NKK CORPORATION: Annual Report 2002
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The difficult conditions of the recent past persisted in fiscal 2002, with intense competition for public and private engineering projects. On a consolidated basis, the value of orders taken in the year ended March 31, 2002, reached ¥438.6 billion, down 13.8% from a year earlier, but total sales for the year edged up 0.4%, to ¥450.9 billion. Through concerted efforts to curb costs, the Engineering Division was able to record operating income of ¥20.6 billion, a 15.2% increase from fiscal 2001.
      Fast-paced changes in the market are pressing the engineering community to change like never before. NKK’s Engineering Division, however, is responding to this market environment with new products, a presence in new fields and a cost-competitive posture comparable to the international standard. Broader-based operations in successful directions will underpin stable growth.
      The new company that will be formed by the October 2002 integration of NKK and Kawasaki Steel will inherit the solid marketing foundations and sophisticated technologies of both companies. Utilizing these tools of business, the Engineering Division will strive to become one of the world’s most competitive providers of engineering systems and services.

    Billions of yen
Sales by Business Area   2002   2001
Energy Industries Engineering . . . . . . . . . . . . . . . . . . . . . . . . . . . .   ¥70.9     ¥67.6  
Environmental Industries Engineering. . . . . . . . . . . . . . . . . . . . . .   175.6     150.4  
Plant Engineering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   13.2     18.7  
Steel Structures and Machinery Systems. . .. . . . . . . . . . . . . . . . .   83.2     75.2  
Shipbuilding and Offshore Structures. . . . . . . . . . . . . . . . . . . . . . .   61.0     50.8  
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .   47.0     86.4  

    Billions of yen
Orders by Business Area   2002   2001
Energy Industries Engineering . . . . . . . . . . . . . . . . . . . . . . . . . . . .   ¥70.2     ¥72.9  
Environmental Industries Engineering . . . . . . . . . . . . . . . . . . . . . .   150.2     176.0  
Plant Engineering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   15.2     11.3  
Steel Structures and Machinery Systems. . . . . . . . . . . . . . . . . . . .   82.3     82.1  
Shipbuilding and Offshore Structures . . . . . . . . . . . . . . . . . . . . . .   77.5     112.0  
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   43.2     54.6  

Energy Industries Engineering

 
  Ceiling of the 200,000-kiloliter LNG
inground tank at the Ogishima Works
of Tokyo Gas Co., Ltd.
Notable developments in the fiscal 2002 energy industries engineering market included greater participation in natural gas supply projects initiated by members of the power and petroleum industries, a situation spurred by deregulation measures implemented by the government over the past few yeas. Investment in pipeline construction was brisk.

      Demand was also up on projects to upgrade or newly construct bases for LNG and LPG terminals. Power companies earmarked more funds for expansion of facilities at existing LNG terminals, while national LPG storage terminal projects, aimed at securing stocks of 1.5 million tons of LPG by fiscal 2010, moved into full swing and generated requests for construction of new terminals.

      Against this operating backdrop, NKK pursued the needs of its clients, promoted new businesses and improved the competitiveness of its products through prudent cost-cutting. The Corporation’s objectives were higher profits and a larger market share.

      Hard work yielded rewards. We retained the top share in the domestic market for city gas pipeline systems and reinforced our presence in projects for the engineering and construction of pipelines and LNG terminals. Through our ties with Chiyoda Corporation, we also obtained a joint order for an LPG terminal construction project.

      In recent years, heightened interest in environmental protection and the conservation of natural resources has elicited a noticeable increase in demand for, and the conversion to, clean and abundant energy sources. To these ends, many companies are rationalizing their energy transmission and distribution systems. NKK further substantiated its position in this business environment in fiscal 2002 with several key orders, including pipeline construction for the Kawasaki Renaissance Plan as well as a natural gas processing plant at Yufutsu, Hokkaido.

      For fiscal 2003, the energy industries engineering segment will continue to fine-tune its efforts to market demand and thereby derive orders for natural gas storage and distribution projects and boost profits. In addition, we will introduce new products into such areas as natural gas utilization and new-energy fields to broaden our business scope.
 

 
Environmental Industries Engineering

 
  Waste gasifying and
direct melting furnace
test plant
This segment seeks to address waste problems by promoting the three “Rs”—reduce, reuse and recycle—and undertakes various other environment-related projects, including waste-treatment plants and facilities to reduce dioxin emissions. In the area of waste-treatment plants in particular, NKK has a vast reservoir of experience. The Corporation has been involved in the construction of waste treatment and recycling plants at more than 120 locations in Japan.

      In fiscal 2002, the number of orders received for new household waste incineration facilities in Japan decreased from about 12,000 tons as of March 31, 2001, to just under 4,000 tons as of March 31, 2002. This volume drop is due to the fact that initial demand, prompted by enforcement of tough dioxin emission standards in December 2002, has run full-circle.

      Despite prevailing market challenges in fiscal 2002, NKK won orders for one gasifying and direct melting furnace and three stoker-type incinerators. The Corporation preserved its lead in order volume as well as order value, firmly reinforcing its position as the No. 1 maker of waste-processing facilities in Japan.

      We also logged orders for dismantling existing incinerators and installing refuse-derived fuel (RDF) production plants, waste sorting and recycling systems and equipment to control dioxin emissions from incinerators.

      In fiscal 2003, the environmental industries engineering segment will channel its efforts toward expanding its share of the market. The segment will continue to meet demand by drawing on the products and other strengths of the entire NKK Group. It will also complement generally accessible Group capabilities with wider sales of high-temperature gasifying and direct melting furnaces and the timely introduction of next-generation stoker-type incinerators. NKK anticipates rising demand for the dismantling of old incinerators—a new business area for the Corporation—and will strive to acquire additional project orders.

      In water-related engineering, growing demand for advanced waterworks processing technologies parallels an increase in minor repair and major restoration projects on existing pipes as well as heightened interest in protecting the environment.

      NKK has introduced innovative reconstruction methods that have little negative impact on the surrounding landscape and ecosystems. The Corporation maintains an assortment of excellent waterworks technologies and equipment, including a U-tube ozone reactor system and the Bio-Tube system. In fiscal 2002, we recorded orders for these and other systems from a number of regional authorities.

      Regional authorities also placed orders for our next-generation settling basin, the Dyna Mixer Jr., and other sewage-treatment facilities.

      We expect considerable demand for renovation of existing facilities and for advanced processing technologies and are already working on new products that will quickly and accurately meet the diversifying needs of the market.

      In solution engineering, the establishment of carbon dioxide emission reduction targets by the government buoyed interest in our wind turbine power generator. A huge order from the Aoyama Kogen Wind Farm, situated on a particularly windy plateau in Mie Prefecture, boosted fiscal 2002 orders to 25, good enough for nearly 20% of the domestic market for wind power plants.

      Demand trends may lean toward larger wind turbine power generators in the future, and NKK will be ready to meet evolving needs with the appropriate equipment.

      Soil contamination has become a major environmental concern worldwide. In Japan, methods to reverse soil contamination will certainly warrant greater attention with promulgation of soil-cleanup legislation in January 2003. To capitalize on rising demand, NKK will utilize exclusive rights acquired from BioGenesis Enterprises Incorporated in 1999 for domestic application of the U.S. company’s high-performance soil-washing process in Japan. NKK has already been entrusted with more than 200 assessments.
 

 
Plant Engineering

 
  ECOARC test plant at
NKK MATERIAL CO. LTD’s
Toyama Works
The plant engineering segment has earned top marks from clients for its products, as it has synergistic advantages of both hardware, particularly an environmentally friendly electric arc furnace dubbed ECOARC, the Endless Bar Rolling System (EBROS) and high-value-added processing equipment; and software, notably steel consulting services based on actual experience at steelworks.

      In April 2001, the marketing divisions for steel plant engineering at NKK were consolidated with those of Sumitomo Heavy Industries and Hitachi Zosen and began anew as the joint venture JP Steel Plantech. NKK accounts for this company under the equity method. JP Steel Plantech is well positioned to secure orders with an integrated and extensive product lineup furnished by all three participating parents and solid marketing capabilities responsive to a wide range of client needs.

      Drawing on the synergies of fully integrated operations, JP Steel Plantech secured several orders in fiscal 2002, including one for a continuous pickling line installed in Taiwan. Capitalizing on a strong bond between steel consulting services and products, JP Steel Plantech also won an order for a nonoriented magnetic steel sheet production facility in Taiwan and an order for the retrofitting of a sintering machine in Brazil. In steel consulting services alone, NKK maintained orders from existing clients and attracted new clients in India and the People’s Republic of China (PRC) with excellent technologies, including methods for sintered steel production, hot metal pretreatment and rail formation.

      In fiscal 2003, NKK will seek to cement the foundation of its plant engineering business with more orders from existing clients and will utilize its ties to JP Steel Plantech to reach into Taiwan , the PRC, South Korea and other countries where the local steel market is poised for growth and responsive to the Corporation’s energetic marketing strategies.
 

 
Steel Structures and Machinery Systems

 
  Japan–Egypt Friendship
Bridge (Mubarak Peace
Bridge) over the Suez
Canal in Egypt
Aggregate domestic order volume for new steel bridges in fiscal 2002 reached 600,000 tons, down from 700,000 tons recorded in fiscal 2001. This resulted in stiffer price competition.

      In this tough operating environment, NKK worked to retain competitive superiority through cost-cutting while widening its share of the market with new products. These efforts prevented order value from falling below the previous year’s figure.

      Our goal to expand market share was executed through concerted cost-cutting measures at the Tsu Works, which is responsible for production of steel structures, and through the development of products geared to client requests for low-cost options.

      Major fiscal 2002 orders for machinery systems, such as diesel ship engines, container cranes and shield tunneling machines handled by the NKK Machinery Center, included a container crane for Island City, a project in Fukuoka; a large-diameter shield tunneling machine for a municipal subway line in Yokohama; and an 18PC 6V diesel ship engine for Meimon Taiyo Ferry Co., Ltd.

      NKK has strengthened its cost competitiveness by integrating all aspects of business related to steel structures and machinery systems, from technical schematics and fabrication to post-delivery services.
 

 
Shipbuilding and Offshore Structures

 
  Bulk carrier Kohyohsan with
ax-bow during a sea trial
NKK employs an MX strategy that facilitates predevelopment of products to match prevailing needs. Currently, MX series ships come in five types and seven shapes, including the extremely popular 172-type bulk carrier as well as the Malacca Max very large crude oil carrier and the Suezmax MX series tanker, the only one made in Japan. As of March 31, 2002, NKK has received orders for 76 ships and completed 52.

      The operating environment was challenging in fiscal 2002, but NKK won orders for 15 ships, including three Suezmax tankers, seven cape-size bulk carriers and several ships for government use. The Corporation delivered 10 ships, including seven cape-size bulk carriers.

      In October 2002, NKK and Hitachi Zosen will integrate respective shipbuilding operations under a new company, Universal Shipbuilding Corporation, which will be dedicated to shipbuilding. As the biggest shipbuilder in Japan, the new company will maximize the merits of scale to hone a sharp competitive edge.

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