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To All Our Stakeholders 

To All Our Stakeholders

Please be advised that effective April 1, Kunio Noji, President and CEO resigned to become Chairman of the Board and Tetsuji Ohashi became President and CEO.

Performance



For the fiscal year under review (April 1, 2012 – March 31, 2013), consolidated sales of construction, mining and utility equipment declined from the previous fiscal year, reflecting a drastic decline in demand for construction equipment in China and a sharp drop in demand for mining equipment mainly in Indonesia, as adversely affected by the falling price of coal. In the industrial machinery and others business, while sales of large presses to the automobile manufacturing industry, as well as machine tools for use in automotive engine production, increased from the previous fiscal year, those of wire saws for use in slicing silicon ingots for the solar cell market sharply fell. As a result, consolidated sales in this business segment declined from the previous fiscal year.

For the fiscal year under review, consolidated net sales decreased by 4.9% from the previous fiscal year to, JPY1,884.9 billion (USD20,053 million at JPY94/USD). With respect to profits, we focused continuous efforts to increase selling prices and reduce production costs. Affected by a big drop in sales volume from the previous fiscal year, profits declined in both businesses of construction, mining and utility equipment as well as industrial machinery and others. Operating income declined by 17.5% to JPY211.6 billion (USD2,251 million). Operating income ratio decreased by 1.7 percentage points to 11.2%, and income before income taxes and equity in earnings of affiliated companies declined by 18.0% to JPY204.6 billion (USD2,177 million). Net income attributable to Komatsu Ltd. amounted to JPY126.3 billion (USD1,344 million), a decline of 24.4% from the previous fiscal year.

Issues Ahead

The Komatsu Group worked to improve the added values of its products, further strengthen its operation in growth markets and enhance its continuous group-wide Kaizen (continuous improvement) capability in particular under the "Global Teamwork for Tomorrow" mid-range management plan for a three-year period from April 1, 2010 to March 31, 2013. In this period, Komatsu Group's business environment changed dramatically, as represented by a sharp hike of the Japanese yen against other major currencies, the Great East Japan Earthquake, and dramatic changes in demand for wire saws as well as construction and mining equipment in China and Indonesia. Under such an environment, the Komatsu Group worked to maintain high profitability regardless of market conditions by improving selling prices and production costs and strengthening its corporate fundamentals to flexibly meet dynamic changes in foreign exchange rates and market demand.

Demand for construction and mining equipment plunged drastically under economic slowdowns worldwide as triggered by the financial crisis in the United States in September 2008, and then recovered rapidly, driven by Chinese and Indonesian demand. Today, we need to expect that demand will remain at a standstill for the time being, mainly against the backdrop of demand in these two countries entering an adjustment phase. However, we project that demand will steadily increase in the mid to long-range perspective, supported by global population growth and increasing rates of urbanization worldwide. To continue to focus on its core businesses of construction and mining equipment, as well as industrial machinery, invest in growth, and strengthen its corporate fundamentals, the Komatsu Group started the "Together We Innovate GEMBA Worldwide" three-year mid-range management plan in April this year.

Under the current mid-range management plan, we are going to work on the focused activities based on the two paired wheels of the Growth Strategies designed to capitalize on our strengths and the Structural Reforms designed to strengthen our corporate fundamentals. At the same time, we are also making all-out efforts to improve the level of profit redistribution to our shareholders.

To effectively tackle the high hurdles of focused activities, it is indispensable that the teamwork of Komatsu Group’s employees with GEMBA (workplace) capabilities engage in continuous improvement activities by identifying workplace tasks and solving them. All Komatsu Group employees worldwide will continue to promote continuous improvement activities based on The KOMATSU Way. In particular, we will further strengthen brand management activities through which we strive to thoroughly understand customers' workplaces and become indispensable to them. In this way, we will develop human resources that are needed for business expansion on a global scale.

Based on the belief that "its corporate value is the total sum of trust given to Komatsu by society and all its stakeholders," the Komatsu Group is further strengthening its corporate governance to ensure sound and transparent management, while improving management efficiency. Being committed to promoting thorough compliance, the Komatsu Group will also ensure all employees share The KOMATSU Way. In addition to improving its business performance, the Komatsu Group will facilitate both the development of corporate strength and the achievement of social responsibility in a well-balanced manner.

On behalf of the members of the Board, we would like to extend our sincere appreciation to our valued shareholders, customers and business partners around the world for their support.

July 2013