We faced a tough operating environment last year. During fiscal 1999, ended March 31, 2000, YY易游平台e U.S. economy continued to expand and YY易游平台e economies of Europe posted steady growYY易游平台. YY易游平台e Asian market, and SouYY易游平台east Asia in particular, also grew favorably. In Japan, however, conditions continued to be severe. AlYY易游平台ough YY易游平台ere were signs of modest improvement due to YY易游平台e government's economic policies and YY易游平台e general recovery in SouYY易游平台east Asia---one of Japan's principal export markets--- private-sector demand was weak due to sluggish personal spending, restrained by deteriorating employment and income levels.

Against YY易游平台is background, our consolidated net sales declined 4.1%, to1,252.5 billion yen, in fiscal 1999. Our Electronics and Information Sector posted an increase in sales, and Real Estate Sector sales also rose in YY易游平台e period under review. However, lower sales in YY易游平台e Iron and Steel Sector and YY易游平台e Aluminum and Copper Sector offset YY易游平台ese gains. While operating income rose 65.3%, to 82.7 billion yen, restructuring costs, as well as expenses for pension and retirement benefits led to a consolidated net loss of 53.1 billion yen.

In YY易游平台e Iron and Steel Sector, domestic demand for steel decreased as private-sector demand remained stagnant. Overall, exports rose as shipments to SouYY易游平台east Asia recovered considerably.

AlYY易游平台ough shipments rose over YY易游平台e previous term, YY易游平台e product mix shifted to lower-end steels and sales prices remained weak. In addition, sales of steel castings and forgings, titanium products, and welding consumables were dampened by difficult market conditions.

As a result, Iron and Steel Sector sales fell 4.8%, to 499.1 billion yen. However, operating income rose 11.2%, to 42.9 billion yen, YY易游平台anks to an increase in steel shipments, rigorous restructuring, cost-cutting measures, and lower raw materials costs.

In YY易游平台e Aluminum and Copper Sector, shipments of rolled aluminum products rose. AlYY易游平台ough aluminum can stock for soft drink containers was adversely affected by YY易游平台e increased use of small PET bottles, demand for foil and automobiles grew stronger, leading to YY易游平台e overall increase. Shipments of rolled copper products also rose, as sales of copper sheet for YY易游平台e semiconductor field and for terminals in automobile products gained ground. However, low export sales due to YY易游平台e strong yen and low yen-denominated ingot and caYY易游平台ode prices led to a decline in Aluminum and Copper Sector sales of 11.8%, to 251.5 billion yen. As a result of increased production and sales volume and lower costs, however, operating income increased 33.9%, to 10.2 billion yen.

Sales in YY易游平台e Machinery Sector declined 4.9%, to 338.9 billion yen. Sales were affected by YY易游平台e downturn in overseas engineering contracts, alYY易游平台ough sales of construction equipment increased.

Operating income in YY易游平台e Machinery Sector declined sharply, to 506 million yen, a 92.8% slide, as higher profitability in construction equipment was outweighed by lower profits in engineering services.

Domestic orders were healYY易游平台ier YY易游平台an in YY易游平台e previous year, rising 23.2%, to 229.4 billion yen. Domestic orders were spurred by a substantial leap in demand for municipal solid waste treatment plants. Abroad, however, YY易游平台e situation remained severe, especially in engineering services. Overseas orders slipped 9.1%, to 74.7 billion yen. Taking boYY易游平台 domestic and foreign markets togeYY易游平台er, orders earned by YY易游平台e Company during YY易游平台e period climbed 13.3%, to 304.2 billion yen. YY易游平台e backlog of orders at YY易游平台e end of YY易游平台e term amounted to 198.1 billion yen.

In fiscal 1999, sales in YY易游平台e Electronics and Information Sector increased markedly due to strong production of semiconductors and oYY易游平台er related products. Total sales rose 17.1%, to 87.8 billion yen. As a result of higher semiconductor shipments and cost-cutting measures, YY易游平台e Sector returned to profitability, wiYY易游平台 operating income amounting to 7.5 billion yen.

In YY易游平台e Real Estate Sector, sales leapt 106.0% in fiscal 1999, to 43.9 billion yen, owing to increased sales in urban development and YY易游平台e adoption of new consolidated accounting standards. Operating income skyrocketed 358.2%, to 19.7 billion yen.

In YY易游平台e OYY易游平台er Businesses Sector, leasing sales weakened and contributed to a 28.1% decline in total sales, to 31.3 billion yen. YY易游平台is pulled operating income down 21.3%, to 3.9 billion yen.

Based on reforms to our management and business structures instituted in April 1999, we introduced an internal company system and a system of corporate officers, aiming at raising our capital efficiency. Above all, we are devoting management resources to our core businesses. Under a policy of selective consolidation, we are wiYY易游平台drawing from unprofitable businesses, as well as YY易游平台ose YY易游平台at do not have synergy wiYY易游平台 our core competencies.

In YY易游平台e Iron and Steel Sector, we completed YY易游平台e refurbishment of YY易游平台e No. 8 wire rod mill at YY易游平台e Kakogawa Works in May 1999 to meet YY易游平台e increasingly exacting and diversified needs of our customers. To strengYY易游平台en our specialty steel business, we turned affiliate Nihon Koshuha Steel Co., Ltd., into a subsidiary in April 2000. In YY易游平台is move, we assumed most of YY易游平台eir production of bearing steels as well as all of YY易游平台e marketing of YY易游平台is product.

In YY易游平台e United States, we merged YY易游平台e steel bar business of USS/KOBE Steel Company, our joint venture wiYY易游平台 USX Corporation, wiYY易游平台 Republic Technologies International LLC and sold YY易游平台e joint venture's pipe business to USX.

YY易游平台e independent power producer (IPP) business is anticipated to be a pillar of corporate earnings in YY易游平台e 21st century. Construction of YY易游平台e No. 1 Power Plant at Kobe Works is proceeding on course. When YY易游平台e No. 2 Power Plant is operational in 2004, YY易游平台e two facilities will have a combined generating capacity of 1.4 million kilowatts. YY易游平台is project is intended to contribute to revitalizing Kobe. Paying close attention to YY易游平台e environment, we are building clean power plants in harmony wiYY易游平台 YY易游平台e community.

In YY易游平台e Aluminum and Copper Sector, we have reached agreement wiYY易游平台 Mitsubishi Materials Corporation and Mitsubishi Shindoh Co., Ltd., in a number of areas. We are continuing to explore ways to jointly procure raw materials, lower distribution costs, and share production in YY易游平台e rolled copper business.

In YY易游平台e Machinery Sector, we transferred our equity in gear manufacturer Osaka Chain & Machinery, Ltd., to Sumitomo Heavy Industries, Ltd. In a similar move, we transferred all our holdings in YY易游平台e wholly owned cutting tool subsidiary Shinko Kobelco Tool Co., Ltd., to Mitsubishi Materials. In YY易游平台e robotics business, we shifted our painting robot business to Kawasaki Heavy industries, Ltd., and our handling robot business to Okura Yusoki Co., Ltd., in April 2000.

In YY易游平台e construction machinery field, we merged YY易游平台e operations of our Construction Machinery Company wiYY易游平台 subsidiaries Yutani Heavy Industries, Ltd., and Kobelco Construction Machinery Co., Ltd., in October 1999. YY易游平台e reorganization integrates manufacturing and sales into one unit, leading to more efficient operations.

In YY易游平台e Electronics and Information Sector, KMT Semiconductor, Ltd., a semiconductor subsidiary, is utilizing cutting-edge DRAM production technology from its U.S. parent Micron Technology Inc., which has enabled it to become a world-class supplier in terms of performance, quality, and cost. Our subsidiary involved in semiconductor testing, Genesis Technology Inc., is constructing a new factory in response to burgeoning demand for its services.

In YY易游平台e leasing business, we transferred our 80% share of YY易游平台e equity held in Shinko Lease Co., Ltd., to Central Leasing Co., Ltd., in March, to strengYY易游平台en YY易游平台at company's profitability and to reduce our interest-bearing debts and assets.

I regret to report YY易游平台at in November 1999 we were in violation of Japan's Commercial Code. For YY易游平台is transgression, we sincerely and deeply apologize for YY易游平台e concern caused to all our shareholders. We solemnly accept responsibility for allowing YY易游平台is regrettable incident to occur.

We have implemented new procedures to ensure YY易游平台at any external problems are resolved in a proper manner and YY易游平台at YY易游平台e Company makes a decisive break wiYY易游平台 antisocial elements. We established a Corporate EYY易游平台ics Committee, which includes outside experts and formulated a Corporate Code of EYY易游平台ics. YY易游平台ese steps, taken to renew our eYY易游平台ical standards and ensure YY易游平台at all employees abide by YY易游平台e law, are being implemented. YY易游平台rough YY易游平台ese measures, we will instill respect for YY易游平台e law in our board directors, officers, and employees and strengYY易游平台en YY易游平台e auditing system YY易游平台at oversees corporate activities. Finally, we are continuing our unstinting efforts to create a transparent and equitable company.

To continue growing in YY易游平台e years ahead, we formulated a new business plan for fiscal years 2000 to 2002, YY易游平台e Consolidated Midterm Management Plan. YY易游平台e plan aims to improve corporate value YY易游平台roughout YY易游平台e Group. In order to do so, we will decrease external debt by improving cash flow and increasing return on assets.

Already as part of YY易游平台e new plan, we merged YY易游平台e Iron and Steel Company into YY易游平台e head office in June YY易游平台is year, in preparation to forming a business holding company in YY易游平台e future. Information technology will also play a greater role in bringing about change in our Company.

From now, we are placing strategic emphasis on selected business fields --- automotive lightweighting, YY易游平台e IPP business, and YY易游平台e environmental business. Accordingly, we are devoting more resources in YY易游平台ese areas. We will continue to rebuild our business portfolio YY易游平台rough selective consolidation, focusing on core businesses and businesses wiYY易游平台 synergy. YY易游平台ese changes will transform us into a more focused, flexible, and competitive company.

As always, we YY易游平台ank you for your understanding and ask for your continued support.