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| 2005 New Year's Message from President Yasuo Inubushi |
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January 4, 2005
On January 4, the first working day of the New Year, President and CEO Yasuo
Inubushi gave a speech to company employees. Here are his remarks translated
from the Japanese.
To all employees, I wish you a Happy New Year! Please let me take this opportunity
to share my thoughts with you.
In 2004, Japan's economy continued its steady performance driven mainly by
strong exports and improved corporate performance. Private-sector capital investment
rose and sluggish consumer spending took a turn for the better.
With favorable demand trends in Kobe Steel's business segments, we have devoted
ourselves to attaining our fiscal 2004 targets of securing a high sales volume
and increasing sales prices. Thanks to the efforts made by each of our business
segments, we have been able to offset higher raw material costs and now forecast
that consolidated ordinary income in fiscal 2004 will reach 105 billion yen,
one year earlier than the target originally set for fiscal 2005 in the Consolidated
Medium-Term Business Plan.
In addition to increased profits, our entire group has improved its efficiency
in fund operations. We forecast that consolidated debt at the end of March 2005
will be less than 700 billion yen, a substantial decrease from the previous
forecast. This means that we have reduced our debt by approximately 200 billion
yen over the past two years. We were also able to resume dividend payments for
the first time in six years although it was only 1.50 yen per share. The resumption
of dividend payments had been a long-awaited goal.
These results were achieved because we had carried out various management
policies such as the selection and consolidation of particular businesses and
had strengthened our business structure. At the same time, these were also the
results brought about by your untiring efforts to achieve your goals. On this
occasion, I would like to express my deep appreciation to all of you for your
work. But I would also like to add that the upturn in our business performance
has been made possible, in large part, by the improvement of the business environment
outside the company.
If we look at the Iron and Steel segment for example, exports, mainly to
China, are brisk and domestic demand remains strong, particularly in the manufacturing
sector. As a result, Japan's domestic crude steel production in fiscal 2004
is expected to widely exceed 110 million tons. As for price increases of steel
products, we have been able to gain our customers' understanding partly due
to the upward trend of the international market. Of course, our own efforts
played an important role in the remarkable recovery of our Group. But it is
also true that the favorable business environment outside the company expedited
our recovery.
At the same time, there also remain outstanding problems we have to work
out. For example, we have fallen just short of reaching our goal to raise our
ratings by Japanese credit rating agencies ? a goal set in our Fiscal 2003-2005
Consolidated Medium-Term Business Plan. Although JCR (Japan Credit Rating Agency,
Ltd.) upgraded our rating to A, the rating by R&I (Rating and Investment
Information, Inc.) has stayed within the B range. Although our debt-to-equity
ratio is expected to drop to 1.9 or less at the end of fiscal 2004, that is
not low enough and further improvement is necessary. As the current situation
shows, our financial position requires further improvement and we must continue
our efforts to reduce debt, raise the profitability of each of our business
segments, and strengthen our business structure as early as possible.
Japan's economy has been growing steadily. On the other hand, there are such
concerns such as resource inflation caused by the worldwide tight supply of
raw materials. We are also concerned about the impact of the appreciation of
the yen against the dollar on Japan's economy. The current international situation
is also unstable. Furthermore, the U.S. and China's economies, which have a
great impact on Japan's economy, are likely to slow down and Japan's economy
seems to be reaching a turning point.
There are some negative factors that may directly hit Kobe Steel's business
activities. For example, prices of raw materials for steel keep rising; the
appreciation of the yen slows down activities of user companies; China's financial
policy dampens demand; and demand for semiconductors and liquid crystal displays
has been declining. As these factors may adversely affect our group's profitability,
we must not be led astray by our current strong performance, but must make additional
efforts to ensure profits in fiscal 2005. To offset higher costs for raw materials
and equipment, price increases are essential, as well as stable operation and
maximum production through creative efforts.
Fiscal 2005, the last year of the Consolidated Medium-Term Business Plan,
will be an important year for our group because we must steadily carry out reforms
on our profit structure for the further growth of our group. We must prepare
for a huge need for funds because capital investment is expected to increase
in and after 2006. We also need to strengthen our financial position to cope
with future economic fluctuations. To increase profits from improved cash flow,
we plan to carefully select and implement capital and R&D investments for
our future growth and strengthen our core businesses. By implementing strategic
investments and promoting the sales of our distinctive products, we aim to stabilize
and increase our profits. With increased profits from better cash flow, our
financial position is expected to improve and that is the desirable growth cycle
we would like to see take root. At the same time, we will take a hard look at
our unprofitable businesses. I would like you to not only carry out the Consolidated
Medium-Term Business Plan but also aim for higher targets.
Next, I would like to talk about group management. In recent years,
companies are assessed on a consolidated basis in all aspects of their businesses.
Business performance is assessed based on consolidated accounting, and credit
ratings are evaluated on a consolidated basis as well. To maximize our business
performance, all companies and employees in the Kobe Steel Group will be required
to make a group-wide effort. I would like all of you to strive to increase the
value of the KOBELCO brand and work to further promote the development of the
entire Group.
To pursue ideal group management, I intend to put forward various management
policies and measures as soon as possible. Last August, for example, we set
up a Group Executive Committee, which consists of Kobe Steel's executives and
major group company presidents, and started having discussions. The Committee
aims to set our business goals and policies as well as priority issues. As for
the fiscal 2005 budget, we will draw it up on a consolidated basis instead of
a conventional non-consolidated basis. We will also consider enhancing group-wide
inter-company functions mainly in the Corporate Planning, Finance, Accounting
and Human Resources departments.
I would also like to ask for your cooperation in preventing industrial accidents
and injuries. Needless to say, occupational safety and health is the foundation
of corporate activity. Please always bear in mind occupational safety and health
as a matter of concern to yourselves. Always remember that you are not alone.
Your family, friends and colleagues care about you. If this awareness filters
into the hearts of all employees, it will result in not only a high level of
safety but also stable operations, higher quality and larger profits.
Furthermore, to fulfill our corporate social responsibility, our entire group
will continue to devote itself to compliance and environmental issues. The awareness
of each employee will be the key to the success of these activities.
Since I assumed the position of President and CEO of Kobe Steel last April,
I have visited various locations of our group, mainly production facilities.
What I felt most during those visits was our Group's high potential. Through
discussions with those of you working at our plants, I was able to see for myself
your devotion to higher productivity and lower costs as well as your unflagging
energy for research and development and group activities. Those visits also
provided me with a good opportunity to convey my thoughts, and I would like
to continue visiting our plants to communicate with you.
Before concluding this message, I would like to add one more thing. This
September will mark the centennial anniversary of Kobe Steel. Since the commencement
of our business in Kobe City in 1905, we have had our share of ups and downs.
We have gone through the dissolution of companies after World War II, the oil
crisis in the 70's, and the recession caused by the appreciation of the yen
in the 80's. We have also weathered many headwinds over the last ten years:
the Great Hanshin-Awaji Earthquake in 1995; financing difficulties due to the
bursting of the bubble economy; and excessive price competition among steel
companies triggered by the supply competition to automobile manufacturers.
But we have been able to find a way out of each difficulty and have kept
growing owing to the strenuous efforts of our predecessors and current employees.
At the start of our 100th year, I would like to express my deep respect to those
predecessors and all of you.
At the same time, we should not forget the kind understanding and moral and
material support given by our shareholders, business partners and residents
of local communities. Here, I would like to express my deep appreciation to
them for their generous support and ask all of you to keep in mind this sense
of gratitude while devoting yourselves to your day-to-day work.
Now let us work together for the further growth of the Kobe Steel Group and
bequeath this great company, with a long history, in a better condition to the
next generation.
Finally, I express my deep thanks to you for the efforts you have made, and
I wish you and your families good health and every happiness for the New Year.
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