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2015 New Year's Message from President and CEO Hiroya Kawasaki

January 5, 2015

On January 5, the first working day of 2015, President and CEO Hiroya Kawasaki gave a New Year's message to company employees. Here is a summary of his remarks translated from the Japanese.

1. Everything begins with safety

Happy New Year! Looking back at 2014, the first thing I have to talk about is the serious accident that happened in May at Kobe Works where, to my deepest regret, there was one casualty. We must never forget this accident. There have been other lost-time incidents since then. All of us must raise our awareness of potential risks at our working places, make an all-out effort to prevent accidents, and work every day with the determination not to repeat the same kind of accidents.

Last year also witnessed some natural disasters including mudslides in Hiroshima Prefecture. I would like to extend my deepest sympathy to employees who have been affected by those disasters.

This year marks the 20th anniversary of the Great Hanshin earthquake, and on this occasion, I would like to send again my sincerest condolences to the families of the victims of the quake. As one of leading companies in the Hanshin area, Kobe Steel will continue to prepare thoroughly for natural disasters.

2. Looking Back at 2014 Goals are within reach, but we can’t be complacent

We have made progress in achieving two important goals.

One goal is to ensure stable profits. Following a return to profitability in fiscal 2013, we anticipate posting in fiscal 2014 a consolidated ordinary income of 85 billion yen, which is within the target of the current medium-term business plan. In my New Year’s message last year, I said that if we are to be assured of surviving and winning, we must achieve a certain level of profit for at least two years in a row. As a result of our groupwide effort, we have come to the stage where our goals are within reach.

Business conditions surrounding the Kobe Steel Group, however, still do not warrant optimism. With less than three months to go before the end of fiscal 2014, we should not be complacent and must continue our groupwide effort of building up our profits as much as possible to ensure a stable profit base.

Another important goal is to improve our financial performance. In this area, we have been generating cash by reducing inventory and selling assets. We have been carefully selecting investments, while the Committee for Cost Reduction and Cash Generation has also made various efforts. Thanks to these initiatives, we anticipate achieving our target of a debt/equity ratio of 1.0 times or less.

Last February, Kobe Steel implemented a global public offering and raised enough capital to finance large-scale strategic investments to accelerate our global expansion. We should bear in mind that implementing a global public offering also means that Kobe Steel now has a new responsibility to its new stakeholders.

3. Looking at Fiscal 2015 We must not forget a sense of crisis as we aim for growth

Fiscal 2015 is the final year of the second phase of our medium- to long-term business vision, KOBELCO VISION “G.” The goals set forth in the current medium-term business plan include rebuilding the business foundation and optimizing our business portfolio to realize stability and growth. This year, we seek to successfully complete the current medium-term business plan and draw up a new medium-term business plan to conclude KOBELCO VISION "G."

In order to optimize our business portfolio, we will implement the following initiatives.

In the materials sector, we will carry out our plan to consolidate upstream production processes in our steel business. At the same time, against the backdrop of increasing demand for lighter automobiles, we will further grow our businesses involved in lightweight automotive materials. For example, we will begin operation in 2016 of a joint venture with Angang Steel in China to produce advanced cold-rolled high-strength steel sheet, and our company in Tianjin, China, will begin production of aluminum sheet for automotive body panels next year. We will strive to enhance our capability to offer multi-material solutions to automakers by bringing together the technologies of our Iron & Steel, Aluminum & Copper, and Welding businesses and the Technical Development Group.

In the machinery sector, exports and overseas markets make up a large portion of our machinery-related businesses. These businesses benefit from the current weak yen. We must not miss this opportunity to maximize short-term profits in order to make our businesses resistant to changes in outside conditions. Furthermore, to expand our businesses and maintain steady profits, our construction machinery and compressor businesses must serve as pillars in our global development. Kobe Steel also manufactures components for hydrogen fueling stations, and we will make efforts to work across our organization to promote and sell those components.

In our power supply business, we have made progress in two projects. We concluded an agreement with Tokyo Gas to supply all the electricity generated by our gas-fired power station to be constructed in Moka, Tochigi Prefecture. We have also submitted a bid for Kansai Electric Power's tender for thermal power generation. It is our intention to continue carrying out power supply projects both to serve society and ensure that we can generate solid profits into the future.

As previously mentioned, 2015 will be the year when we draw up a new medium-term business plan and the year when the Kobe Steel Group’s comprehensive capability is tested. I would like all Group employees to always bear in mind that if you yourself make the effort to move forward, things will move forward, too. Please remember the importance of taking action.

4. Concluding Remarks

Safety, stable production, environment protection, disaster management and compliance: These factors are essential for the Kobe Steel Group’s stability and growth.

All Group employees are required to always be sensitive to problems. You must think ahead and act to prevent problems from happening. First, we must prevent problems from happening, and if a problem arises, we must take care of it as soon as possible. We must always remember these points and act accordingly.

As I did last year, I would like to visit as many of our plants and offices as possible this year, both in Japan and abroad, and personally hear your voices and also share my views with you.

Coming to a close, I sincerely wish all employees and their families much joy and happiness for the New Year.