2016 New Year's Message from President and CEO Hiroya Kawasaki

January 5, 2016

On January 5, the first working day of 2016, President and CEO Hiroya Kawasaki gave a New Year's message to company employees. Here is a summary of his remarks translated from the Japanese.

Safety is the Absolute Essential

Happy New Year! At the start of 2016, please allow me to share my thoughts with you.

Looking back on 2015, I must once again begin by talking about safety. In March at Kakogawa Works, to my deepest regret, there was one casualty resulting from a serious accident. There have been a number of lost-time incidents since then. The situation is of great concern to the Kobe Steel Group as a whole.

We all need to have a strong sense of crisis regarding safety, the basis of “monozukuri” or manufacturing. I have been constantly saying that “safety is the absolute essential.” All of us must work every day with the determination not to repeat the same kind of accidents.

Looking Back at 2015:
Laying a Solid Foundation to Improve Manufacturing Capabilities

In fiscal 2014, we posted a consolidated ordinary income of 101.6 billion yen. For two consecutive years, we were able to achieve the target for the final fiscal year of the current Medium-Term Business Plan, which is set between 80 billion and 100 billion yen. On the other hand, for fiscal 2015, we currently anticipate consolidated ordinary income of 55 billion yen, roughly half that of the previous year. On the whole, our businesses are facing strong head winds. Rapid change in the external environment, particularly China’s economic instability, has led to poor sales of construction machinery, as well as a sluggish steel export market. Also, oil-related projects have been postponed due to low oil prices, giving negative impact to orders for industrial machinery.

However, change in the external environment is not the only reason for our declining business performance. There are still issues to be addressed in order to improve our “monozukuri-ryoku” or manufacturing capabilities, such as losses posted due to operational trouble.

There are three months left before the end of fiscal 2015. We should focus on what we can do to overcome the challenges we are facing and continue to make an all-out effort together to establish a solid foundation for the new Medium Term Business Plan, which kicks off in fiscal 2016.

Looking at Fiscal 2016:
Improving Stable Earnings Power under the New Medium-Term Business Plan

Fiscal 2016 is the starting year of the new Medium-Term Business Plan, which covers the five years until fiscal 2020, the final target year of KOBELCO VISION ”G.” The broad objective of the new Medium-Term Business Plan is to drastically improve stable earnings power by establishing a firm business foundation based on the three business pillars of materials, machinery and power supply.

We should be aware that some challenges are already expected in the first two years of the next Medium-Term Business Plan. In fiscal 2016, profit is anticipated to decline temporarily due to the relining of a blast furnace at Kakogawa Works. In fiscal 2017, demand is expected to stagnate as a reaction to the increase in the consumption tax.

Nevertheless, we are steadily implementing measures to capture future growth fields, to strengthen cost competitiveness, and to establish a stable profit base. A power supply project will start up in the latter half of the new Medium-Term Business Plan. I believe that we are capable of becoming a company with a strong and stable profit base by steadily implementing strategic investment projects on schedule.

With regard to the materials businesses, the project to consolidate upstream steelmaking processes is in full swing, and relining of the blast furnace at Kakogawa Works is to begin. This year, our joint venture with Angang Steel in China to produce advanced cold-rolled high-strength steel sheet is going to start operation, while in Tianjin, China, our company will begin production of aluminum sheet for automotive body panels. We need to ensure that these plants can achieve full production.

For the machinery businesses, under the banner of global expansion, we must steadily forge ahead with the start-up of a hydraulic excavator plant in the United States as well as capital investments to strengthen the compressor business. Regarding our menu for hydrogen fueling stations, we must prepare to take advantage of the growing future demand both at home and abroad by differentiating our products through strengthened R&D.

In our power supply business, we must solidify its position as the third business pillar by steadily implementing two major projects. This year, construction of the power plant in Moka, Tochigi Prefecture will begin, and for the Kobe power generation project, we are undertaking an environmental impact assessment.

It is no exaggeration to say that our business performance for the coming five years will determine the future of the Kobe Steel Group. We must all share the same roadmap to achieve our targets, directly face issues that need to be resolved, and take action to overcome them.

I hope that all employees will join me, as I am certain that the Kobe Steel Group is fully capable of growth in the coming years.

I hope that all Group employees will continue to move forward together with me, with the determination that the Kobe Steel Group is fully capable of growth in the coming years.

In coming to a close, I sincerely wish all employees and their families good health and much happiness in the New Year.

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