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To All Our Stakeholders

Business Results

We are very pleased to report that the Komatsu Group continued to improve its performance for fiscal 2008, ended March 31, 2008, as shown in the table below. We renewed our record-high in consolidated sales and profits, and recorded the sixth straight year of growth in sales and profits.

Consolidated Results for the Year

*1 In April 2007, Komatsu Zenoah Co. had Zenoah Co., a subsidiary, take over its outdoor power equipment business through the split and takeover procedure. In the same month, Komatsu Utility Co., Ltd., which had taken over Komatsu Zenoah Co., sold all of its shares of Zenoah Co. to HUSQVARNA JAPAN LTD. (currently, Husqvarna Zenoah Co., Ltd.). In accordance with the Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the entire operation of Komatsu Utility Co., Ltd., except for the outdoor power equipment business, remains as a continuing operation, and income from this continuing operation is presented as "income from continuing operations," in the consolidated statements of income.

*2 In accordance with the above-mentioned Standards, income from the sale of the outdoor power equipment business of Komatsu Zenoah Co. is presented as one line, "income from discontinued operations," in the consolidated statements of income.

Consolidated net sales reached ¥2,243.0 billion (US$22,430 million, at US$1=¥100). In the construction and mining equipment segment, we boosted sales by steadily capitalizing on expanded demand against the backdrop of thriving resource development around the world and infrastructure development, particularly in emerging economies. We also expanded sales of forklift trucks and industrial machinery, reflecting buoyant capital investments in Japan and overseas.

Operating income for the year increased to ¥332.8 billion (US$3,329 million), and operating income ratio improved 1.9 percentage points over the previous fiscal year, to 14.8%. Operating income improved 36.0% due not only to expanded sales, centering on construction and mining equipment, but also to the successful realization of prices for construction and mining equipment in Japan and overseas. Income from continuing operations before income taxes, minority interests and equity in earnings of affiliated companies reached ¥322.2 billion (US$3,222 million). Net income for the year, the sum of income from continuing and discontinued operations, advanced to ¥208.7 billion (US$2,088 million).

Cash Dividends

Komatsu is building a sound financial position and flexible and agile corporate strengths to increase its corporate value. Concerning cash dividends to shareholders, the Company maintains the policy of redistributing profits by first striving to continue stable dividends and then considering consolidated business results, while working toward the goal of a consolidated payout ratio of 20% or higher.

We have set the fiscal 2008 year-end dividends at ¥22 per share, an increase of ¥4 from a year ago, after reviewing the business results for fiscal 2008 as well as current and future business prospects. Together with the interim per share dividends of ¥20, annual dividends per share increased to ¥42, up ¥11 from the previous fiscal year, realizing the fifth consecutive year of larger dividends to shareholders.

Mid-Range Management Strategies, Goals and Tasks Ahead

With respect to our construction and mining equipment business, there are some factors of concern, such as an increase in prices of raw materials, in addition to slack demand for construction equipment in the United States. However, we project that thriving demand for construction and mining equipment should remain at a high note, particularly in emerging economies. In the industrial machinery market, we also anticipate an expansion in sales against the backdrop of buoyant capital investments, especially in emerging economies.

We at Komatsu define our corporate value as the total sum of trust given to us by society and all stakeholders. To increase this corporate value, we have set the following two management goals.

• To maintain our top-level profitability and financial position in the industry and enhance our position in the global marketplace, especially in Greater Asia.*
• To continue management, while keeping market value in mind, which reflects the amount of trust given to us by society and shareholders.

* Asia in the broad sense of the term, including China, Southeast Asia, India, Middle East and CIS.

*1 ROE = Net income / [(Shareholders�Eequity at the beginning of the fiscal year + Shareholders�Eequity at the end of the fiscal year) / 2]

*2 Net debt-to-equity ratio = (Interest-bearing debt �ECash and cash equivalents �ETime deposits) / Shareholders�Eequity

To achieve these two goals, we will promote the following three matters as Komatsu’s permanent ongoing tasks. (1) thorough measures for compliance, safety and environmental conservation, (2) dissemination of The KOMATSU Way and human resource development, and (3) brand management activities, which we are introducing for the first time staring in the current fiscal year, ending March 31,2009.

Furthermore, we are continuing our efforts regarding the following seven activities of importance for our "Global Teamwork for 15" mid-range management plan, the goal of which is set for the year, ending March 31, 2010. We are determined to produce achievements.

1) Development of DANTOTSU Products

We are promoting the development of DANTOTSU products by taking advantage of Komatsu group-wide strengths, such as in-house capabilities to develop and produce key components including engines and hydraulic units which enable a substantial reduction of fuel consumption, IT applications as represented by KOMTRAX (Komatsu Machine Tracking System), and an autonomous haulage system for super-large dump trucks.

2) Further Enhancement of Market Position in Greater Asia

We are going to further enhance our market position in Greater Asia, especially by leading our competitors in product launchings, expanding local production, and further reinforcing sales and product support capabilities.

3) Business Expansion in the Entire Value Chain*

In addition to reinforcing our parts business, we are also going to expand peripheral businesses in relation to construction and mining equipment, such as (1) services and Reman, (2) retail finance, (3) rental and used equipment, (4) working gears (attachments) and forest machines by capitalizing on Komatsu’s edge in group-wide areas of original technology and by facilitating collaboration among different business operations.

* Values generated by business activities of Komatsu with its partners, i.e., distributors and suppliers, and customers.

4) Establishment of Flexible Manufacturing Operations

By taking effective advantage of global sales, production, procurement and other operations, we are going to further enhance production flexibility in tune with demand changes and foreign exchange fluctuations. We are also going to share market information among distributors, plants and suppliers. In the short term, we are going to accurately incorporate such information into production, sales and inventory planning. In the medium term, we will accurately incorporate useful information into capital investment planning in order to ensure appropriate production capacity.

5) Expansion of Utility Equipment Business

We are working further to generate synergy in production and development of forklift trucks and compact-construction equipment in order to enhance product competitiveness. We are also working to improve our position in the utility equipment industry and improve earnings by doubling our efforts in Greater Asia.

6) Reinforcement of Industrial Machinery Business

We are working to further expand our industrial machinery business by generating more synergy with NIPPEI TOYAMA Corporation as a new member of the Komatsu Group and by strengthening overseas business, particularly in Greater Asia.

7) Reduction of Fixed Costs

We have been working to reduce fixed costs since the commencement of the first-stage Reform of Business Structure project. We are working to further cut down our fixed costs by applying IT to improve administrative operations.

Centered on the "Spirit of Manufacturers" dedication, Komatsu Group’s direction remains crystal clear: "We provide the products (both hardware and software), that customers are happy to own, and we will make profits and grow." In addition to top management officers, of course, all employees of the Komatsu Group in Japan and abroad are determined to fulfill this commitment with self-confidence and a sense of mission by converging their talents and knowledge.

On behalf of the members of the Board, we would like to extend our sincere appreciation to our valued shareholders, customers, business partners and employees around the world for their support.