Announcement on change in consolidated subsidiary (share transfer) and recording of extraordinary loss

Kobe Steel, Ltd. announces that, at its Board of Directors meeting held today, the Board adopted a resolution to transfer all of its shares in its consolidated subsidiary Kobelco & Materials Copper Tube, Ltd. (“KMCT”) to M Cap No. 7, Co., Ltd. (“MCAP”)*. With the share transfer, KMCT and its subsidiaries Kobelco & Materials Copper Tube (Thailand) Co., Ltd., Kobelco & Materials Copper Tube (M) Sdn. Bhd., and Hatano Pipe Center Co., Ltd. will be excluded from Kobe Steel’s consolidated subsidiaries.

As announced in the “Announcement on Change in Consolidated Subsidiary (Share Transfer)” dated September 27, 2019, Kobe Steel had been preparing for the transfer of its shares in KMCT with the aim of improving KMCT’s corporate value. However, the scheduled date of transfer was postponed due to the the novel coronavirus (COVID-19) pandemic, and the share transfer was eventually canceled as announced in the “Announcement on Cancellation of Planned Share Transfer of Consolidated Subsidiary” dated December 24, 2020. Since then, Kobe Steel has continued to study measures for the future growth of KMCT and decided to proceed with the share transfer as there are signes of recovery in the KMCT’s business environment and business performance despite the continuing impact of the COVID-19 pandemic. In addition, owing to the share transfer, it is anticipated that Kobe Steel will record an extraordinary loss.

KMCT was established in 2004 by consolidating the copper tube businesses of Kobe Steel and Mitsubishi Materials Corporation (“Mitsubishi Materials”) in Japan and Southeast Asia. KMCT engages in the manufacture and sale of air-conditioning copper tubes, copper tubes for construction and cold/hot water supply, and other products.

In the KOBELCO Group Medium-Term Management Plan (FY2021−FY2023), the Kobe Steel Group (also known as the KOBELCO Group) places top priorities on “establishing a stable earnings base” and “taking on the challenge of realizing carbon neutrality.” Under these initiatives, the key measures concerning the materials business have been identified as the strategic investment leading to earnings contriburion and the restructuring of unprofitable businesses. Kobe Steel has studied various measures to optimize the future growth and development of the copper tube business, in which KMCT is involved, while leveraging the business foundation that has been cultivated to date.

As a result, Kobe Steel came to the conclusion that the most effective way for KMCT to further expand its operations, develop its business and improve its corporate value in the future would be to promote KMCT’s business operations by gaining overall support from Marunouchi Capital in the management and financial aspects.

In the share transfer, Kobe Steel will transfer 55.00% of the issued shares that it holds in KMCT, while Mitsubishi Materials will transfer 45.00% of the issued shares that it holds in KMCT.

* MCAP has agreed that KMCT’s enterprise value will be approximately 12 billion yen. The final transfer price will be determined after making adjustments for KMCT’s working capital and net debt as of the effective date of the share transfer as provided in the Share Purchase Agreement (“SPA”).

*As the share transfer will be implemented after receiving approval from the Japan Fair Trade Commission under the Antimonopoly Act, the above schedule may change in the event of any change or delay in the approval process.

Kobe Steel plans to record an extraordinary loss of approximately 7 billion yen for the fiscal year ending March 2022. Further annoucements will be made promptly if there is a need for any revision to the consolidated financial forecasts for the fiscal year ending March 2022.