02.02.2017

Major losses in China for Kobelco

Kobelco has released its third quarter results with lower sales and some major losses within the Kobelco Construction business as it dissolves local joint ventures in China.

Cranes are no longer split out at this stage, having been merged into the Construction equipment business, although the company did say that sales of crawler cranes had fallen, mainly due to lower demand in South East Asia.

The Construction division took a ¥37 billion ($326 million) write off in its Chinese excavator and wheeled loader business for what it considers to be uncollectable debts from many of its dealers, and the dissolution of its excavator and wheeled loader joint ventures. It plans to take over the excavator venture entirely in co-operation with its Japanese investment partners and hand over its share of the Sichuan Chenggong loader business to the local partner.

It will also retain its 51 percent direct stake in its Chinese crane venture Chengdu Kobelco Cranes, with the rest of the equity held by Chengdu Kobelco Construction Machinery in which it holds a 44 percent stake with Kobelco Toyota Tsusho Construction Machinery Holding have in which it has an 80 percent stake holding the rest – You work it out .

Getting back to the financials - the company also saw a slump in excavator sales in its home market and across most of the rest of the region. Nine month revenues for Kobelco Construction were over 11 percent lower at ¥229 billion ($2 billion) with pre-tax loss of ¥32.7 billion ($290 million) due to the first wave of write offs from China. The full year forecast is now for ¥300 billion ($2.7 billion) 11 percent down on the prior year, with a loss of ¥34 billion ($302 million) compared to a loss the year before of ¥11 billion ($98 million).

Vertikal Comment

It is hard to comment on the crane business when one has such limited information, it does seem though that Kobelco Construction is going through a very tough time in its current financial year. It is making massive changes all round not only in China, but also with the crane business around the world. The question is will a construction equipment company that also makes cranes be as focused and customer centred as a specialist crane company?

The usual answer is no and if in doubt look there are some other examples among similar Japanese companies/groups. What might save Kobelco Cranes from losing out, are its products. They are truly exceptional when it comes to engineering, fit and finish and sheer reliability – however the gap that used to exists with other non Japanese competitors has narrowed in recent years so it can no longer rely on this alone.