Toughening conditions weigh on XCMG

The booth of XCMG (Xuzhou Construction Machinery Group) during the 2012 International Trade Fair for Construction Machinery and Equipment in Beijing, May 15, 2012. [Photo by Wu Changqing / Asianewsphoto]

XCMG Construction Machinery Co Ltd, one of the top domestic producers of heavy equipment, has reported declines in revenue and net profit for 2013.

According to its annual report released on Tuesday, net profit sank 38 percent to 1.51 billion yuan ($242 million), following a 27 percent slump in 2012.

Total revenue declined 16.1 percent to 27 billion yuan, the report said. As a result of weakening fixed-asset investment, shrinking downstream demand and a glut of products, "the whole industry faces fierce competition and narrower margins," the company said in its results.

"Our products are affected largely by economic cycles, as our major clients are from industries such as infrastructure construction, engineering and energy development, and their performance is highly correlated with macroeconomic conditions," it added.

Output fell by 12.7 percent last year, but inventories still rose about 3 percent, according to the annual report.

China's heavy equipment producers face challenges to growth caused by a supply glut. These companies ramped up production amid the nation's heavy stimulus spending, which was intended to blunt the effects of the global downturn starting in 2008, analysts said.

XCMG's rivals have also reported weak figures for 2013.

Zoomlion Heavy Industry Science & Technology Co said in late March that 2013 earnings fell 48 percent on weak demand. Sany Heavy Industry Co Ltd, a leading construction equipment maker, said net profit in the first half of 2013 dropped 49 percent amid slower industry growth in China.

"Sales of machinery products industry-wide are improving mildly. Some companies are back on a growth trajectory. Demand remains stable year-to-date, and the scale of new real estate projects and fixed-asset investment will decide conditions for the industry later on," Luo Libo, an analyst with GF Securities Co Ltd, wrote in a note last week.

XCMG said that the company is striving to cope with the weak market, which it described as "unprecedented in the past 10 years". Its efforts include a greater focus on export sales.

XCMG has entered offshore markets including Brazil, India, Russia and Germany. The company said it is accelerating the development of new products adapted to local conditions and acquiring local certifications. Its comprehensive manufacturing base in Brazil started trial runs last year.

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