May 13, 2004
Kobelco Construction Machinery's financial results for fiscal 2003

Domestic and overseas sales up owing to strong market demand
Booming development in China lifts excavator production

TOKYO - Kobelco Construction Machinery Co., Ltd. announces its financial results for fiscal 2003, ended March 31, 2004.

General market conditions

The construction machinery market in Japan has finally begun showing signs of improving. Although public works continued to be weak, a lower machine population due to exports of used machines, replacement sales, and stricter emission standards stimulated an 11% increase in demand in fiscal 2003, ended March 2004 - the first time in seven years. Export sales of construction machinery increased 32% over the previous year. The Chinese market continued to expand, while demand in Europe, North America and the Asia-Pacific region was on a recovery path. The Middle East and Russia also saw favorable growth.

Kobelco's results

On this background, Kobelco Construction Machineryfs consolidated sales grew 16.8% to 184 billion yen. Overseas sales comprised 83.3 billion yen, up 27.6% over the previous year, with domestic sales making up 100.6 billion yen, up 9.2%. Operating income rose 78.8% to 8.1 billion yen. Ordinary income (also called pretax recurring profit) went up 149% to 6.2 billion yen. Net income increased 293% to 2.8 billion yen.

Consolidated results

In the fiscal year under review, strong domestic and overseas demand - in particular, a doubling of sales volume in China and accompanying increase in market share and improvement in the domestic business - were major factors contributing to higher profits.

In Japan, Kobelco aggressively marketed new models to rental companies. A product strategy was the launching of machines developed with higher consideration for the environment. Examples include a range of excavators with an auto idle stop function as standard and an expanded menu for the metal recycling field. Kobelco also strengthened its stock business, centered on used machinery, and increased income from parts for overseas production.

Review of the Hydraulic Excavator Business

In fiscal 2003, ended March 2004, excavator sales increased 14.6% to 159.2 billion yen.

China

Kobelco sold about twice as many new hydraulic excavators in China in fiscal 2003, as compared to fiscal 2002, and consequently gained market share.

With the market booming owing to active infrastructure and urban development, Kobelco boosted manufacturing, marketing and services in China. It started construction of a second excavator plant in Hangzhou in a joint venture called Hangzhou Kobelco Construction Machinery Co., Ltd. that will start up in January 2005. By 2007, production is forecast to rise to 3,500 units a year. Meanwhile, Kobelcofs first excavator venture, Chengdu Kobelco Construction Machinery Co., Ltd., increased production capacity to 3,500 units a year. Kobelco also expanded its dealer and service networks to cover the entire country.

APAC

In the Asia-Pacific region, Kobelco strengthened its distribution network. It increased its share in Indonesia and expanded marketing operations. In Vietnam, Kobelco opened an office in Hanoi, its second after Ho Chi Minh City. By selling new and used machines and building service and parts supply networks, Kobelco was able to meet the growing demand for construction machinery and increase the presence of the Kobelco brand in Southeast Asia.

Europe and North America

Fiat Kobelco Construction Machinery S.p.A., a joint venture with CNH Global N.V. increased its line up of excavators. Through the CNH distribution network, Kobelco was able to boost its OEM supply of mini excavators and other machines to Europe and North America.

Japan

In the flow business, which consists of new machine sales, Kobelco introduced an auto idle stop feature in an excavator series, an industry first. In the growing environmental business, the company launched a wheel scrap loader and increased its automobile recycling menu. Owing to the introduction of original, value-added models and growing demand for new machines, Kobelco was able to secure a 15% share of the Japanese market.

To increase profits in the stock business of parts, used machines, and maintenance services, Kobelco formed a company, Kobelco Construction International Trading Co., Ltd., which specializes in the sale of second-hand machines. Utilizing its overseas network, Kobelco increased its offering of used machines and improved prices.

Review of the Crane Business

Crane sales rose 33.9% to 24.8 billion yen in fiscal 2003, ended March 2004.

In fiscal 2003, Kobelco built up its sales and service networks and developed global models with a competitive edge to strengthen its world crane business. Sales of large-size cranes were firm due to development projects in China and the Korean shipbuilding industry. Kobelco developed a 120 metric ton world-model crane to meet the environmental needs of Europe, North America, China, and other regions and countries. To strengthen its distribution in Europe and North America, Kobelco formed two crane marketing companies. It is also planning to open sales offices in Shanghai and the Middle East.

With The Manitowoc Company, Inc., Kobelco signed a crawler crane agreement whereby Kobelco will supply its lattice boom crawler crane models of under 150 U.S. tons on an OEM basis to Manitowoc Crane Group in the Americas region. Shipment of the first crane took place in April. Kobelco and Manitowoc signed another agreement for the supply of Grove's all-terrain cranes to Kobelco. These all-terrain cranes will be furnished to Kobelco on an OEM basis under the Kobelco brand name and will be sold exclusively by Kobelco in Japan. Kobelco intends to introduce the cranes to Japan in 2005.

Outlook for fiscal 2004

Since April 2004, the crane business has become an independent subsidiary of Kobe Steel called Kobelco Cranes Co., Ltd. As such, the following outlook for fiscal 2004 covers only the excavator business of Kobelco Construction Machinery.

Kobelco developed a new six-model series of mini excavators that went on sale in Japan in May. With improved features and built on global standards, Kobelco plans to start marketing them overseas later this year. Also for the Japanese market, Kobelco intends to focus on recycling machines and broaden its scope to include supplying the industrial waste field.

In China, Kobelco plans to start up a second excavator plant in China in January 2005. To meet growing market demand, Kobelco intends to increase its manufacturing, marketing and service networks and increase its brand image by improving three service centers and nine service stations. In Southeast Asia, the company will continue to focus on used machine sales, as demand is anticipated to be strong.

Under the global alliance with CNH, Fiat Kobelco Construction Machinery in Europe plans to increase production of hydraulic excavators and mini excavators, based on Kobelco technology. Kobelco and CNH anticipate the higher production will further increase their presence in the European market and contribute to strengthening their respective businesses.

Consolidated sales are expected to increase 1.1% to 186 billion yen and operating income is forecast to rise 7.8% to 8.7 billion yen. Ordinary income is expected to grow 22% to 7.5 billion yen, with net income up 34.6% to 3.8 billion yen.

Forecast for fiscal 2004

Kobelco Cranes' sales in fiscal 2004 are projected to reach 28 billion yen with pretax ordinary income of 120 million yen.