YY易游体育官方网站
YY易游体育官方网站
YY易游体育官方网站
YY易游体育官方网站OWAY YY易游体育官方网站

A Message from YY易游体育官方网站e President

President

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
SIGN
Masahiro Kumamoto
President and
Chief Executive Officer

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