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.

Kobelco's Results

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

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

Japan

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 and Europe.

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 activities.

China

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