Hitachi Construction Machinery

Global

Explanatory Meeting for the Second Quarter Ended September 30, 2015 Outline of Answers to Main Questions

Q: A total of ¥11,200 million is incorporated as the structural reform cost in the full-year forecast. Please tell us the contents and the amount incorporated in the cost, including the early retirement incentive program announced at the end of September. Also, how much impact of the early retirement incentive program do you estimate on the indirect expense for the next fiscal year?

A: Breakdown of the structural reform cost cannot be disclosed at the present moment due to several matters. The early retirement incentive program is also currently under negotiation with the union. As the target headcounts and themonetary amount of the early retirement incentive program have not been determined yet and other items are also undefined, we are unfortunately not able to answer the estimated impact on the following fiscal year. The details of the early retirement incentive program will be disclosed at the time of the completion.

Q: Regarding the early retirement incentive program announced at the end of September, please tell us about the background and the thoughts of the top managements behind the announcement.

A: We are expecting the present harsh business climate, as seen in stagnant global demand for hydraulic excavators, including both general construction machinery and mining machinery, to continue for the time being. To date, we have compressed inventory and improved our financial standings.  On top of that, we are carrying out the cost and business structural reform as a strategy to create systems that leads to growth anticipating the future of 20 to 30 years later. The early retirement incentive program is part of such reform.

Q: In the revised earnings forecast for this fiscal year, the dividend of ¥60/year accounts for almost 100% of the dividend payout ratio. Please share your thoughts behind the announcement on maintaining dividend of ¥60. Also, how do you consider the dividend of the next fiscal year, from the perspective of both stable dividends and dividend payout ratio?

A: While the dividend forecast of ¥60 is derived from our taking account of the improved financial strength and cash flow, it is foremost a demonstration of top managements’ commitment to ensure achievement of the revised forecasts. Regarding dividend for the next fiscal year, we believe it is necessary to assess the effect of the business structural reform, and take into account the amount of investment in the business slated for future growth such as the parts service business and the wheel loader business,  as well as the actual cash flow of the next fiscal year.

Q: As for mining machinery market, major natural resource companies announced continuous reduction of investment for the next fiscal year. Do you see any sign of bottoming out?

A: The investment plans of mining companies are still on a downsizing trend, and the market size has certainly become very small. At the current moment, we do not see any signs of an expected recovery in the next fiscal year. We believe recovery may start in or after 2017.

Q: Revenue of mining business has increased even under the severe environment. How do you feel about the accuracy of the forecast?

A: Among the sales forecast after the third quarter, order backlog of mining hydraulic excavators accounts for over 60% and such of dump truck accounts for over 70%. Market environment is severe, however, there are some machineries facing regular replacement, and we will successfully incorporate these replacement demands. For parts service, we will increase sales by enhancements of visitation service and expansion of consumables line-ups.

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