The Construction Machinery business unit experienced huge growth during this year, 2007, to record the largest sales volume and sales value in the annals of UT's history in Indonesia. The activities encompass the sole distribution rights for numerous heavy equipment brands, dedicated after-sales expertise, component engineering subsidiary, machinery recondition support and farming tractors. This accomplished range of businesses had successfully recorded a tremendous increase during the year in report. Total sales value of the business unit in 2007 achieved a figure of Rp8.7 trillion (after elimination), an increase of 47% compared to Rp5.9 trillion in 2006.

Heavy Equipment Distribution

To fulfill market demand of heavy equipment in sectors including mining, agribusiness, construction and forestry, the Company offers international heavy equipment brands including Komatsu, Nissan Diesel, Scania, Bomag, Valmet and Tadano. Komatsu sales volume for 2007, 3,454 units, set the new records, exceeding the Company's previous record high in 2005, 2,406 units. Having experienced slight decrease in sales to 2,250 units in 2006, this achievement showed a significant 53% increase in volume. Furthermore, in an increasing competitive market, Komatsu market share was still increased to 49%.

The amazing Komatsu sales result was mostly due to the sales increase across all sectors in Indonesia. In agribusiness, the boom was lead by roaring crude palm oil (CPO) prices as customers invested in enlarging new plantation areas, resulting in 89% increased of Komatsu sales units to this sector. In mining industry a similar story existed, as customers rapidly sort to expand operations in the booming market. As a consequence, Komatsu sales in the sector also rose by 31%. Moreover, the coal mining boom also impacted positively to the sales performance of Nissan Diesel and Scania trucks that rose 29% and 56% respectively from last year.

Not forgetting forestry, the industry received a boast by the news of Industrial Forest which aided the demand from paper and pulp industry. This drove 43% increase of Komatsu sales, as well as of Valmet forestry equipment by five times, from 3 to 15 units. The sentiment for construction has remained positive particularly in regional areas, enabled Komatsu sales volume to increase 66%, as well as sales of Bomag vibratory rollers which grew 45%.

From the financial side, in line with the growth in sales, the Company had implemented efficiency measures in order to manage the working capital. In April 2007, the Company signed a US$70 million revolving facility agreement with a number of lenders. The facility was intended to replace the Company's term loan and revolving loan. With three-year maturity and an option to extend for two years, the facility involved lower funding cost without any security requirement. Proceeds from the facility was used for the Company's working capital.

After Sales Service

One of the key strengths of the Company is its after sales service, which aims to maintain customer needs post-sale, whilst continuing to deliver profitable income to the Construction Machinery business unit. Our complete package offers several kinds of services, from pre-purchase consultation, after sales servicing, equipment maintenance and equipment operator training. Such service is made possible because of the Company's marketing and distribution network spreading across 18 branches, 15 site support offices and 12 representative offices throughout the archipelago.

The performance of the Company's after sales service, which includes both parts and maintenance services, has recorded a new milestone on the back of last year's excellent growth. This year, after sales service achieved a value of Rp2 trillion (after elimination) from the previous position of Rp1.4 trillion, increasing by 43%, with a composition of 87% from sales of parts and 13% from sales of services.

This has further solidified and improved the Construction Machinery's absorption rate, or ability to cover the business unit's overheads.

One of the highlights can be found from the parts sales performance, which also focuses its sales on non- Komatsu components that are compatible across a wider spectrum of heavy equipment products. These generic parts products, commonly known as parts commodities, includes filter, hose, ground engaging tools (GET), battery and many more. Total sales of parts commodities during 2007 had increased sharply, by 34% compared to the previous year's sales. In addition to the thrilling performance of the after sales service, the Construction Machinery also continued to plant seeds to maintain future exceptional growth of the Company. This includes the relocation and renovation of Balikpapan branch office in East Kalimantan, newly opened in September. The place encompasses an expansion in scale of warehouses, as well as remanufacturing and training facilities. At the same month, the new Learning Center based in Jakarta was also opened, indicates the Company's continued dedication to support the growing demands of its customers through highly-skilled human capital.

Engineering and Fabrication

Construction Machinery's engineering and fabrication arm is run through the Company's subsidiary, PT United Tractors Pandu Engineering (UTPE), booking a total sales of Rp328 billion (after elimination), increasing 15% compared to the previous year's figure of Rp284 billion. In terms of component production, 47% of the year's production was exported to overseas customers, which include General Electric in the United States, Alstom in France and also Komatsu international network in the United States.

Throughout the year, UTPE recorded enhanced production, most notably in mining where its product of coal vessel used by heavy dump trucks and lighting tower proved successful. Indeed, the coal vessel were also exported to Russia.

In addition, UTPE worked in collaboration with FOCAL to produce aluminum fuel tanks (AFT) as a substitute of steel fuel tanks for foreign petrol station operators in Indonesia, such as Shell and Petronas. UTPE also supplied Pertamina with fuel transport vehicles, underground fuel tanks of various capacities, wire-line equipment for Malaysia, refueler vehicles for airports, as well as becoming the HIAB Crane distributor, selling in 2007.

In material handling products, Patria forklift production increased significantly by 91%, from 55 units to 105 units. In addition, airline towing tractors, baggage towing tractors, as well as car carriers all performed well. In the construction sector, UTPE worked together with Astra Nissan Diesel Indonesia (ANDI), the Nissan truck distributor, to produce 24 cubic meter capacity tipper vessels and exporting 23 cubic meter capacity tipper vessels to Vietnam. Tipper vessel products rose by 208% from 160 units into 493 units.

In parts and service business, 2007 saw a 19% increase compared to last year, boosted by the strategy to enhance sales of both fabricated components and finished components, to add to other existing services. Finally, in the tire business, sales of Pirelli brand 1,095 on-road tire and 7,405 off-road tire, contributed 5% of total UTPE's revenue.

2007 is the year of innovation and UTPE continued to live up to the tag by developing new products such as Coal Upgrading Technology (CUT) used for upgrading the calorie content in coal, water tanks and the international-standard 25-seater passenger transportation vehicles (man-hauler) used in mining areas.

Looking ahead for 2008, UTPE will further develop production facilities to anticipate growing demand and the addition to big capacity production machines to include horizontal boring machines and roll bending machines. In line with the Company's vision of providing first class customer solutions, UTPE intends to utilize better customer relationship management (CRM) software in order to deliver a faster and more accurate response.

Remanufacturing and Reconditioning

PT Komatsu Remanufacturing Asia (KRA), a subsidiary established in 1997, whose head office and main production facilities located in Balikpapan, East Kalimantan, specializes in heavy equipment remanufacturing and quality reconditioned products. In 2007, KRA generated revenue of Rp186 billion, increasing by 13% from last year of Rp164 billion. The good economic prospects in mining and agribusiness sectors, where condition and scarcity of equipment are key factors, have assisted in the continual increase in nominal capacity.

Throughout the year, KRA's production capacity has increased steadily, from 250 to 472 units in engine, and 900 to 1,490 component units. Second facility has been set up in Balikpapan, expanding the factory from 7.5 hectares to 17.8 hectares. This expansion was supported by the implementation of SAP integrated system to raise production process efficiency. In addition, KRA has also successfully renewed ISO 9001:2000 certifications for the next three years.

Emulating the success of KRA, in 2007 the Company established two new remanufacturing facilities in Balikpapan and Jakarta branch offices, following the first one in Pekanbaru branch office, which was set up in 2006. All three facilities are equipped with international certification, with expected capacity of 578 engine and 1,632 component units. In 2007, total production from the three facilities achieved 183 engine and 808 component units.

Farm Tractors Distribution

Through its subsidiary, PT Bina Pertiwi (BP), founded in 1976, the Company distributes Kubota farm-tractors. Apart from being the main distributor of Kubota, BP also sells Kubota parts and generator sets, as well as the sales and rental of Patria forklifts. In 2007, BP achieved total sales of Rp139 billion (after elimination), rising by 21% from Rp115 billion in 2006.

The sales of farm-tractors, generator sets and forklift units dominated the revenue of BP, making around 93% of total sales, whilst forklift rental and parts sales made up 3% and 4% respectively. In terms of volume, farm-tractors decline slightly from 255 units to 226 units this year, but this was offset by generator set sales which rose from 308 units to 436 units this year, and by the fantastic performance of forklift sales which grew from a mere 4 units to 63 units this year. Meanwhile, amount of forklift rental units grew from 31 units into 62 units.