2025 New Year's Message to Employees

Yoshihisa Kitano, President and CEO, JFE Holdings

As we begin this new year, I am pleased to extend my warmest greetings to everyone working for the JFE Group.

This year marks the start of our Eighth Medium-term Business Plan (8th MTP), which we are currently preparing. Our Seventh Medium-term Business Plan (7th MTP) was positioned as the “biggest transformation in our company’s history, aimed at achieving global success,” based on which we strove to establish JFE as an indispensable presence for sustainable development and for the safe and comfortable lives of people everywhere. And now, as we plan our 8th MTP, we are laying out a long-term vision of where we want to be in 10 years, and then clearly defining what we need to do in the first three years.

Future Response to Challenging Business Environment

We continue to face a challenging business environment. In Japan, construction projects have been delayed due to labor shortages and rising material costs, and automobile production has been revised downward due to quality-related misconduct by certain automakers. Overseas, a slowdown in China’s domestic economic growth triggered by a real estate recession has led to a sharp increase in China’s steel exports, causing steel prices to fall worldwide. Also, Japanese automakers operating in China have experienced declines in production and sales due to aggressive sales of Chinese electric vehicles. Such changes in the external environment have had a significant impact on our consolidated business.

With no end in sight to various conflicts around the world, the international situation remains tense. In addition, the trend toward protectionism is intensifying, raising concerns about the future of free and open trade.

In this challenging business environment, we have steadily implemented the initiatives set out in our 7th MTP. In the steel business, we have completed structural reforms, including shutting down upstream processes in our Keihin District in September 2023. We have also continued to transition from quantity to quality by increasing the ratio of high-value-added products in our product mix. In addition, we have begun to lay the groundwork for future growth in overseas markets, such as establishing an electrical steel sheet manufacturing and sales company in India. In our engineering business, we have set up waste-disposal operations overseas and a plant for manufacturing offshore wind-power monopiles in Kasaoka, Japan. And our trading business has expanded by acquiring manufacturers of steel-sheet building materials in the Americas and Australia, and also establishing an electrical steel sheet processing company in Serbia.

As a result of such initiatives, we have developed the ability to generate a certain level of earnings even under challenging conditions, but we are still not earning enough. JFE Holdings’ share price remains sluggish and our price-to-book ratio is well below 1.0, indicating that the market’s assessment of JFE’s corporate value is low.

The biggest impacts on our share price appear to be our inability to maintain consistently high profitability (return on equity of more than 10%) and the market’s uncertainty about our future growth potential, including our ability to achieve carbon neutrality. We, the management, recognize our responsibility to develop future growth strategies and then implement them in cooperation with employees in order to steadily grow our earnings, increase our corporate value, pay stable dividends to shareholders and reward employees through wages.

We have established our long-term vision and specific directions for the future. The key points of our vision are (1) to build a strong business foundation to double our earnings, particularly by strengthening the competitiveness of each business through aggressive growth strategies; and (2) to draw up the roadmap for completing our development and practical implementation of ultra-innovative technologies for carbon neutrality by 2050. Our 8th MTP will establish a robust earnings structure capable of generating consistently high earnings even if challenging conditions persist. To this end, we are committed to clearly communicating to all stakeholders what we need to do over the next three years to achieve our plan.

Environmental Sustainability

Our steel business is on track to achieve our 7th MTP targets, including an 18% reduction in CO2 emissions in FY2024 compared to FY2013. Furthermore, we are moving forward with our installation of a large electric-arc furnace in Kurashiki, a significant capital investment that will be key to achieving our target of reducing emissions by over 30% by FY2030.

In our ongoing development of technologies, this year we will complete the construction of various demonstration facilities, including a carbon-recycling blast furnace, and then begin actual testing. We will continue to pursue various ultra-innovative technologies to determine the best path for future development.

Our circular economy and biodiversity initiatives are also becoming increasingly important. With regard to the circular economy, we will leverage our group strengths to expand our effective and efficient use of limited resources. For example, we will expand waste-to-energy and recycling operations in our engineering business, develop and expand sales of eco-products in our steel business, and strengthen our distribution of biomass fuel, scrap and other such resources in our trading business. By accelerating such initiatives this year, we aim to take the lead in creating a circular economy in Japan. We will also develop processes, products and technologies that help protect biodiversity and restore the natural environment. This will involve working with various stakeholders, including local communities and supply chain partners, on a wide range of initiatives.

Going forward, we will remain committed to addressing climate change (carbon neutrality), transitioning to a circular economy, protecting biodiversity and restoring nature (nature-positive initiatives), all especially important and closely related.

Conclusion

Since becoming President and CEO of JFE Holdings last April, I have had many opportunities to meet with group employees both in Japan and around the world. As a group with steel, engineering and trading businesses supported by world-class technologies, JFE is a unique entity that can make a profound contribution to the lives of people worldwide, so let’s strengthen our commitment to JFE’s core corporate values: “Challenging Spirit. Flexibility. Sincerity.”

As we embark on a new year together, I extend to all of you and your families my very best and sincerest wishes for a healthy and prosperous 2025.