Hitachi Construction Machinery

Global

Explanatory Meeting for Fiscal Year Ended March 2012 Outline of Answers to Main Questions

Q: What is the demand forecast for hydraulic excavators in China (foreign-affiliated manufacturers) in FY2012?

A: The demand in the first half will remain lower than the previous year and is expected to recover around the fall when a new administration will commence, resulting in a 4% increase annually. We are focusing on receiving more orders for mining machinery in China, and the sales of mining machinery in this region in fiscal 2012 are forecasted to triple over the previous year.

Q: I heard that you have been actively promoting cost reduction. What are you working on?

A: We are reviewing the functions of each part from the design phase using the VEC(Value Engineering for Customers) method. In this way, we are striving to reduce overall costs by identifying original functions, reviewing materials and improving manufacturing methods, while maintaining good quality and performance. This method has been applied not only at factories in Japan but in China and other areas, too, showing good results.

Q: Are there any changes to orders for mining machinery?

A: It has been reported that the forecast of demand for iron ore in China is weak, but active investments have been made in the entire mining business including energy-related mining. We have already received sufficient orders for FY2012 production and have already started working on receiving orders for FY2013 production. To accommodate healthy orders, we are starting to expand the system to increase production in and outside of Japan.

Q: Please explain measures for improving cash flows.

A: Free cash flow was negative in FY2011 due to aggressive investments in production increase, etc. In FY2012, we aim to make it positive by year-end by collecting accounts receivable, reducing inventories, and shortening lead time.

Q: What are the differentiation strategies of Hitachi Construction Machinery?

A: We consider construction machinery as a growth business in the medium to long term because the demand for construction machinery remains strong in emerging countries in areas such as Asia and Africa. Under such circumstances, we are planning some differentiation strategies although we have severe pressure from competition with Korean and Chinese manufacturers, etc.

  1. The construction machinery needs to operate at harsh sites and also move with precision. The main hydraulic components which support the machinery are developed and manufactured in Japan and assembled into the main body at overseas factories, in order to maintain high quality and secure a high level of technology.
  2. Most of our machinery has the function called “Global e-service.” This enables you to know about the operating status and location of machinery via communication satellites and mobile communication networks so you can know the status even if you are away from a machine. This ICT technology has been valued by customers for services required for construction machinery.
  3. There will be higher demands for construction machinery than ever before, moving towards eco-friendly and energy-saving electric / hybrid machinery or towards automatic / robot machinery. The Hitachi group has many accumulated technologies including the above, and we can use such technologies as one of its subsidiaries. Specifically, AC electric mining dump trucks, which have been released to the market one after another since 2008, has adopted motors that have used the control technology of Hitachi, Ltd. for bullet trains, or Shinkansen. Their smooth climbing performance is favored by customers, and over 100 trucks are already in operation in 11 countries.
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