May 10, 2006

Kobelco Cranes’ Financial Results For Fiscal 2005
(April 1, 2005 – March 31, 2006)

Kobelco Cranes Co., Ltd. announces its financial results for fiscal 2005, ended March 31, 2006.

General Market Conditions

The overseas crane market continued to be strong in fiscal 2005. In the Middle East, infrastructure work had rapidly increased with the abundant funding from the steep rise in crude oil prices. In South Korea, the demand for cranes increased with the boom in shipbuilding. In Southeast Asia, the demand for new cranes expanded due to a shortage of used cranes, and the market remained firm worldwide, including North America, Europe, China and India.

Domestic demand continued on an expansion trend. Strong world demand for cranes increased exports of used equipment, reducing stock in Japan and in turn stimulated new crane sales. Tighter emission regulations to meet environmental standards also contributed to steady recovery in demand.

Kobelco Cranes’ Operations

Owing to these favorable conditions, Kobelco Cranes was able to considerably increase the number of units sold in the domestic as well as major world markets. As well, it further strengthened its business foundation to increase profitability in the future. Notable developments were:

• Focused marketing on developing countries and natural resource countries such as the Middle East and India, which are undergoing high growth.
• Maintained good business relations with the Manitowoc Crane Group.
• Increased product prices and reduced costs to minimize high material costs.
• Developed and launched global models of crawler cranes complying with Tier 3 emission regulations in the overseas market.
• Expanded the stock business and increased profitability.

Kobelco Cranes’ Results

Through these activities, Kobelco Cranes sold approximately 530 cranes in fiscal 2005, up 43% or 160 units, in comparison to the 370 units sold in fiscal 2004. In addition to Japan, the sales volume of Kobelco branded cranes increased in East Asia, Southeast Asia, the Middle East and Australia. Higher unit sales also contributed largely to higher profits. Kobelco achieved roughly 75% of its sales of crawler cranes through overseas sales.

Although higher material costs placed a downward pressure on profits, pretax ordinary income (also called pretax recurring profit) in fiscal 2005 was nearly 2.8 times in comparison to fiscal 2004, on a consolidated basis.

Consolidated Financial Results in FY2005

(in millions of yen)	FY2005	FY2004	% change
Net sales	39,684	34,813	14.0%
Operating income	2,332	876	166.2%
Ordinary income *	2,199	794	177.0%
Net income	1,277	420	204.0%

 

(* Also known as pretax recurring profit, consisting of pretax income
before extraordinary gains and losses.)

Consolidated domestic sales amounted to 18 billion yen and overseas sales reached 21.7 billion yen, for a total of 39.7 billion yen. Debt in the Kobelco Crane Group went down, improving financial performance.

Review by Geographical Area

Overseas

Overseas demand is anticipated to continue growing. Looking to future global development, Kobelco Cranes undertook the following activities:

In Europe, Kobelco Cranes increased its crane orders considerably owing to active marketing to major building contractors and equipment rental companies and expanding the marketing territory in Central Europe, Southern Europe and other regions, as well as receiving orders from the Middle East.

In the North American market, Kobelco Cranes sharply increased the number of units sold by increasing its own distribution channels through strengthened dealer networks.

In addition, in Southeast Asia, where growth continues to rise sharply, the shortage of used equipment boosted demand for new machines. Kobelco had increased its personnel in this region, resulting in a doubling of sales volume in comparison with the previous year.

In South Korea where a shipbuilding boom is taking place, sales volume increased considerably.

Along with expanding world economic growth, increased production of coal, crude oil, natural gas, iron ore in the Middle East, India, Australia and other natural resource countries contributed to higher numbers of units sold.

In China, which had previously registered sharp growth due to power plant construction and other infrastructure projects, the number of units sold in fiscal 2005 was less than the number of the previous year. The effects of governmental controls to tighten its financial policies, high taxes for imported construction equipment, and a fall off in demand for large crawler cranes used in power plant construction led to the decline. However, infrastructure work, which continues to be strong, is anticipated to bolster crane demand. Kobelco will continue its marketing efforts to mineral and metal industries and local rental companies, as well as expand its service locations.

Alliance with Manitowoc

In April 2004, Kobelco Cranes began the OEM supply of crawler cranes to the Manitowoc Crane Group, and for fiscal 2005, the number of units supplied exceeded fiscal 2004.

Kobelco introduced to the Japanese market in February 2005, a 265-ton all-terrain crane made under OEM by Deutsche Grove GmbH, a Manitowoc Crane Group Company. In fiscal 2005, preparations for the launch of the next OEM model had been carried out as planned. In total, four OEM models are planned to be introduced to the Japanese market.

Japan

Demand for new crawler cranes rose 11%, in comparison to fiscal 2004. Kobelco Cranes was also able to increase its number of units sold.

The rough terrain market also continued to be strong, with demand rising 25% in fiscal 2005, in comparison to fiscal 2004. Here, too, Kobelco Cranes was able to increase its sales volume.

With regard to production, to cope with firm demand for both domestic and overseas models and increased orders, Kobelco reviewed its assembly lines and launched a new machining center in order to enhance production efficiency. Profitability also increased in the stock business, owing to improved parts supply and services to a wider customer base.

To cope with higher material costs, Kobelco adjusted domestic and overseas crane prices. Reducing costs by overseas procurement and other measures contributed to a substantial improvement in profitability. Also, domestic and overseas procurement sources were expanded in order to improve parts availability.

Outlook for Fiscal 2006

In fiscal 2006, world demand for cranes is anticipated to continue being firm. However, the higher cost of materials due to higher steel costs and crude oil prices and the growing difficulty to source parts due to the booming world economy is placing downward pressure on profits and is cause for concern.

For fiscal 2006, Kobelco Cranes is carrying out the following points with the aim to exceed profits in comparison with 2005.

Main Points for Fiscal 2006

• Strengthen production structure in order to match increase in production units.
• Reduce procurement costs by increasing overseas procurement and carrying out other cost reduction activities.
• Strengthen the Middle Eastern and Indian markets, and increase new customers in Europe and the Americas.
• Launch world crane models that meet Tier 3 exhaust emission regulations to the domestic market.
• Strengthen the wheel crane business in Japan by promoting all-terrain cranes.
• Strengthen the stock business and distribution networks.

Full-Year Consolidated Forecast for FY2006

(in millions of yen)	FY2006 (estimates)	FY2005 (actual)	% change
Net sales	44,500	39,684	12.1%
Operating income	2,500	2,332	7.2%
Ordinary income *	2,350	2,199	6.9%
Net income	1,350	1,277	5.7%