Message from the President and CEO

We will embark on the next 100 years, unified as a Group to establish the three core business areas of materials, machinery and electric power.

We will contribute to society and industry by developing diversified and integrated management driven by our manufacturing capabilities.

Hiroya Kawasaki President, CEO and Representative Director

Since our founding in 1905, the Kobe Steel Group has provided products and technologies to meet diverse needs, driven by manufacturing capabilities amassed over many years as an engine of growth. The Group offers a wealth of distinctive products and technologies born out of creative innovation. We capitalize on these technologies to develop our diversified and integrated management covering a wide range of business fields.

In April 2016, we initiated our Fiscal 2016-2020 Group Medium-Term Management Plan, which identifies weight savings in transportation and energy and infrastructure as important fields for future growth in order to advance KOBELCO VISION “G+,” our vision for establishing a business enterprise based on three core business areas. The three core areas are materials businesses, such as iron and steel, welding, and aluminum and copper; machinery businesses, such as industrial and construction machinery and engineering; and the electric power business. We have already undertaken a variety of challenges in aiming to establish and expand individual businesses in each of these areas. Moving forward, we will also work to create new Groupwide value and contribute to the development of society and industry by leveraging synergies that cut across these divergent fields.

We will pursue growth strategies focused on the fields of weight savings in transportation and energy and infrastructure.

In fiscal 2016, the first year of KOBELCO VISION “G+,” while the Japanese economy showed signs of gradual recovery and overseas markets such as North America and Europe also continued to recover, sluggish growth rates persisted in China and portions of Southeast Asia. We also suffered the effects of rising raw material costs. Due to these factors, business results remained sluggish in the materials and machinery businesses.

In response, in fiscal 2017, the second year of our vision, we will redouble efforts to bolster profitability and implement policies for a more robust corporate structure. Specifically, we have decided to focus simultaneously on defensive measures by reorganizing our profit structure and offensive measures by expanding in growth fields.

Regarding defensive measures, we will pursue steady reorganization of our profit structure through such means as integration of upstream processes in the iron and steel business beginning from November 2017, as well as revision of capital ties and production and sales networks in China for the construction machinery business.

As for offensive measures, we will implement forward-looking growth strategies and focus on investing management resources with importance placed on initiatives for weight savings in transportation and energy and infrastructure. Regarding initiatives for weight savings in transportation, we will capitalize on the Kobe Steel Group's ultra high-strength steel, aluminum, welding materials and other products to offer multi-material solutions to meet the growing need for lighter weight automobiles.

In April 2017, we established the Automotive Solution Center, which specializes in weight savings for automobiles. Additionally, we appointed a companywide automotive projects officer to speed decision-making and further strengthen our ability to formulate and propose solutions.

In the aerospace industry, we will step up investigations into strengthening upstream processes as well as entering and expanding downstream processes for titanium for aircraft. Regarding initiatives for energy and infrastructure, we have begun to enter the global market for large-capacity centrifugal compressors and aim to expand our compressor business. In the hydrogen-related business, where future market growth is expected, we plan to utilize our hydrogen station test facility, which was newly established last year, to lay the groundwork for an emerging hydrogen-based society.

Additionally, in the electric power business we are steadily pursuing initiatives, including construction of the Moka Power Plant in Tochigi Prefecture and environmental assessments for the new Kobe power plant project, to establish a stable future revenue base.

We aim for further advances as we embark upon the new Core Values of KOBELCO Next 100 Project.

The Kobe Steel Group recently embarked upon the Core Values of KOBELCO Next 100 Project, consisting of activities looking toward the next 100 years. The project comprises reform activities for the sustained growth of the Group, with employees throughout the Group working in unison to create an attractive corporate group full of pride, passion and hope.

In order for a company to secure profits and achieve continued growth, it must respond to changes in the surrounding environment and continuously innovate. In particular, we are now fast approaching the critical execution phase for a variety of strategic initiatives to establish a business enterprise based on the three core areas laid out in our medium- to long-term business vision, KOBELCO VISION “G+.” Furthermore, as we live in rapidly changing times, with diverse values and viewpoints, we have also introduced Initiatives for work style reform and diversity promotion programs.

In light of these changes, however, we also believe it is important for us to share the same values that are central to the Group as a whole and to maintain a foundation that unifies all Group employees. For this reason we have returned to our Corporate Philosophy, established in 2006 and have begun initiatives to ensure that all Group employees are aware of and share in these values.

The Corporate Philosophy is applied to all of our corporate activities, including CSR, compliance, safety and quality control. By permeating these values inside and outside the company, we aim to achieve sustained growth and enhanced corporate value.

To clearly indicate that the philosophy represents the entire Group, we have renamed the Corporate Philosophy as the Core Values of KOBELCO. The Core Values comprise the Group's commitment to society and represent the values shared by the entire Group. In order to fulfill these commitments, we have newly established the Six Pledges of KOBELCO Men and Women, which are pledges that all employees must observe. The Six Pledges of KOBELCO Men and Women are a set of concrete actions for fulfillment of the Core Values of KOBELCO and define the conduct that each employee must follow.

One of my cherished words is “action,” which I interpret to mean that we should “go out and move others. If you go to them, they will take action.” As we pursue new projects, I hope to put this philosophy of action into motion and display the strength of these convictions.

Amidst a changing international community and economic climate, the Kobe Steel Group aims to come together, displaying strength of action and pressing ever forward for sustained growth, as a corporate Group that exhibits a strong presence.

September 2017

Hiroya Kawasaki

Chairman, President, CEO and Representative Director

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