President Masatomo Nakamura

Performance review and outlook
 In fiscal 2006, the initial year of our Second Medium-Term Business Plan, net sales grew ¥23.1 billion year-on-year, or 2.0%, to ¥1,175.3 billion, but operating income fell ¥3.7 billion, or 7.7%, to ¥44.7 billion, and ordinary income was down ¥2.3 billion, or 4.7%, at ¥47.1 billion.
 Profits decreased for a second consecutive year. We attributed this mainly to a ¥30.9 billion increase in costs resulting from higher prices for heavy oil, woodchips, waste paper and other raw materials and fuel. We sought to compensate for the significant negative impact on profits by cutting costs and raising prices in major product categories. Our efforts, however, were unable to fully offset the downward pressure and avert the decrease in profits.Net income rose ¥5.8 billion year-on-year, or 33.5%, to ¥23.0 billion, due partly to a decline in extraordinary losses.

 We expect raw material and fuel prices to remain high or increase further as a result of growing global demand for resources. We also believe competition will intensify as the paper market in Asia becomes increasingly borderless.
 We at Nippon Paper Group are working to reduce our dependence on heavy oil by switching energy sources, to enhance our competitiveness by raising efficiency through the deployment of the latest manufacturing equipment, and to establish robust management and operating platforms to help us stay ahead in the international competition. These efforts include resolute action to move prices upward and working to establish an industry structure that will allow costs of externals to be reflected in product prices. Ultimately, we are pursuing a growth strategy that will enable us to become a presence to be reckoned with in overseas markets as laid out in our Group Vision 2015.