On July 15, Zoomlion released its performance forecast for the first half of 2014. The forecast shows that in the first half of the year, the company expects to achieve a net profit attributable to shareholders of the listed company of approximately 872 million yuan to 1.162 billion yuan, a decrease of 60% to 70% compared with the same period in 2013, with basic earnings per share of 0.11 yuan to 0.15 yuan.

Regarding the sharp decline in profit, Zoomlion stated that the reason was the impact of domestic fixed asset investment, especially the continued slowdown in real estate investment growth, which led to weak market demand for construction machinery products, causing the company's revenue from concrete and lifting machinery products to decline significantly year-on-year, resulting in a year-on-year decline in the company's overall net profit.

Since the construction machinery industry entered "winter," Zoomlion Chairman Zhan Chunxin has led the company onto a diversified path in order to drive the company forward through transformation, but the results have not been very satisfactory. In the capital market, Zoomlion's stock price has continued to decline over the past year or more. Helplessly, at the annual shareholders' meeting not long ago, Zoomlion executives announced a voluntary 50% pay cut to cope with performance pressure.

Once the mid-year performance forecast was released, doubts about Zoomlion's weak transformation were raised again in the short term. Whether Zhan Chunxin's diversification strategy can enable Zoomlion to successfully transform still needs to be proven by performance.

Profit Down by More Than Half Year-on-Year

On July 15, Zoomlion released its performance forecast for the first half of 2014. From January to June 2014, the company expects to achieve a net profit attributable to shareholders of the listed company of 872 million yuan to 1.162 billion yuan, a year-on-year decline of 60%-70%.

Data shows that in the first quarter of 2014, Zoomlion achieved a net profit of 396 million yuan. Based on this calculation, the company's net profit in the second quarter was between 479 million yuan and 683 million yuan, an increase of 20.96% to 72.47% quarter-on-quarter.

Compared with the growth rate in the second quarter of last year, Zoomlion's data for the second quarter of this year was relatively stable.

"The main reason for the above situation is that in the past, Zoomlion's main business was concentrated in construction machinery, and a large part of the construction machinery business was concentrated in the domestic market; affected by the Spring Festival factor, the first quarter is the off-season for construction machinery, while the second quarter is the peak period for equipment delivery and use, so performance fluctuations quarter-on-quarter were relatively large in the past," explained Shen Ke, Assistant President and Board Secretary of Zoomlion.

Regarding the reasons for the profit decline, Zoomlion stated in the announcement, "1. Affected by national fixed asset investment, especially the continued slowdown in real estate investment growth, market demand for construction machinery products was weak, causing the company's revenue from concrete machinery and lifting machinery products to decline significantly year-on-year, and therefore the company's overall net profit declined year-on-year. 2. To control risks and achieve quality operations, the company continued to implement a tight sales policy, which also had a certain impact on revenue and profit in the first half of the year."

Performance Under Pressure, Executives Take Pay Cuts

In the performance forecast, Zoomlion also mentioned, "At the same time, the company has successively adopted a series of measures to increase revenue and reduce expenditure and to reduce costs and improve efficiency. These measures are gradually taking effect and will have a positive impact on the company's overall operations."

When it comes to increasing revenue and reducing expenditure and reducing costs and improving efficiency, the pay cuts for Zoomlion executives must be mentioned.

On June 27, Zoomlion held its annual shareholders' meeting. Chairman Zhan Chunxin announced that after consultation and unanimous agreement among Zoomlion executives, starting from July 1, executives would take a 50% pay cut.

Based on the 2013 annual report data, Zoomlion could reduce executive annual salary expenditures by more than 17 million yuan. The biggest reason for the executive pay cuts should be the pressure on Zoomlion's performance. The annual report shows that in 2013 Zoomlion achieved revenue of 38.542 billion yuan, a year-on-year decline of 19.82%; net profit was 3.839 billion yuan, a year-on-year decline of 47.63%.

Zoomlion executives' voluntary pay cut sparked heated discussion in the industry. Some media commented, "This is a kind of performance art forced by performance."

"In June last year, Zoomlion executives spent huge sums to increase their shareholdings, but the stock price did not rise significantly. After the executive pay cuts, the stock market reaction was still not good. Where is the problem? In addition to the downturn in the entire construction machinery industry, this also reflects that investors are not satisfied with Zoomlion's performance during its transformation period," said a researcher long engaged in the construction machinery field.

Is Zoomlion Lost During Its Transformation Period?

In order to cope with the "winter" of the construction machinery industry, at last year's shareholders' meeting, Zoomlion Chairman Zhan Chunxin mentioned the diversification strategy for the transformation period.

On June 19, 2013, at Zoomlion's 2012 shareholders' meeting, Chairman Zhan Chunxin said that in the future the company would not put all its bets on the construction machinery industry, but would consider diversified development to form multiple growth points and continue to drive the company to achieve growth exceeding the industry average.

At that time, Zhan Chunxin also optimistically estimated that within 3 to 5 years, Zoomlion would form a pattern in which five major sectors, including construction machinery, environmental industry, and agricultural machinery, would advance side by side. Once the layout was announced, many analysis institutions were very optimistic.

To build this industrial pattern, Zoomlion has been making continuous moves.

In 2013, Zoomlion established the Agricultural Machinery Business Division and built an agricultural machinery industrial park in Bishan County, Chongqing.

At the end of last year, Zoomlion said it had acquired M-TEC, the world's top brand in dry-mix mortar equipment, located in Neuenburg, Germany. This was another international acquisition after the acquisitions of the UK's Brokk? company, Puyuan Construction Machinery Factory, Zhongbiao Industrial, Shaanxi Xinhunggong, and Italy's CIFA.

In addition, Zoomlion also spent heavily to build Zoomlion Lugu Second Industrial Park in Changsha High-tech Zone. Calculated according to the scale of the industrial park, the project's annual output value is expected to exceed 10 billion yuan.

However, judging from the data currently published by Zoomlion, these moves have not brought much improvement to Zoomlion's performance.

"The traditional strong field of construction machinery is blocked, and the new industrial layout has not yet achieved investment conversion. How to cope with the critical period of transition is a great test for Zoomlion's leadership team," said an analyst.

Regarding this view, personnel from Zoomlion's Board Secretary Office did not respond.