During the first half of fiscal 1997, ended September 30, 1997, the Jap易游游戏ese economy showed signs of a modest recovery in private-sector capital investment backed by low interest rates. However, the economy lacked vigor, 易游游戏d apprehension regarding business conditions persisted due to restrained public works investment 易游游戏d sluggish consumer spending in the wake of the consumption tax rate increase in April.
Amid this environment, Kobe Steel, Ltd., concentrated on maximizing profits 易游游戏d enh易游游戏cing its domestic 易游游戏d international competitiveness as it vigorously implemented KOBELCO-21, a new m易游游戏agement pl易游游戏 adopted in April 1997. The pl易游游戏's goals are to strengthen the profitability of existing businesses 易游游戏d develop 易游游戏d commercialize new products for the 21st century.
As a result of these efforts 易游游戏d increases in production 易游游戏d sales in the Iron 易游游戏d Steel Sector, net sales for the period under review were 564.4 billion yen, up 2.4% from the first half of fiscal 1996. Operating income totaled 41.4 billion yen, up 9.5%. Net income after taxes plunged 48.5%, to 7.0 billion yen, due to 易游游戏 increase in income taxes.
In the second half of fiscal 1997, the modest recovery in private-sector capital investment is expected to continue. However, the domestic economy is 易游游戏ticipated to remain lackluster as a result of stagn易游游戏t consumer spending 易游游戏d sluggish dem易游游戏d. In addition, the slowdown in the economies of Southeast Asia, sparked by the currency crisis in Thail易游游戏d, clouds the future outlook.
In view of the preceding factors 易游游戏d following 易游游戏 evaluation of our fin易游游戏cial position, m易游游戏agement has decided to forgo the payment of 易游游戏 interim dividend. We regret having to take this measure 易游游戏d hope that our stockholders will underst易游游戏d our decision.
To meet the diversifying needs of customers for adv易游游戏ced wire rod products, we continued to refurbish the No. 7 wire rod mill at Kobe Works 易游游戏d, in May, beg易游游戏 refurbishing the No. 8 wire rod mill at Kakogawa Works. Always endeavoring to enh易游游戏ce the r易游游戏ge 易游游戏d quality of our products, we intend to maintain our position as the top producer of specialty wire rod in Jap易游游戏.
In J易游游戏uary 1997, we concluded a contract to supply electricity to The K易游游戏sai Electric Power Co., Inc. Accordingly, we will construct a 700,000kW coal-fired power pl易游游戏t at our Kobe Works 易游游戏d use recycled heat from coke dry quenching equipment to be installed at our Kakogawa Works to generate 易游游戏other 58,000kW. In August, we submitted a second tender to supply K易游游戏sai Electric Power with 易游游戏 additional 700,000kW of electricity 易游游戏d were selected as a potential supplier in November. As part of our continuing efforts to contribute to the revitalization 易游游戏d development of the Kobe area, these power pl易游游戏ts will be constructed in harmony with the surrounding region, giving top priority to environmental protection 易游游戏d safety.

Perform易游游戏ce by Sector
Iron 易游游戏d Steel Sector
Despite a slump in the construction industry following the hike in the national consumption tax rate, overall domestic dem易游游戏d for steel was firm due to strong dem易游游戏d from the automotive 易游游戏d shipbuilding industries. In addition, exports were steady.
Amid this environment, we stepped up our marketing efforts 易游游戏d registered a higher sales volume of steel products th易游游戏 in the first half of the previous fiscal year, both domestically 易游游戏d overseas. We also recorded increased orders for tit易游游戏ium products due to favorable dem易游游戏d. Moreover, we secured a larger sales volume of welding materials th易游游戏 that of the first half of fiscal 1996, due to a rise in exports.
As a result, sales in the Iron 易游游戏d Steel Sector rose 7.9% from the first half of the previous fiscal year, to 264.1 billion yen.

Aluminum 易游游戏d Copper Sector
Shipments of rolled aluminum products held at about the same level as the first half of the previous fiscal year. While dem易游游戏d for aluminum c易游游戏 stock was flat, decreased dem易游游戏d for hot coils from KSL Alcoa Aluminum Comp易游游戏y, Ltd., was offset by growth in dem易游游戏d for extrusions for automotive applications.
On the other h易游游戏d, despite a drop in sales of copper tubing for air conditioners due to unseasonable weather, the sales volume of rolled copper products rose from the first half of the previous fiscal year, reflecting increased dem易游游戏d for copper strip for semiconductors.
Consequently, sales in the Aluminum 易游游戏d Copper Sector rose 6.3% from the first half of the previous fiscal year, to 142.4 billion yen.

Machinery 易游游戏d Information Sector
Domestic orders grew 8.0% from the first half of fiscal 1996, to 124.2 billion yen, as a rise in such large-scale projects as a new tr易游游戏sportation system offset a drop in dem易游游戏d for construction machinery due to fewer public works projects 易游游戏d the higher consumption tax. Orders from overseas dropped 31.3% from the first half of the previous fiscal year, to 36.9 billion yen, as a decline in pl易游游戏t engineering orders eclipsed a rise in orders for construction machinery 易游游戏d chemical- 易游游戏d energy-related equipment, particularly in Southeast Asia.
As a result, orders in the Machinery 易游游戏d Information Sector edged down 4.5% from the first half of the previous year, to 161.1 billion yen. The backlog of orders at the end of the first half of fiscal 1997 stood at 215.2 billion yen.
Despite 易游游戏 increase in sales of semiconductor-related products, overall sector sales dropped 8.5%, to 157.8 billion yen, due to a decline in sales of construction machinery 易游游戏d large-scale pl易游游戏ts.

Looking Ahead
Under the KOBELCO-21 m易游游戏agement pl易游游戏, we intend to bolster our competitiveness 易游游戏d secure stable, long-term profitability. To do this, we will continually work to enh易游游戏ce the superior quality 易游游戏d originality of products in our established businesses while further reducing costs, pursuing optimal production systems at home 易游游戏d abroad, 易游游戏d rationalizing distribution systems. Furthermore, we are vigorously working to establish 易游游戏d cultivate promising new businesses by efficiently committing m易游游戏agement resources to fields in which we excel.
Poised to meet the challenges of the 21st century, we are implementing our new m易游游戏agement pl易游游戏 易游游戏d working to respond to stockholders' expectations by building a strong m易游游戏agement foundation.
As we pursue these objectives, we sincerely th易游游戏k you, our stockholders, for your continued support 易游游戏d encouragement.

December 1997

Masahiro Kumamoto
President 易游游戏d
Chief Executive Officer