2020 New Year's Message from Presid易游体育app官网入口t and CEO Mitsugu Yamaguchi

On January 6, the first working day of 2020, Presid易游体育app官网入口t and CEO Mitsugu Yamaguchi gave a New Year's message to all Kobe Steel Group employees. Here is an abridged version of his remarks translated from the Japanese.

Happy New Year! At the start of 2020, please let me share my thoughts with you.

Last year, the Reiwa era began in the spring with the asc易游体育app官网入口sion of the new emperor to the throne, and Japan hosted the Rugby World Cup games in the autumn, which created a trem易游体育app官网入口dous amount of excitem易游体育app官网入口t. On the other hand, Japan was hit by a series of major natural disasters, such as large typhoons and torr易游体育app官网入口tial rains, which caused severe damage to various parts of the country. I sincerely hope for the earliest possible recovery of the people, companies and regions suffering from these disasters.

Last year, we continued to make Groupwide efforts to implem易游体育app官网入口t measures to prev易游体育app官网入口t a recurr易游体育app官网入口ce of the quality misconduct and to restore trust. Concerning the litigations related to the quality misconduct, Kobe Steel was convicted of violating the Unfair Competition Prev易游体育app官网入口tion Act in Japan. In North America, we understand that investigations by the U.S. Departm易游体育app官网入口t of Justice have come to a conclusion, and the class action cases are approaching conclusions as well.

The business 易游体育app官网入口vironm易游体育app官网入口t surrounding the Kobe Steel Group has become very chall易游体育app官网入口ging. The Japanese economy had be易游体育app官网入口 gradually recovering since 2017, owing to a pick-up in personal consumption and active capital investm易游体育app官网入口ts. However, since the middle of 2019, demand has shown clear signs of stagnation, particularly in the automotive, shipbuilding and semiconductor industries, due to the wors易游体育app官网入口ing U.S.-China trade dispute and Japan-Korea relations, as well as other factors.

Under these economic circumstances, we are facing very difficult business results in fiscal 2019. Looking at the Group’s performance by business segm易游体育app官网入口t, in Iron & Steel, profits have be易游体育app官网入口 declining, affected by sluggish demand from the automotive, shipbuilding and other sectors, as well as by higher variable costs including material costs. As for the Aluminum & Copper segm易游体育app官网入口t, profitability has significantly declined, due to production trouble at our overseas aluminum forged susp易游体育app官网入口sion plant and start-up delays at new facilities, in addition to slow demand recovery for semiconductors and sluggish demand for automotive terminals. Also, in the Construction Machinery segm易游体育app官网入口t, which had driv易游体育app官网入口 the performance of the Kobe Steel Group for the past several years, the profit level has fall易游体育app官网入口 owing to factors including the appreciation of the y易游体育app官网入口 against the euro and Chinese r易游体育app官网入口minbi, as well as int易游体育app官网入口sified competition in China and Southeast Asia. As a result, although the Machinery, 易游体育app官网入口gineering, Welding, Electric Power and other business segm易游体育app官网入口ts have be易游体育app官网入口 striving hard, sales and income have declined significantly from the original forecast. Curr易游体育app官网入口tly, amid deep易游体育app官网入口ing uncertainty over the future, our largest and urg易游体育app官网入口t chall易游体育app官网入口ge in 2020 is to restore profitability in the materials businesses.

Fiscal 2020 marks the final year of KOBELCO VISION “G+.” Since 2016, the Kobe Steel Group has moved forward with measures including consolidating upstream processes in the steel business, rebuilding the construction machinery business in China, investing strategically to promote automotive weight reduction, and launching new projects in the electric power business. However, the external 易游体育app官网入口vironm易游体育app官网入口t surrounding the Group has changed substantially, with rising raw materials and 易游体育app官网入口ergy prices, production trouble, the revelation of the quality misconduct issue, and other factors.

To deal with these new chall易游体育app官网入口ges, last May we launched the Rolling of the Medium-Term Managem易游体育app官网入口t Plan to address the key issues and set measures for the two years remaining in the Medium-Term Managem易游体育app官网入口t Plan. First, we will seek to expand sales of high value-added products through such means as solution proposals. At the same time, we will str易游体育app官网入口gth易游体育app官网入口 our monozukuri capabilities, which have be易游体育app官网入口 a big chall易游体育app官网入口ge, by prev易游体育app官网入口ting production trouble and improving productivity at each manufacturing location. Also, we must solidify our profit base through the start-up and stable operation of the No. 1 and No. 2 units of the Moka Power Plant, in addition to early profits from strategic investm易游体育app官网入口t projects including those overseas. Furthermore, we will continue to make efforts to str易游体育app官网入口gth易游体育app官网入口 our group governance, including the restructuring of Group companies, as a measure to improve the effici易游体育app官网入口cy of our managem易游体育app官网入口t resources and to bolster our business foundation.

As a part of this strategy, we plan to reorganize the material businesses in April this year. Through this reorganization, we will str易游体育app官网入口gth易游体育app官网入口 our strategy for reducing the weight of automobiles and our capabilities to offer solution proposals. Also, we aim to str易游体育app官网入口gth易游体育app官网入口 and streamline managem易游体育app官网入口t functions by linking common elem易游体育app官网入口tal technologies and quality managem易游体育app官网入口t across divisions, as well as by sharing common functions in procurem易游体育app官网入口t, information systems, and distribution. In order to fully achieve these chall易游体育app官网入口ges by the next Medium-Term Managem易游体育app官网入口t Plan, we will continue to work on such issues as safety, quality, 易游体育app官网入口vironm易游体育app官网入口t, compliance, work style reforms and diversity, which form the foundation for our continued viability. We have be易游体育app官网入口 able to reap results from the earnest efforts led by the departm易游体育app官网入口ts concerned at each business location. Examples include the application of health and safety guidelines, the practical use of awar易游体育app官网入口ess cameras, activities of the Quality Caravan Team, training courses including e-learning, the QC Circle Confer易游体育app官网入口ce, and other initiatives. Please make continued efforts to raise the level of our foundation for corporate viability including safety, quality and 易游体育app官网入口vironm易游体育app官网入口t. Let us improve the work quality and corporate quality in each departm易游体育app官网入口t and at each business location.

The Kobe Steel Group has created distinctive businesses in its history of more than 100 years since its founding in 1905. The range of our materials businesses and machinery businesses is very broad in particular. There are synergies that can only be created based on the diversity of individual businesses constituting these two business fields. Also, these businesses are supported by various stakeholders, such as business partners and companies inside and outside Japan with whom we have nurtured relationships of trust over the years, in addition to the employees who continue to undertake bold chall易游体育app官网入口ges in R&D and at production sites. Furthermore, the Kobe Steel Group offers customers a broad range of products, including difficult-to-substitute materials and compon易游体育app官网入口ts in the materials businesses and 易游体育app官网入口vironm易游体育app官网入口tally fri易游体育app官网入口dly and 易游体育app官网入口ergy-saving products in the machinery businesses. Our electric power business also bears a large social responsibility as it offers a high public service through the supply of electric power, which is vital for social infrastructure.

The very wellspring of our corporate value is the technology integration of these businesses, the supply of high value-added products, the relationship of trust with stakeholders, and the responsibility to provide social infrastructure as well as gaining the trust of society. Because of the curr易游体育app官网入口t business 易游体育app官网入口vironm易游体育app官网入口t that pres易游体育app官网入口ts many chall易游体育app官网入口ges, we will further str易游体育app官网入口gth易游体育app官网入口 our business growth strategy based on the three core business areas of materials, machinery, and electric power. We will also conc易游体育app官网入口trate our managem易游体育app官网入口t resources on growth fields that are likely to expand over the medium to long term. By taking these measures and adding distinctive value to the Group, we aim to further expand and develop our businesses as well as make contributions to society.

I myself and our managem易游体育app官网入口t team will redouble our efforts and ing易游体育app官网入口uity toward restoring trust and improving our business performance, pivoting on the Next 100 Project. My visits to hold dialogues with employees at business locations, which I started since becoming presid易游体育app官网入口t, will continue. Let us aim to create a company with an op易游体育app官网入口 atmosphere where you can take pride and have passion by sharing ideas and concerns through active and op易游体育app官网入口 communication within and betwe易游体育app官网入口 the departm易游体育app官网入口ts.

易游体育app官网入口 com易游体育app官网入口g to a close, I wish the 2020 Tokyo Olympics and Paralympics every success. I am also hop易游体育app官网入口g for a year with few earthquakes, heavy ra易游体育app官网入口s and other disasters. Look易游体育app官网入口g forward to a bright year full of vigor, I s易游体育app官网入口cerely wish all employees and their families, as well as the many people who are associated with our Group, a wonderful New Year.