Fiscal 1997 Sales and Profits Dip Amid Economic Slump

In fiscal 1997, ended March 31, 1998, the Japanese economy continued to stagnate, affected by a decline in consumer spending and housing investment partly as a result of the hike in the national consumption tax in April 1997 and general financial instability. The business environment was further troubled by the financial difficulties in many Asian countries. As a result, the Japanese economy experienced its first negative growth in the 23 years since the first oil crisis in 1974.

Reflecting this harsh business climate, NKK's net sales for fiscal 1997 fell6% from the previous year to ¥1,112.0 billion (US$8,418 million at the March31 exchange rate of ¥132.10 to the dollar). Income before special credits an d special charges decreased to ¥29.9 billion (US$226 million), as a decline in earnings in the Engineering Division outweighed the reduction in net financing costs. Net income was also held down by 32% to ¥11.1 billion (US$84 million) affected by losses from a blast-furnace outage at the Keihin Works.

Steel Division sales, 65% of the company's total, came to ¥728.2 billion (US$5,512 million), approximately the same level as the previous year. The division's operating income also remained flat, largely as a result of comprehensive cost-cutting efforts and despite losses from the blast-furnace outage.NKK's crude steel production in fiscal 1997 increased 3% to 11.06 million tons reflecting strong demand in export markets despite the fall in domestic shipments.

Sales in the Engineering Division dropped 17% from the previous year to ¥383.8 billion (US$2,905 million) due to the decreasing number of large-scale projects. Of the total, plant engineering and construction accounted for ¥218.1 billion (US$1,651 million) and shipbuilding and offshore structures for ¥165.7 billion (US$1,254 million). Major sales during fiscal 1997 included urban gas pipelines and municipal waste disposal plants in Japan, and thirteen ships including tankers and bulk carriers. Hit by cutbacks in public works projects and the deterioration of the domestic market, the division saw a substantial fall in operating income, despite vigorous efforts to reduce costs.

New orders received by the Engineering Division dropped slightly from fiscal1996 to ¥346.6 billion (US$2,624 million). Included in the orders are a municipal waste disposal plant in Japan, steelmaking facilities in Egypt and twelve ships. The total order backlog at fiscal year-end was ¥426.9 billion (US$3,232 million), a slight drop from the end of the previous year.

For the future, the Japanese economy is likely to remain depressed despite the government's latest economic stimulus package. Amid this tough operating environment, NKK aims to make a concerted effort to further improve its profitability and operational strength, including the rearrangement of certain business sectors.