We promoted the “Together We Innovate GEMBA Worldwide” mid-range management plan for three years from April, 2013 to March, 2016.
During this period, demand for construction and mining equipment continued to decline drastically from our projection, as impacted by slowing economies of emerging countries ,as well as sluggish commodity prices. In particular, demand for mining equipment nose-dived to about 30% of the FY2012 level.
Against this backdrop, we accelerated the speed of implementing structural reforms, such as cutting down production costs and curbing fixed costs, as we diligently carried out seeding for future growth, one of the core strategies of the mid-range management plan.
When we assess our business environment today, we must first think about demand for construction and mining equipment as well as industrial machinery. We project that demand for construction and mining equipment, in particular, from which we generate 90% of total sales, will remain very challenging in FY2016 and beyond, for some time. “Against this backdrop, how are we going to ensure growth?” This is the first task we must address.
We believe the key to our growth, after all, lies in solutions to the problems of GEMBA (workplaces).
Tasks that customers face in their GEMBA differ depending on countries, regions or industries. However, we believe the following represents the major tasks of our customers, i.e., 1) to meet the shortage of skilled workers, 2) use of IoT (Internet of Things), 3) to improve the safety, productivity and environmental performance of their jobsite operations, and 4) to reduce the total cost of ownership of their machines.
Today we are also witnessing growing social expectations in relation to ESG (Environmental, Social and Governance) from companies.
We need to keep our full attention on these management tasks as we continue to conduct our business into the future.
We project that demand for construction and mining equipment will remain in an adjustment phase for the time being, centering on emerging countries. In the long range, however, global population will grow and the urbanization rate will increase, especially in emerging countries, which will fuel more civil engineering and construction works and increase the required volume of minerals. Therefore, we believe we can expect a sustainable growth of demand for construction and mining equipment.
In the industrial machinery business, we anticipate that capital investment will increase in the automobile and semiconductor industries. Accordingly, demand should remain steady for a few years, albeit with some ups and downs.
Based on these assumptions, we embarked on the new “Together We Innovate GEMBA Worldwide: Growth Toward Our 100th Anniversary (2021) and Beyond” mid-range management plan in April 2016. As we look into our 100th anniversary in 2021, we are working to maintain our sustainable growth beyond 2021 at a rate above the industry's average.
Targets of the new mid-range management plan are described in the chart on the right.
In addition to profitability, efficiency, profit redistribution to shareholders and financial position, we have included a new key performance indicator.
We have also separated the retail finance business as a new operating segment in order to enhance management transparency in the new plan.
Please see the linked sheet for our projection of consolidated business results for FY2016, the first year of the new plan.
In the last three years, we reduced our debt of all operations, except for the retail finance business, as planned. Concerning the future use of funds, we will further consider the redistribution of profits to shareholders, including stock buybacks, while keeping investment for growth at the center. Specifically, we have set the policy of a consolidated payout ratio of 40% or higher with no decrease of dividends, as long as the consolidated payout ratio does not surpass 60%.
For FY2016, we are planning annual dividends of JPY58 per share, the same amount as FY2015. As a result, the consolidated payout ratio should amount to 59.4%.
We defined three core strategies of “growth based on innovation”, “growth of existing businesses” and “Structural reforms designed to reinforce our business foundation” and promoted corresponding efforts in the previous mid-range management plan. In the new mid-range management plan, we continue to focus on three core strategies of the previous plan. We will strive to accelerate growth by working to sow the seeds for future growth and taking further advantage of our group-wide strength of IoT, even while demand for construction and mining equipment remain sluggish.
Through our IoT, we will connect all GEMBA (workplaces), consisting of our customers, distributors and production, including suppliers, in order to improve the safety and productivity of all GEMBA, thereby working to become ever more indispensable to our customers.
Over the years, the Komatsu Group has made proactive ESG efforts, namely environmental, social and corporate governance. We believe the importance of ESG efforts will steadily become stronger into the future. In our new mid-range management plan, we will maintain focused efforts as we place emphasis on the environment, on society and on corporate governance.
The reduction of CO2 emissions is our important task for environmental conservation. Construction equipment in operation accounts for about 90% of the total amount of CO2 emissions produced throughout its lifecycle (chart on the right). We will help our customers reduce CO2 emissions from their machines by considering environmental performance and applying ICT to improve fuel consumption, when we develop new products.
We at the Komatsu Group have set our basic principle to make CSR efforts through core businesses. Based on this principle, we would like to engage in social contribution activities that make the best use of our strengths to fulfill our responsibilities to society.
As part of our CSR efforts, under the leadership of different Komatsu Group companies around the world, we engage in support activities to solve local problems.
For example, in Japan we provide support to Japan's agriculture business, which is facing serious problems of aging and no newcomers, by capitalizing on our manufacturing expertise.
We will continue to pay close attention to the needs of local communities around the world in order to deeply anchor the social contribution activities of Komatsu Group companies.
Komatsu maintains the basic management policy of commitment to Quality and Reliability to maximize its corporate value. Komatsu believes that its corporate value is the total sum of trust given to it by society and all its stakeholders.
To increase the total sum of trust, Komatsu needs to not only improve business results but also enhance the soundness and transparency of management.
We, at Komatsu, believe our corporate value is the total sum of trust given to us by society and all stakeholders. To become a company which enjoys even more trust from shareholders and all other stakeholders, we are working to strengthen corporate governance, improve management efficiency, advocate corporate ethics and ensure sound management on a group-wide basis.
In April 2016, we appointed top management officers of Komatsu Group's overseas subsidiaries to the posts of Global Officers in order to strengthen globally consolidated management. To further improve the transparency of management for our shareholders and investors, we disclose information in a fair and timely manner and actively engage in investor relations' activities by holding meetings with shareholders and investors.
As the importance of corporate social responsibility is growing today, it is indispensable for all companies to respond to social trust by ensuring that each and every employee not only fully understands corporate responsibility but also complies with the Rule of the Business Community, not limited to laws and regulations in a narrow sense.
In addition, the Komatsu Group is strongly conscious of its slogan of SLQDC, i.e., Safety and Law take priority over Quality, Delivery and Cost, as it works to ensure compliance.
We define all states of uncertainty, which can threaten the sustainable growth of the Komatsu Group. We recognize the problems related to compliance as major risks, in particular, the environment, product quality, accidents, information security and other matters, and we are thus implementing corresponding countermeasures.