojitz. The division is focusing its resources on a number of businesses in particular: in its powerful textile business it is expanding sales in the U.S. market based on its production capabilities; in the woodchip business it is strengthening its production base; and in its foods business, the division is entering new overseas markets particularly in China and the rest of Asia and expanding its functions with regard to food resource procurement, manufacturing and logistics. The strategic emphasis of the Foods Unit is on the potential rapid-growth markets of China and other Asian countries. We intend to roll out new food-related businesses overseas by collaborating with local companies, branches and offices in these countries primarily through the Provisions Dept. set up in October In June 2007, Sojitz acquired 20% of a major flour milling company in Vietnam, and expects to continue aggressively building its business targeting overseas markets. The Foods Unit is also targeting expansion of its business domain in the Japanese market by reinforcing its manufacturing and logistics functions, particularly those of its core company Sojitz Foods. Overseas, the Foods Unit is conducting investments and loans focused on the priority regions mentioned previously China and elsewhere in Asia with a view to building a solid value chain within the Sojitz Group. For the Textiles & General Merchandise Unit, the division has been establishing a network of four bases covering the markets of the United States, Southeast Asia, China, and Japan. Under this structure, it is pursuing the expansion of its OEM business, entry into the retail market, strengthening its upstream business earnings base, establishing new technology-oriented businesses as sources of earnings, and expanding its woodchip processing business for the Japanese market. Sojitz is also endeavoring to further strengthen its functional business capacities by building a proprietary Group supply chain. Measures to achieve this goal include reinforcing its wholesale and retail functions through a tie-up with a U.S. apparel company and expanding downstream business around the existing apparel wholesale companies of the Sojitz Group. 33

36 Sojitz Corporation Annual Report 2007 Main Businesses CONSUMER LIFESTYLE BUSINESS DIVISION Wheat and Overseas Grain Business Sojitz handles wheat from Europe and other countries in addition to the traditional wheat-exporting nations of America, Canada, and Australia. Most importantly, as an agent for the Canadian Wheat Board, the Company focuses on offshore transactions in Canadian wheat, which is well known in the market for its high quality. In June 2007, Sojitz acquired 20% of a leading Vietnamese flour milling company Interflour Vietnam Limited. The acquisition is part of a plan to construct and expand port infrastructure and build grain silos and warehouses, all centered on Interflour Vietnam s flour milling plant. Constructing efficient port infrastructure will reduce the import costs for wheat and other grains. In addition, the food-oriented industrial complex to be constructed on land abutting the port facility will contribute to the development of the food industry in Vietnam. Canadian wheat crop prior to harvest Tuna Business Sojitz processes and markets frozen and fresh raw tuna with business partner TRY Inc., a wholesaler of tuna in Shizuoka City. Sojitz is developing diverse sources of raw material supply in line with customer needs, and is handling the import of farmed tuna from multiple suppliers in Spain, Australia, and Mexico to assure a stable supply of high-quality products in Japan. In addition, to meet flourishing demand overseas, the Company operates the only Japanese deep frozen tuna processing and sales company in China. Located in Dalian, the company s deep-freezing plant is developing its business with great attention to food safety and reliability by maintaining BRC (British Retail Consortium) standards, reputed to be the strictest hygiene standards in the world. Tuna farming in the Mediterranean Sojitz Foods Corporation As a global food distribution company, Sojitz Foods procures reliable and safe foodstuffs domestically and overseas. It leverages the expertise of manufacturing plants inside and outside Japan that are owned by, or collaborate with, the Sojitz Group, to develop products that respond accurately to customer needs. It then uses its domestic network consisting of domestic branches and logistics capabilities to market the products nationwide. Products marketed in this way are various types of processed products (especially private brand products), groceries, and raw materials such as sugar, etc. In addition, Sojitz Foods is developing a third-party logistics business. Leveraging the Group s manufacturing capabilities both in Japan and overseas, Sojitz delivers products and services that address the demands of the retail distribution industry. Afforestation and Woodchip Business Sojitz has three operating companies in the afforestation business in Vietnam and Australia, which operate plantations with a total area of 20,000 hectares. The Company has three directly managed woodchip manufacturing subsidiaries in Vietnam, and also has long-term sales contracts for woodchips with Integrated Tree Cropping Ltd., a subsidiary of leading Australian conglomerate Futuris Corporation Ltd., as well as Australia s largest plantation investment management company, Great Southern Ltd. Building this afforestationmanufacturing-sales supply chain structure has significantly increased the Company s trading volume of woodchips for paper manufacturing. Growing plantation seedlings in Vietnam Infant Goods Business Sojitz supplies top-brand Aprica products and a variety of other infant and childcare items to baby-goods retailers and large general merchandise stores throughout the country. In recent years, the Company has been expanding its product planning, development and manufacturing proposal capabilities and forging alliances with large baby-goods retail chains to increase its transaction volume for private brand products. Going forward, Sojitz is aiming to create new businesses offering higher added value, including operations based on its own proprietary brands. Aprica infant goods Consumer Products and Industrial Materials Business A marketer of consumer products and industrial materials, Sojitz General Merchandise Corporation (Sojitz GMC) is engaged in planning, import, and sales of value-added products that respond to market needs through business tie-ups with overseas manufacturers. Examples include TITAN brand suitcases and the Admiral brand of casual shoes. In addition, Sojitz GMC is developing the export market for tires and motorcycle parts. Recently, the company has commenced selling specialized environment-oriented devices for organic waste processing and the prevention of vehicle idling. TITAN brand suitcases, sold at major specialist retailers throughout Japan 34

37 Annual Report 2007 Sojitz Corporation Cigarette Business Sojitz has exclusive wholesale rights for imported cigarettes manufactured by Philip Morris, known for brands such as Marlboro, Lark, Philip Morris, Parliament, and Virginia Slims. These products are steadily capturing a growing share of the Japanese market, and they now account for approximately 70% of the imported cigarette market. As Philip Morris s business partner, Sojitz will continue working to expand sales of these products. Philip Morris cigarettes imported into Japan Daiichibo Manufacturing That Benefits the Environment as Well as People Daiichibo Co., Ltd. boasts an integrated system encompassing the entire process from cotton spinning through clothing manufacture. The company draws on this capability to supply products that benefit both people and the environment. Its unique product development capabilities are acclaimed within the clothing industry, establishing its name as a byword for product development. Most notably in this regard, Daiichibo has made use of IPX spinning machinery to develop a variety of functional yarns which it is employing in various new applications in its specialty innerwear field and elsewhere. Utilizing material development capabilities, Daiichibo has developed products for the VANCET knit series supplied by Nichimen Fashion Co., Ltd., and through collaboration with the Sojitz Textiles Group is making a significant contribution to value creation in the textile business. Daiichibo Co., Ltd. product fair Singapore Co. Focuses on Slacks and Skirts to Secure Marketing Channels Singapore Co., Ltd. is an apparel manufacturer engaged in the planning, manufacturing, and sale of women s wear, primarily slacks and skirts, with a broad range of marketing channels, including department stores, general merchandise stores, and specialty shops. The synergies generated by fusing the company s planning and development capabilities and its diverse marketing channels with the overseas sourcing, manufacturing, and quality control functions of the Sojitz Textiles Group, will further strengthen Singapore Co. s core competence in slacks and skirts. At the same time, the company will make product proposals based on fully coordinated outfits to further enhance customer satisfaction and expand its operations. Singapore Co. s women s wear on sale China s First Yarn Dyeing Plant Qingdao Jifa Longshan Dyeing & Weaving Co., Ltd. Sojitz has established joint venture Qingdao Jifa Longshan Dyeing & Weaving Co., Ltd. in China with three other Japanese companies and a leading Chinese company. The company started operations on the outskirts of Qingdao in October 2005, and operates the first weaving and dyeing plant in China to produce high-quality cotton and cotton-polyester blended fabrics comparable to those produced in Japan. The lack of adequate weaving and dyeing facilities in China had impeded textile manufacturing in the country, but Sojitz can now ensure reliable quality by conducting these processes within its own network. The fabric produced at the plant will be used for up-market apparel in Europe and the U.S., as well as Japan. Textile manufacturing using advanced looms Nichimen Infinity Strives to Promote the McGregor Brand Nichimen Infinity Inc. is an enduring comprehensive apparel firm that meets diverse market requirements with a wide array of brands centering on American casual wear brand McGregor. Nichimen Infinity handles the menswear brand, Vesvio, and womenswear brands Miss Brolly and Aqua Floral. Guided by the motto, Coordinating fashion and activity to create and propose richer lifestyles, Nichimen Infinity is now also targeting new possibilities. Through the establishment of a sales base in China and M&A activities aimed at collaborative business relationships with the retail industry, Nichimen Infinity is aggressively developing new business. McGregor, a name synonymous with evolution in American casual wear Strengthening Marketing Functions Sojitz Satellite Sojitz Satellite Corporation is a specialist planning and solutions firm in the apparel business. Its activities include product planning, retail space proposals and branding, all drawing on its own distinctive customeroriented marketing capabilities. Sojitz Satellite reinforces the Sojitz Group s production management and distribution capabilities, as well as its quick-response operating framework through joint-venture and collaborative textile plants a particular strength for the Group. In so doing, the company works to supply services that satisfy all of our customers. The Sojitz Satellite showroom 35

38 Sojitz Corporation Annual Report 2007 Business Divisions and Group IT BUSINESS GROUP President, IT Business Group Hiroyuki Tanabe Business Activities Overview In April 2007, Sojitz established the IT Business Group to develop information technology-related business as a potential growth field from a mediumto long-term point of view. The group comprises several businesses for which the New Business Development Group had acted as an incubator; these businesses were transferred to the IT Business Group based on Sojitz strategy for selection and focus of business resources. Naming the group IT Business reflects Sojitz recognition that information technology is a fundamental mainstay of growth in all industries; it is Sojitz intention to leverage IT s capability to support other businesses to create new opportunities. For a general trading company that comes into direct contact with a diverse range of businesses both inside and outside Japan, the central role of the information industry to all of them makes it a field that offers potential business opportunities. At the same time, by making the best use of IT, Sojitz can reinforce its capacity to add more value in every business category within the Sojitz Group through its role as a trading company. New Stage 2008 Business Strategy As the penetration of broadband Internet and mobile phone services approaches mature-market levels, the information industry is reaching a new turning point. In response, the group has turned its attention to restructuring businesses in existing industries and cultivating new information services rooted in the already maturing broadband and ubiquitous networking-oriented businesses. The group is making business investments focused on these areas to expand earnings. In addition, the group intends to take advantage of Sojitz assets in terms of new technologies and sources of information including market intelligence overseas to take the lead in creating new international business opportunities from markets that are at a turning point. In the IT field, Sojitz plans to broaden its scope of operations through deeper collaboration among group companies to build a value chain that can comprehensively meet customers IT needs, from system development and construction to operation and maintenance. Group company cooperation will be centered on Nissho Electronics, a solutions provider with outstanding technological capabilities and the ability to identify leading-edge IT technology in the U.S. market ahead of others. The group is introducing advanced IT and new business models into the Japanese market, primarily through its U.S. operating base. A particular field of interest for Sojitz is the IT offshoring market, which is expected to achieve high growth amid the progressive internationalization of information services. IT offshoring refers to the commissioning of IT system development and operation to overseas corporations. Sojitz is leveraging its strengths as a general trading company to become No. 1 in international IT business development, particularly in countries such as India and China as well as Vietnam, where it already has a strong market advantage. To this end, the group is pursuing business alliances including M&As with companies in Japan and overseas. 36

39 Annual Report 2007 Sojitz Corporation Main Businesses IT BUSINESS GROUP Information Services Business There is growth potential for information services targeting corporations, such as data center services based on a mature broadband network or business process outsourcing. With its eye on such opportunities, the IT Business Group is introducing new business models from countries with advanced IT markets. In doing so, its aim is to build an information services business taking advantage of Sojitz strengths as a general trading company that develops business from a global perspective. In the IT offshoring market, the group is extending the outsourcing of IT operations to overseas companies in Vietnam, where it is strongly positioned, and in India and China. The group takes a global perspective in creating IT service businesses Solution and Services Providers Business Solutions and services provided by Nissho Electronics Corporation include infinity computing solutions, which improve the efficiency of IT systems used in the manufacturing and finance industries, and internal control solutions, which are essential to corporate strategy. The company also offers carrier network, carrier VoIP (Voice over IP), wireless and other solutions to telecommunications carriers. The first company in Japan to market DWDM (dense wavelength-division multiplexing) and carrier-grade VoIP systems, Nissho Electronics provides advanced solutions that draw on its technological expertise and track record as an industry leader. T-series routers manufactured by Juniper Networks, Inc. Electronics Device Business Nissho Electronics supplies high-performance, high-value-added devices based on the digital living room concept. Supplying primarily on an OEM basis, its clients include electronics manufacturers, PC manufacturers and volume retailers. Nissho Electronics has a history of contributing to development in the industry, including the provision of new technologies that have become the de facto standard. It currently sells coating equipment that utilizes next-generation nano-film coating technology and provides coating services under contract. HDD (Hard Disk Drive) manufactured by Seagate Technology, Inc. Waste Management ASP (Application Service Provider) Business Since Japanese law now places the responsibility for clearing up industrial waste with the corporation that originally discharged the waste, no corporation can afford to ignore the possibility that they could be held liable. Currently, industrial waste management revolves around the requirements of the written industrial waste manifest. In order to make the operation and supervision of such waste management more reliable, Sojitz developed the Venous waste management system and provides an ASP service. The ASP service is already used by a wide variety of industries and entities, including the steel industry, papermaking industry and the automobile product associations. In this way, Sojitz has been supporting appropriate environmental management and more efficient waste control at companies and organizations. The Venous waste management system Healthcare Business The group is involved in a range of endeavors, from supplying the latest medical equipment on a turnkey basis overseas to initiatives targeting the provision of solution services to Japanese healthcare facilities. In its medical equipment sales, the group is planning to expand its business base by re-entering the import and domestic sales markets, which are large. The group is also reinforcing its alliances with influential partners that have a strong track record for business fields in which it operates to offer domestic site management organization (SMO) services and operate diagnostic imaging centers, medical equipment marketing companies and other entities. An X-ray angiography machine, the latest in medical equipment Content Business With the rise of new media such as the Internet and mobile phones, increased demand for content is anticipated. Against this backdrop, the group is focusing on investment in a diverse range of content, as well as copyright distribution, to create an international value chain and develop multiple uses for this content. To this end, Sojitz has made investments in A.D. Vision Inc., a major distributor of Japanese animation in the United States; Index Global Rights Management Corporation, an international copyright management company established in collaboration with Index Corporation; and content distribution company Klockworx Co., Ltd. Left: Movie Argentine Hag, 2006 Argentine Hag Production Committee; Right: Wangan Midnight, Michiharu Kusunoki/KODANSHA OB planning 37

40 Sojitz Corporation Annual Report 2007 Regional Heads Talk About the Challenges Sojitz Has Set Itself Europe, Russia & NIS China Middle East & Africa The Americas Asia & Oceania Jun Matsumoto, President & CEO for the Americas The recent upswing in natural resource prices and in the volume of liquidity in global financial markets has raised the level of activity of the world s investment-generating economies and industries, thereby further accelerating the globalization of nations and corporate enterprises. Great business opportunities abound, whether involving the creation of new businesses or innovations in existing businesses, especially in (i) the United States, which drives the development of economies and industries worldwide with its advanced financial and industrial technologies, (ii) Brazil, with its rich natural resources, and (iii) the countries of Latin America, with their high growth potential. In collaboration with our business partners, we continue to contribute to the economic development of the Americas region and globally, as well as to the earnings growth of our customers through our role as a comprehensive solutions provider for a broad spectrum of industry interests. Despite being in an age of high technology and the advanced technology and business know-how that we have accumulated as a general trading company, our human resources remain the most important asset of the Sojitz Group. Through investment in our human resources around the world, we are committed to being a pioneer for the Sojitz Group and to stepping up the pace of progress to achieve our strategic goals. Kazuhiko Nakajima, President & CEO for Europe, Russia & NIS At present, the EU is comprised of 27 member countries and both the GDP and the aggregate market value of quoted companies in the EU exceed those of the U.S.A. and a state of steady growth is being witnessed. Given these circumstances, our main areas for business expansion in the Europe, Russia & NIS region center around the traditional European market, the strategically important Russian market, which is demonstrating marked economic growth, and the growing markets of Central Europe, Eastern Europe and Turkey. In addition, we are strengthening our collaborative efforts with other Sojitz regional operations, such as Africa to endeavour to expand the profitability of the entire Sojitz group. We have seen success by vigorously pursuing our regionally based business activities such as the North Sea oilfield project and tank operations for chemicals in Turkey. In Russia & NIS we have identified numerous business opportunities and are already dealing in and expanding our business interests in a variety of fields such as built-up automobile sales, automotive assembly and manufacturing, railway rolling stock, natural resources and energy development rights (we are the No. 1 importer of Russian coal into Japan), carbon products, packaging materials, various chemicals, grain, marine products and many others. Thus, throughout the region we are striving to expand high-value-added business, through further investment and enhancing our logistics capabilities in the consumer market. 38

41 Annual Report 2007 Sojitz Corporation Yoshimi Ota, President & CEO for China China s real GDP growth in 2006 was 10.7%, posting double-digit growth for the fourth consecutive year, and its trade balance is forecast to exceed US$2 trillion in Against that backdrop, the foreign capital needs of the Chinese Government and corporations have changed rapidly, shifting away from the previous simple capital investment, to a strong demand for capabilities (technology, marketing, management). The former Nichimen and Nissho Iwai, the precursors of Sojitz, were both capabilities-based general trading companies and became involved with trade with China early on, establishing reputations for themselves here as general trading companies. We inherited their business know-how in China and the human resources they developed. Leveraging this advantage, we are pursuing business expansion through the practice of our capabilities as a general trading company. On a domestic basis, we are investing in natural resources and distribution. Internationally, we are entering various markets in Russia and countries in Central, Eastern, and Southeast Asia in cooperation with Chinese companies that have strong international competitiveness. We also are working with national companies, an interesting area because of the rapid spread of privatization. Shigeki Dantani, President & CEO for Asia & Oceania In April 2006, I assumed my position at our headquarters in Singapore, and have experienced first hand how growth is ready to take off in Asia. The curtain is already up on the Asian age, and the prediction that China and the rest of Asia will account for 50% of the world s GDP by 2050 is not altogether unrealistic. Along with the movement toward an East Asia free trade area, it is clear that inter-regional trade will surge, and positioning Sojitz within that trend could be considered an issue of some urgency. From a medium-to-long term viewpoint, it is important that each business division steadily proceeds with its overseas strategy. However, at the same time, realizing those strategies required a drastic shift in such business resources as people and capital. Consequently, transferring more staff to the region and acquiring highly qualified staff locally are also priority issues for our human resources. Similarly, diversifying local sources of financing is a key issue for operating capital. Our goal is to become the driver of growth in our regions by seeing just how much we can outperform regional growth as a general trading company basing its operations in overseas markets. Shuhei Inoue, President & CEO for Middle East & Africa The region comprising the Middle East & Africa was newly established as a fifth overseas operation zone in 2007 and is a treasure chest of natural resources. Oil, natural gas, mineral resources, precious metals, and marine resources are either in major development stages or in the preparatory phase for such development. Oilproducing countries are in advantageous positions for undertaking world leading mega-sized projects, and developing countries are drawing our attention ever closely as they successively try to catch up with and overtake each other. We are challenging and facing that development flow head on, aiming to establish a major business value chain. The natural resource and energy developments occurring in the Middle East and Africa region are at the forefront of our business expansion efforts. On the other hand, the one-billion-person market is expanding strongly and urbanization is progressing rapidly along with the growing population. In this market, we are endeavoring to meet the rising demand. We are supplying everything from large-scale facilities, such as for infrastructure development, power generation plants, industrial plant equipment and materials to consumer products, such as automobiles, tires, and ball bearings. We also are leveraging our capabilities to provide required services. Undeterred by the size of the region and the severe climate conditions, we are continuing to build a framework for a great earnings base that will support Sojitz s future. 39

42 Sojitz Corporation Annual Report 2007 Sojitz Group Management Sojitz manages the Group with the goal of maximizing Group corporate value. To that end, each employee of the parent company and Group companies shares business strategies, and collaborates in continuing efforts to realize the Group management vision. Looking ahead, we will forge a greater sense of unity under the Sojitz brand and reinforce intra-group synergies to further bolster the power of the Group as a whole and maximize corporate value. Presidents of Core Group Companies Talk About Challenges for Which Sojitz is Uniquely Positioned Sojitz Machinery Corporation, Satoshi Nagakubo, President As the engine of global economic growth, over the next ten years, the East Asian market particularly Japan, China, Taiwan, and Korea will benefit from the increasingly even distribution of manufacturing functions between countries and rapid improvement in standards of living, resulting in expanding demand. As such, we have positioned this market as our most important one. To keep up with these trends, one of our challenges is to pay close attention to the new economic mechanisms centering on the burgeoning automotive industry. We are also pursuing safety measures that utilize a variety of information and telecommunication equipment and environmental measures that provide significant energy and labor conservation benefits. In addition we are rigorous in our efforts to ensure that new machinery installations are simple, slim, and compact, and are continuing to develop new products and technologies. In particular, we are taking pioneering steps to exploit opportunities in the micropowder business domain, centering on technology and equipment to economically and reliably form, and achieve ultrafine dispersion, of nanoparticles. Moreover, in our efforts to achieve stable profitability, we are striving primarily to identify all our customers needs and develop those needs to establish a user-oriented business. As a core company of the Sojitz Group, we are aiming to contribute to the Group s overall growth. Sojitz Marine & Engineering Corporation, Shinobu Kawato, President Sojitz Marine & Engineering Corporation is the industry s largest handler of marine-related equipment and materials, and we are further strengthening our operations by implementing growth strategies. Priority initiatives include expanding trading rights in the China region and building sales of such new products as electric propulsion systems. We are integrating our services to cover new shipbuilding and chartering, as well as offering customers construction supervision services and arrangement of financing from domestic or overseas financial institutions. By these means we are taking active steps to improve and bolster our existing businesses through complex transactions that span the process from construction of new ships to fleet operations and trading of second-hand vessels. Another priority challenge within our growth strategies for all shipbuilding and marine-related fields is to carefully gauge customer needs and trends and conduct the expenditure and investment necessary to be a strategic partner. We also provide maintenance and financing services for the Sojitz Group s own shipping business. Utilizing our extensive customer and information networks, we play an important role in providing the Group with shipbuilding and chartering opportunities. Sojitz Energy Corporation, Sadao Ezaki, President Sojitz Energy Corporation is responsible for domestic midstream and downstream distribution and delivery services. We view the recent changes in our business environment, such as the escalating oil prices and the dynamic change in Asia s energy demand and supply structure as business opportunities. Within this context, we are taking on the strategic challenge of becoming an energy trading company that grows with its customers. We are rapidly developing new businesses by collaborating closely with Sojitz to take advantage of the Group s trading company capabilities. Collaboration covers both our business supplying energy to industrial users and our domestic petroleum trading business. The quality blending and storage services we offer using the tank facilities of Sojitz affiliate Tokyo Yuso Co., Ltd. are a highvalue-added function unique to the Sojitz Group. This capability enables us to win new business with electric power companies or to procure domestically produced petroleum products, working with Sojitz to generate new export transactions. Through this interlocking structure, we are producing outcomes that go beyond traditional supply and demand transactions. We have a directly operated network of 87 gasoline stations nationwide. In addition, we are developing a franchise network. Our goal is to expand the present number of approximately 80 franchise gas stations to around 220 in three years time. This will enable us to take advantage of benefits of scale in our procurement activities. 40

43 Annual Report 2007 Sojitz Corporation Sojitz Pla-Net Corporation, Hideaki Kato, President Sojitz Pla-Net Corporation, which handles all aspects of the Sojitz Group s plastics business, adopted the Sojitz name in April 2007, having formerly been known as Pla-Net Corporation. Now it has achieved a renewed sense of unity with the Sojitz Group, Sojitz Pla-Net is conducting its businesses on a global basis by cooperating closely with its six domestic sales offices, as well as the networks of associated companies inside and outside Japan and the Sojitz Group overseas network. The challenges for us are to accelerate operational execution and bolster overseas operations. With respect to the former, Sojitz Pla-Net shifted to a flatter operating organization in April 2007, and is now able to conduct its businesses with agility and a sense of speed. To bolster overseas operations, meanwhile, the company is targeting the buoyant automobile-related fields in Asia. The company is taking a dynamic approach to developing business in Thailand, China and Indonesia through collaboration with major component makers. Looking ahead, it will also be pursuing expansion into Vietnam and India. For leading-edge materials that will form the basis of businesses to be incubated going forward, such as materials for organic electroluminescent displays, solar cells, and electronic paper, we are forming strategic business alliances with prospective manufacturing partners. Sojitz Building Materials Corporation, Masaru Ogawa, President Sojitz Building Materials Corporation handles the full range of housing materials including plywood and lumber, for which it is ranked No. 1 among building material trading companies. The company s growth strategies center on strengthening its lumber products and building materials handling and its capabilities in promoting direct sales catering to downstream demand. By establishing a balanced earnings structure while maintaining our competitive advantage in plywood, and building a business structure that is resistant to market changes, we are aiming to raise our fundamental level of profitability. We are also putting our midstream to downstream M&A strategy into practice as we take on the challenge of creating new business models to expand earnings under a single consistent policy. The key to achieving these goals is developing sales engineers with a broad perspective, which we do by exposing employees to a variety of products and business experiences. We are creating a corporate environment that maintains a high degree of motivation in employees by ensuring that those making an effort are properly rewarded. The ultimate goal of all these efforts is to become a trusted full-line consulting company that excels at meeting all its customers housing material-related needs. Sojitz Foods Corporation, Hirofumi Takeda, President We are a core Group company responsible for midstream and downstream operations in Japan under the Foods Unit of our parent company. As a comprehensive food product trading specialist, our business spans the food products field from basic raw ingredients primarily sugar, flour, and milk products to all manner of agriculture, marine, and livestock products. Sojitz Foods faces a challenging business environment characterized by shrinking markets due to Japan s demographic trends, as well as high raw material costs and low product prices. Nonetheless, we are targeting further growth by efficiently leveraging the raw material sourcing capabilities and overseas network of the parent company, and efficiently combining these strengths with this company s domestic sales network and overseas fabless manufacturing capabilities. Among other strategies, we are aggressively importing basic raw materials in anticipation of changes in the flow of goods in line with the progressive deregulation in the market. In the food products field, we are strengthening our fabless manufacturing and distribution capabilities, aiming to expand the scope of our business, particularly in the growing home-meal replacement and nonstore retailing sectors. 41

44 Sojitz Corporation Annual Report 2007 Foundations of Management The Heart of Sojitz Wealth and Education In spring 2007, a dialogue took place between Chairman Akio Dobashi who plays a major role in management supervision, corporate governance, and other measures for strengthening the foundations of management under Sojitz s new management system, and Zen Master Gisen Asai, (Hanto Taiga), principal of Nagaoka Zen Training Center, who develops human resources through Zen practice. Nagaoka Zen Training Center Nagaoka Zen Training Center (Nagaoka Zen Juku) was established in 1939 by Katsujiro Iwai, the founder of the former Iwai & Co., Ltd. (now Sojitz), for the purpose of promoting a Zen-based background to education and providing scholarships. It is a Zen training school for university students. Students are given their own individual rooms and board at the school. They attend universities in Kyoto and Osaka, and practice Zen in the mornings and evenings. Over its history of more than sixty years, Nagaoka Zen Training Center has graduated nearly three hundred students who have gone on to a variety of careers in the academic, political, and financial worlds. Zen Training Center Principal, Zen Master Gisen Asai (Monastic name: Hanto Taiga), Dharma-heir and successor of Juku principal Shonen Morimoto, one of the foremost disciples of the philosopher Kitaro Nishida, Master Asai has written many books, including Zen Dialogues, A Scene of the Formless, The Analects and Zen, The Structure of Enlightenment, and Zen the World of Shonen Morimoto. Chairman Dobashi Wealth Master Asai, thank you very much for taking the time to see me today. A full three years have passed for Sojitz since the merger of Nichimen and Nissho Iwai. During that time, we have pursued a bold restructuring program and have been very thorough in the selection and focus of our businesses and resources. I am pleased to say that our restructuring plan is proceeding extremely well. In fact, for the past fiscal year, we were able to start paying dividends again, something we have been looking forward to for some time. These successes are in no small part due to the support we have received from our stakeholders, for which I am very grateful. As a company, we must continue to meet the expectations of society. At minimum we must of course make a profit and return a portion of it to society in the form of dividends. But I think that contributing to the betterment of society through our work is also extremely important. On the occasion of the merger, we defined a new corporate philosophy, stating that our mission is to create wealth for society through our business activities. Today, I would 42

45 Annual Report 2007 Sojitz Corporation like to make that wealth the first theme of our discussion and ask you for your thoughts on this concept. Master Asai That is a very difficult topic! Chairman Dobashi I suppose the question is: what is wealth? Human beings need a certain amount of sustenance to live. As stated in proverbs, such as Without stable means one cannot have a stable mind or Well fed, well bred, without a degree of economic wealth, it is difficult to feel any spiritual wealth in your heart. Master Asai When I was living in the United States, this was a big issue. Part of it is how we think of the individual and the whole. In this world, people cannot survive on their own. Where there is an individual, there is a family. Families make up a community, communities make up the nation, and nations make up the world. So it is an issue of how we should view the parts in relation to the whole. To start with, we face the issues of population, pollution, and consumption. In this world of limited resources, our population has exploded. This is despite the fact that there is only one earth, so our resources are finite. Not only that, everyone wants to lead the good life. But the wealth everyone seeks is always accompanied by pollution. And then there is the incredibly vast consumption of resources involved. The question is how are we going to deal with that? Chairman Dobashi Yes, you are exactly right. But what does wealth mean in the world of Zen? Master Asai From a corporation s point of view, a certain volume of commodities represents a corresponding amount of wealth; in short, more commodities mean more wealth, and vice-versa. In the Zen way of thinking, however, physical entities are perceived by becoming one with those physical entities, and distinctions based on amount are therefore irrelevant. Chairman Dobashi In that sense, Zen s concept of wealth is very different from ours in the corporate world. 43

46 Sojitz Corporation Annual Report 2007 Master Asai Yes, they have completely different natures. To put it simply, let s say I have two circles, one bigger than the other. The normal way of looking at this situation is to say this circle is bigger than the little circle. We start with the big circle and imagine that if this circle is this size, then there is a circle that is bigger, and one bigger than that, and so on into outer space, and beyond our comprehension to infinity. Why? Because if something is big, it is only natural that there is something bigger. There is nothing in this world that is immense enough to provide the ultimate word on size. Only the concept of such an ultimate exists. But in the world of Zen, no matter how much something expands it cannot be any bigger than this (pointing to the raku tea bowl in front of him). This, right here, right now, is bigger than anything. Conversely, if something gets smaller, no matter how much smaller, right down to the smallest thing we have discovered the neutrino it cannot be smaller than this. There are no ultimate maximums or minimums, there is only this. Chairman Dobashi Education Master Asai, looking at the world today, so many incidents are occurring that we would have never thought possible before students beating their teachers, children killing their parents. I think the problem lies with the fact that children are not receiving any education at home. And students raised in such homes then join companies. The fact that they were hired suggests that they have passed through a certain selection process and that they are probably very capable people. However, I feel that some of them are lacking in what should I say Chairman Dobashi Tea Ceremony This tea is quite rich, isn t it? The other day, I was paying a courtesy call on one of our corporate clients, and the president, who is well versed in the tea ceremony, gave us tea and ohigashi (dry tea sweets). Master Asai Today we are serving you namagashi (moist tea sweets), though it is ohigashi that are usually served with usucha or thin tea. Namagashi are normally for koicha, the really thick tea with a lot of tea powder blended into it. It is so thick you can t drink it all at once, you have to take small sips and let it melt in your mouth. However, this is an abbreviated version of the tea ceremony we are doing today, not the real thing. If it was we would have to go through the entire process, and eat tea ceremony dishes, and at the end koicha would be served. After that, depending on one s preferences, we might then have usucha with the dry tea sweets. Usually, people learn the basics and say they are practicing the tea ceremony, but they are still beginners. It is like studying the basics in order to join Sojitz. There is so much more to know. 44

47 Annual Report 2007 Sojitz Corporation humanity or spiritual wealth. We are seeing many examples of people fundamentally lacking in these basics. This is a problem that precedes education, having more to do with manners and common sense. And it is one of the reasons that I am intent on putting more energy into human resources training at our company. Master Asai That is a very large problem, I think, but a very human one. Difficult to know what to do. Chairman Dobashi They have not received the education that they were supposed to receive at home, and are still lacking in it when they become company employees. We believe that it is up to us as a company to give them that education, but that brings us to the second topic I wish to discuss with you today education. What are your thoughts on educating people, Master Asai? Master Asai You know, I get up at 4:00 a.m. I watch TV for a while, and for about two minutes starting at 4:18, there is a brief program with puppies and kittens playing around. They are so cute and lovable. After that, someone or other who looks like they belong on TV comes on and talks for ten minutes or so about something of apparent importance. But the puppies and kittens are much more wonderful. Or perhaps I should talk about this in terms of anthropology. Quite awhile ago, there was a Native American called Ishi who came down out of the mountains to a small northern California town, where they locked him up. Up until that time, he had lived by himself in the same way Native Americans had lived back into the stone age. Dr. Alfred Kroeber, a professor Chairman Dobashi Zudokko (Poison Painted Drum), a two volume Zen monk s handbook compiled by Fujita Genro (Kyoto: Kennin ji Sodo) Master Asai, what is the meaning of Zudokko? Master Asai If you beat a poison-painted drum, the poison spews everywhere, killing all who can hear it. Chairman Dobashi Does the person who beats the drum die as well? Master Asai Yes, that is the irony of it. If the one who beats it will die, no one will beat it, and so it is useless. This book was published by Baron Fujita. He came from Yamaguchi Prefecture, and made his money doing reclamation projects for the government. While engaged in these projects, before he was made a baron, he was also engaged in Zen training at Kennin-ji temple under a master named Mokurai, when he came across the idea. Thinking it something others should know about, he published the book himself and distributed it to many people. Through this sort of action, the tycoons of old showed their class. It certainly was not just about the money. 45

48 Sojitz Corporation Annual Report 2007 of anthropology at the University of California, lived with Ishi to record his way of life, and a book entitled Ishi in Two Worlds, written by Kroeber s wife Theodora, later became a best seller. The name Ishi meant man in the Yana language of Ishi s tribe, and was given to him because he apparently didn t have one. Now Ishi was a real gentlemen. In other words, he knew more about proper decorum than what we call civilized people do, and did so without having an education. Not only that, when he died, his last words were You stay, I go. Only that. The recorded sayings of the Zen master frequently use the lofty expression going beyond birth and death, but here was a man who lived a purer life than any of us without any training or education. Chairman Dobashi You suggest that people without education have a purer nature, however, what about the people who do not respect their teachers or parents? Aren t they incapable of these actions because no one has taught them to do it? They don t think they are doing anything wrong. People who are not aware of what they are doing have to be told. In other words, isn t it important that we educate them in this? Master Asai Theories of whether it is better to educate people or not educate people have been struggling with each other throughout human history. For example, in the case of China, we have the Analects of Confucius. They teach us what to do and what not to do. But, in the end, Confucius failed with these teachings. Believing he knew how society should be ordered he turned his efforts toward politics, but, this ended in failure. Leaving politics behind, he refocused his efforts on training his disciples. But here again, he failed. Now, what state of mind did this chain of events bring him to? A completely opposite state, a state of natural non-action. This idea is not a monopoly of the Taoists. The concept of non-action was already in his Analects. There is the saying The man who rules without taking action is Shun. The emperors Shun and Yao were much revered by Confucius for ruling the empire wisely without excessive interference. Therefore, this non-action that I speak of does not mean doing absolutely nothing. It means acting wholeheartedly. That is why Confucius said The man who rules without taking action is Shun, and when asked what Shun did, Confucius said, All he did was to gravely and reverently occupy his royal seat and look to the south. The president of the company need only sit at the desk and work wholeheartedly. In other words, not do nothing, but be 46

49 Annual Report 2007 Sojitz Corporation sincere and try as hard as you can. If you are still aware of working hard, we would call this action. When you are really working, you lose yourself in your work. Chairman Dobashi I see, so that is the meaning of non-action. Master Asai All he did was to gravely and reverently occupy his royal seat and look to the south. If you look to the south, your employees will look to the north. Like the ancient expression, the north-facing guards, meaning the emperor s bodyguard. The employees will be looking to the north and working as hard as they can. People in love see everything about each other as beautiful. In managing a corporation the relationship between the president and employees should be like that too. You must arrive at work five minutes before everyone else. The essential thing is to show them you are doing the very best you can. Chairman Dobashi OK, I see that. Teach by example. Master Asai What I am trying to say is that at my school, I am up before everyone doing the cleaning. I don t force the students to do it. Chairman Dobashi Thank you very much for your time today. I will keep learning, so I hope you will keep teaching me. Master Asai Chairman Dobashi, please just remember that there is a world beyond the one we perceive through the usual dualistic approach based on subject and object. And somebody who takes an interest in that fact can go on to create a new culture. Chairman Dobashi I understand. It is my hope that we will be able to contribute to Sojitz, society, and the world at large by helping nurture people who will create a new culture and new values for us all. 47

50 Sojitz Corporation Annual Report 2007 Corporate Governance Fundamental Concept A corporation has a variety of objectives, starting with generating earnings and raising corporate value. An advanced system of corporate governance for controlling the company s activities is vital to maintain the conditions for achieving these objectives on a sustained basis. Strengthening corporate governance on an ongoing basis to continually raise the corporate value of the Sojitz Group is regarded by the Group as an important task of management. The Company therefore works to clarify managerial responsibility and accountability with respect to shareholders and other stakeholders, establish a highly transparent management structure, and enhance supervision and oversight. It conducts a variety of initiatives on the basis of these overarching objectives. Going forward, the Company is committed to making its corporate governance even more sophisticated by constantly reviewing governance structures and systems. Sojitz will continue working to improve corporate governance on an ongoing basis by striving to identify what the essential functions of corporate governance are and enhancing those functions in particular while taking steps to establish even better systems. Under the Sojitz Group Statement, The Sojitz Group produces new sources of wealth by connecting the world s economies, cultures and people in a spirit of integrity, we are striving to be a company that provides outstanding value from the perspective of all stakeholders, including the society in which we are involved. As a company we devote our day-to-day business activities to identifying and applying concepts, approaches and initiatives that will allow us to continue producing new sources of wealth. Every single executive and employee will work to foster the right attitude as Sojitz continues enhancing corporate governance to produce sources of wealth for our stakeholders and society at large. Corporate Governance Structure Sojitz has adopted the corporate auditor governance model. The Company s Board of Corporate Auditors comprises five members, three of whom are outside auditors. In addition, three of the corporate auditors on the board are standing auditors. Independent from the Board of Directors, the corporate auditors audit the business performance of directors. The Company also has a Nomination Committee and Remuneration Committee, which act as consultative bodies for the Board of Directors. Chaired by outside directors of the Company, these committees ensure the appropriateness and transparency of director appointments and remuneration. Managerial Decision-Making, Execution and Supervision The Board of Directors makes decisions on important managerial Shareholders (General Shareholders Meeting) Appoint, Dismiss Cooperation Independent Auditors (Accounting Auditors) Report Account Audits Board of Corporate Auditors Corporate Auditors Outside Auditors Report Audit Dept. Audits Directors Executive Reports Representative Director and President Board of Directors Chairman Representative Director and Chairman Outside Directors Deliberate, Suggest Consultative Bodies Nomination Committee Remuneration Committee Internal Audits Appoint, Supervise Managing Directors Senior Managing Executive Officers responsible for the Corporate Div. Executive Officers Management Committee Chairman Head of Sales Div. Table Motions on Execution of Major Business Report Table Motions Internal Committee Finance & Investment Deliberation Council Corporate Divisions Sales Divisions Overseas, Domestic Sites 48

51 Annual Report 2007 Sojitz Corporation matters for the Company. It had previously consisted of nine directors, but its membership was reduced to seven directors as of April 2007, including two directors from outside the Company, in an effort to lend greater efficiency and depth to discussions and expedite decision-making. In April 2007 the Company established the new position of chairman, and it was decided that starting in June the chairman of the Company would chair the Board of Directors in order to improve management oversight. Sojitz has used an executive officer system for some time, which serves to clarify authority and responsibility and expedite decision-making and business execution. Moreover, the tenure of directors and executive officers has been set at one year in order to clarify management responsibilities and ensure sudden changes in the business environment can be accommodated rapidly and appropriately. The Company has established various internal committees to tackle managerial issues that affect the entire organization. The internal committees include the Internal Control Committee, Compliance Committee and CSR Committee. Performance of Auditing Functions 1) Audits by Corporate Auditors Corporate auditors attend important meetings of the Board of Directors, Management Committee and other managerial bodies and actively communicate information from an independent perspective, in accordance with the auditing policies of the Board of Corporate Auditors, auditing plans and their respective duties. The corporate auditors oversee and monitor the operations of the Company by conducting audits using means such as interviewing directors and other members of senior management on business execution, inspecting important documents relevant to major business decisions, and requesting business reports from subsidiaries. In order to help auditors fulfill their duties, the Company has appointed dedicated staff to the Corporate Auditor s Office, which has been established to exclusively serve the Board of Corporate Auditors. 2) Independent Audits Sojitz Corporation has appointed the independent auditing firm KPMG AZSA & Co. in accordance with the Company Law and the Securities and Exchange Law. Debriefings are held approximately ten times per year and provide a venue for discussions between the independent auditors and corporate auditors and for the independent auditors to explain their auditing plans, report on interim and term-end audit findings, and present matters considered when auditing internal controls. 3) Internal Audits Internal audits of the Company are led by the Board of Corporate Auditors and the Audit Department. Based on auditing plans approved by the Board of Directors at the beginning of each term, the Audit Department conducts audits to assess priority matters, such as compliance, financial reporting and risk management, at the business and finance divisions of the Company and its consolidated subsidiaries and overseas affiliates. In addition, the Audit Department presents its annual audit plan to the corporate auditors and reports on audit findings to the Board of Corporate Auditors twice per term. Standing corporate auditors attend audit reviews held by the Audit Department, provide their opinions on the findings of audits conducted by the Audit Department, and otherwise discuss auditing matters with the Audit Department on a daily basis. 4) Collaboration Among Corporate Auditors, Independent Auditors and the Audit Department In carrying out their respective auditing duties, the Company s corporate auditors, independent auditors and Audit Department collaborate and exchange information on a regular basis to enhance the efficacy and efficiency of audits and complement their respective roles. Internal Control System The Sojitz Group has worked to improve its internal control system through such initiatives as reviewing and reinforcing its legal compliance system, an effort led by the Compliance Committee, and inspecting and enhancing risk management methods, which is led by the Risk Management Planning Office. In November 2005, the Company established the Internal Control Committee. The committee is chaired by the president and charged with determining internal control policies and monitoring related progress. The committee spearheads efforts to further develop the internal control system for the Sojitz Group and is making preparations to comply with the requirements of the Assessment and Audit of Internal Control System for Financial Reporting rules stipulated in the Financial Instruments and Exchange Law. Disclosure of Information Disclosing important corporate information and information that facilitates understanding of the Company s business activities to stakeholders is an important part of ensuring a highly transparent form of management and remaining accountable to stakeholders. The Company therefore will continue to provide this information in an appropriate and timely manner. 49

52 Sojitz Corporation Annual Report 2007 Risk Management Advancement of Risk Management As an innovative function-oriented trading company, the Sojitz Group is engaged in a wide and diverse range of businesses globally. Due to the nature of its businesses the Group is exposed to a variety of risks, such as market, credit, investment, and country risk. Management believes that in response to this exposure, it is important to upgrade and enhance risk management for the Group and maintain a high-quality portfolio by accurately identifying and managing those risks. Integrated Risk Management Integrated risk management involves monitoring and controlling group-wide risk in an integrated manner from a common perspective by identifying the risks to which the Group is exposed and measuring them on a category-by-category basis (quantification in terms of monetary amounts). There are three relevant categories: market risk, credit risk and country risk. The purpose of integrated risk management is to 1) control risk so that it is commensurate with the strength of the company (within the scope of its equity), and 2) maximize earnings in line with the level of risk exposure. Balance Sheet Liabilities Assets Equity Compare Risk and Equity Confirm Acceptability/ Financial Viability of Risk Risk Assets Market Risk Credit Risk Country Risk Compare Risk and Earnings Assess Risk Versus Return Earnings Risk Measurement Risk Categories Market Risk High Liquidity Assets Low Liquidity Assets Risk Measurement Methods For listed stock, bonds, marketable commodities (commodity futures), derivatives, forex (foreign-currencies assets and liabilities) etc., maximum potential losses are calculated using the VaR (Value at Risk) method For unlisted stock, DCF method (new affiliates), unmarketable commodities (inventory) real estate, ships, aircraft, etc., maximum potential losses are calculated using the VaR and Monte Carlo DCF methods Combined Risk Credit Risk For loans and investments, guarantees, operating receivables, etc., there are 11 categories of rating that can be applied to debtors. An estimated default rate is allocated to each rating and maximum potential losses are calculated using the Monte Carlo Simulation method Country Risk There are 9 categories of rating that can be applied to countries according to the level of country risk they present. As with credit risk, maximum potential losses are calculated using the Monte Carlo Simulation method 50

53 Annual Report 2007 Sojitz Corporation Risk Asset Control: In the medium-term management plan, New Stage 2008, the Company manages risk assets so that they total less than shareholders equity with a target figure of 80% of shareholders equity and controls the risk appropriately. (Billions of yen) (Times) Country Risk Management Standard: Exposure limits have been established for each country on the basis of country credit ratings and risk is managed accordingly. Business Investment Standard: The cash flow-based internal rate of return at the investment target should in principle exceed the sum of capital costs and the risk premium (total of country risk, partner risk, business risk, etc.) Risk Monitoring: In addition to conducting regular risk monitoring, efforts are being made to ensure widespread compliance with withdrawal criteria Mar. 05 Mar. 06 Mar. 07 Mar. 09 (target) 0 Risk Assets Shareholders Equity Multiple Risk Management System At Sojitz, risk management is primarily carried out by three entities: the Risk Management Planning Office, responsible for planning and establishing regulations, systems and policy related to risk management; the Risk Management Department, charged with examining various kinds of individual business proposal in the credit approval process and reviewing each business investment under the monitoring system; and the Legal Department, responsible for managing legal risks. Moreover, to continually reinforce and enhance risk management, it is essential to extend risk management mechanisms to the whole Group. Sojitz has instituted the following system to ensure that risk management is implemented throughout its organization. Credit Management Standard: Group-wide risk is managed on the basis of a systematized internal credit rating system, whereby business partners are all rated according to the same scale. 51

54 Sojitz Corporation Annual Report 2007 Corporate Social Responsibility CSR Initiatives In the first year of the Company s new medium-term management plan, New Stage 2008, the Company made steady progress, ahead of its initial schedule. Dividend payments were resumed and the Company believes that it has now entered a new stage of growth. In order to make this growth sustainable, Sojitz is enhancing functions that leverage its strengths and stepping up business investment. The Company also realizes the need to further bolster CSR initiatives as a part of efforts to strengthen its management structure. At the same time, as globalization has progressed, discussions of CSR have grown more sophisticated and concern over the social responsibilities of corporations has deepened among company stakeholders. Corporate social initiatives are also starting to have a larger impact on the sustainability of a company s growth. Sojitz is committed to fulfilling its social responsibilities by building better relationships of mutual trust with stakeholders, through prioritizing communication with them and improving accountability. The CSR Committee was created to closely review the Company s social responsibilities and discuss the direction of CSR initiatives. In fiscal 2006, the Company s environmental report was enhanced and expanded to include CSR initiatives and published as the CSR Report. In addition to environmental issues, the report provides information on corporate governance, compliance, information disclosure and security, social contributions, employee relations and other CSR topics. The Sojitz Group Statement reads, The Sojitz Group produces new sources of wealth by connecting the world s economies, cultures and people in a spirit of integrity. The statement expresses the fact that fulfilling corporate social responsibilities is a primary goal of the Company s management and that Sojitz conducts ongoing initiatives rooted in its core operations and strives to create new value in order to address social issues. Sojitz is committed to realizing sustainable development by putting this statement into practice and to bequeathing an earth that can provide abundantly for the next generation. Raising the awareness of employees is indispensable to achieving this objective. It is essential for the Company to constantly stay in touch with the needs of society. And to do so every member of the Company must hone his or her sensitivity with respect to the needs of society and strive for greater harmony with it. CSR is rooted in compliance, so executives and employees must further raise their awareness of compliance-related issues and foster an even stronger sense of ethics. CSR initiatives directly address a broad range of social issues. Environmental problems, especially global warming, are particularly pressing concerns that must be tackled immediately by countries all over the world. The recognition that initiatives must be conducted to address environmental problems has now become a part of people s everyday consciousness. Fortunately, Japan possesses exceptional energy conservation and environmental technologies, while Sojitz as a general trading company has a worldwide network that it has fostered through doing business on a global scale. The Company intends to take on the challenge of solving environmental problems by organically combining Japan s technologies and its own network while leveraging its own ingenuity and conceptual abilities. CSR initiatives, like the struggle to solve worldwide environmental problems, are without end. Under the slogan, New way, New value, the Company intends to bring about new value for society by requiring each individual employee to think freely, unfettered by conventional ways of thinking, to tackle the myriad issues facing society. 52

55 Annual Report 2007 Sojitz Corporation Environmental Initiatives The Company has acquired ISO certification, the international standard for environmental management systems, and conducts internal environmental audits every year to ensure its system is implemented properly and to promote ongoing improvements. Environmentally Friendly Offices Sojitz aggressively promotes energy conservation, resource efficiency, waste reduction, recycling and green procurement, as all employees strive to reduce the Company s environmental impact. As a member of Team Minus 6%, a national campaign to help stop global warming, the Company works to reduce energy consumption at its business offices by participating in the Cool Biz and Warm Biz programs, turning off lights during lunch break and at the end of the day, and turning off copiers and other office equipment when they are not in use, among other initiatives. Environmental Risk Management In the course of conducting business activities the Company is exposed to various environmental risks. Complying with environmental laws and preventing environmental pollution before it occurs is regarded as a corporate social responsibility, and based on this recognition Sojitz utilizes an environmental management system to monitor and manage environmental risks associated with business activities. Compliance with environmental laws and regulations Environmental impact assessments for new business investment Environmental auditing of Group companies Environmental Policy Fundamental Philosophy Now that environmental problems have become such pressing and potentially long-term issues, Sojitz considers environmental conservation to be one of its most important management challenges. Striving to bequeath an earth that can provide abundantly for the next generation, the Sojitz Group is doing its utmost under the Sojitz Group Statement to realize sustainable growth whereby economic development and environmental preservation can coexist. Basic Policy 1. Environmental awareness In the conduct of our business operations, we will be aware of their environmental effects. We will show due concern for ecological and environmental-protection issues on both a local community and a global basis, while working to prevent environmental pollution and striving to use energy and resources efficiently to reduce our environmental impact. 2. Compliance with environmental laws and regulations We will in the course of our business operations comply with environmental laws and regulations, international treaties, and all agreements and standards to which we subscribe. 3. Implementation and continual improvement of an environmental management system We will establish and periodically review environmental objectives and targets, and will work constantly to improve our environmental management system. 4. Promotion of environmental protection activities We will contribute to the realization of a recycling-oriented society by actively promoting energy conservation and resource efficiency, waste reduction, recycling, and green procurement in our daily office routine. 5. Promoting environmentally friendly businesses To reduce the burden on the global environment and contribute to sustainable growth, we will promote environmentally friendly businesses through the manufacture and sale of products that conserve energy and resources, while at the same time developing recycling and new-energy businesses. 6. Promoting awareness of our environmental policy We will ensure that all directors and employees are thoroughly familiar with this policy, and will release it to the public. In addition, we will promote environmentally conscious educational and training activities to ensure that all concerned have the deep understanding of environmental problems needed to ensure that due concern for the environment is reflected in all our business activities. 53

56 Sojitz Corporation Annual Report 2007 Compliance Companies must not concern themselves with the pursuit of profit alone; rather, they must work to develop their businesses while conducting themselves in accordance with social norms, and endeavor to make a contribution to society. Sojitz recognizes that thoroughgoing compliance is essential to living up to these requirements. For Sojitz, compliance involves adhering to domestic and international law and Company regulations, but it also entails abiding by the standards of corporate ethics the moderation and good sense required of a corporation. The Company as a whole strives in good faith to maintain compliance based on this understanding. Compliance Initiatives 1) Raising compliance awareness Sojitz Corporation s compliance program aims to ensure that Group executives and employees adhere to domestic and international law and Company regulations, and that they conduct themselves in an ethical manner in accordance with social norms. The Company has created a compliance code of conduct and code of conduct manual to provide a set of guidelines for ensuring more thoroughgoing compliance along with specific criteria for making decisions on ethical matters. The Company also takes measures to ensure that all executives and employees are aware of these guidelines and are putting them into practice. Furthermore, a commentary on the manual in the form of case studies has been created and is distributed to all executives and employees along with the code of conduct and code of conduct manual in booklet form. The Company conducts various training and educational programs to raise awareness of compliance-related issues among executives and employees. As a part of these efforts, the Company held compliance training for executives and employees using e-learning. Going forward, it intends to extend compliance training to all members of the Sojitz Group. 2) Establishing a Compliance Framework To drive initiatives to instill compliance throughout the whole Sojitz Group, the Company has created a Compliance Committee and appointed a Chief Compliance Officer (CCO) as its chair. The Compliance Committee smoothly implements the compliance program and carries out activities to ensure adherence to laws and regulations and thorough crisis management, where necessary. The CCO reports to the Board of Directors on the activities of the Compliance Committee. The Company has also established a hotline providing direct access to the CCO and legal counsel aimed at preventing, or rapidly detecting and dealing with, violations of statutory and regulatory requirements by members of the Sojitz Group. What is most important in carrying out initiatives to ensure compliance is not only raising awareness of the issue in the narrow sense of adherence to laws and internal regulations, but also making certain all executives and employees of the Sojitz Group follow the general standards of moderation and good sense required of companies. In light of this, the Company intends to repeatedly implement the aforementioned compliance-related initiatives. Sojitz Group Compliance Code of Conduct The Company established the Sojitz Group Compliance Code of Conduct based on the corporate social responsibilities required of a trading company. Employees and executives of the Company work to put the code into practice, communicate it to Sojitz Group companies, and ensure it is fully adhered to by the Group. 1) Business Activities in Consideration of Corporate Social Responsibility (1) Sojitz, as a member of international society and as a good corporate citizen, must actively contribute to the achievement of a sustainable society with due consideration of the spirit of cooperation and harmony in international business activities and corporate social responsibility. (2) Sojitz will hand over a rich and bright future on the earth to the next generation, by continuously conducting our activities for the preservation of the global environment, and by actively engaging in the resolution of issues of poverty and violations of human rights. (3) Sojitz must respect the spirit of fairness in every occasion of business activities, and oppose any discriminatory practices or treatment against, inter alia, human race, nationality, religion or sex. 2) Legal Compliance and Fair Business Activities (1) In addition to legal compliance, Sojitz must abide by both the letter and the spirit of international rules and regulations, and always conduct itself in a socially conscientious and moderate manner. (2) Sojitz must strive to be a reliable corporate entity in its respective regional areas of operation by maintaining open, fair and wholesome relations with business partners, consumers, political parties and governments, and also by managing its business activities based on free and fair competition. (3) Sojitz must maintain transparent practices through the appropriate and timely disclosure of corporate information. (4) Sojitz must strive to provide resources, goods, and services that enrich society. In the provision of these resources, goods and services, it must give due consideration to the importance 54

57 Annual Report 2007 Sojitz Corporation of its personal and business partner s information and intellectual property, and must make every effort to manage these resources in a reasonable manner. (5) Sojitz will not, in any circumstances, deal with any organizations influenced by or comprised of organized crime that may operate in the communities in which it does business. 3) Respect for Employees Character and Individuality and Creation of Work Environments Sojitz must respect the character and individuality of our employees and actively create and maintain safe and fulfilling work environments, under which each individual s talents and creativity may be fully developed. In the event of a violation of this code of conduct, executive management will resolve the situation, make a full investigation of the causes of the violation, and make every effort possible to prevent a recurrence of the violation. Personal Information Protection With the enforcement of the Personal Information Protection Law in April 2005, Sojitz Corporation reaffirmed its commitment to protecting personal information from improper handling. Believing the proper handling of personal information to be a social duty, the Company has formulated a Privacy Policy regarding its protection. To ensure the appropriate management of personal information, it also has established personal information protection regulations and appointed supervisors. 55

58 Sojitz Corporation Annual Report 2007 Directors, Corporate Auditors, and Executive Officers As of July 1, 2007 DIRECTORS Chairman Akio Dobashi 3 Director, Executive Vice President Masaki Hashikawa 5 Director, Senior Managing Executive Officer Yoji Sato 2 President & CEO Yutaka Kase 4 Adviser to the President (Corporate management) Director, Senior Managing Executive Officer Yasuyuki Fujishima CCO, Internal Control Administration Office, Compliance Dept. 6 CFO, Human Resources & General Affairs Dept., Finance Dept., Project Finance Dept., Corporate Accounting Dept., Investor Relations Office Director Shigeo Muraoka 7 Director Yoshihiko Miyauchi CORPORATE AUDITORS Standing Auditor Kenji Okazaki 4 Auditor Yoshiaki Ishida 2 Standing Auditor Joji Wada 5 Auditor Kazuo Hoshino 3 Standing Auditor Shunsaku Yahata 56

59 Annual Report 2007 Sojitz Corporation EXECUTIVE OFFICERS Executive Vice President Hiroyuki Tanabe Senior Managing Executive Officer Katsuhiko Kobayashi Senior Managing Executive Officer Kazunori Teraoka Senior Managing Executive Officer Shinichi Taniguchi Senior Managing Executive Officer Joji Suzuki Managing Executive Officer Hiroshi Kanematsu Managing Executive Officer Jun Matsumoto Managing Executive Officer Keisuke Ishihara Managing Executive Officer Yoshimi Ota Managing Executive Officer Masao Ichishi Executive Officer Michiharu Katsura Executive Officer Shuhei Inoue Executive Officer Tetsuya Konoda Executive Officer Junichi Hamatsuka Executive Officer Kazuhiko Nakajima Executive Officer Shigeki Dantani Executive Officer Michifumi Watanabe Executive Officer Yoshio Mogi Executive Officer Masahiro Komiyama Executive Officer Satoshi Mizui Executive Officer Tatsunobu Sako Executive Officer Kazuhiko Kawasaki Executive Officer Shinichi Teranishi Executive Officer Takashi Ikeda Executive Officer Yoshihisa Suzuki Executive Officer Masao Goto 57

60 Sojitz Corporation Annual Report 2007 Executive Officers As of July 1, 2007 EXECUTIVE VICE PRESIDENT Hiroyuki Tanabe Adviser to the President (Business Group), IT Business Group SENIOR MANAGING EXECUTIVE OFFICERS Katsuhiko Kobayashi Risk Management Dept., Risk Management Planning Office, Legal Dept. Kazunori Teraoka President, Machinery & Aerospace Division Shinichi Taniguchi CIO, Secretariat Dept., Corporate Planning Dept., IT Planning Dept., Public Relations Dept. Joji Suzuki President, Chemicals & Plastics Division MANAGING EXECUTIVE OFFICERS Hiroshi Kanematsu President, Energy & Mineral Resources Division General Manager, Energy & Mineral Resources Business Development Office Jun Matsumoto President & CEO for the Americas President & CEO, Sojitz Corporation of America, Sojitz Canada Corporation Keisuke Ishihara President, Consumer Lifestyle Business Division General Manager, Business Planning & Development Office of Consumer Lifestyle Business Division Yoshimi Ota President & CEO for China Chairman & President, Sojitz (China) Co., Ltd. Chairman, Sojitz (Shanghai) Co., Ltd., Sojitz (Dailan) Co., Ltd., Sojitz (Tianjin) Co., Ltd., Sojitz (Qingdao) Co., Ltd., Sojitz (Guangzhou) Co., Ltd., Sojitz (Hong Kong) Co., Ltd. General Manager, Sojitz Corporation, Beijing (Liaison) Office Masao Ichishi President, Real Estate Development & Forest Products Division EXECUTIVE OFFICERS Michiharu Katsura Senior Vice President, Machinery & Aerospace Division Senior General Manager, Aerospace Unit Shuhei Inoue President & CEO for Middle East & Africa Tetsuya Konoda Assistant Operating Officer, Human Resources & General Affairs Dept., Finance Dept., Project Finance Dept. Corporate Accounting Dept. General Manager, Finance Dept. Junichi Hamatsuka CFO, CAO for the Americas CFO, CAO, Sojitz Corporation of America Kazuhiko Nakajima President & CEO for Europe, Russia & NIS Managing Director, Sojitz Europe plc, Sojitz UK plc Shigeki Dantani President & CEO for Asia & Oceania Managing Director, Sojitz Asia Pte. Ltd. General Manager, Singapore Branch Michifumi Watanabe Senior Vice President, Chemicals & Plastics Division Senior General Manager, Chemicals Unit General Manager, Chemicals Unit of Middle East & Africa Yoshio Mogi General Manager, Risk Management Dept. Masahiro Komiyama Senior Vice President, Energy & Mineral Resources Division Senior General Manager, Mineral Resources Unit Satoshi Mizui Senior Vice President, Energy & Mineral Resources Division Senior General Manager, Energy Unit Tatsunobu Sako Senior Vice President, Machinery & Aerospace Division Senior General Manager, Automotive Unit Kazuhiko Kawasaki Executive Vice President for China Managing Director, Sojitz (Hong Kong) Ltd. Shinichi Teranishi Assistant Operating Officer, Secretariat Dept., Corporate Planning Dept., IT Planning Dept., Public Relations Dept. General Manager, Corporate Planning Dept. Takashi Ikeda Senior Vice President, Consumer Lifestyle Business Division Senior General Manager, Foods Unit Yoshihisa Suzuki Senior Vice President, Machinery & Aerospace Division Senior General Manager, Information and Industrial Machinery Unit Masao Goto Senior Vice President, Consumer Lifestyle Business Division Senior General Manager, Textiles & General Merchandise Unit 58

61 Annual Report 2007 Sojitz Corporation Organization (As of July 1, 2007) General Shareholders' Meeting Board of Corporate Auditors Corporate Auditors Corporate Auditor s Office Nomination Committee Board of Directors Chairman Remuneration Committee President & CEO Audit Dept. Secretariat Dept. Internal Control Administration Office Corporate Planning Dept. IT Planning Dept. Public Relations Dept. Human Resources & General Affairs Dept. Finance Dept. Project Finance Dept. Corporate Accounting Dept. Investor Relations Office Risk Management Dept. Risk Management Planning Office Legal Dept. Compliance Dept. Machinery & Aerospace Division Planning & Administration Office Marine Business Office Automotive Unit China Automotive Business Development Office Automotive Dept. 1 Automotive Dept. 2 Automotive Dept. 3 Information and Industrial Machinery Unit Industrial Systems & Bearing Dept. Plant & Infrastructure Dept. Electronics & Telecommunication Systems Dept. Aerospace Unit Commercial Airplanes Dept. Military Aircraft & Defense Electronics Dept. Energy & Mineral Resources Division Planning & Administration Office Energy & Mineral Resources Business Development Office Energy Unit Energy & Power Business Dept. Energy Development Dept. Energy Trading Dept. Nuclear Fuel Cycle Dept. Mineral Resources Unit Coal Dept. Iron Ore & Ferroalloys Dept. Non-Ferrous & Precious Metals Marketing Dept. Chemicals & Plastics Division Planning & Administration Office Chemicals Unit Fertilizer & Methanol Dept. Inorganic Chemicals & Industrial Minerals Dept. Organic Chemicals Dept. Tokyo Specialty Chemicals Dept. Osaka Specialty Chemicals Dept. Fine Chemicals Dept. Plastics Unit Real Estate Development & Forest Products Division Planning & Administration Office Real Estate Development Unit Urban Development Dept. Construction & Development Dept. Osaka Construction Dept. Forest Products Unit Log Marketing Dept. Consumer Lifestyle Business Division Planning & Administration Office Business Planning & Development Office Foods Unit Grains & Foods Dept. Foodstuffs Dept. Marine Products Marketing Dept. Provisions Dept. Textiles & General Merchandise Unit Apparel Dept. Textiles & Living Dept. Lifestyle Business Dept. Functional Materials Dept. General Merchandise Dept. IT Business Group Planning & Administration Office IT Business Development Office 59

62 Sojitz Corporation Annual Report 2007 Principal Operating Bases As of July 1, 2007 Group Company Branch Office JAPAN Fukui Sojitz Chubu Corporation, Fukui Branch 102, Nagamoto-cho, Fukui , Japan Tel: Fax: Fukuoka Sojitz Kyushu Corporation 10-24, Tenjin 1-chome, Chuo-ku, Fukuoka , Japan Tel: Fax: Sojitz Corporation, Kyushu Branch 10-24, Tenjin 1-chome, Chuo-ku, Fukuoka , Japan Tel: Fax: Hamamatsu Sojitz Chubu Corporation 110-5, Itayacho, Hamamatsu, Shizuoka , Japan Tel: Fax: Hiroshima Sojitz Nishinihon Corporation 12-3, Motomachi, Naka-ku, Hiroshima , Japan Tel: Fax: Nagasaki Sojitz Kyushu Corporation, Nagasaki Branch 5-3, Sakura-machi, Nagasaki , Japan Tel: Fax: Nagoya Sojitz Corporation, Nagoya Branch 17-13, Nishiki 1-chome, Naka-ku, Nagoya , Japan Tel: Fax: Naha Sojitz Kyushu Corporation, Naha Branch 21-13, Maejima 2-chome, Naha , Japan Tel: Fax: Sapporo Sojitz Corporation, Hokkaido Branch 2-1, Kitaichijonishi, Chuo-ku, Sapporo , Japan Tel: Fax: Sendai Sojitz Higashinihon Corporation 3-10, Honcho 2-chome, Aoba-ku, Sendai , Japan Tel: Fax: Sojitz Corporation, Tohoku Branch 3-10, Honcho 2-chome, Aoba-ku, Sendai , Japan Tel: Fax: Toyama Sojitz Chubu Corporation, Toyama Branch 5-13, Sakurabashi-dori, Toyama , Japan Tel: Fax: CHINA Beijing Sojitz (China) Co., Ltd. 19th Floor, Fortune Building, No. 5 Dong San Huan Bei Lu, Chaoyang District, , Beijing, China Tel: Fax: Sojitz Corporation, Beijing Office 19th Floor, Fortune Building, No. 5 Dong San Huan Bei Lu, Chaoyang District, , Beijing, China Tel: Fax: Chongqing Sojitz (China) Co., Ltd., Chongqing Office Room 417, Holiday Inn Yangtze Chongqing, No. 15 Nanping Bei Lu, , Chongqing, China Tel: Fax: Dalian Sojitz (Dalian) Co., Ltd. 7th Floor, Senmao Building, No. 147 Zhongshan Road, , Dalian, China Tel: Fax: Guangzhou Sojitz (Guangzhou) Co., Ltd. Room , Goldlion Digital Network Center, 138 Tiyu Road East, Tianhe, , Guangzhou, China Tel: Fax: Harbin Sojitz (Dalian) Co., Ltd., Harbin Office Room No. 235, Dongbeihuating, 403 Huayuan-Street, Nanggang-District, , Harbin, Heilongjiang, China Tel: Fax: Hong Kong Sojitz (Hong Kong) Ltd. 16F Harbour Centre, 25 Harbour Road, Wanchai, , Hong Kong Tel: Fax: Kunming Sojitz (Hong Kong) Ltd., Kunming Office Room 1701, Hongta Building, No Beijing Road, , Kunming, Yunnan, China Tel: Fax: Nanjing Sojitz (Shanghai) Co., Ltd., Nanjing Office Room 758, World Trade Center, No. 2 Hanzhong Road, , Nanjing, China Tel: Fax: Qingdao Sojitz (Qingdao) Co., Ltd. Room 1701, Yangguang Dasha Office Building, 61 Xianggang Zhong Lu, , Qingdao, China Tel: Fax:

63 Annual Report 2007 Sojitz Corporation Shanghai Sojitz (Shanghai) Co., Ltd. 22nd Floor, Ruijin Building, 205 Maoming Nan-Lu, Luwang-Qu, , Shanghai, China Tel: Fax: / Sojitz (Shanghai) Trade & Commerce Co., Ltd. Room 2207, Ruijin Building, 205 Maoming Nan-Lu, Luwang-Qu, , Shanghai, China Tel: Fax: / Shenzhen Sojitz (Hong Kong) Ltd., Shenzhen Office 23rd Floor, International Financial Building, No. 23 Jian She Road, , Shenzhen, Guangdong, China Tel: Fax: Suzhou Sojitz (Shanghai) Co., Ltd., Suzhou Office Room 2404, Guo Ji Jing Mao Building, No. 6 Xihuan Road, Suzhou, , Jiangsu, China Tel: Fax: Tianjin Sojitz (Tianjin) Co., Ltd. Room No. 1910, Tianjin International Building, No. 75, Nanjing Road, , Tianjin, China Tel: Fax: Wuhan Sojitz (China) Co., Ltd., Wuhan Office Room No. 2115, New World International Trade Centre (I), 568 Jianshe Avenue, Hankou, , Wuhan, China Tel: Fax: Xi an Sojitz (China) Co., Ltd., Xi an Office Room No. 539, Bell Tower Hotel, Southwest Corner of Bell Tower, , Xi an, China Tel: Fax: ASIA India Mumbai Sojitz India Private Ltd., Mumbai Branch Dalamal House 9th Floor, Nariman Point, Mumbai, India Tel: Fax: New Delhi Sojitz India Private Ltd. Mercantile House 2nd Floor, 15, Kasturba Gandhi Marg, New Delhi, India Tel: Fax: Indonesia Jakarta PT. Sojitz Indonesia Sona Topas Tower 5th Floor, Jl. Jend. Sudirman Kav. 26, Jakarta 12920, Indonesia Tel: Fax: Sojitz Corporation, Jakarta Liaison Office Sona Topas Tower 5th Floor, Jl. Jend. Sudirman Kav. 26, Jakarta 12920, Indonesia Tel: Fax: Korea Kwangyang Sojitz Korea Corporation, Kwangyang Office Chechul Bilg. 4F, 623, Kumho-Dong, Kwangyang-Shi, Cheonranamdo, Republic of Korea Tel: Fax: Pohang Sojitz Korea Corporation, Pohang Office 3rd Floor, Posco Corporation Bldg , Haedo-Dong, Nam-ku, Pohang-Shi, Kyongsangbookdo, Republic of Korea Tel: Fax: Seoul Sojitz Korea Corporation Moogyo Bldg. 11F, 96, Moogyo-Dong, Chung-Ku, Seoul, Republic of Korea Tel: Fax: Malaysia Kuala Lumpur Sojitz (Malaysia) Sdn. Bhd. Level 12, Menara IMC No. 8, Jalan Sultan Ismail 50250, Kuala Lumpur, Malaysia Tel: Fax: Sojitz Corporation, Kuala Lumpur Branch Level 12, Menara IMC No. 8, Jalan Sultan Ismail 50250, Kuala Lumpur, Malaysia Tel: Fax: Myanmar Yangon Sojitz Corporation, Yangon Branch Sedona Hotel Business Suites 4th Floor, #04/06-08&14 No. 1 Kaba Aye Pagoda Road, Yankin Township, Yangon, Myanmar Tel: Fax: Pakistan Karachi Sojitz Corporation, Karachi Branch 2nd Floor, Karachi Cantonment Board, 259, Sarwar Shaheed Road, Karachi, Pakistan Tel: Fax: Lahore Sojitz Corporation, Karachi Branch, Lahore Liaison Office 7/5, E-111, Main Boulevard, Gulberg 111, Lahore, Pakistan Tel: / Fax:

64 Sojitz Corporation Annual Report Philippines Manila Sojitz Philippines Corporation 24th Floor of Pacific Star Bldg., Makati Ave., Cor Sen Gil J. Puyat Ave., Makati City, Philippines Tel: Fax: Singapore Sojitz Asia Pte. Ltd. 77 Robinson Road, #32-00 Robinson 77, Singapore Tel: Fax: Sojitz Corporation, Singapore Branch 77 Robinson Road, #32-00 Robinson 77, Singapore Tel: Fax: Sri Lanka Colombo Sojitz Corporation, Colombo Liaison Office 3rd Floor, No , Braybrooke Place, Colombo 2, Sri Lanka Tel: Fax: Taiwan Taipei Sojitz Taiwan Corporation Room 803, Chia Hsin Bldg., No. 96, Chung Shan North Road Sec. 2, Taipei, Taiwan Tel: Fax: Thailand Bangkok Sojitz (Thailand) Co., Ltd. 19th Floor, Q. House Lumpini Building, 1 South Sathorn Road, Tungmahamek, Sathorn, Bangkok 10120, Thailand Tel: Fax: NNT Consulting Co., Ltd. 19th Floor, Q. House Lumpini Building, 1 South Sathorn Road, Tungmahamek, Sathorn, Bangkok 10120, Thailand Tel: Fax: Vietnam Hanoi Sojitz Corporation, Hanoi Liaison Office Unit 403, 4th Floor, Sunred River Building, 23 Phan chu Trinh, Hanoi, Vietnam Tel: Fax: Ho Chi Minh Sojitz Corporation, Ho Chi Minh City Liaison Office 183 Ly Chinh Thang St, Dist. 3, Ho Chi Minh City, Vietnam Tel: Fax: OCEANIA Australia Melbourne Sojitz Australia Ltd., Melbourne Branch 28th Floor, MLC Bldg., 459 Collins Street, Melbourne, Victoria, 3000, Australia Tel: Fax: Perth Sojitz Australia Ltd., Perth Branch Level 9, 172 St. Georges Terrace., Perth, W.A., 6000, Australia Tel: Fax: Sydney Sojitz Australia Ltd. Level 17, The Gateway Building, 1 Macquarie Place, Sydney, N.S.W. 2000, Australia Tel: Fax: New Zealand Auckland Sojitz New Zealand Ltd. Level 18 Qantas House, 191 Queen Street, P.O. Box 4073 Auckland, New Zealand Tel: Fax: Papua New Guinea Port Moresby Sojitz Australia Ltd., Port Moresby Office 10-B, Waigani Village, Waigani Drive, Waigani, NCD, Port Moresby, Papua New Guinea Tel: / Fax: NORTH AMERICA Canada Toronto Sojitz Canada Corporation, Toronto Office 95 Wellington Street West, P.O. Box 7, Suite 704, Toronto Dominion Centre, Toronto, ON M5J 2N7, Canada Tel: Fax: Vancouver Sojitz Canada Corporation P.O. Box Bentall Postal Station, Suite 2624, 1055 Dunsmuir Street, Vancouver, B.C., V7X 1L3, Canada Tel: Fax: Mexico Mexico City Sojitz Mexicana S.A. de C.V. Paseo de las Palmas No. 239, Oficina 302. Colonia Lomas de Chapultepec, Delegacion Miguel Hidalgo C.P Mexico D.F., Mexico Tel: Fax: U.S.A. Detroit Sojitz Corporation of America, Detroit Branch 300 Galleria Officentre, Suite 112, Southfield, MI 48034, U.S.A. Tel: Fax:

65 Annual Report 2007 Sojitz Corporation Houston Sojitz Corporation of America, Houston Branch Three Riverway, Suite 800, Houston, TX 77056, U.S.A. Tel: Fax: Los Angeles Sojitz Corporation of America, Los Angeles Branch 1055 West 7th Street, Suite 3200, Los Angeles, CA 90017, U.S.A. Tel: Fax: New York Sojitz Corporation of America 1211 Avenue of the Americas, New York, NY 10036, U.S.A. Tel: Fax: Portland Sojitz Corporation of America, Portland Branch PacWest Center, Suite 2200, 1211 S.W.MV, Fifth Avenue, Suite 2200 Portland, OR 97204, U.S.A. Tel: Fax: Seattle Sojitz Corporation of America, Seattle Branch 701 Fifth Avenue, Suite 1160, Seattle, WA 98104, U.S.A. Tel: Fax: Washington, D.C. Sojitz Corporation of America, Washington Branch th Street, N.W. Suite 260, Washington, D.C , U.S.A. Tel: Fax: SOUTH AMERICA Argentina Buenos Aires Sojitz Argentina S.A. Av. Corrientes 345 Piso 5 (1043) Buenos Aires, Argentina Tel: Fax: Brazil Rio de Janeiro Sojitz do Brasil S.A., Rio de Janeiro Branch Praia do Flamengo, Andar (Edificio International Rio) Flamengo, Rio de Janeiro, RJ CEP , Brasil Tel: Fax: Sao Paulo Sojitz do Brasil S.A. Av. Paulista, Torre Norte - 21o andar CEP , Sao Paulo, Brasil Tel: Fax: Peru Lima Sojitz Peru S.A. Av. Camino Real No. 390, Torre Central, Oficina No. 1302, San Isidro, Lima 27, Peru Tel: Fax: Venezuela Caracas Sojitz Venezuela C.A. Av. Francisco de Miranda, Edf. Parque Cristal, Ala Este, Piso 3, Oficina 3-7-A, Urb. Los Palos Grandes, Caracas, Estado Miranda, Venezuela Tel: Fax: EUROPE, RUSSIA & NIS Austria Vienna Sojitz UK plc, Vienna Office Wallnerstrasse 4/5/4 MT44, A-1010 Wien, Austria Tel: Fax: Belgium Brussels N.V. Sojitz Benelux S.A. Avenue Louise 287, Box 12 B-1050 Brussels, Belgium Tel: Fax: Czech Republic Prague Sojitz Europe plc, Prague Office Krakovska 7, Prague 1, Czech Republic Tel: Fax: France Paris Sojitz Europe plc, Paris Branch 23 rue de la Paix, Paris, France Tel: Fax: Germany Dusseldorf Sojitz Europe plc, Dusseldorf Branch Am Wehrhahn 33, Dusseldorf, Germany Tel: Fax: Hamburg Sojitz Europe plc, Hamburg Office Sachsenfeld 2, Hamburg, Germany Tel: Fax: Italy Milan Sojitz Europe plc, Milan Branch Corso Europe 7, Milano 20122, Italy Tel: Fax: Netherlands Rotterdam Sojitz Europe plc, Rotterdam Branch 11th Floor, Rotterdam Bldg., Aert Van Nestraat 45, 3012 CA Rotterdam, Netherlands Tel: Fax:

66 Sojitz Corporation Annual Report 2007 Poland Warsaw Sojitz Europe plc, Warsaw Office ul. Ogrodowa 58, Warszawa, Poland Tel: /8 Fax: Russia Khabarovsk Sojitz Corporation, Khabarovsk Liaison Office Business-Center Daljniy Vostok Office 405, 18 Muravyev-Amurskiy Str , Khabarovsk, Russia Tel: Fax: Moscow Sojitz LLC Business Center Parus (8 floor) 1-ya Tverskaya-Yamskaya St., 23 Moscow, , Russia Tel: Fax: Sojitz Corporation, Moscow Liaison Office Business Center Parus (8 floor) 1-ya Tverskaya-Yamskaya St., 23 Moscow, , Russia Tel: Fax: Irkutsk Sojitz Corporation, Moscow Liaison Office, Irkutsk Office Baikalskaya ul., 291 (office 407) Irkutsk, , Russia Tel: Fax: Spain Madrid Sojitz Europe plc, Madrid Branch ALFONSO XI, No. 3, 1st Floor, Madrid 28014, Spain Tel: Fax: Turkey Istanbul Sojitz UK plc, Istanbul Branch Celik Is Merkezi, Avni Dilligil Cad. No. 5 C Blok Kat: Mecidiyekoy - Istanbul, Turkey Tel: Fax: U.K. London Sojitz Europe plc 7th Floor The Northern & Shell Building, 10 Lower Thames Street, London EC3R 6EQ, U.K. Tel: Fax: Sojitz UK plc 7th Floor The Northern & Shell Building, 10 Lower Thames Street, London EC3R 6EQ, U.K. Tel: Fax: MIDDLE EAST Egypt Cairo Sojitz Corporation, Cairo Liaison Office Abul Feda Building 14th Floor, 3, Abul Feda St., Zamalek, Cairo, Egypt, P.O. Box: 932 Cairo Tel: Fax: Iran Tehran Sojitz Corporation Iran Ltd. 10th Floor, No. 11, Khashayar Towers, Sharifi Street, North Gandhi Avenue, Vanak Square, Tehran 19699, Islamic Republic of Iran, P.O. Box No Tel: Fax: Iraq Baghdad Sojitz Corporation, Baghdad Liaison Office 1st Floor, Kafil Hussain Bldg., Sadoon Street Baghdad, Iraq, P.O. Box 3286 Baghdad, Iraq Tel: Fax: Oman Muscat Sojitz Corporation, Muscat Liaison Office Office No. 406, Block No. 133, Building No. 560, MGM Complex, Sultan Qaboos Street, Ruwi, Sultanate of Oman, P.O. Box 2447 Postal Code-112 Ruwi, Sultanate of Oman Tel: /424 Fax: Saudi Arabia Al-Khobar Sojitz Corporation, Al-Khobar Liaison Office P.O. Box 31696, Al-Khobar 31952, Kingdom of Saudi Arabia Tel: Fax: Jeddah Sojitz Corporation, Jeddah Branch C/O Neesa, P.O. Box No Jeddah 21434, Kingdom of Saudi Arabia Tel: Fax: Sojitz Corporation, Al-Khobar Liaison Office, Jeddah Office P.O. Box 53180, Jeddah 21583, Kingdom of Saudi Arabia Tel: Fax: U.A.E. Dubai Sojitz Middle East FZE P.O. Box 17178, Office No. LOB20-F14 Jebel Ali Free Zone, Dubai, U.A.E. Tel: Fax: Sojitz Corporation, Planning and Administration Office, Sultan Business Centre, Room No. 509, P.O. Box 6298, Dubai, U.A.E. the Middle East and Africa Tel: Fax: Sojitz Corporation, Dubai Liaison Office Sultan Business Centre, Room No. 509, P.O. Box 6298, Dubai, U.A.E. Tel: Fax:

67 Annual Report 2007 Sojitz Corporation Yemen Sanaa Sojitz Corporation, Sanaa Liaison Office Room No. 1, 6th Floor, Eastern Tower Sana a Trade Center, Algeria Street, Sana a, The Republic of Yemen, P.O. Box 1496 Sana a, The Republic of Yemen Tel: Fax: AFRICA Algeria Alger Sojitz Corporation, Alger Liaison Office 45B Cité des Ptt, Hydra, Alger, Algeria Tel: Fax: Angola Luanda Sojitz Corporation, Luanda Liaison Office 3rd Rua Da India No. 3, Rairro Patrice Lumumba, C.P.2897, Luanda, Angola Tel: Fax: Nigeria Abuja Sojitz Global Trading Nigeria Ltd., Abuja Office 5 Udi Street, Aso Drive, Asokoro District, Abuja, Nigeria Tel: /2 Fax: Lagos Sojitz Global Trading Nigeria Ltd. 4th Floor, City Express Bank House, Plot 1637 Adetokunbo Ademola Street, Victoria Island, Lagos, Nigeria Tel: Fax: South Africa Johannesburg Sojitz Corporation, Johannesburg Branch 158 Jan Smuts Avenue, Rosebank, Johannesburg 2196, South Africa Tel: Fax: Group Company Branch Office 65

68 Sojitz Corporation Annual Report 2007 Main Subsidiaries As of July 1, 2007 MACHINERY & AEROSPACE DIVISION Group Country Company Ownership Main Business JAPAN Japan Steel Leasing Co., Ltd % Lease and sale of steel construction materials Nissin Gas Engineering Ltd % Sale of LPG reliquefaction equipment, heat exchangers for LPG ships, and repair services Rent Corporation 18.94% Rental, sale and repair of industrial equipment and vehicles Sendzimir Japan, Ltd % Design and technical guidance for all types of rolling machines and auxiliary equipment Sojitz Aerospace Corporation % Import/export and Japanese sales of aerospace-related equipment, components and materials Sojitz Automobile Co., Ltd % Trading for automotive vehicles and components, development of new business in the automotive field Sojitz Avisys Corporation % Sale of aircraft and security equipment Sojitz Machinery Corporation % Machinery general trading company Sojitz Marine & Engineering Corporation % Sale, purchase and charter brokerage of new and used vessels, ship operation management, Japanese sales and import/export of marine-related equipment and materials SPS Syntex, Inc % Research, development, production and sales of spark plasma sintering equipment CHINA Beijing Taizhi Consulting Co., Ltd % Consultancy for used-car trading, auction, and export Changshu Showa Bearing Components Co., Ltd % Manufacture of lathing rings used in the production of bearings Hangzhou Qianchao Precision Components Co., Ltd % Manufacture of rollers and needles used in the production of bearings Kunshan NSK Co., Ltd % Manufacture and sale of bearings Shanghai Hamana Machinery Co., Ltd % Manufacture and sale of wire processing machines Shaoxing Asahi Bearing Co., Ltd % Manufacture of lathing rings used in the production of bearings Sojitz Machinery (Shanghai) Corporation % Machinery general trading company Wardwell Hamana (Shanghai) Machinery Co., Ltd % Manufacture and sale of braiding machines Zhejiang Asahi Bearing Co., Ltd % Manufacture of lathing rings used in the production of bearings Zhejiang FRT Bearing Co., Ltd % Manufacture of lathing rings used in the production of bearings Hong Kong First Technology China Ltd % Sale and service of Fuji Machine surface-mounting machines and semiconductor-related equipment ASIA India inetest Technologies India Pvt. Ltd % Sale and service of U.S.-based Agilent Technologies PCB inspection devices and related products Miyazu Motherson Engineering Design Limited 15.00% Design and digital engineering for dies for automobiles Motoman Motherson Robotics Limited 15.00% Sale, maintenance and after service of Yasukawa Robot NMTronics India Pvt. Ltd % Sale and service of Fuji Machine surface-mounted technology (SMT) equipment Malaysia Fuji Smt (Malaysia) Sdn. Bhd % Service of Fuji Machine surface-mounting machines Miyazu (Malaysia) Sdn. Bhd % Engineering services and manufacturing of dies and stamping parts for automobiles Navi & Map Sdn. Bhd % Sale of car navigation systems, printed maps and digital maps Philippines Asian Transmission Corporation 44.49% Assembly and sale of automobile transmission engines Fuji Machine Philippines Inc % Sale and service of Fuji Machine surface-mounted technology (SMT) equipment Mitsubishi Motors Philippines Corporation 49.00% Import, assembly and sale of Mitsubishi automobiles Singapore Fuji Machine Mfg. (Singapore) Pte. Ltd % Sale and service of Fuji Machine surface-mounted technology (SMT) equipment Howa Machinery Singapore Pte. Ltd % Import and sale of industrial machinery and after-sales service Thailand AAPICO Hitech Public Company Limited 15.00% Automotive stamping parts design & manufacturing/die & jig design & manufacturing/automotive plastic injection molding & forging parts manufacturing/car dealership/other automotive parts design, manufacturing and sale Autrans (Thailand) Co., Ltd % Agency transport operations for automobile parts Hyundai Motor (Thailand) Co., Ltd % Import and sale of Hyundai Automobiles Yanmar S.P. Co., Ltd % Manufacture and sale of diesel engines Vietnam Vietnam Suzuki Corporation 35.00% Manufacture and sale of Suzuki automobiles and motorcycles 66

69 Annual Report 2007 Sojitz Corporation Address Tel Fax URL 1-11, Kitayamabushi-cho, Shinjyuku-ku, Tokyo , Japan , 1-chome, Mikuni-Hommachi, Yodogawa-ku, Osaka , Japan , Miyatake, Suruga-ku, Shizuoka , Japan F, Sendzimir Japan Bldg., , Higashi-Kanda, Chiyoda-ku, Tokyo , Japan F, Akasaka Twin Tower Main Tower, 17-22, Akasaka 2-chome, Minato-ku, Tokyo , Japan , Akasaka 2-chome, Minato-ku, Tokyo , Japan F, Hirakawacho K Bldg., 4-5, Hirakawacho 2-chome, Chiyoda-ku, Tokyo , Japan , Nihonbashi Muromachi 3-chome, Chuo-ku, Tokyo , Japan , Nihonbashi Muromachi 4-chome, Chuo-ku, Tokyo , Japan / West KSP Kanagawa Science Park, 3-2-1, Sakado, Takatsu-ku, Kawasaki, Kanagawa , Japan Jia No. 8, Guangqumen Inner Street, Chongwen District, Beijing, , China No. 32 Suzhou Roan, Yushan Economic Development Zone, Changshu, Jiangsu, China No. 40 Beitanghe-rd. Xiaoshan Economic and Technological Development Zone, Hangzhow, Zhejiang, , China 258 South Huang Pu Jiang Rd., Kunshan Economic & Technology, Development Zone, Jiangsu, China No Dongsheng Road, Pudong, Shanghai, , China Pinjianglu, Economic Development Zone, Shaoxing City, Zhejiang, China /A No. 358 North Fute Road, Waigaoqiao Free Trade Area, Shanghai, , China No. 767 Chuangyue Road, Pudongwangqiao Development Zone, Shanghai, , China CaoJiang Lu, Economic Development Zone, Shaoxing City, Zhejiang, China New And High Technology Garden, Xinchang, Zhejiang, , China F/Citicorp Centre, 18 Whitfield Road, Causeway Bay, Hong Kong th Floor, C&D, Ega Trade Center, 809, Poonamallee High Road Kilpauk, Chennai , India Sector-16, Noida Dist. Gautam Budh Nagar, (U.P.) India , 9th Floor, Galleria Dls Phase IV, Gurgaon Haryana, India , Prakash Deep Building, 7 Tolstoy Marg, New Delhi , India Suite 5.3.A, Level 5, Menara Pelangi, No. 2 Jalan Kuning, Taman Pelangi, Johor Bahru, Malaysia Hicom Industrial Estate, Batu 3, Shah Alam, Selangor, Malaysia Level 2, Crystal Plaza 4, Jalan 51A/223, Petaling Jaya, Selangor Darul Ehsan, Malaysia Carmelray Industrial Park, Canlubang, Calamba, Laguna, Philippines Whse 888 Don Mariano Lim Industrial CMPLX, Akmanza Uno, Las Pinas City, Philippines Ortigas Ave. Ext. Cainta, Rizal, Manila, Philippines Avenue 1 #01-24 Paya UBI Industrial Park, Singapore Lorong 23 Geylang #01-01A Yu Li Industrial Building, Singapore , 99 Moo 1, Hitech Industrial Estate Tambol Ban Lane, Amphur Bangpa-in Ayuthaya, Thailand 19th Floor, Ocean Tower 2, 75/31 Sukhumvit Soi 19, Sukhumvit Road, North Klongtoey, Wattana, Bangkok, 10110, Thailand 38 Q. House Convent Bldg., 3rd F/L, Convent Rd., Silom, Bangrak, Bangkok 10500, Thailand Lad Krabang Industrial Estate, 109 Moo 9 Chalongkrung Road, Bangkok 10520, Thailand Long Binh Techno Park, Long Binh Ward, Bien Hoa City, Dong Nai Province, Vietnam

70 Sojitz Corporation Annual Report 2007 Group Country Company Ownership Main Business NORTH AMERICA U.S.A. Metal Processing Systems, Inc % Import, sale and aftercare of metal processing machines NM Products Corporation 90.00% Wholesale of gasoline engines and related manufactured products OAC Inc % Sale of ORC-manufactured exposure equipment, lamps and supplies Plastic Trim International, Inc % Manufacturing and sales of automotive plastic trim components Sojitz Aerospace America Corporation % Sale of aerospace-related equipment, components and materials SOUTH AMERICA Argentina Hyundai Motor Argentina S.A % Import and sale of Hyundai Automobiles Brazil Fuji do Brasil Maquinas Industriais Ltda % Sale and service of Fuji Machine surface-mounted technology (SMT) equipment Ecuador MOSUMI S.A % Import and sale of Mitsubishi Automobiles Venezuela Autrans de Venezuela % Import and modularization of Mitsubishi and Hyundai assembly components MMC Automotriz, S.A % Import and assembly of Mitsubishi and Hyundai automobiles EUROPE, RUSSIA & NIS France Kyowa Synchro Technology Europe S.A.S % Sale of synchronizers for manual transmission in Europe Germany ORC Manufacturing Vertriebs GmbH 40.00% Sale of ORC-manufactured exposure equipment, lamps and supplies Netherlands Sojitz Aircraft Leasing B.V % Aircraft leasing Russia Subaru Motor LLC 51.00% Import and exclusive distribution of Subaru automobiles in Russia Ukraine Subaru Ukraine LLC 51.00% Import and exclusive distribution of Subaru automobiles in Ukraine ENERGY & MINERAL RESOURCES DIVISION Group Country Company Ownership Main Business JAPAN Alconix Corporation 15.78% Sale of nonferrous products, nonferrous materials for construction and electronic industries CoalinQ Corporation % Operation of an online site for coal users (e-trade and information services) Eco Energy Japan Corporation 75.50% Industrial waste treatment with thermal recycling e-energy Corporation % Sale of nuclear fuel and equipment Erimo Wind Power Co., Ltd % Wind power generation in Hokkaido Hayama Wind Power Generation Company 51.00% Wind power generation in Kochi Prefecture Ject Corporation % International and domestic trade and sale of coke, carbon materials, petroleum products, and LPG LNG Japan Corporation 50.00% LNG business and related investments Metal One Corporation 40.00% Integrated steel trading company Nissho Koyu Co., Ltd % Sale of petroleum products Nissho Petroleum Gas Corporation 22.50% Import and sale of LPG, LNG and petroleum products Sojitz Energy Corporation 97.08% Sale of petroleum products Sojitz Jewelry Co., Ltd % Manufacture and sale of jewelry and accessories Sojitz Sawada Power Co., Ltd % Thermal power generation in Sadogashima Tokyo Yuso Co., Ltd % Tank storage operations for petroleum and chemical products Volclay Japan Co., Ltd % Import and sale of bentonite produced in the U.S. and China ASIA Sri Lanka Asia Power (Private) Limited 38.38% Power generation business Singapore Sojitz Offshore Project Pte. Ltd % Investment in FPSO and FSO, and handling of equipment related to oil and gas production Sojitz Petroleum Co., (Singapore) Pte. Ltd % Sale of oil, petroleum products, and LPG 68

71 Annual Report 2007 Sojitz Corporation Address Tel Fax URL 2324 Touhy Avenue, Elk Grove Village, IL 60007, U.S.A Daniel Burnham Dr. #C Portage, IN 46368, U.S.A Sky Park Circle Suite B lrvine, CA 92614, U.S.A Research Blvd, Dayton, OH 45430, U.S.A Avenue of the Americas, New York, NY 10036, U.S.A Av. Panamericana 3611, (1636) Olivos, Prov. Bs. As., Argentina Rua Joao Cachoeira, Itaim Bibi, CEP , Sao Paulo, SP, Brazil Av. 10 de Agosto 6398, La Y, Quito, Ecuador ext ext 103 Av. C entre Av. 3 y Calle 2, Zona Industrial Los Montones, Parcela 166, 6001, Barcelona, Edo. Anzoatequi, Venezuela Caracas AV. Fransisco de Miranda- Edif. Centro, Commercial EL Parque-Piso 10, Los Palos Grandes, Caracas, Venezuela , rue de la Paix, Paris, France Cantador str. 3, Duesseldorf, Germany World Trace Center Tower C, Strawinskylaan 1241, 1077 XX Amsterdam, The Netherlands UI. Novolesnaya Dom 2, 7th Floor, Moscow, , Russia B, Novokonstantinovskaya str., Kiev 04080, Ukraine Address Tel Fax URL , Akasaka, Minato-ku, Tokyo , Japan F Akasaka-Fukugen Bldg., Akasaka, Minato-ku, Tokyo , Japan , Kawarago, Shiroi, Chiba , Japan , Akasaka 1-chome, Minato-ku, Tokyo , Japan , Aza Erimo-Misaki, Erimo-cho, Horoizumi-District, Hokkaido , Japan Nagano, Tsuno-cho, Takaoka, Kochi, , Japan Sumitomo Fudosan Hibiya Bldg. 6F, 8-6, Nishishinbashi 2-chome, Minato-ku, Tokyo , Japan Roppongi First Bldg., 9-9, Roppongi 1-chome, Minato-ku, Tokyo , Japan Celestine Shiba Mitsui Bldg., , Shiba, Minato-ku, Tokyo , Japan , Nango-dori 2-chome Kita, Shiroishi-ku, Sapporo, Hokkaido , Japan F, Success Shibadaimon Bldg., 8-13, Shibadaimon 2-chome, Minato-ku, Tokyo , Japan F, Akasaka 2 14 Plaza Bldg., Akasaka 2-chome, Minato-ku, Tokyo , Japan Nisshin Ueno Bldg., 1-5, Higashiueno 5-chome, Taito-ku, Tokyo , Japan , Yahata, Sado, Niigata , Japan , Chidori-cho, Kawasaki-ku, Kawasaki, Kanagawa , Japan F Toyo Kaiji Bldg., , Shinbashi, Minato-ku, Tokyo, , Japan No. 155 Maya Avenue, Colombo 6, Sri Lanka Robinson Road, #32-00 SIA Building, Singapore Robinson Road, #32-00 SIA Building, Singapore

72 Sojitz Corporation Annual Report 2007 Group Country Company Ownership Main Business Vietnam Vietnam Japan Aluminium Co., Ltd % Manufacture and sale of aluminum extrusion products Philippines Coral Bay Nickel Corporation 18.00% Nickel mining OCEANIA Australia Catherine Hill Resources Pty. Ltd % Investment in coal mines (Jellinbah East, Wallarah, Coppabella, Minerva and other projects) Japan Alumina Associates (Australia) Pty. Ltd % Investment in Worsley alumina refinery Sojitz Resources (Australia) Pty. Ltd % Investment in Worsley alumina refinery NORTH AMERICA Canada Sojitz Moly Resources, Inc % Investment in Endako molybdenum mine in Canada (25%) Grand Cayman NM Merida Management Services Inc % Investment in power generation operations and maintenance (O&M) Mexico NM Power Mexico, S.A. de C.V % Investment in power generation projects U.S.A. NCG International Inc % Investment in power generation projects Sojitz Energy Venture, Inc % Oil and gas development Sojitz Noble Alloys Corporation % Investment in Strategic Mineral Corporation (vanadium producer) Strategic Minerals Corporation 25.00% Production and sale of vanadium SOUTH AMERICA Brazil Albacora Japao Petroleo Limitada 50.00% Development of oil and gas fields (Albacora oil field) EUROPE, RUSSIA & NIS U.K. Sojitz Energy Project Ltd % Oil and gas development Sojitz Etame Ltd % Investment in Gabon Etame oil fields Sojitz Oil & Gas (Egypt) Ltd % Oil and gas development CHEMICALS & PLASTICS DIVISION Group Country Company Ownership Main Business JAPAN Cosmic Farm Co., Ltd % Cultivation and sale of enoki mushrooms High-Tech Chem Inc % Coloring, compounding of plastic resins Hokko Chemical Co., Ltd % Manufacture, processing and sale of paint and ink thinners Mitsumoto Chemicals Co., Ltd % Coloring, compounding of plastic resins NI Chemical Corporation % Warehousing (chemical tanks), import/export shipping service Nichipac Co., Ltd % Manufacture and sale of processed paper products, such as paper bags and wrapping paper, as well as plastic bags and other plastic products NISSHO IWAI CEMENT CORPORATION 58.00% All types of secondary cement/concrete products, concrete aggregate and general construction materials Osaka Plastics Mfg. Co., Ltd % Manufacture and sale of plastic sheets Pla Matels Corporation 46.55% Sale of plastic raw materials, products, and processing equipment Sojitz Pla-Net Corporation % Domestic and international trading of plastics and related products Sojitz Pla-Net Holdings, Inc % Holding company: plastics business Sojitz Cosmetics Co % Development, product planning and sale of cosmetics SOJITZ TECHNOPLAS CORP % Coloring, compounding of plastic resins Taiyo Chemical Industry Co., Ltd % Manufacture and sale of vinyl chloride film Vermitech Corporation % Processing and sale of vermiculite firings Yahata Ready Mixed Concrete Co., Ltd % Manufacture and sale of ready-mixed concrete, processing of interior floor coverings Yawata Ready Mixed Concrete Co., Ltd % Manufacture and sale of ready-mixed concrete, processing of interior floor coverings 70

73 Annual Report 2007 Sojitz Corporation Address Tel Fax URL Binh Chieu Industrial Zone, Binh Chieu Ward-Thu Duc District, Ho Chi Minh City, Vietnam th Floor, Pacific Star Building, Makati City 1200, Philippines /37/38/ Level 34, Central Plaza One 345, Queen Street, Brisbane, QLD 4000 GPO Box 126, Brisbane, QLD 4001, Australia th Floor, International House, 26 St George s Terrace, Perth, WA 6000, Australia th Floor, 459 Collins Street, Melbourne, Victoria, 3000, Australia , Dunsmuir Street, Vancouver, BC, Canada P.O. Box 1350, The Huntlaw Bldg., Fort Street, George Town in the Island of Grand Cayman Paseo de las Palmas No. 239, 3er Piso, Col. Lomas de Chapultepec, Delegacion Miguel, Mexico 1209 Orange Street, Wilmington, DE 19081, U.S.A Westheimer, Suite 900, Houston, TX 77042, U.S.A Avenue of Americas, New York, NY 10036, U.S.A Main Street, Danbury, CT , U.S.A Praia do Flamengo 154, 7th Floor (part), CEP , Rio de Janeiro, Rl, Brasil th Floor, The Northern & Shell Building, 10 Lower Thames Street, London EC3R 6EQ, U.K th Floor, The Northern & Shell Building, 10 Lower Thames Street, London EC3R 6EQ, U.K th Floor, The Northern & Shell Building, 10 Lower Thames Street, London EC3R 6EQ, U.K Address Tel Fax URL 311-1, Arai, Nakano, Nagano , Japan Higashi-yama Nakahata-cho, Nishiwaki, Hyogo , Japan , Umecho 2-chome, Konohana-ku, Osaka , Japan , Nishihonmachi 1-chome, Nishi-ku, Osaka , Japan Shinko 231, Mihama-ku, Chiba , Japan Hokoku Bldg., 11-13, Iidabashi 3-chome, Chiyoda-ku, Tokyo , Japan F, TAM Bldg., 4-9, Nishishinbashi 1-chome, Minato-ku, Tokyo , Japan , Takatsukasa, Takarazuka, Hyogo , Japan Gotenyama Trust Tower 5F, , Kitashinagawa, Shinagawa-ku, Tokyo , Japan Roppongi 25 Mori Bldg., 4-30, Roppongi 1-chome, Minato-ku, Tokyo , Japan Roppongi 25 Mori Bldg., 4-30, Roppongi 1-chome, Minato-ku, Tokyo , Japan Akashi-cho 8-1, Chuo-ku, Tokyo , Japan , Manaka, Sakuragawa, Ibaraki , Japan ~ nit2001/index.html 4-28, Imazuminami 3-chome, Tsurumi-ku, Osaka , Japan , Shinmachi Takasaki, Gunma , Japan Chikko Minamimachi 9, Sakai, Osaka , Japan , Nakahara Sakinohama, Nippon Steel Corporation Nai, Tobata-ku, Kitakyushu, Fukuoka , Japan 71

74 Sojitz Corporation Annual Report 2007 Group Country Company Ownership Main Business CHINA Anhui Hong Ri Mining Co., Ltd % Mining and sale of industrial minerals Asahi Kasei (Suzhou) Plastics Compound Co., Ltd % Coloring, compounding of plastic resins Nichibei Electric Parts (Beijing) Co., Ltd % Manufacture of components for digital devices such as mobile phones North China Pharmaceutical Group Beta Co., Ltd % Manufacture and sale of penicillin and antibiotics Richao Engineering Plastics (Beijing) Co., Ltd % Coloring, compounding of plastic resins Richao Engineering Plastics (Shenzhen) Co., Ltd % Coloring, compounding of plastic resins Sojitz Engineering Plastics (Dalian) Co., Ltd % Coloring, compounding of plastic resins Sojitz Plastic (Shenzhen) Ltd % Sale of plastic resin materials and molding machines Suzhou Maruai Semiconductor Package Co., Ltd % Development, manufacture and sale of products with plastic sheeting conductive coatings Takagi Auto Parts (Foshan) Co., Ltd % Manufacture of automobile plastic components Yantai Sandie Plastic Products Co., Ltd % Manufacture of various types of polyethylene household bags Hong Kong K-THREE (Hong Kong) Co., Ltd % Manufacture and sale of rubber compound Sojitz Plastics (China) Ltd % Sale of plastic resin materials and molding machines Topla International (Hong Kong) Ltd % Manufacture and sale of plastic sheets ASIA India India Gelatine & Chemicals Ltd % Manufacture and sale of gelatine products Indonesia PT. Kaltim Methanol Industri 85.00% Manufacture and sale of methanol PT. Randugarut Plastic Indonesia 55.00% Manufacture and sale of polyethylene products Korea Han Kang Chemical Co., Ltd % Sale of substitute freon gas N. I. AGROSCIENCE CORPORATION % Sales promotion support of agrochemical products Philippines AFC Fertilizer and Chemicals Inc % Manufacture and sale of fertilizers, sale of imported fertilizer products Bay Tank Yard Inc % Storage and sale of acetic acid Taiwan Furukawa Circuit Foil Taiwan Corporation 15.15% Manufacture of copper foil Thailand MC Agro-Chemicals Co., Ltd % Formulation and repackaging of agrochemicals MC Industrial Chemical Co., Ltd % Import and domestic sale of chemicals MC Plastics Co., Ltd % Plastic processing and domestic sales MC Solvents Co., Ltd % Sale of solvents and chemical products N.I.M. Co., Ltd % Warehousing (chemical tanks) PATO CHEMICAL INDUSTRY PUBLIC COMPANY LIMITED 15.00% Formulation and repackaging of agrochemicals TCC Agrochemical Co., Ltd % Sale of agrochemicals Thai Central Chemical Public Co., Ltd % Manufacture and sale of fertilizer, sale of imported fertilizer products Thai GCI Resitop Co., Ltd % Manufacture and sale of all kinds of industrial phenol resin Vietnam Japan Vietnam Fertilizer Company 75.00% Manufacture and sale of fertilizers PTN Chemicals Co., Ltd % Manufacture and sale of alkylbenzene sulphonic acid, a raw material for detergent Sojitz Chemical Distribution Service Co., Ltd % Inventory-based operations using proprietary storage tanks NORTH AMERICA Canada American Biaxis Inc % Manufacture of biaxially-oriented polyamide (BOPA) film U.S.A. Biaxis Packaging Sales, Inc % Sale of nylon film and plastic resins Metton America, Inc % Manufacture and sale of metton resins Trans World Prospect Corporation 28.57% Investment in bentonite mining operation 72

75 Annual Report 2007 Sojitz Corporation Address Tel Fax URL Tanxi Village, Guichi District, Chizhou City, Anhui Province, China Cengshu Township, Wuzhong District, Suzhou City, Jiangsu, China Building E, Bodaxing Industry Zone, A11 Block. Kechuangsanjie, East District, Beijin Economic-Technological Development Area, Beijing, China Xing Yie Street., Shijiazhuang Economics & Technical Development Zone, Hebei, China Beijing Tongxian Industrial Development Zone, Zhangjiawan, Tongzhou, Beijing, China No. 3 Plant, Second Industrial Estate, Xiner Village, Shajing Township, Baoan District, Shenzhen, China Dalian Free Trade Zone ID-34, Dalian, , China Room 1503, Ming Wah International Convention Center, No. 8 Gui Shan Rd, Shekou, Shenzhen, China 610 Changjiang Road, Suzhou New District, Suzhou, Jiangsu Province, , China Songxia Industrial Park, Songgang Town, Nan Hai District, Foshan, Guang Dong, China No. 3 Yingbin Road, Taocun Township, Qixia, Shandong, China /F, Harbour Centre, 25 Harbour Road, Wanchai, Hong Kong Rm 1603, Harbour Centre, 25 Harbour, Wanchai, Hong Kong Suite 2214, Prudential Tower, The Gateway, 25 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong /78, Mirral Chambers, 228, Nariman Point, Mumbai , India Sona Topas Tower 8Th Fl, Jl Jend Sudiman Kav, 26 Jakarta 12920, Indonesia Jl. Raya Randugarut Km 12.9 Semarang 50153, Indonesia Fl.Korea World Trade Center.159-1, Samsung-Dong, Kangnam-ku, Seoul, , Korea Room 2011, A-Nam Tower Bldg., , Yoksam-1-Dong, Kangnam-Ku, Seoul, , Korea th Flr, P&L Bldg., 116 Legazpi St., Legazpi Village, Makati City, Philippines Soler Street Binondo, Manila, Philippines , Tou Kong 2 RD., Tou-Liu Expansion Industrial Area Tou Liu, Yun Lin 640, Taiwan Moo 4, Bagpoo Industrial Estate Soi 12, Sukhumvit Road, Tambol Prachsa, Amphur Muang, Samutprakam 10280, Thailand Metro Building, Rajawongse Road, Bangkok, Thailand Metro Building, Rajawongse Road, Bangkok, Thailand Metro Building, Rajawongse Road, Bangkok, Thailand United Flour Mill Building, 8th Floor, Rajawongse Road, Chakkawad, Sumphanthawong, Bangkok, Thailand Pato Building, New Petchaburi Rd., Huay-Kwang, Bangkok 10310, Thailand Moo 4, Bagpoo Industrial Estate Soi 12, Sukhumvit Road, Tambol Prachsa, Amphur Muang, Samutprakam 10280, Thailand Metro Building, 8th Floor, Rajawongse Road, Bangkok 10100, Thailand th Floor, Thaniya Building, 62 Silom Road, Suriyawong, Bangrak, Bangkok 10500, Thailand Phuoc Thai Commune, Long Thanh District, Dong Nai Province, Vietnam / No. 1 So Dau, Hong Bang Dist., Hai Phong City, Vietnam , 30/4 Street, Ward 11, Vung Tau City, Vietnam Saulteaux Crescent, Winnipeg, Manitoba, Canada R3J 3T S. Arington Heights Road Suite 610, Arington Heights IL 60005, U.S.A Miller Cut-Off Road, La Porte. TX 77571, U.S.A Con Roy Build. 141 South Center, Casper, WY 82601, U.S.A

76 Sojitz Corporation Annual Report 2007 Group Country Company Ownership Main Business EUROPE, RUSSIA & NIS Finland Biaxis Oy, Ltd % Manufacture of biaxially-oriented polyamide (BOPA) film Portugal Nemoto Portugal Quimica Fina Lda % Manufacture and sale of nonorganic fluorescent pigment REAL ESTATE DEVELOPMENT & FOREST PRODUCTS DIVISION Group Country Company Ownership Main Business JAPAN Akita New Urban-Center Building Co., Ltd % Ownership, leasing and management of A LIVE shopping centers based in Akita Prefecture Chelsea Japan Co., Ltd % Development, ownership and leasing of outlet malls (commercial facilities) New Real Creation Inc % Real estate purchase and sales, investment and brokerage, and receivable sales Sojitz General Property Management Corporation % Condominium and office building management, real estate agency services Sojitz Commerce Development Corporation % Development, construction, operation and lease of retail property Sojitz Housing Materials Corporation % Sale of lumber, plywood and all types of construction materials Sojitz Realnet Corporation % Consignment sales of newly constructed condominiums, sale of residential products, construction contracting for sales centers and model showrooms, real estate and logistics consulting Sojitz Building Materials Corporation % Trading company specializing in sale of construction materials, lumber and residential-related equipment, building interior finish works Yamagata Newcity Development Co., Ltd % Ownership, leasing and management of Kajoh Central Building (Yamagata Prefecture) Yoshimoto Ringyo Co., Ltd % Joint sales of imported and locally produced products CHINA Tachikawa Forest Products (China) Co., Ltd % Saw milling Hong Kong First Forest Limited % Saw milling ASIA Indonesia PT. Mitra Mutiara Woodtech 65.00% Manufacture and sale of high-end wooden doors, molding and other products Malaysia Samling Housing Products Sdn. Bhd % Manufacture of wooden interior material and furniture Sojitz Forest Products (EM) Sdn. Bhd % Sale of timber products and plywood OCEANIA New Zealand Tachikawa Forest Products (NZ) Ltd % Saw milling EUROPE, RUSSIA & NIS Russia Zao Komsomolsk Forest Products 51.00% Manufacture of veneer 74

77 Annual Report 2007 Sojitz Corporation Address Tel Fax URL Teknikonkatu 2, FI Lahti, Finland Parque Industrial Manuel Da Mota, Lote 11, 3100 Pombal, Portugal Address Tel Fax URL 4-1, Higashidori-Nakamachi, Akita , Japan , Marunouchi, Chiyoda-ku, Tokyo , Japan F, Akane Bldg., 1-31, Akasaka 4-chome, Minato-ku, Tokyo , Japan , Daiba 2-chome, Minato-ku, Tokyo, , Japan , Akasaka, Minato-ku, Tokyo , Japan , Imabashi 2-chome, Chuo-ku, Osaka , Japan , Akasaka, Minato-ku, Tokyo , Japan F, Shuwa Kioi-cho Park Bldg., 3-6, Kioi-cho, Chiyoda-ku, Tokyo , Japan , Jyonan-machi, Yamagata , Japan F, Kimigayo-Bldg., 20-15, Asakusabashi 3-chome, Taito-ku, Tokyo , Japan Yuewang Industrial Zone, Shaxi Town, Taicang, Jiangsu, China /F Habour Centre, 25 Habour Road, Wanchai, Hong Kong Jlkesatrian No. 18, Sidekerto, Buduran, Sidoarjo 61252, East-Jawa, Indonesia Lot 171, Block 1, Kuala Baram Industrial Estate, CDT Miri, Sarawak, Malaysia Suite 1-7-W2, 7th Floor, CPS Tower, Centre Point Sabah, No.1, Jalan Centre Point, Kota Kinabalu, Malaysia 87 Vaughan Road, Rotorua, New Zealand Khabarovsk Krai, Komsomolsk-na-Amure, Kirova Street., 79-2, Russia

78 Sojitz Corporation Annual Report 2007 CONSUMER LIFESTYLE BUSINESS DIVISION Group Country Company Ownership Main Business JAPAN Daiichibo Co., Ltd % Manufacture and sale of textiles, real estate leasing, storage distribution, shopping center management Fuji Nihon Seito Corporation 31.27% Manufacture, refining, processing and sale of sugar Hanshin Silo Co., Ltd % Grain warehousing Masudaya Foods Corporation 30.00% Wholesale of wheat flour, rice and other foodstuffs Mclord Co., Ltd % Distribution and processing of textile products Misawa Co., Ltd % Manufacture, sale and wholesale of women s wear Nichimen Fashion Co., Ltd % Processing and sale of fabrics Nichimen Infinity Inc % Manufacture and sale of apparel N.I.F. Co., Ltd % Sale of food specifically made for vending machines Nihon Sportswear Co., Ltd % Manufacture of apparel Nissho Iwai Meat and Agri-Products Corporation 89.95% Import/export of meat, gardening products and feed for sale in Japan Nissho Iwai Paper & Pulp Corporation 33.56% Buying and selling of wrapping and packaging materials, containers and machinery Quy Nhon Plantation Company 39.00% Afforestation; manufacture and sale of wood chip SOFCO Seafoods Inc % Production and sales of processed and side dish seafood SANYO FOOD CO., LTD % Manufacture and sale of frozen foods; food wholesale Singapore Co., Ltd % Planning, manufacture and sale of women s clothing Sojitz Foods Corporation % Sale of sugar, farmed marine products, raw ingredients for feed, wheat flour and other foodstuffs Sojitz General Merchandise Corporation % Import and export and domestic wholesale of footwear, furniture, miscellaneous goods and industrial materials Sojitz Logitech Co., Ltd % Cargo-handling contract work, product storage and management operations Sojitz Satellite Corporation % Planning and proposals including marketing, product planning and branding S.S HOLDINGS CO., LTD % Sale of ready-made clothing, related materials and fashion accessories Takahata Co., Ltd % Manufacture of sewn products TRY-TOKYO CORPORATION 15.00% Processing and sale of raw tuna Yamaaki Corporation 50.00% Processing and sale of clams Yamazaki-Nabisco Co., Ltd % Manufacture, sale and import/export of biscuits, snacks, candy and chocolate products 76

79 Annual Report 2007 Sojitz Corporation Address Tel Fax URL 3F, Pacificmarks Higobashi Bldg, Edobori, Nishi-ku, Osaka , Japan Nihon Bldg., 1-4-9, Nihonbashi-Kayabacho, Chuo-ku, Tokyo , Japan Uozaki-Hamacho, Higashinada-ku, Kobe-city, Hyogo , Japan , Ohshima, Koto-ku, Tokyo , Japan , Sembahigashi, Minoo, Osaka , Japan , Bakurou-Machi Chuo-ku, Osaka , Japan , Hiranomachi, Chuo-ku, Osaka , Japan , Sembahigashi, Minoo, Osaka , Japan F, Dai 28th Mori Bldg., , Nishiazabu, Minato-ku, Tokyo , Japan , Kumihamacho, Kyotango, Kyoto , Japan Hatchobori First Bldg., 10F, , Hatchobori, Chuo-ku, Tokyo , Japan F Sanno-Kowa Bldg., , Nagata-cho, Chiyoda-ku, Tokyo , Japan Ginza, Chuo-ku, Tokyo , Japan F Akasaka 2 14 Plaza Bldg., Akasaka, Minato-ku, Tokyo , Japan Kawanoe-cho, Shikoku-chuo, Ehime , Japan Yoshinomachi, Gifu , Japan F, Akasaka 2 14 Plaza Bldg., Akasaka, Minato-ku, Tokyo , Japan F, Kokusai-Sanno Bldg., 3-3-5, Akasaka, Minato-ku, Tokyo , Japan Kitaoyobi, Kasamatsu-cho, Hazima-gun, Gifu , Japan Mita, Minato-ku, Tokyo , Japan Wakabayashi, Setagaya-ku, Tokyo , Japan F, Yushima Bldg., , Yushima, Bunkyo-ku, Tokyo , Japan F, Cygnet Bldg., , Tsukiji, Chuo-ku, Tokyo , Japan Nakajima, Kisarazu-city, Chiba , Japan F, Shinjuku-Nomura Bldg., , Nishi-Shinjuku, Shinjuku-ku, Tokyo , Japan

80 Sojitz Corporation Annual Report 2007 Group Country Company Ownership Main Business CHINA A-Fontane Holdings Ltd 15.00% Retail of products for the home Baoding Rongri Spice Co., Ltd % Process, manufacture and sale of spices (cayenne pepper) Da Chan Showa Foods (Tianjin) Co., Ltd % Manufacture of premixed foods Dalian Global Food Corporation 51.00% Tuna processing Da Longmian Textile (Suzhou) Co., Ltd % Cotton mill, cotton and quilt processing, production and sale of sleepwear, inspection of all types of textile products Liaoning Northern Foods Co., Ltd % Sorting and processing of wild and cultivated vegetables McGREGOR (Shanghai) Co.,Ltd % Sale of apparel Nichimen Fashion (Shanghai) Trading Co., Ltd % Processing and wholesale of fabrics in China Qingdao Jifa Longshan Dyeing and Weaving Co., Ltd % Manufacture and sale of fabrics Qingdao Sojitz-Cherry Garments Co., Ltd % Manufacture of jeans Qingdao Sojitz-Cherry Washing Co., Ltd % Pre-washing of jeans Qingdao Sojitz-Jifa Garments Ltd % Manufacture and sale of shirts Qingdao Zhongmian Knitting Co., Ltd % Manufacture and sale of knitwear Shandong Honglimian Knit Products Co., Ltd % Manufacture and sale of socks Shanghai Fujilife Co., Ltd % Manufacture and sale of sleepwear Sichuan Food Co., Ltd % Sale of everyday food items Sojitz Textile (Shanghai) Co., Ltd % Manufacture and sale of sewn products Yingkou Shuiyuan Food Co., Ltd % Meat processing/packing Zibo Huamian Garment Co., Ltd % Manufacture and sale of apparel Hong Kong Now Apparel Ltd % Garment agent and trader ASIA Indonesia PT. Moriuchi Indonesia 20.00% Fabric manufacturing Philippines All Asian Countertrade, Inc % Sale of sugar in Japan, import/export of raw cane sugar Thailand SNB Agriproducts Ltd % Extraction of rice bran oil, sale of pure and defatted rice bran oil Thai Nylon Co., Ltd % Manufacture of fishing nets Vietnam Interflour Vietnam Ltd % Flour milling; port silo operations VIJACHIP Cai Lan Corporation 51.00% Afforestation; manufacture and sale of wood chips VIJACHIP Corporation 60.00% Afforestation; manufacture and sale of wood chips VIJACHIP Vung Ang Corporation 60.00% Afforestation; manufacture and sale of wood chips OCEANIA Australia East Victoria Plantation Forest 29.00% Afforestation; manufacture and sale of wood chips Company of Australia Pty. Ltd. Green Triangle Plantation Forest 29.00% Afforestation; manufacture and sale of wood chips Company of Australia Pty. Ltd. NORTH AMERICA U.S.A. Sojitz Apparel USA Ltd % Sale of apparel 78

81 Annual Report 2007 Sojitz Corporation Address Tel Fax URL 8f A-Fontane Center, Ma Jia Long, Nan Shan District, Shenzhen, China Chengyi Wangdu, Hebei, China No. 8 Xiangtan Dao, Hongqi Rd., Hongqiao District, Tianjin, China IC-54 Dalian Free Trade Zone, Dalian, , China No. 609 Kun Jia Road, Kun Shan Economic and Technology Development Zone, Kun Shan, Jiangsu, China Da Fang Shen Cun Dalianwan Township, Ganjingzi District, Dalian, Liaoning Province, China Room No , Hailuo Building No. 2, No Zhongshan Road(w), Changning District, Shanghai, China Rm.11CD World Plaza No.855 Pudong South Road Shanghai, China Jifa Longshan Industrial Zone, Jimo, Shangdong, China Zhoujia Village, Yinghai Township, Jiaozhou, Shandong, China Shuiji Industiral Zone, Laixi, Shandong, China Jifa Longshan Industrial Zone, Jimo, Shangdong, China No. 558, Heshan Road, Jimo, Qingdao, Shandong, China No. 113 Zaoshan Road, Qingdao, Shandong, China Dongshou Xiangjiang Road, New Development Area, Rudong Xian, Jiangsu, China Hi-Tech Zone, Xiangyang Township, Guanghan, Sichuan, China Kirin Plaza, 666 Gu Bei Road, Chang Ning District, Shanghai, China Shuiyuan Township, Dashiqiao City, Liaoning, China No. 126 Yan Bei Road, Boshan District, Zibo, Shandong, China Unit Millennium City 3, 370 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong JI Cisirung, Dayeuhkolot Km 6,5, Bandung 40258, Indonesia th Fl. National Life Insurance Bldg., 6762 Ayala Ave., Makati-City, Philippines th FL., Soon Hua Seng Group Building North Sathorn Road, Silom, Bangrak, Bangkok 10500, Thailand ~ Opp. Royal Thai Naval Academy, Sukhumvit Road, Samutprakarn 10270, Thailand Unit 803, 2 Ngo Duc Ke St., District 1, Ho Chi Minh, Vietnam Cai Lan Industrial Zone, Ha Long City, Quang Ninh, Vietnam Tien Sa Port, Son Tra District, Danang City, Vietnam Phan Dinh Phung St., Tan Giang, Ha Tinh Town, Ha Tinh Province S.R., Vietnam Percy Street, Portland, VIC 3305, Australia Percy Street, Portland, VIC 3305, Australia Broadway, 39th Floor, Suite 3902, New York, NY 10018, U.S.A

82 Sojitz Corporation Annual Report 2007 IT BUSINESS GROUP Group Country Company Ownership Main Business JAPAN ARM Corporation 63.33% Supply of content to A.D. Vision Ebistrade Inc % Strategic IT business organizer (commercial transactions, account handling) JBP Corporation 30.00% Management support services to small and medium-sized companies utilizing the Internet Nissho Electronics Corporation 40.19% Providing leading-edge IT solutions and services NTT DATA 3C Corporation 30.00% Operating support centers covering technical matters and back office functions Tokyo Research Center of Clinical Pharmacology Co., Ltd % Provision of clinical trial support services NORTH AMERICA U.S.A. A.D. Vision Inc % Wholesale of animated content Index Global Rights Management Corporation 35.00% Distribution of varied content via the Internet and mobile phones OTHER Group Country Company Ownership Main Business JAPAN JALUX Inc % Logistics and service provision in the airline, airport terminal, lifestyle-related, and customer service business fields Nikkyo Corporation % Transportation and warehousing, real estate leasing, and sale/lease of loading/unloading equipment Sojitz Insurance Agency Corporation % Personal injury and life insurance agency services Sojitz Logistics Corporation % Logistics service business: land, sea and air cargo handling, and international nonvessel operating common carrier (NVOCC) transportation Sojitz Private Equity, Inc % Investment management/advisory service Sojitz Research Institute, Ltd % Research and consulting Sojitz Shared Service Corporation % Shared services and consulting regarding HR, accounting and finance; IT-related business and temporary staffing services Sojitz Systems Corporation 30.00% SI, ASP, network security, overseas IT project Sojitz Tourist Corporation % Travel agency CHINA Hong Kong Sojitz Insurance Brokers (HK) Ltd % Insurance broker ASIA Singapore Unimax Insurance Pte. Ltd % Reinsurance underwriting 80

83 Annual Report 2007 Sojitz Corporation Address Tel Fax URL Akasaka Minato-ku, Tokyo , Japan Koshin Bldg., , Kanda Nishiki-cho, Chiyoda-ku, Tokyo , Japan F, Kinshi-cho Daiya Bldg., Kotobashi, Sumida-ku, Tokyo , Japan , Tsukiji, Chuo-ku, Tokyo , Japan F Shinjuku Island Tower Nishi-shinjuku, Shinjuku-ku, Tokyo , Japan Yotsuya Medical Bldg., 20 Samon-cho, Shinjuku-ku, Tokyo , Japan Bintliff Drive, Suite 217, Houston, TX 77036, U.S.A Avenue of the Americas, New York, NY 10036, U.S.A Address Tel Fax URL JAL Building, , Higashi Shinagawa, Shinagawa-ku, Tokyo , Japan Room 707, Toranomon Bldg., , Toranomon, Minato-ku, Tokyo , Japan F, Roppongi 25 Mori Bldg., , Roppongi, Minato-ku, Tokyo , Japan , Akasaka 2-chome, Minato-ku, Tokyo , Japan F, Jitsugetsukan Kojimachi Bldg., 1-3-7, Kojimachi, Chiyoda-ku, Tokyo , Japan , Akasaka, Minato-ku, Tokyo , Japan F, Roppongi 25 Mori Bldg., , Roppongi, Minato-ku, Tokyo , Japan Minamishinagawa N Bldg., 2-10, Minamishinagawa 2-chome, Shinagawa-ku, Tokyo , Japan , Akasaka, Minato-ku, Tokyo , Japan /F Harbour Centre, 25 Harbour Road, Wanchai, Hong Kong Shenton Way, #23-02/03 Lippo Centre, Singapore

84 Sojitz Corporation Annual Report 2007 SUBSIDIARIES REPORTING DIRECTLY TO PRINCIPAL OVERSEAS OPERATING BASES AMERICAS Group Country Company Ownership Main Business Guatemala Central Motriz, S.A % Import and sale of automobiles Mexico NAI Azteca S.A. de C.V % Investment in independent power plant projects in Mexico U.S.A. Autrans Corporation % Provider of sub-assemblies and Just-in-Time delivery services for the automotive industries Entrepia Solutions Inc % Investment in the IT field Entrepia, Inc % Fund management in the IT field Masami Foods, Inc % Meat processing and packing NAWP Inc % Investment and operation in wind power projects in California, U.S.A. Sojitz America Capital Corporation % Finance, real estate and leasing Sojitz Motors U.S.A., Inc % Holding company of automobile dealership Sojitz Risk Services, Inc % Insurance broker (non-life insurance) Specialty Grains, Inc % Contract cultivation of specialty corn and soybeans for export Sunrock Institute Inc % Research in IT and biotechnology; consulting services Weatherford Motors, Inc % Franchised BMW automobile dealership CHINA Group Country Company Ownership Main Business China Shenzhen Aero-Fasteners Manufacturing Company Ltd % Manufacture of bolts and nuts Hong Kong Supreme Development Co., Ltd % Processing of plastic film 82

85 Annual Report 2007 Sojitz Corporation Address Tel Fax URL Calzada Aguilar Batres Zona 11, Guatemala, CA, Guatemala Paseo de las Palmas No. 239, Int 302. Colonia Lomas de Chapultepec C.P , Mexico D.F Enon Spring Road Smyna, TN 37167, U.S.A Avenue of the Americas, New York, NY 10036, U.S.A Great America Parkway, Suite 456, Santa Clara, CA 95054, U.S.A Tingley Lane Klamath Falls, OR 97601, U.S.A West 7th Street, Suite 3200, Los Angeles, CA 90017, U.S.A Avenue of the Americas, New York, NY 10036, U.S.A Ashby Ave. Berkeley, CA 94710, U.S.A Avenue of the Americas, 3rd Floor, New York, NY 10020, U.S.A North Sangamon Ave. Gibson City, IL 60936, U.S.A th Street N.W., Suite 260 Washington, D.C , U.S.A Ashby Ave. Berkeley, CA 94710, U.S.A Address Tel Fax URL Da-Lang Long-Fu Industrial Park, Tongfuyu Industrial Area, Long-Hua Bao an, Shenzhen, Guangdong, China Units E&F, 14/F, Vigor Industrial Building, Block 2, Ta Chuen Ping St., Kwai Chung, NT, Hong Kong 83

86 Sojitz Corporation Annual Report 2007 FINANCIAL SECTION CONTENTS FINANCIAL SUMMARY MANAGEMENT S DISCUSSION AND ANALYSIS OF OPERATIONS CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF INCOME CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY CONSOLIDATED STATEMENTS OF CASH FLOWS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITORS REPORT

87 Annual Report 2007 Sojitz Corporation FINANCIAL SUMMARY For the years ended March 31, 2007 and 2006: Thousands of Millions of yen U.S. dollars Net sales (Total trading transactions) ,218,153 4,972,060 $44,221,636 Gross trading profit , ,167 2,156,492 Operating income ,932 76, ,441 Recurring profit ,535 78, ,771 Net income ,766 43, ,017 As of March 31: Total assets ,619,508 2,521,680 $22,199,220 Net assets* , ,950 4,505,381 Interest-bearing debt ,317,679 1,386,260 11,166,771 Yen U.S. dollars Amounts per share: Net income $ 0.71 Net assets* (368.95) 1.22 Dividends ROA % 1.8% ROE % 12.4% Equity ratio % 16.9% Net DER times 2.0 times * The presented amounts of the prior year are based on shareholders equity under the previous accounting standard, instead of net assets under the new accounting standard. 85

88 Sojitz Corporation Annual Report 2007 MANAGEMENT S DISCUSSION AND ANALYSIS OF OPERATIONS 1. OVERVIEW Consolidated net sales amounted to 5,218,153 million, an increase of 4.9% compared with the previous fiscal year. Sales were higher than in the previous year across all trading categories. Sales from export transactions in the Energy & Mineral Resources, Machinery & Aerospace and other divisions recorded strong growth, increasing 10.3%. Sales from import transactions in the Machinery and Aerospace and other divisions rose 8.8%. Sales from domestic transactions recorded net growth of 0.3%, with lower sales in the Real Estate Development & Forest Products, and Chemicals & Plastics divisions outweighed by higher sales in the Consumer Lifestyle Business, Energy & Mineral Resources and other divisions. Sales from offshore transactions in the Machinery & Aerospace, Chemicals & Plastics, Consumer Lifestyle Business and other divisions increased by 5.6%. By industry segment, in the Machinery & Aerospace Division, robust performances in aircraft- and automobile-related transactions resulted in a 16.7% increase in sales. Net sales in the Energy and Mineral Resources Division increased by 6.6%, reflecting firm commodity prices and an increase in oil and metal resource transactions. In the Chemicals & Plastics Division net sales rose by 5.7% due to favorable market conditions, while the Consumer Lifestyle Division benefited from higher sales of foods and apparel to post 5.3% growth. In the Real Estate Development and Forest Products Division, however, lower sales of construction equipment and materials outweighed the recovery in the lumber market, resulting in a net sales decline of 9.4%. Net sales at Overseas Subsidiaries also declined, falling 6.2% compared with a year earlier due to a drop in some machinery-related business in the Americas and other factors. Looking at consolidated earnings in the year ended March 31, 2007, gross trading profit amounted to 254,466 million, up 5.1% compared with the previous fiscal year. Contributing factors included strong performances in the Machinery & Aerospace Division s aircraft- and automobile-related businesses, the Energy & Mineral Resources Division s mineral resources and coal-related operations, and also in lumber and fertilizer. Operating income rose 2.3% year on year to 77,932 million. This reflected the rise in gross trading profit, which outweighed the increase in selling, general and administrative (SG&A) expenses resulting from higher personnel expenditure. Recurring profit increased by 13.7% to 89,535 million, reflecting higher equity in earnings of unconsolidated subsidiaries and affiliates, including Metal One Corporation, and a reduction in interest expense due to an improvement in Sojitz credit rating. Net other income also improved due to a drop off in provisions for investments and loans, among other factors. Special gains and losses came to net losses of 1,450 million, including gain on sale of investment securities ( 12,838 million), gain on sale and disposal of properties ( 9,453 million), gain on reversal of allowance for doubtful accounts ( 5,259 million), loss and provision for loss on dissolution of subsidiaries and affiliates ( 20,060 million), and loss on devaluation of securities ( 3,957 million). As a result of these and other factors, income before income taxes and minority interests for the fiscal year was 88,085 million. After accounting for income taxes ( 18,842 million), deferred income taxes ( 4,971 million) and minority interests in consolidated subsidiaries ( 5,506 million), Sojitz Corporation posted net income for the year ended March 31, 2007 of 58,766 million, a year-on-year increase of 34.5%. 2. INDUSTRY SEGMENT INFORMATION Machinery & Aerospace Segment net sales amounted to 1,118,193 million, an increase of 16.7% compared with the previous fiscal year. This reflected strong growth in aircraft- and automobile-related operations. Gross trading profit was also up, due partly to growth in automobile-related sales to Central and South America, Russia, and the Middle East. Other contributors were sales in aircraft-related operations, particularly those relating to Boeing aircraft, and sales in the general machinery sector posted by a consolidated subsidiary. Operating income, however, fell 2.1% to 15,712 million as a result of higher SG&A expenses. Consolidated Net Sales (Billions of yen) 6,000 5,000 4,000 3,000 2,000 1,000 Consolidated Recurring Profit (Billions of yen) Consolidated Net Income (Loss) (Billions of yen) Mar. 04 Mar. 05 Mar. 06 Mar Mar. 04 Mar. 05 Mar. 06 Mar Mar. 04 Mar. 05 Mar. 06 Mar

89 Annual Report 2007 Sojitz Corporation Energy & Mineral Resources Reflecting continuing high commodity prices, segment net sales amounted to 1,286,934 million, a year-on-year increase of 6.6%. Operating income rose 4.8% to 18,890 million due to higher gross trading profit. Chemicals & Plastics Segment net sales totaled 668,737 million, rising 5.7% on a year-onyear basis. An increase in gross trading profit contributed to operating income that rose significantly to 21,818 million, a 31.8% increase. Real Estate Development & Forest Products Although conditions in lumber markets improved, segment net sales declined 9.4% to 380,340 million due to slower construction equipment and materials sales. Improved profits on lumber trading activities and reduced SG&A expenses resulted in a 21.9% year-on-year increase in operating income to 11,708 million. Consumer Lifestyle Business Primarily reflecting growth in the foods and apparel businesses, segment net sales were 5.3% higher than a year earlier at 913,834 million. However, higher SG&A expenses resulted in a 29.7% drop in operating income to 5,607 million. Overseas Subsidiaries Segment net sales totaled 720,832 million, falling 6.2% compared with a year earlier. This primarily reflected a drop in some machinery-related business in the Americas. An increase in SG&A expenses contributed to the 59.4% year-on-year decline in operating income to 1,888 million. Other Segment net sales rose 10.1% to 129,283 million. Despite a recovery at IT subsidiaries, higher SG&A expenses resulted in operating income that was down 19.0% to 2,081 million. Net Sales by Industry Segment (Billions of yen) 6,000 Operating Income by Industry Segment (Billions of yen) 80 5,000 4, , ,000 1,000 0 Mar. 06 Mar Mar. 06 Mar. 07 Machinery & Aerospace Energy & Mineral Resources Chemicals & Plastics Real Estate Development & Forest Products Consumer Lifestyle Business Overseas Subsidiaries Other 87

90 Sojitz Corporation Annual Report 2007 MANAGEMENT S DISCUSSION AND ANALYSIS OF OPERATIONS 3. SCOPE OF CONSOLIDATION As of March 31, 2007, the Sojitz Group comprised 534 companies, an increase of 21 companies compared with the end of the previous fiscal year. Of this number, 334 companies (119 in Japan, 215 overseas) were consolidated subsidiary companies, and 200 companies (63 in Japan, 137 overseas) were affiliated companies accounted for under the equity method. Of all companies included in the scope of consolidation, 241 companies, or 72.2%, of consolidated subsidiary companies (240 companies, or 74.8%, at March 31, 2006) and 150 companies, or 75.0%, of equity-method affiliates (143 companies, or 74.5%, at March 31, 2006) reported net income in the fiscal year ended March 31, On an overall basis, 73.2% (74.7% in the previous fiscal year) reported net income for the fiscal year under review. The operating performance of companies included in the scope of consolidation is presented in the table below. 4. FINANCIAL POSITION (1) Capital Resources, Liquidity and Financing Aiming to realize the shift to a high-quality earnings structure, Sojitz continued to make progress in selection and focus initiatives designed to entrench its business portfolio strategy. Sojitz also continued to invest resources in growth domains with the aim of raising SCVA, its internal risk/return indicator. In addition, Sojitz is working to improve its debt structure, through the diversification of its funding method by procuring new sources of long-term funding and by issuing straight bonds with the ultimate aim of achieving a more stable funding structure, as evidenced by an improved current ratio and long-term debt ratio. With regard to financial restructuring, Sojitz concluded agreements with relevant shareholders to repurchase preferred shares for a total acquisition cost of 342,920 million (subject to a ceiling of 354,128 million, depending on actual repurchase dates). The shares subject to these repurchase agreements accounted for billion of the outstanding balance of billion in preferred shares as of April 28, To fund these planned preferred share repurchases, on May 25, 2006, Sojitz issued a 3rd and 4th series of convertible bonds with stock acquisition rights, totaling 300 billion. By repurchasing preferred shares using the amount of capital raised by conversion of the convertible bonds, we will be able to minimize the decrease in shareholders equity, while also minimizing the dilution that would arise from the future conversion of preferred shares to common stock. In taking this action we are aiming to further reinforce our capital base by boosting the value of Sojitz stock, and reducing the burden of dividend payments to preferred shareholders. Another objective is to mitigate the risk of future increases in the cost of repurchasing preferred shares. By March 31, 2007, billion of the convertible bonds issued had been converted to common stock, and on March 30, 2007 Sojitz repurchased and canceled preferred shares with a par value of billion at a cost of billion. Furthermore, on June 22, 2007 Sojitz repurchased and canceled preferred shares with a par value of billion at a cost of 55.2 billion. Subsequently, all of the remaining convertible bonds were converted to common stock on July 3, 2007, and on September 28, 2007 the reorganization of the capital structure will be completed by the elimination of the entire billion amount of the preferred shares outstanding (total repurchase amount was billion) that were allocated for repurchase and cancellation. Earnings of Group Companies (Year ended March 31, 2007) Profitable Unprofitable Total Number of Number of Number of companies Net income companies Net loss companies Net income (% of total) (Billions of yen) (% of total) (Billions of yen) (% of total) (Billions of yen) Consolidated subsidiaries Domestic (6.1) Overseas (4.5) Total (10.6) (% of total) % 27.8% 100.0% Companies accounted for by the equity method Domestic (2.6) Overseas (1.4) Total (4.0) (% of total) % 25.0% 100.0% Total Domestic (8.7) Overseas (5.9) Total (14.6) (% of total) % 26.8% 100.0% 88

91 Annual Report 2007 Sojitz Corporation (2) Cash Flows Despite steady progress accomplished in the first year of the New Stage 2008 medium-term management plan and a 2.3% year on year increase in operating income, net cash provided by operating activities in the fiscal year under review decreased 36.1 billion to 7.0 billion due to higher cash outflows due to increased trade receivables and inventories. Net cash provided by investing activities totaled 42.7 billion. The main sources of cash inflow were the proceeds from sale of property and equipment in line with selection and focus initiatives, and the collection of short-term loans receivable. As a result, free cash flow was 49.7 billion. Net cash used in financing activities totaled 95.5 billion, an increase of 39.7 billion in cash outflow compared with the previous fiscal year. One of the items of cash outflow was the payment of billion to repurchase preferred shares. During the year ended March 31, 2007, the Company continued efforts to improve its debt structure through such methods as improving its current ratio and long-term debt ratio. Within that process, it worked to establish a stable and efficient funding structure by procuring new long-term loans, including syndicated loans, and issuing corporate bonds, and by reducing total interest-bearing debt by repaying short-term loans. Consequently, cash and cash equivalents at the end of the year amounted to billion, decreasing 42.0 billion from the previous fiscal year. (3) Liquidity and Funds Procurement The Company s fundamental policy in line with the financial strategy of the New Stage 2008 medium-term management plan is to improve the stability of its funding structure. As part of the financial strategy, the goals set for the final year of the plan, the year ending March 31, 2009, are to achieve a current ratio of at least 120% and a long-term debt ratio of around 70%. Initiatives taken by Sojitz to establish a more stable and efficient funding structure involved both direct and indirect methods of financing. Direct financing initiatives included procuring funds through the bond markets by following up the 15.0 billion public bond offering conducted in August 2006 with a series of four bond issues totaling 75.0 billion. Indirect financing initiatives included taking active measures to change the balance of funding from short term to long term, procuring a total of 81.7 billion in syndicated term loans, and other measures. 5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of the Company and its subsidiaries are prepared in conformity with accounting principles generally accepted in Japan. The reported amounts relating to assets and liabilities, disclosure of contingent liabilities, and the reported amounts relating to revenues and expenses for the reporting period used in the preparation of the consolidated financial statements are based on estimates and assumptions as determined by the Company s management. The Company constantly reviews and verifies estimates and assumptions relating to the evaluation of receivables, investments and inventories, fixed assets, recognition of revenue, income taxes, deferred tax assets, Group business reorganization, and structural reform costs including those for affiliated companies, retirement and severance benefits, contingent liabilities, and other items. Estimates, assumptions and decisions made by the Company are based on historic performance and other factors that are deemed most relevant to the situation. In the event that insufficient facts exist to enable the Company to make an objective decision regarding the accounting for assets and liabilities and income and expenses, the Company bases its decisions on estimates and assumptions. Accordingly, differing assumptions and changes in conditions may cause estimates and actual results to differ. The following are significant accounting policies adopted by the Company and its consolidated subsidiaries. (1) Evaluation of Receivables To provide for potential losses arising from uncollectible notes and accounts receivable and loans receivable, the Company maintains an allowance for doubtful accounts based on historical loss ratios over the preceding three years. For doubtful receivables, the Company records an allowance after evaluating the probability of recovery, considering the estimated realization value of collateral and amounts to be recovered by guarantees. In order to accurately assess the allowance for doubtful receivables, the Company periodically verifies each customer s financial position, credit rating, conditions for collection of receivables, changes in payment terms and conditions, economic trends in the industry, conditions in the region in which the customer operates, and all other relevant information. The Company s management believes that the Company maintains sufficient and adequate allowances for doubtful receivables. (2) Evaluation of Investment Securities The Company maintains a significant level of investments that are classified according to the purpose for which they are held, with valuation subject to a variety of assumptions. Available-for-sale securities with available market values are stated at fair value based on market prices as of the balance sheet date with unrealized valuation gains and losses, net of tax, included in net assets in the consolidated balance sheet. The Company recognizes impairment losses on investment securities whose values have declined by at least 50% of their book value. In cases in which the values have declined 30% to 50%, and where conditions remain substantially unchanged from the previous fiscal period, the Company s management evaluates the probability of recovery, and recognizes impairment losses except when the value is deemed to be recoverable. 89

92 Sojitz Corporation Annual Report 2007 MANAGEMENT S DISCUSSION AND ANALYSIS OF OPERATIONS Available-for-sale securities without available market value are valued at cost using the moving-average method. The Company assesses these securities by comparing its equity in the net worth of the issuer with the book value of the investment. In the event the Company s equity in the net worth of the issuer has declined by at least 50% of the book value, the Company s management assesses the probability of recovery considering each situation, such as temporary declines due to initial losses in the start-up of companies, and recognizes impairment losses except when the value is deemed to be recoverable. Furthermore, in the event the Company s equity in the net worth of the issuer has declined to less than 50% of the book value, and there is no probability of recovery, the Company recognizes the impairment loss. In the case of bonds, the amortized cost method is applied on an individual basis and a loss recognized for the estimated non-redeemable portion based on credit risk. In the non-consolidated financial statements, the Company prepares for any future investment losses in connection with marketable securities of related companies by maintaining an investment loss allowance for estimated losses calculated on an individual basis according to prescribed criteria after considering such factors as the financial position and business value of the issuer. In recognizing impairment losses on investment securities and in deciding the investment loss allowance, the Company s management reaches a decision after considering not only the financial position of the issuer but also specific factors pertaining to the industry, location and region of the issuer. (3) Evaluation of Inventories Inventories are stated at cost mainly using the specific identification method or the moving-average method. In the event that market value has declined 50% or more, inventories shall be recorded at market value unless a recovery is deemed possible. At certain overseas subsidiaries inventories are stated at the lower of cost or market using the specific identification method. Market value of real estate for sale is valued on an individual property basis taking into consideration various conditions at the time of appraisal, such as sales price, appraisal amount, official announced value, and appraised value for inheritance tax purposes. In the event conditions are unchanged, market price is carried forward to the following fiscal year. Recovery in market prices is subject to a number of factors including economic conditions, trends in land prices, feasibility for property development, developments in close proximity, and changes in general real estate conditions. (4) Depreciation and Valuation of Property, Equipment and Intangible Assets The Company and its domestic consolidated subsidiaries principally depreciate property and equipment by the declining-balance method and intangible fixed assets by the straight-line method based on the estimated useful lives of the respective assets. However, buildings and structures acquired after April 1, 1998, are depreciated by the straight-line method. In addition, certain consolidated subsidiaries amortize mining rights based on the production output method. Overseas consolidated subsidiaries depreciate property and equipment and other intangible assets in accordance with generally accepted standards in each subsidiary s country of domicile. Certain domestic consolidated subsidiaries revalue commercialuse land pursuant to Law No. 34 published on March 31, The related unrealized gains or losses are recorded as land revaluation difference in net assets in the consolidated balance sheets. This revaluation method is applied using the appraisal value as prescribed in Article 2-5 of the Guidelines for Enforcement Regulations No. 119 (March 31, 1998). From the fiscal year ended March 31, 2006, the Company and its domestic consolidated subsidiaries applied accounting standards relating to the impairment of fixed assets: Opinion on Establishment of Accounting Standards for Impairment of Fixed Assets (Business Accounting Council of Japan, August 9, 2002) and Implementation Guidance Relating to Accounting Standards for Impairment of Fixed Assets (Business Accounting Standard Implementation Guidance No. 6, October 31, 2003). Impairment losses are determined by comparing the carrying amount of assets or an asset group with their undiscounted estimated future cash flows. If the undiscounted estimated future cash flows are less than the carrying amount, the difference between the higher of either net selling price or the recoverable amount corresponding to current value of future projected cash flows and the carrying amount is recognized as an impairment loss. Accumulated impairment losses are deducted directly from the corresponding assets. (5) Deferred Tax Assets and Liabilities Where temporary differences exist between the amount of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws, deferred tax assets and liabilities are recorded taking into account the tax loss carryforwards in accordance with tax-effect accounting standards. The Company evaluates the probability of realization of the benefits of those deferred tax assets based on future taxable income estimates and tax planning. A valuation allowance is established to reduce certain deferred tax assets relating to deductible temporary differences and net operating loss carryforwards where it is more 90

93 Annual Report 2007 Sojitz Corporation likely to be unable to realize the benefits of those deferred tax assets as a result of rigorous assessment by the Company s management. Although the Company s management believes that the realization of deferred tax assets, less amount of valuation allowance, is probable, the valuation allowance may change depending on changes of estimates for future taxable income. (6) Employees Retirement and Severance Benefits Employees retirement and severance benefits are accrued based on the estimates of retirement and severance benefit obligations and plan assets at the end of the accounting period. In line with the enactment of the Defined Contribution Pension Law, the Company changed its pension plan from a Defined Benefits Pension Plan to a Defined Contribution Pension Plan and Prepaid Retirement Allowance Plan. From April 1, 2006, however, the Company changed its plan to adopt a Defined Contribution Pension Plan with a Lump-sum Payment Plan or a Prepaid Retirement Allowance Plan. Certain domestic consolidated subsidiaries maintain employees welfare pension fund plans, tax qualified pension plans and lumpsum payment plans as defined fund plans. Some consolidated subsidiaries have established a retirement allowance trust. Some foreign consolidated subsidiaries also have defined benefit plans. (7) Directors and Corporate Auditors Retirement Benefits In line with the application of the revised Auditing Treatment relating to Reserve defined under the Special Tax Measurement Law, Reserve defined under the Special Law and Reserve for Director and Corporate Auditor Retirement Benefits (the Japanese Institute of Certified Public Accountants Auditing and Assurance Practice Committee Report No. 42, April 13, 2007) to consolidated fiscal years commencing before or on April 1, 2007, effective from the fiscal year under review the Company recorded Directors and corporate auditors retirement benefits determined in accordance with this auditing treatment. Although the Company s executive officers are not equivalent to directors under the Corporate Law, executive officers are subject to different internal regulations than regular employees and the retirement benefits for executive officers have been included in Directors and corporate auditors retirement benefits. 6. RISK Sojitz is engaged in a wide and diverse range of activities including general trading; the purchase, sale and trade of goods and commodities; and the manufacture and sale of a wide variety of products in Japan and overseas. The Company also provides comprehensive services to a variety of industries on a global scale. In addition, it is engaged in planning and arranging projects, and investing in a variety of business fields and financial activities. In light of these activities, Sojitz is confronted by numerous risks. These risks include: market risk relating to movements in foreign exchange rates, interest rates, commodity market conditions, and stock prices; credit risk relating to non-payment and collection; investment risk; country risk; and other risks. These risks are to a certain degree unpredictable, and as they cannot be accurately ascertained, can impact the performance and financial position of the Company. Although risk can not be entirely mitigated, the Company is reinforcing and enhancing risk management to address wide-ranging business risks where possible. Sojitz recognizes that a unified and integrated approach across the Group is critical to comprehensive risk management. This also entails quantifying and monitoring risk on an ongoing basis as a vital element of operations. Additionally, Sojitz is building an internal control system around its Internal Control Administration Office and reinforcing the compliance structure under the Chief Compliance Officer, both measures aimed at enhancing the management of risks that can not be quantified. Sojitz is confronted by the following risks in the execution of its daily business activities: (1) Market risk Sojitz is engaged in global business development and trade and is accordingly subject to a variety of market risks. Certain transactions are denominated in foreign currencies and as such are subject to exchange rate risks. The Company is also susceptible to movements in interest rates in connection with funds procurement and its investment activities. In its daily operating activities, the Company enters into purchase agreements, maintains inventories, and is exposed to commodity price risk. In addition, the Company is exposed to stock price risk due to its holdings of marketable and other securities. As a result, the Company is subject to a variety of market risks, and transactions susceptible to market risk are not limited to those identified above. Sojitz works to avoid market risk-related losses by maintaining limits on the position (short/long) a business unit may assume and by setting loss-cut points. As well as managing these positions and any related losses, the Company strictly adheres to the loss-cut rule: if a loss greater than the loss-cut point occurs, the position is immediately dissolved and new transactions are prohibited during the applicable fiscal year. In order to offset market risks related to its general marketing and finance activities, Sojitz matches buying and selling transactions for commodities, adopts a matching principle for its assets and liabilities, and applies derivative financial instruments including forward foreign currency exchange contracts, commodity futures and interest rate swaps. (2) Credit risk In the course of its business, Sojitz extends credit facilities to a large number of customers in Japan and overseas, which in turn exposes 91

94 Sojitz Corporation Annual Report 2007 MANAGEMENT S DISCUSSION AND ANALYSIS OF OPERATIONS the Company to credit risk. As part of efforts to manage and control this risk, the Company has established an 11-tier credit assessment system. In each instance, the Company objectively determines a credit rating for each customer, and based on this rating, sets the level of credit for the individual transaction. In addition, the Company strives to implement strict security and other collateral requirements in line with the credit rating for each customer. Furthermore, the Company undertakes periodic assessment of credit risk related to deferred payment, finance and guarantee procedures based on risk/return considerations. When the risk/return is considered insufficient, steps are taken to improve returns and reduce risks. (3) Investment risk One of Sojitz major business activities is investing in a variety of business fields, which are subject to changes in investment values and other risks. The Company has established a screening system to ascertain the merits and risks of each investment proposal, and a management system to follow-up investments. Clearly defined standards have also been formulated with regard to withdrawal from an investment. Through these initiatives, the Group is working to prevent and reduce loss. The Company has established a system to adequately screen and select new business investment opportunities. On evaluating each proposal, the relevant business plan, including cash flow projections, is comprehensively examined. Profitability is also strictly assessed by setting a hurdle rate based on the internal rate of return (IRR). Proposals that have been approved and implemented are subject to periodic review to ensure the early detection of issues and problems. In the event an issue or problem arises, steps are taken to ensure minimum loss. In addition, to ensure early detection and in an effort to avoid issues and problems, guidelines are established at the early stages to define acceptable risk and return, and to identify conditions for withdrawal and loss write-off. (5) Risk relating to changes in the macroeconomic environment Sojitz is a sogo shosha with global operations that conducts its businesses both in Japan and in approximately 50 other countries around the world. It is active in a diverse range of businesses, including machinery and aerospace, energy and mineral resources, chemicals and plastics, real estate development and forest products, and consumer lifestyle-related business. Consequently, the Company s performance is affected by the economic situation in Japan and the other countries in which it operates, as well as by worldwide economic conditions. There is a risk that economic slowdown, either worldwide or in a particular region, could negatively impact the Company s performance or financial position. (6) Risk relating to impairment of fixed assets Sojitz is subject to impairment risk relating to leased assets and fixed assets it owns including real estate, machinery and equipment, and vehicles. The Company accounts for the relevant assets in accordance with the standards for asset-impairment accounting, and the required impairment adjustments were recorded at the end of the fiscal year under review. However, there is a risk that a fall in market prices for the assets concerned could lead to a sharp decline in the value of the assets, making it necessary to record significant asset impairment. In this case, the Company s performance or financial position could be negatively impacted. (7) Fund procurement risk Sojitz procures funding for its operations through loans from financial institutions, and by issuing bonds and commercial paper, among other means. Consequently, in the event of disruption in the financial markets, or if a rating agency were to significantly downgrade Sojitz credit rating, Sojitz ability to procure funds would be restricted and its fund procurement costs would increase. In this case, the Company s performance or financial position could be negatively impacted. (4) Country risk Sojitz is subject to country risk in its trading operations and activities. In order to minimize country risk, the Company avoids excessive investment exposure to any one country or region. To this end, Sojitz evaluates each country and region and assigns a risk rating for each. For countries and regions with a high country risk rating, Sojitz sets maximum net exposure limits in proportion to the country rating and size, within which it operates. In addition, for countries allocated a high country risk rating, country risk avoidance measures such as trade insurance are implemented for each proposal. (8) Risk relating to increases in environmental costs Sojitz considers care for the global environment to be one of its most important management issues and is actively involved in tackling environmental problems. The Company has drawn up the Sojitz Environmental Policy, and takes the environment into consideration when conducting its operations. Sojitz also adheres strictly to environment-related laws and regulations and promotes initiatives targeting environmental protection. Nonetheless, implementing such initiatives cannot in itself eliminate all risk of potential environmental pollution arising in the course of business operations. 92

95 Annual Report 2007 Sojitz Corporation In the event of such environmental pollution, potential adverse outcomes include suspension of Sojitz operations, liability for decontamination and cleaning expenses, and liability for litigation costs. (9) Compliance risk Sojitz is active in a variety of business fields, and laws and regulations relating to its operations are wide ranging. They include traderelated laws such as those regarding corporations, tax, business monopolies and foreign exchange, as well as laws relating to each industrial sector. To ensure adherence to these laws and regulations, the Company has developed a compliance program and established a Compliance Committee. It has also appointed a Chief Compliance Officer to conduct compliance training and enforce implementation of compliance throughout the entire Group. Nonetheless, even measures such as these cannot eliminate all compliance-related risk in the course of conducting business. There is always a possibility that significant changes to the relevant laws and regulations, or new and unexpected interpretations of existing laws, could be enforced. In such cases, the Company s performance or financial position could be negatively impacted. by a new computer virus, and leakage or loss of key information assets containing personal information as a result of events such as unauthorized access to a computer. Another potential risk is total failure of an IT system due to unexpected natural disaster or malfunction. Depending on the scale of damage incurred, the Company s performance or financial position could be negatively impacted. 7. MANAGEMENT ISSUES, POLICIES AND COUNTERMEASURES (1) Fundamental policy Under New Stage 2008, a three-year medium-term management plan ending in March 31, 2009, Sojitz aims to boost corporate value by further enhancing growth strategies, by accelerating capital and financial strategies and by upgrading risk management. Guided by the Sojitz Group Statement, the Company is committed to implementing the New Stage 2008 plan to realize the aims and tenets described in the Group Management Vision. Sojitz Group Statement The Sojitz Group produces new sources of wealth by connecting the world s economies, cultures and people in a spirit of integrity. (10) Risk of litigation Sojitz business activities may on occasion be subject to legal action including litigation or arbitration, either in Japan or overseas. However, as of March 31, 2007 there were no cases of litigation, arbitration or other legal action likely to exert a material impact on the performance or financial position of the Company. (11) Risk relating to IT systems and security of information Sojitz considers appropriate safeguarding and management of its information assets to be a crucial issue in operating its businesses. In line with this stance, the Company has established an information management system based on an internal committee and developed a range of other provisions. To deal with failures in key IT systems and networks, Sojitz has implemented such measures as duplicating systems and equipment. The Company is also working to bolster its defenses against information leaks. To this end, Sojitz has established firewalls to prevent unauthorized external access to computer systems, and has also implemented anti-virus measures and adopted encryption technology. As detailed above, Sojitz is taking comprehensive measures to reinforce its information security and avoid any untoward events. These efforts notwithstanding, it is impossible to completely eliminate all risk, and potential risks remain. These include infection Sojitz Group Slogan New way, new value Group Management Vision To establish a multi-faceted business, which has both top-tier competitiveness and strong earnings power in specific industries and markets, by continuously pursuing profitability and growth in core business areas To nurture an innovative trading company, by actively responding to environmental changes and market globalization, and continuously developing new business fields through entrepreneurship To build a function-oriented trading company, by fully grasping and anticipating various client needs and by providing sophisticated, tailor-made services as a client s business partner To become a flexible company, open to new ideas, where each employee can pursue challenges and explore opportunities to realize his or her own personal goals and ambitions (2) Targeted performance indicators Sojitz has set financial performance targets for the final year of the New Stage 2008 medium-term management plan (the year ending March 31, 2009) of 60.0 in net income and billion in recurring profit. 93

96 Sojitz Corporation Annual Report 2007 MANAGEMENT S DISCUSSION AND ANALYSIS OF OPERATIONS In addition, the goals set as part of the financial strategy are to achieve a current ratio of at least 120% and a long-term debt ratio of around 70% by the year ending March 31, (Billions of yen) Year ending March 31, 2008 Year ending March 31, 2009 (Plan) (Plan revised) Net income Recurring profit Shareholders equity* Current ratio % or above Long-term debt ratio.... Approximately 70% In the year ended March 31, 2007, the first year of New Stage 2008, Sojitz achieved the main quantitative financial targets. Net income of 58.8 billion was 19.9% ahead of the initial plan target, and also exceeded the upwardly revised figure that had been announced at the time of the interim results. Recurring profit totaled 89.5 billion, exceeding the initial plan target by 7.9%. (Billions of yen) Year ended March 31, 2007 (Plan) (Plan revised) (Results) Net income Recurring profit Shareholders equity* Current ratio % Long-term debt ratio % ( * ) Shareholders equity =Total net assets Minority interests (3) Prospective challenges In terms of the prospects for the Sojitz Group s business environment, the Company expects the U.S. economy to continue expanding steadily. However, oil prices, interest rate trends and other factors still constitute a risk for the U.S. economy. In Europe, Sojitz expects economies to experience a mild but short-lived slowdown as the spreading effects of euro appreciation help to temper external demand. In Asia, Sojitz expects economic growth to maintain a high rate in China ahead of the 2008 summer Olympics in Beijing, despite various efforts by the authorities to impose macro-level controls. Growth is also expected to remain robust across the ASEAN region and newly industrialized economies. Projected growth also remains strong in India amid ongoing economic reforms. In Japan, Sojitz expects the current economic expansion to continue, supported by strong capital investment and an upturn in consumer spending. Under such conditions, the Company sees the primary issue for management of the Sojitz Group as the steady implementation of initiatives under the three pillars of the New Stage 2008 mediumterm management plan that commenced in the year ended March 31, 2007, namely to further enhance growth strategies, to accelerate capital and financial strategies and to upgrade risk management. 1. Further enhance growth strategies Sojitz plans to invest a total of billion over the three-year plan period into growth strategies that call for the expansion of both functions and business investments and loans. Growth strategies for each business have been factored into the three-year plan, and follow-up structures have been created to ensure the execution of these growth strategies. During the year ended March 2007, Sojitz made additional investments to secure resources in projects such as North Sea oil fields and a nickel mining operation in the Philippines. With the aim of advancing the value chain, the Company took an equity stake in JALUX Inc., a firm with strengths in downstream business operations, established an automobile sales company in Ukraine in partnership with Isuzu Motors Ltd. and took other measures. Investments to support future growth were made in a number of areas, including the expansion of operating bases in key countries, ongoing investment in innovation and efforts to strengthen systems linking overseas operations to sales teams based in Japan. In addition, the Company is promoting the greater adoption of SCVA business management within the Sojitz Group to facilitate the Group s exit from relatively unprofitable businesses and to develop a relentless focus on business areas where the Group enjoys a competitive advantage. These moves aim to reform the earnings structure and to promote the development of an improved business portfolio. 2. Accelerate capital and financial strategies Capital restructuring The company is proceeding with the reorganization of its capital structure as mentioned on the following pages. In the year ended March 31, 2007, Sojitz repurchased and cancelled preferred shares with a par value of billion at a cost of billion. As a result, preferred share dividends for the year under review decreased by 4.3 billion. Improving stability of funding structure Seeking to diversify funding methods and to improve the durational balance of the debt structure, Sojitz plans to undertake ongoing issuance of straight bonds while shifting borrowings to longer maturities. 3. Upgrade risk management The Company plans to further reinforce and upgrade risk management across the Sojitz Group, both to realize growth strategies and to ensure consistent growth. One of the core issues in this regard is to strengthen management of risk at the Group level by developing credit ratings systems, credit approval/monitoring standards, business investment standards, and management systems for follow-up and country risk. Sojitz aims to continue to manage the Group s portfolio of risk assets so that its total value is no more than 100% of shareholders 94

97 Annual Report 2007 Sojitz Corporation equity (with the target control value set at 80%). In addition, while strengthening the internal controls system and compliance framework, the Company also plans to upgrade corporate governance to establish highly transparent management structures. This aim reflects the importance placed by Sojitz on being accountable to shareholders and other stakeholders and on fulfilling related management responsibilities. 4. Reorganizing the company s capital structure by eliminating preferred shares On April 28, 2006, Sojitz concluded a repurchase agreement for convertible preferred shares issued by the Company for a total acquisition cost of 342,920 million (up to a ceiling of 354,128 million depending on actual repurchase dates). The shares subject to these repurchase agreements accounted for billion of the outstanding balance of billion in preferred shares as of April 28, On May 25, 2006, in line with the preferred share repurchases, Sojitz issued a 3rd and 4th series of convertible bonds with stock acquisition rights totaling billion in a private placement. Based on the progress expected under the New Stage 2008 medium-term management plan, Sojitz decided that a convertible bond issue was the most appropriate method for raising capital in line with this policy since the distributed nature of conversion would help to limit the impact on the Company s share price. The capital raised through the conversion of this convertible bond issue will finance elimination of preferred shares through the repurchase agreement, thus enabling the Company to reinforce its capital base while minimizing the projected reduction in shareholders equity. The measures taken to restrict the overall scope of dilution due to projected conversion of preferred shares support ongoing improvement in the value of the Company s shares. At the same time, by lessening the impact of preferred share dividends and preemptively mitigating any risk of future escalation in preferred share repurchase costs, this financing move promises to make a significant contribution to the New Stage 2008 plan initiative to boost shareholders equity. Common stock conversions of the convertible bond issue totaled billion as of March 31, 2007 (leaving an unconverted balance of 75.0 billion). On March 30, 2007, the Company made the first purchases under the terms of the Agreement Concerning the Acquisition of Preferred Shares for a total consideration of 240,920 million. These transactions covered the 2nd Series Class I Preferred Shares (issuance value: 52.6 billion), the 3rd Series Class I Preferred Shares (issuance value: 52.6 billion), the 4th Series Class I Preferred Shares (issuance value: 52.6 billion), the 1st Series Class II Preferred Shares (issuance value: 52.6 billion) and the 2nd Series Class V Preferred Shares (issuance value: 20.0 billion), with an overall value of billion. Cancellation of all these preferred shares was completed on the same day. On June 22, 2007, the Company made the second purchases following the steady common stock conversion of the convertible bond issue. The Company repurchased and canceled preferred shares with a total par value of billion at a total purchase cost of 55,173 million, comprising the 1st Series Class IV Preferred Shares (issuance value: billion) and some of the 1st Series Class V Preferred Shares (issuance value: 21.6 billion). Subsequently, all of the remaining convertible bonds were converted to common stock on July 3, 2007, and the Company resolved to repurchase and cancel the 1st Series Class V Preferred Shares (issuance value: billion) at a cost of 46,827 million. FY2006 April 28, 2006 May 25, 2006 March 30, Agreements concluded with shareholders of the relevant preferred shares in order to repurchase issued preferred shares for a total acquisition cost of billion (ceiling of billion). Shares subject to agreements accounted for billion. 2. Procured funds from external sources through 300 billion CB issue. 3. Repurchased 2nd Series Class I to 2nd Series Class V (Repurchase amount: billion; issue amount: billion). Total repurchase amount for preferred shares: billion Repurchase order Issue amount Repurchase amount and % of issue amount 2nd Series Class I 52.6 billion 56.8 billion (108%) 3rd Series Class I 52.6 billion 55.8 billion (106%) 4th Series Class I 52.6 billion 54.7 billion (104%) FY2007 June 22, 2007 July 3, Repurchased 1st Series Class IV and part of 1st Series Class V (Repurchase amount: 55.2 billion; issue amount: billion). The total of 300 billion of CB conversions fully completed. 1st Series Class II 2nd Series Class V 1st Series Class IV 52.6 billion 20.0 billion billion 53.6 billion 20.0 billion 45.9 billion (102%) (100%) (23%) July 30, Determined to repurchase 1st Series Class V on September 28 (Repurchase amount: 46.8 billion; issue amount: billion). 1st Series Class V billion 56.1 billion (43%) Reorganization of Capital Structure Complete 95

98 Sojitz Corporation Annual Report 2007 MANAGEMENT S DISCUSSION AND ANALYSIS OF OPERATIONS By this action, the reorganization of the capital structure will be completed by the elimination of the entire billion amount of the preferred shares outstanding (total repurchase amount was billion) that were allocated for repurchase and cancellation. 8. CORPORATE GOVERNANCE (1) Fundamental Concept The Sojitz Group has positioned corporate governance as an important management issue. To strengthen corporate governance, the Group takes steps to clarify management responsibility and accountability to shareholders and other stakeholders, establish a highly transparent management structure, and ensure that a full range of monitoring and supervisory functions are in place. At the same time, the Group implements a variety of corporate governance measures aimed at improving overall profitability and maximizing corporate value. (2) Management control organization regarding managerial decision-making, execution and supervision, and other corporate governance structures i. Group governance bodies 1) Organizational configuration The Company has adopted the company with corporate auditors governance model. 2) Directors and executive officers The Board of Directors comprises nine directors (seven directors since April 1, 2007), two of whom are outside directors. The Board of Directors is the foremost decision-making body of the Company and is responsible for considering and determining basic policies and other important matters related to the Group s management. To further strengthen its corporate governance structure, the Company submitted a resolution at the Ordinary General Meeting of Shareholders on June 27, 2007, to amend its Articles of Incorporation such that the Company s chairperson, rather than the president, serves as chair of the Board of Directors. The Company has introduced an executive officer system. This system serves to clarify authority and responsibilities by separating managerial decision-making and business execution functions, thereby increasing the speed of decision-making and execution. Moreover, to respond rapidly and appropriately to sudden changes in the business environment and to clarify management responsibilities, the tenure of directors and executive officers has been set at one year. The Company has signed a limited liability agreement with one of its outside directors, Shigeo Muraoka. The decision to appoint Mr. Muraoka reflects his history of work in key posts in Japan s business sector, as well as his personal integrity and immense insight. In the Company s view, these characteristics enable Mr. Muraoka to offer advice in an objective and appropriate manner with respect to Sojitz business operations. Director Muraoka was present at all meetings of the Board of Directors held during the fiscal year under review. In reference to director Yoshihiko Miyauchi, while Mr. Miyauchi does not strictly fulfill the criteria to serve as an outside director pursuant to Article 2-15 of the Corporate Law, the Company s view is that his independent status makes him the functional equivalent of an outside director. The Company also has Nomination and Remuneration committees that act as consultative bodies to the Board of Directors. Chaired by outside directors of the Company, these committees ensure the appropriateness and transparency of director appointments and remuneration. Common Stock Simulations Conversion of preferred shares No. of shares assuming the following: 2nd Series Class I 1st Series Class II: maximum conversion price of 262 1st Series Class IV, 1st Series Class V, and 2nd Series Class V: 552 (based on closing price on June 29, 2007) Excluding conversion of 1st Series Class III preferred shares (balance, 3 billion; conversion price, 476) (Millions of shares) 2,000 Total Approx. 1,889 million 1,800 1,600 1,400 1,200 1, Estimated latent stock of preferred shares (Approx. 197 million) Repurchased and cancelled preferred shares Estimated latent stock (Approx. 1,240 million) Total Approx. 1,234 million Dampening effect (Approx. 655 million) Increase in no. of shares from CB conversion (Approx. 782 million) Issued common stock as of date of CB issue (May 25, 2006) (Approx. 452 million) Preferred share conversions CB conversions 96

99 Annual Report 2007 Sojitz Corporation 3) Corporate auditors The Company s Board of Corporate Auditors comprises five members, three of whom are outside auditors. In addition, three of the corporate auditors on the board are standing auditors. Independent from the Board of Directors, the corporate auditors audit the business performance of directors. The Company has appointed Shunsaku Yahata, Yoshiaki Ishida, and Kazuo Hoshino as outside corporate auditors. This decision was based on their work history in key posts in Japan s business sector, their personal integrity and substantive insight, as well as the depth of their knowledge and wisdom spanning a wide range of business areas. The Company has signed limited liability agreements with two of the outside corporate auditors, Yoshiaki Ishida and Kazuo Hoshino. In terms of collaboration between the Company s corporate auditors, independent auditors, and Audit Department, the corporate auditors receive progress reports on audits performed by the independent auditors, and exchange information with them on a regular basis to enhance the efficiency of audits. The corporate auditors are also responsible for monitoring the independent auditors to ensure that their independence is not compromised. Furthermore, the corporate auditors receive presentations on audit plans for the fiscal year from the Audit Department, and convene meetings of the Board of Corporate Auditors twice yearly to receive progress reports on audit implementation. The standing corporate auditors also attend meetings to discuss and critique audit results sponsored by the Audit Department, submitting opinion statements regarding the results of audits performed by the Audit Department, among other tasks, during the course of its everyday and interactive process of information exchange with the department. ii. Operational execution, audit and supervision, nomination and remuneration functions 1) Supervision of operational execution The following bodies are responsible for the supervision of operational execution: [Management Committee (meets twice monthly)] Comprised of directors with operational execution duties and personnel in charge of business and corporate divisions, this committee is responsible for deliberating and deciding important matters regarding Company management. [Investment Committee (meets twice monthly)] Comprised of directors with operational execution duties and personnel in charge of corporate divisions, this committee considers and decides important matters pertaining to Company investments. 2) Selection of directors and remuneration The following bodies serve in a consultative capacity to the Board of Directors with respect to decisions regarding the selection of the Company s directors and remuneration. [Nominating Committee (meets twice yearly)] Chaired by an outside director, this committee deliberates and proposes basic guidelines and approaches regarding the appointment of nominees for the positions of director and executive officer, and considers proposed nominee appointments. [Remuneration Committee (meets once yearly)] Chaired by an outside director, this committee deliberates and proposes standards pertaining to the remuneration of directors and executive officers, as well as various evaluation and remuneration systems. 3) Audits by corporate auditors, accounting audits and internal audits [Audits by corporate auditors] (Organization) Board of Corporate Auditors (Personnel) 5 corporate auditors, 3 of whom are outside corporate auditors (3 standing corporate auditors, 2 part-time, 1 standing outside corporate auditor) (Audit procedures) In accordance with auditing standards for corporate auditors set by the Board of Corporate Auditors, the corporate auditors carry out audits in line with audit implementation plans for their respective audit areas. As part of these audits, the corporate auditors attend meetings of the Board of Directors, the Management Committee, the Investment Committee and other important meetings. Additionally, the corporate auditors hear from directors and other officers regarding progress on the execution of their duties, examine important documents pertaining to decision-making and other matters, and request business reports from subsidiaries. Through these and other actions, the corporate auditors fulfill their function of monitoring and supervising Company management. To further enhance the auditing function performed by the corporate auditors, the Company has established an Corporate Auditors Office under the authority of the Board of Corporate Auditors, with a dedicated three-person staff to assist the corporate auditors. [Independent Auditors] Sojitz Corporation has traditionally appointed the independent auditing firms Ernst & Young ShinNihon and KPMG AZSA & Co. to audit its accounts, in accordance with the Corporate Law (Commercial Code of Japan until April 30, 2006) and the Securities and Exchange Law. However, in mutual agreement with Ernst & Young ShinNihon, KPMG AZSA & Co. became the 97

100 Sojitz Corporation Annual Report 2007 MANAGEMENT S DISCUSSION AND ANALYSIS OF OPERATIONS Company s sole independent auditor following the completion of the auditing contract with Ernst & Young ShinNihon on October 30, Information pertaining to KPMG AZSA & Co., the names of employees responsible for performing audits, the composition of teams assisting in the performance of audits, as well as the names of personnel from Ernst & Young ShinNihon responsible for performing past audits are as follows: KPMG AZSA & Co. Designated member: Masaji Tomiyama Executive officers: Junshi Ono Takuichi Arai Iwao Hirano KPMG AZSA & Co. staff assisting audits by the independent auditor: 13 CPAs, 19 CPA assistants Ernst & Young ShinNihon Designated member: Shoji Wakamatsu Executive officers: Hiroyuki Okuyama Kenzo Oka Details have been omitted since all CPAs involved in performing audits served for less than 7 consecutive years. [Internal Audits] (Organization) Audit Department (Personnel) 30 people up to department head (Audit procedures) Based on auditing plans approved by the Board of Directors at the beginning of each fiscal year, the Audit Department carries out audits of the business and finance divisions of the Company, its consolidated subsidiaries, and overseas companies in the United States, Europe, Asia and China. Audits of applicable departments in Japan, including those engaged in hedging activities and other futures dealings, and consolidated subsidiaries are conducted on an annual basis. All other audits are performed once every two years. Furthermore, the Company has adopted a self-inspection system for its business departments and Group companies that will enable business departments to ascertain and manage transaction risks in a timely and detailed manner by performing regular self-inspections. These checks will allow for the early discovery of problems at business sites, promote improvements in operational efficiency, and help prevent the occurrence of related losses, in addition to fostering greater risk management awareness. Checks are conducted once every six months and are based on an inspection checklist compiled by the Audit Department, with follow-up action taken to monitor progress made in enacting improvements. Compliance, reliable financial reporting and the status of risk management are among the major items on the checklist, and audited departments are monitored to determine whether internal control systems and governance measures are functioning effectively. Once investigations and evaluations are concluded, findings are reported to the company president and practical improvement measures are proposed to improve the site. Once audits are completed, a meeting attended by the audited departments and the heads of core divisions, officers in charge of each corporate division, and the corporate auditors, is convened to discuss and critique audit findings. A report is then made to the sites in question based on detailed logs from the audit. A condensed summary of the audit report is submitted to the president, together with a face-to-face presentation of results to the president and vice-president at monthly audit report meetings and at other times as necessary. After audits are completed, reports on the progress of improvements are filed at three-month and six-month intervals to better ensure that audited departments promptly address instructions and suggested improvements from the audit. Actual improvements are then verified through follow-up audits. (3) Basic Policy on, and Status of, Internal Control System 1. Basic Policy The Company has been continuously working to improve its internal control system by reviewing and reinforcing its internal rules, organization and arrangements. On May 12, 2006, the Board of Directors resolved the following points as the Company s basic policy on a system ensuring proper and ethical business operations. i. Compliance in execution of business by directors and employees: The Company establishes the Sojitz Group Compliance Code of Conduct, the Sojitz Group Compliance Manual for the Compliance Code of Conduct and the Sojitz Group Compliance Program to ensure that directors and employees comply with laws and regulations, the Articles of Incorporation, and internal rules. The Compliance Committee leads the reinforcement and improvement of the legal compliance system. Also, the Company makes clear the responsibility of each department so that any amendment of laws and regulations relating to the Company s operations will be closely followed and tightly observed. With regard to important laws and regulations such as security export control and insider trading, the Company establishes respective internal rules to ensure strict compliance. 98

101 Annual Report 2007 Sojitz Corporation ii. Retention of information relating to the execution of directors duties: With respect to important documents relating to the execution of directors duties such as the minutes of the Board of Directors meetings and approval documents, the Company prescribes in the Board of Directors rules and the internal rules for document retention a retention period that is equal to, or longer than, that required by the relevant law or regulation. The Company also designates the department in charge of such retention, and documents are made available as review or examination becomes necessary. iii. Rules and systems for managing potential risk for losses: In order to prevent and, when impossible to prevent, to minimize economic losses, the Company analyzes and categorizes potential risks for economic losses both inside and outside its operations. It establishes internal rules or manuals, and assigns a department for managing the risks in each category. Credit risk and business investment risk are assessed and appropriately handled in accordance with the internal rules for risk management. Market risk is controlled to ensure it is minimized in accordance with applicable internal rules. The Company prepares for natural disasters by establishing internal rules and drawing up disaster manuals. The Company periodically reviews the effectiveness of internal rules and handling procedures, and revises them if required. Further, in the event that a new type of risk emerges due to changes in the business environment, the Company promptly appoints a person and/or department in charge, and prescribes appropriate internal rules with regard to the new risk. iv. Efficiency in execution of directors duties: The Company makes clear the responsible fields or departments of each director and executive officer and the responsibility of each department, as well as chains of command, scopes of authority and decision making rules. The Company clearly prescribes in the Board of Directors rules important matters requiring Board resolutions, and convenes the Management Committee and other committees to deliberate and decide other important matters. Also, matters to be reported to the Board of Directors are set forth in the Board of Directors rules. Top management policy is promptly announced to all directors and employees of the Company through the Management Committee or Corporate Planning Department, and through other oral or written methods. v. Proper and ethical business operations in the Sojitz Group: The Company assigned the functions that oversee the management structure of Sojitz Group companies to the Group Planning & Administration Department ( * Note), ensuring the sound management of each Group company. The Company is enhancing its Audit Department to audit Group companies, ensuring the proper and ethical conduct of their business operations. (*Note: In April 2007, the Group Planning & Administration Department was integrated into the Corporate Planning Department, and its functions were transferred to the Corporate Planning Department.) The Compliance Code of Conduct and Compliance Program apply to all the Sojitz Group companies and are fully observed by their directors and employees. The Company reviews, and directs necessary improvement of, the business processes of each Group company in the light of internal controls relating to consolidated financial reporting. vi. Employees assisting corporate auditors and their independence from directors: The Company establishes the Corporate Auditors Office to assist corporate auditors and assigns the necessary employees. These employees work under the direction of corporate auditors, and their performance evaluations and personnel changes require the consent of corporate auditors. vii. Reports to corporate auditors: The Board of Directors rules include a rule that any director must immediately report to corporate auditors when he/she learns a fact which may cause significant damage to the Company. The Audit Department provides corporate auditors with a copy of the internal audit report upon completion of each internal audit. The Board of Corporate Auditors is entitled to request a report from an independent auditor, director or other person, as they deem necessary. viii. Other arrangements to ensure efficient auditing by the corporate auditors: One or more of the corporate auditors attends every meeting of the Board of Directors and expresses opinions as may be necessary. They may also attend the Management Committee and other important meetings, directly observing the discussions and reporting on important matters. Representative directors regularly meet with corporate auditors and exchange opinions on key issues for the Company, as well as on the conditions of, and important issues relating to, audits by corporate auditors. 99

102 Sojitz Corporation Annual Report 2007 MANAGEMENT S DISCUSSION AND ANALYSIS OF OPERATIONS 2. Progress With Improvements i. Outline: The Company has been working on improving various aspects of its internal control system. As well as checking and reinforcing the legal compliance system led by the Compliance Committee, and checking and reinforcing the risk management procedures led by the Risk Management Planning Office, measures include the Internal Control Committee taking the lead in directing the development of the internal control system for the entire Sojitz Group and in preparing to meet the requirements of the Assessment and Audit of Internal Control System for Financial Reporting rules under the Financial Instruments and Exchange Law. ii. Compliance: The Company has been working on improving its legal compliance system as follows: The Company has distributed to the officers and employees of the Sojitz Group companies the Sojitz Group Compliance Code of Conduct in booklet form, as well as the Sojitz Group Manual for the Compliance Code of Conduct. It also provides officers and employees with periodical education and e-learning programs on legal compliance, as appropriate to the level of their responsibility, and provides Group companies with compliance training programs. With the aim of preventing, or ensuring the early discovery and resolution of, illegal actions in Sojitz Group operations, the Company rigorously works at making known the importance of providing initial reports to the Compliance Committee. Furthermore, the Company has set up hotlines to the Chief Compliance Officer and to outside legal counsel. The Audit Department considers compliance to be a major focus of its audits, and audits Sojitz and its Group companies on their observance of laws, and of their respective Articles of Incorporation and internal rules. The Company established its own conservative criteria in the form of IRR for business investments whereby it analyzes, among others, country risk, partners in the investment and any special features of the business. It also periodically reviews ongoing business investments, and applies its own exit rules. The Company quantifies its overall risk assets according to its comprehensive risk management system, and keeps the volume of such assets under the level of its shareholders equity. (The basic aim is to control the volume at 80% of shareholders equity.) iv. Group business management: The Company has been working on improving its Group business management. The Group Planning & Administration Department (since April 2007, the Corporate Planning Department) improves and reinforces the Group business management system in a unified manner. The Audit Department audits Group companies once a year, enhances supervisory functions, makes early discovery of any problems and works to prevent the occurrence of any losses. It has also established a self-check system and is working to raise awareness at worksites. The Audit Department efficiently monitors Sojitz Group companies in a manner appropriate for management on a consolidated basis by coordinating functions by exchanging information between the Audit Department and the corporate auditors of major Sojitz Group companies. v. Credibility of financial reporting: Under the direction of the Internal Control Committee, basic plans for a project to inspect and assess the internal control system to ensure the credibility of financial reporting have been formulated, and are being implemented. The Company has determined to reinforce its internal control system based on the assessment resulting from the project, and establishes a framework to routinely monitor the system. iii. Risk management: The Company has been working on improving its risk management system as follows: The Company established its own credit ratings for customers and manages credit risk on a customer by customer basis. The Company established its own country ratings and sets an exposure limit for each country. 9. BASIC POLICY ON DIVIDENDS Sojitz considers the stable, continuous payment of dividends to shareholders to be one of the most important business management issues. An equally important issue is the need to enhance competitiveness and shareholder value by increasing retained earnings and using them effectively. Going forward, Sojitz will set dividends at appropriate levels after considering such factors as 100

103 Annual Report 2007 Sojitz Corporation progress with the New Stage 2008 medium-term management plan launched in 2006, financial structure and shareholders equity, and funding requirements for investments to grow profits. Sojitz has set a future target of a 20% consolidated dividend payout ratio. Sojitz s Articles of Incorporation permit the enactment of an interim dividend pursuant to Article of the Corporate Law Based on this provision, the Company s basic policy is to institute a twice-yearly dividend, with the interim dividend determined by resolution of the Board of Directors and the year-end dividend determined by resolution of the Ordinary General Meeting of Shareholders. From years past, the Company had set a goal of the year ended March 31, 2007 for the resumption of dividend payments. After upwardly revising initial earnings forecasts and successfully achieving plan targets in the first year of the New Stage 2008 mediumterm management plan, the Company chose to pay a year-end dividend for the year under review, having determined that the financial and profit bases required to pay dividends on a consistent basis are now in place. In resuming dividend payments, and guided by the aforementioned basic policy, the Company prefaced its decision on two major conditions: that it must have in place the solid earnings power and profit base to pay a consistent and stable dividend, and that once dividends have resumed, that a situation will never occur in which it is unable to pay dividends to shareholders. Based on the aforementioned basic policy and following close consideration of all relevant factors, the Company has paid a fullyear dividend of 6.00 per share of common stock as an initial step in realizing the payment of a stable and consistent dividend. This dividend represents a consolidated payout ratio of roughly 11.2% based on the number of shares issued as of the fiscal year-end. This ratio figure is roughly 7.2% if calculated based on the average number of shares outstanding during the year. The Company s view is that a consolidated payout ratio level of 20% should be its target going forward. However, after consideration of a range of factors, the dividend for the year under review was set at 6.00 per share of common stock, with a total payout value of 6.4 billion. This decision primarily reflected factors such as a) consideration of the Company s payout burden due to outstanding shares of preferred stock; b) the realization that as of the year ended March 31, 2007, two more years and more work remain to bring performance in line for attaining profit targets of 60 billion in net income and 100 billion in recurring profit for the final year (the year ending March 31, 2009) of the New Stage 2008 medium-term management plan, which is expected to conclude the Company s present round of restructuring; c) acknowledgment that the Company must have cash available to meet funding needs with retained earnings as the time for planned investments in new businesses scheduled to follow the medium-term plan begins to materialize, as well as to promote business expansion and profit growth. Regarding full-year dividends for shares of preferred stock, in accordance with guidelines for the issue of these shares, of the outstanding shares of preferred stock present as of March 31, 2007 (the date of record for the payment of dividends), the Company paid a dividend of per share, with a total value of 22,500,000, for shares from its 1st Series Class III preferred stock, and a dividend of per share, with a total value of 1,563,390,000, for shares from its 1st Series Class V preferred stock. 101

104 Sojitz Corporation Annual Report 2007 CONSOLIDATED BALANCE SHEETS Sojitz Corporation and Consolidated Subsidiaries As of March 31, 2007 and 2006 Thousands of U.S. Millions of yen dollars (Note 1) ASSETS Current Assets: Cash and cash equivalents , ,255 $ 3,934,525 Time deposits (Note 4) ,526 21, ,153 Short-term investments (Notes 3 and 4) , ,508 Receivables: Trade notes and trade accounts (Notes 4 and 14) , ,940 5,606,297 Loans (Note 4) ,976 19, ,390 Unconsolidated subsidiaries and affiliates ,322 35, ,271 Allowance for doubtful receivables (14,696) (15,173) (124,542) Inventories (Note 4) , ,164 2,676,991 Advance payments to suppliers ,908 39, ,576 Deferred tax assets (Note 8) ,591 8,887 72,805 Other current assets (Note 4) ,568 76, ,153 Total current assets ,615,081 1,510,455 13,687,127 Investments and Long-term Receivables: Investment securities (Notes 3 and 4) , ,664 2,557,424 Investments in and advances to unconsolidated subsidiaries and affiliates , ,353 2,184,856 Long-term loans, receivables and other (Note 4) , ,463 1,784,347 Allowance for doubtful receivables (118,039) (122,957) (1,000,330) Total investments and long-term receivables , ,523 5,526,297 Property and Equipment, at Cost (Note 4): Land ,685 67, ,805 Buildings and structures ,923 91, ,330 Equipment, fixtures and others , ,706 1,705,686 Construction in progress ,084 2,921 26,136 Accumulated depreciation (132,997) (123,500) (1,127,093) Net property and equipment , ,665 1,948,864 Other Non-current Assets: Goodwill ,925 76, ,585 Deferred tax assets (Note 8) ,755 23, ,415 Other intangible assets and deferred charges (Note 4) ,678 24, ,932 Total other non-current assets , ,037 1,036,932 Total ,619,508 2,521,680 $22,199,220 See accompanying notes to consolidated financial statements. 102

105 Annual Report 2007 Sojitz Corporation Thousands of U.S. Millions of yen dollars (Note 1) LIABILITIES AND NET ASSETS (LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS EQUITY) Current Liabilities: Short-term debt, principally unsecured (Notes 4 and 6) , ,072 $ 2,952,661 Commercial paper ,000 29,200 84,746 Current portion of long-term debt (Notes 4 and 6) , ,842 1,301,169 Payables: Trade notes and trade accounts (Notes 4 and 14) , ,816 4,435,008 Unconsolidated subsidiaries and affiliates ,177 7,623 69,297 Accrued liabilities ,165 11, ,568 Income taxes payable ,812 7,775 74,678 Advances received from customers (Note 4) ,637 32, ,483 Deferred tax liabilities (Note 8) Other current liabilities (Note 4) ,389 99, ,822 Total current liabilities ,219,498 1,416,716 10,334,729 Non-current Liabilities: Long-term debt, less current portion (Notes 4 and 6) , ,145 6,828,195 Employees retirement and severance benefits (Note 7) ,527 25, ,907 Deferred tax liabilities (Note 8) ,318 13, ,339 Directors and corporate auditors retirement benefits ,394 11,813 Other non-current liabilities (Note 4) ,409 29, ,856 Total non-current liabilities , ,888 7,359,110 Total liabilities ,087,873 2,057,604 17,693,839 Contingent liabilities (Note 13) Minority interests ,126 Shareholders Equity: Common and preferred stock ,550 Common stock at March 31, 2006 Authorized 989,000,000 shares Issued 404,208,888 shares Preferred stock at March 31, 2006 Class I Authorized 90,000,000 shares Issued 85,200,000 shares Class II Authorized 33,000,000 shares Issued 26,300,000 shares Class III Authorized 11,000,000 shares Issued 1,500,000 shares Class IV Authorized 40,000,000 shares Issued 19,950,000 shares Class V Authorized 15,000,000 shares Issued 12,875,000 shares Capital surplus ,754 Land revaluation difference (Note 19) (2,620) Retained earnings (Accumulated deficit) ,487 Net unrealized gains on available-for-sale securities ,547 Foreign currency translation adjustments (50,655) Treasury stock: 223,777 shares at March 31, (113) Total shareholders equity ,950 Total ,521,680 $ 103

106 Sojitz Corporation Annual Report 2007 Thousands of U.S. Millions of yen dollars (Note 1) LIABILITIES AND NET ASSETS (LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS EQUITY) Net Assets (Note 9) Owners Equity: Common and preferred stock ,791 1,040,602 Common stock at March 31, 2007 Authorized 1,349,000,000 shares Issued 1,068,105,228 shares Preferred stock at March 31, st Series Class III Authorized 1,500,000 shares Issued 1,500,000 shares 1 st Series Class IV Authorized 19,950,000 shares Issued 19,950,000 shares 1 st Series Class V Authorized 10,875,000 shares Issued 10,875,000 shares Capital surplus ,593 1,344,008 Retained earnings ,207 1,247,517 Treasury stock: 253,051 shares at March 31, (127) (1,076) Total owners equity ,464 3,631,051 Valuation and Translation Adjustments: Net unrealized gains on available-for-sale securities , ,297 Gains and losses on deferred hedges ,288 Land revaluation difference (Note 19) (1,935) (16,398) Foreign currency translation adjustments (32,883) (278,670) Total valuation and translation adjustments , ,517 Minority Interests , ,813 Total net assets ,635 4,505,381 Total ,619,508 $22,199,

107 Annual Report 2007 Sojitz Corporation CONSOLIDATED STATEMENTS OF INCOME Sojitz Corporation and Consolidated Subsidiaries For the years ended March 31, 2007 and 2006 Thousands of U.S. Millions of yen dollars (Note 1) Net Sales (Total Trading Transactions) ,218,153 4,972,060 $44,221,636 Cost of sales ,963,687 4,729,893 42,065,144 Gross Trading Profit , ,167 2,156,492 Selling, General and Administrative Expenses (Note 10) , ,965 1,496,051 Operating Income ,932 76, ,441 Other Income (Expenses): Interest income ,995 13, ,076 Interest expense (38,422) (40,144) (325,610) Dividends ,053 6,817 51,297 Equity in earnings of unconsolidated subsidiaries and affiliates ,752 19, ,288 Gain on sale of securities ,873 2,051 15,873 Other, net ,352 1,486 28,406 Total ,603 2,572 98,330 Recurring Profit ,535 78, ,771 Special Gains (Losses) (Note 11) (1,450) (9,359) (12,288) Income Before Income Taxes and Minority Interests ,085 69, ,483 Income Taxes (Note 8): Current (18,842) (16,485) (159,678) Deferred (4,971) (5,840) (42,127) Total (23,813) (22,325) (201,805) Minority interests (5,506) (3,384) (46,661) Net Income ,766 43,706 $ 498,017 U.S. dollars Yen (Note 1) Net income per share basic $ 0.71 Net income per share diluted Cash dividends per share See accompanying notes to consolidated financial statements. 105

108 Sojitz Corporation Annual Report 2007 CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS Sojitz Corporation and Consolidated Subsidiaries For the year ended March 31, 2007 Millions of yen Owners Equity Total Common and Retained Owners Year ended March 31, 2007 preferred stock Capital surplus earnings Treasury stock equity Balance at March 31, , ,754 92,487 (113) 389,678 Changes of items during the fiscal year Issuance of capital stock and conversion of bonds with stock acquisition rights , , ,000 Capital reduction (120,550) 120,550 Net income ,766 58,766 Bonuses to directors and corporate auditors (15) (15) Decrease in land revaluation difference (1,221) (1,221) Effect from changes of consolidated subsidiaries and affiliates accounted for under the equity method (2,565) (2,565) Effect from changes of accounting policy for overseas subsidiaries..... (57) (57) Net unrealized losses on derivatives.. (30) (30) Minimum pension liability adjustment (Note 16) (158) (158) Purchase of treasury stock (240,932) (240,932) Elimination of treasury stock (240,920) 240,920 Effect from change in equity interest of affiliates (2) (2) Net changes of items other than owners equity Total changes during the year (7,759) (8,161) 54,720 (14) 38,786 Balance at March 31, , , ,207 (127) 428,464 Valuation and Translation Adjustments Net unrealized Gains and Foreign gains on losses Land currency Total valuation available-for-sale on deferred revaluation translation and translation Minority securities hedges difference adjustments adjustments Interests Total net assets Balance at March 31, ,547 (2,620) (50,655) 37,272 37, ,076 Changes of items during the fiscal year Issuance of capital stock and conversion of bonds with stock acquisition rights ,000 Capital reduction Net income ,766 Bonuses to directors and corporate auditors (15) Decrease in land revaluation difference (1,221) Effect from changes of consolidated subsidiaries and affiliates accounted for under the equity method (2,565) Effect from changes of accounting policy for overseas subsidiaries..... (57) Net unrealized losses on derivatives.. (30) Minimum pension liability adjustment (Note 16) (158) Purchase of treasury stock (240,932) Elimination of treasury stock Effect from change in equity interest of affiliates (2) Net changes of items other than owners equity , ,772 22,851 5,922 28,773 Total changes during the year , ,772 22,851 5,922 67,559 Balance at March 31, , (1,935) (32,883) 60,123 43, ,635 See accompanying notes to consolidated financial statements. 106

109 Annual Report 2007 Sojitz Corporation Thousands of U.S. dollars (Note 1) Owners Equity Total Common and Retained Owners Year ended March 31, 2007 preferred stock Capital surplus earnings Treasury stock equity Balance at March 31, $ 1,106,356 $ 1,413,169 $ 783,788 $ (957) $ 3,302,356 Changes of items during the fiscal year Issuance of capital stock and conversion of bonds with stock acquisition rights , ,924 1,906,780 Capital reduction (1,021,610) 1,021,610 Net income , ,017 Bonuses to directors and corporate auditors (127) (127) Decrease in land revaluation difference (10,348) (10,348) Effect from changes of consolidated subsidiaries and affiliates accounted for under the equity method (21,737) (21,737) Effect from changes of accounting policy for overseas subsidiaries..... (483) (483) Net unrealized losses on derivatives.. (254) (254) Minimum pension liability adjustment (Note 16) (1,339) (1,339) Purchase of treasury stock (2,041,797) (2,041,797) Elimination of treasury stock (2,041,695) 2,041,695 Effect from change in equity interest of affiliates (17) (17) Net changes of items other than owners equity Total changes during the year (65,754) (69,161) 463,729 (119) 328,695 Balance at March 31, $ 1,040,602 $ 1,344,008 $1,247,517 $ (1,076) $ 3,631,051 Valuation and Translation Adjustments Net unrealized Gains and Foreign gains on losses Land currency Total valuation available-for-sale on deferred revaluation translation and translation Minority securities hedges difference adjustments adjustments Interests Total net assets Balance at March 31, $ 767,347 $ $ (22,203) $ (429,280) $ 315,864 $314,627 $ 3,932,847 Changes of items during the fiscal year Issuance of capital stock and conversion of bonds with stock acquisition rights ,906,780 Capital reduction Net income ,017 Bonuses to directors and corporate auditors (127) Decrease in land revaluation difference (10,348) Effect from changes of consolidated subsidiaries and affiliates accounted for under the equity method (21,737) Effect from changes of accounting policy for overseas subsidiaries..... (483) Net unrealized losses on derivatives.. (254) Minimum pension liability adjustment (Note 16) (1,339) Purchase of treasury stock (2,041,797) Elimination of treasury stock Effect from change in equity interest of affiliates (17) Net changes of items other than owners equity ,950 5,288 5, , ,653 50, ,839 Total changes during the year ,950 5,288 5, , ,653 50, ,534 Balance at March 31, $ 799,297 $ 5,288 $ (16,398) $ (278,670) $ 509,517 $364,813 $ 4,505,

110 Sojitz Corporation Annual Report 2007 CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY Sojitz Corporation and Consolidated Subsidiaries For the year ended March 31, 2006 Millions of yen 2006 Common and Preferred Stock: Beginning balance ,123 Issuance of capital stock and conversion of bonds with stock acquisition rights ,550 Capital reduction (236,123) Ending balance ,550 Capital Surplus: Beginning balance ,686 Increase: Issuance of capital stock and conversion of bonds with stock acquisition rights ,450 Excess of capital reduction over disbursement ,304 Decrease: Transfer to accumulated deficit, net (487,686) Elimination of purchased preferred stock (44,000) Ending balance ,754 Land Revaluation Difference (Note 19): Beginning balance (4,870) Decrease in land revaluation difference ,250 Ending balance (2,620) Retained Earnings (Accumulated Deficit) (Note 9): Beginning balance (492,048) Increase: Net income ,706 Excess of capital reduction over disbursement ,819 Transfer from capital surplus ,686 Minimum pension liability adjustment (Note 16) Net unrealized gains on derivatives of overseas subsidiaries and affiliates Decrease: Bonuses to directors (16) Reversal of land revaluation difference (2,250) Effect from changes of consolidated subsidiaries and affiliates accounted for under the equity method and others (546) Effect from changes of accounting policy for overseas subsidiaries (307) Ending balance ,487 Net Unrealized Gains on Available-for-sale Securities: Beginning balance ,630 Increase in net unrealized gain on available-for-sale securities ,917 Ending balance ,547 Foreign Currency Translation Adjustments: Beginning balance (79,194) Increase in foreign currency translation adjustments ,539 Ending balance (50,655) Treasury Stock: Beginning balance (86) Sale of treasury stock (27) Ending balance (113) See accompanying notes to consolidated financial statements. 108

111 Annual Report 2007 Sojitz Corporation CONSOLIDATED STATEMENTS OF CASH FLOWS Sojitz Corporation and Consolidated Subsidiaries For the years ended March 31, 2007 and 2006 Thousands of U.S. Millions of yen dollars (Note 1) Cash Flows from Operating Activities: Income before income taxes and minority interests ,085 69,415 $ 746,483 Adjustments to reconcile income before income taxes and minority interests to net cash provided by operating activities: Depreciation and amortization ,928 25, ,780 Loss on revaluation of securities , ,534 Amortization of goodwill ,017 3,984 34,043 Decrease in allowance for doubtful receivables (6,148) (110,811) (52,102) Decrease in employees retirement and severance benefits (3,015) (3,630) (25,551) Interest and dividend income (21,048) (20,030) (178,373) Interest expense ,422 40, ,610 Foreign exchange loss, net Equity in earnings of unconsolidated subsidiaries and affiliates (23,752) (19,149) (201,288) Gain on sale of securities (14,788) (4,026) (125,322) Gain on sale and disposal of property and equipment (9,453) (2,239) (80,110) Impairment loss on fixed assets ,393 2,022 28,754 Increase (Decrease) in trade receivables (62,697) 26,492 (531,330) Increase in inventories (99,052) (8,493) (839,424) Increase (Decrease) in trade payables ,685 (34,979) 666,822 Bonuses to directors (24) (22) (203) Other, net (Note 18) , , ,144 40,296 78,502 $ 341,492 Interest and dividends received ,694 21, ,322 Interest paid (37,868) (40,674) (320,915) Income taxes paid (18,081) (16,434) (153,230) Net cash provided by operating activities ,041 43,156 $ 59,669 Cash Flows from Investing Activities: Decrease in time deposits, net ,393 2,542 79,602 Decrease (Increase) in marketable securities, net (1,152) 720 Payments for property and equipment (28,775) (25,519) (243,856) Proceeds from sale of property and equipment ,255 16, ,195 Payments for purchase of investment securities (35,763) (24,380) (303,076) Proceeds from sale/redemption of investment securities ,481 59, ,907 Payments for acquisition of newly consolidated subsidiaries (Note 18)... (4,408) (296) (37,356) Net increase from sale of consolidated subsidiaries (Note 18) Decrease in short-term loans receivable, net ,315 27, ,754 Increase of long-term loans receivable (22,915) (9,717) (194,195) Collection of long-term loans receivable ,576 37,546 72,678 Other, net (4,541) 16,436 (38,483) Net cash provided by investing activities ,706 99,156 $ 361,915 Cash Flows from Financing Activities: Decrease in short-term debt, net (201,386) (233,618) (1,706,661) Decrease in commercial paper, net (19,200) (110,000) (162,712) Proceeds from long-term debt , ,025 2,329,644 Repayment of long-term debt (266,923) (262,602) (2,262,059) Proceeds from issuance of bonds , ,873 3,174,805 Redemption of bonds (12,669) (46,031) (107,364) Proceeds from issuance of common stock to minority shareholders ,017 Payment for purchase of preferred stock (240,920) (44,000) (2,041,695) Dividends paid to minority shareholders (1,622) (805) (13,746) Purchase of treasury stock (11) (27) (93) Other, net (2,745) (678) (23,263) Net cash used in financing activities (95,477) (55,806) $ (809,127) Effect of Exchange Rate Changes on Cash and Cash Equivalents.... 3,419 11,921 28,975 Net Decrease (Increase) in Cash and Cash Equivalents (42,311) 98,427 (358,568) Effect of Change in Scope of Consolidation (1,438) 2,796 Cash and Cash Equivalents at the Beginning of the Year , ,266 4,290,297 Cash and Cash Equivalents at the End of the Year , ,255 $ 3,934,525 See accompanying notes to consolidated financial statements. 109

112 Sojitz Corporation Annual Report 2007 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sojitz Corporation and Consolidated Subsidiaries 1. BASIS OF PRESENTING FINANCIAL STATEMENTS The accompanying consolidated financial statements of Sojitz Corporation (the Company ) and consolidated subsidiaries are prepared on the basis of accounting principles generally accepted in Japan ( Japanese GAAP ), which are different in certain respects as to the application and disclosure requirements from International Financial Reporting Standards, and are compiled from the consolidated financial statements prepared by the Company as required by the Securities and Exchange Law of Japan. The accounts of overseas subsidiaries are based on their accounting records maintained in conformity with generally accepted accounting principles prevailing in the respective countries of domicile. The accompanying consolidated financial statements have been reclassified and translated into English (with some expanded descriptions and the inclusion of consolidated statements of changes in net assets) from the consolidated financial statements of the Company prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Securities and Exchange Law 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. Certain reclassifications and modifications have been made to present the accompanying consolidated financial statements in a format which is familiar to readers outside Japan, and certain amounts of the prior year have been reclassified to conform to the new presentation rules of For the convenience of readers outside Japan, the accompanying consolidated financial statements are also presented in United States dollars by translating Japanese yen amounts at the exchange rate of 118 to U.S.$1 prevailing at the end of March 31, The translation should not be construed as a representation that the Japanese yen amounts could be converted into United States dollars at the above or any other rate. Accounting Standard for Presentation of Net Assets in the Balance Sheet In the year ended March 31, 2007, the Company and consolidated domestic subsidiaries adopted the new accounting standard, Accounting Standard for Presentation of Net Assets in the Balance Sheet (Statement No. 5 issued by the Accounting Standards Board of Japan on December 9, 2005), and the implementation guidance for the accounting standard for presentation of net assets in the balance sheet (the Financial Accounting Standard Implementation Guidance No. 8 issued by the Accounting Standards Board of Japan on December 9, 2005), (hereinafter referred to as the New Accounting Standards ). The consolidated balance sheet as of March 31, 2007 prepared in accordance with the New Accounting Standards comprises three sections, which are the assets, liabilities and net assets sections. The consolidated balance sheet as of March 31, 2006 prepared pursuant to the previous presentation rules comprises the assets, liabilities, minority interests and shareholders equity sections. Under the New Accounting Standards, the following items are presented differently at March 31, 2007 compared to March 31, The net assets section includes unrealized gains /losses on hedging derivatives, net of taxes. Under the previous presentation rules, unrealized gains/losses on hedging derivatives were included in the assets or liabilities section without considering the related income tax effects. Minority interests are included in the net assets section at March 31, Under the previous presentation rules, companies were required to present minority interests between the non-current liabilities and the shareholders equity sections. The adoption of the New Accounting Standards had no impacts on the consolidated statement of income for the year ended March 31, Also, if the New Accounting Standards had not been adopted at March 31, 2007, the shareholders equity amounting to 487,963 million ($4,135,280 thousand) would have been presented. Accounting Standard for Statement of Changes in Net Assets In the year ended March 31, 2007, the Company and consolidated subsidiaries adopted the new accounting standard, Accounting Standard for Statement of Changes in Net Assets (Statement No. 6 issued by the Accounting Standards Board of Japan on December 27, 2005), and the implementation guidance for the accounting standard for statement of changes in net assets (the Financial Accounting Standard Implementation Guidance No. 9 issued by the Accounting Standards Board of Japan on December 27, 2005), (hereinafter referred to as the Additional New Accounting Standards ). The Company prepared the accompanying consolidated statement of changes in net assets for the year ended March 31, 2007 in accordance with the Additional New Accounting Standards. The accompanying consolidated statement of shareholders equity for the year ended March 31, 2006, which was voluntarily prepared for inclusion in the consolidated financial statements, has not been adapted to the new presentation rules of Accounting Standard for Business Combination and Business Separation In the year ended March 31, 2007, the Company and consolidated domestic subsidiaries adopted Accounting Standard for Business Combination (issued by the Business Accounting Council on October 31, 2003), Accounting Standard for Business Separation (Statement No.7 issued by the Accounting Standards Board of Japan on December 27, 2005) and Guidance on Accounting Standard for Business Combination and Business Separation (Guidance No.10 issued by the Accounting Standards Board of Japan on December 27, 2005). Some changes of presentation rules have accompanied the adoption of the accounting standard for business combination and business separation. In the accompanying consolidated financial statements, the following items are presented differently for the year ended March 31, 2006 compared to the year ended March 31, Under the new presentation rules, goodwill in the consolidated balance sheet as of March 31, 2007 consists of consolidated adjustment and the goodwill other than consolidated adjustment. The goodwill other than consolidated adjustment amounting to 988 million is included in other intangible assets and deferred charges in the consolidated balance sheet at March 31, Amortization of goodwill in statement of income is also required to include amortization of the goodwill other than consolidated adjustment under the new presentation rules. Amortization of the goodwill other than consolidated adjustment amounting to 1,088 million is included in depreciation in the consolidated statement of income for the year ended March 31, Amortization of negative goodwill is presented in other income under the new presentation rules. The amortization of negative goodwill amounting to 1,430 million is included in amortization of goodwill in the consolidated statement of income for the year ended in March 31,

113 Annual Report 2007 Sojitz Corporation Directors and Corporate Auditors Retirement Benefits In the year ended March 31,2007, the Company and consolidated domestic subsidiaries recorded Directors and Corporate Auditors Retirement Benefits in accordance with the revised Auditing Treatment relating to Reserve defined under the Special Tax Measurement Law, Reserve defined under the Special Law and Reserve for Director and Corporate Auditor Retirement Benefits (Report No. 42 issued by the Japanese Institute of Certificated Public Accountants Auditing and Assurance Practice Committee on April 13,2007) which is applicable to consolidated fiscal years commencing before or on April 1,2007. This change had no material impact on consolidated financial statements for the year ended March 31, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The consolidated financial statements include the accounts of the Company and its 334 (321 for 2006) significant majority-owned domestic and foreign subsidiaries. All significant intercompany transactions and accounts have been eliminated. Investments in 200 (192 for 2006) unconsolidated subsidiaries and affiliates, with minor exceptions, are accounted for by use of the equity method. Goodwill which is the difference between the cost of the Company s investment in the consolidated subsidiaries and in the above unconsolidated subsidiaries and affiliates, and its equity in net assets is being amortized over a period of 5 to 20 years using the straight-line method. Negative goodwill in case of the cost less than its equity is being amortized over 5 years using the straight-line method. The accounts of the subsidiaries that have a fiscal year end within three months prior to March 31 have been included in the consolidated financial statements based on their fiscal year, with reasonable adjustments that would have been made to conform to the accounts as of March 31. Cash equivalents The Company considers time deposits and highly liquid investments that are readily convertible to cash with a maturity of three months or less at the time of acquisition to be cash equivalents. Foreign currency translation Current and non-current receivables and payables in foreign currencies are translated at current rates prevailing at the balance sheet date and the resulting exchange gains or losses are recognized in earnings. Translations of foreign consolidated subsidiaries financial statements are made at the year-end rate for balance sheet items, except for net assets, which is translated at historical rates, and at the annual average rate for revenues and expenses. Resulting translation adjustments are reflected in the consolidated financial statements as foreign currency translation adjustments. The foreign currency translation adjustments are presented in net assets. Allowance for doubtful receivables The allowance for doubtful receivables is provided in an amount sufficient to cover credit losses, based on the collectibility of individual receivables and the allowance for other receivables, based on past credit loss experience. Inventories Inventories are stated at cost on the specific-identification or moving average basis except for certain foreign subsidiaries which state inventories at the lower of specific-identified cost or market. Capitalization of interest costs Interest costs on certain real estate under construction are capitalized until sales realization to achieve a better measure of acquisition costs of real estate for sale and to result in a better matching of revenue and costs. Short-term investments and investment securities Short-term investments and investment securities are classified as either (a) securities held for trading purposes (hereinafter referred to as Trading Securities ) (b) debt securities intended to be held to maturity (hereinafter referred to as Held-to-Maturity Debt Securities ) or (c) securities other than the above (hereinafter referred to as Availablefor-Sale Securities ). Trading Securities, Held-to-Maturity Debt Securities and the Available-for-Sale Securities are stated in the following manner: (1) Trading Securities Gains and losses realized on disposal and unrealized gains and losses from market value fluctuations are recognized as gains or losses in the period of the change. (2) Held-to-Maturity Debt Securities are stated at amortized cost. (3) Available-for-Sale Securities with available fair market values are stated at fair value. Net unrealized gains on available-for-sale securities are stated, net of tax, in net assets on the balance sheet. Available-for-Sale Securities with no readily available fair market value are stated at cost using the moving-average method. (4) Certain write-downs of securities are recognized in earnings when the securities have substantial losses and are not expected to recover such losses in the near future. Investments in a limited partnership for investment or a similar partnership (that can be considered as marketable securities in accordance with Article 2, Paragraph 2 of The Financial Instruments and Exchange Law) are stated at their net equity value on the most recent financial statements that are available on the settlement report day as specified in the partnership agreement. MMFs and commercial paper are included in cash and cash equivalents. The amount as of March 31, 2007 was 5,228 million (U.S. $44,305 thousand). Deferred charges Pre-operating and start-up costs of domestic consolidated subsidiaries are amortized on the straight-line method over five years or less. Preoperating and start-up costs of foreign consolidated subsidiaries are amortized in accordance with local accounting standards. All costs incurred in connection with the issuance of new shares and disposal of treasury stock are amortized over three years using the straight-line method. Bond issue expenses are amortized on the straight-line method over the period through redemption, except that the cost related to the bond issued before April 1, 2006 has been amortized over whichever is shortest, the period through redemption or three years. Property and equipment Property and equipment are principally depreciated by the declining balance method, except that the buildings acquired after March 31, 1998 are depreciated by the straight-line method. Intangible assets The Company and its consolidated subsidiaries include internal use software in intangible assets and amortize it on the straight-line method over the estimated useful life of five years. Some consolidated subsidiaries amortize mining rights on production output method. Finance lease transactions without transfer of ownership Finance lease transactions, other than those where ownership of the lease property is regarded as being transferred to the lessee, are accounted for in the same way as operating lease transactions. Certain foreign subsidiaries account for such leases as sale and purchase transactions. Employees retirement and severance benefits The Company and certain consolidated subsidiaries have unfunded severance payment plans and funded non-contributory pension plans covering all eligible employees. 111

114 Sojitz Corporation Annual Report 2007 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Certain consolidated subsidiaries provide for retirement benefits based on the present value of projected benefit obligations attributable to employee services rendered by the end of the year and the fair value of the pension plan assets. Directors and corporate auditors retirement benefits The Company and certain consolidated subsidiaries reserve the amount of expecting payment of directors and corporate auditors retirement benefits based on internal regulations. Although the Company s executive officers are not equivalent to directors under the Corporate Law, the executive officers are subject to different internal regulations than regular employees and the retirement benefits for executive officers have been included in Directors and corporate auditors retirement benefits. Net sales (total trading transactions) and gross trading profit As general trading companies, the Company and certain of its consolidated subsidiaries act either as principal or agent in trading transactions. Net sales represents the sales volume of all those transactions in which the companies participate, whether as principal or agent. Gross trading profit consists of the gross margin (sales less cost of sales) on transactions in which the companies act as principal and commissions on transactions in which the companies serve as agent. Income taxes Deferred tax assets and liabilities are recognized for the estimated future tax effects attributable to temporary differences between the carrying amounts and the tax bases of assets and liabilities, and tax losses which can be carried forward, and are measured using the enacted tax rate which will be in effect when the differences are expected to be recovered or settled. The Company and domestic subsidiaries apply the consolidated tax return reporting system. Net income per share The computation of net income per share is based on the weighted average number of shares of common stock outstanding in each period. Diluted net income per share is based on the weighted average number of shares of common stock outstanding plus any potentially dilutive securities. Derivative financial instruments The Company and certain of its consolidated subsidiaries state derivative financial instruments at fair value and recognize changes in fair value as gains or losses unless derivative financial instruments are used for hedging purposes. If derivative financial instruments are used as hedges and meet certain hedging criteria, the Company and its consolidated subsidiaries defer recognition of gains or losses resulting from changes in fair value of derivative financial instruments until the related losses or gains on the hedged items are recognized. If interest rate swap contracts are used as hedges and meet certain hedging criteria, the net amount to be paid or received under the interest rate swap contract is added to or deducted from the interest on the assets or liabilities for which the swap contract was executed. 3. SHORT-TERM INVESTMENTS AND INVESTMENT SECURITIES Information regarding each category of securities classified as trading, available-for-sale, and held-to-maturity at March 31, 2007 and 2006 is as follows: Millions of yen Unrealized Unrealized Fair Year ended March 31, 2007 Cost gains losses value Securities classified as: Available-for-sale with available fair market values: Equity securities , ,472 (2,473) 218,435 Debt securities Government bonds Corporate bonds (9) 26 Foreign bonds , (71) 2,408 Other , ,523 Held-to-maturity securities with available fair market values , ,251 Total , ,078 (2,553) 226,053 Thousands of U.S. dollars Unrealized Unrealized Fair Year ended March 31, 2007 Cost gains losses value Securities classified as: Available-for-sale with available fair market values: Equity securities $868,102 $1,004,000 $(20,958) $1,851,144 Debt securities Government bonds , ,475 Corporate bonds (77) 220 Foreign bonds ,788 6,220 (601) 20,407 Other ,347 6,509 29,856 Held-to-maturity securities with available fair market values , ,601 Total $919,729 $1,017,610 $(21,636) $1,915,703 In addition to the securities listed above, the Company and consolidated subsidiaries held trading securities of 1,261 million (U.S.$10,686 thousand) which are equal to their fair value, as of March 31, The net unrealized holding losses on trading securities included in earnings for the year ended March 31, 2007 amounted to 64 million (U.S.$542 thousand). 112

115 Annual Report 2007 Sojitz Corporation Total proceeds from the sale of available-for-sale securities in the year ended March 31, 2007 amounted to 23,835 million (U.S.$201,992 thousand) and the related gains and losses amounted to 11,114 million (U.S.$94,186 thousand) and 289 million (U.S.$2,449 thousand), respectively. Millions of yen Unrealized Unrealized Fair Year ended March 31, 2006 Cost gains losses value Securities classified as: Available-for-sale with available fair market values: Equity securities , ,010 (1,929) 230,590 Debt securities Government bonds (1) 798 Corporate bonds Foreign bonds , (118) 1,634 Other , (19) 3,755 Held-to-maturity securities with available fair market values , ,471 Total , ,672 (2,067) 239,581 Proceeds from the sale of held-to-maturity securities with available fair market values in the year ended March 31, 2006 amounted to 4,364 million of which the sales cost amounted to 3,665 million and the related gain amounted to 699 million. The sale was intended to finance group companies. Total proceeds from the sale of available-for-sale securities in the year ended March 31, 2006 amounted to 51,780 million and the related gains and losses amounted to 7,488 million and 3,694 million, respectively. Non-traded investment securities at March 31, 2007 and 2006 are as follows: Thousands of Millions of yen U.S. dollars Held-to-maturity securities: Domestic bonds $ 0 Foreign bonds Other ,229 Securities: Equity securities ,129 49, ,975 Corporate bonds Foreign bonds Domestic bonds , Partnership ,505 14, ,619 Other ,068 2,085 42,949 Debt securities classified as available-for-sale (those which have maturities) and held-to-maturity securities at March 31, 2007 and 2006 mature as follows: Thousands of Millions of yen U.S. dollars Due in one year or less ,950 4,433 $33,475 Due after one year through five years Due after five years through ten years ,156 2,151 18,271 Due after ten years ,598 1,605 13,

116 Sojitz Corporation Annual Report 2007 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. PLEDGED ASSETS At March 31, 2007, the following assets are pledged as collateral for short-term debt, trade notes, accounts payable and other current liabilities of 59,539 million (U.S.$504,568 thousand), long-term debt of 51,133 million (U.S.$433,331 thousand) and transactions and other guarantees: Millions of yen Thousands of U.S. dollars Cash equivalents and time deposits ,540 14,172 $ 30,000 Trade notes and trade accounts receivable ,452 6,814 29,254 Short-term investments and investment securities , ,032 1,175,034 Inventories ,612 25, ,915 Short-term loans receivable Other current assets Other intangible assets and deferred charges Long-term loans, receivables and other ,686 Property and equipment, less accumulated depreciation ,397 51, ,348 Total , ,536 $2,010,839 Also pledged are the shares of consolidated subsidiaries amounting to 34,788 million (U.S.$294,814 thousand) and loans receivable from consolidated subsidiaries of 7,626 million (U.S.$64,627 thousand) that are eliminated in consolidation. Japanese banks hold a security interest in Sojitz Corporation of America s trade accounts receivable, inventories and other personal properties for Sojitz Corporation of America s loans payable amounting to 14,401 million (U.S.$122,042 thousand) and 45,019 million as of March 31, 2007 and 2006, respectively. 5. IMPAIRMENT LOSS ON FIXED ASSETS The impairment of fixed assets resulted primarily from a significant decrease in the market value of the Company s land as well as from overall deterioration of its business environment. Regional breakdown of loss on impairment of fixed assets for the year ended March 31, 2007 and 2006 is as follows: Thousands of Millions of yen U.S. dollars Chubu region in Japan Idle properties and business properties Land $ 5,500 Building, etc ,212 10,271 Kyushu region in Japan Idle properties and business properties Land ,771 Building, etc Kanto region in Japan Idle properties and business properties Land Building, etc Tohoku region in Japan Idle properties and business properties Land Building, etc Other regions in Japan Idle properties and business properties Land ,678 Building, etc ,534 Total ,393 2,022 $28,754 Impairment loss was recorded at the amount by which the acquisition cost of each asset exceeded its estimated fair value based on real estate appraisal standards or future cash flows from on going utilization and subsequent disposition discounted at 5.8% for the year ended March 31, 2007 and 5.0% for the year ended March 31, Loss on the impairment of fixed assets is recorded as special loss. 114

117 Annual Report 2007 Sojitz Corporation 6. SHORT-TERM DEBT AND LONG-TERM DEBT Short-term debt is represented by short-term notes, generally for 90 days, bearing interest at an annual average rate of 3.53% at March 31, As is customary in Japan, long-term and short-term bank borrowings are made under general agreements which provide that additional security and guarantees for present and future indebtedness will be given upon the request of the bank, and that any collateral so provided A summary of long-term debt at March 31, 2007 and 2006 is as follows: will be applicable to all indebtedness due to such bank. In addition, the agreements provide that the bank has the right to off-set cash deposited against long-term borrowings that become due, and in case of default and certain other specified events, against all other debts payable to the bank. Millions of yen Thousands of U.S. dollars % bonds due 2008 payable in Japanese yen ,000 30,000 $ 254, % bonds due 2008 payable in Japanese yen ,000 20, , % bonds due 2008 payable in Japanese yen ,000 15, , % bonds due 2010 payable in Japanese yen ,000 10,000 84, % bonds due 2009 payable in Japanese yen ,000 10,000 84, % bonds due 2010 payable in Japanese yen ,000 10,000 84, % bonds due 2009 payable in Japanese yen , , % bonds due 2010 payable in Japanese yen , , % bonds due 2011 payable in Japanese yen , , % bonds due 2012 payable in Japanese yen , ,491 Swap contract rate minus 0.89% bonds due 2007 payable in Japanese yen ,237 Convertible bonds with warrant attached due 2008 payable in Japanese yen (*1) , ,593 Notes under medium-term note programmes maturing serially through 2007 at interest rates of 0.45% to 8.00% (*2) ,155 2,517 Bonds maturing through 2010 at interest rates of 0.26% to 1.24% (*3) ,424 Long-term loans, principally from commercial and trust banks and insurance companies, maturing through 2025 at the average interest rate of 2.29% , ,037 5,391,136 Long-term loans, from governmental financial institutions, principally Japan Bank for International Corporation, maturing through 2039 at an average interest rate of 2.46% ,353 49, ,941 Other long-term indebtedness, maturing through 2028 at an average interest rate of 1.19% ,321 30, ,839 Total , ,987 8,129,364 Less current portion , ,842 1,301,169 Total , ,145 $6,828,195 (*1) The issuance was 150,000 million (U.S.$1,271,186 thousand). However, 75,000 million (U.S.$635,593 thousand) were converted into common stock during this period. (*2) The amounts include notes issued by Sojitz UK Plc. and Sojitz International Finance (Cayman) Ltd. (*3) The amounts include notes issued by Sojitz GMC Corporation, Tokyo Yuso Co., Ltd. and Pla Matels Corporation. The aggregate annual amounts of long-term debt maturing in the years ending March 31, 2008 to 2013 and thereafter, are as follows: Millions of yen Thousands of U.S.dollars ,538 $1,301, ,949 3,050, ,667 1,259, ,318 1,417, , , and thereafter , ,043 Total ,265 $8,129,

118 Sojitz Corporation Annual Report 2007 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. EMPLOYEES RETIREMENT AND SEVERANCE BENEFITS The company has defined contribution pension plans, prepaid retirement allowance plan and lump-sum payment plans. Certain domestic consolidated subsidiaries have defined benefit plans, i.e., tax-qualified pension plans and lump-sum payment plans, covering substantially all employees who are entitled to lump-sum or annuity payments, the amounts of which are determined by reference to their basic rate of pay, length of service and the conditions under which termination occurs. Some foreign consolidated subsidiaries also have defined benefit plans. Some consolidated subsidiaries have established a retirement allowance trust. The liability of employees retirement benefits at March 31, 2007 and 2006 consist of the following: Millions of yen Thousands of U.S. dollars Retirement benefit obligation (28,519) (32,861) $(241,686) Plan assets at fair value ,958 7,287 58,966 Unfunded retirement benefit obligation (21,561) (25,574) (182,720) Unamortized net retirement benefit obligation at transition ,966 Unrecognized actuarial loss (1,263) (542) (10,703) Unrecognized prior service cost Net retirement benefit obligation (22,448) (25,513) (190,237) Prepaid pension cost Employees retirement and severance benefits (22,527) (25,558) $(190,907) The components of retirement benefit expenses for the years ended March 31, 2007 and 2006 are as follows: Millions of yen Thousands of U.S. dollars Service cost ,447 1,991 $20,737 Interest cost ,263 Other costs ,254 6,788 Expected return on plan assets (101) (82) (856) Amortization of net retirement benefit obligation at transition Amortization of actuarial losses (76) 49 (644) Amortization of prior service cost Total ,372 3,469 $28,576 The assumed discounted rates are % for the years ended March 31, 2007 and The expected return on assets is % for the year ended March 31, 2007 and % for the year ended March 31,

119 Annual Report 2007 Sojitz Corporation 8. INCOME TAXES As of March 31, 2007 and 2006 the major components of deferred tax assets and deferred tax liabilities are as follows: Millions of yen Thousands of U.S. dollars Deferred tax assets: Allowance for doubtful receivables ,049 41,287 $ 330,924 Employees retirement and severance benefits ,294 5,333 44,864 Net operating loss carryforwards , ,395 2,124,034 Losses on revaluation of securities ,079 32, ,907 Loss from merger ,616 13,281 98,441 Other ,101 25, ,991 Total deferred tax assets , ,130 3,142,161 Valuation allowance (263,527) (274,007) (2,233,280) Offset to deferred tax liabilities (78,902) (80,355) (668,661) Total deferred tax assets, net ,346 32, ,220 Deferred tax liabilities: Profit from merger ,843 30, ,687 Depreciation ,666 4,545 81,915 Unrealized gains on available-for-sale securities ,393 50, ,110 Land revaluation difference (Note 18) , ,500 Other ,114 8, ,085 Total deferred tax liabilities ,255 94, ,297 Offset to deferred tax assets (78,902) (80,355) (668,661) Total deferred tax liabilities, net ,353 14, ,636 Net deferred tax assets ,993 18,728 $ 118,584 As of March 31, 2007 and 2006, the amounts of the net deferred tax assets and liabilities are shown in the following accounts in the consolidated balance sheet. Thousands of Millions of yen U.S. dollars Deferred tax assets current ,591 8,887 $ 72,805 Deferred tax assets non-current ,755 23, ,415 Deferred tax liabilities current Deferred tax liabilities non-current ,318 13, ,339 The differences between the statutory tax rate of 41.0% and the effective rate of income taxes reflected in the accompanying consolidated statements of operations for the year ended March 31, 2007 and 2006 are as follows: Statutory tax rate % 41.0 % Valuation allowance (8.4) % (20.6) % Effect of taxation in dividends % 14.3 % Difference of tax rates for foreign subsidiaries (6.1) % (7.6) % Effect of equity in earnings of unconsolidated subsidiaries and affiliates (10.7) % Effect of consolidated tax return % Other (1.4) % 0.7 % Effective rate of income taxes reflected in the accompanying consolidated statements of operations % 32.2 % 117

120 Sojitz Corporation Annual Report 2007 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. NET ASSETS The Corporate Law of Japan became effective on May 1, 2006, replacing the Commercial Code of Japan. The Law is generally applicable to events and transactions occurring after April 30, 2006 and for fiscal years ending after that date. The Corporate Law of Japan provides that: (a) The entire amount paid for new shares may be credited to the stated capital, with the provision that, by resolution of the Board of Directors, up to one-half of such amount paid for new shares may be credited to additional paid-in capital, which is included in capital surplus, and (b) An amount equal to 10% of cash appropriations of retained earnings shall be set aside as additional paid-in capital or legal earnings reserve until the total of such reserve and additional paid-in capital equals 25% of the stated capital. Additional paid-in capital and legal earnings reserve may be used to eliminate or reduce a deficit, if any, or be capitalized by resolution at the Ordinary General Meeting of Shareholders. 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. Additional paid-in capital and legal earnings reserve are included in capital surplus and retained earnings, respectively. (c) The Corporate Law of Japan does not have a definition about the classification of paid-in capital between common stock and preferred stock. Accordingly, the Company states its capital in the total amount paid by issuing common stock and preferred stock. The maximum amount that the Company can distribute as dividends is calculated based on the non-consolidated financial statements of the Company in accordance with Japanese laws and regulations. At the Ordinary General Meeting of Shareholders on June 27, 2007, the shareholders approved cash dividends amounting to 7,993 million (U.S.$67,737 thousand). Such appropriations have not been accrued in the consolidated financial statements as of March 31, Such appropriations are recognized in the period in which they are approved by the shareholders. Amendment of the Articles of Incorporation was also approved at the Ordinary General Meeting of Shareholders on June 27, 2007, to delete the clauses with regard to the preferred shares of 2nd Series Class I, 3rd Series Class I, 4th Series Class I, 1st Series Class II, and 2nd Series Class V, which had been already repurchased and canceled. At June 27, 2007, the authorized shares consist of common stock, and preferred stock of 1st Series Class III, 1st Series Class IV, and 1st Series Class V. 10. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Details of Selling, general and administrative expenses in the consolidated statements of operations for the years ended March 31, 2007 and 2006 are as follows: Thousands of Millions of yen U.S. dollars Directors remuneration and salaries for employees ,386 54,504 $ 486,322 Employees retirement and severance benefits ,155 3,238 26,737 Welfare ,006 9,893 84,797 Travelling expenses ,007 8,362 76,331 Rent ,642 15, ,136 Legal and professional fees ,984 12, ,508 Depreciation ,099 7,459 60,161 Provision for doubtful receivables ,504 3,225 46,644 Amortization of goodwill ,575 5,072 47,246 Other ,176 45, ,169 Total , ,965 $1,496, SPECIAL GAINS (LOSSES) Classification of special gains (losses) are in accordance with Japanese GAAP. The following are the components of special gains (losses): Millions of yen Thousands of U.S. dollars Gain on sale of investment securities ,838 4,929 $ 108,797 Loss on devaluation of securities (3,957) (950) (33,534) Gain on sale and disposal of properties ,453 2,239 80,110 Loss and provision for loss on dissolution of subsidiaries and affiliates (20,060) (11,646) (170,000) Restructuring losses (1,381) (5,482) (11,703) Dilution gains (losses) from changes in equity interest (2,954) 652 Gain on reversal of allowance for doubtful accounts ,259 5,798 44,568 Gain on bad debt recovered Impairment loss on fixed assets (3,393) (2,022) (28,754) Gain on sale of certain overseas receivables ,610 Extraordinary retirement cost (161) (1,364) Provision for accrued officers retirement benefits (463) (3,924) Special gains (losses), net (1,450) (9,359) $ (12,288) 118

121 Annual Report 2007 Sojitz Corporation 12. DERIVATIVE TRANSACTIONS To avoid adverse effects of fluctuations of the market risk associated with financial activities and commodity trading activities, the Company and its consolidated subsidiaries enter into foreign exchange contracts, currency options, swaps and various types of interest rates, bonds, equity and commodity-related forwards, futures and options. The Company and its consolidated subsidiaries utilize these derivative transactions to reduce the risk inherent in their assets and liabilities and hedge effectively so that these transactions are not likely to have a major impact on the performance of the Company and its consolidated subsidiaries. In accordance with the Company s internal regulations on derivative transactions, the Finance Division of the Company is responsible for managing market and credit risks of these transactions, and this division manages position limits, credit limits and status of derivative transactions. The Companies select highly ranked financial institutions, exchanges and brokers as counter parties to minimize credit risk exposure. The Company and each consolidated subsidiary s accounting sections also confirm the outstanding positions and fair values with counter parties. The results of these procedures are reported to the Company s audit section. The Companies evaluate hedge effectiveness semi-annually by comparing the cumulative changes in cash flows or the changes in fair value of hedged items and the corresponding changes in the derivative instruments. The following summarizes hedging derivative financial instruments used by the Companies and items hedged: Hedging instruments: Currency-related contracts: Foreign exchange contracts and currency swap contracts Interest rate-related contracts: Interest rate swap contracts and option (cap) contracts Commodity-related contracts: Future contracts and forward contracts Hedged items: Currency-related contracts: Interest rate-related contracts: Commodity-related contracts: Foreign currency receivables and debts and foreign currency forecasted contracts Interest on financial assets and liabilities Commodity trading contracts The following tables summarize market value information as of March 31, 2007 and 2006 of derivative transactions for which hedge accounting has not been applied. Currency related Millions of yen Thousands of U.S. dollars Contract Fair Unrealized Contract Fair Unrealized Year ended March 31, 2007 value value gains (losses) value value gains (losses) Forward exchange contracts: Selling: U.S. dollars ,406 27, $232,254 $231,729 $ 525 Thai baht ,599 4,309 (710) 30,500 36,517 (6,017) Hong Kong dollars ,012 3,054 (42) 25,525 25,881 (356) Euro ,037 2,124 (87) 17,263 18,000 (737) Australian dollars ,822 1,989 (167) 15,441 16,856 (1,415) U.K. pound ,683 1,691 (8) 14,263 14,331 (68) Other (3) 4,771 4,796 (25) Total ,122 41,077 (955) $340,017 $348,110 $(8,093) Buying: U.S. dollars ,663 43, $370,025 $372,424 $ 2,399 U.K. pound ,314 10,307 (7) 87,407 87,347 (60) Euro ,500 5, ,610 47, Australian dollars ,814 2, Other ,619 3,545 (74) 30,669 30,043 (626) Total ,428 63, $537,525 $540,119 $ 2,594 Currency swap contracts: Receipt Yen/Payment Euro ,385 (1) (1) $ 62,585 $ (8) $ (8) Total ,385 (1) (1) $ 62,585 $ (8) $ (8) Interest rate related Millions of yen Thousands of U.S. dollars Contract Fair Unrealized Contract Fair Unrealized Year ended March 31, 2007 value value gains (losses) value value gains (losses) Interest rate swap agreements: Receipt Variable rate/payment Fixed rate ,546 (183) (183) $ 89,373 $ (1,551) $(1,551) Total ,546 (183) (183) $ 89,373 $ (1,551) $(1,551) 119

122 Sojitz Corporation Annual Report 2007 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Commodity related Millions of yen Thousands of U.S. dollars Contract Fair Unrealized Contract Fair Unrealized Year ended March 31, 2007 value value gains (losses) value value gains (losses) Futures trading: Metals: Selling ,227 1,274 (47) $ 10,398 $ 10,797 $ (399) Buying ,298 1, ,000 11, Oils: Selling ,438 4,617 (179) $ 37,610 $ 39,127 $ (1,517) Buying ,542 2, ,542 22,627 1,085 Foods: Selling ,887 4,035 (148) $ 32,941 $ 34,195 $ (1,254) Buying ,348 3, ,373 30,458 2,085 Total: Selling ,552 9,926 (374) $ 80,949 $ 84,119 $ (3,170) Buying ,188 7, $ 60,915 $ 64,297 $ 3,382 Forwards trading: Metals: Selling ,287 1,307 (20) $ 10,907 $ 11,076 $ (169) Buying ,227 1, ,398 10, Oils: Selling ,932 30,062 (2,130) $236,712 $254,763 $(18,051) Buying ,029 30,825 2, , ,228 23,694 Total: Selling ,219 31,369 (2,150) $247,619 $265,839 $(18,220) Buying ,256 32,097 2,841 $247,932 $272,008 $ 24,076 Currency related Millions of yen Contract Fair Unrealized Year ended March 31, 2006 value value gains (losses) Forward exchange contracts: Selling: U.S. dollars ,150 28,422 (272) Thai baht ,020 3,465 (445) Australian dollars ,616 2, U.K. pound ,548 1,555 (7) Euro ,534 1,550 (16) Other ,436 3,455 (19) Total ,304 40,994 (690) Buying: U.S. dollars ,330 60, U.K. pound ,313 13, Euro ,132 5, Australian dollars ,762 2,692 (70) Other ,168 4, Total ,705 86, Interest rate related Millions of yen Contract Fair Unrealized Year ended March 31, 2006 value value gains (losses) Interest rate swap agreements: Receipt Variable rate/payment Fixed rate ,034 (116) (116) Receipt Variable rate/payment Variable rate ,219 (0) (0) Total ,253 (116) (116) 120

123 Annual Report 2007 Sojitz Corporation Commodity related Millions of yen Contract Fair Unrealized Year ended March 31, 2006 value value gains (losses) Futures trading: Metals: Selling (60) Buying Oils: Selling ,570 2,618 (48) Buying Foods: Selling ,512 2, Buying ,692 1,693 1 Total: Selling ,556 5,640 (84) Buying ,857 2, Forwards trading: Metals: Selling ,263 2,391 (128) Buying ,370 2, Oils: Buying ,053 1, Total: Selling ,263 2,391 (128) Buying ,423 3, CONTINGENT LIABILITIES Contingent liabilities at March 31, 2007 and 2006 are as follows: Millions of yen Thousands of U.S. dollars For notes discounted and endorsed ,016 29,417 $271,322 For guarantees of indebtedness to: Unconsolidated subsidiaries and affiliates ,610 9, ,288 Others ,133 33, ,314 Total ,743 43,131 $404,602 Contingent liabilities for guarantees of indebtedness consist of obligations under letters of guarantee letters of awareness, and other standby agreements. 14. TRADE NOTES In case the balance sheet date is a bank holiday, trade notes maturing on the balance sheet date are settled on the following business day, and accounted for accordingly. The effects of the settlements on April 2, 2007 instead of March 31, 2007 included the followings: Thousands of Millions of yen U.S. dollars Notes receivable increased by , ,059 Notes payable increased by , ,

124 Sojitz Corporation Annual Report 2007 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. LEASES Information on finance leases of the Companies at March 31, 2007 and 2006 are as follows: Thousands of Non-capitalized finance leases, as lessee: Millions of yen U.S. dollars Equipment Year ended March 31, 2007 and Fixtures Other Total Total Assumed purchase cost ,913 4,416 6,329 $53,636 Accumulated depreciation ,066 2,239 3,305 28,009 Impairment loss on fixed assets Book value ,159 2,995 25,381 Future minimum lease payments ,573 30,280 Portion due within one year ,450 12,288 Annual lease payments ,413 $11,975 Millions of yen Equipment Year ended March 31, 2006 and Fixtures Other Total Assumed purchase cost ,425 3,822 6,247 Accumulated depreciation ,642 1,899 3,541 Impairment loss on fixed assets Book value ,902 2,674 Future minimum lease payments ,561 Portion due within one year ,549 Annual lease payments ,276 Thousands of Finance leases, as lessor: Millions of yen U.S. dollars Equipment Year ended March 31, 2007 and Fixtures Other Total Total Lease properties, at cost $ 5,847 Accumulated depreciation ,059 Book value Future minimum lease payments ,695 Portion due within one year ,661 Annual lease payments received $ 1,492 Millions of yen Equipment Year ended March 31, 2006 and Fixtures Other Total Lease properties, at cost Accumulated depreciation Book value Future minimum lease payments ,164 Portion due within one year Annual lease payments received At March 31, 2007 as lessee, under noncancelable operating leases, future minimum lease payments are 7,348 million (U.S.$62,271 thousand) of which 1,850 million (U.S.$15,678 thousand) is due within one year. And as lessor, future minimum lease payments to be received under operating leases were 2,645 million (U.S.$22,415 thousand) of which 392 million (U.S.$3,322 thousand) is due within one year. 16. MINIMUM PENSION LIABILITY ADJUSTMENT In the event the balance of pension assets is less than the pension liabilities for companies adopting generally accepted accounting principles in the United States (US-GAAP) included in the scope of consolidation, an adjustment was made to net assets in accordance with US-GAAP [Statement of Financial Accounting Standards No. 158 for the year ended March 31, 2007 and No. 87 for the year ended March 31,2006]. The amount of the adjustment is 158 million (U.S.$1,339 thousand) in 2007 and 279 million in

125 Annual Report 2007 Sojitz Corporation 17. SEGMENT INFORMATION The activities of the Company and consolidated subsidiaries include worldwide trading in various commodities, financing for customers and suppliers relating to such trading activities, and organizing and coordinating industrial projects on an international basis in conjunction with trading activities. Industry segments Industry segment information for the years ended March 31, 2007 and 2006 is as follows: Millions of yen Energy & Real Estate Consumer Machinery & Mineral Chemicals Development & Lifestyle Overseas Elimination & Year ended March 31, 2007 Aerospace Resources & Plastics Forest Products Business Subsidiaries Other Total Unallocated Consolidated Net sales: Outside customers ,118,193 1,286, , , , , ,283 5,218,153 5,218,153 Inter-segment ,895 7,526 48,441 2,393 13, ,967 22, ,322 (442,322) Total ,132,088 1,294, , , ,141 1,054, ,076 5,660,475 (442,322) 5,218,153 Cost of sales and selling, general and administrative expenses ,116,376 1,275, , , ,534 1,052, ,995 5,582,771 (442,550) 5,140,221 Operating income ,712 18,890 21,818 11,708 5,607 1,888 2,081 77, ,932 Total assets , , , , , , ,581 2,353, ,654 2,619,508 Depreciation and amortization ,800 5,751 4,863 1,373 1, ,176 22,791 1,137 23,928 Impairment loss on fixed assets ,789 3,393 3,393 Capital expenditures ,504 22,339 2,909 5,713 2, ,583 38,984 38,984 Thousands of U.S. dollars Energy & Real Estate Consumer Machinery & Mineral Chemicals Development & Lifestyle Overseas Elimination & Year ended March 31, 2007 Aerospace Resources & Plastics Forest Products Business Subsidiaries Other Total Unallocated Consolidated Net sales: Outside customers $9,476,212 $10,906,220 $5,667,263 $3,223,220 $7,744,356 $6,108,746 $1,095,619 $44,221,636 $ $44,221,636 Inter-segment ,754 63, ,516 20, ,771 2,830, ,161 3,748,491 (3,748,491) Total $9,593,966 $10,970,000 $6,077,779 $3,243,500 $7,857,127 $8,938,975 $1,288,780 $47,970,127 $(3,748,491) $44,221,636 Cost of sales and selling, general and administrative expenses $9,460,814 $10,809,915 $5,892,881 $3,144,280 $7,809,610 $8,922,975 $1,271,144 $47,311,619 $(3,750,424) $43,561,195 Operating income , , ,898 99,220 47,517 16,000 17, ,508 1, ,441 Total assets ,011,220 4,273,882 3,137,500 2,311,856 2,678,915 3,080,466 1,454,076 19,947,915 2,251,305 22,199,220 Depreciation and amortization ,152 48,737 41,212 11,636 9,136 6,356 26, ,144 9, ,780 Impairment loss on fixed assets , ,178 2,457 1,873 15,161 28,754 28,754 Capital expenditures $ 12,746 $ 189,314 $ 24,652 $ 48,415 $ 17,119 $ 7,763 $ 30,364 $ 330,373 $ $ 330,373 Millions of yen Energy & Real Estate Consumer Machinery & Mineral Chemicals Development & Lifestyle Overseas Elimination & Year ended March 31, 2006 Aerospace Resources & Plastics Forest Products Business Subsidiaries Other Total Unallocated Consolidated Net sales: Outside customers ,344 1,207, , , , , ,474 4,972,060 4,972,060 Inter-segment ,434 10,280 46,355 3,105 14, ,326 20, ,307 (425,307) Total ,778 1,217, , , ,070 1,086, ,266 5,397,367 (425,307) 4,972,060 Cost of sales and selling, general and administrative expenses ,737 1,199, , , ,096 1,082, ,698 5,321,957 (426,099) 4,895,858 Operating income ,041 18,017 16,557 9,607 7,974 4,646 2,568 75, ,202 Total assets , , , , , , ,165 2,290, ,166 2,521,680 Depreciation and amortization ,286 4,839 4,718 1,296 1, ,493 23,548 2,411 25,959 Impairment loss on fixed assets , ,022 2,022 Capital expenditures ,646 12,759 5,481 1,883 1, ,850 31,235 31,

126 Sojitz Corporation Annual Report 2007 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Geographic segments Trading transactions that are attributed to areas based on the locations of the assets producing revenues and long-lived assets for the years ended March 31, 2007 and 2006 are as follows: Millions of yen North Asia & Elimination & Year ended March 31, 2007 Japan America Europe Oceania Other Total Unallocated Consolidated Net sales: Outside customers ,935, , , ,291 82,587 5,218,153 5,218,153 Inter-segment , ,754 26, , ,661 (724,661) Total ,276, , , ,931 82,865 5,942,814 (724,661) 5,218,153 Cost of sales and selling, general and administrative expenses... 4,236, , , ,163 75,291 5,860,938 (720,717) 5,140,221 Operating income ,506 7,215 8,813 17,768 7,574 81,876 (3,944) 77,932 Total assets ,013, , , ,127 49,505 2,678,725 (59,217) 2,619,508 Thousands of U.S. dollars North Asia & Elimination & Year ended March 31, 2007 Japan America Europe Oceania Other Total Unallocated Consolidated Net sales: Outside customers $33,355,483 $2,965,551 $1,494,856 $5,705,856 $699,890 $44,221,636 $ $44,221,636 Inter-segment ,887, , ,051 2,149,491 2,357 6,141,195 (6,141,195) Total $36,242,508 $3,844,822 $1,717,907 $7,855,347 $702,247 $50,362,831 $(6,141,195) $44,221,636 Cost of sales and selling, general and administrative expenses... $35,899,237 $3,783,678 $1,643,220 $7,704,771 $638,061 $49,668,967 $(6,107,772) $43,561,195 Operating income ,271 61,144 74, ,576 64, ,864 (33,423) 660,441 Total assets $17,061,814 $1,371,864 $1,363,720 $2,484,127 $419,534 $22,701,059 $ (501,839) $22,199,220 Millions of yen North Asia & Elimination & Year ended March 31, 2006 Japan America Europe Oceania Other Total Unallocated Consolidated Net sales: Outside customers ,796, , , ,645 46,568 4,972,060 4,972,060 Inter-segment , ,563 43, , ,972 (641,972) Total ,072, , , ,551 46,830 5,614,032 (641,972) 4,972,060 Cost of sales and selling, general and administrative expenses... 4,033, , , ,947 39,260 5,537,893 (642,035) 4,895,858 Operating income ,793 9,137 6,035 13,604 7,570 76, ,202 Total assets ,884, , , ,108 47,266 2,580,539 (58,859) 2,521,680 The principal countries or areas included in each region are as follows: North America U.S.A. and Canada U.S.A. and Canada Europe U.K. and Russia U.K. and Russia Asia & Oceania Singapore and China Singapore and China Other Central and South America and Africa Central and South America and Africa 124

127 Annual Report 2007 Sojitz Corporation Overseas trading transactions Overseas trading transactions for the years ended March 31, 2007 and 2006 are as follows: Thousands of Millions of yen U.S. dollars North America , ,212 $ 2,488,576 Europe , ,008 1,591,763 Asia & Oceania ,072,814 1,011,596 9,091,644 Other , ,088 2,778,797 Total ,882,192 1,748,904 $15,950,780 The principal countries or areas included in each region are as follows: North America U.S.A. and Canada U.S.A. and Canada Europe U.K. and Russia U.K. and Netherlands Asia & Oceania China and Singapore China and Singapore Other Central and South America and Central and South America and The Middle East The Middle East Overseas trading transactions are defined as trading transactions of the Company and consolidated subsidiaries completed outside of Japan. 18. ADDITIONAL CASH FLOW INFORMATION (1) Cash flow from acquisition and sale of consolidated subsidiaries The following are the amounts of assets and liabilities of newly consolidated subsidiaries at the time of acquisition for the years ended March 31, 2007 and 2006, the acquisition cost of those companies and the amounts of net expenditure for acquisition. Thousands of Millions of yen U.S. dollars Current assets , $ 19,932 Non-current assets Goodwill recognized on consolidation , ,127 Current liabilities (1,514) (361) (12,831) Long-term liabilities (107) Minority interests (40) (156) (339) Acquisition cost , ,076 Cash and cash equivalents of acquired companies (203) (133) (1,720) Net expenditure , $ 37,356 The following are the amounts of assets and liabilities of subsidiaries excluded from the consolidation scope at the time the Companies sold investment securities in consolidated subsidiaries, for the years ended March 31, 2007 and Thousands of Thousands of Millions of yen U.S. dollars Millions of yen U.S. dollars Current assets ,035 5,027 $25,721 Non-current assets ,508 1,720 Total ,238 16,535 $27,441 Current liabilities ,253 4,369 $27,568 Non-current liabilities ,396 1,686 Total ,452 20,765 $29,

128 Sojitz Corporation Annual Report 2007 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (2) Significant non-cash transactions Conversion of convertible bonds Thousands of Millions of yen U.S. dollars Increase in capital stock by conversion of convertible bonds ,791 30,550 $ 955,856 Increase in capital surplus by conversion of convertible bonds ,209 30, ,924 Decrease in convertible bonds by conversion of convertible bonds ,000 61,000 1,906,780 Convertible bonds of 225 billion (U.S.$1,906,780 thousand) out of 300 billion (U.S.$2,542,373 thousand) that had been issued in the fiscal year ended March 31, 2007 had been converted to our common stock by March 31, Convertible bonds of 60 billion that had been issued in the fiscal year ended March 31, 2006 had been converted to our common stock in the full amount by March 31, (3) Other, net of cash flows from operating activities Other, net of cash flows from operating activities for the year ended March 31, 2007 and 2006, mainly includes a decrease in non-performing receivables by sales and write-off. 19. LAND REVALUATION DIFFERENCE For some of the subsidiaries, revaluation of land for business was carried out in accordance with the Law Concerning Revaluation of Land and on the basis of the amendment to the Law on March 31, With respect to the evaluation difference, amounts equivalent to taxes related to the evaluation difference were included in Deferred tax assets on land revaluation. The difference between the previous book value and the revalued amount net of the deferred tax assets was presented as Land revaluation difference in net assets. Method of revaluation: Calculations were made in accordance with the Law Concerning Revaluation of Land. Date of revaluation: March 31, 2002 The difference between the market value as of March 31, 2007 and the book value of land after revaluation: 474 million (U.S.$4,017 thousand). 20. MERGER WITH SUBSIDIARIES The company absorbed Sojitz Urban Development Corporation which had operated comprehensive real-estate business on August 1, 2006, for the purpose of improving the efficiency of Sojitz Group management and completing integration to reduce cost by generating common benefits from the Sojitz Group s trading company capabilities. The company also absorbed Global Chemical Holdings, Inc. which had been the holding company for its chemicals operations, and its wholly owned operating company Sojitz Chemical Corporation on October 1, 2006, for the purpose of improving the efficiency of Sojitz Group management and concentrating chemicals operations under the company itself to accelerate global business expansion by generating common benefits from the Sojitz Group s trading company capabilities. Because these subsidiaries were wholly owned by Sojitz Group, the merger had no impact on consolidated financial operations. 21. SUBSEQUENT EVENTS (a) In accordance with the resolution to set a limit on issuance of domestic bonds during the first half of 2007 at the Board of Directors meeting held on March 23, 2007, the Company issued unsecured corporate bonds on April 25, (1) Type of bond: 12th Series unsecured bonds (2) Issue amount: 10 billion (U.S.$ 84,746 thousand) (3) Issue date: April 25,

129 Annual Report 2007 Sojitz Corporation (b) Stock acquisition rights issued with 4th series unsecured convertible bonds on May 25, 2006 were exercised and bonds were converted to common stock and capital surplus in the period from March 31, 2007 through June 27, 2007 as follows; (1) Type of bond: 4th Series unsecured convertible bonds (bond with stock acquisition rights) (2) Converted date: May 10, 2007, May 14, 2007, May 17, 2007, June 1, 2007, June 8, 2007, and June 12, 2007, (3) Number of issued stocks: 135,937,995 shares As a result, Common Stock increased by billion (U.S.$254,551 thousand) and Capital Surplus increased by billion (U.S.$253,924 thousand). (c) On May 18, 2007, the Board of Directors of the Company resolved to execute repurchase and cancellation of preferred shares as follows, in accordance with an Agreement Concerning the Acquisition of Preferred Shares concluded with all of the shareholders of the relevant preferred shares. (1) Repurchase and cancel date: June 22, 2007 (2) Details of shares repurchased and cancelled: Seller and number of Issue price of repurchased Total repurchase amount shares held Class of share preferred shares (% of issue price) (% of issued shares) 1st Series Class IV Preferred Shares billion billion Bank of Tokyo-Mitsubishi UFJ: (U.S.$1,690,678 thousand) (U.S.$388,856 thousand) (23.0%) 19,950,000 (100.0%) 1st Series Class V Preferred Shares 21.6 billion billion Bank of Tokyo-Mitsubishi UFJ: (U.S.$183,051 thousand) (U.S.$78,712 thousand) (43.0%) 1,800,000 (16.6%) Total billion billion (U.S.$1,873,729 thousand) (U.S.$467,568 thousand) (d) On June 12, 2007, the Board of Directors of the Company concluded an agreement to transfer shares in equity-method affiliate Arysta LifeScience Corporaton (Arysta). (1) Purpose of share transfer At the meeting of its Board of Directors on May 29, 2007, Sojitz resolved to transfer its shareholding in Arysta to LB Star Investment LLC. This action was initiated as part of Sojitz s ongoing efforts to review its business portfolio and optimally allocate resources. (2) Contract date: June 12, 2007 (3) Transfer schedule The transfer will be conducted promptly once the requirements of relevant laws and regulations have been fulfilled. (4) Transferee 1. Company name: LB Star Investment LLC 2. Representative: Lehman Brothers Holdings Inc. (5) Number of shares to be transferred and shareholding ratio before and after transfer 1. Number of shares held before transfer 9,800,000 (26.80% shareholding) 2. Number of shares to be transferred 9,800, Number of shares held after transfer 0 (0% shareholding) (6) Impact on operations As a result of this share transfer, Sojitz will record a gain of approximately 4.3 billion (U.S$36,441 thousand) on sale of investment securities in its consolidated financial statements. 127

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132 Sojitz Corporation Annual Report 2007 CORPORATE DATA Company Name Sojitz Corporation Established April 1, 2003 Capitalization 160,339 million (As of July 3, 2007) President & CEO Yutaka Kase Head Office 1-20, Akasaka 6-chome, Minato-ku, Tokyo , Japan TEL: FAX: Number of Branches & Offices Domestic 12 Overseas 92 (As of June 30, 2007) Number of Subsidiaries & Affiliates Domestic 202 Overseas 437 (As of June 30, 2007) Number of Employees Non-consolidated 2,167 Consolidated 18,844 (As of March 31, 2007) Stock Exchange Listings Tokyo, Osaka Additional copies of this annual report and other information may be obtained from: Corporate Planning Dept., Sojitz Corporation 1-20, Akasaka 6-chome, Minato-ku, Tokyo , Japan 130

133 Annual Report 2007 Sojitz Corporation ACQUIRING FSC CERTIFICATION The FSC (Forest Stewardship Council, headquartered in Germany) is an NPO (non-profit organization) established to promote sustainable forest management, which administers a forestry certification program. It awards certification at every stage of the production, processing and distribution process, from forestry including plantations managed to sustain the ecosystem to lumber products, wood chips and even paper originating from such forests. Sojitz views global environmental issues as a key management concern, and strives to achieve a balance between economic development and environmental conservation in all its business activities. The Company invests in forestry businesses overseas as part of such efforts. Sojitz is currently participating in three forestry projects in Vietnam and Australia related to papermaking materials. The Quy Nhon Plantation Forest Company of Vietnam Ltd. (QPFL), a joint venture of Sojitz Corporation, Oji Paper Co., Ltd. and Dai Nippon Printing Co., Ltd., undertakes forestry business in Vietnam. The company began tree-planting operations in 1995, and although it commenced logging in 2002, it has planted new trees since, maintaining approximately 8,500 hectares of plantation. QPFL s lumber products are exported to Oji Paper Group s plants after processing into wood chips. QPFL preserves forestland by adhering to a cycle of planting, cultivation, logging and re-planting that ensures environmental, social and economic stability. In March 2006, the company became the first in Vietnam to acquire the FSC s Forest Management (FM) certification. At the same time, QPFL also obtained CoC (Chain of Custody) certification, which is awarded for the management of production, processing and distribution for FSC-certified lumber. Thus, QPFL s forestry operations have attained FSC certification for every stage of the process from tree-planting and logging to wood chip production and export. Since its founding, QPFL has pursued sustainable forest management with an emphasis on maintaining harmony with the local community and environment, and its FSC certifications bear testimony to the company s efforts. Sojitz is taking a proactive approach to handling FSC-certified materials. The Company imports FSC-certified wood chips from Australia and Vietnam, as well as certified lumber from the Solomon Islands. It has also started importing certified veneers from Brazil for sale to plywood manufacturers. In addition, Sojitz intends to obtain FSC-certification in its Australian plantation operations in future. Almost all the woodchips currently handled by Sojitz derive from plantations, and FSC-certified woodchips account for around 40% of the total. This annual report is made with FSC-certified paper as part of Sojitz efforts to address global environmental issues in the course of its regular business activities. Hanoi QPFL QPFL s seedling fields A QPFL plantation Vietnam Ho Chi Minh Seedlings are planted on uncultivated land owned by QPFL 131