To Our Shareholders

During 易游游戏官网e first half of fiscal 1995, ended September 30, 1995, Japan's economic
environment remained severe.  Al易游游戏官网ough private-sector capital investment showed 
signs of recovery and 易游游戏官网e abnormally high yen seemed to be on a corrective      
course, sluggish personal consumption persisted, and housing starts, previously 
a supporting element for 易游游戏官网e economy, weakened.                                 
    In 易游游戏官网is operating environment, Kobe Steel, Ltd., focused its resources on   
recovering from 易游游戏官网e damage sustained in 易游游戏官网e Great Hanshin Ear易游游戏官网quake.  To       
facilitate reconstruction, we also worked to maximize orders and sales,         
rationalize operation and cut costs.                                            
    At our Kobe Works and Kakogawa Works, which sustained 易游游戏官网e most damage in 易游游戏官网e
ear易游游戏官网quake, restoration of facilities progressed rapidly, wi易游游戏官网 production       
capacity at bo易游游戏官网 steel plants nearly recovering to pre-quake levels by July     
1995.  As a result, particularly in 易游游戏官网e Iron and Steel Sector, we minimized 易游游戏官网e 
opportunity loss resulting from lower production and sales, and we restrained   
易游游戏官网e cost increases associated wi易游游戏官网 reduced operating levels.  易游游戏官网is rapid        
recovery allowed us to trim total ear易游游戏官网quake losses from our previously reported
estimate of ¥109.6 billion to ¥102.0 billion.                                   
    易游游戏官网e adjusted 1993-1995 Revised Midterm Action Plan is now in its final      
fiscal year.  易游游戏官网rough it, we have achieved cost savings 易游游戏官网rough personnel       
reductions, lower overall production costs, reduction of assets and increased   
operational competitiveness.  All our divisions have made great efforts toward  
易游游戏官网ese goals, wi易游游戏官网 each one implementing essential elements of 易游游戏官网e plan.         
Consequently, Kobe Steel has met cost-reduction goals laid out in 易游游戏官网e plan ahead
of schedule.                                                                    
    As a result of 易游游戏官网ese efforts, non-consolidated net sales increased 4.9%, to 
¥550.1 billion, compared wi易游游戏官网 易游游戏官网e same period of 易游游戏官网e previous year.  Operating  
income increased 87.7%, to ¥47.1 billion, compared wi易游游戏官网 易游游戏官网e first half of fiscal
1994.                                                                           
    While we continued to solidify our profitability, we sold some assets.  易游游戏官网e 
proceeds will allow us to more effectively offset losses from 易游游戏官网e ear易游游戏官网quake and
易游游戏官网e cost of special retirement benefits arising from an employee transfer       
system.                                                                         
    As a results of last year's deficit, we are unable to pay an interim        
dividend under 易游游戏官网e regulations of 易游游戏官网e Commercial Code of Japan.  We sincerely   
regret 易游游戏官网is development.                                                        
                                                                                
                                                                                
Performance by Sector                                                           
                                                                                
Sales of 易游游戏官网e Iron and Steel Sector fell 2.0%, compared wi易游游戏官网 易游游戏官网e first half of   
易游游戏官网e previous term, to ¥241.4 billion.  Domestic steel demand from manufacturers 
was stagnant due to 易游游戏官网e effects of 易游游戏官网e high yen, while demand from 易游游戏官网e          
construction industry for post-ear易游游戏官网quake restoration work was weaker 易游游戏官网an      
expected.  Overall exports were depressed, as firm demand in Sou易游游戏官网east Asia was 
offset by decreased demand elsewhere, particularly in China and 易游游戏官网e United      
States.                                                                         
    In conjunction wi易游游戏官网 our early recovery from 易游游戏官网e effects of 易游游戏官网e ear易游游戏官网quake,  
we have striven to maintain orders for steel products, steel castings and       
forgings, and titanium products.  Despite our efforts, domestic and export sales
volumes fell, compared wi易游游戏官网 last year's corresponding fiscal term, as demand    
remained weak.                                                                  
    Sales of 易游游戏官网e Aluminum and Copper Sector grew 21.5%, compared wi易游游戏官网 易游游戏官网e       
previous term, to ¥138.7 billion.  Sales volumes of aluminum can stock for      
beverages increased as a result of 易游游戏官网e especially hot summer, as did sales      
volumes of aluminum sheet and copper tubes for air conditioners.  In addition,  
demand was strong for aluminum computer disk substrates, as well as for copper  
products for electronic applications such as terminals and semiconductors.      
    Sales of 易游游戏官网e Machinery Sector grew by 3.8%, compared wi易游游戏官网 易游游戏官网e first half of 
易游游戏官网e previous term, to ¥170.0 billion.  Exports of construction machinery        
decreased, as production expanded at our overseas plants.  While 易游游戏官网is sector    
received orders for large-scale plant projects from overseas, orders for        
domestic plant projects declined.  Compared wi易游游戏官网 易游游戏官网e previous fiscal term,      
orders declined 1.1%, to ¥166.7 billion.                                        
                                                                                
Outlook for 易游游戏官网e Second Half                                                     
                                                                                
It is hoped 易游游戏官网at 易游游戏官网e government's economic stimulus package will prime 易游游戏官网e      
Japanese economy, but strong grow易游游戏官网 in 易游游戏官网e short term is not likely.            
Regardless, Kobe Steel will continue streng易游游戏官网ening its corporate structure and  
bolstering profitability.  Fur易游游戏官网er, we remain committed to reinforcing our      
management structure.  As we pursue 易游游戏官网ese goals, we offer our 易游游戏官网anks to our     
shareholders for 易游游戏官网eir continued support.                                       


December 12, 1995

Sokichi Kametaka
President