Global Machinery Report

Global Machinery Report

What to Watch?

  • Reflation and Fed rate hikes to increase input and financing costs. This could result in further cash flows deterioration if revenue growth is insufficient where activity is resuming
  • Companies’ ability to grow order books as the Construction and Energy sectors are set to be in a better shape in 2017
  • Currency pressures should be monitored. We expect volatility against the USD in a context of diverging monetary policies

Machinery id card

Fragmentation
Fragmentation-3 
Internationalization
Internationalisation-3 
Capital Intensity
Capital-intensity-4 
Profitability
Profitability-2 

Sector risk map: Machinery & Equipment

Time for agility as revenues and input costs face a spike

The median revenues of machines manufacturers suffered a -12.7% drop in 2016 (after -2.4% in 2015). This reflects the progressive depletion of backlogs over the period as protracted low prices deterred investment decisions by clients from outlet sectors (for example construction and energy). This resulted in a decline in new orders.

 

As a consequence, Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) has kept decreasing since mid-2014. EBITDA in 2016 stood at 20% below 2015 level.

 

The stabilizing Free Cash Flow (FCF), therefore, stems from cash management rather than activity. Indeed, cash inflows have improved thanks to a tighter management of working capital requirements: inventories were down -15 days due to lower income and accounts payables were up +11 days, reflecting longer payment days to suppliers. Investments outflows have decreased -5% and are set to stabilize in 2017.

 

We forecast revenues to rise by a mere +1% in 2017 as investments are not set to surge. Yet longer-run prospects are more favorable. Oil-related investments should eventually resume (+4%) while the Construction sector is set to take off and boost the Machinery sector.

 

Key Players

Country

Role

Sector Risk

China #1 Producer
#1 Exporter
#2 Importer
Dot-Risk-sensitive
UNITED-STATES #1 Importer
#3 Producer
#3 Exporter
Dot-Risk-sensitive
Germany #2 Exporter
#3 Importer
Dot-Risk-medium

Strengths

  • High-end technology and skilled labor requirements leave little room for new market players. Established leaders have little reason to worry about fresh competition
  • Long-run business cycle serves as a buffer to short-term market variations

Weaknesses

  • Dependence on structural trends of end sectors such as Manufacturing, Oil & Gas, Construction, and Agrifood
  • High financing requirements to fund R&D and capital expenditures

Machinery Subsectors Insights

Mining and Energy: Exploration & Production capital spending should rise by +4% in 2017, after tumbling by -31% in 2016 in accordance with recovering oil price.
Construction: A growing divide between improving advanced markets and less buoyant emerging markets.
Agriculture: Recovering Agrifood commodities price (+12% y/y in December 2016) should trigger more investment decisions in 2017.

Global Sector Reports

picto-aeronautics
Aeronautics
picto-agrifood
Agrifood
picto-automotive
Automotive
picto-chemicals
Chemicals
picto-construction
Construction
picto-energy
Energy
picto-household-equipment
Household Equipment
picto-information-communication-technologies
Information & Communication Technologies
picto-machinery
Machinery & Equipment
picto-metal
Metal
picto-paper
Paper
picto-pharmaceuticals
Pharmaceuticals
picto-retail
Retail
picto-textile
Textile
picto-transportation
Transportation
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