2014 New Year's Message from President Hiroya Kawasaki

When fiscal 2013 started in April, our first goal was to survive. It was an absolute priority for the Kobe Steel Group to return to profitability and post a consolidated ordinary income to restore confidence in the financial market and in our stakeholders. Japan's economy is on the road to recovery thanks to the measures taken by the current administration, and business conditions surrounding the Kobe Steel Group have improved both in Japan and abroad. We have made a groupwide effort to seize these opportunities.

As a result, consolidated ordinary income in the first half of fiscal 2013 (ended September 30, 2013) reached 43.1 billion yen and is expected to reach 70 billion yen for the entire fiscal 2013, far exceeding our earlier forecast. I would like to express my deep appreciation to all employees for their tireless efforts. There are, however, still three months to go before the end of fiscal 2013 and we must not be complacent. We must maintain a high level of awareness and steadily carry out our day-to-day work to further boost our profits.

This April, our medium- to long-term business vision, KOBELCO VISION "G," will enter the middle year of the second phase, which covers fiscal 2013 to 2015. If we are to be confident that we can survive and win in the fierce global competition, we must achieve a certain level of profit for at least two years in a row. We have been implementing measures laid out by our Committee for Cost Reduction and Cash Generation, while continuing our cost-cutting activities. In addition to these efforts, we have also made decisions on capital investment with an eye toward future growth, and I would like all employees to do their utmost so that we can reap the benefits of these investments.

By thoroughly implementing these efforts, I believe we will be able to achieve our target of an ordinary income of 80 billion to 100 billion yen in fiscal 2015, which is the final year of the current medium-term business plan. As one of these efforts, we decided to reform the structure of our steel business to restore its profitability as a core business. We need to draw up a detailed plan in accordance with the basic policies we made when we decided on structural reform, and we must put the plan into practice.

As for our strategies to seize opportunities in growing sectors and regions, we targeted last year the auto industries of North America and China. The continuous annealing line at PRO-TEC Coating Company, our joint venture in the United States, has commenced commercial production, and the aluminum forging plant at Kobe Aluminum Automotive Products (China) Co., Ltd. in China has been expanded and has gone into mass production.

We have also reached decisions on new production sites. One is a joint venture in China with Angang Steel Company Limited to produce and sell advanced cold-rolled high-strength steel sheet for automobiles. We also decided to establish a company on our own to produce aluminum sheet for automotive body panels in China. Countries such as China are ahead of other countries in their efforts to raise fuel efficiency standards as a national policy. Stricter fuel efficiency standards require lighter automobiles, and in this area, Kobe Steel can differentiate itself from its competitors with its own unique technology.

It is essential for us to become more responsive to the needs of our customers in all activities including R&D, marketing and production technology. As for our ongoing efforts to expand sales and promote R&D across the organization, I would like all employees to further strengthen cooperation among our business divisions.

The shale revolution in North America has also been offering the Kobe Steel Group huge opportunities. Drilling, shipping, storing, refining and using shale gas require such products as steel, welding materials, compressors, plastic processing machinery, heat exchangers and construction machinery. Measures to save the natural environment are also necessary. The Kobe Steel Group boasts distinctive products in each of these areas and this means there will be wide-ranging opportunities for us. I would like all employees to further strengthen cooperation within the Group to seize those opportunities.

First, we must survive and win. Next, we must pursue further growth by stabilizing and solidifying our revenue base. For that to happen, it is essential for us to expand our power supply business, which will be a stable source of income in the future. We will make full use of our know-how in plant construction and operation to achieve this goal.

In the area of fuel cell vehicles, which is attracting attention as next-generation vehicles, the Kobe Steel Group is aiming to enter the hydrogen fuel station market. We will capitalize on our all-round capabilities and aggressively pursue the hydrogen fuel station business to make it a source of income. This business can contribute to strategically expanding our machinery business, one of the goals set forth in our medium-term business plan.

Last year, I visited many of our plants and offices, both in Japan and abroad, trying to have face-to-face communication with employees as much as possible. I intend to continue this year to visit our locations to directly listen to the voices of our employees and tell them in person that I am anxious to see all employees make every possible effort with tenacity and passion to solve problems in the workplace.

As I always emphasize when I visit, we must take safety, disaster prevention, the environment and compliance into consideration. Dealing with these issues is essential for the Kobe Steel Group to maintain stable profits and keep growing into the future. We must always remember these points and act accordingly.

Fiscal 2014 will be a crucially important year to fulfill the targets set forth in the medium-term business plan. Let us put our full efforts into the remainder of fiscal 2013 and fiscal 2014.