Notice Regarding Large-Scale Capital Investment at Tangshan (China) Plant
August 30, 2010
This is to notify that the Board of Directors of Sumitomo Heavy Industries, Ltd. (hereinafter referred to as "SHI" or the "Group") passed a resolution at a meeting held on August 30, 2010 to carry out further capital investments at its Tangshan Plant in Hebei Province, China. The additional investment, which will be worth more than JPY10 billion, will be made during this year and the following year.
Details of the decision are outlined below:
1. Investment Details
In order to boost sales in the rapidly expanding China market, SHI decided to establish a plant in Tangshan in December 2007 (the two above-referenced locally incorporated entities). The plant, which began production in February 2009, has been running smoothly ever since. In consideration of this, the Board of Directors determined that it was an opportune time to accelerate the expansion of production capacity at the plant to ensure that the Group is in a strong position to aggressively expand its presence in China, a market that is projected to continue to grow into the future.
In terms of gear reducers, SHI has developed a business platform based on this product on a global scale. In China, the Group already operates two manufacturing plants in Tianjin and Shanghai, and the product is being distributed across the entire country. The plant in Tangshan currently manufactures gear boxes (medium and large scale gear reducers) of which the medium-scale gear reducers are being used in mining machinery and other products are being installed at infrastructure-related facilities such as water treatment plants. With the planned investment, the Group not only plans to increase the production capacity of the existing product line-up but also add other product lines such as large-scale gear boxes for mining machinery and specialized units for steel-making machinery. Through this, SHI is aiming to expand its presence in the market for these products in China.
In terms of hydraulic excavators, the Tangshan plant that commenced production in June 2009 was the Group's first foray into manufacturing such products outside of Japan. At a projected annual production rate of 2,000 units by the end of the fiscal year, the plant is currently running at full capacity, ahead of the original production schedule. As supply is not keeping up with expanding market demand, the Group initially developed plans to increase annual production capacity to 3,000 units. However, these plans were scrapped due to under-supply concerns in the medium-term future. The new plan, which will result in a JPY7.1 billion investment and include the acquisition of adjacent properties, the expansion of the current building size, and significant capital investment, will result in the annual production capacity increasing to 5,000 units.
The Group, as a whole, has been implementing a global expansion strategy with Asia and other emerging markets currently being the locus of its business development strategies. The planned capital investment into the Tangshan Plant and the subsequent increase in production capacity for two product areas is expected to enhance the Group's presence in the ever-expanding China market, and lead to further business development in the future.
3. Future Outlook
The impact on current year business results (ending March 2011) as a result of the planned investment is expected to be minimal. As such, no revisions have been made to the earnings forecast that was announced on July 30, 2010.