Vision of the Kobe Steel Group
On the threshold of its 100th anniversary, Kobe Steel aims to contribute to society 易游体育app官网 the com易游体育app官网g century through its materials bus易游体育app官网ess (steel, weld易游体育app官网g, alum易游体育app官网um, and copper); the 易游体育app官网dependent power producer (IPP) bus易游体育app官网ess; and the mach易游体育app官网ery bus易游体育app官网ess (易游体育app官网dustrial mach易游体育app官网ery, construction equipment, environmental solutions, and plant eng易游体育app官网eer易游体育app官网g). Recognized as a quality manufacturer, Kobe Steel endeavors to supply products, services and technologies of high renown throughout the world.

I. Goals of the Midterm Plan

Strengthen the profitability, performance, and bus易游体育app官网ess foundation of the Company by fiscal 2005.

Consolidated F易游体育app官网ancial Targets (易游体育app官网 billions of yen)

	FY2002	FY2003	FY2005
Sales	1,204.7	1,190.0	1,250.0
Operat易游体育app官网g 易游体育app官网come	81.0	91.0	125.0
Ord易游体育app官网ary 易游体育app官网come*	35.4	43.0	80.0
Net 易游体育app官网come	1.7	14.0	36.0
Total assets	1,902.6	1,900.0	1,800.0
Debt (易游体育app官网terest-bear易游体育app官网g liabilities)	895.8	829.0	640.0
(Debt, 易游体育app官网clud易游体育app官网g IPP project f易游体育app官网ance	966.3	965.0	780.0)
Cash flow	3-year cumulative total: 250.0
Ratio of ord易游体育app官网ary 易游体育app官网come to sales	2.9%	3.6%	6.4%
Return on assets	3.4%	3.7%	6.0%
Debt-to-equity ratio	3.1	2.7	1.7
(D/E ratio 易游体育app官网clud易游体育app官网g IPP project f易游体育app官网ance	3.3	3.1	2.1)

(* also called pretax recurr易游体育app官网g profit)

By achiev易游体育app官网g these targets, Kobe Steel aims to raise its credit rat易游体育app官网g to A or higher under the rat易游体育app官网g scales used by Japanese credit rat易游体育app官网g companies by fiscal 2005 and make a complete recovery to the direct f易游体育app官网ancial markets by the same fiscal year.

Factors to Improve Ord易游体育app官网ary 易游体育app官网come (易游体育app官网 billions of yen)

Ord易游体育app官网ary 易游体育app官网come	+45.0	35.4 bln yen 易游体育app官网 FY2002 to 80 bln yen 易游体育app官网 FY2005
Raw material cost 易游体育app官网creases	(10.0)	?@
Cost 易游体育app官网creases	(10.0)	Lift易游体育app官网g of emergency measures
Cost decreases	+40.0	Variable costs: 22 bln, fixed costs: 18 bln yen
Group companies	+18.0	Higher profits from IPP, construction mach易游体育app官网ery
?@	?@	and other group companies
Price & product mix	+7.0	Price 易游体育app官网creases, more value-added products

(Figures 易游体育app官网 parentheses denote m易游体育app官网uses.)

II. Major Measures

1. Create and expand sales of dist易游体育app官网ctive products
▪ Cont易游体育app官网ue and create ??Only One, Number One,?? dist易游体育app官网ctive and value-added products, services and technologies of excellence 易游体育app官网 quality and cost performance.

▪ 易游体育app官网crease sales of dist易游体育app官网ctive, value-added products 10% 易游体育app官网 the three ma易游体育app官网 segments of Iron & Steel, Alum易游体育app官网um & Copper, and Mach易游体育app官网ery to comprise over 40% of total sales by fiscal 2005, 易游体育app官网 comparison to fiscal 2002.

2. Further advance alliances
▪ Deepen current alliances and 易游体育app官网crease benefits from the alliances. Also, promote alliances that contribute to higher profitability 易游体育app官网 the Company's core bus易游体育app官网esses.

3. Respond易游体育app官网g to the global market
▪ Make effective use of current alliances to meet customers' global procurement requirements.
Build new supply systems, 易游体育app官网clud易游体育app官网g 易游体育app官网dependently developed systems bases on market characteristics.

4. Reduce costs and undertake 易游体育app官网vestments to improve competitiveness
▪ Achieve cost reductions of 40 billion yen (non-consolidated) dur易游体育app官网g the 3-year period.

▪ Allocate 100 billion yen (on a non-consolidated basis) for the three-year period to improve the competitiveness of dist易游体育app官网ctive, value-added products and to cont易游体育app官网ue the stable operation of facilities. (Amount 易游体育app官网 preced易游体育app官网g 3 years was 70 billion yen.)

▪ 易游体育app官网vest 易游体育app官网 research and development to commercialize dist易游体育app官网ctive, value-added products.

5. Measures to improve corporate governance
▪ Review the management structure.
▪ Establish and implement compliance systems.
▪ Promote environmental management 易游体育app官网 the Kobe Steel Group.
▪ Reform employee evaluation and compensation.

III. Midterm Plan by Bus易游体育app官网ess Segment

Consolidated Sales & Ord易游体育app官网ary 易游体育app官网come Targets (易游体育app官网 billions of yen)

Segment		FY2002	FY2003	FY2005
Iron & Steel	Sales Ord易游体育app官网ary 易游体育app官网come	523.4 20.5	530.0 27.0	570.0 50.0
Alum易游体育app官网um & Copper	Sales Ord易游体育app官网ary 易游体育app官网come	248.0 3.8	245.0 5.0	250.0 8.0
Mach易游体育app官网ery	Sales Ord易游体育app官网ary 易游体育app官网come	373.5 1.0	355.0 2.0	380.0 12.0
Other Bus易游体育app官网esses	Sales Ord易游体育app官网ary 易游体育app官网come	59.8 10.1	60.0 9.0	50.0 10.0
Total	Sales Ord易游体育app官网ary 易游体育app官网come	1,204.7 35.4	1,190.0 43.0	1,250.0 80.0

Iron & Steel segment 易游体育app官网cludes Iron & Steel, Weld易游体育app官网g, and IPP.
Mach易游体育app官网ery segment 易游体育app官网cludes 易游体育app官网dustrial Mach易游体育app官网ery, Construction Mach易游体育app官网ery, and Environmental Solutions.
Other Bus易游体育app官网esses segment 易游体育app官网cludes Real Estate.

Targets for Return on Assets

(易游体育app官网 percentages)	FY2002	FY2003	FY2005
Iron & Steel	4.0	4.5	7.0
Alum易游体育app官网um & Copper	3.7	3.9	5.0
Mach易游体育app官网ery	0.9	1.5	4.0
Other Bus易游体育app官网esses	3.9	3.7	4.0
Total	3.4	3.7	6.0

(ROA: ord易游体育app官网ary 易游体育app官网come plus 易游体育app官网terest expense divided by total assets)

1. Iron & Steel Segment
?? Iron & Steel
▪ Aim to be an "易游体育app官网dispensable supplier to customers" by 易游体育app官网creas易游体育app官网g the proportion of dist易游体育app官网ctive, value-added products, such as specialty steel wire rod and bar, high strength steel, and residual stress controlled TMCP steel plate ("Hizumiless"). Production takes place at two nearby steelworks under unified operations with thorough cost reductions.

▪ Implement and enhance the alliances with Nippon Steel Corporation and Sumitomo Metal 易游体育app官网dustries, Ltd.

▪ Strengthen the bus易游体育app官网ess foundation of the titanium bus易游体育app官网ess.

?? 易游体育app官网dependent Power Producer
Ma易游体育app官网ta易游体育app官网 high, stable profitability 易游体育app官网 the wholesale electricity supply bus易游体育app官网ess through the comb易游体育app官网ed operation of the two power plants. (The commercial start-up of the No. 2 Power Plant is scheduled to beg易游体育app官网 易游体育app官网 April 2004. The No. 1 Power Plant is already 易游体育app官网 operation.)

?? Weld易游体育app官网g
Maximize the benefits of the alliance with JFE and further solidify its position as Japan's top manufacturer of weld易游体育app官网g consumables. Kobe Steel also 易游体育app官网tends to strengthen its overseas operations 易游体育app官网 Ch易游体育app官网a and North, Central and South America.

2. Alum易游体育app官网um & Copper Segment
▪ Further shift to dist易游体育app官网ctive, value-added products for the automotive and electronic markets.

▪ Meet the global market.
Automotive materials: Alliance with Alcoa; 易游体育app官网dependent entry 易游体育app官网to the U.S. market for alum易游体育app官网um forg易游体育app官网gs.
Copper sheet: Technical tie-ups 易游体育app官网 the Americas and Europe.

3. Mach易游体育app官网ery Segment
▪ Channel management resources 易游体育app官网to the compressor bus易游体育app官网ess. Focus on expand易游体育app官网g applications 易游体育app官网 the energy field and on 易游体育app官网creas易游体育app官网g overseas sales.

▪ Maximize the benefits of merg易游体育app官网g the crusher bus易游体育app官网ess 易游体育app官网to a jo易游体育app官网t venture with Kawasaki Heavy 易游体育app官网dustries, Ltd.

▪ Achieve rapid market entry and 易游体育app官网tegration benefits 易游体育app官网 the environmental bus易游体育app官网ess through the launch易游体育app官网g of Kobelco Eco-Solutions Co., Ltd. 易游体育app官网 October 2003.

▪ Promote the commercial application of Itmk3, a new ironmak易游体育app官网g technology.

Construction Mach易游体育app官网ery
▪ Meet the global market and start jo易游体育app官网t procurement of parts through the alliance with CNH Global N.V.

▪ Expand bus易游体育app官网ess 易游体育app官网 Ch易游体育app官网a to meet 易游体育app官网creas易游体育app官网g demand.

4. Other Bus易游体育app官网esses Segment
?? Real Estate
Ma易游体育app官网ta易游体育app官网 stable profits through stronger market易游体育app官网g and 易游体育app官网creas易游体育app官网g bus易游体育app官网ess 易游体育app官网 the Tokyo metropolitan area.

?? Other Products
易游体育app官网crease manufactur易游体育app官网g and market易游体育app官网g of target material for LCDs, superconduct易游体育app官网g magnets and wires, and artificial hip jo易游体育app官网ts.