Komatsu Limited
Annual Report 2021

Plain-text annual report

Komatsu Report 2021 2-3-6, Akasaka, Minato-ku, Tokyo 107-8414, Japan https://www.komatsu.jp/en Corporate Communications Department Sustainability Promotion Division e-mail: JP00MB_info@global.komatsu Contents A Century of Creating the Workplaces of the Future Resolution of ESG Issues through Growth Strategies 01 Our Brand Promise 02 Our Identity 04 Brand Promise as Explained by Global Officers –Creating value together 100 Years of Komatsu – History of Resolving Issues in Response to Social Needs Overview of Business Komatsu’s Strengths – In-House Development and Production of Components –Linking every Workplace through IoT –Global Production System Business Segments 06 08 10 13 Top Management’s Views on Komatsu’s Management Issues and Strategies for the Next Century 14 Message from the President 20 Message from the CFO Evolution of Business Model for Creating the Workplaces of the Future 26 34 Special Feature : Komatsu’s Vision for the Workplace of the Future –Komatsu Future 203X – Collaboration with Partners for Accelerating Creation of Workplaces of the Future –Pursuit of 2050 Carbon Neutrality Mid-Term Management Plan (FY2019–FY2021) DANTOTSU Value FORWARD Together for Sustainable Growth 38 40 44 46 50 52 Komatsu’s CSR Themes and Mid-Term Management Plan KPIs Enhancing Quality of Life –Providing Products Required by Society Developing People Growing with Society –Social Contribution Activities Message from an Outside Director Corporate Governance Corporate Profile 64 Directors and Audit & Supervisory Board Members 68 11-Year Summary 70 Non-Financial Highlights 71 72 Corporate Information 73 About Komatsu Report External Evaluations and Index Inclusion Cautionary Notice regarding Forward-Looking Statements This report contains predictions, plans, forecasts, and other forward-looking statements that have been judged by management to be rational based on the information avail- able at the time of publication. Factors that may cause actual results to differ materially from those predicted by such forward-looking statements include, but are not limited to, changes in economic conditions or product demand in major markets, foreign exchange rate fluctuations, domestic or overseas regulatory revisions, or changes to accounting standards or practices. Reporting Period: April 1, 2020–March 31, 2021 • This report also includes information on activities after the reporting period in order to provide readers with the latest information. • “FY2020” refers to the period from April 1, 2020 to March 31, 2021, unless otherwise noted. Editorial Policy Komatsu Report 2021 was published for the purpose of providing clear explanations for all stakeholders on Komatsu’s medium- to long-term business strategies and the virtuous cycle generated as the Company resolves environmental, social, and governance (ESG) issues through its business. In preparation of this report, we referenced the International Integrated Reporting Framework released by the International Integrated Reporting Council and the Guidance for Integrated Corporate Disclosure and Company-Investor Dialogue for Collaborative Value Creation: ESG Integration, Non-Financial Information Disclosure, and Intangible Assets into Investment released by the Ministry of Economy, Trade and Industry. A Century of Creating the Workplaces of the Future Our Brand Promise Our Brand Promise  “Creating value together” is the promise Komatsu makes to its customers and all other stakeholders. Together with you, we can new value and work toward a sustainable future. The emphasis on “together” indicates the importance we place on partnership. Our Story Our roots stretch back more than 100 years to a lush forest near Komatsu City in Ishikawa Prefecture, Japan that was once home to a copper mine vital to the sur- rounding community. The mine’s closure in 1920 could have meant the end for community residents dependent on the jobs, but instead it was a new beginning. The owner of the mine and our founder, Meitaro Takeuchi, was an entrepreneur with an extraordinary humanitarian vision, committed to enhancing the commu- nity’s quality of life, developing future generations and growing with society. Determined to bring industrial technology to his country, Takeuchi created a new company by nurturing the skills of the people in the local community. Meitaro Takeuchi, Founder Takeuchi’s vision and strong guiding principles stood the test of time. Through the years, Komatsu’s contin- ued investment in core capabilities and strategic acquisitions have connected smart, diverse people and cutting-edge technologies with a shared belief that partnerships are the best way to solve challenges and meet society’s needs. As the world grows and evolves, the people who power modern society and develop the world’s infrastructure count on partners they can trust to empower them and create value. Web Komatsu 100 years of “creating value together” https://www.youtube.com/watch?v=q6nbmp5tFwM&t=0s Yusenji Coal Mine, Komatsu’s predecessor Komatsu Report 2021 1 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate ProfileA Century of Creating the Workplaces of the Future Our Identity 01 Our Identity  Komatsu has defined its corporate identity by reflecting on its corporate growth built by its forerunners and its relations with society. Specifically, Komatsu has articulated its mission and vision as its purpose, together with its values. The corporate identity also incorpo- rates pieces that have been created over the Company’s history: founding principles, The Komatsu Way, Komatsu’s Worldwide Code of Business Conduct, and strategies including the mid-term management plan. As our business and stakeholders diversify further, we will strive to deliver this promise through our global operations. Our Identity  Our Purpose Creating value through manufacturing and technology innovation to empower a sustainable future where people, businesses and our planet thrive together. Our history has been a century of facing and overcoming challenges, and “manufacturing and technology innova- tion” has been at the heart of all the things we do at Komatsu. As we enter our new centennial, we will continue to uphold this spirit as we continue to create value together with our partners. With this spirit we aspire to help create a future where people lead safe, healthy and peaceful lives in harmony, enabling us all to thrive together. Concept of Values Ambition Perseverance Collaboration Authenticity With a “challenging spirit” and without fear of failure, we innovate and always aspire to do more Even when the work is difficult, we remain committed to our promises and reliably carry them through to completion Creating value comes from teamwork, inclusion, respect, diversity and a win-win approach to all relationships To earn and maintain trust, we always act with sincerity, integrity and honesty, and communicate with transparency 2 Komatsu Report 2021 Komatsu Report 2021 3 Our Identity  Our Strategy and Action Values Ambition Perseverance Collaboration Authenticity With a ‘challenging spirit’ and without fear of failure, we innovate and always aspire to do more. Even when the work is difficult, we remain committed to our promises and reliably carry them through to completion. Creating value comes from teamwork, inclusion, respect, diversity and a win-win approach to all relationships. To earn and maintain trust, we always act with sincerity, integrity and honesty, and communicate transparently. S trategy Management Principle Management Strategy Corporate Social Responsibility Founding Principles The Komatsu Way Worldwide Code of Conduct Action Management Principle  Management Principle shows our basic stance regarding business administration. Management Strategy  Our current mid-term management plan is DANTOTSU Value – Forward Together for Sustainable Growth (FY19-21), envisioning safe, highly productive, smart and clean workplaces of the future.  Corporate Social Responsibility We believe that our very business is Corporate Social Responsibility. The work that we do directly supports the growth and improvement of our communities and society in general. Founding Principles “Global Expansion,” “Quality First,” “Technological Innovation,” and “Employee Development.” These are the founding principles laid out by our founder, Meitaro Takeuchi (1860-1928), and they continue to be upheld by our organization to this day. The Komatsu Way The Komatsu Way was developed to convey our shared values and practices across different cultures, customs and generations. Komatsu’s Worldwide Code of Business Conduct Compliance with the rules of business community is considered a top priority at Komatsu. The rules are not limited to laws and regulations but also include rules that are generally recognized and respected in society. 2 Komatsu Report 2021 Komatsu Report 2021 3 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate ProfileA Century of Creating the Workplaces of the Future Brand Promise as Explained by Global Officers—Creating Value Together Kiyoshi Mizuhara Director and Senior Executive Officer Chief Marketing Officer (CMO) President, Construction Equipment Solution Division Pursuit of a Sustainable Society Together The founding of Komatsu 100 years ago was unique in that the purpose was to sustain the local community and to make it a hub of economic growth. Meitaro Takeuchi, our founder, already knew that talent and technol- ogy were the keys to producing quality, which he was determined to bring to the global market. Since those days, our operations have grown extensively but the found- ing principles serve us to this day. At the same time, as our relationship with customers, distributors, suppliers and other stakeholders grew, a deep appreciation of working in partnership was born. We know that we owe our insights and expertise to the people who work together with us to enable a better and sustainable future. In this anniversary year, we established our identity, articulating our mis- sion, vision, and values, and integrating the Management Principle, The Komatsu Way, and other existing strategy and action items. Guided by our identity, we will work globally to deliver our brand promise of “Creating value together.” Thank you for choosing us to be your partner in creating a future where people, businesses and the planet thrive together. With the belief that we are stronger, wiser, and better together, we look forward to continuing with you on this journey of creating value together. Brand Promise as Explained by Global Officers Creating value together Global Officer Michael Blom Executive Officer President & MD, Komatsu South Africa (Pty) Ltd. 02 Globally Unified Komatsu The launch of our new Brand Strategy is an exciting and hugely motivating initiative that unites all Komatsu employees toward a sustainable future. Our brand promise, “Creating value together,” is a single unifying statement that embodies who we are as a company and what we strive to achieve, in busi- ness and the world we live in. With a foundation forged over 100 years behind us, we now look toward the future and create a truly sustainable tomorrow —together! As a global unified Komatsu, our core values, Ambition, Perseverance, Collaboration and Authenticity, will define and guide us over the next 100 years as we deliver on our promise to bring value to all our stakeholders in the most sustainable and authentic way. We are committed to living these values in all that we do—having a challenging spirit, persevering through tough times, collaborating with all our stakeholders, and always being authentic and true to ourselves. We are excited and committed to Creating value together and are extremely proud to be part of the One Komatsu family! 4 Komatsu Report 2021 A Century of Creating the Workplaces of the Future Top Management’s Views on Komatsu’s Management Issues and Strategies for the Next Century Evolution of Business Model for Creating the Workplaces of the Future Resolution of ESG Issues through Growth Strategies Corporate Profile Global Officer Rodney Schrader Senior Executive Officer Chairman & CEO, Komatsu America Corp. Path for Success in the Next 100 Years A brand is much more than just a logo on our buildings or our shirts. It’s really a promise we make to every stakeholder about the experience they can expect when working with us. It’s the experience on our websites, in every customer meeting and in how we use our data. Our brand is present every time someone sees our logo, wears our merchandise, visits our parts counters, operates our machines or talks to us on the phone. If you think about it, a brand is created by employees, who live and emu- late the brand through all their interactions and through the products, ser- vices and solutions they create and support. For me, Komatsu’s brand is about collaboration and partnering with our customers for a high-value, seamless experience with us that creates a feeling of connection and belonging they can rely on. By clearly establishing our brand promise, strategy and standards in our centennial year, I believe we’ve set an even more compelling path for success in the next 100 years. Brand Promise as Explained by Global Officers Creating value together Globally Consistent Brand Strategy As our operation became more and more global and diversified, it was necessary to define and create a consistent brand strategy globally. On the occasion of the 100th anniversary, we took the opportu- nity to clarify our identity in a way that is easy to grasp. Through our new branding strategy, we will be able to better express our values to our customers as well as to stakeholders. We will refocus our commitment to our founding principles, “Global Expansion,” “Quality first,” “Technological Innovation,” and “Human resource development,” with a renewed consistency in our communication. The Komatsu Way shows us how to understand our customers and become a reli- able partner that moves forward together with them. As a management strategy, we will continuously seek to create safe, highly productive, smart and clean workplaces of the future. With a challenging spirit, a teamwork approach, sincerity and commitment, we promise our stakeholders to “create value together” to empower a sustainable future for people, businesses and our planet. Global Officer Göksel Güner Chief Operating Officer, Komatsu Europe International N.V. Komatsu Report 2021 5 A Century of Creating the Workplaces of the Future 100 Years of Komatsu—History of Resolving Issues in Response to Social Needs 100 Years of Komatsu History of Resolving Issues in Response to Social Needs 1921 Founding aspiration: Engage in meaningful work to benefit the nation Komatsu Ltd. was established from Komatsu Iron Works Ltd. (est. 1917), which manufac- tured mining machines, developed by Meitaro Takeuchi, founder of Komatsu Ltd., for use in the Yusenji copper mine. Based on a firm belief that developing the machinery industry in rural areas and promoting its growth, as well as looking to transcend national boundaries with high-quality products, Meitaro Takeuchi began manufacturing at Komatsu Ltd. with an eye to international markets, even when he founded Komatsu. The next year, Komatsu absorbed Komatsu Electric Steel Mills, building the foundation for integrated production from steel castings to machining and assembly, which has resulted in one of Komatsu’s strengths today. Meitaro’s Guiding Principles • Global Expansion • Quality First • Technological Innovation • Employee Development Meitaro Takeuchi, Founder Challenge  Development of agricultural tractor for the first time in Japan 1931 Produced Japan’s first tractor In response to a request from the Ministry of Agriculture and Forestry, Komatsu took on the challenge of developing a farm tractor in Japan. While competitors gave up this challenge at the prototype stage, Komatsu continued its efforts with a strong commitment to developing a unique product that others could not imitate, and finally completed Japan’s first tractor. Subsequently in 1932, Komatsu released the “G25 tractor” equipped with its own newly developed engine as an improved version of the product. Challenge  Challenge for global quality 1961 Project “A” to meet the industry giant’s market entry In the 1960s during the internationalization of Japan’s economy, the world’s largest construc- tion equipment manufac- turer decided to enter the Japanese market. In order to compete against this strong rival, Komatsu under- took the Project “A” quality improvement project with a Company-wide commitment to improving every- thing, including a single screw, and developed a high-quality vehicle for mass production within about only two years. In the process, Komatsu introduced a quality control (QC) method ahead of competitors. The idea of incorporating QC in the manufacturing process has been passed down through the genera- tions to the company of today. Value  • Increased the level of our technologies Built the foundation for devel- oping and producing con- struction equipment in Japan Value  • Achieved global quality on par with a U.S. manufacturer, contributing to customers’ improvement of their work- place productivity History of Consolidated Global Management Net Sales and Demand for 7 Major Products (Demand, Units) 600,000 ■ Japan ■ North America ■ Europe ■ Other ■ China ■ Consolidated net sales (right scale) (Net sales, Billions of yen) 1999 Komatsu Cummins Chile and Komatsu Middle East 1997 Komatsu Southern Africa 1989 Komatsu Europe International 1995 Bangkok Komatsu 1971 Komatsu Singapore 1970 Komatsu America 1967 Komatsu Europe 1988 Komatsu Dresser 1982 Komatsu Indonesia 1985 Komatsu UK 1978 Komatsu Australia 1977 Komatsu Brasil 450,000 300,000 150,000 0 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Competition with Foreign Companies Expansion of Exports Expansion of Overseas Production Selective Focus and Global Consolidated Management (DANTOTSU Product → DANTOTSU Service → DANTOTSU Solution) 6 Komatsu Report 2021 DiversificationA Century of Creating the Workplaces of the Future Top Management’s Views on Komatsu’s Management Issues and Strategies for the Next Century Evolution of Business Model for Creating the Workplaces of the Future Resolution of ESG Issues through Growth Strategies Corporate Profile Challenge  Improvement of overseas sales and service operations. Establishment of overseas production operation Challenge  Improvement of produc- tivity and safety of mining Challenge  Solutions for worksite problems, such as labor shortages and safety 1967  N.V. Komatsu Europe S.A: Komatsu’s first overseas subsidiary 1975 First offshore production in Brazil Pursuing higher levels of quality and reliability in its products, Komatsu steadily grew exports centered on large-scale bull- dozers. N.V. Komatsu Europe S.A., Komatsu’s first overseas subsidiary in Belgium, was established in 1967 for the purpose of enhancing overseas after-sales services. The years that followed saw the reinforcement of our export foundation through the establishment of numerous overseas subsidiaries, including Komatsu America Corp., Komatsu Singapore Pte. Ltd., and Komatsu do Brasil Ltda. We began producing our first made-overseas bulldozers in Brazil in 1975. We proceeded to augment our overseas production network, setting up produc- tion bases in Indonesia in 1982, in the United States and the United Kingdom in 1985, and in Thailand, China, and India in the 1990s. These bases furnished a global production platform for hydraulic excavators, dump trucks, wheel loaders, and other major products. 2008 Succeeded in the world’s first com- mercial deployment of the Autonomous Haulage System (AHS) Komatsu led the world by deploying the AHS at a copper mine in Chile. By equipping dump trucks with a high-precision GPS, an obstacle detection sensor, and a variety of controllers for the central management of their operation in the main control room, Komatsu achieved 24-hour unmanned operation of the dump trucks. The AHS contributes to substantially increasing on-site productivity and safety and solving the issue of labor shortages. 2015 “Smart Construction”: Creating a workplace of the future “Smart Construction” is a solution service that create safe, highly pro- ductive, smart and clean construction sites of the future by connecting all kinds of data available at construction sites through the use of ICT. By fusing the 3D terrain data obtained by using drones with ICT construction equipment, Komatsu has increased the efficiency of the process, from surveying to inspection, and has also “visualized” the process, thereby contributing to the solution of problems at construction sites. Value  • Built overseas distributor networks and achieved the provision of global quality • Expanded local contributions through human resource development and employment around the world Value  • Improved safety, reduced costs, and alleviated operators’ burden at customers’ mining sites Value  • Achieved optimization of construction while striv- ing for “safe, highly pro- ductive, clean and smart workplaces of the future” History of Consolidated Global Management Net Sales and Demand for 7 Major Products (Demand, Units) 2017 Komatsu Mining (Net sales, Billions of yen) 3,000 2006 Komatsu India and Komatsu CIS 2001 Komatsu (China) 2,250 1,500 750 Web eBook offering more information on the 100 years of Komatsu https://www.komatsu.jp/en/com- pany/history/ebook/HTML5/ pc.html#/page/1 Web Re-opening of Komatsu no Mori museum for nurturing children together with the community https://www.youtube.com/ watch?v=vWnddb9Ux3E 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 0 (Year) Expansion of Overseas Production Selective Focus and Global Consolidated Management (DANTOTSU Product → DANTOTSU Service → DANTOTSU Solution) Komatsu Report 2021 7 DiversificationA Century of Creating the Workplaces of the Future Overview of Business In the pursuit of sustainable growth, companies are expected to build robust yet flexible earnings structures that respond to changes in the operating environment while addressing the increasingly more important ESG issues. With the strength of the manufacturing platform it has forged over the years, Komatsu will respond to social needs by linking customers, distributors, partners, and communities and all Komatsu workplaces through its DANTOTSU excellence. Production / Logistics Komatsu production bases: 81* Parts distribution bases: 42* * As of April 1, 2021 Capital investment: ¥86.1 billion Intellectual Properties Development bases: Nine mother plants and Asia Development Center R&D expenses: ¥73.8 billion (3.4% of net sales) Utilization of information: Equipment with Komtrax: Approx. 650,000 units Human Resources Number of consolidated employees: 61,564 Partners Machine population over past 10 years: Approx. 570,000 units* * Estimate of construction equipment operational at customer workplaces based on aggregate 10-year sales volumes Sales and service distributors: 205 distributors in 144 countries (construction, mining and utility equipment business) Suppliers: Approx. 2,700 Shareholders: 184,661 Environment Energy use: 7.8 PJ Including renewable energy use: 0.7 PJ Note: 1 PJ (petajoule) = 1015 J (joules) Water use: 3.2 million m3 Steel (iron) use: 999,000 tons Finance Consolidated net sales: ¥2,189.5 billion Operating income: ¥167.3 billion Free cash flow: ¥191.0 billion Total assets: ¥3,784.8 billion Note: Amounts are either for FY2020 or as of March 31, 2021, unless otherwise noted. 8 Komatsu Report 2021 i B u s n e s s A c t i v i t i e s a n d S t r e n g t h s ( i i C o n s t r u c t i o n a n d m n n g e q u p m e n t o p e r a t i o n s ) i • In-house development and produc- • Collaboration with suppliers (Midori- tion of key components kai) enabling the following: underpinning product performance (engines, hydraulic components, power trains, etc.)  P.10 • Accelerated technological innovation achieved by merging core Komatsu technologies with external insight (Open innovation)  P.26 • Digital transformation  P.32 • Product development systems tailored to global market needs 1. “Monozukuri” (improvement of product quality, reliability, and competitiveness) 2. Stable supply of high-quality materials • Linking plants (visualization) utilizing ICT  P.11 • Cross-sourcing: Flexible global pro- duction and procurement systems that are resilient to demand and foreign exchange fluctuations  P.12 • Mother plants structure enabling improvement of QCD (Quality, Cost, Delivery) • Skill transfer and TQM (Total Quality Management) Climate change impacts—Total CO₂ emissions: 22.1 million tons I Enhancing Quality of Life —Providing Products Required by Society— Developing People n i t i a t i v e s f o r R e s o v n g E S G l i I s s u e s Growing with Society Responsible Corporate Behavior Komatsu Report 2021 9 Research and DevelopmentProcurement and ProductionMajor Inputs Operations at Customer Workplaces Product Cycles Products Services Solutions • DANTOTSU • Enhancement of maintenance Construction equipment • Global supply of Product: Unrivaled products in terms of environment, safety, ICT capaci- ties, and productivity • Full lineup of construction and mining equipment contract services • Improvement of QCD (Quality, Cost, Delivery) achieved through close alignment of sales forecasts and produc- tion of spare parts • Smart Construction  P.11  P.32 Mining equipment • Autonomous Haulage System Construction equipment • Utilization of information acquired through Komtrax  P.8 • Product creation  P.11 focused on quality and reliability Mining equipment • Utilization of information acquired through Komtrax Plus • Detailed support from directly owned distributors • Cultivation of distributor personnel • Brand management • Global distributor network  high-quality used equipment, etc. • Remanufacturing and rebuilding*  P.33 * Systems for selling used engines, transmissions, and other components that have been repaired to be of the same quality as new products Climate change impacts—Total CO₂ emissions: 22.1 million tons CO₂ emissions from product use: 19.0 million tons (86% of total)  P.44 The Komatsu Way  P.44 Targets for FY2021 Accomplishment of targets of Mid-Term Management Plan “DANTOTSU Value— FORWARD Together for Sustainable Growth” Pursuit of Ongoing Growth Over the Next 100 Years 8 Komatsu Report 2021 Komatsu Report 2021 9 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile A Century of Creating the Workplaces of the Future Komatsu’s Strengths Komatsu’s Strengths 01 In-House Development and Production of Components Komatsu develops and produces major components in-house. Through this approach, the Company is able to generate technological innovation while improving the durability and reliability of components. We are convinced that a dedicated focus on components will enable us to further heighten the functionality and quality of these components and ulti- mately reach new pinnacles of customer satisfaction. This conviction will continue to guide the evolution of Komatsu components. Benefits of Komatsu’s Approach Toward In-House Development and Production of Components 1. Ongoing technological innovation 2. Stable, global supply of components with standardized quality that is not affected by demand fluctuations 3. Ability to develop component restoration businesses (please see page 33). 4. Predictive maintenance capacities achieved by attaching sensors to components Major Components Engine Powertrain Hydraulic Equipment Electronic Device Power Electronics • Transmission • Torque converter • Axle • Swing motor • Final drive • Pump • Motor • Valve • Cylinder • Controller • Monitors • Sensor • Power generator motor • Capacitor • Inverter Sources of Components Used in Mid-Sized Hydraulic Excavator Cylinder Monitor Controller Sensor/Antenna Cab Arm, Boom, Bucket Main valve Main pump Engine Radiator Exterior A: Components supplied from Japan B: Components purchased in centralized manner from global market C: Components procured locally Swing circle Track shoe/roller Revolving frame Track frame Final drive 10 Komatsu Report 2021 Komatsu Report 2021 11 Linking every Workplace through IoT A deep understanding of workplaces can cast light on various issues, and these issues must be addressed through innovation. Komatsu has continued to pursue such innovation by linking workplaces through IoT. Komatsu’s Strengths 02 World of Linkage through IoT 1. Komtrax Tracking of Construction Equipment Information Komatsu began its quest to track construction equipment information with IT in the late 1990s. This quest led to the development of the Komtrax construction equipment operation management system in 1998. This system collects GPS positioning information and operation information to be confirmed remotely. As of June 30, 2021, Komtrax was installed on 650,000 pieces of equipment around the world. Komtrax supplies information that helps customers improve productivity, such as that pertaining to position, operating time, equipment abnormalities, and fuel consumption, and can be used to manage equipment from locations removed from workplaces. Moreover, installing Komtrax makes it possible for Komatsu to continue providing customers with support throughout the entire lifespan of their equipment through means such as proposing the ideal timing for part replacements and mainte- nance and facilitating trade-ins of used equipment. In 2021, Komtrax was updated for the first time in 20 years to improve its functionality with new features such as the ability to use data from Komtrax in other applications. 2. Smart Construction Tracking of Process Information Komatsu launched Smart Construction in 2015 as an initiative for tracking process information. This solution uses drones to perform 3D measurement and digitization of workplaces and ICT-intensive equipment to optimize work processes through a digital twin methodology in which a digital work- place is synchronized with its physical counterpart. As of June 30, 2021, Smart Construction had been used to track information at more than 14,000 workplaces in Japan. In April 2020, we began offering four new IoT devices and eight applications for accelerating digital transformation using Smart Construction. Going forward, we look to expand usage of Smart Construction in highly IT-literate markets, such as those of Europe and the United States. 3. Kom-mics Linking of Production Sites with IoT Operation Tracking AI Abnormality Detection Equipment Maintenance Operating Data Tool Information Process Outcome Data 3D Data Utilization Machine Processing Welding Work, Jigs, Tools Komatsu is applying its IoT workplace linkage approach to its own production sites through Kom- mics, a system developed to track production equipment and processing statuses so that this infor- mation can be used to drive improvements. In FY2019, Kom-mics won the Prime Minister’s Prize in the manufacturing and production process categories of the Eighth Monodzukuri Nippon Grand Awards. This system has also been introduced at the facilities of partners, allowing the solutions groups of Komatsu factory production technology divisions to offer support for improving productiv- ity. Moreover, we commenced external sales of this system in April 2021 with the aim of contributing to the development of Japan’s manufacturing industry with a particular focus on promoting the digital transformation of the production sites of small to medium-sized companies. 10 Komatsu Report 2021 Komatsu Report 2021 11 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate ProfileA Century of Creating the Workplaces of the Future Komatsu’s Strengths Komatsu’s Strengths Global Production System Komatsu began exporting construction equipment in the 1950s, ahead of other Japanese companies. We then began full-fledged overseas production in the 1970s with the aim of mitigating foreign exchange and customs risks. Today, Komatsu boasts a construction equipment production network comprising 12 bases in Japan and 69 bases overseas. 03 Acting in accordance with our basic policy of conducting production close to demand, we produce more than 70% of 20- and 30-ton hydraulic excavators, mainstays in our construction equipment lineup, overseas. Through local production, we aim to achieve four goals: (1) gain trust from customers, (2) reflect local needs in products, (3) quickly address quality issues, and (4) shorten lead times. Quality craftsmanship is imperative to success in overseas production. To foster such quality, plants in Japan have been positioned as mother plants with the responsibility of providing instruction to overseas child plants to guarantee that they can deliver the expected level of quality in their craftsmanship. The in-house development and production of key components supports Komatsu’s ability to provide uniform levels of quality on a global basis. Furthermore, Komatsu has nine mid-sized hydraulic excavator production sites around the world, which it uses to practice cross-sourcing in response to demand fluctuations. We are able to engage in such cross-sourcing because each of these production sites uses the same blueprints and can deliver the same level of quality. Cross-sourcing has the added benefit of improving corporate resilience by functioning as a business continuity provision for hedging against unforeseen circumstances. Komatsu’s global production system is supported by our commitment to putting quality first and enables us to deliver products that satisfy customers in terms of quality, delivery turnaround, and costs. Global Cross-Sourcing Scheme for Hydraulic Excavators Development of a framework for supplying markets worldwide from production sites across the globe Cross-sourcing between overseas production sites Sourcing from Japan Komatsu Manufacturing Rus Komatsu UK Komatsu America Chattanooga Plant Komatsu Shantui Construction Machinery Komatsu Changzhou Construction Machinery Japan Komatsu India Bangkok Komatsu Komatsu Indonesia 12 Komatsu Report 2021 Komatsu Report 2021 13 A Century of Creating the Workplaces of the Future Business Segments  Consolidated Net Sales  Operating Income / Operating Income Ratio  Net Income Attributable to Komatsu Ltd. / Return on Equity  2,725.2  2,444.8  ¥2,189.5 billion  397.8  14.6% 250.7  10.3% ¥167.3 billion  7.6% 256.4 14.7% 153.8 ¥106.2 billion  8.6% 5.8% FY2018 FY2019 FY2020 FY2018 FY2019 FY2020 FY2018 FY2019 FY2020 Breakdown of Net Sales by Segment FY2020 Construction, Mining and Utility Equipment Business Sales (to Outside Customers) by Region  FY2020 Consolidated  Net Sales  ¥ 2,189.5 billion  Strategic Markets  53% Africa  Middle East  Oceania  Asia  China   CIS  5% 2% 12% 7% 7% 6% Latin America  15% Traditional Markets   47% Japan   North America  Europe   15% 23% 9% FY2020   ¥ 1,961.2 billion  Construction, Mining, and Utility Equipment Business ¥ 1,961.2 billion Komatsu supplies a wide range of products, services, and solutions including construction and mining equipment for use in construction and mining workplaces around the world as well as forklift trucks, forest machines, recycling equipment, and tunneling machines. We have established a position as the interna- tional leader in the construction and mining equipment field by delivering unrivaled quality and technologi- cal innovation together with this full lineup.  Retail Finance  Dump truck  ¥ 58.3 billion Komatsu conducts a retail finance business aimed at helping reduce customers’ funding burdens and otherwise assisting in the purchase of its products. Our strengths in this field include the preven- tion of overdue debt through effective utilization of Komtrax (location information, operating status infor- mation, engine locks, etc.) technologies, swift credit screening, and competitive financing conditions. These strengths have enabled us to build long-term relationships with customers.  Industrial Machinery and Others  ¥ 169.9 billion The industrial machinery and others business stands alongside the construction, mining, and utility equip- ment business as a core business of Komatsu. Offerings in this business include the large presses used to mold automobile hoods and side panels as well as sheet-metal machines, machine tools, and light sources for semiconductor lithography systems (excimer lasers). In this business, we also contribute to the business activities of various customers through production of specialty equipment for Japan’s Ministry of Defense.  Large press  Komatsu Report 2021 13 12 Komatsu Report 2021 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate ProfileTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next Century Message from the President Hiroyuki Ogawa  President and Chief Executive Officer Representative Director  Komatsu will remain committed to quality and reliability as it seeks to create value through manufacturing and technology innovation to empower a sustainable future where people, businesses, and our planet thrive together by developing ideal workplaces through ongoing responses to the needs of society and of customer workplaces. Komatsu’s Course for Responding to Workplace Needs  Komatsu was established in Komatsu City, Ishikawa Prefecture in holders who have supported and aided us thus far. 1921, the Company has faithfully exercised its management Komatsu’s main construction and mining equipment prod- principle, which entails committing ourselves to quality and ucts are used at infrastructure and natural resource develop- reliability and maximizing the total sum of trust given to us by all ment sites and other workplaces that contribute to social stakeholders and society. We have continued striving to develop foundations. Our business is founded on responding to work- ideal workplaces by responding to the needs of customers and place needs through the provision of high-quality services that society over the century that followed. This dedication has customers can use with peace of mind over the long term as enabled Komatsu to reach the 100th anniversary of its founding, well as finely tuned services offered across product lifecycles which we celebrated this year. Please allow me to express my and solutions that fundamentally resolve customer workplace sincere appreciation to the customers, shareholders, distribu- issues. Today, Japan faces issues surrounding its dwindling and tors, suppliers, business partners, employees, and other stake- aging workforce. Looking at the world as a whole, workplaces are 14 14 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 15 15 being impacted by rising concerns over climate change and preventive maintenance. We are thereby able to propose the ideal other increasingly serious environmental issues. These factors timing for equipment overhauls or parts replacements. In this are creating a strong need to improve the safety and productiv- manner, Komatsu develops a business that does not end with ity of workplaces. Meanwhile, the COVID-19 pandemic is the sale of products but rather extends providing value to our prompting construction workplaces to seek ways of preventing customers across the entire value chain (please see page 10). workers from coming in close contact with one another, stimu- Another key factor augmenting the unique strengths of lating a rise in demand for automated equipment. Komatsu is its ability to combine solutions such as its Komatsu will work to actively address such changes in the Autonomous Haulage System (AHS) and Smart Construction. It operating environment while pursuing ongoing growth by con- is crucial to develop a business model through which we provide tinuing to act based on its commitment to quality and reliability solutions to resolve customer issues and also supply products over the next century. The strengths we have fostered as a man- that are highly compatible with those solutions. This is especially ufacturing company thus far will be central to this pursuit. important given that newer manufacturers are growing in techni- I would now like to explain Komatsu’s strengths in a little cal prowess, meaning that we can no longer succeed purely by more depth. An important policy of the Company is to develop improving the performance of our products. and produce the key components that support the quality and Komatsu looks to create value through manufacturing and reliability of its products in-house. This policy makes it possible technology innovation to empower a sustainable future where for us to take a flexible, component-level approach toward people, businesses, and our planet thrive together. My approach improving the durability of construction equipment as well as toward achieving this goal will include manufacturing activities toward the planning of construction equipment that accommo- that pursue the quality and reliability Komatsu has pursued over dates contemporary needs related to the electrification and the past century. This is the course that Komatsu must take in automation of equipment. Moreover, we equip components with the future. sensors that can gather data to be used to predict component lifespans through Komtrax (Komatsu Machine Tracking System). Predicting component lifespans makes it possible to perform Impact of the COVID-19 Pandemic on Business   The ongoing COVID-19 pandemic made for a challenging oper- the sales front, meanwhile, we sought to maintain a consistent ating environment characterized by economic stagnancy in supply of products, parts, and services to customers. To this FY2020. Throughout this pandemic, the Komatsu Group has end, distributors used online venues to continue sales activities placed as its top priority the health and safety of its customers, while utilizing a combination of regular commuting and telecom- business partners, community members, employees, and their muting. Other measures included revising supply routes and families as we took steps to prevent the spread of the virus shift structures. Operations are gradually returning to normal in based on government policies in the relevant countries. various regions. At the same time, however, COVID-19 case Moreover, we worked to fulfill our responsibilities to customers numbers have once again begun rising in some regions. It will involved in businesses that support social infrastructure (essen- therefore be prudent to carefully monitor trends in the pandemic tial businesses) by continuing to supply products, parts, and as we move forward with our business activities. services to customers while implementing thorough measures As for the increased impacts of the COVID-19 pandemic on to prevent the spread of COVID-19. markets, construction and mining equipment demand rose Cross-sourcing of products and parts and global procure- throughout FY2020 in China, where the pandemic was quickly ment have long been an element of our approach toward brought under control and where the government has been absorbing the impacts of demand and foreign exchange rate implementing economic stimulus measures. In other regions, fluctuations (please see page 12). We were thereby able to adapt demand was down until the second quarter, but steady recovery when the pandemic forced us to halt production, primarily at in demand was seen centered on construction equipment in the overseas plants, in April and May 2020; by procuring from alter- third quarter and beyond as overall market demand picked up in native sources and reallocating inventories, we managed to conjunction with the resumption of economic activities. minimize the impacts of these halts on overall production. On 14 14 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 15 15 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Steady Progress in Priority Initiatives Leading Up to Final Year of Mid-Term Management Plan The DANTOTSU Value – FORWARD Together for Sustainable developing platforms for optimizing mining operations along with Growth three-year mid-term management plan is slated to con- systems for remote operation of large-scale hydraulic excavators clude with FY2021. (PC7000). At the same time, we have commenced initiatives for Looking first at the progress of our priority initiatives up to responding to the rising global concern regarding climate FY2020, we have been accelerating the promotion of digital change, such as verification tests for electrified small and transformation at construction workplaces with our “Smart medium-sized hydraulic excavators and the development of Construction Digital Transformation” solution. Specifically, we electrified super-large dump trucks for mining applications. have been soliciting this solution’s ability to optimize customers’ Meanwhile, efforts to develop sustainable, cyclical businesses construction procedures while using the Smart Construction included promoting smart forestry and the mechanization of Retrofit Kit to endow conventional construction equipment with processes encompassing the planting, cultivating, and harvest- ICT functionality in Japan. In the mining business, more than 350 ing of trees in the forestry machinery business. FY2020 also saw AHS units were installed as of March 31, 2021. We are also the start of operations at a new remanufacturing factory in South State of Progress of Focused Activity Items and Challenges for the Next Term and Onward  Three Growth Strategies Examples of Activities  • Launched “Smart Construction Digital Transformation”  •  Started installation of Smart Construction Retrofit Kit for hydraulic excavators and application for mini excavators  FY2020 achievements  • Achieved a total of 352 dump truck units operating under the Autonomous Haulage System (AHS)  •  Succeeded in proof of concept verification test for remote operation of a large-scale ICT 1. Value Creation by bulldozer for mining using commercial 5G  Means of Innovation  •  Started a joint proof of concept verification test for electrification of small- to mid-sized construction equipment  Challenges for the Next Term and Onward  FY2020 achievements  • Promote market expansion and global launch of “Smart Construction Digital Transformation” solution • Develop a new open technology platform for mining  • Develop technologies for automation, autonomous operation, electrification, and remote control  • Commercialized the product models under development aimed at complying with regulations, increasing product capabilities, and being the “DANTOTSU No. 1 in Asia” • Expanded the forest machinery business (efforts into silviculture growing and cultivating forest crops and smart forestry) • Introduced the new FE25-2 and FE30-2 models of electric forklift trucks • Developed and launched manufacturing equipment for electric vehicle (EV) batteries Challenges for the Next Term and Onward  • Improve the market position of the hard rock mining business  • Build a new business model using next-generation Komtrax • Continue to promote value chain reforms  • Reform the industrial machinery business (expansion of synergy with the construction equipment business and growth by capitalizing on core technologies)  2. Growth Strategies Based on Business Reform 3. Structural Reforms for Growth  FY2020 achievements  • Selected for “DX Grand Prix 2020”  • Constructed a new remanufacturing plant in South Africa to strengthen value chain operations  • Started construction of new seal ring factory at Himi Plant   Challenges for the Next Term and Onward  • Promote work process reforms using ICT and IoT  • Promote next-generation plants and plants with zero impact on the planet and workers  16 16 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 17 17 Africa as part of our remanufacturing (“Reman”) business, another awarded the Company with A ratings for both climate change sustainable, circular business. In our underground soft rock and water risks. FY2021 will be the final year of the mid-term mining business, we sold unprofitable product lines and reorga- management plan, and we will thus be steadily yet boldly advanc- nized our production network to optimize production capacity as ing the priority measures defined for the plan’s three growth part of our structural reforms. strategies with the aim of developing a corporate constitution In regard to environmental, social, and governance (ESG) that is able to withstand the changes in market demand. We will initiatives, smooth progress was made in measures for accom- do this while prioritizing measures by examining the cost perfor- plishing our CO2 emissions reduction and renewable energy use mance and strategic value of each measure. targets. These efforts led to the selection of Komatsu for inclu- sion in the Dow Jones Sustainability Indices. In addition, CDP Further Growth and Overseas Expansion Driven by Smart Construction and Partnerships Smart Construction was launched in 2015 as a solution for thereby realizing drastic improvement in the safety, productivity, addressing social issues such as those related to the aging of and environmental performance of the entire workplace. operators and labor shortfalls in Japan. This solution gave rise to Seeking to further accelerate this steady evolution in Smart a solutions business aimed at drastically improving workplace Construction, we reached an agreement in April 2021 to estab- productivity by organically linking entire workplaces through ICT. lish a joint venture company named EARTHBRAIN Ltd. together Moreover, Komatsu launched “Smart Construction Digital with NTT DOCOMO, INC., Sony Semiconductor Solutions Transformation,” a solution comprising four new IoT devices and Corporation, and Nomura Research Institute, Ltd. eight new applications, in April 2020. While the previous version EARTHBRAIN also looks to facilitate the further growth of of Smart Construction only digitized part of the construction Smart Construction by accelerating its deployment in the princi- process (“vertical digitization”), these new IoT devices and appli- pal overseas markets of Europe, the Americas, and Australia. cations will allow for digitization of the entire process (“horizontal digitization”). This will enable workplace operations to be opti- mized by synchronizing the real workplace with its digital twin, Identification of material issues (materiality) for the future based on input from a wide range of stakeholders  In light of the massive changes seen in the operating environ- developments such as the COVID-19 pandemic; and human ment, Komatsu revised its material issues for the first time in a rights issues. Environmental and energy issues are also a top decade to clarify the priorities it should emphasize in pursuing priority, meaning that sustainability, climate change, and decar- sustainable growth over the next century.  bonization will be a key focus going forward. The move toward The need to develop low-carbon and zero-emissions prod- carbon neutrality is accelerating on a global scale. Japan as well ucts is much greater than it was 10 years ago. Evolving corpo- has announced its goal of realizing a decarbonized society by rate governance systems and accommodating diversity have achieving a state of carbon neutrality by 2050. Komatsu will also become more important. At the same time, we are pressed carefully consider its approach toward tying carbon neutrality to address issues in areas where global trends have changed initiatives to business growth, or, in other words, how it will significantly in comparison to the projections of the mid-term achieve sustainable growth by generating a positive cycle of management plan. Examples of such issues include economic resolving ESG issues and improving earnings as described in the sanctions and trade friction, such as those arising out of the mid-term management plan.  conflict between the United States and China; risks of 16 16 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 17 17 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Komatsu’s Long-Term Vision forwards Achieving Carbon Neutrality in 2050 Under the current mid-term management plan, Komatsu has be advancing technology and other development projects in defined the targets of reducing CO2 emissions by 50% com- preparation for the commercialization of such equipment. pared with 2010 and of raising the ratio of renewable energy use In addition to products, we are also looking to contribute to to 50% by 2030. These targets are to be accomplished using carbon neutrality through solutions like Smart Construction and equipment that improves productivity, conserves energy, and AHS that help realize massive improvements in the productivity reduces environmental impacts at production sites and solutions of, and subsequently reductions in the CO2 emissions from, cus- for increasing the productivity of customer workplace. Efforts to tomer workplaces. accomplish these targets are moving forward smoothly. Another focus will be the forestry machinery business. The technical hurdle needing to be cleared in order for Komatsu aims to develop this business into a cyclical business Komatsu to work toward the long-term target of achieving that underpins forestry. To this end, we are promoting smart carbon neutrality by 2050 is massive. At the same time, electri- forestry, which entails using machinery and ICT for processes fied equipment is a market that will not be truly viable until further encompassing the planting, cultivating, and harvesting of trees. down the line, and there are some emerging countries that have Such machinery includes logging machines as well as machines not introduced exhaust gas regulations. However, carbon neu- that flatten logged land and machines that automatically plant trality initiatives are accelerating centered on developed coun- trees on the flattened land. Moreover, achieving carbon neutrality tries, and it is likely that needs related to carbon neutrality will by 2050 requires that we focus both on reducing CO2 emissions arise in strategic markets* in the future. Accordingly, it is crucial and on absorbing the CO2 that is emitted. For this reason, for us to develop a clear technology roadmap for working toward Komatsu’s forestry machinery business has significant potential carbon neutrality. to contribute to society by supporting and accelerating the In terms of products, we have made consistent efforts to forest regeneration cycle. The forestry machinery market is cur- reduce fuel consumption and improve efficiency. Going forward, rently growing by about 3% a year, and we therefore believe that however, it will be important to augment these efforts by working our forestry machinery business presents significant potential for to electrify and automate equipment. Komatsu has already had future growth. success in developing equipment with reduced environmental *  Positioning of markets by the Komatsu Group:  impacts, including mid-sized hybrid hydraulic excavators and diesel–electric super-large wheel loaders and dump trucks, and we look to further build upon these technologies going forward. At the same time, we anticipate that there will be a need to develop equipment that is able to accommodate any drive source, including fuel cells and hydrogen engines, in the future. Accordingly, an important challenge over the next three years will Traditional markets: Japan, North America, Europe  Strategic markets: China, Latin America, Asia, Oceania, Africa, Middle East, CIS  For more information on Komatsu’s carbon neu- trality initiatives, please refer to Special Feature : Komatsu’s Vision for the Workplace of the Future (page 26). Creation of Ideal Workplaces Together with Stakeholders over the Next Century  Over the next century, Komatsu will continue to commit to quality Financial Disclosures, and other initiatives as we work to fulfill and reliability, as it has done over the past century. Seeking to our obligations to society and the environment as a global create ideal workplaces, we will generate new value through  company. I continue to thank all of our stakeholders and ask for manufacturing and technological innovation to help shape a your ongoing support.  future where people, businesses, and our planet thrive together. This is the approach we will take in accomplishing our ultimate goal: achieving sustainable growth together with all of our stakeholders.  We will also proactively participate in the United Nations Global Compact, the World Business Council for Sustainable Development, the Task Force on Climate-related Hiroyuki Ogawa President and Chief Executive Officer 18 18 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 19 19 Online Meetings with Individual Shareholders (Japanese only) In the past, Komatsu has held briefings in locations across Japan as venues through which it can explain the circumstances surrounding the Company and its future course directly to shareholders. In FY2020, however, these briefings took place online for the purpose of preventing the spread of COVID-19. In FY2021, we plan to hold an online meeting with shareholders as detailed below. At this meeting, members of senior management will provide an overview of the Komatsu Group and discuss the progress of our mid-term management plan as well as the Company’s interim financial outlook and full-year financial outlook. Details of FY2021 Online Meeting with Individual Shareholders (Plan) Time and Date 7 pm–8 pm(JST), December 14, 2021 (Tuesday) The viewing website and viewing methods will be described in the interim business reports scheduled for Method distribution in early December 2021 (in Japanese only) and the Shareholder Events section of our corporate website (in Japanese only). The briefing will be viewable from computers, smartphones, and tablets. Attendance Requirements Open to shareholders of the Company as of September 30, 2021 1. Explanation of mid-term management plan progress, interim financial results, and full-year financial Agenda outlook 2. Question and answer session * The meeting will be held only in Japanese. The materials in English will be posted on Komatsu's corporate website after the meeting. Please visit our website at Interview with the President section of Investor Relations. Reference FY2020 Online meeting with individual shareholders Presenters Hiroyuki Ogawa, President and Chief Executive Officer Takeshi Horikoshi, Senior Executive Officer and CFO Web For videos and materials from the FY2020 online shareholder briefing, please refer to the Shareholder Events section of our corporate website (in Japanese only). https://www.komatsu.jp/ja/ir/shareholder/event Video Interviews with the President Web Videos of interviews with President Hiroyuki Ogawa have been made available on Komatsu’s corporate website covering topics including Komatsu’s strengths, future outlook, and mid-term management plan progress. https://www.komatsu.jp/en/ir/library/interview-movie 18 18 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 19 19 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate ProfileTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next Century Message from CFO Takeshi Horikoshi Director and Senior Executive Officer CFO Komatsu was born in Ishikawa Prefecture, Japan in 1921. Over the predecessors navigated these changes by building foundations for century that followed, Komatsu has grown into a global company financial and capital strategies that remain viable even today. targeting net sales of ¥3 trillion and overseeing a corporate group Komatsu’s resilience to maintain a certain performance in the current comprising 254 other companies (212 consolidated subsidiaries and challenging operating environment caused by the COVID-19 pan- 42 affiliated companies accounted for by the equity method) as of demic is thanks to our predecessors. Let me express the sincere March 31, 2021. appreciation I feel for the efforts of our predecessors as I explain The Company’s operating environment has continued to trans- some of the innovative practices they introduced. form over the years, and our accounting and finance department 1. Transformation of Business and Response of Accounting and Finance Departments (1) Business Strategies Leading to Selection and within the Company who suggested that we scale back construction Concentration equipment operations to the point of half of total net sales. The Today, more than 80% of Komatsu’s net sales come from overseas. concept of a conglomerate discount did not exist at the time, and However, this was not always the case; up until the 1960s the major- Komatsu was thus driven to develop new businesses and diversify its ity of sales were generated in Japan. It was in the 1970s that we operations in the same manner as other companies in Japan. began our full-fledged expansion into overseas markets. At this time, We changed course after the turn of the century, moving away Komatsu took the approach of engaging in M&A activities while from the diversification of our business to instead practice selective honing its technologies for serving these markets to bolster its prod- focus. Komatsu thus began concentrating management resources uct lineup and reinforce the foundations for its export businesses. on its construction, mining, and utility equipment business as well as Initially, overseas sales were mainly composed of exports from on the industrial machinery and others business that it had continued Japan. However, we began ramping up local production in overseas since its founding and in which it could expect synergies with the markets in the 1980s in order to accommodate the growth of over- aforementioned construction, mining, and utility equipment business. seas demand and account for the rising value of the yen. In the late There were three reasons behind this change in strategy. The first 1990s, when we were augmenting our global distributor network, was the fact that we recorded the first operating loss in FY2001 overseas sales completely surpassed domestic sales. since our founding. The second was that the concepts of cost of In the 1990s, demand grew stagnant in our traditional markets of capital and return on equity (ROE) were starting to become main- Japan, the United States, and Europe as these markets matured. This stream. The third was that Komatsu’s electronics business began to trend gave rise to a widespread belief that growth could not be antici- place significant stress on the Company’s management in the late pated in the construction equipment market. In fact, there were many 1990s. Maintaining and pursuing growth in the electronics business 20 20 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 21 21 required massive investments, in amounts that accounted for the funds from overseas markets. Furthermore, we have established the majority of capital investments in any given year, despite the business American depositary receipt program for convertible corporate itself not even generating 10% of total net sales. Based on a careful bonds issued in the United States in 1967, and this program contin- examination, the decision was reached to implement structural reforms that entailed the gradual sale of Komatsu Construction Co.,Ltd, Advanced Silicon Materials LLC, Komatsu Electronic Metal Co., ues to contribute to improved convenience for overseas investors and increased recognition for the Company even today. In terms of tax, Komatsu began examining advance pricing agreements (APAs)— Ltd., and outdoor power equipment business of Komatsu Zenoah Co. ahead-of-time tax payment agreements based on appropriate trans- and so on. fer pricing methodology—in conjunction with an increase in Throughout this process, Komatsu’s accounting and finance investment in a joint venture company (currently, Komatsu America departments acted in accordance with the Company’s business Corp., a wholly owned subsidiary), established in 1988 with Dresser strategies. For example, the Company began disclosing consolidated Industries, Inc., of the United States. We reached our first APA financial statements based on generally accepted accounting prin- between Japan and the United States in 1996, and then proceeded ciples from the United States in 1963 with the goal of procuring to expand the scope for which these agreements were used to include History of Komatsu’s Business Strategies and Earnings and Performance Management ■ Domestic sales ■ Overseas sales  ■ Operating income ratio ■ Exchange rate 1971 Smithsonian Agreement 1985 Plaza Agreement Fixed exchange rate system (¥360 to USD1) 1973 Floating exchange rate system (¥/USD) 360 240 120 0 FY2001 First operating loss since founding (%) 20 15 10 5 0 –5 -10 1970 1970 Centered on Japan Expansion of Exports 1980 1980 1990 1990 Expansion of overseas production 2000 2000 2010 2010 2020 2020 (FY) Diversification Selective Focus and Global Consolidated Management (Billions of yen) 3,000 2,000 1,000 0 1960 1960 Business strategies Managerial accounting based on full-cost accounting Managerial accounting based on direct-cost accounting Earnings management Performance management ROE ROIC Borrowing limit management, net debt-to-equity ratio Growth Profitability Efficiency Financial position countries such as Australia and Belgium. Eventually, these APAs come to operation management system as a standard feature on the Komatsu account for around half of the Company’s overseas sales on a non- products that serve as collateral for our retail finance products. Today, consolidated basis. we work to safekeep our credits by taking advantage of our strengths, The retail finance business was separated from the construction, Komtrax technologies (location information, operating status informa- mining, and utility equipment segment in 2016, making for the tion, engine locks etc.), and the retail finance business plays a role of Company’s current three business segments. In the retail finance promoting sales of construction and mining equipment. business, we provide financial products for the users of Komatsu products. This business dates back to 1988, when we established a (2) Improvement of Corporate Value through joint venture with Dresser Industries, Inc. At this time, we also incorpo- Structural Reforms rated into the Group a retail finance company under the control of When undertaking business reorganizations and M&A activities in Dresser Industries, Inc. (currently, Komatsu Financial Limited accordance with our policy of selective focus, we have always Partnership). We were cautious in expanding our retail finance busi- emphasized creating beneficial situations for sellers and purchasers ness up until the early 2000s. However, we began developing this as well as for the employees who would be relocated as a result of business in countries outside of the United States in 2004 in conjunc- the transaction in question. tion with the introduction of the Komtrax construction equipment Potential M&A transactions are examined by looking at the 20 20 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 21 21 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile importance to business strategies and comparing return on invest- results. Komatsu currently boasts net sales surpassing ¥2 trillion. ment (ROI) and weighted average cost of capital (WACC) to make a Organic growth was a major part of this accomplishment, but we decision of investment. Furthermore, we focus on compatibility with cannot deny the significant contributions from M&A activities. As part the culture of the acquired company to better integrate processes of post-merger integration, we work to ensure that the anticipated and facilitate a sense of cohesion. After closing the acquisitions, we synergies are realized and that a sense of cohesion is achieved. It is regularly monitor their contributions to improving our group-wide therefore not uncommon for the employees not to know the fact of corporate value as we compare ROI and WACC of the acquired com- the acquisition after several years. panies, and check on synergy effects on consolidated business 2. Enhancement of Financial and Capital Strategies (1) Profitability and Efficiency Policies Under the current mid-term management plan, Komatsu has defined managerial accounting practices, in which unit costs vary by produc- tion volume, to incorporate the direct-cost accounting practices used four consolidated performance targets for growth (sales growth rate), overseas, in which costs are calculated centered on variable costs. profitability (operating income ratio), efficiency (ROE), and financial Accordingly, new managerial accounting practices were implemented position (net debt-to-equity ratio). The process of trial and error that in 2002, in which definition of variable costs and fixed costs have been has brought us to where we are today is intrinsically linked to the M&A standardized on a global basis. This change allowed us to respond to activities described in the “Transformation of Business and Response fluctuations in demand (sales) through swift action. These standards of Accounting and Finance Departments” section above. were also incredibly simple and easy to understand for overseas Through the acquisitions of overseas companies conducted after employees, and, since their introduction, the separation of costs from the 1970s, together with technologies and other assets, Komatsu growth has become the foundation for Komatsu’s cost management absorbed overseas managerial accounting practices that differed from approach. With these standards, we have been able to entrench the full-cost accounting practices traditionally used in Japan. A sharp throughout the Group a policy of reducing costs while conducting drop in sales after the 1997 Asian financial crisis made us recognize growth investments and thereby curbing increases in fixed costs even our weakness, ratio of selling, general and administrative (SG&A) as sales rise. expenses to sales, that was behind our rivals and eventually led to an Next, I would like to talk about how we manage the performance operating loss in FY2001. This weakness made structural reforms for of subsidiaries. Komatsu is a manufacturer of construction and cutting fixed costs, through means such as reducing the number of mining equipment and industrial machinery, and it thus has a multi- subsidiaries, a pressing task. As the Company shifted toward selective faceted business model encompassing development, manufactur- focus in its business strategies, we reviewed our traditional full-cost ing, sales, and retail finance. Accordingly, ROE, an indicator that Performance Management KPIs Comprehensive KPIs for managing consolidated performance (Mid-term management plan targets) KPIs for management of subsidiaries with vari- ous business models (Financial leverage components covered by management of borrowing limits) Net income attributable to Komatsu Ltd. ÷ Net sales Operating income ÷ Net sales ROE Profitability ROIC Net income attributable to Komatsu Ltd. Shareholders’ equity • Separation of costs from growth • Exhaustive fixed cost management Operating income Invested capital (= Working capital + Tangible fixed assets) Net sales ÷ Total assets Net sales ÷ Invested capital Asset Efficiency • Working capital: Inventory/receivable turnover periods (slow-moving inventories, overdue receivables) • Tangible fixed assets: Assessment of investment Net sales ÷ Shareholders’ equity Financial Leverage • Consolidated-basis optimization of fund procurement • Management of net debt-to-equity ratio based on business characteristics 22 22 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 23 23 comprehensively accounts for profitability, asset efficiency, and interest rate fluctuations. financial leverage, is used for consolidated basis management. To address funding risks, we seek to reliably procure funds by However, trying to apply ROE as a management indicator for each securing diverse funding sources and maintaining balanced distribu- subsidiary would lead to inequity as capital levels can be different tions of direct and indirect, short-term and long-term, and variable based on factors such as differences in business models and legisla- interest rate and fixed interest rate borrowings. The Company has tive environments in the countries where subsidiaries are located. In also implemented a global cash management system that links addition, the construction and mining equipment business is highly Japan and other countries of operation to complement regional- volatile, making effective management of receivables and inventory basis funding activities and improve consolidated funding efficiency assets imperative. Based on these considerations, we have been under normal circumstances while also serving as a safety net by using ROIC for internal management purposes since 2017 to com- allowing funds to be distributed to overseas subsidiaries from the plement prior profitability management practices. Operating income head office in Japan in emergency circumstances. is used as the numerator when calculating ROIC while the total of We believe it is important to maintain a sound financial position in working capital and tangible fixed assets, which represents how order for us to achieve sustainable growth while being free from invested capital is utilized, is used as the denominator. Defining ROIC changes in market demand. The net debt-to-equity ratio is monitored in this manner allows us to provide timely feedback to the divisions as an indicator of financial soundness on a consolidated basis while responsible for investments with regard to issues and the extent of borrowing limits and financial benchmarks are set and managed on improvement. Each subsidiary reports graphs indicating changes in an individual-subsidiary level. On March 31, 2021, the consolidated ROIC on a monthly basis to track their conditions. net debt-to-equity ratio was 0.35. This ratio is 3.69 when looking at Inventory assets are accounted for ROIC, and maintaining an the retail finance business alone, but this level is still within the prede- appropriate level of inventories requires coordination between sales termined acceptable range for leverage. We are working to mitigate and production divisions. Komatsu has therefore developed a culture foreign exchange rate and interest rate fluctuation risks by matching of mutual coordination and check between sales and production lending and funding currencies and interest rates and periods. At the divisions, and HANSEI, a coined word from the initials of sales (Han- same time, we are utilizing the aforementioned Komtrax technologies bai) and production (Sei-san) in Japanese, has long been familiar in to safekeep our credits. Komatsu. As a result of coordinated efforts between sales and pro- Furthermore, the Company thoroughly enforces risk manage- duction divisions, we have in place global HANSEI operation centers ment policies across the Group. We therefore do not utilize schemes exactly for the purpose of advancing improvement activities targeting only for the purpose of minimizing tax payments in global operations both of these areas. Specifically, a center for equipments was estab- (appropriate taxes are to be paid based on our business), nor do we lished at Osaka Plant in April 2011 and a center for parts was set up maintain cash holdings at branches and sites (to eliminate compli- at Oyama Plant in July 2015, where we are increasing the accuracy of ance risks) nor holding shares in listed companies (to mitigate stock demand projections and sharing information in an integrated manner price fluctuation risks). to maintain appropriate inventory levels on a global basis while pre- venting loss in sales opportunities. (3) Group-Wide Dissemination of Financial and In this manner, one of Komatsu’s strengths is its ability to create Capital Strategies and expand free cash flow from the perspectives of both profitability Komatsu has proceeded to accelerate its growth through M&A activi- improvements (separation of costs from growth) and efficiency ties. However, we did not initially have a clear policy for shareholding improvements (inventory management). structure. It was therefore not uncommon situation that subsidiaries were investing in companies in respective region where Japanese (2) Financial Position and Risk Management Policies There were cases in which the head office would practice speculative headquarters also had investments, even as recently as the mid- 2000s. This changed in 2007, when we implemented a policy of asset management back in the days when production was centered consolidating investments in overseas Group companies within on Japan. However, we later put a stop to speculative financial activi- regional headquarters for the purpose of more efficiently utilizing ties in conjunction with the globalization of our business, instead capital and strengthening governance. At that time, we appointed a choosing to focus on improving our financial position and hedging total of five regional headquarters, one for the Americas, including risks on a group-wide basis. Latin America, one for Europe, one for China, one for Indonesia, and Our basic policy for managing foreign exchange rate and interest one for other parts of Asia. These five companies provided funding rate fluctuation risks is to apply natural hedges through ordinary opera- and other back-office support in their respective regions while also tions. For example, manufacturing products in locations close to the furnishing a check function backed by investment. In the years that markets where they will be sold allows us to match sales and costs on a followed, Komatsu went on to acquire various global companies and currency basis , and procuring funds on a regional basis allows for such business, such as Partek Forest AB (currently, Komatsu Forest AB) currency matching with regard to assets and liabilities. For risks that and Joy Global Inc. (currently, Komatsu Mining Corp., that made it cannot be covered through natural hedges, we utilize financial products difficult for these five companies to cover the expanded business. (derivatives) for mitigating the impacts of foreign exchange rate and This development prompted us to redefine our regional holding 22 22 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 23 23 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Shareholding Structure and Matrix Management –Performance management by responsible business division and shard services by regional headquarters– Komatsu Ltd. Regional headquarters 12 companies North America 1 company Latin America 2 companies Europe/CIS 2 companies China 1 company Asia 3 companies Oceania 1 company Africa/Near and Middle East 2 companies Regional subsidiaries Acquired conglomerates Head office Head office Oversight of worldwide Group companies by respec- tive responsible business divisions of Komatsu Ltd. Investment in subsidiaries: Consolidated by region, investment in conglomer- ates by regional headquar- ters in the same region as conglomerate head office Horizonal axis: Ongoing oversight of acquired con- glomerates by respective head office Vertical axis: Enhancement of management streamlining through shared back-office support (compliance, legal affairs, finances, human resources, ICT, etc.) provided by regional headquarters companies in 2019 to better match the actual circumstances of our three-year plan. Instead of numerical targets, we have therefore business, leading us to have the current 12 regional headquarters. To chosen to set the more abstract targets of achieving a growth rate manage the performance of this expanding scope of companies, the above the industry’s average for growth and the industry’s top level responsible business divisions of Komatsu Ltd. oversee companies for profitability and financial position. belonging to their respective business areas. Meanwhile, the head The decision to set a target for growth (net sales growth rate) in office of acquired conglomerates are responsible for overseeing the the mid-term management plan is based on our strong commitment businesses of their worldwide subsidiaries while the 12 regional to continue growing through a combination of organic growth and headquarters manage funding on a regional basis and offer back- inorganic growth by means of M&A activities. Growth rates are also office support. This setup makes for a matrix management approach. indicators for measuring our position within the industry. Our growth Today, approximately 70% of Komatsu Group employees are target is aggressive and significant pressure on Komatsu’s manage- working overseas. We have thus adopted globally standardized rules ment team, but this pressure is necessary to prevent us from falling and simplified management procedures for core financial and capital into a state of overall decline. strategies, and these practices have been entrenched throughout The operating income ratio is also an important indicator for dem- the Group via the aforementioned matrix. This approach is taken to onstrating the meaningfulness of a company. We have set a target for make our practices easier to understand for employees in operating this indicator based on our responsibility as the industry leader. In the divisions worldwide and to facilitate the integration and cohesion of late 1980s, Komatsu caused damage to its own market by becoming acquired companies and businesses. involved in excessive price wars due to an overemphasis on its share in the domestic market. Based on this experience, we made the dif- (4) Pursuit of Further Growth Komatsu has not established numerical targets for growth, profitabil- ficult decision to raise prices as we focused on our core business after recording an operating loss in FY2001. Combined with the aforemen- ity, and financial position in its mid-term management plan. We had tioned cost management practices, this approach has enabled us to set such targets in the past. However, demand is incredibly volatile in improve our operating income ratio. Today, we emphasize profitability our business; in the mining equipment business, for example, when developing marketing strategies, whether these be for our tradi- demand can fluctuate by nearly 30%. As a result, past numerical tional markets or for strategic markets. targets have lost their meaning in the first year of the respective In our integrated reports, we have disclosed key performance 24 24 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 25 25 indicators (KPIs) linked to environmental, social, and governance opportunity for stakeholders to develop an understanding of (ESG) issues for the various projects for advancing the growth strate- Komatsu and thus helped expand our investor base. Going forward, gies of the mid-term management plan (please see pages 38 and we will continue to examine the possibility of issuing green bonds 39). These KPIs are a very viable tool for directly confirming the and other ESG-related bonds in conjunction with Companywide progress and benefits of these projects. In addition, the accounting initiatives for achieving carbon neutrality and electrifying equipment. and finance departments began aiding in the accomplishment of the We will also track financial indicators along with ESG and other KPIs targets for these KPIs through the issuance of Komatsu’s first green to achieve sustainable growth through a positive cycle of improving bonds in July 2020. The rising global concern for ESG factors is and stabilizing earnings and solving ESG issues. impacting the financial market, specifically through stricter regula- tions for sustainability-related disclosure by financial institutions and the need to implement and popularize ESG scoring frameworks. Amid this trend, the issuance of green bonds served as a new Item Amount (millions of yen) Use of Funds Procured through Green Bonds Use of funds Procurement amount (July 2020) Use in FY2020  Investment in rental equipment assets for popularizing ICT-intensive model  Of which, refinancing   Construction of energy-saving facilities and installation of biomass generation facilities at domestic factories  Of which, refinancing Balance as of March 31, 2021 10,000 ▲6,854 (▲4,137) 0 (▲2,717) 0 3,146 Two of allocated eligible projects have been in operation, technical center at Ibaraki Plant since October 2020 and test laboratory No.3 at Oyama Plant since January 2021.  Allocation of ¥10.0 billion worth of funds procured through green bonds to be completed within FY2021. Technical center (at Ibaraki Plant) Test laboratory No.3 (at Oyama Plant) Web Details on green bonds are available on Komatsu’s corporate website. https://komatsu.disclosure.site/en/themes/191 24 24 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 25 25 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate ProfileEvolution of Business Model for Creating the Workplaces of the Future Special Feature: Komatsu’s Vision for the Workplace of the Future Komatsu future 203X Creating value through manufacturing and technology innovation to empower a sustainable future where people, busi- nesses and our planet thrive together Komatsu has released videos illustrating the safe, smart, clean, and highly productive workplaces of the future it aims to create. We hope you will take a look at these videos to see the workplaces we are working to create together with all stakeholders. https://www.youtube.com/watch?v=-ikOXOy Web ZpH0&list=PLl09JNAS3JlEL7iTnOAM674O6 ZHKn6qZe&index=3 Formation of Komatsu GHG Alliance Together with Four Major Mining Companies For the purpose of accelerating the reduction of greenhouse gas emissions from mining operations, Komatsu has founded the Komatsu GHG Alliance together with major mining companies that are also its customers. The founding members of the alliance are Rio Tinto plc, BHP Group Limited & Plc, National Copper Corporation of Chile (Codelco), and Boliden AB—global top-class, industry-leading mining companies. The alliance will serve as a framework for the co-creation of value with customers through which we will accelerate the development of a power agnostic concept truck that can run on a variety of power sources. Founding Members of Komatsu GHG Alliance Name Head Office Komatsu Tokyo, Japan Rio Tinto plc London, United Kingdom BHP Group Limited & Plc Melbourne, Australia National Copper Corporation of Chile Santiago, Chile Boliden AB Stockholm, Sweden Power agnostic development truck undergoing testing at test site (Arizona, United States) 26 26 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 27 Collaboration with Partners for Accelerating the Creation of the Workplaces of the Future Komatsu is collaborating with partners that share its values to accelerate the creation of the workplaces of the future. Utilization of NTT DOCOMO’s 5G Service Komatsu’s First Time Achieving Continuous Discharge of Soil by Improving Automatic Loading Control as well as Remotely Switching to Multiple Construction Equipment Units in Operation PC200i-11 hydraulic excavator being operated remotely from control pod (Ishikawa Prefecture) Web Please refer to the following video for a demonstration of the automation and remote operation technologies. https://www.youtube.com/watch?v=S2me-S4G0PE Komatsu Field Test Department linked through 5G services (Oita Prefecture) In its pursuit of the commercialization of construction and mining equipment automa- tion and remote-control technologies, Komatsu has succeeded in verification tests of an automation technology that achieved the continuous discharge of soil by means of automatic loading control as well as remote control technology that enabled remotely switching to multiple units in operation via 5G services provided by NTT DOCOMO, INC. Collaboration with Proterra of the United States Start of Proof of Concept Tests for Electrification of Small and Mid-Sized Hydraulic Excavators Komatsu has signed a collaboration agreement with Proterra Inc. of the United States, to receive the supply of Proterra’s lithium battery systems with the aim of electrifying its small and mid-sized hydraulic excavators (for developing battery-powered con- struction equipment). Proterra is a leader in commercial vehicle electrification tech- nologies that delivers battery systems and electrification solutions to help heavy-duty and commercial vehicle manufacturers around the world electrify their vehicles. Komatsu plans to advance proof of concept tests starting in 2021 and move forward with the development of battery systems suited to small and mid-sized hydraulic excavators, which have higher output requirements, with the goal of commencing mass production sometime between 2023 and 2024. Based on this agreement, Komatsu will receive high-performance batteries and peripherals that Proterra has developed with its state-of-the art technology accumulated over its years of operation as a manufacturer of electric transit vehicles while also collaborating with this com- pany as one of its strategic partners of joint proof of concept tests. Commencement of Joint Development with Honda Motor Development of Micro Electric Excavators Powered by Swappable Honda Mobile Power Pack Batteries and Establishment of Battery-Sharing System for Civil Engineering and Construction Industries Komatsu has concluded a basic joint-development agreement with Honda Motor Co., Ltd., aimed at electrifying its micro excavators (less than one-ton class) with swap- pable Honda Mobile Power Pack batteries, and establishing a battery-sharing system that enables mutual use of Honda Mobile Power Packs among different construction equipment and other equipment for the civil engineering and construction industries. Under this agreement, the two parties will work to electrify Komatsu’s PC01 micro excavator by equipping it with Honda Mobile Power Packs and an electrified power unit (eGX). The PC01 micro excavator is commonly used very close to people, trees, and flowers for pipe-laying work, gardening, agriculture, livestock, and other applications. Komatsu is working to launch the PC01 micro electric excavator by the end of FY2021. *  Honda Mobile Power Pack and eGX are registered trademarks of Honda Motor Co., Ltd. Conceptual image of electric excavator PC01 micro electric excavator (prototype) powered by the Honda Mobile Power Pack Honda Mobile Power Pack 26 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 27 27 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate ProfileEvolution of Business Model for Creating the Workplaces of the Future Special Feature: Komatsu’s Vision for the Workplace of the Future Pursuit of 2050 Carbon Neutrality Komatsu’s mid-term management plan, which has FY2021 as its final year, puts forth the targets of reducing CO2 emissions by 50% from the level in 2010 and increasing the rate of renewable energy use to 50%, both of which are to be achieved by 2030. Continuing down the path of these goals, Komatsu has decided to pursue carbon neutrality by 2050 to capital- ize on the future business opportunities that this pursuit will create. Specifically, the prominent trend toward a carbon-free society itself has been positioned as a business opportunity, and we aim to realize DANTOTSU Value (a positive cycle of resolving ESG issues and improving earnings through the creation of value for customers) by taking advantage of this opportunity. CO2 emissions Mid-Term Management Plan Targets 2030 50% reduction (from 2010) Rate of renewable energy usage 50% 2050 Carbon neutral Virtually Zero 100% CO2 Emissions Across the Supply Chain for Komatsu Products Komatsu calculates CO2 emissions across the supply chain for its products on an annual basis in accordance with the guidelines of Japan’s Ministry of the Environment. The most significant source of CO2 emissions from across the supply chain was product use (Scope 3, Category 11), which accounted for roughly 90% of total emissions, while emissions from corporate activities (Scope 1 and Scope 2) only represented 2% of all emissions. Breakdown of CO2 Emissions Across the Supply Chain Komatsu Scope 1+2 Raw materials Scope 3, Category 1 Product use Scope 3, Category 11 22 million t-CO2 (FY2020) Komatsu’s Carbon Neutrality Initiatives Scope 1: Scope 2: Scope 3: Direct greenhouse gas emissions from business operator (fuel combustion, industrial processes) Indirect greenhouse gas emissions from use of electricity, heat, and steam supplied by other companies Indirect greenhouse gas emissions not accounted for by Scope 1 or Scope 2 (emissions from other companies related to a business operator’s activities) Scope 3 is divided into 15 categories including Category 11: Use of sold products. Category 11 includes the total expected lifetime emissions from all products sold in the reporting year. Komatsu’s carbon neutrality initiatives will not be limited to cutting emissions from its bases (Scope 1 and Scope 2) and from the use of its products (Scope 3, Category 11). Rather, we are broadening the focus of our initiatives to target customer workplaces in their entirety. With this focus, we will seek to reduce CO2 emissions from society by evolving our Smart Construction solution and otherwise optimizing customer workplace. We have also positioned our forestry machinery business, which supports a sustainable forest management cycle of planting, culti- vating, and harvesting, as well as our remanufacturing (Reman) operations, which entail the restoration and reuse of components, as cyclical businesses that contribute to reductions in CO2 emissions from society. Accordingly, these businesses will be strengthened as part of our carbon neutrality initiatives. Mid-Term Management Plan Target 50% reduction in CO2 emissions* Safe, highly productive, smart and clean workplaces of the future (%) 100 50 Carbon neutral Net zero emissions 2010 2030 2050 (Year) Komatsu’s Initiatives Pursuit of carbon neutrality at Komatsu production bases Development of products that reduce environmental impacts (product improvements) Provision of solutions that improve customer workplaces (process improvements) Reduction of CO2 emissions through forestry machinery business Reduction of CO2 emissions through Reman operations Identify business opportunities associated with carbon neutrality to drive Komatsu’s growth strategies *Calculation Policies and Assumptions for CO2 Emissions Reduction Target of Mid-Term Management Plan Mid-Term Target for 2030 50% reduction in CO2 emissions from 2010 Emissions from production Annual per internal production value emissions calculated using all energy consumed by production bases in the reporting year Emissions from product use Annual per work volume emissions calculated based on products sold in the reporting year Calculation Policies and Assumptions 28 Komatsu Report 2021 Komatsu Report 2021 29 Pursuit of 2050 Carbon Neutrality Scope 1 Scope 2 Carbon Neutrality at Komatsu Bases 01After achieving a 50% reduction in CO2 emissions from 2010 in 2030, we will work to achieve net zero CO2 emis- sions (carbon neutrality) from our production activities by 2050. In addition, we will deploy the relevant technologies at material suppliers and other partners to help them also achieve carbon neutrality in their operations. In implementing its policies for carbon neutrality initiatives at production bases, Komatsu will prioritize energy conservation initiatives for reducing energy consumption through production technology innovation, then energy generation initiatives for producing renewable energy in-house, and lastly, purchases of renewable energy. 1 Energy Conservation 2 Energy Generation • Reduction of Energy Consumption through Exhaustive Productivity and Efficiency Improvements We will exhaustively reform and improve the efficiency of energy- intensive processes, such as casting, forging, and heat treatment processes. • Upgrades to High-Efficiency Next-Generation Structures Whenever an aged structure built more than 50 years ago is replaced in the future, Komatsu will replace it with a zero emissions structure that uses sustainable energy. • Introduction of Cutting-Edge Renewable Energy Facilities (Solar Power, Biomass Power, and Others) Komatsu will embrace cutting-edge renewable energy facilities through means such as using lightweight, high-efficiency solar panels when installing solar power generation facilities to greatly increase per-area efficiency and generation capacity. • Effective Utilization of Generated Energy through High-Efficiency Storage Batteries The output of solar power and other renewable energy systems can vary greatly as a result of weather. For this reason, storage batteries are imperative to the reliable use of such systems. Komatsu is actively employing the latest storage battery technologies to ensure that it can utilize energy generation systems to the greatest extent possible. 3 Purchase of Green Power, LNG Gas, and Other Carbon Credits • Purchase of Green Power, LNG Gas, and Other Carbon Credits CO2 emissions that cannot be curbed through energy conservation and energy generation will be offset through the purchase of certified green power or carbon credits. Rendering of next-generation melting furnace using superinsulation New Komatsu Forest AB factory with roof covered in solar panels (scheduled to be completed in August 2021 in Umeå, Sweden) Biomass boiler at Ibaraki Plant 2050 Carbon Neutrality 28 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 29 29 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Evolution of Business Model for Creating the Workplaces of the Future Special Feature: Komatsu’s Vision for the Workplace of the Future Pursuit of 2050 Carbon Neutrality Scope 3 Carbon Neutrality from Product Use 02 1 Two-Pronged Approach of Improvements in Products and Processes Komatsu is adopting a two-pronged approach toward reducing the amounts of CO2 emitted during the use of its products. The first prong is improvements to products. Initiatives in this regard will include increasing the work efficiency of equipment, pursuing steadfast improvements in fuel efficiency, and transitioning from diesel and other internal combustion engines to cleaner power sources, including hybrid and electric engines and fuel cells. The second prong is improvements to pro- cesses. Specifically, we look to lower CO2 emissions by optimizing customers’ workplace operations and processes in order to reduce the amount of equipment needed along with the operating times of this equipment. Komatsu seeks to contribute to carbon neutrality, at both construction and mining workplaces, through a combination of efforts to reduce CO2 emissions by means of highly efficient equipment and measures for improving workplace efficiency via smart plans, instructions, and management. Transition from Carbon Neutral to Carbon Negative Smart plans, instructions, and management for all workplace processes • Higher environmental performance and productivity (products) • Optimization of operations across workplaces (processes) Steadfast fuel efficiency improvements Hybrid / Energy recovery systems Smart Construction use rate Smart Construction Hybrid Energy Efficiency Equipment Low-Emissions Equipment Level 5 Optimization of Processes Level 4 Automation of Process Planning Level 3 3-Dimensional Process Planning Level 2 3-Dimensional Topographical Map Level 1 3-Dimensional Design Data P r o c e s s e s ( I m p r o v e m e n t o f E f f i c e n c y t h r o u g h o u t A i l l l W o r k p a c e P r o c e s s e s ) Products (Improvement of Equipment Efficiency / Reduction of CO2 Emissions) Conventional Processes Level 1 Internal Combustion Level 2 Energy Recovery Level 3 Micro-Mix Hydrogen Combustion Energy Recovery Level 4 Full Electric Plug-In/Battery Level 5 Fuel Cells 30 30 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 31 Pursuit of 2050 Carbon Neutrality Scope 3 2 Development of Products That Reduce Environmental Impacts (Product Improvements) The workplace conditions under which construction and mining equipment developed and produced by Komatsu is used can vary based on model and output. Accordingly, we are incorporating cutting-edge technologies to eliminate CO2 emissions from products by model and by output class. At the same time, we are sharing our roadmap for carbon neutrality with external devel- opment partners and customers while making steady progress based on this map. ■ Hydrogen fuel, biofuel, e-fuel internal combustion ■ Fuel cells ■ Electric (battery/plug-in) ■ Hybrid ■ Diesel internal combustion Halved CO2 emissions in 2030 (50% reduction in CO2 emissions from 2010) Surface mining On-site generation and hydrogen fuel Underground mining Protection of underground miners’ health Extent of reduction from 2010 Urban civil engineering Use of urban electricity infrastructure Reductions from product improvements in 2050 Electrified equipment for reducing environmental impacts General civil engineering Reductions from process improvements in 2050 Carbon neutrality in 2050 (100% reduction in CO2 emissions from 2010) 2020 2025 2030 2035 2040 2045 2050 Voice Komatsu will create the safe, highly productive, smart and clean workplaces of the future to contribute to the realization of a carbon-neutral society. Komatsu has declared its goal of achieving carbon neutrality by 2050 along with its commitment of halving the CO2 emissions from product operation by 2030. In the past, we have achieved massive success in improving the fuel efficiency of our products by developing and producing major components in-house and combining these compo- nents in an optimal manner. We also launched the world’s first hybrid hydraulic excavator for sale in 2008. We will continue to pursue such improvements to product fuel efficiency in the future. However, we also realize that achieving carbon neutrality will require us to go further to adopt new drive sources. Construction and mining equipment is used for a variety of applications and under a wide range of conditions, meaning that we need to select a power source that is ideal for each piece of equipment in order to meet customer expectations. We are currently ramping up development of products that use drive sources that do not emit CO2, like batteries and fuel cells. In this regard, we began offering rentals of the PC30E-5 electric mini excavator in Japan in April 2020. We have also announced plans for joint development of micro and mid-sized hydraulic excavators together with external partners, and we are committed to developing various models through mutually beneficial win-win relationships together with highly capable partners going forward. Komatsu is also examining the possibility of utilizing e-fuel and other new fuels that are compatible with conventional internal combustion engines. Another area being examined is hydrogen engines that use hydrogen as fuel. Meanwhile, we established the Electrified Equipment Development Center in April 2020. This center is playing a central role in efforts to develop electrified equipment. In addition, we are evolving solutions to improve efficiency at customer workplaces and consequently reduce CO2 emissions. For example, we provide solutions that utilize digital technologies to create a digital twin to be used for tracking workplace conditions and thereby optimizing workplace procedures. Moreover, we will apply automated operation, remote operation, and other sophisticated digital technologies to develop procedures that are more efficient than conventional procedures. These new procedures will be utilized to reduce the amount of personnel and equipment needed at workplaces while also shortening construction periods in order to achieve massive decreases in workplace CO2 emissions. In this manner, Komatsu is evolving products and solutions to create safe, highly-productive, smart and clean workplaces of the future in order to contribute to the realization of a carbon-neutral society. 30 Komatsu Report 2021 Seiichi Fuchita Senior Executive Officer President, Development Division Komatsu Report 2021 Komatsu Report 2021 31 31 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Evolution of Business Model for Creating the Workplaces of the Future Special Feature: Komatsu’s Vision for the Workplace of the Future Pursuit of 2050 Carbon Neutrality 3 Provision of Solutions That Improve Customer Workplaces (Process Improvements) Smart Construction is a solution that contributes to the optimal deployment of construction equipment, dump trucks for trans- porting dirt and materials, and all other equipment. This solution can be applied to Komatsu construction equipment as well as to that made by other companies. Optimizing all processes throughout a workplace makes it possible to reduce the amount of equipment needed, cut back on operating and idling time, and lower workloads, thereby contributing to reductions in fuel consumption and consequently CO2 emissions. Web Smart Construction promotional website (Japanese only): https://smartconstruction.komatsu/ The “Smart Construction Digital Transformation” solution introduced in April 2020 expanded upon the partial digitization of construction processes achieved by the previous version of Smart Construction (“vertical digitization”) by allowing for digitization of all processes (“horizontal digitization”). This solution thus enables worksite operations to be optimized by synchronizing the actual workplace with its digital twin, thereby realizing drastic improvement in the safety, productivity, and environmental performance of the entire worksite. Web Please refer to the following video for more information on the “Smart Construction Digital Transformation” solution. https://www.youtube.com/watch?v=S2me-S4G0PE&t=312s Customer Construction Process Surveying Planning Construction Inspection Traditional Analog Process Digital Transformation (“DX”) Process “Vertical digitization”: Digitization of individual construction processes (previous Smart Construction) Drone 3D measurement / Visualization Construction simulation / Digital task preparation 3D construction / Management with ICT-intensive equipment and apps Drone 3D finished landform inspection l S o u t i o n “Horizontal digitization”: Digitization and connection of all processes to optimize entire construction process—the “digital transformation of construction” (“Smart Construction Digital Transformation”) In April 2021, Komatsu established EARTHBRAIN Ltd., a joint venture company, together with NTT DOCOMO, INC., Sony Semiconductor Solutions Corporation, and Nomura Research Institute, Ltd. EARTHBRAIN will be tasked with furthering the evolution of Smart Construction while also deploying this solution overseas. In addition, EARTHBRAIN will combine the insight, expertise, and technologies of its four owners through means such as providing services that impact all equipment and vehicles at construction worksites to create a next-generation Smart Construction solution that will accelerate the digital transfor- mation of construction workplaces. 32 32 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 33 Pursuit of 2050 Carbon Neutrality 03 Timber is a resource that is incredibly important for supporting people’s lives and industry. The forest resources from which timber is harvested have been maintained through a sustainable cycle of planting, cultivating, and harvesting by human hands. At the same time, trees absorb CO2 from the atmosphere as part of their growth process, and it has been shown that younger, more rapidly growing trees absorb CO2 at higher rates than older trees. For this reason, harvesting trees that have grown to a certain extent and replac- ing them with new trees is a process with the potential to limit global warming. By supporting forest management cycles as a cyclical busi- ness, Komatsu aims to help mitigate global warming while contributing to the realization of a carbon-neutral society. CO2 Emissions Reduction from Forestry Machinery Business Introduction of New Tree Planting Products Improvement in Productivity and Safety in Harvesting and Extracting Planting Harvesting Planting 育 林 Sustainable Forestry Harvesting Harvesting Cultivating Cultivating PC130F harvester (forest machine based on hydraulic excavators) D61EM-23M0 automated tree planter Komatsu is working to mechanize forestry operation processing, including planting, cultivating, and harvesting trees, to contribute to Land preparation D85EX subsoiling machine Extracting Forwarder 895 Forest forwarder usable on slopes sustainable forestry. In the realm of planting, we have developed subsoiling machines and automated tree planters based on our bulldozers, and we are currently supplying these machines to the Brazilian market. These machines have transformed the process of planting trees, which had previously been performed by people under the heat of the Web Please refer to the following video for an illustration of the D61EM automated tree planter in operation, which was introduced into the Brazilian market: https://www.youtube.com/watch?v=00FNm4-gqwo blazing sun, making it possible to plant 900 trees in one hour with exceptional speed and precision. Komatsu is also promoting smart forestry, which entails digitally linking all forestry processes. In our smart forestry approach, we look to contribute to safe and highly productive forestry by supplying solutions that, for example, use drones to measure forest density and tree height and thereby make it possible to perform forestry procedures merely by inputting into machines such information as the lengths of timber and the type of trees required by the market. Pursuit of 2050 Carbon Neutrality 04Komatsu Group is engaged in global remanufacturing (“Reman”) operations in which it restores the engine and transmission components collected during regular replacements to the same status as if they were new so that these CO2 Reductions through Reman Operations 32 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 33 33 on the principles of the 3Rs (reduce, reuse, and recycle) as they help cut back on waste by restoring and reusing components and thereby contributing to reductions in CO2 emissions. products can once again be sold on the market. Restoring these products entails a process with various steps including disassembly, washing, parts replacement, reassembly, painting, and shipping inspections. Benefits for Customers • Guaranteed quality and performance on a level with new products • Lower prices than new products • Shorter equipment downtimes through supply of appropriately stocked Reman components • Resource conservation and waste reduction through component reuse and recycling Reman operations are made possible by Komatsu’s in-house development and production of key components. Moreover, these operations are based A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Evolution of Business Model for Creating the Workplaces of the Future Mid-Term Management Plan (FY2019–FY2021) DANTOTSU Value FORWARD Together for Sustainable Growth Komatsu’s External Environment Today, protectionism is growing around the world, and multipolarity is becoming evident. We are also witnessing growing concerns over climate change. As the external environment is changing dynamically, in the construction, mining, and utility equipment busi- ness, we assume gradual growth of the demand in the medium to long term, but the volatility will remain high in the short term. In the industrial machinery and others business, we anticipate a structural change in demand in the automobile manufacturing indus- try, mainly resulting from ongoing progress toward electric vehicles. In addition, we anticipate assured growth in demand in the semiconductor manufacturing industry over the medium to long term, while a temporary adjustment phase is also expected. Achieving sustainable growth in this environment will require growth strategies that are not affected by demand fluctuations. Changes in the External Environment and of ESG Issues Politics & economy • Multipolarization of the world • Emergence of protectionism • Growth of emerging economies Technologies • Further spread of IoT, AI, and big data • The progress of electric and autonomous vehicles Environment & energy • Climate change • Growing demand for energy, foods and water • Decarbonization & renewable energy Society & values • Acceleration of diversity in advanced countries • A decline of working-age population • Achievement of a recycling- oriented society by accelerating the pace of sharing • Growing pursuit and needs for safety and comfort Expectations of achieving a sustainable society Our Tasks in the Growth Strategies 1. To solve ESG issues through the growth strategies of our core business 34 34 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 35 DANTOTSU Value FORWARD Together for Sustainable Growth Demand for Construction and Mining Equipment Period of the previous plan Period of the mid-term management plan • Growth strategies based on innovation • Growth strategies of existing businesses • Structural reforms designed to rein- force the business foundation • Value creation by means of innovation • Growth strategies based on business reforms • Structural reforms for growth Growth above the industry’s average by focusing investment in growth areas d n a m e D / s e a S l Demand recovery for mining equipment and in emerging economies Sustainable growth We assumed demand recovery would start in FY2019 in the previous plan. (Actually it started in FY2017.) We assume gradual growth in the mid to long ranges, but volatility will remain high in the short range. Assumed range of demand change FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 ~ Construction, Mining, and Utility Equipment Business Sales (to Outside Customers) by Region 2,267.3 2,466.6 (Billions of yen) 3,000 2,500 2,000 1,500 1,000 500 0 1,566.3 FY2016 FY2017 FY2018 Africa Middle East Oceania Asia China CIS Latin America Europe North America Japan Strategic Markets 54% Traditional Markets 46% Performance of the mid-term management plan 2,205.9 1,961.2 FY2019 FY2020 Expectations of achieving a sustainable society 34 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 35 35 2. To promote sustainable growth based on our profit structure which is free of changes in the external environment and market demand A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Evolution of Business Model for Creating the Workplaces of the Future Mid-Term Management Plan (FY2019–FY2021) Overview of the Mid-Term Management Plan The mid-term management plan sets forth the future vision Komatsu should aspire to and hope to accomplish as it approaches and moves beyond the 100th anniversary of its founding in 2021. As part of this vision, we seek to become a company that can help realize the safe, highly productive, smart, and clean workplaces of the future together with customers while generating a posi- tive cycle of resolving ESG issues through the creation of value for customers and improving earnings. Management Principle Make commitment to Quality and Reliability and maximize corporate value (the total sum of trust from society and all stakeholders) 2021 100th anniversary and beyond Previous Plan (FY2016–FY2018) • Growth strategies based on innovation • Growth strategies of existing businesses • Structural reforms designed to reinforce the business foundation Integration of KMC (FY2017) Mid-Term Management Plan (FY2019–FY2021) Three Pillars of Growth Strategies 1. Value creation by means of innovation 2. Growth strategies based on business reforms 3. Structural reforms for growth Future Vision ESG Solutions Positive cycle = Sustainable growth Workplaces of the future: Safe, highly productive, smart and clean Positive cycle = Sustainable growth Improvement of earnings 1 2 3 Value creation by means of innovation • Optimization platform and solutions business strategies Smart Construction, Autonomous Haulage System (AHS), and platforms (LANDLOG and IntelliMine) • Automation, autonomous operation, electrification and remote-controlling of construction, mining and utility (compact) equipment • Smart forestry and agriculture Growth strategies based on business reforms • KMC integration synergies and business reinforcement • Value chain reforms and redefinition of the aftermarket business Preventive maintenance by applying IoT and AI, and Lifecycle support under serial number-based management; logistics reforms; and next-generation key components • Next-generation Komtrax • Stronger focus on aggregate & cement, forestry, agriculture and other segments • Efforts for “DANTOTSU No. 1 in Asia” and in the growing markets of India and Africa • Reforms of the industrial machinery business (Expansion of synergy with the construction equipment business and growth by capitalizing on core technologies) Structural reforms for growth • Business reforms by means of ICT and IoT • Structural reforms of development operations Model based development Open innovation • Connected plants with Zero impact on environment and workers • Global human resource development 36 36 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 37 BackcastingGrowth strategies and management targets by backcasting the roadmap to our future visionManagement Targets of the Mid-Term Management Plan and Related Performance Management Target FY2019 (First year of the plan) FY2020 Indicator Performance Performance Growth • Growth rate above the industry’s average Sales growth rate ▲10.3% ▲10.4% Profitability • An industry’s top-level operating income ratio Efficiency • 10%-level ROE Financial position Shareholder return • Keep a fair balance between investment for growth and shareholder return (including stock buybacks), while placing main priority on investment • Set the goal of a consolidated payout ratio of 40% or higher • Reduction of environmental impact   CO2 emissions: Decrease by 50% in 2030 from 2010   Renewable energy use: Increase to 50% of ESG total energy use in 2030 Reduction of CO2 emissions from product use Reduction of CO2 emissions from production Rate of renewable energy usage Evaluation by external organizations • ROA: 1.5%–2.0% Selected for DJSI (World & Asia Pacific) CDP A-List (Climate Changes and Water Risk) • 5.0 or under for net debt-to-equity ratio Retail finance business Operating income ratio ROE Net debt-to- equity ratio Consolidated payout ratio Reduction of environmental impact Evaluation by external organizations ROA Net debt-to- equity ratio 10.3% 8.6% 0.43 7.6% 5.8% 0.35 57.7% 48.9% △14% △14% △32% △33% 11% 13% Selected for DJSI Selected for DJSI CDP Climate Change: A CDP Climate Change: A CDP Water Risk: A– CDP Water Risk: A 1.5% 3.80 1.2% 3.69 Concepts and Stance of the Mid-Term Management Plan The mid-term management plan defines three pillars of growth strategies: 1) value creation by means of innovation, 2) growth strategies based on business reforms, and 3) structural reforms for growth. By prioritizing investment on growth areas based on the three pillars of growth strategies, we will seek to achieve sustainable growth through a positive cycle of improving earnings and solving ESG issues that is resilient to fluctuations in demand. Expectations of society and stakeholders Growth Strategy Aligned with Management Principles Stakeholders Communities Customers Employees Distributors Suppliers Business partners Shareholders Investors Maximize Corporate Value which is the Total Sum of Trust Enhance Corporate Brand Solutions for ESG issues Sustainable growth Shared growth based on growth strategies ESG Solutions Positive cycle = Sustainable growth Three Pillars of Growth Strategies 1. Value creation by means of innovation 2. Growth strategies based on business reforms 3. Structural reforms for growth Sustainable increase of Improvement of earnings earnings Positive cycle = Sustainable growth 36 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 37 37 BackcastingGrowth strategies and management targets by backcasting the roadmap to our future visionA Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate ProfileResolution of ESG Issues through Growth Strategies Komatsu’s CSR Themes and Mid-Term Management Plan KPIs Komatsu seeks to help resolve ESG issues by promoting the three pillars of growth strategies defined in the new mid-term management plan. We strive to realize a positive cycle of sustainable growth through improvements of earnings and reso- lutions to ESG issues. Our initiatives include reducing environmental impacts to combat climate change and supplying CSR Themes ESG Solutions through Three Pillars of Growth Key Initiatives under Mid-Term Management Plan FY2019 KPI Performance FY2020 KPI Performance FY2021 KPIs Strategies Relevant SDGs Enhancing Quality of Life —Providing Products Required by Society— • Provide products, service and solutions contributing to sustainable development of infrastructure, natural resources and circular environmental protection (remanufacturing and forestry). • Improve productivity, efficiency, safety and environmental impact (lower CO2 emissions and higher ratio of renewable energy use) through innovations, such as automation in the entire value chain. • Make commitment to DANTOTSU Value which will realize a better Earth and future by means of technology and reliability (creation and maximization of customer value). Reduction of CO2 emissions (in comparison to FY2010) • Reduction of CO2 emissions from product use (fuel-efficiency equipment, hybrid hydraulic excavator, rate of Smart Construction use, enhancement of ICT-intensive construction, mine automation, and underground mining equipment) • Reduction of CO2 emissions from production (plants with zero impact on environment and workers) Plants with zero impact on environment and workers • Rate of renewable energy use (including purchase of renewable energy) • Work environment burden coefficient (particle matter density) • Water consumption Value chain reforms and redefinition of the aftermarket business • Spare parts sales • Reman component lifespan (compared to new components) Actual value: Average operating time from the nth to the n+1st overhaul order Assurance of mine operation safety and productivity • AHS units’ population (promotion of mining platform business) DANTOTSU Product, DANTOTSU Service, and DANTOTSU Solution • ICT-intensive equipment introduced (United States, Europe, and Australia) • Sites adopting Smart Construction Automation, autonomous operation, electrification, and remote-controlling of equipment 14% reduction 33% reduction 11% 10.7% reduction 49.4% reduction 3% increase 221 units 1,361 units 2,440  1. Automation of construction equipment Verification tests conducted on user sites In-house verification tests  2. Automation, autonomous operation, and remote operation of mining equipment  3. Automation of utility equipment • Enhancement of mining equipment and hard rock mining businesses Agricultural solutions and smart forestry • Creation of construction equipment demand in agricultural field • Smart forestry projects IoT and ICT work reforms • Sales in Kom-mics platform business (visualization of production equipment operation) Development of a diverse workforce with a high level of productivity and technical skills • Enhancing employee engagement • Work process reforms through expansion of diverse and flexible workstyles Developing People • Develop a diverse workforce with a high level of productivity and technical skills. • Promotion of The Komatsu Way (global dissemination of The Komatsu Way) participants) participants) • Number of participants: 1,461 in Japan, 307 overseas • Number of participants: 1,527 in Japan, 0 overseas Training hours and number of participants (Disclosure of results) Strengthening and development of diverse talent with a global perspective to help achieve sustainable workplaces • Strengthen and develop diverse talent with a • Revision of role of Japan in global management global perspective to help achieve sustainable workplaces. • Develop talent with cross-value chain capabilities. • Foundations for global measures (systems, frameworks) • Empowerment of female employees ((1) non-consolidated ratio of female employees, (2) non-consolidated ratio of female managers, (3) consolidated ratio of female managers (Japan)) • Rate of employment of people with disabilities (comply with requirements in Japan) 2.58% (non-consolidated) 2.82% (non-consolidated) Above 2.3% (legally mandated rate) • Support for regional human resource development for job creation (regional human resource development with Cummins Inc.) Development of talent with cross-value chain capabilities • Cultivation of Smart Construction consultants (capable of proposing solutions using ICT to improve productivity and safety throughout construction workplaces) Resolutions to social issues through collaboration with stakeholders • Promotion of industry–government–academia collaboration as well as of collaboration with Examination of cutting-edge tools through activities with customers domestic customers and regional dissemination basis Promotion of Brand Management and activities creating value for customers • Offer resolutions for social issues through collaboration with stakeholders. • Shareholders and individual investors (shareholder meetings, shareholder factory tours, individual investor meetings) Growing with Society • Act as a responsible corporate citizen ensur- ing corporate governance, compliance, and human rights. • Institutional investors (ESG meetings) 11 (ESG-related meetings) • Participation in conferences: 1 (meetings held with 18 Number of meetings held (Disclosure of results) • Communities (business site fairs) All factory fairs canceled due to COVID-19 pandemic One fair held at each of nine factories per year • Employees (meetings) Action as a responsible corporate citizen addressing corporate governance, compliance, and human rights • Occupational health and safety, support for establishing environmental and safety systems at suppliers, response to Japan’s Corporate Governance Code (corporate governance reports), evaluations of effectiveness of Board of Directors, internal control, and internal audits 34 (30 in Japan, 4 overseas) 29 in Japan (canceled overseas due to COVID-19 pandemic) Number of meetings held (Disclosure of results) Establishment of Human Rights Policy, disclosure in Revised Komatsu Code of Worldwide Business Conduct Ongoing improvements made in reflection of relevant laws integrated report Human rights e-learning programs, etc. and regulations and social expectations Business fairs at nine factories (Awazu, Osaka, Ibaraki, Kanazawa, Tochigi, Oyama, Koriyama, Shonan, and Himi); canceled only at Shonan Plant due to impacts of Typhoon Hagibis 38 38 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 39 39 26,866 workhours (134% of new components) 19,106 workhours (95% of new components) 20,000 workhours (100% of new components) 14% reduction 16% reduction (in comparison to FY2010) 33% reduction 40% reduction (in comparison to FY2010) 13% 24% reduction 52% reduction 8% decrease 352 units 1,288 units 3,348 15% 30% reduction (in comparison to FY2018) 55% reduction (in comparison to FY2010) 11% increase 380 units (aggregate) 1,590 units (per year) 4,850 (per year) Test introduction of hydraulic excavators for automated loading Entry into mining bulldozer market (level 4 automation) Development of technology for automated forklifts Preparations advanced to launch mining bulldozer with Domestic pretest of bulldozer with level 3 automation, level 2 automation preparation for proof of concept test in Australia Development of peripheral safety technologies for Entry into retrofit market for installing peripheral safety supporting automation functions in preparation for automation Advancement of development projects for expanding product series Expansion of product series (drills, LHD) Four models Expansion of product series Japan: Commencement of verification tests at five Japan: Development and market evaluation of agricultural agriculture business operators ATT Indonesia: Started mass production and sales of D31PLL Indonesia: Confirmation of feasibility of D21 agricultural agricultural bulldozer bulldozer for direct rice planting applications 10 865 units 19 1,447 units Japan: Expand lineup of agricultural loaders Indonesia: Increase number of users of agricultural techniques employing agricultural bulldozers 50 1,900 units (including for internal use) Scheduled for FY2020 Preparation for survey in FY2020, global survey in April 2021 Improvement of global surveys and indexes (1) 1,950 workhours per person/year  (1) 1,920 workhours per person/year  Total workhours of less than 2,100; introduction of (2) Commencement of trial in August 2019 (2) Revision of telework system in August 2020 telework system (Japan) • Training hours: 31,625 hours (aggregate hours for all • Training hours: 33,188 hours (aggregate hours for all Human resource system revisions started in Japan benefit systems in April 2021 activities; globalization of organizations on by-function • Revision of domestic retirement, wage, and retirement Shifting of human resources to projects and improvement Preparations advanced for introduction Commencement of domestic data linkage • Introduction of elective retirement and R&D staff systems basis Introduction (1) 12.3%, (2) 7.2%, and (3) 4.5% (1) 12.3%, (2) 7.7%, and (3) 4.9% (1) 12.5%, (2) 10.0%, and (3) 5.0% • Human resource development program launched in Chile • Ongoing support provided in Peru, South Africa, and Australia • Participants’ success in finding employment tracked • Ongoing support in Chile, South Africa, and Australia • Establishment of scholarship program for students in Chile Chile, Australia, South Africa, others and Peru as part of COVID-19 relief program 396 626 430 (aggregate) • Shareholder meetings: 2 times • Shareholder factory tours: 10 times • Individual investor meetings: 7 times • Certain factory tours and meetings canceled due to YouTube account) impacts of global COVID-19 pandemic • Individual investor meetings: 4 times (held online) pandemic, factory tour videos shared on official Komatsu Number of meetings held (Disclosure of results) • Posting of past activity documents on Group portal • Shared information on activities in 14 regions on rotational • Continuation of activities by headquarters team targeting three customers (two civil engineering, one aggregate) • Shareholder meetings: 1 time (held online) • Shareholder factory tours: 0 (canceled due to COVID-19 • ESG-related meetings: 4 investors) CSR Themes ESG Solutions through Three Pillars of Growth Key Initiatives under Mid-Term Management Plan FY2019 KPI Performance FY2020 KPI Performance FY2021 KPIs Strategies Relevant SDGs high-quality, high-performance products, services, and solutions ensuring safety. KPIs have been set to guide these initiatives for solving ESG issues through our core business. 14% reduction 33% reduction 11% 10.7% reduction 49.4% reduction 3% increase 14% reduction 16% reduction (in comparison to FY2010) 33% reduction 40% reduction (in comparison to FY2010) 13% 24% reduction 52% reduction 8% decrease 15% 30% reduction (in comparison to FY2018) 55% reduction (in comparison to FY2010) 11% increase Actual value: Average operating time from the nth to the n+1st overhaul order 26,866 workhours (134% of new components) 19,106 workhours (95% of new components) 20,000 workhours (100% of new components) 221 units 1,361 units 2,440 352 units 1,288 units 3,348 380 units (aggregate) 1,590 units (per year) 4,850 (per year) Reduction of CO2 emissions (in comparison to FY2010) • Reduction of CO2 emissions from product use (fuel-efficiency equipment, hybrid hydraulic excavator, rate of Smart Construction use, enhancement of ICT-intensive construction, mine automation, and underground mining equipment) • Reduction of CO2 emissions from production (plants with zero impact on environment and workers) Plants with zero impact on environment and workers • Rate of renewable energy use (including purchase of renewable energy) • Provide products, service and solutions • Work environment burden coefficient (particle matter density) contributing to sustainable development of infrastructure, natural resources and circular • Water consumption • Spare parts sales Value chain reforms and redefinition of the aftermarket business environmental protection (remanufacturing • Reman component lifespan (compared to new components) and forestry). Enhancing Quality of Life —Providing Products Required by Society— • Improve productivity, efficiency, safety and environmental impact (lower CO2 emissions Assurance of mine operation safety and productivity • AHS units’ population (promotion of mining platform business) DANTOTSU Product, DANTOTSU Service, and DANTOTSU Solution • ICT-intensive equipment introduced (United States, Europe, and Australia) and higher ratio of renewable energy use) • Sites adopting Smart Construction through innovations, such as automation in Automation, autonomous operation, electrification, and remote-controlling of equipment the entire value chain.  1. Automation of construction equipment Verification tests conducted on user sites In-house verification tests • Make commitment to DANTOTSU Value which will realize a better Earth and future by means  3. Automation of utility equipment of technology and reliability (creation and maximization of customer value). • Enhancement of mining equipment and hard rock mining businesses Agricultural solutions and smart forestry  2. Automation, autonomous operation, and remote operation of mining equipment Preparations advanced to launch mining bulldozer with level 2 automation Development of peripheral safety technologies for supporting automation Advancement of development projects for expanding product series Domestic pretest of bulldozer with level 3 automation, preparation for proof of concept test in Australia Entry into retrofit market for installing peripheral safety functions in preparation for automation Test introduction of hydraulic excavators for automated loading Entry into mining bulldozer market (level 4 automation) Development of technology for automated forklifts Expansion of product series (drills, LHD) Four models Expansion of product series • Creation of construction equipment demand in agricultural field • Smart forestry projects IoT and ICT work reforms • Sales in Kom-mics platform business (visualization of production equipment operation) Development of a diverse workforce with a high level of productivity and technical skills • Enhancing employee engagement • Work process reforms through expansion of diverse and flexible workstyles Japan: Commencement of verification tests at five agriculture business operators Indonesia: Started mass production and sales of D31PLL agricultural bulldozer Japan: Development and market evaluation of agricultural ATT Indonesia: Confirmation of feasibility of D21 agricultural bulldozer for direct rice planting applications 10 865 units 19 1,447 units Scheduled for FY2020 Preparation for survey in FY2020, global survey in April 2021 (1) 1,950 workhours per person/year  (2) Commencement of trial in August 2019 • Training hours: 31,625 hours (aggregate hours for all (1) 1,920 workhours per person/year  (2) Revision of telework system in August 2020 • Training hours: 33,188 hours (aggregate hours for all • Develop a diverse workforce with a high level of productivity and technical skills. Strengthening and development of diverse talent with a global perspective to help achieve sustainable workplaces • Strengthen and develop diverse talent with a • Revision of role of Japan in global management • Promotion of The Komatsu Way (global dissemination of The Komatsu Way) participants) participants) • Number of participants: 1,461 in Japan, 307 overseas • Number of participants: 1,527 in Japan, 0 overseas • Foundations for global measures (systems, frameworks) Preparations advanced for introduction Commencement of domestic data linkage Human resource system revisions started in Japan benefit systems in April 2021 • Revision of domestic retirement, wage, and retirement • Introduction of elective retirement and R&D staff systems Japan: Expand lineup of agricultural loaders Indonesia: Increase number of users of agricultural techniques employing agricultural bulldozers 50 1,900 units (including for internal use) Improvement of global surveys and indexes Total workhours of less than 2,100; introduction of telework system (Japan) Training hours and number of participants (Disclosure of results) Shifting of human resources to projects and improvement activities; globalization of organizations on by-function basis Introduction • Empowerment of female employees ((1) non-consolidated ratio of female employees, (2) non-consolidated ratio of female managers, (3) consolidated ratio of female managers (Japan)) • Rate of employment of people with disabilities (comply with requirements in Japan) • Support for regional human resource development for job creation (regional human resource development with Cummins Inc.) Development of talent with cross-value chain capabilities • Cultivation of Smart Construction consultants (capable of proposing solutions using ICT to improve productivity and safety throughout construction workplaces) Resolutions to social issues through collaboration with stakeholders (1) 12.3%, (2) 7.2%, and (3) 4.5% (1) 12.3%, (2) 7.7%, and (3) 4.9% (1) 12.5%, (2) 10.0%, and (3) 5.0% 2.58% (non-consolidated) • Human resource development program launched in Chile • Ongoing support provided in Peru, South Africa, and Australia • Participants’ success in finding employment tracked 2.82% (non-consolidated) Above 2.3% (legally mandated rate) • Ongoing support in Chile, South Africa, and Australia • Establishment of scholarship program for students in Chile and Peru as part of COVID-19 relief program Chile, Australia, South Africa, others 396 626 430 (aggregate) Developing People global perspective to help achieve sustainable workplaces. • Develop talent with cross-value chain capabilities. • Promotion of industry–government–academia collaboration as well as of collaboration with customers Examination of cutting-edge tools through activities with domestic customers and regional dissemination • Offer resolutions for social issues through collaboration with stakeholders. investor meetings) • Shareholders and individual investors (shareholder meetings, shareholder factory tours, individual Growing with Society • Act as a responsible corporate citizen ensur- • Institutional investors (ESG meetings) ing corporate governance, compliance, and human rights. • Communities (business site fairs) • Employees (meetings) • Shareholder meetings: 2 times • Shareholder factory tours: 10 times • Individual investor meetings: 7 times • Certain factory tours and meetings canceled due to impacts of global COVID-19 pandemic 11 (ESG-related meetings) Business fairs at nine factories (Awazu, Osaka, Ibaraki, Kanazawa, Tochigi, Oyama, Koriyama, Shonan, and Himi); canceled only at Shonan Plant due to impacts of Typhoon Hagibis 34 (30 in Japan, 4 overseas) • Posting of past activity documents on Group portal • Shared information on activities in 14 regions on rotational basis • Continuation of activities by headquarters team targeting three customers (two civil engineering, one aggregate) • Shareholder meetings: 1 time (held online) • Shareholder factory tours: 0 (canceled due to COVID-19 pandemic, factory tour videos shared on official Komatsu YouTube account) • Individual investor meetings: 4 times (held online) • ESG-related meetings: 4 • Participation in conferences: 1 (meetings held with 18 investors) Promotion of Brand Management and activities creating value for customers Number of meetings held (Disclosure of results) Number of meetings held (Disclosure of results) All factory fairs canceled due to COVID-19 pandemic One fair held at each of nine factories per year 29 in Japan (canceled overseas due to COVID-19 pandemic) Number of meetings held (Disclosure of results) Action as a responsible corporate citizen addressing corporate governance, compliance, and human rights • Occupational health and safety, support for establishing environmental and safety systems at suppliers, response to Japan’s Corporate Governance Code (corporate governance reports), evaluations of effectiveness of Board of Directors, internal control, and internal audits Establishment of Human Rights Policy, disclosure in integrated report Revised Komatsu Code of Worldwide Business Conduct Human rights e-learning programs, etc. Ongoing improvements made in reflection of relevant laws and regulations and social expectations 38 38 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 39 39 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate ProfileResolution of ESG Issues through Growth Strategies Enhancing Quality of Life—Providing Products Required by Society— Komatsu announced its endorsement of the TCFD’s recommendations in April 2019. Accordingly, we have been assessing the risks and opportunities that climate change presents for Komatsu and conducting related scenario analyses. At the same time, we practice constructive dialogue with stakeholders while advancing initiatives for combating climate change. Strategies Risk and Opportunity Identification A total of 16 climate change-related risks and opportunities (TCFD). We then assessed internal factors, which impact sales were identified for Komatsu, primarily in relation to construc- and earnings, and external factors, which affect projected tion equipment operations, based on the recommendations of scenarios. Through this process, the 16 risks and opportuni- the Task Force on Climate-related Financial Disclosures ties were grouped based on four major themes. Risks and Opportunities and Groupings 16 Risks and Opportunities Four Major Themes • Coal demand fluctuations • Changes in reputation among customers and investors Changes in resource demand • Reduced coal demand • Increased resource demand related to electric equipment • Environmental regulations • Trend toward electric equipment • Subsidiaries for renewable energy and energy conservation projects • Substitute fuel technologies • Next-generation technical services (new market) Transition to low-carbon products • More stringent fuel regulations • Progress in electrification and next- generation technologies • Carbon prices • Popularization of renewable energy technologies • Raw material prices • Energy prices • Recycling Manufacturing costs • Rising manufacturing costs due to higher carbon prices* *CO2 taxation measures for reducing emissions • More frequent abnormal weather events • Increased precipitation amounts and weather patterns • Higher average temperatures • Rising sea levels Natural disasters • Increased precipitation amounts and flood risks due to abnormal weather • Higher demand in conjunction with national resilience plans Business Risks and Opportunities Based on Climate Change Scenarios To gauge the potential impacts of climate change-related risks Sustainable Development Scenario and Stated Policies Scenario of the International Energy Agency (IEA). The risks and opportunities pertaining to specific ESG and opportunities on Komatsu’s business, we performed sce- themes and Komatsu’s strategies for addressing these risks nario analyses of the Company’s four major risk and opportu- and opportunities are described on the following page. Should nity themes. For these scenario analyses, we defined a 2°C a scenario targeting more substantial greenhouse gas emis- scenario and a 4°C scenario based on the Fifth Assessment sions reductions be issued, Komatsu will be expected to Report of the Intergovernmental Panel on Climate Change address stricter regulations and accelerate the development (Representative Concentration Pathways 2.6 and 8.5) and the of new technologies in accordance with this scenario. 40 40 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 41 41 Changes in Resource Demand 2°C scenario 4°C scenario Strategies Risks Opportunities • Regulation of power generation using fossil fuels • Massive reductions in coal production volumes under IEA scenarios • Rapid transition from fossil fuel-powered equipment to electric equipment • Higher demand for copper and other resources necessary for electric equipment (motors, batteries, fuel cells, etc.) • Reduced sales to coal-related customers by Komatsu • Increased sales to copper and other relevant mining-related customers by Komatsu in conjunction with trend toward electric equipment • Limited regulation of coal in developing nations • Coal production volumes in 2030 in line with current levels • Trend toward electric equipment less pronounced than in 2°C scenario • Higher demand for copper and other resources necessary for electric under IEA scenarios equipment • Reduced appetite for investment in coal mines • Rise in investment for streamlining mine operations Exploration of business opportunities arising from climate change through value creation by means of innovation and growth strategies based on innovation • Increased metal resource demand in conjunction with transition to electric equipment—Expansion of underground mining equipment operations • Contribution to sustainable forestry—Provision of equipment and systems for streamlining processes spanning from afforestation to logging • Contribution to rehabilitation of closed mine sites and greenification of deserts—Forest restoration projects at closed mine sites and forest machine operations • Transition to circular economies—Expansion of equipment restoration (“Reman”) business Transition to Low-Carbon Products Risks Opportunities • Rising demand for electric equipment, fuel-efficient equipment, and biomass fuel-powered equipment • Higher development and capital investment costs due to • Higher sales in traditional areas due to success in developing 2°C scenario emissions restrictions • Reduced sales due to inability to cater to customer electrification demands • Substantial changes in technology development and competitive climate including market entry by new competitors low-carbon products • Higher sales due to ability to swiftly respond to change in focus toward low-carbon products in strategic markets where shift to low-carbon products was slow • Growth of equipment restoration (Reman) operations driven by transition to cyclical economy • Long-term diminishment of technological edge as customers • Increased demand for Smart Construction and other solutions begin leading drive component development and manufacturing projects with emissions-reducing benefits • Increased product reliability due to securing stable supply sources for high-quality components for storage batteries and other major components Komatsu is advancing initiatives aimed at accomplishing its CO2 emissions reduction targets for 2030 while facilitating the transition to the low-carbon products the world demands. • Develop electrification systems for construction equipment • Develop power sources and high-efficiency components compatible with carbon neutral fuels • Develop high-energy-efficiency equipment • Deploy Smart Construction and other solutions on a global scale • Contribute to cyclical businesses through forestry machinery and Reman businesses Strategies Please refer to the following pages for information on Komatsu’s efforts to transition to low-carbon products.  • Pages 28–33: Special Feature: Komatsu’s Vision for the Workplace of the Future • Pages 26, 27, and 43: Examples of low-carbon products Manufacturing Costs 2°C scenario Strategies Risks Opportunities • Taxation of fossil fuels and CO2 emissions • Transfer of higher product purchase prices to Komatsu • Rising power fees and energy costs following investment in power generation facilities with low CO2 emissions • Increased competitiveness through production technologies that reduce CO2 emissions • Mitigation of cost increases by achieving CO2 reduction and renewable energy targets defined in the mid-term management plan Web Please refer to the following website for information on recent CO2 emissions reduction activities: https://komatsu.disclosure.site/en/themes/149 Natural Disasters Risks Opportunities • Increased frequency of heavy rain and floods due to abnormal weather 4°C scenario • Risks of disaster damages to Komatsu plants at high risk of flooding • Component supply delays following damages to suppliers from disasters • Increased demand for flood-control works Strategies • Institute heavy rain and flood countermeasures across the value chain 40 40 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 41 41 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate ProfileResolution of ESG Issues through Growth Strategies Enhancing Quality of Life—Providing Products Required by Society— Governance Komatsu views climate change as an important management issue, and targets for combating climate change have been incorporated into its business strategies. Discussions regarding climate change are held at meetings of the Sustainability Promotion Committee and the Risk Management Committee, and these committees make suggestions to the Strategy Review Committee and report to the Board of Directors, thereby furnishing a system of appropriate oversight. Meanwhile, the Executive Meeting fulfills the function of managing progress toward targets. Climate Change-Related Reporting and Deliberation System Board of Directors Strategy Review Committee Executive Meeting Report Suggest • Sustainability Promotion Committee • Risk Management Committee Major Discussion Items Related to Climate Change Name Chairperson Major Discussion Items Related to Climate Change Board of Directors Chairman of the Board and Representative Director Strategy Review Committee President Executive Meeting President • Report from Earth Environment Committee • Reports from research, development, and product planning divisions and the Chief Technology Officer • Reports from production and procurement division • Mid-term management plan progress report • Growth strategies for major plants (including climate change-related matters) • Report from Environmental Affairs Department • Progress in regard to product development and production system • Climate change lectures by external specialists Name Chairperson Major Discussion Items Related to Climate Change Sustainability Promotion Committee President Risk Management Committee Executive officer supervising general affairs • Initiatives for addressing ESG issues • Deliberations and reports regarding important environmental matters and key performance indicators (KPIs) • CSR activity reports • Reports on responses to natural disaster risks Note: Earth Environment Committee and CSR Committee were integrated from FY2021. Risk Management Please refer to page 60 for information on the Company’s risk management systems. Indicators and Targets Climate Change-Related Indicators and Targets Indicators CO2 emissions from product use CO2 emissions from production Rate of renewable energy use Targets Decrease by 50% in 2030 (Base year of 2010, basic unit) Decrease by 50% in 2030 (Base year of 2010, basic unit) 50% in 2030 42 42 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 43 43 Resolution of ESG Issues through Growth Strategies Message from the President of the Sustainability Promotion Division Examples of Low-Emissions Products Announcement of Fully Electric and Remote-Controlled Mini Excavator Concept Machine Powered by Lithium-Ion Battery Komatsu has announced a fully electric (non-hydraulic drive) and exclusively remote-con- trolled mini excavator powered by lithium-ion battery, as its next-generation concept machine for the future. Designed to lay the foundations for commercialization of fully electric construction equip- ment of the future, this concept machine for a fully electric 3-ton class (bucket capacity: 0.09 m3) mini excavator is based on Komatsu’s accumulated technological expertise in electric forklifts and mini excavators, and incorporates new technologies, such as lithium-ion batteries and electric cylinders which utilize no hydraulics. Japanese market’s Launch of PC78USE-11 Wired Electric Excavator In July 2021, Komatsu launched its PC78USE-11 wired electric excavator in the Japanese market. The PC78USE-11 was developed for customers wanting to use an electric hydraulic excavator continuously over long periods of time. This product capitalizes on Komatsu’s accu- mulated technology to deliver the same level of performance as engine-driven equipment while boasting zero emissions along with massive reductions in noise and heat emissions. These features make the PC78USE-11 an eco-friendly wired electric excavator of the small to mid- sized class. Fully electric and remote-controlled mini excavator concept machine powered by lithium-ion battery PC78USE-11 wired electric excavator Message from the President of the Sustainability Promotion Division In May 2021, Komatsu celebrated the 100th anniversary of its founding. In conjunc- Voice tion with this momentous occasion, the Company integrated its Corporate Communications Department, Environmental Affairs Department, CSR Department, Diversity Promotion Group, and Demining and Reconstruction Project to form the Sustainability Promotion Division. Komatsu’s basic policy for Corporate Social Responsibility (CSR) has always been to contribute to society through its business. This spirit of pursuing coexistence with communities has been passed down since our founding a century ago. The three-year mid-term management plan slated to conclude with FY2021 describes our goal of achieving sustainable growth through a positive cycle of solving ESG issues and improving earnings, and various initiatives are underway to achieve this goal. Furthermore, we clarified Komatsu’s corporate identity in light of the 100th anniversary of its founding, defining our purpose as creating value through manufacturing and technology innovation to empower a sustainable future where people, businesses and our planet thrive together. This move sent a clear message of how we intend to contribute to the realization of a sustainable society while also achieving business growth for Komatsu. Our operating environment is constantly changing, and the pace of this change is acceler- ating. To respond to this change, I look to further build upon the Komatsu Group’s sustainability manage- ment approach. By maintaining the strengths we have fostered over the past century, we will position change as an opportunity, boldly tackling new challenges to make Komatsu a more resilient company. Mitsuko Yokomoto Senior Executive Officer President, Sustainability Promotion Division Since establishing the Komatsu Earth Environment Charter in 1992, Komatsu has maintained a proactive stance toward addressing climate change and other environmental issues. Moreover, we put forth the target of halving CO2 emissions from 2010’s level by 2030 in the current mid-term manage- ment plan, which was launched in FY2019. Komatsu has also endorsed the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and we are advancing a strategy for combating climate change based on assessments and scenario analyses of climate change-related risks and opportunities. Furthermore, Komatsu Report 2021 features our declaration of our goal of achieving carbon neutrality in 2050 and provides information on the new initiatives that this declaration entails. I also hope to ensure that Komatsu is always a company at which employees can feel proud, motivated, and empowered in their work. For this reason, I believe that promoting diversity and inclusion, the drivers of innovation, is also an important role of the Sustainability Promotion Division. Acting in accor- dance with Komatsu’s management policy of “maximizing the trust given to us by our stakeholders and society through a commitment to quality and reliability,” I will continue striving to help us live up to the demands and expectations of society. 42 42 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 43 43 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Resolution of ESG Issues through Growth Strategies Developing People Founder Meitaro Takeuchi established Komatsu Ltd. in Komatsu City, Ishikawa Prefecture roughly a century ago. Having witnessed Europe’s cutting-edge tech- nologies at that time, Takeuchi put forth the four management principles of global expansion, quality first, technological innovation, and human resource develop- ment. The commitment to the development of human resources, an invaluable asset to Komatsu, lives on in the Company today. Komatsu’s global engineers active in various fields Japan 32% Overseas 68% Japan 6% (13) Overseas 94% (200) Number of Employees 61,564 (consolidated) (as of March 31, 2021) Number of Consolidated Companies 213 (as of March 31, 2021) Employees Supporting Komatsu as a Global Company Komatsu develops its operations around the world, and approximately 70% of its employees are not Japanese. Accordingly, developing human resources that are rooted in the communities they serve while promoting mutual acceptance of the values and cultures of various countries and regions is becoming increasingly important. Operations around the world must be instilled with Komatsu’s manufacturing competitiveness, which includes the values that support Komatsu and workplace improvement, driven by employees. The Komatsu Way The Komatsu Way is the very DNA of Komatsu, an expression of the strengths of Komatsu, the beliefs supporting these strengths, the basic attitudes, and the patterns of behaviors established based on the experiences of our predecessors as they proceeded to tackle the challenges facing them. Komatsu seeks to develop its operations on a global scale and to become a stronger company and grow. To accomplish these objectives, it will be crucial for us to transmit The Komatsu Way to employees with different cultures and customs around the world and to implement these principles in a manner that aligns employees along the same vector. In 2020, an English-language e-learning program pertaining to The Komatsu Way was launched, and we completed the translation of the third version of The Komatsu Way into nine languages, posing us to further entrench this doctrine throughout our global operations. 1 Leadership/Top Management 2 “Monozukuri ” for All 3 Brand Management Leaders must be directly involved in the Employees workplaces and manage businesses with Komatsu aims to pass on the manufac- (Customer Value Creation Activities) an emphasis on contributing to the entire turing competitiveness, perspectives, Komatsu defines “Brand Management” as Group, including distributors and suppli- and values that, based on total quality all the activities that “make Komatsu indis- ers. We have also defined guidelines for management, have continued to drive pensable to our customers.” This objective leaders related to actively engaging in Komatsu’s competitiveness and support is accomplished by visiting customer regular board meetings, communicating its growth. We look to transmit these workplaces to understand the ideal state with stakeholders, complying with rules of principles through a joint effort encom- of these customers and to build relation- the business community, managing risks, passing all internal divisions as well as our ships that enable us to work together with and grooming successors for manage- suppliers, distributors, and other partners them to help achieve their goals through ment positions. and to continue promoting involvement concerted efforts by the Group and its by all of these parties. distributors. 44 44 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 45 45 Global Engineer Cultivation and Empowerment In the 2000s, resource demand began surging, stimulating growth in Komatsu’s mining equipment business and simultaneously creating a need for the cultivation of staff that can provide ongoing support at active customer workplaces around the world. To address this need, Komatsu looked beyond Japan, with its shrinking workforce, to seek out human resources overseas. As part of this undertaking, we adopted English as our official Company language and turned our attention to the Philippines, where we were able to find human resources that were highly proficient at adapting to overseas assignments. We thus commenced a recruitment campaign aimed at acquiring talented human resources that had graduated from local technical universities in this country. The Komatsu Human Resources Development Center was established in November 2008 as a venue for recruiting and cultivating such talent and was later incorporated locally as Komatsu Philippines Corporation in November 2019. To date, this company has hired more than 150 engineers as it has proceeded to expand its systems. The training program at Komatsu Philippines involves a six-year curriculum comprising a 17-month basic product and service course, a seven-month training period at factories in Japan, and four years of training at over- seas mines. Individuals who have completed this program are officially hired as global engineers. Today, global engineers are active in more than 20 countries worldwide, using their experience and technical knowledge to make contributions at active customer workplaces as well as at domestic service process improvement divisions and as technical training instructors teaching distributors. New building of Komatsu Philippines Corporation Global engineer providing online training on fuel-efficient operation AI Education for Developing Key Personnel for AI Field Coordination Artificial intelligence (AI) technologies are used in various fields for purposes such as maximizing the value of customer operations and reforming in-house processes. The speed of progress in AI technologies is increasing exponentially. For this reason, it is crucial for us to develop in-house capacities for addressing the AI-related issues seen in specific business fields and to coordinate with external partners boasting advanced technologies. Based on this recognition, Komatsu launched dedicated programs for cultivating key personnel in the AI field in 2019 with an eye to future expansion in the scope of coordination with external partners in this field. These programs include a basic program, which gives participants the ability to experience the process that spans from the definition of issues from a customer perspective to Requirements of Key AI Coordination Personnel Technical Skill Communication Skills Customer- Oriented Perspective Business Perspective theme planning, and an advanced course, in which participants actually address issues through writing software. Through these two pro- grams, we develop human resources capable of identifying pertinent themes from customer-oriented and business perspectives and playing a central leadership role in internal and external coordination. Global Engagement Survey Continuous employee engagement is imperative to the ongoing growth of a company. For this reason, Komatsu conducted a global engagement survey in April 2021 with the Ongoing Corporate Growth aim of periodically tracking and analyzing trends in employee engagement to gain an understanding of the constantly changing issues in this regard to be reflected in human resource measures. This survey targeted both domestic and Group companies. Taking the form of an anonymous online questionnaire, the survey featured ques- tions on such engagement-related topics as vision, strategic and competitive advan- tage, leadership, and corporate culture and workplace environment. The results of the survey were analyzed by region and by organization to clearly identify the strengths of Komatsu and the issues it faces. This information will be reflected in human resource measures and training and education programs to help make Komatsu a place where employees feel motivated and empowered. Vision Organizational and Operating Structures Continuous Engagement Strategic and Competitive Advantage Leadership Corporate Culture and Workplace Environment Human Resources Komatsu Report 2021 Komatsu Report 2021 45 45 44 44 Komatsu Report 2021 Komatsu Report 2021 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Resolution of ESG Issues through Growth Strategies Growing with Society—Social Contribution Activities Komatsu recognizes that social contributions to the communi- directly aimed at generating earnings. Based on this definition, ties in which it conducts its business activities are an important we seek to contribute to society in a manner that leverages the corporate responsibility. Komatsu defines the social contribution strengths of our core business. activities as activities related to its three CSR themes that are not Social Contribution Activities in FY2020 The following chart shows expenditures for social contribution activities by the Komatsu Group, aggregated based on six general categories. Academic and Industry–Academia Collaborations Culture & Sports Disaster Relief 26% 25% 9% Type of Social Contribution Expenditure FY2020 Social Contribution Expenditures (Consolidated) ¥1,628 million Human Resource Development 15% Local Community Support 24% Environment 1% Cash contributions ¥582 million Employee dispatchment and time contributions ¥142 million Expense related to providing own facilities for public use ¥172 million Expense related to events for the community ¥732 million Total ¥1,628 million Commencement of Agricultural Support Project Following Demining Project Since 2008, Komatsu has been engaging in collaborative efforts other equipment are being deployed to provide agricultural sup- with the authorized nonprofit organization Japan Mine Action port. Komatsu’s ICT-intensive bulldozers use ICT technologies to Service (JMAS) to support the demining of anti-personnel land- automatically control blades, making them highly effective at level- mines in Cambodia and other areas threatened by these weapons ling farmland (creating a flat surface with no uneven areas). In and to help rehabilitate former mine field sites through the con- FY2020, such equipment was used to level approximately 13 struction of roads, bridges, elementary schools and other facilities. hectares of farmland, earning much praise from farmers for the These activities were expanded in 2016 to support the removal of contributions to increased rice harvests. We intend to expand the unexploded ordnance in Laos. In this country, we are supplying scope of this farmland support going forward. Komatsu equipment, free of charge, along with technical guidance Please refer to the following video for more information on to assist in the machine-based removal of unexploded ordnance the Demining and Reconstruction Project. from cluster bombs. The next step in these activities came in 2020, when we commenced an agricultural support project in Cambodia through which bulldozers, hydraulic excavators, and Web Please refer to the following video for more information on the Demining and Reconstruction Project. https://www.youtube.com/watch?v=OTHFyzCQAmo 46 46 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 47 47 Business and Human Rights 1. Human Rights Policies The Human Rights Policy was incorporated into the Komatsu Komatsu established its Human Rights Policy in September Code of Worldwide Business Conduct as part of the 2021 revision 2019, thereby declaring its commitment to conducting its busi- to disseminate this policy to Group employees around the world. ness in a manner that is compliant with internationally accepted standards pertaining to respect for human rights throughout its 2. Human Rights Due Diligence global organization. Based on this policy, processes have been The following human rights due diligence process is imple- established to prevent or mitigate negative impacts on human mented on an ongoing basis in order to identify human rights rights and to allow for corrective measures to be instituted issues in our business activities and to formulate specific plans should it be found that the Company was directly or indirectly for addressing these issues. involved in activities that had a negative impact on human rights. (1) Human Rights Risk and Impact Assessments Risk assessments are conducted to identify and assess human rights risks with the potential impact on our business activities. The following assessments have been performed thus far. 2014 2017 2020 With the assistance of external specialist Business for Social Responsibility (BSR), assessments were conducted to evaluate human rights risks per- taining to the construction equipment, mining equipment, and forestry machinery businesses being developed on a global scale. The aid of BSR was once again enlisted for our second human rights assessment, which was carried out while referencing the Universal Declaration of Human Rights and the United Nations Guiding Principles on Business and Human Rights. With support from external specialist CSR Europe, a systematic human rights risk assessment of our global operations was conducted covering down- stream areas of our construction equipment, mining equipment, and forestry machinery businesses (equipment and replacement part sales). Given the characteristics of Komatsu’s businesses, relevant issues such as pertaining to discrimination based on ethnicity, race, or national origin; compulsory labor; freedom of association; and fair work conditions were assessed, and potential risks and priorities were identified by business and by region. (2) Screening (4) Deployment Across Supply Chain In its global operations, Komatsu has implemented a screening Komatsu is promoting awareness regarding its CSR procurement system for checking and restricting transactions with counter- guidelines among suppliers for the purpose of ensuring that they parties designated on sanction lists and in other documents. In respect human rights. Furthermore, in FY2020 we began issuing addition, the Company complies with trade embargoes and other self-assessment questionnaires with regard to CSR activities to provisions of international regulations. Going forward, we will tier-1 suppliers in Japan and overseas in order to further spread investigate the possibility of expanding the scope of this screen- awareness of CSR across our supply chain. The target of the ing to include responsible sales approaches and policies. FY2020 questionnaire was the 156 Midori-kai member compa- (3) Application to Employees and Distributors responses have been received from 77 companies. Komatsu administers e-learning programs to employees to Please refer to the following website for more information. ensure that they are aware of its human rights policies and to https://komatsu.disclosure.site/en/themes/185 nies that are major suppliers of Komatsu in Japan. To date, raise awareness of its measures for preventing and mitigating negative impacts on human rights. After introducing these pro- grams targeting all employees in Japan and the United States in July 2020, we have been expanding the scope of application with the aim of providing education on a global basis. The Company does not maintain capital tie-ups with most of the distributors that supply its products and services around the world. However, we do coordinate with these business partners. Specifically, a requirement to pledge to respect human rights in business activities has been included in distributor contracts, and we discuss with dis- tributors the possibility of them conducting voluntary due diligence checks and establishing human rights policies based on the charac- teristics of their respective regions and businesses. Topics Human Rights Initiatives in Myanmar Myanmar has been judged as a region presenting significant potential risks. Accordingly, since 2019 we have been calling upon external specialist organizations to aid us in practicing due diligence in this region while engaging in discussions for identifying threats and formulating response measures. Based on the results of such discussions, it was decided that we would not sell mining equipment units to jade mines in Myanmar from 2019 onward. In addition, we have halted operations at mining equipment repair subsidiaries in this country, and the process of liquidating these subsidiaries is underway. Going forward, we will continue to coordinate with dealerships and external experts in Myanmar to formulate effective mea- sures for ensuring respect for human rights in our business. Komatsu Report 2021 Komatsu Report 2021 47 47 46 46 Komatsu Report 2021 Komatsu Report 2021 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Resolution of ESG Issues through Growth Strategies Growing with Society—Social Contribution Activities Employee-Driven Social Contribution Project One World One Komatsu Komatsu defines CSR as activities to respond to social needs encourages employees to take close-at-home action in their through its core business and works to achieve sustainable daily lives, such as cutting back on water use and turning off growth together with society by addressing environmental, lights in unoccupied rooms. social, and governance (ESG) issues. The Komatsu Group Moreover, to promote further action, we have developed an launched the One World One Komatsu employee-driven social exclusive platform that can consolidate the efforts of employees contribution project as the first global initiative in which all across the Group. This new platform can be easily accessed by Komatsu Group employees around the world can take part in logging in via a computer or smartphone. Furthermore, the plat- conjunction with its 100th anniversary. form transcends national and language barriers to connect Based on themes pertaining to the environment and sus- Komatsu Group employees around the world, to nurture a sense tainability, which are shared global issues that are highly related of unity as they work for a common goal, and to promote activi- to our business, the One World One Komatsu project ties designed for a sustainable planet. Four Themes of One World One Komatsu Employee Impact  Total actions completed  Participating teams  100,158 344 (As of August 5, 2021) CO2 emissions reduction Water preservation Renewable energy Waste reduction 48 48 FULL BACK FULL BACK FULL BACK Komatsu Report 2021 Komatsu Report 2021 FULL BACK Komatsu Report 2021 Komatsu Report 2021 49 49 Topics One World One Komatsu Program Uniting Employees in Worldwide Sustainability Effort   First launched as a pilot program in August 2020, the Company’s first global CSR initiative, One World One Komatsu, grew rapidly in its first year. Through the One World online platform, Komatsu employees are encouraged to take sustainable actions that, when done collectively, transform into a global movement to support environmental responsibility.   Despite the fact that it was launched during a global pandemic, One World brought employees together, virtually, within the platform. The program’s environmentally-focused challenges encourage Komatsu team members to focus on different sustainability priorities over the course of the year to earn points for completing related activities. Employees can share photos and comments about what they learned, encourage one another by commenting on each other’s activity and share inspiration for the future through One World’s idea boards.   While expanding One World program access to all areas of the Company in 2021, Komatsu’s global CSR team leveraged the platform to achieve two other firsts for the Company: Komatsu’s first global day of volunteer action for Earth Day and the launch of its first worldwide sustainability competition for employees. On April 22, 2021, Komatsu employees around the world took part in the Company’s 24-hours of Earth Day challenge, completing environmental actions those shown to the right: Working individually or in small groups, as required by ongoing COVID-19 restrictions at that time, employees recorded their efforts in the One World platform, and submitted photos and videos to be used for global watch parties that highlighted submissions from around the world. Caley Clinton Senior Manager, PR CSR and Content Komatsu Mining Corp. and Komatsu America Corp. Completed environmental actions of Earth Day challenge ❶ ❷ ❸ Planting more than 14,000 trees and native species  Picking up more than 3,500 bags of trash  Volunteering more than 15,000 hours collectively Web To view videos from Komatsu’s global Earth Day celebration :   https://www.youtube.com/watch?v=rrf7QzwtyZQ&list=PLl09JNAS3JlEgHkUWebDvJlCWaJaQqm3L The results of the global day of action were tallied up and reported out in time for the United Nation’s World Environment Day in June, at which point an internal contest for employees was launched. The One World One Komatsu sustainability contest offers employees the opportunity to compete in up to 10 categories for a chance to attend an awards ceremony planned for March 2022 in Japan. Categories include some dedicated to competitions within the One World platform, while others encourage employees to think creatively about sustainability or recognize a colleague for environmental responsibility.   Web Watch a video of an overview of the Company’s CSR initiatives :    https://www.youtube.com/watch?v=ul99s-eO4p4&list=PLl09JNAS3JlGOCkNiCo8St7zLm6DUrcLC&index=6 48 48 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 49 49 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Resolution of ESG Issues through Growth Strategies Corporate Governance ■ Message from an Outside Director Promoting discussion to identify areas needing change in pursuit of sustainable growth— Cutting a strong start for growing over the next century Makoto Kigawa Outside Director Strengths and Issues of Komatsu as a 100-Year-Old Company I believe that Komatsu’s strengths can be seen in its unshakable and innovativeness that are also strengths of Komatsu. Another brand image, which was fostered through action based on the strength is the corporate constitution that Komatsu has shaped management principle of “maximizing the trust given to us by our through exhaustive business structure reforms advanced based stakeholders and society through a commitment to quality and on the keyword of DANTOTSU since the turn of the century. reliability,” as well as in the human resource development initia- These strengths have led to a sense of confidence that suc- tives based on The Komatsu Way (please see page 44) that sup- cess can be achieved by adhering to Komatsu’s approach. port this brand power. Despite the fact that, today, about 70% of However, if this confidence turns into overconfidence, it might Komatsu’s employees are of non-Japanese nationality, The threaten to make the Company overly conservative in the face of Komatsu Way is embraced by employees around the world and change. I therefore think there is a need for discussion to clarify has permeated all corners of the organization. The Komatsu which aspects of Komatsu should be carried forward through the Group truly is a united global organization, and the strength of next century and which should be changed. this unity forms the foundation for the manufacturing capabilities Constructive Discussion at Board Meetings and Potential for Increased Diversity to Improve Corporate Value As a Director, I believe that I have an important role to play by chains being disrupted due to extreme circumstances, which, in providing advice pertaining to business strategies to the execu- addition to the current COVID-19 pandemic, could include natu- tive team based on an understanding that I am charged with ral disasters, political conflicts, or other such issues. Given such supervising the executive function. For example, I have manage- risks, it is another important role of directors to confirm the cur- ment experience related to the logistics industry. In 2020, we saw rent conditions while also pointing out potential future risks and a sudden jump in the price of marine transportation, and the offering advice in relation to these risks. resulting disruption to the parts supply chain has become a I believe that Komatsu’s Board of Directors has an incredibly social issue. We have been able to confirm that, at the moment, conducive atmosphere for encouraging open discussion and there have been no serious obstructions to local production or sees frank exchanges of opinion. Board meetings begin with a supply chain disruptions stemming from soaring parts transpor- report from President Ogawa in which he explains the circum- tation costs. Regardless, we must address the risk of supply stances within the Company and any issues that he has 50 50 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 51 51 identified. These reports are great for helping outside directors of Komatsu’s Board of Directors or the evaluations of its effec- understand what is going on inside of the Company. I quickly tiveness. The June 2021 revision to Japan’s Corporate adopted this approach and implemented these reports for board Governance Code has created a need for even more robust meetings at Yamato Holdings Co., Ltd., where I am representa- corporate governance. I think that the diversity of the Board of tive director. In addition, the president himself accurately Directors will be key to realizing this more robust governance. explains issues at Board meetings, which does a lot for the ease Komatsu is evolving with the times. For example, it appointed a of discussion. One particular example of this ease of discussion non-Japanese Outside Director in 2020. However, if the that comes to mind is the acquisition of Joy Global Inc. (cur- Company were to evolve further, with an eye to the type of Board rently, Komatsu Mining Corp.), which moved into the final deci- membership that will be required in the future, it could create a sion phase shortly after I became an Outside Director in 2016. Board of Directors that would allow decision-making and over- What makes this episode so memorable is how brisk and unre- sight functions aimed at improving corporate value to be exer- strained the discussion was, even among Outside Directors, cised based on more diverse input and opinions. I think the despite the late stage of the process. When a matter has been decision to prepare and disclose a skill matrix detailing the discussed a number of times, it is common for new opinions to expertise of Outside Directors and Outside Audit & Supervisory stop being heard at later stages of discussion. A company that Board Members will help the Board of Directors become more is able to engage in such a high degree of discussion is defi- effective while driving the evolution of corporate governance at nitely a healthy company. the Company. At the moment, I have no complaints about the composition Changes in Komatsu’s Operating Environment, Issues, and Expectations for the Next Mid-Term Management Plan The current mid-term management plan was formulated based on low environmental impacts. discussions that took place when President Ogawa was still a The third category of risks is competition risks in solutions senior executive officer. I believe that there would be no issues businesses, such as those pertaining to Smart Construction. with transferring the basic framework of the current plan onto the Komatsu’s solutions businesses are currently at a stage in their next. However, the speed of change in the operating environment growth in which it is time for the technologies and expertise today exceeds that when the current plan was formulated. Komatsu has developed in Japan to be deployed in overseas Accordingly, it will be important to implement the next plan, while markets. The Company is currently the frontrunner with regard to making flexible revisions. Moreover, we are currently seeing such solutions. However, if Komatsu is to maintain its competi- increased political and economic instability along with massive tiveness in this area, it will need to bring its levels of quality in line changes in people’s values. Now is thus a crucial time when it with international standards. This will be incredibly important, so I comes to ensuring Komatsu can cut a strong start for growing hope Komatsu will do what needs to be done. It is unlikely that over the next 100 years. Komatsu will see a sudden change in the competitive climate in When formulating the next mid-term management plan, there its core manufacturing operations. However, outside of these are largely three categories of risks that will need to be consid- operations, in service and solutions businesses, which are more ered. The first is geopolitical risks. In recent years, we have seen closely connected to end users, it is possible that there may be an increased trend toward countries implementing policies solely changes in competitors. Rivals with business models that had for the benefit of their own national interests, giving rise to geo- not been anticipated might also appear. Moreover, this is not an economic risks. These risks could manifest in forms such as trade era in which a company can be competitive in the solutions busi- restrictions or tariffs; in areas related to financial markets, digital ness on its own. The degrees to which Komatsu will pursue alli- transformations, or intellectual properties; or even as acts of ances and to which it will boldly move forward on its own will be cyberterrorism or other extreme circumstances. It is therefore important elements of strategies. vital to discuss these risks before they materialize. At the same time, a change of perspective could reveal that The second category of risks is climate change risks. It can be these risks actually represent business opportunities. I therefore expected that coal businesses will become less prosperous in the think it is important that Komatsu, with its exceptional manufactur- future. This situation will create a need for Komatsu to consider ing capabilities, identify new areas, areas in which it must change, how to develop its mining equipment business, which caters to and its strategies for these areas and accelerate its efforts as to such coal businesses. At the same time, the Company must ramp not become overly conservative. up development of electric equipment and other products with 50 50 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 51 51 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Resolution of ESG Issues through Growth Strategies Corporate Governance  Basic Stance on Corporate Governance To become a company which enjoys more trust from all stakeholders, the Company is working to strengthen corporate governance, improve management efficiency, advocate corporate ethics and ensure sound management on a group-wide basis. To further improve the transparency of management for its shareholders and investors, the Company discloses information in a fair and timely manner and actively engages in investor relations activities by holding meetings with shareholders and investors.  Corporate Governance Framework  At the Company, the Board of Directors is positioned as the System in 1999, the Company has separated management core of corporate governance, and to improve the effectiveness decision making and supervisory functions from of discussions at meetings of the Board of Directors, the executive functions to the extent permitted by laws and Company has worked to put in place a system to ensure regulations, and while appointing both Outside Directors and thorough discussions of important management matters and Outside Audit & Supervisory Board Members, limits the Board prompt decision making, and reform their operational of Directors to a small number of members.  aspect. Having introduced the Executive Officer (Shikko Yakuin) Corporate Governance of the Company (As of June 30, 2021) Figures in  represent the number of meetings in FY2020.  General Meeting of Shareholders  Elect / Discharge  15 times  Audit  Elect / Discharge  15  times  Audit &  Supervisory Board (Standing 2 / Outside 3) Office of Corporate Auditors’ Staff Advise / Suggest Board of Directors  (Standing 5 / Outside 4)  International  Advisory Board  Elect / Discharge /  Supervise  Report / Submission Executive Functions President and CEO  Strategy Review Committee  Collaboration  Audit  Internal  Auditing  Dept. Internal audit  Komatsu Group’s Global Operations  Executive Officers and Global Officers 57  • Japan 30  • Global 27 (including 19 foreign nationals)  Audit reports  Recommend  Elect / Discharge  Accounting Auditors  (Audit corporation)  Nomination Advisory Committee  2  times  Recommend  Compensation Advisory  Committee  1  time Major Committees  Product Safety Committee  Compliance Committee  Risk Management Committee  Export Control Committee  Sustainability Promotion Committee  Disclosure Committee  Collaboration  Decide on the details of the items including election and discharge / Confirm suitability or independency of the Accounting Auditors  Recommend  Audit reports  52 52 52 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 53 53 Activities of the Board of Directors The Company holds Board of Directors’ meetings periodically at ensure transparent and objective management. least once every month. The Board of Directors deliberates and In FY2020, Outside Directors and Outside Audit & makes resolutions on important matters, determines manage- Supervisory Board Members held meetings at which these out- ment policies of Komatsu, and rigorously controls and super- side officers shared opinions regarding management issues from vises the execution of duties by all members of the executive their objective and independent standpoints. Discussions with management team including Representative Directors. Of the the President were also arranged to foster shared recognition. nine (9) Directors on the Board, four (4) are Outside Directors to Characteristics of Komatsu’s Board of Directors • Monthly reports from the CEO (recent important items and other topics) • Monthly reports from the CFO (performance, order trends, borrowings, etc.) • Annual proposal plans and follow-up • Multiple discussions on important items (deliberation → resolution) • Business reports to Board of Directors covering nearly 100% of sales- generating activities • Proactive expression of opinions by Audit & Supervisory Board Members in addition to Directors • Opportunities for free discussion at Board of Directors' meetings Board of Directors’ Meeting Attendance and Agenda Item Numbers in FY2020 (April 1, 2020–March 31, 2021) Attendance Outside Directors Outside Audit & Supervisory Board Members Reports Agenda item numbers Deliberations, Resolutions Free discussion 100% 100% 41 33 3 times Evaluation of the Effectiveness of the Board of Directors The Company is working to improve the effectiveness of the Board of Directors and performs annual evaluations and analyses of the effectiveness of the Board of Directors for this reason. Evaluation Process Survey After discussion by the Board of Directors on the method to be used for FY2020 evaluation, based on the method applied in the previous year and the results thereof, the Company conducted a survey out of consider- ation for the nature of an effective Board of Directors. Survey topics: Collection of survey results from all Directors and Audit & Supervisory Board Members Discussion among Outside Directors and Outside Audit & Supervisory Board Members based on survey responses Report of discussion results, evaluation and analysis of effectiveness, and discussion of the matters for improvement at meeting of the Board of Directors • Composition of the Board of Directors • Contents of agendas • Straightforward and meaningful discussions • Provision of information and presentation of agendas by executives • Structure through which important matters are reported, proposed, and followed up • Succession plans for CEO • Other items Outline of the Results  The assessment shows a generally high level of achievement for With respect to the conducting of Board meetings, positive each item and confirms that there were no serious problems con- evaluations were received with regard to the arrangement of cerning the effectiveness. The Company received excellent evalua- online meetings in response to the COVID-19 pandemic, but tions for various factors, such as the following: the timely sharing of there were a few suggestions for improvement pertaining to the issues, problems, and other information provided in monthly need to expand the range of specific strategic themes discussed reports by the President himself in Board meetings and the fact that and to the nature of regular reports on business execution. The Board members followed up the implementation status of resolu- Company will make those improvements and work to make the tions made by the Board of Directors based on regular reports. Board of Directors further effective in the future. 52 52 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 5353 53 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Resolution of ESG Issues through Growth Strategies Corporate Governance Corporate Governance Reforms The Company has proceeded to implement reforms to its corpo- execution of duties. As a means to supplement executive func- rate governance system in order to ensure effective and ade- tions, the Company established the International Advisory Board quate performance of matters related to decision making, (IAB) in 1995. Through the IAB, the Company aims to secure management and supervision, such as separation of corporate objective advice and suggestions from experts from Japan and management from business execution, enhancement of corpo- abroad about how to function as a global company by exchang- rate management decision making by the Board of Directors, ing opinions and holding discussions. Going forward, the strict management and supervision of business execution, mea- Company will pursue increases to the effectiveness of the Board sures undertaken by Outside Directors to improve transparency of Directors while appointing Outside Directors to ensure trans- and objectivity of management, and measures undertaken by the parency and soundness and promoting openness and account- Audit & Supervisory Board to appropriately audit Directors’ ability in management. Board of Directors 28 members (0 Outside Directors) 1999: 8 members (1 Outside Director) 2003: 8 members (2 Outside Directors) 2005: 10 members (3 Outside Directors) 2017: 8 members (3 Outside Directors) 2021: 9 members (4 Outside Directors) Audit & Supervisory Board 3 members (1 Outside Audit & Supervisory Board Member) 1994: 2006: 4 members (2 Outside Audit & Supervisory Board Members) 5 members (3 Outside Audit & Supervisory Board Members) Other organizations and systems Executive Officer System (1999) Global officers (2016) Compensation Advisory Committee 4 outside members, 1 standing member (1999) 7 outside members, 1 standing member (2020) Nomination Advisory Committee (2015) 3 outside members, 2 standing members International Advisory Board (1995) 3–4 domestic and overseas experts Hitech & Innovation International Advisory Board (2015) 4–6 overseas experts Compliance Committee (2001) Members of senior management and labor representatives Composition of Directors and Audit & Supervisory Board Members (As of June 30, 2021) Outside 4 Of whom, non-Japanese 1 Of whom, women 1 54 54 Komatsu Report 2021 Komatsu Report 2021 Internal 5 Directors Outside 3 Of whom, women 1 Audit & Supervisory Board Members Internal 2 Komatsu Report 2021 Komatsu Report 2021 55 55 Major Activities of Outside Directors and Outside Audit & Supervisory Board Members in FY2020 Outside Directors Makoto Kigawa Major Career Representative Director at both Yamato Holdings Co., Ltd. and Yamato Transport Co., Ltd. Mr. Makoto Kigawa previously served as Representative Director at both Yamato Holdings Co., Ltd. and Yamato Transport Co., Ltd. He has been actively expressing a wide range of opinions at the meetings of the Board of Directors mainly from the standpoint of appropriately monitor- ing the management strategies of the Company and contributing to the enhancement of the Company’s medium- and long-term corporate value. During FY2020, he accordingly provided comments based on his rich experience in the business world, particularly concerning such issues as working from home and other personnel arrangements, competitive strategies involving ICT, and inventory management. He also served as Chairman of the Company’s Nomination Advisory Committee and the Compensation Advisory Committee. Attendance of the Meetings Meeting of the Board of Directors 100% (15 meetings out of the 15 meetings held) Takeshi Kunibe Major Career Representative Director of Sumitomo Mitsui Financial Group, Inc. Representative Executive Officer of Sumitomo Mitsui Banking Corporation Mr. Takeshi Kunibe has served as Representative Director, President of Sumitomo Mitsui Banking Corporation and Representative Director and President as well as Director President and Representative Executive Officer of Sumitomo Mitsui Financial Group, Inc., and serves as Chairman of the Board of said company. He has been actively expressing a wide range of opinions at the meetings of the Board of Directors, mainly from the standpoint of contributing to sustaining and improving transparency and soundness of management as well as enhancing corporate gover- nance. During FY2020, he accordingly provided comments based on his rich experience in the business world, particularly concerning the M&A management system, business plan during the COVID-19 pandemic, and ESG initiatives. In addition, he was a member of the Company’s Nomination Advisory Committee and the Compensation Advisory Committee. Arthur M. Mitchell Major Career Foreign lawyer of White & Case LLP Mr. Arthur M. Mitchell has worked for many years as a New York state attorney and foreign law attorney in Japan. He has been actively expressing a wide range of opinions at the meetings of the Board of Directors, mainly from the standpoint of mitigating and avoiding risk in the Company’s global business operations and contributing to the enhancement of the Company’s medium- and long-term corporate value. During FY2020, he accordingly provided comments based on his international perspective and professional standpoint, particularly concerning such issues as business alliance strategy, data-related legal compliance, and ini- tiatives geared to the North American market. In addition, he was a member of the Company’s Nomination Advisory Committee and the Compensation Advisory Committee. Attendance of the Meetings Meeting of the Board of Directors 100% (11 meetings out of the 11 meetings held) Attendance of the Meetings Meeting of the Board of Directors 100% (11 meetings out of the 11 meetings held) Note: As Outside Directors Mr. Takeshi Kunibe and Mr. Arthur M. Mitchell were elected at the 151st Ordinary General Meeting of Shareholders held in June 2020, their maximum number of meetings of attendance is different from that of the other Directors. Outside Audit & Supervisory Board Members Hirohide Yamaguchi Major Career Deputy Governor of the Bank of Japan Eiko Shinotsuka Major Career Professor Emeritus, Ochanomizu University, Commissioner, National Personnel Authority, Member of the Bank of Japan’s Policy Board Kotaro Ohno Major Career Prosecutor-General, Special Counsel, Mori Hamada & Matsumoto Mr. Hirohide Yamaguchi previously served as Deputy Governor of the Bank of Japan. During FY2020, based on his professional standpoint, he provided comments at the meetings of the Board of Directors and the meetings of the Audit & Supervisory Board concerning such issues as the status of the global economy, demand trends, and audit systems. In addition, he was a member of the Company’s Compensation Advisory Committee. Attendance of the Meetings Meeting of the Board of Directors 100% (15 meetings out of the 15 meetings held) Meeting of the Audit & Supervisory Board 100% (15 meetings out of the 15 meetings held) Ms. Eiko Shinotsuka possesses wide-ranging knowledge and experience in fields such as economics, labor relations, and law. During FY2020, based on her professional standpoint, she provided comments at the meetings of the Board of Directors and the meetings of the Audit & Supervisory Board concerning such issues as utilizing global human resources, envi- ronmental measures, and employee safety and health management. In addition, she was a member of the Company’s Compensation Advisory Committee. Attendance of the Meetings Meeting of the Board of Directors 100% (15 meetings out of the 15 meetings held) Meeting of the Audit & Supervisory Board 100% (15 meetings out of the 15 meetings held) Mr. Kotaro Ohno possesses rich experience in the legal profession. During FY2020, based on his professional standpoint, he provided comments at the meetings of the Board of Directors and the meetings of the Audit & Supervisory Board concerning such issues as the compli- ance system, Group company management, and securing human resources. In addition, he was a member of the Company’s Compensation Advisory Committee and an observer of the Compliance Committee. Attendance of the Meetings Meeting of the Board of Directors 100% (15 meetings out of the 15 meetings held) Meeting of the Audit & Supervisory Board 100% (15 meetings out of the 15 meetings held) Introduction of New Outside Directors The following one new outside director was appointed at the General Meeting of Shareholders held in June 2021. Naoko Saiki Major Career Director-General, Economic Affairs Bureau and International Legal Affairs Bureau, Ministry of Foreign Affairs Ms. Naoko Saiki has considerable knowledge and abundant experience in international affairs, international law, and the field of economics as she served in positions such as Director-General of the Economic Affairs Bureau and Director-General of the International Legal Affairs Bureau at the Ministry of Foreign Affairs.  Utilizing this knowledge and experience, her recommendations concerning the overall management of the Company are expected to contribute to the enhancement of the medium- to long-term corporate value of the Company. Therefore, the Company nominates her as a candidate for Outside Director.  Although Ms. Saiki has no experience in participating in the management of other companies directly, the Company judged that she would be able to execute the duties of Outside Director adequately because of the reasons above. 54 54 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 55 55 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate ProfileResolution of ESG Issues through Growth Strategies Corporate Governance Activities of Advisory Committees Committee Name Nomination Advisory Committee Compensation Advisory Committee Chairman Outside Director (Makoto Kigawa) Outside Director (Makoto Kigawa) Members (As of June 30, 2021) 4 Outside Directors (Makoto Kigawa, Takeshi Kunibe, Arthur M. Mitchell, Naoko Saiki ) Chairman of the Board President Purpose Selection of next President and deliberation, resolution, and reporting to the Board of Directors on human resource devel- opment methods, succession plans, and appointment and dismissal of Directors 4 Outside Directors (Makoto Kigawa, Takeshi Kunibe, Arthur M. Mitchell, Naoko Saiki ) 3 Outside Audit & Supervisory Board Members (Hirohide Yamaguchi, Eiko Shinotsuka, Kotaro Ohno) 1 external expert (Advisor: Shinji Hatta, Honorary Professor, Aoyama Gakuin University) Chairperson of the Board Deliberation, resolution, and reporting to the Board of Directors and Audit & Supervisory Board on remuneration systems for Directors, Audit & Supervisory Board Members, and Executive Officers to ensure objectivity and transparency Meetings in FY2020 2 1 Agenda items in FY2020 • Selection and cultivation of candidates for next President • Selection of a new Outside Director candidate • Concurrent positions held by Chairman of the Board and • Monthly compensation levels for Directors and Audit & Supervisory Board Members in FY2021 • Performance-based remuneration for Directors for FY2020 Outside Directors (projections) • Proposal of Directors and Audit & Supervisory Board • Evaluation indicators for performance-based remuneration Members for FY2021, etc. in FY2021 Succession Plans One of the items contained in the Code of Conduct for In addition, successors for important domestic and overseas Leadership/Top Management that has been described in The positions up to and including that of the President are decided Komatsu Way since its establishment in 2006 is “continue to through the annual implementation of succession plans (see think about your succession plan.” chart below). In order to ensure that Komatsu’s management values are Selected successors are assigned to challenging tasks and transmitted to the next generation, the basic requirements for granted even larger roles in the organization to systematically candidates for the position of President are discussed and develop them in an environment that encourages the pursuit of clearly defined by the Human Resource Advisory Committee. mutual growth. Overview of Succession Plans Results Feedback Succession Plans Evaluation and Selection of Successors Human Resource Relocations and Cultivation Oversight of Implementation Process Board of Directors Human Resource Advisory Committee Key Points for Cultivating Leadership/Top Management Successors 1. Foster willpower necessary to overcome challenges by having candidates experience extremely difficult situations 2. Nurture organizational operation capabilities needed to unite parties with differing interests 3. Cultivate compliance awareness to prevent misconduct 56 56 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 57 57 Remuneration Systems In an effort to maintain an objective and transparent remunera- single fiscal year (bonus in cash and the Stock-Based tion system, the policy and levels of remuneration for Directors Remuneration A) as well as the performance-based remunera- and Audit & Supervisory Board Members of the Company are tion (Stock-Based Remuneration B) that will reflect the degree of deliberated by the Compensation Advisory Committee. Taking its achievement of the targets raised in the mid-term management reports and recommendations into consideration, the remunera- plan, so that it will further contribute to the enhancement of the tion for Directors is determined by the Board of Directors, and the medium- and long-term corporate value of the Company, by remuneration for Audit & Supervisory Board Members is deter- linking the remuneration. mined by discussions by the Audit & Supervisory Board The remuneration for Outside Directors only consists of basic Members, respectively, within the range previously determined remuneration (fixed remuneration) designed to support their role to by resolution of the General Meeting of Shareholders. With make recommendations with respect to the overall management regard to the level of monthly remuneration paid as basic remu- of the Company as a member of the Board of Directors. neration, comparison by position at other key, globally active Furthermore, the remuneration for Audit & Supervisory Board manufacturers in Japan is made by the Compensation Advisory Members only consists of basic remuneration (fixed remuneration) Committee and is reflected in its reports and recommendations. designed to support their independent position with authority to The remuneration for Directors excluding the Outside audit the execution of duties by Directors without getting fettered Directors (hereinafter “Internal Directors”) comprises basic remu- by the movements of corporate performance of the Company. neration (fixed remuneration) and performance-based remunera- The retirement allowance system for Directors and Audit & tion linked to the Company’s consolidated performance for a Supervisory Board Members was terminated as of June 2007. Composition of Remuneration of Directors and Audit & Supervisory Board Members Internal Directors Basic Remuneration (Fixed Remuneration) Performance-Based Remuneration for a Single Year (Monthly Remuneration x 0–24 months) Performance-Based Remuneration Linked to Performance of Mid-Term Management Plan (Monthly Remuneration x 0–3 months) Monthly remuneration x 12 months Bonus in Cash (2/3, in principle)* Stock-Based Remuneration A (1/3, in principle) Restricted Stocks Stock-Based Remuneration B Restricted Stocks Outside Directors and Audit & Supervisory Board Members Basic Remuneration (Fixed Remuneration) Monthly remuneration x 12 months Not influenced by Company performance * The upper limit for Bonus in Cash is set at 12 months’ worth of monthly remuneration; the remainder of bonuses is to be paid as Stock-Based Remuneration A. Performance-Based Remuneration Linked to Performance of Mid-Term Management Plan The Company will pay Internal Directors the equivalent of a three-month portion of monthly remuneration every fiscal year as remuneration linked to the period of the Company’s Mid-Term Management Plan by granting restricted stock as stock-based remuneration (Stock-Based Remuneration B). In deciding Stock-Based Remuneration B, after the expiry of the period of the mid-term management plan, the number of shares on which to lift transfer restrictions (within a range of 0–100%) will be decided based on the achievement of the management targets of the Mid-Term Management Plan presented in the following table and as a general rule; the restriction of transfer on the shares will be lifted after three years from delivery. Management Indicators and Management Targets in Mid-Term Management Plan (FY2019–FY2021) Management Indicator Management Target Growth Profitability Efficiency • Sales growth rate • Growth rate above the industry’s average*1 • Operating income ratio • Industry’s top-level operating income ratio*1 • ROE • ROE of 10% or higher Financial position Retail finance business • Net debt-to-equity ratio*2 • ROA • Net debt-to-equity ratio*2 • Industry’s top-level financial position • ROA of 1.5% to 2.0% • 5.0 or under for net debt-to-equity ratio*2 ESG • Reduction of environmental impact • Evaluation by external organizations • CO2 emissions: Decrease by 50% in 2030 from 2010 Renewable energy use: Increase to 50% of total energy use in 2030 • Selected for DJSI*3 (World & Asia Pacific) and for CDP*4 A-List (Climate Changes and Water Risk), etc. Shareholder return • Consolidated payout ratio buybacks), while placing main priority on investment • Set goal of a consolidated payout ratio of 40% or higher • Keep a fair balance between investment for growth and shareholder return (including stock *1 Relative comparison with domestic and foreign major competitors in the same industry *2 Net debt-to-equity ratio = (Interest-bearing debt – Cash and cash equivalents – Time deposits) / Shareholders’ equity of the Company *3 Dow Jones Sustainability Indices: SRI indices generated by S&P Dow Jones of the United States and RobecoSAM of Switzerland *4 International non-profit organization that advocates the reduction of greenhouse gas emissions and protection of water resources and forests by companies and governments 56 56 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 57 57 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Resolution of ESG Issues through Growth Strategies Corporate Governance Major Executive Committees Committee Name (Committees indicated with an asterisk [*] are chaired by the President.) Purpose Meeting Frequency Product Safety Committee Effective promotion of Companywide product safety activities based on basic product safety policies defined in product safety regulations 2 times a year and when necessary Compliance Committee* Discussion on and decision and execution of policies and important measures pertaining to group- wide compliance 2 times a year and when necessary Risk Management Committee Primarily discussion and approval of group-wide risk management tasks and risk countermeasures 1 time a year and when necessary Export Control Committee Discussion on and decision and execution of policies and important measures regarding group-wide export control (trade security management) 1 time a year and when necessary Sustainability Promotion Committee* Formulation of group-wide environmental measures and discussion of progress to facilitate promotion of environmental preservation throughout the Group and discussion on and execution of group-wide CSR policies and important measures and activities 1 time a year and when necessary Disclosure Committee Discussion and assessment to facilitate accurate information disclosure as required by the Financial Instruments and Exchange Act and submission of recommendations to internal information control representatives regarding judgments on material developments 4 times a year and when necessary The Komatsu Way Committee* Discussion on and decision and execution of policies and important measures regarding human resources, labor affairs, education and human resource development, The Komatsu Way, total quality management, employee benefits, and occupational health and safety management for the Company and the Group 2 times a year Appointments of Advisors of the International Advisory Board Topics Komatsu established the IAB back in 1995 for the Board of Directors to incorporate, from external experts, objective advice and suggestions concerning management and operations of Komatsu as a global company. The IAB has met a total of 36 times in the conventional and new organizations combined. In April 2020, Komatsu commenced the 8th session of the IAB for management with the following new advisors. The term of service for each advisor is set at three years as a general rule. Komatsu will continue to incorporate advice and suggestions from IAB advisors with expertise in global business, further improve management, and strengthen its corporate governance in order to enhance its corporate value. Advisors of the 8th Session of the IAB for Management (FY2020–FY2022) Name Current Position and Brief Background R. David Hoover Kusmayanto Kadiman Risto Siilasmaa Mitoji Yabunaka 2018–Present 2015–February 2021 2009–2018 2000–2015 1996–2013 Chairman of the Board, Elanco Animal Health Board of Directors, Edgewell Personal Care Company Board of Directors, Eli Lilly and Company Board of Directors, Energizer Holdings, Inc. Board of Directors, Ball Corporation (Chairman, 2002–2013) 2015–Present 2010–Present 2004–2009 2001–2004 2006–Present 2012–2020 2018–Present 2014–2020 2008–2010 Vice President Commissioner of PT Adaro Power President Commissioner of BFI Finance The State Minister for Research and Technology of the Republic of Indonesia President of Bandung Institute of Technology (ITB) Chairman of the Board of Directors, F-Secure Corporation (He is the founder of F-Secure Corporation.) Chairman of the Board of Directors, Nokia Corporation Visiting Professor, Ritsumeikan University Outside Director, Komatsu Ltd. Vice Minister, Ministry of Foreign Affairs 58 58 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 59 59 Stakeholder Engagement In order to gain more trust from all stakeholders, the Company is strengthening corporate governance and top management is practicing direct engagement with stakeholders. Share information on the Komatsu Group’s vision and the issues it faces (employees, suppliers, distributors) Provide as many opportunities for engagement as possible and practice proper information disclosure to facilitate understanding of Komatsu Society Distributors Customers Employees Suppliers Shareholders Distributor meetings Midori-kai General meet- ings with management Meetings with the President Visits from top management General Meeting of Shareholders Shareholder meetings Investors and Analysts Visits to inves- tors worldwide Analysts meetings Financial results briefings Mass media Communities Interviews Meetings with mayors, gover- nors, etc. Direct Communication by Top Management Major Investor Relations Activities in FY2020 To further improve the transparency of management for our continued to provide and enhance communication activities shareholders and investors, we disclose information in a fair and nonetheless, employing virtual and online venues for events and timely manner and actively engage in investor relations activities providing access to archived video. In addition, we established an by holding meetings with shareholders and investors. official Komatsu YouTube account, which is being used for orga- In FY2020, certain face-to-face communication activities nizing and distributing the latest videos on the Company. were canceled in response to the COVID-19 pandemic, but we For Institutional Investors Financial results briefings* (4 times) Small meetings* (7 times) Business briefings* (1 time) Overseas investor relations activities* (4 times) Individual meetings* (over 190) * Held through virtual or online venues For Shareholders and Individual Investors Shareholder meetings* (1 time) Factory tours for shareholders canceled → Replaced with virtual factory tours and videos Individual investor meetings* (4 times) Gifts of appreciation for long-term shareholders Homepage Financial information • Financial results briefings • Sales and profits gains reports • Quarterly reports, etc. Web interviews with the President (4 times) Komatsu Report, etc. Engagement Topics Komatsu holds meetings for institutional investors and securities analysts to deepen their understanding of the Company. The following online meetings were held in 2020. Date Meeting Name Attendants Topics December 16, 2020 KOMATSU IR-DAY 2020 90 1. The pursuit of safety and productivity at mine sites 2. Komatsu’s environmental activities Web For materials from meetings, please refer to Komatsu’s corporate website: Web Komatsu’s Official YouTube Channel https://www.komatsu.jp/en/ir/library/results/2020 https://www.youtube.com/c/komatsu/featured 58 58 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 59 59 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Resolution of ESG Issues through Growth Strategies Corporate Governance Risk Management Basic Principles and Structure for Risk Management In addition to the basic policy for risk management to ensure busi- measures in place for each risk, as well as to take control of risks ness continuity and stable development, Komatsu has established when they arise. The committee regularly reports on its delibera- Risk Management Rules to correctly recognize and manage risks. tions and activities to the Board of Directors. Furthermore, we have developed the Basic Manual for Risk Komatsu will establish an emergency headquarters when Management, which defines the response systems and rules to be serious risks, such as the COVID-19 pandemic, occur and imple- utilized should a risk materialize along with specific risk items and ment appropriate measures to minimize damage. Other impor- the divisions responsible for said risk items. This manual is periodi- tant matters to be considered from the perspective of risk cally revised to ensure that risk management systems are adapted management include corporate governance; compliance; to the constant changes in the operating environment and in risks. response measures for climate change, pandemics, and other Komatsu has established a Risk Management Committee to natural disaster risks; and frameworks for preventing transactions devise relevant policies for the entire Group, review the risk man- with antisocial forces. We continue management efforts related agement system, and evaluate and improve upon response to these matters. Risks Surrounding the Company Risk Management System Hazard Risk Risks of natural disasters and other disasters caused by exter- nal factors Operational Risk Inherent risks associated with corporate activities such as the violation of laws and scandals Strategy Risk Risks related to significant changes in social situations and business uncertainties Financial Risk Risks related to finance including fluctuations in interest rates and stock prices Report as needed Review regularly Board of Directors President Report regularly i R s k M a n a g e m e n t R u e s l i B a s c M a n u a l i f o r R s k M a n a g e m e n t Report regularly/ Report as needed Risk Management Committee (When serious risks are exposed: Emergency Headquarters) Risk Management Committee Executive Office (General Affairs Department) Primary division responsible for each risk • Identify and review risk recognition • Perform activities to prevent risks and minimize their effects • Take action when a risk is exposed Each division and each Group company Expert committees • Product Safety Committee • Compliance Committee • Export Control Committee • Sustainability Promotion Committee Report regularly Response to Climate Change Approximately 90% of the CO2 emissions from the lifecycles of production by 2030. This goal will be pursued through exhaustive Komatsu construction equipment are attributable to product reforms to production processes in order to prepare for cost operation. Accordingly, we have the potential to help mitigate increases. At the same time, we project that demand may rise for climate change by providing low-carbon products and solutions copper and other resources necessary for items used to electrify that have carbon reducing benefits like Smart Construction. equipment, such as motors, batteries, and fuel cells. Seeking to Conversely, if we do not conform to the regulatory requirements of seize this opportunity, we are expanding our hard rock mining the relevant countries or with the demands of markets or if we are business (response to transition and opportunity risks). impacted by rapid changes in resource demand, market entry by Meanwhile, the rise in natural disasters associated with cli- new competitors, or higher manufacturing costs due to the intro- mate change is creating risks of damages to the Company and duction of carbon taxes, we will risk suffering future impacts to our its supply chain. We are therefore taking steps to identify the earnings. To address these risks, Komatsu has set the goal of water-related risks threatening the Company and its supply chain halving the CO2 emissions from product operation by 2030, and while instituting business continuity plan (BCP) drills and other R&D activities are being advanced toward the accomplishment of measures to mitigate these risks (response to physical risks). this goal. We have also set the goal of halving CO2 emissions from 60 60 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 61 61 Response to the COVID-19 Pandemic To fulfill its responsibilities to customers involved in businesses that (3) Online Provision of Information to Stakeholders support social infrastructure (essential businesses), the Komatsu In December 2020, Komatsu held its first online shareholder meet- Group has continued to supply products, parts, and services to its ing. This communication venue allowed management to field ques- customers while implementing exhaustive measures to prevent the tions in real time and to engage in discussions with shareholders. In spread of COVID-19. In March 2020, we set up an emergency head- addition, the FY2021 General Meeting of Shareholders was con- quarters with the president as its chairperson to collect and share ducted in the form of our first live internet broadcast on the day of information on the COVID-19 pandemic on a global scale and to the meeting. confirm and deploy response policies. (1) Business Continuity Initiatives Production at certain Komatsu factories was impacted by factors Other online information provision initiatives included the distri- bution of virtual factory tour videos of the Awazu Plant and the Ibaraki Plant. These videos offer a vivid way to experience Komatsu’s production sites by allowing viewers to manipulate their such as government-instituted lockdowns. However, even prior to viewpoint in 360° so that they can observe the construction equip- the COVID-19 pandemic, Komatsu has been practicing cross- ment assembly process from whatever angle they please. sourcing to facilitate flexible production at all factories around the world to absorb the impacts of regional demand and foreign exchange rate fluctuations. These efforts also proved effective at curbing the impacts of the pandemic. Risks associated with supplies of parts from suppliers were addressed by prioritizing allocation of inventories along our supply chain to regions facing shortages. In addition, alternative parts were developed and alternative suppliers were secured to prevent losses of sales opportunities attributable to parts shortages. (2) Workplace Infection Prevention Measures With the safety and health of customers, partner companies, people in local communities, and employees and their families as its priority, Virtual factory tours Awazu Plant Web https://www.youtube.com/watch?v=8rdu3LWaxs0 Web Ibaraki Plant https://www.youtube.com/watch?v=3myugOFcSEg the Komatsu Group endeavored to prevent the spread of COVID-19 (4) Prevention of Infection of Customers through based on the government policies in each country. Construction Workplace Digital Transformation Specific measures included utilizing our teleworking system to To prevent the spread of COVID-19, the Ministry of Land, promote teleworking. Approximately 70% of headquarters employ- Infrastructure, Transport and Tourism advises people to avoid ees engaged in teleworking during the periods of Japan’s state of crowed spaces, closed environments, and close interactions. emergency declarations. Also during these periods, we canceled or Seeking to help prevent such conditions at construction sites, postponed domestic business trips, events, trainings, and seminars, Komatsu is promoting its Smart Construction Digital Transformation and utilized remote methods for all in-house trainings, in principle. solution. This solution uses a digital twin methodology that allows At production sites, fans were installed and windows were workplace representatives to monitor conditions remotely without opened to ensure good ventilation, and we also built additional gathering in a single location, thereby helping to prevent the breakrooms, staggered break times, and took other steps to prevent spread of COVID-19. the spread of COVID-19 in workplaces. Safety and health of customers, partner companies, people in local communities, and employees and their families Exhaustive infection prevention measures Government policy Komatsu technologies Coordination with other companies Acceleration of construction and mine workplace digitiza- tion and automation Ongoing supply of products and assistance necessary to customers involved in businesses that support social infrastructure (essential businesses) Strategic minimization of infection risks through provision of new solutions Dialogue with stakeholders and timely and appropriate information disclosure 60 60 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 61 61 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Resolution of ESG Issues through Growth Strategies Corporate Governance Establishing a business continuity plan (BCP) and providing training Komatsu has established business continuity plans (BCPs) to standards for frontline sites have been clarified to facilitate swift ensure the continuity of core operations and to facilitate quick decisions by senior management should a disaster strike. resumption of operations should they be interrupted. As part of We are focused on not only strengthening the BCPs of these plans, we hold regular initial response and production resump- Komatsu Group bases but also on strengthening the supply tion drills based on major earthquake and water damage scenarios. chain system through support of our business partners. Recent At production bases, we implement measures to reinforce the seis- initiatives to this effect have included holding nationwide semi- mic resistance of structures and production equipment while imple- nars on initial disaster responses and measures to be taken menting countermeasures to safeguard against water and wind under normal conditions to build response frameworks led by damage from concentrated heavy rains and other weather events in experts on these subjects. Several partners were invited to take order to minimize the impacts of increasingly more severe natural part in these seminars. Going forward, we will continue to pro- disasters. Moreover, the disaster response reporting chains and mote and further enhance our group-wide BCP initiatives. 1995 2007 2011 2018 2019 2020 Great Hanshin Earthquake Chuetsu Offshore Earthquake Great East Japan Earthquake Heavy Rains in West Japan Typhoon Hagibis 2020 Kyushu floods Initial response manual develop- ment for ensuring safety • Preparation of disaster response manuals • Formulation of risk-related regulations Business continuity manual development • Preparation of BCPs for specific bases • Establishment of headquarters BCP drill regulations Group-wide deployment of response measures • Installation of equipment and communications infrastructure • Establishment of base-specific BCP drill regulations Reconfirmation of natural disaster risks and countermeasure development Improvement of BCP implementation procedures at the Komatsu Group and business partners • Improvement of BCP implementation procedures at individual bases • Support for establishing BCP systems of business partners BCP seminar for partner companies Reinforcement of Information Security Threats such as cyberattacks are constantly growing more sophisti- taken to guarantee that personal information is properly handled. cated and complex, increasing the importance of information secu- These steps include e-learning programs and internal audits. rity. Komatsu implements information security measures based on Overseas, we comply with the European Union’s General Data all applicable laws and regulations as well as internal rules. Protection Regulation and other laws, regulations, and social expectations in countries and regions of operation in our efforts (1) Management System to protect personal information. Companywide information security issues are shared and examined by the Risk Management Committee through a management system (3) System Measures overseen by the officer in charge of risk management. The president Komatsu has instituted a multilevel defense system combined of the Information Strategy Division, who is also the Company’s top with various system measures to prevent unauthorized access representative for ICT, co-chairs the Risk Management Committee to from outside of the Company, computer virus infections, and ensure that this committee is equipped to handle highly specialized other threats as well as information leakages resulting from these information security issues. Critical information security issues are threats. For example, as part of the process of implementing shared and resolved by this committee. teleworking systems, we installed a rigorous verification system Should a serious information security incident occur, swift that employs a scheme in which multiple processes are required reports will be issued to the president, directors, other officers, to access systems from outside of the Company. relevant organizations, and the Board of Directors to commence the process of formulating appropriate response measures. (4) Education and Training The Information Strategy Division, meanwhile, proposes appro- priate measures for addressing potential information security risks. These proposals are raised at annual meetings of the Strategy Review Committee, which comprises the president, directors, and other officers, so that they can be incorporated into medium-term ICT investment plans. All employees engaged in the handling of information assets are required to undergo regular e-learning programs. In addition, tar- geted-attack email drills are held several times a year to entrench procedures for addressing suspicious emails. These drills target companies in Japan as well as certain overseas subsidiaries in order to boost the level of information security on a global scale. (2) Personal Information Protection (5) Information Security Audits Protecting personal information is a social responsibility. Recognizing this responsibility, Komatsu has formulated and disclosed its Personal Information Protection Policy. Steps are Information security audits of Group companies are performed to improve the level of information security across the entire Komatsu Group. In principle, every company is required to undergo an audit 62 62 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 63 63 at least once every three years as part of an effort to confirm infor- Effective, ongoing support is provided for this purpose. Regular mation security-related conditions on an ongoing basis. meetings on the status of information security management are held with applicable affiliates. When necessary, we may present (6) Initiatives for Improving Information Security items for operational information inspections of information Across the Supply Chain systems or recommend the use of certain information security Our information security initiatives are not limited to Komatsu and materials. We thereby aim to promote understanding of the Group companies; we also request that affiliates across the importance of appropriate information management among all supply chain with which confidential information is shared during parties that handle confidential information in order to reduce the course of business activities practice information security risks and better guarantee business continuity. management in accordance with the Company’s policies. Compliance Komatsu established the “Compliance Committee” to oversee Executive Officer in charge of compliance, and establishment of compliance, and the Committee regularly reports its discussions the Compliance Department. Through all of these measures, we and activities to the Board of Directors. Komatsu also establishes work to supervise, educate and train Directors, Audit & Supervisory a system to ensure all Directors and employees thoroughly Board Members and employees. In addition, Komatsu establishes comply with business rules as well as laws and regulations through an internal reporting system under which those who are discreetly a variety of measures, including the provision of “Komatsu’s reporting questionable actions in light of laws and regulations and Worldwide Code of Business Conduct,” appointment of the business rules will not be given any disadvantageous treatment. Process for Compliance Activities 1. Declaration of stance by senior management Formulate the Code Komatsu’s Worldwide Code of Business Conduct 2. Implement the Code 3. Determine the Current Status 4. Reacting to Contingencies Trainings Compliance and risk audits Accidents, incidents Five Principles of Compliance Monthly Newsletter Internal reporting systems Statement of Compliance Compliance Portal Visualization survey (Interviews, online surveys) Recurrence prevention measures (1) Komatsu’s Worldwide Code of Business Conduct Initially established in 1998, the Komatsu’s Worldwide Code of (3) Upholding Thorough Compliance • Five Principles of Compliance Business Conduct is now in its 11th edition. The Part 1 of the Code Komatsu is working to cultivate their consciousness of best busi- primarily provides principles and standards for responsible business ness practices by displaying posters at every business unit of conduct that Komatsu Group follows in order to fulfill its social Komatsu Group listing The Five Principles of Compliance (the basic responsibilities such as solving ESG issues. Accompanied by exam- actions of compliance that all Komatsu employees must observe). ples, Part 2 contains select universally applicable rules which set the code of conduct that must be followed by all employees of Komatsu. Web Please visit Komatsu website to see the Komatsu’s Worldwide Code of Business Conduct including the Five Principles of Compliance and other topics. https://www.komatsu.jp/en/-/media/home/aboutus/ corporate-identity/kwcbc_11th_en_extra.pdf?rev=425b 393b6d9145bab9897c332bfc8682&hash=8E43993D7E 9C66C7035018A90C1BD856 (2) Internal Reporting Systems • Global E-Learning Program on Komatsu’s Worldwide Code of Business Conduct Global e-learning programs are conducted targeting all Komatsu Group employees around the world in order to raise understand- ing of the Komatsu’s Worldwide Code of Business Conduct. Workers without company email addresses participate in these programs in a classroom training format. Komatsu has established the Global Compliance Hotline in its HQ • Compliance Newsletter to offer counselling to and handle reports from employees of Komatsu publishes monthly newsletters “Everybody’s Komatsu Group companies pertaining to the rules in the business Compliance” in Japan that contains articles explaining important world. In this way, we strive to detect and correct problems early. In laws and regulations, highlighting the lessons to be learned from addition, Komatsu companies establish and maintain Regional scandals at other companies, and describing matters pertaining to Compliance Hotline that properly handles reports of alleged or human rights and the prevention of harassment. Articles on par- suspected violation of the rules so that whistleblowers can raise ticularly important subjects, such as anti-corruption, antitrust laws, claims in their native languages. and export control, are frequently republished in this newsletter. Compliance newsletters are also published at overseas subsidiar- ies in order to raise awareness on a global basis. Komatsu Report 2021 Komatsu Report 2021 63 63 62 62 Komatsu Report 2021 Komatsu Report 2021 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate ProfileCorporate Profile Directors and Audit & Supervisory Board Members Directors Chairman of the Board Representative Director Tetsuji Ohashi Number of Year(s) in Office 12 years Attendance of the Meetings of the Board of Directors 15/15 (100%) Number of Shares of the Company Held 176 thousand shares Important Concurrent Positions Held in Other Organizations: Outside Director of Yamaha Motor Co., Ltd. Outside Director of Nomura Research Institute, Ltd. Special Interests Between the Candidate and the Company: None 4/1977 4/2019 Joined the Company Took office as Chairperson of the Board and Representative Director (current) Director and Senior Executive Officer Masayuki Moriyama Number of Year(s) in Office 2 years Attendance of the Meetings of the Board of Directors 15/15 (100%) Number of Shares of the Company Held 64 thousand shares Important Concurrent Positions Held in Other Organizations: None None Special Interests Between the Candidate and the Company: 4/1982 6/2019 Joined the Company Took office as Director and Senior Executive Officer (current) President of Mining Business Division NEW Director and Senior Executive Officer Takeshi Horikoshi Number of Shares of the Company Held 24 thousand shares Important Concurrent Positions Held in Other Organizations: None None Special Interests Between the Candidate and the Company: 4/1985 6/2021 Joined the Company Took office as Director and Managing Executive Officer (current) CFO Number of Year(s) in Office 5 years Attendance of the Meetings of the Board of Directors 15/15 (100%) Number of Shares of the Company Held None Important Concurrent Positions Held in Other Organizations: Special Advisor of Yamato Holdings Co., Ltd. Outside Director of Seven Bank, Ltd. Outside Director of Oki Electric Industry Co., Ltd. Outside Audit & Supervisory Board Member of The Higo Bank, Ltd. None Special Interests Between the Candidate and the Company: Outside Director Makoto Kigawa Number of Year(s) in Office 1 year Attendance of the Meetings of the Board of Directors 11/11 (100%) Number of Shares of the Company Held None Important Concurrent Positions Held in Other Organizations: Chairman of the Board of Sumitomo Mitsui Financial Group, Inc. Outside Member of the Board of TAISHO PHARMACEUTICAL HOLDINGS CO., LTD. Outside Auditor of Nankai Electric Railway Co., Ltd. None Special Interests Between the Candidate and the Company: Outside Director Takeshi Kunibe Number of Year(s) in Office 3 years Attendance of the Meetings of the Board of Directors 15/15 (100%) Number of Shares of the Company Held 77 thousand shares Important Concurrent Positions Held in Other Organizations: None Special Interests Between the Candidate and the Company: None 4/1985 4/2019 Joined the Company Took office as President and Representative Director (current) CEO (current) President and CEO Representative Director Hiroyuki Ogawa Director and Senior Executive Officer Kiyoshi Mizuhara Number of Year(s) in Office 2 years Attendance of the Meetings of the Board of Directors 15/15 (100%) Number of Shares of the Company Held 44 thousand shares Important Concurrent Positions Held in Other Organizations: None None Special Interests Between the Candidate and the Company: 4/1983 6/2019 Joined the Company Took office as Director and Senior Executive Officer (current) CMO and President, Construction Equipment Solution Division  6/2006  3/2007  4/2011  4/2015  6/2016  4/2018 Took office as Representative Director and Senior Managing Executive Officer of Yamato Holdings Co., Ltd. Took office as Representative Director and Executive Officer of Yamato Holdings Co., Ltd. Took office as Representative Director, President and Executive Officer of Yamato Transport Co., Ltd. Took office as Representative Director, President and Executive Officer of Yamato Holdings Co., Ltd. Took office as Chairman of the Board and Representative Director of Yamato Holdings Co., Ltd. Took office as Director of the Company (current) Took office as Director and Chairman of Yamato Holdings Co., Ltd.  6/2019 Special Advisor of Yamato Holdings Co., Ltd. (current)  6/2017 Took office as Director President and Representative Executive Officer of SMFG  4/2019 Took office as Chairman of the Board of SMFG (current)  6/2020 Took office as Outside Director (current)  4/1973  4/2004 Joined The Fuji Bank, Limited (currently Mizuho Bank, Ltd.) Took office as Managing Director, Chief Risk Officer/Head of Risk Management Group, and Chief Human Resources Officer/Head of Human Resources Group of Mizuho Corporate Bank, Ltd. (currently Mizuho Bank, Ltd.)  3/2005 Retired from Mizuho Corporate Bank, Ltd.  4/2005  6/2005 11/2005  4/2006 Joined Yamato Transport Co., Ltd. (currently Yamato Holdings Co., Ltd.) Took office as Managing Director of Yamato Transport Co., Ltd. (currently Yamato Holdings Co., Ltd.) Took office as Representative Managing Director of Yamato Holdings Co., Ltd. Took office as Representative Director and Managing Executive Officer of Yamato Holdings Co., Ltd.  4/1976 Joined The Sumitomo Bank, Ltd. (currently Sumitomo Mitsui Banking Corporation, hereinafter “SMBC”)  6/2003 Took office as Executive Officer of SMBC 10/2006 Took office as Managing Executive Officer of SMBC  4/2007  6/2007  4/2009  4/2011  4/2017 Took office as Managing Executive Officer of Sumitomo Mitsui Financial Group, Inc. (hereinafter “SMFG”) Took office as Director of SMFG Took office as Director and Senior Managing Executive Officer of SMBC Took office as Representative Director, President and Chief Executive Officer of SMBC Took office as Representative Director and President of SMFG Retired from Director of SMBC Outside Director Arthur M. Mitchell Number of Year(s) in Office 1 year Attendance of the Meetings of the Board of Directors 11/11 (100%) Number of Shares of the Company Held None Important Concurrent Positions Held in Other Organizations: Foreign lawyer of White & Case LLP Outside Director of Sumitomo Mitsui Financial Group, Inc. None Special Interests Between the Candidate and the Company:  7/1976  1/2003  9/2007  1/2008  6/2020 Registered as attorney at law in New York State, USA (current) Took office as General Counsel of Asian Development Bank Joined White & Case LLP Registered as registered foreign lawyer in Japan (current) Registered foreign lawyer of White & Case LLP (current) Took office as Outside Director (current) NEW Outside Director Naoko Saiki Number of Shares of the Company Held None Important Concurrent Positions Held in Other Organizations: Visiting Professor, Graduate School of Public Policy, The University of Tokyo Outside Director, Sojitz Corporation Outside Audit & Supervisory Board Member, Development Bank of Japan Inc. None Special Interests Between the Candidate and the Company: 10/2015  4/1982 Joined the Ministry of Foreign Affairs (hereinafter “MOFA”) Took office as Director-General, Economic Affairs Bureau  7/2014 and Councillor, Cabinet Secretariat Took office as Director-General, International Legal Affairs Bureau Took office as Director-General, Foreign Service Training Institute, MOFA  7/2017 64 64 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 65 65  1/2019 Retired from MOFA  4/2020 Took office as Visiting Professor, Graduate School of Public Policy, The University of Tokyo (current)  6/2021 Took office as Director of the Company (current) (As of June 30, 2021) Komatsu’s Independence Standards for Outside Directors and Outside Audit & Supervisory Board Members can be found via the link below. Web https://www.komatsu.jp/en/ir/corporate-governance/independence-criterion-standards Audit & Supervisory Board Members Standing Audit & Supervisory Board Member Terumi Sasaki Outside Audit & Supervisory Board Member Hirohide Yamaguchi Number of Shares of the Company Held 21 thousand shares Important Concurrent Positions Held in Other Organizations: None None Special Interests Between the Candidate and the Company:  4/1983 Joined the Company  6/2020 Took office as Standing Audit & Supervisory Board Member (current) Number of Shares of the Company Held Important Concurrent Positions Held in Other Organizations: None Chairman of the Advisory Board of Nikko Financial Intelligence, Inc. (currently Nikko Research Center, Inc.) Outside Audit & Supervisory Board Member of Mitsui Fudosan Residential Co., Ltd. Special Interests Between the Candidate and the Company: None Joined the Bank of Japan Took office as Deputy Governor of Bank of Japan  4/1974 10/2008  3/2013 Retired from Bank of Japan  7/2013 Took office as Chairman of the Advisory Board of Nikko Financial Intelligence, Inc. (currently Nikko Research Center, Inc.) (current) Took office as Audit & Supervisory Board Member of the Company (current)  6/2014 NEW Number of Shares of the Company Held 49 thousand shares Important Concurrent Positions Held in Other Organizations: None None Special Interests Between the Candidate and the Company:  4/1984 Joined the Company  6/2021 Took office as Standing Audit & Supervisory Board Member (current) Number of Shares of the Company Held Important Concurrent Positions Held in Other Organizations: None Special Interests Between the Candidate and the Company: Professor emeritus at Ochanomizu University None  4/1993  4/2008  6/2015 Took office as Professor at Ochanomizu University Took office as Professor Emeritus at Ochanomizu University (current) Took office as Audit & Supervisory Board Member of the Company (current) Standing Audit & Supervisory Board Member Yasuhiro Inagaki Outside Audit & Supervisory Board Member Eiko Shinotsuka Outside Audit & Supervisory Board Member Kotaro Ohno Number of Shares of the Company Held Important Concurrent Positions Held in Other Organizations: None Attorney at law, Special Counsel of Mori Hamada & Matsumoto Outside Director of AEON Co., Ltd. Special Interests Between the Candidate and the Company: None  4/1976  7/2009  7/2012 Took office as Superintending Prosecutor of Tokyo High Appointed as Prosecutor Took office as Vice-Minister of Justice Public Prosecutors Office  7/2014 Took office as Prosecutor-General of Supreme Public Prosecutors Office  9/2016 Retired from the position of Prosecutor-General of Supreme Public Prosecutors Office 11/2016  6/2017 Took office as Audit & Supervisory Board Member of the Company (current) Attorney at law, Special Counsel of Mori Hamada & Matsumoto (current) (As of June 30, 2021) Skill Matrix for Outside Directors and Outside Audit & Supervisory Board Members of the Company Name Corporate Management Finance/ Economics Sales & Marketing Human Rights/ Human Resources & Human Resource Development Environment Legal Affairs & Compliance Global Risk Management Outside Director ● ● Makoto Kigawa Takeshi Kunibe Arthur M. Mitchell Naoko Saiki Outside Audit & Supervisory Board Member Hirohide Yamaguchi Eiko Shinotsuka Kotaro Ohno ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● Note: The skill matrix above is not an exhaustive list of all the expertise, experience and knowledge possessed by Outside Directors and Outside Audit & Supervisory Board Members of the Company, but presents the fields that the Company wishes each Outside Director and Outside Audit & Supervisory Board Member to focus on in particular for the supervision of management. 64 64 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 65 65 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Corporate Profile Directors and Audit & Supervisory Board Members Executive Officers Senior Executive Officer (Senmu) Executive Officers Chief Technology Officer (CTO) Supervising Research & Development Yuichi Iwamoto GM, Business Reform Department, President, Service Division, Construction Equipment Marketing Division Construction Equipment Solution Division GM, Business Process Reform Department Keiko Fujiwara Toru Sunada Osaka Plant Manager, Production Division President, Smart Construction Promotion Division GM, Manufacturing Engineering Development Senior Executive Officers (Jomu) Chikashi Shike Vice President, Production Division Center, Production Division Takayuki Furukoshi President, Production Division President, Procurement Division, Production Division Supervising Industrial Machinery Business Chairman of the Board, Komatsu NTC Ltd. Masaki Nobuhara President, Development Division Seiichi Fuchita President, Japanese Domestic Marketing, Construction Equipment Marketing Division Kazuaki Miura GM, Business Coordination Department GM, Komatsu Economic Strategy Research Center Masatoshi Morishita President, Parts & Reman Promotion Division, President, Aftermarket Business Division, Production Division Yasuo Suzuki Construction Equipment Marketing Division Kenichi Sato President, Quality Assurance Division Vice President, Development Division Masami Naruse Jun Taniguchi Awazu Plant Manager, Production Division Ibaraki Plant Manager, Production Division Takashi Yasukawa Naoyuki Sakurai President, Product Marketing Division President, Defense Systems Division Kosei Okamoto Hiroaki Ohno President, Information Strategy Division Vice President, Japanese Domestic Marketing, Shinji Maeda Construction Equipment Marketing Division President, Komatsu Customer Support Japan Ltd. Himi Plant Manager, Production Division Hideki Yoshizawa President, Construction Equipment Marketing Division Norikatsu Nishiyama Oyama Plant Manager, Production Division Hidefumi Obikane Korekiyo Yanagisawa GM, Human Resources Department Supervising Education Koichi Honda President, Sustainability Promotion Division Mitsuko Yokomoto Supervising Legal, General Affairs & Compliance Hiroshi Makabe Vice President, Development Division GM, Vehicle Development Center 2 Development Division Terumasa Imajo Vice President, Development Division GM, Engine Technical Center, Development Division President, Industrial Power Alliance Ltd. Masaki Shinohara 66 66 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 67 67 Executive Officers (Global) Note: Executive officers overseas concurrently serve as global officers. North America South America China Senior Executive Officers Senior Executive Officer Senior Executive Officer Chairman & CEO, Komatsu America Corp. Representative of All Latin America* Operations Representative of All China Operations President, Komatsu Cummins Chile Ltda. President, Chairman, Komatsu (China) Ltd. Rodney Schrader President & CEO, Komatsu Mining Corp. Vice President, Mining Business Division Jeffrey Dawes Komatsu Holding South America Ltda. *"Latin America” does not include Brazil. Yasuji Nishiura Technical Director, Modular Mining Systems, Inc. Vice President, Mining Business Division Europe Ichiro Nakano Executive Officers Takuya Imayoshi Executive Officer President & CEO, Komatsu (China) Ltd. Quanwang Zhang President and CEO, Komatsu Europe International N.V. Africa Executive Officers Tadashi Maeda President & COO, Komatsu America Corp. President, Komatsu Forest AB Taisuke Kusaba Hiroyuki Umeda Executive Vice President and President, North America R&D Division, Komatsu America Corp. Technical Director, Komatsu Mining Corp. Asia/Oceania Yuushi Oshikawa Executive Officers Executive Vice President. CFO, Komatsu America Corp. President, PT Komatsu Indonesia Gary Kasbeer Pratjojo Dewo S. Executive Vice President & COO, Komatsu Mining Corp. Managing Director, Komatsu Australia Pty. Ltd. Nozomu Okamoto Sean Taylor Executive Officer President & MD, Komatsu South Africa (Pty) Ltd. Michael Blom Global Officers North America Europe Asia/Oceania President, Underground and Hard Rock Mining, Chief Operating Officer, President, Bangkok Komatsu Co., Ltd. Komatsu Mining Corp. Peter Salditt Komatsu Europe International N.V. Göksel Güner Charoen Ruengwilai President, Surface Mining, Komatsu Mining Corp. President & MD, Komatsu UK Ltd. John Koetz Paul Blanchard China President & CEO, Modular Mining Systems, Inc. President and MD, Komatsu Germany GmbH Jorge Mascena Ralf Petzold President, Komatsu (Shandong) Construction Machinery Corp. Fangchang Liu President, Hensley Industries, Inc. John Fiedler Executive Vice President and President, Construction Division, Komatsu Germany GmbH President, Komatsu Shantui Construction Machinery Co., Ltd. Ingo Büscher Dechun Tian President & MD, Komatsu Italia Manufacturing S.p.A. David Bazzi 66 66 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 67 67 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate ProfileCorporate Profile 11-Year Summary Net sales Operating income FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 1,843,127 1,981,763 1,884,991 1,953,657 1,978,676 1,854,964 1,802,989 2,501,107 2,725,243 2,444,870 2,189,512 222,929 256,343 211,602 240,495 242,062 208,577 174,097 268,503 397,806 250,707 167,328 Operating income ratio (%) 12.1 12.9 11.2 12.3 12.2 11.2 9.7 10.7 14.6 10.3 Income from continuing operations before income  taxes and equity in earnings of affiliated companies Net income attributable to Komatsu Ltd. Capital investment Depreciation and amortization*1 Research and development expenses 219,809 249,609 204,603 242,056 236,074 204,881 166,469 291,807 377,471 223,114 150,752 97,738 88,442 49,005 167,041 122,038 89,015 54,843 126,321 136,962 88,005 60,788 159,518 179,070 85,837 64,479 154,009 192,724 100,666 70,715 137,426 160,051 111,174 70,736 113,381 142,006 103,219 70,507 196,410 145,668 132,442 73,625 256,491 179,210 129,860 73,447 153,844 166,552 129,525 74,761 Total assets Shareholders’ equity Shareholders’ equity ratio (%) Net interest-bearing debt*2 Net debt-equity ratio (times) 2,149,137 2,320,529 2,517,857 2,651,556 2,798,407 2,614,654 2,656,482 3,372,538 3,638,219 3,653,686 3,784,841 923,843 1,009,696 1,193,194 1,376,391 1,528,966 1,517,414 1,576,674 1,664,540 1,815,582 1,771,606 1,912,297 43.0 43.5 47.4 51.9 54.6 58.0 59.4 49.4 49.9 48.5 459,110 563,814 585,926 513,918 481,817 349,081 286,512 663,740 779,890 762,705 0.50 0.56 0.49 0.37 0.32 0.23 0.18 0.40 0.43 0.43 Net cash provided by operating activities 150,402 105,608 214,045 319,424 343,654 319,634 256,126 148,394 202,548 295,181 Net cash used in investing activities (88,509) (124,539) (131,397) (167,439) (181,793) (148,642) (133,299) (377,745) (187,204) (190,930) Net cash provided by (used in) financing activities Cash and cash equivalents, end of year (56,365) 84,224 18,781 83,079 (71,814) (155,349) (143,983) (173,079) (107,718) 243,949 (3,660) (3,457) 93,620 90,872 105,905 106,259 119,901 144,397 148,479 247,616 Number of common shares issued (thousands of shares) 998,744 983,130 983,130 983,130 971,967 971,967 971,967 971,967 972,252 972,581 Net income attributable to Komatsu Ltd. per share (yen) 155.77 173.47 132.64 167.36 162.07 145.80 120.26 208.25 271.81 162.93 Cash dividends per share (yen) Consolidated payout ratio (%) ROA (%) ROE (%) Exchange rate for the U.S. dollar (yen)*3 Exchange rate for the euro (yen)*3 Exchange rate for the Chinese renminbi (yen)*3 Number of employees (persons) Overseas employee ratio (%) CO2 emissions (thousand t)*4 Waste generated (thousand t)*4 Volume of water used (thousand m3)*4 38.0 24.4 10.7 17.2 85 113 12.7 42.0 24.2 11.2 17.3 79 110 12.4 48.0 36.2 8.5 11.5 83 107 13.2 58.0 34.7 9.4 12.4 100 133 16.3 41,059 44,206 46,730 47,208 47,417 47,017 47,204 59,632 61,908 62,823 61,564 55.5 547 111.1 7,400 57.5 583 119.5 6,784 64.3 468 112.1 5,737 61.8 458 101.4 5,114 58.0 35.8 8.7 10.6 110 140 17.7 61.0 412 83.2 58.0 39.8 7.6 9.0 121 132 19.0 60.7 342 62.4 58.0 48.2 6.3 7.3 109 119 16.2 62.7 384 83.5 4,270 3,632 3,362 84.0 40.3 9.7 12.1 111 130 16.8 66.7 459 113.1 4,029 110.0 40.5 10.8 14.7 111 129 16.5 68.4 519 117.8 3,954 94.0 57.7 6.1 8.6 109 121 15.6 68.4 404 95.6 3,564 *1 Depreciation is the total of depreciation on property, plant and equipment and on intangible assets. *2 Net interest-bearing debt = Interest-bearing debt – Cash and equivalents – Time deposits *3 Average exchange rates for the fiscal year *4 Certain data has been revised and restated 68 68 Komatsu Report 2021 Komatsu Report 2021 Millions of yen 7.6 162,775 106,237 163,174 130,432 73,840 50.5 666,856 0.35 354,129 (163,057) (199,667) 241,803 972,887 112.43 55.0 48.9 4.4 5.8 106 123 15.6 67.5 382 74.2 3,231 Komatsu Report 2021 Komatsu Report 2021 69 69 Net sales Operating income Income from continuing operations before income  taxes and equity in earnings of affiliated companies Net income attributable to Komatsu Ltd. Capital investment Depreciation and amortization*1 Research and development expenses Total assets Shareholders’ equity Shareholders’ equity ratio (%) Net interest-bearing debt*2 Net debt-equity ratio (times) FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 1,843,127 1,981,763 1,884,991 1,953,657 1,978,676 1,854,964 1,802,989 2,501,107 2,725,243 2,444,870 2,189,512 222,929 256,343 211,602 240,495 242,062 208,577 174,097 268,503 397,806 250,707 167,328 Millions of yen Operating income ratio (%) 12.1 12.9 11.2 12.3 12.2 11.2 9.7 10.7 14.6 10.3 219,809 249,609 204,603 242,056 236,074 204,881 166,469 291,807 377,471 223,114 150,752 97,738 88,442 49,005 167,041 122,038 89,015 54,843 126,321 136,962 88,005 60,788 159,518 179,070 85,837 64,479 154,009 192,724 100,666 70,715 137,426 160,051 111,174 70,736 113,381 142,006 103,219 70,507 196,410 145,668 132,442 73,625 256,491 179,210 129,860 73,447 153,844 166,552 129,525 74,761 7.6 162,775 106,237 163,174 130,432 73,840 2,149,137 2,320,529 2,517,857 2,651,556 2,798,407 2,614,654 2,656,482 3,372,538 3,638,219 3,653,686 3,784,841 923,843 1,009,696 1,193,194 1,376,391 1,528,966 1,517,414 1,576,674 1,664,540 1,815,582 1,771,606 1,912,297 43.0 43.5 47.4 51.9 54.6 58.0 59.4 49.4 49.9 48.5 459,110 563,814 585,926 513,918 481,817 349,081 286,512 663,740 779,890 762,705 0.50 0.56 0.49 0.37 0.32 0.23 0.18 0.40 0.43 0.43 Net cash provided by operating activities 150,402 105,608 214,045 319,424 343,654 319,634 256,126 148,394 202,548 295,181 Net cash used in investing activities (88,509) (124,539) (131,397) (167,439) (181,793) (148,642) (133,299) (377,745) (187,204) (190,930) Net cash provided by (used in) financing activities (71,814) (155,349) (143,983) (173,079) (107,718) 243,949 (3,660) (3,457) Cash and cash equivalents, end of year 93,620 90,872 105,905 106,259 119,901 144,397 148,479 247,616 (56,365) 84,224 18,781 83,079 Number of common shares issued (thousands of shares) 998,744 983,130 983,130 983,130 971,967 971,967 971,967 971,967 972,252 972,581 Net income attributable to Komatsu Ltd. per share (yen) 155.77 173.47 132.64 167.36 162.07 145.80 120.26 208.25 271.81 162.93 58.0 35.8 8.7 10.6 110 140 17.7 58.0 39.8 7.6 9.0 121 132 19.0 58.0 48.2 6.3 7.3 109 119 16.2 84.0 40.3 9.7 12.1 111 130 16.8 110.0 40.5 10.8 14.7 111 129 16.5 94.0 57.7 6.1 8.6 109 121 15.6 50.5 666,856 0.35 354,129 (163,057) (199,667) 241,803 972,887 112.43 55.0 48.9 4.4 5.8 106 123 15.6 41,059 44,206 46,730 47,208 47,417 47,017 47,204 59,632 61,908 62,823 61,564 61.0 412 83.2 60.7 342 62.4 62.7 384 83.5 4,270 3,632 3,362 66.7 459 113.1 4,029 68.4 519 117.8 3,954 68.4 404 95.6 3,564 67.5 382 74.2 3,231 Komatsu Report 2021 Komatsu Report 2021 69 69 Cash dividends per share (yen) Consolidated payout ratio (%) ROA (%) ROE (%) Exchange rate for the U.S. dollar (yen)*3 Exchange rate for the euro (yen)*3 Exchange rate for the Chinese renminbi (yen)*3 Number of employees (persons) Overseas employee ratio (%) CO2 emissions (thousand t)*4 Waste generated (thousand t)*4 Volume of water used (thousand m3)*4 38.0 24.4 10.7 17.2 85 113 12.7 55.5 547 111.1 7,400 42.0 24.2 11.2 17.3 79 110 12.4 57.5 583 119.5 6,784 48.0 36.2 8.5 11.5 83 107 13.2 64.3 468 112.1 5,737 58.0 34.7 9.4 12.4 100 133 16.3 61.8 458 101.4 5,114 *1 Depreciation is the total of depreciation on property, plant and equipment and on intangible assets. *2 Net interest-bearing debt = Interest-bearing debt – Cash and equivalents – Time deposits *3 Average exchange rates for the fiscal year *4 Certain data has been revised and restated 68 68 Komatsu Report 2021 Komatsu Report 2021 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile Corporate Profile Non-Financial Highlights Reduction of CO2 Emissions from Product Operation In the mid-term management plan (FY2019–FY2021), Komatsu has set the target of reducing CO2 emissions from the opera- tion of products (construction, mining, and forest equipment) by 50% by 2030 (compared to 2010).  To evaluate progress toward this goal, we compared the performance of the current year’s products to the products of the reference year (2010) and estimated CO2 reduction rates through the improvement of fuel consumption and work effi- ciency. The products of 2020 achieved a CO2 reduction of 14%, compared to the reference year. CO2 Emissions Index for Product Operation 100 100 88 86 86 80 60 40 20 0 Target 50 2010 2018 2019 2020 2030 Changes in Reman Sales (Base FY2004 = 100) (Frequency Rate of Lost Work Time) Incidence Rate of Occupational Accidents (%) 500 400 300 200 100 0 451 402 414 355 349 304 313 270 250 239 200 160 168 156 137 112 100 (Frequency rate) 2.0 1.5 1.0 0.5 0.0 1.63 1.66 0.73 0.72 0.45 0.31 0.75 0.76 0.47 0.38 1.83 1.44 0.56 0.44 0.20 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (FY) 2016 2017 2018 1.80 0.88 0.65 0.28 0.16 2019 1.95 1.29 0.73 0.37 0.31 2020 (FY) All industries (Japan)  Construction and mining equipment manufacturing industry (Japan) Komatsu Group (Japan and Global)  Komatsu Group (Japan)  Komatsu (Non-consolidated) Notes: 1. The data for all industries (Japan) and construction and mining equipment manufacturing industry (Japan) is provided by the Ministry of Health, Labour and Welfare. 2. The scope of Komatsu Group (Japan) includes Komatsu Ltd. and Group compa- nies in Japan. 3. The scope of Komatsu Group (global) includes “Komatsu Group (Japan)” and overseas production plants. 4. Certain data has been revised and restated. Numbers and Ratios of Female Employees and Female Managers (People) 1,600 1,200 800 400 0 1,463 1,482 1,486 12.3 11.4 9.1 12.3 11.4 9.5 12.4 10.6 9.4 302 172 315 178 324 179 (%) 16 12 8 4 0 (FY) Number of Global Officers (People) 26 18 29 27 19 19 32 24 16 8 0 2019 2020 2021 (FY) 2019 2020 2021 ■ Total ■ National top managers out of total executive officers Data is as of April 1 of each fiscal year. 70 70 Komatsu Report 2021 Komatsu Report 2021 ■ Number of female employees ■ Number of women junior managers ■ Number of women in management and executive positions (*including junior managers) Ratio of female employees (right scale)  Ratio of women junior managers Ratio of women in management and executive positions (right scale) (*including junior managers) Note: Data is as of April 1, 2021, and for Komatsu Ltd. (Japan) on a non-consolidated basis. Komatsu Report 2021 Komatsu Report 2021 71 71     Corporate Profile External Evaluations and Index Inclusion For more information on the above indexes, please refer to Komatsu’s corporate website: Web https://komatsu.disclosure.site/en/themes/133 CDP Climate A-List CDP Water A-List Dow Jones Sustainability Indices (DJSI) MSCI Global Sustainability Indexes*1 ISS-Oekom Euronext Vigeo World 120 FTSE Blossom Japan Index*2 MSCI Japan ESG Select Leaders Index*1 MSCI Japan Empowering Women Index*1 S&P/JPX Carbon Efficient Index Digital Transformation Stock Selection SBT Grand Prix of the Corporate Value Improvement Award, Tokyo Stock Exchange *1 The inclusion of Komatsu ltd in any MSCI index, and the use of MSCI logos, trademarks, service marks or index names HEREIN, do not constitute a sponsorship, endorsement or promotion of Komatsu ltd by MSCI or any of its affiliates. The MSCI indexes are the exclusive property of MSCI. MSCI and the MSCI index names and logos are trademarks or service marks of MSCI or its affiliates. *2 FTSE Russell confirms that Komatsu has been independently assessed according to the index criteria, and has satisfied the requirements to become a constituent of the FTSE Blossom Japan Index. Created by the global index and data provider FTSE Russell, the FTSE Blossom Japan Index is designed to measure the performance of companies demonstrating strong Environmental, Social and Governance (ESG) practices. The FTSE Blossom Japan Index is used by a wide variety of market participants to create and assess responsible investment funds and other products. 70 70 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 71 71 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate ProfileCorporate Profile Corporate Information (As of March 31, 2021) Name Komatsu Ltd. Head Office Number of Employees Consolidated: 61,564 Non-consolidated: 11,795 Transfer Agent for Common Stock/Management Institution for Special Account 2-3-6 Akasaka, Minato-ku, Tokyo 107-8414 Average age (non-consolidated): 39.8 Mitsubishi UFJ Trust and Banking Average years of continuous service Corporation Date of Establishment (non-consolidated): 15.3 4-5, Marunouchi 1-chome, Chiyoda-ku, May 13, 1921 Common Stock Outstanding Consolidated: ¥69,037 million based on U.S. GAAP Shares of Common Stock Issued and Outstanding 972,887,610 shares (including shares of treasury stock) Number of Shareholders 184,661 Number of Shares per Trading Unit Tokyo 100-8212, Japan Depositaries (ADRs) The Bank of New York Mellon 101 Barclay Street, New York, NY 10286, U.S.A. Tel: +1-(201)-680-6825 for international calls and 888-269-2377 (888-BNY-ADRS) for calls within U.S.A. URL: https://www.adrbnymellon.com/ Ticker Symbol: KMTUY 100 Securities Code 6301 (Japan) Stock Listings Tokyo Major Shareholders Number of shares held (Thousands of shares) Shareholding ratio (%) The Master Trust Bank of Japan, Ltd. (Trust Account) Custody Bank of Japan, Ltd. (Trust Account) SSBTC CLIENT OMNIBUS ACCOUNT (standing proxy: The Hongkong and Shanghai Banking Corporation Limited, Tokyo branch) JP MORGAN CHASE BANK 385632 (standing proxy: Mizuho Bank, Ltd., Settlement & Clearing Services Division) Taiyo Life Insurance Company Nippon Life Insurance Company (standing proxy: The Master Trust Bank of Japan, Ltd.) THE BANK OF NEW YORK MELLON AS DEPOSITARY BANK FOR DEPOSITARY RECEIPT HOLDERS (standing proxy: Sumitomo Mitsui Banking Corporation) Custody Bank of Japan, Ltd. (Trust Account 7) Custody Bank of Japan, Ltd. (Trust Account 5) STATE STREET BANK WEST CLIENT - TREATY 505234 (standing proxy: Mizuho Bank, Ltd., Settlement & Clearing Services Division) Notes: 1. Shareholding ratio is calculated by subtracting treasury stock. 2. Although the Company holds 27,319 thousand shares of treasury stock, it is excluded from the major shareholders listed above. 86,574 56,175 30,574 27,433 27,200 26,626 25,644 19,748 13,890 13,542 Stock Information (including shares of treasury stock) 9.15 5.94 3.23 2.90 2.87 2.81 2.71 2.08 1.46 1.43 Breakdown of Shareholders (%) ● Financial ................................ 35.0% ● Foreign ................................... 42.5% ● Individual and other ........ 17.3% ● Corporate ................................ 1.9% ● Securities ................................ 3.1% 340,609,230 shares 176 shareholders 414,201,239 shares 1,074 shareholders 168,315,982 shares 181,862 shareholders 19,375,538 shares 1,404 shareholders 30,385,621 shares 145 shareholders 72 72 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 73 73 About Komatsu Report We have published our integrated report, Komatsu Report, for our stakeholders to introduce the group's efforts to realize sustainable growth in corporate value. The Komatsu Report mainly focuses on the value creation business model of working for sustainable growth by turning a positive cycle of improving earnings (financial indexes) and solving ESG issues (non-financial indexes) as it implements growth strategies in the mid-term management plan. Separate reports are prepared and disclosed to provide detailed financial informa- tion and information on environmental and social initiatives. Structure of Komatsu’s Annual Reports Komatsu Report (Integrated Report) Annual Securities Report (Financial conditions) ESG Databook (Social activities and Environmental performance) * Komatsu Report, Annual Securities Report and ESG Databook, in both Japanese and English, are uploaded on Komatsu’s website. * Komatsu Ltd. issues the Komatsu Report only on the website. Please refer to “Annual Securities Report” for more Please refer to “ESG Databook” for more information company and financial information. concerning environmental and social efforts. • Overview of the Company and Its Consolidated • Stance on CSR Efforts Subsidiaries • Business Overview • Property, Plant and Equipment • Information on the Company • Financial Information • Theme 1: Enhancing Quality of Life (Safety, environmental indexes, etc.) • Theme 2: Developing People (Diversity, etc.) • Theme 3: Growing with Society (Compliance, risk management, governance, etc.) Web https://www.komatsu.jp/en/ir/library/ annual-security-report Web https://www.komatsu.jp/en/aboutus/csr Komatsu has signed the United Nations Global Compact (UNGC). Click this link for more information about the Ten Principles advo- cated by the UNGC and how they pertain to Komatsu’s initiatives. https://komatsu.disclosure.site/en/themes/129 Komatsu has joined the World Business Council for Sustainable Development (WBCSD). 72 72 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 Komatsu Report 2021 73 73 A Century of Creating the Workplaces of the FutureTop Management’s Views on Komatsu’s Management Issues and Strategies for the Next CenturyEvolution of Business Model for Creating the Workplaces of the FutureResolution of ESG Issues through Growth StrategiesCorporate Profile2-3-6, Akasaka, Minato-ku, Tokyo 107-8414, Japan https://www.komatsu.jp/en Corporate Communications Department Sustainability Promotion Division e-mail: JP00MB_info@global.komatsu 

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