November 11, 2004
Kobelco Construction Machinery's Half-Year Financial Results for Fiscal 2004 (April 1, 2004 - September 30, 2004)

Kobelco Construction Machinery Co., Ltd. announces its financial results for the first half of fiscal 2004, ended September 30, 2004.

General Market Conditions

The domestic construction machinery market was strong in the first-half period. Although public works projects declined, sales of new machines rose as exports of used equipment reduced the number of machines in Japan. Replacement sales and tougher emission regulations also contributed to firm demand for new machines. North America, Europe and Southeast Asia were on an upward path, and demand was also strong in the Middle East and Russia. Financial measures implemented by the Chinese government dampened the booming economy, which had been escalating sharply in recent years. While this slowed demand for construction machinery considerably in China in the April-June quarter, world demand continued to expand.

Kobelco's Results

Under a new formation in April 2004, the Kobelco Construction Machinery Group focused on increasing sales volume to meet rising world demand for construction equipment and further solidify its business foundation. Higher sales volume in Japan, Southeast Asia and North America and increased sales in the January-March quarter from China contributed considerably to higher profits. In addition, Kobelco reduced factors that affected profits by keeping down rising material costs and swiftly decreasing production to meet changes in the Chinese market.

Kobelco's consolidated sales dipped 0.8% to 92.5 billion yen in the first half of fiscal 2004, but operating income rose 16.5% to 4 billion yen, pretax ordinary income increased 44.5% to 4.1 billion yen, and net income shot up 71.7% to 2.3 billion yen, in comparison to the same period last year.

Domestic consolidated sales reached 44.9 billion yen, down 6.8% year on year. Overseas sales were 47.6 billion yen, up 5.6% over the same period last year.

Consolidated Financial Results in First-Half FY2004

First-Half FY2004 : Review by geographical area

Japan

With demand for new machines growing in Japan, the number of hydraulic excavators and mini excavators sold steadily rose. In May, a full model change of the Beetle series of mini excavators was well received by users. Both sales volume and market share went up.

Sales of environmental and recycling machines continued to be strong. Examples include car dismantling machines and building demolition machines built on excavator base machines.

To increase the profitability of its stock business, Kobelco moved its Resale Center from Amagasaki to Kobe in May. It also opened two training centers in Kumamoto and Amagasaki.

Overseas (excluding China)

Based on its global alliance with CNH, Kobelco worked to strengthen the Asia-Pacific region and its ventures with CNH that cover North America and Europe.

With a sharp increase in demand in Indonesia, Kobelco actively expanded the sales volume of new machines and market share. In Vietnam, Kobelco opened subsidiary Kobelco Construction Machinery Vietnam Co., Ltd. near Ho Chi Minh City in July to handle new and used construction machinery. In Australia, the sales volume of hydraulic excavators and mini excavators also increased steadily. For the North American and European markets, product menus and sales volume increased through the joint ventures with CNH.

China

Macro-economic controls by the Chinese government led to a decrease in investments and construction. Kobelco aggressively decreased production in China and reduced imports from Japan to maintain appropriate inventory levels from the April-June quarter.

Construction of Kobelco's second excavator factory, which started earlier this year at joint venture Hangzhou Kobelco Construction Machinery Co., Ltd., is progressing smoothly.

To further meet customer needs, Kobelco will expand its service centers. In January 2005, a remote monitoring system using global positioning will be included as standard equipment on new excavators in China.

Outlook for Fiscal 2004

World demand for construction machinery is forecast to continue being strong in the second half of fiscal 2004. However, China's economic measures are anticipated to continue and higher material costs, mainly for steel, are factors that need close attention.

Kobelco will continue to improve its procurement capabilities and further reduce costs, as well as increase prices to offset higher material costs. It intends to expand sales of the new Beetle mini excavator series and launch it overseas. For the domestic market, Kobelco will develop specialized machines for the environmental and recycling fields and strengthen its marketing network. Kobelco plans to further improve its risk management and overall management capabilities in production and marketing with its Chinese joint venture partners.

Full-Year Forecast for FY2004