NKK CORPORATION: Annual Report 2000
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Review of Operations
Engineering Division

Percentage of Net Sales for Fiscal 2000

      During the period under review, NKK endeavored to expand orders in the Environmental Industries Engineering segment by focusing on promising products including wind turbine power generators and high-temperature gasification and direct melting furnaces. In the Shipbuilding and Offshore Structures segment, orders were favorable, reflecting NKK's concentration on the popular MX series of cape-size bulk carriers. However, despite these positive factors, severe market conditions eroded Engineering Division orders on a consolidated basis by 17.1%, to ¥ 390.2 billion. Net sales for the division fell in tandem, by 0.1%, to ¥435.7 billion. However, operating income skyrocketed to ¥11.2 billion, owing to the implementation of full-fledged cost reduction measures.

      In fiscal 2001, ending March 31, 2001, NKK is concentrating on securing orders in the Environmental Industries Engineering segment. The Engineering Division's overall performance is forecast to improve greatly owing to the projected completion of large-scale waste incineration plant construction projects and ongoing efforts to curtail fixed costs.


Energy Industries Engineering

      Trends such as price discounting--a consequence of deregulation plus uncertainty over the market--and reduced capital spending were clearly evident in the gas, electric power and petroleum industries, which are key domestic clients. Overseas, in the areas of gas and petroleum, competition to win orders has grown fierce, reflecting a decline in the number of lucrative projects.

      NKK, ranked number one for technological excellence, secured a top share of the domestic market for gas pipelines in fiscal 2000 by using proposal-backed sales activities, assisting gas companies to expand their accounts. Already experienced in in-ground liquefied natural gas (LNG) tanks, the Company entered the market for above-ground LNG tanks and received its first order from Osaka Gas Co., Ltd. As a consequence, NKK recorded ¥71.6 billion in orders for this segment during the period.

      Reflecting heated price competition, sales declined 12.4%, to ¥64.5 billion, consisting mainly of domestic gas and trunk pipelines and a natural gas plant in Vietnam. NKK is focusing on developing and marketing natural gas, as it is environmentally safe and a highly convenient alternative energy source.

 

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Vietnam's first natural gas plant

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Multi-product pipeline project
in Malaysia led by NKK

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Environmental Industries Engineering

      This segment encompasses the environmental industry, water/waste water, and conceptual engineering. A key issue of this segment is dioxin emissions. Ahead of special measures pertaining to dioxin emissions, set to take effect from December 2002, factories are turning to NKK state-of-the-art technology to further reduce emissions. One notable project is the construction of incinerator facilities in Kasugai, Aichi Prefecture. The Company has received orders for devices to control dioxin emissions from factories built by competitors. NKK has also received its first order for a refuse derived fuel (RDF) manufacturing plant, which recycles waste into fuel.

      NKK's water/waste water engineering operations boast the top share of the domestic market for waterworks products, as well as key sewage treatment facilities. With water quality standards becoming increasingly strict, reflecting greater environmental awareness, the market for sophisticated treatment processes is growing rapidly. Over the medium- to long-term, NKK plans to expand orders for river and lake water purification facilities, as part of its commitment to improve water conditions in the environment.

      NKK's concept engineering operations are breaking away from traditional lines of business and are promoting comprehensive engineering services from the proposal stage, including the creation, design and construction of new systems.

      NKK's environment-friendly wind turbine power generators are attracting growing attention nationwide. Because of increasing financial aid from the New Energy and Industrial Technology Development Organization (NEDO) to introduce measures to reduce carbon dioxide (CO2) emissions, the market for wind turbine power generators grew rapidly in fiscal 2000. In particular, NKK's gearless wind turbine power generators were praised highly for their quiet operations and orders were received for 27 units.

      However, Environmental Industries Engineering sales decreased 9.3%, to ¥114.5 billion, with ¥117.1 billion in orders, down 25.5% from the previous period, owing to tight budgets at the municipal level.


      Focus3 Growth Trends in the Environment Solutions Market
Focus 3 Growth Trends in the Environment Solutions Market


 

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Ryugasaki municipal waste incinerator plant

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Earthquake-resistant water storage tanks

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Wind turbine power generators
(Iki Island, Nagasaki Prefecture)

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Plant Engineering

      Domestic electric furnace steel producers (minimills), NKK's principal customers in this segment, reduced production in fiscal 2000 in response to the still troubled economy. Meanwhile, key Asian markets, such as the Republic of Korea and Southeast Asia, saw signs of economic recovery.

      NKK aggressively marketed steel plants and related operational and technical assistance, but was unable to win any new large-scale orders, reflecting the austere business environment. Plant engineering orders for the term fell 35.1%, to ¥16.1 billion. Sales were down 15.4%, to ¥32.8 billion.

      With market conditions unlikely to pick up in fiscal 2001, NKK is planning to boost orders and secure earnings by marketing innovative products, such as the Direct Iron-Ore Smelting reduction process (DIOS), ECOARC--an ECOlogically friendly and ECOnomical Arc Furnace, and the Endless Bar Rolling System (EBROS), thereby distinguishing itself from competitors.


 

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Test plant for ECOARC
(Toyama Prefecture)

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Steel Structures and Machinery Systems

      This segment performed poorly owing to a decrease in bridge beam sales. Most large-scale public works-related orders are near completion and municipal governments continue to suffer financially. To improve cost-competitiveness and performance, NKK spun off its main steel structure plant, Shimizu Works, and sold landholdings to reduce assets.

      In machinery system operations, the Company strengthened its engineering capabilities by combining hardware and software for physical distribution facilities.

      This effort included engineering a distribution system featuring a state-of-the-art management system that allows users to ship food, beverages or daily goods in response to factory operating conditions and customer orders. It also boosted its cost performance for parking systems, cargo handling equipment, shield tunneling machines and marine diesel engines.

      Reflecting these factors, orders declined 23.0%, to ¥72.2 billion, and sales increased 8.1%, to ¥96.1 billion.


 

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NKK was instrumental in the construction of
the Akinada Ohashi Bridge

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Tenri Distribution Center

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Underground mechanical parking system
"NKK SUPER DASH PARK"
(Yokohama City University Medical Center)

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Shipbuilding and Offshore Structures

      Domestic competitors in the Shipbuilding and Offshore Structures segment continued to see orders fall, however, NKK exceeded projections and recorded a 7.9% increase in orders, to ¥61.5 billion. The Company's MX series of bulk carriers and oil tankers are highly evaluated worldwide. During the period, NKK received orders for eight cape-size bulk carriers (172,000 DWT), bringing total orders to 30 ships since 1995. This sales record for a single ship series is unrivaled and illustrates the popularity of these carriers. The Company launched the next-generation cape-size bulk carrier (176,000 DWT) in winter 1999, and subsequently received three orders in the first three months in 2000. NKK is actively promoting sales of its next-generation cape-size bulk carriers to ensure that the series becomes as popular as its predecessor. In addition, NKK received an order for a Suezmax Tanker, which is so named because it can pass through the Suez Canal. This was the seventh order NKK has received for this type of tanker since 1996. Domestically, NKK is the chief manufacturer of Suezmax Tankers. Fiscal 2000 sales in this segment climbed 34.7%, to ¥82.4 billion.

      In May 2000, NKK began negotiations with Hitachi Zosen Corp. to form an alliance, as both companies maintain the same management concepts concerning cost reduction and recognize the potential benefits of joint support.


 

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Malaviya Ten, a 160-ton BP anchor handler

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Sifnos -- a 150,000 DWT oil tanker


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