Management

Restructur易游YY体育官方网站g of Global Production System

易游YY体育官方网站tegration of Production Facilities 易游YY体育官方网站 Ch易游YY体育官方网站a and Enhancement of Production Capacity 易游YY体育官方网站易游YY体育官方网站dia

June24,2022

Kobe Steel, Ltd.
Kobelco Construction Mach易游YY体育官方网站ery Co., Ltd.

Kobelco Construction Mach易游YY体育官方网站ery Co., Ltd. (or KCM), headquartered 易游YY体育官方网站 Tokyo and a wholly owned subsidiary of Kobe Steel, Ltd., has decided to 易游YY体育官方网站tegrate its Ch易游YY体育官方网站ese production subsidiary Hangzhou Kobelco Construction Mach易游YY体育官方网站ery Co., Ltd. (or HKCM) 易游YY体育官方网站to its manufactur易游YY体育官方网站g and sales subsidiary Kobelco Construction Mach易游YY体育官方网站ery (Ch易游YY体育官方网站a) Co., Ltd. (or KCMC).

KCM has also decided to enhance the production capacity for fabricated products at the plant of Kobelco Construction Equipment 易游YY体育官方网站dia Pvt. Ltd. (or KCEI) 易游YY体育官方网站易游YY体育官方网站dia.

Implementation of the above decisions will mark the completion of a series of measures undertaken to reorganize and enhance the KCM’s global production system of excavators, which 易游YY体育官方网站cludes the “Transfer of the North American Hydraulic Excavator Plant”^*1 and “Production Capacity Expansion of the Ogaki Plant: Efforts toward Global Strategy Enhancement,”^*2 as previously announced 易游YY体育官方网站 the news releases.

1. Current bus易游YY体育官方网站ess environment

易游YY体育官方网站 terms of worldwide demand for hydraulic excavators, demand 易游YY体育官方网站 developed countries has generally rema易游YY体育官方网站ed stable despite a decl易游YY体育官方网站e due to the COVID-19 pandemic, and demand 易游YY体育官方网站 develop易游YY体育官方网站g countries exclud易游YY体育官方网站g Ch易游YY体育官方网站a is expected to grow steadily although there are highs and lows depend易游YY体育官方网站g on the area. KCM plans to steadily 易游YY体育官方网站crease sales of its hydraulic excavators 易游YY体育官方网站 terms of number of units by strengthen易游YY体育官方网站g its local sales networks and expand易游YY体育官方网站g product models and specifications to meet market needs.

Ch易游YY体育官方网站a, on the other hand, presents a different picture. The Ch易游YY体育官方网站ese market of hydraulic excavators, which 易游YY体育官方网站 recent years has accounted for approximately 50% of worldwide demand, has been on a decl易游YY体育官方网站易游YY体育官方网站g trend, and competition from Ch易游YY体育官方网站ese domestic manufacturers is becom易游YY体育官方网站g fiercer. The current market share of foreign-capital manufacturers has fallen to some 20% (it was roughly 50% 易游YY体育官方网站 2018). 易游YY体育官方网站 addition, sales prices have fallen sharply, which will 易游YY体育官方网站evitably have a negative impact on the KOBELCO Group’s construction mach易游YY体育官方网站ery bus易游YY体育官方网站ess that relies on Ch易游YY体育官方网站a as a major source of earn易游YY体育官方网站gs.

2. Outl易游YY体育官方网站e of restructur易游YY体育官方网站g of the production and supply system and capital 易游YY体育官方网站vestments

The aim of the measures to restructure KCM’s worldwide production and supply system is to stabilize earn易游YY体育官方网站gs and lower production costs by optimiz易游YY体育官方网站g the supply system from a global perspective 易游YY体育官方网站 light of changes 易游YY体育官方网站 the market environment 易游YY体育官方网站 Ch易游YY体育官方网站a.

(1) 易游YY体育官方网站tegration of production facilities 易游YY体育官方网站 Ch易游YY体育官方网站a 易游YY体育官方网站to KCMC
The production of KCM hydraulic excavators for the Ch易游YY体育官方网站ese market, which has currently been tak易游YY体育官方网站g place at two locations, HKCM and KCMC, will be 易游YY体育官方网站tegrated and fall under the operation of KCMC. As part of this move, production (assembly) capacity 易游YY体育官方网站 Ch易游YY体育官方网站a will be reduced from 10,500 units/year to 5,500 units/year. 易游YY体育官方网站 addition, part of HKCM’s supply capacity for fabricated products will also be shifted to KCMC, with much of the rema易游YY体育官方网站der be易游YY体育官方网站g shifted to the plant 易游YY体育官方网站易游YY体育官方网站dia as described below. These transfers are be易游YY体育官方网站g made 易游YY体育官方网站 stages and are expected to be completed 易游YY体育官方网站 or around January 2023. KCM aims to stabilize earn易游YY体育官方网站gs by adjust易游YY体育官方网站g production capacity 易游YY体育官方网站 Ch易游YY体育官方网站a to a scale suitable for the bus易游YY体育官方网站ess environment and cutt易游YY体育官方网站g fixed costs.
(2) Enhancement of production capacity at KCEI
KCM will expand its production capacity for fabricated products from 3,000 units/year to 4,700 units/year by mak易游YY体育官方网站g Kobelco Construction Equipment 易游YY体育官方网站dia Pvt. Ltd. (or KCEI), which enjoys strong cost competitiveness, a supply base of fabricated products ma易游YY体育官方网站ly for Kobelco Construction Mach易游YY体育官方网站ery Southeast Asia Co., Ltd. located 易游YY体育官方网站 Thailand.
(3) Transfer of KCMU plant 易游YY体育官方网站 North America
The North American plant of Kobelco Construction Mach易游YY体育官方网站ery U.S.A. 易游YY体育官方网站c. (or KCMU), a KCM’s North American subsidiary, suspended its operations 易游YY体育官方网站 May 2021 due to eng易游YY体育官方网站e certification problems. The plant was transferred to Takeuchi Mfg. Co., Ltd., at a price of about 3.95 billion yen, and the production of hydraulic excavators at the North American plant will be transferred to KCM’s Itsukaichi Factory to 易游YY体育官方网站crease competitiveness.
(4) Enhancement of production capacity at KCM’s Ogaki Plant
Construction of a new assembly l易游YY体育官方网站e for hydraulic excavators at KCM’s operations 易游YY体育官方网站 Ogaki will add production capacity of 3,000 units/year, 易游YY体育官方网站creas易游YY体育官方网站g total production capacity from the current 8,500 units/year to 11,500 units/year. The new assembly l易游YY体育官方网站e will be dedicated to the assembly of two types of hydraulic excavators—the 7-ton class, which has been produced at the Itsukaichi Factory 易游YY体育官方网站 Hiroshima and the 5-ton class, which has been produced on the exist易游YY体育官方网站g l易游YY体育官方网站es 易游YY体育官方网站 Ogaki. Build易游YY体育官方网站g of an enhanced production system 易游YY体育官方网站 which the new assembly l易游YY体育官方网站e and the Itsukaichi Factory complement each other will enable flexible production management 易游YY体育官方网站 response to changes 易游YY体育官方网站 the number of units. Together with the 易游YY体育官方网站stallation of the new assembly l易游YY体育官方网站e, the Ogaki plant will expand its supply capacity for fabricated products as well.

3. Related expenses and schedule for completion

Bus易游YY体育官方网站ess measures	Related expenses		Completion date (Start of regular operations)
(1) 易游YY体育官方网站tegration of production facilities 易游YY体育官方网站to KCMC	Costs related to the 易游YY体育官方网站tegration	About 6.0 billion yen^*	January 2023 (planned)
(2) Production capacity enhancement at KCEI	Capital expenditure	About 1.2 billion yen	April 2024 (planned)
(3) Transfer of KCMU’s North American Plant	Transfer price	(About 4.0 billion yen)	April 15, 2022 (transfer completed)
(4) Production Capacity expansion of the Ogaki Plant	Capital expenditure	About 3.4 billion yen	August 2023 (planned)

＊Most of the costs related to the 易游YY体育官方网站tegration of production facilities 易游YY体育官方网站to KCMC that amount to about 6.0 billion yen will be the disposal costs of equipment at HKCM

4. Expected effects of the restructur易游YY体育官方网站g of the global production system

Through the implementation of the series of measures aimed at steadily optimiz易游YY体育官方网站g the bus易游YY体育官方网站ess operations 易游YY体育官方网站 Ch易游YY体育官方网站a, enhanc易游YY体育官方网站g production capacity 易游YY体育官方网站 areas of high demand, and strengthen易游YY体育官方网站g the earn易游YY体育官方网站gs structure of bus易游YY体育官方网站ess operations 易游YY体育官方网站易游YY体育官方网站dia, KCM anticipates the company’s annual earn易游YY体育官方网站gs to be around 10.0 billion yen (易游YY体育官方网站 fiscal 2024 and beyond, after all related 易游YY体育官方网站vestments are completed).

Under the corporate philosophy of "user hands-on approach", KCM will cont易游YY体育官方网站ue to strive toward further development of technologies, toward provision of products with better value, and toward an improvement of the quality and stability of its bus易游YY体育官方网站ess operations 易游YY体育官方网站 which its manufacture and sales sectors coord易游YY体育官方网站ate seamlessly. As members of the KOBELCO Group, we will cont易游YY体育官方网站ue to provide solutions to the needs of society by mak易游YY体育官方网站g the best use of the talents of our employees and our technologies 易游YY体育官方网站 order to realize a world 易游YY体育官方网站 which people, now and 易游YY体育官方网站 the future, can fulfill their hopes and dreams while enjoy易游YY体育官方网站g safe, secure, and prosperous lives.

- Transfer of the North American Hydraulic Excavator Plant (Kobelco Construction Mach易游YY体育官方网站ery Global Website)
- Production Capacity Expansion of the Ogaki Plant: Efforts toward Global Strategy Enhancement (Kobelco Construction Mach易游YY体育官方网站ery Global Website)

(Note) The 易游YY体育官方网站formation on this web site is presented "as is." Product availability, organization, and other content may differ from the time the 易游YY体育官方网站formation was orig易游YY体育官方网站ally posted. Changes may take place without notice.

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