May 12, 2009

Kobelco Cranes’ Annual Financial Results for Fiscal 2008
(April 1, 2008 – March 31, 2009)

General Market Conditions

Conditions in the overseas crane markets have drastically deteriorated since October 2008 due to the global financial crisis. Projects were postponed or suspended one after another due to difficulties in raising funds in many countries, including emerging countries such as India, where investment in petrochemical and electric power industries had been made under previously formed plans; the Middle East, where energy-related investment had been ongoing with a focus on large projects; and Southeast Asia, where demand for new machines had continued to grow owing to infrastructure and industrial development. To make matters worse, a sharp rise in the value of the yen boosted the actual purchase prices for crane users in the region, including Korea and Southeast Asia, where contracts had been quoted in yen. This resulted in forcing many customers to postpone or cancel their orders.

Also in the domestic crane market, demand for wheel cranes – which had been showing signs of weakening since the first half due to reviews of capital investment plans and the negative effects of a real-estate recession – drastically declined in the second half. This resulted in sharp drops in the sales prices of used machines. The crawler crane market, which initially seemed relatively strong, gradually started to decline.

Under these circumstances, by steadily shipping backlog orders and by flexibly responding to customers, Kobelco Cranes made every effort to maximize sales in the second half. In addition, we cut costs and expenses in order to improve earnings.
Activities included:

1. Steady shipment of backlog orders, and sales promotion in specifically focused areas such as North America
2. Accelerating development of new models aimed at further enhancing the product line-up
3. Further stimulating cost reduction for enhancement of profitability
4. Improving the business foundation against the recession

Through these activities, Kobelco Cranes sold about 920 new machines (the total number over the entire crane line-up) during fiscal 2008, ended March 31, 2009, showing an 8% increase over the 850 units sold in fiscal 2007.

Although the profit targets that were originally set were not achieved, large sized crawler cranes, of which sales were started in 2007, sold well in general, making a significant contribution to profitability. Kobelco Cranes succeeded in minimizing the unachieved amount owing to good results in the first half and to backlog orders carried over from the previous fiscal year.

Consequently, Kobelco Cranes consolidated net sales rose nearly 20% in fiscal 2008, over fiscal 2007, maintaining almost the same level in consolidated ordinary income in comparison to fiscal 2007. With fiscal 2008 being the final year of the three-year Medium-Term Management Plan, Kobelco Cranes achieved good results, exceeding its targeted goals.

Financial Results for Fiscal Year 2008

In Millions of Yen		Net sales	Operating Income	Ordinary Income	Net Income
Consolidated	FY2008	85,227 (19.6%)	9,492 (2.2%)	9,015 (1.4%)	6,026 (14.1%)
	FY2007	71,231	9,289	9,143	5,282
Nonconsolidated	FY2008	81,473 (15.0%)	7,270 (15.8%)	6,836 (23.6%)	3,930 (25.0%)
	FY2007	70,843	8,639	8,949	5,242

Notes: Percentages show change as compared with the previous fiscal year.
Figures in parentheses show decreases.
 

Domestic consolidated sales rose 23.5% over the previous fiscal year to 31.7 billion yen, and overseas sales increased 17.4% to 53.5 billion yen. Total sales went up 19.6% to 85.2 billion yen.

Fiscal Year 2008: Review by Geographical Area

Overseas

In the overseas markets, business continued to be strong in all regions in the first half. In the second half, where market conditions changed drastically, Kobelco Cranes put effort into maximizing new machine sales in fiscal 2008 and continued to enhance its business foundation for the future by strengthening the stock business, which covers parts and services.

In the U.S. market, where the economy in general sharply decelerated, demand for cranes remained relatively strong although the volume differed according to the area. This is because highway maintenance and construction of environmental and energy-related facilities, including wind power generation systems, are on-going. Under these circumstances, Kobelco Cranes further expanded its dealer network and distribution channels, and also put effort into expanding parts sales and strengthening its service network.

In the European market, where the recession has accelerated, Kobelco Cranes cultivated new areas and reinforced parts and service activities, focusing on expanding parts sales.

In the Middle East market, where a series of mega projects such as the construction of railways, airports, and petrochemical facilities had been carried out for several years, many projects were postponed or suspended due to the financial crisis. Consequently, demand for cranes drastically decreased in October 2008 and thereafter. In addition, many backlog orders carried over from the previous fiscal year were postponed or cancelled due to the sharp rise in the value of the yen. Under these circumstances, Kobelco Cranes strengthened sales by accompanying distributors during marketing. Also Kobelco Cranes Middle East, a sales subsidiary in the Middle East, moved to a new office with a warehouse, which enabled the sales of parts from inventory on hand.

In the Southeast Asian market, where the demand for new machines continued to grow due to infrastructure and industrial development, inquiries about new machines decreased under the global business downturn. However, Kobelco Cranes improved parts inventories to bolster service. As a result, sales continued to be strong.

In the Indian market, where Kobelco Cranes established a local representative office in October 2008 as a part of its efforts to enhance marketing and service operations, deliveries were postponed or cancelled one after another like other areas. However, Kobelco Cranes succeeded in selling about twice as many machines as the previous fiscal year.

Also in other areas where contracts were quoted in yen, many of the orders were cancelled due to the sudden rise in the value of the yen. However, Kobelco Cranes made every effort to maximize sales by managing machines across areas and attracting new orders. As a result, the overseas sales volume of crawler cranes, the main product, increased nearly 5% over the previous fiscal year.

Japan

In the Japanese crawler crane market, demand for new machines had been gradually decreasing since the late second half. However, annual demand steadily increased 26% over the previous fiscal year. Kobelco Cranes was able to increase the number of units sold by responding to this growing demand and by shipping backlog orders.

The rough terrain crane market showed signs of decline. Machine operating rates went down, affected by fewer construction projects and by tighter financing in the construction and real estate industries. Demand decreased 24% over the previous fiscal year. Under these conditions, Kobelco Cranes reinforced its wheel crane business mainly by promoting the new “city-conscious” crane model with a lifting capacity of 25 metric tons. Launched in June, the crane received the 2008 Good Design Award.

To provide steady shipments of backlog orders for the Japanese and overseas markets, Kobelco Cranes formed a system to flexibly respond to changes in the number of units produced through the cooperation of its suppliers. On the production side, Kobelco Cranes took measures to shorten production lead-time and improve production efficiency under the just-in-time production system.

In the area of service, Kobelco Cranes utilized the Kobelco Cranes Remote Observation System, which has been in service for the domestic market since April 2008, in order to further improve customer satisfaction. We also undertook the task of reorganizing customer services.

Kobelco Cranes Trading, which specializes in used machines, was established in April 2008. However, streamlining of its inventories was regarded as the top priority of this subsidiary as used machine prices dropped sharply under the drastically changed market conditions in the second half of the fiscal year.

Alliance with Tadano

For rough terrain cranes, Tadano supplies complete machines of small models on an OEM basis. Kobelco Cranes has maintained a favorable relationship with Tadano.

Outlook for Fiscal Year 2009

The business environment for fiscal 2009 is highly uncertain due to unstable currency market conditions and the financial crisis that may seriously affect profitability.

Under the aforementioned business environment, Kobelco Cranes intends to further reinforce its business foundation and steadily implement measures for the future by pursuing the following activities below. We will also secure profits by returning to the basics: solid sales from backlog orders, steady activities to gain orders, and cost reduction activities.

Major Activities

• Strengthen stable production and reduce costs
• Increase profitability through continued cooperation with alliance partners
• Improve the sales and service distribution networks at home and abroad. Build sales and service networks in emerging markets.
• Strengthen the wheel crane business using city-conscious cranes as the core
• Reconstruct the used machine business earlier and expand the service parts sales network to strengthen the product life-cycle business
• Reinforce the business foundation and performance, aiming to become a leading global manufacturer

Forecast for Fiscal Year 2009

In millions of yen	Sales	Operating Income	Ordinary Income	Net Income
Consolidated	82,000 (3.8%)	3,800 (60.0%)	3,600 (60.1%)	1,600 (73.4%)
Nonconsolidated	73,000 (10.4%)	2,100 (71.1%)	3,800 (44.4%)	2,200 (44.0%)

Notes:

• Percentages show change over the same period last year.
• Figures in parenthesis show decreases.
• Currency exchange rates forecast for the Fiscal 2009: US$1 = 95 yen, 1 euro = 120 yen
• The forecast above is based on information current at the time of this announcement.
  The actual results may differ significantly due to various factors in future.