2021 New Year’s Message from President and CEO Mitsugu Yamaguchi

January 5, 2021

Kobe Steel, Ltd.

Happy New Year!

The year 2021 has begun. Last year, the whole world was heavily affected by the outbreak of the novel coronavirus (Covid-19). While many cities were locked down in major countries around the world, Japan also declared a state of emergency in April. The KOBELCO Group has implemented thorough measures to prevent infection such as avoiding “three Cs” (closed spaces, crowded places, and close-contact settings), always wearing a mask, and promoting staggered working hours and telecommuting. However, we still have no end of the pandemic in sight and are forced to live with a lot of inconveniences. Economy slowed down with restrictions on the movement of people.

Economic activities have gradually resumed since summer, but it will take time to return to the level before the pandemic. Even though vaccines and therapeutic drugs are being developed, we must be prepared to live in an era with Covid-19, in which we need to balance social and economic activities while taking measures to prevent infection for the time being. Our businesses in materials, machinery, and electric power are all key industries supporting the social infrastructure which is essential to people's lives. It is our social responsibility to ensure stable production and supply. With this recognition, I am deeply grateful to those who are engaged in duties that require attendance at workplace, especially at manufacturing sites.

In fiscal 2020, we started the year with a goal of eliminating loss, which was posted for two consecutive years. In spite of our efforts, demand dropped sharply particularly in the materials businesses due to the impact of Covid-19, forcing us to significantly reduce production. In August, we announced the forecast that projects ordinary loss of 60 billion yen for the full fiscal year. In order to cope with the unprecedented deterioration in earnings, we are currently implementing emergency measures such as reduction of expenses, curtailment of capital investments and loans, and implementation of furloughs. I sincerely appreciate your understanding and cooperation. The good news is that we expect a 25 billion yen improvement in ordinary loss to 35 billion yen owing to the recovery of demand centered on the automotive industry, in addition to our efforts to improve profits. On the other hand, the forecast of the financial results for this fiscal year remains bleak in anticipation of the largest loss ever recorded. Our projection is that we will post ordinary loss two years in a row. We need to take this seriously, no matter how adverse the circumstances were due to the impact of Covid-19. We still have three months left in this fiscal year. It is essential to turn into the black in the second half of this fiscal year in order to achieve profitability in fiscal 2021.

This year marks the year in which we formulate our next medium-term management plan. The new medium-term management plan aims to establish a medium- to long-term earnings base through (1) Specialization in truly competitive products and services and (2) Exploring future growth areas and new fields, based on the Group Corporate Philosophy. As the first step, we must achieve profitability in fiscal 2021. To this end, we will continue implementing stringent measures. For the moment, we prioritize the efforts to restore profitability, but at the same time, we will also study necessary measures to establish a medium- to long-term earnings base and implement them. Our Group's Corporate Philosophy states that our mission is to provide solutions to the needs of society. The social needs are changing and diversifying over the years, and I believe this is an excellent opportunity. Our Group has a variety of business assets, including technologies, human resources, markets, and experience. By making the best use of these business assets, we will not only be able to provide solutions to the needs of society, but also increase the competitiveness of our existing businesses, which will lead to the creation of new businesses.

The year 2021 is the year of the ox in the Chinese zodiac. The year of the ox is said to be a year in which we prepare for future success by silently performing the task at hand or a year in which we build a path that leads to results; in other words, a year of prelude to prosperity. Perhaps these traditional beliefs come from the way it quietly eats grass. I always say, "See from a higher viewpoint, but stay humble in practice." Amid the Covid-19 pandemic, people tend to look down, but I would like you to keep a higher perspective. With this in mind, it is also important to face reality straight on and tackle your daily tasks earnestly.

In closing, I would like to express my hope that we will see the end of the Covid-19 pandemic in the near future, and it will bring people’s lives and economic environment back to normal. Wishing for the day to come, we will move forward toward the realization of a world where people can fulfil their hopes and dreams.

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