24.05.2005

Kobelco Cranes first year results

Kobelco cranes, became a separate business, independent from Kobelco Construction Machinery co Ltd in April 2004, when it was launched as Kobelco Cranes Co Ltd. A subsidiary of Kobe Steel, Ltd. The company has now released its first full year results.

Kobelco Cranes sold a total of 370 units in 2004, an increase of 32 percent on 2003, when it sold 280. North America, Europe and China all showed a strong increases in sales volume. The number of crawler cranes exported, as a percentage of total unit production, rose to 70%, up from 50% in fiscal 2003.

Consolidated net sales for 2004 reached 34.8 billion yen ($323/£177 million), an increase of over 40 percent on 2003. Domestic sales (Japan) comprised 16.9 billion yen ($156/£85 million), 49 percent of total sales revenues while overseas sales were 17.9 billion yen ($166/£90 million) 51 percent.

Operating income was 876 million yen, ($8.1/£4.45 million), with net income at 420 million yen ($3.9/£2.1 million). Kobelco Cranes commented that it recorded a profit in fiscal 2004, its first full year of operation, in spite of increased material costs, not all of which it was able to pass on to buyers.

Commenting on its first full year results, Kobelco highlighted the following achievements.

* Higher profitability through OEM supply of crawler cranes to the Manitowoc Crane Group in North America.

* Extended the OEM agreement with Manitowoc for the European market.

* Expanded sales of large crawler cranes in China for power plant construction.

* Promoted marketing in emerging and natural resource countries, where high growth is anticipated.

* Began importing all-terrain cranes into Japan under OEM agreement with Deutsche Grove..

* Increased product prices and reduced costs to minimize high material costs.


Fiscal 2004 Review by Geographical Area

In the North American market, Kobelco Cranes expanded its distribution channels, leading to a sharp increase in the number of units sold.

In Europe, the sales volume of new cranes increased considerably owing to strong marketing to major equipment rental companies and expanding the marketing territory in Central Europe, Southern Europe and Russia.

In the Middle East, where projects and oil demand are anticipated to grow, and in Southeast Asia, where demand for used machines is strong and demand for new machines is expected to continue, Kobelco Cranes opened local offices. In addition, strong marketing activities in emerging countries and natural resource countries contributed to higher sales volume.

In China crane demand was firm owing to active infrastructure investments for power generation projects. As a result, Kobelco was able to increase its sales volume. Aiming to further strengthen its business foundation in the future, Kobelco carried out the following activities:

* Opened the Shanghai Office in August 2004 to strengthen marketing and services.
* Expanded service centers to further improve customer services.

Alliance with Manitowoc

In April 2004, Kobelco Cranes began the OEM supply of crawler cranes to the Manitowoc Crane Group, and during the year shipped more than twice the number of units than originally anticipated.

In March 2005, the two companies signed a further agreement for Kobelco Cranes to provide crawler cranes to Manitowoc on an OEM basis in the European market. In autumn 2005, Kobelco intends to begin supplying four models under 110 tons.

Furthermore, to build up its mobile crane business, in February 2005 Kobelco launched a 265-ton All-Terrain crane made by Grove onto the Japanese market..

Japan
In Japan the new crawler crane market, climbed to over 200 units, a 12 percent increase on 2003. and the first time in three years that demand for new cranes translated into higher revenues.
In the rough terrain crane market, for the first time in four years demand rose to 1,200 units, up 20% from the previous fiscal year. Kobelco Cranes offer two models in the 12-ton and 16-ton classes, both of which recorded higher sales volume.

With regard to production, Kobelco combined production lines, making strong efforts to raise production efficiency to meet the increased demand for cranes in the domestic and overseas markets.

Outlook for Fiscal 2005

Kobelco expects world crane demand in fiscal 2005/6 to remain firm. However, a strong downward pressure on margins due to the higher cost of steel and other materials is still giving them cause for concern.

In spite of this, Kobelco is forecasting continuing improvement in profitability for the year. Geographical split for the year in unit terms is predicted as Japan 30% of sales, North America 25%, Europe 20%, and China and others 25%

Kobelco has stated the following plans and strategies for fiscal 2005

* Reduce expenses by improving productivity and decreasing procurement costs.

* Raise product prices in Japan and overseas to offset higher material costs.

* Increase profits through collaboration with Manitowoc.

* Further strengthen services and distribution in China, emerging countries and natural resource countries.

* Develop world crane models that meet Tier 3 exhaust emission regulations.

* Strengthen the mobile crane business in Japan by further promoting All-Terrain cranes.

* Build optimum manufacturing systems to meet higher production.

In spite of the bullish outlook the official forecast for 2005/6 sees an increase in revenues of only 3.4 percent, but with operating income rising by 94 percent and net income by over 90 percent,

Vertikal Comment

Kobelco cranes first year results are positive in many ways, the separation from the construction machinery business has certainly helped increase the focus on cranes and helped cement its leadership of the crawler crane market.

The OEM deal with Manitowoc has served it well in year one, some of the orders though will most certainly be “pipeline fillers” as dealers added demo units and stock, the US crawler crane market is improving but only slowly, if year two is as good as Kobelco claim year one was, they will have done well.

Perhaps this fact is what is causing the revenue forecasts to be so modest, hardly reflecting any price increases that it plans to institute, not to mention ongoing sales growth,

The impact of the OEM agreement extension to Europe will be significantly less dramatic than it was in North America, for one the Manitowoc brand does not have the same cachet over here as it does there. Secondly the Manitowoc distribution policy is different, largely led by company stores, which typically are a lot less reluctant to stock product than the better independent dealers,

Finally many “observers”, including a number of Kobelco’s own staff, wonder where this “adventure” is ultimately heading. Some have already concluded that Kobelco will eventually end up as the overseas crawler crane division of the Manitowoc group.
Until that happens or something categorically rules it out, Kobelco crane employees will be constantly looking over their shoulders.