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2010 New Year's Message from President Hiroshi Sato

January 5, 2010

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

1. Business Conditions

Although the global economy is said to have passed the worst stage, recovery has been slow in Europe and the United States. Japan, too, has been beset by looming uncertainties such as the rising yen, the sluggish stock market and deepening deflation. Business conditions surrounding the Kobe Steel Group are also expected to remain difficult. In the material sector, there are such uncertainties as the supply-demand imbalance; tough negotiations to set prices for raw materials; and moves toward capital tie-ups and business consolidations. In the machinery sector, private capital investment is expected to be slow. On the other hand, demand growth in China, India and other emerging economies and the global trend of reducing greenhouse gas emissions will provide Kobe Steel with great opportunities, because we have a wide variety of energy efficient technologies and products. Business conditions outside the company are mixed with both favorable and adverse factors.

2. Profit and Cash Flow

Our immediate challenge is to improve our business performance and do our utmost to reduce loss in fiscal 2009. It is absolutely necessary for us to return to profitability in fiscal 2010 and pursue further profit growth. For that to happen, each and every one of us must fulfill one's responsibilities such as maximizing orders, stabilizing production and cutting costs.

3. Future Direction

Our future direction can be summarized as follows: we will maintain stable production of high-value added, highly profitable “Only One" products made at an appropriate cost. We will reinforce our organization and develop our human resources, in order to accelerate our globalization and expand our sales volume. We will achieve sustainable growth hand in hand with society. We are now discussing our medium- to long-term vision based on these principles. As the next step, we will draw up concrete scenarios and announce them as a part of our new medium-term business plan at an appropriate time. The main points would be as follows:

	3.1. Pursuing Only One products

While Kobe Steel boasts wide-ranging distinctive technologies, products and services, we must continue our incessant efforts to create new value, keeping up with ever-changing needs in the world. For that to happen, not only research and development staff but also all other staff involved in sales, product technology and manufacturing must work together.

	3.2. Enhancing our monozukuri skills

We have set up at our head office a project team to enhance our “monozukuri" capabilities, namely excellence in manufacturing, and have begun new activity for this purpose. The aim is to enable our head office to grasp, analyze and evaluate objectively and quantitatively the distinctiveness and strong points of each of our production sites and to communicate the results so that we can strengthen the monozukiri skills of the entire Kobe Steel Group.

	3.3. Accelerating our business globalization

While the prospects for the domestic market growth are cloudy, emerging economies such as China and India are showing remarkable development and our customers are increasingly shifting production and procurement overseas. We must keep pace with these developments and accelerate our own globalization with a sense of speed.

	3.4. Building up organizational strength and developing human resources

One of the distinct features of the Kobe Steel Group is its wide variety of businesses and technologies. If we combine them to enhance our organizational strength, that will provide us with an unrivaled advantage. That is why it is important for us to make our Group “barrier-free," removing fences in terms of organization (division), culture and mentality. I would like you to recognize more fully the importance of information sharing.

An organization is sustained by its people. At a time when society is changing at an unprecedented speed, we should be interested in countless things. We must have an eagle eye to read the shifting tide and must keep improving our knowledge and skills. Kobe Steel, as a whole, will also aim to develop its human resources and launch systematic activities.

	3.5. Safety/disaster prevention and living in harmony with society

Safety and disaster prevention and living in harmony with society are the foundation of our business activities. An internal control system, including enforcing compliance, was established and put in practice based on our new risk management activities, which were launched last year. I would like all employees, under the leadership of our executives, to participate in these activities, recognizing that the activities are a part of one's duties. We will also continue caring for the environment.

4. Closing remarks

Since becoming President and CEO last April, I have visited about 20 plants, works and offices of our Group located in Japan and overseas. It is my intention to continue visiting the various sites of our Group and communicating with people working there. I hope 2010 will be a fruitful and memorable year both for Kobe Steel and all of you. Let us join our hands and work together for that goal.