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Business

Komatsu targets 15% margin for US mining unit

Parent and subsidiary will share facilities, team up on procurement

TOKYO -- Japan's Komatsu hopes to return the operating profit margin at U.S. unit Komatsu Mining to around 15% as soon as the year ending March 2021 by sharing maintenance facilities and cutting procurement costs.

The maker of mining equipment, known as Joy Global until Komatsu acquired it in April, looks to provide more than 10% of Komatsu's consolidated annual revenue with sales on the order of 300 billion yen ($2.66 billion). Mining equipment is the Japanese company's second-largest business behind construction equipment, and Komatsu Mining, with a robust maintenance business and footholds across the Americas as well as in Australia and China, is at the heart of those operations.

The unit's operating profit margin has deteriorated over the past several years, however, as stagnant resource prices have sapped equipment demand, falling from the roughly 20% seen through fiscal 2013 to just 5.1% in fiscal 2016. That figure is expected to recover to 8.9% in the year ending March 31. But the company looks to go further.

As Joy Global, the company initiated restructuring to stop this slide, shuttering some facilities in the U.S. and China. Now, as Komatsu Mining, the unit will begin sharing maintenance facilities with its parent in markets such as Brazil and Chile and taking steps to cut procurement costs, including working with its parent to purchase materials such as steel. Meanwhile, it hopes that drawing on Komatsu's information and communications technology will invigorate equipment sales, helping boost income by around 30 billion yen.

Mining equipment is by nature a higher-margin business than construction equipment due to a relative lack of competition. Rebuilding Komatsu Mining's earning power could therefore fatten margins for Komatsu overall.

(Nikkei)

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