In fiscal 1995, ended March 31, 1996, the Japanese 
economy showed signs of recovery during the second 
half of the period, due mainly to a correction in the 
overvaluation of the yen, reductions in the official 
discount rate, and growth in public spending that 
was buoyed by the government's implementation of 
economic stimulus measures. Nevertheless, the 
Japanese economy remained sluggish overall because 
of the exceedingly sharp strengthening of the yen at 
the beginning of the fiscal year and the effects of a 
decelerating U.S. economy. 
  Under these conditions, we endeavored to quickly 
restore operations damaged by the Great Hanshin 
Earthquake. Also, to improve profitability and 
strengthen our competitiveness, we strove to attain 
the objectives of our adjusted 1993-1995 Revised 
Midterm Action Plan during the plan's final year. 
Each of our divisions made concerted efforts to 
achieve the highest levels of orders and sales while 
we implemented thorough measures to lower 
production costs, rationalize the work force, curtail 
capital investments, and prune business expenses. By 
taking these steps, we significantly surpassed the 
initial objectives of our action plan.  
  During the year under review, production and 
sales volume in the Iron and Steel Sector recovered 
along with the restoration of operations following the 
Great Hanshin Earthquake. We also registered higher 
revenues in the Aluminum and Copper Sector and 
the Machinery and Information Sector. As a result, 
non-consolidated net sales were ￥1,146.4 billion, a 
7.6% increase from the previous fiscal year, and 
operating income was ￥100.0 billion. We recorded net 
income of ￥69.3 billion in fiscal 1995. However, 
because an undisposed deficit of ￥86.4 billion was 
recorded in the previous fiscal year, we posted an 
undisposed deficit of ￥16.4 billion for the year under 
review. 
  After taking these factors into consideration, the 
proposal to forgo year-end dividend payments was 
approved at the general meeting of shareholders. We 
sincerely regret having to take this measure after 
suspending the payment of interim dividends and 
hope that shareholders will understand this decision. 
  On a more positive note, during the period under 
review we achieved significant progress in enhancing 
our profitability and implemented measures aimed at 
speeding up the decision-making process and 
establishing an optimal operating structure in our 
principal business sectors. As part of these efforts, to 
attain what we call a "small head office," we 
consolidated or eliminated a number of departments 
and abolished certain sections. Moreover, to fortify 
the business operating structures within each product 
category in the Iron and Steel Division, we 
reorganized this division by establishing a system for 
integrated manufacturing and marketing within 
separate groups for steel castings and forgings, 
titanium, steel powder, and tubes and pipes. In our 
tube and pipe and cutting tool businesses, two wholly 
owned subsidiaries—Kobe Special Tube Co. Ltd., and 
Shinko Kobelco Tool Co. Ltd.—were established in 
January 1996. The establishment of these companies 
was in line with efforts to fortify the management 
foundation in the specialty steel tube and pipe and 
cutting tool businesses and to carry out independent 
operations better suited to the nature and scale of 
these businesses. Both companies commenced 
operations in April 1996. 
  The Kobe Steel Group recorded net sales of 
￥1,477.0 billion, a 10.6% increase from the previous 
fiscal year. This gain was primarily the result of 
growth in revenues in aluminum and copper and 
electronics and information-related businesses. At the 
profit level, the Kobe Steel Group posted net income 
of ￥90.3 billion, due to a rise in income by Kobe Steel 
that resulted from the restoration of operations 
following the Great Hanshin Earthquake, the effects 
of stringent measures to cut overall costs, and a gain 
on the sale of assets. Other factors supporting the rise 
in consolidated net income included overall favorable 
results by consolidated subsidiaries, primarily those 
in semiconductor-related businesses and in the 
United States.  

Looking Ahead
The Japanese economy is expected to stage a mild 
recovery thanks to the correction in the overvaluation 
of the yen and the positive effects of the government's 
economic stimulus measures. Nevertheless, the harsh 
operating environment is likely to persist due to the 
ongoing shift to overseas production by principal 
users despite the weakening of the yen. 
  Amid this environment, we are implementing our 
1995-1997 Management Plan, under which we are 
aiming to rapidly eliminate our retained deficit. To 
attain this objective, we are placing top priority on 
strengthening our profitability by continuing to 
implement measures that include further lowering 
production costs, rationalizing the work force, and 
reducing total assets. Also, with the expected full-
fledged emergence of earthquake reconstruction 
demand, our aim is to maximize sales volume while 
making additional efforts to fortify our profit structure 
and management organization. In response to 
changes in the global business environment, we 
intend to increase overseas procurement and work to 
expand, upgrade, and more effectively utilize our 
overseas production bases. 
  The Kobe Steel Group will also continue to make 
efforts to further improve its performance. 
  As always, we sincerely thank you, our 
shareholders, for your cooperation and hope that you 
will continue to support our efforts.

  August 1996

  

  Masahiro Kumamoto
  President and
  Chief Executive Officer