Komatsu Limited
Annual Report 2018

Plain-text annual report

KO MAT S U R E P O R T 2018 About KOMATSU REPORT We at Komatsu Ltd. prepare KOMATSU REPORT annually by focusing our attention on the most important information and expressing it in a concise manner. Concerning financial conditions, environmental conservation and corporate social responsibility, we separately prepare the respective reports in more detail and disclose information therein. Organization of Komatsu’s Annual Reports KOMATSU REPORT (Integrated reporting) Annual Securities Report (Financial conditions) CSR and Environmental Report (Social activities and Environmental performance) * KOMATSU REPORT, Annual Securities Report and CSR and Environmental Report, in both Japanese and English, are uploaded on Komatsu´s website. * Komatsu Ltd. issues the Komatsu Report only on the website. CO NTENTS To All Our Stakeholders: CEO Message Face to Face: CEO Interview FY2017 Business Results and Progress Made in the Mid-range Management Plan Growth Based on Innovation [Column] Autonomous Haulage System: 10th Anniversary of Commercial Deployment Growth of Existing Businesses [Column] Integration of Komatsu Mining Corp. Structural Reforms Designed to Reinforce the Business Foundation ESG Engagement Long-range Effects of Moving-away-from Fossil Fuels Highlights of FY2017 Results Five-year Summary Construction, Mining and Utility Equipment: Sales by Region Environmental Indexes Corporate Information 01 03 03 05 07 08 11 13 14 17 18 20 21 22 23 Reporting Period: April 1, 2017 – March 31, 2018 Unless otherwise indicated, all figures in this REPORT represent those for FY2017 ended March 31, 2018, namely from April 1, 2017 to March 31, 2018. Cautionary Statement This Report contains forward-looking statements that reflect management's views and assumptions in the light of information currently available with respect to certain future events, including financial position, operating results and business strategies. These statements can be identified by the use of terms, such as “will,” “believes,” “should,” “plans,” “expects,” and similar terms and expressions that identify future events or expectations. Actual results may differ materially from those projected, and the events and results of such forward-looking assumptions cannot be assured. Any forward-looking statements speak only as of the date of this Report, and Komatsu assumes no duty to update such statements. Factors that may cause actual results to differ materially from those predicted by such forward-looking statements include, but are not limited to, unanticipated changes in demand for Komatsu's principal products, owing to changes in the economic conditions in Komatsu’s principal markets; changes in foreign exchange rates or the impact of increased competition; unanticipated costs or delays encountered in achieving Komat- su's objectives with respect to globalized product sourcing and new information technology tools; uncertainties as to the results of Komatsu's research and development efforts and its ability to access and protect certain intellectual property rights; the impact of regulatory changes and accounting principles and practices; and the introduction, success and timing of business initiatives and strategies. On the Cover Komatsu 951 Harvester (left) and 845 Forwarder (right) working together in a forest in Sweden. These forest machines are made by Komatsu Forest AB, a subsidiary based in Umeå, Sweden. 01 To All Our Stakeholders: CEO Message To All Our Stakeholders: CEO Message For Fiscal 2017 (April 1, 2017 – March 31, 2018), consolidat- ed net sales increased by 38.7% from FY2016, to JPY2,501.1 billion, supported by expanded sales of the construction, mining and utility equipment business, especially in North America, China and Asia, as well as the new addition of Joy Global Inc. (currently, Komatsu Mining Corp.) as a consolidat- ed subsidiary in 2017. Operating income expanded by 56.0% to JPY271.5 billion. In FY2018, the final year of the ongoing three-year, mid- range management plan, “Together We Innovate GEMBA Worldwide: Growth Toward Our 100th Anniversary and Be- yond”, we will continue to make diligent efforts in the three strategies of Growth Strategies Based on Innovation, Growth Strategies of Existing Businesses, and Structural Reforms De- signed to Reinforce the Business Foundation. For Long-term Sustainable Growth In 2021, we are going to celebrate our 100th anniversary. Komatsu, founded in today’s Komatsu City, Ishikawa Prefec- ture in 1921, has grown to become a Japan-based global company by committing itself to Quality and Reliability. For us to regard this anniversary as a milestone for sustainable growth into the future, we need to not only learn from the past but also look for management directions from a standpoint which is a lot longer term than ever before. Tetsuji Ohashi, President and CEO In emerging countries, we can look forward to growing infrastructure developments, such as roads, railways and water supply and sewerage systems, reflecting expanding population and accelerating urbanization. In developed countries, we can expect urgent needs to maintain the aging infrastructure while labor shortage will be getting more serious. As we are facing climate change, the reduction of environmental impact has become a more critical social issue. We believe our business of construction and mining equipment is a long-term growth industry. To look for long-term, sustainable growth in this core business of ours, we need a scenario which enables our financial growth, as we respond to not only customers’ needs, but also to social problems and requests at a high level, that is, with products, services and solutions equipped with totally new values. SLQDC Of all social issues, safety might come first. In the Komatsu Group, safety comes first. Even before becoming president, I have consistently emphasized the priority of SLQDC (Safety, Law, Quality, Delivery and Cost), when we decide on things. This order of priorities applies to all workplaces, including our production floors, suppliers and distributors. (1) Safety: Safety and physical and mental health at work and within families. (2) Law: Compliance with environmental regulations, laws and business rules in different parts of the world. (3) Quality: Maintenance and improvement of Quality and Reliability in products, services, and solutions. (4) Delivery: Setting up and keeping appropriate delivery dates. (5) Cost: Understanding costs and controlling them through continuous improvements. When talking with many customers, I always feel their solid determination to achieve Zero Accidents in business. Jobsite safety is an essential value of all companies that they should achieve themselves, and for us it is also a shared value with society, which we must first provide to customers through our core business. KOMATSU REPORT 2018Face to Face: CEO InterviewHighlights of FY2017 Results Corporate InformationCONTENTS 02 To All Our Stakeholders: CEO Message Creating Customer Value through Communication By creation of customer value, we mean that we go inside customers’ jobsites, define what their jobsite operations of the future should be, identify real jobsite tasks through constructive communication with customers, and work to solve prob- lems together with customers by making full use of our resources, including products, service and solutions. By taking full advantage of ICT with our Autonomous Haulage System and SMARTCONSTRUCTION, for example, we can “visualize” jobsite information. Then we can discuss the data together with customers by asking ourselves the “whys” in or- der to define the ideal conditions that customers are working to achieve in the long range (what they should be like in the future) and to identify real tasks or differences from their ideal conditions of the future. These real tasks become “visible”, including not only safety (Zero Accidents) and improved productivity and efficiency, but also labor shortage, environmen- tal protection, maintenance of biodiversity, sharing of the future with local communities, and improvement of diversity. Together with customers, we will place priority on these tasks and work to solve them. As we deepen discussions with customers and build on improvements for real tasks, I believe it’s possible for us to spiral up solutions for social problems and customer value. Management Principles The cornerstone of our management principles is to maximize our corporate value through commitment to Quality and Reliability. We believe our corporate value is the total sum of trust given to us by society and all our stakeholders. I will ensure all employees share The KOMATSU Way. Further, we will become aware of environmental, social and governance issues more keenly than before, as we work to improve our business performance and move forward in developing corporate strengths while achieving social responsibility in a well-balanced manner. On behalf of the Board, I would like to extend my sincere appreciation to all our stakeholders for your continuing support. July 2018 Tetsuji Ohashi President and CEO KOMATSU REPORT 2018Face to Face: CEO InterviewHighlights of FY2017 ResultsCorporate InformationCONTENTS 03 Face to Face: CEO Interview Face to Face: CEO Interview Tetsuji Ohashi, President and CEO Q FY2018, ending March 2019, is the final year of the ongoing three-year, mid-range management plan since April 2016. Please update all progress made thus far, by reviewing the business results for FY2017 and the projection for FY2018. Market Conditions of Construction and Mining Equipment In the construction, mining and utility equipment business, demand increased in all regions of the world, centering on North America, China and Asia, in FY2017. Demand for mining equipment expanded by 60% from FY2016, driven by thriving demand for medium-sized and small models. In addition to capitalizing on these market conditions in FY2017, we benefited from the addition of Komatsu Mining Corp. (KMC) (the former Joy Global Inc.) as a new consolidated subsidiary. As a result, FY2017 consolidated net sales advanced by 38.7% from FY2016, to JPY2,501.1 billion. Operating income for FY2017 improved by 56.0% to JPY271.5 billion, reflecting expanded sales volume which more than offset the temporary expenses associated with the acquisition of Joy Global Inc. (currently, Komatsu Mining Corp.). Operating income ratio also improved to 10.9%. We are projecting consolidated net sales for FY2018 will total JPY2,503.0 billion, remaining about flat from FY2017, due to the Japanese yen’s appreciation. Operating income should increase by 24.8% from FY2017, to JPY339.0 billion for FY2018, reflecting a substantial decline of temporary expenses associated with the acquisition of Joy Global Inc. (currenlty, Komatsu Mining Corp.). We are predicting that demand will also remain strong, centering on Strategic Markets in FY2018 However, due to the Japanese yen’s appreciation. In the construction, mining and utility equipment business, we are projecting that demand will stay fairly strong in FY2018, centering on Strategic Markets. Nevertheless, the future of global economies remains uncertain, requiring us to closely monitor market conditions of emerging and resource-rich countries, in particular. KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageHighlights of FY2017 ResultsCorporate Information Corporate InformationCONTENTS 04 Face to Face: CEO Interview Progress Made in the Mid-range Management Plan In the current mid-range management plan, we have set goals for growth, profitability, efficiency, profit redistribution to shareholders, financial soundness, and ROA and net debt-to-equity ratio in the retail finance business. With respect to growth, consolidated net sales for FY2017 expanded by 34.8% from FY2015, the preceding fiscal year of the current mid- range management plan. Concerning profitability, operating income ratio for FY2018 should improve by 2.3 points from FY2015, to 13.5%. With respect to ROE, it was 12.1% for FY2017, achieving the goal of 10%. Concerning profit redistribution to shareholders, we increased annual dividend per share by JPY26 for FY2017 from FY2015. For FY2018, we are planning to increase annual dividend per share by JPY38 from FY2015 to JPY96. All in all, I believe we made good progress in the second year of the three-year plan. KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageHighlights of FY2017 ResultsCorporate InformationCONTENTS05 Face to Face: CEO Interview Q Please update the achievements and remaining tasks of the growth strategies based on innovation, one of the three core strategies of the current mid-range management plan. Growth strategies based on innovation are one of three management strategies in the ongoing mid-range management plan. In this undertaking, we are working to expand our business domain by providing products, services or solutions with new values which take full advantage of ICT (Information and Communication Technology) and IoT (Internet of Things) benefits. To substantially improve the safety, environmental impact and productivity of customers’ jobsite operations, our SMART- CONSTRUCTION and Autonomous Haulage System (AHS) have achieved automation and unmanned operation of ma- chines by using cutting-edge ICT benefits. Looking ahead, we are accelerating the speed of developing next-generation components designed for use in our future products, services and solutions. We are also developing next-generation KOMTRAX. KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageHighlights of FY2017 ResultsCorporate Information Corporate InformationCONTENTS06 Face to Face: CEO Interview SMARTCONSTRUCTION The cumulative number of SMARTCONSTRUCTION-deployed jobsites in Japan have steadily grown, surpassing 5,500. In May 2018, we began a new SMARTCONSTRUCTION service under the name of “EverydayDrone” which will make dynamic progress in the daily manage- ment of jobsite operations. It will make drone-based surveying very easy so that anyone can perform it every day. 3D survey data, after unneeded objects have been removed, are uploaded on the LANDLOG platform and will instantly become available for browsing. (This photo is for illustrative purposes.) In July 2017, NTT DOCOMO, Inc., SAP Japan Co., Ltd., OPTiM Corporation and Komatsu agreed to jointly operate LANDLOG, an ICT platform to collect and centrally manage data of the entire production processes of construction. To expand the business into the future, the four partners have also established LANDLOG Ltd., which is working very hard to strengthen collaboration with venture and other entities equipped with cutting-edge ICT, including “visualization” of jobsite informa- tion, virtual reality and AI (Artificial Intelligence). In December 2017, Komatsu and NVIDIA Corporation, a leading semiconductor manufacturer of the United States. announced the partnership agreement committed to improving the safety and productivity of construction jobsite operations. By effectively utilizing NVIDIA’s technologies and know-how in the areas of image processing, virtual reality and AI, we should be able to speed up our achievement of “construction jobsites of the future” which connect all jobsite information related to people and things by ICT. (This photo is for illustrative purposes.) KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageHighlights of FY2017 ResultsCorporate InformationCONTENTS07 Column Face to Face: CEO Interview Autonomous Haulage System: 10th Anniversary of Commercial Deployment 930E AHS dump truck (front and back) teaming up with a 4100C P&H-brand (currently, KMC’s brand) electric rope shovel in Suncor Energy’s mine in Canada. Back in 2005, we began trial operations of our Autonomous Haulage System (AHS) at Codelco’s copper mine in Chile, and succeeded in achieving the world’s first commercial deployment of AHS with Codelco in January 2008. January 2018 marks the 10th anniversary. As of December 31, 2017, there were over 100 AHS trucks operating around the clock, hauling iron ores, cop- per and coal, in six mines in Australia, Chile and Canada. In the period of 10 years, the AHS recorded a cumulative total of 1.5 billion tons of hauled materials. While meeting different geological and climate conditions, AHS not only features outstanding safety compared to manned hauling trucks, but also has improved customer productivity, reducing loading and hauling unit costs by more than 15%*. In addition, the optimized automatic controls of the AHS reduce sudden acceleration and abrupt steering, resulting in 40%* improvement in tire life. Further, with such benefits of AHS deployment, we have also provided important value to customers in terms of reducing the environmental impact. In 2017, we successfully completed trials of our AHS retrofit kit for manned 830E electric dump trucks (maxi- mum payload: 220 tons), and have received orders in Australia. * Based on Komatsu’s research KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageHighlights of FY2017 ResultsCorporate Information Corporate InformationCONTENTS 08 Face to Face: CEO Interview Q Please share your thoughts on the progress and tasks ahead concerning the growth strategies of existing businesses. Ongoing integration of the former Joy Global Inc. [currently, Komatsu Mining Corp. (KMC)]. which we acquired in April 2017, is the most important task for growth strategies of existing businesses. (Visit the column for more information.) We have also been focusing our efforts to develop new products, including DANTOTSU products, expand the value chain business, further reinforce our operations in Asia, and strengthen our presence in markets for application-specific machines, such as the aggregate and cement sector, as well as forestry. Product Development In September 2017, we embarked on sales of medium-sized “PC200-11” and “PC200i-11” intelligent Machine Control hy- draulic excavators, both compliant with the Act on Regulation, Etc. of Emissions from Non-Road Special Motor Vehicles of 2014, the so-called “Off-Road Vehicle Act” (Tier 4 Final in the United States). New products have the feature of outstanding reduction of NOx emissions while achieving a high level of productivity and fuel economy. We have been working to develop the new models which feature refined environmental performance, safety and ICT applications. PC200-11 model (left) and ICT-intensive PC200i-11 (right), both launched in Japan in September 2017. Both models adopt the new diesel engine exhaust aftertreatment system for construction equipment, enabling an outstanding reduction of NOx and particulates emissions. By optimizing controls of body units and adopting an automatic cutoff function of idling, they also achieve a high level of both productivity and fuel economy. For forklift trucks, we have worked to develop and introduce models with unique features, such as the electric FE Series which can be deployed in demanding jobsites, where it’s been impossible for conventional electric models. In the industrial machinery business, Komatsu Industries Corp., a wholly owned subsidiary, launched sales of the “H2FM630” Servo press in March this year. Equipped with a water-cooled, high-torque servomotor and a large-capacity capacitor storage system, the H2FM630 achieves outstanding improvements in productivity and environmental perfor- mance, compared to conventional presses. KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageHighlights of FY2017 ResultsCorporate InformationCONTENTS 09 Face to Face: CEO Interview FE25 Electric Forklift: FE-Series electric forklift trucks not only adopt easy-maintenance batteries and Komatsu-original rapid charging sys- tem, but also feature excellent water and dust-proof designs. As a result, FE-Series models can be used for handling heavy objects in demanding outdoor and dusty environments, where internal combustion models have conventional advantages over electric counterparts. Since their market introduction in 2014, the FE-Series models have been appreciated by customers for their superior environmental perfor- mance, operator comfort and low running costs, the innate advantages of electric models, even when they are used in challenging environments for electric models. Value Chain Business and Reinforcement of Distributors Through reinforcement of the value chain business, we work to ensure no machine downtime and create higher added value for customers, as we offer retail finance, parts, attachments, service, and rental to used equipment in the lifecycle of our products from customers’ purchase to disposal or trade-in. These efforts range greatly from an expanded product mix of high value-added parts and products to maintenance service contracts designed to cut down total costs. Nevertheless, the most important is the human resource development of sales and service distributors. We are working to expand and strengthen our training efforts. H2FM630” Servo press is equipped with a water-cooled, high-torque servomotor, which features excellent cooling efficiency, and achieves the industry’s top-level productivity. Komatsu Industries has also developed a new large-capacity capacitor storage system for presses, based on performance-proven capacitors used in hybrid hydraulic excavators, and has installed in this press as a standard feature. The capacitor reduces both electric power capacity and consumption down to the level of mechanical presses. PC700LC-8 hydraulic excavator deployed in an aggregate jobsite in Austra- lia. We are involved in a variety of businesses in the value chain to ensure no machine downtime at customers' jobsites and to create higher added value for them. KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageHighlights of FY2017 ResultsCorporate Information Corporate InformationCONTENTS 10 Face to Face: CEO Interview Reinforcement of Operations in Asia We are advantageously positioned in emerging markets in Asia, and we can expect continuing growth into the future. To further enhance our market presence, we are continuing our efforts to develop and launch Strategic Markets-specific models with excellent robustness*, expand the value chain business, and strengthen distributors. As part of such efforts, we established the Asia Development Center in Indonesia in October 2016. In Thailand, the Asia Training & Demonstration Center started training of distributors in November 2016. * Robustness: The ability to withstand assumed demanding jobsite conditions in emerging countries, such as high temperature, dust and poor-quality fuels, and the reliable performance of not breaking down, not stopping work and easy maintenance. Strategic Markets-specific PC130-8M0 hydraulic excavator loading aggre- gates in Yunnan Province, China. This model features excellent robustness, meeting demanding jobsite conditions. Asia Training & Demonstration Center, built in a suburb of Bangkok, Thai- land, began training in November 2016. As part of reinforcing operations in Asia, the Center offers an extensive range of training programs needed for distributors’ personnel, including sales of machines and parts, service, and machine operation. Strengthening of Application-specific Model Business In the forest machine business, we have engaged in aggressive M&As in 2018, that is, Quadco and Southstar forestry attachment operations of a Canadian manu- facturer of forestry attachments, and Oryx Simulations Verklighetsmodeller, equipped with advanced simulation technologies of forest machine operations. We are also continuing efforts to accelerate our global presence in the aggregate and cement and other sectors. 951 Harvester made by Komatsu Forest Komatsu Forest AB, a wholly owned subsidiary headquartered in Umeå, Sweden, manufactures forest machines, such as wheeled harvesters. Har- vesters can perform an entire range of work inside the forests, from felling, delimbing and bucking trees. By using its IoT system, the 951 Harvester also offers optimal crosscutting instructions, while enabling the operator to efficiently move the machine and perform work. KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageHighlights of FY2017 ResultsCorporate InformationCONTENTSFace to Face: CEO Interview 11 Column Integration of Komatsu Mining Corp. It’s been a little more than a year since Komatsu Mining Corp. (KMC) joined the Komatsu Group in April 2017. Placing top priority on never lowering our service standards for customers, we, KMC and Komatsu, have converged our capital, intellec- tual and human resources, generating synergy effects. Two partners have also worked to max- imize the value of solutions based on mining equipment under P&H, Joy, Montabert and KOMATSU brands. Immediately after the acquisition in April 2017, KMC’s top management built a new organization with KMC and Komatsu employees with a wealth of profes- sional expertise in global mining business and manufacturing. After careful research and thorough discussions, we announced our integration plan in October 2017. The plan calls for creation of energy in the three areas of expanding sales, reducing costs and curbing invest- ment. As KMC’s and Komatsu’s products don’t overlap, we have achieved an extensive line up of surface and underground mining equipment for customers. Specifically, we are allowing three years for the integration and we are working to add synergy effects of 10% in KMC’s sales for FY2021. KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageHighlights of FY2017 ResultsCorporate Information Corporate InformationCONTENTS 12 Face to Face: CEO Interview In FY2017, the first year of the integration process, we achieved more-than-planned for synergy effects of about JPY2.5 billion on a pretax profit basis. Synergy effects include cases in which a new order was received for KMC’s rope shovel by capitalizing on Komatsu’s relationship of trust with the customer as well as expanded sales by mutually using KMC’s and Komatsu’s supply chains and service bases. With a tailwind of recovering market conditions of mining equipment, KMC’s sales advanced by 20.8%* from the previous fiscal year, to JPY317.8 billion for FY2017, ended March 31, 2018. Operat- ing income, excluding temporary expenses asso- ciated with the acquisition, expanded by 163.4%* to JPY35.3 billion, which translates into an operat- ing income ratio of 11.1%. *After reclassifying the former Joy Global Inc.’s business results (November to October) according to Komatsu’s fiscal year (April to March). Remanufacturing of components of mining equipment is undertaken at KMC's and Komatsu's facilities. P&H-brand L-2350 wheel loader features the standard bucket capacity of 40.52m3, about doubling that of KOMATSU-brand WA1200 wheel loader, the largest model conventionally offered by Komatsu. KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageHighlights of FY2017 ResultsCorporate InformationCONTENTS 13 Face to Face: CEO Interview Q Please update your efforts for the Structural Reforms Designed to Reinforce the Business Foundation. We have consistently worked to improve production costs and maintain an appropriate level of fixed costs through con- tinuous TQM* and other efforts. We are promoting KOM-MICS (Komatsu Manufacturing Innovation Cloud System) which networks not only our plants but also with our suppliers by taking full advantage of IoT (Internet of Things) and “visualizes” information concerning facilities and machining, and this information is analyzed by our Manufacturing Engineering De- velopment Center to improve manufacturing processes. By connecting all processes on a real-time basis through IoT, we are working to eliminate wasteful operations in production as we team up with our suppliers on a global basis. In our reforms of spare parts operation, we have built the model Spare Parts Center in Tochigi Prefecture, which features logistic and process know-how of our production and latest ICT technologies. By applying features of this model facility to other facilities around the world, we are working to improve the global supply of parts and to reduce logistic costs and inventories at the same time. Concerning non-manufacturing-related areas, Komatsu Construction Equipment Sales and Service Japan Co., Ltd., Komatsu Rental Ltd. and Komatsu Forklift Japan Ltd., merged to establish Komatsu Customer Support Japan Ltd. on April 1, 2018. In addition to strengthening its responses to diversifying corporate responsibilities in legal, finance and other affairs, the new company is working for sustainable growth in the matured Japanese market. * TQM (Total Quality Management): The method to improve quality of not only products and service, but also management and work process- es through continuous improvement efforts. Enhancement of Diversity Human resource development is an important matter for us. We are continuing efforts to strengthen human resource development on a global scale and promote diversity. With KMC as a new member of the Komatsu Group, employees with foreign citizenships have grown to account for 67% of total Komatsu Group employees. Accordingly, promotion of The KOMATSU Way, the foundation of our manage- ment, has become an urgent task. In addition to The KOMATSU Way training programs, which we have conducted at ma- jor overseas subsidiaries, we are revising The KOMATSU Way booklet with contents which are easy for foreign colleagues to understand. KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageHighlights of FY2017 ResultsCorporate Information Corporate InformationCONTENTS Face to Face: CEO Interview 14 Q Please explain Komatsu efforts in ESG issues. Since the 1990s, we have made diligent efforts in environmental, social and governance issues, responding to social issues through our business activities in which we have engaged for the goal of enhancing stakeholders’ trust in us. The ongoing mid-range management plan, which we developed in 2016, is based on The KOMATSU Way, and includes strengthening and promoting engagement in ESG issues. E: Environmental conservation efforts Concerning environmental protection in the ongoing mid-range management plan, we have been making efforts to reduce CO2 emissions and promote efficient use of resources by innovating jobsites where our construction equipment is in use or production, thereby working to enhance stakeholders’ trust in us. In our environmental conservation efforts, we “visualize” our environmental impact in all business activities and will continue to lower it in the mid to long ranges. With respect to CO2, which affects climate change, CO2 emissions during machine use account for about 90% of the total lifecycle emissions of construction equipment. This percentage of CO2 emissions parallels fuel consumption. We are promoting dual efforts to lower environmental impact and streamline customers’ work efficiency through three perspec- tives of 1) development of excellent fuel-economy products, 2) studies of energy-saving machine operation methods and 3) outstanding improvement of construction efficiency using automation and unmanned operation of machines. Percentage of CO2 emissions during machine use in the lifecycle KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageHighlights of FY2017 ResultsCorporate InformationCONTENTS15 Face to Face: CEO Interview S: Social efforts We have defined the following three CSR themes of 1) Enhancing Quality of Life, 2) Developing People, and 3) Growing with Society. In addition to making CSR efforts through our business activities, we also make social contribution efforts by utilizing our strengths, thereby fulfilling our corporate social responsibility. Our main CSR efforts include removal of an- ti-personnel landmines mainly in Cambodia. In Cambodia, 2018 marked the 10th anniversary of our efforts there, having reconstructed communities, including eight elementary schools. We also provide technical training programs in South Africa, Peru and some other countries, thereby increasing employment opportunities for trainees and leading to the social and economic growth of local communities. Some of the graduates are employed by our local companies, becoming important resources to support our local operations. 2018 marks the 10th anniversary of our removal of anti-personnel landmines project in Cambodia, which also calls for the reconstruction of local commu- nities. By not only removing landmines (bottom left) but also renting construction equipment at no cost and making donations for the project, we have been building irrigation ponds and roads (above). Local residents have become able to farm demined and safe land and transport their harvests to local markets to generate cash income. As revitalization of communities has progressed, the number of children has also grown. We have donated a total of eight elementary schools (bottom right). KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageHighlights of FY2017 ResultsCorporate Information Corporate InformationCONTENTS16 G: Governance efforts Face to Face: CEO Interview Board of Directors Front row from the left: Kunio Noji, Chairman of the Board and Director, Tetsuji Ohashi, President and CEO, Representative Director and Mikio Fujitsuka, Executive Vice President and Representative Director Back row from the left: Hiroyuki Ogawa, Director and Senior Executive Officer, Mitoji Yabunaka, Outside Director, Masayuki Oku, Outside Director, Makoto Kigawa, Outside Director, and Kuniko Urano, Director and Senior Executive Officer We, at Komatsu, believe that our corporate value is the total sum of trust given to us by society and all our stakeholders. To become a company further trusted by our shareholders and all other stakeholders, we are strengthening our group-wide corporate governance and working to improve management efficiency, instill corporate ethics and secure management soundness. We position the Board of Directors as the core of corporate governance. To enhance the effectiveness of the Board, we have made efforts to strengthen and improve our corporate governance, including the establishment of the Audit & Supervisory Board in 1994, issuance of “Komatsu’s Worldwide Code of Business Conduct” and the establishment of the Compensation Advisory Committee. Since 1999 when we adopted the Executive Officer System, we have worked to clearly separate, within the limits of the laws and regulations, the management decision-making and supervisory functions from the executive function. To en- hance the effectiveness of the Board, we have also reduced the number of Board members and invited Outside Directors and Auditors. We have made efforts to reform the operation of Board meetings so that Board members can engage in thorough discussions of important agendas and quick decision making. In April 2018, based on the deliberations and report by the Compensation Advisory Committee, we adopted the Re- stricted Stock Compensation System for the remuneration of the Directors, excluding Outside Directors, in order to link them more closely to the Company’s performance and further contribute to the enhancement of the medium- and long- term corporate value of the Company. At the same time, we also introduced the performance-based remuneration that will reflect the degree of achievement of the targets set in the mid-range management plan. To further enhance our transparent management for our shareholders and investors, we are working to ensure fair and timely information disclosures and make active IR efforts, such as regional meetings with individual shareholders and IR meetings with investors and securities analysts. KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageHighlights of FY2017 ResultsCorporate InformationCONTENTS 17 Face to Face: CEO Interview Q A big shift is advancing around the world from the use of fossil fuels, which cause climate change, to the use of renewable energy. How will these energy sources such as carbon-free and moving-away-from fossil fuels trends affect Komatsu’s business in the mid- to long-range terms? We are making efforts to understand and solve mid- to long-range issues as we engage in constructive discussions with a wide range of our stakeholders, such as customers, shareholders and investors. Concerning global warming, one of these issues, we have led our competitors by not only developing products, services and solutions, which feature excellent environmental performance, but also by continuing efforts to reduce environmental impact in all stages of our business, including development, production, logistics, sales and service. As the world is recently paying keen attention to trends which are carbon-free and moving-away-from fossil fuels, we are reassessing how a mid- to long-range projection of coal mining will affect our business as one of our mid- to long-range issues, as well as how to reduce the environmental im- pact in our business. The future of the mining equipment business Coal, widely distributed, especially throughout the Asia Pacific Basin, is not only an indispensable energy source for peo- ple’s daily life in emerging countries, but also has an extremely important implication as a financial source, supporting economic growth of coal-exporting countries. With respect to the possibility of replacing coal with renewable energy in the future, we need to keep om monitoring closely, because it’s related to complicated factors, such as technological advancement and costs. We believe that demand for coal will remain at a specified level without plunging, for the time being, as the world works to incorporate new technologies which feature a lower environmental impact from coal con- sumption. Today, our dump trucks and mining shovels are also deployed in mines for minerals other than coal, such as iron, cop- per, gold, cobalt, and rare-earth. As a result of acquiring Komatsu Mining Corp. (the former Joy Global Inc.) in FY2017, we have become able to also offer underground mining machines to customers, who are going deeper for copper and other minerals. More importantly, we are working to help customers reduce CO2 emissions in their mining of resources needed by society, as we provide products capable of efficiently mining coal and all other minerals as well as solutions, such as AHS. As the shift to renewable energy continues, demand should increase for a wide variety of minerals. We are going to strengthen our business in order to offer mining equipment solutions with safer, more productive and smaller environ- mental impact, and working for further business growth. Electrification of construction and mining equipment Committed to reduce CO2 emissions in all stages of our product lifecycle, ranging from development, procurement, production, machine use, and disposal, we have also set the goal of reducing CO2 emissions per work performance from our machines in use in the ongoing mid-range management plan. Concerning the machines made in FY2017, they have achieved 7.4% reduction in CO2 emissions compared to those machines in FY2007, the base year. When they are used for one year, we will reduce 210,000 tons of CO2 per machine. Electrification is one of our next-generation technologies. We led the world in commercializing hybrid hydraulic excava- tors in 2008, and since then have promoted in-house development and production of hybrid motors and other electric components. With respect to mining equipment, we have conventionally offered electric motor-drive dump trucks and shovels. In the area of utility equipment, we have developed new electric forklift trucks capable of replacing internal com- bustion models and are working to expand their sales. As we look ahead, we are not only accelerating the speed of developing environment-friendly products, but we’re also making more efforts to develop new service solutions which reduce fuel consumption and CO2 emissions by dynamically improving work efficiency. KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageHighlights of FY2017 ResultsCorporate Information Corporate InformationCONTENTS18 Highlights of FY2017 Results Highlights of FY2017 Results For FY2017 (April 1, 2017 – March 31, 2018), consolidated net sales totaled JPY2,501.1 billion, up 38.7% from the previous fiscal year, partly reflecting the benefits of including Joy Global Inc. (currently, Komatsu Mining Corp.) as a new consolidat- ed subsidiary. We acquired this leading manufacturer of mining equipment in the United States in April 2017. With respect to profits, operating income expanded by 56.0% to JPY271.5 billion, and the operating income ratio improved by 1.2 percentage points to 10.9%. Net income attributable to Komatsu Ltd. totaled JPY196.4 billion, up 73.2%. Construction, Mining and Utility Equipment In addition to steadfastly capturing demand in China, Indonesia and many other countries, we also acquired Komatsu Mining Corp. As a result, sales of the construction, mining and utility equipment business expanded by 44.7% from the previous fiscal year, to JPY2,280.9 billion. Segment profit reached JPY275.9 billion, an increase of 70.7% from the previous fiscal year, supported by expanded sales around the world, more than offsetting temporary expenses incurred in relation to the acquisition of Joy Global Inc. Retail Finance Revenues advanced by 22.8% from the previous fiscal year, to JPY60.3 billion, mainly supported by increased assets in North America. Segment profit climbed by 191.1% to JPY12.9 billion, mainly reflecting no more allowance for doubtful accounts recorded in China. Industrial Machinery and Others Sales decreased by 2.9% from the previous fiscal year, to JPY185.4 billion, as affected by reduced sales of presses and wire saws as well as declined sales to Japan’s Defense Agency, while sales of machine tools to the automobile manufacturing industry increased. Segment profit improved by 16.0% to JPY14.4 billion. KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageFace to Face: CEO InterviewCorporate InformationCONTENTS19 Highlights of FY2017 Results KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageFace to Face: CEO InterviewCorporate Information Corporate InformationCONTENTS20 Highlights of FY2017 Results KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageFace to Face: CEO InterviewHighlights of FY2017 ResultsCorporate InformationCONTENTS21 Highlights of FY2017 Results KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageFace to Face: CEO InterviewHighlights of FY2017 ResultsCorporate Information Corporate InformationCONTENTS22 Highlights of FY2017 Results Corporate Information Back to the original page KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageFace to Face: CEO InterviewCONTENTSCorporate Information 23 Corporate Information Corporate Information KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageFace to Face: CEO InterviewHighlights of FY2017 ResultsCONTENTS 24 Corporate Information KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageFace to Face: CEO InterviewHighlights of FY2017 ResultsCONTENTSCorporate Information 25 Corporate Information Please refer to “Annual Securities Report” for more company and financial information. O Overview of the Company and Its Consolidated Subsidiaries O Business Overview O Property, Plants and Equipment O Information on the Company O Financial Information Please refer to “CSR and Environmental Report” for more information concerning social and environmental efforts. O Stance on CSR Efforts O Theme 1: Enhancing the Quality of Life (Safety, environmental indexes, etc.) O Theme 2: Developing People (Diversity, etc.) O Theme 3: Growing with Society (Compliance, risk management, governance, etc.) KOMATSU REPORT 2018To All Our Stakeholders: CEO MessageFace to Face: CEO InterviewHighlights of FY2017 ResultsCONTENTS KOMATSU 2-3-6, Akasaka, Minato-ku, Tokyo 107-8414, Japan https://home.komatsu/en Phone : +81-3-5561-2616 Fax : +81-3-3505-9662 e-mail : JP00MB-info@global.komatsu Corporate Communications Department 

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