Komatsu Saw Stronger Yen Erasing Gains from Increasing Demand in Indonesia

Komatsu, the world’s second-largest construction and mining machinery maker, saw its annual earnings slide as a stronger yen erased gains from increasing demand in China and Indonesia.

The 95-year-old company saw its revenue for the year ended March 31 fall 2.8% from the previous year to 1.80 trillion yen ($16.20 billion). Net profit was also down 17.5% to 113.4 billion yen in the April-March period compared to the year before.

Looking ahead, the company, known for producing excavators and bulldozers, has forecast net profit for the fiscal year ending March 2018 to fall 18.9% as one-time costs stemming from its recently sealed acquisition of an American mining equipment company weigh on earnings.

Komatsu said that while increasing demand for construction equipment from China and Indonesia helped cover the fall in demand in North America and the Middle East, the stronger yen ultimately reduced gains.

Komatsu’s results follow rival Caterpillar’s surprisingly strong earnings released earlier this week, which the American company said came from stronger construction equipment sales in China.

Komatsu said sales of construction equipment in China grew to 97.3 billion yen in fiscal 2016 compared to 69.6 billion yen the year before, with sales especially robust in the fourth quarter. China’s gross domestic product grew at an annual rate of 6.9% in the first quarter of 2017, with growth strongest toward the end of the three-month period.

Mikio Fujitsuka, Komatsu’s chief financial officer, said he expected the current momentum in China to continue until a key Communist Party congress in the fall, but added that the peak in sales likely has passed with the Lunar New Year. Demand in China grew 48% in fiscal 2016 compared to the year before, while demand in Southeast Asia grew 13%, led by Indonesia and Malaysia, Komatsu said.

The Tokyo-based company said it expected demand for construction machinery in China to gradually slow down toward the fall, and expected growth of 5% to 10% in fiscal 2017 compared to the previous year.

Komatsu has been expanding its business overseas. The company recently wrapped up its $2.9 billion acquisition of U.S. rival Joy Global. The Wisconsin-based company offers surface and underground mining equipment like rope shovels that Komatsu does not have.

EDITOR (ENG)Jimmy Hitipeuw
SOURCENikkei Asian Review