Kobelco Group Medium-Term Management Plan (Fiscal 2024–2026)

—Transformation into an Appealing Company—

May 20, 2024

Kobe Steel, Ltd.

【1】 Introduction

The Kobe Steel Group (also known as the Kobelco Group) has formulated its Medium-Term Management Plan (Fiscal 2024–2026). The plan aims to further strengthen our efforts to address materiality (medium- to long-term priority issues) by pursuing our Group’s uniqueness by utilizing internal capital, such as our technologies, human resources, and know-how cultivated in diverse businesses, in combination with external capital, such as relationships with a wide variety of customers and business partners. Through this, we will strive to realize a world in which people, now and in the future, can fulfill their hopes and dreams while enjoying safe, secure, and prosperous lives.

【2】 Review of the previous Medium-Term Management Plan (Fiscal 2021–2023)

In fiscal 2023, the final year of the Medium-Term Management Plan (Fiscal 2021-2023) that started in April 2021, the Company recorded an ordinary profit of 160.9 billion yen and ROIC of 6.7% (against the target of 5% or higher), as well as the D/E ratio of 0.55 times (against the target of 0.7 times or less) at the end of fiscal 2023, achieving both the earnings and financial targets. In addition, the Company raised the dividend payout ratio as planned to approximately 30%.

As to establishing a stable earnings base, one of the two priority issues, we generally made good progress, despite some issues remaining regarding the contribution of strategic investments to earnings in the materials businesses. In terms of another priority issue of taking on the challenge of realizing carbon neutrality, we also made steady progress as planned.

We focused on initiatives to strengthen our operation bases and business foundations, such as reviewing our management structures and promoting ESG initiatives based on materiality indicators and targets, while implementing initiatives aimed at creating an optimal business portfolio from offensive (proactive) and defensive perspectives.

【3】 Medium-Term Management Plan (Fiscal 2024–2026)

Based on the review of the previous medium term and the projection for medium- to long-term trends in the business environment, we have identified two priority issues under the Medium-Term Management Plan (Fiscal 2024-2026):
(1) Enhancing earning power and pursuing growth and (2) Taking on the challenge of realizing carbon neutrality.

The targets of initiatives by business segment are as follows.

: Focus on enhancing earning power and improve profitability globally ROIC target: 6-8%
: Pursue growth by seizing business opportunities in the changing business environment ROIC target: 8-10%
Electric Power
: Continue to contribute to stable earnings as implemented in the previous medium term ROIC target: 10% or higher

In order to promote these business strategies, we will strengthen our sustainability management through transformation (Kobelco-X).

In the current medium term, we will promote the above measures to transform us into an appealing company and aim to become a business entity that drives innovation into the future, achieving net sales of 3 trillion yen, an ordinary profit of 200 billion yen, and an ROIC of 8% on a stable basis, as we move toward fiscal 2030.

1.Financial Targets

As a profitability indicator in the current medium term, we aim to stably achieve an ROIC of 6%, looking to achieve an even higher ROIC of 8%, when the business environment is favorable to us.

As a safety indicator, we aim to achieve a net asset ratio in the low-40% range and a gross D/E ratio* in the mid-0.7 times range.

  • * Beginning in the current medium term, the gross D/E ratio will be based on an interest-bearing debt, including project financing.

2.Cash Allocation

We plan to secure operating cash flow of 500–600 billion yen for the three-year period from fiscal 2024–2026 in total. We plan to invest in each business, considering the return to shareholders in accordance with our policy.

During the current medium term, we plan to carry out active investment projects as shown below (on a decision-making basis).

  • Investment in carbon-neutrality: Approx. 300 billion yen
  • Investment in enhancing earning power: Approx. 170 billion yen
  • Investment in pursuing growth: Approx. 100 billion yen
  • Investment in human capital (investment to improve the work environment and address human resource shortages): Approx. 60 billion yen
  • Investment in rationalization, renewal investment, etc., including digital transformation (DX): Approx. 320 billion yen

In anticipation of future capital needs, we will work to maximize capital efficiency by taking measures such as selling assets and lowering cash and deposit levels.

3.Return to Shareholders

Our Company determines dividends taking its financial condition, future capital needs, quarterly business performance, dividend payout ratio, and other factors into overall consideration with the aim of paying dividends on a continuous and steady basis in principle. The target dividend payout ratio will continue to be approximately 30%, which was raised in fiscal 2023.

4.Key Measures

(1) Enhancing earning power (materials businesses): Rebuilding the operation bases for the future business environment

(2) Pursuing growth (machinery businesses): Achieving growth by capturing new demand and widening business domains

In the machinery business, while strengthening its earning power, we will pursue growth by focusing on acquiring new business opportunities, such as energy transition driven by carbon neutrality trends and developing customer experience-oriented business and solution business. Through these, the machinery segment strives to become a business entity that achieves net sales of 1 trillion yen scale.

(3) Taking on the challenge of realizing carbon neutrality

(4) Strengthening sustainability management through transformation (Kobelco-X)

We have positioned our “ambidextrous management” that focuses on both enhancing existing businesses and exploring new business opportunities (called AX) and taking on the challenge of realizing carbon neutrality, namely green transformation (called GX) as two wheels of our business strategy, with five other Xs, including business transformation (BX), customer experience transformation (CX2), digital transformation (DX), employee experience (EX), and factory transformation (FX), functioning as driving forces for realizing AX and GX. In addition, we will continue to strengthen our business foundation, including safety, quality, and compliance governance, which are the cornerstone of our business continuity, aiming to strengthen our sustainability management.

【4】 Conclusion

Our company will celebrate its 120th anniversary in 2025. We will move forward with our transformation initiatives in order to become an appealing company and be recognized as such by our diverse stakeholders, including customers, business partners, local communities, shareholders, investors, and Group employees.

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