31.03.2016

Zoomlion profit plunge

Chinese crane and construction equipment manufacturer Zoomlion has reported a 95.5 percent fall in pre-tax profits for the full year 2015.

Revenues for the 12 months were down almost 20 percent to RMB 20.8 billon ($3.2 billion) of this sales in China fell 21 percent to RMB 18.2 billion ($2.8 billion) - while exports dropped almost 12 percent to RMB 2.6 billion ($395 million). Crane sales fell almost 40 percent to RMB 4.5 billion ($700 million). Pre-tax profits for the year evaporated from RMB 863 million ($133.5 million) in 2014 to RMB39 million ($6 million) in 2015.

Meanwhile the level of trade debtors were slightly up on last year at RMB 31.8 billion ($4.9 billion) the company said that it is tightening its credit controls and limiting terms, while at the same time almost doubling its bad debts reserves.

Talking of the outlook for this year the company said: “To secure continuous promotion of our strategy, our construction machinery sector will continue to focus on efficiency and benefits by striving to promote reform and integration of regional markets, collecting receivables, eliminating inventory, and improving and promoting products, and by strictly implementing all-round budget management and control to reduce costs and improve efficiency”.

“The company will also allocate more resources to realise the objective of international company, and will fully gear into the ‘One Belt and One Road’ to achieve ‘going global’ of products and capital”.

Vertikal Comment

Zoomlion has a long way to go to become a serious international player in the crane market, and clearly hopes to do this through its acquisition of Terex. The company is already a serious player in the concrete market, achieved partly though strong development of its own products and partly through its acquisition of CIFA.

The Terex deal would probably be a good one for the Terex and Zoomlion Construction divisions, but whether it makes sense for the crane and marine sector is another thing. What seems clear is that Zoomlion needs to do the Terex deal more than Terex does. Given the slower growth in China, large crane and excavator inventories in the country and Zoomlion’s need to crack down on credit terms and it hard to see how the company will avoid a further in 2016, although it is banking on some upside from its environmental equipment business and its new Agricultural division.

If the Terex deal falls through, expect Zoomlion to go after another contender. It is clearly determined to play its part in the Chinese government’s ‘One Belt and One Road’ internationalisation programme and really needs to reduce its dependence on the local market.

Interesting times