November 10, 2005
Kobelco Construction Machinery's Half-Year Financial Results for Fiscal
2005 (April 1, 2005 - September 30, 2005)
Kobelco Construction Machinery Co., Ltd. announces its financial results
for the first half of fiscal 2005, ended September 30, 2005.
General Market Conditions
The domestic market for construction machinery was stronger in the first-half
of fiscal 2005, in comparison to the same period last year. Although public
works projects continued on a downward trend, demand from disaster reconstruction
and private capital investment was firm. Exports of used equipment reduced
the stock of machines in Japan, also stimulating demand.
Overseas markets were also strong. Demand in Southeast Asia on the whole
was firm, and North America and Europe continued to expand. Macro-controls
implemented by the Chinese government caused excavator demand to plunge,
but the falling market has bottomed out.
Under these conditions, the Kobelco Construction Machinery Group was able
to increase the number of machines sold worldwide, with the exception of
China. To maintain profits, Kobelco increased product prices in Japan and
overseas to absorb the higher prices of steel and other materials. In the
Chinese market, sales and profits were lower in the first half of fiscal
2005, in comparison to the same period last year.
Consolidated Financial Results in First-Half FY2005
(* Also known as pretax recurring profit, consisting of pretax income before
extraordinary gains and losses.)
|(in millions of yen)
|Ordinary income *
Domestic consolidated sales rose 4% to 46.7 billion yen and overseas sales
were 46.2 billion yen, down 2.9%. Total sales rose 0.5% to 92.9 billion
yen. A reduction in debt and higher stockholders' equity to total assets
contributed to improved financial soundness.
First-Half FY2005: Review by Geographical Area
Demand for new hydraulic excavators in Japan grew 9% in comparison to the
same period last year. Reconstruction demand and strong marketing activities
in the environmental market led to a considerable increase in the number
of units that Kobelco sold. In addition, Kobelco revised product prices
in light of higher material costs.
Sales of Kobelco's large building demolition machines continued to be strong
as the market for demolishing highrise buildings steadily increased amid
urban redevelopment. In June, Kobelco launched the SK950LCD, a 100-ton-class
building demolition machine, to further expand its demolition menu.
In addition, to expand its training business and improve profitability,
Kobelco established Kobelco Training Services Co., Ltd. in April.
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
In the Asia-Pacific area, Indonesia entered an adjustment phase, but demand
in Southeast Asia on the whole was firm. Strong marketing activities led
to a large increase in unit sales and increased market share. In the period
under review, Kobelco bolstered its stock business. In July, Kobelco opened
a branch office in Hanoi, Vietnam, and in May it formed a joint venture
with an Indonesian company to sell used machines in that country.
The joint ventures with alliance partner CNH Global N.V. saw a rise in
the number of new machines sold, on the back of continued strong demand
in housing construction in the United States and the firm market in Europe.
The Italian venture, New Holland Kobelco Construction Machinery SpA, also
began production of mini excavators under a technology transfer arrangement.
In Brazil, which is anticipated to grow, technology transfer from Kobelco
has enabled CNH America's plant to began production of 20-ton class excavators
in June for the South American market.
In August, a number of Gulf states in the United States sustained heavy
damage by Hurricane Katrina. To aid recovery, Kobelco and CNH Global, donated
excavators and other equipment to provide support in clean-up and reconstruction
To deal with drastic changes in the Chinese market and build a stronger
business base for the future, Kobelco undertook the following measures:
- In March, Kobelco's second excavator plant in China started up in Hangzhou,
Zhejiang Province. The joint venture, Hangzhou Kobelco Construction Machinery
Co., Ltd., formally began volume production in October. With Kobelco's
first joint venture, Chengdu Kobelco Construction Machinery Co., Ltd. in
Sichuan Province, the two production locations, inland and on the coast,
further strengthens Kobelco's competitiveness.
- In addition, Hangzhou Kobelco will supply fabricated attachment parts and
crawler frames for export to Japan and the United States. In building an
optimum global production system, some of the production of these excavator
parts will be shifted to Hangzhou to increase the cost competitiveness
of Kobelco's plants.
- Kobelco established the Northern China Service Center in Beijing, its fourth
after Shanghai, Chengdu and Guangzhou, to further strengthen its parts
supply business. With these four locations as the core, Kobelco has created
a service network that covers all of China.
- To meet the demand for mini excavators in urban areas, Kobelco began preparations
to introduce new models in the second half of fiscal 2005.
Outlook for Fiscal 2005
In the second half of fiscal 2005, there is concern over the high cost
of steel, petroleum and other supplies, parts procurement, demand trends
in China, and currency fluctuations. However, the world construction equipment
market is anticipated to continue being strong.
On this background, Kobelco anticipates higher sales and profits and improved
financial performance for the full fiscal year. In addition, looking to
higher future profitability, Kobelco is developing new machines to meet
Tier 3 exhaust emission regulations that will come into effect in 2006,
and along with its second excavator plant in China, Kobelco is building
a global production network.
Fiscal 2005 is the year in which Kobelco is reforming its management, development,
production and China business to reinforce its profit structure for the
future. In fiscal 2006, Kobelco plans to launch a new Three-Year Medium-Term
Management Plan, which will turn it into a company that can weather change.
Full-Year Consolidated Forecast for FY2005
|(in millions of yen)
|Ordinary income *