||Kobelco Construction Machinery Co., Ltd.
May 9, 2007
Kobelco Construction Machinery’s Financial Results for Fiscal Year 2006
(April 1, 2006 - March 31, 2007)
[General Market Conditions]
The domestic market for construction machinery in fiscal year 2006 continued to be strong, expanding more than the previous year particularly for hydraulic excavators. This is because private capital investment increased despite public work projects still continuing to decrease. In addition, the decrease in the domestic stock of machines due to exports of used equipment created demand for new machines.
Overseas markets have also remained generally good: the Chinese market expanded drastically, demand was active in the European market, and markets grew remarkably in the emerging nations, although declining housing construction affected the market in the United States.
Under these business circumstances, the Kobelco Construction Machinery Group took various measures toward the “creation of a business enterprise that can weather changes” in the first year of its FY2006-FY2008 Medium-term Management Plan.
In April 2006, the Ogaki Factory was opened as an exclusive factory for mini excavators to integrate production. In addition, Kobelco made a further investment for production increase. At the Hiroshima Factory Kobelco reviewed the initial renewal plan and made investments to increase production. Measures to increase the production of hydraulic excavators was an area of priority.
In addition, at its second plant in China, Hangzhou Kobelco Construction Machinery Co., Ltd., Kobelco strengthened the production capacity in order to meet the further expansion of demand.
As a result of these efforts to expand production, Kobelco significantly increased its sales volume at home and abroad, particularly in the Chinese market, which has been growing remarkably.
Kobelco also focused on launching new models, which conform to Tier 3 exhaust emission regulations as well as achieve drastically reduced fuel costs. Furthermore, in response to the burgeoning Indian market, Kobelco Construction Equipment India Pvt. Ltd. was established in India. The new company commenced operations in January 2007.
In its financial results for fiscal year 2006 (April 2006-March 2007), Kobelco marked record highs for net sales, operating income, and ordinary income, on a consolidated basis.
Financial Results in FY2006
|In millions of yen
Figures in brackets [ ] show the percentage change as compared with the same period last year.
Figures in parentheses ( ) denote decreases.
Domestic consolidated sales rose 4.8% from the last year to 107.5 billion yen and overseas consolidated sales rose 38.8% from the last year to 127.2 billion yen. Total consolidated sales rose 20.8% to 234.7 billion yen. The percentage of overseas consolidated sales to total consolidated sales reached 54.2%, and for the first time, overseas sales exceeded domestic sales, on a consolidated basis.
Also, Kobelco positioned Corporate Social Responsibility (CSR) as one of the pillars for Kobelco's FY2006-FY2008 Medium-term Management Plan and made further efforts to promote CSR activities shown in the establishment of the Kobelco Construction Machinery CSR Fund in April 2006 and development of an in-house CSR-promoting structure.
[FY2006: Review by Geographical Area]
Domestic demand for new hydraulic and mini excavators increased by slightly more than 10% over the same period last year. Private capital investment was active. In addition, as the number of machines in stock decreased due to exports of used equipment, demand for new machines increased from the need for replacement.
Starting in June 2006, Kobelco has successively launched environmentally friendly new models: the SK125W, a wheel excavator which acquired regulatory approval for on-road Tier 3 exhaust emissions for the first time in Japanese industry; and the SK200/330, hydraulic excavators that meet the requirements of the New Emission Control Law, also for the first time in Japanese industry. Consequently, Kobelco increased the sales volume of hydraulic excavators, KCM’s main product, by slightly more than 10%, and also focused on raising sales prices.
In the mini excavator business, Kobelco opened the Ogaki Factory in Gifu Prefecture in April 2006 to enhance its cost competitiveness by integrating the domestic production of mini excavators. (The production of mini excavators of 4-5 ton class was transferred from Hiroshima.) Kobelco also made a further investment to increase production, and arranged its production system as an exclusive factory for mini excavators.
In the Hiroshima Plant, where hydraulic excavators are produced, Kobelco increased its productivity by around 20% from the preceding year by increasing production capacity and by utilizing the spare capacity after transferring the production of mini excavators to the Ogaki Factory.
In the Chinese market, where demand has been rapidly expanding at a level beyond the initial forecast, the two-site production system comprised of the first production factory in China, Chengdu Kobelco Construction Machinery Co., Ltd. (Chengdu, Sichuan Province), and the second production factory, Hangzhou Kobelco Construction Machinery Co., Ltd. (Hangzhou, Zhejiang province), functioned smoothly. As a result, Kobelco recorded the largest production and sales volumes by taking the opportunity of the growing demand both inland and on the coast.
Overseas (excluding China)
Based on its global alliance with CNH Global N.V., Kobelco made efforts in 1) enhancing business by focusing on the Asian-Pacific region, which is Kobelco’s main territory, and 2) further strengthening joint ventures with CNH in the United States and Europe.
Regarding the Asian-Pacific region, particularly in Southeast Asia, demand recovered remarkably in Indonesia, and the Thai economy, which slowed down temporarily due to political uncertainty, was on a track to recovery.
As a measure to reinforce the business in Indonesia, the largest market, Kobelco expanded the KCM Group’s equity share in a local marketing joint venture, PT. Daya Kobelco Construction Machinery Indonesia (commonly known as Daya Kobelco) from 49% to 95% in April 2007. Kobelco also deployed its own distribution system across Southeast Asia and strengthened its sales network and made efforts to expand its local presence.
In the burgeoning Indian market, a marketing joint venture Kobelco Construction Equipment India Pvt. Ltd. was established in November 2006. Kobelco organized the distributors’ network and steadily promoted preparations for introducing the latest hydraulic excavators manufactured in Japan.
In the joint venture with alliance partner CNH Global N.V., Kobelco made progress with licensing its technology to make new models that meet Tier 3 exhaust emission regulations in Europe and the United States. In addition, Kobelco increased the number of products provided by OEM, seizing an opportunity offered by the steady markets in Europe and the United States, the fast-growing Russian and Middle Eastern markets that are expanding with infrastructure construction and resource development, and other emerging markets.
[Key Issues in the Future and Outlook for Fiscal 2007]
In FY 2007, some decrease in demand became obvious in the North American market due to a reduction of investment in housing. However, the European market has been active, exceeding expectations. In addition, the markets in China and other emerging countries, as typified by BRICs (Brazil, Russia, India and China), are expected to keep growing steadily. Thus, the global demand for construction machinery will continue to stay strong.
Under the situation where demand has been expanding globally, Kobelco must strengthen its manufacturing capabilities so as to establish a system to timely meet growing markets with quality products and in the quantities required.
Therefore in FY 2007, the Kobelco Construction Machinery Group will aim to “establish a business enterprise that can weather changes,” which is the biggest theme in the Medium-term Business Plan (FY 2006-FY 2008). The Kobelco Group will tackle the following as key issues in the second year of the Plan:
- Improvement of the manufacturing capabilities at Hiroshima and Ogaki Factories as “mother factories in the worldEand establishment of a global production system
- Promotion of Supply Chain Management (SCM) and stabilization of supply by strengthening procurement capabilities
- Establishment of a Chinese business operation system led by Kobelco Construction Machinery
- Reinforcement of the alliance with CNH Global N.V. and expansion of markets including emerging nations
- Initiation of the development of new models that conform to future emission regulations
- Reinforcement of corporate governance and establishment of a compliance system