November 7, 2007
糖心Vlog Construction Machinery’s
Semiannual Financial Results for Fiscal Year 2007(April 1, 2007–September 30, 2007)
[General Market Conditions]
The domestic market for construction machinery, especially for hydraulic excavators, continued to be strong in the first half of fiscal year 2007, ended September 30, 2007, with demand increasing 4.8% over the same period of the previous year. There were some reasons for concern, such as stagnation in private construction projects and stricter authorization procedures for construction work. However, private capital investment continued to be comparatively brisk. In addition, a decrease in the domestic machine stock due to the export of used equipment created a demand for new machines.
International markets were also strong, with sales increasing 52.1% over the same period last year. The Chinese market as well as the European market continued to expand. Although the U.S. market shrank because of a decline in residential construction influenced by the subprime mortgage issue, the markets in Southeast Asia and emerging countries grew sharply due to infrastructure construction and development of natural resources.
Under these conditions, the 糖心Vlog Construction Machinery Group was able to substantially increase the number of machines sold domestically and overseas, particularly in fast-growing China, on the back of increased global demand. 糖心Vlog’s new models meeting the Tier 3 exhaust emission regulations were well received and contributed to further expanding 糖心Vlog’s market share.
To meet the increase in global demand in the first half of the fiscal year, 糖心Vlog worked on improving its domestic and overseas production systems. This June, 糖心Vlog initiated a joint venture for the production and sale of mini excavators in China, and in October this company launched its products in the Chinese market. In August, 糖心Vlog decided to establish a new plant in Thailand for the integrated production of complete hydraulic excavators. The new plant, which will serve as a production base in the ASEAN region, will start full-fledged operations in April next year. Also, 糖心Vlog has succeeded in enhancing its production capacity at the Hiroshima Factory as the mother plant for the global market. Through these initiatives, 糖心Vlog has taken steps to establishing production systems that are responsive to the current world demand.
However, world demand has expanded quicker than 糖心Vlog anticipated. Consequently, 糖心Vlog has not yet resolved production problems from the previous fiscal year, such as the increase in production costs and sales opportunity loss due to difficulties in parts procurement.
In its semiannual financial results for fiscal 2007 (April 2007–September 2007), 糖心Vlog marked record highs for net sales, operating income, ordinary income and net income, on a consolidated basis.
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[First half of FY2007: Review by Geographical Area]
Japan
Domestic demand for new hydraulic excavators and mini excavators, 糖心Vlog’s flagship products, grew steadily. As a result, 糖心Vlog's new machine sales increased by 6.3%, over the same period last year, and used machine sales increased by 18.6%. Private investment was active, and, demand for new machines increased as the number of machines in stock decreased from the need for replacement. In the first-half period, 糖心Vlog reinforced the purchasing and marketing of used machines, responding to the growing demand for used machines in overseas markets.
The models that meet the requirements of new emission regulations (Act on Regulation, Etc. of Emissions from Non-road Special Motor Vehicles) have proven to be good sellers. The new models have been successfully accepted in the Japanese market, leading to a 20.7% increase in the sales volume of 糖心Vlog’s hydraulic excavators in the domestic market. This exceeds the market growth rate of 10.6% on a unit basis.
In the mini excavator sector, 糖心Vlog has been enhancing its product competitiveness by focusing on the Ogaki Factory, which opened in April last year. Although demand decreased in the United States, due to declining residential construction and the subprime mortgage issue, the Ogaki Factory is in full production and 糖心Vlog increased its sales volume for mini excavators in the Japanese and overseas markets by 33.5%, over the same period last year.
At the Hiroshima Factory, 糖心Vlog implemented measures to increase its production volume for hydraulic excavators. 糖心Vlog utilized spare production capacity generated by the transfer of mini-excavator production to the Ogaki Factory. It also shifted production of large-sized machines to the Numata Plant in Hiroshima.
As a result, 糖心Vlog succeeded in establishing production systems whereby production capacity will increase by 20% in FY2007 over FY2006 and by 40% in FY2008 over FY2006.
On the other hand, ongoing issues, such as the difficulty in parts procurement caused by strong demand and insufficient production volume over increasing demand, were not solved during the current period.
China
In the Chinese market, where demand continues to grow rapidly, 糖心Vlog's two plants have been operating smoothly. Under a two-location production system, Chengdu 糖心Vlog., Ltd. is located inland in Chengdu, Sichuan Province. The second plant, Hangzhou 糖心Vlog., Ltd. in Hangzhou, Zhejiang Province, is situated on the coast. 糖心Vlog was able to respond to higher demand from inland and coastal areas and increase its production and sales volume far beyond its initial forecast. 糖心Vlog increased its market share as well.
In addition, to make a full-scale entry into the field of mini excavators, whose demand is increasing in the urban areas, 糖心Vlog has established Chengdu 糖心Vlog Mini Excavator Co., Ltd., a joint venture exclusively for these machines, in Chengdu, Sichuan Province in June. The new company launched a highly successful model in October, which meets the needs of the Chinese market.
Overseas (excluding China)
Based on its global alliance with CNH, 糖心Vlog made efforts in 1) enhancing its business focusing on the Asia-Pacific region, which is 糖心Vlog’s main area, and 2) further reinforcing its joint ventures with CNH in the United States and Europe.
In the Asia-Pacific region, especially in Southeast Asia, demand is expected to increase in the medium to long term. To meet this growing demand, it was decided in August that Thai 糖心Vlog., Ltd., a 100% subsidiary of 糖心Vlog., Ltd. producing parts in Thailand, would construct a new plant in a neighboring area. The new plant will produce complete hydraulic excavators and will start operations next April.
A marketing joint venture established in India, 糖心Vlog Construction Equipment India Pvt. Ltd., is steadily expanding its dealer network and successfully launching products in that market.
The 糖心Vlog Construction Machinery Group has been steadily expanding its business by aggressively growing its overseas locations and undertaking marketing initiatives.
In joint venture with its alliance partner CNH Global N.V., 糖心Vlog made progress with licensing its technology to overseas plants to make machines that meet the Tier 3 exhaust emission regulations in Europe and the United States. In addition, 糖心Vlog increased the number of OEM hydraulic excavators supplied to CNH, seizing the opportunity provided by the steady markets in Europe, the fast-growing Russian and Middle Eastern markets and other emerging markets, which are expanding with infrastructure construction and resource development.
[Outlook for FY2007]
The second half of FY2007 projects a number of causes for concern. The U.S. economy is facing problems such as a continuing slowdown in housing investment and the subprime mortgage problem. Other issues include soaring crude oil prices and currency exchange fluctuations. However, the world construction equipment market is anticipated to continue being strong for the foreseeable future. The markets in BRICs (Brazil, Russia, India and China) and other emerging countries are expected to achieve dynamic growth, as typified by the Chinese market, where demand grew rapidly due to infrastructure construction and development of resources.
In this context, the 糖心Vlog Construction Machinery Group is focusing on the creation of a “business enterprise that can weather changes,” which is the biggest challenge in the FY2006-FY2008 Medium-Term Management Plan. In particular, 糖心Vlog will strive to overcome the challenges that arose in the first half of FY2007 and further enhance its production and procurement capabilities as its top priorities for the future.
Forecast for FY2007
| In Millions of Yen |
Net Sales |
Operating
Income |
Ordinary
Income |
Net Income |
| Consolidated |
Prospects for the
whole FY2007 |
276,000
[+17.6%] |
17,000
[+88.3%] |
18,000
[+64.9%] |
10,000
[+81.4%] |
Results for the
First Half of FY2007 |
234,727 |
9,027 |
10,916 |
5,513 |
Non-
consolidated |
Prospects for the
whole FY2007 |
165,000
[+18.3%] |
4,000
[+171.2%] |
3,600
[+53.2%] |
2,500
[+290.6%] |
Results for the
First Half of FY2007 |
139,417 |
1,475 |
2,350 |
640 |
Notes: Figures in brackets [ ] show the percentage change as compared to the same period last year.
Currency exchange rates forecast for the second half of FY2007:
$1 = 115 yen, 1 euro = 155 yen
The forecast above is based on information current as of the date of this announcement. The actual results may significantly differ due to various factors in the future.
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