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2013 New Year's Message from President Hiroshi Sato

January 7, 2013

On January 7, 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.

Moving into the Black in Fiscal 2013

Our top priority in fiscal 2013 is to turn a profit on a consolidated ordinary income basis. The market will not allow us to keep making losses.

Our marketing team must grow sales volume to improve our cash flow as much as possible. Our production team must efficiently increase production volume. And our research and development team must strive to enhance the value of our products.

It is the responsibility of our Head Office to fully support these business activities. For this purpose, we have set up a structural improvement committee to support our business activities in terms of finance, human resources, “monozukuri” or manufacturing, and procurement to enable our businesses to generate cash and boost profits. Taking this opportunity, we must reevaluate our operations at each location and take steps to make our businesses leaner.

One of our top priorities is to return our steel business to profitability and we are taking measures for this purpose without fail. For example, we are investing in hot metal pretreatment and Gas Turbine Combined Cycle facilities to reduce costs.

I strongly believe that we will move into the black. What we need to do, under the current difficult business conditions, is “cut our coat according to our cloth.” This means we may have to take many tough measures, but please understand that these measures are necessary for us to leap forward.

Progress of KOBELCO VISION "G"

We are expanding our businesses globally with our "Only One" products. Our steel business is building a framework to meet the needs of automakers for global procurement by forming joint ventures in such countries as the United States to manufacture high-strength steel sheet and also by strengthening partnerships with European manufacturers. Our aluminum business has established forging plants in three locations: Japan, the United States and China. Our welding and machinery businesses have already put in place global supply systems consisting of production and sales bases in Europe, the United States and Asia. As for our new ironmaking technology, ITmk3®, we are working to achieve stable production. In our construction equipment business, Kobelco Construction Machinery is shortening development time, increasing productivity and lowering procurement costs at its five bases in Japan and abroad. Its Global Engineering Center in Hiroshima is leading these efforts.

The Kobe Steel Group has also been focusing on strengthening its "monozukuri-ryoku" or manufacturing capabilities. As part of the efforts, we held the second KOBELCO QC Circle Competition with the participation of our group companies and were able to affirm the steady progress made at each of our plants. At the QC event, the activities of the plants were presented followed by a lively Q&A session. Participants from different group companies and divisions became acquainted with each other at the QC event and are still keeping in touch, inviting each other to their workplaces and exchanging opinions. This shows that the spirit of barrier-free management has been realized. I would like all of you to further strengthen this spirit.

In these ways, we have been unflaggingly taking measures for future growth and we must make sure that we complete these efforts successfully so that these measures will result in primary sources of revenue for the Kobe Steel Group.

Medium-Term Business Plan for Fiscal 2013-2015

This year, our medium- to long-term business vision, KOBELCO VISION "G," will enter the second phase, covering fiscal 2013 to 2015, and we will draw up a new medium-term business plan for this period. With business conditions so severe, our first priority is to achieve ordinary profit on a consolidated basis in fiscal 2013. At the same time, having a medium- to long-term growth strategy is also important. We must draw up an ambitious business plan that will enhance our profitability in accordance with the basic policies set forth in KOBELCO VISION "G."

Now, turning our eyes to the world market, we see some emerging economies slowing down while the U.S. economy is on track for a recovery thanks to the picking up of the auto industry and the shale gas revolution.

Throughout our 107-year history, each segment of the Kobe Steel Group has grown into a strong business capitalizing on its distinctive advantages. We must bear in mind that our strategy is to market our “Only One” products in sectors and regions where demand is growing and achieve results.

Concluding Remarks

Last year, I visited many of our plants and offices, both in Japan and abroad, trying to share with you how Kobe Steel is doing and what we should aim for. I have also been sharing with you my hope that all of you will remain healthy in mind and body both at the workplace and in your jobs.

In response, many employees, doing a great job both in Japan and abroad, have shared with me their current situations, their future visions and what they are doing to achieve those visions. It is indeed reassuring and encouraging to know that all of us are making all-out efforts for future growth.

At the same time, it is deeply regrettable that not a few accidents occurred at our plants last year. Some of the accidents occurred due to non-compliance of the rules laid down at the workplaces. In order for the Kobe Steel Group to sustain growth, all of us must increase our awareness of safety, accident prevention, the environment and compliance. I would like to emphasize safety, in particular, and strongly urge each location to have every employee well-informed about and comply with the rules to achieve zero accidents.