May 12, 2005
Kobelco Construction Machinery's financial results for fiscal 2004 (April 1, 2004 - March 31, 2005)

TOKYO - Kobelco Construction Machinery Co., Ltd. announces its financial results for fiscal 2004, ended March 31, 2005.

General Market Conditions

The construction machinery market in Japan continued to be firm in fiscal 2004. Although public works decreased, demand was strong for replacement machines, centered on hydraulic excavators and mini excavators.

In the overseas market, overall demand continued to be strong. Fiscal-tightening measures implemented by the Chinese government dampened the booming economy. However, North America, Europe and Southeast Asia were on an upward trend.

Review of Kobelco's Operations

Under a new formation in April 2004, the Kobelco Construction Machinery Group focused on solidifying its business foundation to increase profitability and furthering its global development for the future.

On the back of growing world demand for construction equipment, Kobelco increased its volume of units sold. Both in Japan and overseas, it worked to adjust product prices to minimize the higher cost of materials and parts. It also worked to reduce overall expenses and improve procurement capabilities. In China, amid the sharp decline in demand, Kobelco reduced production and improved its debt management. To meet market growth in the medium-term future, Kobelco improved its production, marketing and services in the year under review.

Kobelco's financial results for fiscal 2004 are as follows:

Consolidated results

Consolidated sales reached 174.5 billion yen, with domestic sales comprising 93.3 billion yen and overseas sales making up 81.2 billion yen. More financial soundness was achieved by reducing external debt and improving shareholdersf equity ratio.

In a year marked by natural disasters, Kobelco donated construction machinery to Niigata, which was hit by the Niigata Chuetsu Earthquake in Japan. In addition, with its global alliance partner CNH Global N.V., Kobelco donated equipment and relief goods to assist the regions devastated by the Indian Ocean tsunami.

Review of Fiscal 2004

Japan

Unit sales of new construction equipment in Japan steadily increased in the fiscal year. On the back of rising demand for hydraulic excavators and mini excavators, Kobelco introduced value-added products and actively undertook marketing and after-sales service activities. Examples include a full model change of the Beetle series of mini excavators and the introduction of a GPS system as standard on hydraulic excavators.

Owing to the growing environmental need to comply with the End-of-Life Vehicle Recycling Law that went into effect in January 2005, sales of environmental and recycling machines in Kobelcofs line-up continued to be strong. Examples include car dismantling machines and building demolition equipment built on excavator base machines.

Kobelco worked to rationalize the business structure to expand its diverse base. To increase the profitability of its stock business, Kobelco moved its Resale Center to Kobe in May 2004. In April 2005, it turned its training business into a separate company, Kobelco Training Services Co., Ltd.

Overseas (excluding China)

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

In the ASEAN region, a sharp rise in demand in Indonesia enabled Kobelco to boost sales volume of new machines and greatly increase market share. Owing to active demand for used machines, Kobelco formed tie-ups with local companies. In July 2004 a subsidiary in Vietnam began marketing used machines. These activities led to a considerable increase in the number of units sold.

At the joint ventures with CNH in North America and Europe, the range of OEM products and the number of units sold increased in the active U.S. market. In Europe, Kobelco completed the transfer of technology to its manufacturing and marketing venture in Italy. This enabled commercial production of a total of eight excavator models ranging from 13 tons to 48 tons.

Overseas sales also commenced for the new mini excavator SR-3 series (known as the Beetle series in Japan).

China

In response to the drastic change in the Chinese market and to further strengthen its business foundation, Kobelco implemented the following measures:

• In anticipation of future growth, Kobelco completed its second excavator plant in China, Hangzhou Kobelco Construction Machinery Co., Ltd., located in Hangzhou, Zhejiang Province, in January 2005. From March, production of a 20-ton excavator began.
• At Chengdu Kobelco Construction Machinery Co., Ltd. in Chengdu, Sichuan Province, production was temporarily curtailed. As inventories went done, production was resumed at the end of 2004.
• Due to macrocontrols and fiscal tightening affecting excavator sales, Kobelco promoted sales activities with the protection of accounts receivable taken into consideration.
• To further improve services, GPS systems for remote monitoring of equipment performace were developed. Marketing began in January 2005.
• To improve its parts supply and services, Kobelco opened Guanzhou Service Center in March 2005 following other service centers in Shanghai and Chengdu.

Outlook for fiscal 2005

Although demand in the world construction equipment market is expected to be on the same level as in the previous fiscal year, macrocontrols by the Chinese government and high material cost, mainly for steel, are factors that will put downward pressure on profits.

In fiscal 2005, Kobelco's development of new models will peak to meet the Tier 3 exhaust emission regulations that will first go into effect in October 2006 in Japan. With low operation at its second excavator plant in China, Kobelco anticipates it will face higher burdens temporarily as it strives toward higher profitability.

Kobelco is positioning fiscal 2005 as the year to reform its management, development, production and China business. In this business environment, Kobelco aims to undertake the following strategies to reinforce its profit structure in the future.

• Increase product prices in light of high material costs.
• Strengthen operations in collaboration with CNH Global and Chinese joint venture partners and reinforce the total management capability.
• Undertake the steady development of new models to meet peak demand.
• Improve cost competitiveness by building optimum production systems worldwide.
• Introduce new, bigger environmental machines to meet market demand.
• Strengthen marketing by improving the distribution network in the ASEAN region, which is sharply rising.
• Further promote compliance activities.

Consolidated Forecast for fiscal 2005