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2012 New Year's Message from President Hiroshi Sato

January 5, 2012

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

Business Conditions

Business conditions surrounding the Kobe Steel Group have been changing in many ways. Japan's domestic demand has long been sluggish. Europe has been beset by an economic crisis and financial instability. Emerging countries, such as China and India that have led the world economy since the global financial crisis, have slowed. And the yen has risen to record levels. These changing conditions have been increasing business risks. Under these circumstances, all of us at the Kobe Steel Group must work together, as in a rugby scrum, and make a group-wide effort to maximize our profits in the remaining three months of fiscal 2011.

On the other hand, from a medium- and long-term standpoint, the world economy is expected to keep growing driven mainly by emerging economies. This will bring more business opportunities. The Kobe Steel Group has been moving forward under the policies set forth in our Medium- to Long-Term Business Vision called KOBELCO VISION "G" drawn up in 2010. We have been making ceaseless efforts to achieve innovation in the face of changing business conditions. While remaining firmly grounded, let us look ahead to our future without shrinking our business.

Progress of KOBELCO VISION "G"

We have been making steady progress in penetrating growing world markets under the banner of our "Only One" products. In our iron and steel business, we are building a plant in the United States to manufacture cold-rolled, high-strength steel sheet for automobiles. We have also started considering setting up a joint venture in China to manufacture cold-rolled, high-strength steel sheet. In the titanium business, we have established a joint venture called Japan Aeroforge Co., Ltd. to make large titanium forgings for aircraft. Our welding business has been expanding capacity around the world. Our aluminum business is building a forging plant in China and is also considering establishing an aluminum sheet joint venture in China. In the compressor and construction machinery businesses, we have expanded production and sales bases in China and India. We are proud to say that our globalization efforts have been making steady progress.

The Kobe Steel Group has also been focusing on strengthening its "monozukuri-ryoku" or manufacturing capabilities, which are a source of its competitiveness as a manufacturer. As part of the efforts, we held the first KOBELCO Quality Control (QC) Competition with the participation of about 30 group companies. The event recognizes inventive measures to improve production at the various factories. Activities crossing the Kobe Steel Group have deepened, resulting in a melding of our wide-ranging technologies and know-how.

2011 was the year when corporate governance and enterprise risk management became major issues in Japanese society. Establishing and implementing effective compliance and internal control systems is one of Kobe Steel's top priorities. I would like all you employees to make risk management issues your own problem. You must make continuous efforts to work on such issues as safety, disaster prevention and environment management.

Priorities

Our immediate and top priority is to enhance the profitability of our current businesses and to maximize our cash flow. We will look at all possible means to do so, such as improving productivity, cutting costs, raising sales prices, expanding sales, and utilizing investments and loans. We intend to implement these measures as early as possible. In our iron and steel business, for example, we will make investments mainly in the upstream operation at our Kakogawa Works and Kobe Works. We plan to obtain interests in resources to cope with high commodity prices and expand the use of lower-grade raw materials. By implementing these measures, we will cut costs significantly and expand sales of our "Only One" products. Addressing the issue of the super strong yen is also indispensable. We aim to ensure our profitability using every possible measure, such as upgrading and increasing our distinctive "Only One" products and cutting costs by expanding overseas procurement and production.

The second priority is to create new value and achieve global growth as set forth in KOBELCO VISION "G" and to draw up a specific action plan to survive increasingly fierce competition. KOBELCO VISION "G" will continue to be our signpost into the future. In summary:
- We will maintain the stable production of high-value added, highly profitable "Only One" products made at an appropriate cost.
- We will reinforce our organization and develop our human resources to accelerate our globalization and expand our sales volume.
- We will also achieve sustainable growth hand in hand with society.

If our R&D, production and sales departments fulfill their duties and if our head office staff support those departments, I am confident our efforts will pay off without fail.

At the same time, we will review KOBELCO VISION "G" in light of changing external conditions and premises. If necessary, we will revise and reinforce the action plan.

Concluding Remarks

Last year, I visited many of our plants and offices, both at home and abroad, trying to share with you KOBELCO VISION "G" in the spirit of barrier-free management. I intend to continue such communication this year with all of you to deepen our mutual understanding.

What separates the Kobe Steel Group from others is that we meet the needs of society through our products, technology and services. I would like all of you to work every day with a renewed motivation to promote the recognition of KOBELCO as a highly-reliable brand and to enrich your lives.

Looking at the existing state of affairs objectively, it is hard for us to be optimistic. Although we need to proceed with caution this year as we did last year, let us step forward and together open the way to a bright future.