NKK Suffers Sales Drop and Loss Amid Economic Slump
The Japanese economy suffered its second consecutive year of negative growth in fiscal 1998, which ended March 31, 1999. Private sector demand was down due to low consumer spending and capital investment, and the situation was further worsened by asset deflation, instability in the financial system and low corporate earnings. Amid this difficult situation, NKK's net sales for fiscal 1998 fell 9% from the previous year to ¥1,013.6 billion (US$8,408 million at the March 31 exchange rate of ¥120.55 to the dollar). The twin decline in profits in the steel and engineering divisions resulted in a ¥27.7 billion (US$230 million) loss before special credits and special charges. The company posted a net loss of ¥50.3 billion (US$417 million) after deferred tax credits. Steel Division sales, 65% of the company's total, dropped 10% to ¥658.1 billion (US$5,459 million), reflecting a decline in the market demand for steel products. The division's operating income decreased significantly from the preceding year to ¥2.2 billion (US$18 million). Although comprehensive costreduction efforts were made to achieve further savings of energy and resources, as well as reduce the workforce, these measures were not enough to offset decreases in selling prices and shipping levels. Faced with weak demand, NKK's crude steel production in fiscal 1998 fell 6% to 10.44 million tons. Sales in the Engineering Division dropped 7% to ¥355.4 billion (US$2,948 million) due to reductions in overseas and large-scale projects. Of the total, plant engineering and construction accounted for ¥212.4 billion (US$1,762 million) and ship-building and offshore structures for ¥143.0 billion (US$1,186 million). Major sales during fiscal 1998 included urban gas pipelines, municipal waste disposal plants and oil tankers. Despite continuing cost-reduction efforts, an operating loss of ¥4.6 billion (US$38 million) was incurred as a result of reduced profitability due to decreased sales prices. New orders received by the Engineering Division came to ¥353.7 billion (US$2,934 million), a slight increase over the year before. The total order backlog at fiscal year-end was ¥425.1 billion (US$3,526 million), down slightly from the end of the previous year. The overall deterioration of business resulted in a deficit in retained earnings. Therefore, NKK decided not to pay a dividend for the fiscal year. Although the Japanese economy is expected to bottom out sometime in fiscal 1999, low corporate earnings and weak employment conditions will inhibit the speed of recovery in the private sectorled economy. NKK is determined to overcome this business environment by taking decisive restructuring measures that include withdrawing from unprofitable businesses and spinning-off selected opera-tions. The company is also redoubling efforts to reduce fixed costs by reducing its workforce by 3,900 by the end of fiscal 1999, thereby trimming labor costs, and will lower depreciation charges through more selective capital investment. |
