Business Performance of Leading Heavy Machinery Manufacturers Improve and Remains Positive for 2023

Leading Heavy Machine Manufacturer Komatsu Ltd Recovers from the Impact of COVID-19

For the last century, global progress towards modernization has been rapid, mainly due to industrial companies that power society towards developing a range of infrastructures, making nations better places to live. Manufacturing and technology mean nothing without entities that deliver them with practicality and service innovation.

One such entity is Komatsu Ltd, a global brand and industry leader in various fields, especially within the construction industry. Komatsu plays a critical role in providing essential construction equipment, relevant technologies, and services related not just to the construction industry, but also to mining, forestry, energy, and manufacturing. Coupled with an admirable global service structure and distributor network that supports customers, Komatsu has come a long way since its establishment a century ago.

However, in 2020, as the COVID-19 pandemic swept through continents, bringing entire industries worldwide to their knees, Komatsu Ltd reported an approximate 25% drop in revenues and a 63% decline in profits as demand from the construction, mining, and other industries dropped drastically. Compared to other industry components, Komatsu’s performance in 2020 and the first quarter of 2021 was deemed worse than average.

This decline was attributed to the fall of U.S. construction machinery seaborne imports by almost 32% in the first quarter of 2020 and by nearly 31.5% in the second quarter. In contrast, European manufacturers such as Volvo did much better despite the drop in demand, with shipments only falling by about 8% and 18% respectively over the same period.

In general, financials for 2020 and 2021 revealed that Asian manufacturers were harder hit by the pandemic. Kubota Corp also reported a drop in demand by almost 35%, and Hitachi Ltd reported a fall in demand of nearly 67%. The division between European and Asian manufacturers during the peak of COVID-19 was mainly attributed to stalled construction projects in the US and China.

As lockdown measures and trade regulations related to the pandemic eased in 2022, Komatsu Ltd’s performance improved significantly. From April 1, 2022, to December 31, 2022, for the fiscal year 2023, consolidated net sales amounted to more than 2,500 billion yen, a 26% improvement from the previous year. This was driven by expanded demand from relevant industries such as construction, mining, and utility equipment businesses.

Komatsu’s penetration into North America and Asia with new equipment demand (cross-sourcing capitalization) enhanced sales revenue via parts sales and service revenues. The depreciation of the Japanese yen towards mid-2022 also boosted the rise in demand significantly.

Komatsu’s businesses related to industrial machinery expanded, and sales of the Excimer laser-related component grew by double digits due to expanding global demand for semiconductors. The only business component that remained unchanged or unimproved was the demand for sheet-metal machines, presses, and machine tools directly associated with the automobile manufacturing industry, based on the decline in demand for large presses.

Profit for 2023 is expected to be positive, given the fact that operating income surged by almost 55% for the first nine months to nearly 347 billion yen. This surge reflects enhanced sales and the depreciation of the Japanese yen against most other currencies, offsetting the impact of higher-priced materials and logistics costs. Compared to the previous year’s operating income, the operating income ratio is higher by 2.5 percentage points.

Income before income taxes (IBIT) and equity, inclusive of earnings from affiliated companies, expanded by more than 50% to approximately 340 billion yen. Summing up the entire analysis, the total net income attributable to the company for the financial year 2022 (ending on March 31, 2023) climbed to nearly 232 billion yen, an increase of nearly 50% compared to 2021.

Towards the end of 2022, the growth fueled Komatsu Ltd.’s business ambition as the manufacturer announced its desire to acquire GHH Group GmbH. According to Peter Salditt, the president and CEO of Komatsu Mining Corp, this strategic business maneuver will enhance Komatsu’s offerings and significantly increase support for clients associated with the underground industrial minerals sector. The agreement to acquire GHH Group, which specializes in manufacturing underground mining equipment and special civil engineering equipment.

This will improve the offerings of both companies and allow Komatsu to gain a more concrete foothold in the European market and other regions such as South Africa, Chile, and India, where GHH’s factories are operational. Komatsu intends to enhance the current operational facilities in these countries and reconstruct the distribution network, crucial for providing better access to products and services for the mining industry globally.

Established in the 1960s, GHH is currently a part of Schmidt Kranz Group. Among the primary products offered by GHH are a wide variety of loaders (LHDs), including skid steers and articulated dump trucks. With Komatsu’s partnership, the product offering will increase to include critical mining industry equipment such as excavators.

Komatsu plans to continue GHH’s after-sales service structure, including lifetime support for machines post-acquisition. The new team will work extensively to bring better and more innovative solutions to the underground mining equipment niche, indicated Dr. Jan Petzold, the CEO of GHH. He stated that it is the next logical step towards establishing GHH as a true global player after the acquisition, rendering GHH as a part of the Komatsu family. The acquisition is expected to be completed by June 2023.