2019 New Year's Message from President and CEO Mitsugu Yamaguchi

Happy New Year! At the start of 2019, please allow me to share my thoughts with you.

I would like to first look back on 2018. The economic environment has continued to be favorable after a robust 2017 and remained relatively solid throughout the year, owing to preparations for the Tokyo Olympics and Paralympic Games, along with active investments by companies. On the other hand, concern about the future is growing amid the apparent trend toward trade protectionism by countries around the world. In addition, Japan has been frequently experiencing natural disasters, such as earthquakes, typhoons and torrential rains. I sincerely hope for the early recovery of the people caught in these disasters.

The Kobe Steel Group undertook a number of measures last year, including awareness raising, work reforms and measures to prevent recurrence, in order to restore the trust lost by the quality misconduct. We must steadily implement processes for restoring trust, such as automated inspection, mechanisms, quality verification, and customer support.

In addition, I must once again mention safety. In July, two precious lives were lost in a serious accident at the test yard of Kobelco Construction Machinery. Safety is absolutely essential. Safety comes first, and nothing is more important than safety. This is not only an issue for those working at our plants. All employees must raise their awareness of safety, carry out safety checks as a matter of course, and thoroughly comply with prescribed rules and procedures. Although the management is responsible for eliminating and avoiding motives or opportunities that lead to violation of the rules, I would like to ask all of you to once again check the rules and procedures.

Next, looking at our earnings forecast, we had to make a downward revision from the previous forecast for fiscal 2018. Lower production efficiency owing to equipment trouble and measures to prevent misconduct in the materials businesses and natural disasters that repeatedly occurred have affected our business performance.

In order to steadily gain orders backed by firm demand and have those orders reflected in our business performance, we must create a business system that is immune to natural disasters and environmental changes, and where production trouble does not occur. We must rebuild ourselves once again to ensure a stable earnings structure.

As I have mentioned previously, we have had a challenging year with issues still remaining, but in many aspects we are steadily moving forward. At the Kobe Power Plant, we have begun construction of the new No. 3 and No. 4 units, after completing all legal procedures required for construction work. Construction of the Moka Power Plant is also proceeding smoothly, and operation is to start in the latter half of 2019.

In addition, we are steadily implementing measures to prevent a recurrence of the misconduct. We are increasing horizontal and vertical communication through such activities as the Quality Caravan Team’s visits to business locations, quality audits by the Quality Management Department, and Next 100 Project dialogues with executives. I myself have held dialogues with the general managers at our business locations since becoming president in April 2018. Furthermore, in November, I started dialogues with the head foremen and foremen who work at our plants. The employees at each workplace gave me their strong opinions and made many helpful comments. I will continue to visit each workplace, learn what the actual conditions are, and listen closely to your voices.

We must consider the measures taking into account the information and situation gained from the dialogues, implement the measures, and confirm the results. I have realized once again that the biggest mission of the top management is to follow this Plan-Do-Check-Action (PDCA) cycle of communication.

In fiscal 2019, we will enter the fourth year of the current Medium-Term Management Plan. Although some circumstances have changed since the plan was initially formulated, we will continue to move forward in establishing a solid enterprise comprised of the three core business areas of materials, machinery, and electric power. With regard to the materials businesses, we will further strengthen initiatives for weight reduction in transportation vehicles and improve our earnings power. As for the machinery businesses, we will further enhance our earnings power and step up efforts in the energy and infrastructure fields. Concerning the electric power business, we will steadily proceed with construction work for new power plants, aiming to solidify the position of this business as a stable earnings base.

However, we still have many issues to resolve, including measures for stable operation and orderly manufacturing, measures for safety, and creating results from investment projects, as well as thoroughly implementing and deepening initiatives to restore trust. We will sort out these issues in the rolling plan of the Medium-Term Management Plan currently underway and steadily resolve each of them.

Following our announcement on the quality misconduct, I believe that we have caused much worry to your families and many other people concerned. Sparing no pain, I myself and our management team will implement measures to return us as early as possible to a company where we can work with peace of mind, a company with rewarding work, and a company that we can be proud of.

In 2019, I plan to make further progress in raising the awareness of employees and reforming the corporate culture by carrying out the measures to prevent recurrence, with the aim of restoring the trust of our customers as well as everyone in society. For our businesses, I will take a new step forward to ensure the sustainable growth of the Kobe Steel Group based on the rolling plan of the Medium-Term Management Plan.

Last year, the Kobelco Steelers won the Top League final and regained the national title of the All-Japan Rugby Championship, our long-cherished wish. They gave us great courage and strength from their approach toward rugby and from their spectacular plays. In the same way, I would like to make positive, all-out efforts just like them on the business front.

In coming to a close, I sincerely wish all employees of the Kobe Steel Group and their families, as well as all stakeholders of our Group, including our cooperative companies and customers, a fruitful and a promising New Year.