January 4, 2023
JFE Holdings, Inc.

2023 New Year’s Message to Employees

Koji Kakigi
President and CEO, JFE Holdings

Happy New Year and Warmest Greetings in 2023!

Last year we again faced challenging business conditions as the global economic outlook became increasingly uncertain amid the protracted war in Ukraine coupled with rising prices and a weaker yen. Although demand for steel showed signs of recovering from the pandemic-triggered slump, auto production and overseas steel prices failed to recover sufficiently. China, which has a major bearing on the global steel market, its zero-COVID policy resulted in stagnated domestic demand, especially in the real estate market, so the government’s economic stimulus and other policy measures must be watched closely going forward. In the engineering business, soaring costs of materials and equipment and worsening profitability for projects overseas had a major downward impact on earnings. We are now almost two years into our Seventh Medium-term Business Plan, under which we launched the biggest transformation in our company’s history beginning in FY2021. Although we expect to realize modest profitability in FY2022, we have not achieved the earnings targets that we set out in our medium-term plan, so our goal to achieve a stable earnings base is still a way off. The consolidation of facilities and other structural-reform initiatives in our steel business has progressed as planned, with thanks to our internal and external stakeholders for their understanding and cooperation. The Chiba No. 6 blast furnace is being refurbished as planned and is set to be blown in this month. I am pleased that we have made a measure of progress with efforts to shift our focus from quantity to quality, one of the priorities of our medium-term plan. Regarding efforts to repurpose property in our Keihin District, together with ENEOS Corporation and JERA Co., Inc., last year we began studying the feasibility of a hydrogen and ammonia receiving and supply base. In terms of climate-change countermeasures, one of our top priorities, last May we formulated a detailed roadmap for carbon-neutral steelmaking and announced a plan to study the prospects of installing a large, high-efficiency electric-arc furnace in our Kurashiki District in 2027–2030. Also, last September, we announced a collaboration with Itochu Corporation and Emirates Steel Arkan to study the establishment of a supply chain for low-carbon reduced iron, and in October, we announced our intention to begin marketing green-steel products from FY2023. Furthermore, our groupwide efforts to commercialize offshore wind-power generation included starting construction on a plant to manufacture monopile foundations. Turning to the issue of the stock market’s evaluation of JFE, our share price has been subdued over the past two years and I believe there are two major factors for this. First is the market’s concern about the steel business’s future ability to achieve decarbonization. And second is our relatively weak earnings compared to those of competitors, meaning that we have not fully lived up to shareholders’ expectations. To dispel such concerns, we must steadily execute the measures set out in our medium-term plan in order to demonstrate to external stakeholders that we have a viable path leading to sustainable growth.

2023 Agenda

We will soon enter the third year, or midpoint, of our medium-term plan. I ask each of you to please take some time to look back on your efforts over the first half, evaluate the results as well as any ongoing issues, and then accelerate your efforts to help us achieve our plan’s full-term goals. To realize a carbon-neutral steel business, we will need to make huge investments in capital and research & development over the long term. In order to secure the necessary funds, it is crucial that we increase our overall earnings through medium-term initiatives. Accordingly, the following are the priorities that each operating company must address resolutely this year, while also keeping a watchful eye on changes in the external environment.

● Increasing profitability and executing growth strategy
JFE Steel, the cornerstone of our earnings foundation, will complete its structural reforms and thereby greatly reduce its fixed costs. It also will expand its lineup of high-value-added products and revise pricing structures for more robust earnings and greater resilience to external economic changes. For long-term growth, JFE Steel will also expand its overseas operations by forging stronger relationships with foreign manufacturers and the like. JFE Engineering will work to expand its scale by continuing to pursue M&A and launch joint ventures, including to integrate its water-related engineering business in Japan, as announced in December. It also will strengthen its overseas operations for more stable earnings. JFE Shoji Trade, in line with JFE Steel’s structural reforms, will strive to expand its business beyond JFE Steel, and also step-up efforts in the construction-materials sector overseas in partnership with U.S.-based CEMCO, acquired last year, as well as accelerate its establishment of the world’s leading operations for processing and distributing electrical steel sheet. JMU will focus on substantially improving its earnings and financial position, including by building on its technological capabilities for the development of next-generation fuel ships ahead of domestic and international competitors. And finally, we collectively need to strengthen our group-wide synergies, including for offshore wind power, and create new businesses that, for example, deliver added value through digital transformation (DX). We also must make better use of the vast talent in our workforce by stepping up initiatives for diversity and inclusion (D&I) as well as workstyle reform.

● Achieving carbon neutrality
The goal of decarbonization represents a huge opportunity, rather than an obstacle, for JFE. By leveraging our world-class technologies to achieve carbon-neutral steelmaking ahead of our competitors, and by developing and expanding our use of renewable energy and carbon-recycling technologies to greatly reduce our CO₂ emissions, we have a major opportunity to establish a dominant position for JFE on the world stage. This year, in line with our roadmap toward carbon-neutral steelmaking, we will start constructing a range of demonstration test facilities, including a carbon-recycling test blast furnace, a direct hydrogen reduction test furnace, and an electric-arc test furnace. I encourage everyone involved to embrace these precious opportunities and tackle every challenge without fear of failure.

● Enhancing safety
Of course, our very most important initiative in 2023 is safety, which remains our top priority above all else. Under the firm belief that all accidents are preventable, this year we will further deploy DX and other advanced technologies to ensure that our facilities and operations are truly as safe as possible.

Conclusion

This year will mark the 20th anniversary of JFE Steel and JFE Engineering. In this era of rapid change and high unpredictability, we must work together as a united group to establish a strong position that ensures we are recognized the world over as being indispensable for the sustained development of human society and safe, comfortable lifestyles for all. As we embark on another year together, I extend my very best and most sincere wishes to all of you and your families for health and prosperity in 2023.