Nov 07, 2007
Kobelco Cranes’Semiannual Financial Results For Fiscal 2007 (April 1, 2007-September 30, 2007)

General Market Conditions

The international market for cranes continued to remain strong worldwide. In the Middle East, investments are being made to rapidly expand production in the energy field and to improve infrastructure. Demand in South Korea continues to be brisk owing to the active shipbuilding industry. In Southeast Asia, demand for new cranes is growing due to the shortage of used machines. Demand in North America continues to expand, despite the slowdown in residential construction, while in Europe the market continues to be bullish.

Demand in the domestic market has recovered considerable and is continuing on a sharp expansionary trend. Private-sector demand is increasing the amount of work, and high exports have led to decreased stock of domestic used machines. The replacement of aging machines is also supporting demand.

Under these conditions, Kobelco Cranes was able to increase the sales volume of its cranes in major overseas and domestic markets, as well as work on improving its business foundation for the future.

Activities included:

Undertaking these activities, Kobelco Cranes sold 420 new machines in the half year ended September 30, 2007, a 20% increase over the 350 units sold in the first half of fiscal 2006.

In particular, higher sales volume in the Middle East, North America, and Southeast Asia contributed to the result. Moreover, overseas sales of crawler cranes comprised nearly 80% of the number of units sold.

As a result, Kobelco Cranes' consolidated net sales rose nearly 40% in the first half of fiscal 2007, in comparison to the first half of fiscal 2006. Consolidated ordinary income doubled in the period under review, in comparison to the same period in the previous year.

Semiannual Financial Results for FY2007

Domestic consolidated sales rose 24.2% over the same period last year to 12.3 billion yen and oversea sales increased 44.4% to 22.3 billion yen. Total sales went up 36.5% to 34.6 billion yen.

First half of FY2007: Review by Geographical Area

Overseas

In the overseas market, Kobelco Cranes undertook the following activities to further expand its global reach.

Mega projects, such as the construction of railways, airports and LNG refining facilities, are underway in the Middle East, supported by the abundant capital gained from high oil prices. Kobelco Cranes reinforced its marketing and services in this region and succeeded in increasing the number of machines sold. Not only did the number of machines sold directly to the Middle East increase, but sales efforts to major contractors and rental companies led to the use of marketing networks in Europe, Southeast Asia, and South Korea to supply the Middle East market.

In the U.S. market where investment in residential construction has slowed down, environmental and energy-related investments, such as wind-power generation and highway maintenance, continues to be strong, supporting the high demand for cranes. Owing to the strong market, Kobelco Cranes, expanding the number of dealers and service distribution outlets, was able to increase the number of machines sold.

In Europe, active marketing and strengthened relations with major contractors and rental companies also led to meeting demand both inside and outside the European market, resulting in continued strong performance in the region.

In Southeast Asia, where the shortage of used cranes bolstered demand for new machines, Kobelco Cranes established a marketing subsidiary in June 2007 to reinforce its distribution network. As a result, sales volume increased in comparison to the same period last year.

On the whole, Kobelco Cranes was able to maintain strong sales of new machines in most of the major world markets including South Korea, India and Australia.

Alliance with Manitowoc

After the introduction of a crane with a maximum lifting capacity of 120 metric tons in July 2006, Kobelco introduced a 175-metric-ton model in the Japanese market in July 2007. This is the third model following the 260-metric-ton and 120-metric-ton models.

Japan

In the Japanese market, overall demand for new crawler cranes increased 30% over the same period last year. In meeting this demand, Kobelco Cranes was able to increase the number of units sold, thus maintaining the top share in Japan.

Domestic demand for rough terrain cranes was also strong, increasing 19% over the same period last year.

On the production side, Kobelco Cranes strengthened its procurement capabilities with the cooperation of its suppliers, in an aim to meet growing orders in the Japanese and overseas markets. Kobelco also began implementing just-in-time manufacturing, shortened lead times and improved overall production efficiency. These steps contributed greatly to the higher number of units sold.

To meet strong domestic and overseas demand and the corresponding increase in orders, Kobelco Cranes reinforced its procurement capabilities with the cooperation of its suppliers. In production, Kobelco Cranes undertook just-in-time manufacturing, shortened lead times, increased production efficiency, and actively worked on increasing production volume. As a result, these activities contributed to an increase in the number of units sold.

As for the stock business, Kobelco Cranes reorganized its parts and services system to enhance this portion of the business.

Alliance with Tadano

For rough terrain cranes, Tadano supplies complete small models and the carrier portion of large models on an OEM basis. With demand continuing to be robust in Japan and overseas, Kobelco Cranes maintained a favorable relationship with Tadano.

Outlook for FY2007

In the second half of fiscal 2007, the domestic market is anticipated to continue on an expansionary trend. Construction investment in mega projects in the Middle East are projected to continue being firm. As a result, world crane demand is forecast to continue being strong. However, factors that curtail profits – namely the rising cost of materials due to high steel and oil prices and the difficulty in procurement are of concern.

By carrying out the activities below, Kobelco Cranes aims to build a foundation to restructure its crane business under its Medium-Term Management Plan.

Major Activities

Forecast for FY2007