The Kobe Steel Group's Fiscal 2013-2015 Medium-Term Business Plan

• Kobe Steel plans to return to profit in fiscal 2013 by carrying out numerous cost reduction measures for variable expenses and fixed costs. The company aims to steadily benefit from cost-saving investments underway (a new hot-metal treatment plant, high-efficiency in-house power generation equipment, etc.). At the same time, Kobe Steel will build stable profitability by improving its product mix and increasing sales.

• Kobe Steel will make the most use of its overseas locations that it expanded under the previous medium-term business plan, such as:
  1. 1) Construction of a new line in North America to produce high strength steel sheet for automobiles
  2. 2) Establishment of a steel wire manufacturing company for automotive engine valve springs in China
  3. 3) Establishment of companies in China and North America for the manufacture and sale of aluminum forgings for automotive suspension systems
  4. 4) Equity participation in a process gas compressor manufacturer in China, and other initiatives.

In growth sectors, such as automotive, energy, natural resources and the environment, and in growth regions, mainly emerging countries, Kobe Steel intends to maximize sales volume of high-end “Only One" products, technology and services.

• Activities of the Committee for Cost Reduction and Cash Generation, launched in 2012, are anticipated to reduce fixed costs, procurement costs, quality error costs, and other costs.

• Create cash flows of 120 billion yen in three years by reducing inventory and selling accounts receivable and assets.
• Achieve a debt/equity ratio of approximately 1.3 times by the end of the medium-term business plan (ending March 2016).

• Strengthen monozukuri-ryoku (manufacturing capabilities), technology development and human resource development.
• Thoroughly carry out compliance and contribute to society.

Based on steel demand over the medium- to long-term future, Kobe Steel plans to further strengthen its cost competitiveness in the production of steel products.

• Aiming at fiscal 2017, Kobe Steel plans to shut down the blast furnace and other upstream equipment at its Kobe Works. Transferring upstream operations to Kakogawa Works, its flagship steelworks, will improve the operating rate and decrease fixed costs, enabling Kobe Steel to achieve a considerable reduction in costs.
• Kakogawa Works plans to install a state-of-the-art continuous bloom caster and new secondary refining equipment as well as increase the capacity of the blooming mill to strengthen the competitiveness of special steel wire rod and bar, its major products.

• Strategically expand the machinery business by strengthening the global expansion of the compressor business and reentering Europe and North America in the construction equipment business.
• Strengthen business development by looking into forming alliances with other companies and M&As in order to capture expanding demand in growth fields and growth markets.
• Expand new products and new businesses through collaboration within the Kobe Steel Group and the fusion of technologies. (Developing products for hydrogen stations, binary power generation, etc.)

Utilizing the know-how acquired from constructing and operating a coal-fired power station at its Kobe Works, Kobe Steel plans to expand the power supply business as a stable profit base, in addition to maintaining its two major pillars of materials and machinery.

• Kobe Steel aims to build a 1.4 million kilowatt-class gas-fired power station in Moka, Tochigi Prefecture. Kobe Steel envisages supplying the electricity it generates to Tokyo Electric Power Company, Incorporated. The company aims to receive an order that would put the power station in operation between 2019 and 2021.

• Kobe Steel will study the possibility of using the land made available after shutting down the blast furnace at Kobe Works for the power supply business.

• Examine the optimum business platform of the Kobe Steel Group, meeting changes in its business portfolio and equity configuration of its businesses.

IV. Numerical Targets

FOR REFERENCE: Concrete Measures by Business Segment

• Return the Iron & Steel Business to profit in fiscal 2013 through effective capital investments and the results of numerous cost reduction measures.
• Maximize sales volume by strengthening responses to the local procurement needs in overseas markets for special steel wire rod, expanding sales of steel plate for the energy sector, and establishing a global supply network (in North America and China) for automotive high strength steel.
• Strengthen the aerospace sector and other fields in the titanium business.

• Strengthen the competitiveness of the domestic welding business. (Shift to an optimum production structure.)
• Maximize sales in the ASEAN region and in the energy and offshore structure fields.
• Promote welding solution development.

• Carry out study for a global supply network for automotive panel material.
• Strengthen the Japan-U.S.-China supply network by increasing North American production capacity of aluminum forgings.
• Expand sales of alloys for automotive terminals.

• Promote global expansion of the compressor business.
• Strengthen monozukuri-ryoku (manufacturing capabilities) across the entire Machinery Group.

• Strengthen the competitiveness of the MIDREX^® Process and maximize orders.
• Contribute to earthquake reconstruction work.
• Achieve early stable operation of the Minnesota ITmk3^® plant. Plan for future projects.

• Strengthen the domestic business foundation.
• Take the initiative in project-making for the water treatment business in the growing ASEAN region.

• Reenter the European and North American markets (previously CNH's territories) and establish a global brand.
• Establish a well-balanced, strong business structure that is unaffected by demand trends in China.

• Strengthen design and development capabilities of the Global Engineering Center in Itsukaichi, Hiroshima, monozukuri-ryoku (manufacturing capabilities), and the supply chain.

• Carry out cost reductions and eliminate inefficiency by innovation in production.
• Contribute to domestic earthquake reconstruction work, and maximize unit sales in North America and Southeast Asia.