Canadian base for Chinese TBM expansion 13 Apr 2017

Hongyu Xue, Managing Director of Lovsuns Tunnelling Canada, speaks of global TBM marketplace strategy

1. Hongyu, could you give us a brief overview of the development from Lovat to Lovsuns?

Lovat was founded in 1972 and has been a world-renowned TBM manufacturer for more than four decades. During 40 years of development Lovat became one of the leading manufacturers of TBMs especially of mixed and soft ground TBM technology. In 2008 the company was sold to Caterpillar. Caterpillar operated the company as Caterpillar Tunnelling Canada Corp for five years until May 2013 when it announced a phased departure from the business and reached out to different potential buyers. After negotiation, our parent company LNSS purchased the assets of Caterpillar Tunneling at the end of September 2014 and all assets were closed between Caterpillar Tunnelling and LNSS. After the acquisition, LNSS set up Lovsuns Tunnelling Canada, which is based in Toronto, Canada. In that sense, Lovsuns is a 100% owned overseas subsidiary of LNSS based in Canada. Today, Lovsuns is operating all the acquired assets of Caterpillar Tunnelling which includes the land, the factory, the equipment, and the entire intellectual properties of former Lovat/Cat Tunneling

2. Why did Liaoning Censcience Industry (LNSS) buy the company from Caterpillar?

First of all to satisfy the ever increasing local demand for high quality TBM solutions on the China market. Then to continue servicing Lovat customers around the world by leveraging the acquired advanced technology, management skills, sales experience expertise, as well as expanding into international markets by supplying highly competitive China-built, Lovat-quality TBMs and services. Today many of the ex-Lovat experienced engineers and technicians have joined Lovsuns.

3. Could you carry the weight of LNSS as a TBM manufacturer for the Chinese market?

Definitely. China is the single largest TBM market. Today, after acquisition of the Lovat TBM technology, LNSS TBMs are operating on many Chinese mega-city metro projects. LNSS is one of the top TBM suppliers in China. Among the other local TBM manufacturers, who are all state owned enterprises coming from railway and other heavy industry sectors, LNSS/Lovsuns is the only private business and has become a formidable player in the highly competitive Chinese and international markets.

Lovsuns EPBM in the factory in China and as it completes the 3.91m o.d. x 2km sewer drive in Istanbul

4. How do you measure the tunnelling market and where are the most interesting places to sell TBMs in the world, from your point of view?

Apparently the main markets are in developing countries where local governments are launching ambitious mid- and long-term plans to build more and more infrastructure, with China and India at the top of the list size-wise. Turkey definitely is an exciting market where we have witnessed rapid expansion of public transit systems. Currently we have two machines working on the metro and a sewer project in Istanbul. We are also following closely potential projects in South East Asia, Australia, Europe and the Americas. These hot markets are where the major TBM manufacturers should have their opportunities.

“The synergy between China and Canada, I believe, is going to create value as global customers search for more cost-effective world-class quality TBMs.”

5. Could you describe the strategy LNSS follows to win a piece of the international tunnelling market?

I believe the key word is synergy. Even before this acquisition, LNSS had a massive factory in China producing TBMs. Now, after the acquisition, we, as the LNSS group, have all the Lovat technology and importantly, the experienced Lovat engineers, technicians and operators, which are still working for Lovsuns today. This kind of synergy between China and Canada, I believe, is going to create value as global customers search for more cost-effective world-class quality TBMs. Our strategy is focused on two points. First is safety and the second is productivity. With robust TBMs coming out of the China facility, designed and engineered by Lovsuns and serviced by experienced Lovsuns technicians, that will be a winning strategy for our clients around the world. Today tens of LNSS TBMs built with Lovat technology are operating on many metro projects in China.

6. In the past years, it seems the Chinese companies are on shopping tours to buy every manufacturer in the tunnelling business. Why are these manufacturers so interesting for the Chinese?

I believe there is a clear explanation for this impression of Chinese on shopping tour. Overall the fundamental reason is the continuous economic growth of China. Everybody knows that China is the fastest growing economy in the world and has been for the last 15 to 20 years. I think China has reached a stage where it needs advanced technology and to upgrade many of its technologies to feed the fast increasing local demand. With the business expansion in China and the growing domestic capabilities, I believe, naturally, and just like any western companies, when they reach a certain stage of domestic development they would expand to other overseas markets. With adequate accumulation of all kinds of resources and capabilities, it just becomes natural for Chinese companies to look at other well-performing, well-established companies to establish the best technology to offer in both the domestic and international markets.

Assembly bay in the LNSS factory in China

7. What is your opinion - how may all these TBM manufacturers with Chinese owners compete with Herrenknecht and Terratec as the only ones without Chinese involvement?

Competition is always there, regardless of the nationality of these companies. It is a small world in terms of the tunnelling industry and because we have quite a number of TBM manufacturers around the world, including these you mention, I think today we need to take a more global perspective in discussing these questions. Today, as different companies, we have more and more in common in that everybody is becoming more international. Even the companies you mention, they too now build TBMs in China. On the other hand, the Chinese are becoming more and more international. The perfect example is Lovsuns. It is a Chinese owned company, but we have a very specialised and experienced international team. The key point is that, regardless of the nationality or ownership, it is more about how we can best serve the global clients at their own locations in the most efficient way.

No matter where a company is based, if they can provide the best product and the best local service to the project that will be the winning point. The competition today has been elevated to such a level that companies are becoming more international and mobile. This is the trend. It is more a blended system.

8. What is your appraisal - is there a lack of technology in China or in the market?

I cannot speak for other Chinese companies, but Lovsuns, as a 100% Chinese owned company, legally possesses the Lovat technology and enjoys a remarkable manufacturing capacity from the parent Chinese facilities. The TBM was not invented in China and this technology was used in China many years before Chinese companies started to build them in about 2008-2009, not such a long time ago. Therefore, to answer the question if there is a lack of technology, yes there was at the beginning. But Technology will always go to the hottest market with the maximum economic benefit. That is why leading foreign brands came to China and have benefited from the big wave of infrastructure expansion. Though foreign TBM companies are still active in China, Chinese TBM companies, like LNSS, are increasingly taking the leading role in this market. Any lack of technology on the other hand is the business opportunity. When China has purchased the technology and can produce a good quality TBM products, this will benefit global customers at the end of the day. A win-win result.

Lovsuns TBM with the client’s team ready for dispatch to Turkey for the Istanbul Metro

9. Back to Lovsuns, why are you the right partner to build a TBM?

Today, more than 90% of Lovsuns employees were Lovat engineers and technicians. We have carried the legacy of excellence we were build on and another point are the incredible manufacturing facilities we have in China, combining the Lovat personnel with many talented technicians and engineers in China. For that reason, as a Canadian Chinese team, we are becoming more and more powerful. Even compared to the old days of Lovat and Caterpillar Tunneling, today this synergy is producing more than ever before. The clients were happy to work with Lovat in the past and we are just honoured to carry on this partnership. Starting from engineering design all the way to field service, Lovsuns is always involved and working very closely with our parent company in China to make sure that TBMs rolling out of our China facilities are up to clients‘ expectations. Even if any international customer might not be familiar with working with a Chinese TBM supplier, today at LNSS/Lovsuns we are proving to be an easy-to-work-with partner for our global clients, and our experiences in Turkey are a good example of this.

10. Only some months ago, you closed your facility in Toronto. Why was that and will be the impact for your customers in different markets?

When LNSS purchased the assets of Caterpillar Tunnelling in 2014, including the Toronto factory, which was the only fabrication facility for Lovat for more than 40 years, we already had a very big factory in China. From day one, our China factory was the main TBM facility for LNSS and Lovsuns. Now, here at Toronto, we are mainly focussed on TBM design and engineering, procurement of key components, and international sales, services and product support. These are our focal points in Toronto. By shifting the Toronto production function back to our main China facilities, we would be in a position to further enhance our overall competitiveness, so that any new or refurbished TBM can be delivered to our global clients faster and on more competitive terms. This strategy is already gaining buy-in and we have started to receive inquiries and orders from North American and European clients for new and refurbished TBM solutions. For clients who need continuing support of their Lovat machines, we have worked out flexible solutions to meet their needs. Therefore, it would be a misconception to simply say that we have ‘closed’ our Toronto factory. On the contrary, we are launching plans to further strengthen our role as the LNSS overseas centre of excellence based in Toronto.

“Having acquired technology is one thing. Another is the accumulated team experience and overall service capabilities.”

11. How many contracts and obligations from Lovat/Caterpillar are still existing?

Caterpillar Tunneling ended it business operation at the end of 2016. Lovsuns is not involved in its contractual obligations. Today, being the only company who can legally use the Lovat intellectual property, we have the full capabilities and have taken on the responsibility to support all former Lovat clients. Currently we are supporting North American and European clients with Lovat legacy machines offering parts supply, engineering and technical field support as well as refurbishment works. Our China factory, for example, has just completed a new double shield rock TBM cuttinghead for our Italian client for a Lovat TBM to be used on a project in Saudi Arabia.

12. How would you rate Lovsuns position in the worldwide tunnelling market compared with CREG (former Aker Wirth, Germany), NFM Technologies, France (now NHI - Northern Heavy Industry Group) and Robbins, USA (now also NHI)?

It is interesting to see that these foreign brands are either owned or controlled today by Chinese companies. As Lovsuns, we are totally confident that we are, and will continue to be, one of the most competitive TBM suppliers. We have the key factors to help our customers succeed. We have technology, experience and expertise, great Canadian and Chinese teams, plus remarkable manufacturing capacity and know-how. Having acquired technology is one thing, but the other thing, and of no less importance, is the accumulated team experience and overall service capabilities.

13. Hongyu, what is your vision of the Lovsuns TBM manufacturer in five or ten years?

From a global perspective, I believe this China/Canada synergy will allow us to grow faster than others, both in China and in the overseas markets. We will continue to innovate to broaden and improve our product line of EPB, rock and slurry TBMs and other special machines for special applications. We bought Lovat technology, a legacy renowned for robustness and reliability. We are working hard to become the most specialized TBM manufacturer and service provider to help our global clients succeed in breaking through at the end of tunnels with particular challenges.