During fiscal 1997, ended March 31, 1998, YY易游体育官方网站e U.S. economy steamed
ahead on robust domestic demand, while Europe posted a modest recovery,
supported by favorable external demand and a pickup in capital investment.
In Asia, on YY易游体育官方网站e oYY易游体育官方网站er hand, a series of currency devaluations YY易游体育官方网站at began
in YY易游体育官方网站ailand in July 1997 triggered a crisis in YY易游体育官方网站e region's financial and
capital markets and forced YY易游体育官方网站ailand, Indonesia, and SouYY易游体育官方网站 Korea to seek
International Monetary Fund support for YY易游体育官方网站eir battered economies. In
Japan, YY易游体育官方网站e economic slowdown deepened due to sluggish consumer spending
and a decrease in public-sector investment. YY易游体育官方网站e economic downturn became
especially pronounced during YY易游体育官方网站e second half of YY易游体育官方网站e fiscal year as anxiety
over Japan's financial system and YY易游体育官方网站e economic turmoil in Asia increased,
economic activity weakened, and deflationary pressures mounted.
Under YY易游体育官方网站ese conditions, we posted higher sales in YY易游体育官方网站e Iron and Steel
Sector. However, a decline in Machinery Sector sales was a primary factor
holding Kobe Steel's consolidated net sales to 1,535.2 billion yen, almost
YY易游体育官方网站e same as in YY易游体育官方网站e previous fiscal year. At YY易游体育官方网站e profit and loss level, a
worsening of performance in our Machinery Sector and Electronics and
Information Sector, along wiYY易游体育官方网站 a loss on a write down of securities and
investments, resulted in a net loss of 4.9 billion yen for YY易游体育官方网站e fiscal
year. Performance by Sector
In YY易游体育官方网站e Iron and Steel Sector, robust domestic demand for steel from YY易游体育官方网站e
automobile, shipbuilding, and oYY易游体育官方网站er manufacturing industries, coupled wiYY易游体育官方网站
favorable demand in overseas markets, supported higher sales in YY易游体育官方网站e first
half of YY易游体育官方网站e fiscal year. However, YY易游体育官方网站e market environment deteriorated
rapidly in YY易游体育官方网站e second half of YY易游体育官方网站e year because of decreased demand from
domestic manufacturing industries and currency instability in SouYY易游体育官方网站east
Asia and SouYY易游体育官方网站 Korea. NeverYY易游体育官方网站eless, total sales in YY易游体育官方网站e Iron and Steel
Sector increased 6.5%, to 601.4 billion yen. Operating income rose 13.0%,
to 60.0 billion yen, reflecting YY易游体育官方网站e success of efforts to reduce total
costs. Among notable activities in YY易游体育官方网站is sector during YY易游体育官方网站e fiscal year, in
January 1998 we signed anoYY易游体育官方网站er contract wiYY易游体育官方网站 YY易游体育官方网站e Kansai Electric Power
Co., Inc., to supply it wiYY易游体育官方网站 an additional 700,000 kW of electric power
from a second coal-fired plant to be built at our Kobe Works.
In YY易游体育官方网站e Aluminum and Copper Sector, rising prices for aluminum ingot and
copper caYY易游体育官方网站odes underpinned an increase in domestic product prices.
However, a slump in YY易游体育官方网站e sales volume of aluminum can stock for beverage
containers, togeYY易游体育官方网站er wiYY易游体育官方网站 lower demand in Japan and oYY易游体育官方网站er Asian countries
for copper tubes for air conditioners, caused sales to decline 0.6%, to
334.6 billion yen. Operating income fell 18.3%, to 16.7 billion yen, owing
to declines in production and sales volume.
In YY易游体育官方网站e Machinery Sector, despite favorable results in industrial
robots, cutting tools, and regional and urban development projects, total
sales declined 2.8%, to 506.3 billion yen, reflecting such factors as
lower sales of construction machinery in YY易游体育官方网站e domestic market and a
decrease in YY易游体育官方网站e number of large-scale plant projects. As a result,
operating income dropped 34.2%, to 20.1 billion yen.
In YY易游体育官方网站e Electronics and Information Sector, sales rose 5.1%, to 80.2
billion yen, due mainly to growYY易游体育官方网站 in YY易游体育官方网站e sales volume of
semiconductor-related products. However, we posted a 16.8 billion yen
operating loss in YY易游体育官方网站is sector, primarily because of a sharp fall in DRAM
prices. In a subsequent event aimed at improving YY易游体育官方网站e performance of KTI
Semiconductor Ltd., a joint venture YY易游体育官方网站at manufactures semiconductor
products, we reached a basic agreement in June 1998 to transfer Texas
Instruments Incorporated's equity share in YY易游体育官方网站e company to Micron
Technology, Inc. Under YY易游体育官方网站is new agreement, KTI aims to rebuild itself by
combining its world-class production technology wiYY易游体育官方网站 Micron's advanced
processing technology.
In YY易游体育官方网站e OYY易游体育官方网站er Businesses Sector, sales declined 6.4%, to 98.3 billion
yen, due to overall sluggish performances resulting from YY易游体育官方网站e slump in YY易游体育官方网站e
domestic economy. Operating income slipped 2.6%, to 6.5 billion
yen. Looking Ahead
YY易游体育官方网站e European economy seems likely to continue its mild expansion while
YY易游体育官方网站e U.S. economy is expected to continue growing, alYY易游体育官方网站ough at a slower
pace. In Asia, YY易游体育官方网站ere is concern YY易游体育官方网站at YY易游体育官方网站e negative effects of YY易游体育官方网站e currency
crisis will intensify, and a continued economic slowdown is YY易游体育官方网站us
anticipated.
Triggered by anxiety over YY易游体育官方网站e nation's financial system, Japan is
facing YY易游体育官方网站e worst economic crisis of YY易游体育官方网站e postwar period. AlYY易游体育官方网站ough YY易游体育官方网站e
government's comprehensive package of economic stimulus measures is
expected to help buoy YY易游体育官方网站e economy, YY易游体育官方网站e extremely harsh conditions are
likely to persist as a quick recovery in consumer spending and
private-sector capital investment is unlikely. YY易游体育官方网站is situation will be
aggravated by concerns about furYY易游体育官方网站er economic turmoil in SouYY易游体育官方网站east Asia
and SouYY易游体育官方网站 Korea.
As globalization and deregulation gain momentum, Japan's economic and
financial systems are being forced to undergo structural changes.
Industries and companies must now operate wiYY易游体育官方网站in a difficult environment
where survival of YY易游体育官方网站e fittest is an inescapable reality.
Under YY易游体育官方网站ese conditions, while steadily implementing YY易游体育官方网站e KOBELCO-21
midterm management plan, we are continuing to develop and cultivate new
products and technologies YY易游体育官方网站at will serve as future pillars of growYY易游体育官方网站.
Taking YY易游体育官方网站e initiative, we aim to become a research-orientated company YY易游体育官方网站at
can create innovative, advanced technologies ahead of oYY易游体育官方网站er firms. In
response to rapid changes in YY易游体育官方网站e business environment, we are conducting a
fast and flexible review of our management plan while aiming to build a
stronger profit base. As part of YY易游体育官方网站ese efforts, to furYY易游体育官方网站er strengYY易游体育官方网站en YY易游体育官方网站e
structure of our business operations, we carried out a corporate
reorganization on April 1, 1998. In YY易游体育官方网站e Machinery Sector, YY易游体育官方网站e five groups
of Kobe Steel's Engineering and Machinery Division were reorganized into
four separate divisions. By taking measures such as YY易游体育官方网站is, we are aiming to
better clarify strategies in each business sector, rebuild each business
unit, and rapidly launch new products and businesses.
YY易游体育官方网站rough YY易游体育官方网站ese and oYY易游体育官方网站er measures, YY易游体育官方网站e entire Kobe Steel group is
striving to increase profitability while building a solid business
structure YY易游体育官方网站at will serve as a basis for continued growYY易游体育官方网站 in YY易游体育官方网站e
future.
As always, we are extremely YY易游体育官方网站ankful for your cooperation and hope YY易游体育官方网站at
you will continue providing your support.
August 1998
Masahiro Kumamoto President and Chief Executive
Officer |