Industry heavyweights

15 April 2008

There was no change at the top of this year's Yellow Table compared to 12 months ago, with the construction equipment industry's five biggest manufacturers unmoved from their positions. In fact there was not much change among the top 10, with only Hitachi and Liebherr swapping places, while JCB made it into this elite group for the first time at the expense of Sandvik.

The real story of this year's Yellow Table however is the massive strides China's largest manufacturers have made up the rankings. This year iC has been able to source figures for the first iCtime for all of the massive Xuzhou Construction Machinery Group (XCMG), and its sales of CNY 20.3 billion (US$ 2.55 billion) last year places it 14th in the ranking. It is a massive leap from its 41st position last year, which was based on partial figures - the best information available at the time.

But XCMG is not the only Chinese manufacturer to make headway up the rankings. Zoomlion, Sany, Shantui, Liugong, Xiagong and Longgong have all progressed due, it would seem, to the buoyancy of the Chinese market. These seven manufacturers had total sales of US$ 7.9 billion last year - some 6.5% of the total for all 50 companies in the Yellow Table. This compares to a total of just US$ 2.7 billion last year, or 2.7% of the then total.

This increased slice of the global industry seems to have come mainly at the expense of US manufacturers. The 2006 edition of the Yellow Table saw these 10 companies claim a 47.7% share of total revenues, but this year that figure is down to 44.4%.

This is not to say US manufacturers did not see their sales grow last year. Total revenues were up from US$ 47.2 billion to US$ 54.1 billion - a +14.6% rise. However, this increase was less than that of the 50 Yellow Table companies as a whole - +23.2% - and of course a long way behind the +192% rise in sales for the Chinese manufacturers.

On a regional level, this has boosted the share of revenues for Asian companies from 25.3% in last year's study to 28.3% this year. Meanwhile the Europeans gained very slightly, moving up +0.3 points to a 26.7% share.

But while North American manufacturers saw their slice of the market drop from 47.8% to 44.6%, this should be viewed in a longer term context. Previous years had seen the North American equipment producers secure shares of 43.4% and 43.8%, so last year's result (based on 2005 revenues) seems to be something of a ‘blip’.

The construction equipment market boomed last year with +23% growth. But while there was little change among established manufacturers in the Yellow Table- iC's league s table of the 50 largest companies in the industry - China's key players leapt up the ranking.

The most likely explanation is that US-based manufacturers benefited most from the huge surge in demand for equipment in the region in 2005. This underlines the fact that while the construction equipment industry is a global business, the strongest players in any given country or region tend to be the domestic manufacturers, because they have been there the longest and have the best distribution networks.

In terms of individual companies it is not just the US manufacturers that have seen an erosion of their position. The rapid emergence of China's seven leading players has seen almost all the other companies in the Yellow Table lose places compared to last year.

Besides the improvements already mentioned for Hitachi and JCB, only Atlas Copco, Putzmeister, Haulotte and Skyjack improved on their standings compared to last year. It is interesting to reflect that two of these - Haulotte and Skyjack - specialise in powered access equipment, which would seem to point to above-trend growth in this niche.

In fact Skyjack is a new entrant to the Yellow Table, and the only one this year. The strength of its growth is underlined by the fact that it edged-out China's Shandong Lingong to take 49th position.

Outlook

Although the top 10 companies in the Yellow Table have not changed much from last year, the 2008 edition looks likely so see some changes. Volvo's acquisition of the Ingersoll Rand road building equipment portfolio seems certain to elevate it to fourth in the table, ahead of John Deere. Equally, the divestment on Ingersoll Rand's part will probably see it drop out of the Top 10.

Atlas Copco's could also be a new entrant into the top 10 thanks to its acquisition of Dynapac. However, the caveat with both these deals is that they have not yet reached financial close, and until that is achieved, nothing is 100% certain. The other point is that, depending on when they close, Atlas Copco and Volvo will only see a portion of full-year revenues added to their existing sales this year. It will therefore be April 2009 before the full effects of these acquisitions are reflected in the Yellow Table.

Aside for these acquisitions - and there may be more to come over the course of the year - the general trends in the industry over 2007 will have a bearing on the Yellow Table. Of all the regions of the world, China continues to see the strongest growth in demand for construction equipment, so the Chinese manufacturers look set to move further up the rankings.

In contrast, questions hang over the prospects for the US, and this could mean North American manufacturers see their share of the global market shrink again in 2007. However, given the massive boom in 2005, this could just mean that levels normalise back to where they were five years ago.

But all in all, the prospects for the equipment industry look reasonably good. Although it seems unlikely that the growth of the last few years will continue for much longer, demand for machines remains at a historically high level around the world.

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