Hitachi Construction Machinery

Global

Explanatory Meeting for the Fiscal Year Ended March 31, 2015 Outline of Answers to Main Questions.

Q: Regarding FY2014 performance, how much did the advanced yen depreciation affect net sales and operating income? Also, what are the primary factors that operating income ratio decreased 1.9% year-on-year to 6.7%?

A: Foreign exchange rate affected positively and pushed up both net sales and operating income, which increased ¥22.4 billion and ¥14.3 billion year-on-year, respectively. The primary factors of a slightly decreased operating income ratio are decreased sales in the profitable Chinese market and the deterioration of product structure in Japan, etc.

Q: Demand forecast for hydraulic excavators in FY2015 is a decrease of 7%, while the overall sales forecast suggests a slight decrease year-on-year. Please tell us the basis etc., for such forecast.

A: Hydraulic excavator sales in China and Russia CIS, etc., are expected to decrease continueously.
However, sales are expected to increase in mining machineries and cranes, and sales derived from subsidiarization of KCM will be added. Consequently, a decrease in overall sales is expected to be slight.

Q: Please tell us the the assumed exchange rate for FY2015 full-year forecast and the foreign exchange sensitivity on operating income.

A: The assumed exchange rate for FY2015 full-year forecast is ¥115/US$, ¥125/€, ¥18.5/Chinese yuan. For the foreign exchange sensitivity on operating income in FY2015, expected impact of 1¥ fluctuation is ¥1.3 billion in US$, ¥500 million in €, and such of ¥0.1 fluctuation in Chinese yuan is ¥100 million.

Q: What are the reasons that you forecast an increase of mining machinery sales by 4% year-on-year, while mining machiery demand in FY2015 is forecasted a decrease by 10% year-on-year. How much order backlogs are accounting for the sales forecast?

A: We are making efforts to expand sales of AC-3 series dump trucks, and will continuously strive to increase sales, as we did in FY2014. Order backlog of HCM, on a unit basis, accounts for 30% in ultra-large hydraulic excavators and 40% in dump truck in the sales forecast, respectively.

Q: Regarding your statement that you will promote reform in business and cost structure while immediate recovery in demand is not expected, what are the specific schedule and content of such reform?

A: We accelerated the continuous structural reform since in the middle of FY2014 when we determined that immediate recovery in demand cannot be expected. The content of such reform includes our decisions on cost reduction, reallocation of resources to a business that has high potentials to expend profits and is in short of resources, and employment restriction, etc. We further accelerate implementation of these strategies in FY2015. Furthermore, regarding inventory, we are promoting further reduction of orders and manufacturing lead time at SCM reform, and continue to work on such reduction.

Q: HCM announced to adopt IFRS from FY2015. Please let us know the impact of IFRS application.

A: We estimate approximately ¥7.7 billion impact of IFRS application on operating income in FY2015 forecast. Out of such figure, amortization of goodwill accounts for ¥5.2 billion and retirement benefits, etc. accout for ¥2.5 billion.

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