Report on improper conduct concerning Kobe Steel and its group companies

October 13, 2017

Kobe Steel, Ltd.

At this time, Kobe Steel, Ltd. deeply apologizes again for the enormous amount of trouble it is causing to customers, suppliers, shareholders and many others concerning the improper conduct by Kobe Steel and its group companies.

Kobe Steel is undertaking an investigation on the facts concerning improper conduct in its Aluminum & Copper Business and its other business units, as announced in “Improper conduct concerning a portion of the aluminum and copper products manufactured by Kobe Steel” on October 8, 2017 and in “Report on improper conduct: the case of steel powder and an inspection company” on October 11, 2017.

In addition to the cases that have been disclosed to date, Kobe Steel has confirmed similar cases of improper conduct (hereinafter referred to as “improper conduct”) in the Kobe Steel Group companies in connection with this investigation and hereby reports its findings.

1. Content of nonconforming products

With regard to the nonconforming products subject to investigation, at this time products confirmed (hereinafter referred to as “nonconforming products”) are outlined below:

Nonconforming product 1

Nonconforming product 2

Nonconforming product 3

Nonconforming product 4

Nonconforming product 5

With regard to the abovementioned nonconforming products 1, 2, 3, 4 and 5, Kobe Steel is currently working with customers to determine how the quality (including safety) of customers’ products that have used Kobe Steel’s nonconforming products have been affected. Verifications and inspections to date have not recognized specific problems casting doubts on the safety of any of the nonconforming products. In the event that doubts arise on the safety of the nonconforming products, Kobe Steel will quickly take appropriate action.

For nonconforming products 6, 7, 8 and 9 below, Kobe Steel has already made explanations to customers and, together with them, has completed technical verification on whether the quality (including safety) of customers’ products that used Kobe Steel’s nonconforming products were affected. With regard to the safety of the products, no problems were found, and Kobe Steel verifies that the issues with its customers were resolved. For these products, Kobe Steel does not anticipate incurring any additional expenses.

Nonconforming product 6

Nonconforming product 7

Nonconforming product 8

Nonconforming product 9

2. Response to improper conduct and other items

Kobe Steel has been conducting self-inspections and emergency audits since September 2017 within Kobe Steel, Ltd. and its domestic and overseas group companies.

Kobe Steel is proceeding to verify whether customers’ requested specifications and inspection certificates match the inspection certificates and inspection results of the actual products. In the event that new improper conduct is confirmed, Kobe Steel will quickly take appropriate action.

In addition, to ensure fairness in the investigation and neutrality, Kobe Steel’s Chairman, President and CEO Hiroya Kawasaki, as chairman of the investigation committee on quality issues, has commissioned an outside law firm to conduct an investigation to gain the full picture on the facts concerning improper conduct, including the improper conduct that has already been confirmed and previously reported. This investigation is still underway. When the investigation is completed, Kobe Steel plans to report the results.

In view of the seriousness of the situation, Kobe Steel established the investigation committee on quality issues in response to the situation. Based on the results of the outside law firm, Kobe Steel will conduct a thorough analysis of the causes and take companywide measures to prevent recurrence. At this time, as a part of the companywide measures to prevent recurrence, Kobe Steel will strengthen Group governance on quality by reorganizing the quality assurance organization, led by the head office. Kobe Steel will review the inspection system and capital investments to improve quality. In addition, Kobe Steel plans to drive reforms to change the mindset of quality compliance, including in Group company employees, by rebuilding its education system and taking other steps.

The effect this incident will have on Kobe Steel’s business performance is unclear at this time. Kobe Steel plans to make another announcement when the extent of the impact becomes clear.


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