Heavy equipment slump to last, says Komatsu chief during Q&A session

Komatsu President Tetsuji Ohashi

TOKYO — Japanese construction machinery maker Komatsu expects its operating profit to decline roughly 30% on the year to 150 billion yen ($1.41 billion) in the fiscal year ending March 2017. Operating profit is likely to fall for a second straight year for the first time since fiscal 2009, dropping to its lowest level since that year, when Komatsu was reeling from the impact of the global financial crisis.

President Tetsuji Ohashi predicts global demand for construction machinery will remain stagnant at least for the next three years according to the Asia.Nikkei.com

Q: What do you make of the global economy in terms of demand for Komatsu’s core construction and mining machinery?

A: China’s economy has completely entered a “new normal” — a slower but more sustainable rate of growth. Demand will no longer double and the situation will remain harsh, even though it will settle down after slowing. For the current fiscal year, construction machinery sales in China are less than one-fifth the peak logged in the year through March 2011.

Other emerging markets are struggling, too. China’s slump has spread to Southeast Asia. Russia, an oil producer, is suffering from falling oil prices and Brazil is facing political turmoil. Global demand for construction machinery is expected to decline by about 10% this fiscal year.

Q: Where do you see new opportunities?

A: We see new opportunities in developed countries. In the U.S., demand for road and housing construction has expanded to a level close to their peak before the 2008 global financial crisis. Demand is recovering in Europe, too. In Japan, there is strong demand for construction investment in the run-up to the 2020 Tokyo Olympics.

In the last fiscal year, developed countries made up 51% of total sales, accounting for the majority for the first time in eight years. That share is expected to rise another 2 percentage points to 53% this fiscal year.

We will never sell our products at low prices, even in a difficult situation. We will spur replacement demand by revamping and tweaking our models. With a rising global population, there is steady demand for better housing and roads. There will be replacement demand as long as construction machinery is operating.

We have sold some 50,000 large pieces of mining equipment over the past decade. That translates to 5,000 units a year. Now we are selling only 2,000 units a year. It may not happen this fiscal year, but the gap [between the two figures] will narrow over time.

Q: How will you make money in a slumping market?

A: We will improve our earnings structure, where profit margins are influenced by sales. Our operating profit margin was 11% in the last fiscal year, falling short of our 18% target due to the sales decline. We plan to make our products more attractive. We intend to boost our parts sales and service business using information technology-based, real-time data for construction machinery around the world.

I think driverless dump trucks are a growth area. Currently about 90 such trucks are operating worldwide. On learning that mine developers have cut costs using our unmanned dump trucks, a growing number of companies are expressing interest. We plan to turn a profit by pursuing innovation that benefits our customers.

Interviewed by Nikkei staff writer Yuki Uede