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Komatsu warns of dwindling profits as yen, China slowdown bite

[TOKYO] Komatsu Ltd, the world's No 2 maker of construction and mining equipment, said net income could drop by a third this year as demand flags for its products in China and other emerging economies and as the yen has strengthened.

Net income fell 11 per cent to 137.4 billion yen (S$1.67 billion) for the year through March as sales dropped 6.3 per cent to 1.979 trillion yen, according to a statement Wednesday. The Tokyo-based company forecast profit could dwindle to to 92 billion yen by this time next year, and that a stronger yen may cost it 160 billion yen in revenue.

Komatsu blamed "declining sales of mining equipment against the backdrop of slack demand as well as drastically reduced demand in China and other emerging countries" for its full-year result.

Its fourth-quarter net income showed a 10 per cent decline on the year to 33.6 billion yen, while sales fell 11 per cent, according to a presentation to reporters in Tokyo.

A three month-old upswing in commodities has yet to benefit the manufacturers of mining machinery, after customers reduced purchases amid a long retreat in prices from their 2011 peak.

Caterpillar Inc, the industry leader with revenue almost three times that of Komatsu, cut its earnings forecasts last week, questioning whether the commodities rally is sustainable.

Over the year, Komatsu's sales fell most in China, down 32 per cent, while the biggest gain was seen in North America, up 23 per cent. The company said that demand for mining equipment will drop by a further 15 to 20 per cent, while currency will have a big impact on its earnings this year if the yen remains relatively strong.

The yen rose above 108 to the dollar earlier this month, a level not seen since 2014, making Japanese exports less competitive.

BLOOMBERG