We faced a tough operating environment last year. During fiscal 1999, ended March 31, 2000, the U.S. economy continued to expand and the economies of Europe posted steady growth. The Asian market, and Southeast Asia in particular, also grew favorably. In Japan, however, conditions continued to be severe. Although there were signs of modest improvement due to the government's economic policies and the general recovery in Southeast Asia---one of Japan's principal export markets--- private-sector demand was weak due to sluggish personal spending, restrained by deteriorating employment and income levels.

  Against this background, our consolidated net sales declined 4.1%, to1,252.5 billion yen, in fiscal 1999. Our Electronics and Information Sector posted an increase in sales, and Real Estate Sector sales also rose in the period under review. However, lower sales in the Iron and Steel Sector and the Aluminum and Copper Sector offset these gains. While operating income rose 65.3%, to 82.7 billion yen, restructuring costs, as well as expenses for pension and retirement benefits led to a consolidated net loss of 53.1 billion yen.

In the Iron and Steel Sector, domestic demand for steel decreased as private-sector demand remained stagnant. Overall, exports rose as shipments to Southeast Asia recovered considerably.

  Although shipments rose over the previous term, the product mix shifted to lower-end steels and sales prices remained weak. In addition, sales of steel castings and forgings, titanium products, and welding consumables were dampened by difficult market conditions.

  As a result, Iron and Steel Sector sales fell 4.8%, to 499.1 billion yen. However, operating income rose 11.2%, to 42.9 billion yen, thanks to an increase in steel shipments, rigorous restructuring, cost-cutting measures, and lower raw materials costs.

  In the Aluminum and Copper Sector, shipments of rolled aluminum products rose. Although aluminum can stock for soft drink containers was adversely affected by the increased use of small PET bottles, demand for foil and automobiles grew stronger, leading to the overall increase. Shipments of rolled copper products also rose, as sales of copper sheet for the semiconductor field and for terminals in automobile products gained ground. However, low export sales due to the strong yen and low yen-denominated ingot and cathode prices led to a decline in Aluminum and Copper Sector sales of 11.8%, to 251.5 billion yen. As a result of increased production and sales volume and lower costs, however, operating income increased 33.9%, to 10.2 billion yen.

  Sales in the Machinery Sector declined 4.9%, to 338.9 billion yen. Sales were affected by the downturn in overseas engineering contracts, although sales of construction equipment increased.

  Operating income in the Machinery Sector declined sharply, to 506 million yen, a 92.8% slide, as higher profitability in construction equipment was outweighed by lower profits in engineering services.

  Domestic orders were healthier than in the previous year, rising 23.2%, to 229.4 billion yen. Domestic orders were spurred by a substantial leap in demand for municipal solid waste treatment plants. Abroad, however, the situation remained severe, especially in engineering services. Overseas orders slipped 9.1%, to 74.7 billion yen. Taking both domestic and foreign markets together, orders earned by the Company during the period climbed 13.3%, to 304.2 billion yen. The backlog of orders at the end of the term amounted to 198.1 billion yen.

  In fiscal 1999, sales in the Electronics and Information Sector increased markedly due to strong production of semiconductors and other related products. Total sales rose 17.1%, to 87.8 billion yen. As a result of higher semiconductor shipments and cost-cutting measures, the Sector returned to profitability, with operating income amounting to 7.5 billion yen.

  In the Real Estate Sector, sales leapt 106.0% in fiscal 1999, to 43.9 billion yen, owing to increased sales in urban development and the adoption of new consolidated accounting standards. Operating income skyrocketed 358.2%, to 19.7 billion yen.

  In the Other Businesses Sector, leasing sales weakened and contributed to a 28.1% decline in total sales, to 31.3 billion yen. This pulled operating income down 21.3%, to 3.9 billion yen.

Based on reforms to our management and business structures instituted in April 1999, we introduced an internal company system and a system of corporate officers, aiming at raising our capital efficiency. Above all, we are devoting management resources to our core businesses. Under a policy of selective consolidation, we are withdrawing from unprofitable businesses, as well as those that do not have synergy with our core competencies.

  In the Iron and Steel Sector, we completed the refurbishment of the No. 8 wire rod mill at the Kakogawa Works in May 1999 to meet the increasingly exacting and diversified needs of our customers. To strengthen our specialty steel business, we turned affiliate Nihon Koshuha Steel Co., Ltd., into a subsidiary in April 2000. In this move, we assumed most of their production of bearing steels as well as all of the marketing of this product.

  In the United States, we merged the steel bar business of USS/KOBE Steel Company, our joint venture with USX Corporation, with Republic Technologies International LLC and sold the joint venture's pipe business to USX.

  The independent power producer (IPP) business is anticipated to be a pillar of corporate earnings in the 21st century. Construction of the No. 1 Power Plant at Kobe Works is proceeding on course. When the No. 2 Power Plant is operational in 2004, the two facilities will have a combined generating capacity of 1.4 million kilowatts. This project is intended to contribute to revitalizing Kobe. Paying close attention to the environment, we are building clean power plants in harmony with the community.

  In the Aluminum and Copper Sector, we have reached agreement with Mitsubishi Materials Corporation and Mitsubishi Shindoh Co., Ltd., in a number of areas. We are continuing to explore ways to jointly procure raw materials, lower distribution costs, and share production in the rolled copper business.

  In the Machinery Sector, we transferred our equity in gear manufacturer Osaka Chain & Machinery, Ltd., to Sumitomo Heavy Industries, Ltd. In a similar move, we transferred all our holdings in the wholly owned cutting tool subsidiary Shinko Kobelco Tool Co., Ltd., to Mitsubishi Materials. In the robotics business, we shifted our painting robot business to Kawasaki Heavy industries, Ltd., and our handling robot business to Okura Yusoki Co., Ltd., in April 2000.

  In the construction machinery field, we merged the operations of our Construction Machinery Company with subsidiaries Yutani Heavy Industries, Ltd., and Kobelco Construction Machinery Co., Ltd., in October 1999. The reorganization integrates manufacturing and sales into one unit, leading to more efficient operations.

  In the Electronics and Information Sector, KMT Semiconductor, Ltd., a semiconductor subsidiary, is utilizing cutting-edge DRAM production technology from its U.S. parent Micron Technology Inc., which has enabled it to become a world-class supplier in terms of performance, quality, and cost. Our subsidiary involved in semiconductor testing, Genesis Technology Inc., is constructing a new factory in response to burgeoning demand for its services.

  In the leasing business, we transferred our 80% share of the equity held in Shinko Lease Co., Ltd., to Central Leasing Co., Ltd., in March, to strengthen that company's profitability and to reduce our interest-bearing debts and assets.

I regret to report that in November 1999 we were in violation of Japan's Commercial Code. For this transgression, we sincerely and deeply apologize for the concern caused to all our shareholders. We solemnly accept responsibility for allowing this regrettable incident to occur.

  We have implemented new procedures to ensure that any external problems are resolved in a proper manner and that the Company makes a decisive break with antisocial elements. We established a Corporate Ethics Committee, which includes outside experts and formulated a Corporate Code of Ethics. These steps, taken to renew our ethical standards and ensure that all employees abide by the law, are being implemented. Through these measures, we will instill respect for the law in our board directors, officers, and employees and strengthen the auditing system that oversees corporate activities. Finally, we are continuing our unstinting efforts to create a transparent and equitable company.

To continue growing in the years ahead, we formulated a new business plan for fiscal years 2000 to 2002, the Consolidated Midterm Management Plan. The plan aims to improve corporate value throughout the Group. In order to do so, we will decrease external debt by improving cash flow and increasing return on assets.

  Already as part of the new plan, we merged the Iron and Steel Company into the head office in June this year, in preparation to forming a business holding company in the future. Information technology will also play a greater role in bringing about change in our Company.

  From now, we are placing strategic emphasis on selected business fields --- automotive lightweighting, the IPP business, and the environmental business. Accordingly, we are devoting more resources in these areas. We will continue to rebuild our business portfolio through selective consolidation, focusing on core businesses and businesses with synergy. These changes will transform us into a more focused, flexible, and competitive company.

  As always, we thank you for your understanding and ask for your continued support.