To Our Shareholders

During the first half of fiscal 1996, ended September 30,
1996, an improvement in the Japanese economy was sup-
ported by a correction in the value of the high yen and 
the positive effects of such government economic stimu-
lus measures as low interest rates and increased public 
works spending. Nevertheless, the overall economy lacked 
vigor, and a full-scale recovery failed to materialize. 
　Under these conditions, Kobe Steel, Ltd., concentrated 
on maximizing sales volume while vigorously imple-
menting its 1995-1997 Management Plan aimed at 
strengthening the profitability of its businesses. 
Accordingly, we worked to lower production costs, ratio-
nalized the workforce, and reduced total assets. As a 
result, we achieved the overall cost-reduction goals of 
the plan ahead of schedule.
　Interim net sales were \551.2 billion, approximately 
the same as in the first half of fiscal 1995, while opera-
ting income fell 19.7%, to \37.8 billion, owing to a 
decline in steel prices and a decline in the profitability of 
the Engineering and Machinery Division. Net income for 
the first half of the fiscal year amounted to \13.6 billion. 
As a result, Kobe Steel was able to reduce its undisposed 
deficit at the end of the interim period to \2.7 billion, 
from the retained deficit of \16.3 billion at the end of fis-
cal 1995.
　In view of the preceding factors, management has 
decided to forgo the payment of interim dividends. We 
regret having to take this measure and hope that our 
shareholders understand this decision. 


Performance by Sector
Sales in the Iron and Steel Sector improved 1.4% from 
the first half of the previous fiscal year, to \244.7 billion. 
In the domestic market, housing starts were firm, and 
manufacturing industries began to recover, particularly 
the automotive industry. The overall market, however, 
remained sluggish as the pace of inventory adjustments 
was slow. Overseas, exports to China decreased sharply. 
In this environment, we stepped up our marketing efforts 
and maintained the same sales volume of steel as that of 
the first half of the previous fiscal year. We achieved an 
increase in orders for steel castings and forgings and tita-
nium products from the first half of the previous fiscal 
year. In welding materials, sales decreased in comparison 
with the same period of fiscal 1995, as exports fell and 
users continued to relocate their manufacturing bases 
overseas. 
　Sales in the Aluminum and Copper Sector declined 
3.4% from the first half of the previous fiscal year, to 
\134.0 billion. Shipments of rolled aluminum products 
were firm, owing to steady sales of aluminum can stock 
for beverage cans and aluminum substrates for computer 
memory disks. On the other hand, the overall sales volume 
of rolled copper products declined due to lackluster sales 
of copper sheets for electronic applications. 
　Sales in the Machinery and Information Sector 
rose 1.5%, to \172.5 billion. In the domestic market, 
industrial machinery and plant orders declined due to 
a slow recovery in private-sector capital investment. 
Nevertheless, favorable orders for large-scale plant pro-
jects and construction machinery from overseas under-
pinned a 1.2% increase in orders from the same period in 
the previous fiscal year, to \168.7 billion.  


Outlook for the Second Half
In the second half of the fiscal year, a rapid recovery of 
the domestic economy appears unlikely, and a difficult 
management environment is expected to persist. Against 
this background, Kobe Steel intends to step up efforts to 
maximize sales volume while progressing with measures 
to strengthen the profitability of its businesses and striv-
ing for the rapid elimination of its retained deficit. Also, 
to respond to the significant changes in Japan's industri-
al structure, we are working to quickly formulate the 
1997-1999 Midterm Management Plan. This plan will 
serve as a basic guideline as we strive to enhance prof-
itability by fortifying the international competitiveness 
of our existing businesses; establish and cultivate busi-
nesses in promising new sectors as well as in fields in 
which we excel; and achieve further growth and prof-
itability of the entire Kobe Steel Group. Through the 
implementation of this plan, we aim to establish a solid 
corporate structure that will ensure stable profits in each 
business sector for the 21st century. 
　In July, we submitted a tender to supply electricity to 
The Kansai Electric Power Co., Inc., and were selected as 
a potential supplier in October. We plan to construct a 
700,000kW, coal-fired generator at our Kobe Works and 
to use recycled heat from coke dry quenching equipment 
that will be installed at our Kakogawa Works to generate 
another 58,000kW. In the second half of fiscal 1996, we 
intend to work out the details of the project and form a 
contract. Through this and other projects, we aim to 
contribute to the reconstruction and growth of industry 
in the Kobe area.
　As we pursue these objectives, we offer our thanks to 
you, our shareholders, for your continued support.

December 1996



Masahiro Kumamoto
President and
Chief Executive Officer