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Caterpillar to restructure global operations

Doug Oberhelman

Significant restructuring and cost-reduction plans expected to reduce annual costs by $1.5 billion 

CATERPILLAR have announced a major restructuring programme and cost-reduction actions that will reduce their operating costs by around $1.5 billion annually, once fully implemented. 

According to a statement issued by Caterpillar, the cost-reduction steps will begin in late 2015 and reflect recent, current and expected market conditions. For 2015, the company’s sales and revenues outlook has weakened, with sales and revenues forecasted to be around $48 billion – which is $1 billion lower than the previous outlook of $49 billion. For 2016, Caterpillar say sales and revenues are expected to be 5% below 2015.

‘We are facing a convergence of challenging marketplace conditions in key regions and industry sectors – namely in mining and energy,’ said Doug Oberhelman, chairman and CEO of Caterpillar. ‘While we’ve already made substantial adjustments as these market conditions have emerged, we are taking even more decisive actions now. We don’t make these decisions lightly, but I’m confident these additional steps will better position Caterpillar to deliver solid results when demand improves.’

This year is the company’s third consecutive down year for sales and revenues, and 2016 would mark the first time in Caterpillar’s 90-year history that sales and revenues have decreased four years in a row.

Mr Oberhelman continued: ‘Our strategy is to deliver superior total shareholder returns through the business cycle and growth is a key element of that strategy. However, several of the key industries we serve – including mining, construction and rail – have a long history of substantial cyclicality. While they are the right businesses to be in for the long term, we have to manage through what can be considerable and sometimes prolonged downturns.’ 

The recent announcement by Caterpillar follows last week’s decision by JCB to cut 400 jobs due to a slow down in construction equipment markets in Brazil, Russia, China and India.  

Despite the global market slump, there are brighter prospects on the horizon for the UK construction industry. Construction output is forecast to increase 13.2% by 2017 and private house building is expected to be a key driver of this growth, according to the latest forecasts from the Construction Products Association (CPA). 

Total construction output is forecast to rise 4.9% in 2015, 4.2% in 2016 and 3.5% in 2017, while private house building is anticipated to rise 9.0% in 2015, 5.5% in 2016 and 3.5% in 2017.

Dr Noble Francis, the CPA’s economics director, commented: ‘Infrastructure is also forecast to be one of the key drivers of construction growth over the next five years. The Government has a National Infrastructure Plan in place with a pipeline of projects across the UK worth £411 billion. As a consequence, we forecast that infrastructure output will experience double-digit growth each year to the end of our forecast horizon in 2019.’

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