Komatsu's results keep on track: excellent results from Japan's number-one construction/mining equipment manufacturer reflect the boom in solid minerals in particular. "The price hike of crude oil means a tailwind for Komatsu" says company boss Masahiro Sakane.(Construction)

KOMATSU LTD IS one of the world's largest manufacturers of construction and mining equipment. Japan-based, it has factories in many countries around the world. Thus most of the large excavators it sells in Africa come from its production plant in the UK even though the company's hydraulics technology, the heart of most of its machines, is based in Japan. Heavy mobile plant is Komatsu's "mainstay" activity, but the company is also represented in other fields such as industrial vehicles and electronics.

Komatsu's annual report always makes better reading than most of its competitors' because it sheds light on the boom and bust operating conditions faced by one of the world's largest engineering companies; the group made a loss in 2001/02. It always makes special mention of environmental considerations--one of the top constraints on the heavy plant industry these days, and building up rapidly though not everywhere here in Africa.

This year's report, for example, explains those complicated new Tier 3 emissions rules that are being imposed in so many countries from January next. It provides plenty of information about the individual machines sold, and not just the new ones. And it explains how thinking is developing at group head office in Tokyo, including about the sort of profits the core business should be making around the world. Komatsu is a multinational, but what happens in Japan is critical to its success, and the Japanese economy has been through a real roller-coaster ride in recent years, with plant now available there at prices that make African buyers rub their eyes in disbelief. Japanese production costs are highly competitive, the report says.

To illustrate all this the 2005 report includes a long interview with Komatsu President and CEO Masahiro Sakane, commenting on a year in which net global sales advanced by 20 per cent to reach a massive US$13.41bn (and by more than this in the Middle East/Africa), and profits were up handsomely. Mr Sakane describes; "Upturned market conditions for construction and mining equipment ... supported by excellent overseas results." but he also reminds shareholders of the cyclical market for construction and mining plant, which actually resulted in higher costs for Komatsu's output and logistics in 2004/05 "because demand accelerated far more than we had anticipated."

African mining output is a good example of this boom/bust phenomenon, the upturn taking most operators by surprise. China's international purchases were the main cause; interestingly Komatsu's equipment sales there fell against the worldwide trend.

Interestingly Komatsu is now including South Africa in its group of five top emerging markets surveyed, which is headed by China and which group now accounts for one-tenth of total heavy plant sales. Mr Sakane claims controversially that the price of crude oil is closely related to the price of solid minerals such as SA's coal. "The price hike of crude oil means a tailwind for Komatsu," he says. "We have confirmed a positive correlation between the Dubai crude price and Komatsu's operating profit."

Sales of construction/mining equipment topped the trillion-yen mark for the first time in ...