NKK Corporation announced today its medium-term group business plan incorporating specific targets for the period of fiscal years 2000 to 2002.

NKK has faced a difficult business environment since the Asian financial crisis erupted in 1997 and Japan's financial industry ran up against serious problems. In response to these challenges, NKK began promptly and resolutely to restructure its earnings base. Making each division responsible for its own results, the company has moved out of unprofitable businesses, reorganized steel bars and shapes operations within the group, reduced costs wherever possible, and revamped corporate structure by spinning off selected operations to improve operational flexibility.

NKK's earnings capability has steadily improved as a result of restructuring and profit recovery. The company's sharply improved financial performance in fiscal 1999 is expected to result in income before special credits and special charges of ¥23 billion, which exceeds the company's initial target. Also, outstanding debt is estimated to fall below ¥1 trillion.

The company has witnessed a number of important changes in its operating environment, including widespread global standardization. The adoption of international accounting standards for assessing companies on a group, rather than a parent company only, basis, consolidation of companies in the financial sector and among our customer base, and an increasingly global perspective in procurement are trends which have significantly changed the business landscape and intensified competition. Accordingly, some steel producers are forging product-based alliances.

The NKK group has and will continue to take full stock of these changes and trends. While fulfilling its unchanging primary mission of increasing the value of the company and earning the confidence of capital markets, the group looks forward to successfully coexisting and strengthening mutually prosperous relationships with its customers, local communities, and employees.

The NKK group will harness all available resources and continuously carry out self-initiated reforms to become a more powerful corporate group and to grow into the future. Toward this end, the company has formulated a three-year medium-term business plan, the first company plan for the group as a whole.

The core objectives of the plan are as follows:

1. The main objective is to improve the company's consolidated financial performance. Clear, consolidated financial objectives will be established for making full use of the strong business foundation achieved through restructuring. The aim is to establish one of the strongest earnings structures in Japan's manufacturing sector and achieve one of the best financial positions in the steel industry. The group will mobilize all available resources to achieve these objectives.
   
   
2. By focusing its core competencies on promising areas of growth, the NKK group will pursue an aggressive growth strategy to stay ahead of its competitors. Core growth strategies will focus on market needs and center on a global steel strategy and the environment solutions business.
   
   
3. The NKK group will strengthen its technology to enhance its competitiveness. The Research and Development Division will be positioned as the group's comprehensive R&D center to develop technologies that strengthen the group's overall earnings capability. It will aggressively incorporate information technologies to revamp networks and business processes, and reinforce group-wide support structures.
   
   
4. Sales will be strengthened in all business areas by building on our overall �ecustomer focus'. To gain the competitive edge and in light of fundamental changes in the sales environment, the group aims to promptly understand the needs of customers, fully leverage its technological and sales expertise to develop, manufacture, and market products, and provide services that truly satisfy customers' requirements.
   
   
5. Reforms of management and revisions in employee evaluations to reflect performance will be implemented. NKK group personnel from the top down are committed to working together to build corporate culture so as to become a more competitive, powerful corporate group.
   
   

The primary objective of the medium-term plan is to improve the company's financial position on a consolidated basis and promptly improve its evaluation in the capital markets.

The company expects to achieve its targets for fiscal 1999. For fiscal 2000, the most urgent task, which the group is now striving to accomplish, will be to increase earnings over the previous year.

For the period of fiscal years 2000 to 2002, the NKK group aims to attain the financial objectives shown below to improve its financial position, earnings structure and evaluation in the capital markets.

To achieve the financial targets, each business division will be required to formulate its own annual plan incorporating all affiliated subsidiaries. Each division will then execute its group business management by drawing on its unique strengths and features.

The NKK group will use ROA and free cash flow, determined to be appropriate indicators of financial performance in light of the group's financial goals to reduce debt and make maximum use of available assets, as yardsticks to evaluate results.

As shown in the table, the targets are a minimum ROA of 5.5% and a free cash flow of ¥400 billion over three years on a consolidated basis. The goal is to reduce outstanding debt from ¥1.6 trillion as of the end of fiscal 1999 to ¥1.2 trillion by the end of 2002.

Financial Targets

  *1 ROA = recurring income before interest expense/ total assets
  *2 Free cash flow includes proceeds from the sale of assets.

II. Business Plan

A. Business Measures

  1. Steel Business

Domestic demand is declining because of structural changes in the industry itself and in the economy as a whole. However, global demand is on the rise, particularly in East Asia. With the worldwide supply for steel remaining tight because of limited capacity in upstream processes, NKK will fully mobilize its sales force and make maximum use of the company's established domestic and overseas sales capabilities and meet the increasing demand.

1. NKK has nearly completed the restructuring of its steel division through a series of measures implemented over the past two years, and intends to fully leverage the strengthened foundation of its steel business for maximized earnings.
   
   
2. The company's steel division will enhance its overall competitive edge by strengthening ties with domestic and overseas group companies within the consolidated business division.
   
   
3. The company will strengthen operations at its Keihin Works and Fukuyama Works, and make the most of their strengths and capabilities. The Keihin Works is cutting costs as thoroughly as possible by operating at a fixed production level. In collaboration with its specialized subsidiaries and taking advantage of its proximity to sources of demand, the works is increasing its stream of stable revenues. The Fukuyama Works will further boost its cost competitiveness, already one of the highest levels in the world, and continue to secure the facility's position as a core generator of earnings. In addition, the works will supply semi-finished products to group companies in Japan and overseas.
   
   
4. Sales activities, supported by the company's technological strengths, will focus on customers' needs and respond to the increasingly fluid conditions in their industries, as well as the latest trends seen among competitors. Manufacturing, sales and marketing activities, and technological development will be undertaken in concert from the viewpoint of �ecustomer focus'.
   
   

  2. Engineering Business

1. NKK is aiming to thoroughly cut costs, including indirect costs, throughout the entire group, make its products more competitive, and establish a streamlined, powerful business structure.
   
   
2. The company already has a track record spanning 40 years of experience in environmental businesses, ranging from waste incineration to water supply and waste water treatment systems, and is one of the top suppliers of environmental plants to municipalities across the country. Given the expectations for growth in this field, the company's existing environmental business will be combined with environment solutions (see III-2) to provide everything from consulting and plant construction to operation and maintenance. Business will be proposal-driven and customer-focused.
   
   
3. Each division will be made into a distinct business unit, and a group-oriented focus will be strongly promoted at all levels, including planning, design, procurement, and installation, in an effort to maximize consolidated earnings.
   
   
4. NKK has been steadily building a new structure that takes into account the competitive conditions of each business group, and it will further strengthen this foundation by, among other measures, focusing on profitable operations.
   
   

  3. Other Businesses

1. Urban Development Business
   The company will continue to carry out projects for the development of large, company-owned lands, including Shin-Koyasu and the former Asano Dockyard site. Earnings from condominium development will be increased.
   
   
2. LSI Business
   The company will focus its efforts on logic chips and outsource all production to chip foundries. Network related business will be established on a steady business course by integrating group-wide technologies and providing system design services.
   
   
3. New Business Center
   Integrated waste plastics recycling systems for blast furnace feed, which the company pioneered, will process a combined 120,000 tons of waste plastics at the Keihin and Fukuyama works in fiscal 2000. New core businesses will include the recycling of shredder dust, vinyl chloride, and construction waste materials.
   
   

B. Group-Wide Measures

1. Personnel Plans
   In order to enhance its international cost competitiveness, NKK will improve labor productivity by continuing to reduce its workforce in Japan on a group basis by 12%, from 33,000 at the end of fiscal 1999 to 29,000 by the end of fiscal 2002.
   
   
2. Reduction of Total Assets
   The company's consolidated financial condition will be improved by fully utilizing group assets and reducing total assets through sales of real estate, securities, and receivables.
   
   
3. Funding
   The procurement of group funds will be optimized by centralizing funding policies and managing funds on a group basis. The company will fully utilize the group's financing arm, NKK Credit Corporation, to consolidate information on the group's operating assets and liabilities. In addition, a cash management system will be used on an increased basis to raise the efficiency of settlement operations and minimize holdings of cash and deposits.
   
   
4. Restructuring and Strengthening Group Businesses
   
   
   1. NKK will look at further optimizing the structure of business units for distribution, property management, etc. in the group and further strengthen overall group management, covering all businesses in Japan and abroad.
      
      
   2. Opportunities to strengthen the group's business base through cooperation and alliances, such as that established with the Techint group for seamless pipe operations, will be explored.
      
      

The NKK group has developed core competencies over many years of experience in steel and engineering. By fully leveraging these competitive advantages at home and abroad in markets with strong growth prospects, the NKK group aims to fortify its foundation for growth in the 21st century. The group will take advantage of its strengths by vigorously pursuing its steel business on a global scale and its environmental solutions business. The company is also considering all facets of the feasibility of commercializing dimethyl ether, another core technology, as a new generation energy source.

  1. Global Strategy for Steel Business

The NKK group has a global crude steel output capacity of 20 million tons a year, making it the fifth largest steel group in the world. Its main markets are the large domestic and North American markets, and the promising growth markets of Asia. NKK will further strengthen its ties to group companies outside Japan in response to global consolidation in the auto industry and other major user industries. The company will aggressively implement a global-scale growth strategy that goes beyond mere vertical division of work across borders to take advantage of its global competitiveness.

1. The sources of the NKK group's global competitiveness are the leading cost-performance of the Fukuyama Works (low cost and high quality) and sales and technical strengths in steel sheets. The company will establish a global supply structure for user industries, particularly the auto industry, centering on the supply of semi-finished products from the Fukuyama Works to group companies in North America and Asia.
   
   
2. With the U.S. implementing protectionist trade policies that exclude the import of steel products, the NKK group has an advantage over its Japanese competitors in that it is the only one with a major integrated production facility in North America. This group subsidiary, National Steel Corporation, is competitive in the value-added production of steel for autos and construction. It has been steadily boosting its reputation with a strong record of supplying steel to Big Three and Japanese auto makers. National Steel aims to sell seven million net tons of steel to the auto, construction, and other industries over the medium term.
   
   
3. Asia is a growth center for steel. Thai Cold-Rolled Steel Sheet Public Co., Ltd., NKK's joint venture, aims to sell 800,000 tons of steel sheet and Thai Coated Steel Sheet Co., Ltd., another joint venture, 150,000 tons. Both companies are expected to return to profitability soon. Also, NKK will supply Sahaviriya Steel Industries Public Co., Ltd. with slabs from its Fukuyama Works starting in 2000. These combined moves will help to strengthen the competitiveness of NKK's steel sheet operations in Thailand.
   
   
4. NKK will strengthen mutually beneficial relationship with the Techint group, its partner in the seamless pipe business, including the use of the Techint group's worldwide network.
   
   

The NKK group's global crude steel capacity of 20 million tons includes:

  2. Development of Environmental Solutions Business

The NKK group, a leader in environmentally oriented technology, will take advantage of the synergy between its steel and engineering businesses to develop environmental solutions that provide customers with comprehensive answers to their environmental and eco-energy needs.

Addressing environmental issues and managing companies from an environmentally sensitive perspective have become major socioeconomic concerns. Pressure is mounting worldwide for increased recycling, energy conservation and the wise use of resources.

The NKK group's two major business divisions are strategically positioned in the fast-growing field of environmental business. The steel division has key technology for steelworks infrastructure, high-temperature combustion, and integrated waste plastics recycling for blast furnace feed (an industry first). The engineering division has leading technologies for incineration, water treatment and eco-energy, such as wind-powered generation. In addition, NKK's existing network spanning municipalities nationwide gives it a major advantage over domestic competitors for developing its environmental solutions market.

The environmental solutions business envisioned by the NKK group is as follows:

1. The group will propose solutions for resource recycling and other areas to local municipalities and companies, and also participate in the privatization of public works projects to help create a recycling-oriented society.
   
   
2. In response to customers' needs, the group will increase the added value of its products and develop environmental solutions. This will involve sales of hardware and thereby help to increase orders for the group. In addition, the group will provide services to support environmental management and promote clean-up operations.
   
   
3. To respond immediately to the wide range of needs in the market, the group will use information technology to provide environmental information and stress proposal-based sales by integrating products and services. In addition, the company will create an intra-group network for environmental information to support information sharing and business development within the group.
   
   

An environmental solutions center will be established to facilitate and expand the group's broad range of environmental businesses and serve as the group headquarters for these businesses.

The NKK group's environmental business is projected to grow from ¥120 billion at present to ¥200 billion in fiscal 2002 and ¥300 billion in the medium to long term.

  3. Future Strategy for Dimethyl Ether, a New Generation Energy

In light of concerns about stable supplies of and growing demand for energy, coupled with environmental considerations, NKK has developed core technology for the low-cost mass production of dimethyl ether (DME), a clean fuel, from coal or coal-bed methane.

DME is expected to be available as a commercial fuel in the early part of the 21st century, and is likely to be used as a fuel for transportation, power generation, consumer use, and other applications. DME is also expected to help substantially reduce the impact of energy consumption on the environment and contribute to a more stable supply of energy sources worldwide.

NKK will look into all aspects of commercializing DME, including plant construction, manufacturing, sales, storage, transportation, and power generation.

Advantages of DME:

  1. Technology Development

1. The Research and Development Division will be positioned as the group's comprehensive R&D center to develop technologies that strengthen the group's overall earnings capability.
   
   
2. Upstream technologies will be enhanced for the stable production of large quantities of high-quality, low-cost semi-finished products for global steel markets. In addition, the group will focus on auto products and proprietary products highly tailored to customer needs.
   
   
3. Technological capabilities for environmental engineering products will be strengthened to meet market needs.
   
   
4. A customer area manager for each major market will be appointed in the Research and Development Division to strengthen relations with customers and respond promptly to their needs beginning from the development stage.
   
   

  2. Increased Use of IT Networks

1. Information technology (IT), particularly the Internet, will be strategically used to develop e-commerce and other network-based business with customers.
   
   
2. NKK Net will be set up to support and strengthen management within the group.
   
   
3. NK-EXA Corporation, NKK's subsidiary, which enjoys an excellent reputation in the IT industry, will spearhead the group's networking business. By promptly adopting advanced information technology, the group aims to secure industry-leading growth and earnings potential in the IT field.
   
   

The NKK group, which stands at a historic turning point, must restructure its management system in order to win against intensifying competition. For two years, the company has been strengthening its management meetings by having selected top executives thoroughly discuss issues and implement measures, and has thereby been able to move to drastically restructure its businesses and reduce costs.

The company has fundamentally changed its group management system, emphasized consolidated results with NKK itself as the headquarters, and adopted a consolidated business division structure.

NKK intends to strengthen its consolidated business structure and its corporate governance. At the same time, responsibilities will be clarified at all administrative levels and a new performance-based personnel management system will be adopted.

1. Restructured Management
   
   A consolidated business division structure will be strengthened to enhance group-wide management capabilities and to clarify the responsibilities for each business. The board of directors will be restructured in several ways, including a reduction in the number of directors, so as to strengthen the group's overall management decision-making and the board's functions of supervising and auditing operations. In addition, a corporate officer system will be introduced and authority will be delegated along operational lines to make operations more efficient and improve performance of each business unit.
   
   
2. Result-oriented Management
   
   As a system for assessing organizational results, a division consolidated annual planning system will be adopted, and starting in fiscal 2000, systems for assessing group-wide results using ROA and free cash flow and for accountability will be put in place.
   
   
3. New Personnel Management System
   
   Organizations as well as individuals will be evaluated based on annual results in each fiscal year. Employees will be notified of their evaluations, which will be directly linked to their remuneration. For personnel who achieve consistently exceptional results, early promotions can be made.

By implementing restructured management, result-oriented management, and a new personnel management system, a sequence of planning, execution, and assessment will be established. The NKK group aims to respond much more aggressively and become a powerful corporate group with a competitive corporate culture.

With competition among companies set to intensify, the NKK group's mission is to continue enhancing the group's intrinsic value in society in the 21st century.